Western European Brewing Industry Essay
The European beer market has matured over time, and one would expect the brewers here to be making comfortable profits. However, various global and local factors continue having negative impacts on the market, and on brewers themselves. Big players in the industry have had to adopt new strategies to keep afloat. This paper presents a PESTEL analysis of the Western European beer market, and also includes a Porter’s five point analysis of the business forces affecting it. It also looks at the effect these emerging trends in Western Europe’s beer industry have had on three selected beer manufacturers.
European brewers have in the recent past had to contend with falling margins in their sales in the Western Europe market for a variety of reasons. This trend has been has been witnessed even in their traditionally large markets such as Germany, while sales have been on the increase in emerging world markets such as China. Government activities have been a large contributor to this trend (Cohen, 2008). In the UK, Netherlands and other Western European countries, there has been a widespread and extensive government campaign to turn people off excessive consumption of alcohol, or what they referred to as “binge drinking”. This is in response to the increasing number of fatal accidents resulting from drunk driving.
Governments in countries like the UK and Netherlands have also been concerned with the rising cases of antisocial behavior for example public drunken brawls, and the rise in alcohol abuse among teenagers and young adults (Brat, 2011). In response, there have been considerations to enact legislations to contain this problem, and to raise the minimum drinking age from 16 to 18years. Sale of beer in pubs and bars has suffered as a result, and consumers now prefer buying from retail outlets such as supermarkets, and drink at home (David, 2005). The reduction in consumption of beer has also been as a result of increased health consciousness among Europeans and other consumers. Consumers’ drinking habits have been influenced by reports linking various health conditions with beer consumption, and many have either become teetotalers, or prefer drinking wine instead.
The sluggish economic growth in most European countries has also been a cause of the decline in demand for beer, as consumers concentrate more on meeting their basic needs and reduce on non-essentials. Studies have shown that beer consumption is viewed as trendy among youngsters, who constitute the largest beer drinking group in Europe. However, high unemployment rates facing this group have led to a decreasing demand for alcohol (Kia,2006).
Beer in the Western Europe market faces high competition from substitute drinks such as soft drinks, energy drinks and non alcoholic beers or fruit flavored beers. Health concerns related to consumption of beer has led consumers who still want to retain a trendy look when they go to pubs, to prefer ordering non-alcoholic beer. They reject sodas for their high sugar content, but still want to prevent health risks associated with beer. The threat of substitutes is however, not a very big issue for Europe’s beer manufacturers, as they adopted the production of non-alcoholic beers that are fast becoming a favorite among drinkers in many parts of Europe.
Rivalry among beer manufacturers is probably one of the main causes of shrinking profit margins, as they wage costly media campaigns to protect their market shares and hopefully acquire more. Supplier power is also strong in the industry, reflected by the ever increasing prices of barley, which beer manufacturers have little influence or control over (Mercer, 2011).They face a dilemma on the most viable option, whether to increase prices of beer in the face of a shrinking market, while at the same time trying to cut costs and venture into new and more profitable markets (Opus, 2005). Even as they try to cut costs, beer manufacturers have to facilitate expensive ventures in their expansion bids in markets such as China, which are highly unprofitable due to a high concentration in the beer industry there. The rationale of venturing into a highly crowded and less profitable market is to benefit from consolidation in the future, since beer consumption is set to keep rising.
New entrants into the industry do not constitute much of a threat to the already existing players who have entrenched their influence and power in the sector. The trend has been consolidation and the big players have shifted their focus to acquiring new firms or smaller, already existing ones and consolidating their hold in the market. This is what they hope to achieve in China and other emerging markets, by buying off local manufacturers. Consolidation has been accompanied by the promotion of premium brands, and this often involves killing the smaller, insignificant ones that do not do so well.
Many of the factors considered in the PESTEL model of analysis affect the decisions taken by managers of companies, as a response to whatever is happening in the market. However, in this case, not all of them have far reaching effects on the beer market. Beer manufacturers in the West European market are mainly affected by political factors such as government policy to discourage excessive alcohol consumption, economic factors such as unemployment and economic growth rates, technological advancements and the society’s health consciousness. Competition in the industry is mainly driven by rivalry among the firms for market share and the threat from substitutes.
The emerging trends in the brewing industry in Western Europe will undoubtedly have different impacts on the various brewing companies in the industry. A-B InBev (Belgium) for example is set to gain from the promotion of its premium brands that are brand leaders across the globe. It is also likely to leap huge profits from increased sales of soft drinks by venturing into the soft drinks market, since consumers are increasingly shunning alcoholic drinks. The company may however suffer from the loss of a part of market share, which it is losing by selling off some of its subsidiaries, and its strategy’s weaknesses also lie in the failure to recognize the high potential of non alcoholic beers and venturing into that branch of production.
The consumers’ move from consuming beer in pubs and restaurants to buying it from retail outlets such as supermarkets may have a negative impact on Greene Kings sales, as they operate a huge chain of pubs across Europe. Its concentration on super brands will post positive sales reports, as these brands do not seem to suffer much when sales go down, probably as a result of brand royalty from consumers. Though the company’s consolidation strategy to consolidate its market share by acquisitions and mergers may pay off in the long run, its image could suffer if it is seen as very greedy, and such negativity from the public may make its brands suffer in the market.
The Tsingtao brewery in China has its strength in its exportation strategy. There are benefits to this, reason being that profit margins from beer sold in China are small due to over population in the industry.