Full Question:
1) Conduct a 5 forces analysis of the brewery industry and explain why it’s a good or bad industry
2) Why has the beer industry been historically profitable? How are profits allocated among the “mega breweries?
3) How do you control supplier costs?
Answers:
1 Five Forces Analysis:
- Rivalry: Other Craft Breweries and “Better Beer” suppliers that may be able to create economies of scale and have better marketing efforts.
- Threat of Entry: Growing industry, home breweries are becoming more popular, this is usually the beginning of a larger brewery. Demand for the uniqueness provides the need for supplies from other breweries. Barriers to entry consist of government laws and regulations, supply availability, and customer loyalty.
- Bargaining Power of Suppliers: Limited supply, especially with specialized hops for the craft beers, prices can be increased.
- Bargaining Power of Buyers: Buyers may have price sensitivity. Many craft breweries are subject to limited distribution channels, making it harder to create a following as they’re not available in chain stores.
- Substitutes: Non-craft beer, wine, malt beverages. For people who don’t want to pay the“better beer” price, and people who don’t like the taste of largely produced beer.
2. The U.S. Beer market is one of the most complex industries. It has two product-segments: Lager and Ale, with lager being the overwhelmingly dominant segment. Historically, the industry has been profitable with more Profits being allocated among the mega breweries.
3. Controlling Supplier Costs:
Given the bargaining power of suppliers, the only to control them given their limited availability is through moral suasion or via legislative means limiting their powers.
Another way would be to get government to subsidise their cost of operations.
4. The effect of the general environment (such as demographic, socio-cultural etc) on the brewery industry:
Economic factors affect the industry in determining price point and demand; Craft beer is more popular in already developed countries as those consumers can afford the higher price. Cultural factors are also a component; some cultures drink more beer as cultural experiences/ normality’s, while others are just beginning to develop a taste for the beverage. The climate in different places can also impact the type of beer consumed, warm weather lending to light beer, and tastes changing with every season, opening markets to a wider range of brews. Lastly, the industry is subject to political factors such as laws and regulations about the quantity, distribution, and packaging of craft beers.
5. The importance of the craft brewery alliance is :
Craft breweries are having larger growth rates, mega breweries are growing in developing countries. Mega breweries still have the largest profits, but crafts are within the top 10 for production volume. Craft breweries has high revenue due to higher price points.
Cheers!
