CHAPTER 4: MARKET AND COMPETITION ANALYSIS
4. Market and competition
Shareholders, employees with their families and collaborators with their families benefit from the beer business. According to the industry estimates this branch and cooperating industries employs almost 200 000 workers in Europe, and 600 000 is the number of employees who would like work for the brewing industry in the future. Polish brewery market employs about 15 000 people, and sectors that cooperate with it have higher employment rate ( 56,2 thousand employees ). People are hired in HORECA and trade and almost 186,000 of them make a living by working for the breweries. This makes 740,000 families altogether that owe their financial stability to this industry.
After the fall of the communism in 1989 polish brewery market has been dominated by the multiple foreign investors. They knew that this market has a potential, and needs money, technology, and experience in order to be successful. At the beginning of the 90s consumption of the beer was not exceeding 30 litres per person per year. It was of a poor quality and the beer consumption culture did not equal the western reality. This investment needed big money, and therefore investors decided to start the brewery business on the polish market from the scratch. For example SABMiller has spent almost 2 billions zloty ( PLN ) on the development of its four brands, and thus one of them, Tychy, became the largest in Europe.
Brewpole, an Australian company, was the first leading investor on the market. It created new production lines and introduced a new brand: EB. Then it gained almost 16% of the market shares. However, later on it had to merge with the Zywiec Group ( because of some of its advertisement failures ). Finally, production scale and good marketing were the most important issues that must have been considered. Big players were taking over smaller ones, and others were just closed down because were not profitable.
Foreign investors have helped the polish brewery market by putting into it $ 1 billion – and now it is the most modern in Europe. Almost 80% of the beer production is under their control. Therefore technology development in the brewery industry has been influenced by them, and this has led to increase of the beer production between 1990-1997.
Today polish brewery industry belongs mainly to the global corporations. They knew Poles are patriots, and therefore decided to take advantage of this attitude. Tyskie, Okocim, Lech, Zywiec, Warka, Lomza and Strzelec sound polish, and thus are the most popular on this market in Poland. This shows that the foreign investors respect polish tradition and decided to combine it with their corporate global culture.
Beer is one of the most popular global products. According to the data men are a vast majority when it comes to the beer consumption ( 65%). In case of women, 45% of them does drink beer. 76% of the beer drink consumers are in the age below 47, and what’s interesting, 35% of people between 18-29 declare to be the loyal beer purchasers and its consumers. When it comes to frequency of the consumed beer, 47% of the consumers are between 30-65.
What’s surprising, there is a huge difference in the education of the beer consumers. People with the Masters degree and over make up only 8% of the beer fans. Almost 26% of people with the basic education belong to this group, 34% with the vocational education does drink beer, and 37% with the secondary education are loyal beer consumers.
72% of the consumers usually drinks beer at home, 21% in pubs and the restaurants, and only 6% while enjoying the nature. They prefer light beer rather than dark. The reason for his choice lays not only In the taste, but also In its healthy properties. Light beer strengthens our bones, helps fight the osteoporosis, and bone tissue disease, which leads to the multiple fractures. For the last 10 years Poles have been drinking beer more than before. They treat beer as a substitute for wines and vodkas. According to the researches, 60% of the overall annual alcohol consumption goes to beer, 10% to vodka, and only 10% to wine. Poles are patriots and therefore almost 98% of them chooses polish beer. But when it comes to the quality of beer and its price, 45% definitely chooses German, Dutch or Czech products. . The price is usually too high In Poland, and thus the consumers are forced to buy the imported beers. However, the quality and taste of the beer are improved every year, and therefore beer consumption increases by a few percent.
Brewery industry requires specific type of suppliers. This sector is supplied by the hop, and metal and glass packaging producers. Moreover, brewery industry focuses also the printing plant services.
Brewery industry is supplied with the hop by the foreign importers and domestic suppliers. More than a half of the imported hop is used in the beer production, and suppliers are usually Hungary and Czech Republic, from the agri-food branch. Breweries sign with them the hop supply contracts in order to avoid the sudden price changes of the resource on the market.
Domestic producers are the second group of the hop suppliers. They do not strongly influence the breweries, which then do not fell threatened by them. The reason for such situation is that there is a low duty and low prices that encourage the breweries to import rather than use the services offered by the domestic suppliers, which subsequently focus only the brewery with the best parameters.
Next type of suppliers for the breweries are those who supply glass and/or metal packages. There is a strong competition, and each of them tries to make his offer more attractive for the customer than the others: low price, good quality, and possibly best parameters. Most of the producers have a very attractive offers, and thus the breweries feel free in the choice of the offers.
Printing plant services are in the same situation as glass and metal packages suppliers. Because of the strong competition on this market, they try to make their offers attractive as it is possible, and thus make the customer to choose them. Large breweries use mainly the services offered by the bigger plants.
4.3 PEST analysis
PEST Analysis is a combination of parts of the environment, that are put together in order to be easily researched by the company. It considers influence of the politics on the market, economy, social aspects, and technological development. Brewery industry challenges increase every time when European countries start to join the European Union, for example Poland, Hungary and Czech Republic in 2004, and decide to co-operate with the non-European countries. There are many opportunities and limitations which breweries have to challenge.
Governments policies which consider alcohol sales include price regulations, sales limitations ( such as age, unsober customers, time when alcohol can be sold, place of selling and consumption ), and license for sale. Governments try to influence the price rivalry by limiting the advertisements or licensing the alcohol sales. They also increase prices in order to increase states revenues, and prevent increase of the consumption ( and alcoholism problems of the society ), especially among young people. Government wants to minimise the negative effects of the alcohol consumption, such as car accidents or its overdose. Sales licensing helps control whether the alcohol companies adhere to the sales rules and pay taxes. State monopoly is the factor which does not apply to the brewery industry.
Economic and social environments are the most favourable factors for the industry’s development. There are different economic systems in the countries of operation, and therefore there needed different approaches. However, European Union rules are similar for all of its members: common trade policy and rules of the export trade policy. Exchange policy is another issue to consider. There are still some countries that haven’t changed their currency yet ( f.ex. Poland ). Effects of the global financial crisis in 2009 are still felt on the currency market, and therefore polish zloty varies every day. “Labour costs are on the employer’s (demand) side of the labour market framework”. The average hourly labour cost in 2006 in the European Union was 20,35 Euro. However, there was a 20% increase in 2008 in Czech Republic, Russia, Bulgaria, Latvia, Poland and Lithuania. Year 2009 was economically disadvantageous for every country, but the prognosis seem to be optimistic and look forward to improvements on the market. During the last years inflation has influenced GDP growth rate, and the following table shows how it was changing between years 2006-2010.
As we can conclude from this table, GDP growth rate varies every year by 0,1%, however, it declines until the year of the financial crisis in 2009, where it drastically fell down by 1%-2% ( -2,5% was the lowest and the worst moment ). Luckily GDP started to catch up on losses quickly in 2010, and seems to follow the statistics from year 2006. Financial crisis had also influenced the employment rate – almost 34 mln people have lost their jobs in Europe, and 212 mln all over the world. 13,4% of the young and 5,2% of the older people were among the unemployed.
Social and cultural influences in business are different in all countries. The dominant religion in the world is Christianity – 33% of respondents claim they do believe in God, Islam – 21%, Atheists – 16%, Hinduism – 14%. The following picture presents all known religions and their followers in percentage ( out of the whole humanity ):
Brewery industry will not find its potential consumers among Muslims, because their religion forbids them to drink any kind of alcohol.
Older generation is usually very traditional and therefore sticks to the domestic products, that are proven and are mostly with the tradition. Young people perceive foreign products as unique and attractive, therefore they have positive attitude towards innovation and modernity of the foreign products and services. But in order to get their loyalty and trust brewery companies must consider the cultural and linguistic differences. Moreover, society’s wealth influences the possible sale of the product. Western countries, such as France or Germany, unlike Poland, Lithuania or Estonia can afford expensive products, without violating much their budget ( for example German retirees going for a holidays abroad ).
Modern technology plays also important role in the production. It helps make products cheaply and with a good quality. Foam of the beer is more stable, and the taste is more adapted to the consumers needs. Moreover, technology can be implemented in order to save the natural environment. Adnams, the British brewery, has invested in such a technology, without influencing negatively the nature and taste of its ecological product – East Green. During the brewing process offset minimises CO2 emission to zero.
4.4 Porter’s 5 forces
This method helps analyse the sector by researching factors that make it attractive for the current and potential investors. There are four entry barriers in the brewery industry: scale of economy, no access to the distribution channel, lack of the capital, differentiation of products, and the state policy. Technology used by the brewery companies and their developed production allow them produce at the lowest unit costs. However, company which decides to enter the market cannot produce at a unit cost that is lower than the market price. Next problem company must challenge is lack of the distribution channels. Market belongs to the brewery corporations, and thus the new competitor has look for the other distributors. More over, it has also to invest in the beer producing technology, for the marketing and promotion, market research, and acquisition of the raw material. What’s more, government policy counters by the social insobriety ( anti alcohol legislation ), therefore alcohol sales are impeded. Last barrier is the product differentiation. Some brands, such as Heineken or Lomza have achieved high positions on the brewery market, and thus the new competition may have problems with gaining trust and loyalty of its target group.
Bargaining power of suppliers in the beer market has been strongly influenced by the reduce of the aluminium costs control, and therefore this has led to the increase of the packaging materials costs. In order to avoid being dependent on these materials some breweries started to run recycling programmes.
Brewery target group are the beer consumers. They choose whether they want to buy the product or not, and therefore influence sales of the company. Thus breweries care about the quality of their products, packaging, add some gadgets, and consider the way the product is served to the customer. He has a wide range of beers to choose and is given an information about each of them. Therefore he can choose the brand that mostly fits his taste. The functioning of the company depends largely on his beer choice.
There are no substitutes for the beer, because there are no substitutes for hop. Brewery industry is very specific, because new products from this area are rarely launched to the market. However, they don’t influence the beers consumption. Even non-alcohol beers haven’t increased its volume sales.
Competition within the brewery industry is very active. Success of the brewery companies depend on the good advertisement, economies of scale benefits, costs minimisation and attractive packaging. Leaders on the global beer market are Heineken and Carlsberg. Smaller breweries try to reach their position and claim to have 40% increase in sales, and therefore bigger corporation try to save their position by comparing their successes to the weaker competition. Smaller players on the market increase their shares by selling the low quality products, and thus encourage potential investor to take over the brewery. Breweries try to reach their customers by selling them cheaper products. Customer looking at the low price resigns from the quality. Middle breweries dominate the segments with the low price products. Bigger corporations promote their brands by investing big capital in the marketing and promotion campaigns. Smaller companies can’t afford such a big investment, and thus they just encourage and motivate their salesmen to be more effective.
4.5 SWOT analysis
Brewery industry is one of the most developing industries in the world. Its internal ( strengths, weaknesses ) and external ( opportunities, threats ) factors can be audited by using the strategic environment analysis called SWOT analysis. It is presented below:
All these factors relate individually to each of the companies operating in the brewery industry. Strengths shown in the table are their resources and capabilities that are used in order to develop their competitive advantage on the market ( Garbarski et al, 2000 ). There will be always a high demand for beer, and developed technology will be the background for the products improvement and making it more attractive for the customers. This creates a relationship between both, product and its consumer.
Strengths prevail over the weaknesses, however they strongly influence the market operations of the companies. High advertising costs are a main financial burden for the smaller and medium players. Moreover, because of the low budget they have to deal with the narrow product line, and thus the weak and slow distribution. However, If the industry considers its opportunities that appear during the analysis of the environment, it may observe some growth and generate more profits. Demographic increase and smaller range of age for drinking alcohol help reach a wider range of customers. However, tax increases, changing customers tastes, or anti-alcohol campaigns may threaten actions taken to improve the financial situation within the industry.