Global Forces and the European Brewing Industry

GLOBAL FORCES AND

THE EUROPEAN BREWING INDUSTRY

Trend for Mergers & Acquisitions

• Trend for mergers and strategic alliances among the top breweries in Europe in order to maintain their position at the Top in the European Market

• Interbrew’s market trend survey 2002, shows that the consolidated global share of the top 20 brewers increased from 51% on 1990 to 65% in the year 2002.

• In 2003, Anheuser Bush was one of the largest brewer ranked by sales volume but with limited overseas operations. In 2004 Brazilian Am Bev, and Belgian Giant Interbrew merged to create Im Bev, the largest brewer in the world.

Trend for Mergers & Acquisitions

• According to our research, in 2008, Im Bev has merged with Anheuser Busch to create A-B Inbev, the leading beer producer in the world. 

• Cigarette and the Beer Industry - In 2002 the five largest global brewers accounted for only 30% of the market share whereas when merged with the cigarette industry, the five leading players had a 60% market share.

Trend in Western European market: Germany

• Even if the Western European market has become mature: its demand is now decreasing, partly because of the great number of substitute products.

• It may be noted that numerous brewing producers do not differentiate their products, especially in Germany, where hundreds of firms indulge in making traditional beer

• German beer drinkers are used to the strict German purity law.

Trend in Western European market: U.K.

• Ownership of breweries within the UK had rapidly changed. Foreign multinationals such as Interbrew, Coors and Calsberg entered and controlled 53% of the market.

• Consumption of lager has grown from over 50%of the total UK market in 1990 to 62%in 2002. The trend was towards increasing sales through supermarkets resulting in a reduction of draught beer demand

• Also the market is moving more and more towards increased sales in the off trade. According to research, the on trade market for beer accounts for 59% of the all alcoholic beverages sale by volume and in the take home market, the % is 72

Trend for product development

• Varied consumer tastes require firms to carry a more diversified portfolio of products - there is an aspect of innovation that needs to be taken into consideration

• Trend for product development such as flavored beers to attract Youth Market. Sales of flavoured beer mixed with either lemon- lime soda or cola available in draught and bottles had an increasing market share up 30% in 2002.

PORTER’S FIVE FORCES• COMPETITORS High Industry Concentration Branding Diversification High Exit Barriers Increased Cost Efficiency

HIGH

PORTER’S FIVE FORCES

• POTENTIAL ENTRANTS International Competition High Entry Barriers Tighter LegislationLOW

PORTER’S FIVE FORCES

• BUYER POWER Low Switching Costs Change in Drinking Habits Increasing Brand Identity Wholesalers/Retailers

FAIRLY HIGH

PORTER’S FIVE FORCES

• SUPPLIER POWER Volume supplied Quality of Raw Materials

LOW

PORTER’S FIVE FORCES

• SUBSTITUTES Other Alcoholic Beverages Non Alcoholic Beers and Soft Drinks Pubs & Bars Changing Social Habits

HIGH

HEINEKEN

• HEINEKEN CLAIMS TO BE THE “MOST INTERNATIONAL BREWERY GROUP IN THE WORLD”

• IN 2004, BIGGEST COMPANY OF THE EUROPEAN BREWING INDUSTRY

• EXPORT: 17.7 MILLION HL• 11.7 %SHARE OF THE MARKET• CURRENTLY OWNS 115 BREWERIES IN

MORE THAN 65 COUNTRIES• MAJOR EXPORTER OF BEER IN EUROPE

IMPACT OF TRENDS

• Loss of Sales• Shrinkage of Market• May Result in Brand Dilution• Need to review existing Strategies/ Portfolio

SWOT ANALYSIS STRENGTH Premium Brand Presence in more than170 countries Attractive package Advertisement WEAKNESS Mostly Based in European Market Relies on its Key Brands Only small acquisitions apart from BBAG

SWOT ANALYSIS

OPPORTUNITIES East Europe, Asian & Other Markets Growing demand for Non Alcoholic & Flavored

Beverages Growing Off Trade Markets THREATS Mature Western European Market New Laws icw Alcohol Consumption FAB’s and Non Alcoholic Drinks Danger of becoming a tired Brand

CHANGE IN STRATEGY1. PENETRATE NEW MARKETS• Eastern Europe & Asia Markets are in full

expansion• Heineken has a strong brand.• Presence in Many Markets

2. ACQUISITION OR JOINT VENTURE• Acquire local companies with strong image

and readily available distribution systems• Joint Venture with Major Brewers to enhance

Image, and retain Competitive Advantage

CHANGE IN STRATEGY

3. EXPAND PRODUCT PORTFOLIO• Develop Low Calorie/ Flavoured Drinks• Propose New Products to enhance the off

trade consumption experience (Beer Tender)• New Products to bring Variety & encourage

loyal customers to buy more, thus boosting Brand Image

4. Vertical Forward &Backward Integration

CHANGE IN STRATEGY

5. ADVERTISING & SPONSORSHIP• Continue to sponsor major sport events• Continue Image Building – Association with

Hollywood “Premium Stars”• Sponsorship of Musical Events

6. BRAND REINFORCEMENT• Bring Out the positive aspects of the

Heineken / Amstel Brand• Campaigns to drink Responsibly

CHANGE IN STRATEGY7. PRODUCT DEVELOPMENT/ ENHANCEMENT

STRATEGIES Emergent Markets

• Build Strong Portfolio to combine with local brands + High Advertisement

Developing Markets

• Promotion of the Premium product and its qualities in developing markets

• Enter New Distribution Channels & Market Segments. Propose New Products

Mature Markets

• Investment to strengthen Brand Image

• Joint Ventures

IMPACT OF TRENDS

– Market stagnation. No further scope for improvement.

– Sales will decline along with profits.– With the trend of Mergers and acquisitions

other international beer brands can invade the market.

– When other players enter the market, tendency to lose your resources

CHANGE IN STRATEGY– Already present in Northern America. Should

enter Southern America– Look for strategic alliances, acquisitions in

booming economies in Eastern Europe and China.

– Develop new beers and adapt accordingly to each country.

– Create brand awareness through extensive advertising.

– Look for sponsorship in different fields of sports, which are popular in the countries

CHANGE IN STRATEGY

– Develop new beers and adapt accordingly to each country.

– Create brand awareness through extensive advertising.

– Look for sponsorship in different fields of sports, which are popular in the countries

– E.g In America- Baseball– In Southern America - Football– In India- Cricket