Internal Analysis

Internal Analysis: Alcoholic Beverage Industry

Business Policy Melissa Bonn

Company Overview

“Anheuser-Busch is a wholly-owned subsidiary of Anheuser-Busch InBev, the leading global brewer, and continues to operate under the Anheuser-Busch name and logo. Based in St. Louis, Anheuser-Busch is the leading American brewer, holding a 47.6 percent share of U.S. beer sales to retailers. In 2010, Anheuser-Busch InBev generated revenues of 36.3 billion USD. The company brews the world’s largest-selling beers, Budweiser and Bud Light, and distributes these and many other popular brands through a strong network of more than 600 independent wholesalers. Anheuser-Busch operates 12 breweries across the United States, is a major manufacturer of aluminum cans and has been a leading aluminum recycler for more than 30 years. The company holds the No. 1 or No. 2 market position in 19 countries.  In addition, the company owns a 50 percent equity interest in the operating subsidiary of Grupo Modelo, Mexico’s leading brewer and owner of the global Corona brand.”i Anheuser-Busch’s top competitors include Heineken, SAB Miller and Molson Coors.ii

VRIOS Internal Analysis

“Internal analysis involves deep examination of an organization’s R&Cs in order to evaluate which ones provide the organization with a basis for sustainable competitive advantages. It draws upon and integrates a number of well-known frameworks and analysis approaches in order to incorporate and evaluate organizational, interorganizational, and even dysfunctional R&Cs within a single framework. This then supports the systematic analysis of the firm’s R&Cs for competitive advantage. The approach to internal analysis adopted here is termed VRIOS analysis. VRIOS analysis involves the combination of several frameworks and approaches collectively designed to provide a thorough exploration of the focal firm’s R&Cs. Six frameworks, including functional analysis, value chain analysis, value net analysis, R&C analysis, balanced scorecard analysis and distinctive competence analysis are adapted to derive a broad list of R&Cs. RBV analysis is then used to evaluate how each R&C contributes to the firm’s ability to exploit opportunities, mitigate threats and address challenges and issues, and the extents to which they each are rare, unlikely to be copied, controllable by the firm, and sustainable. As a conclusion to internal analysis, a summary internal factors framework is used to capture the key findings of the analyses – the key R&Cs of the organization.”iii

There are three key steps to completing a VRIOS analysis framework. The first step is to generate a list of R&Cs. “There are numerous ways to derive a useful set of R&Cs for an organization. One of the most common ways is to have managers brainstorm to create as long a list as possible, and then to winnow that list down to a more meaningful number through common sense. Six approaches that in combination provide a more comprehensive and systematic means to derive an organization’s R&Cs include adaptations of functional analysis, value chain analysis, value net analysis, R&C analysis, balanced scorecard analysis and distinctive competence analysis.”iv The second step in the VRIOS analysis is to assess the VRIOS of each R&C using RVB analysis. This includes assessing how valuable, rare, inimitable, organizational and sustainable each R&C is.

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Valuable: “R&Cs that uniquely or in combination allow a firm to build competitive advantages are deemed valuable, and merit consideration as being used as part of a firm’s strategy. In other words, valuable R&Cs should allow an organization to seize the opportunities, address the trends, mitigate the threats, confront the challenges and/or tackle the issues the firm is facing in pursuit of competitive advantage.”v

Rare: “While possession of resources and capabilities (R&Cs) that support pursuit of competitive advantage is a sine qua non of an effective strategy, having R&Cs that others do not is also important. How rare an R&C needs to be depends on the firm’s situation, although in general as long as perfect competition is avoided as a result of there only being a few firms with the R&C, there can be said to be a sufficient degree of rareness still present protecting the value added basis of the R&C.”vi

Inimitable: “In addition to being more valuable when rare, a resource or capability is also of potentially greater value to a focal company to the extent that competitors are not easily or cost-effectively able to imitate it. The idea is that, the fewer the competitors that possess the R&C, the better the chance that an organization can take advantage of it to obtain a low cost, differentiation or innovation leadership position. Fortunately for those in possession of valuable R&Cs, there are a number of forces, such as causal ambiguity, isolating mechanisms and the R&C accumulation process, which can prevent competing firms from imitating resource positions.”vii

Organizational: “It is also important to understand who benefits most from an R&C. Is the firm organized to exploit the full competitive potential of the R&C (i.e., is the R&C controllable by the firm)?”viii

Sustainable: “The last aspect in the assessment of R&Cs involves analysis of the forces and factors that can lead to an erosion of the value of an R&C. One of the chief sources of an erosion of value is the loss of an existing or the lack of a newly required complementary R&C. A second reason that an R&C might lose its value is that its value might be based on a fit with market or technological environments that are changing too rapidly for the firm to maintain a proper fit.”ix

The last and third step in the VRIOS analysis is to synthesize R&C findings using IFF. The most important existing and missing R&Cs are identified by assignment of importance weights with respect to the contribution that each makes to the organization’s performance; and the performance of the firms is assessed with respect to how well it is taking advantage of each existing R&C and coping with or addressing each missing R&C.”x

List of R&Cs

The following is a list of resources and capabilities relevant to Anheuser-Busch as identified through functional analysis, value chain analysis, R&C mapping onto value net, R&C analysis, balanced scorecard analysis, and distinctive competence analysis.

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Based on the six analyses, twenty-one existing and missing R&Cs were identified, but only ten were considered important to Anheuser-Busch. The IFF below displays the importance of each R&C as well as a rating on how well Anheuser-Busch is leveraging or addressing them.

Internal Factors Framework

“A summary internal factors framework is used to capture the key findings of the analyses – the key R&Cs of the organization. Akin to the external factors framework used to capture external threats, challenges, opportunities and issues, the internal factors framework is used to summarize and evaluate key R&Cs available to the firm for its strategy making in pursuit of competitive advantages.” xi

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"Completion of an internal factors framework provides an overall measure of the organization’s performance with respect to how well it is taking advantage of and addressing its R&C profile.”xiii 

Derivation of IFF

The R&Cs identified as most important include marketing and advertising, strong reputation and raw materials convenience. The most important missing R&C, reliance on wholesalers and suppliers, will also be analyzed below.

1. Marketing and Advertising

Anheuser-Busch’s marketing and advertising is the strongest asset to the company. “AB provides national and local media advertising, point-of-sale advertising, and sales promotion programs to promote its brands, and complements national brand strategies with geographic marketing teams focused on delivering relevant programming addressing local interests and opportunities.”xiv This R&C resides on the company’s value chain and its customers and competitors on its value net. AB is able to use its marketing and advertising strategies to target customers while beating out its competitors. This R&C benefits the company as a whole due to the increased sales and profits from its effects.xv

This is the most important R&C with a 23% weighting. AB’s marketing and advertising is extremely valuable to the firm in that it allows AB to promote its products to a number of different market segments. Although all of AB’s rivals have marketing and advertising strategies, it is rare in the industry for AB to have such a successful and effective marketing and advertising

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strategy. Because of this, AB is able to gain a competitive advantage over its rivals promotional efforts. It would be extremely expensive for rival firms to copy the same marketing and advertising strategies that AB creates. AB will have to continue to invest large sums of money into its marketing and advertising strategies in order for it to be sustainable.xvi

Marketing and advertising received a performance rating of 5 out of 5. AB is currently spending several billion on marketing and advertising expenses and employs national, regional and local media outlets in its promotional efforts.xviiAB continues to focus on its marketing and advertising strategies and hopes to build and even greater awareness of the already dominant brand.xviii

2. Strong Reputation

Anheuser-Busch has created and maintained one of the strongest reputations of all beer brewers. AB is well known for its high quality products, and has strong brand and customer loyalty because of it. The company report believes that that: “Anheuser-Busch’s success depends on our ability to maintain and increase the image and reputation of our existing products and to develop a favorable image and reputation for new products.”xix This R&C resides within the company’s firm infrastructure and corporate culture on the value chain and its customers and competitors on the value net. All managers and employees are responsible to maintain a reputation that is beneficial to the company as a whole. Customers overlook competing firms and are reinforced by their purchase decision due to AB’s strong reputations.xx

This R&C was given an importance weighting of 19% because a strong reputation is one of the most valuable aspects to a company. A strong reputation is also extremely rare to achieve, especially in the alcoholic beverages industry where a variety of different factors could jeopardize its reputation. AB currently has one of the strongest brand reputations of all its rival firms. It is almost impossible for other firms to exactly imitate AB’s reputation, therefore giving AB an even greater competitive advantage in the industry. A strong reputation is extremely hard to sustain, and anything from product quality to customer satisfaction can easily destroy a strong brand reputation.xxi

Strong reputation received a performance rating of 5 out of 5. AB is currently maintaining its strong reputation due to its high quality products, customer satisfaction levels, employee relations and strong internal leadership. AB has successfully maintained its strong reputation for many years now and has continued to dominate the market due to its success.xxii

3. Raw Materials Convenience

Busch Agricultural Resources, L.L.C. (“BARL”), owned and operated by Anheuser-Busch, operates rice milling facilities, grain elevators, barley seed processing plans, barley research facilities and malt plants in numerous states. “The products manufactured by the Company require a large volume of various agricultural products, including hops, barley malt, rice, and corn grits for beer, and rice and barley for the rice milling and malting operations of BARL. The Company fulfills its commodities requirements through purchases from various sources, including purchases from its subsidiaries, through contractual arrangements and on the open

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market.”xxiii As long as these suppliers continue to operate, AB will always have a reliable, cost effective source for receiving its necessary supplies. This R&C resides within the company’s procurement and inbound logistics on the value chain and its suppliers on the value net. In addition to that, this R&C benefits the company as a whole, allowing AB to effectively produce its products in a convenient manner.xxiv

This R&C was given an importance weighting of 17%. The convenience of purchasing supplies through its own subsidiary is extremely valuable to AB’s operations. This enables AB to cut costs and save time receiving its supplies. It is rare in the industry to own supplier subsidiaries, giving AB a competitive advantage over its rival firms. In terms of copying AB’s supplier processes, it would be extremely expensive for rival firms to create their own suppliers or partner with existing independent suppliers. This process is sustainable as long as AB continues to have relations with its suppliers, and that suppliers are able to produce the raw materials that AB requires.xxv

Raw materials convenience received a performance rating of 4 out of 5. Owning and operating its own subsidiary suppliers gives AB a huge competitive advantage over its rival firms that have more difficulty in obtaining supplies. The convenience of owning suppliers enables AB to cut costs and have a more efficient system of operations, which AB is taking full advantage of.xxvi

4. Reliance on Suppliers and Wholesalers

Anheuser-Busch relies on its suppliers and wholesalers to provide it with raw materials and distribution networks. This reliance is a risk for the company and may compromise its financial results in the future. The company report states that: “For certain packaging supplies, raw materials and commodities, we rely on a small number of important suppliers. If these suppliers became unable to continue to meet our requirements, and we could not develop alternative sources of supply, our operations and financial results could be adversely affected.”xxvii In addition to this, wholesalers face the same predicament. “In the United States, Anheuser-Busch sells substantially all of its beer to independent wholesalers for distribution to retailers and ultimately consumers. Many of the wholesalers of these brands have not traditionally been wholesalers for Anheuser-Busch. As independent companies, wholesalers make their own business decisions that may not always align themselves with our interests. If the Anheuser-Busch wholesalers do not effectively distribute our products, our financial results could be adversely affected.”xxviii The reliance on suppliers and wholesalers poses a potential threat for AB’s future success.

These two R&Cs were given an importance weighting of 6%. Since this R&C affects the procurement and inbound logistics on the value chain and the suppliers and complementors on the value net, it is crucial for AB to mitigate this threat. Suppliers and wholesalers are valuable aspects to AB’s production and distribution strategies, and having reliance on these could threaten the business and its profits. Since there are limited suppliers and few distribution channels in the industry, it is not rare not rely on such aspects, but it is important for AB to learn how to combat this threat. In the meantime, AB is able to rely on its limited number of suppliers and wholesalers, but this will only be sustainable if supplier and distributor agreements and relations continue to align.xxix

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Reliance on suppliers and wholesalers received a performance rating of 2 out of 5. Anheuser-Busch continues to rely on its suppliers and wholesalers, but has made no attempts to find additional sources of supplies or distributors.xxx

Conclusion

As indicated in the IFF, Anheuser-Busch scored a performance rating of 4.1 out of 5.xxxi Marketing and advertising, strong reputation and raw materials convenience are all R&Cs that are important to AB’s success. On the other hand, AB has yet to mitigate the threat of relying on a limited number of suppliers and wholesalers. Overall, AB is effectively and efficiently using utilizing its resources and capabilities, but is struggling to mitigate the detrimental effects of the R&Cs that it does not possess.

VRIOS Worksheets

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i "Our Company | Anheuser-Busch." Anheuser-Busch. Anheuser-Busch Companies, 2015. Web. 29 Jan. 2015. <http://anheuser-busch.com/index.php/our-company/>.ii “Anheuser-Busch Companies, L.L.C.” Company Profile / Hoovers Business Solutions, Web. 26 March 2015. iii Cummings, J. L., Creating Value Chapter 15 (New York: Ming Press, 2011), p. 1. iv Cummings, J. L., Creating Value Chapter 15 (New York: Ming Press, 2011), p. 3.v Cummings, J. L., Creating Value Chapter 15 (New York: Ming Press, 2011), p. 23.vi Cummings, J. L., Creating Value Chapter 15 (New York: Ming Press, 2011), p. 25-26.vii Cummings, J. L., Creating Value Chapter 15 (New York: Ming Press, 2011), p. 26.viii Cummings, J. L., Creating Value Chapter 15 (New York: Ming Press, 2011), p. 28.ix Cummings, J. L., Creating Value Chapter 15 (New York: Ming Press, 2011), p. 28.x Cummings, J. L., Creating Value Chapter 15 (New York: Ming Press, 2011), p. 2. xi Cummings, J. L., Creating Value Chapter 15 (New York: Ming Press, 2011), p. 1. xii Bonn, Melissa. “Internal Factors Framework”, MG 402 Business Strategy, Loyola Univ. MD, Spring 2015.xiii Cummings, J. L., Creating Value Chapter 15 (New York: Ming Press, 2011), p. 31. xiv Anheuser-Busch. 2007 10-K Report. Hoovers Business Solutions. Web. 29 March. 2015.xv Bonn, Melissa. “VRIOS Worksheets”, MG 402 Business Strategy, Loyola Univ. MD, Spring 2015. xvi Bonn, Melissa. “VRIOS Worksheets”, MG 402 Business Strategy, Loyola Univ. MD, Spring 2015.xvii Anheuser-Busch. 2007 10-K Report. Hoovers Business Solutions. Web. 29 March. 2015.xviii Bonn, Melissa. MG 402 Business Strategy, Loyola Univ. MD, Spring 2015.xix Anheuser-Busch. 2007 10-K Report. Hoovers Business Solutions. Web. 29 March. 2015.xx Bonn, Melissa. “VRIOS Worksheets”, MG 402 Business Strategy, Loyola Univ. MD, Spring 2015. xxi Bonn, Melissa. “VRIOS Worksheets”, MG 402 Business Strategy, Loyola Univ. MD, Spring 2015.xxii Bonn, Melissa. MG 402 Business Strategy, Loyola Univ. MD, Spring 2015.xxiii Anheuser-Busch. 2007 10-K Report. Hoovers Business Solutions. Web. 29 March. 2015.xxiv Bonn, Melissa. “VRIOS Worksheets”, MG 402 Business Strategy, Loyola Univ. MD, Spring 2015.xxv Bonn, Melissa. “VRIOS Worksheets”, MG 402 Business Strategy, Loyola Univ. MD, Spring 2015.xxvi Bonn, Melissa. MG 402 Business Strategy, Loyola Univ. MD, Spring 2015.xxvii Anheuser-Busch. 2007 10-K Report. Hoovers Business Solutions. Web. 29 March. 2015.xxviii Anheuser-Busch. 2007 10-K Report. Hoovers Business Solutions. Web. 29 March. 2015.xxix Bonn, Melissa. “VRIOS Worksheets”, MG 402 Business Strategy, Loyola Univ. MD, Spring 2015.xxx Bonn, Melissa. MG 402 Business Strategy, Loyola Univ. MD, Spring 2015.xxxi Bonn, Melissa. “Internal Factors Framework”, MG 402 Business Strategy, Loyola Univ. MD, Spring 2015.