Miller Final

Table of Contents

Introduction.....................................................................................................................................2

Employees...................................................................................................................................2

Positioning of company...............................................................................................................2

Diversification.............................................................................................................................2

Hotels and gaming.......................................................................................................................2

Environmental.............................................................................................................................2

Group strategy.............................................................................................................................2

Government.................................................................................................................................2

Porter’s Five Forces of Competition...............................................................................................2

Rivalry.........................................................................................................................................2

Threat of Substitutes......................................................................................................................

Buyer Power..................................................................................................................................

Supplier Power..............................................................................................................................

Barriers to Entry............................................................................................................................

Competitive assessment of Miller Brewing Company – S.W.O.T. format.

Table 1.........................................................................................................................................2

Table 2.........................................................................................................................................2

Appendix A.......................................................................................................................................2

Bibliography....................................................................................................................................2

Introduction

We will report on a competitive Assessment of the Miller Brewing Company. This will include a S.W.O.T. analysis, and using Porter’s Five Forces of Competition. A graphical representation of this process is as depicted in Figure 1, on page 4.1 Use of these analysis tools allow a company to evaluate its market position, and determine how best to spend its resources on various efforts to maintain profitability, market share, and customer loyalty.

The following sections were obtained from Miller Brewing Company’s website at http://www.millerbrewing.com/home.asp

EmployeesOur company is a family of nearly 6,500 people worldwide, sharing a strong commitment to responsibly brew, bottle and market the highest quality beer for you, our consumer.Positioning of companyGraham Mackay, Chief Executive, commented:  "Our established businesses have delivered good results and improved margins across the board, while we focus on integrating and positioning the strategically important new acquisitions in North and Central America.  The benefits of an increasingly balanced portfolio play an important part in the group’s overall results.  We are working actively on numerous projects at Miller Brewing Company to improve its performance and are confident that the potential identified at acquisition will be realized over time."

DiversificationBrewers, bottlers, and distributors in six, world-wide locations (See Appendix A). Largest bottler and distributor of the Coca-Cola range of carbonated products within the Southern and Eastern African franchise territoryProducts produced and bottled under long-term franchise agreements with The Coca-Cola CompanyKey brands: Carbonated soft drinks - Coca-Cola, Sprite, Fanta. Alternative beverages such as fruit juice, energy drinks, iced teas - PowerAde, Bibo, Nestea, Milo, BonAqua

Hotels and gamingSABMiller's hotels and licensed house interests were rationalised with the launch of the wholly owned subsidiary, Southern Sun, in 1969. SABMiller's hotel interests were held through the Southern Sun group, and through Southern Sun Gaming SABMiller held a 50% share in the casino company Tsogo Sun. The remaining 50% of Tsogo Sun was held by Tsogo Investments, a broad-based black empowerment group.In December 2002, SABMiller & Tsogo Investments announced the most important empowerment deal yet in South Africa, with an agreement that resulted in the transfer of both companies' interests into a new company, Tsogo Sun Holdings (Limited), which is controlled by Tsogo Investments.Gaming was legalised in South Africa in 1996 and is a strong growth area.

EnvironmentalMiller Brewing Company is doing its best to keep the world clean, receiving federal recognition for its work in reducing energy and greenhouse gas emissions. Here are other works in environmental protection Miller Brewing Company is proud of:

Miller Brewing was the first national brewer to begin recycling aluminum.

Miller eliminated 50 percent of the aluminum in its cans, saving 50,000 tons of aluminum every year.

In the year 2000, Miller Brewing recycled over 20,000 tons of paper, cardboard, plastic, glass, aluminum and even the hard hats worn by employees.

Miller Brewing reduced the weight of its bottles, and now saves over 100,000 tons of glass each year.

The byproducts of making beer, of which 700,000 tons were put to beneficial use in 2000, are marketed to commercial and agricultural industries: Brewer's Grain is sold to farmers as cow feed Brewer's Yeast is sold to food companies for use in canned soups, gravies and frozen

entrees and to pet food companies for use in pet foods Excess carbon dioxide is captured during fermentation and sold for use in

refrigeration and freezing operations FARM-ON™ is a nitrogen-rich soil conditioner and liming agent used to replenish

nutrients in soil.

Group strategy Drive volume and productivity in our major markets Optimize and expand established positions in developing markets Seek value-adding opportunities to enhance our position as a global brewer with exposure

to both developed and developing markets Grow our brands in the international premium beer segment Actively participate in the ongoing industry consolidation

Government SABMiller plc will engage constructively with the governments of the countries in

which it operates SABMiller plc companies will comply with the laws and regulations of the countries in

which they operate SABMiller plc believes in free market competition and will conduct its activities within

the framework of applicable competition laws. The Group and its subsidiaries will not make political donations other than by exception,

and in an open and transparent manner.

Porter’s Five Forces of Competition

Rivalry - Firms strive for a competitive advantage over their rivals. The intensity of rivalry among firms varies across industries, and strategic analysts are interested in these differences.1

For example, Miller Brewing Company competes against large, multinational companies. Their most direct rival is Anheuser-Busch Brewery, the producer of the Budweiser family of beers. According to the Miller Brewing website, “Miller Brewing has grown from a small local brewer to the second largest brewery in the U.S., with seven major breweries located across America.”2 Other, large, U.S. breweries are Coors, of Golden, Colorado, and Pabst Brewery, San Antonio, TX. These breweries make up the Big-3 of macro-brews in the U.S. Miller Brewing could use a variety of options, to

gain an advantage over its rivals.1. Change prices2. Improve product differentiation3. Creative use of channels of distribution4. Exploiting relationships with suppliers

Any single factor, or combination of these factors, could help the company improve its market share and/or profitability.

Buyer Power

Who is buying all this beer? While nearly 50% of the people in the United States

consume beer on a regular basis, the beer market is largely male dominated; “Men account for

more than 80% of the volume consumed” while women only account for the remaining 20%1.

Within these market segments, beer companies accommodate four consumer groups. These

market segments are people from the age 21-27 years old, Latino’s, African-Americans, and

Figure 1

people 50 years or older. According to US Census data these consumer groups are projected to

have significant growth by the year 20102. The projected growth is as follows in Table 1.

Market Segment Projected Growth(2000-2010)

21-27 Years Old 13%Latino 32%African-American 15%50+ Years Old 25%Table 1

Buyer Concentration

In the beer industry there are more buyers than there are firms in the market. Since more

than 50% of the US population buys and consumes beer on a regular basis, it would indicate that

there is significant buyer concentration. Thus, giving the buyer power; making this industry

unattractive.

Buyer Switching Costs

In the beer industry there are absolutely no switching costs to the buyer. The beer

industry is unable to put any switching costs due to the fact that it is impossible. This makes it

possible for the consumer to purchase witch ever brand they wish. This makes the industry

unattractive.

Buyer Information

Most consumers in the beer industry are not aware of what is happening in the industry.

Since the average consumer is not aware of what is happening in the beer industry it is possible

for the industry to make competitive moves to increase profit margins. The consumer’s lack of

knowledge in this industry makes this industry attractive.

Pull Through

The firms in this industry have been able to create pull through. Brand identity is crucial

in this industry. The top beer brands in the United States include Bud Light, Budweiser, Coors

Light, Miller Light, and Busch. For example, the success of the pull through has required that

major grocery chains have to carry these top beer brands. When pull through exists, it gives the

industry power over the consumer; thus, making the beer industry attractive.

Price Sensitivity

Buyers in the beer industry are inelastic. Because the buyers in this industry are inelastic,

“small price increases do not result in reduced consumption or brand switching3.” With this in

mind however, large price increases will result in reduced consumption and brand switching and

or the use of substitute products. Since the buyers are price sensitive, this gives them power and

makes them powerful thus making the industry unattractive.

Conclusion

In the beer industry there is significant buyer concentration, no switching costs, and price

inelasticity. Overall, buyer power in the beer industry is very strong making it an unattractive

industry.1

1http://www.beerbrewing.com/US-beer-maret/beer-demographics.htm

2<http://www.census.gov>3<http://www.dted.state.mn.us/PDFs/beer.pdf>

Barriers of Entry: The United States Beer Industry

In the United States Brewing industry barriers to entry for newcomers are extremely high.

In other words, in order for a new brewing company to enter the market there are many

hurdles that they must overcome, and often times these barriers make it almost impossible for

competition to enter the market.

One of the first factors that must be considered when researching whether or not one

should enter a certain market is cost: What will the cost of investment be? What will the

fixed costs be? This is a major barrier of entry in the United States beer industry: The high

initial cost of entrance, the equipment, materials, proper technology and experienced

personnel, needed in order to effectively produce a quality beer is very high, making it

difficult for others to enter the market. For example, a modern brewing facility cost

approximately $250 million dollars, for capacity of four to five million barrels annually, and

the optimal quantity to achieve economies of scale is eight to eight and a half million barrels

per annum. In comparison, Coors Brewing Co., the third largest brewer in the United States,

produced over 31.8 million barrels of beer in 2002. Budweiser sold over 101 million barrels

in 2002, Miller Brewing Co. sold over 39.6 million barrels, 2001.

Another factor that one must examine is how to comply with government regulations

concerning the distribution, labeling, advertising, credit, container characteristics, alcoholic

content, tax rates, and litter assessments of their product.1 The Bureau of Alcohol, Tobacco,

and Firearms mandate these federal regulations. Then once the BATF is done, each state has

a complex set of laws and regulations governing its industry.

1

Marketing costs are also very high if you want to make a dent in the United States beer

industry. Marketing is one of the most important factors used to create brand recognition.

As an example, marketing, general costs, and administrative costs at Coors for 2003 were

$1,057,240. Miller Brewing has over 50 labels to market and to maintain. This significantly

increases the cost to the Miller Brewing Co.. These high costs of marketing make the

brewing industry very difficult to penetrate.

The degree to which customers are loyal to certain brands also create barriers to entry, as

the top three beer companies in the United States produce beer for over 80% of the industry’s

consumption. Miller Brewing Company, and the other large, multi-national breweries create

such a barrier. This brand loyalty that customers have gained has been established through

extensive marketing, and decades of work in this industry.

Another factor that currently creates a large barrier to entry in the beer industry is that

industry beer consumption remains flat, and therefore newcomers must rely on creating

unique, niche markets. For example, last year, US Coors sales volume only went up by

0.1%. Miller Brewing Company was affected by industry softness in 2001, with shipping

volume down by 2.4 % in 2001.2

Increased vertical integration among top brewers is another cause for high barriers to

enter the beer industry. Coors owns and is partners in operating the nation’s largest

aluminum-can manufacturing plants, and Coors malts their own barley.

2 http://www.altria.com/investors/annual_report/bus_review/bus_review04.asp?flash=true

Industry leaders, such as Coors, Budweiser, and Miller Brewing companies, have very

well established channels of distribution over the year, which makes it more difficult for

newcomers to enter the market. Due to the fact that these three breweries produce such a

high volume of the market share, have strong market presence in the U.S., and are now

working on expansion into international markets, they receive high volume discounts on their

shipping rates, and have established beneficial distribution partnerships.

Competitive Assessment of Miller Brewing Company – S.W.O.T. format.

We have compared Miller Brewing Company in a S.W.O.T. format (Refer to Tables 1

and 2). Due to their diversification, environmental awareness, market share, stability in the

market, willingness to work with the government, we believe they compare favorably under the

scrutiny of a S.W.O.T. diagram, against their closest competitors, Anheuser-Busch and Coors.

We processed some of the S.W.O.T. information on the S.W.O.T. tool available at

http://www.smartt.co.za/swot/, from the Interactive Smartt S.W.O.T. Analysis site.

This information has been classified into their Strengths, Weaknesses, Opportunities, and Threats

as is shown, below (Refer to Table 1).

Based on these results, it is our belief the Miller Brewing Company should focus its efforts on

improving its sales over Anheuser-Busch brewery. The other competitors do not have the global

reach of the top two breweries. Miller Brewing Company could also increase its sales revenue

by pushing its top selling brands into Europe and other parts of the world. This would result in

competition with their other lines, but would also improve customer awareness of their major

product line.

According to the S.W.O.T. analysis tool we used, company resources is a distinctive strength,

diversification is a distinctive strength, and name recognition is a distinctive strength. These are

areas where the company excels, in comparison to its competitors. When people discuss beer

commercials, the Miller Lite commercials are easy to remember, and create a lasting impression.

Weak brand recognition in emerging markets, both ethnic markets and international markets, and

strong market competition, are the two areas of greatest weakness for the company. The

management at Miller Brewing Company should focus their efforts on improving the company’s

position, with respect to its presence in foreign markets, and identifying methods to become the

number one major brewer in the U.S.

An internal weakness for Miller Brewing Company is the worsening image of two of its major

labels. Miller High Life and Miller Lite beer. The company has recently instituted a new ad

campaign, targeted at consumers of its Lite beer. As is identified in the S.W.O.T. chart, below,

changing consumer trends is a medium-term threat. The new ad campaign can help lessen this

threat.

In addition, the company has begun a series of “Live Responsibly” ad campaigns. According to

a press release from the company’s web page, dated May 2, 2003, “’We are committed to

helping prevent drunk driving and share a commitment with local law enforcement and our

festival partners to help keep our community safer,’ said Bob Bailey, General Manager of the

local Miller distributor, in Atlanta Georgia.”

(http://www.millerbrewing.com/pressRoom/newReleasesDetails.asp?ideanumber=74) This

effort could improve the company’s strength in the eyes of consumers, and shareholders.

Promoting responsible drinking by its customers will improve the company’s image. The

company’s reputation for concern with the ecology and recycling, and observing governmental

regulations and rules are two of its strong points.

Other indicators within the S.W.O.T. analysis are listed in the two tables, below. Even though

there are strengths, weaknesses, opportunities, and threats to and for the Miller Brewing

Company, they are not significantly different in their effect on the competitors.

Table 1

Strengths Opportunities

Strong brand image Compete in volume compared to Coors Lite Beer taste Draft taste in cans and bottles International presence Cooperate with governmental rules and

regulations Environmentally conscious Strong marketing efforts for Lite Beer.

Increased presence on the internet Emerging markets in Europe Emerging markets in Central Asia Emerging market in U.S. with ethnic

groups Ability to purchase smaller breweries Foreign investment Increased advertising budget

Weaknesses Threats

Weak brand identity over time – lack of advertising focus and consistency

Not seen as high quality Lack of dark beer line Taste known as inferior to Budweiser Seen as a mass producer Preservatives make it seem inferior Not associated with famous people Products not significantly differentiated

from major competitors Small advertising budget compared to

Anheuser-Busch Loss of brand loyalty with Miller High-

Life label Undifferentiated products, as compared

to close competitors

Government taxation increases Government rules and regulations

added Growth by closest competitors Lower priced imports and local

products Increase in competition from other

beverages (e.g. water, fruit juices, etc) Changing consumer preferences Price wars from competitors

Table 2

Strengths.

Company Resources is a distinctive strengthDiversification is a distinctive strengthInternational Product Line seems not to be a distinctive strength.Name Recognition is a distinctive strength.

A distinctive strength can be interpreted as a core

competency i.e. something that makes the organization competitive. Often a very successful organization may have only one such strength, but it is significantly exploited and yields success. A few distinctive strengths are quite acceptable.

Weaknesses.

Weak Brand Recognition in Emerging Markets is a symptomatic weakness.Strong Competition is a structural weakness.

A structural weakness is evident. These are areas in which

the organization lacks a distinctive competency. This type of weakness should raise the alarm in the organization. It points to a lack of distinctive competency. These weaknesses are serious, because the core on which survival depends is lacking. This weakness alerts management to do something about acquiring skills or developing the organizational capacity in this area. Often competition will have the distinctive competency and are thereby a serious threat to survival. Structural weaknesses often indicate the direction in which the Business Idea for the future (the strategic vision) needs to be developed. This indicates areas of desirable development, in order to be competitive.

You have symptomatic weaknesses and should therefore

look for its underlying cause and remedy the situation before this cause becomes serious.

Opportunities.

Emerging Markets is a current opportunity.Increased presence on the internet is a current opportunity.Focus on ethnic target markets is a current opportunity.Increased advertising is a current opportunity.

Current opportunities are evident. These are opportunities

that the organization could seize without too much trouble and should consider moving in this direction. This is often a case of not being able to see the wood for the trees where one becomes blind to very available options, mainly because of habitual activities in familiar territory.

Threats.

Increased Advertising from Competitors is an immediate threat.Governmental Regulations is an immediate threat.Governmental Taxation is an immediate threat.Changing Consumer Trends is an immediate threat.Lower Priced Imports is an immediate threat.

Short term (immediate) threats are indicated. These are

typically within the next 12 months. If these have been identified it demands that management deal with the implications. Sometimes the only way to deal with these types of threats is by a significant strategic response. If this threat cuts to the core of the business activity it could well be evidenced as a structural weakness. Only by dealing with the fundamentals of the business process can the situation be remedied. The best advice is a constraint monitoring of the horizon for any smoke signals. A unfortunate implication of a short term threat is that it forces an organization into an almost crisis response, this by implication can result in reactive management. Too much of this kind of management reaction can habituate into crisis management. The admonition here is that management should rather engage in excellent planning to foresee threats well ahead of time. Threats are often from the external environment and are often ignored by the preoccupations with operational matters.

Appendix A

International Locations and Brands for SABMiller

1. SABMiller plc is the second largest and most profitable brewer in China with 30 breweries and a combined capacity of more than 31 million hectoliters.

2. The world’s second largest brewer by volume.

a. The bottle produce beers in Central America

i. El Salvador

1. Pilsener

2. Golden Light

3. Suprema

4. Barrilito

5. Regia

6. Budweiser

7. Bud Ice

8. Heineken

9. Corona

ii. Honduras

1. Salvavida

2. Port Royal

3. Imperial

b. Asia

i. China

1. Zero Clock

2. Xibao

3. Shengquan

4. Huandan

5. Yate

6. Snow

7. Shenyang

8. He Shi

9. Yatai

10. Largo

11. Yingshi

12. Xibao

13. Tianjin

14. New Three Star

15. K-Lion

16. Sip

17. Xingyingge

18. Blue Sword

19. Green Leave

20. Lowen

ii. India

1. Continental

2. Castle Lager

3. Knock Out

c. Europe

i. Canary Islands

1. Dorada, Tropical, Pilsner Urquell, Carlsberg*, Volcan, Guinness˜, Kilkenny

ii. Czech Republic

1. Pilsner Urquell, Gambrinus, Radegast, Velkopopovicky Kozel, Primus

iii. Hungary

1. Dreher, Arany Ászok, Tuborg*, Hofbräu*, Kõbányai Sör, Kanizsai Világos, Kanizsai Korona, Pilsner Urquell*, Guinness˜, Kilkenny

iv. Poland

1. Tyskie, Lech, Redd's, Pilsner Urquell*, Debowe, Miller Genuine Draft

v. Romania

1. Ursus, Timisoreana, Keller, Pilsner Urquell

vi. Russa

1. Zolotaya Bochka, Try Bogatyrya, Holsten*, Miller Genuine Draft*, Pilsner Urquell, Velkopopovicky Kozel*

vii. Slovakia

1. Šariš, Smadny Mnich, Gambrinus*, Velkopopovicky Kozel*, Radegast˜, Pilsner Urquell˜

d. Africa

i. Angola

1. N'gola

ii. Botswana

1. Castle Lager, St Louis, Hansa Pilsener, Chibuku (Sorghum), Amstel, Carling Black Label, Castle Lite, Castle Milk Stout, Ohlssons, Redd's, Dooleys

iii. Ghana

1. Club, Castle Milk Stout, Vitamalt

iv. Kenya

1. Ranger, Castle Lager, Trophy, Redd's (distribution only)

v. Lesotho

1. Castle Lager, Carling Black Label, Hansa Pilsener, Castle Milk Stout, Lion Lager, Amstel, Redd's, Solantis, Maluti Premium Lager

vi. Malawi

1. Chibuku (Sorghum)

vii. Mozambique

1. 2M, Manica, Castle Lager, Castle Milk Stout, Redd's, Carling Black Label, Raiz, Laurentina, Laurentina Preta

viii. Swaziland

1. Castle Lager, Hansa Pilsener, Castle Milk Stout, Amstel, Carling Black Label, Castle Lite, Ohlssons

ix. Tanzania

1. Safari, Kilimanjaro, Castle Lager, Castle Milk Stout, Redd's, Ndovu, 49er, Balimi, Bia Bingwa

x. Uganda

1. Nile Special, Chairman's ESB, Club Pilsener, Castle Lager, Nguvu, BB Soda

xi. Zambia

1. Mosi, Castle Lager, Rhino, Chibuku (Sorghum), Shake Shake

xii. Zimbabwe

1. Castle Lager, Lion Lager, Golden Pilsener, Zambezi

e. South Africa

i. Castle Lager, Castle Lite, Castle Milk Stout, Lion Lager, Carling Black Label, Hansa Pilsener, Amstel*, Heineken*, Sterling Light Lager, Redd's Premium Dry, Redd's Premium Cold Fruit Ale, Brutal Fruit

f. North America

i. California, North Carolina, Ohio, Georgia, Texas, Washington, Wisconsin

1. Bleacher Blonde

2. Blitz Weinhard

3. Foster's Lager*

4. Foster's Special Bitter*

5. Get Down Brown

6. Hamm's

7. Hamm's Draft

8. Hamm's Special Light

9. Henry Weinhard's Amber Ale

10. Henry Weinhard's Blackberry Wheat

11. Henry Weinhard's Dark

12. Henry Weinhard's Hefeweizen

13. Henry Weinhard's Pale Ale

14. Henry Weinhard's Private Reserve

15. ICEHOUSE

16. Leinenkugel's Berry Weiss

17. Leinenkugel's Creamy Dark

18. Leinenkugel's Genuine Bock

19. Leinenkugel's Hefeweizen

20. Leinenkugel's Honey Weiss

21. Leinenkugel's Light

22. Leinenkugel's Northwoods Lager

23. Leinenkugel's Original Premium

24. Leinenkugel's Red Lager

25. Magnum Malt Liquor

26. Meister Bräu

27. Meister Bräu Light

28. Mickey's Malt Liquor

29. Miller Genuine Draft

30. Miller Genuine Draft Light

31. Miller High Life

32. Miller High Life Light

33. Miller Lite

34. Milwaukee's Best

35. Milwaukee's Best Ice

36. Milwaukee's Best Light

37. Olde English 800 Ice

38. Olde English 800 Malt Liquor

39. Olde English 800 Mixed Fruit

40. Presidente*

41. Rally Red

42. Red Dog

43. Shanghai*

44. Sharp's non-alcohol brew

45. Sheaf Stout*

46. Southpaw Light

47. Warning Track Wheat

Bibliography

1 http://www.quickmba.com/strategy/porter.shtml

2 http://www.millerbrewing.com/aboutMiller/aboutMain.asp

3 http://seattle.bizjournals.com/seattle/stories/2003/01/06/daily44.html