Competition in the Craft Beer Industry in 2016: World Wide Analysis of the attractiveness of the craft
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Competition in the Craft Beer Industry in 2016: World Wide
Analysis of the attractiveness of the craft beer industry at the time of the case. The question of industry attractiveness should bring to mind a specific framework (one having 5 elements (forces)) from Michael Porter. Please use a short separate paragraph for each force.
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I80 of the US beer market by volume belongs to only three companies in the total brewing industry the AnheuserBusch Brewing ABB Company 50 the Miller Brewing Company 18 and the Adolph Coors Brewing Company 11 A craft beer is defined as a beer made from allmalt or nearly allmalt is considered high quality and is produced by one of the four types of craft brewers A microbrewery is defined as a brewing company that produces less than 15000 barrels 465000 gallons of beer per year A brewpub is essentially a microbrewery that sells all of its product onsite at an adjoining restaurant A regional specialty brewer is defined as a brewery that sells more than 15000 but less than 2 million barrels per year A regional specialty contract brewer is a regional specialty brewer that uses excess production capacity of other firms to brew its product Microbrewing licensing and tax incentive breaks vary from state to state For example in Missouri a microbrewery is defined as producing 10000 barrels or less while in Washington a microbrewery is defined as producing less than 60000 barrels Microbreweries and brewpubs are taxed at a much lower rate per barrel than both national and the larger regional breweries Breweries producing less than 60000 barrels enjoy an 11 rebate on the 18 government surcharge per barrel The remaining 17 of the US beer market is divided among the smaller national and regional brewers Pabst Brewing DG Yuengling Son and import companies like Heinekein Corona and DiageoGuiness USA Craft brewing Distribution Chains Regional specialty and contract specialty breweries sell through a threetier system brewer to wholesaler to retailer to consumer Microbreweries sell through either the threetier system a twotier system in which the brewer also operates as the wholesaler andor directly to the consumer through onsite sales and taprooms Brewpubs sell their beers onsite they may sell bottled product through the same system as the microbreweries if they have also obtained the relevant licensing Industry Trends The craft brewing industry saw rapid expansion between 1992 and 1996 increasing volume sales between 25 and 70 percent per year and became highly fragmented The industry underwent a moderate amount of downsizing in the late 1990s as the craft beer market matured However volume sales have increased each year since 1980 and have grown a steady 13 since 2001 3 In 2002 57 breweries in the United States sold more than 15000 barrels of beer and in 2003 all craft brewers sold 66 million barrels of beer Type Barrels sold 2003 Barrels sold 2002 Contract 943077 1053314 Regional Specialty 4405437 3972326 Microbrewery 690075 752975 Brewpub 614872 654132 Total sold 6653461 6432747 Consumer Trends The recent popularity of lowcarb diets has had a negative impact upon the image of the beer market as a whole In addition baby boomers typically cut back on beerdrinking as they age and young consumers are increasingly finding more beverage satisfaction in spirits 5 The entire beer market is projected to grow less than 1 percent in 2004 5 Additionally there has been significant reduction in college age drinking patterns roughly 30 less alcohol consumption than in 1982 6 However the image of craft beers has gained a strong foothold as a sophisticated alcholic beverage suitable for moderationtempered enjoyment with dinner and has been unfazed by the larger market trends According to Paul Gatza director of the Association of Brewers craftbeer volume should grow between 4 percent and 6 percent this year 2004 7 And Generation Y those born after 1980 are considered fertile ground for the sophisticated appeal of craft beers Porters Five Forces Analysis of the Craft Beer IndustryPlease note that the analysis does not consider brewpubs in the context of restaurant industry Barriers to Entry The barriers to entry are fairly low to enter the craft brewing industry Startup equipment can be purchased for approximately 25000 and the material costs for hops barley and water are low While there are significant economies of scale and scope in the larger beer industry they are much less significant within the craft brewing industry However limited access to distribution channels does present a barrier to entry The wholesale beer market is highly concentrated with most geographic markets having only three or four beer wholesalers 8 These wholesalers generally demand a reasonable variety of beers Thus existing market participants that can expand their product lines have an advantage over new entrants There is also a proprietary learning curve to the brewing process creating another barrier The government plays a large role in the craft brewing industry and does present a barrier All craft brewers must comply extensive laws relating to state and federal licensing requirements marketing and advertising practices and distributor relationships Brewpubs would additionally face all the capital and marketing requirements of a mid to upscale restaurant Supplier Power There is little supplier power within the craft brewing industry The physical components required in the production and packaging of craft beer which include hops bottles packaging products and water are homogenous in nature and may be considered commodity products 8 There are also a large number of suppliers in the market and there is little threat of supplierinitiated forward integration Buyer Power Buyer power is high within the industry The craft beer industry participants have relatively little power relative to the three or four area wholesale distributors In addition many of the distributors have agreements with the larger national brands making it difficult for craft brewers to obtain distribution Retailers are also hesitant to stock craft brands without a proven sales record While craft beers have higher profit margins volume sales are lower making retailers very slow sell products They stay with more established regional craft beers like Sam Adams Boston Lager of the BBC Consumers of craft beers also tend to have low brand loyalty and switch products regularly for experience and change Threat of Substitutes Products that have similar product performance uses and occasions for uses that may affect the demand for craft beers include American standard beers imported beers and other alcholic beverages like wine malternatives flavored malt drinks and spirits The two products most similar to craft beers are high quality imported beers and beers produced by the US industry leaders and heavily marketed as a specialty beer As reported earlier imported beers had 11 of the market share in 2003 Additionally AnheuserBusch now owns stakes in several regional specialty or microbreweries as do Coors and Miller These partially owned regional brewers gain access to the resources of the must larger parents The parent firms which leverage vast economies of scope and scale are able to heavily market both the regionally owned and their own specialty brands These are the biggest threat to the crossprice elasticity of demand for craft beers Brewpubs face the additional challenges of extreme threat of substitutes from all manner of restaurants Rivalry While there are a number of competitors within this industry they are for the most part small privately owned highly fragmented and geographically marketed BBC and Sierra Nevada Brewing Co ... 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Related Book For
Management Accounting
ISBN: 9780730369387
4th Edition
Authors: Leslie G. Eldenburg, Albie Brooks, Judy Oliver, Gillian Vesty, Rodney Dormer, Vijaya Murthy, Nick Pawsey
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