The Beer Industry

The Beer Industry

In 2011 there were 1.341 beer breweries in Germany (Deutscher Brauer-Bund e.V., 2012) - a country in which beer plays an essential part in tradition and culture (Carroll et al., 1993). Apart from Germany, with a market volume of approx. 170,000 million litres in 2010, beer is the third most popular drink in the world, after water and tea (Nelson, 2005). This beverage is managed by a powerful industry, as it generated total revenues of about $500,000 million in 2010 and is forecast to have an increase of approx. 12% by 2015 (MarketLine, 2012).

Different regional and national tastes as well as different brewing methods and ingredients resulted in a great number of breweries across the globe. Globalisation has led to a shift in the beer industry, as it elaborated from an industry that concentrated on domestic markets in the past to an international industry which acts on the global market (Karrenbrock, 1990). AB-InBev, SABMiller, Heineken and Carlsberg can be identified as the main players in this industry, holding nearly half the total market volume (MarketLine, 2012). They have acquired or merged with local brewers over the past decade (The Economist, 2011). A recent example would be the acquisition of Tiger by Heineken (Neville, 2012).

While the industry is faced by a shift of consumer demand in developed markets, the emerging markets project a principal source of volume growth. It is expected that there will be a negative volume development in North America and Western Europe at approx. -0.5%, whereas the growth trend by volume in Africa, Asia and Latin America is expected at around 4% (see Appendix 1) (SABMiller, 2012).

In the following, the competition as well as the important fact of marketing, which plays a serious role in today's beer industry, will be elaborated. Furthermore, there will be a link to Porter's five forces and the drivers of globalisation will be described. In order to give an idea how the industry will be evolving the future trends will be outlined.

Competition in the Beer Industry

As mentioned before, there are four main competitors that dominate the global beer market. Appendix 2 shows that AB-InBev is the leading company with a market share of 19.3%, followed by SABMiller (9.7%), Heineken (9.3%) and at fourth position Carlsberg (6.4 %) (Credit Suisse, 2010). Even though there is conflicting data about the exact market shares in 2010, according to Credit Suisse in comparison to MarketLine, the ranking of the big three (AB-InBev, SABMiller, Heineken) is the same (MarketLine, 2012). This ranking did not change in 2011 according to the published revenues of the these brewers (AB-InBev,2012; SABMiller, 2012 1; Heineken International, 2012; Carlsberg, 2012). This means the big four account for almost half of the global beer market and the rest of the market is highly fragmented. According to Credit Suisse, 32.7% of the global market were in the hand of breweries with less than 1% market share each (Credit Suisse, 2010). Germany is a good example of a highly fragmented local brewery market. Here 81% of the market is dominated by smaller breweries with a market share of less than 1% (Credit Suisse, 2010). In consequence, two main groups of competitors can be identified, namely the local breweries and the internationally operating conglomerates. In the local markets, local breweries compete between each other but also with the brands of the big four. On a global scale these compete between each other for market share through e.g. acquisition.

Marketing in the Beer Industry

Following Shy's (1995) game theoretic theory concerning marketing, the beer industry uses an informative advertising strategy in the saturated markets. Since consumers are familiar with the product beer itself, it is more a matter of persuading users to drinking their brand, rather than persuading them to drink beer itself. Since emerging markets are less saturated, a different tactic is used. Most actors use persuasive advertising in order to create a shift from other spirits to beer. This is illustrated in Miller's analysis of the worldwide 2011 market (SAB Miller, 2012 2). Persuasive marketing is used in emerging markets in order to establish growth, whereas informative marketing is used in the saturated markets to highlight differences between different brands. As Mignani et al. (2012) describe, the highly differentiated market has caused a more difficult recognition of individual brands. Therefore, it is not enough to compete only on price in saturated markets. "A holistic approach that satisfies a sense of good mood and positive emotions is a more modern, attractive, and consumer-oriented tactic, which equates quality with all the desirable properties that a product is perceived to have" (Mignani et al., 2012). However, brand development is seen as the most important factor in both, the emerging and the saturated markets and is therefore the key feature in a breweries' marketing strategy (SAB Miller, 2012).

Porter's Five Forces Analysis

As a framework for the analysis in this paper, Porter's five forces analysis will be used to describe the industry. Appendix 3 shows MarketLine's (2012) assessment of the global beer industry. On a global scale, as the marketing section already indicated, the degree of rivalry is a big determinant in the forces active. Entering the market is difficult for new entrants since marketing predominately determines the willingness of consumers to buy. Competition therefore situates largely around the biggest players in the markets, which hold 41% of the total beer market (MarketLine, 2012). Again a difference can be made between the emerging and saturated markets. In saturated markets there are higher barriers to enter as there are numerous brands established in terms of brand development and marketing. As an entrant in an emerging market, entering finds less barriers since the main target is situated around acquiring new customers. However, bigger players in the market have more bargaining power and more marketing knowledge.

Drivers for Globalisation

In the last 20 years globalisation accelerated substantially, causing major changes in market structures, while influencing demand and tastes. It also enabled isolated markets to open up and the possibility for their emergence. These trends offered opportunities as well as threats. In this section we introduce the main drivers why breweries internationalised.

The beer industry was, and still is, a very competitive and fragmented market. Free international competition enabled formerly regional players to sell across the globe (Madsen et al., 2011). One of the main drivers