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The European Brewing Industry

The other 12 national commitments of The Brewers of Europe work to address


issues as important and diverse as:

De-normalising the binge drinking phenomenon in Finland; Knowledge in Italy of


the national Association of Obstetricians and Gynecologists’ guidance on alcohol
and pregnancy; Helping to tackle underage consumption in Belgium, Germany,
Poland and Romania; Discouraging drink-driving in Denmark, Poland and Spain;
and Promoting responsible consumption in Denmark, the Netherlands and Spain.
A further, key characteristic of The Brewers of Europe’s 25 commitments is the
number and diversity of partnerships with those wishing to support, finance and
associate themselves with the brewers’ commitments. Partners include
governments at national, local and regional level; national road safety
authorities; driving schools; the police; young adult volunteers; health and
medical associations; consumer groups; self-regulatory organisations; other
NGOs; media; and other parts of the industry. This local, multi-stakeholder
approach taken by The Brewers of Europe was recognised by the European
Commission at the meeting of the EU Alcohol and Health Forum’s Plenary in
November 2008, when an analysis of the Forum commitments so far filed was
presented to the Forum members.

Organisation & Mission

Founded in 1958 and based in Brussels, The Brewers of Europe is the voice of the European brewing
sector to the European institutions and international organisations.

Current members are the national brewers’ associations from EU Member States, plus Norway,
Switzerland and Turkey. To view the complete list of member associations click on Members.

The Brewers of Europe encourages an open dialogue between its members in relation to all issues falling
in the remit of the association.

By promoting its interests and advising the EU institutions on all aspects of policy and legislation affecting
the brewing sector, The Brewers of Europe is thus able to inform the institutions of its special needs and to
ensure that legislative initiatives take their requirements into consideration.

The Brewers of Europe objectives:

 To guarantee the European brewing sector right to be competitive and innovative, whilst promoting
its responsibility in key areas such as environment, food safety, nutrition and health as well as
commercial communications

 To enhance and strengthen sustainable production of beer

 To support these objectives by instigation of scientific research, technology development and best
practice dissemination across the sector

The Brewers of Europe priorities:

 To advocate moderate and responsible beer consumption as part of a balanced, healthy and
social life style
 To promote initiatives and campaigns to inform consumers of the benefits of moderate beer
consumption and the risk of alcohol abuse

 To support and initiate continued independent scientific research into the relationship between
beer consumption, health and behaviour and into issues relating to quality and safety throughout
the supply chain

 To promote independent self-regulation as an effective and credible alternative to the consumption


control approach

 To fight excise distortions throughout Europe

Beer and Society


- Beer, Health and Behaviour
- Responsible Consumption
- Self-Regulation
- Commercial Freedom

The beer & society Issue Management Team attends to:

 securing the brewing industry's freedom to innovate, promote and market its products responsibly;
 advocating beer as a social drink which, consumed responsibly, can contribute to a healthy
balanced diet and is enjoyed as such by tens of millions of people throughout Europe;
 encouraging further independent research supporting this affirmation and disseminating the results
in a credible and intelligible format;
 promoting the important role The Brewers of Europe play in raising awareness of the implications
of inappropriate consumption and their proven record of achievements in initiatives to combat
misuse;
 demonstrating the brewing industry's ability to conduct its business responsibly by effective self-
regulation of its commercial communications and the active promotion of the highest ethical
standards;
 exchanging best practice in above mentioned fields;
 establishing and maintaining structured dialogue with the relevant European and international
organisations as well as a variety of Stakeholders on above mentioned issues.

Technical Issues

- Food Safety
- Environment Issues
- Labelling Issues

The Technical Issue Management Teams attend to minimizing regulatory, technical and environmental
constraints on the production of beer and access to market with the objectives of containing compliance
costs and promoting sustainability. These three Issues Management Teams cover Food Safety; the
Environment; as well as Labelling issues.

The various technical departments follow the legislation arising from above mentioned issues and acts as a
forum for comparing national implementation of European Directives.

In addition, the Committee pursues points of common concern with other professional organisations such
as EUROMALT (Maltsters), CEPS (Spirits), CEV (Wine), AIN (Cider) and CIAA (European Food & Drink
Association).

Fiscal Issues

- Taxation
- Trade Distortions

The Fiscal Issue Management Team addresses the issues of the European Fiscal Policy, covering mainly
Taxation and Trade Distortions. The excise duty rates in the Member States differ widely which leads to
unacceptable distortions of free trade for the consumer and for the industry as well as to fraud, smuggling,
unrecorded consumption and unfair competition between citizens of the same countries. These special
allowances break the principles of the single market.

The European Brewing Industry faces distortions of competition between beer and wine and distortion of
tax induced trade and investment. The Fiscal Committee pursues a removal of all tax induced distortions of
demand, trade and competition

The Fiscal Issue Management Team lobbies for the policy that beer excise rates in all Member States are
reduced to the lowest possible level. Its areas of interest include any fiscal issue having a direct or indirect
impact on the European Brewing Industry. It particularly comprises beer excise rates and VAT.

By monitoring the developments at the European level with regard to changes in the EU tax policy, the
Fiscal Committee collects and exchanges information on developments of national tax policies and excise
rates as well as TVA rates.

It pursues the policy of reducing excise rates to the lowest possible level in order to remove distortions of
tax induced trade and investment, distortions of competition between wine and beer as well as the
incentive for paper fraud and smuggling.velopments of national tax policies and excise rates as well as
TVA rates.

Communications

The Communications department interacts with all the Issue Management Teams
within The Brewers of Europe to suggest ways of addressing the diverse issues it
covers. It helps the brewing industry to achieve its policies with the European
Institutions and other associations.

The Communication Committee acts as a satellite by ensuring that the policies agreed
are presented in the most effective way. Therefore,
managing both the internal as well as the external relations with the press and lobbying campaigns with the
European Institutions.

The Brewers of Europe Press Releases, Public Relations, events and symposium are also managed by the
Communications department, who helps in developing, launching as well as organising its social activities
and receptions such as the bi-annual European Parliamentary Bier Club Receptions.

To find out about The Brewers of Europe publications, please go to Publications.

The Brewers of Europe is a Member of the Worldwide Brewing Alliance


The Worldwide Brewing Alliance
The Worldwide Brewing Alliance (WBA) involves brewing trade associations from around the world. It
represents the brewing industry in Australia, Canada, Europe, Japan, Latin America, Russia and the USA
(almost 60% of the beer production worldwide)*.

Its members are listed below:


- Australian Associated Brewers Inc.
- Beer Institute of the USA
- Brewers Association of Canada
- Brewers Association of Japan
- British Beer and Pub Association
- Cerveceros Latinoamericanos (whose membership includes Latin American Brewers and trade
Associations)
- The Brewers of Europe (whose membership encompasses European brewing trade associations)
- Union of Russian Brewers

The objective of the Alliance is to seek general acceptance that the brewing sector is a responsible
stakeholder and the actions taken by it are credible.

It facilitates exchange of good practice and information in social responsibility and product integrity issues.

*The Beer Wines & Spirits Council of New Zealand was one of the founder members of the WBA but
ceased to be a member on 31 December 2006 due to closure of the Association.

Political factors or how and to what degree a government intervenes in the


economy. Specifically, political factors include areas such as tax policy, labour
law, environmental law, trade restrictions, tariffs, and political stability. Political
factors may also include goods and services which the government wants to
provide or be provided (merit goods) and those that the government does not
want to be provided (demerit goods or merit bads). Furthermore, governments
have great influence on the health, education, and infrastructure of a nation.

Economic factors include economic growth, interest rates, exchange rates and
the inflation rate. These factors have major impacts on how businesses operate
and make decisions. For example, interest rates affect a firm's cost of capital and
therefore to what extent a business grows and expands. Exchange rates affect
the costs of exporting goods and the supply and price of imported goods in an
economy.

Social factors include the cultural aspects and include health consciousness,
population growth rate, age distribution, career attitudes and emphasis on
safety. Trends in social factors affect the demand for a company's products and
how that company operates. For example, an ageing population may imply a
smaller and less-willing workforce (thus increasing the cost of labor).
Furthermore, companies may change various management strategies to adapt to
these social trends (such as recruiting older workers).
Technological factors include ecological and environmental aspects, such as R&D
activity, automation, technology incentives and the rate of technological change.
They can determine barriers to entry, minimum efficient production level and
influence outsourcing decisions.[citation needed] Furthermore, technological
shifts can affect costs, quality, and lead to innovation.

Environmental factors include weather, climate, and climate change, which may
especially affect industries such as tourism, farming, and insurance.Furthermore,
growing awareness to climate change is affecting how companies operate and
the products they offer--it is both creating new markets and diminishing or
destroying existing ones.

Legal factors include discrimination law, consumer law, antitrust law,


employment law, and health and safety law. These factors can affect how a
company operates, its costs, and the demand for its products.

There are many factors in the macro-environment that will effect the decisions of
the managers of any organisation. Tax changes, new laws, trade barriers,
demographic change and government policy changes are all examples of macro
change. To help analyse these factors managers can categorise them using the
PESTEL model. This classification distinguishes between:

• Political factors. These refer to government policy such as the degree of


intervention in the economy. What goods and services does a government
want to provide? To what extent does it believe in subsidising firms? What
are its priorities in terms of business support? Political decisions can
impact on many vital areas for business such as the education of the
workforce, the health of the nation and the quality of the infrastructure of
the economy such as the road and rail system.

• Economic factors. These include interest rates, taxation changes,


economic growth, inflation and exchange rates. As you will see throughout
the "Foundations of Economics" book economic change can have a major
impact on a firm's behaviour. For example:

- higher interest rates may deter investment because it costs more to


borrow
- a strong currency may make exporting more difficult because it may
raise the price in terms of foreign currency
- inflation may provoke higher wage demands from employees and
raise costs
- higher national income growth may boost demand for a firm's
products

• Social factors. Changes in social trends can impact on the demand for a
firm's products and the availability and willingness of individuals to work.
In the UK, for example, the population has been ageing. This has
increased the costs for firms who are committed to pension payments for
their employees because their staff are living longer. It also means some
firms such as Asda have started to recruit older employees to tap into this
growing labour pool. The ageing population also has impact on demand:
for example, demand for sheltered accommodation and medicines has
increased whereas demand for toys is falling.

• Technological factors: new technologies create new products and new


processes. MP3 players, computer games, online gambling and high
definition TVs are all new markets created by technological advances.
Online shopping, bar coding and computer aided design are all
improvements to the way we do business as a result of better technology.
Technology can reduce costs, improve quality and lead to innovation.
These developments can benefit consumers as well as the organisations
providing the products.

• Environmental factors: environmental factors include the weather and


climate change. Changes in temperature can impact on many industries
including farming, tourism and insurance. With major climate changes
occurring due to global warming and with greater environmental
awareness this external factor is becoming a significant issue for firms to
consider. The growing desire to protect the environment is having an
impact on many industries such as the travel and transportation industries
(for example, more taxes being placed on air travel and the success of
hybrid cars) and the general move towards more environmentally friendly
products and processes is affecting demand patterns and creating
business opportunities.

• Legal factors: these are related to the legal environment in which firms
operate. In recent years in the UK there have been many significant legal
changes that have affected firms' behaviour. The introduction of age
discrimination and disability discrimination legislation, an increase in the
minimum wage and greater requirements for firms to recycle are
examples of relatively recent laws that affect an organisation's actions.
Legal changes can affect a firm's costs (e.g. if new systems and
procedures have to be developed) and demand (e.g. if the law affects the
likelihood of customers buying the good or using the service).

Different categories of law include:

• consumer laws; these are designed to protect customers against unfair


practices such as misleading descriptions of the product

• competition laws; these are aimed at protecting small firms against


bullying by larger firms and ensuring customers are not exploited by firms
with monopoly power

• employment laws; these cover areas such as redundancy, dismissal,


working hours and minimum wages. They aim to protect employees
against the abuse of power by managers
• health and safety legislation; these laws are aimed at ensuring the
workplace is as safe as is reasonably practical. They cover issues such as
training, reporting accidents and the appropriate provision of safety
equipment

Typical PESTEL factors to consider include:

Factor Could include:

Political e.g. EU enlargement, the euro, international trade, taxation


policy

Economic e.g. interest rates, exchange rates, national income, inflation,


unemployment, Stock Market

Social e.g. ageing population, attitudes to work, income distribution

Technological e.g. innovation, new product development, rate of


technological obsolescence

Environmental e.g. global warming, environmental issues

Legal e.g. competition law, health and safety, employment law

PEST Analysis - The European Brewing Industry

- Poland, Hungary and the Czech Republic will join within five years- these
countries have young populations with a desire for all things Western.

- ING Barings predicts growth in these economies to average 8% p.a. over the
decade after which they join the EU.

- Europe is moving towards becoming a single market with a stable political


environment.
- The current pressure on Europe from America and Australia to reduce
agriculture subsidies could result in a change in the industry’s raw material
supply base.

- VAT & Duty rates vary across Europe- VAT ranges from 15% in Luxembourg to
22% in Finland , while UK duty levels are seven times higher than those in France
.

- Per Capita GDP in Europe has risen from $11,500 in 1989 to $16,800 in 1999 .
GDP growth for 2000 is estimated to be 2.8% .

- Many stocks are now traded in Euros- investors can compare stocks across
Europe easily and see which companies are lagging against their competitors.

- EMU has lowered interest rates- Spanish companies can now access the same
interest rates as German companies, compared to four years ago when they paid
4.5 percentage points more in interest than German companies . This creates a
level playing field for all European companies seeking access to capital.

- The value of M&A activity in the EU is $1.3 trillion per annum- a 400% increase
on 1994 - this is leading to a pan-European economy.

 Energy Costs & Availability

- Deregulation of state monopolies has brought more competition among


suppliers and a fall in the price of gas and electricity.

- World population is expected to grow from 6bn now to 9bn by 2050. The
developing world accounts for 95% of this growth .

- People are becoming more health conscious, and more active in leisure and
recreation.
- The consumer backlash against GM crops and protests at the WTO meeting
signify how the values of consumers can affect the activities of businesses.

- The internet has redefined the concept of commerce, and has forced every
organisation to look at the way it operates.

- Increased efficiency in production from new technologies has brought down


unit costs, giving larger manufacturers huge economies of scale.

- Companies competing in the future will need to have the ability to make
intelligent alliance and acquisition decisions as the need to gain economies of
scale forces companies to seek growth opportunities.

- Successful companies will have to strike a balance between the forces of


globalisation and the need to maintain a local focus on each market.

- Companies will need decision-makers who can respond quickly and effectively
to changing markets and who can predict market changes before competitors.

- Companies will also need flexible practices in the areas of production and
logistics to be able to respond to change.

- Companies operating in industries which have fallen foul of public opinion may
not survive.

- A marketing strategy which ignores the diversity of cultures across Europe.

The Internal Resources of the Brewing Industry

“The goal of any strategist is to find a position in the industry where his or her
company can best defend itself against the forces which exist in the industry, or
to use them in its favour” .
The Brewing Industry will have to recognise the forces which define the industry,
and examine how these will affect the performance of the industry in the future.

Anheuser Busch of the US has twice the capacity of any European brewer. AB
could use its vast economies of scale, or its financial resources to acquire an
established European brewer to enter the market.

Harp Lager held 80% of the lager market in Ireland before Budweiser and
Heineken launched massive brand building campaigns . Global brewers can
spend large amounts to differentiate their brands from local brews. This strategy
could be used by a non-European brewer wishing to gain market share.

A new beer would have to displace European brands from supermarket and bar
shelves. Ownership of the distribution chain by existing brewers would make it
difficult to achieve this. The power of retail chains would enable a new entrant to
deal directly with them – their buying power would give any new entrant
significant economies of scale.

The UK government has moved to limit the concentration of companies in the


top end of the brewing industry - this offers a level of protection to British
brewers against foreign rivals.

European industry growth is slow- UK production is to fall by 1 million barrels


over 5 years - a new entrant could damage the financial position of European
brewers.

- The brewing industry is an important customer of European grain producers- if


beer sales fall, sales of grain also fall- it is in the best interests of the producers
to promote reasonable pricing. Switching costs for the brewers are also low- it
would be easy for the brewers to source grain elsewhere.

- The retailer’s market share is now 60% across Europe. 13% of the beer sold is
own-label beer . Retailers can source these beers from any brewer, placing
downward pressure on the price paid to brewers.
- The opportunity to integrate backwards by retailers is low, so retailers cannot
use that threat to push down price.

- Consumers also have power over the brewers- there is no cost to the consumer
for switching from one brew to another.

- Substitutes to beer include soft drinks, wine, cider, and spirits.

- Industry growth is slow- consumption dropped 0.5% between 1992 & 1998
-falling volumes have intensified competition between existing brewers as they
try to maintain market share. A new entrant would have to take market share
from the already suffering European brewers.

Key Strengths and Weaknesses of a Successful Company in the Future

- The ability to use imaginative branding to differentiate its products.

- Sufficient scale economies to fight new entrants.

- The ability to lobby government to influence policy.

- The development of long-term supplier relationships.

- An over-reliance on the retail chains.

- The inability to create switching costs to prevent consumers from switching


from one beer to another.

- An over-reliance on the European market- there are few global brewers from
Europe .
- Diageo displays the ability to build on the power of the Guinness brand to
create new products such as Breo and Guinness Extra Cold.

- Diageo also shows the ability to differentiate its products through the use of
proprietary technology- the patented “widget” cans are an example.

- The brewing division of Diageo now has access to the distribution channels of
the spirits division. When the benefits of the merger between Guinness and
Grand Met are realised, the beer division will get the benefits of lower
administrative, distribution, and marketing costs.

- Guinness as a brand is well established world-wide.

- A chain of Irish pubs across Europe provides a guaranteed distribution channel


and the chance for promotions at the point of sale. These pubs helped to achieve
a 9% volume growth in Europe this year .

- The strategy of licensing production rather than investing directly in overseas


breweries cuts down on the company’s fixed asset investments and the provides
the opportunity to exit any underperforming markets quite cheaply.

- Even though Guinness products are available world-wide, $1.45bn of the


company’s $3,520bn turnover comes from the Irish market. Such an over-
reliance would have an impact on the group’s performance if the Irish economy
were to go into recession.

- The specialist beer market is growing rapidly, and consumers are willing to pay
significantly higher prices for them . The Diageo brand portfolio does not include
any speciality beers.

- Diageo has only two lagers in its portfolio, neither of which are international
brands. This weak portfolio means that Diageo is lagging behind in the lager
sector, the largest part of the beer market .
- The company’s tactic of licensing the brewing of its products in overseas
markets could be a source of weakness. This method of international expansion
could prove risky - there is a danger that overseas agents pay more attention to
their own domestic brands than those of Diageo.

- The brewing division of Diageo accounts for only 17% of the overall group
turnover - there is a danger that management resources could be focused on the
larger spirits and restaurant divisions to the detriment of Guinness.

- EU expansion will bring new markets and millions of potential customers.

- Population growth in the developing world will bring additional customers in the
future.

- Chinese beer consumption is growing by 10% p.a.- it is now the second largest
market behind the US . Diageo could acquire a Chinese brewer to gain access to
the market for its major brands, while also using some of the brands of the
acquired company to meet the global demand for speciality beers.

- The growing popularity of specialist beers - consumers of these beers are not
particularly price sensitive, and they offer higher margins than ordinary beer.

- UK supermarkets are to cut the number of slow-selling beer lines stocked , a


move which would cut off a major distribution channel for small brands like Harp.
Even though Harp has a small share of the British market, any such move by the
retailers would cut out the only lager Diageo offers.

- EMU will bring price transparency and could expose the practice where beers
are sold and priced as ordinary beers in one country and as premium beers in
another.

- An increasingly health conscious society could cause a fall in beer sales.

- The rapidly consolidating beer industry could make Diageo an insignificant


player if it fails to make its own acquisitions or seek partnerships.
- The current public opposition to GM foods may focus on GM ingredients in beer.

- Microbreweries pose a threat to the major brewers- these microbreweries give


people the chance to experiment with beers other than mass-market beers.

- Diageo is banking on the emergence of a small number of global beer brands.

- The company’s focus on four Irish beer brands could prove to be a mistake-
local beer brands still dominate the world market. The current strategy does not
reflect the reality of the world beer market in which the top ten brewers only
hold one-third of the market .

- It is difficult to understand why Guinness sold Cruzcampo in Spain to Heineken,


one of its main rivals. This deal has given Heineken a massive market share in
Spain, and removed another potentially valuable brand from the Diageo
portfolio.

- Diageo’s core strategy is to “grow the volume of the Guinness Stout brand
world-wide by attracting new consumers in developed and emerging markets” .
Unlike Heineken , Diageo does not acquire the brands of foreign brewers-
instead, it enters license agreements with overseas breweries to produce the
Guinness brands.

- This method is linked to the company’s strategy of concentrating on a few core


brands.

- Licensing agreements give the benefit of the expertise and market knowledge
of local brewers, while minimising the capital investment required to enter new
markets.

- However, there is a danger that local partners will not see the promotion of
Guinness products to be as important as the success of their own existing
brands.
- The concentration on Irish beer brands may hinder any planned moves by
Diageo into Asia where stout and ale would be very much a small component of
the beer market.

- Guinness invests heavily in advertising, and has proved with the launch of
Kilkenny its ability to build a major new product from scratch through high levels
of advertising.

- In Ireland, Guinness sponsors the Cork Jazz Festival and the Hurling
Championship. Heineken’s sponsorship strategy seems wiser- it sponsors music
concerts aimed at younger drinkers, generating loyalty from an early age. Patrick
Conway of Murphy’s describes the flaws in the Guinness strategy- “If your brand
is not recruiting younger drinkers, it’s losing lifespan”

- Stressing the “Irishness” of the products may not be of relevance potential


customers in Asia and Africa.

Steps to Improve the Performance of Diageo Over the Next Three Years

- The company should seek to gain a competitive advantage over rivals by


seeking out synergies between itself and the other branches of the group. For
example, the opportunity exists to market its products in the Burger King
restaurants where possible.

- Whitbread in the UK, which owns the Stella Artois brand, is currently
considering the disposal of its brewing operations . Such an acquisition would
provide Guinness with a premium beer in the form of Stella Artois, which it could
use to tap into the speciality beer market.

- Because local brands make up the majority of world beer sales, Diageo is
limiting its growth potential by keeping its product portfolio small. The company
should seek out the acquisition of local beers in foreign markets. These local
beers would then provide a platform on which to introduce Diageo’s existing
beers into new markets.
- One possible acquisition would be a Central European brewer in advance of the
region’s entry to the EU.

- The company also needs to acquire a major mainstream lager as Harp is not
performing well in the world lager market.

- The company should take control of overseas production, and move away from
the licensing policy it employs. This would give the company more control over
the marketing and production of its products.

- Diageo needs to build strong partnerships with retail customers to temper their
growing power. Category management and promotional activities could provide
strong future growth .

- These partnerships could also help Diageo to take advantage of the own label
beer market, which now accounts for 13% of the total market in Europe .

- Diageo needs to keep up to date with new advances in production technologies


which can bring lower production costs. Cost savings from new technology could
be diverted into marketing as the need for product differentiation through
branding increases.