PESTLE analysis example

A Political, Economic, Sociological, Technological, Legal and Environmental (PESTLE) analysis is a method of assessing the business environment. The six sections of the analysis create a framework you can use to review any strategies you have in place or to work out a new direction, product or plan for your business. The example below shows the type of information you should include in a PESTLE analysis. It also includes fictional examples of a product for overseas sale.

Analysis factors

Example

Implications and importance

How certain factors may affect the business

Time frame eg: 0-6 months 6-12 months 12-24 months

Type eg: Positive Negative

Impact - eg: Increasing Unchanged Decreasing

Importance - eg: Critical Important Unimportant Unknown

Unknown Unknown

Political - eg international trading policies

eg - possible trade barriers to protect domestic suppliers

Unknown

Negative

Increasing

Unknown

Economic - eg current UK economical situation

eg - strength of overseas economies versus UK may affect price/profitability

6-12 months (possibly longer)

Unknown Unknown dependent on the economy, and other countries' economies

Important

Social - eg overseas attitudes and opinions to product

eg - will product be accepted overseas?

6-12 months

Unknown Unknown

Critical

Technological - eg new technologies

eg - can intellectual property rights be protected overseas

0-6 months

Negative

Unchanged

Important

Legal

eg - overseas product regulations

0-6 months

Negative

Unchanged

Critical

Environmental eg sustainability

eg - pollution implications of transportation

n/a

Possibly negative

Unknown

Unknown

1 Brewing Industry Case Study Module: Strategic Planning ProcessLecturer: Michael ShovelinDate: 04th September 2010Postassignment: Case exampleGlobal Forces and the European brewing industry-----------------------------------------------This assignment is based on the case example Global forces and the European brewing industry and relates to two questions raised in chapter 2 at the end of the case example (Johnson et al. 2008, p.91) of the book Exploring Corporate Strategy: Text and Cases by Johnson, Scholes and Whittington.1.) Using the data from the case (and any other sources available), carry out for the European brewing industry (i) a PESTEL analysis and (ii) a five forces analysis. What do you conclude?(i) PESTEL analysis One tool to analyze the broad macro-environment is the PESTEL analysis. In the PESTEL analysis environmental influences are categorized into political, economical, social, technological, environmental and legal aspects. It helps to identify how future trends might influence an organization and furthermore, to identify the key drivers of change to create scenarios for the possible future .Political factors There is an overall decline of consumption of Beer in Europe as many traditional key markets have been made increasingly aware of the social problems associated

with alcohol consumption. Factors could be the active campaign of European governments against drunken driving, binge-drinking and consequently the long term health and fitness problems. Economic factors In the case study there is the talk of the overall decline of European beer consumption, while there was an increase in emerging markets (e.g. China, Brazil) around the world. This could be because of the government campaigns which caused a shift in sales from the ontrade (beer consumed in pubs or restaurants) to the off-trade (retail/supermarkets). Moreover, the success of German supermarkets like Aldi and Lidl with their own private label beers rather than the brewery-branded beers has an influence on the European brewing industry. Supermarkets are offering cut price offers. Also the rise of the main purchasing costs like packaging, raw material and energy will have influence on the beer price e.g. Heineken). Also, the increase of fuel prices which will affect the distribution network, thus transportation costs will increase. Besides, due to the economic crises the breach between rich and poor is steadily growing and thus many people cannot afford any more to go out for dinner or having a beer. Through legal restrictions the demand for alcohol in public places could declines. Furthermore, acquisitions, licensing and strategic alliances have occurred because the leading brewers battle to control the market. The global pressures for consolidation due to overcapacity within the industry are another point that influences this industry. There is a growingtrend towards cross-border mergers and acquisitions. Introduction of higher-priced premium products let sales values raise. If there are natural disasters like previously the fires in Russia this has an impact on the prices of the raw material. Social/cultural factors Wines have become increasingly popular in the Northern European markets. People may re think their lifestyle and prefer drinking a good wine instead of beer and binge drinking . This could be because wine is associated with the upper class and people with a higher income. Moreover, people

2are getting more and more health conscious and therefore, will drink in moderation. Furthermore ,there is a rising demand for premium and fruit-flavored beers and also an increasing demand for private-label beers. There will also be an increasing acceptance of pan European brands. Besides, the importance of supermarkets in distribution and the growth of own-label products will rise. Technological factors Research and development is important in the brewing industry due to the changes in consumer tastes. People demand alcohol in different flavors, with low calorie, with low alcohol, seasonal beer and so on. Through technology it is possible to produce more although raw material stays the same, furthermore the quality is getting better, the alcohol has a longer durability and is produced more efficiently and quickly. New harvesting and production technologies help to increase process efficiency .Environmental factors People are getting more and more aware of the environment and it is necessary that companies do everything to prevent environmental pollution. It is important that the environmental load through t he brewing process is as low as possible. Reusability and recycling is important. The brewing industry for example treats their effluents so that they can use it again for irrigation. Through this they save energy and minimize sludge disposal costs. (1)Legal factors Besides, when comparing Europe with the United States one can see that in America it is

forbidden to drink in public places in contrast to Europe where you can drink alcohol wherever you want. This could lead to new laws that forbid drinking alcohol in the public. This is a threat that might come really quickly when comparing the new law about the restrictions in smoking in public places like pubs and restaurants. Moreover, a few years ago it was allowed to have a blood alcohol level of 0.8parts per thousand. This was changed to 0.5 parts per thousand. So it is not unlikely that the government changes this law again to further price down this limit or completely forbid to drink and drive. As you could read in the case study in the United Kingdom there is a growing hostility towards excessive alcohol consumption in pubs and clubs and this could also happen everywhere in Europe. Furthermore, there is the threat that politics could put up the age of teenagers from 16 to 18 to allow to drink alcohol. If drunken people are involved in an accident or in a crime they are fined with a higher penalty.(ii) A five forces analysis T he five forces analysis helps to determine the impact of the threat of new entrants, substitutes, buyers and rivals on profitability in an industry or sector. (Johnson et al. 2008, p. 59)Threat of entry The threat of entry depends on the height of barriers to entry. I think that the threat of entry in European Brewing industry is very low due to the mergers and acquisitions of the past years. Through consolidations breweries stabilize their competitive position. As there are only a few really big brewing companies with a lot of power the financial effort for new entrants would be too high to enter this market. Moreover, because of the strong brand and the loyalty of existing consumers in Europe it would not be easy for new entrants to challenge well established leaders. Threat of substitutes There are a lot of products that can be seen as a substitute of beer like wine, fruit-flavored and exotic beers as well as soft- and energy drinks. In the case example wines becoming increasingly popular in the Northern European markets. Table 1 in the case example shows that there was a significant decrease in beer consumption in Denmark and Norway which confirms the increase of wines in those countries. Power of buyers

3 Due to Government campaigning against drunken driving and binge drinking there was a shift from on-trade to off-trade . Through this, large supermarket chains (industry concentration increases)like Tesco or Carrefour gain the power of buyers and thus have a high bargaining power. This means that large supermarket chains for instance pretend the price they are willing to pay. Through the power of buyers and their ability of changing easily the brand (supplier) the brewing industry come sunder pressure. Power of suppliers In the case example they write that the Brewers main purchasing costs are packaging, raw materials and energy. The power of suppliers of packaging I believe is very high. There are only a few suppliers of glass- and PET- (polyethylene terephthalate) bottles available and therefore, they have a high power. To change the supplier could lead to high switching costs as they have to buy a new machine or adapt the existing machine. The main raw materials for brewing are water, malt, hops, yeast and barley. The power of suppliers of these materials I think is low because there are a great number of suppliers available. The power of supplier of energy is very high as there is a concentration of suppliers. Competitive rivalry Competitive rivalry means that there are organizations with similar products and services aimed at the same customer

group. In my opinion competitive rivalry in this industry is very high because* product differentiation is very low* acquisitions, licensing and strategic alliances (gain market share)* consolidations due to overcapacity within the industryTable 3 shows the world s top 10 brewery companies by volume in 2005 which accounted for aroundhalf of world beer volumes. InBev, Anheuser-Busch, SABMiller and Heineken reached about 33% of the volume of beer drunken around the world. Approximately 15 % was reached by Morelo,Carlsberg, Coors, TsingTao, Baltic Brewery Holdings and Asahi. The European brewing industry Ibelieve is saturated and started to decline and thus competitive rivalry will still exist on a high level.Barriers to entry within EU are reducing leading to cross-border mergers.My conclusion is that either you can be one of the big players or one of the many small specialist andregional breweries like Grolsch, Cobra Beer For the four breweries outlined above (or breweries of your own choice) explain:(a) how these trends will impact differently on these different companies; and(b) the relative strengths and weaknesses of each company(a) HeinekenHeineken is the biggest of the European brewery businesses. As Europe is a saturated marketHeineken focuses also on going overseas. They use locally acquired companies to introduce theirbeer they have a good strategy to further expand their market share. The same strategy they couldapply in Europe. As the European market is saturated they could acquire small specialist and regionalbreweries like Grolsch and thus grow.(b) Strengths:* Leader in the European brewery business* 5 % of sales in Asia-Pacific* 17 % of sales in Americas* Strong brands: Heineken, Amstel* Family controlled stability and independence* Introduce brand to new markets overseas by using locally acquired companies* Strengthens local companies by transferring expertise and technology* Economies of scale for Heineken and the local beers. a single new Dutch brewery increase efficiency and volume.Investment in Baltic Beverages fastgrowing markets-newcastle-brown-ale-jobsrces and the European Brewing industry Case 1owing around the(for tins) and OWENS-ILLIENOIS (for bottling). Since being highly dependent ona.eu/pol/health/index_en.htmpolicy/index_en.htm-

1 Brewing Industry Case Study Module: Strategic Planning ProcessLecturer: Michael ShovelinDate: 04th September 2010Postassignment: Case exampleGlobal Forces and the European brewing industry------------------------------------------------

This assignment is based on the case example Global forces and the European brewing industry and relates to two questions raised in chapter 2 at the end of the case example (Johnson et al. 2008, p.91) of the book Exploring Corporate Strategy: Text and Cases by Johnson, Scholes and Whittington.1.) Using the data from the case (and any other sources available), carry out for the European brewing industry (i) a
PESTEL analysis and (ii) a five forces analysis. What do you conclude? (i) PESTEL analysis One tool to analyze the broad macro-environment is the PESTEL analysis. In the PESTEL analysis environmental influences are categorized into political, economical, social, technological, environmental and legal aspects. It helps to identify how future trends might influence an organization and furthermore, to identify the key drivers of change to create scenarios for the possible future. Political factors There is an overall decline of consumption of Beer in Europe as many traditional key markets have been made increasingly aware of the social problems associated with alcohol consumption. Factors could be the active campaign of European governments against drunken driving, binge-drinking and consequently the long term health and fitness problems .Economic factors In the case study there is the talk of the overall decline of European beer consumption, while there was an increase in emerging markets (e.g. China, Brazil) around the world. This could be because of the government campaigns which caused a shift in sales from the on-trade (beer consumed in pubs or restaurants) to the off-trade (retail/supermarkets). Moreover, the success of German supermarkets like Aldi and Lidl with their own private label beers rather than the brewery-branded beers has an influence on the European brewing industry. Supermarkets are offering cut price offers .Also the rise of the main purchasing costs like packaging, raw material and energy will have influence on the beer price e.g. Heineken). Also, the increase of fuel prices which will affect the distribution network, thus transportation costs will increase. Besides, due to the economic crises the breach between rich and poor is steadily growing and thus many people cannot afford any more to go out for dinner or having a beer. Through legal restrictions the demand for alcohol in public places could declines. Furthermore, acquisitions, licensing and strategic alliances have occurred because the leading brewers battle to control the market. The global pressures for consolidation due to over capacity within the industry are another point that influences this industry. There is a growing trend towards cross-border mergers and

acquisitions. Introduction of higher-priced premium products let sales values raise. If there are natural disasters like previously the fires in Russia this has an impact on the prices of the raw material .Social/cultural factors Wines have become increasingly popular in the Northern European markets. People may rethink their lifestyle and prefer drinking a good wine instead of beer and binge drinking . This could be because wine is associated with the upper class and people with a higher income. Moreover, people

2are getting more and more health conscious and therefore, will drink in moderation. Furthermore ,there is a rising demand for premium and fruit-flavored beers and also an increasing demand for private-label beers. There will also be an increasing acceptance of pan European brands. Besides ,the importance of supermarkets in distribution and the growth of own-label products will rise. Technological factors Research and development is important in the brewing industry due to the changes in consumer tastes. People demand alcohol in different flavors, with low calorie, with low alcohol, seasonal beer and so on. Through technology it is possible to produce more although raw material stays the same, furthermore the quality is getting better, the alcohol has a longer durability and is produced more efficiently and quickly. New harvesting and production technologies help to increase process efficiency. Environmental factors People are getting more and more aware of the environment and it is necessary that companies do everything to prevent environmental pollution. It is important that the environmental load through the brewing process is as low as possible. Reusability and recycling is important. The brewing industry for example treats their effluents so that they can use it again for irrigation. Through this they save energy and minimize sludge disposal costs. (1)Legal factors Besides, when comparing Europe with the United States one can see that in America it is forbidden to drink in public places in contrast to Europe where you can drink alcohol wherever you want. This could lead to new laws that forbid drinking alcohol in the public. This is a threat that might come really quickly when comparing the new law about the restrictions in smoking in public places like pubs and restaurants. Moreover, a few years ago it was allowed to have a blood alcohol level of 0.8parts per thousand. This was changed to 0.5 parts per thousand. So it is not unlikely that the government changes this law again to further price down this limit or completely forbid to drink and drive. As you could read in the case study in the United Kingdom there is a growing hostility towards excessive alcohol consumption in pubs and clubs and this could also happen everywhere in Europe. Furthermore, there is the threat that politics could put up the age of teenagers from 16 to 18 to allow to drink alcohol. If drunken people are involved in an accident or in a crime they are fined with a higher penalty.(ii) A five forces analysis The five forces analysis helps to determine the impact of the threat of new entrants, substitutes, buyers and rivals on profitability in an industry or sector. (Johnson et al. 2008, p. 59)Threat of entry The threat of entry depends on the height of barriers to entry. I think that the threat of entry in European Brewing industry is very low due to the mergers and acquisitions of the

past years. Through consolidations breweries stabilize their competitive position. As there are only a few really big brewing companies with a lot of power the financial effort for new entrants would be too high to enter this market. Moreover, because of the strong brand and the loyalty of existing consumers in Europe it would not be easy for new entrants to challenge well established leaders .Threat of substitutes There are a lot of products that can be seen as a substitute of beer like wine, fruitflavored and exotic beers as well as soft- and energy drinks. In the case example wines becoming increasingly popular in the Northern European markets. Table 1 in the case example shows that there was a significant decrease in beer consumption in Denmark and Norway which confirms the increase of wines in those countries .Power of buyers

3 Due to Government campaigning against drunken driving and binge drinking there was a shift from on-trade to off-trade . Through this, large supermarket chains (industry concentration increases)like Tesco or Carrefour gain the power of buyers and thus have a high bargaining power. This means that large supermarket chains for instance pretend the price they are willing to pay. Through the power of buyers and their ability of changing easily the brand (supplier) the brewing industry comes under pressure. Power of suppliers In the case example they write that the Brewers main purchasing costs are packaging, raw materials and energy. The power of suppliers of packaging I believe is very high. There are only a few suppliers of glass- and PET- (polyethylene terephthalate) bottles available and therefore, they have a high power. To change the supplier could lead to high switching costs as they have to buy a new machine or adapt the existing machine. The main raw materials for brewing are water, malt, hops, yeast and barley. The power of suppliers of these materials I think is low because there are a great number of suppliers available. The power of supplier of energy is very high as there is a concentration of suppliers .Competitive rivalry Competitive rivalry means that there are organizations with similar products and services aimed at the same customer group. In my opinion competitive rivalry in this industry is very high because* product differentiation is very low* acquisitions, licensing and strategic alliances (gain market share)* consolidations due to overcapacity within the industry Table 3 shows the world s top 10 brewery companies by volume in 2005 which accounted for aroundhalf of world beer volumes. InBev, Anheuser-Busch, SABMiller and Heineken reached about 33% of the volume of beer drunken around the world. Approximately 15 %

was reached by Morelo,Carlsberg, Coors, TsingTao, Baltic Brewery Holdings and Asahi. The European brewing industry I believe is saturated and started to decline and thus competitive rivalry will still exist on a high level. Barriers to entry within EU are reducing leading to cross-border mergers. My conclusion is that either you can be one of the big players or one of the many small specialist and regional breweries like Grolsch, Cobra Beer For the four breweries outlined above (or breweries of your own choice) explain:(a) how these trends will impact differently on these different companies; and(b) the relative strengths and weaknesses of each company(a) Heineken Heineken is the biggest of the European brewery businesses. As Europe is a saturated market Heineken focuses also on going overseas. They use locally acquired companies to introduce their beer they have a good strategy to further expand their market share. The same strategy they could apply in Europe. As the European market is saturated they could acquire small specialist and regional breweries like Grolsch and thus grow.(b) Strengths:* Leader in the European brewery business* 5 % of sales in Asia-Pacific* 17 % of sales in Americas* Strong brands: Heineken, Amstel* Family controlled stability and independence* Introduce brand to new markets overseas by using locally acquired companies* Strengthens local companies by transferring expertise and technology* Economies of scale for Heineken and the local beers. a single new Dutch brewery increase efficiency and volume .Investment in Baltic Beverages fastgrowing markets-new castle-brown-ale-jobs rces and the European Brewing industry Case 1owing around the(for tins) and OWENS-ILLIENOIS (for bottling). Since being highly dependent ona.eu/pol/health/index_en.htmpolicy/index_en.htm-