Approaches to Analysing the External Environment

Assess the nature of the environment Audit environmental influences Identify key competitive forces Identify competitive position Strategic Identify key position opportunities and threats

Strategic position

A PEST ANALYSIS OF THE EUROPEAN BREWING INDUSTRY

POLITICAL
Harmonisation of duty rates across European Union member states Competition legislation - e.g. 1989 Monopolies and Mergers Commission report in the UK Local production laws - like Reinheitsgebot in Germany Restrictions on containers - like the use of cans in Denmark

ECONOMIC
Growing concerns about health issues and drink-driving Increasing acceptance of low alcohol drinks Importance of supermarkets in distribution and growth of own-label products Increasing acceptance of pan European brands

SOCIAL

TECHNOLOGICAL

Economies of scale in brewing and distribution

A FIVE FORCES ANALYSIS OF THE EUROPEAN BREWING INDUSTRY

Potential Entrants Potential Substitutes Power of Suppliers Power of Customers Existing Rivalry Summary
Competitors from Japan or the USA

Soft drinks e.g. Coca-Cola Wine Other leisure activities e.g. going to the cinema

Suppliers (e.g. farmers and packaging companies) have little power

Customer loyalty to local brews - e.g. Germany Retailers - supermarkets have growing power as industry concentration increases Tied Houses - until recently this was one way of reducing Customer Power in the UK Barriers to entry within EU are reducing leading to cross-border mergers Industry concentration across Europe is still relatively low Demand for brewed products is static/declining in most countries

Industry restructuring between existing competitors and the growing power of the supermarkets are probably the main competitive forces in the industry at present.

Economic
Different patterns of industry concentration across countries Growing trend towards cross-border mergers and acquisitions Low growth in consumption of beers * The government restrictions have lead to increase in sales of alcohol in supermarket. * Government campaigning and restriction on drinking resulted in decrease in the sale of alcohol product consumption in clubs and pubs. * Companies are trying to achieve economic of scale through cost reduction. * Brewing companies are engaged in various marketing strategy to grow their market through acquisition, mergers and introducing premium products. * Super markets are offering cut price offers. * Heineken is facing problem in packaging cost

Are the factors the same across all countries?

Whilst some pressures are best understood on a pan-European level, many of the structural conditions vary between countries distribution structures industry concentration being two major factors. So need to apply the 5 Forces Framework both at a pan-European level and at the level of individual countries to gain a full understanding. This example of differences between the pan-European level and individual countries highlights the necessity of understanding how the framework is to be used.

STRATEGIC GROUPS AND MARKET SEGMENTS IN THE EUROPEAN BREWING INDUSTRY

Two key parameters could be: Geographic coverage of the company - from local to pan European or global companies; Extent of brand family - from a single product to broad brand family. Strategic groups: Global, broad brand family companies e.g. Carlsberg; European, broad brand family companies e.g. Brasseries Kronenbourg, who are attempting to become more international; International, specialist or narrow brand family, e.g. Grolsch National broad brand family companies e.g. Bass Local specialists e.g. many German brewers or UK micro breweries

Customer Segments

One of the quickest growing sectors in the UK brewing industry, where brewers have traditional links to public houses, is in themed family pubs, which provide play areas for children, whilst their parents enjoy a drink. The growth of low alcohol drinks, speciality beers and own-label brands all appeal to different types of customer.

Heineken - SWOT
STRENGTHS Brand Recognition strong Strong International distribution Family Controlled business stability and independence
SWOT WEAKNESS High Debt Level D/E Ratio of 140% (Acquisition of Scottish & Newcastle) Minimal Presence in China

OPPORTUNITIES Middle East & Africa forecasted growth of CAGR 7% Acquisition of FEMSA opportunities in NA & LA

THREATS Russian Beer Tax Global Downturn

What are the major trends within the European brewing industry?

Within the western countries the beer market has become more stagnated while in the East the beer market is growing rapidly with growing demand. Europe has the largest demand for the beer market, and has the largest beer consumption per head. The growth of the global beer market production volume is about 2.5 million tons per year. While the beer industry is growing popular so is the wine industry while the spirits industry is declining. The beer market is saturated by too many players it is not a booming growing market and production growth is minimal. As there are many players there is fierce competition. There is rapid growth within leisure spending, this means attending bars, pubs and clubs which are all outsourcing beer. However the trend in drinking at home is also rising, it is cheaper and better value for money. Until change in smoking laws in 2007 drinking at home may be popular but decrease when the ban in put into place so they can enjoy drinking and socializing without having to ru the risk of passive smoking.

What are the major trends within the European brewing industry?

Consumers are growing more and more health conscious and fitness aware the affects of alcohol are similar but beer however has additional side affects such as bloating, weight gain and gas. These could sway consumers to drink other alcoholic beverages. From 1993 to 1999, the world beer production volume had grown by 12%. In 2000, the total world beer output was 1.395 billion hectoliters, which was 368 million hectoliters by Asia, 300 million hectoliters by West Europe, 165 million hectoliters by east Europe, 65 million hectoliters by Africa, 22 million hectoliters from Australia and the rest from America. The first three countries of high beer consumption per head in the world are Czechoslovakia (163 liters), Ireland (150.5 liters), and Germany (127.5 liters). The Netherlands is the biggest beer export country, with sales of more than 1.22 million tons to the entire world. In West Europe, about 1/3 of the beer production volume is product of Germany. Germany produces approximately 1/3 of Western Europe's Beer production. Germany has the biggest number of beer companies, there are 1207 beer producers, and Germany also has the biggest number of different kinds of beer, there are 5000 varieties.

What are the major trends within the European brewing industry?

The beer market in East Europe is developing fast, i.e. the growth of Poland beer market. The beer consumption per head was 22 liters in Poland in 1993; it increased to 58 liters in 1999; it was 63 liter in 2000 and 75 liters in 2002. There is a trend for product development such as flavored beers; these are favored by a younger generation who drink flavored alcoholic soft drinks. New trends for environmental issues include government intervention for bottled beer they do this by charging for cans. The government is also trying to reduce drinking within the nation and younger generations not only underage drinking but trying to avoid 'yob culture', violence, and binge drinking. There has been a large growth in own brand beers such as super market brands these are cheaper than premium brands. Supermarkets also have buyer power because they buy in bulk meaning they buy for less so can undercut the smaller sellers. There has been a trend for mergers and alliances, if big players such as Heinkenin, Carlsberg, and Interbrew were to merge they would become a monopoly and own the market.

how these trends will impact differently on these different companies and how do you think the strategy of each company should change
Interbrew Interbrew could diversify their range and introduce product development, due to consumers being more health conscious and risk aware they could introduce a low calorie beer or face not being able to compete in a global market facing reduction in consumption per capita. The reliance on super brands for market growth. This has a positive affect for Interbrew as they own brands such as Becks, Stella and Whitbread, they continue to have loyal consumers and well known popular drinks. By acquiring Bass has given Interbrew the higher Market share and now has the ability to sell Carling to America making international alliances. Changing tastes within consumers for drinks such as flavored beer will have a negative impact for Interbrew as they have a tradition brand image and taste. To compete they could either merge within an established younger brand or develop a new product line. Supermarket buyer power has a negative effect on Interbrew as they offer lower prices on a large scale meaning lower profits but more drastically brand value destruction. To combat this they could raise their prices and become a premium beer to regain brand value and regain higher profit margins.

Heineken
Heineken could diversify into flavored beers, low calorie beers to compete with other beer companies on a global scale. This would attract a new younger generation who are now beer drinkers, merging with a manufacturer such as Coca Cola to produce flavored drinks would cut costs and would offer a free promotional tool, gaining existing customers from both companies. Heineken should aim to be number one within the market by emphasizing the characteristics of their beer such as the quality of the beer, the ingredients and production methods. Emphasize their core competencies and unique factors. They could acquire or merge with a small unknown company unique company to give their company an edge this would be more cost effective than launching a new brand. Heineken could sponsor sporting events to gain new consumers and gain more publicity.

Grolsh
Grolsh could improve their technology and manufacturing equipment. They should stop outsourcing to cut costs and improve on transportation and distribution methods; they should enforce these improvements in their brand. Grolsh need to exploit there alliance with US company Miller and merge with another US company to expand within the US market as they are based within a country where beer drinking is in a decline, the Beer industry is a growing one Within the US.

Scottish and Newcastle

Scottish and Newcastle need to focus on the quality of their brand, the ingredients and benefits of their brand. Scottish and Newcastle could invest in research and development for technology and distribution. They could also merge with a company with a similar strategy as them as they wish to expand in the beer market and merge with local breweries that hold strong market positions. For us, Heineken maybe is a company, a group or a bottle nice beer; but for Heineken, this name represents the unstopped passion of quality. No matter how salability Heineken is, the passion of quality won't be changed. Our passion is your perfect beer! This is Heineken. In 1863, when Mr. Gerard Adraan Heineken was only 22, he bought a wine factory in Amsterdam, Netherlands. The reason was so simple: he couldn't find a beer fits his test. But if not because of Mr. Heineken's particular of beer test, the world won't enjoy such perfect quality beer like Heineken now