BA 630

Industry Analysis
The Beer Industry

Spring 2010

Beer Industry The term beer means any beverage brewed r!m a star"h #!r arina"e!us$ grain% Be"ause the grain is made int! a malt& an!ther term !r beer is malt li'u!r(% #The Beer Industry$ A""!rding t! the )!rth Ameri"an Industry *lassi i"ati!n System& the beer industry is !und in se"ti!n 312+ Beverage and T!ba""! ,r!du"t -anu a"turing% )AI*S states that Industries in the Beverage and T!ba""! ,r!du"t -anu a"turing subse"t!r manu a"ture beverages and t!ba""! pr!du"ts% The industry gr!up& Beverage -anu a"turing& in"ludes three types ! establishments+ #1$ th!se that manu a"ture n!nal"!h!li" beverages. #2$ th!se that manu a"ture al"!h!li" beverages thr!ugh the ermentati!n pr!"ess. and #3$ th!se that pr!du"e distilled al"!h!li" beverages( Alth!ugh beer is within the same se"ti!n as wine and distilled spirits& they d! n!t "!nsider them the same% /ithin se"ti!n 312 they have ive separate se"ti!ns+ Beer "an be !und under se"ti!n 312120 Breweries% /ithin this se"ti!n the term Breweries is "!mprised ! establishments primarily engaged in brewing beer& ale& malt li'u!rs& and n!n0al"!h!li" beers(% 1!wever& Standard 2 ,!!r3s w!uld say that distilled spirits& wine& beer and t!ba""! are all a part ! the same industry the Al"!h!li" Beverage and T!ba""! Industry(% The 'uesti!n we must as4 is wh! is right5 1!w d! we determine i beer is an industry !n its !wn !r i it is the same as the beverage industry as a wh!le5 There are tw! 'uesti!ns we must as4 !urselves in !rder t! answer this 'uesti!n% 6ne& d!

27,age

the "!nsumers view beer and !ther beverages the same5 Tw!& "an the pr!du"ers ! beverages easily swit"h r!m pr!du"ing !ne t! an!ther5

Al"! h!l

/at er

/in e

Bee r

-il 4

6th er

B==8
68

68
S! da

Spir its

*! ee

I will irst l!!4 at the "!nsumer p!int ! view% I thin4 that I "an easily argue that "!nsumers t! d! see beer the way they w!uld any !ther beverage% 9!r e:ample& I "ann!t imagine that a m!ther w!uld de"ide whether !r n!t t! give their "hild a glass ! mil4 !r a "!ld glass ! beer% They are n!t the same pr!du"t; /hether it is <ui"e& mil4& s!da& !r al"!h!l they are n!t the same% =a"h !ne has a separate purp!se% There !re& I w!uld say that "!nsumers d! n!t view the beverage industry the same% 1!wever& i we !nly l!!4 at the al"!h!l industry we may get an!ther answer% I we l!!4 at the middle diagram ab!ve y!u see three types ! beverages+ beer& wine& and spirits% /e already learned that Standard and ,!!r3s w!uld gr!up them t!gether and this may be true !n a "!nsumer p!int ! view% I y!u were g!ing t! a h!use warming party and were as4ed t! bring an al"!h!li" beverage y!u may !r may n!t have a t!ugh time ma4ing y!ur de"isi!n% S!me pe!ple are !nly wine drin4ers and w!uld n!t thin4 twi"e ab!ut swit"hing r!m wine t! beer !r spirits% 1!wever& s!me pe!ple may n!t "are% I they were standing in the st!re and saw that the pri"e ! a b!ttle ! wine had g!ne up signi i"antly& they w!uld "!nsider an alternative t! bring t! the party% They may de"ide t! l!!4 at the pri"e ! beer 37,age

instead% In my !pini!n& "!nsumers may !r may n!t see beer as an alternative t! wine !r spirits% I really thin4 it depends !n the "ust!mers% =very!ne has a di erent !pini!n espe"ially when it "!mes t! beverages% S! t! answer !ur 'uesti!n ab!ve& my answer is maybe% I we l!!4 at h!w pr!du"ers see the beverage industry we will ind that it w!uld be near imp!ssible t! <ust swit"h r!m ma4ing !ne type ! beverage t! an!ther% 9!r e:ample& a wine pr!du"er uses grapes and !ther ruits t! pr!du"e wine% I am sure that the stru"ture ! their a"t!ries is very spe"i i" t! the wine pr!du"ti!n that there w!uld be n! way t! <ust start ma4ing beer% Beer is n!t made r!m grapes !r !ther ruits. it is made r!m wheat& barley& and h!ps% They are "!mpletely di erent pr!du"ts% )!t !nly w!uld y!u have t! basi"ally build !r buy a new a"t!ry but y!u w!uld als! have t! swit"h suppliers& learn h!w t! pr!du"e a new pr!du"t% This "ann!t be d!ne easily% There !re& pr!du"ers w!uld n!t see these pr!du"ts as the same% )!w that we have answered !ur tw! 'uesti!ns I thin4 we "an agree that beer is n!t in the same industry as wine !r spirits !r the beverages in general% Beer is within its !wn industry based !n !ur indings ab!ve% I w!uld "!nsider beer as a separate pr!du"t% I w!uld say that the beer industry is "!mprised ! three segments+ ,remium >!mesti"& -i"r!brew?*ra t& and Imp!rted Beer% I say that it is br!4en d!wn int! three segments be"ause beer is n!t <ust beer% There are di eren"es in the type ! beer we "!nsume% Alth!ugh I eel that there are really !nly three segments t! the beer mar4et& auth!r ! The Brewer3s 1andb!!4& Ted @!ldammer says there are 10 segments in the beer industry+ imp!rts& d!mesti" spe"ialties& super premiums& premium regular& light& malt A7,age

alternatives& malt li'u!r& p!pular regular& and !thers( #The Brewer3s 1andb!!4$% @!ldammer says that the light beer segment is the m!st signi i"ant trend in t!day3s mar4et% In 200B there were tw! leading pr!du"ers that "!ntinue t! d!minate the beer industry in the CS% A""!rding t! the Beer -ar4eter3s Insights& Anheuser0Bus"h *!mpanies In"% led the pa"4 with a AB%6D share ! v!lume in 200B #up 0%AD r!m 200E$ and -iller*!!rs "laimed 2F%AD #d!wn 0%1D$( #Standard and ,!!r3s$% T! determine the 9!ur 9irm *!n"entrati!n 8ati! we w!uld l!!4 at the t!p !ur irms in the beer industry% In 200B& the t!p !ur leading brewers held B3D ! the mar4et share% Anheuser0Bus"h is the leader with AB%6D& -iller*!!rs "ame se"!nd with 2F%AD& third pla"e g!es t! *r!wn Imp!rts with !nly G%3D& and the !urth leading pr!du"er is 1eine4en CSA with !nly A%0D whi"h is !nly a ra"ti!n ! what the irst tw! pr!du"ers !btained #Standard and ,!!r3s$% *ra t brewery is a small& independent& and traditi!nal mar4et% -!st "ra t brewers are small be"ause they pr!du"e less than 2 milli!n barrels ! beer per year% Beer pr!du"ti!n is attributed t! a brewer a""!rding t! the rules ! alternating pr!priet!rships% Alternating pr!priet!rships is an agreement between tw! pe!ple t! share the physi"al spa"e ! a brewery% A""!rding t! The Al"!h!l and T!ba""! Ta: and Trade Bureau& the pr!priet!r ! an e:isting brewery& the h!st brewery&( agrees t! rent spa"e and e'uipment t! a new tenant brewer%( Alternating brewery pr!priet!rships all!w e:isting breweries t! use e:"ess "apa"ity and give new entrants t! the beer business an !pp!rtunity t! begin !n a small s"ale& with!ut investing in premises and e'uipment%( They are independent be"ause less than 2GD ! the "ra t brewery is !wned !r "!ntr!lled by an al"!h!li" beverage "!mpany wh! d!es n!t brew "ra t beer already% /ithin this mar4et there are !ur segments+ -i"r!brewery& Brew ,ubs& *!ntra"t Brewing *!mpanies& and 8egi!nal Breweries% G7,age

-i"r!breweries pr!du"e less than 1G&000 barrels ! beer per year% Appr!:imately EGD ! its sales are ! 0site% Brewpubs are m!stly l!"al restaurant breweries that sell m!re than 2GD ! its beer !n0site% The beer is brewed !r the restaurant?bar and "!mes dire"tly r!m the brewer3s st!rage tan4s% I all!wed by law& they may sell beer t! g!( and?!r distribute ! 0site% *!ntra"t Brewing "!mpanies are mainly businesses that hire a brewery t! pr!du"e beer !r the business% It may als! be !ne brewery "!ntra"ting an!ther brewery t! pr!du"e additi!nal beer% 8egi!nal breweries have an annual beer pr!du"ti!n bel!w 2&000&000 barrels% #www%"ra tbeer%"!m$ Imp!rted beer is ! "!urse beer pr!du"ed !utside ! the Cnited States but distributed within the Cnited States% I w!uld say that "ust!mers treat all beers as "l!se substitutes% I the pri"e !r spe"ialty "ra t beers g! d!wn y!u may see a de"rease in the premium d!mesti" brews r!m the ma<!r pr!du"ers% 1!wever& i the pri"e ! the "ra t beer g!es up& y!u will li4ely see a swit"h ba"4 t! the premium d!mesti" brews% ,r!du"ing beer in either segment uses mu"h ! the same te"hn!l!gy% ,r!du"ers may be able t! swit"h r!m pr!du"ing high0end d!mesti" beer t! a spe"ialiHed?"ra t beer with!ut having t! build new a"t!ries% @e!graphi"ally& this industry is !n a l!"al& nati!nal& and even gl!bal s"ale% The d!mesti" beer mar4et is mainly nati!nal& where the mi"r!brew?"ra t brews may be m!re l!"al% 6 "!urse& imp!rted beer ma4es the mar4et gl!bal% A""!rding t! Ted @!ldammer& the C%S% beer industry is the largest al"!h!l segment nati!nwide% It is stated that the beer industry a""!unts !r nearly BGD ! all al"!h!l v!lume s!ld in the Cnited States and that it generates m!re than IF1%6 67,age

billi!n annually in retail mar4et sales% The m!st "!n"entrated ! the three beer se"t!rs is the d!mesti" brews with three ma<!r brewers+ Anheuser0Bus"h& S!uth A ri"an Breweries -iller #SAB -iller$& and -!ls!n *!!rs Brewing *!% The three ! them "!mbined a""!unt !r appr!:imately EFD ! all beer sales annually% #The Brewer3s 1andb!!4$

Five Forces that Shape Industry Competition

Threat of Entry: Threat ! n!n0beer pr!du"ers that "an p!tentially enter the mar4et% Su"h as

Suppliers:

Buyers:

9armers

BEER

/h!lesalers 8estaurants

Substitute Products: /ine Spirits

Barriers to Entry

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The ease in whi"h !ne "an enter the beer industry is very imp!rtant t! l!!4 at !r ensuring "!mpetitive per !rman"e% It appears that the entry int! the beer industry is airly easy% The beer industry is heavily regulated by federal/state/local governments& but they d! n!t "ause ma<!r hindran"es t! enter% I w!uld say that the m!st signi i"ant barrier "aused by g!vernment regulati!n w!uld be the ta:es set up!n brewers% Economies of S"ale "an be a barrier t! entry% An e"!n!my ! s"ale is when y!u are able t! pr!du"e large 'uantities ! y!ur pr!du"t at a de"rease in "!sts% A""!rding t! the Beer Industry& e"!n!mies ! s"ale d! n!t ma4e it imp!ssible !r a new"!mer t! enter and be re'uired t! supply a large p!rti!n ! the industry !utput% There are !nly m!dest "!sts e"!n!mies& i any& that "an be e:pl!ited in plants with "apa"ity ab!ve 10 t! 12 milli!n barrels& and pr!du"ti!n e"!n!mies may be ! set by the high shipping "!sts ne"essary t! m!ve s! mu"h beer t! mar4et( #The Beer Industry$% J!u sh!uld als! "!nsider the size of current competitors whi"h may have an impa"t ! entry% Ket3s l!!4 at the pa"4aging ! the plant3s !utput when l!!4ing at the e"!n!mies ! larger breweries% Anheuser0Bus"h3s 1!ust!n brewery !r e:ample "an pr!du"e appr!:imately 1&100 b!ttles per minute% 6ther m!dern "anning a"ilities are slightly aster with 2&000 "ans per minute% It w!uld ta4e a airly large brewery t! be able t! utiliHe large e'uipment in this "apa"ity% Being a large brewery will als! help y!u "ut d!wn !n lab!r be"ause y!u will be able t! use m!re aut!mated ma"hinery whi"h will als! "ut d!wn !n "apital "!sts% *!nstru"ti!n "!st per barrel is "ut by ab!ut !ne third !r a A%G0milli!n0barrel0"apa"ity plant relative t! a 1%G0milli!n0barrel0"apa"ity plant( #The Beer Industry$%

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Customer switching costs "an be a a"t!r when de"iding t! enter a mar4et% An entrant is g!ing t! have a very di i"ult time gaining "ust!mers i the "!sts ! swit"hing are high% In the beer industry& "ust!mers are n!t a e"ted with high swit"hing "!sts% They have n!thing t! l!se i they swit"h t! pur"hasing beer% It w!uldn3t be li4e the airline industry where "ertain airlines give re'uent lyer miles t! their "ust!mers% The "!st here w!uld be great% I a "ust!mer lies with !ne airline a l!t and has built up a large number ! miles& they "ann!t ta4e the miles with them i they de"ide t! ly with an!ther airline% They w!uld basi"ally l!se th!se miles i they swit"h% Beer drin4ers d! n!t have a signi i"ant m!netary l!ss i they swit"h r!m drin4ing Bud Kight t! a l!"al "ra t brew% The number !ne a"t!r that "an prevent entran"e is the high capital requirements% The pri"e ! "!nstru"ting a m!dern A0 t! G0 milli!n0barrel brewery is !ver I2G0 milli!n% -ar4eting the new brew als! is "!stly be"ause entrants must intr!du"e their pr!du"ts t! "!nsumers already smitten by the advertising ! in"umbent irms% Sin"e /!rld /ar II& n! new entrant has "ra"4ed the t!p three sellers ! beer in the C%S% beer mar4et( #The Beer Industry$% It is imp!rtant t! menti!n the imp!rted beer segment in this se"ti!n% Imp!rted beers in the C%S% "!me primarily r!m *anada& -e:i"!& @ermany and the )etherlands% The beer imp!rted r!m this segment have in"reased m!re than 320 !ld in the peri!d r!m 1FE0 thr!ugh 2006( #The Beer Industry$% In 1FFB the brand *!r!na =:tra r!m -e:i"! be"ame a t!p 10 beer brand in the C%S%& ma4ing this the irst imp!rted beer t! be"!me a t!p "!ntender in hist!ry% An!ther reas!n entering the beer industry "an be ris4y is the large am!unt ! sun4 "!sts inv!lved% 6n"e y!u build a a"t!ry t! pr!du"e beer that is all y!u "an d!% It w!uld be near imp!ssible t! swit"h r!m pr!du"ing beer t! a di erent pr!du"t li4e wine !r e:ample% F7,age

The beer industry als! a"es pr!du"t di erentiati!n in a slightly di erent way that we w!uld thin4% /hen di erentiating beer& we d! s! by h!w premium( it is% The phen!men!n ! premium beer irst began when a ew brewers began mar4eting their pr!du"t nati!nally and added a pri"e premium t! help ! set the shipping "!sts re'uired t! rea"h the nati!nal mar4et% T! se"ure the higher pri"e& premium beer was pr!m!ted as superi!r in taste and 'uality& allegedly be"ause ! the brewing e:pertise !und at their pla"e ! pr!du"ti!n(#The Beer Industry$% Alth!ugh the transp!rtati!n ! pr!du"ts was n! l!nger a large a"t!r !r m!st large breweries& the premium image remained even a ter pri"es de"reased m!stly be"ause ! heavy advertising% Access to distributors is a ma<!r a"t!r when l!!4ing at entering the industry% The distributi!n pr!"ess !r the beer industry !"used !n the three0tier system+ Brewer?Imp!rters t! /h!lesaler t! retailers t! "!nsumers% The brewers and imp!rters brew beer !r "!nsumpti!n in the C%S% and "an in"lude "!mpany0!wned pa"4aging and wh!lesaling !perati!ns% The wh!lesalers a"t as the middle tier !r y!ur distribut!rs% They pur"hase beer r!m the pr!du"ers and sell it t! retailers% 8etailers sell the beer dire"tly t! the "!nsumers3 !ne ! tw! ways+ !n0premise "!nsumpti!n and ! 0premise "!nsumpti!n% 6n0premise means the beer is "!nsumed at that l!"ati!n& i%e% bars& restaurants& h!tels& et"% 6 0premise "!nsumpti!n is where the "!nsumer buys the beer t! "!nsume at h!me !r elsewhere% They w!uld pur"hase r!m the gr!"ery st!re& "!nvenien"e st!res& li'u!r st!res& et"% 6n0premise sales are the leading retail "hannel !ll!wed by "!nvenien"e st!res and supermar4ets% Brewers generally ma4e higher margins with !n0premise sales( #The Beer Industry$% There is e:tremely little !rward integrati!n by breweries int! the mar4eting ! beer% In the Cnited States& brewers generally 10 7 , a g e

are pr!hibited by law r!m !wning retail !utlets& leaving wh!lesale as the !nly legitimate !rward verti"al integrati!n r!ute( #The Beer Industry$% The distributi!n system is sl!wly "hanging away r!m re'uiring breweries and retailers t! g! thr!ugh distribut!rs% Karge retail "ust!mers& n!tably "hain st!res& pre er t! pur"hase beer dire"tly r!m the brewers& bypassing the wh!lesale distribut!r( #The Beer Industry$% In 200G& the Supreme *!urt !und that )ew J!r4 and -i"higan had vi!lated the C%S% *!nstituti!n3s >!rmant *!mmer"e *lause% The "!urt ruled that& alth!ugh the states have br!ad p!wer t! regulate li'u!r L and have d!ne s! thr!ugh the use ! a three0tier system inv!lving li"ensed distribut!rs )ew J!r43s and -i"higan3s dis"riminat!ry bans !n interstate dire"t0t!0"!nsumer wine shipments were un"!nstituti!nal% The "!urt said that the distributi!n ! wine sh!uld be air a"r!ss the ield% I a state will all!w in0state dire"t shipping r!m the wineries t! the "!nsumer whi"h bypasses a distribut!r& then they must als! all!w this !r !ut0! 0state wineries% The state may still pr!hibit dire"t shipping t! "!nsumers& but the same rules must apply t! b!th in0state and !ut0! 0state wineries( #Standard and ,!!r3s$% Alth!ugh this was related t! wine& the 'uesti!n ! whether beer was any di erent "ame up% Standard and ,!!r3s sees the dismantling ! the three0tier system t! be p!sitive% 6ne advantage w!uld be t! the small breweries that w!uld be restri"ted t! sales within the state they are l!"ated% 9urtherm!re& due t! the small siHe and la"4 ! p!wer& the small "!mpanies are n!t as able t! neg!tiate "!mpetitive distributi!n "!ntra"ts with large0siHed wh!lesalers& and there !re missed !pp!rtunities t! get their pr!du"ts in r!nt ! a larger audien"e thr!ugh that r!ute( #Standard and ,!!r3s$%

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1!wever& dire"t distributi!n "an be very "!stly !r a small "!mpany% By !pening state lines& distribut!rs n!w have greater a""ess t! !ther regi!ns in the mar4et and the p!tential !r m!re e i"ient !perati!ns. by !pening up state lines& wh!lesalers "!uld p!ssibly s"ale their netw!r4s& wareh!uses& and relati!nships t! impr!ve e i"ien"ies and l!wer "!sts( #Standard and ,!!r3s$% 1!wever& the la"4 ! distribut!rs may als! have its d!wnsides% Beer distribut!rs are able t! deliver the m!st variety ! manu a"turers small and large& d!mesti" and internati!nal t! the "!nsumers% A""!rding t! Standard and ,!!r3s& the la"4 ! distribut!rs may ma4e it harder !r new breweries t! get their pr!du"t t! "!nsumers% The number ! distribut!rs has dr!pped signi i"antly !ver the years% In 1FFG the number ! distribut!rs has dr!pped r!m G&G00 t! ab!ut 2&000 as smaller multi0brand wh!lesalers have been b!ught !ut( #The Brewer3s 1andb!!4$% Beer distribut!rs help the g!vernment "!ntr!l the sale and mar4eting ! al"!h!l& "!lle"t ta:es& and t! eliminate underage drin4ing% Beer distribut!rs pr!vide a "lear "hain ! "ust!dy in the sale ! beer% They s!ur"e al"!h!l !nly r!m li"ensed brewers and imp!rters and sell !nly t! li"ensed retailers% This system helps t! ensure that retailers h!ld the appr!priate li"ense& d! n!t sell t! th!se under the legal drin4ing age& pay state and l!"al ta:es and generally "!mply with l!"al al"!h!l beverage laws( #Ameri"a3s Beer >istribut!rs$% I w!uld say at this p!int the bargaining p!wer ! buyers w!uld be high in regards t! distribut!rs% -any distribut!rs t!day are very large s"ale and d! n!t depend s!lely !n the beer industry as they may have "!ntra"ts with several !ther pr!du"ers su"h as n!n0al"!h!li" beverage "!mpanies& distilled spirits& et"% *!nsumers d! n!t really play a huge part in the bargaining p!wer as mu"h as distribut!rs?retailers w!uld% In !rder t! get the pr!du"t !ut there breweries are

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g!ing t! have t! depend !n !utside res!ur"es unless they have their !wn distributi!n "!mpany% Expected Retaliation is als! a threat t! entry int! an industry% I s!me ! the "urrent players have been 4n!wn t! retaliate against p!ssible new"!mers& then the threat is very high and it will be very di i"ult !r !ne t! enter simply be"ause they are s"ared ! that they will be retaliated against% I did n!t ind any substantial eviden"e that retaliati!n is a huge threat when entering the beer industry% As we read earlier& entry int! the beer mar4et is airly easy% The threat d!es n!t "!me r!m the "urrent brewers within the industry& as mu"h as having the "apital t! begin pr!du"ti!n and gain l!yal "ust!mers% That is n!t saying that y!u sh!uldn3t be a raid ! the !ther brewers be"ause they will retaliate against ea"h !ther whi"h I will menti!n later% Power of suppliers /hen l!!4ing at the whether the suppliers ! the beer industry have m!re p!wer !ver the brewers we must l!!4 at several a"t!rs su"h as supplier "!n"entrati!n "!mpared t! the pr!du"ers& dependen"y ! !ne gr!up !n an!ther& parti"ipant swit"hing "!sts& di erentiated pr!du"ts& la"4 ! substitutes& and integrati!n% @enerally spea4ing a supplier will have m!re p!wer i they are m!re "!n"entrated than the pr!du"er% At this p!int& I "ann!t h!nestly say whether the suppliers !r the beer industry are m!re "!n"entrated% I w!uld have t! l!!4 at all ! the di erent suppliers within their !wn industry in !rder t! determine that% Brewers heavily depend !n all ! the ingredients needed t! brew beer% 1!wever& that d!es n!t mean that <ust be"ause the brewers depend !n the pr!du"ts the suppliers have m!re p!wer% I w!uld assume that it is di erent !r ea"h segment that supplies the 13 7 , a g e

beer industry% I w!uld imagine that h!ps gr!wers w!uld n!t have as mu"h p!wer simply be"ause 1!ps are n!t used in anything !ther than beer t! my 4n!wledge% They "an h!wever. say they will n!t pr!du"e 1!ps anym!re and swit"h t! a di erent "r!p& but at what e:pense5 This may n!t even be a valid argument% It might n!t be as easy as it s!unds t! <ust swit"h t! a di erent "r!p& wh! 4n!ws5 The beer industry depends !n h!ps gr!wers <ust as mu"h as the h!ps gr!wer depends !n the beer industry% It w!uld n!t ma4e any sense !r them t! argue ba"4 and !rth !ver pri"e when it will lead n!where% I w!uld imagine that they <ust "!me up with an agreeable s!luti!n that 4eeps b!th in business% /ith!ut !ne& the !ther will ail in my !pini!n whi"h w!uld argue that there is n! substitute !r h!ps% /heat gr!wers th!ugh& they may have the upper0hand% /heat is used in s! many di erent areas that they are n!t dependent !n the beer industry the way 1!ps is% They "!uld easily say that they "an <ust ta4e their business elsewhere mu"h li4e the b!ttling?"anning "!mpanies "!uld% There are plenty ! !ther mar4ets !ut there that these "!mpanies "!uld ta4e their business i e"!n!mies0! s"ale all!wed% A""!rding t! Standard and ,!!r3s& the level ! verti"al integrati!n am!ng the largest CS brewers varies by "!mpany(% Anheuser0Bus"h is a "lassi" e:ample ! verti"al integrati!n% Anheuser0Bus"h !btains its raw materials b!th internally and r!m independent s!ur"es%( #Standard and ,!!r3s$ Anheuser0Bus"h !perates arming a"tivities !r grains& ri"e drying and milling% It als! manu a"tures beverage "ans !r its !wn use as well as !r !ther "!mpanies% They als! have several !ther wh!lly0!wned subsidiaries whi"h pr!du"e "art!ns& labels& and re"y"ling ! aluminum "ans and b!ttles% AB is n!t the !nly "!mpany t! use wh!lly0!wned subsidiaries t! per !rm n!n0brewing un"ti!ns. SAB-iller and -!ls!n *!!rs began using this m!del #be !re they merged t!gether in 200E$% 9!r the large ma<!r brewing "!mpanies& 1A 7 , a g e

e"!n!mies0! s"ale are n!t su"h an issue% They may have the bargaining p!wer !ver their suppliers be"ause they "!uld p!tentially say& it3s !4ay& I "an <ust "reate my !wn b!ttling business mu"h li4e Anheuser0Bus"h did% Small mi"r!brew?"ra t brewers may n!t be this lu"4y% They will n!t have the "apa"ity within their "urrent a"t!ry !r the inan"ial means t! begin this threat% Sadly& the suppliers have m!re bargaining p!wer than the pr!du"ers d! #n!t in"luding h!ps gr!wers$% Power of Buyers *!nsumers play an imp!rtant part in the pri"ing ! beer within the industry% A""!rding t! Standard and ,!!r3s& the relatively saturated CS mar4et !r al"!h!li" beverage and t!ba""! pr!du"ts a"ts t! limit manu a"turers3 pri"ing le:ibility(% Instead& pr!du"ers rely !n brand l!yalty t! maintain pr! its% ="!n!mists see beer as an e:perien"e g!!d& meaning the "hara"teristi"s ! the beer "an !nly be measured a ter it has been "!nsumed #The Beer Industry$% The beer industry 4n!ws this& whi"h is why they advertise s! heavily% Their advertisements will tend t! sh!w what 4ind ! image !ne w!uld p!sses by drin4ing their brand% A""!rding t! The Beer Industry& statisti"al estimati!ns indi"ate that the mar4et demand !r beer is inelasti"0 in the range ! 0%E t! 0%F% Brand l!yalty is n!t str!ng en!ugh t! ma4e the demand !r any parti"ular malt beverage inelasti"%( )!n0"!nsumer buyers d! n!t really have p!wer !ver brewers either% ,a"4aging manu a"turers wh! rely !n the beer industry as well as !ther n!n0al"!h!li" beverage pr!du"ers "ann!t threaten the pr!du"ers by integrating ba"4wards and pr!du"ing the pr!du"ts themselves% Instead& it is the !ther way ar!und whi"h we saw earlier% The brewers w!uld be able t! begin pr!du"ing their !wn pa"4aging materials whi"h gives this gr!up very little p!wer% Threat of Substitutes 1G 7 , a g e

The threat ! substitutes varies !r the beer industry% ,!rter says that a substitute per !rms the same !r similar un"ti!n as an industry3s pr!du"t by a di erent means(% /hy d! pe!ple drin4 beer5 The answer varies am!ng "!nsumers% In "!llege& m!st "!nsumers drin4 beer !r the al"!h!l and t! have a g!!d( time% In m!st "ases& y!ur typi"al "!llege student ! drin4ing age is n!t l!!4ing at the 'uality ! beer they "an pur"hase they are l!!4ing at the 'uantity ! beer they "an pur"hase% -!st li4ely& they are g!ing t! pur"hase premium beer. either high0 premium !r l!w0premium% 1!wever& i they are able t! buy v!d4a& rum& !r any !ther distilled spirit at a "heaper rate& they will pur"hase that instead ! beer% A leading substitute !r beer ba"4 in the early 1FF03s was Mima% Mima was a "lear malt beverage and was very appealing t! w!men% Be"ause it was "lear many men didn3t eel it was a man3s( drin4 s! they didn3t "!nsume it as mu"h% In an attempt t! sway the men& Mima "reated an Amber "!l!red Mima and advertised the pr!du"t heavily% They tried t! say that i y!u dran4 Mima y!u w!uld be "!!l and the party w!uld be r!"4in% That h!wever& did n!t "at"h !n and Mima inally went !ut ! business% /ine "!!lers used t! be very p!pular espe"ially am!ng w!men% It is a ruity wine spritHer with ab!ut the same al"!h!l "!ntent as beer% In my !pini!n many w!men pre er a ruity un drin4 rather than a bitter& harsh drin4 li4e beer% T! "!mpete with the wine "!!lers& a new line ! malt beverages be"ame very p!pular% -i4e3s 1ard Kem!nade was a per e"t alternative t! beer% It n!w "!mes in many lav!rs su"h as lime& strawberry& raspberry& et"% Smirn! these malt beverages and began pr!du"ing Smirn! It t!! "!mes in many lav!rs% 16 7 , a g e started t! see the trend !

I"e& a deli"i!us malt beverage%

Rivalry amon

e!istin

competitors

J!u tend t! see an in"rease in rivalry when y!u have a large number ! "!mpetit!rs% As ! t!day& there are m!re than 1&G00 breweries in the Cnited States% This in"ludes the number ! all breweries b!th premium d!mesti" and mi"r!brew?"ra t brewers% The beer industry saw a lu"tuati!n ! breweries r!m the 1F60 L 200G% A""!rding The Beer Industry& the number ! brewers was !nly 1EG in the year 1F60 and dr!pped d!wn t! !nly E1 in the year 1FBG% Sin"e 1FBG& the gr!wth ! the mar4et was sl!wly rising& ending with 1&36E in 200G% In the past G years we have seen a slight in"rease& but I e:pe"t this trend t! "!ntinue t! be lat% T! use the terms l!"al& regi!nal and nati!nal d!es n!t really mean a wh!le l!t in the beer industry the way it used t!% /hen we had a smaller number ! brewers& y!u truly had de ined them int! these mar4ets% Nery ew brewers we able t! bran"h !ut ! their l!"al !r regi!nal areas and even ewer were able t! !perate nati!nally% The ge!graphi" territ!ry served by the ma<!r brewers r!m !ne plant has gr!wn due t! the e"!n!mies ! large0s"ale pr!du"ti!n and& t! s!me e:tent mar4eting( #The Beer Industry$% >uring the 1FG03s thr!ugh the B03s there were large number ! "!ns!lidati!ns am!ng the brewers% -any regi!nal brewers simply went !ut ! business mainly be"ause ! "!nsumer pre eren"e at the time% -any pe!ple in this peri!d were m!ving away r!m the dar4& str!ng lav!red beer and were m!ving m!re t!wards the lighter beers% An!ther reas!n !r the small in"rease in "!n"entrati!n was a ew mergers that t!!4 pla"e% In the 1FE03s -iller Brewing "!mpany was a"'uired by the t!ba""! "!mpany& ,hilip -!rris% -iller and *!!rs 1E 7 , a g e

were inv!lved in many di erent mergers thr!ugh!ut the E03s and int! the 20003s% The m!st n!table merger "ame in 200E when *!!rs and SAB -iller ann!un"ed their <!int !perati!ns in the C%S% Alth!ugh& *!!rs and SAB -iller held the se"!nd and third sp!t !n the t!p three lists ! brewers& their "!mbined e !rts did little t! a e"t Anheuser0Bus"h whi"h still had G0D ! the mar4et share al!ne% /ith the merger ! these tw! "!mpanies we saw a "hange in the *8A% In 200B& the t!p !ur brewing "!mpanies by t!tal beer sales in v!lume were Anheuser0Bush h!lding number !ne& -iller*!!rs in se"!nd& ,abst Brewing *!% in third& and B!st!n Beer *!% ta4ing !urth% Alth!ugh we have A "!mpanies leading the pa"4 in terms ! t!tal v!lume sales& we have t! give it t! Anheuser0Bus"h !r really stealing the game% They have been !n t!p ! the beer industry sin"e 1FGE when they ! i"ially be"ame the largest beer pr!du"er in the Cnited States& a sp!t they have yet t! l!se% The t!p !ur brewers "laim m!re than B3D ! the mar4et share in the year 200B% This w!uld g! t! sh!w that the rivalry within this industry is g!ing t! be relatively l!w in regards t! pri"ing% S! rather than have pri"e "!mpetiti!n we will see m!re n!n0pri"e "!mpetiti!n within the beer industry% A ter ,hillip -!rris a"'uired the -iller Brewing *!% in the 1FE03s the advertising game "hanged !rever when the p!pular T%N% advertisements !r Kite Beer were intr!du"ed eaturing p!pular )9K and -KB players% 6ne ! the m!st am!us sl!gans was the Tastes great& less illing( whi"h was a pit"h t! sell their new line ! lite( beer% 9r!m here& all ! the !ther ma<!r brewers 'ui"4ly began t! pr!du"e their !wn versi!n ! light beer and advertising heavily% In 200E& the beer industry spent r!ughly IFEG milli!n !n advertising "!sts a""!rding t! the Brewer3s 1andb!!4% The t!p three ! "!urse g! t! Anheuser0Bus"h wh! spent I3EB milli!n& SAB0-iller spent I1EG milli!n& and

1B 7 , a g e

-!ls!n *!!rs spent I1G1 milli!n in 200E% -!st ! the advertising d!llars went t! pr!m!ting the high0premium and light beers%

Bibli!graphy 1% Ameri"a3s Beer >istribut!rs% www%nbwa%!rg?ab!ut?what0is0a0beer0distribut!r 2% Beer Sales% www%brewersass!"iati!n%!rg?pages?business0t!!ls?"ra t0brewing0 statisti"s? a"ts 3% =lHinga& Oenneth @% The Beer Industry( A% @!ldammer& Ted% The Brewer3s 1andb!!4+ The *!mplete B!!4 t! Brewing Beer(% www%beer0brewing%"!m?beer0 brewing?CSPbeerPindustry?beerPsegments%htm

1F 7 , a g e

G% )!rth Ameri"an Industry *lassi i"ati!n System+ )AI*S 6% Standard and ,!!r3s Industry Survey% Al"!h!li" Beverages 2 T!ba""!& )!vember 12& 200F% E% www%"ra tbeer%"!m B% The Al"!h!l and T!ba""! Ta: and Trade Bureau #TTB$ website+ http+??www%ttb%g!v?beer?alternatingPpr!p%shtml F% http+??www%beerhist!ry%"!m?library?h!ldings?beerP"!mmer"ials%shtml

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