The United States Beer 

 1. Why has the United States brewing industry become more concentrated over the last
two decades?

The United States Brewing Industry becomes more concentrated over the last two decades
because the industry has changed in a number of ways. First, consumption of beer in the
United States has been gradually declining. Second, advertising spending has steadily
increased, putting smaller brewers at a disadvantage. Third, due to a combination of
technological change in canning and distribution and increased advertising expenditures,
the size that a mass- market brewer has to attain to reap all economies of scale called the
minimum efficient scale of production has steadily increased. This resulted to a radical
decrease in the number of mass-market brewers in the United States. Because of the high
competition that revolves around aggressive pricing, brand loyalty, distribution channels
and national advertising spending only 24 mass-
market brewers were left in the United States, down from 82 in 1970. Among these, threeco
mpanies namely Anheuser-Busch, SAB-Miller, and Molson Coors dominate making
the brewing industry become more concentrated.

2. Analyze the competitive structure of the industry using Porter’s five forces model.

The companies depend a lot on the buyers for a large percentage of its total orders. This is
the power of buyers. Without the buyers, the companies would not be able to earn.

Suppliers can also affect the beer industry’s ability to earn profits since they are the ones
supplying the materials needed to make beer products. If they decided to sell their materials
directly to the consumers or to some other companies then, it can affect the industry in
terms of earning profits.

 Risk of potential competitors, as what is stated in the case, are the companies
that produces wines and spirits. They have been identified as risk because they have thecap
ability to dictate the profits earned by the beer companies. The established beer companies
are Anheuser Busch, SAB Miller, and Molson Coors.

The industry’s competition revolves around aggressive pricing, brand loyalty,

Distribution channels and national advertising spending. With that, we can say that the
rivalry among established companies (Anheuser-Busch, SAB-Miller, Molson Coors) are
intense since in a consolidated industry any changes in each other’s prices or offers to
customer value in their product may increase the rivalry among the companies. The
existence of the close substitutes (wine and spirit) signifies a strong competitive threat since
it limits the price that companies can change. If the beer companies don’t put up a strategy
to compress these threats, they might lose their power/ control over the market and the
competitor might gain the power.
3. What are the implications of the evolving competitive structure in the brewing industry
for the profitability and strategy of a smaller mass market firm in the industry?

The booming industry of the substitutes wine and spirits is an alarming threat to the three
dominating big companies namely: Anheuser-Busch, SAB-Miller, and Molson Coors.
However, their effects are much greater to the small mass-market segment. When threats
emerge, small mass-market segment suffers most due to their low capital, small scale
economy, and other factors. For example, when a new big company enters the industry, the
share of market of small mass-market companies become small and this will result to
smaller profit. Now, the small mass-market strategy might not be anymore being needed.
However, new strategies mean new cost which may not be able to afford by the small mass
industries.

4. Are there different strategic groups in the industry? What are they? Do you think the
nature of competition varies between groups?

Yes, there are two different strategic groups that can be observed the mass-market segment
and the premium beer segment. The mass-market segment revolves around aggressive
pricing, brand loyalty, distribution channels and national advertising spending while
premium beer segment focuses on discerning buyers and they build their brands around
taste and cover higher product costs by changing much higher prices. The nature of the
competition does not vary between the groups however; effects of these competitions may
differ depending upon the kind. Say for example, the substitute, wine and spirit, the closest
competitive threat to beer industry. The sudden appearance of these substitutes offering
cheaper price forces the beer industry to limit their change or else the customers will turn
to substitute.