Beer Garden International - Assignment Example

Introduction 2 Types of stores operating in the industry in the city 2 The macro-environment 4 Porter’s Five Forces Analysis 8 Industry Life Cycle 13 The Strategic Recommendations in the light of Market Conditions and Relevant Theories 13 Reference 16 Introduction “‘Hefe’ means yeast, ‘Weizen’ means wheat. Hefeweizen is a top fermented, unfiltered, bottle conditioned wheat beer with a noticeable yeast sediment and a cloudy appearance” (GermanBeerGuide, n.d.). These beers usually taste quite sweet and fruity. This type of beer is very much successful in Germany, Thailand and Los Angeles. However, as the globalisation has emerged as a favourite concept in both the academia as well as business, it came as an apprehensive thought to expand the business further to Australia. Australia got the taste of beer at the beginning of Western Colonisation. In the year 2004, in per capita beer consumption, the country was ranked as fourth. The most popular beer style in this country is Legar. However, the Australians love to taste all the beer styles with same enthusiasm. It has been noticed that the people in Australia like to enjoy themselves and they would prefer to mix nice cold beer with this enjoyment. So, it does not seem to be bad idea to open one hefeweizen beer outlet in there. The beer outlet is supposed to be designed taking inspiration from Australian culture and their beer consumption styles. This would be to done to satisfy the consumer requirements in Australia. This report will consider the macro as well as micro environments of the business to frame a set of tactical recommendations for the beet store. Types of stores operating in the industry in the city In Australia, the consumption of alcohol (especially beer) is quite high. Beer was introduced in Australia during the colonial history and soon it turns out to be one of the favorite drinks among the people. With passage of time, high consumption of beer turns out a major problem in the country. In 1979, consumption per capita was almost 6.4 liters per year. However, due to stringent action taken by the government to control the situation, consumption of beer in Australia started declining. As per the data published by the Australian Bureau of Statistics in 2009, per capita consumption declined to 4.49 liter per person per year. The past analysis of alcohol consumption pattern among Australian indicates a unique change; now people are shifting from quantity to quality. Consumption of low strength beer has declined by 25 percent, consumption of middle strength beer is almost unchanged and the conception of full strength beer increased constantly. In 2009, 63 million liter of alcohol consumed in Australia was in form of wine whereas 79 million liter of alcohol was as beer. Almost ten years back the consumer in Australia were consuming three brands on regular basis but today it is almost seven different brands that comprises of both premium as well as traditional brands. This is good news for the international brands (Williams, 2010). This change in consumption habit of Australian people has influenced the type of stores and outlet where beer is sold. In Australia the state government is responsible for formulating rules and regulation for alcoholic beverage sales. Beer, wine and other spirit are sold at the bottle store, locally called bottle-o. Such stores can be as separate section in a super market or it may be as an individual store. The well known brands have their own bottle shops franchises near to the super markets. In these stores, apart from purchasing the consumers can sit and have their drinks. Apart from the bottle shops the driving establishments also have the legal permission to sell alcohol products to the customers but it is for off-site consumption. Considering the increasing pace of life, concept of drive through alcohol retail is also gaining popularity. In the drive through retiles shops customers can escape the tedious process of car parking and then collecting the product from the retailer. This US base retile structure allows customers to directly purchase the beer without coming out from the car. Such ease in purchase further motivates the customers to consume their favorite drink (beers) as and when they feel like. In last few years the government and other associated agencies tried hard to increase availability of beer (and other spirits) in large number of supermarkets and retail outlets. However, the lobby group comprising of different clubs, hotels and pubs resist such high availability of alcohol because this may further enhance the consumption. The macro-environment Before finalizing the nature of retail store to be opened in Australia, major macro environmental factors should be taken into consideration; therefore PESTLE analysis will be conducted. PESTLE stand for political, economic, social, technical, legal and environmental factors prevailing in Australia. Political condition: The government of Australia is federal parliamentary democracy and a Commonwealth realm. In Australia three political parties are mainly active. The Liberal Party represents the interest of urban business; rural interest is represented by the Nationals and the Australian Labor Party represents the trade unions, the workers and left-of centre groups. In June 2010 the political environment of Australia witnessed a major turnaround when Kevin Rudd lost the confidence of the Australian Labor Party. The new Senate will be seated in July 2011 so there is some uncertainty how this change will effect Australia. In general the government of Australia pays special attention towards its foreign policy. The country shares strong relation with US. Because of its committeemen towards Afghanistan, 1,550 troops are operating in Afghans (U.S. Department of States, 2010). Economic condition: Australia is blessed with abundant and diversified natural resources that attract huge amount of FDI and accelerates the nation’s economic growth. The country has vast reserves of coal, iron ore, natural gas, Uranium and other sources of renewable energy sources. The nation’s economy was constantly growing at a moderate rate for last 17 years until the global recession hit the country. To assist the economy during the recession phase, the government of Australia provided a stimulus package of US$50 billion. The Reserve bank also cut down the interest rates to improve liquidity condition in the nation. All these preventive measures assisted the country’s economic condition to re-bounce to the growth tract just after a single quarter of negative growth. In 2009, Australia was the best performer among all other OECD nations as its economic growth was 1.2 percent. The rate of unemployment that was 5.7 percent in 2009 that reduced to 5.1 by 2010. Considering all these factors, the Australian government was the first one to raise interest rate among the developed nations. At present Australia is paying special attention towards Tras-Pacific Partners like China, Japan and Korea to finalize the negotiation for free trade agreement (Central Intelligence Agency, 2011). In 2009-2010 the Gross Domestic Production (GDP) of Australia was a$1.2 trillion. The annual inflation rate for the year to March 2010 was 2.9 percent. This indicates a moderate inflation rate in the country. As on May 2010 the Reserve Bank Official interest rate was 4.5 percent (U.S. Department of States, 2010). GDP per capita is of $41,300 indicates a sound growth in the purchasing power of the customers. Social condition: Aboriginals and Torres Straits Islanders are the indigenous inhabitants that arrived almost 40,000 years back. These were the typical hunters whose life was associated with stones, wood and bone weapons. In 1770, Captain James Cook made a claim for Australia as part of Greta Britain. As per the statistics published in 2006, the native population represents mere 2.5 percent of the total population in Australia. In February 2008, the Prime Minister of Australia made apologies for such historical discrepancy and pledge to close the gap existing in the education, life expectancy and economic opportunities (U.S. Department of States, 2010). The total population of Australia (as estimated in 2010) is 21,515,754 that makes it one of the sparsely populated country in the world. 18.6 percent of the population lies in the age group of 0-14 years; 67.9 percent of the population lies in the age group of 15-64 whereas 13.5 percent of the population is 65 years and above. The population growth is 1.171 percent that is quite low. At present the median age of the population is 37.5 years; as the population growth is quite slow so it can be said that with passage of time the median age of the population will growth and majority of the population will be in the age group of 40-45 years. The life expectancy in Australia is 81.72 years and the total fertility rate is 1.78 children born per woman. 92 percent of the ethical population in Australia is while, 7 percent are aboriginal and others comprise 1 percent of the total population. There are several language being used by the population, the composition of the language spoken is as follows: English-78.5 percent, Chinese 2.5 percent, Italian 1.6 percent, Greek 1.3 percent, Arabic 1.2 percent, Vietnamese 1 percent, others 8.2 percent and unspecified language represents remaining 5.7 percents. The government of Australia invests 4.7 percent of the GDP in the education sector and thus the literacy rate is 99 percent (Central Intelligence Agency, 2011). Considering all these factors it can be said that the social condition of Australia is quite sound. It has a high influence of western culture. Technical condition: The technical condition in Australia is quite sound. As for example, the people involved in agriculture sector make use of modern technology to enhance the output. Even the industries and the service sector use advance technology. The government of Australia has taken special care towards infrastructure development. The connectivity is quite well with 9.02 million of mainline telephone users and 24.22 millions of mobile phone users. In the area of low density use of radio telephone is quite common. The influence of media is also high in the country. Australian Broadcasting Corporation (ABC) operates several multinational and local radio networks. ABC also runs some TV stations. Special Broadcasting Service is responsible for offering media services in several languages to cater the requirement of different people. In Australia the total number of airports is 465 and thus the country possesses a 17th rank in the world. Total length of the railway is 37,855 km which is 7th longest in the world. The roadway of Australia is also well planned with total length of 812,972 km (Central Intelligence Agency, 2011). Legal condition: The income tax is one of the vital sources of revenue for the government of Australia. People have to pay personal tax at progressive rate that means the one whose income is high should pay the tax at high rate whereas the one with low income earning should pay tax at low rate. However, the corporate bodies are charged at a fix rate, all the companies have to pay tax at the rate of 30 percent indifferent of the sector where they operates and their annual earning. The rules and regulation for an Australian company differs from the rule applicable for a foreign country. Environment condition: As compared to several developed nations, the level of pollution is quite low in Australia. The low rate of pollution is not just because of low population density, the legal rules and regulation introduced by the government is also responsible for such low pollution rate. On February 15, 2011 the government has introduced carbon tax that will be applicable from mid of 2012 onwards. According to official estimation, by 2020, emission of greenhouse gases in Australia will be 24 percent more of the about emitted in 2000. Therefore, the government is taking action to minimize such emission and to raise awareness in the country towards environmental protection (Carbon Positive, 2011). Porter’s Five Forces Analysis This segment deals with the forces influencing the beer company in a great deal. According to Michael Porter, there are five such influential forces including threat of new entrants, bargaining power of suppliers, bargaining power of customers, threat of substitutes and competitive rivalry among the existing players. The model was developed back in the 1980. Since then, it has emerged as a significant tool for analyzing an industry. Threat of New entrants The competition in an industry would be higher if it is easier for the companies to enter into the industry. The threat of new entrants mostly depend upon major determinants like economies of scale, high initial investment and large fixed cost, brand loyalty of the consumers, protected intellectual property like patents, licenses, scarcity of the significant resources, access to the raw materials, distribution channels and the relationship shared by the existing companies with their customers. Australia is a significant host of the beer lovers. So, undoubtedly, this has become as a good option for the business to get into. Although, the beer outlets require the necessary license from the appropriate authorities, but this cannot not be a significant barrier to the operation as the outlets can attain the same without intensive effort. However, economies of scale can be a factor in this case as large stores are expected to have more economies of scale than the new outlets. The business requires a good amount of initial investment as well as large amount of fixed cost in storing the beers with that care and efficiency. The hefeweizen beers would require yeast as a significant ingredient and some other significant components. These raw materials are not too tough to find; however, the new outlets may find it tough to employ the skilful staffs in the hefeweizen beer style. The most significant barrier would be access to the distribution channel. The existing players in the industry would have stronger distribution network than the new ones. Another significant barrier is the relationship among shared by the existing players with the customers. Beer can be thought as an add on or significant component of a good time pass or enjoyment. So, surely the beer lovers would prefer the place where they would get enough warmth with the serving of beer. So, maintain good relationship with the customers is pretty significant in this industry; the existing players may lose on these advantages enjoyed by the existing ones. So, it seems that the entry barrier is medium in this industry. Bargaining Power of the Suppliers The term ‘Suppliers’ would refer to all the sources and the inputs which are required to offer the appropriate goods and services. According to the theory, suppliers bargaining power is supposed to be high when there are few large suppliers operating in the industry. The suppliers’ bargaining power is supposed to be low when their customers are fragmented. They would enjoy high bargaining power when the switching cost from one supplier to another would be high. The suppliers’ bargaining power can also be high when the buying industry has low entry barriers. Australia is known for its love for the beers. So, it would not be tough for the suppliers to find proper beer outlets and stores to deliver their products. The country has a large number of suppliers and even a good number of international suppliers having that skill to make the beers amazing. There are a considerable, even a large number of customers preferring beer as a drink to enjoy with. So, the customers are quite fragmented in this industry. The beer store owners would not have to incur considerable switching cost while moving from one supplier to another one; however, the quality may not be same in every case. The industry itself has moderate entry barriers which do not let the suppliers to enjoy high bargaining. Looking at the analysis it seems that it would not be wrong to say that the suppliers in the industry enjoy low bargaining power, although the quality and established suppliers can expect some more from the industry. Bargaining Power of the Buyers The bargaining power of the buyers refers to the intensity of the pressure the customers can impose on the margins and volumes of the products. The customers are expected to enjoy high bargaining power when they purchase at large volumes; this also means that there is a concentration of buyers. They can also enjoy good bargaining power in case the supplying industry comprises of a number of small operators or the supplying industry operates with high fixed costs. The consumers also have bargaining power when switching to an alternative product does not incur much cost and it is pretty simple to move on. There is high probability that the buyers would be enjoying high bargaining power when the product can be home made as it is not of much tactical importance for the buyers. In this case, the consumption is mostly in small volumes. However, the consumers can easily shift from the hefeweizen beer store to some other beer types and that would not incur considerable cost for them. There are a large number of small players in the industry. Hefeweizen beers can be made at home and it would not be wrong that it is just meant to satisfy the taste buds of the consumers. So, the buyers can surely enjoy a high bargaining power in this industry. However, they are deprived of such high bargaining power as the buyer group is quite fragmented in this industry. Looking at the overall analysis, it seems that the bargaining power of the buyers is moderate in this industry. Threat of Substitutes In an industry, a threat of substitute exists when there are products serving the purpose of the consumers. The substitutes would have the ability to attract a considerable portion of the market volume and hence, it would reduce the potential sales volume of the existing operators. The threat of substitutes would depend on the brand loyalty of the customers, close relationship with the customers, switching cost and performance of the products (Themanager, n.d.). There are various types of beer including Lager, Rock, Ale, Porter, Weiss, Stout and Cereal beverage. So, it would not be wrong to say that there are a large number of choices from the customers to choose from. Apart from that, there are other alcohol products which can service the purpose of many consumers. For an instance compared to the year 1949 in 2009, the per capita beer consumption has experienced a slowdown in Australia while at the same time the per capital wine consumption has increased (Turner, 2011). So, all these products can also be treated as the substitute products for the hefeweizen beer. The consumers do not need to incur high cost while moving from one product to another. So, the threat of substitutes is quite high in the industry. Although, the loyal hefeweizen beer lovers may not find the same taste with other alternative products, still the threat of substitutes is pretty high in the industry. Competitive Rivalry The competitive rivalry would refer to the intensity of competition between the existing players in any industry. High competition would depend on the high pressure on the prices, hence on the profitability margins. Competition between the existing players is likely to be high in the case that there are a number of players of almost the same size with almost same kind of strategies. The competitive rivalry is also supposed to high when the exit barriers in an industry are pretty for the players operating in it. In the beer industry, there is a large of small players operating in it. They have almost the same strategies and store styles to attract the customers. In that case, it is pretty tough for these players to dominate a large amount of market share. So, the players are supposed to compete among them to snatch the customers or to attract a larger number of the customers. The industry does not have significant exit barriers as the companies do not need to have any heavy machinery to operate in this industry. So, in this industry the competitive rivalry is moderate to high. Industry Life Cycle (Source: Coursework4you, 2011) The above image displays general lifecycle of an industry. Several news have revealed that beer consumption in Australian beer industry is declining with an increase in the wine consumption. Recent trends have shown that the Beer consumption in Australia has slumped to a 60 year low (Williams, 2010).The reasons have been many including the tight drink –drive law as well as consumers shifting from quantity to quality while opting for Beer. So, it would not be wrong to say that the industry is at its matured stage from where it is expected to start declining. The Strategic Recommendations in the light of Market Conditions and Relevant Theories Australia has been ranked as one of the leading countries in the beer consumption. The Aussies are opting for quality over the quantity when it comes to beer consumption. This is one of the significant reasons behind a slowdown in the beer consumption. The tighter drink- drive law has added further to decrease the beer consumption more. It is recommended that the new beer store in Australia must consider the marketing mix to develop the strategies and implement the same. According to the theory, there are 4 P’s which are required to be considered while opting for opening a new beer outlet in Australia. The first ‘P’ being the product; the product is the physical product or the service offered to the consumers. In case of the physical products, consideration would be made on the relevant services or the convenience which have been parts and parcel of the product. The store outlet must offer quality Hefeweizen beer to attract the customers as well to retain them. There are not much factors which are as influential as the product itself to the consumers. However, the way it should be served is also pretty important. The store would be looking forward to develop and retain long relationship with its customers through better service and high quality beer offerings. Price decisions are also important as there are many substitutes which can attract a large number of prospective buyers. This would also take into account the discounts offered to the customers in various scenarios. The price should be kept at as affordable level where the consumers can be assured that they are getting high quality beer at an affordable price level. To reach at that level, the beer outlet would try to reduce the cost at every possible way without providing any discomfort to its customers. Place decisions are important as strong distribution network can reach out to a large number of consumers. The store outlet would try actively to strengthen its distribution network to reach to the prospective consumers of the Hefeweizen beer. This would be bundled with effective promotional activities. One of the effective means to promote the beer outlet is to offer discounts in the early days of its inception. The store can also organize or sponsor some events which would help them to be in light and assist it to attract more prospective customers. Apart from that, personal selling can also take place to encourage the purchase of the beer. The company must accumulate all these factors and strengthen each of them to survive the competition and lead in the coming years. The store must put enough significance on the quality of the products; hence, maintaining relationship with the suppliers can prove to be fruitful. The company must identify its strengths, use those to remove the weaknesses, explore the opportunities and transform the threats. Reference Carbon Positive. February 15, 2011. Australia moving towards carbon tax? [Online]. Available at: http://www.carbonpositive.net/viewarticle.aspx?articleID=2263 [Accessed on February 15, 2011]. Central Intelligence Agency. January 19, 2011. The World Factbook. [Online]. Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/as.html [Accessed on February 15, 2011]. Coursework4you. 2011. What is Industry Lifecycle? [Online]. Available at: http://www.coursework4you.co.uk/essays-and-dissertations/industry-lifecycle.php [Accessed on February `15, 2011]. GermanBeerGuide. No Date. German Beer Styles: Hefeweizen. [Pdf]. Available at: http://www.germanbeerguide.co.uk/hefeweiz.html [Accessed on February `15, 2011]. Themanager. No Date. Porter’s Five Forces. [Pdf]. Available at: http://www.themanager.org/pdf/p5f.pdf [Accessed on February `15, 2011]. Turner, S. January 17, 2011. Australia beer consumption falls below 1949 levels. [Online]. Available at: http://www.marketwatch.com/story/australia-beer-consumption-falls-below-1949-levels-2011-01-17 [Accessed on February `15, 2011]. U.S. Department of States. November 24, 2010. Background Note: Australia. [Online]. Available at: http://www.state.gov/r/pa/ei/bgn/2698.htm#political [Accessed on February 15, 2011]. Williams, F. May 28, 2010. Beer drinking in Australia at 60-year low. [Online]. Available at: http://www.news.com.au/money/money-matters/beer-drinking-in-australia-at-60-year-low/story-e6frfmd9-1225872599147 [Accessed on February `15, 2011]. Read More