Dominance and Performance of the Global Beverage Industry - Example

Finance and accounting Table of Contents Introduction 3 Part External analysis 3 1 Beer industry overview 3 2 Beer Market in African region 5Macro Environment Analysis of beer industry 7 1.3 PESTLE Analysis 7 Reference List 10 Introduction The report reflects the dominance and performance of the global beverage industry. The industry has been growing spectacularly over the few years, since consumption of beer has increased among consumers. The beer companies have penetrated deep into the markets and have offered ranges of beers at reasonable price. The revenue generated by the global beer industry is about to exceed $1 trillion in 2014. The total volume of beer that is predicted to sell is 210 billion litres in 2014, which has increased by 10% over the five years (Saffer and Dave, 2006). The industry is ruled by many powerful players, who have penetrated individual competitive markets quite well. SABMiller Plc. is one of the leading beverage companies in the world with regard to beer manufacturing, producing around 200 brands of beers (Oteri, et. al., 2007). The report elaborates the PESTLE analysis of the beer industry and elaborates its driving factors. Part 1: External analysis 1.1 Beer industry overview The beverage industry comprises beer, cider and flavoured alcohols and is growing at a fast pace. They have overruled the market by penetrating the major part of the beverage industry. However, developing markets have encouraged existence of the beer industry, since per capita intake of beer is increasing at rapidly. The consumers, since a long time, have shifted their taste and preferences from informal alcohol to distilled beer. This transformation has increased the sales in Africa, Asia and Latin America (Jose, 2012). There are many major players present in the market worldwide, which are seen to compete among themselves for holding the best position in beer industry (Jernigan, 2009). The ten preferred beer marketers in the global industry are given in the figure below: Figure 1: Leading beer manufacturer in the world (Source: Anderson, 2002) From the above table, it is observed that SABMiller is at the second position in the beverage industry, as of 2006. This is because of a tremendous increase in sales in the past few years. The PESTLE of the beer analysis is carried out in order to get a clear picture regarding positioning of the industry in Africa (Zijlma, 2014). The beer industry is differentiated into two strategic groups; the major one being the brewers in United States, Anheuser-Busch and SABMiller Group. The companies are sharing a major portion of the industry, capturing 50% and 29% of the total market share, respectively. The primary products of the beer industry are premium and sub-premium beer. The SABMiller Plc is regarded as the better beer brewers and it includes a number of companies, which capture smaller market shares. SABMiller sells premium or super-premium beer to consumers in the market (Sharmer, 2001). The retail price offered by the company is quite reasonable and has unique characteristics. The per capita consumption has increased over the years and there has been a transition in preference from informal alcohol to professionally brewed beers. The beer industry has encountered huge growth in Africa. The African market concentrates on “global sweet spot of combining strong long-term volume growth and high EBIT margins” (SABMiller, 2014a). The figure indicates regional EBIT margin of the beer industry: Figure 1: Regional beer market (Source: SABMiller, 2014a) From the above diagram, it is evident that Africa and America are the major markets of beer consumption and thus, they are growing at an increasing rate. 1.2 Beer Market in African region It has been observed that an average African sips at least 8 litres of beer annually. The Africans depend on the homebrew beer, which is made up of millet, sorghum and many more fermentable. A survey conducted by SAB has identified the fact that homebrew market of Africa is about four times larger than the formal market, with respect to the measured volume (Aftab and Rahim, 2009). The homebrew market in Africa is excellent, but is variable in nature. Sometimes, it is lumpy and lacks the level of prestige, which it should entail. SABMiller, which operates in more than 37 countries in Africa, has tried to woo the homebrew lovers with cassava beers and sorghum, which had been a good effort. The products are sweeter than mainstream beers and the price is three times lesser. Eagle, The best brand of SAB, is the first sorghum lager in the world, which was launched in 2002; the product is brewed in Uganda. The demand for Impala, a brand of SAB, is the first commercial cassava beer in the world and the product is brewed in Mozambique. The supply was outstripping the demand after four months of the launch. SAB accounted for 12% sales of beer in Africa and also, involves bottling and soft drinks (The Economist Newspaper Limited, 2014). Heineken is regarded as the largest brewer in Nigeria and has recently paid an amount of $ 163 million for acquiring two Ethiopian breweries, which were put for sale by the African government (The Economist Newspaper Limited, 2014). The consumption of beer in poor and rich countries differs and thus, depends on the income level. As the income level of consumers rises, they prefer to consume branded beer. SAB has plugged the traditional African beer market as it is the fastest growing beer market in the world. These have provided the mass with premium brands and eliminated the traditional brewed process of the beer (SABMiller, 2014b). It has been recognized that beer industry has encountered decline in growth, in third quarter of 2013, since income level of households in Africa had fallen during the period and thus, their consumption of luxury branded beers also fell (Analoui and Karami, 2003). The revolution that took place in the beer market of Nigeria has highly affected the sale of premium brands. If the trend continues, then leading brands in the African market will shrink in their stature and size. To safe guard their existence; brands have embraced new innovative marketing activities. The beer consumption in west of Africa has fallen, but Nigeria has experienced the largest beer market in Africa (OECD, 2008). The Nigerian beer market had grown by 21.8% in 2009, which incurred a value of USD 2.7 billion. In Nigeria, consumption of beer is 10 litres per head of the population; thus, the market has higher opportunities to expand. Alcoholic consumption is highly acceptable in Nigerian society and 80% of sales of the country are on-trade (SABMiller Plc., 2014c). Apart from SAB, there are two other beer companies in Nigeria; Nigerian Breweries Plc and Guinness Nigeria Plc. The companies have made sure that they fulfil the demand of consumers and supply to the fullest. The brand conscious middle class families are swelling and the three global operators are targeting their consumers with drinks that are available in magnum sized bottles in Nigeria. Guinness is sold in greater quantities in West African countries. The poor Nigerians have restricted disposable income, which represents a lucrative market for the brands, since they are selling beers at a cheap price and the size of the market is also huge. The three beer companies have competed among themselves for years. This is highly exciting for market watchers (Samuel, 2014). The main drivers for change in this industry are the following: 1) The entrance of new brewers in the market can threat the sales of existing big brands. So, competition is likely to take place among them. 2) It is observed that smaller companies merge with the big brands to expand their brand name, thereby posing as threat to other brands. Merger or acquisition, therefore, brings in changes in the market and also, in consumption pattern of consumers. 3) The change in consumer tastes and preferences has greatly affected sales of the companies. The homebrew beers are quite famous among African residents and it is quite hard for the companies to cope up with expectations of these consumers. 4) The technological advances have also presented difficulties for the companies. Macro Environment Analysis of beer industry For evaluating the macro-environment of an industry, it is vital to recognize factors that are responsible for affecting a wide range of variables. These variables have huge impact on demand and supply of the industry, as a whole. The changes, that are taking place radically in the society, have created an uncertain environment and make huge impact on functions of industries. PESTEL analysis is one of the major macro-environment analyses, which are responsible for categorizing environmental influences on the industries. The influences include political, legal, social, economic and technological forces. The analysis, thus, evaluates the effect of each force on business in a particular industry. Beer industry has encountered huge changes in the past few years because of alterations in macro-environment level. The PESTEL analysis of beer industry in Africa is elaborated below. 1.3 PESTLE Analysis The PESTLE analysis elaborates factors of the environment, which affects the operation of a particular industry. The framework symbolizes vertebras of the backbone of strategic management and defines operations of the company by taking into consideration the environmental forces that can affect the same. Political These factors establish a degree to which the government influences any economy or industry. The beer industry is also affected by this factor, due to imposition of multiple restrictions. Political issues include imposition of taxes, fiscal policies and trade tariffs that the government charge in particular, which affects beer industry to a large extent. The beer industry have encountered problem in Regulation and Quality laws for manufacturing beer in huge quantity and gaining economy of scales. Productivity of the industry gets disturbed during political instability in Africa. Economic These factors determine the performance of an industry that affects long-term operation. The beer industry in Africa got affected, when there was devaluation of soft currencies. The economies of Africa yielded low profit, since there was decline in disposable income of Africans. The rise in cost of aluminium and energy has greatly affected profitability of the industry. Development of the fragmented markets in Africa has assisted the industry to progress easily; however, the disposable income of Africans affected sales of beer to a large extent. Social These factors examine social environment of a market and measures its determinants, like, cultural trends, population analytics and demographics. The beer industry in Africa got affected by rise in demand of wine and spirit. The beer market encounters increase in sales, when there is huge disposable income and residents tend to live luxurious lives. Technological These factors relate to changes that are taking place due to innovation in technology. They can affect the operation of an industry to a large extent. These also refer to research and development, automation and technological awareness, which are possessed by a market. The beer industry had encountered technological changes as a challenge, since invention of modern machinery had brought along new methods of packaging. The distribution network is easily handled with the introduction of new technological backups. Environmental This factor comprises influences on or determines the surrounding environment. This feature of PESTLE is very vital for few industries, since the operation of the same is affected to a large extent, if the environment does not suit the production process. The profitability of beer industry got affected by the bad weather condition in Africa, during the period 2006-2007 (Muritala, Awolaja and Bako, 2012). Legal These factors have both internal and external aspects. There exist certain laws, which have huge impact on the business environment in few countries. There are policies too, which companies need to obey in order to operate successfully in the industry. The beer industry has encountered problems regarding the laws pertaining to alcohol manufacturing and consumption. The laws relating to the takeover of companies are very rigid and pose restrictions to the process, if not followed in the proper manner (Onugu, 2005). Reference List Aftab, K. and Rahim, E., 2009. Barriers to the Growth of Informal Sector Firms: A Case Study. Journal of Development Studies, 25(4), pp. 490-507. Analoui, F., and Karami, A., 2003. Strategic Management: In Small and Medium Enterprises. Connecticut: Cengage Learning EMEA. Anderson, P., 2002. The beverage alcohol industry’s social aspects organizations: A public health warning. Globe, 2002, pp. 5–30. Jernigan, D., 2009. The Global Alcohol Industry: An Overview. Addiction, 104, pp. 6-12. Jose, S., 2012. Global Non-Alcoholic Beverages Market to Reach US$622 Billion by 2015, According to New Report by Global Industry Analysts, Inc. [online] Available at: < http://www.prweb.com/releases/non_alcoholic_beverages/bottled_water_soft_drinks/prweb9185808.htm > [Accessed 20 February 2014]. Muritala, T. A., Awolaja, A. M., and Bako, Y. A., 2012. Impact of Small and Medium Enterprises on Economic Growth and Development. American Journal of Business and Management, 1 (1), pp. 18-22. OECD, 2008. Enhancing the Role of SMEs in Global Value Chains. Paris: OECD Publishing. Onugu, B., 2005. Small and Medium Enterprises (SMEs) In Nigeria: Problems and Prospects. [pdf] n.p. Available at: < http://www.efiko.org/material/Small%20and%20Medium%20Enterprises%20(SMEs)%20in%20Nigeria-%20Problems%20and%20Prospects%20By%20Basil%20Anthony%20Ngwu.pdf> [Accessed 20 February 2014]. Oteri, A., Salvo, F., Caputi, A. P. and Calapai, G., 2007. Intake of energy drinks in association with alcoholic beverages in a cohort of students of the School of Medicine of the University of Messina. Alcohol Clinic, 31, pp. 1677–80. SABMiller Plc., 2014c. Annual Report 2013. [online] Available at: [Accessed 20 February 2014] SABMiller, 2014a. Global Beer Market Trends. [online] Available at :< http://www.sabmiller.com/index.asp?pageid=39 > [Accessed 20 February 2014]. SABMiller, 2014b. About Us. [online] Available at: < http://www.sabmiller.com/index.asp?pageid=888 > [Accessed 20 February 2014]. Saffer, H. and Dave, D., 2006. Alcohol advertising and alcohol consumption by adolescents. Health Economy, 15, pp. 617–37. Samuel, E., 2014. Nigeria’s beer industry: Growth, market share and value. [online] Available at: < http://businessdayonline.com/2014/02/nigerias-beer-industry-growth-market-share-and-value/ > [Accessed 20 February 2014]. Sharmer, L., 2001. Evaluation of alcohol education programs on attitude, knowledge and self-reported behaviour of college students. Eval Health Prof, 24, pp. 336–57. The Economist Newspaper Limited, 2014. From Lumps To Lager. [online] Available at: < http://www.economist.com/node/21551092 > [Accessed 20 February 2014]. Zijlma, A., 2014. Beers of Africa. [online] Available at: < http://goafrica.about.com/od/foodanddrink/a/Beers-Of-Africa.htm > [Accessed 20 February 2014] Read More