Strategic Management Factors Affecting UK Brewing Industry - Report Example

Strategic Management Assignment One Table of Contents Introduction 3 External Environmental Analysis: Factors Affecting UK Brewing Industry 4 PESTLE Analysis 4 Porter’s Five Forces Analysis 6 Internal Analysis 8 SWOT Analysis 8 VRIN Framework 9 Value Chain Analysis 10 Strategic Analysis 12 Conclusion 15 References 16 Appendix 19 Introduction Beer is considered as the national drink in the United Kingdom. However, in the recent times, it is facing a significant fall in the current market scenario. In the year 2012, the UK experienced a decline in the consumption of beer to 3.3% per head as articulated in the report of British Beer & Pub Association’s (BBPA) (Perrett, 2013). Due to the reduction in the consumption, the UK brewing industry is facing issues due to various factors. Marston’s Plc is one of the leading brewing companies operating in the UK. The company has a strong market share and market capitalisation in the year 2014 due to the strong sale and brand name. The company produces barrels of beer and have its own brands with products such as Wychwood Hobgoblin. The sales records of the company reveal a growing trend since its initiation. Moreover, the company is implementing strategic plans in order to increase its sale. Marston’s majorly focuses upon the bottled beer for consumption. The strategy of the company has been driven by its objectives to attain sustainable growth and enhance return of capital (1Marston’s Plc, 2014). Correspondingly, this essay intends to produce a report reflecting an external strategic audit of the brewing industry in the UK and an internal analysis of Marston’s PLC. External Environmental Analysis: Factors Affecting UK Brewing Industry In order to conduct an external environment analysis of the UK brewing industry, two major analytical tools i.e. PESTLE Analysis and Porter’s five forces analysis have been used. PESTLE Analysis Political In the recent years, the brewing industry in the UK has been witnessing significant level of government intervention. Lately, the UK government in order to deal with consequences of the low price super strengths beers has announced to devise plans governing the sales and promotional activities. The impact of the announcement is ascertained to be felt on industry wide affecting the sales figure (Lefty, 2014; Carlisle, 2011). Economic The overall beer market in the UK is estimated to be more than 53 billion. The beer market in the UK is ascertained to be dominated by four major breweries that include Scottish and Newcastle, Fosters, Kronenbourg and Coors (Pavey, 2014). In addition, it has been observed that brewing industry in the UK had experienced significant decline in the sales turnover that actually resulted due to the financial crisis witnessed by the industry. At the same time, it is also ascertained that the increase in the prices of other commodities is likely to impact brewing industry in the subsequent years (Seely, 2014; Office for National Statistics, 2014). Social Beer is often conceived as a national drink in the UK. Accordingly, UK is listed among the highest drinking rates across the globe (Association of Newspaper, 2011). Nevertheless, it has been observed that over the years people in the UK are becoming more health conscious, which has pose considerable impact on the brewing industry. Accordingly, the brewing industry in the UK has been observed to face with constant decline in their sales (Morgan, 2011). Technological It has been observed that the widespread technological advancement witnessed by almost all the industry has not left the brewing industry untouched in the UK. Accordingly, brewing industry in the UK is identified to implement various types of new and innovative technologies with the aim of achieving efficiency in production. In this regard, it has been observed that many players in the brewing industry has adopted advanced water treatment technologies and are identified to be constantly engaged in upgrading equipment (BBPA, 2011). Legal The brewing industry in the UK is also identified to suffer from increased level of tax rate. According the increase in the alcohol duty has been observed to dramatically influence the prices of beer. Besides, it has been identified that the government is further interested in raising the level of beer tax as a strategic measure to reduce the consumption of beer and promote health. Correspondingly, in the later years to come, it is perceived that the brewing industry have to bear the burden of unprecedented rise in tax rates (Seely, 2014). Environmental It has been observed that brewing companies in the UK are revealing their firm determination towards improving environment management as well as performance. The companies within the industry are identified to incorporate strategies and programmes related to energy and water reduction. Besides the industry has set target to reduce carbon emission by two-third by 2020 (BBPA, 2011). Porter’s Five Forces Analysis Bargaining Power of Suppliers The bargaining power of the supplier in the brewing industry has decreased considerably due to the economic factors and changes. The government have raised the rate of beer tax and implemented health related policies. The policies have curbed the suppliers powers due to the decrease in the customer base The reductions in the switching costs of the brewing industry products have deteriorated the condition of the industry at large along with the bargaining power of the buyers (Bjornstad & Normann, 2011). Bargaining Power of Buyers In the UK, the brewing industry is facing a strong bargaining power of the buyer due to various factors. Due to the governmental policies, the consumers of beer are reducing immensely. With the reduction in the number of consumer of the beer, the bargaining power of the buyers is ascertained to be high (Bjornstad & Normann, 2011). Existing Rivalry The brewing industry is facing high competition as the competitors are competing against each other to gain more market share long with competitive advantage. It is observed that the industry in UK is in its declining stage as the industry is facing loses. The exiting rivalry is high as the major players are preventing entrants to minimise their profit sharing. The players in the brewing industry are strong and thus pose high threat to the new entrants. The competitiveness within the industry is very strong in order to capitalise the market (Bjornstad & Normann, 2011). Threat from Substitutes Substitutes are the major threats for the brewing industry. Beverages such as vodka and non-alcoholic beer are the form of substitute that is available in the market. Soft drinks are other substitutes for the brewing industry. Therefore, the threat is high for the brewing industry in the UK (Bjornstad & Normann, 2011). Barriers to Entry The entrant barrier is high in the UK brewing industry. The restriction faced by the entrants is due to the governmental policies and related taxes. The threat is high as the major players have significant economies of scale creating a barrier for the new entrants (Bjornstad & Normann, 2011). From the above analysis, it can be stated that the impact of globalisation, consumer preferences, laws and regulations and sustainability are the major factors affecting the brewing industry in the UK. The overall attractiveness of the industry is depends largely upon the strategic groups. Due to the entry threat and the barriers, the profit margin of the brewing industry is decreasing. With respect to the analysis, it is evaluated that the industry attractiveness is not very high but medium in the brewing industry (Bjornstad & Normann, 2011). Internal Analysis SWOT Analysis Strengths One of the major strength factors for the company has been newly build pubs, which has delivered the company with steady growth and development. Besides, it has more than 25000 pubs operating in the UK which has offered the company significant competitive advantage. At the same time, the pool of talented employees also forms an important strength factor for the company (3Marston’s Plc, 2014). Weaknesses Weakness in this regard is the management issues that are faced by the company. The maintenance of production lacks proper coordination. The management is unable to manage production efficiently and effectively (3Marston’s Plc, 2014). Opportunities Despite, decline in the sales witnessed by the company, it has been observed that consumer demand for its product is growing which can be perceived as a potential opportunity for the company in the subsequent years (3Marston’s Plc, 2014). Threats It has been observed that the current brewing market is faced with numerous challenges. Accordingly, the intervention led by government to reduce the consumption of the beer by increasing the rate of beer tax can be identified to serve as a potential threat for the company. Besides, the declining sales of beer in the past few years can also be ascertained to create grave difficulties in its effort to attain long-term sustainability (3Marston’s Plc, 2014). VRIN Framework Valuable The aim of the company is to provide customers with products that meet their taste and satisfaction level. The company offers a wide range of beer products available in different flavours. Thus, it provides value to the customers in terms of flavours (3Marston’s Plc, 2014). Rare It has been observed that there are number of other companies competing directly with Marstons Beer Company. However, the company has been able to position its products as an ultimate product in terms of taste, performance and flavours as the customer view these products to be higher quality when compared with other similar products available in the market (UK Food Exports, 2014; 3Marston’s Plc, 2014). Inimitability It can be argued that there exist similar products as offered by the company. However, the company has embraced traditional methods of production together with inducing innovation, which has enabled it to position its product differently (UK Food Exports, 2014). Non-Substitutable It can be stated that the products of the company can be substituted by similar other products available in the market. However, the thing that cannot be substituted is esteem that is accompanied in its brand name. Value Chain Analysis Primary Activities The company acquires required materials from a diverse range of suppliers. In order to ensure that the materials acquired from the suppliers are of superior quality, it has established certain specific standards. Marston’s Plc has its own distribution network; the products that are manufactured by the company are distributed to end customers’ self-owned pubs and retail, which are spread across the UK (3Marston’s Plc, 2014). Secondary Activities The talented pool of human resources who focus on bringing in innovation in products offerings can be regarded as a distinctive feature of Marston’s value chain. Besides, the company has adopted numerous technologies such as advanced water treatment technologies and energy efficient technologies in order to ensure improvised production and reduce wastes along with cost associated with its operations (3Marston’s Plc, 2014; BBPA, 2011). Strategic Analysis Based on the above-illustrated external and internal factors, it can be stated that the strategy of Marston’s Plc is to exploit the competitive advantage for further improvement of pubs and market positioning. The employees are the key source for its success. In terms of core competencies, it can be ascertained that its offerings of high quality beer products and its pool of talented employees are the prime. Besides, its ability to maintain continued innovation in terms of flavours of its beer products can be termed as one of the key core competencies of the company (3Marston’s Plc, 2014). Their knowledge and capabilities are used by the organisation for integrated business model. With regard to dynamic capability of the company, it can be stated that its ability to select business locations having considerable consumer demands for its beer products can be highlighted as the key. Moreover, despite the fall in the sales of beer products in the UK market, through the proper execution of its threshold capability of continued product innovation Marston’s has been able to attain sustainability (UK Food Exports, 2014). The objective of the company is to do better than the market in every aspect. The company employs it strategy based on creating value by implementing the differentiation strategy. The strategy of the company focused upon the demand of the consumer for the premium cake along with the bottled sales. The value for the customer is provided by differentiating the product based on provenance along with quality. The company have a strong value chain as they have five breweries for its distribution to be smooth in the UK (Hill & Jones, 2007). Accordingly, to have a smooth and strong market presence it is important for the company to increase its competencies by maintaining strong ethical relationship with the license holder. Transparency, fair risk management, and sustainability are the factors that affect the operation of the brewing industry at large. The company initiates various strategies to have a long-term operation in the brewing industry by capturing market segment. Furthermore, Marston’s Plc strategized their policies by providing ‘free trade pricing’ as well as ‘free-of-tie options’. Continues innovation and selection of skilled high quality ingredients and flavours are the strategies that make company progressive. Creativity and innovation is considered as a strong and vital part of the process for more unique product offerings (1Marston’s Plc, 2014). The management to gain competitive advantage and good decision has implemented the business level strategy. Based on the business level strategy the company is implementing the differentiation strategy for its products. The company has various positive traits and these have led to its success along with growth in the brewing industry. From the internal analysis the internal features of the company can be evaluated which helps in providing better strength for the company (2Marston’s Plc, 2014). Strength of the company is that it is one of the leading brewing industries in the UK. High level of understanding along with customer satisfaction is the strength of the company that assists the company to have strong customer base. The proper coordinated strategy with the aim to achieve large market share is another reason for the success of the company. Maintenance of strong relationship with the supplier helps the company to assure high quality product and differentiation. Employees are the key resources of the company and they provide value to the organisation by sharing their ideas for the formulation of strategies. The company have strong resources, various breweries locations and innovative process along with strategic marketing plans. The company has placed less importance on diversification as a measure to acquire strong market and customer base with few specific brands. Moreover, the company operates in responsible way in order to meet the corporate social responsibility. The production sites of the company follow the high standards of environmental agency (Harrison, 2010; Sadler, 2003). Franchise style agreements introduced by the company in the year 2009 have been quite efficient in attaining economies of scale. Conclusion To recapitulate, the brewing industry is constantly changing in UK. The external and the internal factors are affecting the business on continuous basis. From the above discussion, it is observed that the level of consumption of beer have reduced immensely due to the rise in the price, increase in unemployment and governmental policies. However, Marstons Plc has strong market presence in UK due to its various strategic management approaches. The strategies implemented by the company helps in capitalising upon the market. Differentiation in the products with high quality and strong relationship within the stakeholder helps in creating a strong market in the brewing industry. Precisely, the company has been able to absorb the pressure exerted by the recent financial crisis on the brewing industry. The role of strategic measures undertaken by the company to cope up with the challenges faced by the brewing industry is ascertained to be extremely prominent. References Bjornstad, J.O. & Normann, C.A., 2011. Beer Industry. Slide Share. [Online] Available at: http://www.slideshare.net/cadeler/beer-industry [Accessed July 04, 2014]. BBPA, 2011. Brewing Green. Our Commitments. [Online] Available at: http://s3.amazonaws.com/bbpa-prod/attachments/documents/resources/21206/original/Brewing%20Green%20Report%202011.pdf?1328626886 [Accessed July 04, 2014]. Carlisle, S., 2011. Strategic Plan. Market Assessment, pp 1-71. Harrison, J.P., 2010. Strategic Planning and SWOT Analysis. Chapter 5. [Online] Available at: http://www.ache.org/pdf/secure/gifts/Harrison_Chapter5.pdf [Accessed July 04, 2014]. Hill, C. & Jones, G., 2007. Strategic Management: An Integrated Approach. Cengage Learning. Lefty, M., 2014. Alcohol Trade Must Act On UK Drink Problem Or Face Government Action. News. [Online] Available at: http://www.independent.co.uk/news/uk/politics/alcohol-trade-must-act-on-uk-drink-problem-or-face-government-action-9131084.html [Accessed July 04, 2014]. 1Marston’s Plc, 2014. Strategy. Investors. [Online] Available at: http://www.marstons.co.uk/investors/strategy.aspx [Accessed July 04, 2014]. 2Marston’s Plc, 2014. Our Environment. Responsibility. [Online] Available at: http://www.marstons.co.uk/responsibility/ [Accessed July 04, 2014]. 3Marston’s Plc, 2014. Financials. Annual Report. [Online] Available at: http://www.marstons.co.uk/docs/financials/Marstons_AR2012.pdf [Accessed July 04, 2014]. Morgan, J., 2011. Why Is Alcohol Consumption Falling. BBC News. [Online] Available at: http://www.bbc.com/news/magazine-12397254 [Accessed July 04, 2014]. Office for National Statistics, 2014. Consumer Price Inflation. Statistical Bulletin, pp. 2-38. Pavey, C., 2007. An Overview of the Beer Brewing Industry in the United Kingdom. Overview. [Online] Available at: http://www.culinaryarts360.com/index.php/an-overview-of-the-beer-brewing-industry-in-the-united-kingdom-3-32461/ [Accessed July 04, 2014]. Perrett, M., 2013. Alcohol Consumption Drops to the Lowest This Century. General News. [Online] Available at: http://www.morningadvertiser.co.uk/General-News/Alcohol-consumption-drops-to-lowest-this-century [Accessed July 04, 2014]. Sadler, P., 2003. Strategic Management. Kogan Page Publishers. Seely, A., 2014. Beer Taxation and the Pub Trade. Business & Transport Section, pp. 1-34. Slade, M.E., 2002. Market Power and Joint Dominance in UK Brewing. Department of Economics, pp. 1-44. UK Food Exports, 2014. Alcoholic Beverages & Beer. Marstons plc. Appendix Strengths Newly build pubs 25000 pubs operating in the UK The pool of talented employees Weaknesses The management issues Lacks proper coordination Opportunities Growing consumer demand Threats Increasing rate of beer tax Government Intervention SWOT Analysis Matrix Resources Valuable Rarity Inimitability Non- Substitutable Competitive Advantage Brand Yes Yes Yes Yes Sustained Flavours Yes Yes No Yes Sustained Self-Owned Distribution Yes No No Yes Temporary VRIN Analysis Framework Value Chain Read More