The Largest Beer Markets in the World - Essay Example

Executive summary The UK and Germany have the largest beer markets in the world but they also produce most of their products but the imports in both countries are very limited. In both countries there are more beer brands being produced and there also exists a lot of product differentiation. In both Germany and the UK the costs involved in this industry are very high. The Germany based companies have the product leadership in their products brands unlike in the UK. And this ensures that the operational excellence is further achieved. Similarly in both UK and Germany there is a trend of customer intimacy as most of the beer companies acquire the local brewers to be close to the local markets. The companies in both countries also expand through the acquisition, cooperation as well as licensing with the local parties. There is also a pest analysis which can further help in highlighting the biggest influences on the company’s organizational strategies both currently as well as in the future. Similarly these influences can either be positive or even negative but the key issue in the analysis is identifying and concentrating upon the trends and factors which will most likely have the greatest impact upon the future of the organization. (Kenneth, 1992) Introduction The beer markets in Germany have always been one of the key export markets in Europe even though the marketing of beer in the UK is primarily affected by the trade marketing activities in the cooperation with the key customers in the European Union. The company Oetker has however been aiming to enter the UK market and it has laid down its clear objectives towards the achievement of its goal. This will however have major consequences to the Burton on Trent brewing company which already enjoys its presence in the UK market. Since Germany is the largest beer company in Europe it has the highest per capita consumption of beer in the world and with the prospects of the new entrant Oetker in the market segment there are prospects of the consumption levels not increasing especially because of the existence of other beer companies like Burton on Brent in the market. (Kenneth, 1992) Prospects of Oetker entering the UK market Oekter is one of the largest drinks companies in Europe and its entry in the European market will pose a particular challenge to its competitor Burton on Trent. Oetker continues to further seek ways of expanding into the new markets while it still moves towards the expansion to new markets and the increased market share domination in the areas it already occupies. The market for beers in their various guises is sizable as evidenced by the UK consumption and as well as has the highest volume of consumption. There is evidence that the European Tastes are highly converging in the response to the increasing social pressures as the governments and the consumers as well become more health conscious. Traditionally the brewing industry has been highly fragmented comprising of a larger number of regional and also the largest number of breweries who satisfy the distinct local consumer’s tastes. In general such markets are too small and they do not allow brewers to survive in them in the longer term. The consequences of Oekter entering the UK market on Burton-on-Trent. The entry of the Oekter beer company in the UK, market will have several consequences on its competitor Burton on Trent Company. This will lead the Burton company to suffer from the outdated production techniques and any poor branding which have necessitated the investment in production and restructuring leading to labour redundancies as well as short term loses. The Burton On Trent Company has a global philosophy with other internationally known brands but it greatly shows a lot of appreciation and commitment to the production and brands together with production. Interestingly unlike Oetker it has not diversified from its brewing roots but it has rather focused on the strategies on global growth which will help it in achieving the cost leadership and the associated economies of scale for its mass market brewing in the UK. Oekter entry into the UK market will also foster it to differentiate its brands through the market segmentation as it targets the international and the national markets with its competitors. (Kenneth, 1992) Market share With the entry of the Oetker Company in the UK market there will be an increment in the market share between the Burton on Trent brewing company and Oetker brewing company. This is true since both companies have a business objective of attracting more customers to purchase their products as well as services. Similarly this will divide the database of the already existing customers as others will opt for a change as they try on new products from new companies in the UK. (Kenneth, 1992) On the other hand some customers will remain loyal to the products from the companies they are well acquainted with as they detest the process of change and adapting to other new products by new companies. The Burton On Trent Company will have to really work hard and improve on its services provision so that it can maintain its already existing customers who might be lost to the new entrant if great care is not taken. In maintaining their customers the Burton on Trent Company will therefore be required to greatly upgrade a lot of its company’s products as well as services. (Kenneth, 1992) Price competitions With the new entrant in the markets there will be a huge competition in the prices of the products on offer. The prices will highly fluctuate simply because each of the two companies will fix very consumer friendly prices in order to attract more customers than the other company. The prices of the products will also be very consumer friendly giving the consumers a harder task in making their choices as they choose between the different products offered by the two companies. Employees There is a possibility of employees being poached from the already existing company in the market to the new entrant in the same market. This will invariably cause the Burton on Trent Company to upgrade its employees working conditions as well as improve their benefits lest the new entrant makes a better offer which will make them make a shift to the new company with a better attractive employee package. (Kenneth, 1992) Reduction in sales revenue With the new entrant in the UK market beer industry the company Burton on Trent will however reduce its sales revenue since there will automatically emerge competition between the two companies. The sales will fluctuate as the new company’s products get stable in the existing markets. On the other hand the existing company in the market will increase its investment in the sales and marketing of its products so as to maintain its customers as well as acquire new ones. Increment of the capital expenditure If the Oetker company Achieves its objective in entering the UK market then the Burton on Trent company will most likely invest more in the below the line promotion and especially in the sponsorship of its brand strategies. This will prompt an increment in the existing company’s capital expenditure so that the company can maintain and even improve its capital base. (Kenneth, 1992) Similarities and differences in the UK and German brewing Both the UK and the German brewing industries have greatly grown and increased in the consumer spending of the alcoholic drinks. This ongoing long-term trend in this beer traditional industry includes a shift from the dark beers towards the larger ones particularly the international brands. There has also been an improvement towards the home distribution which has further led to an increment in the volume share of the beer sales in both the UK and Germany. However in the UK despite the government’s intervention the market shares are heavily concentrated with the country’s top two companies which account for more than 50%of the total market share. Nevertheless beer in the UK is such a large market that it also does accommodate hundreds of local as well as regional and international brewers. In both countries the prospects for the brewing industries are fairly buoyant with the newer innovations maintaining its allegiance to its patriotic drinkers. The per capita consumption in both countries will also continue to decline but the consistent trend towards the premium products and the mostly improved choices in the supermarkets and the pubs will eventually sustain the value growth. (Kenneth, 1992) In Germany on the other hand there is a joint return system for the German market since it is the largest beer producing company in Europe. It is surprising that there is a decline in the beer consumption in Germany and there are no prospects of the consumption increasing in any way. This is partly because of the economic situation in Germany and also partly because of the general trend towards the beer mixes and the beverages that are non alcoholic and this is [particularly with the young Germans. In Germany the import beers account for a very minimal amount in the total beer consumption in the country and this is due to among other factors the establishment of the many local breweries which create a very strong consumer preference that is locally based. Unlike in the UK the imports share in Germany remains more or less constant in spite of the presence of the major international breweries which have previously been selling their products through the exports. (Kenneth, 1992) Strategic options open to Oetker in achieving its reported objectives. Companies such as Oekter are trying to gain access to the larger markets with the associated economies of scale and this mainly through a joint venture, acquisition and merger activities. Oekter is anticipating dominating the European markets and thus increasing its production percentage. This prospective positive venture by the Oetker brewing company will further be accelerated by the implementation of the single European market which will enable the company to further move its goods and services, capital and people across the national borders. On the other hand it will open more opportunities as well as threats to the Burton on Trent brewing company. The company Oekter has been obliged to internationalize since its own domestic market is very small in providing the sufficient scope for the economies of scale for a desirable growth. An expansion of the company will be either through a joint venture, a merger, or even an acquisition which will enable the extension of the brand franchising and the complementary brands. Oekter as a group has a strategic goal to defend as well as strengthen its position in the global market by preserving its position its independence and achieving a position of being the world’s largest brewing groups, in terms of its sales and profitability. On the other hand the ultimate goal of Oekter entering the UK market is to acquire the full ownership and he control of the local and international production wherever possible (Kenneth, 1992) Alternative strategies open to Burton on Trent With the prospects of Oetker entering the UK market the company Burton on Trent has been making a consideration of the available alternative strategies which are open to it as a company in ensuring that it retains its market share in the existing markets. The first major strategy would be the company’s investment in aggressive promotion of its major brands through the advertising which is a central element in marketing. The company should also focus on the effective marketing of the brands sold in large volumes. Another strategy would be the company’s aggressive determination in retaining its independent status as well as maintain its profitability and the consumer preference even in the entry of new companies in the market. (Kenneth, 1992) Recommendations It is highly recommended that the Burton on Trent Company should adopt policies that would enable it to maintain or even expand its market base irrespective of the new company’s entry in the market. It is also important that the company conducts a detailed research based on the market trends as this will help the company clearly identify its loopholes and make further adjustments. Industrial analysis The pest analysis; Political-This includes the packaging of the beer and other related drinks as well as the deposit schemes of the beer companies. It also encompasses the duties of the company politically and that includes the regulation and the establishment of the youth drinking policy as well as the purity laws in the beer industry. Social- This critically examines the customers’ leisure so that the beer industries can ensure that the customers have more leisure time and they are more aware of their health as they look and engage in more drinking alternatives like wines. Economic-This looks at the possibilities of the beer companies acquiring the government’s permits and licensing as well as the strategic alliances which have been formed and consolidated in the beer industry. It also focuses on the competition globally and ensures that the markets have a fair distribution in the market share. Technological-This aspect mainly focuses on the new technological advancement which involves the production of the new types of beers in the market places. The porter’s five forces model Internal rivalry There is a saturation of all markets in the beer industry and this has further led to the internal rivalry within the industry. These have also encouraged the overcapacity in the same industry as well as encourage the breweries companies to compete on the existing prices since they all want to remain and conserve their market shares. Similarly in this industry the largest breweries become larger at the cost of the smaller players in the beer industry. The intensity of the existing rivalry among the competitors within the industry is further determined by the size and the number of competitors, the growth rate in the industry, the risks involved in the creation of overcapacity, the similarity of the products and the services as well as the ease with which the competitors can leave the beer industry. (Kenneth, 1992) Bargaining power of the buyers In the beer industry the bargaining power of the buyers is tentatively low and this has been caused by the brewery end consumers becoming very critical because of the availability of many alternatives. In some countries the consumers bargaining owner is highly dictated by the terms of supply which exist in these countries. The buyers are the mirror image that is exerted by the suppliers in the beer industry. If the buyers are relatively very few they can then switch easily between the suppliers and the bargaining position of the industry will be further weakened with the pressures to reduce the prices or increase the quality of the products that are provided. (Kenneth, 1992) Bargaining power of the suppliers The bargaining power of the suppliers is similarly very important in the markets as this dictates the availability of the supplier’s products in the markets. This also affects the costs which are incurred by the beer industry. When it is very hard to switch the suppliers since they are very few or it is expensive to change them or even the product’s supplied are relatively minor markets for the suppliers then the bargaining strength of the suppliers will be high and the costs will further be passed on to the beer industry. New entrant It is very common that the multinational and the global exporting brands enter the market and they actually take over the local as well as the national breweries. Thus the new entrants are at times seen either as threats to the already existing companies or opportunities for the existing businesses to expand more. Substitution In general terms there are other drinks which are substituted for the beer and they include the soft drinks, the wines and the energy drinks. There exists a threat in the substitute products and services which are produced in the beer industry. This threat is usually high when the needs of the consumers can easily be met by any other alternative products and services that are produced within the same industry. The price performance of the substitutes and the extents of switching costs in the propensity of the buyers to use the substitutes will highly affect the intensity of the threat. (Kenneth, 1992) Strategic objectives relating to the opportunities and threats of cross-border business activity in the Single European Market In the beer industry the oetker company is strategically prepared to face the huge expenditures as well as the increasing competition from other beer companies. The company has further reacted to the anticipated changes with a number of strategic moves which involve acquisitions and mergers as well as diversification and market nicheing. The move by the oetker company to enter the UK market will produce a formidable global competitor in the beer industry in Europe. There are many opportunities which arise due to the cross border business activity and there need to be strategic objectives which are laid down by the new entrant so that there can be monitoring of the cooperation between the local and regional authorities and later identification of better ways for providing services to the inhabitants of the border areas. (Kenneth, 1992) Conclusion If the Oetker Company achieves its goal in penetrating and entering through the UK market it will successfully promote its core brand names globally and this will also bring a lot of benefits to the local brands which have differing attributes in suiting the national as well as the regional markets in Europe. Reference: Kenneth G. (1992): The Beer Industry; The Structure of European Industry. New York, Macmillan publishers, pgs 218-248 Read More