Global forces and the European brewing industry

Mohamed zekri
This case is centred on the European brewing industry and examines how the
increasingly competitive pressure of operating within global markets is
causing consolidation through acquisitions, alliances and closures within the
industry. This has resulted in the growth of the brewers reliance upon super
brands.
In the mid 2000s the major centre for production of beer in the world was
Europe; its production was twice that of the USA, which in 2003 was the
worlds largest beer-producing country. In the alcoholic drinks sector beer
sales are dominant: total sales across the world accounted for 74 percent of
all alcoholic purchases (Euromonitor 2002).
Although the European market as a whole is mature, with beer sales
showing slight falls in most markets, Datamonitor 2003 reported that the
alcoholic beverage sector grew at an annual rate in value terms by 2.6 per
cent year between 1997 and 2002.

Table 1 European beer consumption by country and year

(000 hectolitres )
198 199 199 199 200 200 200
Country
0
7
8
9
0
1
2
Austria
Beigium
Denmark
Finland
France
Germany#

765
1
129
45
669
8
273
8
237
45
898
20

914
5
102
43
616
5
417
0
216
55
107
679

873
6
100
11
570
7
408
4
226
63
104
550

881
0
102
03
556
2
408
7
228
33
104
629

876
2
100
64
545
2
402
4
214
20
103
105

862
7
998
6
528
2
408
5
213
31
100
904

873
4
990
1
520
0
413
6
206
29
100
385

Greece
Ireland

N/A
417
4
953
9

394
0
540
6
145
35

Italy
Luxembou
rg
417 466 452
Netherla
122 134 132
nds
13
75
25
Norwa
y*
7651 2330
Portu
gal
3534 6318
Spain
20065 26238
Swede
n
3935 5459
Switzerland*
4433 4249
UK
65490 61114
Total
26935 30258
#
8
7
*Non-EU countries, 1980
adjusted.

421
1
559
2
155
01

435
4
569
9
156
75

428
8
559
4
162
89

474
133
09

472
131
29

445
129
22

2203

2305

418
1
562
5
166
94

424
7
553
6
163
40
440
11985

2327

2290

2420

6494 6475 6453 6276 5943

26677 27772 29151 31126 30715
5077 5258 5011 4932 4999
4277 4212 4194 4141 4127
58835 58917 57007 58234 59384
29829 30057 29674 29708 29512
5
4
2
1
1
excludes GDR. Figures

Table 2 Annual consumption per capital by country and year (litres)

Count
ry
1980 1997 1998 1999 2000 2001 2002
Austr
ia
Beigi
um
Denma
rk

101.9 113.3 108.1 108.9 108.1 107.0 108.5

131.0 101.0

98.0 100.0

99.0

98.0

96.0

130.7 116.7 107.7 104.6 102.2

98.6

96.7

Finla
nd
Franc
e
Germa
ny#
Greec
e
Irela
nd
Italy
Luxembourg
Netherlands
Norwa
y*
Portu
gal
Spain
Swede
n
Switzerland*
UK
Total
#
*Non-EU countries

56.6

84.0

80.0

80.1

77.9

80.2

79.5

44.3

37.0

38.6

38.7

36.2

35.9

34.7

145.9 131.2 127.5 127.5 125.3 122.4 121.5

N/A

39.0

42.0

43.0

40.0

39.0

39.0

121.7 123.7 124.2 126.0 125.0 125.0 125.0

16.7 25.4 26.9 27.1 28.1 28.9 28.2
115.8 112.0 107.0 110.0 108.2 100.9 98.5
86.4 86.4 84.3 84.4 82.8 80.5 79.2
48.1

52.9

49.7

51.7

52.0

51.0

35.0
53.7

63.6
66.7

63.3
66.9

64.9 646
69.1 72.0

61.3
75.7

47.4 61.7
69.5 59.5
118.3 103.6

57.3
59.9
99.3

59.3
58.8
99.0

56.4
58.3
97.2

55.4
57.2
99.0

77.2

77.6

75.9

75.9

82.5

78.6

The Interbrew market trend report 2002 states that within

Europe the on-trade market (sold through licensed premises)
beer accounts for 59 per cent of all alcoholic beverage sales by
volume , while in the take-home market this figure increase to
72 per cent..
Two key trends within Europe were the rapid growth in leisure
spending and the consumers increased awareness of health and
fitness. These factors had resulted in a drop in the volumes of
beer consumed.
Another current trend across Europe is towards drinking a
wider range of alcoholic beverages. There has been a growth in
demand for flavoured alcoholic beverages, with wine
consumption having shown large increases. Within the UK alone

wine sales had grown from 14 per cent of the market in 1980 to
26 per cent of the market in 2002. Meanwhile there has been a
negative trend in the overall consumption of spirits.
Acquisition, licensing and strategic alliances have all occurred
as the leading brewers battle to control the market. There are
global pressures for consolidation due to over capacity within
the industry and this has resulted in a focus upon cost
containment and brand reinforcement (see table 5). Interbrews
market trend survey 2002 shows that the consolidated global
share of the top 20 brewers increased from 51 per cent in 1990
to 65 per cent in the year 2000. The report suggests that
consolidation will further increase and compares brewing with
the cigarette industry. In 2002 the five largest global brewers
accounted for 30 per cent of production volume, whereas in the
cigarette industry the five leading players had a 60 per cent
market share.
Table3 European production by country and year (000
hectolitres)
Count
ry
1990 1997 1998 1999 2000 2001
Austr
ia
Beigi
um
Denma
rk
Finla
nd
Franc
e
Germa
ny#
Greec
e
Irela
nd
Italy

7606

9366

8830

8869

8750

8588

2002
8731

14291 14014 14105 14575 14734 14966 15696

9145
2823
21684
92342

9181

8075

8024

7460

7233

8534

4804

4697

4700

4612

4631

4797

19483 19807 19866 18926 18866 18117

11480 11170 11280 11000 10850 10840
0
0
0
0
0
0

N/A

3945

4022

4359

4500

4454

4443

6000

8152

8478

8648

8324

8712

8113

8569

11455 12193 12179 12575 12782 12592

Luxembourg

729

Netherlands
Norwa
y*
Portu
gal

12213 24701

Spain
Swede
n
Switzerland*
UK

481

469

469

450

438

23988 23988 24502 25072 25232

2001

2299

2169

2222

2223

2216

2300

3557

6623

6784

6760

6451

6554

7121

20027
3759

24773 24991 25852 26414 27741 27860

4858

4433 3563
64830

4568

4673

4495

4449

4376

3586

3586

3599

3630

3551

59139 56652 57854 55279 56802 56672

Total
27619 32163 31511 31993 31388 31567 31653
4
2
3
0
#
8
7
4
*Non-EU countries, 1980 excludes GDR. Figures
adjusted.
Consolidation trends are indeed continuing: Interbrew had
purchased in 2001 parts of the old Bass Empire, Becks and
Whitbread and in 2004 announced a merger with Am Bev, the
Brazilian brewery group. Meanwhile Scottish and Newcastle
had acquired the Danone French brewing operations as well as
Bulmer cider. In 2003 it targeted Eastern Europe and China,
acquiring Finland's biggest brewery, Hartwall, for 1.2bn
( 1.8bn) together with a purchase in December 2003 of a 20
per cent shareholding in a leading Chinese brewing. It is
interesting to note that Bass contradicted this trend prior to the
sale of the company in 2001, when a disposal took place of its
interests in Northern China and some of its operations in the
Czech Republic.
In 2003 Anheuser-Busch was the world's largest brewer
ranked by sales volume but with limited overseas operations. It
had invested in a Mainland Chinese brewery and had a
significant shareholding in Modelo of Mexico. However, its
European operations were limited to just one brewery in the UK

at Mortlake. In 2004 its world no.1 position merger. This gave

Interbrew 14 per cent global market share which made it no.1
(by volume but not by value).
Coors, another large American brewer, had gained European
market entry by purchase from Interbrew in 2002 of the Caring
Brewing Company. This sale was forced upon Interbrew by the
UK regulatory authorities as they felt the dominant position held
by Interbrew within the UK's large market was against the
consumers' interest.
South African Breweries has also been extremely active. In
early 2002 there were market rumours of a merger with
Interbrew; these were unfounded, however 2002 resulted in two
major acquisitions-the Miller Group(USA)and Pilsner Urquell in
the Czech Republic.
These large global brewers (Table 4) control a range of key
brands with which they will start to achieve large cost savings
with the premium lagers leading the way. Volume sales will help
to contain costs and should lead to increased economies of scale.
However , differences will occur in the various local country
markets. Where there are significant taste and product
differentials potential savings are limited. The large groups,
however, hope to utilise increased knowledge management
systems and linked technologies across these combined brands
to improve performance.
During 2003, due to the activity highlighted above, there were
major changes to the world market shares of the leading brewers
(Table 4) with an ever increasing domination of global brands
(Table 5) .Trends within Western Europe (Table 6) reinforced
the dominance of the key players and the importance of the
lager market in branding terms.
Table4 The worlds top 10 brewery companies by volume:2003
Posit Compan
Country of
ion
y
Origin
1
2

AnheuserBusch
South
African

USA
South Africa

Breweries/Mi
ller
Heinek
3
en
Netherlands
4
Interbrew
Beigium
5
Carlsberg
Denmark
6
Am Bev
Brazil
Scottish
United
7
Newcastle
Kingdom
8
Coors
USA
Model
9
o
Mexico
10
Kirin
Japan
Source: Coors Brewers Limited UK
Table 5 Top exported lager brands (world), 2001
Brand Name
Heineken
Carisberg
Amstel
Budweiser
Corona Extra
Stella
Artois
Fosters
Skol
Tuborg
Becks
Source: Impact/
reports

Ownership
Heineken
Carisberg
Heineken
AnheuserBusch
Groupo
Modelo

Percentage
of

Export sales
(million
hectolitres)
17.7
8.9
8.5

global sales
82
87.6
78.7

17.1

7.7

32

Interbrew
6.8
88.5
Fosters
5.7
68.7
Carisberg
5.2
18
Carisberg
5.3
63.3
Interbrew
2.7
62.5
Interbrew SA/ Industry Estimates/ Company

Table 6 European beer market: top companies, 2001, by market

share by volume
Compa
Home Country Market Share Leading

ny
Heine
ken
Interbrew
Carisberg

Netherlands
Belgium
Denmark
United
ScottishNewcastle Kingdom
Mahou
SA
Spain
Holsten
Brauerei
Germany
United
Diageo PLG
Kingdom
BindingBrauerei
Germany
SA
Damm
Spain
Brau
Brunnen
Germany
Source: Euromonitor 2002

Brand
11.70%
10.40%
6.90%

Heineken
Stella Artois
Carlsberg

6.90%

Kronenbourg

2.90%

San Miguel

2.60%

Konig

2.20%

Guinness

2.10%

Radeberger

2.10%

Super Bock

1.90%

Jever

The two largest Western European markets

Germany
At nearly twice the size of the UK market in consumption terms,
the German beer market is very different to that of the UK. It is
highly fragmented, having in excess of 1,200 breweries.
However, acquisition has happened in this market with Becks
going to Interbrew in 2002 and Holsten being acquired by
Carlsberg in 2004. German beer drinkers are used to strict
German purity laws and therefore generally trust and drink
German beer as against imports. This has resulted in large
numbers of regional breweries satisfying the home market.
Exports from Germany are nearly double that of the UK in
volume percentage terms(Table 7).

Table 7 imports and exports of beer by country (2001)

Count
ry

Import
(% of
Consumpti
on)

Export(% of
Consumption)

Austr
ia
5.3
4.8
Belgi
um
19
39
Denma
rk
1.7
34.1
Finla
nd
1.9
6
Franc
e
25.5
12.4
Germa
ny
3.2
10
Greec
e
4
10
Holla
nd
6.1
51.9
Irela
nd
11.9
28
Italy
26.4
3.9
Luxemburg
37.6
Norwa
y*
4.1
0.8
Portu
gal
4.7
11.2
Spain
13
2.3
Swede
n
11.6
Switzerland*
14.8
0.6
United
Kingdom
8.6
5.6
Total
9.3
14.1#
Note: Import figures do not include beers brewed under licence
in home country ;export figures do not include licensed brews
produced elsewhere.
*excludes Sweden; #Non-EU countries.

Source: www.brewersofeurope.org
Packaging in Germany differs form many major markets with
60 per cent of all beer produced being sold in bottles. Due to a
deposit scheme being introduced on cans in 2003 the sales of
bottled beers have grown significantly.
Discount own-lable beers have increased the off-trade to 70 per
cent of total beer volume. However, sales in Germany during
2002 dropped at their highest annual rate in the previous decade
and sales since 1998 have declined overall by 7 per cent. The
outlook for the later part of the decade is that there will be
declining consumption and a gradual drop in the number of
breweries, with increases in merger and acquisition as the
market consolidates to contain costs. This follows the trends
being experienced already in the majority of European markets.
The fastest growing niche in 2003 was within the youth
market. Sales of flavoured beer mixed with either lemon-lime
soda or cola, available in draught and bottles, had an increasing
market share, up 30 per cent in 2002. These accounted for 3 per
cent of the total annual beer consumption. Pilsner-type beers in
2002 still dominated the market holding a 67 per cent market
share.
United Kingdom
Beer sales were fairly mature and although there was a steady
decline in the 1990s the market has begun to stabilise at around
55 million hectolitres per year. However, there are some definite
market trends. The major change in the UK industry has been
the disposal of the tied pub chains by the national breweries.
Scottish and Newcastle became the last of the large companies
to dispose of their chains in 2003.
These public house chains are now independently managed
separate companies and this has increased the distribution chain
access to a much wider variety of brewers. These large
independent chains of public houses exert high buyer power on
the brewing industry.
Meanwhile ownership of breweries within the UK had rapidly
changed. Foreign multinationals have targeted and entered the

industry. The Keynote Report 2003 shows three foreign

multinationals, Interbrew, Coors and Carlsberg, control 53 per
cent of the market. The leading brewer is Scottish and
Newcastle with 27 per cent of the market. There are a number of
large regional brewers with well-known speciality brands but
the trend by the majors in the market has been to consolidate
production, closing down plants and containing costs.
Lagers and premium lagers dominate the home market and
many are brewed under licence arrangements. Consumption of
large has grown from just over 50 per cent in 2002. In 2003 60
per cent of UK beer was packaged in draught from. As the UK
market switches more towards production of large the trend will
be for incteasing sales through supermarkets resulting in a
reduction of draught beer demand. There is limited export of
traditional UK beers as demand is relatively limited and
therefore the reliance is on the internal market.
As supermarkets within the UK sell high volumes of beer, they
exert high buyer power over the supplying breweries and are in
a position to dictate terms for the supply of product. As a result
there is heavy discounting and brand value destruction as the
brewers find themselves operating in an over capacity market
with low profit margins. The market is moving more and more
towards increased sales in the off-trade. BBPA data 2003
reported that the wholesale price of beer had declined by 16 per
cent from the level that was obtained in 1992.
However, home sales are additionally hindered by the booze
cruise. Excise duties on alcoholic beverages are much lower in
France and importation of alcoholic beverages for personal use
is legal. These cruises have almost become a feature of daily life
with large quantities of beer carrying low excise duties being
imported both legally for personal use and illegally for onward
sale.
Four brewing companies
Heineken (The Netherlands)
In 2004 Heineken was by far the biggest and most global of the
European brewery businesses. It remains a family business and
its brands are available in more than 170 countries. It owns more

than 110 breweries in over 50 countries and exports all over the
world. In the UK its licence agreement with Whitbread ceased in
2003 and this was followed by the introduction of its fullstrength range, Heineken is now sold as a premium beer in all
markets except its home market.
Heineken has become Europes favourite brand of beer and the
most international beer in the world, with sales increasing
annually, Founded in Amsterdam in 1963, the companys other
brands include Amstel and Murphys. Heineken had been
acquiring other brewing groups since 1991 and in 2003
announced its biggest acquisition to date, the Austrian brewery
BBAG. Of Heinekens turnover,76.5 per cent is European based.
The four major strategic objectives for Heineken were to:
remain one of the top global brewers;
be more profitable per cent than other international brewers;
build the most valuable brand portfolio with Heineken as
the international flagship brand;
remain independent.
By the utilization of its key brands the company aims for a
broad leadership position with a target of being NO.1 or NO.2
in its local markets. Achieving this in production ,marketing
and distribution brings economies of scale. The local
breweries give it market access from which they can sell their
high-premium Heineken and Amstel beers.
Groisch (the Netherlands )
In 2001 Groisch NV is a medium size international brewing
group, less than one-tenth the size of Heineken, with overall
sales in 2002 of 3.27 million hectolitres. The groups strategy
calls for this to increase to 4.6 million hectolitres by the end of
2006. Its key products include Groisch premium lager and new
flavoured beers(Groisch lemon and Groisch pink grapefruit).
In the Netherlands Groisch holds the right for the sales and
distribution of the valued US Miller brand. The Groisch
Brewery has been established since 1615 and has been
exporting since 1946. The brand is available in over 50
countries; however in certain territories, including the UK and
Poland, the brand is brewed under licence. In the five years to

2002 the group turnover had increased by 20 per cent with net
profits increasing by more than 30 per cent. Although the
home market for beer is declining, The Netherlands is still the
companys most important market and accounts for over 50
per cent of its sales volume. Export sales are increasing, with
the UK, USA and Canada being the most important overseas
territories.
Groisch has two main breweries that are situated in Enschede
and Groenio. From 2005 production is situated within a single
new site at Bokelo. Efficiency is the key driver behind this
relocation: by concentrating brewing on one site, Groisch will
again ultimate cost control and will also increase volume
capacity significantly. Groischs drive to optimize costs has
included the outsourcing of its distribution and a move within
The Netherlands to use inland shipping rather road.
Interbrew (Belgium)
Interbrew is one of the oldest beer companies in the world. It
has operations in 21 countries and Interbrews beers are sold in
more than 120 countries. The company strategy is to build
strong local brand reputation as well as to market its
international labels. These include Becks, Stella Artois, Bass,
Hoegaarden and Labatts. Interbrew has been on the acquisition
and organic growth trail as a determined strategy since 1993.
In the five years to 2003 the company had made over 20
acquisitions and 35 per cent of the operating income during
2002 was derived from this acquisition programme. 2004 saw
the merger between interbrew and Brazils largest brewer Am
Bev. Interbrews philosophy is reinforced by its claim to be
The Worlds Local Brewer.
In 2001 the company acquired Bass (UK), Whitbreads (UK)
and Becks (Germany). At the time of acquisition Bass brands
accounted for 24 percent of the UK market. The acquisition
from Bass was unconditional and when the UK regulatory
authorities challenged the decision to acquire Bass, Interbrew
was forced into a sale situation. Due to this forced sale the stock
market at that time formed the view that Interbrew had overpaid
for the company.

On appeal to the High Court Interbrew managed to overturn

the competition authority decision agreeing as a result to sell the
Carling Brewing Company to Coors but retaining much of the
Bass Empire. Between 2000 and 2002 net turnover for the
Interbrew company increased in excess of 20 percent. In 2002
Interbrew invested heavily in the growth market of China and in
2004 Interbrew became the largest brewer in Germany,
following a partnership with Spaten giving them an 11 percent
market share.
Scottish and Newcastle (UK)
Scottish and Newcastle is an international brewing group with
leading positions in 13 European countries. These countries
include the UK, France, Finland and Russia. Its strategy is to be
a major force within the global brewing industry with a
concentration of effort upon expanding a number of leading
positions in the Western European market. In 2003 the company
disposed of its retail and leisure businesses, which had been
significant in the companys past. In the year 2000 this business
alone had accounted for 1.1bn of turnover and 246m
of profits.
The companys expansion strategy is to enter
high-growth emerging markets. This will be achieved
by working through alliances with experienced local
breweries that hold strong market positions. Its
key brands include John Smith, Kronebourg,
Kanterbrau and Baltika and it brews Fosters under
licence for the UK market. In 2003 turnover had
increased by 17 percent, with profits up 8 percent
and overall volume up 2.4 percent. The brand of
Kronebourg, Fosters and Newcastle Brown all showed
substantial volume growth in the year 2003.
Acquisitions in the early 2000s have included
Hartwell, Kronebourg from Danone in France,Buliners
Cider and investments in Mainland China and India.
The Hartwell acquisition is particularly important as this gives
the group a 50 percent investment in Baltic Beverages. This
results in exposure to the high growth markets of Russia,
Ukraine and the Baltic countries. The growth rate of the Russian

market was such than in 2002 it was bigger than any Western
European countrys home market other than Germany.

Using PESTEL analysis can help to highlight the biggest influences on the strategy
of the organization, both currently and in the future. These influences can be both
positive and negative. In addition, influences often cross the divide between the six
headings; the important point is that they appear somewhere in the analysis. The
key is to identify and concentrate upon those factors or trends likely to have the
biggest impact upon the future of the organization.
PESTEL (Political; Economic; Social; Technological; Environmental; Legal) analysis
provides a systematic technique for analyzing the business environment. It would
enable us to:
Summarize the most important influences of the business environment;
Evaluate the potential impact of these influences on the organization.

Political

From the case study we notice the political intervention of the government that made
strict prosecutions against drunken driving and the alcohol abuse through

sensitization campaigns to create awareness of the effects of alcohol on our health.

Other measures such as the prohibition of the sales of alcoholic drinks in public
places this initiative taken by the government were one of the reasons that
transformed the buying behaviour of European market that is the fall in the sales of
beer in these countries. Though would be classified under the head of social
analysis the government has caused in the buying behaviour. In the late nineties
many restrictions were put on the brewing industries such as the use of cans in
Denmark. Also in Germany local production laws like the Reinheitsgebot were
introduced to regulate the brewing industry in this country. At that time Europe is
moving towards becoming a single market with a stable political environment.

Economical

The effects that the economy has on the brewing industry are that there were
different patterns of industry concentration across countries because of the different
economic advantages that these industries were enjoying such as cheap labour and
quality raw materials at a cheaper price. During these times acquisitions, licensing
and strategic alliances have all occurred as the leading brewers battle to control the
market. There were a growing trend towards cross-borders mergers and
acquisitions. Finally there were low growth in the consumption of beers which made
the sales fall drastically in certain European countries for example the beer
consumption in Germany between 2002 and 2003. The EMU has lowered interest
rates hence; Spanish companies can now access the same interest rates as
German companies, compared to four years ago when they paid 4.5 percentage
points more in interest than German companies. This creates a level playing field for
all European companies seeking access to capital.

Social

The sensitisation campaign made by the government has created growing concerns
about health issues and drink-driving this is one of the main reasons why the sales
of beers have fallen in the European countries. There was an increasing acceptance
of low alcoholic drinks that is why people switched from beer to wine to reduce the
excessive alcohol consumption in pubs and clubs. The off-trade German retailers
such as the Aldi and the Lidi have emphasized on the importance of supermarkets
in the distribution and the growth of their own-label brand beers rather than the
brewery-branded beers and in other parts of the world there was an increasing
acceptance of European brands. Poland, Hungary and the Czech Republic have
young populations with a desire for all things Western.

Technological

From the case we are able to understand that technology had brought in efficiency
and improved production. Technology had definitely helped in receiving information
and had helped in various departments. However as a result of incessant research
and development the manufacturing units not only were able to obtaining the
economies of scale but also over produced. This actually encouraged players to
search for the market. The internet has redefined the concept of commerce, and has
forced every organisation to look at the way it operates. Also increased efficiency in
production from new technologies has brought down unit costs, giving larger
manufacturers huge economies of scale. Successful companies will now have to
strike a balance between the forces of globalisation and the need to maintain a local
focus on each market.

Environmental

The environmental impact on the European brewery industry is that the current
pressure on Europe from America and Australia to reduce agriculture subsidies
could result in a change in the industrys raw material supply base would increase
the costs of raw materials. Also the drought has affected the raw materials that
come from Australia which has created a fall in the supply of the raw materials.

Legal

The legal aspect is that lot of Mergers and Actuations are

happening which displays that there are low restrictions with regard
to consolidation of European brewery. For example in the United
Kingdom the government established competition legislation such
as the 1989 Monopolies and Mergers Commission (MMC) to have
a control over the mergers and the take-overs taking place in the
United Kingdom.

According to Porter, whether an industry produces a commodity or a service, or

whether it is global or domestic in scope, competition depends on five forces.
These forces, which go beyond the immediate competitors in the industry, are:
the threat of new entrants;
the existence of substitute products or services;
the bargaining power of suppliers;
the bargaining power of customers or buyers;
existing rivalry within the industry;
These five forces determine the ultimate profit potential of an industry as a whole.
Within an industry, individual firms who develop particular strengths may be able to
gain competitive advantage whatever the profit position of the industry as a whole
is:
The ultimate strength of competition in an industry depends on the collective
strength of these forces: sometimes one will dominate; often it's a collection of two
or three.

To understand which of these forces is

likely to be most significant means
investigating the underlying structural
conditions that underpin them.

Assessing each of the competitive forces in turn, by identifying the structural factors
which are significant in each case will allow an understanding of the dynamics of
the industry (its underlying economics). As well as providing an insight into
dynamics of the industry, this approach also allows individual companies to
understand the directions from which they face the greatest competitive pressures and tailor their strategies to meet these pressures.

Threat to new entrants;

New entrants in an industry can raise the level of competition, thereby reducing its
attractiveness. The threats to new entrants largely depend on the barriers to entry.
High entry barriers exist in some industries whereas in other industries are very
easy to enter. This strategy would prevent competitors from countries like Japan
and the USA to come in the industry and compete with firms from the region.
Profitable markets that yield high returns will draw firms. This results in many new
entrants, which eventually will decrease profitability. Unless the entry of new firms
can be blocked by incumbents, the profit rate will fall towards a competitive level
(perfect competition).
The existence of barriers to entry (patents , rights, etc.)The most attractive segment
is one in which entry barriers are high and exit barriers are low. Few new firms can
enter and non-performing firms can exit easily.
Economies of product differences
Brand equity
Switching costs or sunk costs
Capital requirements
Access to distribution
Customer loyalty to established brands
Absolute cost advantages
Learning curve advantages
Expected retaliation by incumbents
Government policies
Industry profitability; the more profitable the industry the more attractive it will be to
new competitor

Threat of substitutes

The presence of the substitute products can lower industry attractiveness and
profitability as they limit price levels. When the government passed regulations on
drinking alcohol drinks in public many people switched from beer to wine and other
drinks like coca- cola which have become substitute of beer. Also when campaigns
were made on the effects of alcohol on health many people have adopted other
leisure activities like jogging. The existence of products outside of the realm of the
common product boundaries increases the propensity of customers to switch to
alternatives:
Buyer propensity to substitute
Relative price performance of substitute
Buyer switching costs
Perceived level of product differentiation
Number of substitute products available in the market
Ease of substitution. Information-based products are more prone to substitution, as
online product can easily replace material product.
Substandard product
Quality depreciation

Power of suppliers

Suppliers are the businesses that supply materials and other products to the
industry. The items bought from the suppliers (raw materials, components) have a
significant impact on a companys profitability. In this industry the suppliers have
little power because they may be small farmers and packaging companies. The
bargaining power of suppliers is also described as the market of inputs. Suppliers
of raw materials, components, labor, and services (such as expertise) to the firm
can be a source of power over the firm, when there are few substitutes. Suppliers
may refuse to work with the firm, or, e.g., charge excessively high prices for unique
resources.

Supplier switching costs relative to firm switching costs

Degree of differentiation of inputs
Impact of inputs on cost or differentiation
Presence of substitute inputs
Supplier concentration to firm concentration ratio
Employee solidarity (e.g. labor unions)
Supplier competition - ability to forward vertically integrate and cut out the buyer
4) Power of buyers
The bargaining power of customers is also described as the market of outputs: the
ability of customers to put the firm under pressure, which also affects the customer's
sensitivity to price changes.
Buyer concentration to firm concentration ratio
Degree of dependency upon existing channels of distribution
Bargaining leverage, particularly in industries with high fixed costs
Buyer volume
Buyer switching costs relative to firm switching costs
Buyer information availability
Ability to backward integrate
Availability of existing substitute products
Buyer price sensitivity
Differential advantage (uniqueness) of industry products
RFM Analysis
5) The intensity of competitive rivalry
For most industries, the intensity of competitive rivalry is the major determinant of the
competitiveness of the industry.
Sustainable competitive advantage through innovation.
Competition between online and offline companies; click-and-mortar -v- brick-andmortar
Level of advertising expense.
Powerful competitive strategy
The visibility of proprietary items on the Web
It used by a company which can intensify competitive pressures on their rivals. How
will competition react to a certain behavior by another firm? Competitive rivalry is

likely to be based on dimensions such as price, quality, and innovation.

Technological advances protect companies from competition. This applies to
products and services. Companies that are successful with introducing new
technology are able to charge higher prices and achieve higher profits, until
competitors imitate them. Examples of recent technology advantage in have been the
advent of new expertise in those industries. Vertical integration is a strategy to
reduce a business' own cost and thereby intensify pressure on its rival.

Heineken (the Netherlands)

Firstly Heineken from the Netherlands has most of its sales in the European
region. That is why Heineken is the largest European brewery business and the
worlds fourth largest brewery company. It can be seen from table 1 that the sales of
beer in the Netherlands have fallen between 2001 and2002 because of the adoption of
the different policies of the European government such as the regulations of alcohol
drinking and the introduction of the monopolies and the mergers commission. On the
other hand it can be seen that though this business is in the Netherlands, most of its
products are sold in the European countries as the imports of beer has increased for
the Netherlands (from3.2% to 14.4%). Also it can be seen that the business has been
incurring more costs for its packaging which has risen by 11%. This is because the
packaging and components such as cans and glass bottles. On the same wavelength,
it can be said that most of Heineken sales is in the neighboring countries.

Grolsch (the Netherlands)

Secondly Grolsch from the Netherlands has half of its sales from abroad and
the other half in the Netherlands with the introduction of its two differentiated products.
Grolschs sales have been very much affected because the UKs market is one of its
main markets and there the sales have fallen drastically between 1980 and2001. This
has arrived because countries like the UK were turning off-beer with many European
countries. In addition to that, the policies of the government against binge drinking in

the UK to stop excessive alcohol consumption in pubs and clubs have made people
switch from beer to wine. Also it can be seen that the sales of Grolsch may not have
increased greatly as the UK has imported only with 2% increase from2002 to 2004.

The future
Forecasts from Euromonitor 2002 conclude that the world market for beer
between 2002 and 2007 will increase by 35 percent in Eastern Europe and the
Asian Pacific region by 28 percent whilst Canadeans latest annual global beer
report forecasts sales of 1.5bn hectoliters in 2005.
The Interbrew market report 2002 concludes that most beer markets in Europe
are now relatively mature with limited potential for growth resulting in the focus
now moving towards Asia and Eastern Europe.