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Scenario 1: The unknown rival the crafting trends is rising globally

After the merger between ABinBev and SABMiller is completed, ABinBev is taking a very strong position

against the competitors in all big beer markets. Other big players like Heineken or Carlsberg can be

controlled fairly easy, since ABinBev can react on each strategy with volume and pricing power.

However, a new industrial rival is rising which is diverse and elusive by nature craft beer breweries.

The craft beer trend first started in the USA in the 1980s. All US Craft beer makers combined own major

stake of the whole US beer market. While it has been rising tremendously over the past decade, the

momentum is flattening, hence the craft beer market in the US likely to saturate.

In Germany and Rest of Europe, more and more craft beer breweries enter the market. Germany already

being a complex market with several midsize breweries will be flooded with even more various types of

craft beer, brewed in local microbreweries. The midsize breweries facing competition from both big

players and microbreweries are likely to answer with product differentiation like special editions or even

own craft beer.

China is the only big beer market which has generally seen positive growth in the last years. The future

market size is expected to remain constant but the craft beer trend is starting to evolve in China as well.

As Starting in the urban lifestyle areas in Shanghai, Hong Kong and Beijing, the microbreweries are

expected to evolve throughout the cities.

Around the world craft beer will be taking over majority stake or will at least be competing against the

big players in the beer market. Due to the craftsmanship and local bonding to the brewer, customers

accept much higher prices for beer which establishes craft beer as a premium segment. In contradiction,

customers are no longer willing to pay a high price for a standard beer, as they are missing spirit and

the specialty compared to craft beer.

This puts pressure on the beer makers to lower the prices or manage to enter the premium segment
Scenario 2:

Beer production volumes in the core markets stagnated (US) or even fell by about 10% (Germany,

France, UK) since 2007. For instance the German per capita beer consumption has dropped by one-third

since 1976. Besides tighter regulatory and taxation measures the major reasons for this development is

the emergence of alternative beverage categories like wine, cider and health-oriented drinks. A generally

healthier and socially responsible lifestyle (regional and organic food, Yoga culture) in western countries

is an increasingly strong driving force for substitute products to beer. In addition, the concomitant

upcoming trend of extravagant craft beer and microbreweries changes the perception of beer drinking

from a mere addiction-like regular phenomenon to a designated hobby-like event experience. Here,

sales and marketing cost which are necessary to maintain brand and product visibility make up about

15% of the total beer price (cf. Figure). Hence one can expect a significant price increase with a more

diversified and marketing-intensive portfolio. Both developments will lead to a strongly decreasing beer

demand in western countries.

More importantly, it has been recognized in western countries that regular consumption of alcohol

correlates adversely with health conditions. Therefore, especially in light of an ageing population in core

markets, we face tremendous increases in healthcare costs which can be expected to be met by higher

taxation of alcoholic beverages. While taxes currently make up of up to 25% of the beer price (cp. Figure)

such added cost will be further reflected in higher price competition on the beer market.

A further cost driver can be expected form product packaging which currently makes up the largest price

share of 28% (cf. Figure). On one hand retail stores become more important distribution channels than

the traditional one via bars and specialty stores. With this, retailers demand novel and different

packaging solutions. On the other hand innovative and small-volume products demand more

sophisticated packaging. Both trends can be expected to increase price competition in the market.
Figure 1 Cost Breakdowns for a Large Breweries (Source:
cost-breakdowns-for-large-breweries/) 2011