Chapter 2 Closing Case:

The United States Beer

Industry

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Case Discussion Questions

1. Why has the United States brewing
industry become more concentrated over the
last two decades?
2. Analyze the competitive structure of the
industry using Porters five forces model.
3. What are the implications of the evolving
competitive structure in the brewing industry
for
the profitability and strategy of a smaller mass
market firm in the industry?
4. Are there different strategic groups in the
industry? What are they? Do you think the
nature of competition varies between groups?
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Case Discussion Questions

1. Why has the United States brewing
industry become more concentrated over the
last two decades?
The U.S. brewing industry has become more
concentrated over the last two decades for
several reasons.
a. The consumption of beer has been slowly
declining, in order for companies to gain
market share, they have to take customers
from other companies. This would then lead to
some companies to go out of business due to
the lack of customers.
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Case Discussion Questions

b. Brand loyalty also increased. Advertisement
played a large role. Advertising spending has
steadily increased putting small brewers at a
disadvantage. Larger companies were able to
spent $0.40 per case of beer sold. Smaller
mass-market brewers could not afford to spend
near that amount.
c. Technological change in canning and
distribution lead to the concentration of the
brewing industry, as well. The size that a massmarket brewer has to accomplish to acquire all
economies of scale has grown. They must
produce more beer and achieve more market
shares. Not all companies reach minimum
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efficient scales
of production.
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Case Discussion Questions

2. Analyze the competitive structure of the
industry using Porters five forces model.
a. Risk of Entry by Potential Competitors
In this closing case involving the United States
Beer Industry, there are three established
companies mentioned, namely: the AnheuserBusch, SAB-Miller and Molson Coors. These three
are under the mass market segment where
competition revolves around aggressive low
pricing, brand loyalty, distribution channels,
and national advertising spending.
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Case Discussion Questions

Using the first force in Porters Model, we considered
companies in the premium beer segment which are
engaged in the art of craft brewing as potential
competitors since they have been gaining shares in
the total market and currently account for 11% of
total market from 1% share in the past. They build
their brands around taste and cover higher product
costs by charging much higher prices.
We identified that the risk of entry by potential
competitors in the industry as low since there are
high entry barriers brought about by the strategies
that they have used such as improving economies of
scale, having low prices, promoting brand loyalty and
creating national advertisements.
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Case Discussion Questions

As for economies of scale, minimum efficient scale
of production has increased over the years which
mean more market capital and more market share
is needed for potential competitors to enter and
compete in the industry.
In terms of brand loyalty, the three established
companies are the preference of the consumers
since 80% of all beer consumed in the United
States is produced by these three companies.
And with national advertisements, brand loyalty
will surely be strengthened. With that, new
entrants will have a difficulty in taking the market
share away from these established companies.
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Case Discussion Questions

b. Rivalry among established companies

There is a lot of competition in the beer industry

with hundreds of breweries present dominated by
small number of large companies taking up 80% of
market share. With this, we can say that the rivalry
among established companies is intense since any
changes in one company's price may affect the
other company consequently.

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Case Discussion Questions

In addition, the decline in the consumption of beer due
to an increase in consumption of wine and spirits may
also cause a higher rivalry since the companies will
compete for the existing consumers and the only way
for a company to keep afloat is to be more competitive
among its rival companies in the industry.

The increase in cost conditions due to increase in

advertising spending and technological change
incoming and distribution may cause a threat to the
established companies and to newly entered company
in the industries. The change in the demand of beers,
sales of the company enable them to cover their cost
but with lower profits. Exit in the industry is relatively
costly and exit barriers are high.
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Case Discussion Questions

c. Bargaining Power of Buyers

Wholesalers, Super markets, liquor stores, and

bars/night clubs account for some of the major
buyers in this industry. As mentioned earlier, the
consumption of beer in the United States had
gradually decline over the last two decades
because of an increase in demand of other
alcoholic drinks. As a result, the buyers of beer
from the three big companies have bargained for
lower prices since they know that there will be
fewer buyers of beer than before.
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Case Discussion Questions

Buyers have a bargaining power because not only is
there another segment which is the premium beer
segment that produces high quality beers but also
another industry of wines and spirits that is becoming
more common. Because of all the alternative choices
(substitutes) like wine and spirits for wholesalers that
are available to them, buyers have a voice in how
much companies pay for products.
This provides them (especially wholesalers) with the
choice to change brands which could hurt the company
and the chances of building customer loyalty. The
buyers also have used the threat of switching their
company of choice by choosing the premium beer
segment. Since the switching cost is so low, powerful
buyers have raised the costs and sought for better
quality products
and services.
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Case Discussion Questions

d. Bargaining Power of Suppliers
Suppliers in the brewing industry play a significant
role. Starting with the production of the good,
suppliers from agricultural industries such as corn,
barley, and yeast are key in the production and
pricing of the end product. Other suppliers include
the glass industry and paper labeling industry.
Because of the low power is given to the industries
main players who are able to strike larger supply
contracts for a better price. Most of the key inputs of
brewing are highly regulated thus keeping bulk prices
steady and allow firms to purchase ingredients over a
year in advance. Some differentiation exists in the
inputs when it comes to the higher quality
ingredients that are used in some premium beers.
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Case Discussion Questions

Since these inputs are offered only by few suppliers
that time, the bargaining power of the supplier are
high. The suppliers can demand high price and the
brewing industries cant force the price down. This
bargaining power of the supplier is a threat to
brewing industries and they cant just change their
suppliers because it is too much costly. Also the
product that suppliers sell has few substitutes
making it hard and unwise to jump from one supplier
to another. However, over the growing decades, new
technologies arise and innovation is raging high
making the inputs of the brewing industry easy to
attain. Thus, the bargaining power of the supplier
starts to lessen. The beer industry has now
alternatives to choose from bottles and plastic.
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Case Discussion Questions

e. Substitute Products
When wine and spirit industry started to bloom,
beer consumption in the United States started to
decline. Particularly, wine and spirit are substitutes
to beer thats why when these substitutes offer
lower prices over beer, most patrons switched
drastically to them. The existence of these close
substitutes signifies a strong competitive threat
since it limits the price that companies can
change. If the beer companies dont put a strategy
to compress these threats, they might lose their
power/control over the market and the competitor
might gain the power.
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Case Discussion Questions

3. What are the implications of the evolving
competitive structure in the brewing industry for
the profitability and strategy of a smaller mass
market firm in the industry?
The implications of evolving competitive structure
for profitability and strategy for a smaller mass
market firm means that the smaller firms will have
to lower their prices to be competitive with the
prices of the larger firms. This includes cutting
down on operating costs by streamlining their
production with contemporary production
philosophies such as kaizen and tqm.

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Case Discussion Questions

4. Are there different strategic groups in the
industry? What are they? Do you think the
nature of competition varies between groups?
Yes, there are 2 different strategic groups that
can be observed the mass-market segment
and the premium beer segment. The massmarket segment revolves around aggressive
pricing, brand loyalty, distribution channels and
national advertising spending while premium
beer segment focuses on discerning buyers and
they build their brands around taste and cover
higher product costs by changing much higher
prices.
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Case Discussion Questions

The nature of the competition does not vary
between the group however effects of these
competition may differ depending upon the kind.
Say for example, the substitute, wine and spirit,
the closest competitive threat to beer industry.
The sudden appearance of these substitutes
offering cheaper price forces the beer industry to
limit their change or else the customers will turn to
substitutes.

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MESSAGE RELAY
Game

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Mechanics
1. There will be a member in charge of each group
2. Each group will have 7 players:
first player will pick a movie title, once he/she gives the
paper back to the tigbantay, he/she could no longer read
it again, meaning he has to remember or memorize
second player will pass to the third
third player will pass to the fourth
fourth player will pass to the fifth
fifth player and sixth player will play taboo. the fifth
player will give clues to the sixth player without
mentioning the listed words given to them.
the sixth player will then play charades. the sixth player
should act out the movie title and run to the moderator
for confirmation.
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3. This will be an elimination type.

During the first round, the first three to give the correct
movie title moves to the next round.
During the second round, the first two to give the
correct title moves to the final round.
During the final round, whoever gives the first title
wins.

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Objectives
In this game, each player is crucial to the victory of the
whole team since a mistake of one player may cause
them to give out the wrong answer-- just like how each
employee is crucial to the success of the whole
organization.
The first player, having to make sure that he reads and
keeps in mind the correct word-per-word title of the movie,
symbolizes how a manager should have a true and full
study of the external forces of the organization so he
could relay this information to the administration.
The second, third and fourth players should make sure
that they relay all the words correctly.

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The fifth player's restriction to say some words represents

the regulations that external forces impose upon the
organization, like laws and regulations that may limit the
company's activities.
There are also other external forces that may affect the
teams like: rivalry since the teams are pressured to outrun
the others.

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