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Beer Industry & Pestel Analysis

Political – With W&BD’s other venture, the future of the pub industry is threatened by a possible slump in sales after a smoking ban in England and Wales, rising energy costs and the impact higher taxes and other costs on consumers. Raising taxes on alcohol and cigarettes is a popular revenue-raising instrument used by successive governments, as indirect taxation remains favoured over other methods, such as increases in income tax. The government is vindicated in this policy through a steady stream of press articles that illustrate the medical and social problems caused by the excessive binge drinking the British are rightly famous for.

Excise duty takes proportionally less of a share of the price of beer than it does for wine and spirits, while the retailer takes a bigger proportion of the costs in beer. This is principally due to the outlets at which beer is predominantly bought, namely pubs and bars. Pubs and bars have much higher overheads, such as land rent and wages, and beer is the principal product sold. Thus, this external environment is really crucial factor that will affect a brewery and pub business that W&BD has ventured into.

Economic – As cited by marketing reports issued by Datamonitor and Euromonitor, sales of alcoholic drinks are expected to remain virtually static in total volume terms and to grow by just under 3% in total current value terms in 2005 over the previous year. Growth in the off-trade is expected to be 2% in volume terms and this will make up for the 1% drop in on-trade volume sales. Rising living costs and the “big night in” trend saw drinkers shun the pub in favour of drinking at home. For W&BD’s interest, beer is expected to experience a 2% decline in total volume sales in 2005.

The decline will follow two years of growth, particularly in lager that was attributed to the European Football Championships in 2004 and the hot summer of 2003. However, beers inextricable link with football will guarantee that beer sales will pick up again with this year because of the Football World Cup in 2006. Social – According to a European lifestyle survey conducted by the GfK Ad Hoc Research Worldwide and Wall Street Journal in 2003, people from the UK currently go out to eat more often than the residents of any other northern European country, including France. 71% of consumers eat out more than once a month.

But as Euromonitor (April 2006) had diagnosed, consumer expenditure on alcoholic drinks is expected to grow by 3. 6% in current value terms over the previous year to just over ? 15 billion in 2005. Growth was driven primarily by the changing consumption habits of UK consumers, who increasingly showed a preference for consuming alcoholic drinks at home and away from traditional pubs and bars. This trend away from the on-trade was driven by changing leisure habits, with many consumers preferring to have friends round for a meal or to relax at home whilst also benefiting from low off-trade pricing.

Technological – The majority of beer in W&DB is brewed in traditional cask beer. But the process fermentation, where vessels are blended together in a holding tank before being filled into the cask is already up-to-date. In a first for W&BD’s brand Pedigree, SMS text messaging has been used to entice mobile phone users to visit Pitcher & Piano for a free pint of Pedigree. W&BD used this as an advertising campaign that ran over a two-week period in the Leeds and Soho Pitcher & Piano’s and reached around 7000 drinkers.

The campaign was launched with a teaser text message sent to the 7000 selected mobile phone users which read: “Are you the right Pedigree? Find out 16th August” (W&DB News, 22 August 2002). Environmental – The issue of smoking in public places was high on the political agenda since the New Labour government was returned to power in 2003, with a full ban on public smoking being part of its election manifesto. With 13 million smokers living in the UK, the government appeared to have bowed to pressure from a traditionally reactionary drink and food industry to issue just a partial ban towards the end of 2005.

Premises that sold food were to be included in any ban and those that did not were to be allowed to continue as usual. As this is an environmental issue, W&BD complied with this as their board determines their environmental policy and the Environmental Committee, chaired by the Finance Director, is responsible for policy implementation. Aside from that, the company also aim to minimise energy consumption by its continued use of measuring and monitoring techniques and by setting challenging targets for energy reduction to ensure continuous improvement in environmental performance.

In their pubs, W&BD dispose of grease in a responsible manner. Whilst some used cooking oil is collected and disposed of by a waste contractor who then recycles the material, much of the need for disposal has now been removed with the introduction at many pubs of “grease guzzlers”. This patented system uses enzyme technology to break down fats on site (W&BD Annual Report 2005, p. 23). Legal – In UK, the laws surrounding alcohol advertising are complex. Although alcohol is a legally available product, purchasing is restricted to those over the age of 18 and therefore there is a need for careful monitoring of advertising.

Clearly, the purpose of alcohol advertising is both to encourage current drinkers to switch brands and to encourage non-drinkers to start drinking or indeed light consumers to consume more. As a result, there is concern that children might be targeted by advertisers or at least tempted by promotions that target the younger end of legal drinkers aged 18-24 year olds. The European Advertising Standards Alliance (EASA), of which the UK Advertising Standards Authority (ASA) is a member, issued a Statement of Common Principles and Operating Standards of Best Practice in 2005.

This set of principles and operating standards is based on a self-regulatory framework, which responds to complaints made by consumers, leaving what is deemed offensive and inoffensive up to the consumer and following up complaints with an impartial investigation. The Statement was issued in a move to harmonise advertising standards across the EU. For all non-broadcast forms of marketing and advertising, this is carried out by the Advertising Standards Authority.

Broadcast media was regulated up until 1 November 2004 by Ofcom but these functions were taken over by the Advertising Standards Authority. Also, the government decision in 2002 not to reduce the drink-driving limit from 80mg to 50mg of alcohol per 100ml of blood and thus it remained the same in 2005. The reason for not reducing the limit was that statistics seemed to show a small increase in accident risk for drivers when the blood alcohol level rose from 50mg to 80mg but not enough to suggest that the reduction would lead to a further reduction in lose of life.

Also, the smuggling of cheap alcohol into the UK remains a major concern. As it is an illegal trade, it is very difficult to estimate the amount of alcohol smuggled in. The Office of National Statistics estimated in the late-1990s and 2000 that between 2-3% of total consumption or 40-50 million litres was smuggled alcoholic drinks. The British Beer & Pub Association estimated that personal imports, including smuggling, accounted for 3% of apparent volume consumption in 2002.

Finally, the new Licensing Act is seen as an important step to prevent binge drinking and the related social problems, as it allows for more flexible opening hours and is likely to reduce the pressure on consumers to drink as they can before 2300hrs. This act will mean closing times will be staggered, thus reducing the potential for trouble and also allowing consumers to change their drinking habits. Preliminary indications show that councils are reluctant to grant these extra hours, however, out of the fear of gaining a reputation as a haven for binge drinkers.

Brewers, who produce 85% per cent of the nation’s beer, will be putting labels on bottles and cans to show how many units of alcohol they contain by the end of 2005. Responsible drinking messages on packaged beer will more than double in the same period. A survey by the British Beer & Pub Association (BBPA) shows that 17 major British brewers will have unit labelling as standard on their beers by the end of 2005. As a result, 85% of beer sold in cans and bottles in the UK will be unit labelled. By the end of the same year, 84% of bottles and cans will also carry a message encouraging people to drink responsibly.

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