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Global Forces and the European Brewing Industry Essay

Refering to the case study on page 91, (Exploring Corporate Stragey, Johnson, Scholes and Whittington) an analysis has been carried out using PESTEL analysis and Porter’s five forces. PESTEL Analysis PESTEL is a method of analysing the macro-environment of an organisation. It stands for political, economic, social, technological, environmental and legal. Each of these areas is explored and the data gathered is used to identify the key drivers of change. Political

Recent campaign by the government to reduce drink driving and binge drinking have resulted in a decline in beer consumption. Also, the introduction of the ‘No Smoking in public buildings’ law would have an impact on people drinking in pubs. Economical Whilst sales volume have fallen, sale value has increased. This is due to premium products such as fruit beers. Large supermarkets are offering cut price deals to entice customers into their shops. There has been a high rise in packaging costs. Social

The first decade of the 21st century saw a fall in beer consumption in the UK and Germany. Wine was becoming more popular. Shift from ‘on-trade’ to ‘off trade’ due to more people drinking at home, possibly due to the ‘No Smoking’ law. There is an increased awareness

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of health and fitness. Technological Grolsh increased their range with new flavoured beers. Grolsh switched to single site production. Environmental Heineken use local companies to introduce their product to new markets, thus sustaining local economy.

Grolsh hold the rights for sale and distribution of Miller brand. Acquisitions and mergers can obtain a bigger market share and reduce competition. Introduction of the ‘No Smoking in Public Buildings’ law. Porters Five Forces Analysis Porters five forces analysis is a framework useful to managers of an organisation to understand the competitive forces within their industry. The five forces are; The threat of entry The threat of entry would be low in the brewing industry because of the high capital investment required to be able to compete on a European scale.

With the top 10 brewery companies in 2005 having almost a 50% share of the European market breaking into and competing in this market would be costly. The threat of substitutes As well as the threat from other beers there is a threat of substitutes from wine, as the volume of wine sales is increasing as the volume of beer sales is reducing. The power of the buyer With a considerable number of products on the market the end user has the power to switch product without any incurred costs.

However, with the increase in ‘off-trade’ sales and the large supermarket chains offering big discounts and special offers to get customers through the door, the consumer could stay loyal to their brand. The power of the supplier The main suppliers for the brewing industry are for packaging (accounting for around half of non-labour costs) and raw materials such as barley, and energy. In Europe the packaging industry is dominated by international companies such as Crown for cans and Owens-Illinois for glass bottles. In 2006 these costs increased dramatically.

Heineken complained of an 11% rise in their packaging costs. To change the packaging supplier could be a high risk. Packaging is crucial to the supply chain. Any disruption could be costly. The extent of rivalry With 50% of the market share being controlled by the top 10 brewing companies, as showing in the table below, competition between these companies will be high. In recent years we have seen acquisitions and mergers by these companies to gain a higher market share. The world’s top 10 brewery companies by volume: 2005

With the threat of entry being low, new competition is unlikely. To reduce existing rivalry the best option would be to buy up the smaller market share holders in order to obtain a bigger percentage. Other product lines should be explored such as premium lager and flavoured beers. Alternative packaging suppliers should be sourced in an attempt to reduce costs. 2) Heineken Heineken has already got a foot hold in Americas and Asia-Pacific. With the declining market in Europe Heineken are focusing on new, growth areas.

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