Global Forces and the European Brewing Industry Introduction

The contemporary society dynamics are changing over time. The consumer needs and preferences are changing constantly keeping firms on their toes. Firms are profit-oriented entities and their sole aim is to maximize their levels of revenues by ensuring they align themselves well to the market demands. Consumer demands vary between different age groups. For example, the youthful consumers’ tastes are skewed towards the production of flavored drinks. Therefore, to satisfy such a demand brewing companies need to be haste in developing a unique brand. It has been observed overtime that firms that adapt to market changes at remarkable speeds have been able to stay ahead of market competition. It is therefore prudent to align the objectives of firms with market demands. Global market is playing a paramount role in the brewing industry through imports and exports. Heineken for example is a big mover and a beneficiary of international trade. Heineken is a dynamic brewing firm whose trading and market share is ranked the biggest in the brewing industry in Europe. The company is moving a considerable amount i.e. 5% to Asia pacific and has harnessed 17% of its revenue from the United States of America market (Hartmann 2003, p. 9). From the figures, it can be observed that the firm is accruing most of its benefits from its international ventures. The company has distinguished brands, Heineken and Amstel. Family members control the operations of this business giant. The limited control has helped cushion the firm by making its independent and stable in its quest for international presence. Furthermore, experts observe that the rapid growth Heineken is largely aligned to its management and family controls (Preedy 2008, p. 721).

Pestle Analysis of the European brewery market

PESTEL analysis is a method that seeks to look into a company’s macroeconomic arm. The term is a synonym of Political, Social, Technological, Environmental, and Legal aspects of a firm.

Politics

According to experts, the demands for brew is on the decline because of the negative campaign propagated for by the government and other human rights advocates. In addition, the introduction of the No smoking law, affect the level of beer consumption negatively.

Economic

To capture and grow a market, change of strategy often is important. Heineken too has a strategy that has helped it thrive in global business. Among the strategies adapted to aid in international business is acquisition and mergers. The primal intention of Heineken is to penetrate into new markets without much increase in its costs. To achieve this, the firm has aligned with local industry players while acquiring firms that have a dynamic base and unique setup to help it conquer new markets that sometimes are rigid. To improve the operations of the acquired international companies, Heineken has dispatched a patch of experts to train the existing personnel. In addition, the firm is keen to introduce state of the art brewing technology to eliminate wastes and enhance productivity in the establishment. Like any company in business, Heineken is looking to benefit from the advantages of economies of scale. The advanced strategies are meant to accelerate the profitability of the company in both the short and the long run. In addition, the move seeks to enhance the efficiency of Heineken while keeping down the costs incurred in the course of business. Moreover, the realignments with local companies and acquisition of a good number of them are an optimistic approach by the firm whose move is aimed at implementing the beliefs of the company. According to experts, well handling of the aforementioned strategies will enhance Heineken growth (Market Watch 2009, p. 32).

Social

The 21st century saw a fall in demand for alcohol in two large traditional consuming nations, Germany and the United Kingdom. This was a move adopted partly because of government introduction of laws to control smoking and excessive drinking of alcohol. The aforementioned move has lead people to shift consumption to their homes to avoid punishment by the state. With the government agitating for a drunken driving free society, brewing companies are feeling the hitch. This has been worsened by the cutthroat competition in the sectors i.e. between traditional competitors and international firms.

Technology

Minimal levels of innovation in the industry are jeopardizing the industry. It is apparent that a good number of brewing companies share similarity of products. Indeed, most of them have failed to differentiate their beer to reflect the market needs. For example, in Germany, a good number of firms are engaging only in the brewing of traditional beer. This is largely a government-induced move as the consumers are subject to the purity law of their country.

Cracking that nutshell will enhance competitiveness of a local or an international firm seeking to thrive in an innovation free industry (Forbes 2012, p. 262).

Environment

United Kingdom brewing market is experiencing reduced dominance by local companies. Foreign brewing firms i.e. interbrew are in control of a giant share, 53% (Sullivan 2011, p. 52).

The revenues realized from some alcoholic brands, for instance Larger, have grown remarkably over the first decade of 21st century. The increased sale of the brand is associated with the sale of alcoholic drinks in the supermarkets. This implies that individuals unable to visit pubs can easily access liquor during traditional commodity shopping. In addition, brewers are keen to harness through off trade sales. Heineken is a reputable firm whose brands are received remarkably well in the market. However, more needs to be done to help retain the attracted customers. The everchanging consumer tastes and preferences needs to be factored in during the production of beer. This diversification of products is aligned well with the firms’ level of technology. Therefore, it is apparent that to thrive in a customer-controlled market, a firm needs to be innovative. This will ensure that the needs of individual consumers are met. A trend for quality development of consumer lead production is another dire factor that cannot be swept under the carpet by a firm seeking to oust its competitors. The 21st century generation demands are different from the one of the 20th century generations. Youths in the 21st century have been influenced much by soft drinks. Soft drinks come to the market with unique flavors. Their addiction to flavored drinks has led to the call for flavored beer. Meeting the demands for the youthful market will help firms increase their command levels in the market (Devin 2011, p. 91).

Legal

Grolsh has unique rights that are enshrined and covered by the terms of engagement agreement. The firm holds a sole right in the sale and distribution of the miller brands. In addition, the scramble for mergers and acquisitions poses a danger to competition as it increases the company market share. Finally, the coming into force of ‘No smoking in public building’ law curtails the levels of enjoyments in pubs that could otherwise increase sales (Nnamdi 2011, p. 1613).

Porter 5 forces analysis of the European brewery market

Competitors

According to Porters’ forces, competition in the brewing sector is rapidly high. This has been accelerated by the level of industry concentration that is relatively high. In addition, as the companies are trying to muscle for market share, new brands have been advanced in accordance to the market demand. Moreover, the costs of exit are relatively high. This implies that the firms that are already established in the industry cannot easily opt out of the market. This is so because of the high costs incurred during initial investment. Therefore, firms whose performance levels are minimal can opt to merge with other firms or accept to be acquired together with its market level.

Threat of new entrants

In line with the potential entrants to the brewing market, it is observable that brewing firms face adverse competition from international entities. To guard markets and prevent competition by international brewing companies, most countries opt for tightened legislation. Insensitive legislations hamper the penetration of Heineken to new markets. However, through realignments in the industry and subsequent cooperation, the industry player has been able to penetrate these markets.

Consumer power

In relation to the consumer power, Porter ascertains that there are relatively low switching costs. This implies that consumers’ loyalty to a brand is limited. In addition, it is not easy to monitor the drinking habits of consumers. However, availing products in supermarkets can accelerate their level of drinking.

Suppliers’ power

The power of the suppliers cannot be neglected in the analysis of the brewing industry. Considering the magnitude of competition in the market, supplies loyalty to a brewing company is limited. The supply basic raw materials according to what the company is willing to offer in return. A low payment to suppliers implies that the firm will lose out its competitors. To survive in such a market, the company needs to be well versed with industry offers to suppliers. This will protect a firm from undue exploitation by rogue suppliers. Substitute threats

Finally, a look at substitutes reveals that a firm faces stiff competition from soft drinks and non-alcoholic beers. A change in social habit may as well bring down the demand for alcoholic products. To be able to address the aforementioned Porters’ forces, Heineken needs to be knowledgeable with the market dynamics and understand fully the needs of the stakeholders

(Market Watch 2011, p. 21)

SWOT Analysis Strength

Heineken, a company that owns 11.7% market share, is believed to be the largest brewing firm in Europe brewing industry. It boosts of owning an estimate of 115 breweries across the globe (Wang 2009, p. 32). This significant figure presents it as a reputable international brewing company whose fingers satisfy 65 countries.

Weakness

Heineken dominance is limited to Europe brewing market. The impact of market trends in the international sphere has aggravated the hoes of Heineken.

Opportunities

The expansive market of the eastern part of Europe and Arab market i.e. Asia provides a good platform for Heineken to increase its market share and increase its level of sales. In addition, the global growing demand for flavored beers and non-alcoholic drinks provides a unique avenue for growth.

Threats

Heineken is a brand that has been in existence for a long period of time. This poses a threat of being a common and tired brand. New market innovations can easily outshine the brand. In addition, with the level of maturity in the brewing industry, competition is paramount. The aforementioned poses a threat to the company’s market share. Finally, the government laws to limit the consumption of alcohol will dent the sales of Heineken.

Impact of trends

The rapid realignments in the sector and subsequent tight competition in the sector has seen it loose a lot in its sales. In addition, due to the government gospel and the demands for innovation i.e. to meet the youthful market, Heineken has lost a good margin of its market share to competitors who have aligned themselves towards the satisfaction of consumer demands. Moreover, the trends have changed the dynamics of engagements in the industry. For example, Heineken has been forced to review its strategies to meet the new demands. Some strategies were done away with while others were adjusted to fit the new demands. Change in strategies mean additional costs to firms. Some of these strategies adopted include the acquisition of other brewing firms and mergers. The move brings with it a number of negative effects to the firm i.e. it may lead to the dilution of Heineken brand. This will dent the brand name and the company reputation globally (Guo 2007, p. 72).

Conclusion

In conclusion, Heineken has unique opportunities presenting themselves courtesy of the changing market trends. Acquisitions and mergers will enable the firm harness the Asia and

Eastern Europe markets with much ease by collaborating with local companies to check on the costs and enjoy economies of scale. However, the aforementioned will be a success only if Heineken is sensitive enough to acquire reputable local companies that have well established outlets. Engaging other large brewers in the industry will help it improve its reputation in the business arena. In addition, it will enhance its competitive advantage. Heineken has a strong brand that can be used to its advantage. Due to the call for flavored drinks in the youthful market, Heineken can use its image to appeal to the youthful populace. This move will additionally encourage customer loyalty to the brand (McKern 2003, p. 233). Considering Heineken enjoys a wide network of branches, it needs to produce a beer that meets the tastes and preferences of each country. Finally, the firm needs to engage in advertising to further market its brand and ensure it attracts and retains consumers.