Economic Trends in the Beer Case Study
Excerpt from Case Study :
It is constructed, as its name indicates, on the five forces which define and characterize the competition within the industry. These forces are as follows:
The bargaining power of buyers
The bargaining power of suppliers
The threat of substitute products
The threat of new entrants
The competitive rivalry.
a) the bargaining power of buyers
At an individual level, the buyers do not have a bargaining power in the meaning that they cannot negotiate the price of a beer, nor can their consumption decision influence the company. Nevertheless, when they put up a united front and are considered a group, the bargaining power of the buyers increases significantly.
Throughout the past decades, the bargaining power of the buyers -- as a group -- has gradually increased and their needs and wants have significantly impacted the industry. The information in the previous section is evidence in this sense. For instance, the changing consumption habits have influenced the industry. Regarding the future, it is expected that the collective bargaining power of the buyers continue to increase.
b) the bargaining power of suppliers
Unlike the buyers, the power of the supplier is restricted. The industry is filled with numerous suppliers which strive to retail their commodities. This in essence means that the competition among providers in the beer industry is intense. Subsequently, in a context in which the suppliers compete against each other for market shares and contracts with beer manufacturers, their collective bargaining power is barely existent. The individual bargaining power of suppliers is generally established through a contract signed between vendor and customer, but the power of the supplier is often restricted.
c) the threat of substitute products
The threat of substitute products is the greatest challenge within the industry, with wine being the second choice after beer. As the previous section has shown, women prefer wine to a larger proportion than they prefer beer. Additionally, the past recent years have witnessed an increase in other types of beverages, such as cocktails and non-alcoholic beverages (made popular due to health concerns). In other words then, the threat of substitute products is a highly complex and strong issue within the beer and pub industry and it is expected to intensify its strength within the upcoming period.
d) the threat of new entrants
The threat of new entrants into the beer industry is relatively restricted and this is due to the large costs of entering the industry. For instance, it is estimated that a 4 million barrel brewery costs $250 million, which represents a tremendous investment, and as such an important barrier to entering the industry. Then, the industry is highly competitive and the new entrants will generally be able to compete on small, niche markets, rather than actually pose real competition. It has not been since World War II that a new entrant to the industry has managed to become a top three player within the sector (Lin).
e) the competitive rivalry
In a context in which the same industry players strive to increase their market shares and increase their sales and revenues, but in a market which continually contracts, the competitive rivalry is intense. The beer and pub industry is as such characterized by high levels of competitive rivalry, in which the economic agents are fierce in their attraction of customers. As the industry is continually subjected to change generated by the macro environment, the expectation is for the competitive rivalry to further intensify.
In a modern day setting in which the beer industry is faced with decreases, Adnams Southwold is defying the patterns and is registering incremental success. The company's goal remains that of any other economic agent, namely the registration of financial revenues. The means in which the firm is attaining this objective is nevertheless different and constitutes the number one reason for their success. In other words, Adnams Southwold owns its success to the stability of its strategic approach in the means that the organization strives to attain its objectives through the multifaceted satisfaction of the needs and wants of the various stakeholder categories, such as customers, employees, business partners, governmental and non-governmental agencies and so on.
And aside from their core operations, the company expands its efforts to ensure that it is both responsible as well as supportive of the development of the communities in which it operates.
"At Adnams, we want to make sure that our impact on
...Our company values are rooted in making great products without costing the earth. From working with local farmers and producers who supply our brewery and hotels, through to partnering with a local business to install an anaerobic digestion plant to turn brewery and food waste into biogas, we believe that doing the right thing makes great business sense" (Website of Adnams Southwold, 2011).
The strategic decision to attain steady growth and development in a sustainable manner has created delays in the registration of success. Nevertheless, it has also ensured long-term stability. Through the partnerships it has created with various local partners, Adnams Southwold is able to quickly and efficiently access the necessary resources. It also ensures that the resources are of the utmost highest quality.
Then, the numerous strategic partnerships it has constructed with various parties create a context in which the firm is able to capitalize on the expertise of its partners. It can for instance benefit from the market access of its partners and as such ensure that itself becomes better able to access and serve wider customer markets.
The feature of sustainable growth has also been attained through the massive diversification of the company operations and products. In this order of ideas, in a context in which most players in the industry sell beer exclusively, Adnams Southwold also manufactures and sells wines, spirits and other alcoholic beverages. This strategy ensures that the company would be able to couple a decrease in the demand for beer with an increase in the demand for wine. In other words, the diversification of its product palette allows the company to best respond to the threats in the macro environment and to best seize the opportunities presented by the environment.
Finally, since it constructed its success by supporting the development of the communities in which it operates, Adnams Southwold now enjoys high levels of popularity among the British business community as well as among Britich consumers. This popularity creates a favorable image and a positive public perception, which in turn generates sales through salient marketing. Ultimately then, the sustainable manner in which the company has developed and implemented its strategies, combined with the diversification of its operations, represents the key success factor and is likely to support the company in even further consolidating its competitive position.
The modern day community is facing numerous challenges to which it must quickly adapt. The examples in this sense are numerous, to include the opening of boundaries to international trade or the emergence of the informational revolution. In this context, the political or socio-cultural dimensions of life are also impacted and suffer modifications.
The beer and pub industry in the United Kingdom is dramatically influenced by the totality of the changes impacting the modern day society. The concern with this state of events is however raised by the fact that the changes materialize in a decrease in the demand for beer and pubs, and this creates not only economic problems, but also cultural ones, since the pubs are part of the British cultural heritage.
With this argument in mind, the British Beer and Pub Association urges the UK government to readdress its policies which stifle the consumption of beer. The analysis so far conducted nevertheless indicates that it is not the political field alone which generates a decease in the demand for beer. Other major contributors to this trend include the increasing health concerns, the changes in working habits or the increasing presence of women in pubs, and their general preference for other types of alcoholic beverages.
In the context as such presented, the analysis of the industry has continued with its assessment through the lenses of the five forces analysis. This has indicated that the competitive rivalry is highly intense among industry players. The barriers to entry are relatively high, but the threat of substitute products is continually increasing. And while the industry density increases, the fact that the customer base decreases implies incrementally fiercer competition.
But despite these dramatic changes and challenges, these still are some economic agents who manage to succeed. Such is the case of Adnams, who relied on diversity in order to consolidate its position. Adnams Southwold represents a model of success and a lesson for all breweries and pubs in the United Kingdom as well as outside it. Times are changing and the popularity of beer is gradually decreasing. Breweries should not blame the governmental taxes and regulations for these trends, but should observe and adapt to the macro…
Sources Used in Documents:
Akwagyiram, a., 2007, Five reasons beer sales have slumped, BBC News, http://news.bbc.co.uk/2/hi/7103268.stm last accessed on March 9, 2011
Blackaby, a., 2010, Women getting a taste for real ale could save beer industry, Birmingham Post, http://www.birminghampost.net/birmingham-business/birmingham-business-news/other-uk-business/2010/10/29/women-getting-a-taste-for-real-ale-could-save-beer-industry-65233-27568707 / last accessed on March 9, 2011
Clary, a., 2009, U.K. beer consumption falls after taxes, economy deter drinkers, Bloomberg, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aUNkC1tV8_RE&refer=uk last accessed on March 9, 2011
Ehmke, C., Fulton, J., Akride, J., Erickson, K., Linton, S., Industry analysis: the Five Forces, Purdue University, http://www.ces.purdue.edu/extmedia/EC/EC-722.pdf last accessed on March 9, 2011
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