Economic Trends in the Beer

Economic trends in the beer and pub sector, a WAKE UP for WESTMINSTER

Economic trends in the beer and pub sector

A Wake up for Westminster

Setting the context

In 2008, the British Beer and Pub Association developed a report in which they presented the challenges faced by the industry. The aim of the report was that of alarming the authorities at Westminster and stimulating them to take action in supporting the industry. Some alarming elements contained in the report include the following:

The levels of beer sales are as low as they were during the Great Depression

The levels of pub closure are at the astonishing rate of five closures per day, compared to their 2000 levels of two closures per week

Job losses were also registered -- 44,000 throughout the past five years and 43,000 more expected to be lost throughout the following five years.

These problems are important within the British communities in light of numerous elements. For instance, the beer industry has become 50 times more profitable for the government. The pub culture in the United Kingdom is not only a national emblem, but also one of the few remaining places in which communities come together to interact. The pub and beer industry also creates jobs. For instance, the editors at the British Beer and Pub Association reveal that for every three jobs created by supermarkets, the sale of beer in pubs and clubs creates 18 new jobs.

In the context of the importance played by the beer and pub sector in the United Kingdom, as well as in the context of the current challenges experienced by the sector, the editors at the BBPA solicit the government to reduce the fiscal and other burdens on the sector. Their demands specifically refer to the following:

The government's abandon of the of its plans to introduce a tax escalator in the beer industry

The government's abandon of the introduction of new regulations as to how and where beer can be sold

The recommendation that the government focused on reinforcing the already existent laws, rather than creating new ones

The need for the government to "start to support the Great British Pub as a vital part of local community life in Britain" (British Beer and Pub Association, 2008).

In spite of the initially perceived validity of the concerns raised by the editors at the BBPA, fact remains that the data and information presented by them is biased and based on the industry specific interests to increase sales, rather than regulate them. In such a context then, the formulation of a solid and sound report is pegged to the need to consult various sources outside the BBPA in order to establish an objective and unbiased standpoint. The current project as such sets out to research the available sources and create findings of the situation within the beer and pub sector in the United Kingdom.

For purposes of clarity, the analysis would be structured onto three distinct stages, as follows:

The assessment of the key forces which influence the beer and pub sector from the macro environment

The analysis of the industry through the lenses of the Five Competitive Forces, and the analysis of the strategies employed by Adnams, a highly successful organization which defies the trends in the industry.

2. Key macro environmental factors affecting the industry

At a general level, it is widely accepted that the sales of beer have decreased throughout the past recent years. The British Beer and Pub Association argues that the main driver of the decrease is represented by the political field. In other words, the number one macro environmental force affecting the industry is represented by politics.

At this level, the government of the United Kingdom is implementing taxes which increase the financial pressures on the beer manufacturers and retailers. Subsequently, additional financial burdens introduced by the government are transferred to the buyer, through the incrementing of the retail price. This specifically means that the access of customers to beer is restricted as a result of higher retail prices.

Also, aside from leading to an increase in the retail price through the introduction of additional taxes, the political field is restricting the access to beer by supplementary regulations. The most relevant in this sense is represented by the restriction of the locations and conditions in which beer can be consumed. This once again means that the access of consumers to the beverage is restricted.

Aside from political forces nevertheless, the consumption of beer in the United Kingdom is also impacted by other trends in the macro environment. One of the most relevant of these forces is represented by the consumption patterns in the UK. With an average of 97 liters of beer per capita, the United Kingdom is ranked the sixth largest beer consumer on the globe, preceded by Belgium and Denmark with 98 liters, Austria with 106 liters, Germany with 119 liters and Ireland with 155 liters (Nation Master, 2011). The table below reveals the 18 largest beer consuming countries:

Source: Nation Master, 2011

At a general level, it is assumed that the trend in the United Kingdom is that of an increasing level of alcohol consumption. In spite of this perception nevertheless, the statistics completed by the British Beer and Pub Association indicate that the trend has actually been a downward one, in which both male and female British citizens have decreased their consumption of alcoholic beverages. "It is widely assumed that we have a national culture in which alcohol consumption is on the increase. In fact average consumption has been falling since 2004. For men it fell from 17.2 units to 14.9 units between 1998 and 2006. By women, it fell from 6.5 to 6.3 (having risen to 7.6 in 2002)" (British Beer and Pub Association, 2008).

Alexis Akwagyiram at BBC identified and presented five additional features in the macro environment which have led to the decrease in the consumption of beer, specifically:

Health concerns

Food

Women

Cultural changes, and Fashion.

At the level of health, the general belief is that beer is unhealthy when compared to other alternative drinks, such as wine for instance. The common referral is made to the "beer belly" and the fact that the sustained consumption of beer can lead to the fattening of the individual. The members of the BBPA nevertheless argue that beer is less caloric and healthier than not only wine or spirits, but even more so healthier than milk or fruit juice.

At the level of food, the decline in beer sales is associated with the fact that most pubs have also come to sell food products in the locations. This has in effect led to a decrease in the consumption of beer, the beverage having been replaced with other products, some of them most appealing with a certain meal. In other words, as the pubs came to also sell food, their primary activity of beer retailing has decreased.

In terms of the changes generated by women, these refer to the fact that women are now better paid than ever and as such targeted by pub owners. Historically, pubs were not places in which women would be allowed or in which they desired to spend time. Today nevertheless, pubs are attractions for both genders. And in an effort to make the pubs more female-friendly, owners have created new styles and new menus. But in this context, the women do not consume the beer, but prefer the wine. Akwagyiram points out that 36 per cent of female clients in pubs consumer wine, whereas only 14 per cent consume beer.

Probably the most important macro environmental forces are represented by the cultural changes. Traditionally, pubs were frequented by factory workers who ended their shifts and went to pubs to "replenish fluids and socialize" (Akwagyiram, 2007). Today, most Brits work in offices and the pubs have as such lost the customers drinking large amounts of beer each day. Also, another cultural impact has been generated by the campaigns against drinking and driving, which have also reduced the sale of beer.

Beer consumption in pubs was perceived as a pleasant means of socializing. But today, beer is cheaper in the supermarket and people prefer to drink it in front of the television, rather than go to the pub. Finally, another impact is represented by the greater access to drugs and the temptation to drugs, which once again decreases the interest in beer.

Ultimately, the fifth macro environmental force identified by Akwagyiram is represented by fashion in the sense that the pubs and other alcohol serving facilities have integrated fashionable drinks, into a wide diversity. This has also generated a decrease in the popularity of beer.

At an overall level, the forces described in this chapter are important, yet not exhaustive. Additionally, they have not only influenced the past and present of the beer and pub industry, but are expected to maintain their influence within the future as well.

3. Five Forces analysis

Porter's Five Forces analysis is one of the most comprehensive tools to assessing an industry. 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.

4. Adnams

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 society is a positive one. 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.

5. Conclusions

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.