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Transcript of Beer Rrrrrr
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Strategic PlanPrepared by: Steven Carlisle
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Table of Contents
Executive Summary .....................................................................................................................4
Strategic Analysis ........................................................................................................................5
Market Assessment .................................................................................................................5
Current Industry Situation ...................................................................................................5
Competitive Variable ModelPorters Five Forces..............................................................6
Threat of Rivalry ..............................................................................................................6
Table 1: Market Concentration (C4) Measured by Market Share ..................................7
Table 2: Incidence of personal beer consumption, 2003-07 .........................................8
Threat of Substitute Goods ..............................................................................................8
Threat of New Entrants....................................................................................................9
Power of Suppliers .........................................................................................................10
Power of Buyers ............................................................................................................11
Strategic Mapping .................................................................................................................11
Figure 1: Strategic Group Map of Brewing Industry ...........................................................12
Major Competitors ................................................................................................................13
SABMiller ..........................................................................................................................13
Molson Coors ....................................................................................................................14
MillerCoors ........................................................................................................................14
Leap Growth Opportunities ...................................................................................................15
Value Innovation ...............................................................................................................15
Factors Industry Take for Granted .................................................................................15
Factors Taken for Granted and the Value to Customers .................................................17
Table 3: Top 15 super-premium and craft beer brands, 2004 and 2006 .....................18
Table 4: Top 10 regular imported beer brands, 2004 and 2006 ..................................19
Industry Offerings Consumers do Not Need ...................................................................19Customer Wants Not Addressed ....................................................................................20
Customer Needs Not Addressed ....................................................................................20
Diamond Mining ....................................................................................................................21
Market Segmentation ...........................................................................................................22
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Long-term Value Sophisticated Customers .....................................................................22
Short-term Value Unsophisticated Customers ................................................................23
Discontinuities.......................................................................................................................24
Economic ...........................................................................................................................24
Chart 1: Weighted Average of Currency Exchange Rates ................................................26
Political/Legal ....................................................................................................................27
Technological ....................................................................................................................28
Social .................................................................................................................................29
Demographic .....................................................................................................................31
Table 5: Personal consumption of beer by race/ethnicity, May 2006-June 2007 ............31
Table 6: Personal consumption of beer by household income May 2006-June 2007 ......32
Table 7: Incidence of personal consumption of beer by age May 2006-June 2007 .........33
International .....................................................................................................................34
Critical Industry Value Drivers ...............................................................................................35
Firm Analysis .........................................................................................................................37
Mission Statement ............................................................................................................37
Value-Chain Analysis .........................................................................................................38
Analysis of Primary Activities .........................................................................................38
Inbound Logistics .......................................................................................................38
Operations .................................................................................................................39Outbound Logistics ....................................................................................................39
Marketing and Sales ..................................................................................................40
After Sales Service .....................................................................................................41
Analysis of Secondary Activities .....................................................................................42
Firm Infrastructure ....................................................................................................42
Management Profile ..............................................................................................42
Planning .................................................................................................................42
Scanning ................................................................................................................43
Culture ...................................................................................................................43
Financial Analysis ...................................................................................................44
Table 8: Financial Ratios of the Top Three Brewers Compared to Industry in 2007
..........................................................................................................................44
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Table 9: Anheuser-Busch Ratio Comparison 2003 - 2007 ....................................47
Legal ......................................................................................................................48
Quality ...................................................................................................................49
Human Resource Development .................................................................................49
Technology Development ..........................................................................................49
Procurement..............................................................................................................50
Analysis of Current Strategies ............................................................................................51
Critical Strategic Strengths and Weaknesses ......................................................................53
Table 10: Anheuser-Busch Distinctive Competencies, Strengths, and Weaknesses ........53
Business Plan ............................................................................................................................56
Recommendation Craft Brew Market .................................................................................56
Justification .......................................................................................................................56
Table 11: Purchase Price of Craft Brew Firms .................................................................57
Table 12: Projected Cash Flows over 5 years for Craft Beer Strategy ..............................58
Implementation.................................................................................................................59
Timeline ............................................................................................................................60
Chart 2: Timeline for Brewing Industry ..........................................................................60
Recommendation A-BNation.com ......................................................................................61
Justification .......................................................................................................................61
Table 13: Projected Cash Flows Over Project Life (5 years) for A-BNation.com Strategy.62Implementation.................................................................................................................62
Timeline ............................................................................................................................64
Chart 3: Timeline for A-BNation.com ..........................................................................64
Recommendation Recycling................................................................................................65
Justification .......................................................................................................................65
Table 14: Projected Cash Flows Over Project Life (5 years) of Recycling Strategy ...........66
Implementation.................................................................................................................66
Timeline ............................................................................................................................68
Chart 4: Timeline for Recycling ......................................................................................68
Appendices ...............................................................................................................................69
Appendix 1 Craft Brew Estimates ........................................................................................69
Bibliography ..............................................................................................................................71
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Executive Summary
In the brewing industry the hot trends in the market today come from mergers andacquisitions, marketing, and imports and craft beer. The first trend is larger payers in the
market have been merging for the last few years to combat the leader in the market, Anheuser-
Busch. The second trend is marketing changes; companies are going back to the core brands
and messages that made the core brands the best sellers. The final trend is in the craft beer
and imports market; craft beer has continued its double digit growth, in 2007 it was 14%.
The competitive environment of the brewing industry is high and therefore may not be as
profitable. Increased threat in the market from craft beer, lack of after sales service, and rising
costs from suppliers have cut into the profit of the company. All three of these areas are
consistent with current trends in the market and therefore need to be addressed by Anheuser-
Busch.
To combat the growth of the craft brew market Anheuser-Busch must purchase more
independent craft brewers. Four brewers have been targeted for growth over the next year
based on the region where they operate. We will purchase brewers in the Northeast,
Southeast, Midwest, and West Coast. Over the course of five years as the companies are
integrated into the Anheuser-Busch family growth of these brands will increase by 50% over
what they are today. The purchase price is $4.7 million with a Net Present Value of $170,000.
Currently, there is no after sales service in the brewing industry; firms do not reach out to
consumers to measure attitudes, behaviors, or satisfaction. In order to grow the customer base,it is recommended that Anheuser-Busch create a new portal which will allow the entire family
of brands to be marketed to consumers. The portal will replace the existing product websites
and allow consumers to have one place for all things Anheuser-Busch including the
entertainment division. The cost of producing this portal will be $52,000 with a Net Present
Value of $122,000.
Finally, Anheuser-Busch needs to combat rising costs of materials to the firm for packaging. We
plan to utilize an existing resource, Anheuser-Busch Recycling Corporation, and expand the
scope of the business to include paper, plastic, and glass. This will help lower threats from
suppliers and costs of procurement. Collection sites will be set up at local distributors and
liquor stores with Anheuser-Busch branded collection bins. The collection of recyclables will
give consumers the impression that Anheuser-Busch is a greener company than the
competition. The cost of this project is $1.4 million with a Net Present Value of $326,000.
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Strategic Analysis
Market Assessment
Current Industry Situation
In the brewing industry today, there is high competition between the top three or four
largest firms. The firms produce a variety of beer which includes: light beer, premium beer,
popular beer, super-premium, ice beer, malt liquor, and flavored malt beverages (Scopes and
Themes, 2007). In addition to the products listed above, new players are entering the market
in the form of craft beers which are typically made in smaller batches and are often seasonal.
The current trends include: consolidated companies, changes in marketing, addition of craft
beers and imports.
In the brewing industry one current trend is to merge operations under a few larger
brands (Hoover's Industry Snapshots, 2008). Hoovers Industry Snapshot states, Although it is
in a close race with wine, beer remains the industry's top seller, and major brands are growing
slowly. As a result, many global brewers are merging operations to reduce costs and gain
market share (Hoover's Industry Snapshots, 2008). In recent months SABMiller PLC has
started joint venture with Molson Coors Brewing Company in hopes to create more
competition for beer industry leader Anheuser-Busch (SABMiller-Molson Venture Clears
Hurdle, 2008). Furthermore, Anheuser-Busch was just presented an offer of purchase from
InBev, one of the worlds largest brewers, in the amount of $46 billion (Sorkin & Merced, 2008).
Another trend comes in the form of marketing; firms are starting to alter marketing of
their brands to better appeal to newer customers or to get lost customers back. Coors Brewing
Company has altered its own marketing strategies from the former T&A-driven effort that
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starred the Coors Twins (Mullman, Coors soars as consistent Cold Train steams ahead, 2008)
which did not help the company gain ground on market competitors, therefore Coors has
returned to more traditional advertising that helped them become a larger player in the
domestic beer market; they now focus on technological innovations and how the product is
made.
Other trends include growth in imports and craft beer which has helped the market
grow (Market Size and Trends, 2007). According to Mintel, Domestic beer has consistently lost
share to other alcoholic beverages, including distilled spirits, wine, and even imported beer
(Market Size and Trends, 2007). Furthermore, seasonal beers have taken a strong hold in the
beer market. Craft beers are better able to adapt to this market however, larger brewers have
also jumped on the bandwagon but the results for larger breweries have not been as successful
as those of craft beer. Clearly, innovation is on the side of smaller players, many of which are
at the forefront of experimenting with beer styles and pushing the taste envelope forward
(Market Size and Trends, 2007). To compete in the market today larger breweries need to be
more innovative and introduce products that make people believe they are getting a craft beer.
Competitive Variable Model Porters Five Forces
Threat of Rivalry
Threat of rivalry is high in the brewing industry.
Threat of rivalry can be measured on two dimensions: market concentration and
demand for product. Market concentration can be measured by the C4 Ratio (or top four firms)
in which a market is considered to be concentrated if the C4 Ratio is 50% or higher. As a result
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of high market concentration significant interdependence exists between firms in the industry.
Additionally, if demand for a product is low the rivalry is high.
In the brewing industry, the C4 ratio has been relatively constant over the last decade
(see Table 1 below). Currently, the top four firms control 80.9% of the market while the largest
player controls 48.2% of the market. Furthermore, the remaining three companies only control
32.7% of the remaining market.
With market concentration extremely high, brewers are interdependent on one
another. Due to the high market concentration and interdependences of the firms, if one firm
launches a new advertising campaign, others will follow. Similarly due to the interdependency,
if one firm launches a new beverage, others will try to copy that beverage. This can be seen in
the 2007 launch of the new Miller Chill, a lime infused beer produced by SABMiller. Anheuser-
Busch recently introduced a new Bud Light Lime in April 2008 (Bud Light Lime Makes a Splash
With Refreshing Twist, 2008).
Demand in the brewing industry for traditional brews is regaining ground as gas prices
rise; and consumers look for ways to reduce their expenses, however, it is still lower than that
of micro and craft beer. As is shown in Table 2 on the following page, over the last four years
Table 1: Market Concentration (C4) Measured by Market Share
Firm 1998 2003 2004 2005 2006
Anheuser-Busch 51.6% 49.5% 49.4% 48.6% 48.2%SABMiller 19.0% 18.4% 18.5% 18.4% 17.8%
Coors 10.2% 10.8% 10.6% 10.6% 10.9%
Pabst No Data 3.9% 3.6% Approx. 2.1% Approx. 2.0%
Heineken USA No Data Approx. 2.1% Approx. 2.2% 3.6% 4.0%Sources: (Lazich, 2000), (Bossons-Martines, S & P Industry Surveys, 2006), (Bossons-Martines, S & P Industry Surveys, 2007),
(Bossons-Martines, S & P Industry Surveys, 2007)
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consumption of domestic beer has dropped by 4% while consumption of imported beer has
increased by 1% and consumption of craft beer has decreased by 1%. In a recent article, Miller
Brewing Company stated that People are still willing to pay a premium to have [high-end
brands] but we've also seen a recent spike in our economy brands (Fackler, 2008). Molson
Coors stated in a recent press release that April sales to retailersare up at a high single-digit
rate (Reuters, 2008).
Furthermore, Standard &
Poors reports that, we
think we may see some
modest trading down by
consumers from spirits
and wine to beer as
incomes are pressured in
a softer economic environment (Esther Kwon, 2008). As a result, as the economy weakens,
demand for domestic beer may have started an upward trend.
The results of the extremely high market concentration and low demand provide
evidence that rivalry between firms is high.
Threat of Substitute Goods
Threat of substitute goods is high in the brewing industry.
There are many substitutes for the brewing industry ranging from other alcoholic
beverages such as wine and liquor to non-alcoholic beverages such as soft drinks, bottled
Table 2: Incidence of personal beer consumption, 2003-07
2003 2005 2007 % Change
over 4 years
Light/low-calorie beer 29% 29% 27% -2%
Regular domestic beer 29% 26% 25% -4%
Imported beer 25% 26% 26% 1%
Micro-brewed (Craft) beer 11% 9% 10% -1%
Ice beer 8% 6% 6% -2%
No-alcohol beer 5% 5% 5% 0%
Malt liquor 5% 4% 4% -1%
Source: (Mintel/Simmons NCS Fall 2006 , 2007)
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water, and fruit juice. One article stated, Beer is losing market share to other beverages, to
spirits and especially wine (Strenk, 2008, p. 83). Many liquor manufacturers are producing
more pre-mixed bottle beverages. For example, Smirnoff Vodka has created new cocktails
using their vodka. Additionally, Smirnoff now produces a beverage called Smirnoff Ice which is
a malt beverage which comes in a variety of flavors (Smirnoff Ice, 2008). It is clear with the
quantity of substitute goods in the market beer faces a larger threat from substitutes.
Threat of New Entrants
Threat of new entrants is high in the brewing industry.
Threat of new entrants can be measured by demand for theproduct and entry barriers.
Demand for domestic beer is relativly low, as compared to import beer and craft beer because
many consumers tastes and preferences have changed along with the income level. One
Standard & Poors article stated that consumption trends for imported beers and craft beers
will also benefit from higher disposable incomes, as consumers trade upto better beers
(Esther Kwon, 2008). With the advent of craft beers, it is no longer difficult for smaller
companies to enter the brewing industry. However, with the rise of costs from materials, the
trend toward introducing new craft brews into the market may start to drop. As a result of the
emerging craft and micro brew industry and the import beer industry, the threat of new
entrants is high.
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Power of Suppliers
Power of suppliers is moderately high in the brewing industry.
Power of suppliers is measured on two factors: product differentiation and potential of
vertical integration. In the brewing industry there is little product differentiation on the
ingredients used and the type of packaging used. Furthermore, larger firms can afford to, and
have, backwardly integrate into the packaging and growing of key ingredients.
According to an article in The Wall Street Journal, The costs of virtually every
commodity needed to make and market beer, from grains to aluminum, have been
skyrocketing (2008, p. B8). Furthermore, in the United States, some U.S. farmers have
reduced acreage, converted hops fields to other crops, or sold their farms to developers
(Angrisani, 2008, p. 27). Finally, this article goes on to state that rising fuel prices have had an
impact on ingredient costs.
As for vertical integration, Coors had developed joint ventures for production of items
such as aluminum and glass bottles to transportation (Molson Coors Brewing Company Form
10-K, 2007). Anheuser-Busch has operations that include: raw materials, packaging,
transportation, and recycling (Anheuser-Busch Business Units, 2007). It is evident that brewers
recognize that suppliers have control due to the backward integration techniques that these
two companies have undertaken.
As a result of increased costs from suppliers and the lack of vertical integration on the
part of most breweries, it is clear that suppliers do have control in the brewing industry.
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However, by vertically integrating, Coors and Anheuser-Busch have attempted to lower the
threat of suppliers.
Power of Buyers
Power of buyers is high in the brewing industry.
Bargaining power of buyers can be measured by three factors: value cognizance,
product differentiation, and demand characteristics. Value cognizance in the brewing industry
for consumers is high because consumers recognize the brand differences of the key players of
the industry. However, product differentiation in the brewing industry is relatively low; the
three largest firms all make the same basic product. Furthermore, the rate of demand is still
relatively low, as compared to craft brews, but has started an upward trend. Currently, one
could infer that the power of the buyer is high due to high value cognizance, low
differentiation, and low demand. Consumers could easily switch to a different brand if their
preferred beer was not available or if the preferred brewer drastically altered the brew.
Taking all five forces into consideration, the competitive nature in the industry is high;
as a result, the industry may not be attractive or profitable. Furthermore, it may be difficult for
current companies to compete unless they can counter the threats.
Strategic Mapping
Looking at the strateic groups located in Figure 1 on the next page, there are six distinct
groups in the brewery industry based on price and quailty and three categories based on
geographic region. The first category is local brews, which are produced in small batches and
typically are not sold out of the home city; as Figure 1 shows in green, local brews typically only
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compete in one group based on price and quality. The second category is regional brews, which
are produced in relatively small batches and typically are not sold outside a specific region; as
Figure 1 shows in yellow, regional beers compete in two different groups based on price and
quality. Finally, there are national brews which are produced in larger batches and sold
through out the United States; as Figure 1 shows in blue, in the national brew category the
companies compete on three different group based on price and quality.
The top three domestic beer manufacturers are relatively consistent in following the
medium and high price/quality and national coverage catagories. However, where they are
missing opportunities falls in the regional and local markets where they would have to compete
head-to-head with craft brews and micro-brews. For example, if they were to produce a low to
medium priced beer in the Pennsylvania to Ohio region they would have to compete head-to-
head with the Pittsburgh Brewing Company which produces Iron City beer.
Michelob
Leinenkugel
Miller
Bud Light
Coors
Colt 45
Boont Amber Ale
Iron City
Shiner BockHigh
Regional National
Medium
Low
Price/Quality
Geographic Region
Local
Figure 1: Strategic Group Map of Brewing Industry
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Major Competitors
In the domestic brewing industry there are three key players: two of these players
compete head to head with Anheuser-Busch. SABMiller was formed when South African
brewery SBA purchased Miller in 2002 (Our History 2000 - 2008, 2008). Molson Coors was
formed when Canadian brewery Molson and American brewery Coors joined forces in 2005.
SABMiller
The second place brewery based on Market Share is SABMiller. SABMillers corporate
office is located in Woking, Surry; SABMiller is currently traded on two stock exchanges; London
and Johannesburg. Over the last year the stock price has lost ground at -15.90% (Share Price
Chart, 2008). A further analysis of the financial statements is presented in the Firm Analysis
section.
SABMiller has a broad range of product lines with 29 different products under nine
different brands. The spectrum includes offerings on the national level with price points low to
high range. SABMiller also competes globally in several countries.
The companys strategic goals include: Creating a balanced and global spread of
business, Developing strong, relevant brand portfolios in the local market, Constantly raising
the performance of local businesses, and Leveraging our global scale (Our strategic priorities,
2008). SABMiller currently serves the majority of developed nations and a few that are
developing. It is clear that SABMiller has clear goals set for the company; each of the strategies
has a clear definition for the company to follow.
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Molson Coors
The third place brewery based on Market Share is Molson Coors. Molson Coors
corporate office is located in Toronto, Canada; Molson Coors is currently traded on the New
York Stock Exchange. Over the last year the stock price has gained ground at around 1.19%
(New York Stock Exchange, 2008). A further analysis of the financial statements is presented in
the Firm Analysis section.
As the third place brewery based on market share in the United States, Molson Coors
has a narrow range of product lines with 12 different products under seven brands. The
spectrum includes offerings on the national level with price points in the mid to high range.
Molson Coors also serves several international markets.
The companys strategic visionstates, Our vision is to be a top performing brewer
winning through inspired employees and great brands. As an innovative, brand-led company,
we will drive growth, deliver results, reinvest in productivity, and build a winning, value-based
culture (Molson Coors Corporate Responsibility, 2008). Molson Coors has a strong vision;
however, there are no clear measurable attributes defining how the company plans to achieve
this vision.
MillerCoors
In June 2008 SABMiller and Molson Coors entered into a joint venture to merge
companies in the United States. As a result, this merger will give the combined company
approximately 30% of market share. Further, SABMiller and MCBC expect that the enhanced
brand portfolio, scale and combined management strength of the joint venture will allow their
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businesses to compete more vigorously in the aggressive and rapidly changing U.S. marketplace
and thus improve the standalone operational and financial performance (2007, p. 4). At this
time it is not possible to assess the impact of the joint venture on the industry and should be re-
evaluated over the course of the next year to measure the impact.
Leap Growth Opportunities
Value Innovation
Factors Industry Take for Granted
In the brewing industry the factors that the larger breweries take for granted include:
brand image, craft brews, growing import beer markets, and pairing beer with food.
The first factor the big three breweries take for granted is brand image. The marketing
campaigns are designed to give the consumer the impression that drinking their brand will
provided them with a certain lifestyle. They have forgotten about brand attributes that
consumers are looking for in the form of taste the increasing importance of this factor is
indicated by the finding that the fastest growing segment of beer is in craft brew. In fact, the
growth in the craft brew segment for 2007 was eight times the amount of domestic beer
(Theodore, 2008).
The second factor that big three breweries take for granted comes in the form of craft
brews. In the craft beer markets, larger breweries have been slow to respond to the increased
pressure from these smaller companies. One article stated, theres a lot of potential in the
craft beer phenomenonits a real opportunity for big brewers to widen their product portfolio
and reach a new customer (Strenk, 2008, p. 83). One company has reacted; Molson Coors has
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produced Blue Moon starting in 1995 and most people do not know that it is produced by Coors
(Strenk, 2008). The craft beer market had an increase of 12% in consumption over the industry
standard of 1.5% for domestic beer (Theodore, 2008).
The third factor the big three breweries take for granted comes from the import beer
market. In the beer market, sales were up according to one industry report 1.5%; domestic
beer was up 1.5% while import beer was up 1.4% in 2007 (Theodore, 2008). However, this
article goes on to state that Im still seeing signs oftrading up as the top five performing beer
brands were all high end (Theodore, 2008, p. 14). Anheuser-Busch has tried to take a stab at
the import market by entering into a joint venture with InBev to distribute its top brands in the
United States. However, for Anheuser-Busch the addition of craft and import beers has hurt
the company; The number one U.S. brewer-which holds about 49% of the market-stumbled
last year as it absorbed dozens of new import and craft brands into its wholesaler network.
There were supply-chain woes and marketing stumbles (Mullman, Brewing Battle, 2008)
according to one article.
The final factor the big three breweries take for granted is in the food and beer pairing
arena. It has long been tradition for diners to order wine with Veal Marsala at their local Italian
restaurant. Restaurants such as Ruth Chris Steak House will suggest wine to go with your
dinner. Pizza restaurants have started to suggest beer with dinner to improve the dining
experience, providing diners the best beverage to complement their meal. However, the big
three are missing out! When looking at industry trade magazines they all discuss pairing craft
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brews with a meal and since the big three are lacking in this area they are losing sales to these
craft brews.
Factors Taken for Granted and the Value to Customers
Factors that the big three breweries take for granted are: craft beer, brand image, and
import beer. The big three provide no value for consumers even though one firm has tried to
enter this market. Brand image is a place that consumers find value but the big three take this
for granted when developing advertising campaigns and sell a lifestyle rather than the product.
Finally, the big three take for granted the impact of the import beer market in hopes that the
products they sell will carry the company and consumers will not switch.
In the craft beer segment the big three breweries provide no value for customers.
Miller, Anheuser-Busch, and Coors are lacking products that fall into the craft beer segment. As
a result, the big three are missing out on an important segment of the market. Coors has
attempted to add a craft beer with Blue Moon and it has been successful; however, as
Mintel/Adams Beverage Group reports it is not in the Top 15 Super-premium and craft beer
brands, as can be seen in Table 3 on the next page. Furthermore, Anheuser-Busch, Coors, and
SBAMiller have products in the top 15 (Michelob, Michelob Amber Bock, Michelob Golden
Draft, George Killians Irish Red, and Leinenkugel Original Premium); however, these brands are
considered super-premium and not craft beers.
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Table 3: Top 15 super-premium and craft beer brands, 2004 and 2006
Brand Supplier 2004 2006 Change
2004-06
Thousand
2.25-gallon cases
Thousand
2.25-gallon cases
%
Yuengling Traditional Lager Yuengling Brewery 18757 21765 16
Samuel Adams Boston Lager Boston Beer 9500 10700 12.6
Michelob Anheuser-Busch 11500 8200 -28.7
Sierra Nevada Pale Ale Sierra Nevada Brewing 7314 7685 5.1
Michelob Amber Bock Anheuser-Busch 6800 7100 4.4
George Killian's Irish Red Molson Coors Brewing 7585 6800 -10.3
Fat Tire Amber Ale New Belgium Brewing 3710 4510 21.6
Shiner Bock Gambrinus 3234 4026 24.5
Widmer Hefeweizen Widmer Brothers Brewing 2194 3100 41.3Michelob Golden Draft Light Anheuser-Busch 3000 3000 0
Saranac Amber/Golden/Pale Ale F.X. Matt 2750 2850 3.6
Henry Weinhards Miller Brewing 3200 2800 -12.5
Redhook ESB Redhook Ale Brewery 2120 2500 17.9
Pyramid Hefeweizen Pyramid Breweries 870 1335 53.4
Leinenkugel Original Premium Jacob Leinenkugel/Miller Brewing 1236 1200 -2.9
Source: (Mintel/Adams Beverage Group, 2007)
Value for customers comes from the image that their preferred brand compromises.
Some brewers advertise more heavily during sporting events even going as far as to sponsor
events; while other brewers advertise lifestyles. As a result, manufacturers are starting to alter
the messages they send through advertisements. One article states, Miller Genuine Draft will
snag more TV time with a test of two ad messages--one tactic presenting MGD as the beer for
consumers with higher standards (Beirne, 2008). On another front, Anheuser-Busch has
decided to start looking for marketing to appeal to non-sports fans (Beirne, 2008).
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In the import beer segment, the big three are also lacking, as shown in Table 4 below,
the top performers are foreign owned companies. As a result, the big three are missing out on
an important segment of the market. Only one company has a division in the United States,
Heineken USA whose parent company is based in the Netherlands. In order to compete in the
international beer market, domestic breweries need to purchase or develop joint ventures that
will allow for importation of these international beers.
Table 4: Top 10 regular imported beer brands, 2004 and 2006
Brand Supplier 2004 2006 Change
2004-06
Thousand
2.25-gallon cases
Thousand
2.25-gallon cases
%
Corona Extra Grupo Modelo 97,930 116,218 18.7
Heineken Heineken USA 63,125 68,500 8.5
Modelo Especial Grupo Modelo 10,951 19,616 79.1
Tecate Heineken USA 14,569 17,775 22
Labatt Blue InBev 14,196 12,800 -9.8
Guinness Stout Diageo-Guinness 10,774 11,753 9.1
Becks InBev 7,602 7,700 1.3
Dos Equis Heineken USA 5,865 7,500 27.9Stella Artois InBev 2,359 6,250 164.9
Bass InBev 6,285 5,650 -10.1
Source: (Table listing for Imported Beer and Flavored Alcoholic Beverages - US - December 2007, 2007)
Industry Offerings Consumers do Not Need
When it comes to beer consumers do not really find value in innovation based on
trends. In an article found in Beverage World, the author stated, During the low-carb trend we
saw a host of beverages aimed squarely at the low-carb consumer. Some of them had
successful debuts, but time has shown it to be a weak platform on which to build a brand
(Foote, 2005). The article goes on to state that the rise of Light beer were not reactions to a
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consumer consumption fad; they were harbingers of change in the American diet. They
addressed consumer needs, not trends (Foote, 2005).
Customer Wants Not Addressed
The customer want not being addressed by the big three breweries in the United States
is craft beer.
The largest want that consumers have that is not being addressed by the big three is in
the form of craft beer. Anheuser-Busch tried and has not succeeded in the manufacture and
marketing of the craft beer brands they purchased. In Cheers to Craftthe author states,
Consumers are trading up to products with more character, taste and variety and just more
history, heritage and tradition vs. mass marketed products (Furman, 2005). This further
supports that the big three are underperforming in the area of customer wants.
Customer Needs Not Addressed
The consumer need not being addressed by the big three in the United States is
substitute goods.
The area of consumer needs not addressed by the big three breweries comes in the
form of substitute goods. Of the big three, none of them offer any substitute goods to replace
beer in the United States. For example, SABMiller has purchased two facilities in Zambia which
bottles and distributes Coca-Cola (SAB buys into Coca-Cola in Zambia, 2002). This purchase not
only gives SABMiller alternatives to beer but will also allow the company access to the beer
market in Zambia.
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Diamond Mining
In the beer industry, the big three breweries have advantages that they could utilize in
other markets. These advantages are: recycling, production, and packaging.
The first advantage the big three could use in other markets is in the area of recycling.
Anheuser-Busch currently owns and operates an aluminum recycling center. They could
expand this division of the company to include other items such as paper, glass, and plastic. If
they were to expand this area of the business they could cut their operating costs related to
purchases of raw materials to make packages for the products they sell. Additionally, the
company would be able to advertise, using green marketing, they are helping the environment
by cutting waste. Furthermore, as more and more companies are looking for lower cost
options, Anheuser-Busch could leverage this division and expand further into other areas of
recycling. For example, they could benchmark Caterpillars efforts through Progressive Rail
Services and find ways to recycle materials like steel (Caterpillar, Inc. Businesses & Brands,
2008).
The second area of advantage for the big three breweries comes to production of the
final product. They are in a position to leverage these advantages into other markets; for
example, soft drinks, bottled water, and bottled juice. As previously pointed out, SABMiller
owns and operates two Coca-Cola facilities in Zambia which has given them access to markets
that were previously unattainable. The big three could expand their product lines by either
acquiring a current beverage company or by developing their own beverages. Furthermore, the
breweries are in a position to enter into the craft beer and local beer markets by either
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purchase or new product innovation on a smaller more regional scale. The results of either
entering into the soft drink market or entering into the craft brew market would help to further
diversify the companies. Additionally, entering into the soft drink market would give the
companies access to markets that have previously been unavailable to them.
The final area the big three could use to their advantage comes in the form of
packaging. Currently both Coors and Anheuser-Busch, either through joint venture or
ownership, operate their own manufacturing facilities for bottles. The companies could expand
this portion of the business and create divisions solely responsible for package manufacturing
which would include: glass and plastic bottles, cans, cardboard boxes, etc. By leveraging the
size of the company they could capture a new market and help to lower the cost of raw
materials for their own needs.
Market Segmentation
Long-term Value Sophisticated Customers
In order to keep current sophisticated customers, firms need to accomplish two things:
enter the craft beer market and enter the import market.
Sophisticated customers seek out craft brews; domestic beer market leaders must get
into the craft brew market which will allow them to remain the market leaders. The upscale
customer is looking for more option when considering alcoholic beverages, in particular beer.
This can be seen in the growth of the craft beer market. Firms need to figure out a way to enter
these markets, not on a large scale but on more regional/local scale. To accomplish this, firms
could purchase or create craft brews based on regions throughout the United States.
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Furthermore, domestic beer manufacturers need to enter the import beer market.
These firms need to utilize their power and purchase international companies and get the
imports cleared through the government to add to the product mix already being sold in the
United States. By getting into the import market, firms will continue to cater to the upscale
customers.
Short-term Value Unsophisticated Customers
For firms to continue to create value for themselves it is important to move
unsophisticated customers into the sophisticated customer segment. In order to accomplish
the domestic firms must educate these customers through marketing. There are two types of
unsophisticated customer. The first is the customer that continually goes after the same type
of beer; for example, those customers that drink only Budweiser; we will call these customers
bottom of the keg. The second type of unsophisticated customer is the customer that typically
drinks craft beer with dinner and does not realize that there are domestic beers that will
complement the meal just as nice as a craft brew; we will call these customers top of the keg.
By educating unsophisticated customers, firms will be better positioned to offer more specialty
beer.
To convince the bottom of the keg consumers to trade up the domestic breweries need
to look at marketing. One way that domestic beer brewers can educate the bottom of the keg
customer is through a sampling program at local bars. Wine bars typically have wine tastings to
educate customers in hopes that customers will trade up to more expensive blends. Domestic
beer manufacturers can learn from the marketing efforts of the wine country. A second way
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that domestic beer companies can get bottom of the keg drinkers to trade up is to implement
some form of contest around the more expensive products.
In order for domestic beer companies to get the top of the keg consumer to trade up is
through marketing. These consumers will not respond to traditional marketing of
advertisements; however, if domestic firms partnered with casual dining restaurants to pair
beer selections with their meal, similar to wine pairings, the top of the keg drinker will respond.
For example, Anheuser-Busch could partner withApplebees Grill and Barand get
recommended beers listed on the menu under the food selections.
Discontinuities
Economic
There are several economic issues that breweries operating in the United States need to
be aware of when forming strategies. First, there has been an increase of mergers and
acquisitions resulting in larger conglomerates that compete based on economies of scale.
Second, the economy is softening; therefore, consumers have less money to spend on luxury
items. Third, the cost of goods to manufacturers is increasing making producing goods more
expensive. Finally, the value of the dollar as compared to other countries is falling thereby
making it cheaper to import goods into the country and increasing demand for these imports.
In recent times, large domestic beer companies have merged to better compete in an
ever increasing market. SABMiller and Molson Coors recently announced they are joining
forces to better compete with Anheuser-Busch. The CEO of Molson Coors was quoted on the
SABMiller website stating, This combination of our two highly complementary U.S. businesses
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creates a stronger brewer and allows us to compete better (SABMiller and Molson Coors sign
definitive agreement to form MillerCoors U.S. Joint Venture, 2007). This statement is obviously
in relation to the 49% market share of Anheuser-Busch. InBev, the worlds largest brewer
offered Anheuser-Busch $46 billion for the purchase of the company. Anheuser-Busch studied
the offer and ultimately decided against the buy out on the basis that the bid was not high
enough (Birnbaum, 2008).
Currently, the economy in the United States is trending downward and the Fed has
warned about inflation (What's News, 2008). With gas prices on the rise, brewers need to be
aware that consumers are starting switch to lower costs beverages as income shrinks.
Additionally, consumers are seeing that there money is buying less and as a result luxury items
like beer may no longer be a top of the mind purchase. SABMiller reported that they have seen
more demand for lower priced beer since January (The Associated Press, 2008). Furthermore,
brewers will be better able to position domestic beer as a replacement for craft brews and
international beers. Breweries need to keep in mind that consumers income is not going to
stretch as far and should promote that their products are less expensive than import and craft
beers.
As was previously stated, one of the biggest issues that brewers face is the increase in
cost of goods for manufacture i.e. aluminum and grains. As the Wall Street Journalreported in
April 2008, prices for all inputs are on the rise due to economic pressures in the market and
crops being changed by farmers to other forms of grains (Anheuser-Busch Profit Slips 1.3% as
Costs Rise, 2008). Additionally, the rising cost of gas has impacted transportation costs for
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brewers. The larger brewers can take advantage of their economies of scale to purchase larger
quantities which could lead to volume discounts for these items.
The final economic factor affecting the brewing industry is the value of the dollar as
compared to other countries. Exchange rates of the Dollar as compared to other countries
directly affect the import and export of beer. For example, if the US Dollar is at 1.4234 as
compared to the Euro it will take 1.4234 Dollars to get 1 Euro. As Chart 1, below, points out,
since January 2000 the exchange rate of the dollar as compared to other currencies is falling.
The trend make imports cheaper to bring into the United States allowing beer import
companies to better compete in the market. As a result, brewers who export their products
need to position themselves in foreign markets as a premium beer.
Source: (United States Federal Reserve, 2007)
-
20.0000
40.0000
60.0000
80.0000
100.0000
120.0000
J
- - - t- - -
Jl- - - r- -
J
-
J
- - -
Rate
Month/Year
Weighted Average of Currency Exchange RatesJanuary 2000 - July 2008
Month/Year Rate
Linear (Month/Year Rate)
Chart 1: Weighted Average of Currency Exchange
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themselves on their health benefits forms saying that they were non-smokers. This was
apparently done to get around paying a surcharge that the company imposes on smokers
(Marquez, 2008). The result for breweries is increased pressure to lower the cost of healthcare
to better compete could force companies to begin to include drinking alcoholic beverages in
this type of program.
Technological
In the brewing industry there is not a high amount of technological innovation. The first
area is innovations with the type of brewing equipment and packaging in the form of aluminum
bottles and green packaging. The second area comes in the form of micro-breweries. Micro-
breweries have impacted the market because smaller companies can enter the market and
compete and tend to innovate more often than larger breweries.
The first form of technological innovation is found in equipment and packaging. There
are more efficient machines that require less labor to run and provide better energy efficiency
which performs the job better than traditional labor while saving the company valuable labor
costs (Saunders, 2007). Furthermore, consumers are seeking out greener products and there is
a new bottle for packaging beer; aluminum bottles. Aluminum bottles are slowly replacing
glass as consumers become greener. In the article, Designing a Green Worldit states, People
are interested in using that technology, stretching the boundaries of shaping and decorating
the bottle (Scott, 2008, p. 32).
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The second form of technology comes from the advent of micro-breweries. Micro-
brewers typically push innovation in beer. According to one website, Craft brewers are an
innovative lot. Often, innovation means taking old or established ideas and applying them in
new ways (Rabin, 2008). The article then goes on to discuss a brewery in Colorado that
created a new system for pasteurizing beer that involves a tunnel built underground.
Furthermore, micro-brewers typically experiment with adding different flavors to beer such as
one brewery that crafted a beer using lavender.
Social
The main social issues in the alcoholic beverage industry come in the form of
advertising. The first issue from advertising comes in the form of whether the advertisement is
designed for people of drinking age or not. The second issue from advertising comes in the
form of imagery and copy, the text used in the advertisement. The third issue from advertising
comes from the impact of responsible drinking campaigns. Finally, the fourth issue comes from
the way social status around healthy lifestyles
The first issue deals with advertisements aimed at people of drinking age. Often, these
advertisements come into question as to whether or not they are actually aimed at underage
consumers. Beer manufacturers claim that they put the warnings in place to discourage
underage drinking. In a 1998 study, teens viewing print and television advertisements eye
movements were tracked. The article compares Diet Coke and Miller Light viewing by teens
and the length of time spent looking at the advertisement. The end result was that the teens
spent more time looking at the Miller Light advertisement than the Diet Coke advertisement.
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One conclusion stated, About one third of those students did not look at the cautionary
statement think when you drink (Fox, Krugman, Fletcher, & Fisher, 1998, p. 67). From this
study, one can argue that beer advertisements need to pay attention to the imagery that is
used and the message context that is being sent.
The second issue in the social area comes in the form of visual imagery and wording
used in advertisements. One recent billboard advertisement featured a popular Mexican beer
with the slogan Finally, A Cold Latina, as you can imagine this advertisement caused an uproar
in the Latina population. As a result, one can assume that the advertisement had damaged the
image of the company in the consumers eyes (Martinez, 2007). It is clear that the industry
executives that approved this advertisement had not taken the cultural issues surrounding
stereo types into consideration.
The third issue from advertising is the push of responsible drinking campaigns. Over the
years government groups, political groups, and social groups have increased pressure on
alcoholic beverage makers to include some form of warning in advertisements about
responsible drinking. Then there are groups like Mothers against Drunk Driving who have
started advertising using fear tactics about driving drunk. Some states have even started
requiring the use of specialized equipment in cars for DUI offenders that measures the
blood/alcohol content and will keep the car from starting if the level is over the state mandated
levels.
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The fourth issue comes in the pressures to lead a healthy lifestyle. In response to the
growth of the healthy lifestyle, the alcoholic beverage industry has started making various
versions of low-fat, low-carb beer drinks; this trend can be seen in any local grocery or package
store. As was discussed earlier, these fads may not be a good source to build a brand on and
that the introduction of light beer was based on the change of the diet in the United States.
Demographic
Demographic trends in the United States are shifting; nationalities, income levels, and
age play a major factor in beer preferences. As more and more foreign born people come to
call the United States home, breweries need to be prepared to alter the current offerings.
Income levels will continue to rise (or fall); breweries need to be prepared to change marketing
strategies on a moments notice and introduce premium beverages that appeal to people with
higher incomes. With the aging population, breweries need to respond by catering to this
market that has higher disposable income while keeping in mind the young professionals.
The first area of concern in demographics come from the shift in demographics in the
United States; the
beer industry needs
to pay attention to
the product offering
to ensure that they
have flavor profiles
that go with ethnic cuisine (Mergers, acquisitions and changing demographics, 2007).
Table 5: Personal consumption of beer by race/ethnicity, May
2006-June 2007
Any Light Regular domestic Microbrew Ice
% % % % %
Race/ethnicity:
White 47 29 26 11 5
Black 38 17 24 3 11Asians 34 17 25 6 4
Hispanics 46 25 22 5 7
Source: (Mintel/Simmons NCS, 2007)
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Demographic trends in the United States are shifting toward a more diverse culture and with
that shift beer consumption is shifting right along. Table 5, on the previous page, shows that in
the area of regular domestic beer Hispanics and Asians make up almost 50% in the category
that the big three breweries compete in heaviest. In the light beer category, Hispanics and
Asians make up 42% of the population.
The second issue in demographics that a brewer needs to consider comes from income
levels. In most industries, income plays a factor in marketing and innovation. As the economy
worsens the beer industry needs to keep in mind they need to be able to shift marketing
strategies based on lower incomes due to the shrinking wallet in the United States. More
importantly, the beer industry needs to keep in mind that as income increases so do beer
preferences. One article stated, The primary drivers of trading up are growth in real
incomeand the
composition of
income
(Cioletti, 2006).
The article then
goes on to point
out, as a result
of this trend companies in the alcoholic beverage industry have seen an increase in profits over
the years (Cioletti, 2006). To further support this notion of increased income equals higher
consumption of premium beer see Table 6 above. As is shown in the Microbrew category, as
Table 6: Personal consumption of beer by household income May
2006-June 2007
Any Light Regular domestic Microbrew Ice% % % % %
Income:
Under
$25K
34 17 20 4 8
$25K-49.9K 41 23 23 5 7
$50K-74.9K 46 28 24 10 6
$75K-99.9K 50 34 28 12 5
$100K+ 55 34 31 18 5
Source: (Mintel/Simmons NCS, 2007)
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income increases from $25,000 to $100,000 or higher there is a shift of 14 percentage points in
the consumption of microbrew. However, one can not discount the fact that in the light and
regular categories there is also an increase but the increase is not as great.
The third issue in demographics that brewers need to consider comes from age. With
the aging population in the United States, brewers need to keep in mind that consumer tastes
may change as well. The Baby Boomer population has more disposable income when they
retire than their parents had and with that comes more discretionary spending on luxury items
like beer. As Table 7 below points out, at this time, age does not really play a major factor in
beer consumption as do both demographics and income. However, breweries still need to plan
for the shift. On the other hand, younger people are turning to microbrews so breweries need
to plan accordingly to appeal to this segment of the market.
Table 7: Incidence of personal consumption of beer by age May 2006-June 2007
Any Light Regular domestic Microbrew Ice
% % % % %Age:
21-24 49 31 29 11 12
25-34 50 31 28 13 8
35-44 52 33 28 12 7
45-54 48 28 27 12 6
55-64 43 25 25 8 4
65+ 31 16 17 3 2
Source: (Mintel/Simmons NCS, 2007)
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International
The first international issue that the brewing industry faces comes from mergers and
acquisitions which have created massive changes. Miller and SAB, a South African brewery,
merged into one company in 2002. Coors and Molson, a Canadian brewery, joined forces in
2005; more recently in 2008, SBAMiller and Molson Coors created a joint venture in the United
States to better compete with Anheuser-Busch. InBev, the worlds largest brewery announced
in June 2008 that they wanted to buy Anheuser-Busch. These mergers and acquisitions have
done nothing to help the three breweries to compete with international beers; instead, it is
creating a more concentrated market. In order to better compete in the industry, the big three
(or now big two) need to think about purchasing international breweries to add to the product
mix in the United States.
The second international area of concern for brewers comes from trade barriers. In
1993 a report was written that discusses the trade barriers between the United States and
Canada. Domestic companies complained that because Canada had restrictions on beer
imports that in order to compete domestically; the US Government needed to put tariffs on
beer imported from Canada (Wickens & Lowther, 1993). Not only are trade barriers affecting
the import market but also the export market. Many brewers are trying to grab a piece of the
pie in India. An article about beer trends in India it states that beer consumption is one of the
lowest in the world. According to the article, Brewers must contend with a dizzying list of
bureaucratic restrictions that make it tough and expensive to win customers and to build a
national footprint. Steep tariffs render imports uncompetitive. And state excise taxes of as
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much as 150% can push the price of a pint of domestic brew up to more than $3, or about triple
what a shot of local whisky might cost (Lakshman & Carter, 2007, p. 50). Brewers need to
keep in mind these emerging markets and how profitable they may become as time goes on.
The third international issue that breweries need to consider comes from emerging
markets. India is a very attractive market in most consumer goods; however, as was pointed
out above, it ranks in the bottom of consumption for the world. Even though it ranks in the
bottom, companies are setting up joint ventures with Indian companies to produce domestic
beer internationally. Another up and coming emerging market is China where Craft Brews have
already started to enter. Molson was the first beer importer to China according to one article
(Mills, 1994). In order to compete, domestic brewers need to introduce their own craft brews
and consider joint ventures to get their product to market.
Critical Industry Value Drivers
In the area of critical value drivers for the brewing industry there are a few things that
the big three can do to incrementally increase their share of the market and a few things they
can do to achieve larger growth. To incrementally increase the market companies can: develop
substitute goods, develop or purchase craft brews, and purchase international beer breweries.
To achieve larger (leap) growth the big three need to: use existing facilities to enter new
industries.
The first incremental increase comes in the form of substitute goods. These beverages
would be alternative alcoholic beverages to compete head to head with pre-mixed cocktails
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that are offered by manufacturers such as Bacardi. This form of entrance will capture the
portion of the market that does not regularly consume beer.
The second incremental increase comes in the form of craft brews. The craft brew
market is growing faster than domestic beer; therefore, the big three should either create their
own blends or purchase regional or local craft breweries to help capture this portion of the
market.
The final area of incremental increase comes in the form of international beer. With the
shift in demographics and the fact that more Americans are trading up to imports the big three
need to increase this area of their business. The increase in import beer would help the
companies capture shifts in demographics and also help to capture the portion of the beer
market that turns to imported beer.
The area that firms need to tackle in the leap growth area comes in the form of diamond
mining. Currently, the big three have access to business units that produce packaging,
recycling, and top of the line production processes. If the firms leveraged the packaging
component they could enter into the package market and make bottles, cans, and boxes for
other drink manufacturing companies. The firms could then leverage the aluminum recycling
component to further expand the business. By benchmarking other recycling firms, the big
three could help create a greener world and then promote this key fact. Furthermore, these
companies could use their technology to expand into the soft drink, water, or juice industry.
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Firm Analysis
Mission Statement
The Anheuser-Busch mission statement as quoted from the customer service
department is (Lisa, 2008):
Our Mission:
Be the world's beer company. Enrich and entertain a global audience. Deliver superior returns to our shareholders.Upon reading the mission statement it is clear that Anheuser-Busch needs to re-
evaluate the mission of the company. A mission statement should include the definition of the
business, statement of core values, and major goals and objectives (Hill & Jones, 2004). The
statement above does not include core values or major goals and objectives. The definition of
the company, Be the worlds beer company is weak and does not include who are the
customers, what needs are being satisfied, and how the needs will be addressed; instead it is
focused on the product of the company (Hill & Jones, 2004). The core values statement should
include values, norms, and standards of which the firm was founded (Hill & Jones, 2004). The
goals and objectives of the firm should focus on mid to long-term goals (Hill & Jones, 2004).
Any organization not including these three components in the mission statement does not
provide clear guidance to its stakeholders. Furthermore, the mission statement is a core part of
the business and should be accessible on the company website and included in the annual
report; Anheuser-Busch does neither of these, the mission statement had to be requested from
the Customer Service Department through e-mail.
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Value-Chain Analysis
Value-Chain analysis provides a unique look into the inner-operations of the company.
We look at both Primary Activities of the company and Secondary Activities of the company.
There are three types of outcomes in the value-chain analysis Distinctive Competencies,
Strengths, and Weaknesses. Distinctive competencies are areas in which the company
outperforms the competition. Strengths are areas in which the company performs well but
does not outperform the competition; instead the company is in line with the industry norms.
Weaknesses are areas in which the company is underperforming as compared to the
competition or areas where the company or industry does not perform.
Analysis of Primary Activities
Inbound Logistics
As compared to the other competitors, inbound logistics is a distinctive competencyfor
Anheuser-Busch. Anheuser-Busch owns and operates Manufacturers Railway Company which
operates a fleet of insulated beverage railcars and grain hopper cars (Anheuser-Busch
Business Units, 2007). Additionally, Anheuser-Busch also owns its own farms which Produces
and enhances the quality of raw materials for the company's beers (Anheuser-Busch Business
Units, 2007); located in Bonners Ferry, Idaho and Huell, Germany (Anheuser-Busch Business
Units Major Operations, 2007). In addition to these two areas, Anheuser-Busch also has
operations in grain elevators, mills, and seed. The competitors do not have these types of
operations and has to outsource these areas.
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Operations
As compared to the other competitors, operations are a strength for Anheuser-Busch.
Anheuser-Busch Produces more than 100 beers, flavored alcohol beverage and non-alcohol
brews at 12 breweries in the United States and 15 around the world and imports other beers
for distribution in the United States (Anheuser-Busch Business Units Major Operations, 2007).
Anheuser-Busch practices productivity programs to help cut operating costs. In 2007, this
included a new program to achieve additional operating cost efficiencies (Anheuser-Busch
2007 Annual Report, 2007). In the brewing industry, all three of the major brewers are
operating at or near the same area on experience curves and economies of scale; therefore
these two areas do not provide a competitive advantage to Anheuser-Busch. When compared
to the competition, this is an area that they all perform well in and it must be maintained in
order to compete.
Outbound Logistics
As compared to other competitors, outbound logistics is a distinctive competencyfor
Anheuser-Busch. Manufacturers Railway Company allows for delivery of beer to four breweries
(Anheuser-Busch Business Units, 2007). Additionally, Anheuser-Busch owns and operates the
St. Louis Refrigerated Car Company which Manages rail/truck transload operation and other
properties in St. Louis (Anheuser-Busch Business Units, 2007). This unit of the business gives
Anheuser-Busch strength in getting the product to the end consumer. Furthermore, Anheuser-
Busch has a network of distributors where it sells nearly 70 percent of the companys volume
through exclusive wholesalers (Anheuser-Busch Business Units Major Operations, 2007).
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Moreover, Anheuser-Busch operates 13 company-owned distributors (Anheuser-Busch
Business Units Major Operations, 2007). The competitors do not have the outbound
transportation and has to outsource this operation to get the product to the end consumer.
Further, the competitors have distribution networks in place but none are of the scale that
Anheuser-Busch maintains.
Marketing and Sales
As compared to the competitors, marketing and sales is considered a strength for
Anheuser-Busch. Anheuser-Busch is a market leader in advertising through innovation of ideas
and campaigns. Promotion, channel selection, pricing, and product mix for Anheuser-Busch are
industry norms.
Anheuser-Busch was the first brewery to utilize a themed advertising campaign in the
1880s (Anheuser-Busch, 2008). Early on the founder realized that different consumers had
different tastes and therefore created a family of brands each one geared to a different
consumer. In 2008 Anheuser-Busch celebrated its 10th consecutive USA TODAY Ad Meter
victory. The USA TODAY Ad Meter is a real-time consumer poll that ranks Super Bowl ads
throughout the game (Anheuser-Busch, 2008). In addition to being a trend setter through
advertising, Anheuser-Busch has decided that to increase its advertising spending this year in
order to try and get consumers to switch after the merger of SABMiller and Molson Coors in the
United States (Mullman, A-B primes marketing pump, looks to take advantage of turmoil in '08,
2008). It is clear that Anheuser-Busch is the leader and the rest of the brewery industry follows
their lead in advertising.
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Advertising is where the strength ends for Anheuser-Busch; promotion, channel
selection, and pricing fall into line with the rest of the industry. All of the major competitors
sponsor events and programming in order to ensure their product is seen by the masses. The
channel selections for marketing that are typically used include event sponsorship, team
sponsorship, and magazine and internet advertising. Furthermore, pricing within the industry is
relatively constant due to the high level of industry concentration. As a result, Anheuser-Busch
is following the industry trends and needs to think outside the box to push the boundaries of
promotion, channel selection, and pricing which would give them a distinctive competency in
this area.
After Sales Service
In the brewing industry there is little to no after sales service; as a result this is a
weakness that Anheuser-Busch faces. The company could encourage consumers to visit the
internet site and register to become part of the Anheuser-Busch family. As part of this, the
company could send out periodical surveys to gain input from consumers on product related
issues.
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Analysis of Secondary Activities
Firm Infrastructure
As compared to the competitors, firm infrastructure is considered a strength for
Anheuser-Busch.
Management Profile
The Board of Directors at Anheuser-Busch has a high level of experience in the brewing
industry. From the Chairman of the Executive Committee, August A. Busch, III with 45 years of
experience on the board to the newest member August A. Busch, IV with two years experience
on the board. The entire board has a combined 202 years of experience on the board;
however, the company may want to consider rotating some of the members to gain new
perspectives. The board has a good mix of outsiders to the company as compared to insiders,
people who work for Anheuser-Busch. As for decision making, there are no records of
management performance therefore the analysis of the top management of the firm cannot be
completed. To further complicate matters, there are no bios of the directors therefore one
cannot asses the diversity of the board. As compared to the competition, Anheuser-Busch fails!
SABMiller and Molson Coors both have Bios of the board and also how each board is operated.
Anheuser-Busch could simply add the bios of the board and top management to the website.
Planning
Anheuser-Busch does not plan well for the business and as a result, net income has
slipped. The company underwent some changes in 2006 altering the scope of the business. As
a result, net income has increased. One of these changes included getting into the craft beer
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segment of the market. As was previously mentioned, craft beer grew at a rate of 14% in 2007.
To answer this issue, Anheuser-Busch developed its own specialty beers and forged
partnerships with several craft brewers (Anheuser-Busch 2007 Annual Report, 2007). This
area is one that Anheuser-Busch needs to pay attention to improve its firm infrastructure.
Scanning
Anheuser-Busch dose scan the market well and as a result, however, competitors are at
times able to introduce products that consumers want faster. In 2007 SABMiller introduced
Miller Chill, a lime infused beer and in 2008 Anheuser-Busch introduced Bud Light Lime.
Nevertheless, they continue to introduce new items to the market faster; for example, in 2007
Anheuser-Busch noticed that Hispanics put tomato juice in their beer so Anheuser-Busch
introduced Budweiser and Bud Light that has tomato juice included (Anheuser-Busch 2007
Annual Report, 2007). This is another area that Anheuser-Busch needs to focus on to improve
the firm infrastructure.
Culture
Anheuser-Busch culture is one of diversity and community. On the employment website
it states, When you become a part of our family, your input, ideas and insights are accepted
and valued (Busch Careers, 2008). The company also sponsors several different programs
ranging from education of African Americans to Hispanic scholarships for college (Anheuser-
Busch Community Diversity, 2007). The company also takes part in various other initiatives
including Teach for America, Susan G. Komen Race for the Cure, Habitat for Humanity, and
United Way just to name a few. Furthermore, Anheuser-Busch has several employee groups
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supporting different groups of employees. In comparing them to the competition, they are
similar with differing employee groups, program sponsorships, and initiatives.
Financial Analysis
Anheuser-Busch is a leader in the brewing industry from market share to product
innovation. How do they stack up against the competitors based on financial results? Table 8
below shows several financial ratios and companies with the industry standard. The industry
standard was calculated as a weighted average based on the market share for the top three
competitors.
Table 8: Financial Ratios of the Top Three Brewers Compared to Industry in 2007
Ratio Industry
Average
Anheuser-
Busch
SABMiller Molson
Coors
Current Ratio 0.83046 0.87877 0.58984 1.02376
Debt Equity Ratio 1.98778 2.90021 0.18305 0.87538
Asset Turnover 0.93299 1.10689 0.64797 0.61849
Revenue Per Employee 0.56898 0.61554 0.27812 0.85770
Account Receivables
Turnover
19.98504 20.72243 24.81148 8.16134
Return on Assets 0.09614 0.12331 0.05738 0.03696
Return on Equity 0.45898 0.67118 0.11447 0.06954
Return on Sales 0.12617 0.12760 0.15059 0.07705
P/E Ratio 14.17043 18.75986 0.19434 17.09000
Current Ratio measures the ability of a firm to pay off its debt in the short term using
cash, inventory, and accounts receivables. A ratio of less than one implies that a company
could not pay off its debt. Both SABMiller and Anheuser-Busch fall in this category, see Table 8
above. However, Anheuser-Busch is over the industry average and Molson Coors is over the
average and would be able to pay off debt in the short term.
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Debt Equity Ratio measures how much the company utilizes financing to fund the
growth of the company. Anheuser-Busch is above the industry average and therefore relies
heavily on financing to fund growth of the company, see Table 8 above. Part of this may come
from the entertainment division which owns and operates several theme and water parks
throughout the country. In the theme park industry, companies have to innovate in order to
compete year after year. Neither SABMiller nor Molson Coors has any interest in the theme
park industry. Looking specifically at the theme park industry, Cedar Fairs Debt Equity ratio is
6.08737 (Cedar Fair 2007 Annual Report, 2008) therefore, the Anheuser-Buschs debt equity for
the brewing portion of the business may be lower.
Asset Turnover measures how well the company utilizes its assets in producing goods
and sales. Anheuser-Buschs Asset Turnover is above the industry average therefore does well
at utilizing its assets in producing products and sales. Furthermore, Anheuser-Busch utilizes its
assets better than the competitors as is noted in Table 8 on the previous page.
Revenue per Employee measures the productivity of employees. Anheuser-Busch is just
above the industry average therefore may have more employees that it needs to be productive.
It is important to note that Molson Coors has far fewer employees and has higher Revenue per
Employee than the industry, see Table 8 on the previous page. Anheuser-Busch may need to
take a look at how Molson Coors is operating to see if it can benchmark it operations.
Accounts Receivable Turnover measures how efficient the company collects is at
collecting on accounts. Anheuser-Busch is above the industry standard at 20.722 which means
that it collects on accounts in an average of 20 times each year; see Table 8 on the previous
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page. A high ratio implies either that a company operates on a cash basis or that its extension
of credit and collection of accounts receivable is efficient (Receivables Turnover Ratio, 2008).
Return on Assets measures how much had to be invested in assets to generate $1 in
sales. Anheuser-Buschs Return on Assets is higher than the industry average therefore, for
every $1 invested in the company earns .12331 of profit as compared to the industry average,
see Table 8 on page 44. In part this means that the managers are efficient in planning how to
use its resources (Return on Assets, 2008).
Return on Equity measures how well the company spends investors money to generate
profit. Anheuser-Busch is slightly better than the industry at planning and spending investors
money; see Table 8 on page 44. On the other hand Molson Coors is poor in the area of
spending investors money. As a result, potential investors would be enticed to buy into
Anheuser-Busch and not Molson Coors.
Return on Sales measures how well a company is generating sales for every dollar spent
on production. Anheuser-Busch is just above the industry average and therefore needs to pay
closer attention to production costs, see Table 8 on page 44. However, it is important to note
that of the three, Anheuser-Busch leads the pack because it is earning more money than it costs
to produce products where the competitors are losing money on production.
Price-Earnings Ratio or P/E Ratio measures how much growth investors are expecting in
the future (Price Earnings Ratio, 2008). Anheuser-Busch is performing higher than the industry
along with Molson Coors; therefore, investors in both companies are expecting future growth,
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see Table 8 on page 44. It is worth pointing out that the P/E Ratio of SABMiller is very low as
compared to the industry and therefore, investors should not expect much growth.
To get a better picture of how well a co