Case : The United States of Beer Industry
1. Why has the United States brewing industry become more concentrated over the last two decades?
Over the last two decades, the beer industry in United States has changed as following reasons;
- The consumption of beer in the United States has been continuously declining due to the growing consumption of substitute products, particularly wine and spirits. In order to keep the business in the market, each company needs to take away some market share from their rivals. As a result, the small business could not stay in the market and go out finally. Then, there are few main players to compete each other in the market.
- The increasing trend of advertising expense was also the key point to make customer loyalty to the brand. This is the big issue for any small company that cannot afford this cost and forced them to go away from the business.
- Due to the technological change in canning and distribution, it leaded to the concentration in brewing industry as well. Most producers turned to focus more on the mass market in order to achieve the economies of scale and not all companies could reach the minimum efficient scale of production.
2. Analyze the competitive structure of the industry using Porter’s five forces model?
Based on Porter’s five force model, the competitive structure of the brewer industry can be analyzed as follows;
- Threat of new entrants:
According to the case, there are 2 market segments for brewer industry which are “mass market beer” and “premium beer”. Both of them have different level of barrier to entry.
For mass market beer, the barrier of entry is quite high due to the increase in production and distribution techniques that required further working capital from several billion to hundreds of millions of dollars. Moreover, the influence of marketing and advertising in order to create brand loyalty and recognition has increased. The combinations of technological change in production and distribution including the
Over the last two decades, the beer industry in United States has changed as following reasons;
- The consumption of beer in the United States has been continuously declining due to the growing consumption of substitute products, particularly wine and spirits. In order to keep the business in the market, each company needs to take away some market share from their rivals. As a result, the small business could not stay in the market and go out finally. Then, there are few main players to compete each other in the market.
- The increasing trend of advertising expense was also the key point to make customer loyalty to the brand. This is the big issue for any small company that cannot afford this cost and forced them to go away from the business.
- Due to the technological change in canning and distribution, it leaded to the concentration in brewing industry as well. Most producers turned to focus more on the mass market in order to achieve the economies of scale and not all companies could reach the minimum efficient scale of production.
2. Analyze the competitive structure of the industry using Porter’s five forces model?
Based on Porter’s five force model, the competitive structure of the brewer industry can be analyzed as follows;
- Threat of new entrants:
According to the case, there are 2 market segments for brewer industry which are “mass market beer” and “premium beer”. Both of them have different level of barrier to entry.
For mass market beer, the barrier of entry is quite high due to the increase in production and distribution techniques that required further working capital from several billion to hundreds of millions of dollars. Moreover, the influence of marketing and advertising in order to create brand loyalty and recognition has increased. The combinations of technological change in production and distribution including the