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Competition in the Craft Beer Industry in 2016 Analytical Essay

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What are the strategically relevant components of the U.S. and global craft beer industry macro-environment? Economic Total economic impact of the beer market was estimated to be 2% of GDP Between 2011 and 2016, the beer industry in the U.S. increased by 6.7% annually o Reached $39.5 billion o Production of U.S. craft breweries more than doubled o 90% of the growth in 2016 was contributed by microbreweries and brewpubs Environmental/Natural Increase production of brewing could have an impact on depletion of natural resources, such as grains, hops, and water. Should focus on water conservation and alternatives to production Sociocultural Increasing popularity of craft beer Adverse impact on domestic brewers o Saw a decline in sales during the rapid expansion of the craft beer industry between 2010 and 2016 Legal/Regulatory Heavy regulation in the industry Distribution regulations – Must a use three-tier system Direct sales limitations (volume, hours)

Advertising regulations Trademark infringement lawsuits Employment laws Food-related lawsuits Produce a five forces analysis and use that analysis to inform your answers to the following questions: What is competition like in the craft beer industry? Which of the five competitive forces is strongest; Which is weakest? Is this an attractive business to be in? Why? Please refer to Appendix A for a diagram of the Five Forces Model of Competition in the craft beer industry. 1. Rivalry among Competing Sellers – Strong a. Increasing number of breweries b. Active improvements to brand imaging and advertisements c. Buyers have low switching costs d. Many different segments in the craft brewing industry which allows for diverse strategies among rivals e. Perishable inventory (costly to hold onto)

Threat of Substitute Products – Strong a. High number of alternatives products to craft beer (i.e. domestic beer, wine, liquor, etc.) b. Consumers make purchase decisions based on availability and attractive prices Threat of New Entrants – Moderate a. Low barriers to entry i. Increase in homebrewing ii. Start-up capital is relatively easy to obtain iii. Materials used are commodities b. Growing consumer demand c. The craft beer industry is highly regulated Buyer Bargaining Power – Strong a. Craft brewers must distribute their products through a wholesaler (Three-tier system) i. Difficult for smaller producers because they have less negotiating power when compared to large brands that may have agreements with distributors. Supplier Bargaining Power – Low a.

The raw materials used in the production of craft beer (grains, water, hops, bottling/canning supplies) can all be considered commodities b. Large number of suppliers There is relatively strong competition in the craft beer industry. I believe the strongest of these forces to be rivalry among competing sellers. There are a large number of aggressive rivals in the industry with diverse strategies. Additionally, consumers have low switching costs which exert pressure on industry members. The weakest force is supplier bargaining power. Suppliers have little leverage over changes in price because a majority of the inputs are considered commodities and are offered by many suppliers at market price. I do not believe the craft beer industry is an attractive market to be in.

While barriers to entry and the bargaining power of suppliers are moderately low, all other forces in the marketplace strong competitive pressure on the industry members. Additionally, with the market already seeing a premature decrease in growth, it would be difficult to earn an attractive profit. What does a strategic group map of the craft beer industry look like? Which strategic groups do you think are in the best positions? The worst positions? Please refer to Appendix B for a strategic group map of the craft beer industry. I. Anheuser-Busch InBev This company has the largest market share in the industry, holding an estimated 46% of the U.S. market alone, by effectively utilizing their strategy of low price and many locations across the globe. II. Boston Beer Company Boston Beer Company is the second largest craft brewer in the U.S. market and has seen success by implementing a moderate pricing strategy in both regional and national markets.

Craft Brew Alliance Although Craft Brew Alliance is ranked as the sixth largest brewing company in the U.S., it has proven to have a sizable competitive impact in the greater geographic regions. IV. Micro- and Nanobreweries Micro- and nanobreweries have the smallest market share in the industry but have found success by competing with a high quality/price strategy in a local market. Best Position: I believe Craft Brew Alliance is in one of the best positions. They are able to maintain success in a national/international market while also sustaining a higher price point and quality. Craft beer is deemed as the “better beer” which is why AB InBev and Boston Beer Company are attempting to compete with products such as Blue Moon (AB InBev) and Sam Adams (BBC). Anheuser-Busch InBev is also in a good position because they control almost half of the market. Worst Position: Micro and nanobreweries have the smallest market share in the industry.

As the market becomes more saturated, the competition among the smaller producers becomes a larger threat, making it a tough industry to compete in. What key factors may determine the success of a start-up or smaller, craft brewery? Brand Image & Quality: Craft beer producers need to maintain their brand as high-quality brewers in order to maintain success in the market at a higher price point. By diversifying their selection of flavors from their competition, they can establish their brand as a craft beer niche Access to Distribution Channels: It has been noted that smaller producers have more difficulty established relationships with distributors when compared to larger producers. Having access to distribution channels is key to avoiding regulatory issues as well as being able to compete with large producers for shelf space. Location: Location is a determining factor for the success of a start-up craft brewery.

Finding the right location will have an impact on legal/regulatory factors, access to ingredients for production, distribution, and marketing. What recommendations would you make to a smaller, craft brewery to improve its competitiveness in the market while mitigating any current and future risks? Smaller breweries need to be able to negotiate with distributions in order to be successful in the competitive industry. Craft breweries need to aggressively push to get on the share shelf space with larger producers. By differentiating their products and producing in large quantities, they can improve their bargaining power over distributors.

Craft breweries could develop better marketing techniques and increase brand loyalty. They can increase their social media presence to develop more awareness in their community. This is a cheap way to market their brand that is also very efficient. They can use this presence to partner with local performers and advertise events at the brewery. Not only will this help get their name out into the community, but it will also increase their customer base. Additionally, they could establish a customer loyalty program that will facilitate brand loyalty and in turn provide a steady revenue stream. Companies could lower their operating costs and increase production by automating some of the production processes such as bottling and packaging or by investing in larger brewing tanks. Smaller, craft breweries could seek out opportunities to be acquired by a larger producer, such as Anheuser-Busch InBev. Larger producers have more capabilities and resources to compete successfully in the industry and earn an attractive profit. If a smaller craft brewing company were acquired by a larger producer, they would be able to lower costs and establish themselves in a bigger market.

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Competition in the Craft Beer Industry in 2016 Analytical Essay. (2022, Jul 10). Retrieved from https://samploon.com/competition-in-the-craft-beer-industry-in-2016/

FAQ

FAQ

Is beer a competitive market?
Yes, beer is a very competitive market. There are many different brands and types of beer that compete for market share.
What are the main challenges in the beer industry?
The two main challenges in the beer industry are staying afloat during tough economic times and competing against big beer companies.
What is competition like in the craft beer industry?
The craft beer industry is extremely competitive. There are thousands of craft breweries all fighting for shelf space and tap handles.
What is the biggest beer competition in the world?
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