Global Forces and the European Brewing Industry – by Mitchell Formica

The mid 2000’s saw some major shifts in the European brewing industry. At the time, Europe was inundated with drunk-driving accidents and many people were succumbing to health and fitness complications due to excessive alcohol consumption.This led to the government campaigning against the people’s predisposition to drink beer in restaurants and pubs resulting in the on-trade sales of beer (bars and pubs) shifting to off-trade sales (retail). This caused changes in the brewing industry landscape that meant brewers had to re-think their sales, marketing, branding and distribution strategies in reaction to the changing conditions and a significant increase in the import of specialty beers. At the same time, other brewers were producing premium lagers to combat the falling sales in beer products and this was placing further pressures on Heineken’s sales.

This essay uses the Pestel analysis methodology, Porter’s Five Forces and a SWOT analysis to explore how Heineken adapted its business strategies to become the world leading brewing company that it is today.

Pestel Analysis 

Political/Legal

Governments tend to regulate the brewing industry for four reasons. “(a) Taxation; (b) protection of local brewers' interests; (c) market power concerns; (p.349) and (d) health concerns”. (Johan F.M. Swinnen, 2011, Pg. 349). Working against Heineken was the government’s agenda to campaign against alcohol consumption to reduce drink driving incidents and health related problems. To counter this, Heineken had to re-think their marketing and distribution strategies to combat the government’s campaign against alcohol consumption in public places by introducing a premium lager.

Economic

By 2006 Heineken also experienced an 11% increase in the cost of packaging. To reduce costs they took on different markets globally and this helped to increase their economies of scale. They also outsourced beer to other countries, such as China or Brazil, where labour is cheaper and drinking beer was still considered socially acceptable. They also undertook acquisitions, alliances and take overs in order to be more profitable and to compete. (Mark Blee, Richard Whittington, Global Forces and the European Brewing Industry, pg. 90).

Heineken is now the biggest European brewery with three quarters of its sales coming from the region. It has also expanded its sales operations into the Asia Pacific and American markets and this, combined with the increase in imported beers, as evidenced by the graph below, Heineken now has a global market. 

  

Technological/Socio-Cultural/Environmental

All the while, due to social pressures, Heineken’s customer base shifted from restaurants to supermarkets where people could purchase cheaper beers and then consume it at home, abiding by the government’s wishes. Heineken’s growth also relied on its technological advances. One of the company’s four priorities was to accelerate revenue by improving efficiency, accomplished by implementing machinery and robotics.

Heineken has also been affected by environmental changes. “Heineken, the world’s third-biggest brewer, said poor spring weather in Europe led to weak second-quarter revenue and predicted that earnings this year won’t grow as consumers in the region curb spending”. (Clementine Fletcher, Bloomberg, 2013). To reverse this, they used the acquisitions of small businesses to use local beer labels as a means of distributing and expanding sales of Heineken’s beer in other regions.


References:

Clementine Fletcher, Bloomberg, Heineken Sees Weak Europe Beer Consumption Weighing on Sales, august 21, 2013
http://www.bloomberg.com/news/2013-08-21/heineken-expects-annual-profit-in-line-amid-european-struggles.html

Johan F.M Swinnen, 2011, The Economics of Beer, pg. 249 http://www.oxfordscholarship.com.ezproxy.lib.swin.edu.au/view/10.1093/acprof:oso/9780199693801.001.0001/acprof-9780199693801

Mark Blee, Richard Whittington, Global Forces and the European Brewing Industry, pg. 90