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

The external marketing environment (Socio-cultural) - By Mitchell Formica

Socio-cultural and the environment it encompasses involves a number of different factors such as the beliefs, customs, practices and behaviour within a population. We perceive forces in society and culture as influences on our thoughts, feelings and behaviour. For some people drinking beer is an activity that encourages good feelings and it is their belief that they it must be a part of their everyday life.

The link between the socio-cultural environment and the consumption of beer is a part of our every day’s lives. ‘The pub and bar have been geographically widespread social settings in many societies, symbolically as well as physically and socially central to popular culture, and yet in many ways they are unique leisure locations, warranting more attention than the sparse research to date’, (Northcote, J, 2011). Nowadays more and more places are accepting BYO beer and allowing consumers a wider range of beer products available for purchase. This change in society is due to a demand for the product, as more and more people are starting to drink socially the businesses that don’t cater for this are at a disadvantage and may even lose customers.

In today’s society there are many festivals and public activities like markets that involve beer in their social circle. It is becoming a part of our culture to incorporate whatever we are doing with alcohol. Opportunities such as these will envelope the beer products within our society as not a bad health risk but a more of a social pleasure that can be consumed without risk.

However in future there may be more opportunities for beer as technology changes and through automation and robotics we could see the beer industry redevelop itself in-terms of producing the overall product.

There have always been threats for the beer industry as they are seen as a bad health risk for consumers. Ad campaigns for beer have recently moved away from promoting their product with perfect videos of the beer just sitting there, to a different setting that involves younger diverse groups sipping away on a nice beach somewhere with the sunset in the background. This change is due to negative influences on beer and the ad campaigns are trying to move away from promoting the beer to instead promoting a place that you would rather be in with a beer.  

References

Northcote, J, 2011, ‘Young adults’ decision making surrounding heavy drinking: A multi-staged model of planned behaviour’, Vol.72 (12), pp.2020-2025.

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The external marketing environment (Demographic) - By Mitchell Formica

The external marketing environment is made up of many different factors such as, social, demographic, economic, technological, political and legal. These elements categorise people and help marketers to segment and target an audience that they want to advertise to (Polonsky, M J, 2011).

The two environments I have chosen are demographic and socio-cultural. Within the beer industry there are many different types of brands that cater to different needs and wants. The beer market is mainly divided up into two different categories, gender and age. Beer is seen as a more mainly type of product so gender roles are a key factor when marketing beer toward a consumer. Also age is another determinate factor as there is a changing demographic and socio-cultural behaviour toward drinking beer.

The demographic environment is what makes up the characteristics of a consumer, it is based upon influences such as: ‘age, race, sex, economic status, level of education, income level and employment’ (Investopedia, 2014).  Demographics in marketing help to segment a market into different categories so that any given organisation can target towards a certain population. What organisations have learnt through demographics is that not all people are the same and they have different needs and wants that correspond to the same product. To combat this business’s market the same product in different ways with small variations like colour or size. In the beer industry there are normally two distinct categories that people get grouped into when being marketed, the wealthy and the average. These categories are based on income levels and using this edge marketers can appeal to whichever population they like. 

Simmons Market Research Bureau undertook a Study of Media and Markets in the article ‘The demographics of beer’, it is stated that the percentage of drinkers by age and gender for domestic regular beer like Budweiser is 72.1% of males and 27.9% for females. Imported beers such as Corona and Heineken have similar results ranging from 61.9% for men and 38.1% for women that drink corona and 68.4% for men and 31.6% for women that drink Heineken. Whilst in the age category between the ages of 25-34 the percentage of drinkers is only 28.2% for Corona and 24.8% for Heineken. As compared to an older age group that of 55-64 who drink much less with only 8.8% that consume Corona and 10.1% that drink Heineken (Beverage Dynamics July-Aug. 2005).

The opportunities for beer demographically are changing throughout time. Traditionally lower class men were the biggest consumers of beer as they would leave from there hard day of work to go to the pub. Nowadays there are more and more people drinking socially and it is becoming more prevalent in daily activities despite harsh laws on public drunkenness.

The opportunities for beer to spread over all demographics is becoming a reality as more and more people take part in the social leisure.

In recent years wine and spirits have become more prevalent in the alcohol market taking over the need for beer. However there is still a strong demand for beer products although breweries are finding it hard to promote new products and market to new audiences. The change from beer owning the majority of the alcohol market to wine and spirits taking over is due to younger and older generations that are drinking more wine and finding it easier to buy a shot of alcohol instead of drinking a whole beer. 

References

‘The demographics of beer’, Beverage Dynamics July-Aug 2005, Academic OneFile, Web, 26 Mar 2014.

Polonsky, M J, 10 Jan 2011, ‘Journal of Strategic Marketing, The incorporation of an interactive external environment: an extended model of marketing relationships, Vol 7, Issue 1, pp.41-55. 

Encyclopaedia, 2014, Demographics, Definition of ‘Demographics', Investopedia, Wednesday 26 march 2014, http://www.investopedia.com/terms/d/demographics.asp.

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