External Business Environmental Analysis: Brewing Industry
1. Threat from Potential New Entrants
According to Business Insider, the major brewers of AB InBev, SABMiller, etc, control around 80% of the market share (Holodny, 2015). Due to these major brewers dominating the market, it is safe to say they are established an know what they are doing. Some of the specific entry barriers I noticed were:
· Brand Loyalty
· Absolute Cost Advantage
· Economies of Scale
Especially in the beer industry, consumers are loyal to their drink of choice. That being said, Budweiser is known for their Super Bowl commercials and loyal following. It is hard to break that bond. In our textbook, “it makes it difficult for new entrants to take market share away form established companies” (Hill, 2016). Absolute Cost Advantage because the major brewers have mastered how to produce their product at the lowest cost. A new entrant would take years to figure the right combination out. Lastly, major brewers who are able to produce large quantities resulting in larger profit margins achieve Economies of Scale. Which in turn, they can invest in R&D, opening new offices, etc, where as a new company would not have the funds to do so.
I believe the threat from potential entrants is low. My reasoning coincides what I explained above. The brewing industry as a major brewer is highly competitive. The most successful companies are established and have developed their brand over a long period of time. For a potential entrant, they might see this as a too expensive venture to invest in.
2. Bargaining Power of Suppliers
Raw Material Suppliers can range from things like ingredients, packaging, marketing, services, to brewing equipment. After some research, I Found on the Brewers Association’s website a directory for suppliers. To name a few from Michigan:
· Hop Head Farms – Hickory Corners, MI
· Kalsec – Kalamazoo, MI
· Land & Sea Packaging – Grand Rapids, MI
· Michigan Hop Alliance – Wixom, MI
Suppliers do not have significant influence over the brewing industry. “Various farmers supply the hops, barley, corn and rice used to produce beer. In 2008, there were 2,053 companies that purchased these ingredients” (Sam Adams, 2017). Not only are there a ton of companies that buy large quantities/volumes of raw materials, there’s also countless of farmers to buy from. That being said, switching costs are low for brewers and don’t give farmers much power or a bargaining chip.
3. Bargaining Power of Buyers
The buyers for the brewing industry are end-users (beer drinkers), wholesalers, and retailers. In the wholesaler power, they are the ones who connect brewers with end consumers...