Essay About Market Size Of The Beer Industry And Large Industry

Chief Economic Traits Of The Beer Industry
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Industry & Competitive Analysis CHIEF ECONOMIC TRAITS OF THE BEER INDUSTRY The market size of the beer industry is incredible. The wholesale volume in the beer industry is approxiametly $13.7 billion. The industry employes almost 40,000 people. The average worker is paid about $18.27 an hour. As you can see, this is a very large industry which provides many jobs to the american workforce. The market consists of many competitors, some being very large and some operating on a very small scale. The competitive rivalry is broken up into three segments, Natiional, Regional , and Microbrewers. National competitors have a wide market coverage and generally a large company. Regional competitors are smaller than National in the fact that they only distribute in certain regions. Microbrewers are the smallest of the three because their size and capacity limit them to only distribute to small geographic areas. The market growth rate of the beer industry is perplexing. In domestic brands, from 1983 to 1984 there has been a decline in consumption of -1.2%. In the imported section there has been an increase of 14.3%. The total industry as a whole declined .7% from 1983 to 1984. As a result of the decline in consumption of beer a similar result in production occurred with a decline of 1.2% The estimated forecast for 1985 will continue along the same trend as did 1984. The long term outlook for the industry is that sales will remain flat for the next 10 to 20 years. There are many companies in the industry. Through the years the industry has slimmed down quite a bit. The National market consists of ten major competitors. The Competitors in this market are Anheuser-Busch, Miller, Stroh, G. Heileman, Adolphs Coors, Pabst, Genesee, C. Schmidt, Falstaff, and Pittsburgh. The National companies have 51 plant locations across the United States. Market share in the Domestic market ranges from a low of .5% to a high of 34%. The Import market consists mainly of ten major brands also. They are Heineken(Netherlands), Molson(Canada), Becks(Germany), Moosehead(Canada), Labatt(Canada), St. Pauli Girl(Germany), Dos Equis(Mexico), Fosters Lager(Australia), Amstel Light(Netherlands), and Corona(Mexico). These ten brands hold about 87% of the imported market share. The individual companies range in market share from 34% on down. A few regional companies, and many small microbrewers make up the rest of the companies in the industry. The customers for the beer industry are highly diverse. They range from being highly educated to non-educated, and male to female. Income ranges for those who drink beer are also very diverse. Single people drink more beer than Married according to 1983 U.S. beer drinker demographics. College professors are known to be customers also. Due too lack of information in the case the degree of vertical integration among the companies in the industry is not certain. I am certain that a few of the larger companies have gone into producing their own packaging(Cans, Bottles, etc.). This would be a way to cut out some of the power of suppliers if a company were to do this. The ease of entry in the beer industry is segmented among the three market coverage types. In the national market the ease of entry is low. There are many barriers to entry in the national market. Beer is regulated in 50 different ways in the United States. Large capital requirements and distribution networks make it hard to enter the national market. The regional market is a little easier to get into because of fewer regulations due to smaller market coverage. Capital requirements are not as big in the regional market. Local or microbrewers have the fewest barriers to entry. Capital requirements are small compared to that of a national or regional brewer. Microbrewers generally operate in a small geographic area thus reducing many of the regulations faced by national and regional brewers. Product characteristics vary among the markets. In the national market the beer is highly standardized and heavily advertised. The beer is inexpensive. There is some product differentiation in the market with the broad product offerings that the national brewers can give. ex. Light beer, Amber beer, Low Alcohol, And Malt Liquor. Imports are perceived to be better quality: when in fact, they are really not. Because of this perception, Import beer costs more than domestic beer does. Imports are differentiated by taste and packaging. Small brewers offer a superpremium product that is not very differentiated. The main differences can be attributed to the brewing process, price, and packaging. Scale economies is high among national companies due to their large size. Their ability to distribute fixed costs is easily done because of the large volume that is produced. Their is also economies of scale in product extension and brand proliferation. Regional companies have moderate economies of scale. Regionals do not produce as much as larger natioanal companies but, they can still spread some of there costs over their moderate volumes. Local brewers have low economies of scale. Production is so small that it is very difficult to distribute costs. A local brewer cannot spread the cost of advertising over their product without having to raise the price of their product considerably. Capacity utilization in the U.S. Beer industry is between 75% and 85%. The beer industry is suffering from overcapacity. Despite this, a few companies are still expanding while others are closing down some operations. Because of flat sales, their is no need to overproduce. Industry Profitability is decreasing due to heavy taxation and a declining market. Beer is one of the most heavily taxed consumer products. There largest cost in the price of beer is the tax that is placed on it by local and state governments. The industries profitability is also changing due to changing lifestyles, stricter laws, and a declining 18-34 age group. COMPETITION AND COMPETITIVE FORCES The rivalry among existing competitors is strong. Demand for the product is slowing. In order for a company to increase market share, another company has to lose it. Switching costs are low for consumers. Because switching costs are low, Competition is very intense to gain new market share. The beer industry is a cut throat business with extreme competition. Because they are in a declining market, it order to stay alive it must be survival of the fittest. Potential of new entrants is moderate. Capital requirements can be a very inhibiting factor as to whether a company can start up. New entrants must also establish a very strong and sound distribution network that is all to often not that easily attainable. Many laws and regulations may also inhibit a new entrant from coming into the market. The threat of substitute products is moderate in the industry. Some people believe that wine coolers will continue to steal market share form the beer industry, while others believe that wine coolers