Beer Industry Marketing AnalysisEssay Preview: Beer Industry Marketing AnalysisReport this essayCUTIVE SUMMARYThis paper discusses the potential profitability of the beer industry.II. INTRODUCTIONThe Beer makes up most of the alcoholic beverage industry, with a 74% volume in 2002 (Alcoholic Beverages, 2005). The production of beer around the world has increased from 36.85 billions gallons in 2000 to 38.78 billion gallons in 2003 (Alcoholic Beverages, 2005). Beer production has been a part of society close to the beginning of civilization. A Mesopotamian tablet dating back to 7000 B.C. contains a beer recipe named ÐŽ§wine of the grainÐŽÐ (Alcoholic Beverages, 2005). In 1292, a Czech Republic town produced its first pilsner beer. A prominent beer brand, Pilsner Urquell, brewing dates back to the early thirteenth century.
Beer is produced with a mixture of mashed barley, malt, and rice or corn. U.S. brewers use filtration systems as well as add additives to stabilize the foam and allow long lasting freshness. Bottled or canned beer is almost always pasteurized in the container in prevent the yeast from further fermentation.
After 1996, the U.S. beer industry had consistent growth with about 3,500 brands on the market in 2002 (Alcoholic Beverages, 2005). The U.S. exported beer to almost one hundred countries worldwide. The beer industry peaked production with 6.2 billion gallons in 2003 (Alcoholic Beverages, 2005). The U.S. beer industry haws over 300 breweries. However, this industry is dominated by three companies: Anheuser Bush (45% of the industry), Miller Brewing (23% of the industry), and Adolph Coors (10% of the industry) (Overview of the U.S. Beer Industry, 2005).
MARKETS BASIC PRODUCT/SERVICE OFFERINGSThere are several different types of commercial beer, consisting of pilsner, lager, ale, stout, light, low-carb, malt liquor, dry, ice-brewed, bottled, draft, and non-alcoholic. Further, the U.S. market has been divided in to three categories: super premium, premium, and popular-priced (Alcoholic Beverages, 2005). In 2002, the U.S. Market Share Reporter stated that light beer consumed 40.1% of the beer market, premium held 25.9% of the market, and popular-priced beer held the remainder.
Here is a brief description of the most popular types of commercial beers:Lager: a high carbonated beer, containing a low alcohol content, with a pale, medium-hop flavorStout: a thick, dark beer, almost like syrupPorter: a sweet, malty flavored brew with a farley high alcohol contentMalt Liquor: a mostly malt based containing high amounts of fermentable sugarsLight: a reduced calorie brew made by decreasing the grain amount used when brewing or by adding enzymes to break down the starch content in the beer (Alcoholic Beverages, 2005).
One small segment of the beer industry is the micro brews. This segment as well as brewpubs had a double-digit increase in the U.S. throughout the early 1990ÐŽ¦s (Alcoholic Beverages, 2005). However, this increase started to decline toward the end of the 1990ÐŽ¦s. This was mostly due to overexpansion. This did not stop all the microbreweries from continuing to open in the U.S. which allowed this market to show considerable growth. In 2002, the U.S. reportedly had 396 microbreweries, 46 regional specialty breweries, and 994 brewpubs (Alcoholic Beverages, 2005).
MARKET STRUCTURE AND ATTRACTIVENESSMarket StructureThe three major players in the brewing industry, Anheuser-Bush, Miller, and Coors Co., have started increasing their market shares at the expense of smaller national brewers. The alcoholic beverage industry has gone through a consolidation period since the consumption rate has declined over the past few years (Overview of the U.S. Beer Industry, 2005). One of the markets that have flattened in this industry is the domestic beer market. This industry has hit a mature stage where consumption rates have flattened. This caused price increases to help suffering companies increase its profit margins (Overview of the U.S. Beer Industry, 2005). This along with increased vertical integration and inherent production economies makes it very difficult for a inefficient major industry player to compete nationally.
The market that is dominating the brewing industry is the micro brewers. This group has found a niche market in the beer industry and has steadily driven the market share upwards. These companies normally target the smaller market segments and do not try to compete with the large industry brands. To achieve such successful profit margins, the micro brewers have the production process under contract with a regional brewer (Overview of the U.S. Beer Industry, 2005).
AttractivenessThe attractiveness of the beer industry is steadily growing. However, it is not growing in to area of large domestic brewers. This area of the beer industry has hit a flat consumption growth. The area that is become more attractive is the micro brews. From 1999 to 2002, the micro brew market grew almost 11 percent in the U.S. (Future of … Specialty Beer, 2004). This has caused the major companies in this industry to break into this niche market by combining forces with smaller companies or penetrating the market with a new micro brew product line. This niche market remains attractive to any investors due to the fact that the micro brew consumers will not react negatively to higher prices or price increases (Overview of the U.S. Beer Industry, 2005).
The other area in the beer industry that continues to flourish is the international beer market. From 1999 to 2003, the market share for imports grew from 9.1% to 11.9%, respectively (Future of …… Specialty Beer, 2004). Not only does the increase in market share hinder the domestic brewing companies, but the average case for imported beer is $24.27 and for domestic beer is $16.47 (Beer Report, 2003). This shows that imports sales are much higher due to increase in market share. As well, from a revenue stand point the international market has a higher attractiveness over the domestic market. From this, U.S. beer firms have penetrated into the international market by joining with international brewing companies to become American distributors for their brands. The continuing growth of U.S. beer firms penetrating international beer markets are due to the continuance of licensing agreements, direct exports, and foreign investments (Alcoholic Beverages, 2005).
The Problem
According to a recent report by the Brewers Association, the industry remains an inefficiently financed business that fails to provide the necessary support to support its customers. For example, U.S. state regulators in Illinois and other states don’t allow domestic breweries the right to legally manufacture or brew their own beers. This results in the local beer industry not providing enough tax credits to support domestic brewers. While the U.S. government allows domestic brewers the right to brew some of its product, most of it is tax driven as the domestic brewer provides no assistance. As a result, craft brewers, as a group, do not receive any tax credits or tax discounts as their local craft brewers provide. The Brewers Association estimates that a net loss to craft beer prices for craft beer producers is $1.3 trillion. The craft beer industry is one of the many industries dependent on the ability for tax breaks and tax rebates. As a result of lack of federal or state tax support, beer producers’ operations are not funded consistently. Since the United States has only one federal tax credit for beer production, it has limited ability to sustain operations in most of the U.S. (S. Tax Code, 1995), and there is no state or territorial provision for such credits. Many of these small breweries operate in locations not covered by any state or territorial credits.
To further understand the problem of the beer industry, it is important to take a deeper look at the Brewers Association program.
Brewery program
Breweries are organized by the U.S. state craft beer tax credits. The states have a long list of programs that help brewers find tax subsidies or special tax breaks. For example, the Colorado Liquor Control System allows brewers to sell their beers in all states but one of the following: California, Arizona, Maine, Maryland, Massachusetts, Michigan, New Hampshire, North Carolina, Rhode Island, South Carolina, Delaware, West Virginia, Wisconsin, Wyoming, and Wyoming.
New York (Beer Tax Credit Program) is an independent program that allows brewers to craft certain types of beers while exempting breweries operating in other states. The credits were created in 2009 to provide beer producers the same tax advantages that local domestic brewers provided, making it very difficult to raise taxes.
Arizona (Beer Tax Credit Program) was created in 2010 to simplify the business model for breweries and make it easier for new breweries to enter the state for distribution to new state markets, particularly small ones. Other states have extended the credit. However, Arizona has the smallest number of breweries in the country. Arizona and New Jersey are major tax havens for small brewers. Arizona also has the highest rate of excise taxes on beer produced in the country – up from 45% in 2007 when the program was implemented. According to Brewer’s Association statistics, beer production in 2006 and 2010 was approximately $1.3 trillion dollars (the Brewers Association estimates that the Brewers Association estimates that the Brewers Association creates $4.4 trillion in tax revenue every year and generates nearly $10 trillion dollars in additional tax revenue). According to Brewer’s Association sales of all beer produced prior to 2007 totaled roughly $3.0 trillion dollars.
The most recent program, the New Mexico Wine Export and Import Tax Credit was implemented in 2013, which provides states with $11 billion in revenue for a yearly value of $500 million (the Brewer’s Association estimates that the Brewer’s Association costs $26 billion). The Arizona wine tax credit is set to expire in May, 2014.
Brewery programs in New Mexico
New Mexico currently has the nation’s largest beer consumption center, which has received $7 billion in investment. In addition, breweries contribute nearly 60% of the state’s sales tax revenue in Colorado annually.
The Arizona Liquor Control System (J