Essay About Smaller Mass-Market Brewers And United States Brewing Industry Become

Why Has the United States Brewing Industry Become More Concentrated over the Last Two Decades?
Why has the United States brewing industry become more concentrated over the last two decades?ANS: Due to popularity growing of substitute beverages such as wine and spirts, beer consumption in the United States has been significantly declining from 30 gallons per capita consumption in 1980 to 21.8 gallons in 2017. Moreover, advertising cost has gradually increasing from $0.18 per case in 1975 to $0.40 in 2002 which affect the smaller mass-market brewers hard to compete in this industry so resulting in decreasing of their market share. Also, the minimum efficient scale of production has steadily rising. In 1970, the minimum production was estimated to be at 8 million barrels a year which later increased to 23 million barrels in early 2000s. This made it more challenging for small brewers to survive in the market according to their economic of scales. Analyze the competitive structure of the industry using Porter’s five forces model.         ANS: Rivalry among existing firms: Now, 80% of all beer consumption in the United States come from 3 companies which are Anheuser-Busch, Sab-Miller and Molson Coors with the share market of 50%, 19% and 11% respectively. They are all in the mass market segment, competing in aggressive pricing, brand loyalty, increasing distribution channels and national advertisement. So, the company with lower cost should be the one who get the maximum profit which Anheuser-Busch have the highest competitive advantage in term of their economic of scales.Threat of new entrants: Considered low, because to enter the beer industry with this mass market segment, new entrant has to invest a lot in marketing in order to gain the market share which is time consuming and need a lot of financial support. This strong barrier to entry advantages all of the three companies.Threat of substitute product: Considered high, according to the mass market segment of the three companies, customers can easily shift to others if only some factors have changed e.g. price, increasing in marketing campaign. Moreover, substitute products such as wine and spirits are increasing more and more as a resulting in declining of beer consumption.Bargaining Power of suppliers: For the company with the highest production, Anheuser-Busch will have higher bargaining power of suppliers than Sab-Miller and Molson Coors due to the economics of scales. However, if the others two have agreed to cooperate the game may have changed.Bargaining Power of buyers: Considered high. Due to the mass market segment, buyer has high advantage to bargain as there are many companies who willing to support all of their request. And since the switching cost is low so the company should be aware of this specific point.What are the implications of the evolving competitive structure in the brewing industry for the profitability and strategy of a smaller mass-market firm in the industry?ANS: For the smaller mass-market, in order to cover their higher product costs, they shift their focus into the premium beer segment and use as a competitive advantage in the brewing industry. Start by building the brand for the art of craft brewing which they can charge almost double price higher than the mass market beer and this smaller mass-market segment currently gain about 11% of total market.Are there different strategic groups in the industry? What are they? Do you think the nature of competition varies between groups?ANS: There are 2 main different strategic group in the United States beer industry. The first one is the mass market segment such as Anheuser-Busch, Sab-Miller and Molson Coors which gain about 80% of the market share while the second one should to focus on the premium beer segment which are microbrewers and importers that later gain around 11% of the total market. The nature of competition between this two groups is totally different. In term of the tools using for the competition, the first group focus on aggressive pricing, increasing brand loyalty and distribution channels and spending on advertising in order to gain the market share and maximize their profit. On the contrary, the second group try to discern the customers by strengthening the brand from step by step, focusing on the craft brewing market where buying decision of the customers depend on their taste and lifestyle which they are willing to pay more. So, they can increase the price in order to cover their higher production costs.