External Analysis Craft Beer Industry Fall 2017 PDF

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MGT 4394 Strategic Management External Analysis II CASE: Craft Beer Industry

1. What are the strategically relevant components of the U.S. and global craft beer industry macro-environment? The macro environment includes economic, cultural, and political factors. Economic factors affect the industry in determining price point and demand; Craft beer is more popular in already developed countries as those consumers can afford the higher price. Cultural factors are also a component; some cultures drink more beer as cultural experiences/ normality’s, while others are just beginning to develop a taste for the beverage. The climate in different places can also impact the type of beer consumed, warm weather lending to light beer, and tastes changing with every season, opening markets to a wider range of brews. Lastly, the industry is subject to political factors such as laws and regulations about the quantity, distribution, and packaging of craft beers. 2. Conduct a PESTEL analysis of the craft beer industry. List the top three factors causing change (positive or negative) using the PESTEL framework. Factor 1: Economic Factors are one of the largest influencers of change on the craft beer industry. Some limiting factors include the high costs of equipment such as refrigeration and fermentation tanks and the highly labor intensive process of being a micro/nano-brewery. But, there are also positive factors for change, including the wide strategy spectrum involving many different pricing vs. quality strategies, the global growth of the beer industry as a whole, and the popularity of acquisitions and mergers to target a wider range of price-points. Factor 2: Social Factors are key to the industry as the product is an alcoholic beverages often consumed in social settings. There is a social movement of craft beer consumers that want an authentic craft beer experience, leading them to brewery tours and “tap takeover” events, great marketing opportunities for the brewers. Consumers have also launched lawsuits and complaints about brewers not actually being craft, leading to a change in the definition of the industry. Factor 3: Environmental Factors are also an important aspect for the industry. The supply of grains and hops can be limited and climate/ weather changes impacts the production and demand for types of beer. The more specialized beers need specialized grains, which have lower quantities to supply, preventing large economies of scale possible to global producers. Hops acreage grew 16% in the US from 2014-2015 along with the growing demand from new breweries. The weather/ climate determines which types of beer demanded: lighter beers in warm weather, and heavier beers in cold weather. Weather also can impact the supplies of hops, for example, cold weather in 2015 led to a diminished yield of hops in Europe, which could lead to increased costs for brewers and overall less production and profits. 3. What is competition like in the craft beer industry? Conduct a five forces analysis placing craft breweries as the rivals in the craft beer industry. Identify the players and the factors that drive the strength of each force and the strength of each force:

Rivalry: Other Craft Breweries and “Better Beer” suppliers that may be able to create economies of scale and have better marketing efforts. Threat of Entry: Growing industry, home breweries are becoming more popular, this is usually the beginning of a larger brewery. Demand for the uniqueness provides the need for supplies from other breweries. Barriers to entry consist of government laws and regulations, supply availability, and customer loyalty. Bargaining Power of Suppliers: Limited supply, especially with specialized hops for the craft beers, prices can be increased. Bargaining Power of Buyers: Buyers may have price sensitivity. Many craft breweries are subject to limited distribution channels, making it harder to create a following as they’re not available in chain stores. Substitutes: Non-craft beer, wine, malt beverages. For people who don’t want to pay the “better beer” price, and people who don’t like the taste of largely produced beer.

4. Why has the beer industry been historically profitable? How are profits allocated among the “mega breweries?” Historically, the industry has been profitable ….. Profits are allocated among the mega breweries 5. Prepare a Strategic Group Map of the beer industry including: nano breweries, craft breweries, brewery alliances and mega breweries. Which groups are in the strongest position? Which are in the worst position? Craft Nano

Price Alliances

Mega

Quality Mega breweries are able to offer much lower prices, giving them a strong position in developing countries. In developed countries, alliances hold a strong position because they’re able to offer the low prices of a mega brew at the quality of a craft brewery. The premium quality of craft brews give it strong positioning in the upper/ middle class markets.

6. What is the nature of rivalry in the industry? Describe the rivalry between the nano/craft breweries and the mega breweries? Rivalry is marketing and consumer based. Mega breweries are able to offer lower prices, so nano/craft breweries must make large marketing efforts in order to become well known.

7. How has the competition between the nano/craft breweries and the mega breweries impacted the industry’s profits? Who has been winning the war? Craft breweries are having larger growth rates, mega breweries are growing in developing countries. Mega breweries still have the largest profits, but crafts are within the top 10 for production volume. Craft breweries has high revenue due to higher price points.

8. What key factors determine the success of a start-up or smaller nano/craft brewery? Key factors for a successful startup of smaller breweries include appealing to local markets, supporting locals, creating a marketing campaign through tastings and word-of mouth. 9. What recommendations would you make to a small nano/craft brewery to improve its competitiveness in the marketplace while mitigating current and future risks? I would recommend that small breweries need to get out there and get their product in the minds of more customers, use social media to target their audiences and consumers. They should also invest in equipment that will reduce labor costs in the long run. Risk of supply availability can be mitigated by using multiple suppliers or becoming your own suppliers and also selling to other breweries, making another source of income....