US Beer Industry Case Study Solution
Environmental Changes in the US Beer Industry- PEST Analysis
The environmental changes in the US beer industry would be better understood via a PEST analysis(Stimpson, 2010) Appendix 5 which would look at their Political, Economic, Social and Technological breakdown.
Politically the industry is rather welcoming for the new sellers after the removal of prohibition bans in the US in the later 20th century. The new legislation has made it easier for smaller independent sellers to enter the craft beer industry. State laws allowing small breweries to produce have aided the growth in the beer industry since the rising costs of larger producers would have eventually led to the decline of the industry.
The economic impact of these political changes has increased competition in this rather fragmented market. However, the high costs of production in the beer industry have also led to the decline of large sellers in this industry. With most of the large sellers exiting the market due to this high pressure on costs, smaller independent sellers have seen a rise in demand. It can also be said that the high cost of producing large volumes of beer has also triggered the growth of the US craft beer market. The demand for beer is there but larger producers would need economies of scale to lower their costs. It can also be said that the high cost of producing large volumes of beer has also triggered the growth of the US craft beer market. The price for individual beer cans is not enough to offer a high profit margin to the large sellers who would have preferred to have achieved economies of scale to cover the gap between costs and revenue.
Socially the market is more inclined towards taste rather than lower pricing or brand names. The beer industry seems to have shifted from a product orientated industry to a market orientated one. The consumer is no longer looking for big brands selling volume but remains inclined towards his acquired taste for particular kinds of beer and would consume that specific beer in large volumes. This has increased the need for introducing a personalized touch to the breweries and so the industry has seen an increase in independent and local small scale breweries. However there is less brand switching as customers are loyal to their acquired tastes and the personal connections developed with breweries over time.
Technological advancement has made it possible for sellers to enhance the workings of their breweries while improvements in infrastructure have led to easier transportation of beer between areas. Plus technological advancement has also improved the processes for advertising and marketing, giving a better opportunity to manufacturers to personally reach out to the consumer.
Attractiveness of the US Beer Industry- Porter’s Five Forces Analysis
The US beer market is rather attractive in terms of rising growth and demand. The number of breweries being opened in the US have been on the rise after the 1980s and the growth rate has seen a constant upward trend showing that the demand is on the rise too.
The US craft beer industry has a greater demand for Brewpubs and Microbreweries as compared to that of the larger breweries like Regional craft brewers and Regional breweries. The trend towards on-site and off-site drinking is significantly the same but there is higher demand for beer from the local small scale breweries.
When assessed using Porter’s five forces analysis (Stimpson, 2010) (appendix 1), the US beer industry can be seen as fragmented with a high bargaining power with the buyer. The buyer has a deep rooted acquired taste for a particular brand or local brewery and so the seller has a low bargaining power when it comes down to changing the tastes of the customer. However, once the buyer becomes brand loyal to a particular taste or brewery, the seller has a higher bargaining power.
The threat of entry in the market is high since small breweries are now able to work as independent brewers. In addition to this, the emergence of contract brewing companies has led to greater ease of entry since breweries can also transfer the handling of marketing, sales and distribution on a third party leaving them with just the production and packaging of the beer.
Threat of substitutes in the beer industry is high especially as there are different categories in the US craft beer industry specifically such as Brewpubs, Microbreweries, and Contract brewing companies, Regional and Regional craft breweries. This has increased the bargaining power of the buyer even further as he has several options to choose from in addition to beer options on-site and off-site.
This suggests that the degree of competition in the US beer industry is rather high especially as there is competition in the form of different categories of beer along while at the same time the rising numbers of breweries in the country are a threat to the market share of others.
US Beer Industry Harvard Case Solution & Analysis
When talking about the craft beer segment specifically, it can be said that the seller can have a greater degree of bargaining power if he manages to get the customer accustomed to the specific taste of the beer. This type of advantage may not be available to large breweries where it is difficult to keep the customer engaged in the beer making process at a personalized level. These craft breweries can operate through small set-ups and give the customer a personalized experience through wine-tasting and wine watching experiences..............
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