In the last 10 years the beer industry had a positive trend regarding the quality, brand diversity and accomplished production. This trend was possible due to ambitious politics of foreign investors who caused a competition increase on the domestic market.
Johnson and Scholes (Exploring Corporate Strategy) define strategy as follows:
"Strategy is the direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations".
Strategic analysis is about looking at what is happening outside your organisation now and in the future. It asks two questions:
- How might what's happening affect you?
- What would be your response to likely changes?
It's called strategic because it's high level, about the longer term, and about your whole organisation.
It's called analysis because it's about breaking something that's big and complex down into more manageable chunks.
The focus is external because factors outside your organisation have a powerful influence on it. Increasingly organisations appreciate that they can learn to manage their response to those influences, rather than assume there is nothing they can do.
It's part of the overarching process of strategic planning.
Strategic analysis boosts organisational effectiveness
Strategic analysis helps to:
- Anticipate what might happen
- Evaluate how likely it is to happen
- Prepare for it happening
Strategic analysis will lead to clearer more relevant goals, better quality decisions, and a more secure future as you are better prepared for what will happen.
Otherwise known as "external environmental analysis it is a key step in strategic planning. It is the link between getting your overall direction right and making the right decisions. You will make better decisions if you understand the influences from the outside world to which you might have to respond in the future.
Seven reasons to undertake strategic analysis.
They are drawn from real experiences that organisations have described to us.
If you want to hear it straight from our members, have a look at our Personal Stories page. You can watch Richard Boyd from Disability Essex talk about the benefits for his organisation.
What are your experiences of strategic analysis? Share your triumphs and tribulations with the members in the forums, or write your own tips on your profile.
To survive and succeed long-term, you need to think and plan long-term.
Strategic analysis demonstrates an organisation's relevance and viability. It increases your organisation's credibility. So your funding applications are more likely to succeed.
"Whole organisation approach
Looking at your external environment can help you take a whole organisation approach. It will help you work out how different trends might affect different elements of your project, group or organisation.
Paul Sullivan from Shelter says
"Without environmental analysis an organisation doesn't consider the way things are changing around them, so no analysis is done and you never notice that things have moved on around you.
Choosing the right path is challenging. Strategic analysis will help you make the right decisions to make your organisation more effective.
An effective organisation can identify and respond to opportunities and threats. Internal focus alone is not enough.
Everyone with a stake in your organisation helps to ensure your strategy is relevant and appropriate.
Analysis will help you meet your objectives in a smarter, more effective and savvy way. It is an endless source of ideas that will inspire you to innovate and improvise.
Overview of the lager market
A recently published report into the beer industry conducted by Venn Research Incorporated estimated the U.K. beer market generated was worth £52.2 billion at the point of sale in 2005. Beer, despite falling in overall consumption in the year previous to this study (partly due to its high taxation) is clearly a huge business - overall profit rose by 16% between 2001 and 2005. The prevalence of beer as our national drink for hundreds of years is partly due to the industry's ability to constantly change its production and marketing strategies in order to appeal to new and more demanding generations. This has, arguably, led to a two tier system of production, with mass produced lower quality beers supplying a huge market, whilst craft brewed beers have begun to make massive inroads in attracting customers who enjoy traditionally brewed ale.
Lager and the Big Breweries
According to the 'Breweries and the Beer Market Report', 2006, lager accounts for 68% of the total beer market in the U.K. Of these lagers, the majority of them are produced by just four large breweries: Scottish and Newcastle (who produce Foster's and Kronenbourg); Coors (from the U.S.), Inbev (who produce Stella Artois, from Belgium) and Carlsberg of Denmark. These lagers are often produced using modern industrial brewing methods to fairly standardised recipes. The quality of mass produced lagers, though often criticised by real ale drinkers, cannot be dismissed outright and some do have a fuller flavour than others, sometimes even approximating traditional continental lagers. However, the effect of having the U.K. beer market dominated by just four large companies, three of which are not British could be seen to be negative. Apart from the use of flavour enhancers and other techniques in some beers, which do not allow for the subtle variety of tastes found in traditionally brewed beers the talent for craft brewing was - at a point - being elbowed out by the mass producers.
There are two distinct layers to the beer production industry in the U.K. There is the mass-market brewing industry, consisting of a few huge multi-national companies that cater for the majority of U.K. beer drinkers by producing fairly standardized and wide-appealing lager beers, and then there is the craft brewing industry, consisting of a large number of small breweries, or micro-breweries, who concentrate on brewing the more traditional ales and cater for the more sophisticated of the U.K. beer drinkers.
Lager caters for just under 70% of the total beer market in the U.K. and is produced by four major, mostly foreign associated, breweries; the Scottish and Newcastle who produces the Australian beer, Fosters, and the French beer, Kronenbourg, Coors which is U.S. owned, Inbev who produces the Belgian beer, Stella Artois, and Carlsberg which is Denmark owned. These producers brew their lagers in the most modern of breweries by a very industrialized style of brewing, and the lagers are all based on very standardized recipes. The beers are designed to appeal to the mass population and are marketed for their ease of sale in this respect. The majority of U.K. pubs and bars, where in the past they would have served beer along village and regional loyalties to particular beers, now serve these mass-produced beers on tap. To find an ale of any kind on tap over the last couple of decades has been some great challenge, and if you did manage to find one, it was more often than not an ale that one of the above companies had mass-produced to try and cater for this smaller market as well as the mass-market in order to increase that multi-national's overall U.K. share.
However, in recent times, the U.K. market, like that of the Australian and U.S. markets, has begun a shift in focus back towards boutique breweries and the bars and pubs that specialize in serving these boutique beers from these micro-breweries. Although these beers are often more expensive, their unique tastes and interesting textures and flavors have found them dedicated drinkers and a significant share amongst the U.K's multi-billion pound industry.
As a result of the increasing popularity of the micro-breweries, the U.K. market is somewhat polarized between the mass-produced lager and the micro-brewed ales. The multi-nationals, however, are gradually bringing in their own boutique ales to compete with the craft breweries, as has been the case in Australia. But this will not greatly affect the micro-brewers, or the consumers. It will simply, as it has done in Australia, allow more choice for the consumer and allow the U.K. beer drinker to enjoy their drink at a continued affordable price with even greater variety. In fact, beer is in a period of renaissance throughout the U.K, Australia, and the U.S, and it has never been a better time to be a beer drinker.
- Concern about binge drinking and anti-social behaviour
- Government use increased demand for alcohol as a way of boosting indirect tax revenues. No harmonisation across the EU which means cross border shopping is common
- Duty Free trading abolished in the EU in 1999 with little affect on the drinks industry
- International consolidation had led the EU to pay attention to cross-border mergers as they influence domestic markets
- Rising consumption has been linked to an increase in the relative affordability of alcohol, and in particular increases in consumer's disposable incomes
- Price fluctuation can be dictated by global commodity markets which gives multi-nationals an advantage
- Increasing price differential between on and off trade
Many people are practicing healthier lifestyles. This has affected the non-alcoholic drink industry in that many are switching to bottled water and diet colas instead of beer and other alcoholic drinks. The need for bottled water and other more convenient and healthy products are important in the average person's day-to-day life.
Consumers from the ages of 37 to 55 are also increasingly concerned with nutrition. Since many are reaching an older age in life they are becoming more concerned with increasing their longevity. This will continue to affect the non-alcoholic drink industry by increasing the demand overall and in the healthier drinks.
- influence of the Internet and eCommerce
- Licensing Act 2003
- Private Security Industries Act 2003
- Beer Orders and other changes to Competition Law in the 1990s
- Increasingly focus on the sustainability agenda - and corporate social responsibility
Porter five forces
The rivalry among existing competitors in the beer industry is definitely strong. The demand for the product is decreasing, which makes it more competitive when trying to gain market share. Switching costs are also very low for consumers, and because of that competition is very intense to gain new market share. Potential new entrants: In the beer industry, barriers to entry would definitely be high due to the legal costs and the manufacturing and distribution economics of scale required to effectively compete in such a large market. Also an entering firm would have limited access to distribution channels. This is because the wholesalers who served the largest brewers did not carry other brewer's beer.
Key success factors
Utilization of brewing capacity - to keep manufacturing costs low The breweries Developing a strong network of wholesale distributors - to gain access to retail outlets Clever advertising - to induce beer drinkers to buy a particular brand There are several reasons why strategic analysis is essential for a company or industry.
If a company or industry wants to survive and succeed in a long term, you will need to think and plan long term. It will need to find innovative ways to prosper within industry, constantly updating its product and keeping the industry growing and expanding to survive.
Strategic analysis demonstrates an organisation's or industry's relevance and viability. It increases its credibility. This allows the industry spends its funding to invest in research and development bringing out higher quality products.
Whole industries approach
Looking at the external environment can help the whole industry's approach. It will help the companies within the industry work out how current trends might affect the company's goals and objective.
Making the right decision in a constant changing business environment is always difficult. Strategic analysis is a useful tool to aid you makes the right decisions at the right time to make the industry more effective and gain competitive advantage.
Internal focus of the companies within the industry won't make the company invincible. It will also need an external focus to identify and respond to opportunities and threats. This keeps the firm one step ahead and facing less uncertainty.
Strategic analysis will make the industry more effective and efficient. It will help you meet your objectives in a smarter, more effective and savvy way. It is an endless source of ideas that will inspire you to innovate and improvise.