Belgian Beer Brewers_strategy

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Strategic analysis of Belgian beer market

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Belgian Brewery Industry :

Belgian Brewery Industry Section 5 - Group E Competitive & Corporate Strategy

PowerPoint Presentation:

Background (4 P’s)

Key industry players:

Key i ndustry players 135 breweries in Belgium Big 5 players (78%) Small players (22%), including: Trappist beers, Abbey beers, foreign brands, beer firms, house (white) brands 15 created an alliance: “Belgian family brewers ”

Belgian beer landscape:

Belgian b eer landscape Due to the long tradition in brewing, there is a wide diversity of beers (product range):

Subgroups: Lager vs. Specialty:

Subgroups : Lager vs. Specialty Commodity product Very established brand names Saturated market Low switching costs but very brand loyal consumers Very h igh d ifferentiation Fermentation (high, low, spontaneous and mixed) Flavour (fruits, herbes, grains...) Alcohol levels Story behind the beer (religious stories, monks) Focus on quality and the history /story behind the beer  reinvention of this beer subgroup ( emergent in the product life cycle ) Price less important ( price of glass of wine ) Customer base values brand & quality  l ess price sensitive Margins for specialty beer are much higher than for lager beers. Growing market Belgians drink less now, but they want better quality when they do drink Market share increased with innovative marketing strategies Specialty beers Lager beers Innovative and exciting! Reliable but tired and unexciting…

Beer industry lifecycle:

Introduction Emergence Maturity Decline Demand (units/year) Time Specialty (growing market – ‘hip’ product) Lager (less consumption - tired) Beer industry lifecycle Trend of less beer consumption, but more focus on the quality

3. Bargaining power of buyers:

3. Bargaining power of buyers On- vs off-trade: Price difference (margins): 7.26 €/ litre on-trade vs. 1.55 €/ litre off-trade

Industry profitability:

Industry profitability Very high profit margins (20%), comparable to cigarettes Higher margins on Specialty beer, Lower margins on Lager beer * Not including bottled water (Gross Margin of 77%) Biggest costs are Media & Marketing (40%), Packaging (19%) and Raw Materials (17%)

Industry Analysis: Porter:

Industry Analysis: Porter

1. Barriers of Entry :

1. Barriers of Entry High fixed costs (warm chambers, fermentation installation, bottling and logistics) (250 million needed to build a 4 million barrel brewery) Expertise and processes: provide consistency (same taste) over time Very established brand names (large advertising) Risky to enter industry as no alternative uses for breweries Access to on-trade distribution channels (beers are created in bars) Regulations (water regulation but not a big barrier) High barriers of entry

1. Barriers of Entry :

1. Barriers of Entry

2. Bargaining power of Suppliers:

2. Bargaining power of Suppliers Supply chain: from barley to beer Many suppliers range from big international players (merged companies) to small local players  very competitive landscape Unattractive industry (dependent on the harvest) low bargaining power for suppliers

3. Bargaining power of buyers:

3. Bargaining power of buyers 2 main distribution channels: On-trade: bars, hotels and restaurants (48% of trade in ‘10) Dependent on brewers for investments (very unprofitable industry)  low bargaining power Commercial agreements are common (offering beers from only 1 of the key players) Off-trade: supermarkets and other retail channels (52% of trade in ‘10) Growing trend: due to ban on smoking, internet & lower prices Supermarkets have more bargaining power, but brand loyalty of consumers still very high

4. Competition - lager:

4. Competition - lager Highly competitive industry Concentration through mergers (big5): synergies (cost management) of big players in: manufacturing technology, purchase of raw materials (supply chain efficiency), marketing and distribution strategies Mature and saturated market Product differentiation through heavy & costly advertising / discounts (non price based competition) Trend towards off-trade will increase competition since no control of distribution channel compared to on-trade Off-trade: Low cost producers are arising (price based competition) Costs are raising (wages (indexation), raw materials, energy etc.) Simultaneous 6% price increase from leaders (announced after strong increase in costs) Rise of house brands for lager beer (low cost, no advertisement) Lager beers

PowerPoint Presentation:

Growing market Large demand (pull factor) Focus on quality and the history /story behind the beer Price less important ( price of glass of wine ) Consumer preference on quality products Competition based on: Quality Advertising and exploiting the historical character of the beer Price is less important Managing multiple brands Risk mitigation: “Possible loss on perceived value by the consumer” Specialty beers Innovative and exciting!

4. Competition:

4. Competition Topic Lager Specialty product commodity differentiated players Concentration dispersed branding Very high Low (except Duvel ) profit Volumes margins Market Declining growing House brands Threat No threat

5. Threat of substitutes :

5. Threat of s ubstitutes No supply-side substitution (specific technical installation) demand -side substitution: Wine (food) Spirits (party) Pot (relax, anti-stress) However, threat is low because: a lot of differentiation high brand loyalty lower pricing of beer Beer culture

5. Substitutes :

5. Substitutes Specialty beers Lager beers … beer is one of Belgium’s favorite drinks! … best enjoyed and savored in a convivial atmosphere

Key Success Factors:

Key Success Factors Lager beer group : Cost management High volumes Branding & sustain consumer loyalty (off- trade ) Control of distribution channel ( on-trade ) Specialty beer group : Quality / innovation Distribution channels to enter market ( availability ) Tradition / story

Prospects:

Prospects xxx On-trade Off-trade Lager good bad Specialty Very good good

Duvel Case:

Duvel Case Specialty beer Cost management / synergies Diversification ( Duvel , La Chouffe etc.) Very profitable !!

Santé!:

Santé! Cheers!

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