Anheuser-Busch free essay sample

Anheuser-Busch I. Executive Summary Since it’s founding in 1852 Anheuser-Busch has brewed a great product. Today Anheuser-Busch is controlling the industry by creating brand supremacy over their competitors. Anheuser-Busch has a very successful and long standing history with their marketing and advertising, this has aided in giving them the edge they needed over the competition. In the US market their signature beers Budweiser and Bud Light can be referenced by the Anheuser-Busch Clydesdales. These horses have given this company the American feel as well as the competitive edge over other brewers. Anheuser-Busch has also put a great deal of time and money into sponsorships within the sports industry, this has also helped secure the global loyalty it has enjoyed in the past. Anheuser-Busch would not be where it is today if not for their historic practice of developing new and different products to help meet the needs of their consumers. The brewing industry has seen some generations come and go and seen trends change steadily with these generation. While Budweiser was the beer of choice of our parents, Bud Light was introduced to fill needs of a new and different crowd. This trend is bound to continue and any brewer that cannot keep up will be left in the dust. II. Table of Contents III. Industry AnalysisPage 4 IV. Analysis of the CompetitorsPage 8 V. Firm AnalysisPage 13 VI. RecommendationsPage 18 VII. ReferencesPage 20 III. Industry Analysis DEMOGRAPHIC There has been a significant trend in the growing population of first time drinkers in this country. â€Å"The number of consumers reaching legal age has risen steadily in recent years, according to the U. S. Census Bureau. In 1999, the 21- to 24-year-old age group began increasing in size for the first time in two decades. This growth is expected to continue through 2010. † (Clark, 2005) Although there has been a dramatic increase in the target population of brewers over the past decade, this hasn’t helped increase sales in the past decade. â€Å"While beer historically has been the alcoholic beverage of choice for the first-time drinker, we have seen a surge in the consumption of spirits and wines by this group in the past couple of years, due to demographic changes and lots of marketing. † (Clark, 2005) Changing attitudes by the brewing industry’s target population has contributed to a loss of sales despite a growing population. ECONOMIC Do to tough economic times where the unemployment rate is rising everyday, the brewing industry has certainly taken a loss in sales. â€Å"Americans are going out much less to bars and restaurants and indeed sales of beers to businesses have also dropped. † (Alazraki, 2008) The economic recession that America is facing is forcing people to be very tight with their money, and this includes the purchasing of luxury items or non-necessities such as beer. The beer that is being bought is tending to be less expensive than beer that has been bought in the past. So far the increase in sales of more economic beers has been at the expense of the more expensive ones. † (Alazraki, 2008) This trend is also hurting the brewing industry because of lack of sales on their higher price brew. â€Å"So unless Americans have a reason to start drowning their sorrows in beer and lets hope that doesnt happen I dont see great things ahead for beer companies†. (alazraki, 2008) POLITICAL/LEGAL As imports and exports become more of an existing force for the brewing industry, this will also have drastic effects on brewing in the US. As more and more micro breweries and foreign breweries expand, it will be harder for the smaller breweries to keep up. The current kingpin in the US, Anheuser Busch has recently formed an agreement to further it’s distribution even further outside of the US, making the brewery industry more of a global issue. â€Å"The agreement does not impact existing litigation or trademark disputes between the two brewers in other countries, and they have agreed the partnership cannot be used to support either side in any trademark cases. † (Realbeer. com, 2007) SOCIOCULTURAL There has been an increase in alcoholism and more of a push towards healthy lifestyles in the recent years. â€Å"Alcoholism refers to any condition that result in the continued consumption of alcoholic beverages despite health problems and negative social consequences. † (Wikipedia, 2007) Every year there are issues from drunk driving to spousal abuse that stem from alcohol abuse. â€Å"Alcoholism does not have a single cause—including genetic—but that genes do play an important role by affecting processes in the body and brain that interact with one another and with an individuals life experiences to produce protection or susceptibility. (Wikipedia, 2007) For this reason the brewing industry has had to take a more in charge approach to their marketing having to promote drinking responsible a big priority. TECHNOLIGICAL Technology in beer has come a long way since beer was first brewed. The first issue to affect the brewing industry is the innovation of the mic ro brewery. â€Å"Microbreweries are small producers of beer that serve local or regional markets. To qualify as a microbrewery, the establishment must produce less than 15,000 barrels (178,841 decaliters) annually. † (Yares. 009) This gave everyday people a chance to brew their own and start a small business. While the individual companies didn’t affect the industry the new onslaught of competition did change it. With the development of microbreweries came new types and flavors of beers that made the originals more common and less interesting. †Currently there are more than 1,600 microbreweries in operation in the United States alone. The number of home brewers is unknown, but brewers of both home brew and microbreweries cite the same reasons for their existence. Taste, body and overall flavor of micro brewed beer exceeds the major brands. † (Yares, 2009) GLOBAL As I had mentioned in the above economic trends, there has been a push for global expansion within the market of brewing. The largest powerhouse of brewing in the united states, Anheuser-Busch has been the target of a buyout. â€Å"After two weeks of nail-biting speculation, InBev NV (INBVF. PK) pulled the trigger on its takeover offer to Anheuser-Busch Companies Inc. (BUD), putting up a $46. 3 billion, or $65 per share, cash bid for the U. S. arket leader. † (Caggeso, 2008) This would make Anheuser-Busch no longer an American company, but would make it among the top in the world. According to CEO Carlos Brito â€Å"This company is going to be the world’s leading brewer,† Brito noted, calling the merger a natural step. â€Å"It’s going to be among the top five consumer goods companies in the world. † (Caggeso, 2008) The effects of this among th e brewing industry will hurt smaller companies and make it more difficult to compete against the new global powerhouse. IV. Analysis of the Competitors Anheuser-Busch is best known for its brewing capabilities and its signature beer, Budweiser. â€Å"Its beers lead the US with a market share of some 48%. † (Covell. 2009) Along with this Anheuser-Busch also has operations in theme parks and can production. Anheuser-Busch currently is the top provider in the industry having sales from 2007 at â€Å"$16,685. 7M, One year growth: 6. 2%, Net income: $2,115. 3M, Income growth: 7. 6%. † (Covell. 2009) Along with the brewing of beer, Anheuser-Busch also produces other products such as energy drinks and other non alcoholic beverages. The top competitors of Anheuser-Busch are â€Å"Miller Brewing Company; Adolph Coors Company; Heineken N. V. † (Covell. 2009) SABMiller or Miller Brewing Company â€Å"is one of the worlds largest brewers with more than 200 brands and some 140 breweries in about 30 countries. Its brands include Castle Lager, the top label in Africa, Grolsch, Miller, and Peroni, just to name a few. † (Salamie. 2009) SABMiller is second only to Anheuser-Busch, and like Anheuser-Busch also has other operations such as a can production plant. In addition to beer, SABMiller makes wines and spirits, and it is one of the worlds largest bottlers of Coca-Cola products and other soft drinks. † (Salamie. 2009) SABMiller is now based in London, England but has no operations there. â€Å"Its true home country is South Africa, where The South African Breweries Limited (SAB) was founded in 1895 and where SABMiller today holds an impressive 98 percent share of the beer market. † (Salamie. 2009) Miller Brewing Company is an important competitor because like Anheuser-Busch they are a global company and hold a large share of the market in the brewing industry. Miller Brewing has also shown a substantial growth in sales having a one year growth of 15. 0%, net income of $2,288. 00M and an income growth of 21. 5% (Salamie. 2009) SABMiller is expanding their business at a impressive rate and slowly growing to catch up with Anheuser-Busch. Another competitor of Anheuser-Busch is the Molson Coors Brewing Company. â€Å"Molson Coors Brewing Company, the product of the February 2005 merger of the Colorado-based Adolph Coors Company and the Canadian brewer Molson Inc. , ranks as the fifth largest brewing company in the world. It holds the number one position in Canada, the number two rank in the United Kingdom, and the number three slot in the United States. † (Gasbarre, 2009) Prior to the merger, Molson was the first brewery in North America (Canada) being founded in 1786 and Coors was established in 1873 in the United States. Prior to this merger both breweries were not where they wanted to be losing valuable market shares and profits on the decline. Following the merger the company emerged as a power in the brewing industry. By merging the company has been able to become a major player and start expanding into more global markets. They also have been in collaboration with other brewing companies that are considered competitors. â€Å"In the US, Molson Coors operates through joint venture MillerCoors (42%-owned with SABMiller), which markets Coors, Coors Light, and Molson products. † (Gasbarre, 2009) Like the Anheuser-Busch, the Molson Coors Brewing Company also has other ventures in product lines other than beer and has made a push to expand its efforts globablly. The final competitor of Anheuser-Busch is Heineken N. V, who’s most popular brand, is Heineken. â€Å"Heineken, one of the worlds brewing giants, sells its namesake beer in their easily recognized green bottles in just about every country on the planet. † (Highman, 2009) Although Heineken started as a considerably smaller operation it has easily become one of the most popular import beers in the US. Like the above competitors, Heineken has had a massive expansion into the global market. â€Å"After the repeal of Prohibition in 1933, Heineken was the first beer imported into the United States. (Highman, 2009) Heineken has always used a very good strategic method for aiding in the expansion of their company. â€Å"Heinekens position of international preeminence at the dawn of the 21st century was attributable to its two-pronged strategy of exporting its key global brands (Heineken, Amstel, and Murphys) and acquiring or building from scratch foreign breweries with strong local or regional brands. † (Highman, 2009) This bold strategy has allowed Heineken to compete with bigger brands like Anheuser-Busch. The intensity of industry competition and an industry’s profit potential are functions of five forces of competition: the threats posed by new entrants, the power of suppliers, the power of buyers, product substitutes and the intensity of rivalry among competitors. † (Hitt, 2007, p 51) The threats posed by new entrants clearly impact the profitability of the industry by creating alternatives to existing products and getting a share of the market from current companies. There is also a drive towards creating new and different products to combat these newcomers and provide a diversity of selection. However, most new entrants to the brewing industry are unable to compete with the large scale companies because they lack the resources to expand because of barriers. The bargaining power of suppliers has a low impact on the profitability of the brewing industry since supplies of the large scale needed to brew the mass quantities is not readily available all over. Most large scale brewing companies are their own suppliers of ingredients and thus can only be affected due to supply of the products needed. The other items needed are one time purchase orders that are offered by a lot of different suppliers throughout the country. The bargaining power of buyers largely impacts the profitability of the industry. â€Å"Buyers want to buy products at the lowest possible price – the point at which the industry earns the lowest acceptable rate of return on its invested capital. † (Hitt, 2007, p 57) This forces companies to keep their prices competitive and low in order to gain more sales. The threat of substitute products has a role in the profitability of the brewing industry. There is an availability of substitutes out there in terms of wine and liquor, and this increases amount of lost sales. This leads to a negative impact on the brewing industry. The final force that could impact the profitability is the intensity of rivalry among competitors. Since the brewing industry is widely concentrated this leads to not much rivalry as there is enough profits to go around. Also since each brewer has differentiated their product slightly, this also leads to a decrease in rivalry. Along with this decrease, there has also been collaboration between so called competitors within foreign markets such as the joint venture between SABMiller and Molson Coors. V. Firm Analysis A core competency is an ability that a firm possesses that can be a source of their competitive advantage over another business or rival. (Hitt, 2007, p 84) A core competency is what can make a business stand out or differentiate them from all the other competing businesses out there. Every business should have something that they are known for or do extremely well, for instance you would not go to McDonalds over Dairy Queen if your focus was desert. Desert in this case would be considered Dairy Queen’s core competency. With this core competency, there are four specific capabilities that stand out. The four elements of a core competency are valuable, rare, costly to imitate, and non-substitutable. (Hitt, 2007, p 86-87) â€Å"Valuable capabilities allow the firm to exploit opportunities or neutralize threats in its external environment. † (Hitt, 2007, p 86) Rare capabilities are exactly that, rare or not very many competitors exhibit them. Costly to imitate are capabilities that other competitors can not imitate very easily or are much to expensive. The final capability is non-substitutable. A non-substitutable capability is one that has no real equivalents in the market or possessed by any other competitor. (Hitt, 2007, p 86-87) In analyzing the brewing industry and the competition within I was not able to find any core competencies that any one brand possessed over another. All three brands have good distribution and a similar product that cannot be easily distinguishable between consumers or is based on individual likes. The competition between these companies is based on consumer’s reactions alone. There is really no competitive advantage gained by any company through distribution or production since all can mass produce and distribute to a multitude of markets. There is also a great deal of cooperation between brewers in certain markets, where the two companies will merge in a certain region to result in a better distribution. This cooperation really depends on the market share and can benefit two companies if the market is dominated by a third. Since the brewing industry is a very global market, it is hard to find core competencies that separate these companies from each other. In the value chain analysis, a company is able to evaluate their operations that find which is creating value within the business and those that are not. (Hitt, 2007, p 89) The value chain analysis is broken up into two types of activities, primary and support. The primary activities are those activities that are directly related to the production, sale and distribution of the physical product a company produces, while the support activities are those activities that provide the support needed to aid the primary activities. Hitt, 2007, p 89) In analyzing the primary activities of the competition we will use Porter’s value chain arrow. †¢Primary Activities oInbound Logistics oOperations oOutbound Logistics oMarketing and Sales oService †¢Support Activities oProcurement oTechnological Development oHuman Resources Management oFirm Infrastructure With regards to outbound logistics, SABMiller, who has a presence in more than 60 countries, has been able to use their vast s ize and capital to maximize their value and competitive advantage. (Jiwa, 2008, p 3. ) The SABMiller Company has been able to set itself aside by creating a solid sales and marketing campaign. â€Å"As SABMiller seeks to understand consumer preferences and create brand portfolios that are relevant and appealing, they have a strong competitive advantage in their ‘market mapping’ system – a formal process identifying the main clusters of consumer preference in any given market and comparing these with the brands currently on offer. † (Jiwa, 2008, p 3. 1) Although this is a competitive advantage for SABMiller, it is not according to the four criteria a core competency. In terms of support activities, SABMiller has used procurement to gain a competitive advantage. â€Å"In recent years, raw materials such as malt, glass and aluminum have been rising in price and one way SABMiller mitigate these effects is by using their global scale to purchase more efficiently. † (Jiwa, 2008, p 3. 2) While this strategy that SABMiller utilizes does help to gain value, this is not considered a core competency according to the criteria. The Molson Coors Brewing Company have been able to stay competitive by utilizing an increase in technological development. This new planning software will optimize the supply chain and create more value. Like their competitors, Molson Coors has a vast product line and an even more vast distribution area. â€Å"Infor (software company) says the solution enables Molson Coors to manage inventory and production for all sites while also factoring in capacity constraints of production, warehousing and distribution. † (Infor Co Press Release, 2007) The director of supply chain planning for Molson Coors had this to say â€Å"The accuracy from the additional detail enables us to reduce inventories while maintaining our high customer service levels. While this certainly helps Molson Coors create more value, it is not a core competency according to the criteria. Since the brewing industry has been around, there will always be new innovations and technologies that give one company a slight temporary advantage over the other, but with this fast paced environment it really comes down to the product and the ind ividual’s taste buds. â€Å"Resources, capabilities, and core competencies provide the foundation of competitive advantage. † (Hitt, 2007, p 79) These three ideals all interact and are based on one another. â€Å"Resources are the source of a firm’s capabilities. Resources are bundled to create organizational capabilities. Capabilities in turn are the source of firm’s core competencies. † (Hitt, 2007, p 79) Quality resources, both tangible and intangible are a very important part of the brewing industry. It can go from using the best ingredients, to having the best people, or even utilizing the best management and business style. Once the resources are in place, a company will have certain capabilities utilizing all it’s resources. These capabilities really exhibit the true mission of the company and are the heart of the business plan. When a company has a capability that no other competitor does, they would have a core competency or a competitive advantage. In the brewing industry, there is such a level playing field in terms of the capabilities of producing the product and distributing it. There are differences in the products, but these competitors all have a wide variety of types that are similar to the competition. Being a global market, most of the heavy hitters of the brewing industry have breweries in different locations so no advantage is gained there. Since there are no apparent sustainable competitive advantages that one company posses over another and certainly not with Anheuser-Busch, how is it that Anheuser-Busch remain the front runner in the Brewing industry. Anheusuer-Busch has utilized a great marketing plan to establish them and give them a great brand equity that people can rely on. â€Å"When it comes to building a brand from the ground up, or growing an established member of the Anheuser-Busch family of beers, the 130-year-old brewery’s marketing teams xcel at defining the concept, identifying the brand’s growth opportunities, and creating the perfect marketing and media mix to maximize public exposure and affinity for the brand. † (Anheuser-Busch, 2007) This marketing design while obviously giving Anheusuer-Busch an advantage over the years, is not sustainable since it can be imitated or substituted. VI. Recommendations Anheuser-Busch has continued to dominate the industry by creating brand domina nce over the competition. I believe that if Anheuser-Busch can keep their marketing and advertising above the others, they will continue to lead the industry. Over the past 30 years, one of the most successful ways Budweiser and Bud Light have solidified their brand image is through sports sponsorships. † (Anheuser-Busch, 2007) Creating sponsorships throughout the professional sports arena as well as special events helps Anheuser-Busch to secure the global loyalty it has enjoyed in the past. When Anheuser-Busch partners with an event as a sponsor it greatly increases its brand image with the people that are associated with the event. These people will feel closer to the brand since they are a supporter of something they are into.