Marketing  aspects of the brewing industry  2

Table of Contents

I.  Executive Summary  4

II.  Brewing Industry Background  5

A.  Market Overview  5

B.  Current Conditions  7

i.  United States of America  7

ii.  Germany  8

iii.  Worldwide  9

III.  Companies  9

A.  InBev  9

B.  “Target Company : Anheuser-Busch  10

C.  Company comparison  13

IV.  Marketing Mix  14

A.  Product  14

B.  Price  15

C.  Place  17

D.  Promotion  18

V.  Environment  19

A.  Legislation and regulations  19

B.  Societal values and lifestyle  21

C  General economic conditions  22

Marketing aspects of the brewing industry 3 VI. Industry analysis 22

VII. Industry forces summery 29

VIII. Company Analysis: Anheuser-Busch 29

IX. Analytical comparison of InBev and Anheuser-Busch 34 X. Driving Forces in the Industry 35 XI. Anheuser-Busch’s Latest Actions 35

XII. Recommendations for Anheuser-Busch 36 XIII. References 38

Anheuser-Busch has to rethink its current strategy and to focus on its core competence: brewing and marketing of beer. A strategic realignment acquires a disinvestment in the business units with low strategic fit, e.g. the theme park or the agriculture division. The integration strategy has to be ended. The money tied up there and additional funds by investors have to be used to acquire other breweries, especially in the emerging markets. At the same time, Anheuser-Busch should increase its interest in Grupo Modelo, to counteract demographic changes in its home market, the United States. Moreover, the brewery has to invest heavily in research and development, a key element for future success in the brewing industry. New beer and beer-mixed categories offer an opportunity for high profits, as new consumers feel attracted by these products. Besides all these changes, Anheuser-Busch should not take away too much attention from its home market and defend the leading market position. Thereby, the brand is the key element to success in the beer industry. Anheuser-Busch has to assure that it obtains the current brand reputation. The same applies to possible new acquisitions. The brewing business is quite a lucrative industry for macro-breweries like Anheuser-Busch. The overall pressure caused by the industry forces is moderate to low. The big market participants have only to be aware of substitute products, rivalry and, to a certain degree, of new entrants. Substitute products, like wine or other liquors, are becoming more and more popular, putting pressure on the beer market. Anheuser-Busch has to react by introducing new products and has to help that beer keeps a fashionable image. The rivalry is only a problem in the mature markets, whereas the pressure is low in emerging markets due to the market growth.

Beer has a long tradition, starting almost from the beginning of civilization. Thereby, the taste of beer varied enormously over time and different cultures. In the 18 ^th century, beer became the style that we know today (Craft Beer, 2007). Today, beer is a part of our western lifestyle. In the United States, beer has become the most popular beverage behind water and tea (Malt Beverages, 2007). The worldwide beer production still increases - in the year 2004 about five percent up to 1.5 billion hectoliters (Balz, 2005). While sales in North America and Europe slow down, new markets have begun to grow in China, Russia, Latin America, Eastern Europe, Asia and Africa. Today’s world beer market has the following proportional allotment:

Table 1 - Beer Consumption by Region in 2004 (Kirin Brewery, 2005a).

Marketing aspects of the brewing industry 6

The biggest beer markets are China and the United States. Both countries make up more than 30 percent of the beer consumption worldwide. Germany is the most important country on the European beer market, as table two shows.

Table 2 - Beer Consumption by Country in 2004 (Kirin Brewery, 2005b).

The brewing industry is a very concentrated market. The biggest ten companies account for nearly 60 percent of the world beer market. The concentration process still continues.

Table 3 - The biggest breweries in 2006 (Bierclub Jessnitz, 2007).

Furthermore, there are differences in the sorts of beer. Different types of commercial beer are pilsner, lager, ale, stout, light, malt liquor, dry, ice-brewed, bottled

Marketing aspects of the brewing industry 7

draft, and non alcoholic. The market is further segmented by price and quality. The categories are super premium, premium, and popular-priced beer (Alcoholic Beverages, 2007).

For a long time, the United States had been the largest beer market worldwide. In 2002, China surpassed the United States by becoming the top producer and the largest market (Alcoholic Beverages, 2007).

After 1996, the United States beer market grew twice the number of sales in the early 1990s. In 2003, the production reached about 6.2 billion gallons. In the same year, the American beer consumption slowed down and grew only 0.7 percent at a slow pace (Alcoholic Beverages, 2007). Today the American beer market suffers from a small decline (Kirin Brewery, 2005b).

The United States beer sales totaled $206 million in 2004. In 1996, light beer became the largest segment in the American beer market (Malt Beverages, 2007). In 1999, light beer had a market share of 40.1 percent, premium beer of 25.9 percent and popular-priced beer accounted for the remainder (Craft Beer, 2007). The American beer market is highly concentrated. The largest four companies -Anheuser-Busch, Coors Brewing, Stroh’s, and Miller - account for about 85 percent of the beer market (Craft Beer, 2007). Imports make up around 12 percent and domestic craft breweries roughly 3 percent (Malt Beverages, 2007). Throughout the 1990s and the early 2000s, microbreweries and brewpubs in the United States had annual double digit increases in sales. Craft beer became the fastest growing segment of the alcoholic beverage industry. In 1997, the number of breweries in

Marketing aspects of the brewing industry 8

the United States, 1,273, exceeded for the first time the number in Germany, 1,234. In 1983, only 43 American breweries existed (Alcoholic Beverages, 2007). The breweries in the United States continue to grow in foreign markets. The domestic beer industry exports to almost one hundred countries in the world. In 2003, most American beer was exported to Mexico, Hong Kong, China and Canada. The most beer was imported from Mexico, the Netherlands, Canada and Ireland (Alcoholic Beverages, 2007). Germany

Germany is known as the beer homeland, but for years the German beer industry has suffered from a decline in consumption. In 1970, every German drank roughly 141 liters; today’s per capita consumption has dropped to 115 liters (Frankfurter Allgemeine Zeitung, 2006). In the years 2002 and 2003, the Dutch brewer Heineken and the Belgian brewery Interbrew took over 18 percent of the German market. More mergers are foreseen in the near future. Analysts think that global companies will control about 70 percent of German production by 2010 (Alcoholic Beverages, 2007). The concentration process will be a big change in the brewing tradition of the country. In 2006, the German beer market generated total revenues of $27.5 billion, whereas the standard lager segment made up 40.5 percent of the market’s overall value. Germany is, with a volume of 9.7 billion liters, the biggest beer market in Europe. The Oetker Group leads the market with a production of 1.4 billion liters (German-Beer, 2007).