Compared with the rest of the world the UK beer consumption was on rank 5 in 2001 what shows its significance. Within the overall market value of 15,473.8 million pounds (2004), premium lager was the leading segment with a value share of 39.2 %. All in all 5,454.7 million litres of beer have been sold in 2004.
Below you will find a Porter`s five forces analysis of the UK beer industry which deduces the attractiveness of the industry from its structure. The structure itself influences the corporate strategy which is responsible for corporate success finally. Attractiveness in Porter`s view depends on five forces which influence an industry. Porter says that “the collective strength of these forces determines the ultimate profit potential of an industry.” (Porter 1980, p. 21) In order to detect the importance of a single force Porter provides some indicators which will be highlighted.
I have chosen this external analysis tool because it covers a wide range of important influences affecting the UK beer industry. To anticipate the later shown results it will become ob-vious that some of the forces provided by Porter have a massive effect on the industry especially intensity of rivalry and bargaining power of buyers. Companies acting in the industry have to have good knowledge of the industry structure and its threats to defend or favourably influence it to stay competitive and earn profits. The stronger the forces are the more the industry becomes unattractive.
Table of Contents
A) Introduction
B) Porter`s Five Forces Analysis
1. Intensity of rivalry
2. Bargaining power of buyers
3. Bargaining power of suppliers
4. Threat of entry
5. Threat of substitutes
C) Critique of Porter`s Five Forces
D) Conclusion
Research Objectives and Core Themes
The primary objective of this study is to assess the industry attractiveness of the UK beer market by applying Michael Porter's Five Forces framework. The research aims to evaluate how market structure and competitive dynamics influence corporate success and overall profitability within this specific sector.
- Analysis of competitive intensity and market rivalry among major UK brewers.
- Evaluation of the bargaining power held by buyers, specifically supermarket chains and the on-trade sector.
- Examination of the threat posed by substitute alcoholic beverages such as wine and cider.
- Assessment of entry barriers for new competitors in both the mass market and niche segments.
- Critical review of the applicability and limitations of Porter's Five Forces model in a modern, dynamic economic environment.
Excerpt from the Publication
1. Intensity of rivalry
The UK beer industry is ruled by four companies which shared about 76 % of the market volume in 2004, the rest was shared by many other middle-sized and micro-breweries with little market share. (see figure 1) For example, The Society of Independent Brewers (SIBA) on its own has over 500 registered micro- and local breweries just to show the diffusion.
The market is in the maturity phase and will be relatively static in the next few years. An evidence for that is the compound annual growth rate (CAGR) which was -2.8 % from 2000 - 2004 and the forecast that predicts a CACR amounting to -0.1 %.
To get more or at least to keep their market share under these conditions the companies are forced to skim customers from their competitors. This implicates high rivalry amongst the industry. The main players fight for the mass market and compete against each other heavily whilst the small- and micro-breweries try to find their market niche and compete on that level.
An important point in this context is the possibility of differentiation. The flavour of beer is different and the companies use this way to differentiate. All breweries develop new kinds of beers and add for example lemonade to their standard product to try to differentiate or to diversify in times of market maturity. In 2005 there have taken place “over twice as many beer launches in the UK compared to the year before.” The opponents will always watch you and react with counteractive measures, if a certain kind of new beer works well the opponents can copy it relatively easy. The standard products like premium lager taste different but the range of beer flavours among the main brands of the major brewers is not so wide because these beers are produced for the mass market which requires a “moderate” flavour what makes differentiation on this level much more difficult.
Summary of Chapters
A) Introduction: This chapter provides an overview of the UK beer market's significance and outlines the use of Porter's Five Forces as the primary analytical tool for the study.
B) Porter`s Five Forces Analysis: This section details the core industry analysis, examining rivalry, bargaining power of stakeholders, and threats from new entrants and substitutes.
1. Intensity of rivalry: This chapter analyzes the high level of competition among dominant players and the efforts of smaller breweries to differentiate in a mature market.
2. Bargaining power of buyers: This chapter explores how supermarket chains and the on-trade sector exert pressure on brewers due to their significant purchase volumes.
3. Bargaining power of suppliers: This chapter examines the influence of equipment and raw material suppliers on the beer industry, noting the generally low power of suppliers due to standardized inputs.
4. Threat of entry: This chapter discusses the significant capital and marketing barriers that hinder new entrants from competing with established international brewery groups.
5. Threat of substitutes: This chapter evaluates the competitive pressure from other alcoholic beverages, particularly wine and cider, which are increasingly impacting beer market growth.
C) Critique of Porter`s Five Forces: This chapter offers a critical perspective on the limitations of the model, noting that factors like digitalization, government regulation, and globalization are not sufficiently addressed.
D) Conclusion: The final chapter summarizes the findings, highlighting the intensive rivalry and distributor power as critical factors currently shaping the UK beer industry.
Keywords
Strategic Management, UK Beer Industry, Porter's Five Forces, Industry Attractiveness, Market Rivalry, Bargaining Power, Buyer Power, Supplier Power, Threat of Entry, Substitute Goods, Market Maturity, Brand Marketing, Consumer Loyalty, Competitive Strategy, Corporate Success.
Frequently Asked Questions
What is the primary focus of this work?
The work provides a structured strategic analysis of the UK beer industry using Michael Porter’s Five Forces model to determine the industry's overall attractiveness.
What are the central themes discussed?
The central themes include competitive rivalry, market concentration, the influence of large distribution channels, and the competitive threat posed by alternative alcoholic beverages.
What is the main research objective?
The objective is to understand how market structure influences corporate strategy and to assess the profit potential of the industry given its current mature state.
Which methodology is applied in this study?
The study utilizes the classic Porter’s Five Forces framework to perform an external environmental analysis of the beer sector in the United Kingdom.
What topics are covered in the main body of the work?
The main body covers the intensity of competition, the bargaining power of buyers and suppliers, entry barriers for new participants, and the market impact of substitutes like wine and cider.
Which keywords characterize the content?
The work is characterized by terms such as strategic management, market rivalry, industry structure, competitive advantage, and market maturity.
How does the author view the role of brand marketing in this industry?
The author identifies brand marketing as an expensive but necessary tool for maintaining consumer loyalty and market share in a highly competitive mass market.
What is the author's critique regarding Porter's model?
The author argues that while the model is useful, it is too static and fails to adequately account for modern external influences such as rapid digitalization and government interventions.
- Quote paper
- Mark Dinkhoff (Author), 2007, UK Beer Industry Analysis, Munich, GRIN Verlag, https://www.grin.com/document/89692
