organisations

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beer industry

Background and objective of the topic

The beer industry has been around for many centuries and has always impacted national economies. Countries, such as the United Kingdom (UK) and the United States (US), have had a capricious relationship with the beer industry over the last few centuries. Indeed, these countries see the benefit for the economy, from tax revenue increases to job creation, but other regulatory and social costs challenge firms within the industry. Furthermore within each brewery, their marketing, advertising and branding strategies are the leading differences amongst the competitors. In oversaturated, competitive markets of the UK and the US, various breweries are able to maintain profitability even as beer consumption and national incomes are in the decline. Indeed, with social-economic trends stacked against the industry, companies are still profitable, but those profits are fading. Through these declines, firms make radical business choices of mergers or acquisitions in order to dominate the brewery industry.

The brewery industry with a $40 (£24.4) billion market value is an important part of the UK economy, and with a $79 billion market value is an important part of the US economy. In the UK, the brewery industry provides 600,000 direct jobs and 500,000 indirect jobs which generates $45 (£28) billion in economic activity and $133 (£81.3) million in tax revenue for 2008. In the US, the industry provides 1.9 million jobs in which $62 billion was generated in wages and benefits and $41 billion in business, personal and consumption taxes for 2008. In the UK, the leading brewery market share is Scottish & Newcastle at 27.1%, Molson Brewing Company at 19.7% and Anheuser-Busch InBev at 17.7%. While in the leading brewery market share in the US is Anheuser-Busch InBev at 50.8%, followed by SABMiller at 18.4% and Molson Coors Brewing Company at 10.6%.

Marketing, advertisement and branding strategies are key elements within the beer industry. The beer industry includes the brewers and breweries, distributors, and suppliers and retailers. As markets become more crowded, competitive and complex, the value of a clear brand increases. A brand can identify one item or a family of items and is defined as a name, term, design, symbol that identifies one seller's good or services as distinct from other sellers. An advertised brand is a brand that is owned by an organization and is a consumer product. Marketing is an organizational function and a set of processes for creating, communicating and delivering value to customers that benefit the organization. Advertising is the placement of messages in time or space in any of the mass media to persuade members of a particular targeted audience. (American Marketing Association, 2009)

A powerful brand gives a company a personality of its own which transcends its components. These components can be seen in both the American brewing industry and the British brewing industry. A brand emphasizes emotion and awareness, but it also connects with consumers to create a strong loyalty base. Fads come and go, but name brands last generations. The brewery industry is very complex in both horizontal and vertical business activities.

There are emerging literatures that specifically relate to the brewery industry where various theories involve the marketing, price and competition aspect of the industry overall. Marketing beer involves the four Ps which is the product, in this case the brand name. The price, which includes the total cost to manufacture, distribute and advertise the beer. The place is the distribution of the beer from the warehouse to the consumer with varies steps in between. And finally, the promotion of the beer is through various characteristics of a marketing plan where advertising is included.

Research Questions

The main subject studied in this academic style dissertation is the effects of branding and marketing within the American and British brewery industry as well as the power to achieve profitability. The specific research questions are designed:

To understand and compare the brand drivers of the beer industry in the US and the UK

To evaluate the distribution channels

To better understand the government's role

To find out how the leading firms within the UK and US industry are profitable within a competitive market dealing with the current economic downturn

Research Question 1: How does the US and UK brewing industry implement their branding identity?

Research Question 2: How will social-economic trends affect the profitability of the US and UK brewing industry?

These questions will provide an understanding of firm characteristics within the industry and their business practices as well as the relative success of the leading firms.

Terms used within the industry are defined as follows from the Dictionary of Beer (2001):

Ale: a type of beer fermented with top-fermenting ale yeast

Bar: a public room within a pub

Barrelage agreement: a common method for a brewery to tie up a ‘free' pub in return for a ‘cheap' loan

Beer: the generic term for a non-distilled alcoholic drink produced by fermentation of a wort derived from mashed malted barley grain

Beer orders: UK government regulations concerning licensing laws and consumer choice in pubs

Bitter beer: highly hopped ales with an aftertaste associated with hops, malt and yeast

Bottom fermentation: fermentation at 10°C where yeast cells sink to the bottom of the vessel

Brew pub: a pub which brews beer on the premises and serves food

Brewery: a place where beer or ale is brewed

Brew house: the area of a brewery where the beer is mashed and brewed

Brewing process: the process of making wort, boiling it with hops and fermenting it into beer

Cask: the general name for any of the barrel-shaped containers of various sizes used for traditional draught beer

Draught: a general term for any drink that is dispensed from a bulk container into smaller measures for sale

Fermentation: biochemical reaction when sugar is converted to ethyl alcohol by yeast and some bacteria

Free house: a pub supposedly free of any brewery tie and able to offer a range of beers from different breweries

Guest beer: a beer, not regularly sold in a pub, being on offer for a limited period

Lager: beer fermented with bottom fermentation yeast where primary fermentation is at a lower temperature than for ale and secondary fermentation happens in closed conditioning tanks around 0°C.

Light beer: any American low-calories beer which does not contain dextrin and alcohol content ranges between 2.8 to 4%

Microbrewery: small-scale brewery operation where equipment has been specially developed for brew pubs and small independent breweries and produces a limited amount of beer

Macrobrewery: a large brewery produces larger amounts of beer at a cheaper price

Off-trade (or off-license): where places like a supermarket or convenience store are licensed to sell alcoholic beverages for consumption off of the premises

On-trade (or on-license): an establishment where alcohol must be consumed at the point of sale such as the pub or bar

Premium lager: a lager brewed above 5% alcohol strength

Porter: a dark, slightly sweetish but hoppy ale made with roasted barley

Pub: a house open to the public at stated times for the purpose of social drinking

Standard lager: a lager brewed under 5% alcohol strength

Stout: a very dark, heavy, well-hopped bitter ale with a dry palate, thick creamy head, and good grainy taste from a dark roasted barley

Three tier distribution (NBWA): the US distribution system for the beer industry where brewers make the beer, wholesalers distribute it to supermarkets and bars, and retailers sell it, but no one within the line is allowed to do one of the other two at the same time

Tied house: a pub which is obliged to sell only the products of a particular brewery

Top-fermentation: fermentation where the yeast rises to the top of the vessel in a thick foamy head

Wort: the sweet liquid, containing all the extracts from the malted grain, which subsequently will be fermented into beer

Framework

The framework for the dissertation is as follows with this chapter presenting the overview for the present study. In the next chapter the methodology is described in greater detail. In Chapter Three, a review of the literature relating to industry concentration, advertising, competition and demand is presented. Chapter Four will consist of empirical materials of primary and secondary data on the leading macrobreweries within the US and the UK as well as results of semi-structured interviews comprised of people working within the industry. Chapter Five conveys the analysis and findings developed throughout the research. The final chapter presents the conclusions and recommendations for further areas of research.


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