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Purpose of this document is to make a strategic analysis of Tribe Stout Company and to provide certain advices that will help this local brewery to continue their business successfully in future. Tribe Stout Company was founded in 1980s by John Murphy and he is CEO since then of this family owned business which provides good quality Irish stout to bars and hotels. Accent is on the local brewery using local ingredients as John believes that only this will retain the good image of a local quality brewer. Company evolved from 1980s to a small sized business today with 20 employees and a yearly turnover of a â‚¬1.5m. The company now brews stout in 250ml and 500ml bottles with more sales of 500ml ones.
Important to mention is that the four world's biggest brewers account for over half the global market of beer. Those 4 brewers are Belgium-based InBev, London listed SABMiller, Heineken and Denmark's Carlsberg (Jones, 2010)1. More important is that all of these four are present and we need to mention that 63% of the beer sold in Ireland is lager beer while 32% market share holds stout and remaining 5% is ale (TCA, 2008)2.
Alcoholic Beverage Federation of Ireland (ABFI) states that beer has the largest market share amongst all alcoholic drinks in Ireland with 51% and that brewing industry in Ireland employs more than 1600 people. ABFI also states that this industry supports over 50.000 jobs in Ireland while also making about â‚¬1.7b of added value into the economy with yearly spending of over â‚¬400m (ABFI, 2010)3.
Analysis of the key internal activities/departments
First internal analysis show that there is a lack of qualified staff and management in the company itself, but also lack of good strategic management. Financial and operations management are also not good. E.g. head of accounting department is John's wife who doesn't have necessary qualifications for that job. Another example is Mr. John himself who was a barmen in his early days and now he runs a company with over a million euro yearly turnover and yet he didn't get any diploma or prequalification ever since. Last example of wrong human resource management is production, warehouse and delivery manager who is a former colleague of Mr. John but he has no formal diploma or qualifications for that job. Overall, greatest internal problem of this company is that most of the workers are close friends or even family of Mr. John and that they are in company for many years, although they are unskilled or unqualified while they never wanted to upgrade themselves in terms of getting some degree or diploma in recent years.
As a result of this many mistakes surely happen in the company. I found myself one while doing this research. The mistake I found is in accounting department where I previously said that unqualified staff works, particularly manager. Financial figures of the company states that TSC have a net income of â‚¬25.000. This is incorrect and miscalculated which confirms my analysis and opinion about staff and managers. This financial statement should be considered as incorrect and yet unreliable in terms of other figures on it. The thing is that many of the TSC customers went out of business or went into bankruptcy, bad debts figure increased to â‚¬50.000 and also there was a miscalculation in overhead costs.
While at financial figures, it is important to say that brewery buys all of their raw materials, ingredients, from local supplier which don't want to give their goods on credit but only want to be paid in cash on delivery as they don't trust in solvency and survivability of Tribe Stout Company. Another bad thing is that quarter of total debts are bad debts in TSC which leads as to say that it has wrong policy about sales on credit and making agreements about sales.
John Murphy, founder and current CEO of Tribe Stout Company, wants to retire from a CEO position by the end of this year and have his son take the chair, Cillian Murphy who has BA Marketing diploma, while his wife which is a head of accounting department doesn't wish to retire yet. Full scheme of organisational structure can be seen as a CEO on top of the company with one manager in accounting and administration and one manager in production, warehouse and delivery department. There are two part-time employees in accounting department while in production there are 15 full-time employees.
Further analysis shows that Mr. John didn't invest big money in the structure or facilities of the company and more or less the Tribe is produced in almost same conditions as it was produced in 1980s.
Analysis of the external environments
In external analysis I will start from PESTEL factors which will give insight into environmental factors that have effect on the company and that surely management should take in consideration.
Political and legal factors:
When talking about political factors and brewery in Ireland one must mention the government prevention of drinking alcohol by making various campaigns to inform the citizens about the effects of alcohol and its negative sides. Such is "DrinkAware". More important influencing factor are the governmental taxes and excises on alcoholic beverages. As all know the Value Added Tax in Ireland is 21% which is pretty high itself without adding any excises on the price. Governmental revenue from excises on beer is about â‚¬427m yearly and about â‚¬642m from VAT on beer. Ireland has very high VAT comparing other countries in Europe but also fourth highest excises rate on alcohol in Europe (Foley, 2010)4. Among these factors I should mention that breweries, as any other companies, have to pay taxes related to their employees such as income related tax and so on. Last thing to mention is that in Republic of Ireland alcohol can't be sold in shops after 10pm and that most pubs and clubs close at about 3pm.
As everywhere else in the world, the economy crisis had effect on Ireland as well. Although industry reports show that beer industry in Ireland supports over 50.000 jobs which is a good figure relating the crisis. Reports also show that Irish are biggest consumers of the beer in litre per person/year ratio. Same reports show that more and more pubs are opened each year and that there is about 2.000 excess of pubs. While doing research, many citizens told that smoking prohibition in pubs changed a lot how and where people drink beer. This could be a factor for TSC to consider.
The problem for Tribe Stout Company could be that only 32% of beer market share is the stout beer while the majority is lager beer as said earlier. Another factor is that there are many imported beers, but luckily these are mostly imported lager beers. Drinking beer and especially in pubs is seen in Ireland as socialising, meeting new people and having conversations while drinking together. This is a positive social factor and positive side of responsible drinking that is of great use for any brewery. Another social factor is that Ireland has many tourists over the year and many of them want to try special local brewed beer which is great for breweries like TSC and they should make a use of that fact.
Technological and environmental factors:
This is very specific industry where technology and environment greatly have influence over the industry and companies. To make a good beer, you need good raw materials, ingredients, and good water. But these two have to be of consistent quality so that beer will always sustain a good and stable quality. Today's technology enables various controls and check of raw goods to make sure they are qualitative and up to high quality margins, or desired quality but they also enable to achieve that sustained flow of good materials and good beer. It is only up to the brewer himself to adjust the technology to work for him the way as he wants it to make that perfect pint. Environment also is a factor such as weather. Quality and quantity of raw materials are dependant from the weather so is the brewery but also the taste. Weather also has effect on people. If it is depressive and bad weather, people will go to pubs to socialise and cheer up with few pints. Environmental factors also determine the number of tourists and periods when they are visiting the country and when not. This should be taken into consideration by TSC management.
FIVE FORCES ANALYSIS
In this part I will discuss about Porter's five forces and their effects on industry and company.
Threat of new entrants - medium
I decided to put barriers of entry as medium as this kind of industry is well established, especially in Ireland where we have some traditional big brewers and where few companies hold the majority of market share. The only thing why I would put poor threat is that everyone is capable of producing brew in small quantity such as opening some small home brewery, just as TSC started, but as I am speaking about the whole industry and as it is hard to establish distribution channels at start and make your own place on the market, I wrote medium. Recently, many well established breweries started to invest more and more money in marketing trying to further distinguish their brand and their products from other breweries. Tribe Stout Company should definitely start to follow this example as their spending on marketing are rather poor.
Rivalry - high
Rivalry amongst beer companies is always high but in Ireland it is very high I must say. As said, there are already well established market leaders in Ireland which offer different kinds of beer (lager, stout, ale and some even non-alcoholic and special mixes and brews of beers) while the TSC offers only one kind of the beer and is present on one local Galway market. These leaders heavily invest in their equipment to minimise costs of production and to produce more beer in order to have use of economies of scale apart that they also invest in marketing. TSC misses these investments, progress and expansion. Not only that rivalry is high amongst many local beer companies, but there are also many imported beers.
Threat of substitutes - high
This is hard to determine and exactly to say, but I can state that this is in direct connection with peoples' preferences of alcohol. Substitute for Tribe Stout Company beer are of course other beers but also other alcoholic beverages such as spirits or wines. All of this depends on consumer preferences, but all in all there are a lot of substitutes starting from other local small breweries to big ones and imported beers and other types of alcoholic beverages at the end. If I would only take TSC in consideration I might say threat is medium as Tribe has unique taste and it is only in Galway and so on, but speaking of whole industry I must say it is high.
Bargaining power of buyers - medium
As previously said there are many substitutes and different kinds of beers. Buyers can choose from different kinds of beers from different suppliers and they can negotiate. Main customers are pubs, hotels and supermarkets. In the case of TSC I can surely say that power of buyers is high as they are seen as company that negotiates with customers in despair. Looking at whole industry buyers can easily switch from one producer to another and supermarkets have good negotiation power with producers I shall say that bargaining power of buyers is medium because breweries also have their confederations and so on.
Bargaining power of suppliers - medium
Talking about the industry as a whole, a producer has a variety of farmers and suppliers to choose from, but if we talk about TSC the supply is limited to local farmers. The main ingredients for beer are always the same so there are no substitutes and they can be easily obtained. The companies however must pay attention to the quality of raw goods. TSC can't get goods on credit as they are concerned as insolvent by their suppliers thus they must pay in cash and they also can't get a good price for the goods.
Good quality of beer
Quality award for Tribe
Lack of skilled staff
Local brewed beer
Niche beer market
Touristic sale of point
The brewery should orientate more towards tourists and retake the local market with unique taste and quality
Get more skilled staff and management to improve efficiency and solvency while investing in marketing to attract more tourists
Distinguish themselves from others by unique taste and quality and take more market share thus increasing profits
Improve relationship with both suppliers and buyers and negotiate better deals with both of them
In this part I will try to make a recommendation for the company management by which they should make more success and profits. These can be guidlines for them whre to go from this point on. I will first start from competitive strategy.
It is proven that Tribe Stout Company has very good product with unique taste and quality. This should not be compromised and should be used heavily in their strategy. I recommend using a focus differentiation strategy as they have really good product. TSC should work on their communications with buyers and suppliers as much as they can and try to expand their market share. Company should improve their debt management by giving certain discounts for payments before deadlines or for payments in cash. Credit sales should only be given to trusted pubs and hotels but with risk calculations and management. This will enable them to have much better cash flow and have secured financial situation. If they intend to use this strategy, they must create greater brand awareness. If expanding so soon on large market is big bite for them let them create brand awareness locally then, in Galway. If they take the majority of stout beer share in Galway in next period they can secure themselves for larger investments and try expanding further. Also, a change in personnel is a must. Company must find skilled employees and give up on the family/friend policy. Family is nice to work with and you can trust them but if they are not skilled enough, the company suffers and at last they will too. All in all, they have a great product and they should focus on it. Invest in marketing to create not only brand awareness but also the great taste and the awards that beer has won. Improve communications by having new skilled management and improve solvency by implementing this strategy. Concentrate first on local Galway market and tourists to gather enough funds and stability to go further in expansion and retaking the piece of cake from a larger market. Company should try to expand externally in terms of more buyers like before, but internally it should stay same-sized as it is but with improved technology and efficiency. New marketing department should also make use from company using locally grew raw materials. To improve brand awareness and company image, TSC should maybe go to some beer exhibitions or festivals to show their beer and let people try it. Local touristic community should also be included in this project. There are many things that should be done and it is only up do Mr. Murphy if he wants them to do it in order to save his brewery and reputation. I repeat, the main thing is to improve human resources and get new skilled people into the company and after that this strategy can start to be implemented.
My advice is that company should stay the same size as it is now. This is good size for a local brewery and it can meet the demands for now. Current problem that I see now is the staff. TSC is in bad situation now and perhaps should try to cut some costs. The costs can be lowered by trying to train as many current employees you can as it is cheaper than hiring experts or high skilled people. Where unavailable to train, an expert should be hired. On crucial positions such as accounting manager an expert should be hired in order to avoid miscalculations. The company should use turnaround strategy by my opinion. Also, certain investments in production and deliver process should be made in order to improve efficiency of both. As you said yourself, the delivery truck is breaking down on regular basis. This should be replaced and thus money for repairs will be saved and delivery time is cut down. Investment in certain parts of new more efficient machinery should be considered if they are not too expensive and further payback and return rate calculations should be done about that. I would also suggest to try improving the sales of smaller pack beer by doing some promotions or discounts. If that doesn't work, cut it out of the product portfolio and perhaps try to invent some new package or something. By following my advices I am sure that you and your company will find success in future business and a steady growth of your brewery.
The conclusion that can be drawn from this paper is that company has certain problems, internal and external, but also that they can be fixed over time. External problems happened mostly as a consequence of internal ones. When your son takes over the company, I am hoping that he will follow the advices and strategies given. With his skilled and young mind as an entrepreneur and your advise in start of his career this company should blossom in next period by following already mentioned strategies. The company should focus first to improve internal situation based on human resources and other things in the short term, while concentrating on market, customers and market share in long term while constantly having investments in human resource, technology and marketing.