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This paper analyses the current business strategy of TSC, the efficiency of its activities as well as current and future challenges facing the company. The main aim of this report is to explore opportunities and improve any weaknesses they company may have by recommending the most suitable strategy that can empower TSC towards higher profitability and growth.
Brewing in Ireland has a long history dating back to the nineteenth century. Although Ireland is better known for producing stout - it makes up 32% of the market and as much as 63% of the beer sold in the country is lager ( ).
After years of stagnation, recent data shows that microbreweries are on the rise in Ireland thanks to a tax-cut implemented by the Irish government in 2005 (J. O'Leary, 2009). Craft stouts currently available in Ireland include: Shandon Stout by the Franciscan Well in Cork, O'Hara's by Carlow Brewing Company and Black Rock Irish Stout by Dungarvan Brewing Company, Galway Hooker Brewing company, Galway Hooker Brewing company, The Porterhouse Brewing company ( ).
TSC is a small, family-run brewery famous for its traditional Irish stout. The company, set up by Mr Murphy, has been around since 1980 and has grown from a three-person business with sales of 20k to 20 employees and sales of 1,5m. At present, the main customers of the company include local hotels, pubs as well as international clients.
As far as manufacturing process is concerned, the company uses only natural, locally produced ingredients supplied for years by the same local producers. The brewery won a number of international awards in the past and earned reputation as a high quality, reliable brewery. Additionally, despite the production growth, there have been no major changes to the way the business is run. However, Mr Murphy has recently decided to step down and appointed his son - Cillian as the new CEO of the company.
2. ENVIRONMENTAL SCAN
In order to determine the most suitable strategy for TSC, some of the key internal and external factors from both micro and macro environment need to be looked at as they represent important variables that could influence the company's future operations as well as affect its profitability and growth.
Strengths. TSC is a craft brewery with a long, well-established history of brewing beer in the local area. Competitive advantage primary exists within the company's ability to produce and distribute high quality beer across Galway for the last thirty years. TSC possess a key advantage over large-scale breweries - it can perform well in a niche market providing a return to classical beers from times gone past.
Within the production process, thanks to the distinctive taste and unique brewing methods, the stout brewed by TSC can be easily differentiated from those produced by macro-brewers such as Guinness, Murphy's, Beamish. Additionally, the size of the business and scale of the production make it easier for the company to introduce new strategies and improvements.
Within the company's market share - it has increased significantly over the last thirty years to include local (pubs and hotels) as well as international clients.
In regards to the location of the business - Galway is considered one of the most touristic regions of Ireland which is also to the advantage of the brewery.
TSC also retains core strength within employee loyalty and commitment. The fact that this is a family business with relatively low operating cost, run by reliable and motivated workers gives the company a higher chance of succeeding.
Weaknesses. At the same time, one should not forget that the company faces a lot of challenges due to the existence of close substitutes widely available on the market as well as the intense of competition in both the micro and macro-brewing sector.
As a result of weak brand management and lack of proper marketing strategies, the characteristics of the product and the company's unique brewing process may not be fully and properly communicated to the public.
Within the product line, TSC main weakness is the lack of variety of products offered as well as the way it's stored and sold - 2 bottle formats only.
Moreover, the recent insolvency rumours as well as prolonged organizational and operational malfunctions may deeply and permanently affect the company's competitive power.
The current management style of TSC where all decisions are made by one person (including sales, PR, financial and production prognosis) and the whole business is run by family members and friends only (with no relevant educational background) due to lack of trust in external expertise, has not allowed the company to innovate and move forward. Moreover, lack of IT systems causes overload of paperwork and data management inefficiency (unreliable inventory records, no proper financial estimates).
From a financial point of view, TSC does not perform well in terms of high production costs, low margin and lack of proper business terms offered by its existing business partners as well as great dependence on the same local suppliers. Additionally, a long cycle for cash collection is driving down the company's overall performance. Moreover, the handcrafted, manual production results in increased production times.
Opportunities. Since there is a growing market for naturally produced goods - TSC should ensure the customers are fully aware of company's brewing process and its product features. The company should also take advantage of the growing demand for specialized beers and try to introduce new product lines to attract additional clientele (women, younger generation). An opportunity also exists to introduce lighter beers as well as research new international markets.
From technological point of view, opportunities exist to improve inefficiencies and to distribute the products more effectively. New transport channels as well as relations with different suppliers should be explored. Environmentally-friendly packaging and pollution reduction initiative should also be considered.
Additionally, TSC should consider opening a brewpub as part of its market growth initiative.
From a management standpoint, TSC is run by dedicated and highly reliable employees who may be easily encouraged to adapt to the new environment and work harder for the sake of the business. In light of the changes to the top level management, there has been a perfect opportunity to introduce some fundamental changes to the way the business is run in order to save and enhance the brand image and ensure the reliability of the brewery and the quality of its product. Additionally, the size of the company and the scale of the brewing process provide TSC with certain flexibility in adjusting to the marketplace more successfully compared to large-scale breweries.
Threats. Although some opportunities exist for TSC to expand onto new markets, the competition within the industry is very high. Not only are the macro-breweries consolidating, but the microbreweries are also becoming very active. TSC may find it extremely difficult to maintain its current market share, let alone winning international abroad. Moreover, the current economic climate in addition to intense advertising run by well-established macro breweries, make I even harder for micro-companies to grow.
As a result of the great variety of beers available on the market, buyers maintain substantial power. Therefore, TSC has no power to dictate pricing and profit margin may continue to decline. Moreover, a number of customers, offered credit terms, fail to settle their payments and lack of proper administration system forced the owner to contact individuals himself.
Additionally, due to the nature of the family-run business, the internal relations within the company may change once some fundamental staffing and organizational changes are introduced. I may impact the overall business performance, especially at the very beginning of the transition process.
TSC also possess a threat from other external forces including the government that will always aim at decreasing the alcohol consumption by imposing new legislations and taxes. Additionally, the alcohol industry is under constant political and legal pressure.
As far as technological advancements are concerned, production automation may impact the image of the company as a traditional brewery.
The main internal and external factors influencing the current and future prospects of the company have been summarized in the below table.
Long standing brewing tradition and expertise in stout brewing
High quality products (awarded internationally)
Unique product taste helps product differentiation
Well-known brand name in the local market
Trustworthy staff and tight relations among employees and the management
Low operating cost (staffing cost in particular)
Located in a popular tourist region
Small size of business allows more flexibility in implementation of new strategies
Increasing market share
Product being sold to international clients
Top management changes create opportunity for business operation improvements and new fresh perspective
Reputation built on high quality product and quick delivery (prior to 'truck' problems)
Organizational malfunction (no professional, systematic management and financial controls )
Overly unskilled staff
Unreliable financial and production prognosis, no proper inventory records
Manufacturing malfunction (premises and equipment call for modernization)
Stagnant profitability (low margin; high production costs)
Handcrafted, manual production results in increased production times
Weak marketing position
Recently weakened reputation - poor business partners perception
Lack of favourablebusiness terms offered, no large long terms orders
Overly dependent on the same, pricey suppliers
Weak distribution network
Smaller economies of scale in relation to major domestic brands
Necessary business changes may impact the family relations as well as staff attitude and ability to adapt
Expanding onto domestic and global market (investigate other markets)
Growing market for naturally produced goods
Growing demand for specialized beers
Open a brewpub
Increase the level of advertising
Increase the prices being charged
Improve brand image and market position
Introduce production and organization changes to improve business efficiency
New knowledgeable management
Strong pub culture and positive trend to premium beer
Introduce new beer lines
Attract wider clientele - women, young generation
New delivery channels
Explore suppliers market
Intense domestic and foreign competition (highly competitive market)
Substantial power of buyers
Market share decline
Shift in buyer preference towards light beer
Advertising campaigns are expensive
Government policies aimed at decreasing alcohol consumption (new regulations or taxes against alcohol distribution)
Buyouts, takeovers, or substitutes by major beer companies
Poor equipment and distribution problems
Employing professional staff will increase costs
Major advertising campaigns run by macro-breweries
Production automation may impact the image of the company as the traditional brewery
Potential failure if company operational strategy doesn't improve
Potential problems if more craft breweries are opened in the area
Economic downturn (price sensitivity, demand)
Since Ireland has a stable political environment this does not present challenges for the company. However, despite the tax exception introduced in 2004, the taxation remains a critical issue for alcohol producers.
Alcohol producers have been frequently coming under fire over alcohol abuse and drunk driving. Therefore, breweries must adhere to government regulations in terms of alcohol contents, packaging and safely standards.
Additionally, since the company sources its product ingredients locally, it will not be affected by any new taxes or tariffs introduced by the government on imported goods.
Overall beer market tends to be recession-proof. However, the current Irish economic downturn affects the market demand for higher-priced, premium goods and may impact the growth of domestic companies. Additionally, since some of the production is aimed at international clients - exchange rates can dramatically affect the success of the company's export activities.
Additionally, the beer industry is becoming more and more consolidated with global breweries wining the market.
Ireland remains the number one consumer of beer in Europe, according to a new report on the sector (…). Irish pub culture has long-standing tradition and micro-brewing has always been a part of the Irish culture. Additionally, Ireland is one of the last of the traditional brewing nations of Europe to undergo a microbrewery boom (J. O'Leary, 2009).
There has also been increased popularity of locally sourced, naturally produced goods among customers. Craft brewing has been also experiencing some growing demand as macro-breweries fail to meet some of the consumer preferences.
In terms of beer types, lager makes up as much as 63% of the beer sold in the country.
Additionally, there have also been trends among customers toward healthier lifestyles, and lighter, lower-calorie beers. This market segment has been growing significantly (…).
At the same time, alcohol abuse has had devastating health and social consequences in almost every country However, beer is consider to be a more socially acceptable beverage, specially craft-brewed one.
Changes in technology enable companies to improve their brewing processes, introduce more efficient distribution channels, packaging solutions in order to increase production, efficiency, and reduce costs. As a result of the technological advancements, beer can be now produced on a mass scale.
With society becoming more environmentally conscious there has been increased popularity of natural goods, produced in an eco-friendly way.
Brewers must comply with extensive government legislations as well as seek approval and licensing. Brewers need to ensure they are fully compliant with the current labeling, advertising and marketing regulations.
The ability of TSC to compete successfully is determined by the strength of the external environment against that is in order to determine future strategies for the company, the attractiveness of the beer industry needs to be assesses (Porter's Five Force Analysis).
Threat of New Entrants:
The threat of new entrants is high
Competition from existing micro-breweries and macro breweries
Hard for new entrants to differentiate their product
Limited access to distribution networks
Market globalization and growing imported beer market
Economies of scale in marketing, production, distribution
A lack of substantial entry barriers is a key characteristic of the craft-brewed beer industry. Factors which facilitate entry are availability of basic physical resources and insignificant economies of scale and scope.
As far as distribution channels are concerned, it is increasingly becoming a barrier to entry. It is difficult for new entrants to obtain favorable distribution agreements as distributors generally require that a reasonable variety of products be provided before they are willing to distribute the product.
The profits being obtained by the current market participants have attracted not only other small entrants, but also some of the major brewers. As a result of market globalization, imported beer market continues to grow. However, the major of macro-breweries are not able to compete on the grounds of quality of their products.
Bargaining Power of Suppliers:
The threat of bargain power of suppliers is low
Ensuring quality standards are met
In general, there is very little supplier power in the craft-beer industry. This is due to the nature of the supplies required and the low level of concentration of the supplying industries. Prices for beer ingredients are relatively stable and are set as a result of significant competition and government regulation.
Bargaining Power of Buyers:
Retail buyer has a high level of bargain power
High distributors power
Low consumer costs of switching between craft-brewed beers
Variety of products available
Brewers do not have the power to dictate prices
Brand loyalty among customers
As a result of the high number of beer choices available on the market, the breweries have comparatively little power relative to the wholesale buyers and distributors. Therefore, it is reasonably difficult for a micro-brewery to obtain favourable distribution agreements with bigger transport companies. This means that craft-brewers must generally rely on a small number of independent distributors, who usually have distribution agreements with a number of craft breweries. Moreover, they are not able to dictate prices due to the intense competition on the market. At the same times, individual customers tend to be loyal and appreciate the high quality of the crafted beer.
Threat of Substitute Products:
The threat of substitute products is high
Substitute products include: regular beer, 'specialty' beer, wine and spirits
Soft drinks or water provide substitute options to customers
Quality advantage over imported and regular beers
Beer remains the largest drink sector
Substitutes to craft-beer are - regular beer, 'specialty' beer, imported beer, some types of wine and spirits. The market for craft beer has developed as a result of an increasing desire on the part of some consumers to obtain full flavored, high quality beer.
Product quality is considered a key success factor which gives craft-brewers a quality advantage over imported beers. Other products such as regular beer, wine and spirits are less close substitutes. As a result of the research, the level of substitutes is considered as low.
Intensity of Rivalry among Competitors:
Rivalry among beer manufactures is high
Internal rivalry in the craft-brewed beer industry is moderate
Increasing competition from imported beers
Small micro-breweries and brewpubs are growing in popularity
Manufactures are introducing new products to keep the existing market share and expand onto new markets
Internal rivalry in the craft-brewed beer industry is moderate due to the nature of the craft beer product, the nature of industry sales transactions, and high consumer demand.
The craft-brewed beer product is highly horizontally differentiated which, in effect, limits price competition among craft-brewers and restricts the ability of major brewers, whose products are vertically differentiated, from intensifying internal rivalry. Low consumer costs of switching between craft-brewed beers increase internal rivalry. Moreover, the fact that consumers often switch make craft brewers extremely conscious of the quality.
TSC may have a better chance at developing a competitive advantage over its current and future competitors by identifying a fit between the firm's strengths and upcoming opportunities. The matrix of possible strategies is shown below:
Take advantage of the expertise in brewing and the long standing position in the local market to increase brand loyalty
Attract new customers and increasing market share - new product lines for women, young generation
Introduce environmentally-friendly packaging and pollution reduction initiative
Take advantage of the top - management changes to tackle organizational weaknesses. Encourage staff to adapt to changes for the sake of the company
Take advantage of the location - become known to tourists
Highlight the product features - create proper advertising campaign
Re-build business reputation - tackle existing problems
Increase brand recognition - get involved in the local community
Introduce technological improvements into production process
Employ knowledgeable sales team
Improve office management
Consider relocation into new facility
Seek new suppliers offering high quality ingredients on better terms
Improve distribution channels (contact local transport companies; liaison with other local micro-breweries; leasing)
Consider opening brewpub (cheap licences available on the market)
Focus on tacking the current distribution and manufacturing issues
Concentrate on improving financial performance
Focus on domestic market share
Introduce technological improvements only to processes based on highest cost savings
Take advantage of the marketing knowledge of new CEO
Micro-brewery marketing through additional partnership to share costs
Focus on improving the company's ability to meet the current demand in a timely, efficient manner
Introduce cost savings initiatives
Introduce new product line(s)
Improve storage - kegs
Invest in re-building the current manufacturing facility
Revaluate existing staff and employ new professionals only in key business areas to work closely with the existing staff (sales team)
Based on the above thorough analyses conducted and the strategic options from TOWS analysis, the following recommendations have been formulated which are aimed at restoring the company's reputation as well as improving its financial performance and secure a strong position in the current and future marketplace:
Restore business reputation
The biggest weakness of the company is its current manufacturing and delivery problems which affect the company's business reputation and impact overall financial performance.
First of all, since money is tight at the moment, TSC should renovate its current manufacturing plant. In the attempt to save costs, family members and friends currently employed by the company could be persuaded to contribute to the work that needs to be done in order to restore the full functionality of the facility.
TSC should also invest in proper delivery fleet. Initially, a leasing of a new truck can be considered. However, the company should consider hiring professional delivery fleet as a long term solution - liaison with local transport companies or other local micro-breweries should be taken into account. Needless to say, manufacturing plant and reliable delivery channel are the keys to restoring its business reputation.
Contract new suppliers
Taking into account the prices charged by the current suppliers and the fact that there are other companies on the domestic market providing high quality ingredients, the company should not delay locking in long term contracts with other companies meeting the product quality criteria. Price lock will protect TSC from price changes and will allow long term profitability predictions.
Improve production process
Hand-crafted brewing process is one of the main features of TSC. However, there are aspects of production process which are far too expensive and time consuming and could be easily improved by today's technological advances without scarifying the final quality of the beer. As long as the TSC continues to brew its beer using the same old equipment and based in the same old factory, it will always be limited to the amount of beer they can produce at once. TSC should begin to looking in to a new operations model in which the company will step up bigger, more innovative production that will allow it to meet the growing demand for product.
TSC should consider changes to its current storage management and introduce more cost efficient packaging (kegs). Paper work should also be reduced and kept electronically to allow more efficient data processing and information accessibility. Cillian Murphy is considered the key person to implement those changes.
Focus on people
The lack of skilled workforce with professional knowledge in the areas of sales and financial controls are preventing the company not only to handle its current problems effectively but also to perform better in the current environment. Cillian Murphy should be able to assess the company financial situation and seek further expertise if needed. As far as sales people are concerned, as soon as the facility and delivery issues are resolved, two full-time should be employed to reach out to the market and re-negotiate the existing business terms - especially with existing customers to avoid future payment default.
Focus on domestic market
Taking into account the current business performance of the company and the competition from macro-breweries, it is recommended that the company should concentrate its effort on the domestic market before it will expand further.
Focus on product
TSC's reputation has been built solely on its product quality, and one of the concerns is if the company can keep pace with the changeable environment, intense competition and more and more demanding customers. In order to stay competitive, TSC should reach out to other customers segments, rather than just local long-standing customers. Involvement in local communities, sports events, and natural food fairs should be considered. Additionally, the company should start targeting new customers - young drinkers, beer connoisseurs, tourists. It is advisable that a lighter version of beer is researched and advertising strategy should be focused on the benefits of high quality ingredients, the local brewing tradition as well passion for great taste.