European Brewing
The case centers on the changes in the macro-environment of the European Brewing Industry and how these changes affect the industry as a whole and each company in particular.
PEST Analysis
Political
One of the factors that caused the decline in beer consumption is the active campaign of European governments against drunk driving.
Economic
In European economies where beer consumption was historically high, there is a decline in the demands for beer, while in developing economies such as China and Brazil, the consumption of beer is steadily growing.
Social
The health risks and problems associated with alcohol is now becoming a major issue among consumers. Binge drinking in pubs and clubs is also being discouraged.
Technological
Technological advancements in beer, spirit, and wine production have made the process of creating drinks more accurate and easy. Companies have acquired experience, excellence and technological know-how in beer, spirit and wine production. Alliances, joint ventures and partnerships have increased the capacity of the industry as a whole.
Opportunities and Threats
A major threat for the beer industry is the intervention of European governments and other organizations in beer consumption. Increasing health research and findings are pointing to beer and other alcoholic beverages as potentially dangerous to health and fitness. The increasing reports on accidents caused or involving alcoholic beverages also added to the campaign against such drinks.
One of the seen opportunities is the increase in the demand of alcoholic beverages, particularly beers in developing economies such as China. Another possible opportunity is the increase in off-trade beer consumption worldwide. Another opportunity is the steady growth of demand for premium products such as extra-cold lagers or fruit-flavored beer.
Five Forces Analysis
Competition among Existing Firms (High)
Competition among existing firms is high that is why these firms are pushed to create acquisition, licensing and strategic alliances in their effort to control the market.
Threats of New Entrants (Low)
The threat of new entrants is very low, as old, family-owned, and established companies control the market and the industry. New and smaller breweries will suffer predation and they will not sustain growth in a highly competitive market.
Threat of Substitute Products or Services (Medium)
There is a growing demand for substitute and exotic products from abroad while the demand for local beers is declining. However, European breweries cope with this by introducing innovative and premium products.
Bargaining Power of Suppliers (High)
The main purchasing costs of European brewers are packaging and raw materials. The packaging industry is highly concentrated and dominated by few companies, enabling them to have tremendous power over prices.
Bargaining Power of Consumers (High)
The consumers have a high bargaining power and the sudden changes in demands have caused companies to alter their strategies and to develop their products in order to attract the consumers.
Impact of the Trends for Each Company
Heineken
Because of the increasing demands for beer outside Europe, Heineken which is based in The Netherlands is actively pursuing growth internationally.
Grolsch
The steady increase of demands for imported beer, encouraged Grolsch from The Netherlands to acquire rights to sell and distribute the US Miller Brand.
InBev
The changes in the macro-environment encouraged InBev to integrate all its activities and processes in order to optimize its network of breweries and facilitate sharing of best practice across sites internationally.
Scottish and Newcastle
Increase in demands in developing countries such as Russia, Ukraine, China and India encouraged the company to acquire breweries and related companies to enable them to reach these markets.
Strengths and Weaknesses of Each Company
Heineken
Strengths
- Wide experience
- Acquired excellence and know-how
- Reputation as the biggest European brewery
- Effective acquisition and growth strategies
Weaknesses
- Family-controlled
- Only one famous brand – Heineken
- Does not focus on product development and innovation
Grolsch
Strengths
- Focus on product innovation (introduction of premium lager and flavored beers)
- Rights to distribute popular beers such as US Miller
Weaknesses
- No clear strategy for growth
- Focuses on European markets, particularly the United Kingdom
InBev
Strengths
- Largest brewer in the world in terms of turnover
- Owns well-known international brands
- Holds number one or two positions in 20 different countries
Weaknesses
- Speed of growth can be threatening and the company may not able to sustain it
- No clear plans to introduce new and innovative products
Scottish and Newcastle
Strengths
- Well-know English brewer
- Market leader in the UK, France and Russia
- Effective acquisitions and investments in developing markets
Weaknesses
- Many breweries were closed down
- Slow growth
Electrolux
Issues Facing Electrolux
1. Globalization – globalization presents opportunities for Electrolux to explore markets outside Sweden but it also poses different challenges. One particular challenge is the intensification of competition. Electrolux, in its effort to become global is now competing with different companies around the world. Because of globalization productivity has risen and companies are able to balance quality and quantity.
2. Market Polarization – The combination of changing consumer preferences, the growth of global retail chains and greater global competition is leading to polarization of the market.
3. Consolidation of Retailers – The dealer structure in the house-hold appliances market is beginning to crumble as traditional dealers start to lose market shares to large retail chains. These large retailers benefit from high purchasing power and wide geographical coverage. This gives them greater opportunities to keep prices low.
Levels of Strategy
Business Level Strategy – The company streamlined its product lines by focusing on the production of indoor appliances and abandoning outdoor products. The business level strategy of Electrolux focuses on differentiation and cost leadership.
Strategic Position
1. Environment
- Globalization
- Market Polarization
- Consolidation of Retailers
2. Capability
The expectations of the management were achieved by:
- Continuing to cut costs and drive out complexity in all aspects of operations
- Increasing the investment in marketing and building Electrolux brand as the global leader in the industry.
3. Expectations
The expectations of Electrolux’s management is to be able to accelerate the development of Electrolux as a market-driven company, based on greater understanding of customer needs.
Strategy Development Process
The first step in the strategy development process at Electrolux is the identification of the company’s problems, its current position and where it wants to go (goals). Next, the top management generated options, policies and measures. After the presentation of options, the management appraise or measure the feasibility, effectiveness and acceptability of each option. When the best option was determined the top management designed a strategy to achieve its goals. Last was the implementation phase.
The design lens that Electrolux is using is the design lens. The design lens promotes the idea that strategy is formulated by top management through careful analysis and planning and implemented down through the organization.
TUI
Underlying Forces in the Macro-Environment
The underlying forces in the macro-environment are:
- Competition – the competitive rivalry the exists between various businesses operating within the industry market place
- New Entrants – the ease of entry for new firm into the market
- Substitute Products – products or services that are produced through a different means or technology
- Suppliers – relationship between businesses in the industry and the suppliers to those businesses
- Customers/Buyers – the relationship between businesses in the industry and the customers of the businesses
Porter’s 5 Forces Analysis
Threat of New Entrants (Medium)
The tourism and travel industry is considered as one of the fastest growing industries in the world. As more and more people travel and as more and more countries are developing their tourist destinations, more and more travel agencies and similar businesses will surface.
Bargaining Power of Buyers (High)
The number of competing firms, increases competition thereby forcing firms to comply with the needs, wants and demands of the consumers. Firms are competing to attract consumers.
Bargaining Power of Suppliers (Low)
TIU’s main offering is packaged tours with fixed prices. The arrangements made by TIU with its partners/suppliers are bound by contract and cannot be changed easily. Because of the company’s size and market share it is able to impose on its suppliers.
Threat of Substitutes (High)
Although world tourism is growing, Europe compared to other continents experience lesser growth. Other continents offer diverse attractions posing as threats to Europe.
Competitive Rivalry (High)
Competition in the travel and tours is very stiff. TUI competes head to head with other European firms Thomas Cook, MyTravel Group, ReweTouristik and First Choice Holidays. There are also other small firms that TUI competes with.
Impact of Five Forces on TUI
The five forces will impact the decision-making and the formulation of strategies of the company.
Competition – the strength of competition will influence how the company will compete and how the company will develop products and services that will give them competitive advantaged over their rivals.
New Entrants – the ease and the mode of entry of new entrants are examined in order for the company to prepare itself for new firms. New entrants most of the time offer innovative ideas and products that must be monitored. The lesser new entrants that will enter the industry, the lesser the competition.
Substitute Products – If there are many options for the consumers, and if these other options are better than what TUI offers, the company will find it hard to attract customers.
Suppliers – the relationship between TUI and its suppliers is very essential because the suppliers provide support to the company’s operation
Customers – the higher the purchasing power of the buyer, the biggest probability that they will travel. The company needs to examine the trends and the shifts in the customers’ attitudes, needs and demands.
Credit:ivythesis.typepad.com
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