Agenda. Choice of Industry Industry Structure Competitive Landscape Survey Regulation Pricing Strategies Analysis and Recommendation

Transcription

1 The Beer Industry 1

2 Agenda 2 Choice of Industry Industry Structure Competitive Landscape Survey Regulation Pricing Strategies Analysis and Recommendation

3 WHY THE BEER INDUSTRY? 3 Relevant topic for college students Active purchasers and consumers Undergoing major transformations Mergers and Acquisitions Perfect example for price examination

4 4 Industry Structure

5 Industry at a Glance 5 Revenue: Growth Growth $156.5 BN 1.8% 3.64% Wages Employment Enterprises $9.7 BN 472,593 5,216 Industry Structure Competitive Landscape Major Players

6 Supply Chain 6 Raw Materials Brewing Distribution End User Outsource non-core functions: logistics, warehousing Industry Structure Competitive Landscape Major Players

7 Production 7 Global Beer Manufacturing Alcoholic Low Malt No Malt Non-alcoholic Industry Structure Competitive Landscape Major Players

8 Main products 8 Premium Lager 8% Low- and Non- Alcoholic Beer Stout 2% 5% Dark Beer 12% Lager 73% Industry Structure Competitive Landscape Major Players

9 Sales via Market Segments- Globally 9 30% 25% 20% 15% 10% 5% 0% Share Industry Structure Competitive Landscape Major Players

10 International Trade % of industry revenue in 2011 Exports medium and increasing Imports medium and increasing Demand in developed and emerging markets for premium beers not produced in home country Differences in taste preferences Industry Structure Competitive Landscape Major Players

11 Cost Structure 11 Purchases 35% Other 18.1% Sales & Distribution 23.4% Utilities 1.5% Wages 6.5% Depreciation 4.1% Industry Structure Competitive Landscape Major Players

12 Looking at the Global Scale 12 Country Consumption (L) Per Capita Czech Republic 160 Ireland 127 Germany 109 Austria 105 Belgium 98 UK 95 Denmark 92 Slovakia 92 Australia 87 Venezuela 83 Industry Structure Competitive Landscape Major Players

13 Revenue Performance , , , , ,000 Rev. ($MM) 100,000 80,000 60,000 40,000 20, ,000 Industry Structure Competitive Landscape Major Players

14 Industry At a Closer Look 14 Y-O-Y % chang e 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% Revenue Establishments Employment Wages -8.0% Industry Structure Competitive Landscape Major Players

19 Drivers of the Market 19 Age Group (15-34) Downstream Demand- Drinking Places Taxes and Duties on Substitutes Per Capita Disposable Income World Price of Aluminum Industry Structure Competitive Landscape Major Players

20 20 Competitive Landscape

21 Competition with other Industries 21 Sales by Industry Liquor Wine Beer

22 Decline Stage of its Life Cycle 22 Value added growth is below global GDP growth Enterprise numbers are declining M&A Only moderate technological advances Static per capita consumption

23 Operating Conditions- Global 23 HIGH level of capital intensity MEDIUM level of technology change MEDIUM volatility of industry revenue MEDIUM level of regulation Predicted to increase MEDIUM level of industry assistance No tariffs

24 Barriers to Entry 24 HIGH and STEADY High sunk cost and capital requirements. Tight control over distribution channels by existing players. High levels of brand loyalty.

25 25 Major Players

26 Global Market Share 26 19% 41% 18% Anheuser-Busch InBev SABMiller plc Heineken N.V. Carlsberg A/S Molson Coors Brewing Co. Asahi Breweries Kirin Group Other 2% 3% 2% 6% 9%

27 Industry Concentration 27 Company Anheuser-Busch InBev SABMiller plc Heineken N.V. Carlsberg A/S Molson Coors Brewing Co. Proportion of Total Industry Revenue Asahi Breweries Kirin Group.025 Other.412 BUT

28 Anheuser-Busch InBev 28 Brands: Beck s, Brahma, Hoegaarden, Leffe, Skol, Stella Artois, Tennents, Budweiser InBev acquired Anheuser-Busch in 2008 World s largest brewer Year Revenue (BN$) Growth (%) EBIT (BN$) Growth (%) % 7.3 N/C % % % % % %

29 SABMiller plc 29 Brands: Amstel Lager, Castle, Miller Genuine Draft, Miller Lite, Pilsner Lite, Nastro Azzurro, Pilner Urquell South African Breweries acquired Miller Brewing Co. in 2002 Year Revenue (MM$) Growth (%) EBIT (MM$) Growth (%)

30 Heineken N.V. 30 Brands: Heineken, Amstel, Murphy s, Sagres, Maes, Birra Moretti, Cruzcampo, Ochota Sells more than 200 international premium, regional, local, and specialty beers and ciders Year Revenue (MM$) Growth (%) EBIT (MM$) Growth (%)

31 Carlsberg A/S 31 Brands: Carlsberg, Baltika, Elephant, Holsten, Okocim, Kronenbourg, Tuborg Several smaller brands within limited geographic regions Year Revenue (MM$) Growth (%) EBIT (MM$) Growth (%)

32 32 Survey

33 Sample Size Respondents 42 % Male; 58% Female Graduating year 26% in % in % in % in 2015

34 How often do you purchase beer? 34 60% 50% 47% 49% 40% 30% 20% Female Male 10% 0% Never Once a week Twice a week 3+ times per week

35 35 How many people do you generally purchase beer for? 90% 80% 70% 60% 50% 40% 30% Female Male 20% 10% 0% Myself Myself and a few friends/apartment (5-10 people) Large parties

36 Where do you buy beer? 36 70% 60% 50% 40% 30% 20% Female Male 10% 0% Wegmans Tops Walmart Finger Lakes Beverage Center Jasons Wilson Farms Other

37 37 What brand of beer do you buy most often? 80% 70% 60% 50% 40% Female Male 30% 20% 10% 0% Keystone Coors Budweiser Miller PBR Other:

38 Price Shopping for Beer in Ithaca 38 $25.00 $20.00 $15.00 Finger Lakes Bev. Center Wegmans Tops $10.00 Jasons $5.00 Wilson Farms $0.00 Bud Light (30) Coor's Light (30) Keystone Light (30) Heineken (12) Heineken Light (12) Brands of Beer

39 39 How do you decide what type of beer to buy? 80% 70% 72% 60% 50% 40% 30% Female Male 20% 10% 0% Price Taste Advertisements Other:

40 Other Reasons for Beer Choices 40 Habit Depends if I m buying for a group or simple enjoyment. blue moon for just myself coors / keystone for parties. COUPONS Tradition It s what my friends get

41 Take a Look: Collegetown vs. Ithaca 41 Collegetown Jason s Wilson Farms Ithaca Wegman s Tops

42 Price Shopping for Beer in Ithaca 42 Proximity Comparison- Wegmans and Tops $25.00 $20.00 $15.00 $10.00 Wegmans Tops $5.00 $0.00 Bud Light (30) Coor's Light (30) Keystone Light (30) Heineken (12) Heineken Light (12) Brands of Beer

43 Price Shopping for Beer in Collegetown 43 $25.00 Proximity Comparison- Jasons and Wilson Farms $20.00 $15.00 $10.00 Jasons Wilson Farms $5.00 $0.00 Bud Light (30) Coor's Light (30) Keystone Light (30) Heineken (12) Brands of Beer

44 Regional Pricing 44 Prices vary between urban and rural areas and within broad US regions Lower prices are found in neighborhoods with low to moderate income In general: The larger the store, the lower the beer prices

45 45 Regulatory Framework

46 Regulations - Distribution 46 3 tier system mandated by government

47 Regulations U.S. 47 HEAVY and STEADY Vary from State to State Bureau of Alcohol, Tobacco Firearms and Explosives (ATF) Interstate movement of alcohol regulations Tax and Trade Bureau (TTB)

48 Regulations - Taxes 48 Federal excise tax $18/barrel (31 gallons) NY State excise tax $3.72/barrel NYC excise tax $4.34/barrel $26.06 per barrel 84.1 per gallon 8 per 12 oz. can or bottle

49 49

50 50 Pricing Strategies

51 Main Pricing Strategies 51 Tacit Collusion Advertising (point of purchase discounting) 2 nd Degree Price Discrimination: Versioning (premium, import, discount) Volume - Based Regional pricing Long-tail/Niche Market

52 Tacit Collusion 52 A spontaneous cooperation resulting from strongly perceived interdependence Seen in beer industry through price matching

53 Tacit Collusion 53 Requires lack of significant product differentiation and similar production costs

54 Tacit Collusion 54 Domestic Beer Industry dominated by 3 firms: Anheuser Busch In Bev SABMiller Molson Coors

55 Oligopoly 55 Successful collusion requires a small amount of firms in the market.

56 Tacit Collusion 56 These three giants are known to simultaneously raise and lower prices In the last year domestic sub-premium brands had an average increase in price of $0.51/case Domestic premium brands prices have increased $0.27/case Source: BevIndustry 2011: Another year of trading places in beer

57 Advertising 57 Point of Purchase advertising can be found in 90% of stores that sell beer Promoted sales are seasonal (Q2 & Q3) Larger volume packages are associated with higher promotion

58 Second Degree Price Discrimination 58 Create versions of a product to appeal to different types of buyers Key constraint: the inexpensive version cannot be too attractive to those willing to pay more

59 Second Degree Price Discrimination 59 Versioning: Premium & sub-premium brands Trading up vs. trading down Induce customers to select into high and low price groups themselves The self selection process forces consumers to reveal their true types

60 Versioning 60 Immense bifurcation in beer industry Super premium and sub-premium growth Allows consumers to self-select and reveal true willingness to pay Large difference in prices within brand categories (i.e. Budweiser Premium vs. Bud Light)

61 Versioning 61 Sub-premium 30-packs sales up 18.2% YoY 18-packs sales up 35.5% YoY Super premium 30-packs sales up 6.4% YoY 36-packs sales up 15.8% YoY Source: Fuhrman, 2010 Beer Report: Subpremium, crafts lead the way

62 Versioning 62 Emergence of sub-premium brands attributable to: State of the economy Effective and memorable advertising Keith Stone Sub-premium availability in bulk

63 Price (12 oz)) Impact of Versioning on Prices 63 $1.40 Bud Versioning - Wegmans $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 Versions of Bud

64 Price (12 oz) Variety of Bud 64 $1.40 Beer Type Comparison (6 Bottles) $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 Bud Bud Light Bud Light Lime Bud Light Select 55 Bud Light Platinum Versions of Bud

65 Second Degree Price Discrimination 65 Volume-based or Bulk pricing Buy more volume Pay less per unit Enables large quantities to be sold for more attractive prices

66 Volume Based/Bulk Pricing 66 Discount from buying 12-pack over 6-pack is 7.5% per oz. Discount from buying 24-pack over 12-pack is 14.8% per oz. Source: Bray, Loomis, and Engelen, 2008: You Save Money When You Buy in Bulk: Does Volume-Based Pricing Cause People to Buy More Beer?

67 Price (12 oz) Looking at Packaging and Price 67 $1.40 $1.30 Pack Size vs. Price Bud Light Lime, Bud Light Platinum $1.20 $1.10 $1.00 $0.90 $0.80 R² = $0.70 $ Quantity

68 Own Price Elasticity 68 Pricing is so important in this industry because beer is incredibly elastic. Price elasticity of demand for: 6-pack: pack: pack:

69 Cross-Price Elasticity oz. 144 oz. 288 oz. 72 oz oz oz Source: Bray, Loomis, and Engelen, 2008: You Save Money When You Buy in Bulk: Does Volume-Based Pricing Cause People to Buy More Beer?

70 Long-tail/Niche Market 70 Emergence of craft beers Struggle of imports Rise of the Private Label

71 Long-tail/Niche Market 71 Emergence of craft beers Craft sales up 12% 6-pack sales up 9% YoY 12-pack sales up 11% YoY More than 2,000 craft breweries in operation in US

72 Long-tail/Niche Market 72 Struggle of imports sector in US High-end market being taken over by craft beers and domestic super premiums Corona sales down 8%, Heineken down 11% Dos equis breaking the mold

73 Long-tail/Niche Market 73 Private Label 7-Eleven s Game Day Beer Walgreens Big Flats 1901 Supervalu s Buck Range Light Cost consciousness continues to be a consumer trend

74 Pricing Strategies 74 Tacit Collusion Advertising (point of purchase discounting) 2 nd Degree Price Discrimination Long-tail/Niche Market

75 75 Recommendations

76 Recommendations 76 Greater opportunity for retailer partnerships Increase promotions of craft beers Target untapped markets Women Elderly Advertise as a way of life, integral part of culture Find ways to further differentiate

77 Trends for the Future 77 Focus on emerging markets Consolidation Product differentiation Retailers and Private labels Taxation and Regulation Regulation Pricing Strategies Analysis and Recommendation

78 78 Questions?