Ab in Bev Budweiser

Porter’s five forces Analysis – AB in Bev Budweiser:

Rivalry within the industry: -

• The beer and alcohol landscape in the country is heavily contested by a plethora of highly competitive players with strong global footprint and market shares, vying for specific consumer tastes. With more than 300 million cases an year, the beer market has been displaying steady growth in the past few years. From market leader UB (51%), and Carlsberg (15%), brands deploy a variety of strategies to cater to their target audiences from differential temperatures (eg: SAB Miller’s extra cold) to premium variants in intensity (eg: Tuborg’s ‘Strong’ and Carlsberg Elephant). AB In Bev acquired SAB Miller to increase its share to ~24% and has its offering primarily tailored to the premium segment. The market is shaping up towards strategic mergers and acquisitions by prominent players to club offerings and collectively address consumer demands in a region per se basis. AB In Bev’s former partnership with New Delhi based RJ corp. illustrates the above intention although the firm has recently dissolved the partnership to operate its wholly owned subsidiary, Crown Beers.  With the advent of off channel trade via ‘wine-shops’ which account for ~70% of,  the beer  sales have received a boost owing to an additional medium to cater to different markets and geographies.  AB in Bev’s market share has taken a slight dip off late which can be attributed to macroeconomic factors and public policy (eg: recent liquor bans )  as well as the rising prominence of craft beer and increasing demands for customisation by an audience that is shifting towards more specific and nuanced inclinations in terms of taste and intensity.  

The key takeaway from this analysis remains the need for constant, consumer driven innovation as well as strategically catering to local, geography based demands via collaborative engagements and acquisitions to stay relevant and retain market share.

Supplier’s bargaining power:-

• In the beer industry, the supplier occupies a key position in determining the health of the business predominantly owing to the symbiotic relationship shared with the manufacturer. In the case of large scale manufacturers like Budweiser, owing to the large volumes of raw materials purchased, firms and suppliers engage in long term commitment or contracts thereby ensuring that the odds of ‘switching’ are low for the supplier.  At the same time, owing to the immense importance of the availability of quality raw materials like yeast in the requisite quantities for the manufacturer, the onus of a healthy working relationship is as much on the manufacturer as the supplier. For global players like AB in Bev, suppliers offer end-to-end services like dedicated regional sales managers equipped to collaborate in long term planning and better understanding of markets.

Building key supplier relationships is definitely a key catalyst in brewing success, which indicates a ‘moderate’ bargaining power for the supplier.

Buyer’s bargaining power:-

• The buyer holds moderate to high bargaining power predominantly owing to low to nil switching costs and easy access to information. Consumers of premium brands of beer remain well informed about pros and cons and multiple offerings shaping up in the industry. For a premium brand like AB in Bev, the onus is to keep itself differentiated via 1) quality – the brand’s commitment to quality via prudent and selective supplier selection as well as living up to its mission to produce ‘strong’ premium beer 2) strategic partnerships and collaborations to tailor its offering to regional markets 3) continued focus on innovation and customisation

Threat of new entrants:-

• The beer industry in India, rather than witnessing new ‘players’ in the premium market is witnessing a paradigm shift in a plethora of small scale players coming up in the ‘craft beer’ segment which involves non mechanized manufacture of beer in small breweries. The two year old ‘Bira 91’, albeit commanding a meagre 2% market share at present, aims at striking a cord with the premium consumer segment via specific offerings in the ‘strong beer’ category with a differentiating focus on taste via deploying wheat in beer brewing. Other players offer customers options to participate in the brewing process via independent breweries to add an extra flavour of customisation in their portfolio.  The fact that AB in Bev’s market share has taken a slight dip in the latest quarter to ~20% from its previous 24% should be attributed to the increasing threat imposed by smaller, fragmented players arriving in the market and attracting young, upmarket audiences with nuanced demands and a penchant for new, varied experiences.  AB in Bev’s positioning as a globally renowned premium brand that caters to specific target markets should be leveraged as a shield against newer competition, but options ranging from ‘brew your own beer’ to generating an experience focused rather than product focussed offering should be explored in the medium term.

Threat of substitutes: –

• The key substitutes for ‘beer’ as a whole range from wine to other spirits. AB in Bev’s portfolio consists of other SKUs ranging from ‘Budlight’ to  ‘Corona Extra’ for consumers demanding a variation in flavour, aroma and balance which hedges its risk of losing out owing to the consumer’s inclination for a change of taste vs. Budweiser, as well as a proclivity towards beer with lesser calories.  As mentioned earlier, the rise of craft beer’s popularity should be perceived as an alternate option with more than 100 brewpubs coming up in the country’s major cities offering independent and customized brewing services and rising players like Bira91 on the verge of faster geographical expansion through setting up breweries at strategic locations in the corporate hubs of Maharashtra and Karnataka. A growing niche segment in AB’s target markets, moving towards non-alcoholism is leading the promotion of non-alcoholic substitutes to beer, although the same is currently perceived as a relatively minor threat as well as a factor at the industry and not the product level.