Beer Industry Analysis

Beer Industry Analysis

All of the Porter’s five forces jointly determine the intensity of the beer industry competition and profitability. The five forces have taken a closer look on why the brewing industry has become more concentrated and key features defining the industries success.

Rivalry: The American beer industry includes more than 300 breweries but is dominated by three producers who command approximately 80 percent of the market share. The three power houses are Anheuser-Busch, which has captured 45% of the market share, Miller Brewing, which has tackled 23%, and Adolph Coors, which has the smallest market share at 10%. Currently, the United States beer industry is characterized by flat consumption trends and this is primarily due to greater alcohol awareness, slow population growth and an aging population. The rivalry among existing competitors in the beer industry is definitely strong. The demand for the product is decreasing, which makes it more competitive when trying to gain market share. Switching costs are also very low for consumers, and because of that competition is very intense to gain new market share.

Potential new entrants: In the beer industry, barriers to entry would definitely be high due to the legal costs and the manufacturing and distribution economics of scale required to effectively compete in such a large market. Also an entering firm would have limited access to distribution channels. This is because the wholesalers who served the largest brewers did not carry other brewer's beer. You can segment the beer industry into three different parts: National, Regional and Microbrewers. In the national market the ease of entry is low. This is because beer is regulated in fifty different ways in the United States. Large capital requirements and distribution networks make it hard to enter the national market. The regional market has an easier entry because of fewer regulations due to smaller market coverage. Local or microbrewers would have the least barriers to entry. Microbrewers generally operate in a small geographic area, which reduces many of the regulations faced by national and regional brewers. Beer is also a heavily taxed consumer product. The largest cost in the price of beer is the tax that is placed on it by local and state governments, so for a company to survive in this industry they would have to be able to manage all of the high costs.