Saturday, April 5, 2014

Budweiser vs Miller: Beer Wars Continue?

After I read the case “Cola Wars Continue: Coke and Pepsi in 2010”, I wondered what another beverage industry looks like; my favorite beverage, beer.

By intuition, I did not think beer market is so oligopolized as CSD market. We have variety of choices in terms of brands, types and flavors. However, in terms of market share, two big companies dominate the market. Anheuser-Busch and MillerCoors seem to be Coke and Pepsi in the beer world. Similar to cola market (Coke 41.9%, Pepsi 29.9%), the majority of beer market is dominated by the two companies (AB 46.4%, MC 27.6%). However, if we go to a beer distributor shop, we see so many different kinds of beer on the shelf. So what is the difference between beer and cola? I would like to apply Porter's Five Forces framework to analyze the industry.


Bargaining Power of Suppliers
Supply needed for a beer company are ingredients (malt, hops, yeast, etc), materials (bottle, can), and labor. Since ingredients and materials are commodity products, the bigger company would have stronger bargaining power against suppliers. This is the same as cola industry. Considering this factor, pursuing economies of scale makes sense.

Bargaining Power of Buyers
This could be the biggest difference between beer and cola. Some of the customer may be price sensitive, others may like quality beers. Tastes for beer are so diverse compared for tastes for cola. (I like IPAs but a friend of mine hates IPAs and drinks stout which I do not like.)

Threat of New Entrants
Entry barriers in beer industry is not as high. In 2013, 413 new brewery opened. We can find nice microbreweries in anywhere in the US.

Rivalry Among Existing Competitors
Unlike cola industry where the product lineup is almost same (regular cola, zero calorie, flavored, etc), beer has much more room for differentiation. So the companies can thrive without engaging in fierce competition. It encourage new entrants coming in and diversify the market. (It is good. I don’t want to live in the world where only beers are Bud Light and Miller Lite.)

Threat of Substitute Products
Substitute for beer could be other alcoholic beverages such as cocktails, spirits, sake, etc. In Japan, whiskey maker called Suntory promoted highball (Whiskey with soda) in bars from a few years ago. It was cheaper so many customers start drinking highball and it boosted Suntory’s whiskey sales.

In Conclusion, even though cola and beer are both beverage industry, different customer bases give them quite different characteristics in Five Forces factors. I hope that the beer industry remains diverse and continues to offer us variety of quality beers.

Reference:
David B Yoffie, Renee Kim, “Cola Wars Continue: Coke and Pepsi in 2010” May 26, 2011
Michael E. Porter, "The Five Competitive Forces That Shape Strategy
Brewers Association, www.brewersassociation.org 
Beer Insights, www.beerinsigts.com

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