Beer industry in U.K: Heineken

.0 Introduction

1.1 Heineken background

Beer is one of the products that is highly consumed in America and the rest of the world and highly celebrated product among several cultures.  Heineken has invested in the beer industry for more than 130 years emerging as the global market leader in the production and distribution of beer across different markets in the world. The organization has maintained brand leadership and loyalty from its customers for more than a century and successfully become one of the most favorite beer brands in Europe and America.  Heineken has several distribution networks with a network of distributors to cover over 70 countries worldwide (Smit 2014). The company also has 165 breweries spread across different market segments. It has premier brands such as Amstel light and Heineken as some of the brands that have attracted customer loyalty leading to high market share increased profitability and sales of the company. This report focuses on analyzing the business environment within which the Heineken business operates through the lenses of both external and internal factors to help provide sound recommendations that can help keep the business more competitive going into future. The first part highlights business position with regard to Porter’s five forces and the internal factors audit. Finally, the report will explore recommendations to resolve threats and weaknesses identified through the business environmental scan.

2.0 Porter’s five forces

2.1 The threat of potential entrants

The beer industry is very lucrative and there are several brewers that are entering into the market and also new companies that seek to extend their market share by entering into markets that were previously dominated by the Heineken products. Over approximately the last few years more than ten new and popular beers have been introduced into the market. The top international competitors are also on the lookout to expand their market share such as Carlsberg, yanjing, Molson among others.  The barriers for the new entrants into the market is usually very low especially owing to the current age of globalization with countries competing to ease the way of doing business to attract more foreign investments.  Hence the threats of new products being introduced into the market are usually very high and the Heineken needs to invest more on product differentiation and innovation to help retain the loyalty of their customers to remain more competitive in the market (Roy 2009).  The new entrants into the market mean that they are competing to control market share that is previously held by the Heineken in those markets and hence this presents a threat as well as an opportunity to the company to improve their products so that it can attract more customers by meeting their tastes and preferences.

2.2 Bargaining power of buyers

Buyers have a very high purchasing power in the beer industry as there is an unlimited number of the companies selling a variety of beverage products to the buyers.  The buyers have unlimited freedom to choose between brands presented in the average pub such as the Tsingtao products, Guinness, john walker products, Anheuser products, Carlsberg all of which control approximately half of the market global market share.  The customers have the freedom to choose from some of the products competing through fair prices and great tastes (Kahungu 2018).  There are new entrants into the market that also bring new products with sound promotional strategies such as captain Morgan products which are likely to give the customers even more expanded choices and desire to taste the newness of the new products presented. The unlimited choices hence bring forth a threat for the Heineken products loyalty since if the company doesn’t capture the opportunity to enhance their products and create more choices and loyalty for the customer there are high chances of losing a sizeable share of their markets resulting into a drop in sales and profits of the company.

2.3Threat of substitutes

Threats of substitutes are also high in the beer industry since there are several beverages that contain alcohol as observed through many companies’ products competing in the market. The customer has the luxury of products to switch which also contain alcohol such as the wines. Customers go by tastes and preferences which are very dynamic hence they can easily switch to other alcoholic beverages when such need arises (Dobbs 2014). The threat of substitutes is not only limited to alcohol drinks but also extends to other non-alcoholic products such as Coca-Cola and Pepsi. More customers are becoming concerned with their health hence such companies like Coca-Cola has introduced zero sugar products which the customer can easily substitute due to health issues resulting from high consumption of sugar products. There are other substitutes in the market such as Strongbow, Smirnoff, john walker, Chivas regal, Jack Daniels all of which provide an easy substitute for the customer based on their preferences. The impact of the Heineken brand is that there is reduced customer loyalty if there is no high differentiation of their products.

2.4 Rivalry among the existing competitors

The industry is very competitive and results in high rivalry among the most established competitors. For instance, in 1947 five leading firms controlled only 19 percent of the entire market in United States while in 2001 top five companies controlled 87 percent of the market in United States (Kahungu 2018).  There are very many best brand beers competing to raise their market share such as Budweiser, coronal bud light among others. However, Heineken has a strength derived in economies of scale especially given that they have a large market share in regions like the European market.  Given that they have a large market share globally they have higher chances of investing in innovation to produce quality and unique products hence remaining competitive in the market.

2.5 Bargaining power of suppliers

There are high threats to the bargaining power of suppliers mainly because they are largely farmers who produce barley. The critical raw materials for beer are yeast, barley, water and there are many players in the industry competing for the same products from the farmers such as barley, wheat leading to the rising cost of supplies.  In the past Heineken has leveraged on having a 33 percent stake in its main supplier of bottles Heye glas Nederland. The Heineken has also gone further to acquire a hundred percent stake on heye glas Nederland its main supplier of green bottles to help have full control of quality and cost of supplies. The biofuel industry has staged even increased the competition of agricultural products hence increasing the cost and bargaining power of the suppliers (Roy 2009).

3.0 Internal analysis (Heineken)

3.1 Strong brand name and large capital

Heineken is an internationally recognized brand name which is a valuable asset to the organization. The brand name has been created over years through quality assurance, customer center products as well as a strong advertisement campaign. The company has the heavy investment in the infrastructure through various breweries fitted with the most modern technical equipment which help to maximize output and reduce production cost through increased efficiency. This is a strong competitive advantage and internal strength of the company that can be leveraged upon to maintain the competitive advantage in the market.  A strong brand name provides a plan for easy acceptance of the company products into the new markets.  The Heineken has invested in a lot of marketing activities such as the print advertisement, social media, website, radio and television advertisement, billboards and sponsoring activities such as sports.  The initiatives originate from the recognition that brand is an asset to the organization hence given that the organization has built up capital and resources it is a strength especially when it comes to extending such brand marketing campaign to new target markets as well as introducing new products in the market.

3.2 Strong management skills and talents

Leadership development is one key area that Heineken has invested heavily with its management model that match the behavior expectations expected of its managers with the values, goals, and culture of the organization. A sound motivational strategy and transformational leadership are some of the strengths of the company which can help the company to be a leader in innovation. Heineken also has a highly skilled workforce due to its sound employee management strategies. The company invests heavily in employee development, training and motivation to encourage a desire for greater achievements.

3.3 Corporate culture

Heineken has a strong corporate culture with respect to diversity of employees and independence of thought.  Such values create a friendly environment for innovation and talent retention. The organization has value for every stakeholder in the organization from the employees, customers, suppliers, and investors and this creates a shared bond within a team that works together to realize greater success. Due to the fact that Heineken is an international brand, it can attract the best talents and skills as it offers competitive remunerations.  Such strong corporate culture is an asset to the organization since it enables the company to maintain leadership with regard to market share and can also be utilized to expand its market size amid strong competition in the market (Smit 2014).

The company has loyal customers owing to the great satisfaction that originates from the consumption of high-quality products for the company. The company has built loyalty from the customers due to its innovative approach to management, advertisement, and product diversification. Although there may be new threats and competitors in the market this is a great strength for the company brands since it can leverage on customer-focused approach to create great customer satisfaction and increase value for their products. They have also invested in product differentiation enabling their products to be unique and blended with high quality and attention to meet customer dynamic taste and preferences (Kahungu 2018). The heavy investment in product differentiation is a great asset in improving loyalty to the customers both new and existing across different market segments.

4.0 Recommendations

4.1 Accelerate innovation of new products

Based on the above analysis the Heineken Company has a lot of improvements that they need to implement to maintain a competitive edge and reclaim more markets. First, the company needs to address the changing tastes and preferences of consumers and address some of the rising concerns about health and keeping fit. They need to consider innovating and diversifying their products to include beverages with zero or low calories. This will help address the health concerns of the customers especially those who are very concerned about adding weight and all health complications associated with excessive intake of sugar products into the body (Kahungu 2018). Product diversification should also focus on products with new tastes based on consumer demands.  This would help to create more brand loyalty for their products and edge out competitors who threaten to take up their market share.

4.2 Form more strategic partnerships

The company needs to keep making more acquisitions and mergers with other national breweries to help diversify their markets.  There is also need to form a strategic partnership with like-minded partners at the global market to help cut some costs in their expansion strategy and leverage on its size and brand name to venture easily into new markets.  Some of the regions that they need to focus more are in Africa and Asia where there are the very large growing number of alcohol consumption and emerging economies that provide more incentives for leisure due to growing number of the middle class (Dess, Lumpkin and Eisner 2014). The expansion through merger and acquisitions in the supply chain will help the company have more control of the raw materials and also greater market reach while reducing the operational costs and maximizing profitability.

4.3 Intensify marketing

There are more cost-effective advertisement platforms created by the information communication technology such as the social media, website advertisements which the company needs to embrace and capitalize.  To intensify global marketing the Heineken need to sponsor many community empowerment programs and maturing of talents such as in sports. Heineken need to repackage advertisement based on the local culture and audience in the target markets. Sponsoring the big entertainment events, sports, community empowerment programs in education, trade and poverty eradication are some of the advertising strategies that the company need to refocus (Gammelgaard & Dorrenbacher 2013).

4.4 Adapting to rapid technology innovations

The current technology is rapidly evolving through the introduction of robots in work to cut the cost of production and increase working hours.  These are some of the technologies that the Heineken need to consider their application to cut down on the cost of production and improve their efficiency. They also need to strengthen their information technology security to protect their patents integrity and confidentiality of critical information to avoid a breach of information security especially in the contemporary environment of increased cybercrime threats.

5.0 Conclusion

Heineken business is among the global leaders in the beer industry with a strong brand reputation and control of large market share. The company has elaborate distribution networks and breweries in United States, Europe, Africa and other parts of the world. The screening of Heineken through Porter’s five forces shows that the company operates under influence of external factors that expose it to competition, availability of substitutes, suppliers, and buyers with high bargaining power. Audit of internal factors also indicate strengths of the company products based on strong brand reputation, good management, economies of scale and highly skilled employees as some of the internal factors that have kept the business stable and competitive in the market. Based on the analysis there is the need for the Heineken to focus more on product differentiation, technology adoption, more aggressive marketing strategies and forming strategic alliances to remain competitive in the market.

6.0 References

45. Dobbs, M., (2014). Guidelines for applying Porter’s five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), pp.32-45.

Roy, D. (2009). Strategic foresight and Porter’s five forces: towards a synthesis. München, GRIN.

Gammelgaard, J., & Dorrenbacher, C. (2013). The global brewery industry: markets, strategies, and rivalries.

Smit, B. (2014). The Heineken story: the ‘lager’ than life tale of the world’s bestselling .
London : Profile Books

Dess, G.G., Lumpkin, G.T. and Eisner, A.B.,( 2014). Strategic management: Text and cases. McGraw-Hill Education.

Kahungu, L., (2018). Critical evaluation of the macro and micro environmental factors affecting the brewing industry with a particular focus on Heineken. GRIN Verlag.