. of beer consumption, revenues growth and production volume.

.
Market Analysis

 

1.1.
By Geography

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At a global level, we have some regions that are
clearly key players when it comes to influence over the global beer industry:
more specifically in terms of beer consumption, revenues growth and production
volume.

Europe is at the moment still the largest player in
terms of revenue creation, though it has lost the leadership to the
Asia-pacific region, more specifically to China, when it comes to consumption
and production volume. Europe’s consumption volume growth, which accounted for
27% of global consumption in the last year, has stabilized over the past few
years and is expected to continue so, this is, it is predicted to continue to
grow at a moderate pace, due mainly to health and legal factors. (https://www.alliedmarketresearch.com/beer-market). According to (https://www.mordorintelligence.com/industry-reports/europe-beer-market) , it predicts a compounded annual growth rate of approximately 4.3%
during the years of 2018 and 2030, meaning it is projected to increase from
US$145.81 billion to US$203.83 billion, during the mentioned period. Another
fact worth mentioning, is the range of diversity of the 400 million hectoliters
brewed in Europe, as there are over 6000 active breweries in the EU.

When taking a closer look at the European market,
Germany takes the leading position in terms of production, with a total of 8.3
billion of liters in 2016. This means that 1 in every 5 beers produced in
Europe come from Germany. In the same year UK followed with 13 percent of
European production, as well as other important key players such as Poland with
10 percent, Spain and the Netherlands with 9 and 7 percent respectively, and
finally Belgium with 6 percent of the Europe’s total production.

(http://brewersofeurope.org/uploads/mycms-files/documents/publications/2016/EU_economic_report_2016_web.pdf )

North-America has always been a historic player
alongside Europe, with the American consumption of beer growing at a stable
rate over the centuries, thus ensuring the continued growth of the industry. (https://www.alliedmarketresearch.com/beer-market). In 2018, the beer industry in this region is expected to generate
around US$83.691 billion in revenue, with approximately 90.10 percent of the
latter being solely generated by the United States of America.
                                (https://www.statista.com/outlook/10010000/104/beer/north-america#)

In recent years, it were mainly the emerging
economies, namely from the Asia-Pacific and the LAMEA regions, which have
experienced higher growths regarding the brewing industry – in opposition to
the more matured regions mentioned above- and are therefore becoming
increasingly interesting to the big multinational brands, which are beginning
to introduce customized beers adapted to the Asian consumer’s tastes. (https://www.alliedmarketresearch.com/beer-market)

The beer industry in the Asia-Pacific region is
expected to grow by 7.3 percent (CAGR) from 2015 to 2020, when it’s predicted
to reach US$202.4 billion in sales (https://www.alliedmarketresearch.com/beer-market) due to the exponential increase in the beer demand in the past few
years. A clear proof of this was the overthrowing of Bud Light as the world’s
top selling beer, in 2008, by the Chinese Snow, which is produced  and
commercialized in China by SABMiller and China Resources Enterprise. (https://qz.com/410413/the-worlds-top-selling-beer-is-a-watery-lager-sold-only-in-china-for-1-a-liter/ ) This beer accounted in 2014 for 5.4 percent of the global market in
beer brands. (http://theweek.com/articles/582948/great-budweiserization-global-beer-market )

Already the production volume of Asia-Pacific
countries is catching up with traditional beer countries and regions, with
especially China taking an important role in this process. It has been the
largest beer producing country in the world for several years and has reached a
production volume in 2016 which was estimated at 460 million hectoliters of
beer. (https://www.statista.com/statistics/270269/leading-10-countries-in-worldwide-beer-production/ )

Other upcoming global players would be the LAMEA
regions – which includes Latin America, Middle East and Africa – with an
expected CAGR of 8 percent between 2016 and 2022, according to

(https://www.researchandmarkets.com/research/wqnh7x/lamea_beer_market ). Countries worth mentioning in this region would be Brazil, Argentina,
UAE, Saudi Arabia, South Africa and Nigeria.

The growth of the beer industry among these countries
has emerged as a consequence of the increase in demand, which has arisen due to
several factors: the evolution of social and cultural habits regarding the
consumption of alcoholic beverages, and the growth of the urban population,
which now has better living conditions and a more modern lifestyle. ((https://www.researchandmarkets.com/research/wqnh7x/lamea_beer_market ),

 

1.2.
By production

 

Concerning production, breweries can be classified
according to their size (in output), after which they can be named either a
microbrewery, or a macro-brewery. The former, as well as craft brewers, offer
uniqueness and variety in special flavors. They usually only produce up to 1000
hectoliters, hence the name. Recently these breweries have attracted beer
consumers all over the world, leading to an estimated growth in its production of
9.3 percent CAGR by 2020.  Macro-breweries on the other hand, the big
multinational brewers, are fighting this growth of the craft beer segment by
offering good quality to price beers, on a global scale, and, most importantly,
by acquiring ownership of these smaller producers when they start gaining
importance. This issue will be elaborated further on. (https://www.alliedmarketresearch.com/beer-market)

 

1.3.
By Category

 

Beer can be categorized into normal, premium and super
premium beer.

According to the beer industry, what defines a beer as
premium or super premium, besides many other characteristics, is the alcohol
content: A lager is considered premium if it’s above 4.5 percent, yet an ale
will be premium from 4,2 percent alcohol on. (https://www.morningadvertiser.co.uk/Article/2016/08/30/Defining-the-difference-between-craft-and-premium-beer ). Nevertheless, alcohol percentage is not the factor consumers would
primarily look at when considering whether a beer is premium or normal. Rather
they’d put importance on the innovation of a beer, which explains the
willingness to pay a premium above the normal price for it.(https://www.morningadvertiser.co.uk/Article/2016/08/30/Defining-the-difference-between-craft-and-premium-beer )

MUDAR When it comes to lager, a premium product has
been traditionally defined by its ABV – of 4.5% and above – but Griff Maggs,
brewer at Renegade Brewery, says: “We believe that in the eyes of the consumer,
the word ‘premium’ implies quality, not necessarily strength.”Any premium beer
should be chock-full of class ingredients and brewed with style and character.
You should know at first sip that this really is a beer worthy of the tag
‘premium’.”
https://www.morningadvertiser.co.uk/Article/2017/08/21/Drinks-what-is-premium

The bottom line is that, while 43 percent of the
market was considered normal beer in 2014, the past few years have seen a
notable rise in the super-premium segment, which knew large growth comparative
to the other two segments, and is furthermore expected to continue growing at a
CAGR of 6,4 percent by 2020. However in recent years it has suffered a lot due
to the fact that consumers, specifically millennials, are particularly
interested in local craft beers, rather than mainstream super-premium ones.
 (https://www.alliedmarketresearch.com/beer-market)

 

1.4.
Packaging

 

When it comes to packaging, beer can be canned,
bottled or draught. Draft beer has been considered the best option according to
beer drinkers, because it guarantees the freshness of the beer as well as the
quality, with bottled and canned beer having to be consumed on average within
30 days to guarantee hop quality. (https://gearpatrol.com/2017/03/21/is-draft-beer-better/ ). Nevertheless, breweries are moving toward the option of cans, since
they offer a wide range of advantages compared to bottles, for instance storing
and transporting, and at the same time they assure the protection of the
beverage from external factors, like heat. (https://www.alliedmarketresearch.com/beer-market).

 

1.5.
Product Type

 

Depending on the process of brewing, beer can be
classified as light or strong beer, taking a normal beer as the benchmark.

The normal beer’s alcohol content typically is around
4 and 6 percent, but depending on the type in can vary between 2,5 percent and
15 percent ABV approximately. Light beer, besides having a smaller amount of
alcohol, between 2.6 and 4 percent, according to the Canadian Food Inspection Agency,
has significantly less calories than both normal and strong beer -due to the
difference in the brewing process- making this type appealing to more health
conscious consumers. (https://www.alliedmarketresearch.com/beer-market).

Strong beer, on the other hand, is a type of beer
which has high levels of alcohol, usually a minimum of 5.6 percent ABV-
according to the same Canadian agency- and maximum levels reaching up to 15
percent. This segment is expected to see a continuing expansion, namely at a
6.5 percent CAGR between 2015 and 2020, and raise approximately US$460 Billion
in sales by the same year. (https://www.alliedmarketresearch.com/beer-market)

 

2.
Beer Market Structure Analysis

2.1.
Competitive Environment

 

The competitive environment within the global brewing
industry has experienced some modifications over time, but since the 19th
century, its core has been mostly characterized by a few leading multinational
firms dominating the industry and competing domestically with a growing number
of microbreweries, each facing its own demand.

Competition in the global brewing industry has been
increasing and its crucial driver was the significant increase in the number of
microbrewers as response to the rising demand for craft beer.

A look at the European brewing sector in the year 2016
gives us approximately 8,490 active breweries among the 28 EU member states, a
massive increase of more than 50 percent since 2010, which reflects the rise in
competition within the sector. (https://www.brewersofeurope.org/uploads/mycms-files/documents/publications/2017/Statistics-201712-001.pdf  )

Many of the new breweries that emerged during the
mentioned period were microbreweries – including more specific segments such as
farm breweries, brewpubs, craft breweries and so on (https://en.wikipedia.org/wiki/Microbrewery ) – due to the fact that the concept of craft brewing is attracting
more and more the interest of the beer consumers in addition to how easy the
acquirement of brewing technology has become to anyone that would like to start
its own business or even the ones who are only curious.

 

As a response, the dominant international players are
taking two approaches: first they are trying to innovate by introducing new
products and packing methods (https://www.mordorintelligence.com/industry-reports/europe-beer-market), but most importantly, they have been undertaking successively
acquisitions of this small domestic brewers, which in USA as led to a slow of
the craft beer segment growth, of about 1.2 million fewer barrels during 2016 ,
(https://www.usatoday.com/story/money/business/2017/03/28/big-beer-acquisitions-slows-craft-beer-growth/99728192/ ) as well as mergers with other key players in the brew sector, to
guarantee the dominance in market share.

As of 2014, the 5 largest breweries in the world held
half of the global market, AB Inbev being the clear first, with a market share
of around 20 percent. Second and third, both with 12 and 9 percent,
respectively, were SAB Miller and Heineken (http://www.businessinsider.com/beer-industry-consolidation-2015-6 ).

A nice example of the expansion of these giants can be
found in Slovenia itself. In 2005 the Laško Brewery gained a majority share in
Union Brewery, after which Heineken bought Laško Brewery, and consequently also
Union Brewery, in 2015. (http://www.sloveniatimes.com/lasko-and-union-formally-merged )

AB Inbev however, is the true champion in expanding
its market share. In 2016 it concluded the acquisition of its largest worldwide
competitor SAB Miller (http://theweek.com/articles/582948/great-budweiserization-global-beer-market ). This means AB Inbev is now even more the clear world market leader,
with 30 percent of global market shares. Some of its most famous beers are the
Belgian Stella Artois, the American Budweiser and Bud Light, and the Mexican
Corona. The global leader shows a steady rise towards a global monopoly, as
seen in its history. First step was the fusion of the Belgian Interbrew and the
Brazilian AmBev. A couple years later they acquired the American
Anheuser-Busch, all of this amounting to the current name AB Inbev. As
mentioned before, a year ago SAB Miller was integrated into AB Inbev as well.

In this context, the beer sector has logically been
moving towards a more oligopolistic market, with the dominant multinational
firms representing an even bigger and overwhelming share of the global market,
but next to a completely different growing market of monopolistic competitors –
the microbreweries – each producing a niche product.

 

2.2.
Product differentiation

 

The importance of product differentiation in the
brewing industry is quite clear as a shift in tastes from light mainstream
beers to craft and local beers occurs among the American and European markets.

Although the big multinationals, like Anheuser-Busch
InBev, Molson Coors and Constellation Brands, have been acquiring quite a
significant number of microbreweries in late years in USA and Europe, there are
some local brewers that remain true to its initial purpose, which is offering a
unique product, highly differentiated from the remaining, especially from the
standardized widely-produced beers. (https://www.ft.com/content/c9f77348-8ccc-11e6-8cb7-e7ada1d123b1 ) . At the same time, many new others that keep emerging, as already
examined above, to face the higher demand for no-mass-produced beer.

Microbreweries focus on product differentiation as
their main business strategy. As beer consumer tastes are returning to the old
days, when beer as a synonym for “hoppy all-malt lagers, ales, wheat beers,
Abbey beers, and stouts” according to Trevor Stirling, analyst at Bernstein
Research (https://www.ft.com/content/c9f77348-8ccc-11e6-8cb7-e7ada1d123b1 ), craft brewers are focusing even more in offering a unique and
consumer focused product, which is heavily diversified in terms of flavor,
packing, marketing among other characteristics.

More specifically, the product differentiation in the
brewing sector occurs both within segment, so different beer with different
tastes, and between segments, this is the traditional beer, such as pilsner and
pale ales, and the new innovative products introduced, such as flavoured beer,
Radlers and low alcohol beers. (http://brewersofeurope.org/uploads/mycms-files/documents/publications/2016/EU_economic_report_2016_web.pdf)

According to (http://brewersofeurope.org/uploads/mycms-files/documents/publications/2016/EU_economic_report_2016_web.pdf) the range of products offered in the brewing sector across Europe has
been increasing over time as new innovations are introduced and as new
microbreweries appear. In addition, consumers preference for variety is
increasing as well as their willingness to pay for differentiated beers, as the
recent studies that were carried out, prove.

 

2.3.
Barriers to Entry

 

Regarding barriers to entry in the beer market, these
can be considered high if one is taking into consideration the global market,
but low if its rather the local and domestic market one is looking at.

On one hand, in the global market only the big
multinational producers are present. This occurs because at this scale of
production, firstly economies of scale are quite significant which prevent the
entry of possible new players: primarily they cannot compete in prices initially,
and also because the greater revenue attained due to these cost advantages
allow the major brewers to invest even more in adverting and marketing;
 situations that have been exacerbated by the recent mergers between large
dominant brewers. Secondly the brewing industry is a capital intensive one, it
requires high levels of capital initially, when establishing a new plant, as
well as later for maintenance, which may amount to US$450,000 annually on
average per plant.(https://faculty.cit.cornell.edu/jl2545/4160/…/THE%20BEER%20INDUSTRY-4.pptx

A less impactful, but also relevant, barrier to entry
could be the fact that given that the big brewers have a wide variety of
products, it means these will take a lot of the milited space in the retail
stores’ shelfs, which may difficult possible new brewers to expose their
products too. (https://faculty.cit.cornell.edu/jl2545/4160/…/THE%20BEER%20INDUSTRY-4.pptx)

On the other hand, technology development as allowed
the brewing technology to be widely available , which facilitates the entry to
new possible local small brewers that would like to have their own beer
production business, meaning that these will not face significant barriers when
entering domestic/local beer markets.

 

3.
Technology Sensitiveness of the Beer Industry

 

Technology development has been, directly and/or indirectly,
affecting every aspect of the social and economic environments, so that the
brewing industry is no exception.

Although the level of technology change within this
industry has been low if compared to others, in the sense that the bases of
producing beer have not changed that drastically since its creation, one would
say, some technological improvements were introduced in the various production
stages that allowed to reduce inefficiency and increase productivity.

A important point to refer is that these technological
innovations have been mainly occurring at the firm level, in the sense that
firms have been trying to differentiate themselves by purifying their own
brewing process with the purpose of improving quality.

In addition to this, new advancements regarding the
boiling systems emerged (https://www.mbaa.com/publications/tq/tqPastIssues/2000/Abstracts/tq00ab56.htm ) which allow producers to reduce considerably the amount of water
wasted in the production process.

As well as innovations focused on energy consumption
in the brewing process, with the purpose of protecting the environment as well
as a strategy to get a step closer to a long-term sustainability as stated by
the Anheuser-Busch’s CEO, João Castro Neves, in the context of the new
renewable energy partnership the latter made with Enel Green Power .

In broader terms, technological changes at the
distribution, packing and storing level- from electric and hybrid fleet
vehicles adopted by distributors to inventory management software used by
warehouses – also allowed the decrease in intermediaries’ related costs and consequently
allow for beer to be sold at lower market prices. (http://www.apprise.com/downloads/white_papers/Beer-Wholesaler-Trends-and-Technology.pdf )

Also, a quite interesting point, is what some are
calling the revolutionized tech innovation when it comes to brewing, the
cavitation, a newly invented brewing method,  which consist in the process
of the formation of small bubbles of vapor within , change completely the
chemistry and engineering round the beer-making process, namely – in the
context of cost saving – by allowing the increase in efficiency during the
boiling process an consequently huge energy savings: in approximately about
 thirty percent less use of energy than in the standard process.

(https://www.technologyreview.com/s/602464/this-technology-is-about-to-revolutionize-beer-making/ )

A finally point worth to mention, is the fact that
recent advances have allowed the increase in the number of microbrewers due to
the fact that almost everything required for the brewing process – such as
brewing technology, ingredients, tips and information – can now be easily
obtained by anyone through the internet, which has increased the competition in
the industry, even if in a small (or insignificant) scale in the short run. (https://bizfluent.com/list-7392420-macroenvironmental-forces-affect-beer-industry.html)

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