Threat of Entry
Characteristics |
Current situation |
Future trend |
Importance of reputation and brand loyalty in purchase decision |
High importance – customers are loyal to specific flavor and image of the drink. Also, brand loyalty has risen in the recent years. |
Despite marketing efforts of current market players consumers are showing willingness to switch and taste new kinds of beer. |
Entrants' access to distribution channels |
Easy access to distribution channels, especially for powerful potential entrants. |
Same |
Entrants' access to raw materials |
Materials provided through commodity markets, so access is easy. |
Same |
Entrants' access to technology and know-how |
Low accessibility on large production volumes level, though high accessibility on local breweries level. |
Because of development of technologies of large-scale players it would be hard for potential entrants to acquire knowledge and expertise – only multinationals that are currently not present in Russia could enter the market. |
Entrants' access to favorable locations |
Require additional costs, especially administrative ones. |
Due to fast-growing development market, required investments level is to continue growing. |
Experience-based advantage of incumbents |
High expertise in production and distribution. |
Same |
Network externalities |
Low effect of network effect. |
Same |
Government protection of incumbents |
Negative impact of governmental actions on the industry in general. |
Changes for the worse are expected. |
Perception of entrants about expected retaliation of incumbents |
Market structure implies only fair competition. |
Fair market is to remain the same. |
Resources and Suppliers
Characteristics |
Current situation |
Future trend |
What are the most important resource markets used by this industry? |
|
No change in general supplier markets |
Are these markets concentrated? Who has more market power at these markets: buyers or sellers? |
All of the markets are not concentrated, except aluminum cans where Rexam controls most of the industry. Market power of other suppliers is little because of high competition in their markets. Rexam power is significantly higher, but aluminum cans represent up to 10% of overall costs for breweries, so the effect is not that bad. |
Concentration in the beer material is not expected due to the structure of these industries. Moreover, packaging markets are likely to stay the same in the foreseeable future. |
Do firms in the industry purchase relatively small volumes relative to other customers of supplier? To sales of typical supplier? |
No, firms in the industry purchase large amounts. I.e., hops’ only commercial usage is beer. Other resources represent similar situation where breweries are the biggest buyers. The only exception is Rexam which is diversified and also sends cans to non-alcoholic beverage companies. |
The situation is most likely to stay the same, as the supplier markets are at their maturity stage. |
Are there substitutes for theseresources? |
There are no substitutes, as these resources are essential for the recipe. |
Other beer types might be invented, but the classical beer will still be the same and require same resources. |
Credible threat of forward integration |
None of the suppliers possess such a power and expertise to move to brewery sectors. |
Beer production requires knowledge of the process which is not easily obtained. It is unlikely that the forward integration threat will increase. |
Are suppliers able to price discriminate? |
Most of the ingredients are commodities; their prices are based on the harvests. Only can producers might discriminate slightly. |
The situation is likely to stay the same with possible improvements. Anti-trust regulators are taking Rexam’s monopoly under investigation meaning that other aluminum can suppliers might appear in the future. |
Conclusion
Nature of competition in the market and strategies of long‐term profitability
The industry is oligopolistic, most of it is divided by 5 leading companies. Market saturation was observed in 2010. All of the leading companies has products in very different price segments, to satisfy different customers, almost all of the leading companies have products in full price range. demand in beer market is highly seasonable. We can claim the competition in the market to be an oligopolistic competition, characterized with very similar products, few sellers, small firms follow lead of big firms, fairly inelastic demand. We can highlight the competition between segments, different companies are leading in premium & cheap segments. The combination of price & quality competition can be observed.
Strategies of long term-profitability should, firstly, be proactive to changes in the market and upcoming trends: the decline in demand, increase in beer consumption by women. Increased consumption of ale, for example, made Baltica to launch new product “Old Dobby” on the market. We shouldn’t forget about World Cup 2014, which will take place in Russia, that’s will impact the market. The issue is to be ready. Another important point is specific for Russian market, where the % of beer consumption in bars & restaurants is not so high, but we have an upcoming trend here. This can lead to increase in production of beer in keg package. Legitimations are crucial for business too. New laws of 2012, when beer wouldn’t be acceptable after 22-23 p.m., will affect the market much.
Concentration on creation of strong, powerful brands & innovation – main principles of long-term profitability. That, actually, force company to be very careful with their marketing strategies, because its impact becomes more and more important.