Us Beer Industry Overview Essay Example for Free

Us Beer Industry Overview EssayThe beer industry is widely known for been an oligopoly. However, in our approach, we will explore the possibility of analyzing microbreweries in particular from a monopolistic competition market structure perspective. The beer market oligopoly is composed by three big players Anheuser-Busch which holds 48 % of the market share, Miller brew Co. , with 18% and Coors Brewing Co. with 11%. Please refer to the below graph and table for information regarding the market share held by the remaining companies. ( commercialize shares are shown based on shipments of 205. 6 million cases in 2005 and 210 in 2006).Based on the above market shares, we calculated the c at one timentration ratio of the three big players and the Herfindahl Hirshman Index for the industry. Both measures hold that the Beer Industry is indeed a gamyly concentrated one as the concentration of the big three players is almost 80% and the HHI is well above the 1,800 threshold. Market An alysis The demand in the beer market is characterized by flat consumption trends although we can currently identity two increase markets First, a domestic recessional market for microbreweries, and second, the inter home(a) market that is currently been targeted by our big national brands.Another very strong market trend is the consolidation of m either national brewers. This consolidation has been driven by the increased regulatory burdens and taxation in the industry as well as by changes in demographics greater alcohol awareness, slow population growth, aging population, etc. Through consolidation, brewers can accomplish economies of scale and other supply chain synergies. Parallel to this trend, there has also been an magnification of specialty brewers (microbreweries) that target more sophisticated and knowledgeable beer drinkers.The players in this market focus on differentiation and therefore can afford to charge subsidy prices for their products. This is actually the r ecess market on which we will focus our analysis on in the later part of this paper. Barriers to Entry Standard and poor dog the barriers to intro in the beer industry as relatively minimal however, once firms enter the market, it is really difficult for them to remain competitive. The high barriers to entry are partly due to the fact that the beer industry is a relatively mature industry and that the market is dominated by very well established leaders.Other factors constituting barriers to entry are an increased tendency for erect integration (i. e the three largest brewers each own subsidiaries to perform non-brewing functions like grain elevators, milling, can manufacture, labels, etc), advantages of economies of scale and a very intense price competition. As a result, the new entrants are mainly microbrewers which are focusing on a new type of demand. mathematical product Inputs Big or small, companies in the beer market are competing for the same resources and are affecte d by the prices fluctuations of their inputs.In the beer market, some of the key inputs to consider in any economic analysis are grains, hops and yeast. Strategy to succeed ? Market Leadership ? Expanded market share (internationally) ? Price Increase ? Production efficiencies ? late differentiation Premium Price i. e. Anheuser-Busch Michelob Ultra for Atkins taste Industry niche markets Smaller micro brews ? Highly fragmented but growing ? Only growing market segment in the domestic beer industry ?Target small consumer market segments with high price inelasticity ? Rely on regional brewers for production to neutralize high entry costs ? Market Trends Consolidation of National Brewers Flat Consumption trends Regulatory Burdens High Taxation Greater alcohol awareness tedious population growth Aging population Expansion of Specialty Brewers Uniqueness and high price points High demand in category Constant high prices to attract sophisticated drinker pic.? Although the barriers to entry are classified by SP as relatively minimal, it is still extremely difficult for firms to remain profitable once they enter. Barriers may include The market is a relatively mature Industry The market is dominated by well established leaders Increasing vertical integration Economies of scale advantages (i. e. the three largest brewers each own subsidiaries to perform non-brewing functions like grain elevators, milling, can manufacture, labels, etc) High price competition New entrants are niche markets microbreweries ? Grains (i. e. barley, wheat, rice, malt, sugar, etc. ) ? Hops (cascade) ? Water (H2O) ? Yeast FORECAST o Reduced market shares for national brands o Weak domestic consumption trends = Price increases to mend margins for sustained profitability However, o Signs of competitive pricing o Potential decreases in industry-wide pricing levels / decreased operating margins. C3 (2006) 77. 70 % HHI (2006) 2,831. 79.