Brewing Industry

1. The U.S. brewing industry has become more concentrated over the last two decades for several reasons.

a. The consumption of beer has been slowly declining, in order for companies to gain market share, they have to take customers from other companies. This would then lead to some companies to go out of business due to the lack of customers.

b. Brand loyalty also increased. Advertisement played a large role. Larger companies were able to spent $0.40 per case of beer sold. Smaller mass-market brewers could not afford to spend near that amount.

c. Technological change in canning and distribution lead to the concentration of the brewing industry, as well. The size that a mass-market brewer has to accomplish to acquire all economies of scale has grown. They must produce more beer and achieve more market shares. Not all companies reach minimum efficient scales of production.

2. The competitive structure of the brewing industry using Porter’s five forces model.

a. Risk of entry by potential competitors. New micro brewing companies have low barriers of entry. New micro brewing companies do not rely heavily on brand loyalty or economies of scale. Mass market brewers our faced with higher barriers to entry because of brand loyalty of customers and absolute cost advantages.

b. Intensity of rivalry of previously established companies new customers are always entering the market as they become legal age and the willingness to consume beer, so mass market brewers try to appeal to them to get their business, minimizing the competition to take other companies competitors. Demand has also been growing, making them less competitive.

c. Bargaining power of buyers (buyers may be the individual customers who consume it product) this is low for mass market brewers because there is a large number of buyers available for High microbrewers.