United States Brewing Industry

Why has the United States brewing industry become more concentrated over the last two decades?

First, the consumption is declining due to the substitute product like wine and spirits. Second, the brand loyalty is increasing and the advertising spending budget is rising. The small brewers cannot afford the expensive marketing campaign hence their market share is reducing. Third, technological change in canning and distribution lead to more concentrate of the brewing industry because the minimum efficient scale that the mass market brewers have to accomplished has grown. They have to produce more beer and more market share to have economies of scale which not every brewer can achieve that.

Analyze the competitive structure of the industry using Porter’s five forces model.

Threat of new entrants:

New microbrewers have low barriers of entry since they offer differentiated product of premium beer in term of the art of craft brewing. But the new mass market brewers have higher barriers to entry because of brand loyalty of customers, aggressive pricing, distribution channel, national advertising campaign and absolute cost advantages.

Rivalry among existing firms:

The United States brewing industry has been concentrated with two main players that are Anheuser-Busch and MillerCoors. In this industry the competition is not only about pricing but the marketing campaigns. The brand loyalty has become a major determinant of success or fail for the brewers therefore small brewers tend not to be able to compete with the mass brewers. The marketing budget used in national TV advertising campaign is too expensive for the small brewers to handle. Whereas the competition among the mass brewers are fierce and their advertising spending continue to increase. It is also noted that the diversity among competitors is highest amongst the craft-beer breweries which focus more on recipe not the brand whereas among the major players there is little product differentiation as they sell primarily the same types of beers.

Bargaining power of buyers:

The buyer for mass market brewers has low bargaining power because there is a large number of buyers.

Bargaining