By students, for students.

There is no global beer, only local

In Management, Marketing on January 22, 2013 at 4:57 pm

beer-bubbles

Using the Integration/Responsiveness framework, explain the logic of cross border mergers and acquisitions (M&A) among the largest beer brands.

Over the past decade, the beer industry has consolidated through mergers and acquisitions (see table below) which have given the 4 top breweries 45% of global volume and 55% of global revenue (Savage, 2012).

Far from seeing a corresponding shift in the industry to quadrant 1 of the integration/responsiveness matrix, local brands are more important than the globally-recognised Budweiser, Becks or Stella Artois (found in quadrant 2 due to regional marketing).

The beer industry is driven by structural conditions – economies of scale, product characteristics, barriers to entry, market size – which favour regionally responsive breweries.

The weight of the product means it is more efficient to produce beer close to the market place. Moreover, despite differences in flavour and cost between mass-produced beers being small, customers perceive brands as being distinct in important ways (see McConnell, 1968). Notably, populations are loyal to their national brands.

Transportation and consumer preference provide entry barriers to foreign breweries. Merging with breweries or acquiring brands in quadrant 4 allows industry leaders to overcome these restrictions and expand. While scale advantages are emptied at much smaller capacities than those commanded by the top breweries, local responsiveness continues to provide business opportunities (Madsen et al. 2011).

Beer brands IR matrixBeer brands table

With greater consolidation among the largest beer brands, do you see the relative importance of integration vs. responsiveness changing in the global beer industry?

Global consolidation led by AB InBev, SABMillar, Heineken and Carlsberg has increased the potential for economic integration in the beer industry. Successful global brands include Guinness, Corona and Budweiser, which increased Anheuser-Bush’s market share by over 40% between 1950 and 1990 (Greer 1993).

However, historical taste preferences, legacy systems, laws and infrastructure mean that regional products continue to dominate. Yet, brand consolidation can be seen in the localities (Savage, 2012). For example, the top 5 brands in China now represent 37% of the market, up from 12% a decade ago.

Consolidation trends in beer and historical trends across other FMCG industries suggest that, in the future, local markets will be more receptive to global brands offering unique customer value propositions. Yet, as product and marketing becomes integrated, differences in laws and transport will require breweries to be nationally responsive for some time to come – positioning the largest among them in quadrant 2.

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