Critical evaluation of the macro and micro environmental factors affecting the brewing industry with a particular focus on Heineken
Research Paper (undergraduate) 2018 15 Pages
Table of Contents
Macro Environmental Analysis
Micro Environmental Analysis
McKinsey 7-S Model
Scenario Building and Strategic Recommendations
Summary and Conclusion
Heineken is one of the leading brewing industries in the European and global markets. However, Heineken and other companies in the beer industries are increasingly facing internal and external threats (Blee and Whittington, 2005). Thus, the primary aim of this report is to conduct a critical evaluation of the macro and micro environmental factors affecting the brewing industry with a particular focus on Heineken. The major opportunities and threats facing Heineken will also be established in attempts to establish its ability to survive the contemporary and future market forces while at the same time maintain its competitiveness as illustrated in the past years (Aquilani et al., 2015). Lastly, the report will establish generic objectives that can enhance the profitability of Heineken activities and at the same time increase its ability to navigate through the prevailing environmental challenges.
Beer is one of the most enjoyed beverages in most nations and cultures across the globe. As a result, this has contributed to the drastic growth of the brewers’ industry across the world, until in the recent past when beer consumption has witnessed a drastic fall. Similarly, the European brewers have faced a backlash associated with failing beer consumption tendencies across the region and around the world (Melewar and Skinner, 2018). The resulting decline in the traditional markets is attributed to macro and micro environmental factors affecting the European brewing industry. Falling trends are exhibited in the largest beer markets, particularly in Germany, United Kingdom, and other regions across the world. Heineken, one of the leading brewing organisation in the European region has also experienced significant implications resulting from the declining beer consumption in the traditional markets (Garavaglia and Swinnen, 2017). This necessitates strategic and critical evaluation of the UK and European market settings, in attempts to establish how these factors impact on the Heineken performance within the region and across the globe. The report will also explore strategic changes and how they can be managed and establish tactical recommendations in attempts to enhance the sustainability of Heineken profitability and competitiveness in the dynamic market environment.
Macro Environmental Analysis
The PESTEL model facilitates the identification of the macro environmental factors affecting Heineken and brewing industry in the UK and Europe from a holistic approach. The model takes into the account of various factors attributed to politics, economy, the society, technology, environment and legal issues in these markets (Silva et al., 2017).
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Figure 1: Source (Rahman et al. 2014)
The case example by Blee and Whittington indicates the actions taken by the European governments has contributed to the significant drop in alcohol consumption. The governments have implemented strict regulations against drinking and driving (Blee and Whittington, 2005). There has been an increase of campaigns that discourage alcohol abuse, by increasing the public awareness concerning the negative implications of alcohol consumption against the human health. Contemporary public policies also proscribe selling or consuming alcohol in public places. These factors have significantly contributed to a decline in alcohol demand in the European market (Amienyo and Azapagic, 2016). The European Union has adopted a policy known as Alcohol Harm Reduction Strategy, which restricts the consumption and sales of alcoholic products in the market. These factors have a direct impact on the brewing industry including Heineken.
The economic recession that occurred in 2009 played a significantly affected the sales of brewery products, which led to the closure of an estimate of fifty pubs per week during this period, particularly in the UK. This was a major blow to the brewing industry. However, economic impacts vary in different countries due to unique factors, which has affected the concentration of beer consumption market patterns in the region (Danson et al., 2015). Cheap labour and easy accessibility of raw products in different economic environments also affect the consumption of brewery products. Economic policies have facilitated the acquisition, mergers and collaborations across the European region. Traditional markets that are considered as low consumption regions are beginning to show positive progress in the demand for alcoholic products (Elzinga et al., 2018). Lastly, the gross domestic product of individual countries in the region affects the purchasing power of the consumers.
Lifestyle changes in emerging markets are influenced by an increasing availability of disposable incomes, which improves the beer consumption. New trends observed in non-alcoholic beverages, fruit-flavoured beers, wines, and other luxurious drinks are likely to affect the rate and patterns of beer consumption (Howard, 2014). Education and health concerns due to increased awareness have influenced the social perceptions regarding beer consumption. For instance, the United Kingdom has significantly invested in discouraging what is now referred to as binge drinking. This has contributed to a decline in alcohol consumption, particularly in clubs and pubs.
The adoption of modernised production processes due to technological advancements has played a central role in the increment of brewing efficiency. This has seen companies such as Heineken reduce the cost of production and also increase the efficiency of managing vast networks across the region and world (Buckley and Ghauri, 2015). Research and development in the manufacturing units have also seen an improvement in beer quality, storage, and transportation. As a consequence, brewers are in a position to engage in large-scale production and distribution, leading to massive financial gains and growth in the industry (Madsen and Wu, 2016). These developments will be paramount in the exploitation of globalisation effects on the brewing industry.
Drought and other climatic issues are likely to have a considerable impact on the cost of raw materials. Moreover, the society is gradually growing conscious regarding the environmental pollution, which compels companies to implement sustainable measures that reduce or prevent environmental pollution in the production and distribution processes (Donadini et al., 2016). The concept of waste management and recycling is gradually gaining prominence. For instance, breweries can recycle the water and other materials produced in the production process, which can then be used for agricultural activities (Stack et al., 2016). This saves the cost of sludge disposal and also saves energy.
There are growing concerns due to the health and social burden attributed to excessive alcohol consumption. Other industrialised countries such as the United States have outlawed the consumption of beer in public places (Melewar and Skinner, 2018). Other nations such as France has also banned the advertisement of beer products with sports. Furthermore, licensing, acquisition and strategic collaboration have triggered market control battles among the multinational (Garavaglia and Swinnen, 2017). The legal environment affecting the brewing industry encourages mergers and strategic collaboration, leading to the formulation of mega-breweries that control the regional and international beer market.
Micro Environmental Analysis
The micro environmental analysis aims at describing specific factors affecting the brewing industry in the local markets. This will be structured in accordance with the Porter’s Five Forces model, which evaluates the bargaining power of the suppliers and customers, threats attributed to potential substitutes and new entrants, along with the general competitive rivalry in the European brewing industry (Silva et al., 2017).