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Marketing Challenges for Beer Industry
Marketing July 09
July‐2009
1 Table of Contents
1 Table of Contents............................................................................................................................2
2 Introduction ....................................................................................................................................3
3 Health Challenge.............................................................................................................................5
4 Environmental Challenge (Green Marketing) .................................................................................8
4.1 Drivers for Green Marketing .................................................................................................8
4.2 Environment Policy................................................................................................................8
4.3 Alliances to Help Environmental Issues.................................................................................9
5 Segmentation Challenge ...............................................................................................................10
5.1 Health ..................................................................................................................................10
5.2 Seasonal...............................................................................................................................10
5.3 Luxury ..................................................................................................................................11
5.4 Environment ........................................................................................................................11
5.5 Microbreweries ...................................................................................................................11
6 Channel Distribution Challenge ....................................................................................................12
6.1 Outline of distribution structure .........................................................................................12
6.2 Changes in consumer behaviour .........................................................................................12
6.3 Changes of channel power ..................................................................................................12
6.3.1 Competition from Private Labels ....................................................................................12
6.4 Industry practices ................................................................................................................12
6.4.1 Accommodate changes in consumer behaviours ...........................................................13
6.4.2 To accommodate changes of buyer power.....................................................................13
6.4.3 From the perspective of internal management ..............................................................13
7 Government Intervention Challenge ............................................................................................14
7.1 Regulation of advertisement ...............................................................................................14
7.2 Regulation of advertisement spaces ...................................................................................14
7.3 Taxation ...............................................................................................................................15
8 Conclusion.....................................................................................................................................16
9 Appendix .......................................................................................................................................17
10 References ...............................................................................................................................19
2 Introduction
Beer was first introduced in Australia as early as 1770 when Captain Cook discovered east coast of Australia. However, the drink of choice for first settlers and convicts were rum1. As a means of reducing drunkenness, beer was promoted as a safer and healthier alternative to rum back then. During the gold rush in the 19th century2, many foreign immigrants migrated to Australia and drinking beer was perceived as becoming part of the Australian community3. Beer drinking was the way to assimilate into the Australian culture in those times. Australia has always been regarded as one of the leading beer drinking countries in the world and only about two decades ago they were competing for the top two or three spots in terms of beer consumption per capita basis. According to the 2004 rankings, Australia has dropped to 4th place4 since those glorious days and beer consumption has been sliding down ever since.
Annual per capita consumption of beer as of 2004
Rank Country in Litres Year‐on‐year increase in
633mL bottles Total annual
consumption in ML 1 Czech Republic 156.9 ‐3.2 1,878 2 Ireland 131.1 ‐7.1 521 3 Germany 115.8 ‐3.2 9,555 4 Australia 109.9 ‐7.6 1,678 5 Austria 108.3 ‐3.6 855 6 United Kingdom 99.0 ‐3.6 5,920 7 Belgium 93.0 ‐4.7 970 8 Denmark 89.9 ‐9.8 486 9
Finland 85.0 11.7 437
10 Luxembourg 84.4 ‐0.5 39
The analysis of the local beer industry can be depicted by the Porter’s 5 Forces. It can be seen from the diagram below that the Australian beer market is extremely competitive.
Porter’s 5 Forces
Our report focuses on 5 marketing challenges of the beer industry namely Health, Environment, Segmentation, Channel Distribution and Government Intervention. These marketing challenges impact each other and do not exist in isolation. Their relationships and impact is shown with a help of a Venn diagram below.
Relationship and impacts of marketing challenges on each other
Health and Environmental issues have resulted in Government enforcing their Standards, Regulations and Taxes. Health and Environmental issues have also created opportunities for the beer industry in the form of new segments.
3 Health Challenge
As mentioned in the introduction, the drop in consumption has been a major headache for the local beer industry especially when there are only two major players trying to get a piece of the Australian beer market share: Foster’s Group and Lion Nathan.
According to the Group Marketing Manager of Foster’s Group, he identified the following health challenges that resulted in the drop of beer consumption in Australia:
o Consumers are becoming more health conscious in terms of physical aesthetics and general life style. Degrees of healthy lifestyle varies on the individual but for those who are looking for beer consumption are preferring drinks with fewer calories, less preservatives, less carbohydrates and even less alcohol but at the same time maintaining great taste. This segment is second largest in terms of market share as shown below.
o Government campaigns regarding responsible drinking. Binge drinking has been increasing in Australia in the last few years. The government has started the “responsible drinking” campaign to promote and reduce under aged, binge drinking. The government is also extremely strict on drink driving where a there would be monetary penalties and revocations of driving licenses3.
In order to address to these coherent challenges, the beer industry had to react promptly to counter these issues. To cater to the growing segment of health conscious consumers, Foster’s launched Pure Blonde in 2004 which was full‐strength and great tasting larger but with 70% less carbohydrates compared to regular beer. Pure Blonde is the fastest growing beer (by incremental volume) in Australia having grown 36.2% in volume terms and 39.1% in value terms by January 1, 2009. It is ranked first in the full strength low carb segment holding more than 50% volume share6. Other companies came up with copy products such as Boag’s Classic Blonde, Boag’s Draught Light, Hahn Premium Light, Cascade Light and etc. However, low carb beer approach is slightly misleading to consumers as it is lower alcohol content that would attribute to not developing the dreaded “beer belly”7. There are also future possibilities of non‐alcoholic beer (containing less than 0.5%) entering the local market as a new beer segment. They are currently being sold in other countries but there is virtually no demand for such products in Australia currently3.
Examples of low carb, low alcohol and non‐alcohol beer
Despite the implementation of early lockouts and recent tax hike in alcopops, the number of youth admitted to hospitals after binge drinking in Australia has doubled in the last 10 years7. Health Minister Nicola Roxon said she was shocked that hospitals were treating more than 1700 children a year for alcohol abuse. Rather than waiting for binge drinking issue to become worse, the beer industry has self volunteered to co‐join with the government to run the “drink in moderation” anti‐binge drinking campaign. Foster’s came up with “Enjoy Responsibly” to support this movement. Although this would theoretically eat into their profit margin and a lot of dollars have to be put aside for this campaign, it is considered a cheaper and ethical route to counter the problem of binge
drinking. If they did not do anything about this issue currently then it would eventually come back and bite the beer industry later. According to the internal sources, beer labelling will change in the near future with health warning labels similar to the tobacco labelling initiation3. Although the beer industry will not be in extreme situation as the tobacco industry, they are taking precautions to prevent this sector into becoming the next target of health related issues.
Health and anti‐drinking campaigns
4 Environmental Challenge (Green Marketing)
Green Marketing involves using environmental sustainability principles in all business processes including production, packaging and distribution (of products and services), such that these business processes have minimal impact or harm on the natural environment9.
Environmental sustainability principles appear to be becoming more and more important to customers, which in the last decade, have made beer companies more conscious of their impact on the environment.
From our research and interviews3, we were educated that the Environmental Challenge is seen as the second biggest challenge to Beer Companies after Health of staff and customers.
Companies in response to this challenge, try to implement green marketing activities at all levels of production, supply and sales. These efforts are listed in their environment policies and are sometimes visible in the form of sponsorships and fundraisers.
4.1 Drivers for Green Marketing Companies implement these activities as the following motivates them –
o Self Regulation – Both the big players Foster’s Group and Lion Nathan practice self regulation and act in their own and society’s long term interests. Most of the green marketing activities are implemented by the companies themselves and are not forced upon them by the government. Examples of these are voluntary memberships and support to Kyoto protocol and programs like NPI (National Pollutant Inventory Program – where breweries report their emissions), CDP (Carbon Disclosure Project) and Energy & Water Efficiency Program10.
o Government Intervention – Some of these activities are in compliance with Government Standards and Regulations. Examples of these are the Packing Food Code and Recycling Act3 which enforce beer companies to maintain a standard of instructions on all packaging that clearly indicates recycling logos, type of packaging materials used etc.
o Reputation Management – beer companies are regarded as big consumers of Water and Energy resources by the public, so these companies use green marketing activities for public relations and managing their reputation in the eyes of public including customers, staff and shareholders.
o Sales Orientation – Companies are trying new segments (Refer section 5.4) of environment friendly beers like Cascade Green12 by Fosters and Barefoot Radler13 by Lion Nathan, in an effort to get for more sales.
o Cost Reduction – Beer companies have also realised there are cost benefits of using green marketing activities. A good example of this is the saving on packaging costs by using lesser cardboard in beer cartons3.
4.2 Environment Policy Both Foster’s and Lion Nathan have clearly defined and detailed environmental policies, which can be viewed on their websites. Their efforts to minimise the impact on natural environment are very evident from their policies.
From our research3, these efforts can be summarised under the following points:
o Water shortage and Energy Efficiency – to preserve precious water and other resources, breweries have minimised consumption and wastage by recycling. Australian breweries including both new and old are considered in the top water and energy efficient breweries benchmarked against other leading breweries in the world11.
o Recycling – 95% of raw material wastage of beer production is recycled and used in other products. E.g. yeast that goes into making beer is then sold to Kraft foods to make products like Vegemite and grain left over from beer production is used for feeding stock3.
o Encourage their supply chain to adopt similar commitments ‐ Companies are constantly looking for innovative ways to make lighter bottles and cans, and use least amount of raw resources and biodegradable materials for packaging.
o Carbon Footprint – is the measure of greenhouse gas emissions by companies. In the beer industry, bottles are transported from bottlers to breweries to suppliers to customers (and then back to recycling and disposing plants). Thus having lighter bottles and cans, helps reduce the carbon footprint throughout the supply chain3.
4.3 Alliances to Help Environmental Issues Beer companies to counter the negative impacts of their production and supply activities, also form formal and informal alliances. These alliances are common in the forms of sponsorships and fund raisers for causes like deforestation and climate change. Examples of these are Foster’s sponsorship of Mark Webber Challenge Foundation14 (a charity for People and Planet issues) and Lion Nathan’s sponsorship of Australian Conservation Fund15 (inspires people to have a healthy environment).
5 Segmentation Challenge
As the beer industry in Australia becomes more saturated, it is imperative that breweries come up with new ways to segment the market to ensure their products reach consumers who otherwise have been not been targeted.
5.1 Health Consumers are becoming more health conscious (Refer to section 2). Many beer companies tried to tap into this new market segment, one that appeals to carb‐counting drinkers. The launch of Pure Blonde by Foster’s Group was aimed primarily at female beer drinkers. However, there has been a large take up by male drinkers as well16. Other brands such as Bondi Blonde and Hahn Super Dry have also entered into the Australian low carb beer market, which has shown strong growth in the last four years.
5.2 Seasonal Breweries are coming up with beers to cater to changing tastes according to changing seasons. During summer, many companies brew beers with tropical flavours to give consumers the refreshing taste and feel. Cascade Brewery came up with Cascade Blonde17 which had a tint of citrus, James Squire with a fruity flavoured Amarillo18 and Mountain Goat with India Pale Ale19 were only sold during summer months. During winter, Murray’s brewery launched a seasonal beer, Best Extra Porter, with an aroma of caramel and bittersweet chocolate20.
5.3 Luxury Luxury beer, which is priced above premium beer, provides a potential new market to brewers. As production costs rise, some brewers are shifting their business focus to target the potentially lucrative ‘luxury’ market. Australia’s leading premium beer, Crown Lager introduced a limited edition vintage lager, Crown Ambassador Reserve to the Crown Family. This beer made history as Australia’s first luxury style beer. The first vintage bottle was specially released to mark the anniversary of Her Majesty Queen Elizabeth II’s Coronation21.
5.4 Environment Carbon offsetting has been gaining appeal amongst consumers who are concerned about negative environmental effects of intensive use of energy. Australian breweries came up with carbon offset beer and created this market segment. Cascade breweries came up with Cascade Green, which is a low carbohydrate, preservative free and 100% carbon offset beer while Lion Nathan came up with a competing beer in the same segment called Barefoot Radler.
5.5 Microbreweries In the recent years, the craft (micro‐breweries) beer market had enormous growth worldwide. As consumers’ knowledge of beer increased, so did their desire to purchase and try different flavours and styles of beer. In Australia, there has been a significant shift in taste, with an upward trend among consumers to upgrade their choice from beers to craft beers instead of traditional domestic premium brands. As such, the craft beer market in Australia is booming, with new operators opening up every month. There are now 70 craft breweries operating, making up 8% of the overall beer market in Australia22.
6 Channel Distribution Challenge
6.1 Outline of distribution structure o Distribution structure in beer industry is narrow and short. o 70% of Beer is sold in packaged form (bottles & cans) while the remaining 30% is draft beer,
consumed as tap beer in bars & restaurants23. o Channel coverage consists of 28% national retailers which includes big chains like
Woolworths and Coles, the former having its own warehouse and distribution. The remaining 72% are the independent retailers which include bottleshops, bars, restaurants and cafes3.
o From the perspective of channel length, the structure is also quite simple compared to other drinking industries. Almost all beer companies adopt one‐level distribution system, which means they sell beers directly via retailers without any other additional distribution level. For example, 99% of retailer sales in Foster’s are coming directly from specialist retailers.
6.2 Changes in consumer behaviour There is a notable change of behaviour in consumers, where there are growing numbers of people consuming beer at home rather than on pub premises. This amendment in behavioural pattern initiated the necessity to alter the initial distribution channel structure and the way advertising and promotions accommodated to these new changes3.
6.3 Changes of channel power Before beer was introduced into supermarkets like Coles and Woolworth, the balance of channel power favoured the beer producers as they commanded where to push their products into. However, the scale slowly turned over to the other direction when giant supermarkets started to control increased market share in the retail arena. This resulted in supermarkets playing an increased role in the distribution of beer since they acquired more bargaining power. Even Foster’s who controlled almost half of the market share admitted that supermarkets are enjoying the gradual shift in channel power3. This also resulted in rethinking of advertisements and promotions focus within these channels as mentioned previously in 6.2.1.
6.3.1 Competition from Private Labels
Developing and strengthening supermarket channels is an inevitable trend in channel development and management in beer industry. However, supermarkets are now developing their own beer brands; for example, Cole launched its own brands of
beer several years ago: Tasman Bitter and Hammer 'n' Tongs. These private label beers with their natural advantages on cost, price, channel and promotion might become a major threat against other beer brands selling in the supermarkets.
6.4 Industry practices To overcome the challenges from channels of distribution, beer producers are trying and planning to adopt the following actions:
6.4.1 Accommodate changes in consumer behaviours o Designed special promotion programs for different type of channels, especially for
supermarket channels, to attract people who choose to drink at home. o Created different packages for different type of channels, where they focused on new
packaging for consumers drinking at home. For example, certain beer companies produced kegs with taps, which gave the feel and taste of having a draft beer at home.
o Re‐allocated channel resources. Assigned more resources on retail channels (independent bottle shops & supermarkets) compared to on‐trade selling.
6.4.2 Accommodate changes of buyer power o Strengthened co‐operation with existing supermarkets. o Balanced the sales volume between independent bottle shops and supermarkets to
effectively manage the buyer power from supermarkets like Coles and Woolworth. Beer companies are trying to balance the power scale by supporting special promotions through independent bottle shops. www.thisrtycamel.com is an example where an independent retailer association is providing a special discount backed up by Foster’s Group3.
6.4.3 From the perspective of internal management o Modification to channel management model. Sales team that previously focused on
geography basis could be altered to teams based on both geography and channels.
7 Government Intervention Challenge
7.1 Regulation of advertisement Advertisement of alcohol products is regulated by a set of rules negotiated between the industry and the government, called the ABAC scheme24.
Because addition to the scheme is voluntary, it is normally the big players with higher standards of corporate responsibility who are the most stringent participants, seldom deviating from the regulation, where as most violations come from smaller incumbent players3.
In this regard the marketing challenge for the big players is their high willingness to abide by the code standards which in occasion could hamper marketing creativity. Citing our interviewee words3: “it’s a nightmare”
There has been some criticism to this self‐regulatory scheme25, deeming it as not effective, where a lot of advertisement ultimately ends on the wrong audiences (young teenagers). Although big players in the industry are abiding by the rules, pressures on the government could trigger a shift towards a more stringent code in the near future.
To address the issues regarding irresponsible drinking, especially in the younger population, industry players face the challenge of having to leverage their image as responsible companies.
Currently, the beer companies are promoting their efforts on this matter with programs such as drinkwise25, jointly funded by government and industry; it is designed to encourage responsible drinking.
7.2 Regulation of advertisement spaces In a similar fashion to that of tobacco industry, though not as stringent, government is putting health related pressures in the beer industry. For example TV advertising is only limited to fringe time after 8:30pm.
In Australia the beer industry is a major sponsor of sport events, which is a big space to target advertisement. Although for Australia it has not become a target of government intervention yet, due to the high amounts of money at stake. In other countries governments have changed their policies, fiercely imposing bans to the alcohol industry on sports advertising and sponsoring
The world trend is towards more strict measurements in this respect, and it can be expected that some changes could occur in Australia in the near future.
This would be a very big challenge for marketing beer since it could severely reduce the advertisement space available.
Also, a new challenger for advertisement of sports events is that of betting agencies, any change in regards to government regulation could limit the space of action for the beer industry while benefiting players in different industries3.
7.3 Taxation Taxation schemes are a major challenge, because variations in the taxation of beer and/or competing products can have significant influence in the demand.
To illustrate the impact of taxation it is well worth mentioning the case that happened recently with a tax increase on ready to drink beverages RTDs or “Alcopops”.
Due to concerns by the government on the increased consumption of Alcopop beverages by young segments of the population, on April of 2008 a tax increase of 70% was implemented without warning by the Rudd government. 27
Effect of tax increase on consumption of RTD and substitutes 28
In this particular case, the government intervention become an opportunity, and the challenge faced by the marketing departments of the beer companies was to best try to exploit the situation and capture their share of the demand lost by the RTDs.
According to our interviewee3, the response of the beer industry was to launch easier to drink beers, such as lime and other ‘sweet’ flavoured variations that appealed the taste of the Alcopops drinkers, while offering lower prices, since their product was still considered beer and taxed as such.
This case illustrates the mercifulness, at which the industry is exposed to, in terms of changes in government taxation policies. Politicians have always held in the air different proposals to raise tax on beer which so far have not materialized. They could become real threats in the coming future, and a big marketing challenge to face.
8 Conclusion High competitiveness in the beer industry has led to the proliferation of brands within the traditional market. Drivers such as health and environmental issued have pushed the main players to develop new products such as low carbohydrates, flavoured, and environmental friendly beers to try maintain their share of a market that is inevitably contracting. Ultimately the challenge posed by substitutes is so great, that corporation owners of the major beer companies have had no other choice than to expand into new segments with competing products such as wine, spirits and RTDs in order to capture the share lost by the beer market.
Ansoff’s diagram from Australian beer companies
Current Products New Products
Reduced
CarbsCarbon offsetFor the environmentalConscious
Flagship beer
For the International
Market
New Markets
Current Markets
Wine Spirits
Ciders &
Ready to
Drink
Low Carbs
Easier to drink Lime taste
9 Appendix
Interview contacts
Example current advertisement campaign
Foster’s office
10 References 1. http://en.wikipedia.org/wiki/Beer_in_Australia 2. http://www.patricktaylor.com/australian‐gold‐rush 3. Vincent Ruiu, Group Marketing Manager, Foster’s Australia 4. http://en.wikipedia.org/wiki/List_of_countries_by_beer_consumption_per_capita 5. Datamonitor: Beer in Australia Industry Profile, Reference Code 0125‐0744 6. http://www.realbeerau.blogspot.com/ 7. http://au.todaytonight.yahoo.com/article/5159823/health/low‐carb‐beer‐really‐buffer‐beer‐
gut 8. http://www.medindia.net/news/Hospitalization‐Rates‐for‐Binge‐Drinking‐Females‐Doubled‐
in‐Australia‐37894‐1.htm 9. http://egj.lib.uidaho.edu/index.php/egj/article/viewArticle/2566 10. http://www.fosters.com.au/about/sustainability.htm 11. http://www.fosters.com.au/mediacentre/docs/20090212_Abby_forges_alliance_with_Mainte
nance.pdf 12. http://www.cascadegreen.com.au/ 13. http://www.barefootbrewers.com.au/#/planet/ 14. http://www.markwebberchallenge.com/charities/ 15. http://www.lion‐nathan.com.au/Our‐Responsibilities/Sponsorship.aspx 16. http://www.marketingmag.com.au 17. http://www.cascadebrewery.com.au 18. http://www.james‐squires.com.au 19. http://www.goatbeer.com.au 20. http://www.murraysbrewingco.com.au 21. http://www.news.com.au 22. http://www.microbrewing.com.au 23. Beer in Australia, 2008, DATAMONITOR, Reference Code: 0125-0744, December 2008 24. http://www.abac.org.au/ 25. S.C Jons, R. J. Donovan, Regulation of alcohol advertising in Australia: case study of a failure,
Faculty of Health and Behavioural Sciences, University of Wollongong 2001. 26. http://www.drinkwise.com.au/ 27. Josh Gordon Dan Harrison, The Age April 200 28. [Tanya N Chikritzhs, Paul M Dietze, Steven J Allsop, Michael M Daube, Wayne D Hall and
Kypros Kypri The “alcopops” tax: heading in the right direction, MJA volume 190 number 6, March 2009]
