Environmental Scan: The Global Beer Industry
Environmental Scan: The Global Beer Industry
Brad Hillwig (Asst. Leader)
Prakruthi Naik
Atti Bhargava
BA 631: Business Environment Analysis
December 8, 2008
Table of Contents
Introduction…………………………………………………………………………………………………1
Growth Opportunities………………………………………………………………………………….3
Competition………………………………………………………………………………………………...9
Government Regulations……………………………………………………………………………..10
Social & Cultural Issues………………………………………………………………………………..19
Conclusion/Planning premise………………………………………………………….…………..21
Bibliography……………………………………………………………………………………….……….22
Introduction
We should take a moment to recognize that the modern Beer Industry was built upon a solid
foundation of industry integrity, corporate responsibility, a strong work ethic, and great
foresight of industry leaders. Some of the accomplishments of the past years are clear
extensions of practices and principles established in the 1930's. While the brewers of the 1930's
could not have imagined the global reach of brewers in the 21st century, their values and
commitment to the future were critical to the industry's success. Those qualities remain alive
and strong today in the Beer Industry and in thousands of men and women working in Beer
companies throughout the world.
The beverage industry is extremely competitive, with private labels greatly influencing the
environment. A few global “beverage giants” produce many brands, but those brands fall into
self‐contained categories as well. Thus, the “beverage” market is not really one market; it is a
collection of markets with many different types of products, processes and requirements. The
beverage market includes several different products that can be grouped into two main
categories: alcoholic (beer, wine, spirits) and non‐alcoholic (carbonated soft drinks, juice, water,
sports drinks, etc.). Each category, and often each type, of beverage have its unique issues and
needs.
The beer industry is the biggest sector of the Alcoholic Beverage industry, with global annual
sales exceeding $325 billion USD. However, market saturation has been reached in much of the
developed world, which is limiting the industry’s growth potential and forcing many companies
to focus on emerging markets. With so few options for growth, companies that operate in the
industry face considerable competitive pressures. Consequently, they must streamline their
processes in order to drive real, profitable growth – all while ensuring that they effectively
meet the demands of both customers and consumers.
Over the past years, there prevailed a significant litigation that advanced the industry’s self
regulation of advertising and marketing practices. This enhanced the efforts to further reduce
illegal underage drinking and drunk driving, extend alliances in the broader alcohol beverage
industry, advocate coherent and sensible positions on important regulatory projects, and
strengthened relationships with regulators, lawmakers, and law enforcement officials.
In this paper we have highlighted a number of the significant achievements on the legislative,
legal, and regulatory fronts. This paper also provides insights on the market trends of the beer
industry and on the issues relevant primarily to beer producers or distributors. It outlines the
specific challenges facing the companies operating in this arena, such as ever‐changing
consumer tastes, a growing emphasis on product safety, and the increasing power of global
retailers. It also explores opportunities for process improvement and cites specific solutions
that can empower beer companies to meet industry challenges, both today and tomorrow, and
drive towards profitability and growth.
Environmental Scan The Global Beer Industry 2
Growth Opportunities
The saturation of traditionally thriving beer markets such as North America and Europe has
driven the consolidation of the industry. Major brewers have sought growth through strategic
mergers and acquisitions, which has reorganized the industry and strengthened the market
positions of the industry’s largest brewers. Expansion into key emerging markets has become a
strategic priority for leading firms, who are now competing for market share in several
important regions of the world (Hutter, pg. 1). When making strategic growth decisions firms
must evaluate a new market based upon specific criteria, such as:
• Economics & Demographics:
o Population/Consumer base: What is the size of the population? What is the demographic
makeup of the population? What are the growth trends? Is there an emerging middle class? How
is the population disbursed?
o Employment: Are there available jobs? What is per‐capita income? Is the job market growing?
o Infrastructure: Does the region have established infrastructure such as roads, utilities, energy,
communications, agriculture, private sector?
o Business climate: Is there an established local beer industry? Is there a free‐market economy?
o Taxes: Is there a stable tax structure? Is it Pro or anti‐business?
• Consumer Tastes & Market Trends
o Beverage Preferences: Do current beverage preferences pose any barrier to market entry?
o Health & Social Issues: Are there any health or social issues that may pose a risk to expansion
into this area?
o Competition/Opportunity: What firms already operate in this area? What is the current makeup
of the beverage marketplace? How much market share can we capture?
o Limiting Factors: What are the logistical or operational challenges for doing business in this area?
How will our supply/distribution chains function in this region?
• Governmental & Cultural Factors
o Government: How much influence does the government have on the private sector? Is the
government stable and ethical? What is the government’s attitude toward alcohol?
o Government Regulations: Has the government imposed any restraints to trade or favored
certain industries?
o Cultural Issues & Factors: Is there any Religious or social opposition to alcohol?
o Societal & Ethical Norms: Is leisure time important to the culture? Is drinking a social norm? Is
alcohol viewed as ethically acceptable by the culture?
• Environmental Factors & Growth Strategy
o Agricultural Opportunity: What is the climate? Can we locally grow our ingredients?
o Costs of Importing/Exporting: What type of operation will the logistics of the environment
permit?
o Dynamics of the Local Market: Are there local brewers that we can acquire or merge with? Do
they have favorable market share? Do they have positive partnerships with key suppliers and
distributors?
With these guidelines in mind, we have identified several emerging markets that have
significant growth potential for large‐scale brewers. The following pages provide a brief analysis
of the following regions: China, India, South Africa, Russia and Latin America.
Environmental Scan The Global Beer Industry 3
China
In 2003 China eclipsed the US as the world’s largest beer market. With the world’s highest
population, an exploding private sector and burgeoning urban centers that have low
unemployment levels China is seen as the world’s next big consumer market. The local beer
industry is firmly established and contains approximately 300 brewers (Slocum, et al. p. 35),
primarily supplying the urban coastal areas. Many multinational firms have invested heavily in
the Chinese beer market and although there is a threat of over‐saturation, relatively low per‐
capita consumption levels indicate that this market has room to grow. Consider the following
analysis:
Strengths
• Population: 1.3 billion (world’s highest) (CIA World Factbook)
• Employment: Approximately 800 million person workforce with 4% urban unemployment.
Urban migration continues to be significant. Massive emerging middle class.
• Established Beer Industry: World’s largest beer market with steady growth in recent years.
Strong consumer base with a regional network of suppliers and distributors. Many local brands
with favorable market share. Low per‐capita consumption.
Weaknesses
• High Barriers to Market Entry: Many firms competing largely on price, which tends to favor local
brewers with established supply/distribution relationships.
• Challenging Logistics: Regionalism creates many logistical supply and distribution challenges.
Inconsistent infrastructure, complex regional government regulations and communications
issues make doing business in multiple regions challenging. This fragmented, regional market
makes reaching economies of scale difficult and as a result multinational firms have trouble
adequately diffusing fixed costs and attaining desirable profit margins.
Opportunities
• Continued Growth Potential: Low per‐capita consumption is a sign that the market has plenty
of room to grow & high population means the market could grow significantly.
• Acquisition Opportunities: Firms must carefully craft their growth strategy. A lot of local
brewers means that the environment may lend itself to an acquisition strategy, multinationals
would likely benefit from acquiring a local brewer with favorable market share and strong
supply and distribution chain alliances.
Threats
• Government Control & Political Instability: China is a Communist State and, as such, can
exercise complex regulatory controls favoring certain industries. Instability is always simmering
beneath the surface and fast growth often means significant growing pains.
Final Analysis
Tremendous long‐term growth potential outweighs short term challenges. Environment seems
to favor a carefully planned acquisition strategy. The target firm should have reasonable market
share, favorable brand awareness and strong supply and distribution chain relationships. Strict
operational efficiency must be maintained to mitigate the costs and risks of expansion.
Environmental Scan The Global Beer Industry 4
India
Like China, India is one of the world’s fastest growing consumer markets. A rapidly growing
population, an emerging middle class with rising per‐capita incomes and blossoming urban
centers make India a powerful emerging market. India has an established local beer industry
and, although per‐capita consumption is low, as the country becomes more westernized
younger generations have the potential to be high‐volume consumers. However, regionalism,
political unrest and the potential for growing pains temper this market’s attraction.
Strengths
• Population: 1.1 billion (CIA World Factbook)
• Emerging Middle Class: India has a healthy, growing urban workforce with 7.2% unemployment.
India’s emerging middle class is relatively young, 63% of the country’s population is between the
ages of 15‐64 (CIA World Factbook) and a flurry of foreign investment across all sectors has
broadened and westernized the tastes of this young population.
• Steady growth in beer market: India has an active domestic brewing industry that includes
many local firms and a growing increase in foreign investment. Although per‐capita beer
consumption is relatively low, beer sales in India are forecast to grow at a compound annual
growth rate of 17.2% until 2011 (mindbranch.com).
Weaknesses
• Market Saturation: Although market saturation is only a marginal concern, it is worth noting
that a rush of foreign investment, combined with a healthy domestic brewing industry, makes
India a highly competitive emerging market. Not every firm that expands into India will survive
and the long‐run forecast figures to see this region experience its own period of consolidation
once the rush of investment has waned.
• Regional and logistical challenges: Like China, India is a highly regional market containing
significant disparities such as regulatory issues, prices and consumer tastes. This regionalism
creates a number of logistical challenges for a volume producer attempting to reach economies
of scale and establish a country‐wide brand. Furthermore, regionalism, combined with
inconsistent infrastructure and urban/rural socio‐economic disparities, has the potential to
make establishing an extensive supply and distribution chain a capital‐intensive undertaking.
Opportunities
• Continued Growth Potential: Despite the logistical challenges, India’s young emerging middle
class offers tremendous upside growth potential in urban areas
• Favorable agricultural climate & network: India’s climate is favorable for the harvesting of hops
and barley, the primary natural ingredients in beer. There exists potential to establish supply
relationships with local commodity producers.
Threats
• Political instability: The recent terror attacks in Mumbai have served as a reminder that political
unrest is a very real threat in India. An escalating conflict or the persistent threat of terror could
have significant effects on India’s development and consumer potential.
• Socio‐economic growing pains: The disparity between India’s thriving urban centers and
impoverished rural areas creates the potential for civil unrest. India’s rapid growth will require
an astute government capable of keeping peace while maintaining a free market system and an
educated, employed population.
Final Analysis:
Despite its challenges, India’s young emerging middle class and favorable agricultural climate
make this an attractive expansion opportunity. We recommend an acquisition strategy.
Environmental Scan The Global Beer Industry 5
South Africa
South Africa is one of the fastest growing beer markets in the world. This region has an active
domestic brewing industry and a population of high per‐capita beer consumers. Favorable
agricultural conditions exist for harvesting beer ingredients and consumer tastes are shifting
from sorghum‐based beer toward Western‐style products creating growth opportunities for
light beer and specialty brewers. However, SABMiller, one of the largest brewers in the world
has roots in South Africa and has a strong market position there. Opportunity still exists in this
market for brewers keen on pursuing a market thirsty for western imports.
Strengths
• Growing Beer Market: South Africa has a relatively stable economy and is one of the fastest
growing beer markets in the world. Consumers are enthusiastic beer drinkers with per‐capita
consumption at approximately 60 liters, up significantly from recent years.
• Changing Consumer Tastes: Consumers in South Africa have begun enjoying western‐style beer
as opposed to a traditional sorghum‐based product.
• Favorable Climate: Some beer ingredients are harvested locally in South Africa and there is an
established local network of farmers; therefore, there are opportunities to establish
comprehensive production chains in this region.
Weaknesses
• Inconsistent Infrastructure: Outdated infrastructure has constrained economic growth in recent
years and in 2007 South Africa experienced an electricity shortage because of its main supplier
had insufficient infrastructure (CIA World Factbook). Brewers expanding into this area may be
constrained by poor infrastructure, particularly as they attempt to establish nationwide supply
and distribution networks
• SABMiller’s Market Presence: SABMiller has roots in South Africa and is relatively entrenched in
the beer market. This deep competition may pose short‐run barriers to expansion.
Opportunities
• Favorable Long‐run Potential: South Africa’s high per‐capita consumption rates combined with
its changing consumer tastes creates a market with favorable long‐run potential. In the short‐
run this market seems to lend itself to an import strategy, but long‐run opportunity exists for
firms keen on establishing production centers.
Threats
• Health Issues: South Africa has experienced significant health issues, particularly regarding the
AIDS epidemic, which has shortened life expectancies, increased infant mortality rates and
slower population growth (CIA World Factbook). Any firm that seeks to introduce a product
containing alcohol should also expect to enact a program of Corporate Social Responsibility in
order to build relationships with local communities and governments.
• Socio‐economic issues: As with many emerging markets, South Africa has a significant socio‐
economic disparity between growing urban areas and impoverished rural regions. Therefore,
firms must be aware that civil unrest is possible and long‐run growth could be impacted by such
disruption.
Final Analysis:
South Africa’s beer market provides an attractive investment opportunity for a multinational
firm looking to capitalize on this region’s high per‐capita consumption and changing,
westernized, tastes. We recommend an import strategy in the short‐run to establish brand
loyalty and cultivate a local market amid heavy domestic competition. In the long‐run,
favorable agricultural conditions offer production potential, in spite of local infrastructure risks.
Environmental Scan The Global Beer Industry 6
Other Growth Areas: Russia & Latin America
The early 2000’s saw booming beer consumption rates in Russia which spurred a flurry of
foreign investment, but a subsequent slowdown and strict government regulations have driven
this market’s costs up. Russia’s long‐standing preferences for spirits have waned and beer is
now more ingrained in the culture, but brewers must now find opportunity in the higher‐
margin specialty markets. Latin America is an active beer market with high growth potential,
largely driven by growth in key demographics, a favorable farming climate, Brazil’s developing
economy and Mexico’s high levels of beer consumption.
Future Growth Strategies and Considerations
Consolidation:
Flattened growth in developed markets (US and Europe) will continue causing industry leaders
to move into high‐growth emerging markets. Industry‐wide consolidation will likely continue as
competition plays out in emerging markets. Once new growth areas are identified a flurry of
investment will occur, followed by a period of consolidation and then relatively consistent, but
lower, annual growth rates. This will likely be the pattern in key emerging markets such as
China, India and South Africa.
Mergers & Acquisitions:
The chief strategy for growth in recent years has been through mergers and acquisitions, this
will likely continue as the beer industry globalizes and firms compete to establish market share
in high growth areas.
The Price of Ingredients:
A surge in commodity costs has inflated the cost of brewing and significantly impacted the craft
brewing sector of the industry. Large companies have a distinct advantage because of their
larger buying power; however increased brewing costs will have an impact on the market price
of beer and require increased operational efficiency and execution. Firms that have strong
strategic partnerships with commodity producers will have a substantial advantage in the event
of any commodity shortage. Micro‐breweries will struggle the most with an unstable
commodities market
Consumer Demands:
Varied consumer tastes will require firms to carry a more diversified portfolio of products. As
the industry consolidates firms will be challenged to react quickly to changing consumer tastes.
Reaction time will be important and firms that are able to accurately anticipate consumer
tastes will have distinct advantages. Maintaining a broad portfolio of products will put pressure
on operational costs and further stress the need for efficiency and execution (SABMiller Annual
Report, 2007).
Strong Branding & Marketing:
As developed markets are fragmented by varied consumer tastes and emerging markets evolve
effective branding and marketing will be important to facilitating brand loyalty and developing
a customer base.
Environmental Scan The Global Beer Industry 7
Supporting Data
Figure 1.1 shows that China surpassed the US as the world’s larges beer market in 2003. However, as
Figure 1.2 demonstrates, the country has relatively low per‐capita consumption rates suggesting that
China’s growth has been driven by its massive population. Whether this unique dynamic limits growth or
represents significant room for growth will be a key factor in China’s future strength as a beer market.
Figure 1.3 demonstrates recent general population growth trends for the key growth demographic of 15‐34
year‐olds. Asia and Latin America have shown significant growth while the US and Western Europe have
demonstrated flat or negative growth rates. This is further evidence that the key growth opportunities in the
brewing industry are primarily in emerging markets, rather than traditional established markets
Figure 1.1 Figure 1.2
Figure 1.3
Competition
Beer was part of the blue collar social fabric for generations in developed countries but in
recent times it has seen its market share reduce by the introduction of other beverages such as
wine and distilled spirits. However beer is gaining popularity in third world countries such as
China, India, Russia and Latin America where the middle class is open and willing to experiment
with new products is turning to beer as a form of recreation.
Beer that was popular in markets like United State and Europe is reaching a point of decline as
the use of beer has reduced from 56% in 1999 to 53% in 2004 as more and more people are
turning to drinking other beverages. In United States the change started with the baby boomer
generation who for years drank beer but are now moving towards wine due to published
studies regarding the health benefits of wine and the baby boomers desire to maintain a
healthy lifestyle. The generations after the baby boomers have further increased their
preference beyond beer and wine by choosing drinks such as distilled spirits. The depth of the
dilemma was highlighted in a recent survey by Morgan Stanley that found spirits is the most
popular drink of choice among 21‐to‐27‐year‐olds as these young adults are getting bored with
beer. Among that group, 40% said spirits were their favorite drink compared to less than 30% in
2003. This is the young generation that thinks beer has lost its “sexiness” and they like the
taste, quality and sophistication of spirits.
As the markets in the US and UK are becoming stagnant the beer companies have started
moving to countries that are developing such as China, India, Russia, and South Africa. In these
countries the beer market has seen a big jump due to increasing middle class. To benefit from
increasing middle class the beer industry has formed mergers with local companies. Even
though they have formed mergers they still face competition from big local brewers, such as in
India when SAB Miller enters the market they would face competition form Kingfisher beer and
Taj Mahal Beer who have big market share in India and locals might prefer their taste to beer
that is imported.
YTD Oct YTD Oct Volume Percent
Country 2005 2006 Change Change
Canada 2,566 2,759 194 7.5%
Mexico 10,216 11,725 1,509 14.8%
United
859 841 ‐18 ‐2.1%
Kingdom
Ireland 707 678 ‐29 ‐4.1%
Netherlands 5,013 5,878 865 17.3%
Germany 1,051 1,047 ‐4 ‐0.4%
All Other 1,274 1,457 184
14.4% Figure 1.5 US beverage
preferences based upon income
Total Imports 21,685 24,386 2,701 12.5%
Figure 1.4: Represents the competitive growth of imports.
Environmental Scan The Global Beer Industry 9
Government Regulations and Issues
The brewing industry is subject to extensive government regulations at both the federal and
state levels, as well as regulation by a variety of local bodies. Some of the regulations imposed
at the federal and state level involve production, distribution, labeling, advertising, trade and
pricing practices, credit, container characteristics, and alcoholic content. Federal, state and
local governmental entities also levy various taxes, license fees, and other similar charges and
may require bonds to ensure compliance with applicable laws and regulations. Specific alcohol
taxation (as opposed to more general sales taxes) is primarily a federal and state right although
some states permit some additional local taxation. The brewing industry must also comply with
numerous federal, state, and local environmental protection laws.
Federal Beer Regulations
Until recently, nearly all federal regulations involving alcohol were issued by the Treasury
Department Bureau of Alcohol, Tobacco, and Firearms (BATF), established by the Federal
Alcohol Administration Act of 1935 and the 1968 Gun Control Act. However, in 2002, under
the Homeland Security Act, the Bureau was divided. The part remaining in the Department
of the Treasury was renamed the Alcohol and Tobacco Tax and Trade Bureau (TTB). A new
Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) was formed in the Department of
Justice. The TTB is responsible for administering and regulating the operations of distilleries,
wineries, and breweries, as well as importers and wholesalers in the industry. Some of the
specific functions TTB is responsible for as related to beer brewing include:
Brewery Application Approval
To qualify as a brewer one must complete and submit to TTB the appropriate forms along
with any other required documentation. TTB will usually complete screening and processing
within sixty days of receipt of a completed Brewers Notice packet.
Excise Tax Collection
U.S. Government involvement in the beer industry also includes taxation. The current
federal excise tax on beer, in effect since January 1, 1991, is $18 per barrel for 31 gallons.
However, a reduced tax rate applies, at a rate of $7 per barrel, to the first 60,000 barrels of
beer removed for consumption or sale by brewing companies that do not produce more
than 2,000,000 barrels of beer per calendar year. The federal excise tax regulations also
include other rules, including removals without tax payment and inter‐brewery purchases.
Labeling and Advertising Approval
The TTB implements and enforces a broad range of statutory and compliance provisions to
ensure that alcohol products are created, labeled, and advertised in accordance with Federal
laws and regulations. Brewers must follow the labeling and advertising requirements found
at 27 (Code of Federal Regulations) CFR Part 7, Labeling and Advertising of Malt Beverages
and 27 CFR Part 16, Alcoholic Beverage Health Warning Statement.
Home brewing
Any adult may produce beer, without payment of tax, for personal or family use and not for
sale. An adult is any individual who is 18 years of age or older. If the locality in which the
household is located requires a greater minimum age for the sale of beer to individuals, the
Environmental Scan The Global Beer Industry 10
adult shall be that age before commencing the production of beer. This exemption does not
authorize the production of beer for use contrary to state or local law.
State Beer Regulations
In addition to meeting federal regulations, individuals and businesses must comply with
state regulations too. These state regulations, which vary widely from state to state, may be
more restrictive than federal regulations and must be met in addition to federal
requirements unless the federal law pre‐empts the state law wherein they desire to do
business.
Alcoholic Beverage Control Boards
Following national prohibition, the 21st Amendment to the constitution provides states with
broad powers and authority to regulate the production, importation, distribution, retail sale,
and consumption of alcohol beverages inside their borders. (This is in addition to Federal
requirements.) Each state has created its own unique system of alcohol beverage control.
There are two general classifications‐open and control states.
Open States
The larger group (now referred to as "license" states) license all aspects of private
production, distribution, and sales.
Control States
The smaller group (now referred to as "monopoly" states) opted to become wholesalers and
retailers themselves for wine and spirits.
Licenses
On the state and local level, the license process varies widely. In some areas, the state is the
lead agency for all licenses (manufacturer's and retailer's licenses), and local approval is not
necessary except to confirm proper zoning.
Retailer Licenses
Some states may control the number and type of beer retailers by issuing retail licenses and
by determining to which retailer's credit can be extended. Some also determine permissible
locations for the sale of beer for example: on‐premise, in restaurants and bars, off‐premise,
in grocery stores, gas stations, liquor stores, and drug stores.
Taxation
Every state imposes an excise tax on beer that is levied as a dollar amount on a specified
volume (in liquid measure‐ex., gallons). On January 1, 2008, state excise taxes ranged from
$0.02 per gallon in Wyoming to $1.07 per gallon in Alaska.
Container Deposit Laws
Certain states, including California, Connecticut, Delaware, Iowa, Maine, Massachusetts,
Michigan, New York, Oregon, and Vermont, and a small number of local jurisdictions, have
adopted beverage packaging laws and regulations that require deposits on beverage
containers.
Environmental Scan The Global Beer Industry 11
Local Beer Regulations
Many states permit local jurisdictions to regulate and separately tax beer sales, and even to
prohibit the sale of beer within their jurisdiction. Jurisdictions in which the sale of alcoholic
beverages is prohibited are called "dry" states. Over half of all states have dry cities or
counties, and about 4.3% of the U.S. population lives in dry counties. Many cities and
counties that are not dry regulate operations and/or impose taxes on the sale of beer. In
addition to the federal and state excise taxes, some states have local taxes, on‐premise
taxes, wholesale taxes, and private club taxes. Georgia, Illinois, Louisiana, Maryland, New
York, and Ohio have cities or counties that impose local beer taxes. As might be expected,
taxes can potentially represent the largest single‐cost item in a glass of beer.
Self‐Regulation
An important element of public policy is developing standards regarding how the private sector
communicates information about their products.
HOW DOES SELF‐REGULATION WORK?
Self‐regulation is the process whereby industry actively participates in and is responsible for its
own regulation.
Ideally, advertising is meant to inform the public so that they can be aware of products and
make informed choices among different products or brands. Advertising is, of course, also of
benefit to businesses in assisting them to sell their products, which in most countries is a
commercial right. While this process varies widely from country to country, the foundation for
advertising self‐regulation is based on the principles embodied in the International Code of
Advertising, issued by the International Chamber of Commerce. The Code states in its
introduction that advertising should be legal, decent, honest and truthful, prepared with a
sense of social responsibility to the consumer and society and with proper respect for the rules
of fair competition. This is accomplished through rules and principles of best practice to which
advertisers and the advertising industry agree to be bound.
The basic elements of self‐regulation are two‐fold:
• A code of practice or set of guiding principles governing the content of advertisements.
• A process for the establishment, review, and application of the code or principles.
Impartiality is seen to be the key to an effective code and public trust in it. The European
Advertising Standards Alliance (EASA) recommends that the body responsible for the practical
application of the code should ideally be independent of the industry body responsible for its
initial establishment and subsequent review.
In reality, there may be several self‐regulatory bodies to which a given alcohol beverage
company must adhere regarding commercial communications. For example, in Australia there
is a code that covers advertising generally, and another code for alcohol which is set separately
by the Australian Association of National Advertisers, the Distilled Spirits Industry Council of
Australia and the Australian Associated Brewers.
Environmental Scan The Global Beer Industry 12
In addition to self‐regulatory bodies, most of the major alcohol beverage companies have their
own internal advertising codes.
Self‐regulation often exists in tandem with a broad legal framework, and, indeed, according to
European Advertising Standards Alliance (EASA), this is the preferred way. In many cases, these
laws address such general topics as misleading advertising, unfair competition and consumer
issues, but less restrictive countries tend not to address product specific issues such as alcohol.
In more restrictive countries, such as France, statutory authorities and national legislation
control advertising content and placement.
POLICY OVERVIEW
Policies regarding advertising restrictions are divided into six categories. The category assigned
to each country was derived by reviewing the restrictions that were in place regarding alcohol
advertising on television, radio, cinema, print media, outdoors, and sponsorship. The policy
categories are (1) self‐regulation, (2) statutory legislation, (3) a combination [of self‐regulation
and statutory legislation], (4) [advertising of alcohol] is banned, (5) some controls and (6) no
controls.‐ Statutory Combination Banned Some Controls No Controls
The alcohol beverage industry recognizes that the advertising and promotion of beverage
alcohol may need more careful regulation than that for some other products. In addition,
individual companies often have their own codes of conduct. The self‐regulatory codes that
industry organizations sponsor generally address placement and content of advertisements and
in many cases, like the Netherlands and South Africa, packaging. Other topics covered by the
codes include issues concerned with minors, abuse of product strength, social/sexual/medical
aspects, physical performance, and driving under the influence.
Table 2 on the following page provides information on self‐regulation and rules relating to
alcohol.
Environmental Scan The Global Beer Industry 13
EEFFECTIVENESS OF SELF‐REGULATION
The effectiveness of self‐regulation on alcohol advertising has rarely been studied
systematically, although the issue is often hotly debated in alcohol policy circles. Apparently,
the objective of such evaluations is to determine whether the alcohol beverage industry is
effective in policing itself when it comes to commercial communication. How one would
measure such effectiveness in practice, especially in a country that has both statutory and self‐
regulatory mechanisms, has not been adequately explored.
Environmental Scan The Global Beer Industry 14
Recently, the Advertising Association in the U.K. recommended that an analysis be carried out
on the statutory and self‐regulatory status of the advertising of alcoholic beverages in the
member nations of the European Union. The Association’s recommendations to the
Commission included a series of analyses, such as a pan‐European study on alcohol abuse and
consumption among young people in relation to alcohol beverage advertising.
AUSTRALIA
Australia has minimal legislation and few mandatory requirements concerning the advertising
of alcohol beverages. In the 1980s and early 1990s, concern was mounting about the perceived
harmful effects of alcohol beverage advertising. Blakeney & Barnes noted a lack of sanctions in
Australia for offending parties, the variable nature of adjudication, the protracted delays in
determining complaints which run counter to the industry’s interest, and the lack of health and
welfare representation on adjudicating bodies. Saunders and Yap, who studied the system of
self‐regulation of alcohol beverages advertising based on 16 advertisements, concluded: “…the
system of self‐regulation of alcohol advertising does not serve the public interest.” Hawks
editorialized that unless the industry demonstrates that it could regulate its members, “the
public have a right to demand that government exercise more control of the industry.”
The Australian Association of National Advertisers was established in 1928 but a self‐regulatory
Alcohol Beverages Advertising Code and Complaints Management System (ABAC) was
organized in 1998. Members committed to abide by the decisions of the independent
Complaints Adjudication Panel. All key alcohol beverage sectors — marketing, advertising,
media, and consumer associations as well as government ministers and departments — were
involved in its design. In addition, an Alcohol Advertising Pre‐vetting system was established by
the Australian Associated Brewers and the Distilled Spirits Industry Council of Australia. Its
prime function is to ensure that beer and spirits advertisements are consistent with the ABAC
code.
The Commonwealth Minister for Health endorsed and launched the code, noting that he will be
“monitoring advertising closely to ensure that the spirit of the code is upheld so that all alcohol
advertising is responsible and reflects community expectations.”
The National Alcohol Beverage Industries Council launched new self‐regulatory guidelines for
the name, packaging, and promotion of alcohol beverages. Although the code was voluntary,
each of the four members was asked to sign a legally binding agreement to adhere to the code
and the complaint panel’s decision.
NETHERLANDS
The Dutch Advertising Code, established in 1978, governs general advertising with no special
provisions for alcohol beverages. In 1987, the Dutch parliament averted a proposed ban on
alcohol advertising on radio and television by adopting a motion granting the alcohol beverage
industry an opportunity to exercise self‐regulation. In 1990, the Code for Alcohol Beverages was
implemented with rules for alcohol advertising and for sales behavior.
Environmental Scan The Global Beer Industry 15
In February 1999, the Dutch Health Minister warned the alcohol beverage industry that it must
amend its code of conduct on advertising and sponsorship or face tough new legislation. The
Minister believed that government efforts to encourage moderate alcohol consumption were
being frustrated by the growing visibility of leading beer brands at major sporting and music
events.
The alcohol beverage industry rejected the Minister’s complaint and the head of the industry
commented: “There has been no criticism of the code in the past seven years – in fact, only last
year the government praised the industry’s system of self‐regulation.” In April 2000, agreement
was reached between the industry and government that led to revisions in the Code for Alcohol
Beverages.
The main amendment of the Code relates to the ban on advertisements for alcohol beverages.
Advertisements will not be allowed to feature anyone below the age of 25. Cocktail drinks must
be clearly portrayed as alcohol, rather than fizzy drinks. A stipulation has also been included in
the new Code banning the advertisement of alcohol beverages from pillars and billboards along
motorways and roads outside built‐up areas. Fines for contravening the code have been
doubled.
UNITED KINGDOM
Responsibility for self‐regulation in the United Kingdom is split between non‐broadcast media
and broadcast media. The Advertising Standards Authority (ASA) was established in 1962 to
ensure that all non‐broadcast media adhered to the basic principles contained in the
International Code of Advertising. The ASA code contains specific rules on alcohol beverages.
The Portman Group, an industry‐funded social aspects organization, introduced its voluntary
Code of Practice on the naming, packaging, and merchandising of alcohol beverages in April
1996. This was chiefly in response to public and government concern regarding the introduction
of alcoholic lemonade and other so called “alcopops”, which some argued were targeted at
young people under the legal drinking age of 18. The code was welcomed, but was also
criticized for its lack of independence in monitoring its members.
In September 1997, a second edition of the Code was released which included strict criteria,
including bolder statements of alcohol content and a focus on more adult labeling. It also
included an independent review panel, chaired by the former banking Ombudsman (an official
appointed by the government or by the parliament). The results of the review were published
along with a pre‐vetting component which allowed manufacturers to submit relevant new
products to the Portman Group for pre‐launch clearance. The Chairman of the Ministerial
Group on under‐age drinking welcomed the revised Code and also indicated that there would
be no need for government intervention on alcopops.
It appears that these revisions have won government approval as well as industry compliance,
as is clear from the remarks made recently in the House of Commons by the Secretary of State
for the Home Office. He stated that “the numbers of complaints and upheld complaints have
both fallen; the finding of the independent panel…have enjoyed a high degree of compliance
Environmental Scan The Global Beer Industry 16
and the [Portman] Group’s Retailer Alert Bulletins, advising retailers not to stock offending
products in their original packaging, has reduced their availability to the public.”
SOUTH AFRICA
In South Africa, advertising is permitted on television, radio, in the cinema, in print, and
outdoors. This is, however, subject to the code of the Industry Association for Responsible
Alcohol Use (ARA), an association of most of the major alcohol producers in South Africa. The
code, for example, specifies that advertisements may not be transmitted in the commercial
breaks immediately before, during or immediately after children’s programs.
The ARA set up a self‐regulatory code in 1989 which regulates advertising, packaging and
promotional activity. Since 1989, the code has been amended twice. In addressing advertising
issues, the code prohibits a range of activities, including appeal to young people, inclusion of
youth under‐25 drinking alcohol, special promotion of higher alcohol content beverages, and
promotion of aggressive or anti‐social behavior. The packaging requirements include using
packaging of the “highest practical quality and attractiveness,” and not promoting the alcohol
strength of the beverage as the principal subject of the label.
In 1996, the Advertising Standards Authority of South Africa accepted the advertising clauses of
the code as their own code, thus making the ARA code applicable to non‐members of the ARA
as well. With the addition of the packaging and promotional clauses, the ARA code in fact is
more stringent than the Code of the Standards Authority of South Africa. An external
Ombudsman settles code disputes within the ARA. Generally, it is believed that these guidelines
and codes are being followed.
UNITED STATES
The alcohol beverage industry in the United States has established separate voluntary
advertising codes initiated by trade associations from each of the three sectors that make up
the industry – beer, wine and distilled spirits. At the same time, the Federal Trade Commission
(FTC) is responsible for enforcing efforts to stop “unfair or deceptive acts of practice” and
recently was asked to review industry efforts to avoid promoting alcohol to underage
consumers.
Generally, the codes provide that alcohol advertising and marketing efforts should not be
directed at or appeal to an audience that is primarily underage. In conducting their review, the
FTC looked at issues such as advertising placement, advertising content, product placement,
online advertising and college marketing, how each of these were implemented, and what best
practices emerged.
The FTC report concluded that “for the most part, members of the industry comply with the
current standards set by the voluntary advertising codes, which prohibit obvious appeals to
young audiences and advertising in venues where most of the audience is under the legal
Environmental Scan The Global Beer Industry 17
drinking age.” The report also noted that many individual companies had their own internal
standards that exceed code requirements.
Third‐party review that would provide for an independent assessment of complaints was one
recommendation cited by the FTC to improve the codes still further. Several beverage alcohol
companies support this recommendation in one form or another, but opinion about the need
for this enhancement is divided. The best practices cited by the FTC include prohibiting ads with
substantial underage appeal even if they also appeal to adults and curbing on‐campus and
spring break sponsorships and advertising.
The codes operated by the Beer Institute, the Distilled Spirits Council of the United States
(DISCUS) have generally strengthened its provisions over the years. The self‐regulation is not
simply incumbent upon the alcohol beverage industry to police itself. It acts in concert with the
agencies responsible for advertising form and content as well as the media that carry the
advertising.
INDIA
India has 28 states and 3 union territories. A tangled web of tax and regulations across Indian
states remains a major barrier to beer market growth in the country. Differing regulations on
pricing and distribution, as well as fluctuating excise charges, foster inefficiency in the beer
sector and make it harder for brewers to attract consumers. One could easily produce the
amount of beer drunk in India with two to four breweries. The reason there are so many is the
legislation. Transporting beer is expensive, so you need breweries in the different states. Duty
tax on beer in India is an average US $13 per unit of alcohol. Each state levies taxation on
alcohol at its own determined rates and excise duties, and controls distribution channels in its
own way. It is a state‐by‐state market and not a national market. Taxes are levied, often at
higher rates in relation to world prices, on all alcoholic products crossing the state borders. This
makes it essential to have production centers in different states. The distribution system is
same for Beer as for Spirits and Wine. Operators of outlets like wholesalers, retailers, bars and
restaurants, and bonded warehouse operators must be licensed and should pay the varying
state license fees. Based on the current trend of consumption it is expected that Beer may
shortly be permitted to sell in more outlets in near future. South India is the largest consumer
of Beer. Beer is declining in the west due to high taxes, and the consumption in North is
increasing in Country Liquor and Beer in particular.
Environmental Scan The Global Beer Industry 18
Social & Cultural Issues
Throughout history there has consistently been opposition to the sale and use of alcohol. This
opposition to the use of alcohol traditionally stemmed from a moral or religious opposition to
the consumption of alcohol. Today however, increasingly it isn’t a moral or religious reason
that prompts this opposition; it’s the negative medical effects that abuse of alcohol has been
shown to have on the human body. Society is also feeling the effects of alcohol abuse; it is
because of this that Sin Taxes have been levied on alcohol, as an attempt for government to
find a ways and means to profit from the sale and consumption of alcohol. Below, we will
examine some of the issues that are challenges to the beer industry.
Sin Taxes
Sin taxes is a term used to describe taxes that are place on items, usually alcohol and tobacco
products. Most often these sin taxes are similar to a sales tax and are added to the price of the
item by the retail agency selling the product.
Sin taxes are used by governments for a number of different reasons. Sin taxes are often used
to by governments to help pay for the damage that society faces due to the perceived effects
that long term use of these products can have on people. When it comes to the alcohol
industry advocates of sin taxes on alcohol often like to point out that the negative effects of
drunk driving, need for increased policing to protect society from criminal activity possibly
associated with drinking, and for the medical costs that governments face from the treatment
of alcohol related conditions. Typical use of sin tax funds include:
• Funding of efforts to educate the public about the effects of use of these products.
• Funding of health agencies
• Promotional materials
• Funding of facilities for health purposes
• General assistance in balancing of budgets.
Sin taxes are not seen as universally good even with their potentially positive effect on a
government’s ability to provide services, improve infrastructure, or balance a budget. Many
see sin taxes as a regressive form of taxation because it has a much larger effect on those that
are of a lower income level. In this case a person who makes $100,000 per year will pay the
same amount of tax on a 12 pack of beer as someone who makes $35,000 per year. To many
this seems to be wholly unfair. In addition to this many feel that the choice to drink alcohol is a
personal choice and society should not have to pay for peoples choices.
Religion
Society has long had people who because of their beliefs feel that the consumption of alcohol
was immoral and should be outlawed. Very few faiths have come out and made the blanket
statement that the consumption of alcohol is not permitted however. In light of that
statement, one of the few religions that has come out and stated that alcohol consumption is
forbidden is Islam. “Intoxicants were forbidden in the Qur'an through several separate verses
revealed at different times over a period of years. At first, it was forbidden for Muslims to
Environmental Scan The Global Beer Industry 19
attend to prayers while intoxicated (4:43). Then a later verse was revealed which said that
alcohol contains some good and some evil, but the evil is greater than the good (2:219). This
was the next step in turning people away from consumption of it. Finally, "intoxicants and
games of chance" were called "abominations of Satan's handiwork," intended to turn people
away from God and forget about prayer, and Muslims were ordered to abstain (5:90‐91).”
(About.com, 2008)
This is very significant because the Middle East and a large part of the population of India, one
the fastest growing beer markets in the world practices Islam. In Middle East the beer industry
and alcohol as a whole will always have a very insignificant market. However in India, with a
growing population and growing emphasis on incorporating more of western society into a very
diverse society there is great opportunity for expansion into that market. However any
company that looks to expand in India and other countries in that region needs to understand
and be prepared for significant resistance from the Islamic communities.
In addition to Islam here in America there are factions and groups that are still advocating
against the sale or consumption of alcohol. As recently as 2006 the Southern Baptist
Convention came out and didn’t just rally against the use of alcohol, but went as far as to
amend their governing constitution to state that anyone who consumes alcohol can no longer
be on their board of directors.
It was this kind of religious fervor that caused the United States to pass the eighteenth
amendment or the “Volstead Act” on January 20, 1920. Women’s groups and religious groups
were the main proponents of passing the amendment. Today the chances of passing such a act
in most major markets is slim to none, however it should be noted that religion is a driving
factor in the decisions making process of many countries and maintaining awareness of the
direction that these groups are moving towards is very important.
Science and Medicine
Long term alcohol use has been linked to a number of medical conditions including cancer,
heart disease, diabetes, and liver failure. As long as people continue to abuse alcohol and use it
to excessive amounts there will be continued efforts by the medical and scientific community to
encourage people to decrease their consumption or to quit using alcohol overall. The effect on
a body when extensive use of alcohol is discontinued is well documented and it is these efforts
that persuade science and medicine to continue to educating/pushing for people to discontinue
the use of alcohol.
Environmental Scan The Global Beer Industry 20
Conclusion & Planning Premise
As beer consumption in developed markets has flattened due to changing beverage
preferences and relatively slow population growth among key demographics, the brewers must
seek growth in developing countries such as India, China, South Africa and others, where global
middle class is rapidly emerging. Meanwhile brewers in developed markets must look for ways
to reinvent themselves by attracting younger generations with strong branding and marketing
and by maintaining a diverse portfolio of products in response to varied tastes.
The following planning premise provides an overview of the brewing industry, with specific
focus on the primary areas of concern for any firm pursuing success in the global beer industry.
Planning Premise
Natural/Geographic Dimension Trend or Driving Force: Unpredictable commodity prices
• Fluctuating commodity prices can affect the cost of beer production and drive a need
for process efficiency.
• Threats in this arena are related to global weather patterns and their ability to affect
commodity supplies and the cost of production. This can be sudden and difficult to
predict.
• Multinational producers have a distinct advantage because of larger commodity buying
power and established relationships with key suppliers.
• Firms should seek to improve process efficiency and establish strategic partnerships
with key suppliers in established and growth markets.
Demographic Dimension Trend or Driving Force: Changing tastes of young and old generations
• Statistics show that baby boomers are beginning to prefer wine or spirits, possibly due
to health studies or, in the US, low‐carbohydrate diet trends.
• Younger generations in established markets have demonstrated a preference for
distilled spirits instead of beer. This poses an obstacle to growth and challenges firms to
find ways to establish a young consumer base.
• Opportunities have increased in emerging markets due to the growth of a worldwide
middle class.
Economic Dimension Trend or Driving Force: The saturation of traditional markets is driving
consolidation through mergers and acquisitions in emerging markets, resulting in a highly
competitive marketplace.
• Primary growth opportunities are in emerging markets such as China, India, South
Africa, Russia and Latin America.
• Threat: A growth strategy in emerging markets can be a risky venture due to domestic
and multinational competition and high barriers to market entry. Such a strategy tends
to favor large‐scale producers with large amounts of capital on hand.
• Opportunity: Large growth opportunities in strategic locations
Social/Cultural Dimension Trend or Driving Force: The beer industry is confined to areas of the
world in which alcohol consumption is socially/culturally acceptable.
Environmental Scan The Global Beer Industry 21
• Evaluation of growth areas must include a consideration of the social/cultural make‐up
of the region.
• Threats: Growth in emerging markets could be constrained by the
cultural/social/religious make‐up of a population
• Opportunity: Emerging growth markets provide an opportunity to introduce beer to a
new society and ingrain this beverage into the culture of a region.
Political/Legal/Regulatory Dimension: Firms must effectively manage the needs of
governments and interest groups to mitigate regulatory backlash.
• Self‐regulation is necessary for firms to effectively manage stakeholder relationships
and establish an attitude of ethical development and social responsibility as it relates to
alcohol and society.
• Threats: Improper self‐regulation or exploitation of certain demographics such as young
populations may create a social backlash. Firms must identify and manage the social and
cultural differences in emerging markets and tailor their approach to each specific area
to avoid social backlash.
• Opportunity: Building relationships with governments and interest groups around the
world to ensure continued growth.
Technological Dimension: New harvesting and production technologies must be identified to
increase process efficiency and ensure continued growth.
Business Practices/Expectations Dimension Trend or Driving Force: Industry‐wide
consolidation continues to occur as global competition plays out in emerging markets.
• As firms grow larger, varied consumer tastes force multinationals to maintain a more
diverse portfolio of products. Despite their size, firms must remain agile enough to
quickly respond to consumer tastes or risk losing ground in key markets.
• Threats: Reconciling size with changing consumer tastes. Firms must work to adequately
anticipate changing tastes in a various worldwide markets and operate with careful
efficiency to minimize costs and risks.
• Opportunities: Global consolidation provides opportunities in emerging markets
through mergers and acquisitions and targeted import strategies.
Environmental Scan The Global Beer Industry 22
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Environmental Scan The Global Beer Industry 24