Porter 's Five Forces Industry Competition

The purpose of this research paper is to analyze Sam Adams and the global craft beer market. I will apply microeconomic models to analyze the supply and demand conditions for Sam Adams, its price elasticity of demand for products, cost of production and the overall market. There will be recommendations to maximize future profits and sustain success for Sam Adams. In this paper I will also analyze the craft beer industry and recommend actions for better management of supply and demand, improving the cost of production and the different barriers of entry that Sam Adams can utilize to impact its future in the craft beer industry. Applying the concepts of variable and fixed costs, I will make recommendations for its output decisions and profitability that will help them succeed in a monopolistically competitive market structure. In the conclusion of this paper I will make recommendations to manage future production and sustain its success, as well as evaluate the business structure and effective decision-making strategies. The craft beer industry is a monopolistic competition because it has the ability to allow many firms to produce similar good or services, but it at the same time allows each firm to make independent production decisions and differentiate their product from the competition by creating its own pricing.

Boston Beer, in response to consumers’ preference changes to more flavorful and bitter tasting brews, was founded in 1894. Boston Beer implements a “quality at any cost” strategy with a strong emphasis on product differentiation and implementing quality ingredients into its products. For instance, Boston Beer was the first company to employ a stamped freshness date on its bottles and ingredients are imported from around the world. Additionally, Boston Beer relies heavily on contract brewing to gain competitive advantages. Boston Beer’s contract brewing strategy results in lower overhead and transportation costs, as well as

The Boston Beer Company is currently the largest craft beer company in the United States, however, the craft beer industry is growing in an otherwise shrinking market increasing the amount of serious competition that The Boston Beer Company is facing.

What this means is that their “facilities are organized around a product […]; they have long, continuous process” (Heizer, Render and Munson, p.284). The process is in continuous motion. Anheuser-Busch has a demand and a need to be continuous because they require high volume; “Budweiser and Bud Light, the company’s beers lead numerous beer segments and combined hold 46.4 percent share of the U.S. beer market” (About, n.d.). That is almost half of the entire beer industry is dependent on them. Anheuser-Busch have low variety- although this company has what can be seemingly a variety of products, there are very minimal changes other than slight changes to the recipe that differentiate each family of beers (National Geographic, 4:25, 2011). Meaning that the process is the same the ingredients are what differ. According to the text, “That is to be expected as the attributes change” (Showghi, slide 4,2016). It is still the same product in the end. Because they are producing only beer, they have high fixed costs and low variable cost, they are not making any drastic changes to their product keeping the input the same. Less skilled labor is not part of the equation in this instance; breweries are looking for people with high skills in

Brand plays a key role in the beer-purchasing process, along with taste, price, special occasion,

Import beer companies have a similar market share of 12% and have a common denominator with the regional brewers; their beers tend to have bitter taste. Demands for these beers are on the rise.

In order to grow, Boston Beer must continue to increase its market share in the overall beer market. The market continues to be dominated by the large scale breweries like Anheuser Busch, Adolph Coors Co, and Miller Brewing Co. Craft Breweries are beginning to increase their share in the overall market. It is expected that craft breweries will account for 5% of the overall beer market in 2000, up from 1.4%. However, there is increased competition in the craft beer market. There were 165 new craft brewers in 1994. This increased the total of craft breweries in the US to 750. Boston Beer will be competing with these 750 breweries for 5% of the 5 billion in US beer revenues.

iv. Craft beer industry – This industry is made up of brewpubs (10% of craft beer volume), microbreweries (12% of craft beer volume), contract breweries (16% of craft beer volume) and regional craft breweries (62% of craft beer volume), Together, these craft breweries produce less than two million barrels annually control approximately 1.5% of the total beer market in the East Central region. This is the very industry which MMBC operates in.

The threat of new entrants refers to the threat posed by new competitors within an industry. If it is easy for new firms to enter the industry barriers to entry are low and the threat of new entrants is high. A profitable industry attracts more competitors. Economies of scale, learning curve effects and other macro factors impact the nature of an industry 's

customers who are willing to buy the brewer at a lower price. Thus, they can profit by covering

When purchasing beer, customers have a wide variety to choose from. This provides customers with some power, as there are no switching costs between choosing one beer over another. Interbrew could focus on differentiation in order to combat this. They could market their premium beer

     The brewing industry was once held to competition among many breweries in small geographic areas. That was almost a century ago. The U.S. brewing industry today is characterized by the dominance of three brewers, which I will talk about in this paper. There are many factors today that make the beer industry an oligopoly. Such factors include various advancements in technology (packaging, shipping and production), takeovers and mergers, economies of scale, barriers to entry, high concentration, and many other factors that I will cover in this paper. Over the course of the paper I will try to define an oligopoly, give a brief history of the brewing industry, and finally to show how the brewing industry today is an

In the United States the beer industries are regulated by the state and the federal governments. The state and the federal government pass their opinions in term of production, advertisement, distribution,

In his article “The five competitive forces that shape strategy“, Michael Porter (2008) updates and extends his “five forces” framework he first introduced in 1979 and which has influenced the academic and business research for decades. He reaffirms that “THREAT OF ENTRY”, “THE POWER OF SUPPLIERS”, “THE POWER OF BUYERS”, THE THREAT OF SUBSTITUTES”, and “RIVALRY AMONG EXISTING COMPETITORS” are the forces that shape every single industry, and a thorough understanding of such forces help analyze everything from the intensity of competition to the profitability and attractiveness of any industry. The framework has two dimensions; the vertical dimension that connects

Entrants erode the market and rarely grow it enough to the incumbent’s advantage. New entrants have an impact on the industry business but at a moderate level. This is mainly because new firms will find it difficult to compete against the incumbents’ strong brand, like Starbucks and McDonalds, and because the market is saturated. However, the costs of entry are relatively low. Most of the raw materials are cheap and the distribution chain is not complicated. This makes it easy for new companies to enter the market. Also, established companies might leverage their brands as they enter the industry to compete against the incumbents.