What’s Brewing at Whitbread?

Although beer is still the most popular alcoholic drink in the UK sales are still falling. They have dropped by eight million pints a day since the last peak in 1979, . Sales of beer in pubs are at their lowest since the poorest days of the 1930s recession, with pubs closing at an astonishing rate of 35 a week, according to the British Beer and Pub Association. Some 44,000 jobs have been lost in the British brewing industry over the past five years and a further 43,000 are expected to go within the next five. Since 1997, 37 major breweries have closed.

One of theses major breweries was Whitbreads. In 2001 Whitbread’s sold of both brewing and pub operations, leaving the pub and bar business, transforming there company refocusing on the growth areas of hotels and restaurants. There reinvention as the UK's leading hospitality business naturally coincided with the ending of this country’s brewing and pub-owning tradition, started by Samuel Whitbread over 250 years earlier.

Below a graph illustrates the declining number of pubs in Uk from 1980 to 2010

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Total Number of Pubs in the UK 1980-2010

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A number of key macro factors influenced Whitbread’s decision in exiting the brewing industry.

The constant reduction of pubs in the Uk has led to a significant reduced demand for the quantity of beer required. This was

19981999

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There are number of political and legal factors which influenced Whitbread’s decision in exiting the brewing industry. The rates of excise duty in the UK are as much as seven times higher when compared with the rest of Europe especially in France, resulting in major smuggling operations into the UK of beer.

In recent years, the price of beer has risen much faster than the rate of inflation. The duty element, on average, works out to around 33p per pint, with VAT, currently at 20%, also payable. Such financial disparity prompts not only UK consumers to travel to France for their beer, but also a growing number of 'professional' smugglers (Source: HMCE/HM Treasury/Mintel).

Year

Barrels of Beer

On Trade Sales of Beer in Barrels 2008-2011

LEGAL In January 2000, the Office of Fair Trading announced the start of the Beer Orders legislation, which restricted the number of public houses that the largest brewers can own. In some cases, the restrictions on integration have driven brewers to quit the beer market entirely. Although it has been more than ten years since the first moves to control pub ownership by major brewers were made, the Beer Order of 1989 based on the findings of Monopolies & Mergers Commission investigation; are still having an impact on UK brewing. The Beer Orders of 1989 prevented concentrated and vertical integration by the 'Big Six', but the conservative Government allowed the 1995 mergers that produced Scottish Courage, a dominant new force in brewing.

* In the UK it is compulsory for brewing firms to have a licence, without the licence firms cannot sell alcohol.

* Taxation is levied irrespective of distribution and excise duties have not increased very quickly recently. This is due partly to the need to move towards in Europe; the UK's taxes on alcohol are much higher than most countries.

* Drink & Drive: Hard-hitting campaigns and stiffer penalties have helped to reduce the number of road accidents involving alcohol. ''Some groups are suggesting that the permitted level of alcohol be reduced further from the current level of 80mg/100ml of blood to 50mg/100ml, in keeping with many other European countries'' (Mintel Lager 2000). According to the Publican magazine any further reduction in the limit would stop people visiting rural pubs altogether if having one drink meant risking their licence.

2001 2002 2003 2004 2005 2006 2007 2008 2009 20101.5

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The Price of a Pint of Beer 2001-2010

Year

Cost

of P

int

(£)

Jonathan Glancey guardian.co.uk, Wednesday 7 January 2009 12.34 GMT

A PESTLE Analysis involves identifying Political, Economic, Social, and technological influences on an organisation. (Johnson &Scholes)

BanThe ban on the drinking of alcohol in the working environment, especially while travelling, is also affecting the sale of beer. Though there are toasts raised and wines served in social gatherings and business parties, but the average decrease is quite prominent. People prefer to remain in their senses for which they tend to avoid much beer.

ECONOMIC

* For the first time since 1987, the prices of beer retail on trade fell in 1999, although by only 0.1% according to the government statistics. This is attributed in parts to low inflation, super marketing price cutting encouraged greater in home consumption and promotions and discounting by pub chains for example JD Wetherspoon and Yate's.

* Inflation on beer prices is now fairly low and additional excise duties no longer add greatly to the taxation each year. Therefore market value has not increased considerably in the last two years.

* The continued strength of Sterling against most European currencies, plus they attract overseas travel, means that many consumers are choosing to travelling to France for their drinks supplies.

Rise in Prices of BeerDue to the rise in the price of beers. Bread and other edibles are cheaper than beer, and people prefer to buy other things than alcohol. brewing companies are increasing prices knowing that this will decrease their customer base. They have to do this due to T increasing taxation and excise duties implemented by the government on beers.

See Table

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Price per pint £1.96 £2.02 £2.08 £2.14 £2.21 £2.28 £2.37 £2.48 £2.56 £2.69Duty per pint £0.28 £0.28 £0.28 £0.29 £0.30 £0.31 £0.32 £0.35 £0.38 £0.40

VAT per pint £0.29 £0.30 £0.31 £0.32 £0.33 £0.34 £0.35 £0.37 £0.33 £0.40Price - Tax £1.39 £1.44 £1.48 £1.53 £1.58 £1.64 £1.70 £1.76 £1.84 £1.89Price Of A Pint Of Beer

Rising InflationThe rise in the prices of other things is also causing a decrease in the demand of beers, as people need to buy their daily necessities before spending on luxury. Obviously beer cannot be replaced by bread in any case.

SOCIO/CULTURAL

* Among the reasons for higher home alcohol consumption are the increasing types and complexity of in home entertainment such as video, cable TV, satellite and the Internet, which means people tend to spend more of their leisure time in the home and not in a pub.

* New style outlets are family conscious, ''female friendly and food oriented''(Mintel Lager 2000). Customers these days expect a lot more from a pub experience than a simple pint of beer, volumes of which continued to decline in pubs.

Healthier Organic beers are now being imported, a series of low calorie and lower alcohol beers have now re-entered the market, all of which is being consumer driven.

The increase in the health consciousness is also causing people to avoid drinking alcohol. It is further promoted by anti drug agencies and nutritionists who regard alcohol drinking as a thing that not only affects one’s financial sources, one’s senses, but also one’s beauty. The new diet plans do not include beer or wine at all.

* There are slight cultural changes taking place in the UK which mean that people are no longer accepting to just drinking at one particular time of the day for example in the evening. People are demanding different packs for different

occasions, i.e. just before New Years Eve 1999, mini kegs were introduced by Budweiser and Grolsch to help millennium celebrations.

Demographic ShiftThe migration and settlement of people from all over the world in UK can also be regarded an important factor in lowering the beer consumption rates. Especially the settlement of people following religions like Islam which forbid the alcohol usage strictly has caused the demand of the alcoholic drinks to decrease.

* Future changes in licensing laws could see pubs closing at midnight or later on weekends, allowing for more drinking time.

* Alcohol concerns is pressing the government for better alcohol education for young people, increased police powers for breath testing and high profile alcohol awareness campaign.

The change in people’s taste is a major contributing factor in the low sales of the beers nowadays. Beer used to be a main drink a century ago, but today the introduction of carbonated and soft drinks such as sodas, various juices and drinks have decreased its charm and popularity.

TECHNOLOGICAL

* Get online: The arrival of new technology during the last few years has meant that increasing number of products can now be bought over the Internet and drinks are no exception to this rule. Number of High Street off licence chains now offers an e-commerce facility and wide websites through which consumers can buy drinks and glasses.

* Major brewers are turning to the Internet as a marketing tool, for example both Guinness and Heineken have launched interactive websites designed to build up databases of their customers.

* There is increasing use of Internet as a sales channel with many retailers owning their own websites. Such site can provide brand information, competition, promotion details, sales information and prices.

* Innovations in premium lager based on brewing technology have taken place including ice beer, dry beer and cold-filtered beer. However brand marketing is powerful and the leading brands are ordinary products, brewed and packaged in a traditional manner.

* Most of the main brands are packaged in both bottle and can to take advantage of advances in packaging "Improvements in packaging have resulted to more attraction for beers. For example "major brewers are using glass packages because it gives them a premium image"(Beverage World).

* Several major brewers developed their own widget systems including devices for bottles as well as cans, but the result was the same, giving the ale and stout market a much-needed boost.

ENVIRONMENTAL / ECOLOGICAL

* Breweries in this industry are becoming more ecologically conscious. This takes in the form of packaging developments.

* Manufacturers are now obliged by law to observe environmental and packaging waste legislation. Environmental legislation is bringing pressure to brewers and there have been major successes in raising the amount of post consumer domestic metal packaging recovered and reprocessed. Government regulations require can makers to collectively achieve 52% packaging recovery by 2001. In 1998 according to the Can Makers Information Service 36% of all aluminium cans were recycled.

Economic

UnemploymentAccording to a report, the percentage of unemployment in developed countries is 2.5. With this much number of the people jobless, who will want to spend on a pint of beer than necessities of life. Thus, the sale of beer is decreasing with the increasing rate of unemployment.

ConclusionTo summarize, UK beer industry was and is currently facing downfall.The rise in the ration of unemployment, the rise in price of beers and other necessities of life, the newer trends towards health consciousness, ban on alcohol consumption while travelling, and migration of alcohol-prohibited people are causing brewing industries to shut down.

Summary of PESTLE Analysis

It can be concluded from the PESTLE Analysis that the brewing industry has undergone reforms since the 1989 MMC Beer Orders Report. The external environment not only affects the industry as a whole, but also has company consequences. Key opportunities and threats facing the industry can be identified from such analysis, which have to overcome or circumvented by firms.

As seen with Whitbread’s, many brewing firms are now increasingly diversifying out of brewing, and entering into other ventures.

The firms who have not diversified out of brewing have shifted strong emphasis from brewing operations towards catering outlets, such as pubs, which is likely to be unprofitable. This is due to the PESTLE factors, which has resulted to a fall in beer consumption. Legislation factors like strong drinking laws and that consumers are becoming more health conscious are the main reasons for this cause. Consumers are consequently drinking less of a higher quality.

Brewing firms within this industry cannot control the environment, but alternative they can play for change and respond. Changes cannot be managed however some factors of the environment can be influenced. For example, the legal environment can be influenced through political lobbying. Many large breweries attempted to lobby the government, to try and change MMC recommendations and legislation.

Two of the nation's largest brewers Bass and Whitbread have sold their brewing operations to concentrate on their hotel and leisure interests. The remaining brewers will be searching for additional economies of scale, firstly on a national basis and then on a European, or possibly global scale.

Formerly one of the largest regional brewers, the Vaux Group decided to withdraw from brewing in 1998. Over a longer period several other brewers have withdrawn from brewing including Boddington's, Whitbread and Greenall Group bought the beer brand.

The supply of beer in the UK is now more concentrated than ever despite the efforts of government to produce level playing fields for smaller companies. The top five companies have a 93% share of the UK beer supply. (See appendix 2)

Key opportunities and threats facing the brewing industry

Despite the impending shake-up of the UK brewing industry, either from the sale of brewers or OFT legislation, there are still opportunities for growth.

Beer is called the national drink of UK. However, the present statistics have reported that beer consumption has decreased in UK by 3.1% in last 12 months (BBPA, 2008, p. 3). This reduction in the beer usage is causing UK brewing industries to downsize, and even close, the brewing factories. There are a number of key factors that are causing such decrease which can be divided under the following categories: change in trends and financial issues.

Factors affecting UK beer industryChange of trendsThe change in trends has also affected the rate of beer consumption in UK. “Since 1979, per capita consumption of beer has fallen by 33 per cent” (BBPA, 2008, p.3). According to an approximate ratio “men fell from 17.2 units a week in 1998 to 14.9 in 2006. By women, it fell from 6.5 units to 6.3, having been at 7.6 in 2002” (BBPA, 2008, p. 8). The reasons for such a drastic fall to the brewing industries include:

INTRODUCTION

European Brewing IndustryQ) Apply PESTEL analysis to the European Brewing Industry identifying key opportunities and threats in 2010. PESTEL analysis:Political factors:* The government is campaigning strongly against drunk-driving, which is affecting the tendency to drink beer in restaurants, pubs and bars* The Government has the power to set potential fines for the

industries that do not meet there standard law requirements* Decline in traditional key markets such as the United Kingdom is due to the fact that there is growing hostility towards 'binge drinking'* Restrictions on packaging, such as; the usage of cans in DenmarkEconomical factors:* Low growth in consumption of beers* In the European industry where beer growth is historically high, there is a decline in the demand for beer, whilst in the developing economies such as; China and Brazil, the consumption of beer is steadily growing* Growing trend towards cross-border mergers* A recession creates increased activity at the lower ends of product price ranges, therefore the rate of interest will increase depressing business and causing lower spending levels along the waySocial factors:* Growing concerns about health and fitness* Growing concerns about drunk-driving* Underage drinking levels increasing * Binge-drinking in pubs and clubs is being discouraged* Changing social attitudes and tastes such as the way individuals spend their leisure time, for example; going to the cinema, or just 'hanging' out with friends* Peer pressure is an ongoing issueTechnological factors:* Changes to certain products* Introduction of new products, such as; fruit flavored beers* Economies of scale in brewing and distribution* Consumer's tastes and preferences changing depending on one's moodEnvironmental factors:* Ban on cans in favour of environmentally friendly recyclable bottles* Government intervention for bottled beerLegal factors:* Changes in laws* Stronger enforcement of underage drinking regulations Key opportunities and threats in 2010Opportunities:* Opportunities for growth are the increase in demand for alcoholic beverages, predominantly beers* Increase in off-trade beer consumption worldwide* Steady growth for demand for premium products, such as; extra cold lager and fruit flavoured beer* Demand for beers and alcoholic beverages is rising in developing countries, such as China and Brazil, this is an advantage to the European Industry, because there is always the opportunity to mergeThreats:* Consumers are growing more and more health conscious and fitness aware that the affects of alcohol are similar, whereas on the other hand beer has the following side effects, such as; weight gain and bloating. These side effects could push consumers to drink

2

In 2001 Whitbread’s became the company they are today. They sold their breweries and left the pub and bar business, refocusing on the growth areas of hotels and coffee the market. Premier Inn and Costa Coffee where the 2 main

Porter's generic strategies are ways of gaining competitive advantage that gets you the sale and takes it away from your competitors. Michael Porter formed these Strategies in 1985 in his book Competitive Advantage. Porter had three main generic strategies "Cost Leadership" (no frills), "Differentiation" (creating uniquely desirable products and services) and "Focus" (offering a specialized service in a niche market).

Premier Inn is the UK's largest hotel chain, focusing on budget hotels. They have over 650 hotels with over 50,000 rooms., plus 1 hotel in Republic of Ireland and a number of hotels in Dubai and India. The company provides 70% of the total earnings of Whitbread and according to the Finincial Times has a 7% market share in the hotel industry. Because of the positively recommendation programme of Premier Inn, potential customers tend to stay more likely in budget by syaying a budget hotel like Premier Inn, which offers cheaper or the same rate customers used to pay for 5 star hotels for example. Premier Inn minimize their fixed costs by implementing a sophisticated online booking system and mobile phone booking application. These are all reasons why Whitbread became market leader as well as earned cost leadership in the hotel industry.

A Cost Leadership Strategy strategy involves the company winning market share by appealing to cost-conscious or price-sensitive customers. This is achieved by having the lowest prices in the target market segment, or at least the lowest price to value ratio (price compared to what customers receive). To succeed at offering the lowest price while still achieving profitability and a high return on investment, the firm must be able to operate at a lower cost than its rivals

It is clear that

Costa Coffee is a British multinational coffeehouse company headquartered in Dunstable, United Kingdom and a owned subsidiary of Whitbread PLC. It is the second-largest coffeehouse chain in the world (behind Starbucks) and the largest in the United Kingdom. Costa Coffee has grown to 1,700 stores across 28 countries. The business has 1,375 UK shops, 2,500 Costa Express vending machines and a further 800 shops overseas.

http://en.wikipedia.org/wiki/Costa_Coffee

Costa Coffee has recently decided to acquire Coffee Nation, the operator of nearly 1000 self-service coffee machines for £60 million.  These are position for convenience – railways, for instance, are littered with these machines where busy customers can quickly grab a cup of coffee.  Hence, the firm wishes to rebrand these self-service points as ‘Costa Express’.  Obviously, the firm benefits from high-volume, low-margin sales: they are differentiating themselves based on speed.

Starbucks, on the other hand, are aiming to differentiate based on quality.  They have decided to lengthen their product line by using an ‘upward stretch’, where high quality and more expensive items are introduced: the company is introducing coffee made using rare, luxurious coffee beans.  Thus, unlike Costa Coffee, they are aiming to compete using a low-volume, high-margin sales approach.  And when I say ‘low-volume’ I mean low; the beans were grown by just 12 farmers, and there is no telling when the next harvest will be.  This being tied in with the firm’s 40th Birthday to align quality to its corporate image.

There are clearly benefits and drawbacks with both of their strategies.  Costa Coffee have used a relatively low-risk form of market development.  They are essentially targeting the same customers, but whose needs change according to their location.  This enables the firm to continue to sell to business executives on their way to and from work, by offering speed, and then on their lunch-break, by offering premium priced cakes and sandwiches.  The use of a multi-brand strategy, moreover, emphasises this contrast.  Thus, they hope the presence of self-service machines will not affect their cafe’s brand equity if they can convince their consumers to position the two services separately.

However, despite their best efforts, chances are the more successful Costa Coffee are at emphasising the speed of Costa Express, the less customers are likely to perceive their cafe as high-quality.  This is a complete contrast to Starbucks. Starbucks aims to deliver the best possible coffee to customers, regardless of time.  Early adopters may have to wait up to a year for the next harvest!  But, even when the product is available, each customer will the experience of watching a specially trained barista prepare their coffee which will take around 4 minutes for a single cup.  Lets hope consumers find the coffee good enough to be worth the wait.

Evidently, a premium price tag will be used to cover these large labour expenses.  Despite this, the product will never be profitable – there are not sufficient supplies of coffee beans to allow the drink to reach the maturity stage of the product life-cycle.  The drink will literally move from introduction into

decline, with no scope for extension strategies.  The benefit of upward stretching through product development, therefore, is clearly to develop a reputation for high-quality that generates long-term revenue.  Hence, create long-term customer loyalty.

In the short-term, Starbucks is also able to generate hype around their exclusivity that can create a short influx of customers, at the expense of Costa Coffee’s sales.  These new consumers may then try other drinks and products if the brand-swap encourages variety-seeking buying behaviour.

Overall, one cannot really call one strategy more successful than the other. Costa Coffee clearly aim to maximise their profits; Starbucks aim to develop their brand around quality.  In both respects I feel they will both achieve their aims.  However, to a budding-marketer, Starbucks seems to be creating a more sustainable marketing strategy that will prove to be more competitive in the long-term.  This is being combined with other optimist approaches.

A differentiation strategy is when a company provides different offerings to suit different customer wants, which in turn allows them to create a competitive advantage.  Not only is competitive advantage vital for survival in the U.K’s saturated coffee market; but how a company goes about differing its products also provides plenty of scope for failure, as well as success.  Costa Coffee and Starbucks are long-term competitors in the coffee market, however as shown above they have implemented new marketing tactics. This that Costa Coffee id implementing a differentiation strategy in order to

Even though both successful businesses, Premier Inn and Costa implement very different strategies.

Costa Coffee plans to introduce ‘coffee on the go’.Whitbread the parent company for Costa has acquired self-service coffee chain Coffee Nation and plans to launch a new brand, Costa Express, with a view to target the self-serve coffee bar sector.    

Andy Harrison, the Chief executive of Whitbread comments, “Customers increasingly want great-tasting coffee on the go, which makes the self-serve coffee market very attractive.”

After achieving the status of UK's favorite coffee shop brand in 2010 by the Project Café10 research Costa started campaigning in the premise of quality offered by hand-made coffee, including also the claims “Save the world from mediocre coffee” and “7 of 10 coffee lovers prefer Costa”

The strategy

“Great Tasting Coffee on the Go”Costa Express“Great Tasting Coffee on the Go”Costa Express

What would be the strategy for a leader on its market, operating 1.200 points of sale in the UK and a reported jump in profits of 43% on the last 6 months? If you answered “ Shield their currentposition”, you are completely wrong, Costa Coffee wants more, much more…

Coming July the company plans to start the operation of Coffee Nation with about 900 coffee vending machines. Costa plans to rebrand all the existing self-service machines. This is being done with an aim to achieve a number of 3000 Costa Express units within the next 5 years. Coffee Nation has an annual turnover in excess of £20m, from Milestone Capital and Investec Growth & Acquisition Finance and members of the existing management team.Targeting an annual market of 1.7 billion, the company is launching the new brand Costa Coffee, aimed at customers who want great tasting coffee on the go. The significant differentiator from other self service coffee vending machines is the usage of fresh milk and freshly roasted coffee, obeying the basic premise of top quality hand-made coffee. “Combining Costa and Coffee Nation to create Costa Express is good news for our team and our customers and will allow us to continue to work with fantastic partners across the UK to provide customers with the highest quality coffee on the go” commented Scott Martin, Chief Executive Officer of Coffee Nation.

The company is working on a pre-existing market with already known product but in a different way. In order to change the perception of this express coffee and consequentlychange the consumer’s behavior, Costa Coffee was pioneer launching the first TV Campaign supplemented by outdoors, online, direct marketing and in-store activity.

The execution  

“This acquisition provides an exciting launch pad to develop

3000 Costa Express bars across the UK, providing an additional growth lever for the Costa brand and making Costa available to more customers in more locations,” Harrison highlights.

The Costa Express coffee vending machines will be targeted at locations like supermarkets, motorway service areas, railway stations, hospitals, universities and other busy public places.

These self-serve coffee bars will use fresh milk unlike other vending machines, which use milk powder. Costa plans to supply Coffee for the new Costa Express brand from the Costa Roastery in London, thus maintain quality and taste standards. The brand believes that this kind of machine technology and monitoring systems put it at a competitive advantage. The existing customers for Coffee Nation included Tesco, Moto and Welcome Break & the re-branded Costa express coffee machine units will be placed in these locations.

The challenging task that arises with this expansion is how Costa will drive traffic towards these stand-alone self-service coffee machines. The popular belief that coffee from vending machines lacks qualityin regard to taste, hygiene & personalization in regard to the human touch might be an area of major concern and act as a barrier to success.

Costa Express needs to build a clear communication strategy and focus on developing brand image and changing perception in regard to quality of the product. The brand needs to assure the consumers that the product will meet the Costa standards and experience and will save time and add to convenience thus, providing ‘Great taste and quality on the go.’

The outcome

Costa Express will be operating in a mature and stable market, with the strategy of delivering the same product in a different

way attending the urban consumer’s needs. The company has all the required assets and should succeed as the predominate Coffee Company. If Costa Express follows an appropriate and targeted communication strategy they can capitalize in the Costa brand name and image and help achieve the final expansion target making Costa Coffee the leader in the coffee shop market.

“The launch of Costa Express will quadruple the brands profit contribution,” comments Harrison.

These three approaches are examples of "generic strategies", because they can be applied to products or services in all industries, and to organizations of all sizes. They were first set out by Michael Porter in 1985 in his book Competitive Advantage: Creating and Sustaining Superior Performance. Porter called the generic strategies "Cost Leadership" (no frills), "Differentiation" (creating uniquely desirable products and services) and "Focus" (offering a specialized service in a niche market). He then subdivided the Focus strategy into two parts: "Cost Focus" and "Differentiation Focus". These are shown in Figure 1 below.

The terms "Cost Focus" and "Differentiation Focus" can be a little confusing, as they could be interpreted as meaning "A focus on cost" or "A focus on differentiation". Remember that Cost Focus means emphasizing cost-minimization within a focused market, and Differentiation Focus means pursuing strategic differentiation within a focused market.

The Cost Leadership StrategyThere are two main ways of achieving this within a Cost Leadership strategy:Increasing profits by reducing costs, while charging industry-average prices.

Increasing market share through charging lower prices, while still making a reasonable profit on each sale because you've reduced costs.

Remember that Cost Leadership is about minimizing the cost to the organization of delivering products and services. The cost or price paid by the customer is a separate issue!

The Cost Leadership strategy is exactly that – it involves being the leader in terms of cost in your industry or market. Simply being amongst the lowest-cost producers is not good enough, as you leave yourself wide open to attack by other low cost producers who may undercut your prices and therefore block your attempts to increase market share.You therefore need to be confident that you can achieve and maintain the number one position before choosing the Cost Leadership route. Companies that are successful in achieving Cost Leadership usually have:Access to the capital needed to invest in technology that will bring costs down.Very efficient logistics.A low cost base (labor, materials, facilities), and a way of sustainably cutting costs below those of other competitors.The greatest risk in pursuing a Cost Leadership strategy is that these sources of cost reduction are not unique to you, and that other competitors copy your cost reduction strategies. This is why it's important to continuously find ways of reducing every cost. One successful way of doing this is by adopting the Japanese Kaizen philosophy of "continuous improvement".The Differentiation StrategyMind Tools on Strategy:SWOT AnalysisTOWS AnalysisPEST AnalysisCore Competence AnalysisValue Chain AnalysisPorter's Five ForcesPorter's Generic StrategiesBowman's Strategy ClockScenario AnalysisDifferentiation involves making your products or services different from and more attractive those of your competitors. How you do this depends on the exact nature of your industry and of the products and services themselves, but will typically involve features, functionality, durability, support and also brand image that your customers value.To make a success of a Differentiation strategy, organizations need:Good research, development and innovation.The ability to deliver high-quality products or services.Effective sales and marketing, so that the market understands the benefits offered by the differentiated offerings.Large organizations pursuing a differentiation strategy need to stay agile with their new product development processes. Otherwise, they risk attack on several fronts by competitors pursuing Focus Differentiation strategies in different market segments.

The Focus StrategyCompanies that use Focus strategies concentrate on particular niche markets and, by understanding the dynamics of that market and the unique needs of customers within it, develop uniquely low cost or well-specified products for the market. Because they serve customers in their market uniquely well, they tend to build strong brand loyalty amongst their customers. This makes their particular market segment less attractive to competitors.As with broad market strategies, it is still essential to decide whether you will pursue Cost Leadership or Differentiation once you have selected a Focus strategy as your main approach: Focus is not normally enough on its own.But whether you use Cost Focus or Differentiation Focus, the key to making a success of a generic Focus strategy is to ensure that you are adding something extra as a result of serving only that market niche. It's simply not enough to focus on only one market segment because your organization is too small to serve a broader market (if you do, you risk competing against better-resourced broad market companies' offerings.)The "something extra" that you add can contribute to reducing costs (perhaps through your knowledge of specialist suppliers) or to increasing differentiation (though your deep understanding of customers' needs).

According to porter's (1985) there are two competitive strategies that create competitive advantage, cost leadership and differentiation. In cost leadership, “a firm sets out to become the low cost producer in its industry”. In a differentiation strategy, “a firm seeks to be unique in its industry along some dimensions that are widely valued by buyer. It can also be said as a condition which enables a company to operate more efficiently and with higher quality than the companies it competes with, and which results in benefits accruing to that company. Competitive advantage can be achieved, when the firm is able to deliver at a lower cost the same benefits of the competitors, or deliver benefits that exceed those of competing products. Thus a competitive advantage enables the firm to create superior value and superior profits for its customers and itself.

Cost and differentiation advantages are also known as positional advantages since they describe the firm's position in the industry as a leader in either cost or differentiation.

(Fig 2.4) Porter's Generic Strategies (1985)

To achieve a competitive advantage, the firm must perform some value creating activities in a way that creates more overall value than the competitors. This superior value can be created through lower costs or superior benefits to the customer by differentiation. Another important decision is how broad or narrow a market segment needs to be targeted. Considering this Porter formed a matrix which is called Porter's Generic Strategies. His main contribution was to point out that there are only two superior performances.

* You either become the lowest cost producer or

* You differentiate your product/service in ways that are valued by buyers to the extent that he or she will pay a premium price to get those benefits.

Cost Leadership: For companies competing in a price sensitive market, this generic strategy calls for being the low cost producer in an industry for a better quality. Cost leadership must be a goal of every organisation, regardless of their specific market orientation.

Differentiation: A differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers and that customers feels better than or different from the products of the competition. In this strategy, a business aims to differentiate within just one or a small number of target market segments.

Read more: http://www.ukdissertations.com/dissertations/business/strategies-formulation-and-implementation.php#ixzz2HUbfr4Td

Costa Coffee vs Starbucks – DifferentiationDifferentiation is when a company provides different offerings to suit different customer wants, which in turn allows them to create a competitive advantage.  This seems simple right?  No.  Not only is competitive advantage vital for survival in the U.K’s saturated coffee market; but how a company goes about differing its products also provides plenty of scope for failure, as well as success.  Starbucks and Costa Coffee are long-term competitors in the coffee market – however, recently they have implemented new marketing tactics.  Who will come out on top?

Costa Coffee has recently decided to acquire Coffee Nation, the operator of nearly 1000 self-service coffee machines for £60 million.  These are position for convenience – railways, for instance, are littered with these machines where busy customers can quickly grab a cup of coffee.  Hence, the firm wishes to rebrand these self-service points as ‘Costa Express’.  Obviously, the firm benefits from high-volume, low-margin sales: they are differentiating themselves based on speed.

Starbucks, on the other hand, are aiming to differentiate based on quality.  They have decided to lengthen their product line by using an ‘upward stretch’, where high quality and more expensive items are introduced: the company is introducing coffee made using rare, luxurious coffee beans.  Thus, unlike

Costa Coffee, they are aiming to compete using a low-volume, high-margin sales approach.  And when I say ‘low-volume’ I mean low; the beans were grown by just 12 farmers, and there is no telling when the next harvest will be.  This being tied in with the firm’s 40th Birthday to align quality to its corporate image.

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There are clearly benefits and drawbacks with both of their strategies.  Costa Coffee have used a relatively low-risk form of market development – market penetration hybrid strategy.  They are essentially targeting the same customers, but whose needs change according to their location.  This enables the firm to continue to sell to business executives on their way to and from work, by offering speed, and then on their lunch-break, by offering premium priced cakes and sandwiches.  The use of a multi-brand strategy, moreover, emphasises this contrast.  Thus, they hope the presence of self-service machines will not affect their cafe’s brand equity if they can convince their consumers to position the two services separately.

However, despite their best efforts, chances are the more successful Costa Coffee are at emphasising the speed of Costa Express, the less customers are likely to perceive their cafe as high-quality.  This is a complete contrast to Starbucks. Starbucks aims to deliver the best possible coffee to customers, regardless of time.  Early adopters may have to wait up to a year for the next harvest!  But, even when the product is available, each customer will the experience of watching a specially trained barista prepare their coffee which will take around 4 minutes for a single cup.  Lets hope consumers find the coffee good enough to be worth the wait.

Evidently, a premium price tag will be used to cover these large labour expenses.  Despite this, the product will never be profitable – there are not sufficient supplies of coffee beans to allow the drink to reach the maturity stage of the product life-cycle.  The drink will literally move from introduction into decline, with no scope for extension strategies.  The benefit of upward stretching through product development, therefore, is clearly to develop a reputation for high-quality that generates long-term revenue.  Hence, create long-term customer loyalty.

In the short-term, Starbucks is also able to generate hype around their exclusivity that can create a short influx of customers, at the expense of Costa Coffee’s sales.  These new consumers may then try other drinks and products if the brand-swap encourages variety-seeking buying behaviour.

Overall, one cannot really call one strategy more successful than the other. Costa Coffee clearly aim to maximise their profits; Starbucks aim to develop their brand around quality.  In both respects I feel they will

both achieve their aims.  However, to a budding-marketer, Starbucks seems to be creating a more sustainable marketing strategy that will prove to be more competitive in the long-term.  This is being combined with other optimist approaches.

3

value of company continuing to expand

value of shares

how many people they employ

diviends increase

turnover

compare to a current brewing industry show how they are shrinking

market capitalization

growth

Before there

Introduction

Every month Whitbread serves around 21 million customers through around 2,500 outlets in the UK and our success is built on delivering high and consistent levels of customer experience. As such, we are particularly grateful to our 40,000 employees who are at the heart of our success. I would like to thank them on behalf of the Board for their contribution.

Whitbread delivered good sales and profit growth in the first half of the year despite the continued challenging economic environment. Strong organic expansion, combined with good like for like sales growth across the business, increased Group total sales by 14.2% to £1,081.1 million. Premier Inn grew sales by 12.9% to £443.5 million, Costa by 25.0% to £313.4 million and Restaurants by 5.3% to £262.4 million.

Group underlying profit before tax increased by 10.6% to £193.4 million (2011/12: £174.9 million), with underlying diluted EPS increasing by 13.1% to 81.65p.

Our continuing focus on investing in our strong brands and winning market share drove Group like for like sales up by 4.3%, with Premier Inn and Costa’s UK equity stores delivering like for like sales growth of 3.7% and 6.8% respectively. Restaurants’ performance continued to improve in the first half with like for like sales up 3.4%.

The Group return on capital increased to 13.7% (from 13.4% in H1 11/12). This combined with our strong revenue growth delivered an increase in cashflow from operations to £285.3 million, which funded capital expenditure of £187.6 million.

We maintained our strong balance sheet and ended the half year with net debt of £525.8 million, little changed year on year despite a significant increase in capital expenditure. In the half year we agreed the pension scheme triennial valuation and as a result the future pension deficit funding payment plan remains unchanged.

We are on track to deliver our five year growth milestones announced in April 2011. This organic growth combined with a strong focus on return on capital is creating substantial value.

The interim dividend has been increased by 11.4% to 19.50p (2011/12: 17.50p). This will be paid on 10th January 2013 to all shareholders on the register at close of business on the 9th November 2012. A scrip dividend alternative will again be offered.

 

Whitbread Hotels and Restaurants

Hotels and Restaurants had a good first half performance with revenue rising by 10.0% to £705.9 million. Within Hotels and Restaurants, Premier Inn revenue increased by 12.9% to £443.5 million and Restaurants revenue by 5.3% to £262.4 million. Underlying profit grew by 8.5% year on year to £181.3 million and return on capital was maintained at 12.5%.

Premier Inn

Premier Inn continues to outperform and win market share, growing room capacity by 9.8% in the UK and Ireland and delivering total occupancy of 79.0%.  The key levers which drive our success are the strength of our hotel network, the quality and consistency of the Premier Inn guest experience, the

power of the Premier Inn brand backed up by our good night sleep guarantee, together with the development of our dynamic pricing system.  The increasing strength of the Premier Inn brand is highlighted by a further increase in our guest recommend scores and the rapid growth in visitors to our website, premierinn.com.

During the first half of the year, Premier Inn outperformed its competitive set delivering total revpar growth of 2.4% compared to a decline of 3.6% for the Midscale and Economy5 sector and growth of 2.1% for the total UK hotel market. Within the UK regions, revpar remained weak and Premier Inn outperformed substantially delivering like for like revpar growth of 1.9% compared to a decline of 3.6% for the Midscale and Economy5 hotel sector during the period. In London, the hotel market was variable with revpar growth benefiting from the Royal holiday comparative in April and the Olympics in the second quarter. We estimate the revpar benefit from the Olympics on the overall Premier Inn business was around 0.7%pts in the first half. The London market is settling post the Olympics and we are waiting for a clear trend to emerge. For the half year, Premier Inn delivered like for like revpar growth of 4.4% in London compared to a decline of 3.5% for the Midscale and Economy5 sector. 

Our dynamic pricing model continues to evolve and we extended our two tier pricing system, Premier Flexible and Premier Saver, to two-thirds of our estate, which has provided a modest uplift to revpar. We expect this model to be fully rolled out across the estate by the end of 2012/13. We maintained our investment in marketing and our website traffic increased to 29 million visits during the first half of 2012/13, up 22%. Our percentage of automated bookings has also risen from 76% to 82% year on year.

We continue to invest in our strong brands to reinforce our competitive position and plan to spend around £75 million on refurbishing and maintaining the Premier Inn estate this year. Our experience is that refurbished rooms lead to an increase in our guest net recommend score, reinforcing a consistently higher guest experience across our estate.

We continue to strengthen our network and plan to open a total of 31 new hotels (c.4,500 new rooms, which implies an increase in the UK of 9.5%) this year, offering our customers greater choice compared to our competitors. Our committed pipeline, beyond the balance of this financial year, of over 8,000 new rooms puts us on track to achieve our growth milestone of 65,000 rooms by 2016. This expansion is driven by our network plan which is based on detailed analysis of supply and demand at the local level. Growing our market share in London continues to be a focus for the Group and our room capacity has increased by 26% over the past 12 months as we have built 9 new hotels with 1,576 rooms. Despite this increase in capacity our total occupancy level in London remains high at 86%. London represents 33% of our committed pipeline.

International

During the first half, Premier Inn International made progress with total occupancy up 6.1%pts to 56.2% and like for like revpar up 34.8%. During this

period we expanded our international development team and have signed 11 letters of intent for 18 hotels with a focus on three territories – India, Middle East and Asia Pacific. This is part of our strategy of moving to a ‘capital light’ business model for our international expansion.

Restaurants

Our Restaurants performance continued to improve in the first half with like for like sales up 3.4% and total covers up 8.6%. This is a result of our dedicated focus on menu management, margins and operating efficiencies to deliver a better and more consistent guest experience. This has been achieved through stronger menu propositions, increased breakfast sales, which have risen by 20% year on year, Buffet Place conversions, which provided a 7% sales uplift, and value meals, which now represent 40% of total sales. We are also improving our operational performance through our three Skills Academies which have been attended by 2,600 team members. A key tool within Restaurants is the ‘Guest Recommend Survey’ that captures feedback from our customers. During the first half of the year we received 170,000 responses to our Guest Recommend survey for Restaurants and we saw an overall improvement in guest scores. We have also implemented a Mystery Guest programme to check we are delivering on our service and product.

We will deliver cost efficiencies of some £4-5 million this year and implement selective price increases. This will help offset inflationary cost pressures as well as part funding additional investment in our dedicated restaurant management team to drive future performance.

We are committed to the Whitbread joint site model, which delivers a return on capital of 17.7%, on a site basis, as well as facilitating access to the sub 80 hotel room sector. This compares with a return on capital of 15.3% for our Solus estate. Currently of our 49,020 rooms in the UK and Ireland, 45% of these are located next to one of our restaurants (‘joint sites’), 40% are Solus with an integrated restaurant and 15% are co-located next to a restaurant operated by a third party (‘co-los’). The Whitbread joint site model benefits from a higher revpar and offers a superior guest experience for Premier Inn customers, compared to that of a co-located restaurant, especially for breakfast. We estimate that this is worth around £1 additional revpar for Premier Inn joint sites. Returns on joint sites are also higher than co-los due to operating and capital efficiencies. Whitbread joint sites represent around 20% of our Premier Inn growth pipeline.

 

Costa

Costa had another outstanding performance during the first half of the year with underlying profits up 29.9% to £36.1 million and return on capital at 31.2%. Worldwide system sales were up 23.3% to £472.8 million and total reported sales up 25.0% to £313.4 million.

In the UK, Costa had another strong performance, partially helped by the poor summer weather, with like for like sales in UK equity stores up 6.8%. The

brand continues to strengthen and during the first half, the launch of the new Ice Cold Costa range was a great success with sales rising 29%. We continue to invest in the business and refurbished 91 stores in the period and opened 87 net new UK stores. Innovation remains at the heart of the Costa strategy and we have recently launched a range of new hot drinks including Cortado, Caffe Caramella and Chai Latte as well as successfully introducing a new food range. Costa remains the UK’s favourite coffee shop and the continuous development of our product range combined with investment in the brand has further widened the preference gap with our competitors.

Costa Enterprises continue to perform well with both our Corporate business and Costa Express making strong progress. We added a further 794 new Costa Express units in the first half taking the total number of units to 1,986. This includes over 400 units from our partnership with Shell. Costa Express sales are up 86.8% year on year. On conversion of a Coffee Nation machine to a Costa Express machine there has been an increase in cups sold per machine of 20%.

Costa EMEI continues to grow with 16 net new stores opened in the first half taking our total number of stores to 663. System sales grew by 13.8% and like for like sales by 6.8% with a strong performance in the Middle East offsetting a more difficult period in Central Europe. We continue to expand our international footprint and are now trading in 26 countries within EMEI.

Costa Asia has seen strong growth with China delivering a like for like sales increase of 19.2% in the first half and opening 37 new stores taking our total number of stores to 201. We continue to expand our presence outside of tier one cities and now have stores in 25 cities in China. We have also expanded into new markets and opened one store in Singapore during the first half of the year.

 

Good Together

We have made good progress against our new five year targets announced earlier in the year.  In our focus on ‘Teams and Community’ we have created 1,500 jobs.  Team members have achieved 1,000 nationally recognised qualifications and 100 apprenticeships have been created.  Under ‘Customer Wellbeing,’ calorific labelling is in place in Costa and Premier Inn solus restaurants with trials to take place in the wider Restaurants estate.  We are constantly looking at ways to provide healthier choices for our customers on our menus.  We have updated our Responsible Sourcing policy and have developed a specific Timber Sourcing policy.  In reducing our ‘Environmental’ impact, we are on track against our carbon reduction and water consumption targets.  Likewise with our waste target, where we now divert 88% from landfill. 

 

Current trading and outlook

Whitbread delivered a good first half performance in flat market conditions.

Revpar in the total UK hotel market grew by 2.1%, with London up 5.4% benefiting from the Olympics, and the UK regions continued to decline. As expected, the London hotel market is settling post the Olympics and we wait for a clearer trend to emerge. The regional hotel market has continued its revpar decline. More generally, our consumer market context continues to be broadly flat. Against this background we expect to continue to outperform our competitors and like for like sales growth to be more moderate than the high levels achieved in the first half.

We expect continuing rapid growth in total sales on track towards our five year milestones. Premier Inn is benefitting from a structural shift in the UK towards strong branded hotels. Costa's growth is supported by its leading UK position in a robust category, together with exciting international opportunities. This growth in total sales, coupled with our clear focus on good financial returns, is creating substantial value. 

 

Andy Harrison Chief Executive 23rd October 2012

http://www.whitbread.co.uk/content/whitbread/investors/understandingwhitbread/from_the_chief_executive.html

Whitbread made the historic decision to sell off both its brewing and pubs operations. Whitbread Beer Company was the first to go and was purchased by Interbrew S.A. in May 2000 for £400 million. Then in May 2001 the pubs were offloaded to Morgan Grenfell Private Equity, a unit of Deutsche Bank AG, for £1.63 billion. The sale did not include the so-called food-led pubs, or pub restaurants, namely, Brewers Fayre, Brewsters, and Beefeater. Part of the proceeds from the sale of the pubs--£1.1 billion worth--was returned to shareholders at the equivalent of £2.30 per share; most of the remainder went to reduce debt. In between these two transactions, in October 2000, Whitbread also disposed of its 50 percent interest in First Quench. By mid-2001, then, a new Whitbread had emerged, focused on upscale and budget hotels, restaurants, and health and fitness clubs. While this transformation was taking place, a new chairman came on board in June 2000; succeeding Angus was John Banham, who was already serving as chairman of two other U.K. firms: aggregates producer Tarmac plc and retailer Kingfisher plc.

In the months that followed the sale of the pub estate, Whitbread began repositioning its remaining operations to secure the company's future. In August 2001 Whitbread announced that it would spend more than £500 million over the following five years to double the number of David Lloyd Leisure outlets to 100. At the same time the Curzon health club chain, which served the budget end of the market, was slated for divestment to further the company's focus on the upscale market served by the David Lloyd clubs. Curzon was subsequently sold in 2002. The restaurant portfolio was also in need of an overhaul, as several of the Whitbread chains were not performing satisfactorily. In May 2002 Whitbread sold its Pelican and BrightReasons restaurant groups to Tragus Holdings Limited for £25 million in a management-led buyout. Included in the deal were 153 restaurants under the Café Rouge, Bella Pasta, Mamma Amalfi, Abbaye, Leadenhall Wine Bar, and Oriel names. This left Whitbread with its Pizza Hut, Costa Coffee, and T.G.I. Friday's restaurants, in addition to the Brewers Fayre, Brewsters, and Beefeater pub restaurants.

The restaurant sell-off completed, in large part, Whitbread's disposal program, leading the company to focus on organically growing the remaining core. In addition to the planned expansion of David Lloyd Leisure, there were plans to increase the number of Costa Coffee outlets from 300 to 500 by 2004. Although acquisitions could not be entirely ruled out, the company's rather spotty track record in that area made any major deals less likely, particularly given the more uncertain economic conditions of the early 21st century. Following the bold, transformative transactions that severed Whitbread from its long history, it would not be unexpected for the company to settle in for a healing period marked by more routine activities.

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Turnover

2001 - £1,709 m

2011/12 1,778.02010/11 1,599.6 2009/10 1,435.02008/09 1,334.6

Coclusion

Whitbread has became one of the United Kingdoms most successful companies because it has spotted important trends. It got out of a low growth business, brewing and into a high growth business, coffee shops and budget hotels. In doing so it has stole a march on its competitors. But it faces challenges due to consumers being under pressure. Whitbread’s is still growing but not as fast as it was. The faulting recovery could yet take its froth off the prospects.

This assignment is based on the case example ‘Global forces and the European brewing industry’ and relates to two questions raised in chapter 2 at the end of the case example (Johnson et al. 2008, p. 91) of the book ‘Exploring Corporate Strategy: Text and Cases’ by Johnson, Scholes and Whittington.

  1.) Using the data from the case (and any other sources available), carry out for the European brewing industry (i) a PESTEL analysis and (ii) a five forces analysis. What do you conclude?  (i) PESTEL analysisOne tool to analyze the broad macro-environment is the PESTEL analysis. In the PESTEL analysis environmental influences are categorized into political, economical, social, technological, environmental and legal aspects. It helps to identify how future trends might influence an organization and furthermore, to identify the key drivers of change to create scenarios for the possible future.

Political factorsThere is an overall decline of consumption of Beer in Europe as many traditional key markets have been made increasingly aware of the social problems associated with alcohol consumption. Factors could be the active campaign of European governments against drunken driving, binge-drinking and consequently the long term health and fitness problems.

Economic factorsIn the case study there is the talk of the overall declineof European beer consumption, while there was an increase in emerging markets (e.g. China, Brazil) around the world. This could be because of the government campaigns which caused a shift in sales from the ‘on-trade’ (beer consumed in pubs or restaurants) to the off-trade (retail/supermarkets). Moreover, the success of German supermarkets like Aldi and Lidl with their own ‘private label’ beers rather than the brewery-branded beers

has an influence on the European brewing industry. Supermarkets are offering cut price offers. Also the rise of the main purchasing costs like packaging, raw material and energy will have influence on the beer price e.g. Heineken). Also, the increase of fuel prices which will affect the distribution network, thus transportation costs will increase. Besides, due to the economic crises the breach between rich and poor is steadily growing and thus many people cannot afford any more to go out for dinner or having a beer. Through legal restrictions the demand for alcohol in public places could declines. Furthermore, acquisitions, licensing and strategic alliances have occurred because the leading brewers battle to control the market. The global pressures for consolidation due to overcapacity within the industry are another point that influences this industry. There is a growing trend towards cross-border mergers and acquisitions. Introduction of higher-priced premium products let sales values raise. If there are natural disasters like previously the fires in Russia this has an impact on the prices of the raw material.

Social/cultural factorsWines have become increasingly popular in theNorthern European markets. People may rethink their lifestyle and prefer drinking a good wine instead of beer and ‘binge drinking’. This could be because wine is associated with the upper class and people with a higher income. Moreover, people are getting more and more health conscious and therefore, will drink in moderation. Furthermore, there is a rising demand for premium and fruit-flavored beers and also an increasing demand for ‘private-label’ beers. There will also be an increasing acceptance of pan European brands. Besides, the importance of supermarkets in distribution and the growth of own-label products will rise.Technological factorsResearch and development is important in the brewing industry due to the changes in consumer tastes. People demand alcohol in different flavors, with low calorie, with low alcohol, seasonal

beer and so on. Through technology it is possible to produce more although raw material stays the same, furthermore the quality is getting better, the alcohol has a longer durability and is produced more efficiently and quickly. New harvesting and production technologies help to increase process efficiency.Environmental factorsPeople are getting more and more aware of the environment and it is necessary that companies do everything to prevent environmental pollution. It is important that the environmental load through the brewing process is as low as possible. Reusability and recycling is important. The brewing industry for example treats their effluents so that they can use it again for irrigation. Through this they save energy and minimize sludge disposal costs. (1)Legal factorsBesides,when comparing Europe with the United States one can see that in America it is forbidden to drink in public places in contrast to Europe where you can drink alcohol wherever you want. This could lead to new laws that forbid drinking alcohol in the public. This is a threat that might come really quickly when comparing the new law about the restrictions in smoking in public places like pubs and restaurants. Moreover, a few years ago it was allowed to have a blood alcohol level of 0.8 parts per thousand. This was changed to 0.5 parts per thousand. So it is not unlikely that the government changes this law again to further price down this limit or completely forbid to drink and drive. As you could read in the case study in the United Kingdom there is a growing hostility towards excessive alcohol consumption in pubs and clubs and this could also happen everywhere in Europe. Furthermore, there is the threat that politics could put up the age of teenagers from 16 to 18 to allow to drink alcohol. If drunken people are involved in an accident or in a crime they are fined with a higher penalty.

  (ii) A five forces analysisThe five forces analysis helps to determine the impact of the threat of new entrants,   substitutes, buyers and rivals on profitability in an industry or sector. (Johnson et al. 2008, p. 59)Threat of entryThe threat of entry depends on the height of barriers to entry. I think that the threat of entry in European Brewing industry is very low due to the mergers and acquisitions of the past years. Through consolidations breweries stabilize their competitive position. As there areonly a few really big brewing companies with a lot of power the financial effort for new entrants would be too high to enter this market. Moreover, because of the strong brand and the loyalty of existing consumers in Europe it would not be easy for new entrants to challenge well established leaders. Threat of substitutesThere are a lot of products that can be seen as a substitute of beer like wine, fruit-flavored and exotic beers as well as soft- and energy drinks. In the case example wines becoming increasingly popular in the Northern European markets. Table 1 in the case example shows that there was a significant decrease in beer consumption in Denmark and Norway which confirms the increase of wines in those countries.Power of buyersDue to Government campaigning against drunken driving and binge drinking there was a shift from ‘on-trade’ to ‘off-trade’. Through this, large supermarket chains (industry concentration increases) like Tesco or Carrefour gain the power of buyers and thus have a high bargaining power. This means that large supermarket chains for instance pretend the price they are willing to pay. Through the power of buyers and their ability of changing easily the brand (supplier) the brewing industry comes under pressure. Power of suppliersIn the case example they write that the Brewers’ main purchasing costs are packaging, raw materials and energy. The

power of suppliers of packaging I believe is very high. There are only a few suppliers of glass- and PET- (polyethylene terephthalate) bottles available and therefore, they have a high power. To change the supplier could lead to high switchingcosts as they have to buy a new machine or adapt the existing machine. The main raw materials for brewing are water, malt, hops, yeast and barley. The power of suppliers of these materials I think is low because there are a great number of suppliers available. The power of supplier of energy is very high as there is a concentration of suppliers. Competitive rivalryCompetitive rivalry means that there are organizations with similar products and services aimed at the same customer group. In my opinion competitive rivalry in this industry is very high because   * product differentiation is very low   * acquisitions, licensing and strategic alliances (gain market share)  * consolidations due to overcapacity within the industry Table 3 shows the world’s top 10 brewery companies by volume in 2005 which accounted for around half of world beer volumes. InBev, Anheuser-Busch, SABMiller and Heineken reached about 33% of the volume of beer drunken around the world. Approximately 15% was reached by Morelo, Carlsberg, Coors, TsingTao, Baltic Brewery Holdings and Asahi. The European brewing industry I believe is saturated and started to decline and thus competitive rivalry will still exist on a high level. Barriers to entry within EU are reducing leading to cross-border mergers.My conclusion is that either you can be one of the big players or one of the many small specialist and regional breweries like Grolsch, Cobra Beer …