Since 1950, the brewing industry has had 6 key competitors and the competition among them was stiff but as the figures suggest (Exhibit-7 of case), the market share of Anheuser Busch starting increasing after 1977 and after this period both Anheuser and Milller were way ahead than the competitors in terms of market share. Analysing the brewing industry by using Porter’s Five Forces Model:
The barriers for a new entrant in this industry were high because of the high fixed costs involved enabling the brewers to have high production capacities and thus achieving economies of scale. In fact, doubling the production could cut the brewery capital costs by 25%.
The bargaining power of suppliers is medium since the removal of price controls for aluminium led to sharp increase in can prices and therefore raised cost of packaging materials for the brewers. Some companies, like Coors, reduced these costs by starting can recycling programs to decrease their dependence on new raw materials.
Bargaining power of buyers was high as the independent wholesalers who purchased the beer, and sold and delivered to retail accounts earned low profits. The average return on sales for wholesalers had fallen from 3 percent in 1981 to 2.1 percent in 1984.
Pressures from substitute products was minimal as advertising affected consumers willingness to substitute among beers.
Finally, the rivalry among existing competitors was high as the number of brewers making less than one million barrels per year decreased from 90 percent in 1959 to 45 percent in 1983. Furthermore, since the domestic beer consumption was flat, rivalry among brewers was intensified because any gains in sales by one brewer resulted at the expense of its competitor rather than through growth of the overall market.
Coors Company Analysis:
Before 1975, Coors posed uninterrupted year-on-year sales in volume gain with volume reaching 12.3 million barrels in 1974 as compared to...