CHINA BREWERY ANALYIS
Anheuser Busch and
Harbin Brewery
Group of China
CASE ANALYSIS
Sajjad Ali Shaikh
Khalid Yousuf
Baqi bullah
Farhan Aslam
Arsalan Liaqat
5/4/2008
5458
3724
3614
6036
4714
Contents
Executive summary ....................................................................................................................................... 3
Mission, objectives and strategies. ............................................................................................................. 4
Vision ............................................................................................................................................................ 4
Mission ......................................................................................................................................................... 4
Value ............................................................................................................................................................. 4
Strategic objectives: ..................................................................................................................................... 4
Industry Analysis ........................................................................................................................................... 5
PEST ANALYSIS .............................................................................................................................................. 6
Political and legal .......................................................................................................................................... 6
Economical .................................................................................................................................................... 6
Social ............................................................................................................................................................. 6
Technological ................................................................................................................................................ 6
Environmental ............................................................................................................................................... 6
Global Market ............................................................................................................................................... 7
Key Success Factors....................................................................................................................................... 9
Driving Forces................................................................................................................................................ 9
CPM ............................................................................................................................................................. 10
EFE (EXTERNAL ANALYSIS FACTORS)........................................................................................................... 10
IFE (INTERNAL ANALYSIS FACTORS) ............................................................................................................ 11
TOWS .......................................................................................................................................................... 13
SPACE MATRIX ............................................................................................................................................ 14
2|Page
Executive summary
This case is about Anheuser Busch and Harbin Brewery Group of China. Anheuser Busch is one
of the leading brands of beers. company was established in 1864 in St. Louis, Missouri, United
States, Anheuser Busch has grown to be one of the world’s largest beer companies, Operating 12
breweries within and 15 breweries outside of the United States, It is best known for the world’s
top two selling beers, Bud Light and our flagship brand Budweiser current market share of the
company in the world is 10.8.
Chinese Beer market is an increasing market with a huge potential. Ranked 1st for volume per
year but 11th rank for litres per person. Low average price for beer. Huge foreign interest on this
market but foreign investment usually failed. In 2004 company acquire Harbin brewery in china.
Foreign companies tend to face problem as provincial regulation are there to protect local
companies and furthermore to keep the tax revenues within province. Regulatory roadblocks
were designed to keep tax revenues at home. Many recognized global brands were unable to
make there mark because they didn’t understand the customer taste and preference which is
clearly visible as they hold 0.5 percent of Chinese market.
Anheuser-Bush entry into China was in 1993 through a 5% participation to the capital of
Tsingtao brewery, the internationally renowned Chinese brewer based on the East coast and later
in February 1995, through a 140 Million $ acquisition of a 80% stake in Zhongde Brewery, a
large brewery in Wuhan, in Hubei province, eastern China. The Company produced its global
brand “Budweiser” in Wuhan and engaged a massive advertising campaign to build the name as
a premium brand all over China. The results were not as expected due to the fragmented nature
of the market, the severe competitive rivalry in the crowded premium segments and the difficult
logistical problems in transportation, warehousing and distribution. The market share of
Anheuser-Bush in China in 2003 was around 1%.
3|Page
Mission, objectives and strategies.
Vision: Through all of our products, services and relationships, we will add to life’s enjoyment.
Mission:



Be the world’s beer company (Products and services; Self-concept)
Enrich and entertain a global audience (Customers; Markets)
Deliver superior returns to our shareholders (Concern for survival, growth and
profitability)
Value: We believe in…










Quality in everything we do. (Self-concept)
Exceeding customer expectations.
Trust, respect and integrity in all our relationships. (Philosophy)
Continuous improvement, innovation and embracing change. (Philosophy)
Teamwork and open, honest communication
Each employee’s responsibility for contributing to the company’s success
Creating a safe, productive and rewarding work environment. (Concern for employees)
Building a high-performing, diverse workforce.
Promoting the responsible consumption of our products.
Preserving and protecting the environment and supporting communities where we do
business. (Concern for public image)
Strategic objectives:





Expansion production into China through acquisition of Chinese major beer companies
reposition its brand by catering to elite and create perception of being a premium brand
increase ownership by 27% by year 2009
expand there operation up to there central province in order to expand there market share
In order to sustain growth and stability it needs to acquire smaller brands which would
enable it to enhance its brand portfolio and expand its business under the umbrella of
company name
4|Page
Industry Analysis
The China beer industry is the world’s largest by volume. Total domestic volume in 2005 was
307 million hectoliters, up 10.2% vs. 2004. Excellent growth has continued in 2006 with
officially reported domestic volume increasing 13% through September vs. the same period,
prior year.
China’s per capita beer consumption in 2005 was 23.4 liters, which was slightly lower than the
estimated global average of 24.8 liters. However, China’s per capita consumption already
surpasses that of Hong Kong (21.5) and Taiwan (21.1). China beer industry volume growth will
slow.
The China beer market remains highly regionalized. Shares of national beer output, YoY growth,
and per capita consumption by official China region in 2005 were as follows:
The chart below shows China’s Top 10 brewers by output in the first half of 2006 and it specifies
the foreign ownership of each Top 10 brewer, if any:
Foreign companies tend to face problem as provincial regulation are there to protect local
companies and furthermore to keep the tax revenues within province. Regulatory roadblocks
were designed to keep tax revenues at home. Many recognized global brands were unable to
5|Page
make there mark because they didn’t understand the customer taste and preference which is
clearly visible as they hold 0.5 percent of Chinese market.
PEST ANALYSIS
Political and legal





Decentralized power structure
Unstated hierarchy of power
High tax on transportation
Big power of the local and provincial authorities
Logistics laws
Economical



Important growth of China economy
Huge and fragmented market
Increase of urbanization rate
Social

Low income and standard of living
Technological

Poor level of infrastructure
Environmental




Development of urban areas
Reduce emissions of carbon dioxide
Recyclage of bottles
Obligation to share technology and knowledge for foreign firms
6|Page
Anheuser-Busch,
10.80%
Global Market
SABM iller,
8.90%
Others, 43.00%
Interbrew, 8.40%
Heineken, 7.60%
Carlsberg, 5.70%
Kirin, 2.20%
Coors, 2.6
STRATEGIC GROUPS:
7|Page
Ambev, 4.70%
Grupo M odelo,
2.80%
Scottish&
Newcastle,
3.30%
Porter’s Five Forces
•
Threats of new entrants:
 High barriers to entry:
 Fragmented market
 Distribution networks
 Government Regulations
 Economies of scale in marketing, production and distribution.
• Rivalry (price competition has been decreasing):
 Increasing competition from imported beers (however, national brewers own part
of these breweries).
 2,200 wholesalers and 560,000 retail establishments.
 Creative and enticing advertising by majors.
 Growing popularity of micro-breweries and other craft-beers.
 Alternative: expansion to super-premium beers and other segments with lower
demand elasticity.
• Substitutes:
 Growth in:
 Premixed drinks
 Alternative malt beverage
 Alternative non-alcoholic drinks (from juices to mineral water)
 However, beer remains the largest drink sector.
• Buyer’s Bargaining Power:
 It changes from segment to segment, but in general:
 Low switching costs
 Brand loyalty
 Increasing health conscience
 However, for craft-beers, which are perceived as having higher quality, these
characteristics may not always hold.
• Suppliers’ Bargaining Power:
 Most supplies come from competitive industries which are more fragmented than
the beer industry.
 Farmers
 Labor (the case of unionized labor)
 The more consolidated supplier is that one supplying bottles/cans.
• Government
Has the potential to change regulations/laws and taxation levels
8|Page
Key Success Factors






Low cost structure (Scale of economies and learning)
Effective marketing & advertising strategy to expanded market share
Successful brand loyalty and recognition
Product innovation and production efficiency (packaging and automation)
International expansion to countries with increasing consumption trends
Strategic price increases and premium pricing
Driving Forces
Marketing innovation - thanks to a rather uniform character of the product, breweries are trying to find
other possibilities of differentiation, which is based mainly on building the brand assisted by advertising.
Long-term industry growth rate –In the decade between 1988 and 1998 the 10 largest brewers hardly
arose from 35.8% to 37.6%. Over the last five years this development has accelerated strongly, the 10
largest increased by nearly 20% and have now 57% of the global market. Consolidation led by major
international brewers during recent years brewers like Heineken and Interbrew have started
internationalizing their activities. Coors and Molson have merged within last couple of months. Volume
growth in developing markets China: Second largest market (by sales) and growing. Largest market in
total volume. Eastern Europe and Russia
Cost efficiency –The price of the beer does not grow respectively with the price of supplies, breweries are
forced to develop more effective ways of operation. Therefore it becomes one of the most important keys
of reaching profits.
9|Page
CPM
Anheuser-Busch
Rating
Score
4
0.6
CRE (SABMiller)
Rating
Score
3
0.45
Tsingtao
Rating
Score
3
0.45
Low cost structure
Weight
0.15
Effective marketing
0.1
4
0.4
2
0.2
4
0.4
Successful brand
0.15
3
0.45
3
0.45
3
0.45
Strategic price
0.1
3
0.3
4
0.4
3
0.3
Organizational Culture
Revenue Generation
0.1
0.25
0.15
4
3
4
0.4
0.75
0.6
4
4
2
0.4
1
0.3
4
3
2
0.4
0.75
0.3
Critical Success Factors
International
expansion
TOTAL
1
3.5
3.2
3.05
EFE (EXTERNAL ANALYSIS FACTORS)
KEY EXTERNAL FACTORS
WEIGHT
RATING
WEIGHTED SCORE
1. Emerging pub culture and
positive trend to premium beer
0.05
3
0.15
2. Increase brand loyalty
0.2
4
0.8
3. Develop event sponsorships
0.1
4
0.4
4. Growing economy coupled
with large market potential
0.1
2
0.2
5. Micro-brewery marketing
through additional partnership
0.05
2
0.1
0.1
2
0.2
Opportunities
Threats
1. Price sensitivity due to per
capita income
10 | P a g e
2. Poor infrastructure as an
obstacle for efficient distribution
system
0.15
2
0.3
3. Corruption and political
interference from government
0.05
2
0.1
0.1
1
0.1
0.1
1
0.1
4. Unstable energy and fuel cost
5. Lack of centralization in
China’s government
TOTAL
1
2.45
IFE (INTERNAL ANALYSIS FACTORS)
KEY INTERNAL FACTORS
WEIGHT
RATING
WEIGHTED
SCORE
Internal Strengths
1. High level of Expertise
in the beer industry
coupled with financial
strength
0.20
4
0.80
2. Global reputation
through brand
recognition and
uniqueness in taste
0.05
4
0.20
3. High level of
operating efficiency
and quality
consistency
0.15
4
0.60
4. Recruitment policy
focusing on highly
capable employees
0.05
3
0.15
5. Ability to select
partners in jointventure business
0.10
3
0.30
11 | P a g e
Internal Weaknesses
1. Language barrier and
lack of understanding
of culture
0.10
2
0.20
2. Lack of
decentralization is an
obstacle for expedient
decision-making in
regional market
0.05
1
0.05
3. Limited brand
awareness among
Chinese beer
consumers
0.10
2
0.20
4. Inability to distribute
fresh beer across the
country
0.10
1
0.10
5. Lack of emphasis on
economy beer
segment
0.10
1
0.10
TOTAL
1.00
12 | P a g e
2.70
TOWS
Strengths- S
1.
Opportunities- O
1.
2.
3.
Increase brand loyalty
Develop event
sponsorship
Growing economy
coupled with large
market potential
Threats – T
1.
2.
3.
13 | P a g e
Poor infrastructure as
an obstacle for efficient
distribution system
Price sensitivity per
capita income
Corruption and
political interference
from government
High level of expertise in
the beer industry coupled
with financial strength
2. High level of operating
efficiency and quality
consistency
3. Ability to select partners
in joint- venture business
SO Strategies
1.
2.
Build beer factories in
major Chinese markets
(S1 , O3 )
Increase market share ( S
3, O2 )
ST Strategies
1.
2.
Implement optimal
production techniques to
meet market requirements
( S2, T2 )
Develop partnership
with local manufacturers
( S 3, T 3)
Weaknesses- W
1.
Language barrier and
lack of understanding
of culture
2. Limited brand
awareness among
Chinese beer customers
3. Lack of emphasis on
economy beer segment
WO Strategies
1. Increase brand
recognition ( W 2, O 1, O2)
WT Strategies
1.
2.
Employ local managers
( W 1, T 3)
Acquire small local
beer manufactures ( W
3, T 1)
SPACE MATRIX
Financial Strength ( FS)
Return on Investment
Leverage
Liquidity
Working Capital
Cash Flow
Ease of exit from market
Risk involved in business
Ratings
6
4
4
5
5
3
3
Total
30
Industry Strength ( IS)
Growth Potential
Profit Potential
Technological Know- how
Resource Utilization
Capital Intensity
Ease of entry into market
Productivity, Capacity utilization
4
5
6
5
5
2
5
Total
Environmental Stability ( ES )
Technological Changes
Rate of Inflation
Demand Variability
Price range of competition products
Barriers to entry into market
Competitive pressure
Price elasticity of demand
14 | P a g e
-2
-4
-3
-4
-5
-5
-3
32
Total
-26
Competitive Advantage ( CA)
Market Share
Product quality
Product life cycle
Customer loyalty
Competition’s capacity utilization
Technological Know- how
Control over suppliers and
distribution
-3
-1
-3
-2
-5
-1
-2
Total
-17
Conclusion
FS Average is 30/7 = 4.29
IS Average is 32/7 = 4.57
ES Average is -26/ 7 =-3.71
CA Average is -17/ 7 =-2.43
Directional Vector Coordinates:
x-axis: CA Average + IS Average
=-2. 43 + 4.47 = 2.04
y-axis: FS Average + ES Average
=4.29-3.71= 0.58
Anheuser- Busch should pursue on
‘Aggressive Strategy’
15 | P a g e
See below
FS
Aggressive
Conservative
(2.04, 0.58)
IS
CA
-3
-2
-1
1
ES
ISSUES FACED
Fragmented Market

Price wars

Regulations

Distribution problem
16 | P a g e
3
Competitive
Defensive

2
FINACIAL RATIOS
FINANCIAL STRENGTH
Company
Industry
S&P 500
Quick Ratio (MRQ)
0.57
0.57
1.12
Current Ratio (MRQ)
0.89
1.09
1.63
LT Debt to Equity (MRQ)
2.95
1.94
0.60
Total Debt to Equity (MRQ)
2.95
2.01
0.78
Interest Coverage (TTM)
MANAGEMENT EFFECTIVENESS
6.25
6.50
14.52
Company
Industry
S&P 500
Return On Assets (TTM)
8.57
7.38
8.51
Return On Assets - 5 Yr. Avg.
9.47
8.46
8.02
Return On Investment (TTM)
9.97
9.24
12.13
Return On Investment - 5 Yr. Avg.
10.85
10.30
11.65
Return On Equity (TTM)
60.54
39.40
20.38
Return On Equity - 5 Yr. Avg.
EFFICIENCY
62.23
43.37
19.46
Company
Industry
S&P 500
548,689
584,575
980,385
47,966
56,759
119,421
Receivable Turnover (TTM)
17.35
13.08
10.33
Inventory Turnover (TTM)
13.56
11.15
12.44
0.98
0.87
0.96
Revenue/Employee (TTM)
Net Income/Employee (TTM)
Asset Turnover (TTM)
Alternative Strategies




Build beer factories in major Chinese markets
Increase market share
Develop partnership with local manufacturers
Acquire small local beer manufactures
17 | P a g e