12/2/2013
Strategic analysis of
Treaty Beer Company
Presented by Rebecca Brown
C00143943 CW838
Rebecca Brown
C00143943
Contents
Introduction ............................................................................................................................................ 2
Internal Environment .............................................................................................................................. 3
SWOT Analysis..................................................................................................................................... 3
Human Resource ................................................................................................................................. 3
Management / Organisational Structure ............................................................................................ 4
Marketing ............................................................................................................................................ 5
Product: .......................................................................................................................................... 5
Price: ............................................................................................................................................... 5
Place:............................................................................................................................................... 5
Promotion:...................................................................................................................................... 6
Financial Analysis: ............................................................................................................................... 6
Liquidity Ratio’s ............................................................................................................................... 6
Profitability Ratio’s .......................................................................................................................... 6
Activity ............................................................................................................................................ 7
Leverage .......................................................................................................................................... 7
External Environment ............................................................................................................................. 7
Natural Environment .......................................................................................................................... 7
PEST Analysis ....................................................................................................................................... 8
Political Factors .............................................................................................................................. 8
Economic Factors............................................................................................................................ 9
Social Factors ................................................................................................................................ 10
Technological Factors ................................................................................................................... 11
Porters 5 forces ................................................................................................................................. 11
Degree of rivalry............................................................................................................................ 11
Supplier power .............................................................................................................................. 11
New Entrants................................................................................................................................. 12
Substitute Products ....................................................................................................................... 12
Buyer Power .................................................................................................................................. 12
Bibliography .......................................................................................................................................... 13
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Introduction
The goal of this paper is to measure Treaty Beer Companies performance in terms of the
internal environment and external environment and to provide a strategic report on the
business to the CEO John Murphy’s son Cillian who will take over the company when his
father goes into retirement.
Treaty Beer Company is a small family run company that makes traditional Irish beer for the
local Limerick market. It was established in 1990 by John Murphy when he seen a niche in
the market after realising that tourists demands were not being met due to a lack of locally
produced beverages in the market. Mr Murphy came into inheritance and decided to set up
Treaty Beer Company, the company has expanded from a small three-person company with
sales of €20,000, to employing 20 employees and sales of €1,500,000. The company sells
two different products Treaty Stout and Treaty Ale both in 250ml and 500ml bottles both
5% alcohol content. The companies target market is the more upmarket hotels and pub
sector. The company differentiates from competitors on the bases of its two unique selling
points built on having high quality products and quick delivery.
The beer industry in Ireland is a multi-billion euro industry providing Ireland with a number
of benefits. Employment levels are at consistent rate with over 2,000 people directly
employed in the brewing industry. Beer generates roughly one billion euro in tax revenue
every year in Ireland and approximately 40% of the beer brewed is exported (Ibec, 2013).
With beer consumption in Ireland now approaching the average level of most Northern
European countries, the IBA members work together to ensure all are aware of their
industry's great contribution to Irish social and economic life. (Ibec, 2013)
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Internal Environment
SWOT Analysis
SWOT analysis of Treaty Beer Company, the strengths and weaknesses internally and the
opportunities and threats externally.
Strengths
-Won numerous
international quality
awards in the 80’s
and 90’s
-Products made from
natural ingredients
-All ingredients
sourced locally
-Good reputation
-Mr Murphy’s
expertise in the
brewing industry
-High quality
suppliers
Weaknesses
-Unreliable inventory
records
-No I.T department
within the company.
They only have one
computer
-Company only has
one unreliable
delivery truck
-Sales prices can vary
depending on cash
flows of the business
-Poor promotions in
place
-Unreliable stock
keeping
Opportunities
-Sell product on draft,
two thirds of Irish beer
is sold on draft.
- The opportunities to
add a new variety of
flavours to the product
range
-Sell to other retailers
such as off licences
-Potential for new
technology in the firm
such as introduction of a
web site or mobile app
-Expand outside of
Limerick to near
counties such as Clare or
Tipperary
Threats
-Changes in rates and
taxes
-The introduction of
the new water
charges
-Potential of the legal
drinking age to
change
-Insurance charges
Human Resource
The company employs 20 employees, including 2 managers, 2 part-time employees, 15 fulltime employees and the position of the CEO John Murphy. Recruitment of the company is
carried out in an informal way, as it is a small family run business. Mr Murphy initially
recruited family members to work in the organisation. The accounts office is managed by
Murphy’s wife who has no qualifications in either office management or accounting. The
factory, warehouse and delivery department is managed by a former barman who worked
with Mr Murphy in the past. Both of these management rolls show no implication of further
development in the company.
There seems to be no strategic approach to managing the firm’s human resources, the
production employees are also generally unskilled and take turns in making the beer and
driving the delivery truck, this issue could lead to conflict and confusion within the
organisation as there is no organised structure in place to inform the employees of their
roles. The employee turnover seems to be low as most of the employees in the company are
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friends of the family and have been employed in Treaty Beer Company for some
considerable time.
Although in the current economic climate there are large numbers of highly skilled
unemployed people Mr Murphy decides to stick to his old management style and structure
by employing friends and friends with the view that it may save costs, when in fact it may be
having the opposite effect. As the business is not operating to its full potential it is highly
possible that employees have little or no motivation to carry out their tasks. This can lead to
a low morale in the workplace, which in turn will have a negative effect on the company as a
whole.
Management / Organisational Structure
John Murphy
(CEO)
Production,
Warehouse &
Delivery
Accounts &
Administration
Treaty Beer Company does not have a defined management structure in place where
authority is delegated from the companies CEO to senior managers. Instead John Murphy
who has no previous qualifications manages the business the same way he did when he first
began. He used to however frequently check the factory and warehouse to inspect
operations but no longer has the time. Mr Murphy only focuses on the day to day running of
the company, he is very set on his way and ensures that all the billing material is personally
inspected before they are mailed out to the customers. He ensures that at all expenditure
and payments over €100 are approved by him. There does not seem to be any indication of
set roles for the employees in the company, each employee appears play a part in more
than one aspect of the business’ operations for example, the truck drivers role is not only
confined to transporting the goods but also playing a part in the brewing of the beer.
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Marketing
Product:
It is clear that the company follows a product differentiation strategy opposed to a costbased strategy. Treaty Beer Company has got a good reputation which has been built on
high quality products, winning numerous international quality awards for beer in the 1980’s
and 1990’s. The company produces Treaty Stout and Treaty Ale both 5% alcohol content.
The products are sold in 250ml and 500ml bottle formats. The products have gained a good
reputation for their quick delivery but its reputation has suffered recently due to rumours of
insolvency in the local business community. It is apparent that no market research has been
carried out, as the sales proportion is 50/50. It is evident that the company is not concerned
about understanding their target market as they are not aware of which size bottle is more
favourable in each sector. The 250ml beer is also a smaller serving than the typical pub size
330ml, this could be an implication why the product is not selling.
Price:
It is evident that Mr Murphy is not concerned with the profits made from each sale but he is
more so concerned with making the actual as he is willing to negotiate the prices with each
customer. It is clear that Mr Murphy needs to get a clear and accurate costing of the
products so he can identify where he is making the most money. He also needs a more
accurate figure on the relative sales of each product for him to understand where the
demand lies.
Place:
Treaty Beer Company distributes from a run-down warehouse in Limerick City. The beer is
produced on the basis of forecasts made by John Murphy and the bottles are stored in the
warehouse. The company does not have a sufficient transport method to carry out
deliveries, the products are delivered to the bars and hotels by an old company truck that
has started to break down. There is a great emphasis on supplying local businesses, there is
no evidence that suggests Mr Murphy is selling or promoting the product outside the
Limerick area.
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Promotion:
John Murphy does all of the sales work and public relations work himself. He has employed
people in the past but he feels like they cannot be trusted, because of this Mr Murphy
spends one half of every day making sales calls. There seems to be no formal advertising
carried out and Mr Murphy has failed to invest significantly in the promotion of the beer’s
image replying on the quality of the beer to act as the company’s selling point. The company
does not participate in social media marketing to engage with their customers, the company
does however have a website monitored by Cillian, but it only gives basic information on the
company. Treaty Beer Company does not allocate enough resources for its marketing
purposes, the company uses one computer for both administrative and marketing purposes.
Financial Analysis:
Using the financial data provided, the following financial ratios were constructed to assess
Treaty Beer Companies capability
Liquidity Ratio’s
 Current Ratio = Current Assets/Current Liabilities = 300,000/440,000 = 0.6818 times
An acceptable current ratio is 2:1, Treaty Beer Company falls below this industry
benchmark. This shows the company is having difficulties paying short term obligations
using short term assets.

Quick Ratio = Current Assets-Stock/Current Liabilities = 300,000-50,000/440,000 =
0.568 times
These two ratio’s show the company are currently unable to pay their short term debts, it’s
not a sustainable situation and has clearly caused them problems already. Suppliers are
already reluctant to give them lines of credit.
Profitability Ratio’s
 Net profit margin = 25,000/1,500,000 = 0.01666*100 = 1.66%
This means for every €1 the company earns from sales it’s only getting a net profit of €1.66.

Gross profit margin = 1,500,000-700,000/1,500,000 = 53%
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Activity
 Inventory turnover: 1,500,000/50,000 = 30
This signifies the number of times the average number of stock is turned over in a yearly
period

Asset turnover: 1,500,000/900,000 = 1.7 times
How well the company utilizes their assets
Leverage
 Debt to assets ratio = 900,000/400,000 = 1
This measures how much funds have been borrowed to fund the business

Debt to equity ratio = 900,000-400,000/400,000 = 2.25
This shows a comparison of the equity of the owners with the funds provided by the
creditors.
Treaty Beer Company has no long term debts which is extremely good for the potential to
expand in the near future. They need to examine the financial structure and possibly review
the salary expenses of the CEO and his wife as they seem excessive given the size of the
business.
External Environment
Natural Environment
As there is more concern regarding the impact of climate change it continues to be a central
point as businesses try to implement better business in terms of reduce costs and risk while
achieving positive impact on the surrounding world. As this is a priority, businesses in the
beverage sector have begun implementing strategies to reduce their Greenhouse Gas
emissions and their impact on the global climate. (Bieroundtable, 2010)
With beverage companies relying on water as a key ingredient in their products it is
essential that micro brewers take precise care while tending to the issue of wastewater.
According to (Kanagachandran and Jayaratne, 2006) it has been estimated that around 3 to
10 litres of wastewater is generated per litre of beer produced in breweries.
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PEST Analysis
The brewing industry from the early days has had a solid tradition and has advanced
throughout Ireland, originally by retail brewers, the owners of pubs and alehouses who
brewed beer for sale on their own premises (ABFI, 2013). It however like many other
markets similarly faces constantly changing political, economic, social and technological
changes which would have a serious effect on the strategic decision making of a company
such as Treaty Beer Company.
Political Factors
Overall there has been a slight decline of consumption of Beer in Ireland as many traditional
key markets have been made more aware of the social effects associated with the
consumption of alcohol. Although a return to weak growth in 2010 the market is forecast to
experience lengthy contraction in the future (MarketLine, 2013).
The taxes the government place on all alcohol products have a major impact on the retailing
price, the Drinks Industry Group of Ireland (DIGI) cited from (Times, 2013) said that the
increases of tax are ‘damaging a vital national industry’. In the 2012 budget there was a 10
cent increase on beer, which suggests how damaging it could be for jobs and tourism in
Ireland (Times, 2013). Within the European Union, Ireland now has the fourth highest beer
excise, the DIGI reports that the government have yet again decided to increase excise on
beer in the Budget for 2014, this will have prolonged effects for small companies such as
Treaty Beer Company. (Foley, 2011)
The health, safety and welfare at work act 2005 sets out the main requirements for
improving the working conditions for employees (Health & Safety Authority, 2005). It
applies to all places regardless of the amount of people employed in the company. There
are various legislations in place that would affect Treaty Beer Company if it were to be
inspected. Mr. Murphy being a self-employed person is predominantly responsible for
creating and sustaining a safe and healthy workplace for all employees in the company.
It is evident that he does not adhere to any of the requirements. As the company is in
disrepair, the premises is in no way fit for the purpose for employees to be working in. The
company truck is also not in a fit state for the employees to be driving, as it has started to
break down and is unreliable. These two factors display poor work ethic by Mr. Murphy and
if the company was to be inspected and found to be in breach of legislation it could lead to
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minor or major repercussions such as issuing a high Court Order (Health & Saftey Athority,
2013)
Under the Intoxicating Liquor Acts, it is an offence to sell alcohol to anyone under the age of
18 (Citizens information, 2012) this would have an immediate effect on Treaty Beer
Company and who they sell their products to.
The national average wage would have an effect on Treaty Beer Company. As of 1st July
under SI 331 of 2011 the national minimum wage to pay an employee is €8.65 per hour
(Citizens information, 2012).
Although these political factors seem to be daunting, there are also positive aspects for
Treaty Beer Company such as the availability of government grants. These grants can be
attained from Enterprise Ireland, County Enterprise Boards and from E.U agencies. (Wlash,
2012). There is also a positive aspect for the company, there are internship schemes
available for jobseekers to get experience before entering the labour market. (JobBridge,
2013)
Economic Factors
Tourism plays a significant role in the Irish economy. The tourism sector has changed
significantly and is at its most confident since the economic downturn in 2008 according to a
survey which was carried out with 750 tourism businesses for Failte Ireland. (Independent,
2013)
65% of serviced accommodation operators stated increase visitor numbers for the first time
since the beginning of the financial crisis. Each of the three reported that the number of
visitors went up- Hotels (68%), guesthouses (58%) and B&BS (46%) (Independent, 2013)
The beer sector attracts foreign visitors who spend over a third of their budget on food and
drink and 60% of these tourists eat in pubs, along with this it also supports numerous
Cultural festivals and sporting events which is vital for tourism and the opportunity for
Ireland to gain a steady economy. (ABFI, 2013)
Recycling is becoming a more important economic factor in today’s society, European
figures display that Ireland now ranks 10th in the EU with a rate of 81.20%, higher than the
EU average of 70% (Farrelly, 2013). Beer companies in Ireland contribute to this
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environmental factor through the returnable glass bottles, these glass bottles account for
70% of beer consumed. (ABFI, 2013)
The brewing industry is energy intensive and is one of the largest industrial uses of water
(Olajire, 2012). The Commission for energy regulation has devised a scheme of water
charges, starting with the Water Services Act, 2013. This introduction of water rates will
lead to higher costs for Treaty Beer Company in 2015. (Citizens information, 2013)
Barley prices are expected to plummet in 2013 from current high levels according to a
report published by Teagasc Agriculture (Moloney, 2012). A recent article in the Irish
Independent identified that freezing conditions in Germany, Poland and France were
originally thought to only have minimum impact on crops but the actual damage was
underestimated. (Murphy, 2013)
Social Factors
With pub sales continuing to plummet due to more people substituting to buying alcohol in
supermarkets, off-licences and drinking at home it holds a major threat for small businesses
like Treaty Beer Company. A recent report by DIGI cited from (McCárthaigh, 2013) suggests
how hotels, bars, pubs and restaurants are continuing to suffer because of the increase in
sales of off-licences, which grew 5% in 2011. This change towards home consumption has
resulted in off-licenses accounting for 60% of the market. The report indicated that pub
sales dropped by 7.2% and the total volume of alcohol sold in pubs fell by 5.5%
(McCárthaigh, 2013)
Along with the social aspect, there brings serious health issues which would be a major
threat for Treaty Beer Company. Over the last 10 years, alcohol consumption has risen
significantly in Ireland with Irish adults among the highest consumers in Europe, at 14.2
litres per adult. (Hope, 2013)
The consumption of alcohol can contribute to the development of mental health problems
and also the potential to intensify pre-existing mental health issues. (Alcohol Action Ireland ,
2012)
In the result of one of the most dynamic recessionary periods in history of Ireland, it is
critical that the FMCG industry recognizes that attitude of consumers are changing in
relation to the consumption of alcohol (DataMonitor, 2011). Attitudes towards drink driving
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has changed massively over time, in a 2006 road safety authority study 8 out of 10 drivers
surveyed expressed that drink driving was extremely shameful and certainly worse than tax
evasion and shoplifting (Road Safety Authority , 2013)
Technological Factors
Brewing beer was renowned as an extremely old art and science but improvements
introduced by the macro-environmental forces of technology have changed the perception
of the industry. Refrigeration and motorized transport has allowed for the link of the
brewing industry worldwide. (Read, 2013)
Brewery operations have benefited from developments in construction materials and
systems including heating, cooling and packaging. Alternative packaging like aluminium cans
that are bottled shaped and the introduction of kegs were made possible by improved
technology (Pontinen, 2013)
Porters 5 forces
Degree of rivalry
There is an intense rivalry in the brewing industry as there are a large number of
competitors. Ireland now has more breweries than at any time since the early 1920's
(Pattinson, 2012). There are 19 active breweries (16 in the Irish Republic, 3 in Northern
Ireland. This includes the number of all breweries both premium domestic and
microbrew/craft brewers.
In Ireland the beer market is severely combined, with the three largest players holding
82.4% of the total market volume. Purchasers have an extensive range to choose from
combined with a moderately low switching costs enabling rivalry. There is a strong degree of
product differentiation with various beers, such as non-alcoholic, ales, stouts etc.
(MarketLine, 2013)
Supplier power
With more multinational players in the market breweries now include a degree of vertical
integration, weakening supplier power (MarketLine, 2013). Hops are usually purchased from
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independent producers, with barley generally bought from farmers. As many of these
suppliers run independently and on a smaller scale, their influence is weakened.
New Entrants
Potential entrants to the brewing industry may face problematic barriers to entry by those
already dominating the market. The market leaders have already achieved economies of
scale which may be a threat for new entrant. Along with the new entrant creating brand
recognition, they also may face serious problems gaining such a large capital outlay.
Government regulations of beer is also strict, and may impact on the ease of market entry.
Overall, there is a moderate likelihood of new entrants.
Substitute Products
The main substitutes for beer are other alcoholic beverages such as spirits and wine, and in
some cases non-alcoholic beverages such as functional drinks, which can act as substitutes
for low/no alcohol beer (MarketLine, 2013). A major threat to the beer brewing industry is
that the switching cost of changing to a substitute product is nearly non-existent. To achieve
a sustainable competitive advantage in relation to substitute products is to develop brand
loyalty. There is also the matter of the benefits of alternative substitutes, beer is usually
stored in chilled locations making it more expensive to store compared to substitutes such
as spirits. Overall, there seems to be a moderate threat from substitute products
(MarketLine, 2013)
Buyer Power
Retailers and supermarkets hold the potential to negotiate terms on price with beer
producers, this enhances buyer power significantly. The potential for switching costs is not
predominantly high, which increases buyer power in all segments. However as buyers need
to accommodate consumers and offer a wide range of beers, this weakens buyer power.
(MarketLine, 2013)
Apart from smaller producers such as microbreweries, producers and retailers operate in
distinctive businesses, with very low potential of forward and backward integration. Overall,
buyer power is assessed as moderate. (MarketLine, 2013)
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