The alcoholic beverage market has long been formed by volatile demand trends, legislative regulation, and fierce competition in a highly-concentrated environment. Generating over USD 33.38bn of revenue in 2015, the beer segment faces great rivalry, declining demands, and threatening substitutes. Moreover, the industry has been characterized significantly by mergers and acquisitions in the past, such as the SABMiller plc being acquired by Anheuser-Busch InBev in 2016. This presentation, created with my workgroup for the Master in Management at IE Business School provides a thorough analysis of AB InBev. The multinational corporation, listed on the Euronext Brussels and focused on the beverage and brewing industry, is considered as one of the largest fast-moving consumer goods companies in the world. To analyse AB InBev the SCP approach was applied using Porter’s five forces and a dynamic overview of the industry applying a strategic group map.
If you have further interest in the beer industry, it’s characteristics and development, I highly recommend Harvard Business Review’s Beer Cases series (https://hbr.org/product/the-beer-cases-a-a-b-inbev/W11613-PDF-ENG).
3. Company Overview
Business
Segments
International & Global Brands
and Local Champions
Bottling agreements with Coke
& PepsiCo
Beer and Soft Drinks
Comparison
According to EBITDA
after acquisition of
SABMiller
Largest FMCG
Financial
Results
Annual sales: USD 46.3bn
After-tax profits: USD 2.7bn
EBIT margin: 27.04%
2016 Numbers
Industry Characterized by M&A
Alcoholic Beverage
Industry
Beer
Segment
Overall revenue of
33.38bn in 2015
AB InBev owns over
500 beer brands
Market Share
Company
Structure
Headquarters: Leuven Belgium
Formed 2008, through merger
of breweries from Belgium,
the U.S., and Brazil
AB InBev
5. Porter’s 5 Forces
Static Industry Analysis
Threat of New
Entrants
moderate
Threat of
Substitutes
moderate - strong
Buyer Bargaining
Power
moderate
Supplier
Bargaining Power
weak - moderate
Rivalry Among
Existing Competitors
strong
6. High profitability
of beer market
Distinct niches
Endogenous &
exogenous entry
barriers
21% of local
market: craft
breweries
Porter’s 5 Forces
Static Industry Analysis
Existing
Rivalry
Threat of
Entry
Buyer
Power
Supplier
Power
Threat of
Substitutes
7. Minimal
switching costs
Wine (most
relevant)
Premium craft
beer
Light or alcohol-
free beer
Cannabis
Porter’s 5 Forces
Static Industry Analysis
Existing
Rivalry
Threat of
Entry
Buyer
Power
Supplier
Power
Threat of
Substitutes
8. Scattered end-
consumers
Low threat of
home production
Reliance on
retailers as
channel to market
Declining demand
Porter’s 5 Forces
Static Industry Analysis
Existing
Rivalry
Threat of
Entry
Buyer
Power
Supplier
Power
Threat of
Substitutes
9. Heavy reliance
on external
suppliers (water,
grain, hop)
Resources
become scarcer
Need for high
quality
Porter’s 5 Forces
Static Industry Analysis
Existing
Rivalry
Threat of
Entry
Buyer
Power
Supplier
Power
Threat of
Substitutes
10. Highly
concentrated
(CT: 2.22)
4 giants control
50% of market
Pred. HHI after
merger = 2.500
Porter’s 5 Forces
Static Industry Analysis
Existing
Rivalry
Threat of
Entry
Buyer
Power
Supplier
Power
Threat of
Substitutes
14. COMPETITIVE ADVANTAGE
Low-Cost Strategy and Differentiation in Niches
Low-cost strategy through reducing average cost curve
Leveraging on large economies of scale and learning
Aggressive cost saving strategies throughout company
Acquisition of competitors further increases advantage
Successful value capture: ROS of 27.5% (industry average: 12%)
Cost Advantage
Value creation: acquisition of smaller, specialized breweries
Increased market reach and developed new customer base
Differentiation through intangible sources (marketing, clear
value proposition, leveraging brand equity)
Differentiation Advantage
16. SABMiller Acquisition
As Solution to Several Challenges
Fierce Battle for
Market Share
Becoming largest
FMCG company by
EBITDA
Enhanced competitive
advantage
Stagnating Markets
Opened markets in
developing countries
Expanded distribution
channels
Threat of Substitutes
Threat reduced by
increased portfolio
Diversification if
different markets
Clear identification of declining performance and improvable position
In line with company’s strategy and M&A pattern
Clear perception of anticipating future market developments
18. Strategic Recommendations
for AB InBev
Bottling
Agreements
Strengthen position in
beverage industry as
soft-drink producer Attentiveness to
M&A Opportunities
Expand portfolio and
foster growthProtect Competitive
Advantage
Acquire upstream
suppliers to control
vertical value chain
Expand secrecy
around production
process
Adaption through
bottle rebranding
Brown-Forman
Corporation
Due diligence
analysis of possible
acquisition
Venture into spirits
market