Brewing up a Storm

The brewing industry faces similar challenges to many international manufacturers around the World.

Heineken Americas’ reported that its operating profit margin is being squeezed. Carlsberg’s European beer market is declining in most of its twelve key regions, with only Switzerland remaining even. Markets in the USA, UK and Canada have matured and are flat.

With profitability declining due to lower volumes and higher costs for raw materials and transportation, local markets changing with tastes and fashion, and increasing pressure to expand into new territories, the brewing industry is undergoing continuous change.

The big brewers are now competing with each other for both brand awareness and channels to market (bars, restaurants and supermarkets), as well as with big local brewers (like Greene King in the UK), whilst both competing and co-operating for distribution channels to market.

The industry has responded in several key ways:  increased marketing activity, improving working capital, managing redundant assets – and is looking to mergers and acquisitions, and to new territory markets despite exchange rate uncertainties. (In several key growth markets, the Polish zloty devalued by 3% last year, the Russian rouble devalued by 2%, and the Nigerian naira devalued by 8% last year. )

Most are diversifying, either by owning more of the supply chain, or driving into new product areas. AB InBev is just one of those responding by diversifying into the ‘craft beers’ market, a small, but growth, proportion of the beer market, acquiring the Goose Island brewery in Chicago. Coors had already introduced Blue Moon. The diversification is also reaching outside of beers and into new drinks categories including blends, spirits and soft drinks.

Japan’s Kirin, meanwhile, is eyeing the pharmaceutical market, for example, whilst India’s largest brewery, the United Breweries (UB) Group, which markets beer under the Kingfisher Brand, has even created an airline.

Most of the challenges faced by the brewers aren’t, however, new. Many of the big brewers were around in some form or another during times of US prohibition, most have been through economic slumps, regulatory change and changing tastes. What marks the current era is speed of change, globalized competition and shareholder pressure against a backdrop of market uncertainty and a fickle customer base which, increasingly, demands more than just a drink in a glass.

Whether they call it a matrix or not, it’s pretty clear that the big brewers have highly matrixed organizations. Each approach taken by the brewers (and most of them are adopting multiple tactics) presents not just financial challenges but some key personnel and management challenges, which require very different management skills to traditional ‘command and control’ hierarchies.

Over the next week, we take a whistle stop tour through some of the challenges the industry faces, and the impact this creates– not so much from a production perspective: mostly the ‘factory’ type environment is a simple, hierarchical management exercise – but from the perspective of the lifeblood of the industry: its people.