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PEST Analysis of the Beer Industry

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The beer market in the United States alone is a $110 billion dollar industry. According to the Brewers Association, volume beer sales in the United States were down 1 percent in 2017, but craft brewer sales increased by 5 percent. It seems microbreweries are growing substantially. These little guys, offering niche products for a limited time in specific locations only, show signs of growing in 2018.

But why?

This PEST analysis examines the beer industry from the inside out. Breweries are available all over the world. It’s a global market but not everyone is reaching for a cold one. Despite its popularity, the beer industry also faces a backlash from consumers too. The process of distribution is incredibly rigid and not every brewer is going to survive in this harsh and saturated market.

What rules do all breweries follow just to start the harvesting process of their ingredients? Who are the people standing in the way of sales? And how has beer transformed from beloved to foreboding within the recent decades? Our PEST analysis of the beer industry goes into the specifics.

Dive on in.

Political factors: The power of the state and federal government

The beer industry is heavily dependent on taxation regulations. Little can be done by raising taxes since the government, on a federal and state level, approve the rates. The beer industry must comply with both the federal and state to legally produce, distribute, and advertise their products. Everything from the ingredients to the labels on the cans must be approved before the product can hit the shelves.

A brand can be affected differently, though. Take Heineken, for example. Because it’s available worldwide, Heineken must abide by governmental policies in each country they distribute and sell in. But they may also see a fluctuation in sales. One country may have lower taxation policies, providing a higher profit. But another may have stricter guidelines, causing the brand to jump through governmental hoops just to get their products to the customer. In that scenario, the price of distribution may outweigh the profits.

Penalties for drinking responsibly are also mandated by the government. Stiffer penalties for drinking and driving have resulted in fewer casualties, but it still a problem affecting the lives of innocent people. Anyone proven to have killed someone while under the influence of alcohol can receive high fines or jail time. Campaigns are created to showcase the devastating results of drinking and driving, but it can also create backlash for the beer industry too.

Economic factors: Saturation at all levels

The beer industry is ginormous but also saturated. Big name companies who have been in the game for decades compete among themselves for shelf space in liquor stores, but also for their consumers’ attention. These companies are branching into the international market to reach new audiences. It’s an intelligent strategic move to increase their consumer base, but it also provides new jobs around the world.

Then there are the other guys. The smaller or up-and-coming beer brands slave away to get a piece of profits, but they don’t compete with the international beer companies. Instead, the market is broken into three segments: national brewers, regional brewers, and microbrewers.

National companies are large-scale (like Heineken). They’ve been around for decades, have a devout but large consumer base, and only compete with other brands on a similar level.  Regional brands are smaller, known in a specific country or state. They don’t branch out – either because they can’t yet, or because they see no need. And microbrewers are the smaller guys. They’re local brands you likely won’t hear about unless you visit their town of origin. Still, they’re able to thrive by carving out a niche in this business.

Socio-cultural factors: Opposition to sales

Beer is constantly advertised throughout the media, even if doesn’t seem noticeable. You’ll see your favorite actor holding a can in his latest movie. Or your favorite artist will list off brands in the chorus of their songs. You may even see it poised in a fashion advertisement. It’s clear that beer is celebrated but in the same breath, ridiculed and described as dangerous.

The beer industry is constantly at odds with public opinion and, as a result, it’s likely to witness an opposition of sales. Two types of people are leading this brigade: the moral or religious and the health-conscious.

Many religions promote abstention from alcohol as a show of faith. But studies show alcohol can negatively affect the body, primarily the liver. You could even meet death quicker because of it. Beer is too easy to abuse. Many people who become addicted or dependent on beer don’t realize until they have a real problem on their hands. The addiction can lead to drunk driving, death, and despair.

On that note, companies are now offering a light (low-alcohol) alternative to their most popular selections. It’s a healthy alternative – pushed towards the health-conscious crowd – compared to regular beers that are loaded with calories. But some people don’t believe in light beers. They believe it’s just a marketing ploy for companies to get more sales. Instead of leaping on these light beers, drinkers are switching to wine for their vast selection of flavors but also the lower amount of calories.

Technological factors: A refined brewing process

The beer industry relies heavily on technology to develop and refine distribution channels. Without this technology, we wouldn’t have any beer on the shelves. But if a company doesn’t have the leading tech to speed up their distribution process, it leads to delays. It can even limit the amount of beer produced or put a company out of business.

A brew is only as good as its process, and that includes the methods used to cultivate and harvest ingredients. A better process means it’s possible to reduce costs. Many brands are looking into using information technology (IT) to speed up the production process with as few mistakes as possible. National brands who make and distribute their beer internationally will need these IT systems to accurately produce their products around the world.

Photo by Stella de Smit on Unsplash