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Grolsch Beer Case Analysis

MBA 350: Business Planning

Professor: John L. Hansen

By: Jashan Ghotra

Executive summary

Based on industry analysis, Grolsch needs to rework the MABA (Market Attractiveness, Business Assessment) framework while also understanding the value of SABMiller's distribution network. The company should maintain focus on foreign markets, looking specifically at developing markets to diversify growth opportunities.

 Grolsch, is a brewing company with a strong history and a highly rated product, which was purchased by SABMiller. Due to the acquisition, the company needs to evaluate its global strategy to determine how to best position and sell Grolsch beer going forward.

 Grolsch has positioned itself well to compete internationally leveraging the MABA framework, but it needs to assess whether or not MABA is still useful, and what type of global strategy they should pursue in achieving long-term success. They also need ti evaluate whether to expand in developing or developed nations.

Few other frameworks that will help in determining a strong strategy for Grolsch beer are CAGE, Porter's 5 Forces and AAA.

Success for Grolsch depends on how well they can identify markets and where their high-end, premium product will be desirable, in addition to their ability to adapt the brand image and marketing.

Vision: The brewing industry has failed to keep pace with the changes in consumers' preferences for drinks. This has created a mainstream category that is under pressure from other drinks. Grolsch believes in the strength of beer in the drinks market.

Mission: Grolsch is going to break through the mainstream and restore beer's premium status.

Background

The Grolsch brewery was founded in 1615 in Groenlo, Netherlands by Willem Neerfeldtn. The town of Groenlo was then known as Grolle, hence the name Grolsc. Grolsch is best known for its Pale lager and Premium Pilsner.  Grolsch reevaluated its international strategy in light of the company's recent acquisition by SABMiller, the world's second-largest brewer. Grolsch was the 21st-largest global beer brand, and sold 51.5 percent of its volume in international markets, and also exported to 70 countries. However, its poor profitability in international markets raised concerns amongst the distribution partners. They worried about the company's international strategy and execution.  Grolsch's 60 years of history in foreign markets provides a rich backdrop to introduce a range of international strategy topics, including performance assessment, rationale for expansion, market selection, and choice of entry mode [Ghemawat & Mitchell, 2011].

Framework and Analysis

MABA Framework

Market Attractiveness

Total volume and volume growth of international premium lager segment.

Price premium between international premium lager segment and top volume lager brands

Geographic and cultural differences: Language differences, EU membership, land transport cost and GDP per Capita [3].

Business Assessment

Total Volume and Volume Growth of Grolsch premium lager

Variable commercial contribution

Grolsch's share of premium Lager segment

  As a result, I believe that the MABA framework needs to be re-assessed as there seems to be a bias towards the western European countries. It is important to follow a framework that provides more opportunities and shows the need for a new marketing framework. They also need to incorporate analyzing distributor relationships in future markets in order to lower turnover and conflicts of interests [1].

Porter's 5 Forces

Threat of New Entrants: Medium

New entrants would be hesitant to enter the market due to the trend of mergers and acquisitions. Since there are only a few large companies with a lot of power, it would be difficult to enter the market on an international front. Also, because of the strong brand and loyalty of existing consumers in Europe, it would be difficult for new entrants to challenge well established leaders that have already set their position in the market. However, there is room for other established international brands to enter the market [2].

Bargaining Power of Customer: High

Lower switching costs give customers a high power position. Supermarket chains also have high bargaining power because of their ability to easily change the supplying brand.

Bargaining Power of Suppliers: Medium

There are very few suppliers of glass for bottles. Suppliers must adjust pricing and quality to be competitive, giving them low bargaining power. But, there are many suppliers of raw materials for brewing and energy, giving these suppliers high bargaining power.

Substitute Products: High

Many products such as wine, soft drinks, and energy drinks are becoming increasingly popular in the European markets. In particular, there has been a decrease in beer consumption in Western Europe, highlighting the increase of substitute products. As the public is becoming organic oriented, organic brewery market is also emerging as a strong substitute to regular brewed beer.

Competitors: High

Brewing industry in Europe has low switching costs, and there are many acquisitions. Grolsch faces fierce competition from Heineken, due to their power position in the market which is very popular internationally [2].

SWOT Analysis

Strength

Rapidly growing market in the brew industry

Country alone makes half of Africa's beer consumption due to high profitability in South Africa

Target audience is all ages legally authorized to drink which gives a strong and broad target market

Has the largest beer market in the world

Popular in Russia, as is one of the top consuming beer in the Russian market\

Cost of transportation is low

Royal recognition due to a historic brand

Weakness

Higher import taxes in Brazil

There is room for other international companies to enter the market in Brazil

Market size is relatively smaller in comparison to Brazil and Russia due to the population

Extremely high competition in the U.S.

Opportunity

Demand and market for premium beer is growing

Organic beer is becoming popular, hence could expand with more flavors which leads to a new market for international organic beer

World cup and Olympics marketing opportunity in countries like Brazil and Russia

Can expand in the USA by serving at bars exclusively.

Launch in developing markets such as Asia

New plant in the Netherland.

Threat

Threat of new international companies to enter the Brazil's market

Brazil and South Africa infrastructure and economic stability is a concern

High growing domestic and Eastern European based beer market

Heineken is the biggest competitor that dominates the international beer

New craft beers entering the premium segment

CAGE (Netherlands and Belgium)

Cultural Difference

Majority of the population share the same language (Dutch)

Similar ethnicities and connective social networks

Comparable religious background

Similar per capita consumption of beer

Cultural and language differences between Southern Belgium and Netherlands

Administrative Distance

Share a common trading bloc (EU)

Share a common currency (Euro)

Lack of political hostility

Both countries favor open economies and free trade

Belgium know for high quality ales, not premium lager. But government intervention still possible due to pride in brewing industry

Geographic Distance

Physically adjacent. Important due to bottles beer=s low-value-to-weight ratio

Share a time zone

Share a land border

Close sea ports

Easy and cheap transport

Economic Distance

Nearly identical income levels

Similar infrastructure and transportation costs

Small-Medium market compared to current key markets

AAA

From the AAA analysis I recommend the adaptation strategy as it will be easier to execute in comparison to aggregation and arbitrage.

Adaptation

Adapt to changing and diverse customer needs

Grolsch needs to tailor its premium product to those markets and create separation in differentiation. Their effort included having their beers brewed in Europe rather than opening a new brewer to maintain taste so that other markets can “get a real import.”

Pricing should also be considered geographically to understand the target audience demands and affordability.

Promotion is also a key factor to make the target audience aware of the beer . [1]

Financial Analysis

The revenue of the company is expected to grow as the EBITA is growing. If the EBITA was low then we could conclude that global expansion is not favorable., however in this case it can be said that Grolsch can prosper with a 10.1% Internal Rate of Revenue predicts strong financials for the company. Therefore, if the right market is chosen for the expansion and the plant Grolsch can regain the confidence of its distributors again.

Recommendation

Grolsch has a broad opportunity to expand and for a niche in the market internationally. I will be breaking down my recommendation in three different categories which are the benefits, challenges and risks that the company anticipates as the result of the case analysis.

Benefits

Improved regional market understanding of customers and trends

Re-launch and export to United States

Re-attempt to position on Poland

Expand the customer base in Belgium as per the CAGE analysis the pro overcome the cons in terms of profitability and advantages of being close to the Netherlands.

Unique packaging should be marketed appropriately as the swing top and unique taste differentiates the beer from others.

SAB Miller will add value to the company as it will strengthen the distribution channels for the company. This will also provide strong financial which will provide an opportunity to open a brewery in United States or Hong Kong to take advantage of economies of sales, reduce cost of transport and decrease reliance on distributors.

There Nisan opportunity to increase consumption by attacking the Asian and North American markets.

Analyzing Porter's Five Forces for the beer industry can provide insights into the reasons for the underlying economics and general competitive situation. [1]

Challenges

Cultural differences: Since most employees are stationed in Netherlands the decisions are made from a certain approach, hence it is important to teach the employees to be culturally aware of other target markets.

MABA framework reflects that there needs to be better global economic trends that are required to be prepared of in the future.

The need of determining output measures to understand status of progress in each region.

Follow up consultations to monitor progress of organizational model challenge and regional expansion.

Building customer relationships could be challenge internationally in case of lack of training and cultural awareness [2].

Risks

Unanticipated costs in entering and expanding into new markets

Variability in expected outcomes

Potential loss of consumers and market share during transition

Potential loss of employees or recruitment of new employees in order to optimize organizational structure

Conclusion

It can now be said that Grolsch beer have a wide opportunity to expand globally if the correct business model and changes are applied. MABA framework is still useful to determine the type of international strategy that they should pursue (i. developed vs. developing markets), and if their adaptation strategies will continue to be an asset in their business development. Grolsch should expand the MABA framework while also leveraging and recognizing the value of SABMiller's distribution network. They need to maintain focus on international markets, looking at both developed and developing markets to diversify growth opportunities. Success for Grolsch depends on how well they can identify markets where their high-end, premium product will be desirable. their ability to adapt the brand image and marketing approach based on the cultural differences of the foreign markets they enter. The subsequent presentation contains exhibits and analysis that support and further develop these conclusions. All the frameworks explained above are useful in providing a basis for analyzing Grolsch's global strategy.

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