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Title: Alcohol Beverage (Focus on Beer & Breweries)
NAICS Code: 312120
Name: Yonatan Balin
(Reference Format: APA)

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Introduction/Executive Summary:
Beer is a yeast – fermented alcoholic drink prepared from malt, and flavored by adding
hops. According to business insights, there are 85 total companies under NAICS code: 312120.
Allied market research came out with a report regarding certain data in the beer industry, more
than 800,000 employees and an annual revenue of over $224 billion dollars highlight the
economic impact of the industry. The beer market has registered significant growth in the world
marketplace due to various promotional activities, strong marketing strategies, social acceptance
of beer as a drink, and increasing number of the beer-consuming population.
The global beer market is expected to generate about $688 billion dollars in sales by
2020.
However, the global beer market also faces some constraints, such as high taxes in certain
regions, seasonality and climatic conditions, government rules and regulations, health
regulations, and a host of substitute products that offer alternatives to the beer market. The other
big impediment for the global beer market is the high investment it demands for both
manufacturing and selling.
Some of the key players in the beer market are Anheuser-Busch (InBev), Grupo Modelo,
Carlsberg Breweries, Heineken N.V. and Molson Coors Brewing Company.
Porters five forces discussed throughout the semester are very applicable to the beer
industry. A short summary of each force: 1) risk of new potential competitors would be a
company(s) with the capabilities and resources to enter the industry 2) rivalry among established
companies is the intensity of competition amongst the top players in the industry 3) bargaining
power of suppliers is where suppliers are consolidated, no substitutes and high switching costs 4)
bargaining power of buyers is where suppliers are fragmented, vertical integration and low

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switching costs 5) threat of substitutes is the instance when a product from a different company
can satisfy the customers needs.
I found it very interesting that when doing the t-test and comparing the results, my
hypothesis of 2015 being more profitable than 2014 was incorrect when all the research is
showing that there will be a clear profit increase in the beer industry.
Porter’s Five Forces Model:
The goal over the next several pages is to provide an informative essay of Porter’s five
forces model and how the model relates to the beer brewing industry.
The first force is threat of entry by new potential competitors. The beer industry has seen
an increase of brewers enter the marketplace over the last several years. According to an article
published in 2015 by the Brewers Association, the US brewery count has grown significantly
and saw an almost 18% increase from 2014 to 2015. Entering into this market as craft breweries
is very attractive as growth in the beer industry is continuing to rise and to be more profitable.
However, the barriers to entry still remain fairly high. The top beer brewing companies
such as Anheuser Busch, SABMiller, Molson and Boston Brewing have many advantages that
deter potential new entrants from entering the market. For mature companies, economies of scale
provide them great leverage due to large production quantity, which increases their overall
margins. Large amounts of capital gives them the ability to spend more on branding, marketing
and promotions. In addition, they have a hold on the limited shelf space from the retailer as well
as a hold on the distribution channel. Lastly, the alcohol beverage industry is highly government
regulated and taxed on a federal, state and local level. Hoover as well as in an article published
by Market Watch (Notte, 2015) mentions how the top eleven brewing companies in the US own

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a 90% share of the market, very likely another reason why the potential risk level of new
competitors remains at a medium level.
On a positive note for those thinking about entering the world of beer, while there are
strong barriers mentioned above such as economies of scale and government regulation they do
have some advantages in their favor. The beer industry lacks brand loyalty and has low switching
costs. To go from one beer to another beer, is roughly the same price and the consumer doe not
lose any data collected (ex: to switch from a company like Netflix to another media streaming
provider). Beer prices from one company are not going to be much lower or higher than it is
from another company as reported by wineaccess which releases the price list for beers. With
regards to brand loyalty, the typical beer drinker will try more than just one brand of beer
throughout his or her lifetime giving new entrants some hope for success.
The second of the five forces is rivalry amongst competition. According to a recent
article, published by Business Insider (Richter, 2012), although people preferences for beer have
dropped over the years, the brewing industry is hotter then ever. The amount of breweries in the
U.S now tops over 4,000. One may think the rivalry is fierce then, however, it is at a neutral
level. There are several reasons for this but the main one is that the rivalry is really only amongst
the top four or five brewing companies. These other breweries all exist but on a much smaller
level. Outside of the top few, the other breweries cannot compete. Within the beer industry, price
battles are not the determining factors as most beers are priced at a similar cost. The determine
factor within this industry and what separates the top breweries from the smaller one and limits
their potential growth to be a fierce competitor, is capital constraints.
The brewing industry is focused on using their capital to increase brand image and brand
awareness. CNN (O’Neill, 2016) reported that Anheuser-Busch bought a spot for Super Bowl

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2015 for three minutes. Every thirty seconds cost was $4.5million dollars. Another top player in
the market, Miller Lite, in a span of thirty days has over 2,000 national airings and is ranked
number 195 amongst all companies in spending. These factors may it extremely difficult for a
new brewery to compete with these top players. However, this intensity among the top
competitors limits potential profitability in this industry.
The third force that Porter discusses is the bargaining power of buyers. The buyer side in
the beer industry is broken down into three tiers. Weiss in an article he wrote for Fermentarium
describes the tiers as follows; the distributors, retailers and the end buyer, which is the consumer.
Respectively, that is their ranking in terms of significance as well.
Neither breweries nor distributors sell directly to the consumer. The consumers spending
on beer is so minimal it is unlikely they have an impact on the pricing strategy. Hence, the
bargaining power of the buyer in this case, being the consumer, is weak.
Next on the tier working our way from bottom to top are the retailers. In this case,
breweries do not sell to retailers for the most part but the distributors sell to the retailers.
Retailers as opposed to consumers do have bargaining power since shelf space is limited and
there are close to 3000 distributors. With the distributor channel being fragmented, this gives the
retailers increased bargaining power.
On top of the chain, are the distributors who have the most power. All breweries are
required to go through an independent distributor, who then sell to the retailers and then
ultimately the consumer. As mentioned previously, the breweries, although controlled by the
elite few, there are many making the supplier side fragmented which increases buyer power.
Additionally, switching costs to the distributor from one brewery as opposed to another is very
low if there is any at all. The risk of distributors vertically integrating is minimal but they

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ultimately control the product reaching retailers and the end consumer, which increases their
power and their control of pricing. This control puts a dent in the overall profitability of the
brewing industry.
The fourth force discussed is the bargaining power of the suppliers. In the beer industry,
the suppliers are those that provide the brewery with the raw ingredients to produce the actual
product; beer. Although the ingredients are the key element and affect the overall product,
“supplier” power in the alcohol industry is fairly low. There are three main reasons for this. One
is that the suppliers market is fairly fragmented, meaning breweries have several options of
which to purchase the raw ingredients from. Secondly, switching costs are low. For a brewery to
switch purchasing raw ingredients from one supplier as opposed to another is fairly inexpensive.
Lastly, the chance of the suppliers vertically integrating into the industry to act as a brewery is
also fairly low, as they do not possess knowledge of the production portion of the business. On
the other hand, the chance of one the large breweries’ deciding to buy a piece of land and grow
the ingredients and thereby eliminating the middleman is much higher due to their vast amount
of extra capital.
The fifth and final force that Porter discusses is threat of substitutes. Beer is in the
category of being an alcohol beverage and we will stick with the substitutes within that category.
Wine/spirits, liquor such as whiskey and malt beverages are all making a strong move in the
industry and all act as a key substitute to beer. Fortune published an article in February of 2015
written by Kell, provides data of how serious of a threat substitutes are in the alcohol industry
and how they are making a serious move to replace beer as the primary product of choice.
Overall, retail sales of distilled spirits in the U.S. is nearly $70 billion dollars. The spirits
industry’s market share stood at 35.2% in 2014, up from 34.7% a year ago, while beer’s

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market share for the alcohol business stood at 56% in 1999, but slipped below the 50%
threshold in 2010 and now stands at 47.8%. Total whiskey volume has also been on the
rise now over the past several years and according to trends that growth will keep rising.
It is evident from the data that while beer is still the leader in the alcohol business,
there are viable threats that can act as a substitute for it.
t-Test:
For the t-test my goal is to analyze the performance of the beer industry market between
the years of 2014 and 2015. My initial conjecture was that 2015 performed better than 2014.
Hence, my hypothesis is the following: Ho: Miu2015=Miu2014
Ha: Miu2015>Miu2014.
In my initial conjecture I stated that 2015 performed better than 2014. I defined
performance with regards to ROE % (net). The industry was defined by the NAICS code,
312120 which is the beer brewing industry. The database used to collect the data was Mergent
Online. This tool spit back 146 companies located in the US that play a role under this NAICS
code. Additionally, I decide to disregard outliers since only a few powerhouses control the
industry and including outliers would skew the data in my opinion.
The P-Value given for the t-test without outliers is 0.15497. In the sample mean 2014 has
higher mean than 2015 therefore, making my hypothesis incorrect. So we take the P-Value and
subtract 1 from it. The equation looks like this: 1-0.15497=0.84503, 0.84503 is great then .05 so
we cannot reject Ho and did not find strong evidence that 2015 is better than 2014.

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T-Test Without Outliers
t-Test: Paired Two Sample for Means
ROE % (Net) - 2015 ROE % (Net) - 2014
Mean 9.5836 10.176
Variance 57.38936567 91.52681667
Observations 25 25
Pearson Correlation 0.971101458
Hypothesized Mean Difference 0
df 24
t Stat -1.037257939
P(T<=t) one-tail 0.154977015
t Critical one-tail 1.71088208
P(T<=t) two-tail 0.30995403
t Critical two-tail 2.063898562
T-Test With Outliers
t-Test: Paired Two Sample for Means
ROE % (Net) - 2015 ROE % (Net) - 2014
Mean 4.616785714 7.4725
Variance 498.0623263 335.0729083
Observations 28 28
Pearson Correlation 0.833857652
Hypothesized Mean Difference 0
df 27
t Stat -1.22629889
P(T<=t) one-tail 0.115337003
t Critical one-tail 1.703288446
P(T<=t) two-tail 0.230674007
t Critical two-tail 2.051830516

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References:
https://www.alliedmarketresearch.com/beer-market
http://0-bi.galegroup.com.liucat.lib.liu.edu/essentials/industry/312120?u=nysl_li_liu
https://www.brewersassociation.org/statistics/number-of-breweries/
Jason Notte (2015, July 28). “These 11 brewers make over 90% of all U.S. beer”. Retrieved
from http://www.marketwatch.com/story/these-11-brewers-make-over-90-of-all-us-
beer-2015-07-27
http://0subscriber.hoovers.com.liucat.lib.liu.edu/H/search/simpleSearchResults.html?sea
rchValue=+312120+&&updateSimpleSearchResults=true&modName=addrcountryid&mod
Value=76
http://www.wineaccess.com/file/store/totalwine/beer-corridorwine.pdf
Wolf Richter (2012, March 29). “The American Beer Industry By The Numbers”. Retrieved
from http://www.businessinsider.com/the-beer-war-on-american-soil-2012-3
Maggie O’Neill (2016, February 5). “Anheuser-Busch: King of the Super Bowl”. Retrieved
from http://money.cnn.com/2016/02/05/news/anheuser-busch-super-bowl-advertising/
http://www.ispot.tv/brands/dN1/miller-lite
DJ Speiss. “How the three-tiered beer distribution system works”. Retrieved from
http://www.fermentarium.com/industry/how-the-three-tiered-beer-distribution-system-
works/
John Kell. (2015, February 3). “Spirits stole more market share from the beer industry last
year”. Retrieved from http://fortune.com/2015/02/03/whiskey-tequila-spirits-2014/