Alexander Keith's Market Overview the United Kingdom Essay

Alexander Keith's

Market Overview

The United Kingdom is one of the best beer markets in the world, and it is from this rich brewing tradition that Alexander Keith's flagship IPA draws its origins. The first thing to consider is the political and economic characteristics of the environment. The United Kingdom's political environment is generally favourable for the beer industry, owing in part due to the nation's pub tradition and the importance of the brewing industry in the country. The environment is expected to be particularly favourable for A-B InBev because the company already owns three breweries in the UK, including the main Bass plant in Lancashire. In total A-B InBev employs 1400 people in the United Kingdom, and its distributors employ many thousands more. (A-B InBev, 2012). This should give the company a favourable political environment going forward.

The economic environment in the United Kingdom is somewhat challenging. The country, on account of its weak banking regulations, was hit hard by the economic slowdown. Combined with ill-advised austerity measures, the UK economy has failed to recover from the slowdown, with the latest data showing that the economy is still shrinking (BBC, 2012) and unemployment is still increasing (BBC, 2012, 2). The ongoing economic malaise in Britain is expected to continue and is likely to have a negative impact on the sale of premium beer.

The beer industry in the United Kingdom is highly competitive. The market is divided in a number of ways. The first way is by product category. Keith's is usually marketed as an ale, but would not be recognizable as such to a UK drinker. This is something that can work in the company's favour, but it is important to understand that the dynamics of the UK beer market are different from the Canadian or American markets and in the UK, Keith's would be competing in the lager category by virtue of its colour and character, which are dramatically different from British ales. Competition in the lager market is dominated by a handful of firms, including A-B InBev, which has the number one brand in the country in Stella Artois; Carlsberg, and SAB Miller. There are a handful of other competitors as well, mainly continental brands owned by large multinationals.

The total beer market in the United Kingdom is worth around £17 billion per year and per capita consumption is declining (Press Association, 2009). Keith's would compete in the premium lager category, as a differentiated product, and this category has in general been in a state of fluctuation for the past few years. Premium lager consumption was down 3.5% in 2007, but there was some fairly dramatic change in the status of brands within the industry. Some established brands in the segment have seen sharp sales declines, while new brands are experiencing very strong growth. For example, SAB Miller's stable of premium lagers grew 42% that year (McNamee, 2007). The evolution in the category means that despite the overall challenging market for lager in the UK, there is room for market entry with new products and subsequent rapid unit and market share growth of new brands in the segment most likely to be targeted by Alexander Keith's.

With respect to the production side of the market, it is most likely that Alexander Keith's will be produced at one of the company's UK facilities, using local ingredients. The cost of shipping beer or key ingredients like malt across the Atlantic Ocean is prohibitive when there is a ready supply of ingredients, labour and capacity to make Keith's in the UK. There are three breweries that could be used. The company's Lancashire facility produces flagship ale Bass, along with other ales and Stella 4% Legere, a lager. The London brewery primarily makes Budweiser. While a good candidate for production, this brewery is slated for closure (Champ, 2010). Another brewery in Wales makes some of the company's iconic ale brands (Ratebeer.com, 2012). The company also has a multitude of facilities in Europe that could be used to produce Alexander Keith's. The supply chains utilized would be the same as for the company's other products. A-B InBev has exceptional purchasing power in Europe, and therefore there are no difficulties anticipated in acquiring the raw material needed to produce the beer.

The other industry participants, particularly within the segment in which Keith's is most likely to compete are companies similar to A-B InBev. These firms are typically major global brewers that incorporate European brands or production facilities. They often produce in the UK, but may leverage the ability to produce in Europe and ship to the UK without duties in order to save on production costs, which may be significantly cheaper especially in Eastern European locations or in the German market, which has chronic excess capacity.

These market players, including Carlsberg, SAB Miller, Heineken and other similar groups, all have significant marketing capabilities, both with respect to promotion and distribution. There is generally a high degree of awareness among drinkers of all of the major brands in the premium keg lager segment, even if the corporate ownership of the brand is not known. Thus, competition is expected to be intense. A key consideration will be how Keith's would fit into the A-B InBev portfolio. Stella Artois is the budget lager brand in the UK, while Budweiser occupies premium positioning. Golden ales that have lager-like characteristics can compete either against other ales or against lagers. The company already has Boddington's, a leading golden bitter, in its stable, so the logical place within the portfolio for Alexander Keith's is to compete as an ale that has a lager-like character. This unique value proposition would put the brand against other globally-recognized lager brands. Which brands specifically Keith's would compete against would depend on the alcohol content and price point that the company chose for market entry. UK drinkers are highly sensitive to changes in both alcohol and price, much more so than either Canadian or American drinkers, so even the smallest decisions with respect to these product characteristics can change the dynamic of competition for Keith's.

There are few trade barriers anticipated in bringing Keith's to the UK market. Production that is shipped from Canada would be subject to import duties, but there is no logical case that can be made for producing in Canada and shipping overseas. The UK beer business is characterized by tight margins, so the high shipping costs and tariffs would almost assuredly render the product unprofitable. Local production -- or even production in Europe -- would remove the threat of trade barriers of any type, as per the common market. That A-B InBev has multiple facilities in the UK already, most with excess capacity, only emphasizes the needlessness of producing anywhere that would subject the product to trade barriers.

The only major downside to the plan to launch Keith's in the UK is that the country's beer business is not growing. After many years of growth in keg beer, lager in particular, UK drinkers are not only reducing their beer consumption but are turning back to a new wave of craft brewers, much like is happening in North America. That said, the turmoil in the premium lager segment has opened up opportunities for new, fresh brands to enter the market and win share. With the Scottish heritage of the brand and the generally positive view that Britons have of Canada, there is no conceivable reason that Alexander Keith's cannot be one of the brands that emerges from a challenging industry environment successful. Lesser brands with fewer selling points have fared well in the past decade, so with the right approach the market conditions are good enough for Keith's to succeed as well.

The market outlook depends on precisely how the product is positioned and how well it is supported. The…