English Research Paper on Labatt Brewing Company

 Labatt Brewing Company

Established over 160 years ago, Labatt Brewing Company has weathered many storms and challenges to emerge as one of the major players in the Canadian beer industry. The company manufactures boasts a portfolio of over fifty quality beers such as Bud Light, Stella Artois, and Budweiser among others. “The production process for these brands is well executed and managed to ensure they achieve the finest quality and the best taste.”[1] It is for this reason that the finished product must undergo various processes of value addition and testing to enhance the quality of the final product. These processes range from proper grain storage, controlled cooking and filtration, professional fermentation and customized aging of the product. The finished product usually undergoes over 200 comprehensive tests for quality during the overall manufacturing process. The concentration on quality bore fruit in 2004 when all the company’s bands received accreditation for voluntarily implementing the Hazard Analysis and Critical Control Point.

The local market consumes over 80% of the products brewed in the country, leaving only a small proportion for export.[2]The companies manufacture drinks targeting different members of the society depending on income and preference. The premium brands represent class, quality, and prestige with Stella Artois commanding the largest share of this group of products. The brand however faces stiff competition from other premium brands such as Heineken and sales with extensive media campaigns and sponsorship programs to position the brand as the number one premium brand locally and internationally. The firm has a large distributorship network ensuring the products ease of availability in bars, restaurants, retail, and liquor stores countrywide.

Labatt commands 45% of the beer market while it closest competitor, Molson Canada accounts for 35%. The third largest competitor commands a mere 4% of the total beer volume consumed in the country. Although the dominant companies face fierce competition from local and regional brands, the oligopoly nature of the market provides a great advantage for the company. The local brewers have limited resources to venture into the national and international markets.

Scarcity is the insufficiency of availability of a want or a need and consumers in the Canadian beer market are not short of choice. With the two leading companies providing over one hundred brands to choose from, competition for market share is stiff. As there is no scarcity of choice for the consumer, constraints are almost non-existent and they are able to enjoy their drink of choice. Scarcity also does not affect producers since raw materials are readily available. In case of shortages, importation is also an option, as minimal restrictions exist. Innovation is however required to improve brands and enhance customer loyalty. Local and regional brewers also enjoy customer loyalty in their respective areas of operation as they portray some sort of culture or heritage. There is increased demand for specialty and premium brews among the older population and demand for variety among the younger generation. As a result, small-scale productions are set up with their products targeting specific groups and ultimately increasing variety for the consumer and competition for the producer. Beverages are widely treated as compliments to main course dishes and as a mode of relaxation at the end of the day. As a result, consumers tend to compliment meals with beverages such as beer or indulge in consumption with friends.

“Performing a cost benefit analysis on recreational products is challenging, as there exists no standard measure for the satisfaction acquired by consuming it.”[3] However, consumers of the company’s products enjoy various promotions aimed at enhancing loyalty and market share. The company sponsors a wide variety of events such as sports and in such events; the products are sold at reduced prices. Various promotions run by the company offer consumers the opportunity to win prices such as cash, extra products, and other goods. Incentives such as these help increase sales, production, profitability and reduce the cost of doing business in any economy. Additional incentives that could lure people into the company’s fold include reduced prices, promotions, and rewards for loyal customers.

The economic effects of changes in the price of a commodity to its demand indicate the level of elasticity in the market. Consumer brands the world over enjoy client loyalty leading to high levels of inelasticity in the markets. The slow penetration of other alcoholic products is an indicator of the elasticity levels of the market. The market is highly inelastic with substantial changes in price required to impact demand. Changes in quantities demanded do not exceed changes in prices, despite many alternatives existing in the market.

Income elasticity is the relationship between changes in quantities of a product demanded and changes in income of the products consumers. Consumers tend to spend carefully on relatively expensive products as opposed to inexpensive products. However, income inelasticity is estimated to be at about   -1.5. A small change in demand for alcoholic products would be a result of drastic changes in the incomes of consumers. Over the years, demand for beer has experienced growth despite economic challenges encountered such as the recession.

Statistics indicate that the supply of brewed products increased by over 15% over the ten year period from 1999 to 2009. Imports of the same increased by a substantial percentage but Canadians still prefer local brews hence the increase in production. Demand for the product has dwindled in the past year as the market stabilizes following a period of restructuring by major players. Buy offs and mergers created hype for the products pushing demand but the excitement has since subsided. Alternatives such as wines and liquor offer cheaper and better products in terms of convenience. Premium beers suffer the onslaught by the wine industries and more and more affluent people switch from beer to wines. “The standard and economy products suffer the same fate as spirits prove to be a cheaper alternative. The demand for beer shall continue falling gradually as wines and spirits infiltrate the market.”[4]

The graph below represents trend that will characterize the market in the next few years.

Beer

Demand

 Wines

Spirits

Time

Source: Author (2014)

“The beer manufactures in the Canadian market operate in an oligopoly system where only two producers dominate the market and can manipulate it to their advantage. The market is unfavorable for both consumers and suppliers of raw material as the dominant firms can dictate the selling price of the product and the buying price of raw material.”[5] A perfect market counters the above challenges by limiting the power of a single firm on the price of the commodity. A perfect market has multiple buyers and sellers and market information is readily available to all stakeholders. As a result, consumers can select the products that appeal to them in terms of pricing and quality. Any firm compromising on either quality or price runs out of business by the completion. The producers must manage costs and produce quality products at affordable prices to remain in operation. Super profits do not exist in a perfect market as the forces of demand and supply control price. Diversification of the market into wines, spirits, and imported drinks is likely to occur over the next decade. Although a perfect market situation may not be in place by then, the oligopoly influence of the two major firms is likely to be highly diluted.

Bibliography

Agriculture and Food Canada. “The Canadian beer industry.” the government of Canada, n.d. Web. Accessed November 7, 2014. <<http://www.agr.gc.ca/eng/industry-markets-and-trade/statistics-and-market-information/by-product-sector/processed-food-and-beverages/the-canadian-brewery-industry/?id=1171560813521>>

Connect, CPG. “Labatt Breweries of Canada.” Company Profiles. July 13, 2013. Accessed November 7, 2014. <http://cpgconnect.ca/company-profiles/company-info/Labatt-Breweries-of-Canada/467>

Euromonitor International. Country sector briefing: Beer in Canada. London: Euromonitor International Ltd, 2010.

Hoovers. “Labatt breweries of Canada company information.” Company information, March 7, 2014. Accessed November 7, 2014. http://www.hoovers.com/company-information/cs/company-profile.Labatt_Breweries_of_Canada.ff36e15254dbe666.html

Statistics Canada. “Annual Survey of Manufacturing and Logging, by North American Industry Classification (NAICS).” Canada’s National Statistical Agency, Sep 8 2013. Accessed November 7, 2014. <http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/manuf11-eng.htm>


[1] Euromonitor International. Country sector briefing: Beer in Canada. (London: Euromonitor International Ltd, 2010), 3

[2] Euromonitor. Beer in Canada. 3.

[3] Agriculture and Food Canada. “The Canadian beer industry.” the government of Canada, n.d. Web. Accessed November 7, 2014. <<http://www.agr.gc.ca/eng/industry-markets-and-trade/statistics-and-market-information>>

[4] Statistics Canada. “Annual Survey of Manufacturing and Logging, by North American Industry Classification (NAICS).” Canada’s National Statistical Agency, Sep 8 2013. Accessed November 7, 2014. <http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/manuf11-eng.htm>

[5] Hoovers. “Labatt breweries of Canada company information.” Company information, March 7, 2014. Accessed November 7, 2014. http://www.hoovers.com/company-information/cs/company-profile.Labatt_Breweries_of_Canada.ff36e15254dbe666.html