The writer has a Master's Degree in Economics. She enjoys researching and writing about economic and business issues.
I. Analysis of the external environment
1.1 Macro Environment Analysis – PESTEL
PESTEL analysis is the most commonly used tool to analyse a company’s macro-environment. The ultimate goals of this analysis are to ensure the company to make use of the opportunities and minimize or avoid the challenges posed by external factors (Issa, et al., 2010). Summary of key findings of COBRA’s PESTEL analysis is as followed:
Economic and political turmoil in EU and other Cobra’s key markets around the world, such as the United States and India, will have a significant impact on the beer industry.
The political uncertainties from certain events such as the withdrawal of the United Kingdom from the EU (Brexit) pose some threats to the beer industry in general and to Cobra’ customer base.
Due to recent terrorist attacks and immigration policy controversies, more tensions arose against Muslims.
In 2017, global economic growth was forecast to reach 2.7% while the UK economy would only grow at a meagre rate of 2% (Anon., 2017).
In 2016, the market for beer in Europe increased at a compound annual growth rate of 1.49%, and the volume of beer consumed grew at a compound annual growth rate of 1.98%. Over the period of 2016-202, the European beer market was forecast to expand at a compound annual growth rate of 1.98% in terms of volume.
Major free trade agreements have been reached between the EU and other countries such as South Korea, Vietnam make it easier for exporting into these markets.
The digital revolution happens at an unprecedentedly rapid rate with technology becoming a major driving force of the economy (Margherio, et al., n.d.)
Beer plays an important role in Europe's heritage and tradition. In the UK, drinking beer is an integral part of social life. Europe is the second largest beer producer in the world.
Baby Boomer generation retires; Generation X and the Millennials take Baby Boomer’s place.
There is a movement towards low/zero calorie beer and low/ non-alcoholic beer, especially to serve the market niche of female customers.
There is a heightened warning against the consumption of alcohol due to religious, and health and safety reasons.
New technologies are developed to change the beer making process, alter the chemistry, engineering, and cost of beer-making, and make it even more convenient for drinkers to consume their beverages.
Online shopping has become increasingly more popular among customers, giving rise to new distribution outlets.
With the rise of the Internet, customers also have more sources to obtain information and reviews about a product and a company, affecting traditional medium of marketing and promotion.
Awareness of green consumerism and ethical issues about the socio-environmental costs of a company are on the rise. As environmental protection movement has achieved its momentum in recent years, companies that are branded as environmentally friendly and eco-friendly are more likely to receive positive feedback from guests and maintain a positive public image (OECD, 2012).
New sources of energy that are more efficient and environmentally friendly are more extensively applied.
The beer industry is one of the most highly regulated industries around the world. For example, in the UK, the marketing and advertising of alcoholic beverage are highly restricted; excise tax on beer brewery company is among the highest in the world; it is illegal for someone under 18 to purchase or consume alcohol; labeling and branding are also regulated with health warning message on alcoholic beverages, etc.
Environmental regulations regarding a company’s eco footprint, CO2 emission, etc. are also applied to brewery companies and have become much more stringent on all levels.
1. 2. Porter’s 5 Forces Model
To evaluate a company’s micro environment, Porter’s Five Force analysis is adopted to analyse Cobra Beer’s customers, suppliers, competitors, new entrants and substitutes. This analysis helps a company identify new trends and changes that impact its profitability and find strategies to counter those effects from an early stage (Porter, 2007).
Direct competitors include such companies as Carlsberg, SABMiller, Anheuser-Busch InBev, Heineken, Radeberger. Other noteworthy players in the industry include Beck's Brewery, Budweiser Budvar Brewery, D.G. Yuengling & Son, ERDINGER Weissbier, Oakleaf Brewery, Royal Unibrew, Warsteiner, etc.
Winery brewers also compete with Cobra beer in the market for alcoholic beverages. Some popular brands in the UK and EU are Astley Vineyards, Brightwell Vineyard, Camel Valley Vineyard, Chapel Down, Hambledon Vineyard, Lyme Bay Winery, Simpsons Wine Estate, Sixteen Ridges, Wiston Estate Vineyard…
In short, the beer industry is an extremely competitive industry with various providers of different size and scales, offering similar or differentiated products. Nonetheless, there does exist some major players in this market.
Bargaining power of suppliers:
With regard to the beer industry, suppliers do have considerably high bargaining power. In order to make beer, the company requires various inputs including raw materials for making beer (wheat, yeast, barley, etc.), packaging materials (aluminium, cardboard, glass, etc.), ingredients, brewing equipment etc. These products are subject to the conditions of the commodity market, and any disruption in this market in term of harvest and supply will definitely affect the quality and production price of beer products.
Threat of new entrants:
New entrant into the beer brewing industry is quite challenging because the initial capital requirement is very high. The big brewery companies also benefit from economies of scale and an extensive network of suppliers. In addition, they also have to obtain myriad licenses and certificates to comply with the government’s heavy regulations over this market.
Customers’ bargaining power:
Customers have a lot of power in the beer market since they have many options when deciding what and where to consume. Depending on customers’ demographics and preferences, they will choose a suitable type of beverage.
Substitutes of products and services:
There are close substitutes to the types of products that Cobra currently offers. For example, if Cobra has Cobra Lower which is low in calories, there are also many other low-calorie beers such as Budweiser Select 55, Miller Light, Miller 64, Corona Light, Heineken Light, and so on. In Europe, wine is also a very common complement to any meal. In addition, sparkling drink and spirits are also widely consumed in bars/pubs and restaurants.
In short, from the external environment analysis, although Cobra beer has established a firm presence in its market segment, competition in the beer industry in particular and alcoholic market in general is every intense, requiring the company to develop comprehensive and effective strategies to promote the company’s image and differentiate it from its competitors. Nonetheless, the beer industry is in its maturity stage as characterized by slower market growth, customers’ shifting focus from whether to buy the product to deciding on different brands based on prices and service quality, increasing international competition, and marginally falling profitability (Sabol, et al., 2013).
II. Analysis of the internal environment
To summarize Cobra Beer’s internal environment, both resource-based analysis and value chain analysis have been performed. Resource based view analyses the internal factors, including both tangible and intangible resources, that constitute a firm's sustainable source of growth and performance. From that analysis, it pinpoints the firm's most strategic resources and capabilities which establish core competencies (Robbins & Coulter, 2012). In order for these resources to become a source of sustainable comparative advantages, they have to be beneficial, unique, robust, and imperfectly non-imitable (Barney, 1986). Value chain analysis scrutinizes all firm’s primary and supporting activities and how they work together to create a firm’s competitive position. If the firm can effectively perform these particular activities and monitor the connections between these activities, it can gain a competitive edge over its competitors (Porter, 1985).Results of the resource-based analysis and value chain analysis are as followed:
2.1 Resource-based view analysis
Among Cobra Beer’s internal resources, several of them emerge as the firm’s comparative advantages. First, Cobra beers feature a unique taste, differentiating them from other types of beer. This is actually what motivated Lord Karan Bilimoria to start his company in the first place. Noticing a lack of less gassy, high quality beers that can accompany well with meal, Lord Karan Bilimoria decided to invent a new type of beers that is smooth and less gassy, using some elements of Indian beer brewing recipes. This concept sold well among restaurants since less gassy beers meant guests can consume more food at restaurants; consequently, now, Cobra beers are served in 90% of Indian restaurants across the UK. This unique taste is valuable, rare (not many less gassy options available on the market), and imperfectly non-imitable – the recipe was invented by Lord Karan Bilimoria and his team).
In terms of its human capital, Cobra Beer Company benefits remarkably from its key personnel staff. Lord Karan Bilimoria, the company founder, is an Indian-born British; hence, he has extensive and intimate knowledge about the Indian beer – its recipe, brewing process, taste, associated cultures, and brewers. With degrees in law and accounting from prestigious universities in the UK, he also understands well the business environment and legal framework in the UK. A shrewd and persevere entrepreneur who was quick to identify and capitalise on a market gap, Lord Karan Bilimoria contributes greatly to Cobra Beer’s success. Lord Karan Bilimoria also attributed his company’s achievement to having a strong team with several key managers who have stayed with him for over 20 years (Howard, 2016).
Regarding its intellectual capital, Cobra Beer came up with special designs for its product. For example, the company was the first to introduce design of its mould-breaking embossed bottle, champagne-style bottles. Moreover, the company owns several patents such as the patent for light-stable hops that protect beers from becoming light-struck. Cobra Beer also possesses a long list of awards, bringing up its national and international reputation. Since its inception, Cobra beers have received 88 Gold Medals in total by Monde Selection, which is considered the “Oscar” in the world of beer. In 2016 alone, Cobra was awarded 5 gold medals for its products with King Cobra earning a Grand Gold medal. Since it is almost impossible to patent a beer, Cobra Beer stays ahead of its competitors by continuous innovation and improvement, continually improving and adjusting its products. Furthermore, the company also tries to promote and reinforce its image in the communities by getting involved in various charitable and community-building activities. For example, the company founded the Cobra foundation since 2005 to raise and provide funding for underprivileged children, safe water, disaster relief, etc.
In terms of its financial resources, Cobra Beer has generated stable profits for its stakeholders since its launch in the business, and in 2007, it enjoyed its highest retail value turnover of GBP 125 million, up from GBP 80 million reported in 2006. As the global economy underwent great setbacks in 2008, Cobra beer’s production still remained unaffected. Despite the challenge, it recovered from the economic downturn in 2008 – 2009 after joining in partnership with Molson Coors. Since 2009, sales of Cobra have continued to grow strongly, and it is Molson's most profitable brand in the UK.
2.2 Value chain analysis
As one of the smaller beer companies, since its beginning, Lord Karan Bilimoria already set out his principles to establish the most efficient relationships between the company and its stakeholders including its raw material suppliers, distributors, and customers, etc. Some activities conducted by the company and its partners within its value chain provide comparative advantages for the company.
First, as for raw materials, Cobra beer’s main raw materials include water, barley, hop, yeast. The company goes to great length to ensure that they get the highest quality materials. For example, water is obtained from the nearly perfect brewing water sites such as Golden, Colorado, Burton-on-Trent in the UK and Montreal. All materials undergo the selection process and quality control to ascertain that they meet the company’s standards for aroma, flavor, color, and so on. As for malting, unlike other companies, Cobra Beer makes their own malt. Cobra beers also go through double fermentation for the products to have the smooth final taste. The whole process works towards the goals of producing high-quality, smooth, and less gassy taste, the unique selling point of Cobra beers.
Second, packaging also receives special attention from Cobra. The company typically uses the brown or green color together with special light-stable hop to protect its beers from the sun. In addition, packaging is done in the most efficient way to keep costs down and to be environmentally friendly. For example, the company offers various packaging size for drinkers to choose the one that suits their occasion the most, i.e. big bottles when they feel like drinking a lot, etc.
Third, in term of distributors and distribution network, Cobra beer also tries to make the most of its current network. At the beginning, the company made its beer in India, and then shipped to the Europe. However, as demands rose, it moved its production to Europe by collaborating with various brewers including Charles Wells, Palm Breweries, and now Molson Coors. Also for main distributors, at first, the beers were mainly sold to licensed Indian restaurants in the UK, now they are also sold at supermarkets, bars, pubs, and clubs. It can be seen that as the market for Cobra beers expanded, distributing networks also evolved to suit the company’s specific needs.
Barney, J. (1986). Organizational Culture: Can It Be a Source of Sustained Competitive Advantage? The Academy of Management Review , 656 - 665.
Howard, E. (2016, April). Retrieved April 2017, from The Guardian: https://www.theguardian.com/small-business-network/2016/apr/28/lord-bilimoria-debt-financial-crisis-brexit-business
Porter, M. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. The Free Press.
Robbins, S., & Coulter, M. (2012). Management (11th ed.). Pearson Education, Inc.
Sabol, A., Šander, M., & Fučkan, D. (2013). The concept of industry life cycle and development of business strategies. Zadar.