Consumer behavior in the craft beer industry – a threat for Germany?

In the late 20th century, the beer industry in the US was consolidated with a few macro-breweries dominating the market. The majority of American consumers drank light lagers with little interest in imported beer from Europe due to effective marketing campaigns from large output breweries. However, during the early 21st century, the craft beer segment of the market began to increase as US consumers interest in high quality beer began to rise. Between 2004 and 2008, the craft segment grew by 6% to 12% annually due to the growth of independent and local breweries. 

Today, 4% of US beer sales are from craft breweries, however, it is still tremendous growth. In 2013, there was a recorded 1,500 breweries in development in the US. In 1980 there were only 537. According to Fortune magazine, the “craft beer boom” is not slowing down. The Brewers Association showed that production increased 16% in 2015. Therefore, one can observe that U.S. consumers’ preference is shifting away from light lagers to high quality craft beer. The Beer Institute study also announced that the beer industry has contributed $252.6 billion to the US economy. As for craft brewers, in the first half of 2015, they sold 12.2 million barrels of beer according to Fortune magazine. Even consumers in Europe have shifted their preference toward craft beer. Craft beer is gaining popularity in Scotland, Denmark and Belgium.

One would assume craft beer would also be growing popularity in Germany as well. Germany has a rich history of producing beer over thousands of years and it is deeply rooted in their culture. However, breweries find themselves restricted too old traditions and are unable to create innovative beers. A popular tradition is the Reinheitsgebot or the beer purity law. The beer purity law is 500 years old and specifies which ingredients are allowed to produce beer and this law is holding back Germany’s craft beer scene. A well-known craft beer brewery in southern Germany, Camba Bavaria, has been criticized for brewing outside the limits of the purity law. Additionally, small microbreweries in Berlin call their craft beer Malzgetränke,”Malty Drinks”, in order to experiment and avoid violating the Reinheitsgebot.

German’s strict beer traditions may be a reason why beer sales have been declining in Germany. In 2001, 10.7 billion liters were sold, while in 9.57 were sold in 2015 according to Germany’s Federal Statistics Office. Additionally, according to Euromonitor, beer consumption is expected to continue to decline as regional traditional beer become less popular for consumers. Larger breweries in Germany are now seeking new markets in China and India in order to protect profits, using Germany’s purity law as a marketing tool.

Is consumer preference in Germany shifting towards craft beer as it is in the U.S.? Germany’s purity law might be a very large reason for the decline in beer consumption in Germany due to its strict tradition. As in the wine industry, Germany might have to make adjustments to its 500 year tradition in order to increase the profitability of its’ beer market. In the US, craft brewers produced one out of every 10 beers sold. Additionally, It has been reported that U.S. beers have already been exported to 10 million people worldwide in 2015, according to the Belgian brewers, a trade group. Craft beer already gained popularity in other European countries and foreign beer producers could quickly threaten traditional breweries in Germany as consumer preferences shift

Sources:

http://fortune.com/2015/08/05/beer-industry-craft-beer/

https://www.pri.org/stories/germany-creative-craft-brewers-face-against-medieval-purity-law

http://www.usatoday.com/story/news/world/2016/08/04/american-brewers-hop-into-europes-craft-beer-heartland/87931840/

History of Craft Brewing

Home Depot’s international expansion in Mexico

In 1979, Bernie Marcus and Arthur Blank opened first Home Depot (HD) store in Atlanta, Georgia. The company is unique in selling a wide of product assortment, equipment, tools… With the idea of “Do-it-yourself” (DIY), the company’s consumers are homeowners who need tools and resources to install by themselves, professional customers who are contractors, interior designers…, and finally do-it-for me customers who pay for third parties to do installation services. The company grew quickly, went public in 1981, and opened its 100th store in 1989. In 2015, the company delivered a strong financial performance with an increase of 6.4 % in net sales in US, Canada, and Mexico.

Mexico is one of Home Depot’s successful story. To enter Mexican market, Home Depot acquired Total Home in 2001 and Del Norte in 2002 to become the second largest home improvement retailer. 

  1. Mexicans are very loyal customers and willing to cut back their spendings if they have low disposable incomes. Therefore, HD did not rush to introduce lots of foreign brands but offered brands that Mexicans were used to in order to get to know customers first, gain consumers’ confidence and introduced other brands later.
  2. Since 2008, Mexican consumers were hit by the downturn that made them seek for less expensive brands. HD offered a wide of products at affordable price. Moreover, HD ran their advertisements that promoted its idea of DIY as a way for consumers to cut their spendings.
  3. Number of Mexicans shopping online is increasing. HD also expands to E-commerce in which the company gives consumers online shopping experiences and pick up their orders at stores.

Sources:

https://www.ft.com/content/35cb218e-c4c2-11da-b7c1-0000779e2340

http://www.homedepotar.com/highlights.html

http://bear.warrington.ufl.edu/oh/IRET/Cases/Home_Depot_China_Revised.pdf

The Socially Conscious Consumer

Outsourcing has generally benefited companies in term of low costs and economies of scale. However, as consumers have been becoming more “socially conscious,” the tag “Made in China” could influence consumers purchasing behavior. Under the new Trump administration, it appears that outsourcing has become increasingly unpopular as well.  President Trump has openly criticized companies, such as Apple and Boeing, for outsourcing. Overall, it appears that globalization has become unpopular. Due to past consumer behavior towards companies which have outsourced their manufacturing, should companies avoid moving business operations overseas?

(AP Photo/Emile Wamsteker)

Global companies such as Apple and Nike have both been criticized for unethical outsourcing. Nike outsourced its’ manufacturing in South East Asia in order to reduce costs. When the poor-working conditions of one of Nike’s factories was exposed, Nike faced a huge backlash from the public and its’ consumers. According to Forbes, “Nike saw its earnings fall 69 percent and was forced to lay off workers.” (Guthrie) Nike was only able to avert the crisis when it created the Fair Labor Association (FLA). (Nisen) This non-profit organization works with companies to improve abusive labor practices across the globe. Apple also joined the FLA when it was criticized by consumers for its relationship with its’ manufacturer in China, Foxconn.  Thus, Apple also quickly adapted to consumers’ behavior to avoid further criticism. As a result, companies across the global have created Corporate Social Responsibility reports. By 2013, 72% of S&P 500 companies have created a Corporate Social Responsibility report. (Bliss)

Therefore, it is highly possible that outsourcing manufacturers has had a large impact on consumer behavior globally. Due to this shift in consumer behavior over the past decades, companies should adjust their supply chain strategies and align it with consumers’ values. According to a global Nielsen report, 66% of consumers globally say they would prefer to buy a product or service, “from companies that have implemented programs to give back to society.”(Nielsen) Additionally, the study continues that the “socially conscious consumer” would prefer to work for companies, which give back to society as well as invest in these companies. These consumers across the globe generally are under the age of 40. Thus, the study also concludes that not all consumers currently care for CSR. However, there is a large segment of consumers who do care and this segment could increasingly grow over the next few decades. (Nielsen) Thus, outsourcing manufacturers could hurt a company’s brand to consumers who are socially conscious.

Companies, which have focused on “giving back to society,” have generally been very successful. Shoe company, Toms, promises consumers that after every purchase, a pair of shoes will be donated to someone in need. His socially conscious and for-profit strategy resulted in helping more than 51 million people and revenues were as high as $392 million after 10 years CEO, Blake Mycoskie, started the business. (Buchanan) Another example, can be seen with Unilever’s Sustainable Living strategy. Therefore, the criticisms Nike faced as well as the success of Toms, show that consumers are becoming increasingly socially conscious. Perhaps it is not directly outsourcing which consumers dislike, but overall how ethical a companies’ supply-chain is and whether successful companies strive to give back to society.

References:

Bliss, Richard T. “Shareholder Value and CSR: Friends of Foes?” CFO. N.p., 28 May 2015. Web. 25 Feb. 2017. <http://ww2.cfo.com/risk-management/2015/02/shareholder-value-csr-friends-foes/>.

Buchanan, Leigh. “What’s Next for Toms, the $400 Million For-Profit Built on Karmic Capital.”Inc.com. Inc., 27 Apr. 2016. Web. 25 Feb. 2017. <http://www.inc.com/magazine/201605/leigh-buchanan/toms-founder-blake-mycoskie-social-entrepreneurship.html>.

Guthrie, Doug. “Building Sustainable and Ethical Supply Chains.” Forbes. Forbes Magazine, 09 Mar. 2012. Web. 25 Feb. 2017. <https://www.forbes.com/sites/dougguthrie/2012/03/09/building-sustainable-and-ethical-supply-chains/#720d2ed04179>.

Nisen, Max. “How Nike Solved Its Sweatshop Problem.” Business Insider. Business Insider, 09 May 2013. Web. 25 Feb. 2017. <http://www.businessinsider.com/how-nike-solved-its-sweatshop-problem-2013-5>.

“The Global, Socially Conscious Consumer.” Newswire | The Global, Socially Conscious Consumer | Nielsen. N.p., 2012 Mar. 201227. Web. 25 Feb. 2017. <http://www.nielsen.com/us/en/insights/news/2012/the-global-socially-conscious-consumer.html>.

 

Walmart’s failure in Japan

As Walmart tried to bring the most convenient experiences to the Japanese in 2002, the giant company still failed to attract Japanese consumers with a loss of $117 million in 2004 (Bloomberg.com). The main reason is the lack of understanding of customer behavior.

Walmart and American consumer behavior

According to Mckinsey, even though the American economy has been improving after the global recession, only 20% of Americans feel optimistic. Especially American millennial moms, who are trying to save as much as they can. They are very sensitive to price and try to reduce prices through “comparing prices, using coupons or loyalty cards more often, seeking out sales and promotions, shopping at several stores to find better deals, and buying more products in bulk.” (citation) This is a reason why Walmart is so successful in America due to its strategy of low cost pricing and big warehouse-like design with a large selection of products. Moreover, Walmart’s all-in-one stores are convenient and creates a shopping experience for Americans to shop around, look at various products and brands, and buy in bulk.

Walmart and Japanese consumer behavior

Different from Americans, the Japanese are extremely demanding. This is a result of lack of time and space. Firstly, Japanese culture is collective that Japanese want to belong and be loyal to their firms. Therefore, overtime work or study is the way for Japanese to show their good spirit and self-sacrifice. According to Yahoo! Finance, 22% of Japanese employees “work 50 hours or more each week on average, well above 11% in the U.S., and 6% in Spain.”

 

 

Antenna shop

 

 

 

Japanese rely mainly on railways such as bullet train and subway because the system of the high speed rail network in Japan has high punctuality with average delay of 20 seconds. With their busy schedule, Japanese find public transportation very convenient to take a quick nap on the way to the workplace or back home. Therefore, the Japanese prefer to shop in small specialty shops (antenna shops) that are close to transport stations or near home. These antenna shops offer specialty products and dining areas with local cuisine, which are very convenient and time consuming. Because of lack of space at home, Japanese love to eat fresh rather than pre-packaged, and consume within a day. Therefore, they often go to local retail chains to buy live seafood that fits with Japanese taste and preference. They do not buy in bulk but in small quantity. Secondly, Japanese culture treats a customer as a guest with high respect and courtesy. This raises expectation of quality in Japan that Japanese demands high quality products and services. According to Wiley, competitors in Japanese market lean toward “product focus, not price focus.”Therefore, Japanese consumers interpret price cut (Walmart) as a low quality or trouble selling.

Sources:

http://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/meet-todays-american-consumer

http://onlinelibrary.wiley.com/doi/10.1111/1468-5884.00181/pdf

https://globalmarketingtoday.wordpress.com/the-real-world/case-study-1/

http://www.gotokyo.org/en/tourists/topics_event/topics/110829/topics.html

http://www.japanpolicyforum.jp/archives/discussions/pt20100930163209.html

https://www.bloomberg.com/news/articles/2005-02-27/japan-isnt-buying-the-wal-mart-idea

http://finance.yahoo.com/news/working-towards-death-in-japan-140758364.html

 

Global Consumer Behavior In the Electric Vehicle Market

As a California resident, it is difficult not to notice the Tesla Supercharger stations on Highway 5 as well as electric vehicle charging stations at supermarkets and university parking lots. Although gas prices are currently low, Californian consumers still seem interested in purchasing hybrid and electric vehicles (EV). During my travels abroad, I also noticed electrical buses in Vienna as well as Tesla Vehicles on German highways. Due to my observations, I wondered whether consumer behavior is becoming increasingly environmentally conscious around the world or if it is mainly due to government incentives. I wanted to understand what influenced consumer behavior in the EV market in the US versus in Europe.

(Ebus in Vienna, Austria)

(Tesla Supercharger station)

According to an Ipsos global poll, 75% of Germans, 91% of Chinese and 57% of Americans believe we must change our habits quickly in order to mitigate climate change and environmental damage. These statistics match well with the International Energy Agency’s report in 2015. They reported that, “the year of 2015 saw the global threshold of 1 million electric cars on the road exceeded, closing at 1.26 million.” (IEA, pg. 4) (Figure 1) The electric car market also expanded in seven countries above 1%: China, the United Kingdom, Norway, the Netherlands, Sweden, Denmark and France. However, the report concluded it was due to government policies and incentives. They also concluded that in order for the electric vehicle car market to expand, further policy support is required.

Therefore consumers behavior in the US and abroad are mostly influenced by government incentives in the electric vehicle market. Despite my observations, the electric vehicle market did not sustain growth in the US in 2015 as well as in Japan. The Ipsos global poll shows that Japanese and Americans consumers are less concerned for the environment than French consumers (where the EV market grew above 1%).  65% of Americans and 45% of Japanese agree that Companies do not pay enough attention to the environment, while 78% of French consumers believe companies do not pay enough attention. (Mori) Therefore there could possibly be a correlation between the EV market and consumer behavior towards the environment.

The study continues to report that “financial incentives and the availability of charging infrastructure emerged as factors that were positively correlated with the growth of electric vehicle market shares.” (IEA, pg.11) For example, Norway provides strong incentives for consumers to purchase electric vehicles by giving them tax exemptions, waivers on road tolls and access to the city bus lanes. (IEA, pg.11) France and China also give strong incentives to consumers. China gives tax expemtions and France offers purchase incentives of 6,300 euros for cars emitting,”less than 20 grammes of CO2 per kilometre.” (IEA, pg.14)  Although incentives are correlated with the growth of the electric vehicle car market, consumer behavior toward the environment may influence the EV market as well.

I was not surprised that the electric vehicle car market is growing rapidly in China. Due to a growing middle class and urbanization, the Chinese government must adopt environmentally friendly transportation methods in order to improve air quality and living standards. Additionally, according to the Ipsos poll, 93% of Chinese believe companies do not pay enough attention to the environment. (Mori) Therefore Chinese consumers are environmentaly conscious and it may correlate with a growing EV market.

Barriers of purchasing electrical vehicles, such as  high costs and lack of confidence in new technology also can influence consumer behavior. If I were to purchase an electric vehicle, I would also feel nervous about locating charging stations and adapting to unfaimilar technology. However, The IEA reports that battery costs will continue to decrease and the electric vehicle market should continue to grow over the new years. (figure 2)

There is also a growing awareness of electric vehicles in the US. The National Renewable Energy Laboratory published a study of the US population that showed that 24% of respondents stated they would consider purchasing a hybrid vehicle, while 20% stated they would consider purchasing an electric vehicle. 48% were also able to, “name a specific plug-in electric vehicle make and model.” (Singer) Consumers in the US and abroad seems environmentally conscious and have an awareness of the electric vehicle market. However, it seems that in order to truly influence consumer behavior in the US and abroad, government policy plays a huge role in the electric vehicle market.

Sources:

Mori, Ipsos. “Environment.” Global Trends Survey | Environment. N.p., n.d. Web. 06 Feb. 2017. <http://www.ipsosglobaltrends.com/environment.html>.

“Global EV Outlook 2016 Beyond One Million Electric Cars.” (2016): 1-29. International Energy Agency. International Energy Agency, 2016. Web. 2 Feb. 2016. <https://www.iea.org/publications/freepublications/publication/Global_EV_Outlook_2016.pdf>.

Singer, Mark. “Consumer Views on Plug-in Electric Vehicles — National Benchmark Report.” (2016): n. pag. National Renewable Energy Labroatory, 2016. Web. <http://www.afdc.energy.gov/uploads/publication/consumer_views_pev_benchmark.pdf>.