Strategy

Session 4: Coopers Brewery & Competitive Strategy

Agenda

1. Interaction between BL strategies and 5 forces

2. Blue Ocean Strategy
3. Coopers Brewery Case

4. Competitive strategy (intro)

Interaction between BL strategies and 5 forces
Five Business-level Strategies Five Forces of Competition
Cost Leadership Strategy and the 5 Forces
 Rivalry
• Rivals hesitate to compete on the basis of price

 Bargaining Power of Buyers

• Powerful customers can demand reduced prices but may drive
competitors out of business leaving the cost leader with monopoly

 Bargaining Power of Suppliers

• Absorb supplier price increases
• Force suppliers to hold down their prices (due to volume)
Cost Leadership Strategy and the 5 Forces
 Potential Entrants
• Continuously improving levels of efficiency and cost reduction
serve as entry barriers

 Product Substitutes
• Flexibility to lower prices to retain customers
Differentiation strategy and the 5 forces
 Rivalry
• Customers are loyal purchasers of differentiated products

 Bargaining Power of Buyers

• Inverse relationship between loyalty and price: As loyalty
increases, price sensitivity decreases

 Bargaining Power of Suppliers

• Provide high quality components, driving up firm’s costs
• Cost may be passed on to customer
Differentiation strategy and the 5 forces

 Potential Entrants
• Substantial barriers (due to loyalty) and would require
significant resources and investments

 Product Substitutes
• Customer loyalty effectively positions firm against product
substitutes
Source: Rothaermel (2019)
Recap
• Business-level (BL) strategy of a firm  Five generic strategies
• Crucial link between costumers (who, what) and firm’s BL strategy (how)

• Interaction: 5 Forces <-> firm’s core competencies <-> business strategy

• None of the strategies is inherently better than the others

 Success of strategy depends on the match between opportunities and

threats in the environment and internal resources and capabilities
Blue Ocean Strategy
Blue Ocean Strategy
Developed by W. Chan Kim and Renée Mauborgne

Existing markets: Red Oceans New markets: Blue Oceans

• Companies try to outperform rivals, get bigger • Uncontested market spaces
slice of existing demand • Invent and capture new demand  competition
• Space gets increasingly crowded profit and is irrelevant
growth prospects shrink • Offer customers leap in value while streamlining
 More intense competition “turns the water costs
bloody”  High profits and fast growth
Red Ocean vs Blue Ocean strategy

Red Ocean Strategy Blue Ocean Strategy

Compete in existing market space Create uncontested market space

Beat the competition Make the competition irrelevant

Exploit existing demand Create and capture new demand

Make the value/cost trade-off Break the value/cost trade-off

Align the whole system of a company’s activities Align the whole system of a company’s activities in
with strategic choice of differentiation or low cost pursuit of differentiation and low cost
Blue Ocean vs generic BL strategies

How does BO strategy fit with the 5 generic BL strategies?

Value Innovation
Accomplished through the simultaneously pursuing
differentiation (V ↑) and low cost (C ↓)

SOURCE: Adapted from C.W. Kim and R. Mauborgne (2005), Blue Ocean
Strategy: How to Create Uncontested Market Space and Make Competition
Irrelevant (Boston, MA: Harvard Business School Publishing).
Blue Ocean vs generic BL strategies

Integrated cost-leadership
differentiation
COOPERS BREWERY
Question 1

Analyze the Australian brewing industry

Five Forces of Competition Model
Industry Environment Analysis
1. Threat of new entrants
 Function of 2 factors
• Barriers to entry
• Economies of scale
• Product differentiation
• Capital requirements
• Switching costs
• Access to distribution channels
• Cost disadvantages independent of scale
• Government policy
• Expected retaliation
Industry Environment Analysis

2. Bargaining power of suppliers

 They are powerful when
• Few large companies and more concentrated than industry they sell to
• No substitutes
• Industry firms not significant customer to suppliers
• Supplier’s goods are critical to buyer’s success
• High switching costs due to effectiveness of supplier’s products
• Threat of forward integration
Industry Environment Analysis

3. Bargaining power of buyers

 They are powerful when
• Purchase large portion of industry’s total output
• Product sales accounts for significant seller annual revenue
• Low switching costs (to other industry product)
• Industry products are undifferentiated or standardized
• Threat of backward integration
Industry Environment Analysis
4. Threat of substitute products

5. Intensity of Rivalry Among Competitors

 Numerous or equally balanced competitors
 Slow industry growth
 High fixed costs or high storage costs
 Lack of differentiation or low switching costs
 High strategic stakes
 High exit barriers
Overall Industry Rating?

Favorable Moderate Unfavorable

1 Threat of new entrants

2 Bargaining power of suppliers
3 Bargaining power of buyers
4 Threat of substitutes
5 Intensity of rivalry among competitors

• Attractiveness?
• Returns?
Question 2

What are Coopers’ capabilities / core competencies?

Question 3

What is Coopers’ business strategy?

Some points to consider

 Who are they trying to serve?
 What need are they trying to satisfy?
 How are they trying to satisfy this need?
Question (extra)

What should Coopers do now?

Future Strategy?
 Is a bigger company always better?

 We cannot think about positioning without considering how competitors will respond
 Competitive dynamics (next session)

 Growth makes sense only with sufficient CCs to exploit and defend, or if there are
other clear growth benefits (network effects/winner-take-it all markets, economies of scale)

 Do not pursue growth blindly, instead build on strengths and look for opportunities
to exploit these strengths

 Bigger in many cases can mean less profitability and less survival chances
Conclusions
 Coopers is well placed and achieved this positioning over a long period
• It understands its external environment
• It leverages its core competencies
• It has a business strategy that fits the external environment and its CC

 All components are aligned

 Although it´s much smaller and has fewer resources than its competitors,
it is able to be successful and survive

 Coopers has to keep adjusting its position to deal with changes in the
external environment (as the takeover bid) and to exploit its CC
Conclusions (2)
 A broader Australian focus rather than just S.A. because
• Threat of new entrants: microbreweries and the risk of being out-focused?
• Exploiting its new facilities (core competencies) better?
• But it is a delicate balancing act not to become like or move too close to Fosters or LN

 Adjust positioning but understand the competitive dynamics in the industry

 Pursue growth only when there is an economic and strategic rationale

 Growth does not automatically mean more profitability

 Look for geographic and product diversification opportunities outside the Australian
beer industry to exploit the CCs
 Maybe less pressures if the CC transfer (e.g., DIY brewing kits)
 Update

 Coca-Cola and SAB Miller formed a JV in 2006 and bought a boutique brand beer (Bluetongue) which
was distributed by the Coca-Cola’ system and aimed 5% market share (SAB bought C-C later)
 Lion Nathan acquired more local wine and beer companies such as James Boag (Tasmania) which has
a very similar profile as Coopers

 Coopers sales grew by 4% and had profits of $19.5m (2007). Coopers had 3.2% market share and has
increased interstate sales by 22% and international sales by 35% (UK & US). Coopers aimed for a 3.5%
market share and achieved 4% market share (2011)
 Sales increased 1.3% (2011) despite 6% fall in overall beer market. Record sales in 2012 (increase 8.3%)
Update (2)
• Coopers launched a low carb blonde beer (more mainstream)
• Formed an alliance with US microbrewer Anchor Brewing Co to increase sales in US (08/2011)

• SAB Miller acquired Fosters (09/2011)

 Coopers became the largest Australian-owned brewer
 Excellent opportunity in terms of marketing

• Acquired Mr Beer (biggest supplier of home-brew beer kits in the US and globally) (04/2012)
• Signed a contract to brew and distribute Carlsberg beer in Australia (05/2012)

• Celebrated 150th anniversary: new packaging, focus on 150 years of family owned Australian
company in marketing, introduction of special beers etc.
• Mainstream beer market is characterized by price wars at the distribution levels, brewers are
trying to combat this
 Update (3)
• 2017-2018: profit before tax increased by 4% to $34.4m
• First fall in beer sales since 1993 (except in South Australia)
• Increasingly active craft beer market (550 craft brewers operating in Australia, 8.8% of the
market and highly competitive)
• More aggressive retail space management and pricing by international brewers
• Got rid of some Coopers brands in decline

• 2019 (pre-covid): increase in sales again, launched canned beers and some other new product
• Renewed brewing contract with Carlsberg for another 5 years, also brewing and representing
several other brands in Australia through Premium Beverages
Making the most of a “location specific advantage”

Vertical integration + selling remainder of the input

to external parties  additional stream of revenues
Keep in mind
• Diversification and re-focusing (future sessions)
• Coopers sold its non-core operations
• Fosters: operated in wine and beer but struggled to use same sales force
• LN diversified into other beverages and bought small wineries and bars (VI)

• Acquisitions (future sessions)

• Coopers fought off deal
• Plenty of acquisitions occurred in the industry

• Joint-ventures (future sessions)

• Coca-Cola Amatil and SAB Miller started JV to distribute drinks and potentially produce beer
BL strategy creates differences between the firm’s position and its competitors
Determines who it will be competing with

Competitive Dynamics / Competitive Strategy

Next session

• Competitive Strategy (cont.)