ADDIS ABABA UNIVERSITYFACULTY OF BUSINESS AND PUBLIC ADMINISTRATION
MASTER OF BUSINESS ADMINISTRATION
Marketing Analysis in the Case of St.George brewery Factory
Admasu Abera
GSR/0691/03
Birhanu Tsehay
GSR/0695/03
Mulu Meisho
GSR/0612/03
Mulugeta Mehari
GSR/3142/03
Sileshi Talegeta
GSR/0717/03
W/gebreil Mezgebe
GSR/0720/03
Muluken Hailu GSR
/0257/02
INTRODUCTION
CONT…. Ethiopia’s beer industry is currently comprised of five
major breweries . Three state-owned enterprises, A foreign investor, and A local private producer.
The market is currently dominated by BGI Ethiopia of Castel Group, which is owned by French investor Mr. Castel and produces St.George brand with a share of around 50 percent nation-wide and even higher in Addis Ababa.
CONT….. Ethiopia is strategically important country in the Horn of
Africa. The existence of international meetings and conferences
creates a huge demand for investment at an international and domestic level, even an increase in such demand is expected in the future.
However, the supply of beer is far below the level needed to meet the demand.
Currently, there are only five breweries in Ethiopia namely :St.george, Dashen, Harar, Meta and Bedele beer Factories.
Since this industry can create job opportunities for workers, the development of the beer industry benefits not only the investors but also reduce poverty.
CONT…
Encouraged by these factors, so many investors have
planned to enter the market and more are still planning to
do so like Raya, Zebider, Heineken and Habesha Brewery
investors.
St. George brewery factory was established in 1922 for the
sole purpose of producing first bottled beer in Ethiopia.
The St. George Brewery is located near the Mexico Square,
Addis Ababa, and occupies an area of 20,000 square meters
of land and has a sister company in Kombolcha and new
plant built in Hawasa.
GENERAL ENVIRONMENT
POLITICAL ENVIRONMENT The government allow a favorable investment opportunity for
the industry. The introduction of a democratic multi-party system,
enshrined in the Constitution of the Federal Democratic Republic of Ethiopia adopted in December 1994 by an elected constituent assembly followed the defeat of the Derg regime in 1991.
Since 1995, periodic elections have taken place in Ethiopia every five years. On 23 May 2010.
The violence that erupted after 2005 elections remained foremost in the minds of most Ethiopians.
The existing Labor law of Ethiopia is referred to as the “Labor Proclamation No. 377/2003.” It has become the principal source of labor law in Ethiopia.
ECONOMIC ENVIRONMENT
The performance of the world economy represents one of the
most destructive economic crises in the last few years, perhaps
with more devastating effects than ever before.
The overall international economic system, almost all
individual national economies are affected, including Ethiopia.
Problems are reflected in reduced demand, difficult access to
export markets and particularly capital markets which are
reserved for the recovery of those economies which caused the
current (prime) economic crisis.
GDP GROWTH IN ETHIOPIA GDP is broadly the economic worth of the country. It is the total
consumption (private + government spending), investment and trade balance (exports - imports) together.
The Ethiopian economy is dominated by service and traditional agriculture. Agriculture accounted for about 42% of GDP during 2009/10 ,the service sector contributed 45% while the share of industry sector averaged 13%.
In 2009/10 fiscal year, service sector was leading the two sectors growing at 13 percent followed by 10.6 and 7.6 percent growth rates of Industry and agriculture, respectively.
The industry sector of Ethiopia, which has been growing at a constant rate of around 10 percent for the past seven years, will grow by 14 percent this year (2010/11 fiscal year).
INFLATION IN ETHIOPIA
Inflation rate shot up to an average of 46%.
INTEREST RATE IN ETHIOPIA
The national bank of Ethiopia increase the minimum interest rate on savings and time deposits from 3 to 4 percent effective from July 4, 2007, in response to NBE, commercial banks revised their minimum deposit interest rates on saving and time deposits upward by one percentage.
Tax rate in Ethiopia
Tax treaties to avoid double tax payment are signed with several countries, along with bilateral treaties for the protection and promotion of investments also implemented in Ethiopia. In Ethiopia corporate income tax (tax on profit) is 30%, 15% VAT is payable on businesses with a turnover above $54,000.
SOCIO CULTURAL ENVIRONMENT
Ethiopia is endowed with multi socio-cultural factors such as
languages, religion, dressing, eating and lifestyles. Also the role of
men and women varies from region to region. It has great impact
on the economic development of the nation because most of the
cultural practices do not allow women to participate in decision
making process.
No reliable statistics exist on religious affiliation in Ethiopia. Still,
clearly, by far the largest faiths are Orthodox Christianity and
Islam. Each is thought to constitute perhaps 40 to 45 percent of
the population.
TECHNOLOGICAL ENVIRONMENT
Changes in the technological environment have had some of the
most dramatic effects on business made in Ethiopia.
A company may be thoroughly committed to a particular type of
technology, and may have made major investments in equipment
and training only to see a new, more innovative and cost-effective
technology emerge.
Unfortunately, there is a negative side to technological progress.
CONT…..
The introduction of factories using modern technologies have
polluted both air and water and contributed to various
environmental and health-related problems.
The Ethiopian government, in realization of the productivity
enhancing effect of infrastructure, has pursued an ambitious
infrastructure expansion program for the past fifteen years.
It is investing heavily in roads, telecom, power as well as
social infrastructure in schools, health services and water
supply.
TASK ENVIRONMENT
Major input suppliers Assela malt factory Ethiopian crown and can manufacturing
Industrial S.C Bottles and glass factory S.C Universal plastic PLC hops and foreign purchased goods and items
from the Check Republic, Germany. yeast from Denmark are transported all the
way from Djibouti port to the Factory.
Competitors
Brewery Addis Ababa National
St.George 64% 48%
Meta 12% 16%
Dashen 11% 13%
Harar 5% 11%
Beadle 7% 10%
Total 100% 100%
Source: Access Capital Estimates based on Industry Experts
Market Share of Ethiopian Breweries
Customers
The factory’s major customers and clients are Hotels, Restaurants, Grocery, Bars and households.
Publics
In Medias and news papers the factory has good will.
It uses agents to distribute products to final customers.
Since, it is owned by well known international beer factory it is very easy to access funds from financial institution.
Market demand size
Beer Consumption in Africa beer consumption per head
Ethiopia 4 Liters
Kenya 12 Liters
Swaziland 19 Liters
Cameroon 25 Liters
Angola 37 Liters
Botswana 40 Liters
Nigeria 53 Liters
South Africa 59 Liters
INTERNAL ENVIRONMENT
Corporate Culture
Production Function
Personnel Function
Market Function
Distribution and market facilities
Finance
THE MICHAEL PORTER’S FIVE FORCES
CONT…
Porter’s Five Forces are the factors that can influence sustainable profitability within the industry five forces are:- intensity of rivalry availability of substitutes bargaining power of buyers bargaining power of suppliers threat of entry
I. INTENSITY OF RIVALRY OF EXISTING FIRMS
Rivalry is the extent to which companies compete
with one another for customers. Rivalry can be
price-based or non price-based.
Price-based rivalry- The beer industry does not
have evidence of price wars. Beer prices have
increased, but that is mostly due to inflation. The
increased prices are industry wide and not company
specific
CONT…
Non-price based rivalry- The beer industry primarily competes with non-price based rivalry.
product innovations- throughout beer brewing companies such as low carbohydrate beer, light lager that is brewed with salt and lime, features.
Product differentiation- Different breweries use various beer styles to meet consumer preferences. Beer styles can vary depending on the color, flavor, strength, ingredients, production method, formula, history, or origin of the beer.
II. AVAILABILITY OF SUBSTITUTES
The availability of substitutes impacts
industry profits because consumers
may choose a substitute well over this
industry product. Therefore, in
analyzing substitutes for the beer
industry, the focus should on other
forms of alcohol, such as wine.
III. BARGAINING POWER OF SUPPLIERS
Suppliers have high bargaining power in the industry. In this industry supplier concentration is low, which can possibly decrease the sustainable profits of the industry.
IV. Bargaining Power of Buyers The main buyers of beer in the brewing industry
are distributors, hotels, bars and restaurants. Bargaining power of buyers increase when: there are few distributors, hotels, bars, restaurants and households in the market.
V. THREAT OF ENTRY
When a new firm enters into an industry it can affect all of the firms that are currently in that industry.
Porter describes this threat of entry as “new entrants to an industry bring new capacity, the desire to gain market share, and often substantial resources.
Prices can be bid down or incumbents cost inflated as a result, reducing profitability.”
Therefore as new firms enter into an industry the entire industry’s potential for sustained profits is reduced due to the increased amount of competition in that industry.
CONT’D
Some factors help reduce the threat of entry as they act as barriers that prevent new firms from entering into this industry.
These factors include economies of scale, product differentiation, company goodwill, capital requirements, access to distribution channels, and government regulations.
When these factors reduce the threat of entry, the profit potential for the industry increases
MARKETING PLAN
EXECUTIVE SUMMARY
Ethiopia’s beer industry is currently comprised of five major brewery factories in Ethiopia.
St. George is the leader of the market with market share of 48% at national level and 64% in Addis Ababa.
The company plans to maintain its postion by expanding its plant capacity to exploit the uncovered demand.
Its business objective is to produce quality standard beer and sale to customers with a view to satisfying their needs.
CONT…
The perpuse of the compny is to have superior financial performance by addressing social and environmental issues.
The level of its operation in terms of production and sales has increased quite significantly over the years.
It has undertaken major expansion programs until now. Currently its production capacity is over 1,700,000 hectoliter (is the unit of measure used in the beer industry, 1 hectoliter equals 100 liters) and total capital reached over Birr 520 millions.
Mission
To provide convenient beverages and offering opportunities for growth and enrichment to their employees, their business partners and the communities in which they operate.
Vision
St. George has the vision to be the world's premier consumer product company and continually improve all aspects of the country in which they operate environment, social, economic - creating a better tomorrow than today.
Marketing objective
To produce quality standard beer and sale to customers with a view to satisfying their needs.
To maintain the leadership in all target markets
Specific objectives Increase sales of St. George by 50% To increase market share by 10% on the nation
wide. To earn gross profit margin of 45% To increase capacity by 30%
Market definition and segmentation
Will continue to use geographical segmentation and it has nine target markets.
Application of well organized geographical market segments which has 5 segments in Addis and 1 outlet for each region.
Marketing Strategies
To protect the current position by:
Expanding market shares Protect existing market shares Defend the market share
Situational Analysis
Competitors Political and legal environment Economic environment. Socio cultural environment: Technological
SWOT ANALYSIS
Strength
The factory shall have a production capacity of
1,700,000 hectoliters and it will increase by 30%
when Hawassa plant work at its full capacity
The main branch is located at the center of capital city.
Introduction of new organizational practices like
providing machinery and training for customers,
branding cars, and pasturalized draft beer.
CONT… It is market leader in brewery industry of the
country.
Purchase share of new entry beer industries like Raya.
Participating in social activities like, building schools and parks, sponsoring concerts ,sport events and graduation bulletins
Application of well organized geographical market segments
WEAKNESSES
Lack of innovation in complacency with the need of some customers such as developing variety products
Unable to cope up with current demand
Shortage of skilled technical personnel and raw materials
Poor research and developmental practice
OPPORTUNITIES
Conducive investment condition in the country
The second most populous country in Sub-Saharan Africa.
High economic growth in the country
Infrastructure development in the country
Expansion of hotel industry and Potential tourism sites
Vast availability of potential markets in the country.
Threats
Shortages of resources such as bottle, malts and power
Increase in inflation rate
Increase in petroleum and other input material price
New entrants like Zebider, Raya, Heineken and Habesha brewery factory
The weather condition is not favorable for the growth of hops.
Adverse shifts in trade policies of foreign governments Anti pollution law
The Marketing Mix Strategies
Product The factory will continue to offer the products (St.
George beer, castle beer and draft)
Maintaining the product quality, design, features,
branding and packaging in line with customer
requirements.
As part of product offering, the factory provide
various services like offering, installing and repairing
machineries and related materials
The bottle of the beer is designed in such a way that
it prevents the beer from sunlight which may spoil
the beer.
Price
Total cost of production and distribution
Geographical location
Competitors’ price
In setting the price of the products the factory
considers following factors:
Place/ Distribution
The factory will use indirect distribution system
through agents to reach to the final users.
The final users will be prioritized based on their
incremental, new and shifts in demand are
considered.
Various aspects like transportation, location
near markets are kept in mind when forming a
breweries distribution centre.
Promotion
The factory will continue to use passive
promotional strategies using Medias and
public relation depending on the demand and
supply.
With respect to Medias the company usually
employs different printing Medias like
magazines, newspapers, student graduation
bulletins, transit advertising and bill board.
CONT…
Regarding public relations the company will
continue to offer the society with educational,
healthcare, afforestation and agricultural facilities
and sponsoring different programs such as
concerts.
Generally, promotion is intended to communicate
the ability to manufacture good quality brews
that will satisfy the customer’s needs.
Marketing Implementation
Shortening the lead time orders from suppliers
Recruiting additional qualified employees to achieve the
marketing objectives
Training and retraining the existing personnel and
customers
Acquiring new and innovative technologies to deal with
dynamic environment
Retaining the existing customers and reaching new
customers through effective channel of communication
Marketing Implementation Schedule
Activity Date
Obtain management approval Aug. 30, 2004
Recruiting additional employees Beg. Sep. 2004
Training staff Mid Sep. 2004
visit prospective customers On Sep. 2004
Training customers Sep. 25, 2004
Contracting with advertising agency Sep. 30, 2004
Select and Train Agents Big. Oct. 2004
Provide the agent with a formal written program of the plan
Mid Oct. 2004
Hold an official launching End Oct. 2004
Advertise in the local magazine and newspapers
Weekly during Oct. 2004
Financial Projections
sales volum
e costs
expenses
net income
The projection is done in terms of
Twelve-month ProjectionsSales 3,970,166,680 100%
Cost of Goods Sold 2,183,591,674 55%
Gross Profit Margin 1,786,575,006 45%
Total operating expenses 702,719,502 17.7%
Income before tax 3,267,447,178 82.3%
Tax (30%) 980,234,153 42.4%
Net income 2,287,213,025 57.6%
CONTROL CARTS
Activity Performed by Frequency
Performance evaluation of marketing staff Marketing Manager Quarterly
Review performance of agents Marketing Manager Quarterly
Measure financial results against projectionsMarketing Manager/
AccountantMonthly
survey to determine customers' satisfaction
with the product qualityInternal Audit Quarterly
Diagnose any gap Internal Audit As necessary
Take corrective action Marketing Manager As necessary
VARIABLES AFFECTING BREWERY INDUSTRY ATTRACTIVENESS
Political/legal Tax -
Political stability +
Antipollution law -
Government incentives -
Economic Economic growth +
Inflation -
Interest rate +
Infrastructure development +
Infrastructure availability -
Technology Technological development +
Technological volatility -
Scio-cultural Religion -
Culture and attitude -Demography +Population growth +
Others Entry/exist costs -Competition/new entrants -
Supplies of raw materials -
THE END
