Substitutes and Complements

Customers and Demand

Characteristics	Current situation	Future trend
Segmentation of customers	Individual buyers and retailers	Same
Does a buyer's purchase volume represent large fraction of typical seller's sales revenue?	Moderately, when we do not speak about individual buyers	Same
Switching cost	No switching costs, because of the great variety of choice	Same
Can buyers find substitutes for industry's product?	Yes, other alcohol drinks(wine,etc), or non-alcohol beverages	Same
Price elasticity of market demand	High, there are a lot of substitutes, so when prices grow people can easily switch, but when the prices fall down, they come back and demand grow	Same
Price elasticity of demand for typical firm	High	Same
Price elasticity of various customers	High	Same
Price discrimination (actual and potential)	Actual: there is no price discrimination and there are no reason for it to appear in future	Same
Bundling and Tie-ins (actual and potential)	Customers are supposed to buy different kinds of snack, for example, chips, rusks, nuts, etc. If we talk about HoReCa, here we can see also different kinds of main dishes.	Same
Are prices negotiated on each individual transaction or set as take-it-or-leave-it" for all transactions?	If we talk about individual buyers, they have no power, so for them the price is fixed. But retailers have are rather powerful, so they can influence the price.	Same
Do buyers pose credible threat of backward integration? (for B2B)	No	Same
Does product represent significant fraction of cost in buyer's business? (for B2B)	For small business it is significant, but for big companies (especially in HoReCa) it is not significant.	Same

Substitutes and Complements

Characteristics	Current situation	Future trend
Availability of close substitutes	Because we speak about B2C market and product is located in every retail chain and even corner shops, its substitutes are really close and available. But there is one feature, this situation make sense only before 23.00, after this time it’s a beer time. Beer monopoly take place and it is good for the whole industry.	The end of the beer monopoly after 23.00, because of the actions of the vodka lobby.
Price-value characteristics of substitutes	The average price for 1 beer is 43 rubles and for 1 can of non alcohol beverage average is 55 rybles. For ordinar customer it is not a big difference, especially when he or she look even at alcohol consistancy, because it is a little bit higher in low alcohol beverages. We estimate the threat from low alcohol beverages as high for beer market. It is difficult to estimate price-value characteristics for vodka-beer, because of the big difference in pure alcohol content. But if we fix price for 1% of alcohol and deal with percentage of alcohol as a value for customer. Vodka will be much cheaper.	There is an upward trend to higher prices for all alcohol beverages and spirits.
Price elasticity of industry demand	There are next figures for price elasticity: Beer -3.017 Vodka -1.774 Wine -1.045 For demand elasticity: Beer -3.017 Vodka 1.114 Wine 1.304[1]	We suppose that in coming future this figures remain relative constant.
Availability of close complements	It is really simple to buy any complement in the same place where customer can get a bottle of beer.	Same
Price-value characteristics of close complements	There are relevant prices, 1 snack cost approximately like a half of beer bottle.	Same

Competitors and competition

Characteristics	Current situation	Future trend
Market concentration (number of firms, concentration ratios, HHI)	The industry is oligopolistic. The consolidation process on the Russian beer market has already finished. 85% of all beer market in divided by 5 largest companies. The rest 15% are occupied by regional breweries and small producers. Five-firm concentration ratio is about 85% which is considered to be high (the number falls into interval from 80% to 100%). · Baltika – 39.1% · InBev – 17.7% · Heiniken – 12.1% · Efes Breweries International – 9.7% · SabMiller – 7%   HHI calculations: HHI=39,1%^2+17,7%^2+12,1%^2+9,7%^2+7%^2= 15,29%+3,1%+1,46%+0,94%+0,49%=21,28% A HHI index between 0.15 to 0.25 (or 1,500 to 2,500) indicates moderate concentration.	There is a low probability of new entrants. Only multinationals that are currently not present in Russia could enter the market. That is why the situation is very unlikely to change in the nearest future. The oligopolistic market will remain.
Market growth	The rapid growth phase of Russian beer market has already finished. Market saturation was observed in 2010.	Experts in beer market predict slow growth after 2011 year and the potential for market development is be available firstly in regions. For example, the beer market of Siberia is poorly developed and not saturated yet, unlike the central region market. Therefore the transnational companies are planning expansion to Siberian region.
Cost differences (among firms)	The main cost differentiation among the competing firms is the availability of beer production on the Russian territory. Transportation costs account for the total costs as well as customs duties and other expenses connected with import process. Thus, smaller companies with market share show significant costs connected with logistics. All leading companies on the beer market have production facilities in Russia. The largest breweries are Baltika, Heiniken and InBev. Labor costs differ among regions where companies’ plants are situated. Cost structure of firms are more or less the same and considers costs of materials, amortization of production facilities, labor, logistics, marketing, etc.	Some companies are extending their production, thus they invest in facilities. In general. cost structure of firms remains more or less constant.
Product differentiation	Almost all breweries have more or less the same product range. It usually incudes different types of beer, low-alcoholic drinks, energy drinks, cider, kvass.	The tendency to differentiate from competitors. Thus, new products and new flavors are being developed.
Price differences	Companies operate in different price segments: · Cheap · Medium price · Premium · Licensed · Imported Almost all of the leading companies have products in full price range.	Today Russians are starting to consume more and more beer in bars, cafes, restaurants. The trend is that people start to buy more expensive beer due to the increase in welfare of Russia. That shift to a upper segment price level could be also observed in retails.
Excess capacity	A situation in which actual beer production is less than what is achievable or optimal for a firm. This often means that the demand in the beer market for the product is below what the firm could potentially supply to the market.   Due to the fact that demand in beer market is highly seasonable, the excess capacity depends on the demand. In summer, beer producers operate in near-full capacity whereas the level of production decreases in autumn and winter.	The situation is very likely to stay the same in the nearest future. Only if one of big players on the market extends its production by building extra plant, the excess capacity of that particular firm is likely to decrease.
Are prices and terms of trade transaction observable?	Trade transaction costs are not observable to the end consumer. They are almost the same for all beer companies and include such costs as: · Search and information costs; · Bargaining costs - the costs required to come to an acceptable agreement with the other party to the transaction (such as suppliers and retailers); · Policing and enforcement costs - the costs of making sure the other party sticks to the terms of the contract	The situation is very likely to stay the same.
Can firm adjust prices quickly?	No, fixed costs of production and transportation of beer companies products are very significant in the cost structure. Such costs could not be eliminated or decreased quickly. Hence, the price of the end product is not quickly adjustable.	The situation is very likely to stay the same.
Type of competition (price, quantity, simultaneous, sequential)	Oligopolistic competition - very similar products, few sellers, small firms follow lead of big firms, fairly inelastic demand. The combination of price and quality competition could be observed.	The tendency to quality competition instead of price one.
Leadership pricing?	No, there is not any strict leader in the market, which determines the price of goods.	The situation is very likely to stay the same.
Tacit collusion (actual and potential)	Circumstance where two or more beer companies agree upon a certain strategy without putting it in writing or spelling out the strategy explicitly. Actually, although the market is oligopolistic, the tacit collusion is not observed. Potentially, it could occur on the Russian market, but we cannot judge for sure.	The situation is very likely to stay the same.
Antitrust litigations	No antitrust litigations on the beer market.	It could be potentially implemented in case of unfair competition.

Threat of Entry

Characteristics	Current situation	Future trend
Importance of reputation and brand loyalty in purchase decision	High importance – customers are loyal to specific flavor and image of the drink. Also, brand loyalty has risen in the recent years.	Despite marketing efforts of current market players consumers are showing willingness to switch and taste new kinds of beer.
Entrants' access to distribution channels	Easy access to distribution channels, especially for powerful potential entrants.	Same
Entrants' access to raw materials	Materials provided through commodity markets, so access is easy.	Same
Entrants' access to technology and know-how	Low accessibility on large production volumes level, though high accessibility on local breweries level.	Because of development of technologies of large-scale players it would be hard for potential entrants to acquire knowledge and expertise – only multinationals that are currently not present in Russia could enter the market.
Entrants' access to favorable locations	Require additional costs, especially administrative ones.	Due to fast-growing development market, required investments level is to continue growing.
Experience-based advantage of incumbents	High expertise in production and distribution.	Same
Network externalities	Low effect of network effect.	Same
Government protection of incumbents	Negative impact of governmental actions on the industry in general.	Changes for the worse are expected.
Perception of entrants about expected retaliation of incumbents	Market structure implies only fair competition.	Fair market is to remain the same.

Дата добавления: 2015-10-30