1 Running head: PEST ANALYSIS PEST Analysis
2 PEST ANALYSIS I. PEST Analysis Political A political aspect that affects the craft brewing industry, and brewing industry as a whole, is the policy of the three-tier system. The United States has had a fraught relationship with alcohol production dating back to the abolishment of the sale of alcohol by the Eighteenth Amendment’s ratification in 1919, which rung in the Prohibition era (D’Aversa, 2017). Prohibition was repealed in 1933 by the Twenty-First Amendment with aim to prevent tied houses, which were direct sales by breweries through saloons they owned, which had led to the initial abolishment of the sale of alcohol (O'Brien, 2017). The amendment gave power to states to regulate the industry on all levels, from production to consumptions of alcohol (O'Brien, 2017). Thus, the three-tier system was created which required producers to sell through distributers who would then sell to retailers such as stores or restaurants (O'Brien, 2017). The second political aspect that can affect breweries is trading policies, specifically policy on tariffs. Tariffs on imported goods increases the possibility of a rise in cost of their production materials and ingredients for the industry. In 2018, a 10% tariff on aluminum and 25% tariff on steel was implemented, both of which are largely used for cans and production respectively (Nurin, 2018). Experts estimated that industry can face a loss of $960 million a year and lose 20,000 jobs in the United States (Nurin, 2018). Though the Boston Beer Company increased its prices by 2% in 2018 to offset costs in response to the tariffs, their operating income stagnated (Ghosh, 2018). The possibility of future tariffs poses the similar threat of increased production costs for the craft beer industry.
3 PEST ANALYSIS The third political aspect is states’ regulation for the industry. The power given to the states with the Twenty-First Amendment has created a system that benefits distributors over brewers. Each state has a variation of the beer franchise law, which regulates the contracts brewers have with distributers and requires good cause for termination and a payout to the distributer if a contract is dissolved or not renewed (D’Aversa, 2017). Good cause is defined on a state by state basis, but typically define it as the distributer’s failure to meet contractual sales or failure to implement quality control of the beer after its handoff (D’Aversa, 2017). These factors make the contracts difficult to leave or change, and since distributors have territories they are the only ones who can sell a brewer’s brand in a specific territory. Brewers are also required to give 60 to 90 days of notice, dependent on the state, and allow the distributor to rectify the issue before termination (O'Brien, 2017). States regulate brewpubs existence and ability to sell beer to be taken off premises, which are breweries that are bar or restaurant style establishments often with food for sale as a restaurant. States such as New Mexico and Oklahoma have laws that are unclear as to if brewpubs are legal (D’Aversa, 2017).
You've reached the end of your free preview.
Want to read all 12 pages?
- Fall '16
- keith rieger
- brewers, Brewery, Microbrewery, Keg, Boston Beer Company, Inc.