Perceived Market Risks and Strategic Risk Management of Food Manufactures: Empirical Results from the German Brewing Industry

356 Perceived Market Risks and Strategic Risk Management of Food Manufactures: Empirical Results from...

Table 2. German Brewing Industry 1995 and 2004 (Deutscher Brauer-Bund, 2003, 2005b)

Due to the prevalent risk avoidance strategy of leaving the market and the growth of the very
large breweries through a the considerable number of mergers and acquisitions, concentration
ratios (CR) have been increasing in the brewing industry. In 2004, Germany’s largest brewery
had a market share of 15 % percent compared to only 8 percent% in 1995. CR3 grew from 18.7
percent% in 1995 to about 38 percent% in 2004, and today CR5 has risen to about 51 percent%
until today. So the German brewing industry is now catching up with a development which that
has become characteristic fortypical of major parts of the food and beverages industry—, i.e.
the “thinning out of the middle”. Thisat means that companies have to be large enough to com-
pete with national or even international branded companies and/or cost leaders; or they have to
be small enough to be able to find a market niche in which they are protected against market
risks. There has not been leftNot much room has been left in -between; the shrinking number of
traditional medium-sized regional beer producers reflects this development.

Horizontal and lateral diversification strategies can be implemented by breweries to develop
new markets or to serve new customers and, thereby, reduce market risks (Ansoff, 1965). Mar-
keting alcohol-free beverages (mineral water, soft drinks) is a traditional diversification strategy
in the brewing industry since this business is closely related with a brewery’s core activities. Of
the respondents 55 percent % of the respondents have horizontally diversified into alcohol-free
beverages, while. 32 percent% of the breweries under surveyed have invested into businesses
such as spirits, food, catering, and event management and so on. Reducing market risks through
diversification is typical of small breweries, whereas it is more or less an exception to the rule
in breweries with an annual output of more than 250,000 hl.

Compared to the world brewing industry (Ebneth, 2005), internationalization strategies are of
minor importance in the German brewing industry. Nevertheless, 22 percent% of the breweries
under surveyed have developed international activities or are planning to develop an internatio-
nal business within the near future. Larger breweries have reduced their dependence on the Ger-
man beer market more actively than small and medium-sized breweries reduced their
dependence on the German beer market. Exports, i.e.which comprise the least intensive and
least risky internationalization strategy, are the predominant form of internationalization in the
German brewing industry. On average, 6.3 percent% of total sales stem from foreign markets
(see Figure 2).

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