Report 1: Strategy FormulationDavid Arraya, Kevin Gardner, Trenton Jackson,

Brad Orr

Anheuser-Busch◦Beer

Budweiser Busch Michelob Natural Light

◦Non-Alcoholic Beer◦Energy Drinks◦Specialty Malt

Beverages

◦Domestic beer, International beer, packaging, and entertainment markets

◦ Largest brewery in the U.S. (48.8% of beer sales)

◦ 4th largest brewery in the world

The Chinese Beer Industry◦Dominant Firm’s

Tsingtao China Resource Enterprises

Beijing Yanjing Group

◦Key’s to Success Gaining vast market share Establishing presence with

brand name and low prices

VISION• Through all over our products, services and

relationships, we will add to life’s enjoyment

MISSION• Be the world’s beer company• Enrich and entertain a global audience• Deliver superior returns to our shareholders

External Environment◦ Economic

Huge population Low per capita beer

consumption Highest beer volume

consumption in the world

Rising income levels

◦ Social “Pub” culture emerging Price conscious

consumer

◦ Political Bureaucratic

government Beer taxed heavily

◦ Technological Old, out-of-date beer

manufacturing plants

◦ Ecological Pollution and waste a

growing concern in China

Focus on employees

State objective of how they intent on becoming the best beer company in the world

Reflect corporate social responsibility

Value-Chain Analysis (Market) Problem is market, not businesses

◦ Large, fragmented, and traditional

In order to gain a competitive advantage, the businesses must focus on Primary Activities◦ Inbound Logistics◦ Outbound Logistics◦ Marketing and Sales◦ Service

ResourcesTangible Assets Production facilities Harbin Brewery Established suppliers Financial resourcesIntangible Assets Brand recognition Company reputation Accumulated experienceOrganizational Capabilities Global distribution coordination - World-class distribution

network

Strengths Access to capital Brand recognition Acquisition of Harbin Brewery and interests in Tsingtao Experienced and solid management teamWeaknesses Foreign competitor Taste for local brands Large investmentCompetitive Advantage Leadership in Northwest China (Harbin) Creation of large production facilities

Present Ranking Force Threat

Level

#1 Threat Substitute Products High

#2 Threat Threat of Entry High

#3 Threat Rivalry Among Competitors Moderate

#4 Threat Buyers Low

#5 Threat Suppliers Low

Future Ranking Force Threat Level#1 Threat Rivalry Among Competitors High#2 Threat Buyers Moderate#3 Threat Substitute Products Moderate#4 Threat Threat of Entry Low#5 Threat Suppliers Low

Ranking Company Name Competitive Advantage

#1 Tsingtao Market Consolidation

#2 China Resource

Enterprises Low-cost Leader

#3 Beijing Yanjing

Group Advanced Distribution

Used financial statements and ratio analysis to compare Anheuser Busch’s past years and the competitive market

Increase in sales from 2075.9 million to 2115.3 million dollars from 2003 to 2007, which is above the industry average

Profitability

Boston Beer

Coors Brewing

Anheuser Busch Industry

Gross Margin %

54.9 40.2 35.1 51.4

Net Profit Margin %

5.6 8.6 8.7 11.7 Sales % (vs year ago qtr)

10.9 4.5 7.9 7

Return on Equity %

15.5 7.9 59.7 28.1

Liquidity

Current Ratio

3 1 0.9 1 Receivable Turnover

16.2 8.6 21.9 18.4

Leverage

Leverage Ratio

1.4 1.9 5.4 3.1

Activity

Inventory Turnover

8.4 10.7 15.3 9.3

Market Fragmentation◦500-1000 brewing firms in China◦No dominant leader in the market

Symptoms from Core Issue◦ Price wars◦Decreased profits◦Buyer power

“Harbin brewery is committed to increasing its market share in Northeast China, becoming the dominate market share holder within the next 10 years”

Major Premises Acquisition of

competition will create “trench warfare” between regional powerhouses

Foreign Investment will continue

Scenarios Best Case - Harbin will

become dominate market player

Worst Case - Harbin will be bought by another powerhouse

Most Likely Case - Harbin will grow by 10% and remain the 4th largest brewer in China

Continued acquisition of companies in China to gain market share

Offer lower cost products to compete with the largest segment of beer drinkers.

Build CSR

SBUsBudweiser Family of Beers Harbin Premium

Beers

GENERIC STRATEGY Low-Cost Leadership ◦Need to penetrate traditional market◦Want to get the product in the minds of the consumer

GRAND STRATEGIES◦Market development - Bring Harbin to the rest of

China◦ Innovation - mainly through advertising◦Horizontal integration - acquisition of smaller

breweries

Growth through horizontal integration◦Very feasible◦Will allow Anheuser-Busch to establish presence

in other regions of China◦Anheuser-Busch has the financial capital to carry

out this option◦Will increase market share

Thank You and Remember to Drink Responsibly