IDENTIFYING A MARKET ENTRY STRATEGY FOR THE BRAZILIAN BEER MARKET : BREWPUB Luis Fernando Loreti -Self-motivated & self-directed, strategic thinker, P&L management


Master Brewer & MBA

Copyright 1997 — Luis Fernando Loreti




Literature on Brewpubs' concentrates on marketing issues, suppliers of equipment, services and planning ofthe operation's start up. Literature about this subject when considering the Braziliarr's market is scarce, the most of them is about Brewpubs in UK and USA.

In the technical field, the literature produced by the academic world concentrates on questions related with brewing in big scale without sufficient perspicacity into the complexes and realities of brewing several types ofbeer in small scale.

The author believes that there Ís a gap in the literature linking the technical side of one Brewpub and the complexities and realities of producing several beers in small scale.

The study is important because it contributes to the identification of major factors of success of this growing Business, which is suggested as market entry strategy in one of the biggest potential beer market in the world. lt also enables the manager to concentrate on the important parameters focusing the Brewpub Business in Brazil.

This study is based primarily on literature survey and opinions and experiences of business people, potential customers, as well as the author' s experience and knowledge as a Brew Master" with managerial expenence.

The time was a limit to develop this study, so to allowa convergence for the study and the real world, it was decided to focus the research on the brewery side of the business.



The idea of Brewpub started with the success of this business in USA and recently in Canada.

According to data compiled by Insurance Market Research Corpo (IMR), there were over 800 Brewpubs and craft breweries operating in the US at the end of 1995, providing an estimated Dollars 29.5 million in premium.

Brewpubs are public house that make their own beers. Originally they only made beer for themselves, but brewpubs are increasingly brewing for other outlets.

The key point in the Brewpub is that the consumers will see brewer doing beer and they can ask about the processo The place that they will drink beer will be surrounded by equipments and they can give opinions about the product, providing information for the Marketing Infonnation System (MIS). The plant has high flexibility and adjustment in the process will be easily available (See Brewpub Design and Installation in Appendix A).

The Brewpub has a short demand of labour and a great feasibility once its beer has less tax than the packaged one and do not need transportation. 

Brewpubs require restaurant coverage but quite often excess the percentage of alcohol sales to food sales. As Il'v1R notes, "Since the o primary attraction is the BREWERY, the percentage of alcohol sales often exceeds 50 of total food and beverage sales''.

Lance MalIinson, vice-president commerciallines group, at CNA in Chicago, explains that a lot of the operations are well fimded, much better than a normal bar or restaurant. This is extremely important since statistics show that one out of two restaurants fail and part of this is the result of inadequate funding. In contrast, about one out of six or seven Brewpubs fail.

Good retailers whose customers want choice give them all the choice they want. They brew to add to the choice available, not to obviate the need for it: it' s something that will give their pubs competitive advantage over competitors.



Brazil is the fifth largest beer market in the world, with 430 of growth from 1972 to 1991, 16  in 1994 and 20  in 199510. One ofthe most dynamic trends in the Brazilian' s alcoholic drink market at present is the rapid growth in the beer consumption. There are three big breweries that account for 88 of the beer market share, and there are few brands and small product differentiation.

The Brewpub business is suggested as a market entry strategy because it is a world wide trend that combines product differentiation, low cost of production, innovative distribution and low initial investment to enter into this sector.

The main objectives of this dissertation are:

Develop an entry strategy that breaks the barriers of the Brazilian beer market.

Develop an understanding of the complexities involved in the Brewpub business.

Get the best value of the Brewpubs resources, focusing the brewery.            

This dissertation attempts to answer the following questions:

Which are the trends in the Brazilian beer market for the next five years?

Which are the key points in the competitive environment of the Brazilian beer market?

Which are the key factors that contributes to the success or failure, when analysing a Brewpub business as a market entry strategy?

Which are the key points when designing one Brewpub brewery?

Which are the implications and recommendations of this study for a Brewpub project?

Which are the recommendations for further study?



The process

Brewing requires three basic processes: mashing, boiling and fermenting.

The frrst two, mashing and boiling, generally occur on the same day.

Fennentation lasts for one to several weeks. Here's a brief description of each process (See Brewing Process in Appendix C).

1. Mashing: This process, which last from two to five hours, extracts fermentable sugar and other important compounds from the malt. First the malt is coarsely ground, them mixed with warm water and allowed to sit at a temperature of about 150°F (65°C). After this, the sugar-rich water (now called wort) is drained off and lhe malt is rinsed with fresh, hot water to extract as much sugar as possible.

2. Boiling: Wort from the mash is boiled in the kettle, usually for one or two hours. During the boil, hops are added at various times in order to impart the bittemess, flavour and aroma that the brewer desires. At the end of the boil, the wort is separated from the hops and chilled to prepare it for fermentation.

3. Fermentation: Yeast is added to the wort to initiate the fermentation that will convert it to beer. Ale fennentation take five to ten days at temperatures of 60 to 70° F (16 to 21°C). Lagers generally take longer, with an initial fennentation at 50 to 55°F (10 to 13°C) followed by a period of cold storage or lagering at a temperature of about 35° F (1°C).

At the end of fennentation, the beer is carbonated and then packaging for serving or delivery.

The pub/microbrewery equipment consists of a brewhouse that has the malt grinder, mash tun and the wort boiler.

The grain is crushed in the malt grinder and delivered to the mash tun, where the hot water and grist are mixed to convert starch into sugar.

The wort is transferred to the kettle. The wort is heated to a rolling boil. Hops are added, bittering and aroma types. While cooling and transferring the wort, yeast is added to the fennentation vessels.

In the fennentation process, the sugar is converted into alcohol. After the fennentation the maturation process takes place into these tanks. The objective of the maturation is to define the final taste of the beer. The yeast is removed in the filtration equipment to clarify the beer (optional).

Then the beer is transferred to the serving (Bright beer) tanks. At this point the beer is ready for serving and consumption. These tanks are cooled in their jackets to maintain any desired serving temperature.



Before commencing, detailed literature investigation was conducted to determine the current state of knowledge on the Brewpub business and the Brazilian' s beer market.

It was decided to limit the research to the teclmical si de of the brew plant and marketing issues concerning the entry strategy.

This process involved the following steps:

1. Definition of the key points about the theme,

2. Selection of data collection method( s) to be used. Secondary research and primary research,

3. Selection of the sampling methods to be used,

4. Estimation of the time and resources require to complete the research,

5. Data collection,

6. Data analysis.



The primary research for this thesis will be derived from the knowledge of business people involved in the Brewpub sector. Survey research, deep interviews and observation were selected; after careful consideration of the alternatives.

The questions selected for the interviews were those with genuine relevance to the research topic. Consideration was given to using a questionnaire approach. It was decided that the response may be poor with unc1ear and unsystematic answer. Body language was considered important in the interview process and was one dimension that could not be used in a questionnaire.

It was decided that the interviews should not be recorded. It was felt that the use of a tape recorder would affect the informal nature of the interviews and influence the answers.

Regarding key aspects of a Brewpub, a survey research with the administration of one questionnaire (see Questionnaire in Appendix B) with a random sample of 45 persons in São Paulo city was conducted.

The questionnaire was also used to collect dates about respondent' s demographic characteristics (age, sex, occupation).

Observational research was made by the author. Personal observations were done into the Brazilians Brewpubs, studying customers flows, prices, beer's taste and design ofthe place.



There is prolific literature referring to marketing issues of Brewpub business in US and Europe but few have addressed the Brazilian market.

The technicalliterature concerning brewery was analysed and adapted to the Brewpub reality using the background of the author.

The data were generated by the foIlowing sources:

Internet, govemment and publishers of directories, newspapers, specialised magazines, periodicals and research reports.

Trough this thesis it wiIl make use of the existing literature by taking a broad overview of existing viewpoints and theories, recommendations wiIl be drawn on the bases of the interview and survey research results compared with the literature survey.




The macroenviromnent is composed of those forces that influence the international and domestic economy and the society as a role. It is sometimes known as a PEST analysis':', to indicate the importance of political, economical, social and technological influences on organisations. PEST analysis will help us to examine the differential impact of external influences on the Brewpub business.

(See Brazil Profile in Appendix D).



Brazil' s president says: "Since we started with Plano Real great progress has been made by eliminating the "inflationary culture ". Theoverall purchase power, particularly among the lowest income sectors of the population, has clearly improved; per capita food consumption is noticeably up; the economy is expanding; unemployment rates are under  control; and average real wages grow by 13 per cent in 1995", Mr Cardoso sees the continuing improvement in income distribution as the Govemment' s number one priority; though that must be achieved withoutjeopardising consolidation ofReal and ensuring sustained growth.


Economic Forecast

The ETIJ' s (Economist Intelligence Unit Limited 1997) forecast is based on the following assumptions:

Approval by the Chamber of Deputies of the necessary constitutional amendment is the first step on the road to Fernando Henrique Cardoso' s re-election as president in 1998, Fernando Henrique Cardoso, President of Brazil, elected in 1994.

The prospect of Mr Cardoso' s re-election will generate sufficient momentum for a number of other reforms, such as the planned overhaul of the social security system and measures to improve efficiency in the public sector, to be approved in 1997.

Monetary policy will be tightened to ensure that the Real stabilisation plan remains effective in the face of rising domestic demando.


On this basis, the EIU predicts for 1997-2001:

Accelerating growth in real GDP (average real GDP growth will be around 4 during the forecast period);

Stable consumer price inflation of around 100/0; and

A widening current -account deficit despite stronger export growth as rising consumer demand and investment draws in imports.


Strong growth will only be possible if the fiscal deficit can be tamed through administrative and social security refonns. Otherwise the govenment will have to tighten monetary policy again to contain growth and preserve external equilibrium.


Foreign Investments

Given the maintenance of price stability and the likelihood that the trade balance will not deteriorate rapidly, strong inflows of capital and long- term debt will ensure that the current-account deficit is covered comfortably. Brazil has been received a rapidly expanding inflow of capital from overseas since the Real plan began; this trend is expect to accelerate in 1997. Major privatisation and increasing foreign direct investment in major industries are expected to contribute to inflows of around $13bl1.

Export and imports will grow rapidly. However, the trade deficit will widen despite gains in import performance.

The forecast trade balance for 1997 was confmned by the Association of Foreign Trade (AEBy. The deficit about 10 and 12 million dollar will be absorbed in 1997, but the government will provide actions to reduce the gap between export and import for 1998.

Currency risk is heightened by the stronger real appreciation of the Real since its introduction in mid-1994. Although high and rising reserves Brazil remains vulnerable to shifting market sentiment that might trigger a reversal of the portfolio inflows contributing to those strong reserves.



The main features in the political and legal micro environrnent are:

The project to the re-election ofthe Brazil's president, Femando Henrique Cardoso, was approved and probably he will be reelected.

Successful perfonnances by govemment' s supporters in October's cities election in 1996 created the momentum for essentiallaw's refonns.

Mercosul was established in March 1991tmder the Treat of Assuncion and was signed by Argentina, Paraguay, Uruguay and Brazil. The principal objective is the establishment of a single market among the four countries.

Govemment is detennined not to put in risk its anti-inflationary tactics by allowing over-rapid expansion. The Govemment is detennined to cut public spending while, at the same time, raising funds through privatisation.


Next elections

National elections wilI be held in October 1998 for the presidency, all governorships, alI 513 Chamber of Deputies seats, two-thirds of the 81 Senate seats and all the more than 13,000 state assembly seats. In November ofthe same year there will be a run-offround for presidential or gubertionatorial elections in cases where no candidate has received over 50 of the vote.

The long-tenn prospectus for the continuing success of the Real Plan, launched in July 1994, are likely to be enhanced by increasingly favourable climate for fiscal and institutional refonn. However in the short to medium tenn the fiscal refonn phase of the Real plan will continue to face substantial, although not insurmountable, challenges that are the legacy of previous hesitancy in addressing fundamental structural imbalances.

Deep-rooted imbalances in the fiscal accounts will threaten the eventual success of the Real plan in pennanently reducing inflationary pressures during the forecast period. Mr. Cardoso's recent success in the approval of the re-election amendment gives ground for optimism that these issues will be addressed worth greater vigour in 1997.

The approval of the re-election amendment and the strong likelihood that Mr Cardoso will triumph in 1998 opens a six-year horizon for the govenment. This means that Mr Cardoso's refonn programme can now be approved and implemented before a change in government, which now seems unlikely to occur before 2002.


Foreign relations

Brazil' s relations with the US have been strained pressures from Washington in favour offaster liberalisation ofthe Brazilian economy.

The Cardoso administration insists that Brazil will set its own pace.

The USA is worried by the growth of Mercosul, the customs union between Brazil, Argentina, Paraguay and Uruguay, with Chile and Bolivia as associate members. Negotiations between Mercosul and other Latin America countries aimed at strengthening trade links are progressing steadily and the US fears this process of South American integration could threaten the success of its proposal for a continental free-trade area, the Free Trade Area ofthe Americas (FTAA), by 2005.





Population growth

Population growth is slowing and people are moving from São Paulo and Rio de Janeiro to smaller cities. Metropolitan are as inequality has increased, creating serious social pressures.

A slowdown in population growth can be attributed to increased urbanisation and an increase in the munber of women entering the workforce. Brazilian life expectancy and rates of literacy have climbed steadily since 1940s.



There is a heavy concentration of income in the top bracket, but many of the policies which contribute to the skewed distribution of income are been altered.

Heavy concentration of income in the top income bracket will continue, although many of the policies which contribute to the skewed distribution of income are being altered. These policy changes include tax reform to reduce traditionally heavy taxation of consumption, even of basic goods and foodstuffs, which was complemented by light or zero taxation of income and property.

Import barriers and domestic monopolies sanctioned by public policy, which funnel money away from consumers to business owners, are also being dismantled.




The speed of technology transfer is increasing as the barriers to import are decreasing, as welI as taxes and prohibitions. The increase of capital inflow wilI boost the technology improvement.

Francisco Dornelles", the Minister ofIndustry, Trade and Tourism, says the priorities are to further stabilise the currency and balance the public accounts, to press ahead with the rivatisation of alI public companies; promote even greater foreign investment; and increase the proportion of GNP spent on technology from 0.6 per cent to 1.5 per cent by 1999.



The aim of measuring the Brewpub competitiveness is to identify the kind of competitive advantage the Brewpub can enjoy over the big breweries in Brazil, and to evaluate in what extent this advantage is sustainable. The competitiveness analysis is important because the biggest barrier to enter into the Brazilian beer market are the domestic breweries that have market power.

The notion of extended rivalry, due to Porter (1980), is based on the idea that a fmn's ability to exploit a competitive advantage in its reference market depends not only on the direct competition it faces, but also on the role played by rival forces. Using orter's analysis, the author will examine the role of the competitive forces.



The importance of the threat depends on the barriers to enter and on the strengths of reaction that the potential entrant can expect. The main barriers to entry were analysed by the author.


4.1.1. Proprietary Product Differences

A special problem in trading beer is that neither beer in casks nor bottled beer is easy to transport over long distances without harming taste and quality - among other things, because it' s difficult to ensure that a correct handling takes place by transporting agent.

An obvious answer to this problem was to produce on the spot, either by granting licences to use the brewery' s form of production, or eis e by establishing breweries abroad through foreign direct investment. This could, however, be done only in markets large enough to obtain the necessary scale effects, or in developing countries with little or not previous experience with brewing and high tariff protection. In the latter group of countries, it proved possible in some cases to build breweries as development projects which were integrated into national local authorisations.


4.1.2. Brand identity

There were several reasons for the very limited sales of foreign products.

On the demand side, most Brazilian consumers were very faithful to their favourite brando Regular beer drinkers carne to not just ask for "beer" in the bar or when they go shopping, but would order their favourite beer o AlI the Latin America leading brands in the alcoholic drinks market are within the beer industry, and constitute the largest selling brands in the world by volume. However, it is true of many other regions, these brands are confincd almost exclusively to their domestic marketers.


Among the 15 most sold brands in the world in 1995 there are four Brazilian's brands.


4.1.3. Access to distribution channels

An important part of these rules concemed the distribution system. Until very recently nearly all distribution had to take place either by direct deliveries to retailers and restaurants, or by means of what was called beer depots, that is local wholesalers who were allowed to trade only the brands of a single brewery, and their activities and rights were c1early defmed by the brewery. The larger breweries would have a net of depots each covering a well-defming area. From the brewery or the depot, lorries called at the retailers regularly, and sales took place on the spot with immediate delivery from the lorry.

Sales promotion was in this way limited to visits done by sales agents from the breweries, and to the quality ofthe services ofthe lorry drivers.

The retailer who was not in competition was exc1uded both directly and indirectly, since the rules of the association did not allow discounts and other ways of bypassing the minimum price which in principle become fixed price used by all breweries. There were also limitations on certain forms of advertising, use of the same types of bottles on all breweries, a ban on loans and other economy ties to retailers, and regular distribution of statistics making it possible for each member to follow its shaii of sales in various parts ofthe country.


4.1.4. The reaction from existing firms

Other factor which may inf1uence the entrant' s degree of determination are the expectation of sharp reaction from existing firms and of the dissuasive nature of the retaliation they may organise.


The top 20 breweries world-wide dominates 50.4 of the world market share. The Cia Cervejaria Brahma has 2.4 ofthe market share and Cia Antarctica Paulista has 1.6.

The meaning of this analysis is that these two big breweries in Brazil have significant economies of scale in tenns of distribution as well as big financial resources.

The history and reputation vis-à-vis new entrants in the last 15 years shows low aggressiveness in spite of the availability of substantial resource to fight back. The breweries Kaiser and Schincariol did not have problems to enter into the market, and now have around 18% of the market share.

The size of the Brazilian' s breweries and their availability of resources to respond to new entrants is one important element to detennine the entry deterring price.



Substitute products are products that can perfonn the same function for the same groups, but based on different technologies. Substitutes products that have substantial attention are those that are subject to trends. The threat can be intensified , for example, as a result of a technological change which modifies the substitute's quality/price as compared to the reference product marker".


This increase in the beer market share shows the increasing importance ofthe beer sector to the detriment ofthe wine and spirits sectors. The most noteworthy contributory factor stems from the fact that the age band of beer consumers has been widened in the last few years. Across the continent between 30-35) ofthe population is currently under the age of 15 and will be moving into the beer market' 1.


The beer sector has managed to outpace wine as the younger generation of consumers have switched to beer drinking in large numbers, as a result of particularity. The significant increase in per capita consumption of alcoholic drinks has been principally a result of increases in disposable income. In addition, the younger generation of consumers have switched to beer drinking in larger numbers.

The hegemony of beer stems from its lower price compared with other alcoholic drinks, as well as the fact that in these countries it is almost considered a thirst quencher rather than an alcoholic drink. Beer is also considered a good drink to accompany a meal in these countries.


A further reason for the lack of importance of the wine sector in most of the countries profiled stems from the fact that wine is not considered a suitable accompaniment for Latin American cuisine, which due to its spiciness goes better with beer.

The main trend in the region has been the growth of beer which continues to be dominant growth area throughout the region. Even in countries such as Chile where there is a long established tradition of wine consumption", beer has managed to outpace wine sales both in volume and value terms.



Suppliers can exert bargaining power because they can raise the prices of their deliveries, reduce product quality or limit quantities sold to a particular buyer. Power suppliers can thereby squeeze profitability out of the Brewpub business.

The beer raw materials are important input for the brewery sector, related with the quality of the [mal product. Although this importance they are commodity products, with companies less concentrated than breweries, and with no switching costs.

Special attention is necessary with the suppliers of the equipments. When developing the project of the brewery it is befter to choose machines made from suppliers which have spare parts available in the domestic market. There are some equipment suppliers that have lower cost to build the plant, but in case of expansion capacity or replacement, when they can exert bargaining power their prices are very high.

The labour force used in the Brewpub business can be considered as a supplier. If the owners of this business do not have a tec1mical description of the beer' s recipe, the brewer can exert bargaining power to get best salary. The owner must have another potential employee capable to make beer to avoid interruption on the beer production.



Buyers have a bargaining power vis-à-vis their suppliers. They can influence an activity' s potential profitability by forcing the finn to cut prices, demanding more extensive services, asking for better credit prices, or even by playing one competitor against another.

Some supermarkets chains as Pão de Açucar, Carrefour or Eldorado purchase large volumes. They usually make promotions with beer to attract consumers to buy other products. ln this occasion, because the large-scale is distribution, the retailers negotiate direct from the manufacturers, and can even dictate their terms.




The intensity and fonn of the eompetitive struggle between direet rivals in the beer market varies aeeording to the nature of the aetual eompetitive strueture. This defines the degree of interdependenee between rivals and the extent of market power held by eaeh competitor".

The extemal competitive advantage of the Brewl!ub is based on a differentiation strategy. The internal eompetitive advantage results from lower tax to trade beer than that one paid by big breweries, whieh must paekage and transport it.


4.5.1. How balanced players are

The Latin Ameriea brewing industry is highly eoneentrated and dominated by very large players. Among the world's twenty largest brewers, two operate in Brazil, two in Mexieo, one in Colombia and one in Venezuela.

The eombined volume of these six breweries is equivalent to over 11 of  the total world beer production.



Four competitive structures are generally distinguished: pure (or perfect) competition, oligopoly, monopolistic (or imperfect ) competition and monopoly. Oligopoly is the Brazilian' s market situation, because few firms are dominants.


The domestic' s beers do not have significant distinctive qualities, all beers are Pilsen beers with alcohol content from 4 to 5 and low bitter. The differentiation of the products is resulted of the packaging and branding.

The author classifies the Brazilian's beer market as an undifferentiated oligopoly, in which the dominant finn' s price is the reference price used by all the competitors.

Brahma is at a significant run of capacity, and they're not the on1y ones.

Kaiser, a brewery owned by the Coca-Cola bottlers, also added a million litres of capacity at the end of last year. And Antarctica is also building a Plant to add six million litres of capacity. As all this capacity comes into play by the spring of 1997, we might see some general pricing pressures in the market.

Anheuser-Busch coming in a much more aggressive way. In 1994 they took a stake in Modelo, and now they've taken also a stake from Antarctica, in Brazil".

Quilmes already has significant operations all across the Southem Cone, operating in Argentina, Chile, Bolivia, Paraguay, Uruguay.





Analysing the Table 11, we see that the Brazilian beer market is growing fast. The major contributory factor is the widening ofthe age baild'of beer consumers. Approximately 43 of the Latin American population is under the age of 2011. The youth market are the heaviest consumers of beer and most adaptable to new tastes and brands.

The reason for Braziliau's market importance lies behind the size oftheir population and the fact that they have the largest number of consumers aged 18-40: the main target udience for beer. ".


In spite ofthe high percentage of growth between 1970 and 1992 (430), the beer per capita consumption is low comparing with non socialist countries. Brazil has considerable potential for further increases in the future.

Brazil and Mexico are already the fifth and seven largest beer markets in the world; consumption in Venezuela is approaching northem European levels, although it is lower in other countries.

The overalllevel of consumption of beer per capta in Latin America is already higher than that in Asia, but still on1y halfthat ofNorth America and two thirds that of Europe.

The trade barriers and the high growth of the market resulted in a domestic market with scarce imports beers and low rate of exportation.

During the last ten years the priority of the Brazilians Breweries were to supply the market against peaks of demands, caused by increase of the acquisitive power of the population in short time by economic plans'.


Latin America beer volume rose 16 between 1990 and 1994, from 147 millions hectolitres to 171 millions hectolitres, and it is forecast to grow further 25 to 217 millions hectolitres by year 2000.

The total market for alcoholic drinks in Latin America amounts to some 20,127 millions litres. Brazil and Mexico lead the market, accounting for 37 ofthe total Latin America Market in volume tenns. They are followed by Argentina and Colombia, which together with Brazil and Mexico represent 83 of total volume sales of alcoholic drinks in Latin America.


Beer consumption in Brazil rose 16 in 1994 after the launch of an economic refonn programme, and another 20 in 1995. Brazilian's beer consumption reached 45 litres in 1996, almost in line with Mexico"'.


There was a reduction of 42,98 ofthe number ofbreweries in the world from 1972 to 1986. This trend in showed in the Table 15.


There are two big breweries in Brazil, Antarctica and Brahma have significant economies of scale in tenns of distribution as well as big financial resources.

The market attractiveness in the same segment ofthese companies is low, and is represented by the complete absence of foreign breweries in Brazil.

The unique way by which the global breweries have been entered into the Brazilian market is through alliances with beverage companies, using the established distribution channels.


São Paulo state has the biggest market share, with 54 of the Brazilian market. The result of this fact is that in spite of the high competition, most ofthe new ventures begin in this state.



Customers have begun to look for variety in their beers, for something different, for Premium products.

ln Ireland, this has so far been met by imported beers.

ln America, a whole new market has grown up for these so-called "craft" beers, which now account for 13 ofbeer production, There are over 500 Brewpubs oflocally brewers beer, which often the brewing is done within sight of the customers".

The munber of new breweries has more than double in five years in UK.

From 117 in 1991, there are now over 250 micros producing around 500,00 barrels a year between them, or nearly 1,5 ofnational output.

ln fact, some observers believe that there may be more than 1,000 pub breweries in 10 years' time. Two-third ofrecent start-ups have come from existing retailers. Nearly 100 new breweries today are either Brewpubs or are linked to an individual pub, double 1992' s figure".

In Japan in April 1994, the govemment lowered he minimum manufacturing volume required for a beer brewing licence from 20,000 annually to 600 hectolitres. In December 1995, 35 licences and 27 provisionallicences were approved. A further 60 are under consideration.

Brewing consultants say that an increasingly large proportion of the approaches they receive come from existing businesses - either individual pubs or small pub chains. The reasons behind this change of direction are not hard to fmd. The primary attraction is the difference between what the pub pay the brewery for its beer and what the pub would pay brewing it.

The people who are really behind it are looking for cost-effective ways of adding value to existing businesses, and ir s a sight cheaper to add a brewery to a pub than it is to add a pub to brewery.



In Brazil, Brewpubs are ealled "microbreweries", or in Portuguese "microcervejarias". There is not translation for brew, usually the brewers use the Freneh word "brassage" to deseribe this proeess, beeause to get a Master in Brewery degree most of the Brazilians took the eourse in Belgium or Germany.

The Brazilians Brewpubs work in a different way from the English or Ameriean ones. They use the beer faetory to brew two or three types of larger beer with low bitter, low CO2 eontent and no filtered. The result is one produet with less quality than the beer of the big breweries.

The strength of the Brewpubs are the food, service and design of the houses that in general have owners with high soeiallevel that have had sueeess in another type of business.

To enter into the "Microcervejaria", the eustomer has to expend the minimum consumption and the food and beer priee are higher that one sell

by the big breweries. The cost of one beer bottle (600ml) in a simple pub is US$ 1.50 (US$2.5/1itre). Therefore the beer cost in a brewpub is about US$ 7.00/litre. The priee is the main factor to segment the market one only the population with higher income level may afford these prices.

With exeeption of the Continental Brewpub, that has a partnership with Brahma Brewery, and reeently hired one Brewmaster that was working as Produetion Manager of one big brewery, the teehnieallevel in terms of brewing is low and they ean not explore the full potential of the beer plant.

ln this scene, Brewpubs business in Brazil hasn't been seen by the business men as a kind of business with long tenn success.

Nowadays there are five Brewpubs in Brazil. The author investigate all of them and deseribes below the most important ones, relating initial investments, location, the main owners and capacity.


Dado's Beer

The Brewpub Dado's Beer is located in São Paulo city at Av. Juscelino Kubisheck, 1203 in Itaim Bibi borough, where live high social class.

This Brewpub started its operations in November 1996. It has received about 55.000 people each month and the annual tum over sha11 be about 15 million dollar per year. The owners expect to receive the retum of investment in two years, with a net profit between 20 and 25. Mr. João Joaquim told that the beer is the differentiation ofthe Brewpub, but people come there to have entertainment, which they have been specialised.

The owners are two Brazilian tennis players, Cassio Motta and Luis Mattar, and the business man João Joaquim qe Ahneida and José Carlos Macedo. They invested US$ 7,000.00 in a franchise ofEduardo Bier Corrêa who built the first Dado Beer in Porto Alegre (Rio Grande do Sul State).


The Coca-Cola Company, Sadia Group' and Marlboro, that have exclusivity to sell their products in this Brewpub, invested 20% oft he total budget.

Its style is benchmarked from Hard Rock Cale and Planet Hollywood. In the face of the Brewpub there are some fermenting tanks and the Beer Plant, where beer is produced, is placed in the centre of the pub.

The beer Plant capacity is around 70,000 litres per month and nowadays they are selling about 60,000 litres of beer per month.


Alles Beer

The Alles Beer Brewpub started up with the acquisition of the microbrewery Bavarium Park in 1986, located in Curitiba, a big city in South Brazil. The microbrewery has 9,500 hectolitres a year of capacity and produce Dark and Pilsner larger beer with 3,9 of alcohol per volume.

Tony Zambon, the owner, launched the first Brewpub in Curitiba in April 1996. The house does not brew the beer, it just receives the beer from the microbrewery by a truck that has one tank of 250 hectolitres capacity and store it in tanks inside the pub. As the tanks are exposed (cylinder conical tanks), the customers have the impression that the beer is made locally.


Cervejaria Continental

The Continental Brewpub has a competitive advantage: it has the Brahma Brewery Company as one ofthe partners. It means that Brahma suppIies all row materiaIs, technoIogy as well money to expand their business. Their first Brewpub was launched in September 1995 in Blumenau, a medium city in South Brazil.

The Brewpub has capacity of2,000 hectolitres ofbeer per year and capacity for 800 people. Telmo Cortes de Carvalho, the Continental businessman, declared to have invested US$ 5 million in this house.



The electronic engineer Arlindo Dionisio Filho opened in December 1995 the Brewpub called Brew Pub in São Paulo capital. The Arlindo's family has a small brewery in Brazil, which produces the beer Xingu that is mainly exported.

He invested US$ 940,000 and expect to get the pay back of the business in two years.


Santa Cerva

The Santa Cerva Brewpub has 8 partners. The consultant Humberto Pandollpho, ex-president of South America Pizza Hut, is the business mano.

The first house will start up its operations in December 1997 in São Paulo city, Morumbi. With capacity of 1,800 litres they are investing US$ 3,5 millions.


In general the Brewpubs have plans to expand geographically their operations, they also plan to expand their business selling Craft Beer with the acquisition of bottling lines.



The choice of a beer by the customer can be emotional (as in the case of many "design" products which differ from their cheaper counterparts but provide their purchasers with an intangiblevfeel good" factor) and/or functional (such as widget which provides a tangible product benefit in the form of a thick creamy head).

Clearly today' s beer drinkers are selective in what they drink, but are willing to accept change and make choices. Beer selection is influenced by a number of personal decisions such as taste, mood and occasion, cost, presentation, peer group, image, and availability of the product".

So how can new product development help tackle these issues? The answer is by "adding value", popular marketing jargon for making your product worth more to the drinker. Tangible products benefits and clear differentiation are likely to be increasingly important for the new product success.

There is only one way to fmd out what consumers want. That is by taking to them. Good quality market research is still probably the most valuable tool at the disposal of a company wanting to develop new products, ,but is necessary to be prepared to hear what people really say about the product.

The Brewpub can meet the need of product innovation with tangible differentiation as beer with lower bitter and fruit taste, designed to attract woman. This is possible because each batch of production has a low volume, making possible to produce and stock several types of beer in the same equipment.


5.4.1. Premium beer expands its appeal

Premium beers have become one of the most dynamic sectors across the westem European brewing industry. This growth can be attributed to consumer willingness to pay more for a beer that many have judged to be truly satisfying!".

Premium beers brands are growing across Western Europe at a time when overall beer consumption has grown very little but the markets of Belgium, France, Gennany and UK indicate how consumers have responded to the marketing efforts expended in what has become a very important sector.

The definition of what constitutes a Premium 'beer differs from country to country but certain key features may be discemed. Premium beers need to have some defining characteristics, they should be sold by specialities as in the case of abbey beer, or in a new fonn such as ice beer, dry beer or red beer, have a higher-than-average alcohol content, usually above 4 abv", be promoted as being of premium or export quality and be sold at above average price.

At these trends taken together point to future in which breweries will be able to put more added value to their brand portfolio by meeting a growing demand for beer that is new, exciting, has a clean taste and a high alcohol content. Consumers appear wilIing to experiment and to pay a little more than they usualIy would for a beer that meets alI their needs".



The rapid changes in customers and more underway in contemporary society are reflected in the lasted development and pubs trends. Two of the most important development have been the "Music Pub and the "Disco Pub".

The "Music Pub "offers it customers the possibility ofmixing conversation and beer drinking while listening or dancing to live music.

The "Disco Pub" offers it customers a more relaxed combination of conversation, beer drinking, and listening to or dancing to "diffused music".

The "Cyber Pub " offers it customers, who want to navigate the network, the possibility of communicating with the world via internet panels and computers set on their drink table.

Another trend is to increase the intimacy of the customers with the beer processo "Brew-it-yourself" is one idea developed in Canada, where it has captured up to 7 of the take home marketing in the Province of Ontario.

Using professional equipment, traditional ingredients and with guidance from trained brewing staff, customers can brew a full range of beers . TheBrewpubs have a computer graphics and printing system teclmology with  enables customers to create their own unique beer labels.

On the first day the customers are involved in selecting the recipe, collecting and weighing out all the necessary ingredients, boiling the kettle and collecting the worth. The whole process takes just over two hours, which is often punctuate by a visit to thc Brewpub.

The choice of beers stimulates interest and for many customers it is the challenge and satisfaction of brewing the beer and a sense of pride of their achievement, when share it with their friends.



Definition of Market Segmentation

One of the key marketing challenges facing companies today is how to make customers feels that they are unique, that they are truly special. As the CEO of an European company remarked: "In the 1980s we looked for the customer in each individual. lu the 1990s we must look for the individual in each customer'?".

Market segmentation is the process of splitting customers into different groups, or segments, within which customers with similar characteristics have similar needs. By doing this, each one can be targeted and reached with a distinct marketing mix.

Segmentation is a creative and interactive process, the purpose of which is to satisfy customer needs more closely and, in so doing, create competitive advantage for the company. It is defined by the customers' needs, not the company' s, and should be re-visited periodically.

Attractive market segments will be those that are growing and profitable, in which companies can effectively meet their customers' needs of today, or for which companies can develop their products/services to meet the needs of tomorrow.

It is recommended that a professional market research interviewer conduct face-to-face interviews with a sample of those customers that the Brewpub is still unsure about. This should indicate whether or not there are any unmet needs yet to be discovered.

It should be noted, however, that, while the segmentation process itself is extemally focused on its consideration ofthe market "out there", companies looking to "meet their customer' s needs effectively", should also consider how the company' s own departments and staffs relate to the chosen target segments.


Preparing for segmentation

These observations have been summarised in the fonn of a matrix by M. Jenkins and M.H.B. McDonald in their paper, "Defining and Segmenting Markets : Archetypes and Research Agendas" , as shown in Figure 1.


Households can be categorised in terms of the family life cycle, the phases of which are listed below:

Bachelor: young, single

Newly married: young, no children

Full nest (1): youngest child under 6

Full nest (2): youngest child over 6

Full nest (3): children still at home but working

Empty nest (1): children left home, one partner still working

Another interesting classification is based on attitudes and motivation.

Three distinct types of people can be identified:

Subsistence types: these people choose on the basis of price and seek bargains.

Discriminators: these people choose on the basis of quality rather than price.

Hedonists: these people seek immediate gratification.

This classification is independent of income so that the "fun loving" hedonist group includes both the very rich and also people of limited income who spend their money in the "pub" or at the dog track.



Targeting Segments

When faced with the existence of a heterogeneous market, the Brewpub has to decide on its strategy with respect to the various distinct segments.

Three segmentation strategies can be identifiedf:

a. Undifferentiated marketing

This can be compared to a shotgun. It ignores the existence of segments and offers a single mix to the heterogeneous market. This failure to target is likely to result in a disappointing level of sales.

This strategy was adopted by the Brewpubs researched by the author and probably by the others Brazilian's brewpubs. The marketing activities as thematic promotions and company's parties attract the customers.


b. Concentrated marketing

A particular segment is target. The finn adopts a mix which it considers most effective and appropriate for that particular segment. For reasons of economy small frrms are likely to adopt a strategy of concentrated marketing rather than disperse their efforts far and wide.


Large Brewpubs have potentíal for greater success and thís approach ís not appropríate to attract enough customers in the catchment arca.

c. Differentiated marketing

In thís type of marketíng, a separate mix ís developed for each segment of the market. Banks and buíldíng socíetíes have developed dífferent accounts to suít the needs of dífferent types of customer. The Brewpub can develop a range of products, íntegrated wíth the envíronrnent to meet the needs of dífferent types of customers.



The criteria used for segmentation must have the following characteristics:

1- The ability to distinguish between segments, such that each segment has a unique set of common characteristics and can be served by an equally unique marketing strategy;

2- Each identified segment should have sufficient potential size to justify the time and effort involved in planning specifically for this business opportunity;

3- Each identified segment should be capable of being described or measured by a set of descriptors, such that .the customers in that segment can be communicatcd with by means of a distinctive promotion, selling and advertising strategy;

4- Each identified segment should have relevance to its purchase situation (in other words it is a decision-making systems factor or affects the process ofbuying behaviour);

5- The Brewpub must be capable of making the necessary changes to its stnlcture, information and decision-making systems so that they become focused on the new segments.



These can be summarised as follows:  

1- Recognising customers' differences is the key to successful marketing, as it can lead to a closer matching of customers' needs with the Brewpubs' products or services.

2- Segmentation can lead to niche marketing, where appropriate, where the Brewpub can meet most or all the needs of customers in that niche segment. This can result in segment dominance, something which is often not possible in the total market.

3- Segmentation can lead to concentration of resources in markets where competitive advantage is greater and returns are high.

4- Segmentation can be used to gain competitive advantage by considering the market in different ways from the competitors.

5- By means of segmentation, it is possible to market the Brewpub as a specialist in the chosen market segments, with a better understanding of customers' needs, thus giving its products/services advantages over  competitors' products.

6-  It checks the logic and the basic assumptions about Brewpub' s market.

7-  lt helps with team-building approach.



While the strategy of personalising the service/product for each customer, differentiated market must be balanced against the capabilities and costs ofproviding such customer intimacy.

Although such customer intimacy is ideal, not all marketers can provide a unique service or product to every customer. Big breweries simply do not have the capabilities to do so in a cost efficient manner. A verage service and products for the typical customer needs and expectations usually resulting in mediocre customer satisfaction and loyalty.

Brewpubs can develop customer intimacy developing specific beers and through creative service benefit segmentation strategies. Such a process starts by looking at what customers expect, hear and see, whether they have common needs as well as different ones.

Once service segmentation strategies strategy is used, the Brewpub need to use either self-selection (let the customer choose the appropriate service level) or direct observation of bis or her attitudes and behaviour or active questioning to identify which segment the customer in front of usbelongs. In addition, the staffhave to be trained to identify and then adapt their sales/service strategy. Finally, the costs of serving the diferente segments must be estimated to ensure that the differentiated strategy is affordable.




A brewhouse of 20 hectolitres was chosen for this dissertation. Some companies that build microbrewery equipment' s were contacted, budget offers were asked and the [mal prices can be found in the table bellow.


The prices do not include the following items:

 • Transport

• Taxes import duties and documents

• Insurance for transport and erection

• Installations

• Piping outside the brewhouse

• Water treatment

• Electrical wiring outside the brewhouse

• Buildings foundations and all concrete work

• Spare parts

The payment conditions are in general:

30% payment on account after confinning the contract

30% after message that the main parts ofthe breweries are ready to be send

30% after delivery to the brewery

10% after commissioning and all guarantee parts are working

Time delivery are in general 5 to 8 month after conclusion of the contract and technical clarification.

There is not one standard to define the capacity of a brewery, some suppliers defme their capacity in tenns of annual capacity as well as others k tenns of brewhouse capacity. The plant that has the smaller brewhouse to produce the same quantity of beer has to make more batches to reach the volume of. It means that it demands more labour time. To choose the best ratio cost\ benefits it is necessary a careful analysis of the brewery system.

It is also necessary to clarify the storage capacity for each project, that defmes how many beers will be possible to trade -in the Brewpub.

This is ajob for a Brew Master with experience. Usually during the discussion to define the plant there are a lot of modification in prices and of and specifications.



The feasibility study was developed based on a brewery from BRAUHAUS SYSTEM GASPARY. RudolfCaspary, owner and Directing Manager ofthe company is an Engineer and a BrewMaster. He was contacted by the author on BRAU'96 NURNBERG/ GERMANY. A complete cotation for a pub brewery with 20hl/brew was requested. The feasibility study is based on these technical specifications. The author also considered that the pub brewery will produce 90 of its annual capacity, or 90 from 4000hl/year.



A - Direct Materiais

 Malt: Consumption : 18kg/hl beer

         Cost per hectolitre : US$ 10.00

Hops: Consumption : 0.33 kg/hl beer

          Cost per hectolitre : US$ 0.90

Water: Consumption : 5 hl/hl beer

           Cost per hectolitre : US$ 0.05                   

Electrical Energy : Consumption: 20 kwhJhl beer

Cost per hectolitre : US$ 3.50

Cleaning material : Cost per hl : US$ 1.50

Direct materials - cost per hl of beer : US$ 15.95

B - Maintenance Cost = US$ 2.00!hl of beer

C- Direct labour

The estimated capacity one BrewMaster is necessary, over the whole working time. 

The cost for a BrewMaster is:       US$ 43,000/year

TOTAL DIRECT COST = US$ 17.95/ hI of beer


7.2.2. Indirect Cost


Invest ofmachinery and installation: 20 hlIbrew and 4,000 hl/year US$ 38,0,334

additional invest and cost (water - wastewater, energy-cooling, etc): US$ 27,163

depreciation 20 (5 years): US$ 122,249.00


8% of half of the capital: US$ 24,448.80

Loan cost

loan cost of the from the brewery: US$ 5.00/m2

equipment the needed space is approximately 120m2 , complete cost: US$ 72,000/year  (US$ 600/month X 12)

Technological support

Cost of yeast source and advice for development of new products: US$ 12,000/ year

Total Indirect cost = US$ 165,889/year / 3600hl = US$46.08 /hl

TOTAL COST = US$ 75.98/h1


7.2.3. Beer Tax

The author considered the lower beer price, that was found at Alles Beer (US$800.00/hl).

The following tax have to be paid:

PIS/COFINS (2.65):             US$ 21.2 /hl            

ICMS (18):                           US$ 144. O hl

Total tax:                              US$ 165.00 /hl


7.2.4. Capital Investment Decision

By using discounted cash flow technique and calculating present value, it is possible to compare the return on an investment in capital projects with an altemative equal risk investment in securities traded in the financial market.

The author considered that it will take six months to make the installation of the pub brewery.


Considering the rate of return of 30 from the project, that is usually greater than the retum of the fmancial market, the NPV is positive that indicates the increase in the shareholders market value.



The first step for any new product starts off with the "marketing brief and proposition", which defrnes the product to be produced and the type of customer needs it sets out to satisfy. Typically the brief should cover'":

Taste - description ofbittemess, fullness, sweetness, etc.

Analytical parameters - usually abv and colour

Special features - which could include special ingredients or special manufacturing processes such as Ice Beer.

It is also often useful at this stage to have some idea of the predicted demand (sales volume). In the beer sector, marketing and production demands are diametrically opposed as showed in Figure 5.


The first stage is to turn the product proposition into a recipe defining the

materials and brewing conditions in tenns of :

•          Raw material required

•          Brewhouse procedures - fennentation and yeast strain

•          Clarification or filtration

•          Novel processing

•          Dispense

Often the demands of new products are in direct conflict with minimising the variety of materials and maximising production efficiency in any brewery site.

The most difficult new material to handle is a new yeast strain and most breweries would prefer to use an existing strain rather than having to introduce another into the brewery. This obviously places restrictions on the variety of products produced and helps to give each Brewpub its distinctive house character.

The easiest raw material to introduce is a different variety of hops and late or dry hop character is very variety dependent making a major contribution to the fmal flavouring of the beer.

Perhaps the most important consideration when designing beer flavour is to produce a beer which is not only free from undesirable or off flavour notes, but is also well balanced, which "requires a marriage between bitter substances of the hops and the sweet derivatives of the malt"(Lloyd Hind27).


Preparing for market trials

Once the recipe has been fonnulated it is necessary to brew the beer and to evaluate it using both a technically trained panel, and with the marketing department to assess both the teclmical merits of the beer as well judge it against the product brief.

Once any product faults are identified the beer can be refonnulated and the cycle of brewing and tasting continued until the brief can be met.

It is important to have one person managing the product from the earliest discussions with marketing through to successful package at production brewery site and then to be responsible for producing the agreed process specification when the product becomes routine product.



In September 7th 1997, the Government Congress approved the law 8.918 which authorise the beer production with fIavour of fruits or vegetables. In the importation field, this law determines that the responsibility of beer inspection is from the foreign brewery, not from the Brazilian authorities.

With this modification the costs to import beer will go down''.

The law Number 5.823, of 14th November 1972 and number 73.267, of 6th December 1973 referred to the inspections, standards, c1assifications and register of beers.

The Chapter II ofthe law 73.267 defines the brewery process as well as the specifications of the final product.

In Brazil it is allowed to put the followed names on label:

• Pilsen

• Export

• Larger

• Dort Münder

• München

• Bock

• Malzbier

• Ale, Porter and Weissbier



Taxes are payable by all private business entities domiciled in Brazil, including firm and soles partnerships, as well as branches and agencies of corporations with head-office elsewhere.

ln 1996 the government decided to end monetary correction and tax both corporations and individuaIs on their nominal rather than real income.

The basic income tax applies to the operating profits generated by a firm in Brazil, defined as gross operating expenses; and other charges, reserves and losses authorised under the law.

Depreciation allowances are on a straight-line basis and fixed assets are depreciable at rates applicable to established asset classes, unless special provisions are made for a higher rate. Annual rates are 4 for buildings; 10 for machinery, equipment and fistures, and 20 for vehicles (25 for industrial off-road vehicles) and computer hardware and software.

Companies operating two or three shifts a day are to depreciate machinery and equipment at 150 or 200 of the ordinary rate":

Other methods of calculating depreciation may also be authorised. A company may seek an analysis by a register testing company to prove that depreciation at a faster pace should be allowed for a given asset. Accelerated depreciation privileges are permitted for fixed assets (mainly equipment) used in activities considered essential to Brazil' s economic development.

A number of special provisions cover deductible expenses. For example, strict limits exist on the deductibility of royalties and fees, bonuses and other payments to directors, and employee profit -sharing.

Under its 1996 tax regulations, the government has eliminated many of the formally deductible expenses and fringe benefits not directly linked to the production or sale of goods and services.

A few limited deductions continue to exist for employee meal programme, investments in northem Brazil, investments in computer-company equity and employee training.

Basic corporate income tax to partially compensate for the end of monetary correction, beginning in 1996 the government reduced the basic corporate income tax rate from 25% on real annual earnings ofup to R$ 180,00 (or monthly earning ofup to R$ 15,000) to 15% on nominal annual earnings of up to R$ 240,000 (or monthly earnings of up to R$ 20,000).




It will be described systems thinking and modelling to show how a Brewpub can use a systematic approach to their resource base to develop meaningful strategic analysis.

The stock-building idea is developed as a resource that is necessary to build and conserve the customer base.". This stock is raised by opening a "tap" to let new customers enter. ln the upper diagram ofFigure 7, new customers may be won by marketing efforts.


Reinforcing feedback to grow resource

If the Brewpub has an existing customer base and do a good job of serving them, they are likely to tell others. These new people join the customer base and create the possibility of a larger word-of-mouth effect (Figure 7). This system "reinforces" its own growth, as indicated by the R in the middle of the figure".


It is possible to estimate the scale of the resource-building effect by putting numbers on the resource and estimating the munber of new customers that might be gained each month (Figure 8). This self- reinforcing mechanism alone will generate exponential growth, which clearly cannot continue for ever. Sooner or later the Brewpub will come up against some ceiling, either external (for example no more customers to win) or internal (for example no capacity to supply new customer).

Note too, that the same reinforcing process can generate exponential decline. If reputation is poor, customers desert our business and tell others, so even more customers leave.


It is also necessary to represent the kind of feedback that "balances'.' the tendency for a resource to rise or fall. Service quality provides all example ofthis. Figure 9 shows a system where a limited service capacity allows the Brewpub to deliver excellent services when customer numbers (our resource) are small but poor service if customer numbers are too large. This system, too, exhibits its behaviour only though time - the quality of service determines the rate at which the customer-base grows or falls.


Figure 10 analyses and quantifies this concept using the "resource" idea by showing what happens if each month we lose 50 per cent of those customers who are above our capacity to cope.


It is necessary to estimate the critical rates in the system - how fast do customers lose interest in a brand and how many newly interested consumers does a certain amount of advertising stimulate.

Consumer awareness is stimulated by advertising levels and declines if such advertising is insufficient. The durability of consumer interest varies between different product types.

The Brewpub sector a fraction of the revenue should be reinvested in further advertising. This is a two-part reinforcing process in which current revenues provide the advertising needed to drive future vohunes and consumer awareness drives retail availability (Figure 11).


ln a brand-building example, one company might produce better advertising and hence create more consumer awareness from the same expenditure as its rivals. The reward for this effort is a far deeper understanding of a company' s competitive options and likely outcomes than can be achieved by other means and greater confidence in strategic success.




As breweries try to fmd the factors accounting for strong and weak markets, typical consumer explanations for both tend to be about the physical attributes of the products.

Unidentified and then labelled bottles of beer were delivered to homes of taste testing participants on successive weeks. The drinkers' taste test ratings provided the data for the study.

The experimental design

The principal hypothesis subjected to testing through experimentation was this : "Beer drinkers cannot distinguish among major brands of unlabeled beer either on an overall basis or on selected characteristics". Beer drinkers were identified as male who drank beer at least three times a week.

The test group was composed of 326 drinkers who were randomly selected, agreed to participate in the study, and provided necessary classification data.



Participants, in general, did not appear to be able to discem the taste differences among the various beer brands, but apparently labels, and their associations, did influence their evaluations. In others words, product distinctions or differences, in the minds of the participants, arose primarily through their reception to the various firms' marketing efforts rather than through perceived physical product differences. Such a finding suggested that the physical product differences had little to do with the various brands' relative success or failure in the market'. Furthermore, this elimination of the product variable focused attention on the various firm' s marketing efforts, and, more specifically, on the resulting brand unages.


Improving the chances of success

The choice of a beer by the customer can be emotional (as in the case of many "design" products which differ from their cheaper counterparts but provi de their purchasers with an intangible "feel good" factor) and/or ftmctional (such as widget which provides a tangible product benefit in the fonn of a thick creamy head).

But there is only one way to fmd out what consumers want. That is by taking to them. Good quality market research is still probably the fnost valuable tool at the dispo sal of a company wanting to develop new products, but is necessary to be prepared to hear what people really say about the product.

It is necessary to have a Brew Master with a theoretical knowledge to introduce innovative products and keep high standard of quality. One Brew Master who has experience in the beer process and equipment maintenance is prepared to translate the demand in tangible products.



Brands exists in relation to a market plaee and in the mind of buyers in that marketplaee. Part ofthinking about the aims ofbranding is, therefore, defming the marketplaee involved. Only by understanding what the market is and what it wants ean brand planning deeisions (e.g. brand values, promotion, strategy and taeties) be sensible made/.

Branding offers real benefits to Brewpubs and, direetly or indireetly, these will be refleeted in enhaneed profits and the worth of the company.

Brands also offer benefits to customers.

A brand whieh is well known and well regarded beeomes a platfonn for adding new produets as some aspeets of the positive image will cross over and help in the launeh of new produets.

This is achieved through:

1- Creating a foeus for awareness of the eompany and its produets in the marketplaee. Obviously, the better known a eompany and its products, the greater the ehanee of customers buying.

2- Differentiating the eompany and its produets from eompetitors. Only if it is pereeived as different and in some sense speeial will brand loyalty or brand franchises be build. The differentiation aspect of branding is particularly valuable for products which, by their nature, are mJch the same as competitors' - taken to the ultimate, product differentiation is brand differentiation.

3- Customer satisfaction will be improved. A positive image will give customers enhanced satisfaction when they use the product. They will feel more confident about buying it.

Branding is one way to adding value to products and services. This may be in the literal sense or more subtle. Because of positive perceptions and expectations about excellence of the product, the buyer may well be willing to pay a Premium which comes back in profits.



The core ofbranding is differentiation. Products are seen to be different because of their brand name. The successful communication of non-functional benefits (e.g. confidence in the products) is an important means of achieving differentiation".

Particularly for consciously consumed brands, such as those in the beer, firms can succeeded by positioning their brands to satisfy consumers' emotional needs. Consumers assess the meanings of different brands and make a purchase decision according to whether the brand will say the right sort of things about them. They do not just base their choice on rational grounds, such as perceptions of functional capabilities, they recognise that to make sense of the social circles they move in, an to add meaning to their OWl1 existence, they look at what different brands symbolise. For example, they question how well a particular brand might fit il1 with their lifestyle, whether it helps them express their personality and whether they like the brand and would fell right using it.

For example, at a physicallevel, drinkers recognise Guinness as a rich, creamy, dark, bitter beer. The advertising has surrounded the stout with a personality which is symbolic of nourishing value all ad myths of power and energy. The brand represents manliness, mature experience and wit.

Consequently, when drinkers are chosen between a glass of draught Guinness they are subconsciously making an assessment of the appropriateness of the personality of these brands or the situation in which they will consume it, be it among colleagues at lunch or among friends in the evening.

The images surrounding brands enable consumers to form a mental vision of what and who brands stand for.



Positioning : the key to strategy

Positioning is the process by which a company offers its brands to the consumer. The objective of strategy is a sustainable competitive advantage, which may come from any part ofthe organisation's operations. The market is the judge ofthis advantage. Brand strategy is the process whereby the offer is positioning in the customer' s mind to produce a perception advantage.

Positioning is the central concept in modem thinking about strategy. AI Ries and Jack Trouth draw analogies between military" and business strategy : their main idea is that success is determincd not by the amount of force put behind the brand, but by the way that force is used - the ability of a company to position itself to advantage in consumers' minds relative to the competition.

If a company is market driven, it will accept that the most enduring form of competitive advantage is a perceived superiority in the eyes of its customers - the winning "positioning". This is not to be confused with the source of advantage, which may well be an internal operation - the attitude of personnel of the Brewpub service, for instance. 

The traditional "for PS" of the marketing mix (product, price, promotion and place) are concemed with what the company does; positioning starts by considering what the market needs and wants. The marketing mix represents only the messenger, not the message.

According to this, the Brewpub makes a decision about the type of beer and food it offers, decides on the price which will best convey to the market, the leveI of the quality which is offered, uses all promotion media to help customers understand and to create more customers awareness.


The process of positioning

"A superior brand position can be built on anything of enduring value to customers. This may include images or simply that a brand is the biggest.

The position should be constantly communicated by all elements of the keti."

The message that is conveyed is far more than simply an advertisement, the most obvious fonn of marketing communication. It should be communicated by all the organisation's activities, because any of them may be the salient attribute from which the customer takes the message and develops perception;

The Brewpub could communicate its brand proposition as a traditional brewery that uses only national ingredients. It could involve its customers into the brewery history and nmning the beer plant in the peak hours. The staffs should be committed to the brand, involving customers in product choices.

The Brewpub could make a marketing Infonnation System, using the customers opinion to launch new beers.

The brand of a Brewpub could also be associated with a particularly occasion. The house could have the atmosphere of friendliness. This appeal is suitable when people want to refresh and socialise.



Before going out into the interviews, the author conducted a deep desk research and one pilot interview was made to test out the questionnaire. It was used a simple questionnaire with the key points for the discussion.

Dado 's Beer and Alles Beer are the two most important Brewpubs in Brazil at present and Brewtech Consulting Company is the only Brazilian firm specialised in Brewpubs construction.

The author started the interviews with a general discussion. It was possible to check the validity of some answers by in-place observation, checking whether the answers were in line with the obvious visual facts.


9.1. Interview 1: DADO's BEER

Interviewed : Ms Patrícia Regner

Patricia Regner hold a Marketing degree and she is the Marketing Manager of  Dado's Beer Brewpub. She was interviewed on 18th August 1997 at the brewpub.

The summary of the interview is bellow:

1.      What are the key success factors in the Dado 's Beer business?

- Good quality of service

- Ambience, which is well designed

- Beer plant (tourist place) and quality of beer

2.      Which are the main customers groups?

During the week, in the "happy hour" (from 5:00PM to 8:00PM) executives and employees in general:

Men: aged from 30 to 45

Women: aged from 25 to 35

During the week, in the "happy hour" young generation

Men: aged from 18 to 24

Women: aged from 18 to 24

Afier the "happy hour" the customers have higher acquisitive power and the majority are older than 35 years.

3.      Which are the factors for this segmentation?

Except from the "happy hour", the Dado 's Beer has a minimum consumption per head ofUS$ 35.00 for men and US$ 30.00 for women and usually young people cannot afford this expense.

4. Does the Brewpub have a clear defrnition about the market segmentation?

No. The Dado 's Beer have not defmed its customer in order to differentiate the service and the range of the products.

5. Which Marketing activities does Dado 's Beer have?

The Brewpub has a Marketing Department which promotes the house in the best hotels of São Paulo city as a tourist attraction. Dado Beer has public relations people who speak foreign languages to receive foreign people and make tours into the brewery plant. The Marketing Department makes contact with companies to offer the Brewpub as place to make business meeting, to celebrate any special occasion and to socialise managers and supervisors. There is a free magazine with pictures of very important peoples (VIP) who atlend the house as well as articles about the company and the beer history.

6. What is the Brewpub capacity?

The Brewpub has capacity for 1,200 seated people and more 1,300 stand people. The public record was 5,200 and usually on Tuesday, Wednesday, Fridayand Saturday the house receives about 2,000 people during the peak hours.

7. Which are the main claims of the customers?

The music style and the lack of places for seating.

8. What types ofbeers the Brewpub offers?

The Dado Beer Pub produces two types of beer: Lager and Stout. Both are not filtered, with low bittemess and have alcohol content of 4 ml/litre and between 4,5 to 5,5 mgr of CO2 per litre.


9.2. Interview 2: ALLES BEER

Interviewed: Mr Tony Zambon

Tony Zambon is the owner of the Alles Beer business and was interviewed on 5th September 1997 at the brewpub Iocated in Campinas.

1.      Which are the key success factors in the Alles Beer business?

- Good quality of he service provided: when getting in the pub, each customer receives a magnetic card that they can use in the self-service beer system or for ordering anything to any waiter. This system is exclusivity of the Alles Beer Brewpub (in.Brazil) and gives flexibility and reliability to the customers.

- Design of the house, with a brewery atmosphere showed by the storage tanks ofbeer.

- The quality of the food and the several options provided by the intemational restaurant and Sushi bar as well.

2. Which are the main customers groups?

The people c1assification is independent of income, so the customers are classified as the "fim loving" hedonist group. It inc1udes both the very rich as well people oflower income that spend their money in the house.

4.      Does the Brewpub have a c1ear definition about the market segmentation?

The company does not recognise itself as having any form of marketing segmentation.

5.      Which Marketing activities does Alles Beer have?

Each Brewpub has a Marketing Department that promotes the house in the radio stations of the region. There is also a sales team responsible for visiting the main companies in the region. The companies are invited to make parties or meeting in days that the level of pub attendance is low. At this days the pub is opened exc1usively for that company. The Marketing Department works to discover the date when there isn't any promotion in the catchment and then promote a big event. The Brewpub uses gaps of entertainment as a marketing strategy. To keep the high attendance of the pub it is necessary to be creative, to make innovations about the reasons for parties, motivating people to go out of their houses during the weekend.

6.      Which are the main claims ofthe customers?

The time they have to wait for entering the brewpub in peak hours and the lack of seats. There are only 400 places for 2.200 people on Fridays and Saturdays.



Interviewed: Mr André Nothaff

Brewtech is a consulting company specialised in technical support for the brewery industry, located in Rio de Janeiro. It was created by the Brew Master André Nothaff who was responsible for development of new products in Brahma company for many years.

The interview was focused on the key factors that promote success when designing one Brewpub brewery. Mr. Nothaffwas interviewed on 5th October 1997.

The summary of the interview is bellow:

The planning and building of a microbrewery or a pub-brewery has to combine the tradition of a beer culture with equipment technology.

Although how much beer can be sold is essentially a marketing issue, there are implications for the design ofthe brewery. The Brewpub may want to produce beer for other outlets. So it is the beer to be dispensed from bright beer tanks or cellar tanks; or it is to be casked or kegged? Depending on the answers to these questions, it is necessary to think about a caskshing plant, perhaps racking tanks or, if the brewery is to produce lager perhaps a kegging plant incorporating a washing facility.

The development of the proj ect must be supported by a Brew Master. The correct choice of suppliers and equipment will be necessary to produce the desired beer with quality and the quantity desired.

Not just whether it is lager or ale, but what type quality, strength, colour, fIavour have implications for the design of the brewery and the overall project cost. Although some "fine tuning" ofthe recipes can be done at a later stage, it is better to get them right from the fírst brew.

In designing the brewery, it is necessary to take in account a number of others things such as the number and quality of staff (cost implications), the types of raw materials available, power and gas requirements, water, drainage, waste dispo sal, availability of carbon dioxide and so on.

One frequent mistake is undercstimation of demand (not enough beer production), once that to produce beer it is necessary at least fifteen days.

Different kinds of beer require exclusive serving tanks which must be planned. The utilisation of fermentation vessels to storage bright beer reduces the plant capacity.

The volume of beer to be produced will be determined by two fundamental issues; how much can be sold and how much space is available for the plant.

The space requirement is also dependent on the type of beer to be produced.

A lager plant with its largering vessels and their attendant cooling systems will take more space than an ale brewery.

To make one offer for a Brewpub equipment, it is necessary to delivery several technical infonnation.

The brewing equipment company has to have the following information:

- the product

- planned capacity

- desired equipments

- building and location

- local conditions such as water specification and temperaturte

To project the Brewpub plant it is also necessary to forecast the demand and leave coushon in the brewhouse for expansion in the future. The brewhouse is the sector that will not be able to expand so it will be the bottleneck of the project.



The interview results were analysed in tenns of the strengths and weakness of the competitors, the Brewpubs already existent.

Brewpub's strengths:

- They are bigger than the pubs, with capacity to make promotions with expensive attractions as live music with famous bands, that smaller pubs can not afford.

- They can have a marketing department into their structure, visiting the companies to promote parties into the house or making advertising for the promotions.

- The building are well designed and with a tourist attraction (the microbrewery) inside the building and some tanks outside.

- They can provide individual magnetic cards to control the expenses of each customer and also getting information about them, using the number of waters and offering more flexibility.

- The Brewpubs have lower cost ofthe beer, providing resources to drive future volumes and consumer awareness.

Brewpub's weaknesses

- There is not a professional market research with a sample of the customers. This should indicate whether or not there are any unmet needs yet to be discovered.

- The Brewpubs are not capable of identifying each segment , described or measured by a set of descriptors, then they can not communicate with the customers by means of a distinctive promotion, selling and advertising.

- Faced with the existence of a heterogeneous market, the Brewpubs have not decided on its strategy with respect to the various distinct segments.

- The Brewpubs do not use the resources ofthe microbrewery. There is not product innovation with tangible differentiation as beer with lower bitter and fruit taste. The beer produced by the Brewpubs is in general similar with that one produced commercially by the big breweries, but with lower quality and higher price.



A personal survey was applied with the administration of one questionnaire (see Appendix A), applied in two cities in São Paulo State.

It was composed by multiple-choice questions at the first step and open question at the end of the questionnaire. The overall questionnaire moved from topic to topic in a logical manner, with the first questions simple, objective and interesting.

The objectives of this questionnaire was to identify which are the key points that attract people to the Brewpubs and the Brewpubs ' weaknesses in the eyes of the customers.

There were applied 48 questionnaires and the' analysis of results is bellow:

- There is a convergence between the theory of the chapter 8 and the survey research. The Brewpubs usually can not offer good services because ofthe number of customers. The Alles Beer, with 1,800m2 has 400 seats and 2,200 standing places. The Dado 's Beer has 1,200 seated places and 1,300 standing places, but receives until 5,200 people.

- The beer quality was considered one of the most important issue to enter into the market, more important than the varieties of the b~ers offered to the customers. The author believes that is there is a lack of knowledge of different beer tastes by the Brazilians customers.

- The pub ambience (design, music) was considered more important than the service quality.

Other information are found in the Graphic 6.




A observational study in the Alies Beer and Dado 's Beer Brewpub was conducted personally by the author. The customer traffic was monitored one Saturday nigh, being the customers classified by sex and age. Due to distinctive public attendance, the night was divided in two periods, from 19:00 PM to 23 :00 PM and from 23 :30 to 5 :00 AM.

The result is showed in Graphic 7 and 8.


- Men and women represent equal attendance, meaning that both must be considered in the product range.

- It was realised a customers segmentation ofthe 24-35 years old group. This represents 53 ofthe total people that attend the Brewpub.

- Young generation attendance (18-24 years old) is more significant after 23:30PM. For this group ofpeople, the Brewpub represents a Night Club.



This section provides a critique analysis of this dissertation and gives recommendation for further study.

The research methodology was appropriated for the time limit and objective of the author. The adoption of a wide approach about marketing entry strategy in the beer sector was useful to cover key issues in the Brewpub business.

The scarce findings on Iiterature survey were analysed to provi de a theoretical framework. These findings were compared with the views of experienced managers involved in the Brewpub business.

The breadth of the subject raised issues relating to the key success factors as location, service and trends. These have not been explored due to word limit and time constraints.

It would have been interesting to seek the opinions of others people involved with Brewpub, but from different field as the atmosphere designing and the range of the food. This may be suggested as a sphere of study for future MBA students.

I would also have interest in comparing the financial performance of one Brewpub which reached the success factors presented in this thesis with another one which didn't follow these rules.

Finally, this report covers a wide subject and has provided some conclusions and a model that can perfonn the basis for further research to improve the long term Brewpubs performance.

In conducting this dissertation the author has changed his view about this business, understanding that there are some critical success points, and the beer quality, that he considered the most important issue, is only part ofthis group.




The author has identified a number of criteria which should contribute to the successful operation of a Brewpub in Brazil:

- Beer quality

- Location, size and appearance

- Customers service

- Food

- Marketing

AlI aspects of a Brewpub from appearance to beer range should be aimed at the type of customers expected to attend it.

Targeting and product range in terms ofvariety ofbeers were identified as critical success factors in developed markets as in Canada. The author believes that accurate targeting market is essential for the long tenn success of a Brewpub.

The appearance and ambience of a pub are critical factors both in attracting new customers and in securing repeated business. The appearance of a pub consist of a number of elements, including the level of maintenance, the stile and state of the furnishing, level of cleanliness and degree of comfort offered.

Customer service is one of the most central issue in the Brewpub market, particularly in terms of repeat business. As the Alles Beer's owner told the author, the great problem ofthe Brewpub is the low quality ofthe waiter' s service. Therefore extensive training to get good service quality should be included in the pub strategy.

The Brewpub needs to be located in an area where sufficient level of trade can be achieved. The area in which the pub is situated should be studied in tenns of the demographics of the population in the catchment area.

São Paulo state has the biggest market share, with 54 of the Brazilian beer market. The result of this fact is that in spite of the high competition, most of the Brewpub start their activities in this state.

Large pubs have potential for greater success as they are capable of capturing a significant share of the pub trade in the local area. Economies of scale can be achieved on the food and beer production.

To attract a substantial number of customers marketing activities is one central issue. It is necessary to find out what consumers want by taking to them. Good quality market research is still probably the most valuable tool at the disposal of a company. Only by understanding what the market is and what it wants can brand planning decisions (e.g. brand values, promotion, strategy and tactics) be sensible made.

Brand should be considered one important issue of the strategy to get a sustainable competitive advantage. The Brewpub••should positioning itself in the winning position in the eyes ofthe customers. The position should be consistently communicated by all organisation' s activities, because any of them as the service or food may be an attribute from which the customer takes the message and develop a perception. The Brewpub should communicates its brand proposition in•a different way ofthe competitors in consumer's mind and establish one clear focus.

The author suggest to position the brand as a microbrewery that brew in most traditional way that the domestic breweries and to associate the house with atmosphere of friendless, where customers may have entertainrnent.

The Brazilians customers are conservative about beer taste, so it is important to brew one beer very similar to the domestic Brazilian's beers, like Skol, for example.

The microbrewery must be developed in the early stage of the project.

The Brewpub should meet the need for product innovation with tangible differentiation as beer with lower bitter and fruit taste.



When the Brewpub decides to create different service and product concepts for each segment, it should considered the following points:

- each identified segment should have sufficient potential size to justify the time and effort involved in planning;

- each identified segment should be capable of being described or measured by a set of descriptors, such that the customers in that segment can be communicated with by means of a distinctive promotion, selling and advertising strategy;

- the staffhave to be trained to identify and then adapt their sales/service strategy;

- finally, the costs of serving the different segments must be estimated to ensure that the differentiated strategy is affordable.

It is recommended that a professional market research interviewer conduct face-to-face interviews with a small sample (five or six) of the customers. This should be sufficient to indicate whether or not there are any unmet needs yet to be discovered. If necessary, this check should then move on to a larger scale project in order to quantify the extent ofthe unmet needs.



The development ofthe brewery project must be supported by a Brew Master because the correct choice of suppliers and equipment will be necessary to produce the desired beer with quality and the quantity desired.

Different kinds of beer require exc1usive serving tanks which must be planned and the utilisation of fermentation vessels to storage bright beer reduce the Plant capacity. It is necessary to c1arify the storage capacity of each project, to defme how much beer will be possible to trade in the Brewpub. One frequent mistake is underestimation of demand (not enough beer production), once that to produc~ beer it is necessary at least fifteen days.

It is important to have one Brew Master managing the product from the earliest discussions with marketing and then to be responsible for producing the agreed process specification when the product becomes routine product.



The political, economical and social macro-environment is considered  very favourable for new business in Brazil.The country has been received a rapidly expanding inflow of capital from overseas since the Real plan began and the president sees the continuing improvement in income distribution as the Govemment's number one priority. The significant increase in per capita consumption of alcoholic drinks has been principally a result of increases in disposable income.

The Brazilian beer market is growing fast, 20 in 1995 reaching 5,994 million litters of beer consumption. Brazilian beer per capta consumption reached 45 litters in 1996 and it has still a big potential. The age band of beer consumers has been widened in the last few years and the younger generation of consumers have switched to beer drinking in larger numbers.

However, the Brazilian Brewing industry is highly concentrated and dominated by very large players, with two companies that account for 81  of the market share. Because of the economy of scale and the power over the distribution channels it is very difficult to enter into the Brazilian beer market.A strategy to do so is to produce beer locally, in a public house, so called Brewpub.

There is a trend ofreduction ofthe brewery's number in the world. Faced with the existence of a growth and a heterogeneous market, with big players, the Brewpub is a business that may focus its strategy with respect to the various distinct segments. Customer intimacy is ideal but big breweries can not provide a unique service or product to every customer. They do not have the capabilities to do so in a cost efficient 


By means of segmentation, it is possible to market the Brewpub as a specialist in the chosen market segments, with a better understanding of customers' needs, thus giving competitive advantage its products/services over competitors' products. Brewpub also can offer beer with more quality and with a lower production cost.

Tangible products benefits and clear differentiation are likely to be increasingly important for the new product success. At these trends taken together point to future in which breweries will be able to import more added value to their brand portfolio by meeting a growing demand for beer that is new, exciting, has a clean taste and a high alcohol content.

Consumers appear willing to experiment and to pay a little more than they usually would for a beer that meets alI their needs.

But most Brazilian consumers are very faithful to their favourite brand, So branding is a critical success factor.Branding is one way to adding value to products and services and must be linked to a business strategy ofthe brewpub. Only ifthe Brewpub is perceived in some sense special, the buyer may well be willing to pay a Premium and will brand loyalty or brand franchises be build.

Entering the market through this strategy, it will avoid barriers as economy of scale and distribution channels. However this strategy involves other expertise such as customer services and entertainment.

The success of the Brewpub will build its brand, which will support its long tenn strategy for entry the Brazilian beer market. This could be to bottle the Premium beer and distribute it, transfonning the Brewpub .in a small brewery and then in a big one. But this is subject for further studies.



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