Impact of External Business Environment on Microbrewery Industry: A PEST Analysis of Gloucester Brewery Organisation, UK

This paper analyses the impact of external business environment on the microbrewery industry through the PEST analysis method in the context of Gloucester Brewery organisation, UK. It evaluates the trends that could affect the microbrewery industry in the next 5 – 10 years.

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Introduction
Micro brewery, also called the craft brewery, refers to the brewery that produces lower
than 15000 US beer barrels a year and sells 75% or more of its beer production off site. The
microbreweries sell their production to the public using one or more of the following methods,
such as, the conventional three-tier system (brewer – wholesaler - retailer – consumer), two tier
system (brewer as the wholesaler – retailer – consumer) and directly to the customers through the
carry outs and/or restaurants or on site tap room sales (Brewers Association 2019). Such
breweries are known for their brewing techniques, quality and flavour. This is a popular industry
in the UK since the 1970s (Danson et al. 2015). However, like all other industries, the
microbrewery industry is also affected by external business environment. This paper will
illustrate the impact of external business environment on the microbrewery through the PEST
analysis method in the context of Gloucester Brewery organisation, UK. The purpose of the
paper is to find out and evaluate the trends that could affect the microbrewery industry in the
next 5 – 10 years. The background of the Gloucester Brewery organisation and analysis of the
trends are presented below.
About Gloucester Brewery Organisation, UK
Gloucester Brewery organisation is an award winning craft brewery based in the heart of
Gloucester's historic Docks. The brewery was founded in 2011 and within the few years, it has
become one of the most prestigious award winning microbreweries in the UK
(Gloucesterbrewery.co.uk 2019). Apart from crafted beer production of different varieties, the
microbrewery is also engaged in organising tours and other events to increase its popularity in

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the market. It produces 15 types of different flavoured beer and along with that, also offers
various specialities at the Tank to the guests (Gloucesterbrewery.co.uk 2019).
PEST analysis of the microbrewery/brewery industry
PEST analysis refers to the analysis of the political, economic, social and technological
environment analysis. The business environment contains of external and internal environment
that affect the business operations for any industry or organisation. External environment
includes factors that are beyond the control of the management of the organisation, such as, the
political, economic, social, technological scenario of the country (Rastogi and Trivedi 2016). On
the other hand, internal environment includes internal business factors that are controlled by the
organisation (Kew and Stredwick 2017). To analyse the external environment of the brewery
industry and its trends in the UK market, PEST analysis has been performed.
 Political: UK has a liberal political scenario for the brewing industry. There are various
changes and reforms of the licensing laws in line with the government policies and
relaxation in the opening hours and in the late night opening of the pubs, bars and
restaurant (Ellis and Bosworth 2015). There are taxes on the brewing industry, which
contributes a significant amount every year. However, there is some political instability
after the Brexit referendum and uncertainty as Britain will lose the access to the single
market of EU. Yet, it is expected that the revenue of the microbrewery industry will not
be affected much due to Brexit as consumption of craft beer is quite popular in the UK
(Bayani and Dakila 2017). Gloucester Brewery has been able to utilize the politically
favourable situation and by abiding to the rules and regulations properly, within a few
years of its establishment, it has been able to capture a large market share.

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 Economic: In 2017, the UK brewing industry collected around £8.9 billion with an
annual growth of 0.2% (Ibisworld.co.uk 2019). The demand of the beer is generally
driven by the per capita consumption of alcohol, price, income and consumer preference
(Selvanathan 2017). There is high duty on beer sales that contributes in the government
revenue. However, it has been found that the price of craft beers in the UK is much more
than their counterparts in the EU market (Colen and Swinnen 2016). Unstable inflation,
changing rates of interest, hike in fuel price, volatility in prices of the raw materials of
beer, exchange rate risks, and increasing competition are affecting the microbrewery
industry (Cabras 2018). Moreover, uncertainty in the global supply chain for the raw
materials is also contributing in the price hike of the beers in the UK. Hence, due to the
inflation and low wage growth, people in the UK have less disposable income and they
prefer to spend their money on quality products than the average (Karampela and
Waehning 2017). Thus, the popularity for high quality craft beers has increased in the UK
in the past few years. Gloucester Brewery has been able to gain a substantial market share
in the microbrewery section as preferences for a high quality product combined with
higher and stable disposable income of the people has played a major role. At the same
time, there are price wars between the larger breweries and microbreweries, as the
supermarkets mostly sell the larger beer brands at quite low price. Thus, at the local food
stores, the larger branded beers are easily available at a cheaper price than the locally
produced beers, which is higher priced due to its exclusivity and product quality (Danson
et al. 2015). However, the larger brands are yet to capture the popularity and product
quality of the craft beers. It has also been found that, due to the success of craft beers,

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many larger established brands are now investing in producing craft beers or going for
acquisitions of the microbreweries (Cabras 2018).
 Social: In the past few decades, the demographic of the UK has changed dramatically.
Most of the population is now ageing and there is a high level of migration. Ageing
population is a reason for decline in the beer consumption. It is seen that the consumers
now prefer more variety and higher quality in the drinks along with innovative flavours
and variations of the traditional beers (Garavaglia and Swinnen 2018). Gloucester
Brewery organisation, UK was able to understand the consumer demand pattern since
beginning and that has paid off the brewery in terms of popularity, awards and revenues
(Gloucesterbrewery.co.uk 2019). Moreover, the pubs and bars organize various events
like live music events, themed nights for the young people, which increases their
popularity. As highlighted by Monaghan (2017), in the UK market, more than 300
breweries opened in 2016 that indicates a steady growth of the industry. It has also been
found that popularity of craft beers in pubs and in the supermarkets has encouraged
people to open their own their microbreweries (Ibisworld.co.uk 2019). Thus, since 1994
to 2016, the number of craft breweries increased by 18%, which was 64% in the past 5
years (sales-i.com 2018).
 Technological: The country has a quite developed technological scenario, which is a
benefit for all industries. Microbrewery or the brewing industry is no exception. Not only
the equipment of traditional beer production has improved, but also various new
technologies have been invented for better quality production. New methods of brewing
has been invented, such as, to reduce food waste, the Toast Ale of London produces craft
beer from the unsold bread from the bakeries and with the unused crusts collected from

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the sandwich makers (Monaghan 2017). Gloucester Brewery organisation has also been
using traditional techniques of brewing and also integrating the new equipment and
technology and has been offering innovative flavours to the customers
(Gloucesterbrewery.co.uk 2019). Along with that, multichannel promotions, especially
social media promotions have been quite helpful in increasing the awareness and
popularity of the craft beers in the UK market.
It can be said from the above discussion that, in the next 5-10 years the popularity for the
craft beers will increase substantially. Microbreweries, like Gloucester Brewery, UK is exploring
the market opportunities through innovative varieties, technological advancement and global
supply chains. The disposable income of the people are rising, exports and imports of beers and
raw materials are increasing, the demography of the society is changing along with the tastes and
references of the consumers (Aquilani et al. 2015), which the microbreweries, like the Gloucester
Brewery, are aiming to address.
Conclusion
As seen from the website of Gloucester Brewery, UK, it not only provides 15 types of
different flavours of beer, but also attracts the young crowds by hosting gigs, live music, themed
parties etc. This is a marketing technique that helps to increase its popularity. For the
innovations, the brewery has also earned quite a few awards within a very short span of time,
which has helped to increase its market share. From the PEST analysis, it can be said that, in the
next 5 – 10 years, the microbrewery industry will face a rapid growth as majority of these
breweries are focusing on innovations and due to increase in disposable income, people are
spending money for a high quality alcohol than on the average ones. The political, economic and

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technological scenarios are quite favourable for the local microbreweries although the market
competition is quite challenging. However, the numbers of microbreweries are increasing and in
the coming decade, the local microbreweries will be the major players in the market by
presenting innovations in comparison to the larger brands.
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