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Microeconomics Assignment
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Introduction
The Canadian beer Market is considered as the most mature and aggregated type of beer Market. The Labatt Brewing contributes near about 44% share and the Molson Canada shares the 37% of the total shares in the beer market of the Canada. Though, the beer market is facing the issues related to the consumption, but still the Canadian consumers consume about 35% domestic and about 59% of the international beer. Due to an increment in the competition, the customers of the beer market are continuously switching towards the other options, namely the wines, rum, whisky, etc. In the year 2014, the beer company had to face the loss of about 2.2 billion liters with the loss of about $ 17.3 billion. The selling of the beer totally depends upon the demographic features and the conditions in Canada. (Government of Canada, 2015)
As the beer industry is facing a great downfall, but the deregulation in the retail beer market has impacted on the sales of the beer. The deregulation actually imposed on the Canadian market with an aim for the modification in the law. By this, the rules can be redesigned to target improvement in the retail beer market. But, these deregulations create some impact on the retail beer industry as well. To manage the Canadian economy, the concept of equilibrium and the relation between the demand and quantity should be identified properly.
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Concepts and Theory related to the Retail Market
The Canadian Retail Market is full of the probabilities and the uncertainties as well. Various theories and the concepts are also being defined for the Market. The Canadian market always emphasized on the targeting and expanding the franchise of the business in all the regions of the country. The theory also focuses on the equilibrium of the demand and supply, elasticity related to the demand & supply, and the methods related to the elasticity. (Seiler, 2002)
If the changes in these factors will be observed, then the direct changes will be encountered in the retail beer industry also.
The Mid Point Method
The Mid Point method will be helpful in identifying the price elasticity of demand and supply. The pricing factor is the most considerable factor and the assumption of the pricing is essential to identify in contrast to demands, supply and many other aspects. The formula for calculating the Mid Point is also shown below.
Mid Point Elasticity= (B2-B1) / (B2+B1) / 2/ (A2-A1) / (A2+A1) /2
With the help of this formula, the elasticity can be calculated easily and further assumption can also be made.
The long run and short Run theory
The long run in economics is the aspect when the completion of the task is not confirmed. With this in the long run, it is difficult to identify the requirement of actual Man Power. So the long run will be full of uncertainties. If we discuss the small run aspect, it is quite structured and every aspect is very well considered and defined. These factors are also helpful in defining the elasticity related to the pricing. These two theories will also be helpful in defining the impact of the deregulation of the retail beer market.
Impacts of the Deregulation
The Canadian market possesses the great retail sector of the beverages. From this, the beer market contributes the highest share in the Canadian Market. But since the last 2-3 years, the retail market is facing the impacts due to these deregulations. The impacts may be positive or negative. The common impacts of the deregulations may be because of the import of other alternative products such as wine, rum and whisky in the market. According to a survey, it is identified that the men between the ages of 31-40 consumed about 44% of beer, which is imported from other countries rather than Canada. (Statista Inc. Team, 2008) According to the Canadian Government, these deregulations are defined to relax the retail traders but, the traders, especially the beer traders face the big issues due to these deregulations. Some of the positive and the negative impacts are defined below.
Positive Aspects
If we consider the positive impact of deregulation on the beer industry, it creates the best facility of trading in the country. The trade taxes & the exporting and importing taxes both are very high in comparison to the other taxes. So, the exporting of the beer by the retailers is also not possible as they get a very less margin on one bottle. After the change in taxation policies, it might become possible. Similarly, the post signing the agreement of Internal Trade (AIT) may lead to the reduction in barriers of internal trade. This will be helpful in increasing the export and import aspects of the Beer industry as well. The relaxation in the time restriction for opening the retail shop for selling the beer will possibly strengthen the industry and may increase the sales. The weekend and festival exemption from the government will also assist in increasing the consumption of the beer. The theory of reliability and trustworthy aspects of the retail also assures the consumers to consume the beer. The age relaxation is also considered as the positive factor. (Euromonitor International, 2015)
Negative Aspects
There are various negative impacts on the retail beer industry such as Change in Price. The deregulations also imposed the high price on the purchase of the beer. The beer contributes the highest shares in the economy of Canada and due to high price of the beer’s retail business is reducing day by day, which in turn directly or indirectly may influence the country’s economy. The beer is also considered as the daily consuming product of the Canadian people, so due to the deregulation the increase in price may also affect the monthly budget of the family. When there is an increase in price observed in the market, then the demand curve will be used to analyze it thoroughly. The increase in price will directly create the inverse effect on demand. As, the price increases the demand reduces subsequent.
Till now the beer industry is doing very well in the Canadian market, In fact The Ontario individually contributes about 62% of the total shares as the number of beer lovers is very high. But, after implementing the deregulation in the Country the other domestic beverage players are trying to give tough competition in the beer market. Due to this, the competition also turned to increase and the need of estimating the Price Elasticity is essential. To calculate the Price elasticity the formula is defined below. By calculating the Price elasticity, the competition can be assessed easily.
Price Elasticity of demand = Percentage Change in the quantity demanded / Percentage change in Price.
Due to the reduction in the price of the other alcohol based beverages, the consumer’s has started preferring those in comparison to the beer. Due to this, the increment in competition is natural. Due to the deregulation, the major changes will be observed in the trade policies which are mandatory for the retailers to follow. These rules also create the decrement in sales of beer. The rate of the higher exemption in the retail trading makes it easier for the other retailers to sale their products at the cheapest. Because of this, the local traders have started selling wine, rum and whisky at very affordable prices. To change the taste and to try something new, the customer’s using beer is switching towards the other options and it may create the negative impact on the sales of the beer. (Aaker, 2011)
The Canadian government changes the trade policies and the procedures for paying the tax. They also find out the option related to the imposed taxes, which is called as tax incidence. By this, the retail traders distributed the total amount of the tax among them and pay it to the government collectively. The price elasticity and the Tax incidence are related with each other and the changes also create the impact on each other. As the foreign traders contribute towards the country’s economy twice than the domestic market, the Canadian market allows them to trade according to their demands. The malicious entry of such an unauthorized user spoils the domestic beer market of Canada.
The Deregulation also reduces the total number of the retailers in the market. Because of the changes in the price and decrement in the sales of the beer, the retailers wish to select the other options for the sales. In this condition, the equilibrium for the supply and demand will be operating. This equilibrium will try to maximize the profit received by the buyers and the sellers. This aspect is known as the Welfare economics, by which the negative impacts related to deregulation can be avoided.
Conclusions
The Canadian beer market is the tenth largest market in the world in sales of beer and beverages. The market also provides the options of the growth and improvement to its retailers. But, due to the deregulation the retailers had to face various issues. Though, these deregulations may be helpful for them, but the suitable mode of convincing the leaders is not defined by the Canadian Government. To manage the equilibrium between the retail beer traders and the government, specific areas should be defined for them for trading so that they can also earn the maximum profit. The Government also needs to fix the definite amount of exporting the beer from outside, so that the retail market will not be affected by the international market. With this, the retailers of the beer market should also be appreciated by the steps taken by the Canadian government.
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Aaker, D. (2011, january 12). Eight characteristics of successful retail concepts. Successful retail concepts. Retrieved from http://www.retailcustomerexperience.com/articles/eight-characteristics-of-successful-retail-concepts/
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Euromonitor International. (2015, june). Beer in Canada. Retrieved from http://www.euromonitor.com/: http://www.euromonitor.com/beer-in-canada/report
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Government of Canada. (2015, July 31). The Canadian Brewery Industry. Retrieved from http://www.agr.gc.ca: http://www.agr.gc.ca/eng/industry-markets-and-trade/statistics-and-market-information/by-product-sector/processed-food-and-beverages/the-canadian-brewery-industry/?id=1171560813521
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Pearsoned team. (2003). An Overview of Strategic Retail Management. Retail Council of Canada. Retrieved from http://catalogue.pearsoned.ca/assets/hip/ca/hip_ca_pearsonhighered/samplechapter/0131204017.pdf
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Seiler, R. M. (2002). Selling Patriotism / Selling Beer: The Case of the "I Am Canadian!" Commercial. ACADEMIC JOURNAL ARTICLE, 32(01). Retrieved from https://www.questia.com/library/journal/1G1-90511058/selling-patriotism-selling-beer-the-case-of-the
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Statista Inc. Team. (2008). Statistics and facts on the beer market of Canada. (The Statistics Portal) Retrieved from http://www.statista.com: http://www.statista.com/topics/2292/beer-market-of-canada/
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