McKnight's Pub

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Irish Pub Bar Business Plan

Market Analysis Summary

Over the past five years, McKnight's has seen a declining trend in sales. While some of this is due to the lack of initiative on behalf of the old management, much of this is due to the rise of microbreweries in the Portland area. Many customers are taking advantage of the proliferation of beer varieties in the U.S. (due to changes in the law on alcohol production) by seeking establishments that have unique brew styles. In this day and age of massive fragmentation and proliferation of brew recipes, innovation and experimentation is the name of the game.

4.1 Market Segmentation

The market segmentation is divided into the leading target markets. The division reflects the differences in marketing strategy that will be used to target each different market.

  • Middle class, "white collar" office workers from the downtown area. These are people seeking to have a drink or some quick food during lunchtime and sometimes want to show out-of-towners some of the local highlights. In addition, the pub can expect to see these types of customers dropping in for some hours after work to unwind. The growth of this market segment as demonstrated in the Market Analysis table is based on the estimated growth of business establishments in the Portland downtown area.
  • Late nighters and weekend partiers. These are the folks that drop by and stay for many hours socializing and drinking. Growth of this segment is based on the estimated population growth of Portland itself.
  • Brew Connoisseur. These customers are a relatively new type to the American scene. Although there have been beer connoisseur all over since beer was invented, until recently government regulation was such that the industry was concentrated within a few national companies such as Anheuser Busch, Coors, etc. These companies had few product lines and sought to produce large amounts of beer over very short time periods. This made for an overall low quality of domestic beers available to Americans at reasonable prices. Since deregulation the industry has rapidly fragmented, allowing small brewers to compete against the larger established companies on a local and even national level. All this has inspired new connoisseur in brewing that has revolutionized the industry. With so many new types and brands of beer available, the customer that wants to try new types is being wooed by all industry participants.
Market Analysis
2003 2004 2005 2006 2007
Potential Customers Growth CAGR
"white collar" workers 3% 75,000 77,250 79,568 81,955 84,414 3.00%
Late niters and weekend partiers 3% 435,000 448,050 461,492 475,337 489,597 3.00%
Beer connoisseur 8% 120,000 129,600 139,968 151,165 163,258 8.00%
Total 4.01% 630,000 654,900 681,028 708,457 737,269 4.01%

4.2 Target Market Segment Strategy

McKnight's Pub exists in a highly competitive industry whose environment creates low margins due to the high amounts of pressure placed upon participants from customers, suppliers, other rivals, potential entrants, and participants products. This has created a fragmented industry in which no one participant has significant market share.

Customers have an great deal of power and influence in this industry since there are virtually no switching costs.

Customers regularly go to more than one pub or bar to socialize and drink. In addition, while this pastime is very popular, the overall quality of the customer's life is unaffected if they choose to forgo pursuing it.

Finally, even with the rise of microbreweries, many customers still find that most pubs have the products that they seek, making the pub visit itself undifferentiated.

Suppliers also have a great deal of power in relation to the pubs and taverns. Almost all suppliers are regional companies that have a wide variety of customers including grocery stores, liquor stores, restaurants, caterers, etc.

This means that any one customer of these distributors makes up a fraction of their sales and has little influence on their prices, quality and terms.

Furthermore, while these distributors often sell a wide variety of products such as produce, poultry and meat products, tobacco, and others, pubs and taverns are solely dependant upon the distributors for all their merchandise. The only real way to offset the distributor's influence is to backward-integrate by brewing and marketing the alcohol itself.

The rivalry among other taverns, bars, pubs, etc. is especially intense. This is because there is a large number of them in the Portland area who are more or less equally balanced in terms of size, popularity, and resources.

Since industry growth is small, there is strong moves by all competitors to gain market share at the expense of others. The lack of a differentiated product or service by most pubs or taverns only makes this worse.

In this type of environment, each firm tries to cut prices, increase services and products and cut costs. This in turn creates retaliation among rivals and leads to lower profits.

There are relatively few barriers to entry in the pub/tavern industry, making the threat of new entrants to the market very real. The capital costs of starting up a bar or tavern are low and access to distribution channels is quite easy.

Where firms seek advantages is in gaining a favorable location, building brand equity through customer loyalty, creating a unique environment, or backward-integration by producing unique products. All this takes luck, persistence, and awareness of customer needs.

Finally, the existance of substitutes creates a great deal of pressure on pubs and taverns to attract and retain customers. Restaurants, breweries, and any other place where drinking and socializing goes on is a direct threat to McKnight's and other rivals.

In addition, grocery and liquor stores that sell alcohol are an indirect threat that offers alternatives to potential customers. These substitutes, who often offer lower costs, decrease the overall potential of the pub and tavern industry as a whole.

4.2.1 Main Competitors

There are a wide variety of bars, restaurants, nightclubs and other direct and indirect competitors in the Portland area. Some of the closest in terms of location and quality include the following:

  1. Columbia River Alehouse and Brewery. Columbia River offers the largest threat to McKnight's as it has created an excellent reputation for its microbrews by retaining the services of Michael Evan, a former brewmaster for Henry Weinhards. Columbia River specializes in beers with lots of hops, such as hefeweisens. Furthermore the establishment has just had a very favorable article written about its cuisine in the Oregonian. Its separate bar has an established clientele that attracts the young college crowd.
  2. Fitzgerald's Sportsbar. This establishment is located only one block from McKnight's Pub. It attracts a niche market of sports fans especially as it has widescreen TV's and hosts parties during Portland Trailblazer games. During other times it attracts some of the customers that McKnight's is targeting such as the late night crowd.
  3. Argosy Brewery. Argosy is local brewery more oriented toward production and distribution of its premier lagers and stouts in the pacific northwest region. However, its tasting room has recently been expanded into a full-time pub and has gotten great reviews. Its location close to the waterfront draws a large crowd. Market Growth

McKnight's opens at 11 a.m. each day to catch the lunch crowd and closes at 2 a.m.. Revenues are quite variable in the short-term with the majority of sales occuring on the weekends between the hours of 8 p.m.-midnight. Seasonally, McKnight's is usually more busy during the summer months due to the heat and with more people wishing to be outside during this time.