In Pursuit of Profit
By Canadean Ltd | 12 September 1999
Directing Investment to Organic Growth,Innovation and Pleasing the Punter
There is no doubt that as the top tencompanies in the spirits and wines sector get bigger, their expectations, and thestrategies needed to realise them, become sharply focussed on profit, somewhat to thedetriment of consumer choice. Diageo admits that it is obsessed with profitable organicgrowth, that it must direct investment to key brands and allow weak brands to die.
It has too many Scotch whiskies, but isunlikely to sell any brands since they would then remain in competition. It is more likelyto let them die from lack of nurture - what it terms "managed decay".Consumers have little choice in the matter since the pressure from the huge retail chainsmeans simply that they will not be stocked.
A new report from Canadean Ltd, written byMary Hall, former editor of Drinks International Bulletin, examines the dynamics of theseten companies' revised strategies. The changes in company structures and relationships,shifting economic fortunes around the world, retail power and continuing shareholderexpectations have seen a sharper direction by all leading companies as they pursue thegoal of greater profitability.
Whilst the companies seek to cut the costsof doing business through mergers and alliances, the rules of the game, and the likelihoodof success, are becoming clearer.
Another sizeable full-scale merger in thedrinks industry, such as that which created Diageo, is unlikely. There may well be smallercompatible companies who are prepared to take the plunge, but amongst the leadingcompanies, there are none with comparable cultures who could make such a move work to itsadvantage thus total acquisition is more likely.
So, to increase its portfolio, or itsgeographical reach, and to pare down its costs, a company needs to find brands which canbe bought or licensed; and local, regional or worldwide distribution networks which can beshared.
Maxxium, the tripartite alliance formed byRemy Cointreau, Jim Beam Brands and Highland Distillers goes a long way down this route.The portfolios are complementary and offer the partners a much stronger package whendealing with retailers - a benefit which is already being acknowledged by theprincipals.
All companies seem agreed on a number ofkey strands of strategy.
Concentrate on the consumer. The consumermust remain king. Tracking, researching and discovering what consumers want and how to getit to them is a vital part of strategic logic. The vast array of communication methodsoffers the ability to pinpoint a selected fragment of the market and to communicate almostdirectly with the consumer. Research into consumer profiles indicates where opportunitiesfor new products or new styles might lie.
Innovation is vital. This is not only tocater for young adults or new consumers - although that too is essential - it isalso to reward loyal consumers. Changing lifestyles, travel and tourism, work andrecreation, all affect the ways people shop, the choices they make, the way they wantgoods packaged, and the statement (fashion or otherwise) which they wish to make.
Big companies do not have to be slow -indeed in some way they need to live more dangerously than others since they have more tolose, or more to gain than most, from an innovative turn in strategy.
For example Seagram sees itself as anentertainment and leisure company. Whilst it is proud of its spirit and wine brands, andthey have been part of the Bronfman family culture for decades, the division'sfunction in the new Seagram is to generate cash for further expansion of its worldwideentertainment business. To do this it has directed its management energies and investmentto a relatively small number of key brands and/or categories, and key markets inestablished and emerging regions. To cut costs the regional structure has been supersededby one centralised team. This does not rule out the possibility of it acquiring otherleading brands or creating alliances to improve efficiencies. It has embraced the newelectronic technology and seized opportunities in distribution
Trends. As a group, LVMH has a vision of anexpanding world market for luxury goods, based on the emergence around the world of anaffluent middle class whose disposable income increases with local economic development.It sees an evolving appetite for sophisticated products in the industrialised world withincreasing attention to the quality and originality of such creations, as well as newaffordable ranges, and new modes of distribution.
New channels of distribution. The world ofe-commerce is opening up new channels of information, promotion and of distribution forthe drinks business. Investment in home shopping and other advanced technology may wellbenefit the drinks industry in a way that would have been unthinkable a few years ago.
This is the new environment in which allthe leading companies must operate and The Canadean Strategic Review - In Pursuit ofProfit - details the strategy and means by which each company seeks to fulfil it goals.
Companies covered are:
The Canadean Strategic Company Review isnow available. For further information please contact Mr Pat Brazzier, Manager Spirits& Wine on tel: 00 44 (0)1256 394228, fax: 00 44 (0)1256 394201 or email:
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