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have talked about Pernod Ricard, a global distillery giant that has strong hold on the international spirits business. The tools that have been used include SWOT analysis, PESTEL analysis, Michael Porters 5-forces and the BCG matrix. At the end of it all, I have also tried to make some recommendations that I think would be helpful to the organization in the long run. I hope this report is helpful in understanding the global spirits arena and is able to throw some light on the methods of strategic analysis.
Acknowledgement
I extend my heartfelt acknowledgement to many people who directly or indirectly contributed in the completion of this analysis report. My special humble thanks go to Prof. K.S. Prasad, faculty BPSM for giving me the opportunity to undertake this strategic analysis. Without his constant support and inputs, this report would not have been materialized.
I am also thankful to our library, computer lab and other supporting staffs of the department for their help. I will be failing in my endeavors if I do not acknowledge many of my friends for their kind co-operation. Finally I would like to pay gratitude to all those who helped me in some way or the other during the preparation of the report.
Table of Contents
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Particulars Overview of the Indian Liquor Industry Overview of Pernod Ricard SWOT Analysis PESTEL Framework Michael Porters 5-Forces Model BCG Matrix Recommendations Bibliography
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In India alcoholic sales are regulated by the state governments, which get revenue from taking it. But above this, the mind frame instilled in the people of India by the great leaders of the past especially some freedom fighters, still exist today. Theres modal advocate the temperance. Gandhi ji did not believe in losing control of mind and body through ones own will. He also believed in alcohols negative impact on India. Even though alcohol is present in the country, even welcomes in some states, over all, the population does not regard it as a virtue. But it still is a social taboo for young generation. The different kinds of alcoholc products that constitute this category are explained as under: WHISKY It is the most popular distilled liquor known all over the world. It is spirit from starch. Best known whiskies come from Scotland. The production of whisky is along and tedious process. The whisky is a sprit, which is obtained by distillation of malt or cereal grains like maize, rice, rye, barley and malt. BRANDY Brandy is generally obtained of fruits, through most commonly used fruit is grape. The best quality of brandy is cognac, which is made in cognac in France. RUM Rum is distilled from the fermented juice of sugar cane of molasses. In such a manner distillate has the taste, aroma and the characteristics generally attributed to rum. Best rum comes from west Indies, Cuba, Fiji, India and Mauricio us. In India, rum is fast emerging as ,most popular of all the distilled liquor, there is generally feeling that rum is more satisfying and has better food value then any other sprite. It is also sold comparatively at low price. Rum is being produced at almost all part of our country. This is generally due to the fact that sugar cane molasses is available in plenty in India. In some place fermented gur is also used to produce rum. Gur gives affine quality of sprite and is increasingly being used in the production of rum. GIN It is popular distilled liquor. It is artificial sweetened or unsweetened grain specially flavored with essential flavor of juniper berries.
Created by the link-up between Pernod and Ricard in 1975, Pernod Ricard has based its development on both organic growth and acquisitions. The purchase of part of the Seagram businesses (2001) and the acquisitions of Allied Domecq (2005) and Vin&Sprit (2008) have propelled the Group to the position of leader in the Premium segment and world coleader in Wines & Spirits.
With leading brands in each category, Pernod Ricard holds one of the most comprehensive and Premium portfolios in the industry including ABSOLUT, Ricard anise and Scotch whiskies led by Chivas Regal, as well as Ballantines, The Glenlivet, and Royal Salute, Jameson Irish whiskey, Martell cognac, Havana Club rum, Beefeater gin, Kahla and Malibu liqueurs, Mumm and Perrier-Jout champagnes and Jacobs Creek, Brancott (formerly Montana), Campo Viejo and Graffigna wines.
Pernod Ricard is now a major player in mature markets, and in recent years has become the industry leader in Asia, holding the leading position in China and India. This provides Pernod Ricard with a competitive edge that allows it to leverage future sources of growth in the industry. Pernod Ricard has made upscaling its brands and creating more Premium categories its strategic priority. This approach, known asPremiumisation, generates greater profitability and is underpinned by substantial marketing expenditure. As a recognised brand-builder Pernod Ricard understands the importance of innovation as a driver of growth. From product extensions to new digital media and event planning, innovation is not limited to marketingit infiltrates every area in the company: Sales, Human Resources, Production, and Finance.
The Pernod Ricard organisation is made up of Brand Companies and Market Companies representing more than 18,000 employees in 70 countries. The Market Companies locally adapt the global strategy defined by the Brand Companies. This flexible and responsive organisation guarantees the best understanding of the specifics of each market and the expectations of its consumers. It is supported by complete control of distribution in the form of a proprietary global distribution network.
In a decentralised organisation, it is corporate culture that binds the whole. The Pernod Ricard spirit is best captured by the Groups own byword: Conviviality. This is reflected in the new corporate tagline,Crateurs de convivialit. It is both a managerial approach, built around simple, direct relationships between employees, and a sentiment that each of the Groups brands strives to create with its consumers. The culture relies on three values: entrepreneurial spirit, mutual trust, and a sense of ethics.
For several decades, the Group has been committed to a policy of social responsibility. Today, this policy embraces three priorities: responsible drinking, environmental ethics, and the development of cultural initiatives or social entrepreneurial projects.
SWOT Analysis
SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses/Limitations, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective. The technique is credited to Albert Humphrey, who led a convention at Stanford University in the 1960s and 1970s using data from Fortune 500 companies. Setting the objective should be done after the SWOT analysis has been performed. This would allow achievable goals or objectives to be set for the organization. Strengths: characteristics of the business, or project team that give it an advantage over others Weaknesses (or Limitations): are characteristics that place the team at a disadvantage relative to others Opportunities: external chances to improve performance (e.g. make greater profits) in the environment Threats: external elements in the environment that could cause trouble for the business or project
Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs. First, the decision makers have to determine whether the objective is attainable, given the SWOTs. If the objective is NOT attainable a different objective must be selected and the process repeated. Here is a SWOT analysis of Pernod Ricard: Strengths: Pernod Ricard is the market leader in Asia. This is a big advantage because although, it does not have a strong hold over Indian liquor market like a lot of other foreign countries, but it has the funds to channelize into India for being at the top.
The organizations main focus is on innovation. In this highly competitive arena, innovation is the key to survival and ultimately success. Where other organizations might lose out on certain technical expertise, Pernod Ricard has the advantage of being the veteran in the field.
Weaknesses:
The main weakness of the organization lies in the fact that the consumers are not totally aware of all its brands. Being the innovation leader in the field, its a big disadvantage if the consumers are not aware about the organizations capabilities and its commitment towards consumer satisfaction.
The organization hasnt got any brand in the bear category. This is a weakness because the prime rival (United Breweries Ltd.) thrives mainly because of its bear business. Unless it gets some tough competition there, its almost impossible to get to the top in the spirits business.
Opportunities: Market research reports by Crisil show that the overall market of Indian liquor consumers is to grow by 12% annually. This a great opportunity for the organization to grab a strong hold on the upcoming whole new generation of drinkers and get a virtual first-mover advantage.
The same report talks about the reduction in the price sensitive attitude of the Indian consumers. This is again a big turnaround of events as Pernod Ricard is mainly into premium segments of the spirits business.
Threats:
There is very fierce competition in the Indian liquor industry. The main competitor being United Spirits Ltd. which has a 55% market share; against which PR holds only 35% of the market share.
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Due to the latest budget, there are going to be heavier duties on all the alcoholic beverages. This poses a serious threat to the organizations margins, specially when it has to spend so much to make a strong hold at the ground level.
PESTEL Framework
PESTEL framework stands for "Political, Economic, Social, Technological, Environmental and Legal" framework and describes the macro-environmental factors used in the environmental scanning component of strategic management. It is a part of the external analysis when conducting a strategic analysis or doing market research, and gives an overview of the different macroenvironmental factors that the company has to take into consideration. It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations.
Political factors are how and to what degree a government intervenes in the economy. Specifically, political factors include areas such as tax policy, labour law, environmental law, trade restrictions, tariffs, and political stability. Political factors may also include goods and services which the government wants to provide or be provided (merit goods) and those that the government does not want to be provided (demerit goods or merit bads). Furthermore, governments have great influence on the health, education, and infrastructure of a nation Economic factors include economic growth, interest rates, exchange rates and the inflation rate. These factors have major impacts on how businesses operate and make decisions. For example, interest rates affect a firm's cost of capital and therefore to what extent a business grows and expands. Exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy
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Social factors include the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. Trends in social factors affect the demand for a company's products and how that company operates. For example, an aging population may imply a smaller and less-willing workforce (thus increasing the cost of labor). Furthermore, companies may change various management strategies to adapt to these social trends (such as recruiting older workers). Technological factors include technological aspects such as R&D activity, automation, technology incentives and the rate of technological change. They can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation. Environmental factors include ecological and environmental aspects such as weather, climate, and climate change, which may especially affect industries such as tourism, farming, and insurance. Furthermore, growing awareness of the potential impacts of climate change is affecting how companies operate and the products they offer, both creating new markets and diminishing or destroying existing ones. Legal factors include discrimination law, consumer law, antitrust law, employment law, and health and safety law. These factors can affect how a company operates, its costs, and the demand for its products.
Political:
There is a very high level of taxes being levied on the liquor companies. Right from the acquisition of raw materials to selling the final product, each and every step involves payment of a high amount of taxes or duties. This makes it very difficult for liquor companies to make high margins.
There are strict restrictions on direct advertising of alcoholic products in the whole country. This makes it very difficult for the liquor companies to increase awareness about its products within the market.
Economic: The latest economic surveys show that there has been a rise in the level of disposable income of an average individual of the country. This poses a great opportunity for the liquor industry as liquor is already seen as a luxury product.
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The lending rates to liquor companies have been increased by the banks as a result of the lower margins being raised by those companies. This has posed serious threat for the industry, because sooner or later every company needs to approach the banks for financial support.
Sociocultural: There are various religious and cultural barriers against consumption of liquor in most parts of the country. Some religions dont permit drinking, while some cultures have been looking at it as a vice. Fighting these perceptions is the prime requirement of the industry.
With the changing times and increase in modernization of the country, the acceptance of liquor has increased amongst the youth. This again raises a market segment to be tapped by the industry.
Technological:
With the advent in the field of biotechnology, new, cheaper and easier ways of blending and malting have been discovered. This has helped the companies to cut down heavily on the costs incurred on production.
The spare grains left after the manufacturing of malted scotch whiskies are now being used in new ways to broaden the product line and offerings of the companies.
Environmental:
Since all the distilleries use a lot of water to produce their products, there is always a problem faced regarding water pollution. A no. of steps have been taken in the direction, but the problem still remains.
Another environmental concern is regarding the emission levels of the manufacturing plants. Also waste disposal planning is an important activity undertaken by these companies towards controlling environmental pollution.
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Legal: Alcoholic beverages have been facing different types of bans in some parts of the country. E.g. Gujarat has banned the manufacturing and sale of these beverages in the entire state; whereas some of the north-eastern states have banned the manufacturing units of alcoholic beverages in their territories.
There have been amendments in rules regarding the increase in the category of alcoholic products. This has kept the companies from expanding their product portfolio the way they set they plan.
its customers and make a profit. A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. Firms are able to apply their core competencies, business model or network to achieve a profit above the industry average. A clear example of this is the airline industry. As an industry, profitability is low and yet individual companies, by applying unique business models, have been able to make a return in excess of the industry average. Porter's five forces include - three forces from 'horizontal' competition: threat of substitute products, the threat of established rivals, and the threat of new entrants; and two forces from 'vertical' competition: the bargaining power of suppliers and the bargaining power of buyers.
Threat of new entrants: Profitable markets that yield high returns will attract new firms. This results in many new entrants, which eventually will decrease profitability for all firms in the industry. Unless the entry of new firms can be blocked by incumbents, the abnormal profit rate will tend towards zero (perfect competition).
Threat of substitute products: The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives. Note that this should not be confused with competitors' similar products but entirely different ones instead.
Bargaining power of buyers: The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes.
Bargaining power of suppliers: The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm, when there are few substitutes. Suppliers may refuse to work with the firm, or charge excessively high prices for unique resources.
Intensity of competitive rivalry: For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry.
The Michael Porters 5-forces model for Pernod Ricard can be explained as follows:
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Threat of new entrants: This threat is low because of the high tax rates and duties. This regulatory environment automatically creates a barrier to entry in this industry. Threat of substitute products: This threat is moderate. As such there can be no substitute to liquor, but as far as the intoxication is concerned, tobacco, marijuana and other addictive drugs can be of some threat to the industry. Bargaining power of buyers: Because of fierce competition from the United Spirits Limited, which currently holds 55% of the market share in this country, the bargaining power of buyers is high. Bargaining power of suppliers: Again because of the fierce competition faced by the firm, the bargaining power of suppliers is also high. Intensity of competitive rivalry: The intensity of competitive rivalry is high for Pernod Ricard because of the strong hold of United Spirits Limited over the spirits market.
BCG Matrix
The BCG matrix (aka B-Box, B.C.G. analysis, BCG-matrix, Boston Box, Boston Matrix, Boston Consulting Group analysis, portfolio diagram) is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing their business units or product lines. This helps the company allocate resources and is used as an analytical tool in brand marketing, product management, strategic management, and portfolio analysis. Analysis of market performance by firms using its principles has called its usefulness into question, and it has been removed from some major marketing textbooks. To use the chart, analysts plot a scatter graph to rank the business units (or products) on the basis of their relative market shares and growth rates.
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Cash cows are units with high market share in a slow-growing industry. These units typically generate cash in excess of the amount of cash needed to maintain the business. They are regarded as staid and boring, in a "mature" market, and every corporation would be thrilled to own as many as possible. They are to be "milked" continuously with as little investment as possible, since such investment would be wasted in an industry with low growth. Dogs, or more charitably called pets, are units with low market share in a mature, slowgrowing industry. These units typically "break even", generating barely enough cash to maintain the business's market share. Though owning a break-even unit provides the social benefit of providing jobs and possible synergies that assist other business units, from an accounting point of view such a unit is worthless, not generating cash for the company. They depress a profitable company's return on assets ratio, used by many investors to judge how well a company is being managed. Dogs, it is thought, should be sold off. Question marks (also known as problem child) are growing rapidly and thus consume large amounts of cash, but because they have low market shares they do not generate much cash. The result is a large net cash consumption. A question mark has the potential to gain market share and become a star, and eventually a cash cow when the market growth slows. If the question mark does not succeed in becoming the market leader, then after perhaps years of cash consumption it will degenerate into a dog when the market growth declines. Question marks must be analyzed carefully in order to determine whether they are worth the investment required to grow market share. Stars are units with a high market share in a fast-growing industry. The hope is that stars become the next cash cows. Sustaining the business unit's market leadership may require extra cash, but this is worthwhile if that's what it takes for the unit to remain a leader. When growth slows, stars become cash cows if they have been able to maintain their category leadership, or they move from brief stardom to dogdom.
As a particular industry matures and its growth slows, all business units become either cash cows or dogs. The natural cycle for most business units is that they start as question marks, then turn into stars. Eventually the market stops growing thus the business unit becomes a cash cow. At the end of the cycle the cash cow turns into a dog. The overall goal of this ranking was to help corporate analysts decide which of their business units to fund, and how much; and which units to sell. Managers were supposed to gain perspective from this analysis that allowed them to plan with confidence to use money generated by the cash cows to fund the stars and, possibly, the question marks. The BCG matrix for the product portfolio of Pernod Ricard can be shown as depicted below:
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Recommendations
Based on the broad analysis of the organization, here are some recommendations for the firm to have a strong and effective influence on the market.
The organization should introduce sales promotion schemes to increase awareness and build a strong base for a greater market share. These schemes may include a free trip for a lucky winner or coupons encouraging customer loyalty and brand awareness.
The organization should provide higher incentives to retailers than the competing firms. This would help in a higher sales of the products and more importantly encouraging a
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negative word-of-mouth for the competing organization, that in turn would help grab a larger market share.
Last, but not the least, the firm should exert some control over its distribution channel. There is an old marketing belief seen more, sold more. The firm should lay emphasis on bombarding the retailer with its brands at the right time so that the customers can actually know the whole brand portfolio rather than just knowing two or three products from the brand. This would let the customer know better about the available products from the firm and hence increase awareness.
References
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