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Submitted to: Prof. K.S. Prasad Shrivastava Faculty, BPSM
Submitted by: Sarthak 10M33, Div. A
G.H. Patel Postgraduate Institute of Business Management Preface
A strategic analysis is important to understand an organization’s present scenario as well as its impact on its future. It is a theoretically informed
understanding of the environment in which an organization is operating, together with an understanding of the organization’s interaction with its environment in order to improve organizational efficiency and effectiveness by increasing the organization’s capacity to deploy and redeploy its resources intelligently. Here, I
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 Porter’s 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.
I will be failing in my endeavors if I do not acknowledge many of my friends for their kind co-operation.S. Prasad. Without his constant support and inputs. 3 . faculty BPSM for giving me the opportunity to undertake this strategic analysis.Acknowledgement I extend my heartfelt acknowledgement to many people who directly or indirectly contributed in the completion of this analysis report. computer lab and other supporting staffs of the department for their help. My special humble thanks go to Prof. K. this report would not have been materialized. 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. I am also thankful to our library.
No 1 2 3 4 5 6 7 8 Particulars Overview of the Indian Liquor Industry Overview of Pernod Ricard SWOT Analysis PESTEL Framework Michael Porter’s 5-Forces Model BCG Matrix Recommendations Bibliography Page No 05 07 09 11 14 16 18 19 4 .Table of Contents Ch.
Set fore on the hundred of bottles. 5 . Indian traditionally put more emphasis parade on education. may be not. Most parents raise their kids with the same morals and values that were thought to them by their parents. What does this say? These women were outraged by what alcohol in other ways. Dusk was setting in a small village. as the former the brings the later too. Imagine that. they attacked it. has been around for a while. The Irish monks brought Irish learned it from Spanish. They armed themselves with chili powder and broomstick. and then they waited by the village road. The land of mystery. as well as attempts to curtail infringement or avoid corruption. since it is sometimes connected not only to alcoholism. Within minutes they through chili powder into drivers eyes. Spiritual growth surpasses wealth and power. Normally. In 1996. while the men hit the bars. Peaking of all flavors… Scotch whisky comes to mind doesn’t it? Ok. and the villagers were returning from the fields. The spiritual would is one where all come together. a prohibition in other countries has not been learned. for example. But one day. the women did not go home. but also to other problems. the women headed home. alcoholics. And efforts at enforcement. Wine. bound by tradition. Still a profoundly religious country in Hindu faith deems it a virtue to come to terms with one’s own being. Morgan’s ship seemed to reach everyone’s harbor. and thrashed the man inside the vehicle with their lives rather allow more alcohol into their village. as elsewhere. and / or what not. poverty and wealth meet in the middle. How can such a contradiction survive together? The answer is strongly religious social fabric. white thinking alcohol leads to a deterrent of one’s goals in life. Soon anti alcohol protests spread through out the region.Overview of the Indian Liquor Industry There was a time when India known as the land of snake charmers. Now whether alcohol is welcome or not… that is another issue. has been around since prehistoric times. When jeep down to mud tracks. The Spanish learned it from Arab. carrying the village’s weekly alcohol supplies. India is a country where all the flavors are strong. But do you know where it comes from? Scotch has a interesting and perhaps surprising history. Other what Capt. In this country. degenerated into farce. such as knowing drunk driving victims. alcohol in India. And Arab in turn learned it from India.
Cuba. which is obtained by distillation of malt or cereal grains like maize. aroma and the characteristics generally attributed to rum. Gandhi ji did not believe in losing control of mind and body through one’s own will. It is spirit from starch. which is made in cognac in France. Rum is being produced at almost all part of our country. The whisky is a sprit. still exist today. 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. rice. which get revenue from taking it. There’s modal advocate the temperance. through most commonly used fruit is grape. India and Mauricio us. barley and malt. It is artificial sweetened or unsweetened grain specially flavored with essential flavor of juniper berries. Even though alcohol is present in the country. Gur gives affine quality of sprite and is increasingly being used in the production of rum. Best known whiskies come from Scotland.most popular of all the distilled liquor. the population does not regard it as a virtue. But above this. 6 . But it still is a social taboo for young generation. This is generally due to the fact that sugar cane molasses is available in plenty in India. In India. It is also sold comparatively at low price. He also believed in alcohol’s negative impact on India. GIN It is popular distilled liquor. even welcomes in some states. rum is fast emerging as .In India alcoholic sales are regulated by the state governments. BRANDY Brandy is generally obtained of fruits. rye. over all. In some place fermented gur is also used to produce rum. Fiji. In such a manner distillate has the taste. there is generally feeling that rum is more satisfying and has better food value then any other sprite. The production of whisky is along and tedious process. The best quality of brandy is cognac. the mind frame instilled in the people of India by the great leaders of the past especially some freedom fighters. RUM Rum is distilled from the fermented juice of sugar cane of molasses. Best rum comes from west Indies.
It is now a worldwide conglomerate. here are some important points: • Created by the link-up between Pernod and Ricard in 1975. Allied Domecq plc. Ricard anise and Scotch whiskies led by Chivas Regal. as well as Ballantine’s. Jameson Irish whiskey. along with many other holdings. Pernod Ricard owns the distilled beverage division of the former corporation Seagram. the company acquired a British-based competitor. 7 . Pernod Anise and Ricard Pastis. To sum up the key profile and strategy of the company. and Royal Salute. Campo Viejo and Graffigna wines. The company also produces several other types of pastis. The company's eponymous products. Pernod Ricard holds one of the most comprehensive and Premium portfolios in the industry including ABSOLUT.Overview of Pernod Ricard Pernod Ricard is a French company that produces distilled beverages. Beefeater gin. which produces Absolut Vodka. The Glenlivet. In 2005. After the banning of absinthe. Martell cognac. Brancott (formerly Montana). Kahlúa and Malibu liqueurs. Mumm and Perrier-Jouët champagnes and Jacob’s Creek. are both anise-flavoured liqueurs and are often referred to simply as Pernod or Ricard. Pernod Ricard was created from the Pernod Fils company. 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. Pernod Ricard announced its acquisition of Swedish-based V&S Group. Havana Club rum. Pernod Ricard has based its development on both organic growth and acquisitions. which had produced absinthe. • With leading brands in each category. In 2008.
and a sentiment that each of the Group’s brands strives to create with its consumers.000 employees in 70 countries. generates greater profitability and is underpinned by substantial marketing expenditure. innovation is not limited to marketing—it infiltrates every area in the company: Sales. This provides Pernod Ricard with a competitive edge that allows it to leverage future sources of growth in the industry. The Market Companies locally adapt the global strategy defined by the Brand Companies. It is both a managerial approach.• • Pernod Ricard is now a major player in mature markets. Today. environmental ethics. it is corporate culture that binds the whole. and Finance. From product extensions to new digital media and event planning. • For several decades. Human Resources. holding the leading position in China and India.‘Créateurs de convivialité’. mutual trust. As a recognised brand-builder Pernod Ricard understands the importance of innovation as a driver of growth. The Pernod Ricard spirit is best captured by the Group’s own byword: ‘Conviviality’. and a sense of ethics. This approach. This flexible and responsive organisation guarantees the best understanding of the specifics of each market and the expectations of its consumers. direct relationships between employees. This is reflected in the new corporate tagline. and in recent years has become the industry leader in Asia. built around simple. this policy embraces three priorities: responsible drinking. 8 . the Group has been committed to a policy of social responsibility. • The Pernod Ricard organisation is made up of Brand Companies and Market Companies representing more than 18. The culture relies on three values: entrepreneurial spirit. Pernod Ricard has made upscaling its brands and creating more Premium categories its strategic priority. and the development of cultural initiatives or social entrepreneurial projects. It is supported by complete control of distribution in the form of a proprietary global distribution network. • In a decentralised organisation. known as‘Premiumisation’. Production.
Opportunities. 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. but it has the funds to channelize into India for being at the top. Here is a SWOT analysis of Pernod Ricard: Strengths: • Pernod Ricard is the market leader in Asia.SWOT Analysis SWOT analysis is a strategic planning method used to evaluate the Strengths. the decision makers have to determine whether the objective is attainable. 9 . Setting the objective should be done after the SWOT analysis has been performed. This is a big advantage because although. If the objective is NOT attainable a different objective must be selected and the process repeated. it does not have a strong hold over Indian liquor market like a lot of other foreign countries.g. This would allow achievable goals or objectives to be set for the organization. who led a convention at Stanford University in the 1960s and 1970s using data from Fortune 500 companies. 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. and Threats involved in a project or in a business venture. First. Strengths: characteristics of the business. given the SWOTs. The technique is credited to Albert Humphrey. Weaknesses/Limitations. 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.
10 . 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. The main competitor being United Spirits Ltd. which has a 55% market share.• The organization’s main focus is on innovation. Being the innovation leader in the field. 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. Unless it gets some tough competition there. In this highly competitive arena. Pernod Ricard has the advantage of being the veteran in the field. it’s a big disadvantage if the consumers are not aware about the organization’s capabilities and its commitment towards consumer satisfaction. This is a weakness because the prime rival (United Breweries Ltd. • The organization hasn’t got any brand in the bear category. innovation is the key to survival and ultimately success. Threats: • There is very fierce competition in the Indian liquor industry. Where other organizations might lose out on certain technical expertise. • The same report talks about the reduction in the price sensitive attitude of the Indian consumers.) thrives mainly because of its bear business. This is again a big turnaround of events as Pernod Ricard is mainly into premium segments of the spirits business. Weaknesses: • The main weakness of the organization lies in the fact that the consumers are not totally aware of all its brands. against which PR holds only 35% of the market share.
potential and direction for operations. governments have great influence on the health. Exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy • 11 .• Due to the latest budget. Environmental and Legal" framework and describes the macro-environmental factors used in the environmental scanning component of strategic management. Social. environmental law. This poses a serious threat to the organization’s margins. It is a part of the external analysis when conducting a strategic analysis or doing market research. specially when it has to spend so much to make a strong hold at the ground level. 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). Specifically. • Political factors are how and to what degree a government intervenes in the economy. These factors have major impacts on how businesses operate and make decisions. Technological. Economic. and gives an overview of the different macroenvironmental factors that the company has to take into consideration. and infrastructure of a nation Economic factors include economic growth. business position. interest rates affect a firm's cost of capital and therefore to what extent a business grows and expands. labour law. PESTEL Framework PESTEL framework stands for "Political. tariffs. education. and political stability. It is a useful strategic tool for understanding market growth or decline. interest rates. exchange rates and the inflation rate. political factors include areas such as tax policy. Furthermore. trade restrictions. For example. there are going to be heavier duties on all the alcoholic beverages.
Environmental factors include ecological and environmental aspects such as weather. climate. Legal factors include discrimination law. • • • Here is a PESTEL framework for Pernord Ricard: Political: • There is a very high level of taxes being levied on the liquor companies. and climate change. employment law. an aging population may imply a smaller and less-willing workforce (thus increasing the cost of labor). technological shifts can affect costs. its costs. automation. These factors can affect how a company operates. companies may change various management strategies to adapt to these social trends (such as recruiting older workers). and insurance. 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 makes it very difficult for liquor companies to make high margins. population growth rate. growing awareness of the potential impacts of climate change is affecting how companies operate and the products they offer. technology incentives and the rate of technological change. Furthermore. which may especially affect industries such as tourism. farming. and lead to innovation. minimum efficient production level and influence outsourcing decisions. Furthermore. and the demand for its products. Right from the acquisition of raw materials to selling the final product. • There are strict restrictions on direct advertising of alcoholic products in the whole country. each and every step involves payment of a high amount of taxes or duties. career attitudes and emphasis on safety. quality. Trends in social factors affect the demand for a company's products and how that company operates. 12 . both creating new markets and diminishing or destroying existing ones. This poses a great opportunity for the liquor industry as liquor is already seen as a luxury product. age distribution. consumer law. This makes it very difficult for the liquor companies to increase awareness about its products within the market. For example. antitrust law.• Social factors include the cultural aspects and include health consciousness. They can determine barriers to entry. Furthermore. Technological factors include technological aspects such as R&D activity. and health and safety law.
but the problem still remains. Sociocultural: • There are various religious and cultural barriers against consumption of liquor in most parts of the country. Some religions don’t permit drinking. • 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. 13 . A no. • Another environmental concern is regarding the emission levels of the manufacturing plants. the acceptance of liquor has increased amongst the youth. cheaper and easier ways of blending and malting have been discovered. This has posed serious threat for the industry.• The lending rates to liquor companies have been increased by the banks as a result of the lower margins being raised by those companies. because sooner or later every company needs to approach the banks for financial support. Also waste disposal planning is an important activity undertaken by these companies towards controlling environmental pollution. Fighting these perceptions is the prime requirement of the industry. This again raises a market segment to be tapped by the industry. there is always a problem faced regarding water pollution. new. of steps have been taken in the direction. while some cultures have been looking at it as a vice. Technological: • With the advent in the field of biotechnology. • With the changing times and increase in modernization of the country. This has helped the companies to cut down heavily on the costs incurred on production. Environmental: • Since all the distilleries use a lot of water to produce their products.
The remainder are internal threats. in which available profits for all firms are driven to normal profit. It draws upon industrial organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. A very unattractive industry would be one approaching "pure competition".Legal: • Alcoholic beverages have been facing different types of bans in some parts of the country. Three of Porter's five forces refer to competition from external sources. • There have been amendments in rules regarding the increase in the category of alcoholic products. Michael Porter's 5-Forces Model Michael Porter's 5-forces model is a framework for industry analysis and business strategy development formed by Michael E.g. This has kept the companies from expanding their product portfolio the way they set they plan. They consist of those forces close to a company that affect its ability to serve 14 . Attractiveness in this context refers to the overall industry profitability. E. Porter of Harvard Business School in 1979. Porter referred to these forces as the micro environment. whereas some of the north-eastern states have banned the manufacturing units of alcoholic beverages in their territories. Gujarat has banned the manufacturing and sale of these beverages in the entire state. to contrast it with the more general term macro environment. An "unattractive" industry is one in which the combination of these five forces acts to drive down overall profitability.
or charge excessively high prices for unique resources. the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. The Michael Porter’s 5-forces model for Pernod Ricard can be explained as follows: 15 . by applying unique business models. Suppliers of raw materials. components. Threat of new entrants: Profitable markets that yield high returns will attract new firms. • 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. As an industry. when there are few substitutes. have been able to make a return in excess of the industry average. Suppliers may refuse to work with the firm. and the threat of new entrants. which eventually will decrease profitability for all firms in the industry.its customers and make a profit. labor. • Bargaining power of suppliers: The bargaining power of suppliers is also described as the market of inputs. which also affects the customer's sensitivity to price changes. and services (such as expertise) to the firm can be a source of power over the firm. Porter's five forces include . A clear example of this is the airline industry. A change in any of the forces normally requires a business unit to re-assess the marketplace given the overall change in industry information. Note that this should not be confused with competitors' similar products but entirely different ones instead. Firms are able to apply their core competencies. the threat of established rivals. The overall industry attractiveness does not imply that every firm in the industry will return the same profitability. the abnormal profit rate will tend towards zero (perfect competition). and two forces from 'vertical' competition: the bargaining power of suppliers and the bargaining power of buyers. This results in many new entrants. profitability is low and yet individual companies. business model or network to achieve a profit above the industry average. • 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. • Intensity of competitive rivalry: For most industries. Unless the entry of new firms can be blocked by incumbents.three forces from 'horizontal' competition: threat of substitute products.
Analysis of market performance by firms using its principles has called its usefulness into question. Boston Matrix. the bargaining power of suppliers is also high. • Threat of substitute products: This threat is moderate. strategic management. and portfolio 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 regulatory environment automatically creates a barrier to entry in this industry. • Bargaining power of buyers: Because of fierce competition from the United Spirits Limited. B. As such there can be no substitute to liquor. analysts plot a scatter graph to rank the business units (or products) on the basis of their relative market shares and growth rates. • Bargaining power of suppliers: Again because of the fierce competition faced by the firm. Boston Consulting Group analysis. tobacco. product management. the bargaining power of buyers is high. Boston Box.Threat of new entrants: This threat is low because of the high tax rates and duties. marijuana and other addictive drugs can be of some threat to the industry. BCG Matrix The BCG matrix (aka B-Box. and it has been removed from some major marketing textbooks.G. 16 . analysis. but as far as the intoxication is concerned.C. • 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. To use the chart. which currently holds 55% of the market share in this country. This helps the company allocate resources and is used as an analytical tool in brand marketing. BCG-matrix.
Stars are units with a high market share in a fast-growing industry. If the question mark does not succeed in becoming the market leader. then turn into stars. and how much. The hope is that stars become the next cash cows. or more charitably called pets. slowgrowing industry. The natural cycle for most business units is that they start as question marks. Question marks must be analyzed carefully in order to determine whether they are worth the investment required to grow market share. from an accounting point of view such a unit is worthless. then after perhaps years of cash consumption it will degenerate into a dog when the market growth declines.• Cash cows are units with high market share in a slow-growing industry. Eventually the market stops growing thus the business unit becomes a cash cow. The overall goal of this ranking was to help corporate analysts decide which of their business units to fund. 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. Dogs. all business units become either cash cows or dogs. • • • As a particular industry matures and its growth slows. A question mark has the potential to gain market share and become a star. Question marks (also known as problem child) are growing rapidly and thus consume large amounts of cash. At the end of the cycle the cash cow turns into a dog. and every corporation would be thrilled to own as many as possible. the question marks. When growth slows. generating barely enough cash to maintain the business's market share. stars become cash cows if they have been able to maintain their category leadership. The BCG matrix for the product portfolio of Pernod Ricard can be shown as depicted below: 17 . Dogs. They depress a profitable company's return on assets ratio. it is thought. but because they have low market shares they do not generate much cash. These units typically "break even". possibly. They are regarded as staid and boring. not generating cash for the company. or they move from brief stardom to dogdom. since such investment would be wasted in an industry with low growth. used by many investors to judge how well a company is being managed. The result is a large net cash consumption. They are to be "milked" continuously with as little investment as possible. Sustaining the business unit's market leadership may require extra cash. These units typically generate cash in excess of the amount of cash needed to maintain the business. Though owning a break-even unit provides the social benefit of providing jobs and possible synergies that assist other business units. in a "mature" market. and which units to sell. are units with low market share in a mature. but this is worthwhile if that's what it takes for the unit to remain a leader. should be sold off. and eventually a cash cow when the market growth slows.
Recommendations Based on the broad analysis of the organization. • The organization should provide higher incentives to retailers than the competing firms. These schemes may include a free trip for a lucky winner or coupons encouraging customer loyalty and brand awareness. here are some recommendations for the firm to have a strong and effective influence on the market. This would help in a higher sales of the products and more importantly encouraging a 18 . • The organization should introduce sales promotion schemes to increase awareness and build a strong base for a greater market share.
com. sold more’. accessed on March 21. but not the least. that in turn would help grab a larger market share. the firm should exert some control over its distribution channel.com/Ratings/Commentary/CommentaryDocs/liquorind_vivek. References • www. • Last. This would let the customer know better about the available products from the firm and hence increase awareness. 2012 19 . 2012 • http://www.pdf. 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.crisil.negative word-of-mouth for the competing organization.pernodricard. accessed on March 20. There is an old marketing belief ‘seen more.
org/wiki/Pernod_Ricard. 2012 20 .wikipedia.• http://en. accessed on March 19.
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