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PERNOD RICARD

IB Term Project

SEC-B | GROUP 7
ANUGRAHA SATHEESH- PGP05059
BARATH SINGH- PGP05063
MUDIT SINGH- PGP05078
SEJAL AGARWAL- PGP05091
SHREY KARN- PGP05092

Contents
Introduction Pernod Ricard................................................................................................................. 3
Background of Pernod Ricard ............................................................................................................ 3
Objective of the Project ..................................................................................................................... 3
Methodology ...................................................................................................................................... 4
II. Literature Study:................................................................................................................................. 4
1. Business Model............................................................................................................................... 4
Decentralization Model.................................................................................................................. 4
Interaction between Regions, Brand Companies and Market Companies .................................. 5
Regional Presence .......................................................................................................................... 6
Market Companies ......................................................................................................................... 6
Brand Companies ........................................................................................................................... 6
2. History and Organization ............................................................................................................... 7
Laying the Foundations of Worldwide Network ........................................................................... 7
Consolidation and Organization .................................................................................................... 7
Refocusing the Business Strategy .................................................................................................. 7
III. Company Assessment ....................................................................................................................... 8
International Strategy ........................................................................................................................ 8
McKinseys 7S Framework ................................................................................................................. 9
VRIN ANALYSIS: ................................................................................................................................ 10
COMPETITIVE & COMPARATIVE ANALYSIS ........................................ Error! Bookmark not defined.
IV. Market Assessment: Global Spirits & Wine Industry .................................................................... 10
CAGE Analysis: .................................................................................................................................. 11
Global PESTEL analysis ..................................................................................................................... 11
PEST Analysis for Asia...................................................................... Error! Bookmark not defined.
V. Discussion: Performance Evaluation ............................................................................................... 13
Region-wise Performance: ............................................................................................................... 13
Entry Mode Rationale: Localization vs Globalization ..................................................................... 14
VI. Alternative Recommendation ........................................................................................................ 15

ntroduction Pernod Ricard

For functioning globally, companies adopt various strategies to enter into other local markets. It can be
through acquisitions, mergers, joint ventures or Greenfield investments. Access to markets, acquisition of
resources, and minimisation of risks and economies of scale are some of the reasons why businesses go
global. There are many reputed companies which emerged through subsidiaries also. Pernod Ricard is one
such company which entered International business with the help of subsidiaries. Pernod Ricard is a French
company which involved in Alcohol business worldwide. Global Alcohol market is a growing market with high
global expenditure and high market demand worldwide. Asia Pacific is the highest-demand market, region
wise with Japan, China, India and Thailand being the major alcohol trade-markets.
Background of Pernod Ricard
Pernod Ricard is a French company that produces distilled beverages. It is a worldwide conglomerate and owns
the distilled beverage division of the former corporation Seagram, along with many other holdings. In 2005,
the company acquired a British-based competitor, Allied Domecq plc. In 2008, it announced the acquisition of
Swedish-based V&S Group, which produces Absolut Vodka.
Pernod Ricard boasts a large portfolio of premium international and local brands. 37 premium international
brands are organized in the House of Brand and the Group strongly invests and bases its development on
these prestigious names. The USP for Pernod Ricard amongst the other players in the industry is their
consistency, positioning and richness of the brand portfolio. Premiumisation and Innovation are two major
focuses of their strategy to create value and capture leadership. Some of the key figures are:

No. 1

Global premium and


prestige spirits

7945 M

Net sales

2056 M

Profit from recurring


operations

1185 M

Group Net Profit

18,000

Employees around the


world

80

Market Companies &


3 Main Regions

101

Production sites

Objective of the Project


The main objectives of the project are as follows:

Market Entry Risk Assessment: Analyse the decision of choosing the mode of entry into a foreign market,
understand the various economic, political and environment risks associated with the decision and the
economies of scale that the companies seek to achieve. (Anugraha)

Market Entry Decision Rationale: Understand the decision of Pernod Ricard to expand globally through
subsidiaries.

Performance Evaluation:
o

Analyse the corporate structure of Pernod Ricard and the amount of control, ownership and risk
that is associated between the parent company and its subsidiaries

Compare the performances of the various subsidiaries of Pernod Ricard in each of these countries
through comparative and competitive analysis.

Analyse how Pernod Ricard achieved this strategic and cultural fit and aligned it with its own
visions.

Alternative Strategy: Understanding the performance in various countries, give recommendations on an


alternative strategy that would have worked in favour of Pernod Ricard. (Shrey)

Methodology
The project analysis will include collecting data through secondary research. The following websites and
databases will be used for the purpose of analysis:
1) Market Realist- To get an overview of the alcohol industry
2) Pankaj Ghemawats official website- For CAGE analysis and globalization index
3) Pernod Ricards annual report to gauge its current performance
4) World Bank Database and Hofstede Index to look at the cultural and economic parameters of the
various regions
5) Proquest Database and EuroMonitor- To get insights on the alcohol market
6) Harvard Business Review on Strategic Alliances to understand the rationale behind setting
subsidiaries

II. Literature Study:


1. Business Model
The Pernod Ricard business model is first and foremost a culture that creates a common bond throughout the
Group and underpins the achievement of all its goals. This culture is a genuine source of competitive
advantage, setting Pernod Ricard apart from its rivals and driving its success. It is based on both a way of
working decentralisation - and a way of being - conviviality. Three core values (entrepreneurial spirit, mutual
trust and sense of ethics) are at the basis of our model. The model is centred around the following:
1. A way of working: decentralisation
2. Three fundamental values: entrepreneurial spirit, mutual trust and a strong sense of ethics.
3. A way of being: conviviality

Way of Working

The Values

Way of Being

Entrepreneurial Spirit
Decentralization

Mutual Trust

Conviviality

Sense of Ethics
A Collective Commitment to Performance

Decentralization Model
The company organizes its operations under two groups: Brand companies and Market companies. The brand
companies own the brands, define their global strategy, coordinate production and ensure quality assurance.
These companies are responsible for developing the overall strategy and all production aspects of the brand
portfolio.
Pernod Ricards six brand companies are The Absolut Company, Chivas Brothers, Martell Mumm Perrier Jouet,
Irish Distilleries, Premium Wine Brands, and Havana Club International. These companies are headquartered in
Cuba, France, Ireland, the UK, Sweden and Australia. The market companies adapt the global strategy to their
local market and are responsible for the distribution of the global and local brands. The company has 75

market companies including Pernod Ricard Asia, Pernod Ricard Americas, Pernod Ricard Europe, Societe
Pernod and Societe Ricard.
The company classifies its business into three geographic divisions: Asia/Rest of the World, Americas and
Europe.
Pernod Ricard respects the operational independence of its affiliates based on the principle of subsidiarity.
This allows decision-making as close as possible to the market, enabling it to be highly responsive to the needs
of customers and consumers, regardless of the country concerned. Consequently, every affiliate is managed as
a profit centre and has full responsibility and autonomy for achieving the objectives it is set.

Pernod Ricard
Brand Companies

Market Companies

The Absolut Company

Pernod Ricard Americas

Chivas Brothers

Pernod Ricard Asia

Martel Mumm Perrier-Jouet

Pernod Ricard, Europe,


Middle East and Africa

Irish Distillers
Societe Pernod
Pernod Ricard Winemakers
Societe Ricard
Havana Club International

The Decentralized Model


Interaction between Regions, Brand Companies and Market Companies
Pernod Ricard is a Brand Builder. This requires both long-term vision and implementation as close as possible
to the consumer, which is what the Groups decentralised structure allows based on the dichotomy between:
Brand companies charged with devising strategy for brands and categories,
Market companies charged with developing the Groups international brands while managing regional and
local brands. Market companies are grouped into Regions (and, where applicable, Clusters or groups of
affiliates within a Region).
This direct relationship between Brand Company and Market Company is the cornerstone of the organisation
and is relevant for every market and brand, whatever the size. The development and implementation of brand
strategies are the result of permanent dialogue between Brand companies and Market companies.
Pernod Ricard markets its brand portfolio through its own affiliates. Brand companies are expected to use the
Groups distribution network. Although, with the Holdings approval, certain Group brands may be distributed
by third parties and third-party brands by Pernod Ricard.

Holding Company

Brand Companies

Regions

Market Companies

Interaction between Holding Company, Regions, Brand Companies and Market Companies
Apart from the autonomy given to the Brand and Market Companies, a set of ground rules are implemented
that need to be followed:

Levels of financial authority.


The need for all changes affecting a strategic brands positioning, formula or packaging to be referred
to, and validated by, the Holding company.
The need for all significant HR decisions concerning an employee (e.g. internal mobility, salary
increase, etc.) to be validated by at least two levels of management.

Regional Presence
Regions have operational responsibility for managing the Groups business in their respective geographic
areas. They are empowered to ensure implementation of Group strategy and key policies and are accountable
for business development as well as cash and profit generation in conjunction with Brand companies.
Regions operate on two levels:

At Regional Level: Defines priorities, optimises resource-allocation and seeks to enhance ways of
working with Brand companies, approves the strategy and key attributes of local and regional brands,
identifies and shares best practice.
At Market Level: Sets objectives and budgets for its affiliates and ensures their achievement, oversees
the implementation of brand strategies agreed between Brand and Market companies, ensures the
provision of an optimised sales structure to serve brands and Group strategy

Market Companies
Market companies are responsible for managing the Groups business in their local market. They report to the
Region and are empowered to implement the Groups strategy and key policies, develop their business and
deliver profit in the local market. They are managed as profit centres.
Market companies key responsibilities are to:

Implement the annual budget approved by the Region


Agree and implement brand strategy in conjunction with Brand companies
Allocate resources to maximise commercial performance
Manage and develop local brands
Implement and share best practice.

Brand Companies
Brand companies are located in the country of origination of their brands and are in charge of developing and
implementing the strategy for the brands in their portfolio in conjunction with Market companies. They are
accountable for the overall profitability (Contribution after Advertising & Promotion) of their brands. In line

with Group principles, Brand companies must submit any major changes to a strategic brand, such as those
affecting product formulation, new products or advertising for Holding-company approval.

2. History and Organization


Creation of Pernod Ricard
Pernod Ricard was created in 1975 from a merger of Pernod SA and Ricard SA who were long time competitors
in the French anise-based spirits market. This link-up enabled the two 2 take advantage of new resources to
develop new distribution networks and brand portfolios. It also made the 2 companies the largest and the
strongest in the French Market.
Pernod Ricard gave priority to whisky in its initial acquisitions because it had one of the highest levels of
worldwide consumption, and the United States was the worlds biggest market for the Wines & Spirits
segment. This led to the Group acquiring Campbell Distillers, a Scotch whisky producer, in 1976, followed by
Austin Nichols, the producer of Wild Turkey American bourbon, in 1981.
Laying the Foundations of Worldwide Network
Over a period of ten years, the Group extended its coverage to all 15 European Union member countries,
establishing a strong brand presence.
Pernod Ricard acquired Ramazzotti in 1985 which had been producing Amaro Ramazzotti, a well-known bitter,
since 1815. This acquisition brought with it an extensive sales and distribution structure in Italy.
The Group took over Irish Distillers in 1988, the main Irish whiskey producer and owner of the prestigious
Jameson, Bushmills, Paddy and Powers brands. Since acquisition, the brand has delivered average annual
growth volume of 10%, rising from 0.4 million to 4.7 million 9-litre cases from 1988 to 2014
In order to extend its network to Australia, the group purchased Orlando Wines in 1989, Australias number 2
wine producers. The company went on to form the Orlando Wyndham group with Wyndham Estate, in 1990.
In 1993, Pernod Ricard and the Cuban company Cuba Ron created Havana Club International. This joint
venture markets and sells Havana Club rum, which has since been one of the fastest growing spirits brands in
the world.
Consolidation and Organization
In 1997, the Group added to its white spirits portfolio through the acquisition of Larios gin, the number 1 gin in
Continental Europe. This helped Pernod Ricard acquire a prominent position in Spain, one of the worlds
biggest spirits markets and also allowed it to distribute both its international products and local brands.
During the period from 1999 to 2001, the Group consolidated its positions in Eastern Europe through the
acquisition of Yerevan Brandy Company (Armenian brandies, including the ArArAt brand), Wyborowa (Polish
vodka) and Jan Becher (Czech bitter).
Refocusing the Business Strategy
In 2001, the company acquired 38% equity in Seagram in partnership with its competitor Diageo from Great
Britain. Pernod Ricard acquired four famous brands of Seagram (Chivas Regal, Glenlivet Whiskey, Martell
Cognac, and Seagrams Gin) which together had combined sales of more than $1 billion a year. This acquisition
opened opportunities to access Asian Markets, especially India where Seagram held a strong foothold since
1994. With this deal the company became the worlds third largest producer of spirits and six in wine market in
2004.
In July 2005, Pernod Ricard successfully acquired the UK based Allied Domecq for $14.1 billion which ranked
2nd in the world with its famous brands Beefeater Gin, Stolichnaya Vodka, Montana, Mumm, Perrier-Jouet
Champagnes. The aim of this acquisition was to enable the Group to strengthen its presence in markets with
high-growth potential (North America in particular) and to round out its portfolio by adding a number of new
white spirits and liqueurs.
The effectiveness of Pernod Ricards growth model was demonstrated unequivocally by its ability to overcome
the worldwide economic and financial crisis of 2008, due to its:

Rounded portfolio of premium brands

Global sales network and leading positions in emerging markets.

III. Company Assessment


1. International Strategy
Year

Company

Reason

Country

Creation of Pernod Ricard

To become a major
French beverage
company

France

Acquisition of Campbell Distilleries (Scotch


Whiskies)

No International brand
in their portfolios. They
were expanding their
portfolio of white spirits
and wine to increase
their global presence
and get access to
established sales and
distribution structures

Scotland

1975

1976
Purchased Cusenier

1985

Ramazotti

Argentina
Italy

1988

Irish Distillers

Ireland

1989

Orlando Wyndham (Wine)

Australia

1993

Created Havana Club International (Rum)

Cuba

1994

Altai Brand of Vodka

Russia

1997

Larios (Gin, Brandies and Wines)

Spain

1999

Yerevan Brandy Company

To obtain international
distribution rights

Armenia

2001

38% equity in Seagram- acquisition of 4


major brands

To cater to
opportunities in the
Asian Markets where
Seagram had a strong
foothold

Asian Markets, especially


India

2005

Acquisition of Allied Domecq in partnership


with Fortune Brands

Enabled PR to become
worlds number 2 wine
and spirits operator

World

2008

Purchased V&N Group including their


Absolut Vodka

Very popular in Europe

Sweden

2013

6 Affiliates set up operation in African


countries

To accelerate its
presence in the African
Continent

Ghana, Kenya, Nambia,


Morocco, Angola and
Nigeria

2014

Acquisition of Kenwood (Premium


Californian Wine)

To increase its shares in


Super Premium Tequila
Avion

USA

2. McKinseys 7S Framework

Strategy: Premiumisation, Innovation and expansion into new markets- based on long term vision. The Top 14,
composed of the 14 strategic brands, posted record growth of 10% in value this year, and now represents 60%
of the net sales. It also concentrates more on its core wine and spirits business and divested its non-alcoholic
business which helped finance the purchase of Seagram and Allied Domecq.
Structure: Decentralized model where the holding company is responsible for defining overall Group strategy
and managing its implementation, as well as overseeing the Groups activities, setting objectives and creating
an environment for best-practice sharing across all subsidiaries. The management teams of these subsidiaries
operate as if they were running their own companies and so are entirely responsible for operational decisions.
System: Internal control and risk management system in relation to the company financial reporting process,
automated systems for manufacturing, waste disposal system. To guarantee that its products are of the
highest quality, the Group does the majority of its product manufacturing in-house and may occasionally use
subcontractors.
Style: Pernod Ricard encourages straightforward, direct relationships across hierarchical boundaries to speed
up decision-making. The Group promotes opportunities for its employees to mix with the aim of fostering the
exchange of ideas and experience.
Staff: Over 18,000 employees in 80 markets across 3 major regions. They are highly committed towards
achieving the visions and missions of Pernod Ricard.
Skills: The Pernod Ricard Research Centre (CRPR) has technical expertise and material resources (analysis
equipment, pilot workshop) that is unrivalled in the spirits industry. It is also available to provide direct
technical support for affiliates, the Holding Company and the Groups innovation structures (BIG, Kangaroo
Fund) for the development of new products, process improvements and food safety.
Shared Values: Entrepreneurial spirit is at the core of Pernod Ricards identity. It is a key part of Pernod
Ricards management philosophy because of the Groups decentralised nature. Pernod Ricard expects all its
employees to have a strong sense of ethics, with respect and transparency as its watchwords and promotes
mutual trust between its people and entities.

3. VRIN ANALYSIS:
VRIN
Framework

VALUABLE

RARE

INIMITABLE

NONSUBSTITUTABLE

Competitive
Implications

Brand Equity
(Tacit knowledge)

Yes

Yes

Yes

Yes

Sustained
Advantage

Entrepreneurial
Culture

Yes

Yes

Yes

Yes

Sustained
Advantage

Distribution Strategy
(synergy)

Yes

Yes

Yes

Yes

Sustained
Advantage

Decentralized
Operational Structure

Yes

Yes

Yes

Yes

Sustained
Advantage

Premiumisation and
Innovation

Yes

No

Yes

Yes

Competitive
Parity

Leadership

Yes

No

No

Yes

Competitive
Parity

Commitment to Ethics

Yes

Yes

No

Yes

Competitive
Parity

Marketing

Yes

Yes

No

No

Competitive
Parity

4. SWOT

Strengths
-Geographically diversified operations
-Strong brand portfolio
-Strong solvency position

Weaknesses
-Declining liquidity position
-Legal hassles

SWOT

Opportunities
-Growing spirits market in the US
-Increasing consumption of wine in the US
-Product and brand innovation

Threats
-Economic instability of EU nations
-Expansion by competitors
-Fluctuations in raw material costs
-Limitations on commercialization

IV. Market Assessment: Global Spirits & Wine Industry

1. Global Distance Study: CAGE Analysis


Parameters
India
Power distance
1.13
Individualism
0.68
Masculunity
1.30
Cultural
Uncertain Avoidance
0.47
Long-term orientation
0.81
Indulgence
0.54
Sub-total
0.82
Govt. Intervention
1.40
Drinking age rigidity
2.00
Administrative
Tax intervention
1.00
Sub-total
1.47
natural resources
0.50
Connectivity
0.78
Geographic
favourable climate
0.63
Sub-total
0.63
high per-capita consump 0.35
Economic
high per-capita income
0.04
Sub-total
0.19
Total Score
0.78

China
1.18
0.28
1.53
0.35
1.38
0.50
0.87
1.80
2.67
1.40
1.96
0.88
1.00
0.75
0.88
0.55
0.17
0.36
1.02

Japan
0.79
0.65
2.21
1.07
1.40
0.88
1.17
1.00
1.33
1.00
1.11
0.75
1.00
0.75
0.83
0.59
0.82
0.70
0.95

USA
0.59
1.28
1.44
0.53
0.41
1.42
0.95
0.40
0.67
0.80
0.62
1.00
1.00
1.00
1.00
0.75
1.23
0.99
0.89

SA
0.72
0.92
1.47
0.57
0.54
1.31
0.92
1.40
1.67
1.20
1.42
0.63
0.67
0.88
0.72
0.90
0.15
0.52
0.90

UK
0.51
1.25
1.53
0.41
0.81
1.44
0.99
0.60
0.67
0.60
0.62
1.00
1.00
1.00
1.00
0.95
1.02
0.99
0.90

Australia
0.53
1.27
1.42
0.59
0.33
1.48
0.94
0.60
1.00
0.60
0.73
1.13
0.67
1.13
0.97
1.00
1.37
1.19
0.96

France
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.00

Reference

hofstede index
http://geert-hofstede.com/

Ease of business doing


legal drinking age
excice duty %
availability of raw materials
population density
temperature index
liquor PCC index
GDP PCI index

Observations: It is seen that China, Australia and Japan are very similar to France as the CAGE distance
between them is very less. This distance between USA, SA, UK and France is also low but India is very far from
France on the basis of the CAGE distance. That implies the entry strategy for high distance countries have to be
different as compares to the ones with low distance.

2. Risk Assessment: Global PESTEL analysis

Opportunity/Risk Assessment

Positive
Effect

Negative
Effect

Observation

Environment
Global number of 15-34 year olds
increasing.

15-34 year olds spend the most on alcohol and are key
target market.

Asia currently consumes roughly half


of whisky sold worldwide. Expected
to rise to 70% by 2017

Emerging markets for Pernod Ricard in India, China, and


South-east Asian countries.

Social/Cultural
High end brands are growing in
demand across the world.

Pernod Ricard is a premium brand carrier with successful


premiumisation strategy.

Consumers have used beverage


choices to signal individuality or
sophistication.

People want to identify with a premium/Ultra-Premium


brand.

Increased
health-consciousness
increases healthier and high priced
brands

Pernod Ricard has 4 categories of premium brands:


Prestige, Ultra, Super & Premium strategies in different
countries

Political/Legal
High Trade Tariffs in emerging
countries

Can lead to difficulties importing into emerging markets.


Creates high costs in marketing department.

Strict laws and regulations on alcohol


advertising.

Economic
Emerging Markets beginning to have
a more disposable income.

Emerging markets become more westernized and having


more disposable income may lead to higher alcohol
sales.

Asia alcohol market has seen 30%


growth for 3 consecutive years.

Key drivers of growth were single malt Scotch whisky,


brandy, fortified wine and domestic premium lager.

Decreasing per-capita consumption


in countries like US, UK and Australia

Declined sales volume in market companies like USA, UK,


SA despite increased market share.

Slow economic growth and aging


population in Europe

28% of Pernod Ricards net sales come from Europe.

Technological
The need for distilleries that can
produce gluten free products is on
the rise.

We have the resources and capital to create these


products.

Online market for buying and selling


alcohol related products.

This causes more competition for Pernod Ricards


products in retail stores.

3. Competitive Landscape Analysis: Advantage Framework

Comparative Advantages of Countries


No Advantage

No Advantage

-Nationally Segmented
Markets

Advantage

-Inter-industry Trade
-International Vertical
integration of firms
I

Competitive Advantages of
Firms

Advantage

-Intra-industry Trade
-International
Horizontal integration
of firms
II

Internationally
vertically and
horizontally integrated
firms with different
configurations of
Market penetrations
and sourcing sites
III

Observation:
Pernod Ricard lies in the third quadrant (III) as it has been successful in leveraging both its competitive and
comparative advantages through clever acquisitions, seamless integration and organic growth.

V. Discussion: Performance Evaluation


Region-wise Performance:

WEIGHTS OF DIFFERENT REGIONS


Asia
Oceania 7%
2%
Africa-Middle East
3%
Central & South
America
7%

Others
4%

North America
38%

Eastern Europe
7%

Western Europe
32%
ASIA
As the worlds most dynamic zone and the growth engine for the Group, Asia chalked up spectacular advances.
At the forefront are China, where sales volumes rose by 50% this year, and South Korea, where the Group saw
its market share for whisky jump from 4% to 35%** following the acquisition of Allied Domecq. India is also
among the frontrunners, while Thailand experienced difficulties associated with an unstable political-economic
situation.
Europe
Russia, Greece and the Scandinavian countries progressed rapidly, Italy and Germany had to cope with a more
difficult environment. Europe, which nonetheless remains the Groups primary region with more than 30% of
volumes, was however able to derive benefits from the acquisition of Allied Domecq.
America
The Americas Region is indisputably the one that has most benefited from the Allied Domecq acquisition.
Pernod Ricard now has a leading position on the three North American markets, the United States, Canada and
Mexico. In the United States, where the Group now ranks 3rd, the potential for growth is enormous. In Latin
America, performances over the past year have been exceptional: Pernod Ricard is No. 1 on a market that just
keeps growing.
Pacific
Following the acquisition of Allied Domecq, Orlando Wyndham Group (OWG) and Allied Domecq Wines New
Zealand (ADWNZ) were merged to form a new entity, Pernod Ricard Pacific. Created in February 2006, the
subsidiary plays a dual role: Brand Owner for the Groups Australian and New Zealand wines and distributor of
the entire Pernod Ricard brands portfolio for the Pacific region.

Volume-wise Performance:
Breakdown of International Spirits Consumption

2%
6% 2%

White Spirits and Rums


Other Whiskies

14%

Scotch Whiskies
51%

7%

Cognac and Brandy


Liqueurs
Bitters

18%

Anise Based Spirits

Breakdown of Pernod Ricard's Volumes

3%

White Spirits and Rums

6%

7%

28%

4%

Other Whiskies
Scotch Whiskies
Cognac and Brandy

17%

Liqueurs
Bitters
35%

Anise Based Spirits

World Ranking of Pernod Ricard


White Spirits and Rums: No. 2
Other Whiskies: No. 1
Scotch Whiskies: No. 2
Cognac and Brandy: No. 2
Liqueurs: No. 2
Bitters: No. 2
Anise Based Spirits: No. 1
Entry Mode Rationale: Localization vs Globalization

Countries
India

CAGE
Distances
HIGHEST

Mode of Entry
Acquisition of
Seagram

Risk
High Political
and

Form
Market
Company

Rationale of Strategy
Localization with four key
brands

China

LOW

Acquisition of
Seagram

Japan

LOW

Acquisition of
Seagram

USA

HIGH

SA

HIGH

Marketing of
premium Vodka
and Whiskey
Brands
Set up
operations

UK

HIGH

Acquisition of
Allied Domecq

Australia

LOWEST

Purchase of
Orlando Wines

Administrativ
e Risks
High
Economic
Risks- Low
consumption
No Risk as of
Now. Social
Risk in the
future
High
Economic
RisksChanging
consumption
patterns
High Political
Risks
High Political
and Economic
Risks
High
Economic
RisksDeclining
demand

Brand
Company

Adaptation to the local


tastes and flavors

Brand
Company

Adaptation to the local


tastes and flavors

Market
Company
Market
company

Increasing demand
Access to local markets
and international exports

Market
Company

Premiumisation

Brand
Company

To expand its sales and


distribution network

VI. Alternative Recommendation


VII. Appendix
CAGE ANALYSIS METHODOLOGY
The cultural parameters were taken from Hofstede Index and the ratings were assigned accordingly. The
administrative parameters were referred from the ease of doing business site, economic parameters were
taken from the PCI Index and geographic factors were taken from census. The parameters were chosen on the
basis of relevance and the values were found individually for each of the countries. The final score that was
calculated was normalised to achieve the desired result.
PEST Analysis for Asia
JAPAN
Political Factors
Japan is a politically stable, multi-party democratic constitutional monarchy with a bi-cameral legislative
system (CIA 2012). It is the worlds only country with a pacifist constitution, although it does currently have the
4th highest military expenditure (GFP 2011).This is mostly driven by security issues due to territorial disputes
with neighbouring Peoples Republic of China (China), Republic of China (Taiwan), Republic of Korea (South
Korea) and the Russian Federation, as well as the threat of conflict with the Democratic Peoples Republic of
Korea (North Korea).
Economic Factors

With a population of roughly 126 million, of which its labour force is 62.64 million strong (MoIA 2011) and only
2.88 million unemployed, Japan is a market with huge sales volume potential. It is the 16 th largest beer
consumer in the world (GMID 2002). Despite the bursting of the Japanese bubble in the 1990s, Japan remains
a strong exporter and in fact, due to the on-going recession. Traditionally strong and deliberately byzantine
import regulations have weakened over the last decade, although imported goods do tend to be sourced from
within East and South-East Asia, and in particular it must be noted that trade and cultural relations with
neighbouring Republic of Korea have rarely been stronger.
Societal/Cultural Factors
Japan is an East Asian country with a unique culture based on powerful native belief systems of Shintoism and
Bushido influenced by India (Buddhism), China (Confucianism), and the West* (nationalism, imperialism,
democracy) (Nitobe 1900). This diverse and mixed heritage has led to Japan being described by many as a
country of contrasts. From a market entry viewpoint for an alcohol beverage product, however, the most
pertinent societal and cultural factors are the following:

the legal drinking age is 20, the traditional age of majority;


alcohol is an essential social tool with important community functions similar (though not identical)
to the role of coffee in Arab countries, or tea in the United Kingdom;
beer drinking is a non-gendered activity (doubling the potential market for such drinks);
fruit-based alcoholic drinks are also non-gendered (doubling the potential market for such drinks);
long working hours, and lifestyles built around them, mean that many Japanese drink alcohol
every night of the week;
drinking alcohol on public transport and in public places is socially acceptable (one of the main root
causes for the rampant success of Ready-To-Drink (RTD) products in Japan);

An important demographic feature of the Japanese population is that they have one of the oldest populations
of any country with over 35 million people over 55 years old, this longevity often being attributed to a
Japanese lifestyle and diet (Bennett and Blythe 2002).
Technological Factors
Despite Japan being known for its high technology exports, the use of technology within the country can seem
to lag behind many foreign visitors expectations (Kerr 2002). The only relevant technological issues for
marketing an alcohol product in Japan, however relate to data storage practices, distribution of goods and the
role of the internet in marketing/sales. Despite being well known for its computers, many Japanese
organisations from banks and the post office, to schools and private firms tend to use computers as a back up
and paperwork still very much means work with paper (Morris 2002). This is commonly ascribed to a
combination of labour laws that make it very hard for firms to fire employees, and the English-language centric
nature of a lot of the software available to those organisations.
PESTEL India:
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.

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.

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 northeastern states have banned the manufacturing units of alcoholic beverages in their territories.

PESTEL UK and Europe


Political

Changes and reforms of Licensing Laws in line with Government policy


Relaxation of opening hours and late night opening
National minimum wage increase affecting salaries and wages
EU influence and legislation regarding measures of drinks
EU and National Government guidelines regarding health
Local and National Government concerns regarding negative aspects of binge drinking
Budget increases in duty on alcohol

Economic

National and international economic downturn means people generally have less disposable income
for socialising
Rise in staff wages due to National Insurance and Minimum Wage increases
Cut price offers for alcohol in supermarket promotions
Increases in transport costs in line with Fuel pricing

Social

Culturally pub centre of social life, place to meet friends and for locals to socialise

Easily accessible as pub situated close to Town Centre on main route in and out of town
Localised venue known for gigs, live music, themed nights for younger consumers
Demographically increased local student population
Media concern with negative aspects of binge drinking
Increased awareness of health concerns
Increased advertising on mainstream media of consuming alcohol responsibly
Wider choice and taste of alcoholic drinks in supermarkets for consumers

Technological

Developments in delivery of cold beers and chilled ale


Development of wide range of flavoured alcoholic drinks
Local interest in nightlife promoted via multimedia, websites, blogs and social networking
Advertisements for alcohol awareness and responsible drinking on mainstream media
Increased advertisement for alcohol brands via multi media

Legal

Smoking Ban
Stronger enforcement of underage drinking regulations on local and national level
Changes in Drink Driving Laws
EU legislation on measures of drinks served

Environmental

Recycling
Waste, litter, refuse produced in local area
Transportation and delivery costs of goods