U1550389 Date of Submission 8 th February 2016

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Part One - Theoretical underpinning and identified key issue(s)

Adnams is a mid-sized brewery in Suffolk which has commissioned this report to

analyse their competitive strategy and position. Their core business remains the
brewery, however, the sales of beer have been declining (Sparkes, 2011), and,
therefore, Adnams are diversifying and differentiating concentrating on narrow niche
markets in order to remain competitive because they cannot compete with either
micro or macro-breweries which causes sustainability issues making niche markets
their preferred position.

Firstly it is important to define competitive strategy. Competitive strategy is an action

plan that is generally long-term and is devised to gain a competitive advantage over
the competition within the market, especially important in saturated markets (Web
Finance, 2016).

Barney (2002) defined competitive strategy as:

"…a firm experiences competitive advantages when its actions in an industry

or market create economic value and when competing firms are engaging in
similar actions" (Barney, 2002, p.9).

Barney (1991) contends that organisations gain a competitive advantage when

applying successful strategy(s) that is not being pursued equally by competitors.

In order to be more competitive Adnams have diversified into three different thematic
areas, hotels, retail outlets and a distribution centre. These are examples of forward
integration and conglomerate diversification. Campbell, Edgar, & Stonehouse (2011)
stated this type of diversification comes with increased risks as it comes with a loss
of parental control, whereas the diversification into the distribution centre and
distillery are examples of backward integration as well as concentric diversification.
This type of diversification is closely related to Adnams core business competencies,
therefore, this is a safer option as they already have industry knowledge, capabilities
and experience of this type of market.

This analysis will use Porters Generic Strategies to examine the issues identified by
Adnams strategic position and strategy. Porters Generic Strategies will allow
Adnams to identify which strategy is most advantageous, for example, how broad or

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narrow a market section to pursue (Strategy-Train, 2009). Porter (1998) stated that
any company that ascertains its niche effectively will learn what its customer wants,
this will be done by identifying an effective competitive strategy. Marketing
distinctive product/s provides customer dependability (Hlavacka, Bacharova,
Rusnakova, & Wagner, 2001). Porter (1985) states there are rudimentary company
strategies; cost leadership, differentiation and focus but that it is most efficient to
focus on a single strategy (Fig 1). However, there are academics that suggest a
company may perform better (competitive advantage) if they utilise more than one of
Porters strategies (Karnani, 1984; Miller & Friesen, 1986; White, 1986; Hill, 1988;
Fuerer & Chaharbaghi, 1997; Hlavacka et al., 2001). Porters Generic Strategies are
criticised by academics on experiential grounds (Miller & Friesen, 1986; Dess &
Davis, 1984) and on speculative grounds (Murray, 1988; Chrisman, Hoffer &
Boulton, 1988). Although these criticisms highlight some limitations and ambiguities
(Hendry, 1990) Porter’s generic strategies continue to be the most commonly used
model (Miller & Dess, 1995).

Fig 1. Sourced from: (Ormanidhi, & Stringa, 2008, p.58).

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The Ansoff Matrix (Fig 2) will also be employed in order to examine Adnams’
strategic options; this is not a competitive model of positioning but it helps to
understand the competitive strategies Adnams are pursuing. The Ansoff Matrix will
be used to analyse Adnams existing strategies. These include diversification into
hotels, which is an example of forward integration and conglomerate diversification
undertaken to increase competitiveness.

In this context ‘diversification involves departure from familiar business areas,

while remaining in the geographical environment(s) in which the firm has
previously been successful’ (Ansoff, & McDonnell, 1988, p.44).

Fig 2. Sourced from: (Ansoff, 1957, p.114).

Mintzberg’s (2000) criticism of Ansoff’s Matrix suggests that it is over-reliant on the

assumption that future events can be foreseen. Tamara (2015) also suggests that
the main reason the Ansoff Matrix receives criticism is due to its perceived simplicity
and because it does not consider all factors that can affect the market, for example,
the external environment. The Ansoff Matrix is a 2 × 2 representation of the options
available for increasing revenue including Market penetration, Market development,
Product development and Diversification (Taylor, 2012). The two dimensions of the
Ansoff Matrix are concerned with markets and products (vertical and horizontal).
Although ‘old’, it remains a very powerful model, as it provides a simple framework
that identifies possible strategic options (McDonald & Meldrum, 2013) therefore
Adnams have chosen to invest in diversification.

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Part Two - Strategic analysis

The analysis has already established that Adnams is a mid-sized brewery in Suffolk
that cannot compete with micro or macro-breweries. This section will utilise the
chosen models of Porter Generic Strategies and the Ansoff Matrix to analyse and
evaluate Adnams’ competitive strategy(s).

Adnams have chosen to focus on small, narrow niche markets, identified using
Porters Generic Strategy model. The market is already saturated, the Campaign for
Real Ale state that there are over nine hundred and ninety-nine competing breweries
in the United Kingdom (UK) (Thomas, 2012), therefore Adnams are focusing on
differentiation to compete in an increasingly competitive market. Adnams have
created a ‘brand’ culture which is locally and nationally well recognised, evident in
the marketing slogan, ‘Adnams beer from the coast’ (Adnams PLC, 2016, p1), which
emphasises the local provenance.

Verity & Turnbull James (cited in Johnson, Whittington, Scholes, & Angwin, 2013)
illustrate how Adnams are focusing upon niche markets, examples within the case
study include the annual Suffolk Show, the Norfolk Show and other events and
festivals. This is an example of Adnams taking its established branded products to
the locals in order to increase sales to customers within the local market. Verity &
Turnbull James (cited in Johnson et al., 2013) also illustrate how Adnams have
formed partnerships with Ipswich Town (a local football team) and Newmarket (the
closest racecourse) to host events with the aim to increase brand awareness and
gain an increased customer base.

Adnams is focusing on using a differentiation strategy, by creating a brand name,

which creates a better entry barrier but this also generates less market share than
the low-cost strategy. Adnams must continue to market its local ‘brand’ as this is one
way they can position themselves against the competition in the minds of its
customers. It is the Adnams brand that stands out and forms a favourable position
between its customers and competitors (Proctor, 2014). Adnams has already
produced some new products and these products will engender varying profit
margins and cash flows, however, they must continue to introduce new products to
sustain long-running profits (Stephen, Carlotti, Coe & Perrey, 2004).

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Verity & Turnbull James (cited in Johnson et al., 2013) state that Adnams also utilise
the internet as a marketing tool by setting up a Twitter account to connect with locals
as well as a broader market. The effect of using Twitter and other social platforms
has created a greater awareness of the brand name which is essential as a growing
number of consumers purchase products with provenance. Thus, Adnams’
marketing capabilities assist its competitiveness.

As previously stated, Adnams have diversified several times since its inception as a
brewery. They now include three different thematic areas: hotels, retail outlets and a
distribution centre. This has been achieved by substantial investment in new assets
and the updating of existing assets. However, what is not clear from the case study
is why Adnams diversified into hotels and retail and whether this was effective. This
analysis will use the Ansoff Matrix to examine the implications of this diversification.

From the evidence within the case study the conglomerate diversification and
forward integration into owning hotels appears to have been successful as it further
acts to cement the local element of the company brand and further enhance local
connections.

Forward integration into retail was a poor management decision as explained in the
case study; the management team in 2006/07 admitted that with hindsight it was not
the correct time to expand Adnams portfolio. The shareholders also expressed
discontent concerning the dilution of their holding. However, fortunately, for
Adnams, by 2012 their retail outlets were making sales of eleven million pounds
which accounted for over a fifth of Adnams total turnover and an increase in market
share in the local market (Verity & Turnbull James, cited in Johnson et al., 2013).

The retail outlets have increased Adnams’ portfolio increasing the sale of products
and customer base which now includes more women. Conglomerate diversified
products sold within retail outlets included Adnams’ branded classic cookware,
spirits, mixers, cordials, peanuts, and bottled water, to name a few; it was the
eventual success of these products that accounted for the new customers, fifty
percent of which were female customers.

As previously mentioned, Adnams have made a substantial investment in new

assets and also into updating and modernising the existing assets. The investment
in modernising the brewery resulted in it becoming one of the UK’s most ethical and

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eco-efficient breweries which created a positive image pleasing the locals and also
enticing a new environmentally aware customer base: another niche market for
Adnams to focus upon. Adnams branding is now an eco-friendly production; with the
use of eco-friendly bottles and locally sourced ingredients it has created unique
product(s) which are difficult to imitate. They have also gained a competitive
advantage in controlling the supply chain through utilising its three key outlets of
hotels, retail outlets and public houses.

Adnams can be seen to be using Porters Generic Strategy of cost leadership by

focusing on low costs. In order for this strategy to be successful, Adnams must
maintain low costs in the production process so the profitability on the sale of its
products is high.

Adnams are lowering the costs of production by updating the brewery and investing
into a distribution center which is both environmentally friendly, efficient and an
example of backward integration. The updating of the brewery allowed Adnams to
produce its main product, beer, in a market leading low-cost way. This also led to an
increase in quality consequently the number of barrels returned, due to substandard
beer decreased from 1 percent to 0.1 percent.

Verity & Turnbull James (cited in Johnson et al., 2013) illustrate how the opening of
an eco-friendly distribution centre in 2006, requiring no heating or air-conditioning,
will save Adnams £500,000 in utility bills over the next ten years when compared
with a non-eco-friendly building, this reduces production costs and increases
profitability.

Adnams now own one of the most modern breweries and distribution centres in the
UK which will allow them to produce products at a lower cost than its competitors. In
regards to the shareholders the initial concern was the Return on Capital
Employed (ROCE), however, this concern was soon quashed as the long-term
impacts of these investments were profitable.

Verity & Turnbull James (cited in Johnson et al., 2013) illustrate how in 2010
Adnams opened a Bio Energy site which is filled with the waste from Adnams food
and brewing businesses. This waste is converted into biogas which Adnams uses to
fuel its trucks. The dual-fuel trucks (biogas and diesel) do cost more to purchase
than conventional diesel trucks, however, it is projected by the operations director

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that by converting all Adnams delivery trucks to dual-fuel they will save £290,000 per
annum. This will also contribute to lowering costs by significantly reducing delivery
costs.

Porters’ differentiation strategy is being used by Adnams to achieve what their

competitors have not, for example, Adnams is the only brewery that manufactures as
well as distributes, delivers and markets, their own products. Adnams distribute their
products directly to their shops, hotels and their seventy licensed pubs which
eliminates the need to contract outside companies, therefore, saving considerable
marketing costs and increasing profitability. In 2010, when the UK tax rules
changed, Adnams began producing spirits and used the same methods of marketing
and distribution which enhanced Adnams’ competitive advantages in the market,
contributing to increased sustainability.

The way Adnams treats its employees is another example of differentiation from its
competitors. Karen Hester is used as an example in the case study; she began
employment with Adnams as a cleaner in 1990 and with training progressed to a
director by 2010. Employees at Adnams feel a sense of belonging and pride which
reduces turnover, increases productivity and reduces absenteeism levels.

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Part Three - Conclusion and Recommendations

Verity & Turnbull James (cited in Johnson et al., 2013) highlights how Adnams are
currently developing their marketing capabilities, Andy Wood considers Adnams as
having a national market and is looking to expand overseas, however, it is not clear
what Andy Wood’s intentions are for overseas opportunities. It is unadvisable to
penetrate an international market by setting up a separate brewery, this is because
Adnams have established themselves as a local brand and the branding represents
this; this analysis suggests that to take the brewery out of Suffolk or even set up an
additional brewery would negatively dilute the ‘brand’ and lose provenance.
However, if the overseas opportunities refer purely to marketing Adnams’ products
through the world-wide-web then this could prove to be advantageous.

This analysis has highlighted three main strategies being utilised by Adnams which
are, diversification based on the Ansoff Matrix, Cost leadership through lower costs
strategy and differentiation strategy based on Porters Generic Strategies model.

There are dangers involved in any diversification strategy, especially over the long-
term, these relate to financial sustainability and the danger of losing parental control.
However, this strategy has proved successful, thus far, as Adnams have developed
mature markets.

Adnams is using the cost leader through low costs strategy very successfully and
with their controlled supply line, production line and delivery line this should remain
the case for the foreseeable future.

Adnams are also using the differentiation strategy very successfully; by making a
substantial investment into updating and creating new assets Adnams have created
a ‘brand’, especially in relation to the beers that cannot be imitated which is an
advantageous position to hold in the contemporary marketplace.

As stated in Part one of this analysis there are academics and theorists who have
stated that the use of more than one strategy could foster better competitive
advantages (Karnani, 1984; Miller & Friesen, 1986; White, 1986; Hill, 1988; Fuerer &
Chaharbaghi, 1997; Hlavacka et al., 2001). Whereas Porter (1985) stated that

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organisations will perform most effectively if they choose one strategy to concentrate
upon.

It is recommended, despite Porters rhetoric, that Adnams continue to use two

strategies, the cost leader through low-cost strategy and the differentiation strategy.
The diversification strategy has been successful but should be used with extreme
caution it is considered to be a risky business manoeuvre.

From analysing the case study Adnams have successfully diversified into the new
markets they have entered and by doing so increased their competitiveness and
sustainability. However, over diversifying could have devastating consequences, so
despite the success Adnams are currently experiencing this analysis strongly
advises the cessation of any further diversification.

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