BRL Hardy: Globalizing an Australian Wine Company - Essay Example

Dear All your questions are answered on this page. The case analysis written by me follow a narrative style which is according to – Describe – Identify [the issues] – discuss [analyse] – conclude [recommend]. I have not followed the question and answer pattern – however, all the questions are covered. I don’t think it is a good idea but if you wish you could make another section in the end and here reply to the questions asked – use the highlighted material – copy and paste. 1. Steve Millar believes that BRL Hardy has a “Bold new strategy to become one of the world’s first truly global wine companies.” What is your evaluation of this statement? Look for grey highlighting. 2. Should BRL Hardy Europe move forward with the Sicilian alliance or slow down and see what happens with the Chilean joint venture? Look for green highlighting. 3. Should Banrock Station be launched in the U.K. instead of Kelly’s Revenge? Look for red highlighting. 4. What global organizational advice would you give BRL Hardy? Look for blue highlighting One more thing i did not understand the following paragraph: The management organization and some basics have clearly gone wrong here. In this case the writer goes so far as to venture a hypothesis that the problem with ‘Mapocho’ and the debate over the quality of grapes or the competence of the winemaker sent by BRLH to Chile may have a background in the failure of the European team to meet its own predictions of sales. I can not link what you are trying to say to the previous or latter paragraph after this above. Please re-write it. - Done 2) please show me on the paper where did you answer each question listed for the discussion questions i have provided before. 3)please give me an alternative to the following word "cannibalize " (eat into, erode – have changed in the essay) (however cannibalize is a term often used in marketing – understand and learn it) where did you take these numbers from, please refer which page and paragraph 1) In 1996 its export sales to Europe stood at AUD 59.5 million up from AUD 25 million in 1991. (sales in 1991, and 1996 where did you that from?) in P.3 – Kindly see Exhibit 4 the second line – Net Sales in Australian $ these are sales of BRL Hardy Europe Ltd. I have corrected in the text they are not exports from Australia alone.(59.5 corrected to 69.5) 2) In 1991 this company had an export sale of $31 million. Most of this was bulk production for other brands and diverse mix of bottled products that it marketed directly through distributors. (In P.2 where did you get the $31 mil): Sorry! Can’t find from where I got this figure – deleted from the essay. Globalization – BRL Hardy A Case Study Introduction Christopher Carson MD of BRLH (BRLH) Europe is faced with two issues that would have a tremendous impact on the future of the company. He needs to decide on whether to a) go ahead with the proposed launch of D’istinto in the background of concerns with the ailing Mapocho and b) how to handle the two proposals for entry level Australian wine ‘Kellys Revenge’ or ‘Banrock Station’. Every organization has a business model, simply described as its “way of doing business” or its business concept so that it can sustain itself [1]. In order to realize competitive advantage that is sustainable in the increasingly aggressive and changing global situation; industry has to re-invent its business model, away from the traditional, and tune it to the needs of the new century. Creation and reinvention is unlike improvement. To survive and prosper in an environment that is changing the “rules of the game” at a rapid pace, the organization has to realign strategy to create disruptive competitive advantages [2]. Earlier, the industrial environment was relatively stable and simple. Today business operates in a state of continuous and complex change. Hamel [3] has termed it as the “age of revolution” – where change is not additive, but “discontinuous, abrupt, seditious”. Prahalad and Oosterveld [4] use the term “competitive discontinuity” to describe discontinuity as abrupt changes. What drives these changes? The availability of advanced technology, globalization and knowledge networking are important factors that create the uncertainty and unpredictability. The changes referred to, are essentially caused by factors discussed below. 1. Deregulation and Privatization: raising of barriers to trade has allowed companies to collaborate with other companies anywhere on the globe and which suit the econometrics, to access capital, technology, skills, innovative capabilities and other resources that would not have been available within the local environment [5]. 2. Technology Change: the revolution in communication and data processing technology along with increased connectivity and access to information has created an range of options for business in terms of how, where and when they seize the opportunities created by the new technology [6]. 3. Globalization: The competitive situation has changed fundamentally creating a ‘global village’ where the traditional boundaries of nations, industries and companies have blurred. These changes continue to challenge the traditional rules of competition [7]. These have combined to create uncertainty and instability in the economic and technical environment for almost every industry. The changed situation, has three distinguishing features: it is vastly globalized, it favors intangibles (ideas, information, intellectual property) and it is intensely interlinked with omnipresent networks to produce the ‘new economy’, ‘knowledge economy’, or ‘networked economy’ [8]. BRL Hardy, an Australian wine company, is a successful central character of the new thinking. It took advantage of the inflexibility of others in the business to shape a business model for itself that defied conventional thinking and traditions of the trade. Most of its exports were bulk production for other brands and diverse mix of bottled products that it marketed directly through distributors. The realization that there were no truly global brands in the business, a phenomenon that dominates other soft drinks (Coke, Pepsi) and even hard liquors (Bacardi, Johnny Walker), presented a tremendous business opportunity there for the taking. Wines are traditionally labeled by country, region, and down to the particular vineyard. To confuse the customer further they are classified according to the vintage (year of production) and the historical quality qualification of the vineyard. This leads to a fragmentation of the market into small producers who can not afford the costs and resources required for building an international brand or global distribution capability. Hardy seized this opportunity to change the rules of the game and build a global brand for itself. In 1996 sales of BRL Hardy Europe Ltd. stood at AUD 69.5 million up from AUD 25 million in 1991. This growth is the result of the bold and new strategy adopted by the company towards becoming a truly global brand. Discussions A study of the background of the situation as it confronts Carson reveals that the company has made several policy decisions that are inconsistent and not in keeping with traditional thinking about brand building and globalization. Steve Miller, Managing Director of the Mother Company, and expresses concerns about Reyella being the Brand headquarters and wishes to keep decisions on label, price and branding at the centre. Only sales, distribution and promotion decisions are to be delegated to the overseas arms. However, when it comes to the European team the direction is vague. It is Carson and later Paul Browne who have spent considerable time and effort in identifying market potential and taken charge of developing strategy for increasing market presence, brand identification and building equity. An examination of the market growth projections shows that the current focus on the market in UK may also need to be shifted. While the UK market will continue to show a positive trend in growth, the rate of growth as also absolute volumes of the US market will quickly outstrip this market. Growth rates for the German and Japanese markets are also likely to be higher than the projected figures for the UK market. BRLH therefore needs to take some decisions regarding change of focus and concentration of available resources. The UK is a very well developed market and competition tough. It is the developing markets of the US, Germany and Japan that will provide volumes in the future. BRLH must use its core strengths to leverage its presence in these emerging markets for future growth. The competencies identified by it are: 1. World Class production facilities 2. Global Brands 3. International distribution However, a discussion on this aspect is beyond the scope of the present case study. Another facet that comes to the fore is that the European team is very capable in its field and has done extremely well in its territory through improvement in the sales volumes and value. Perhaps this is the reason why the headquarter management has allowed them to have their way on many decisions in the past. The organization structure of the marketing team and the communications are not really in keeping with clarity of thought. While Carson reports to Stephen Davis on sales, distribution and commercial aspects he reports directly to Steve Miller on matters of brand strategy. This is obviously the hangover of the past history of the two companies and the situation immediately following the merger of BRL and Hardy. Who is really in charge of brand development in this company? Nowhere has this been clarified and the only mention is that when confronted with the headquarters’ decision to centralize the brand decision making the European team ‘had difficulty with this concept’. Which brings us to the question: Who should actually be looking at brand strategy? The overseas teams and the European team in particular, are the eyes and ears of the management on the ground. It is obvious that they know their markets well and have experience in the field to back their claims. They have worked extensively on developing the two concepts of ‘D’instinto’ and ‘Kellys Revenge’. Given a free rein the major advantage that will accrue to BRLH is ownership of the brand. The team will strive to ensure that the brands do well. On the other hand there are the headquarters’ people who do not have an exposure to the ground conditions. If a brand is forced onto the European team it will obviously cause resentment and motivation and the will to ensure success will be low. It seems that, in this particular matter, headquarters has painted itself into a corner. We can not look at brand concepts like Coke or Kraft since those are single product companies (albeit with a few brand extensions). The Coke brand strategy follows a universal concept from New York to the middle of Manchuria and the product tastes the same. The issue that BRLH needs to address is simple, would it produce a similar product for all tastes and induce the customers to develop a taste for the product or would it tailor the product to suit the taste of individual markets. Wine is more of an up-market product compared with the others named above. In addition wine can only be standardized through blending thus bringing down its value considerably. Quality of the wine depends on the source and the vintage. In the opinion of this writer it is the latter course that needs to be adopted for success viz. different product for different markets, and building equity for BRLH as a brand by itself denoting, perhaps the message identified for D’instinto – Wine to Enjoy, Brand to Trust. Sourcing decisions is the next issue that we discuss. Carson has done a wonderful job in Sicily, and the path chosen, involving the farmers into putting up a partnership, is indeed commendable. The rationale behind diversifying the supply to Chile and Sicily to take care of vagaries of agricultural produce, exchange rates and to have a wider portfolio of products to cater to the requirements of markets like Sainsbury is correct and can not be faulted. It is obvious that similar concerns would also be felt by the other overseas arms of the company. Therefore, in the present context if BRLH USA feels the need – should they have to locate different sources for their markets or would they have to depend on Carson’s team to deliver. Clearly this can not be organizational policy. The differences between the two managements’ [before the merger] approaches could be the reason why these problems have come up. For a team to perform successfully all members have to pull together and in the same direction. It is not clear whether this approach for developing new sources is HQ policy or Carson’s own initiative. When Steve took over management of the merged companies he identified his priorities and how to consolidate the operations of the company. He found that the Hardy mid-management team had a lot of potential but had lacked resources earlier to prove their mettle. He decided to adopt a policy of allowing his managers to “Have a go” and doing 20 things and getting 80 percent success rather than doing 2 or 3 things 100 percent right. In his putting through this excellent strategy he has erred into confusing abdication for delegation. The basic principle of organization structure design – linearity of control, has not been followed and Carson has a dual reporting responsibility. So much for the problems at Reyella! We proceed to examine the situation as it confronts Carson at the moment. The concerns with Jose Canopa need to be addressed. Chile is an important resource in the overall plan of things and the problems attending the relations with this company have to be cleared. He needs to remember that this is a 50:50 Joint Venture and the Chilean partner has to be weaned away from the stance of being a supplier rather than a partner in business. This shall require the personal touch of a senior person from BRHL. Since Carson is already stretched on the manpower resources maybe Steve Millar should take up this challenge. In any case this can not be delayed – Carson is committed to sell 150,000 cases of Mspocho in 1998 as against only 15,000 in 1997. The second part of this problem is the proposed launch of ‘D’instinto’ this can not wait much since the company is committed to its partners in Sicily and postponement might mean build-up of very high stock levels of a product not yet introduced in the market, a dangerous situation. But does Carson have the human resources to carry this through. This is the critical question. Earlier, when he took over operations he cut down head count from 31 to 19 in his attempts at cost cutting. Though the number of staff employed has again gone up to 28, an examination of the profitability figures of his region shows administrative costs coming down considerably as a percentage of sales revenue coupled with increase in $ sales per person [9]. The manpower needs to be increased if commitments are to be met. We find that projected figures show and increase to 34 in 1998. Action to increase manpower has to be taken in hand immediately. In the meanwhile the launch of D’instinto has to be delayed for a short while. It is recommended that some personnel be transferred from the Australian operations to the UK so that the delay in launch of D’instinto is made as short as possible. This can, at best, be a temporary measure as it would take time for the new personnel to familiarize themselves with the new market. D’instinto also causes the concern that it will erode the share of BRLH ‘fighting brands’ market share. Earlier Stamps and Nottage Hill were entry level brands of the company but have moved up to occupy the £ 4.49 to £ 5.49 range, leaving the entry level of £ 3.49 - £ 3.99 vacant as far as BRLH are concerned. D’instinto is planned to be introduced at the same level as these two and the only difference is the country of origin. The first impression is that these concerns are not really very serious, and the reason for this is that the new product is different and has distinct characteristics. The promotion strategy is also different. However, the price positioning is the same and therefore it will definitely have an impact in the price segment that it is being introduced. The impact will no be felt by BRLH brands alone it will be shared by all the products in this range. Since the company has only 3% of the market share it can safely be assumed that the impact of cannibalization shall not really impact the volumes of the fighting brands. The two proposals for a new entry level wine one targeting a younger customer with a funky name and packaging/ promotion to match and the other a more staid product with a ‘green’ environmentally friendly message are two different products. One has been developed by personnel who have the pulse of the market and the other being pushed by Headquarters and backed by success in the Australian market. The latter product does not have the support of the UK team who term the packaging ‘bad’ and not in tune with the times and comment: ‘Who cares for the environment half a world away.’ Yet at least one of the products needs to be launched to fill the vacuum created by the repositioning of the Stamps and Nottage Hill brands. In this situation it seems obvious that Kellys Revenge needs to be introduced first and the Banrock Station can follow. Since Banrock Station has already been launched in Canada and is being readied for launch in the US it can wait for an entry into the UK market for some time. The right time would be signaled when Kellys Revenge gets promoted to the £3.99 band from introduction at the £3.49 level. Conclusions BRL Hardy has made considerable progress in its vision to become an International Wine Company. Yet it faces problems that are typical for a company attempting to create competitive advantage for itself in the global market. The lack of a focused game plan, a consistent organization structure to see through the fulfillment of the strategy and missing communications seem to be the cause of its present difficulties. When they started out in the globalization process, one of the first steps they took was to rationalize the number of labels they carried. This would then allow them to build on the strengths of the remaining brands and consolidate their market presence. Now they are on the verge of launching several more brands. There is no mention of which ones are seen not to be doing well and proposed to be discarded, sooner or later. Each of the new proposals has merit. Yet this increase in the number of brands will make for loss of focus and may even be a constraint on resource allocation, especially manpower. Secondly, the lack of clear communication appears to be a major hindrance in the operations. This is characterized by the Kellys Revenge – Banrock Station fiasco. While the European team was working on developing the former, HQ was looking to roll out the latter. While some of this problem can be passed back to the difficulties faced during merger, enough time has passed now for the team to be able to pull together and in the same direction. The company has an excellent core idea and needs to consolidate its activities around that for continued success. Maybe Christopher Carson should be made in charge of the total export business so that he can focus on the global market rather than the limited concerns of a slow growing market. Read More