Strategy of Constellation Brands - Literature review Example

Creative Enterprise Assignment The purpose of this essay is to provide an investigation on Constellation’s brands and the overall wine industry withspecial focus on the beverage packaging. What this paper will identify is the main drivers for innovation and identify what are the problems, challenges an opportunities for the alcoholic beverage industries. Lastly this paper will propose a design solution for some opportunities that will be identified later in the paper. The format that this paper will take will be to first provide a rundown of the current product offering that the company has. Specifically in relation to the design currently used to position the firm. The second part of this paper will identify key drivers for success in the alcohol industry as well as identify potential market gaps and emerging markets. (1000 words) The final section of the paper will be dedicated to providing a statement of the opportunities and challenges that constellation Section #1: Positioning the Company There is little question that Constellation is truly a diverse global company. According to the company website, the corporate structure of the company is broken into three divisions which are Constellation Wines North America (Which also controls Vincor Canada), Constellation services which is a joint venture with the Gruppo Modello of Mexico under the name of Crown Imports LLC. Lastly there is Constellation International which controls Constellation Europe, New Zealand and Australia respectively. With Respect to branding within the firm, in terms of the spirits, product offering is varied across product lines but the common trait is that all the spirits on offer are premium and mid-premium brands. (Vedka Vodka, Black Velvet Rye, and Paul Masson Grand Amber Brandy). According to Gershberg & Geller (2009) Constellation had recently sold off its value spirits brand ‘Sazerac Co’ which had accounted for approximately two thirds of the company’s 2008 spirits sales in terms of volume however it is the case that this division is estimated only at accounting for 30% of the profit. As was stated on the company website it is the case that the focus remains on well known brands which in turn provides name recognition to customers. According to the company website (2009) the popular Mexican brands controlled by Constellation through its joint venture are, Corona Extra, Corona Light, Modelo Especial, Pacifico and Negra Modelo. Other major international brands controlled by the company are St. Pauli Girl from Germany and Tsingtao from China. All of which are considered premium and semi premium brands. The company also has a number of what it dubs ‘other’ beverages which are malt liquors, ciders and fortified wine. Some of the popular brands covered are Addlestones, Blackthorn, Cidermaster, Diamond White, Gaymers Original Cider, Gaymers Pear, Growers Dry Cider, Ice Dragon, K Cider, Natch, Olde English, Old Somerset, Red C, Special Vat, Taunton Traditional, and White Star. Lastly and probably the most renowned of the company’s product offerings would be the wine portfolio which much like the rest of the company is globally diverse. According to Laube (2004) Constellation now has exclusive control over the California based Robert Mondavi product offering. In the International market, according to Shaw (2003) it is the case that the company also controls outright the Australian wine maker BRL Hardy. According to the company website the remaining big brands covered by the company are Ravenswood Toasted Head, Black Box and Mount Veeder. Whilst it is the case that the company in the wine sector has a number of brands that are not considered premium, it is the case that Jose Fernandez President and CEO of Constellation U.S. as espoused by Bryant (2005) the company has a strong focus on quality and delivers this at a variety of different price points to accommodate all budgets, and tough this may brig challenges in terms of maintaining product quality and consistency. It is the case that the company places these factors at a premium and as such they dedicate a number of product control tests such as laboratory and agricultural reports to ensure that consistency stays at a premium. When examining the company one finds that the first major issue is the fact that the company has a very wide product offering and what is seemingly a major challenge for the organization. Associated with this structure would be the non standardization of the product offerings specifically in relation to the packaging. It is the case that the company uses a wide variety of different packaging for different products. In Australia for example the company uses an astrapouch for its Bud Naked Wines brand (2009) which has the advantage of cooling down faster, staying fresh longer and is useful in places where glass is forbidden, however the drawback is that to wine snobs the packaging seems unappealing. According to Pierce (2005) when speaking of Canandaigua Wine (A brand controlled by Constellation Wines) one of the real strengths of the company is that it allows the individual brands to utilize cutting edge packaging to accommodate their needs and to capitalize on market trends. For example the company may utilize multiple wine delivery methods such as single serve size in aseptic packs, glass or even plastic bottles. The company takes advantage of Bag-in-box packages, unique container sizes and has been an early adopter of the screw cap method. By having this additional flexibility it is the case that the firm is able to adapt much of their product offerings to the individual needs of its consumers, thereby creating value. According to Jose Fernandez as espoused by Pierce (2005) as it is the case that people have a lot of choice in the wine industry and many consumers purchase items on impulse, packaging is an extremely important tool used to get a customers attention. By having the flexibility in packaging design Question #2 Design Research The purpose of this question is to address two different points. Firstly this question will cover key drivers for innovation in the wine and alcohol industry and secondly this paper will address market gaps, emerging markets and customers unfulfilled needs. What are the key drivers for innovation is a key question for almost every industry. According to Meisinger (2007) it has been argued that creativity and innovation are critical success factors in order to achieve organizational success and as such it is the responsibility of HR officials to foster an environment that is conductive to these factors in order to ensure that firms are able to capitalize on ever changing market trends. This brings us to our first point which is that understanding and accommodating the needs of consumers is a key driver of innovation in the wine and alcohol industries. According to PR Newswire (2009) Alice White Wines made the shift away from bottles and introduced three of their wine varieties in Tetra Pak cartons. The reasoning behind the decision according to Jo Andrews, the Alice White brand manager was because the company wanted to be an innovator in defining how wines can be consumed. Some of the reasoning behind this is an increasing consumer trend is the desire for consumers to purchase products that are environmental friendly. According to Tetra Pak.ca (2009) company website it is the case that the product uses paper from responsibly sourced, well managed forests, and overall has less of an environmental impact over other liquid delivery methods. As highlighted by PR Newswire (2009) it is the case that there has been a 50% growth in growth in Tetra Pak Wine sales by volume in established markets and is a trend that is expected to continue. Understanding the demands of consumers is important in a company with a diverse product offering. As it is the case that consumer tastes and trends are likely to differ from person to person and region to region. As such The current marketing trend for the industry according to Novak (2004) is a synergy between direct promotion and sponsorship though sports endorsements as well as in the entertainment Industry. As anybody who turns on the television in North America one is likely to be bombarded with beer advertisements during commercial breaks. It is also the case that there is a trend for a alcohol product placement advertising in the film industry dating back as far as the presence of ‘Gordons Gin’ in the 1951 film the African Queen. The effect of this promotion is that producers are better positioned to target their so called demographic. For example it may be that promoting a brand of vodka for making cosmos in the Sex in the City Movie, producers are able to reach a demographic that is likely to be young, professional females (Though not necessarily). Another key factor for success in the alcohol industry is price point. The alcoholic beverage industry has often been cited as a near recession proof investment, and whilst it may be the case that the overall alcohol industry is recession resistant that is not to say that reduced disposable income has not affected some brands. In an article by Aued (2009) it was stated that many consumers who typically drink premium brands are making the switch to lower cost alternatives. This is why one could argue that an additional key success factor in the alcoholic beverage market is for producers to maintain a wide variety of product offerings at different price points to accommodate the changing budgets of consumers. Although I may be the case that some consumers are not price sensitive it would appear that many consumers care very much on where their budget goes. As it is the case that Constellation has mad a focus on more premium brands it could be argued that this would leave the company exposed to changes in demographic trends. However it was argued earlier that the decision to drop the non-premium vodka brand was purely because the profit margins were not suitable for keeping up the marketing costs. The second topic to be covered in this section emergence of market gaps, unfulfilled markets and emerging markets. In an article published by the European Centre for Monitoring Alcohol Marketing (EUCAM), one of the largest growing trends of alcohol consumption in the United Kingdom is the female market. It is simply the case that the market has been long neglected and for many generations women had to make to with what was on offer to accommodate the tastes of men. In recent years the alcoholic beverage industry has seen the emergences of fruit flavored beer, sophisticated ‘lady drinks’, and light beverages in the United Kingdom. However this trend is not capitalized on in all markets. Speaking directly on the United Kingdom it according to EUCAM (2008) men are still more likely to be consuming alcohol than women however it is the case that more and more women are consuming alcohol. Making this a major neglected demographic in a number of countries. The growth of many emerging economies such as China and India may represent a significant growth opportunity for alcoholic beverage distributors. Although it may be the case that Alcohol is not a new phenomenon to these countries, with a growth in heir respective economies it may be that there is the potential for growth of premium and semi-premium brands. In an article by Cochrane et al. (2003) it is he case that Chinese consumers are becoming more accustomed to the idea of consuming Western beverages such as Whiskies or Wine. Capitalizing on this trend as well as the growing budget of Chinese consumers may present a tremendous opportunity for companies. However it should be noted that many cultures have very specific rituals regarding drinking and it may be that marketers for alcoholic beverage companies may need to accommodate local tastes and traditions in order to win over the favour of local consumers. As mentioned Astro Pak and Tetra Pak are significant growth delivery methods for wine in many established markets. As such, by being an early innovator in growth markets with these products, producers may be able to significantly cut down on the cost of consumables (Packaging) whilst still maintaining a high degree of control over the product quality through the shipping process. Lastly it was mentioned that Constellation also purchase brands in international markets. This could prove to be a beneficial strategy as it is the case that a key driver to the success of any firm is the driving down of the costs of production and distribution. By a firm such as Constellation purchasing TsingTao beer in China, they are able to produce a well established premium beer domestically (In China) and reduce the cost of transportation from a foreign nation. This is a trend that is matched by larger firms such as British Diageo which controls Canadian Crown Royal Whiskey. Or Anheuser-Busch InBev based in Belgium but controls German Becks Beer. Question #3 Opportunities and Challenges The main objective of this section of the paper is to address a strategy issue that will be formulated to ensure the continuing success of Constellation Brands. The opportunity to be addressed is the growth markets of the Tetra Pak and AstraPak and pouch product packaging coupled with the growth of new markets in emerging economies as well as among female consumers. In regards to Tetra and Astra Pak delivery methods, one of the main strengths of this delivery method is the product’s light weight as compared to glass. As such one can realize cost savings associated transportation. However in terms of consumer appreciation it is the case that Tetra Pak is advantageous as it offers a faster chilling time over wine bottles, increased durability over glass, zero damage from sunlight (As the materials are light resistant) and zero chance of spoilage as a result of a traditional cork rotting. I recent years the company has seen an explosion of growth in wine markets in selected regions. For example according to Worldsofwine.com (2005) in Canada the company saw a significant boost in production as a result of early adoption of the Liquor Control Board of Ontario which specifically sites consumers preference for a product that in nearly guaranteed to not be spoiled. Probably the number one shortfall of this packaging setup is the perception that the product is somehow cheapened. As it is the case that most consumers associate Tetra Pak with juice boxes it may be the case that the product needs to be promoted in a number of different ways. The potential solution is that marketing can be used to tie in existing product offerings. According to Forbes.com (2009) it is the case that Constellation already represents organic wine brands. As such it may be beneficial for the company to use Tetra Pak in this circumstance and promote the product as a more eco friendly alternative to traditional delivery methods, by nature of if being recycled and cutting down on emissions from transportation. The obvious benefit to exporting TetraPak wine from a domestic market to an international market is the savings that occur from reduced spoilage from the long journey as well as the savings that occur from the reduced transportation costs. However it may be the case that emerging markets are becoming more responsive to the idea of using TetraPak containers. In an article published by foodproductiondaily.com (2002) it is the case that Tetrapak had boosted its production facilities in Hungary anticipating the growth of Table wine packaging in the coming years. Although it is the case that the Chinese market and the Hungarian market vary different in their tastes, this case does prove that consumers that are entrenched in their ideas of how to produce and consume wine can be persuaded to try a different delivery method. As a real strategy for entering a foreign market it may be the case that there are already early innovators. In the case of South Korea, traditional rice liquor called ‘Soju’ is already available for sale in Tetra Pak Containers and it is upon this foundation that constellation can move into the emerging markets. By simply advertising alongside product displays that Tetra Pak is a much more efficient vessel for storing wine by nature of its reduced spoilage rates it can be the case that many consumers respond positively to this information. Lastly there is the case of marketing beverages to women. As highlighted earlier it is the case that en developed economies an increased number of women are consuming alcohol and the larges growth trend is in fruit beers, lighter beverages as well as fancy cocktails. In the Canadian environment there are already a number of wines dedicated to the young female market, specifically ‘Girls Night Out’ Chardonnay, Merlot and Rose. As with Tetra Pak one of the added features is increased durability over its glass counterparts it may be beneficial for Constellation to promote a new beverage dedicated to the female market which emphasizes Tetra Pak’s increased portability. A the product is easier to store and to transport, it also has the added benefit of being practical at locations where glass is forbidden such as rooftop parties or beaches. To effectively promote this idea Constellation can use a variety of mixed media messages such as through targeted television advertisements during television programs that are often watched by women. Secondly the company can utilize product placement in which film characters can enjoy a constellation branded Tetra Pak wine on screen. The feasibility of this approach is obvious as it is the case that the company already has a number of branded wines in a variety of different packaging materials. The organization simply needs to target the growing demographic trends of increased wine consumption from females. . References Aued, B, (Feb, 2009) Alcohol, Tobacco Sales Remain Strong Amid Recession. Athens Banner-Herald. [online] Available at http://www.onlineathens.com/stories/022109/new_396272914.shtml Accessed on January 3rd 2010. Bryant, D. (Jan, 2005) Constellation Wine’s Executive: Build California Brands. Western Farm Press [online] Available at http://westernfarmpress.com/news/1-20-05-Constellation-Wine/ Accessed on January 3rd 2010. Bud Naked Wines (2009) Product Website: The Pack [online] Available at http://www.budnaked.com.au/pack.html Accessed on January 3rd 2009. Cochrane, J., Chen, H., Conigrave, K., Hao, W. (2003) Alcohol Use in China. Oxford Journals: Alcohol & Alcoholism Vol. 38, No. 6, pp. 537-542, 2003 Medical Council on Alcohol [online] Available at http://alcalc.oxfordjournals.org/cgi/content/full/38/6/537 Accessed on January 3rd 2010. Constellation Brands Inc. (2009) Company Website. [online] Available at http://www.cbrands.com/CBI/constellationbrands/homepage/default.jsp Accessed on January 3rd 2010. European Centre for Monitoring Alcohol Marketing (2008) Women the New Market: Trends in Alcohol Marketing. EUCAM [online] Available at http://www.eucam.info/content/bestanden/women_the_new_market_final.pdf. Accessed on January 3rd 2010. Foodproductiondaily.com (2002) Tetra Pak Boosts Hungary Production. Food Production Daily [online] Available at http://www.foodproductiondaily.com/Supply-Chain/Tetra-Pak-boosts-Hungary-production Accessed on January 3rd 2010. Forbes.com (2009) Constellation Brands Inc: Buy/Hold/Sell Analysis. Forbes [online] Available at http://finapps.forbes.com/finapps/BuyHoldSellAnalysis.do?tkr=STZ Accessed on January 3rd 2010 Gershberg, M., & Geller, M. (Jan, 2009) UPDATE 2-Constellation sells value spirits for $334 mill. Reuters. Edited by Caney, D. & Zimmerman, D. [online] Available at http://uk.reuters.com/article/idUKN1230961920090112?pageNumber=1&virtualBrandChannel=0 Accessed on January 3rd 2010. Laube, J. (Nov, 2004) Mondavi to Join Constellation in $1 Billion Deal: Wine Giant Increased its Offer for the Entire Company. Wine Spectator [online] Available at http://www.winespectator.com/webfeature/show/id/Mondavi-to-Join-Constellation-in-1-Billion-Deal_2263 Accessed on January 3rd 2010. Meisinger, S. (May, 2007) Creativity and Innovation: Key Drivers for Success. HR Magazine [online] Available at http://findarticles.com/p/articles/mi_m3495/is_5_52/ai_n19170717/ Accessed on January 3rd 2010. Novak, J. (2004) Alcohol Promotion and the Marketing Industry. Association to Reduce Alcohol Promotion in Ontario. [online] Available at http://docs.google.com/viewer?a=v&q=cache:-1lNbjQFNC0J:www.apolnet.ca/resources/pubs/respapers/AlcoholMarketingPaperSept30.pdf+drivers+to+success+in+alcohol+industry&hl=en&gl=ca&sig=AHIEtbQS1WU5UBUxsHXEpNe2m_4a6xyc5w Accessed on January 3d 2010. Pierce, L., M., (2005) Constellation Wines U.S. is making wine Extra Ordinary: Packaging Helps the Companies Reach out. Food and Drug Packaging[online] Available at http://www.allbusiness.com/manufacturing/paper-manufacturing-converted-paper-product/529321-1.html accessed on January 3rd 2010. PR Newswire (May, 2009) Alice White Wines Introduces Tetra Pak Cartons for Three Award Winning Varietals. Redorbit [online] Available at http://www.redorbit.com/news/business/1686134/alice_white_wines_introduces_tetra_pak_cartons_for_three_award/index.html Accessed on January 3rd 2010. Worldsofwine.com (Sept, 2005) Juice-box Wine an Instant Hit for LCBO. Worlds of Wine [online] Available at http://www.worldsofwine.com/articles/000125.html Accessed on January 3rd 2010. Read More