Explosive Period of Pernod Ricard Growth - Essay Example

? ANALYSIS OF PERNOD RICARD BY YOU YOUR SCHOOL HERE HERE Analysis of Pernod Ricard Introduction Pernod Ricard has experienced an explosive period of growth through its dedication to brand-building as part of marketing and advertising as well as an aggressive partnered-focused strategy for growth in the form of alliances and acquisitions. This business recognises when trends in the environment call for divestment of low-performing business units in order to capitalize on further strategies to expand the brand names of its many products available in its product line. This essay describes the main trends in this market, the methodology of competition for Pernod Ricard, an examination of growth strategies (a critical lens) and a reasonable forecast for future acceleration based on knowledge gleaned through secondary research on the company. Trends in the alcohol market Because Pernod Ricard produces many branded products, it is necessary to focus only on the alcohol industry which makes up the majority of their business success and market share against competition. As the business extended into more foreign markets, as identified by the case study, Pernod Ricard required a new structure philosophy to ensure that the business could operate effectively and competitively against large-scale alcohol producers. This required a decentralisation strategy in order to create an environment where sub-units of the company were empowered to act as their own consultant businesses. Taking ownership of individual development with a cross-functional ability to inter-link independent, self-managed divisions was in response to labour-based trends for productivity and support as well as producing a world-class business capable of revenue growth. Heavier emphasis on branding as identified in the case leads to the logical conclusion that this business relies on marketing and operations in response to consumer trends. A detailed PESTEL analysis identified key competitive or non-competitive activities at the social level that impact consumer buying perception about consumer products. Heineken, a brand operating in the adult liquor markets internationally, refocused its previous position on quality as a competitive tool and adopted new packaging concepts to gain consumer interest, such as the mini-keg bottling format (Beverage World 2009). Even though this is not a direct competitor, the beer brand experienced a 100 percent increase in sales whilst other companies that did not restructure packaging experienced only a dismal 1.7 percent increase in sales volume (Beverage World). This is driven by consumer sentiment and their current buying trends that makes advertising through innovation a success factor for alcoholic beverage producers. However, this is problematic for Pernod Ricard due to the high regulatory influence that exists in foreign and/or domestic markets regarding the responsible use of advertising that depicts alcoholic products. “The Group (PR) has signed several voluntary self-regulation codes, which impose restrictions on the advertising of and promotions for alcoholic beverages” (pernod-ricard.com, 2010, p.3). The business recognises not only the restrictions placed on advertising, a key success factor for many of today’s businesses in multi-national markets, and places an emphasis on voluntary corporate social responsibility. Similar CSR efforts as an adaptation to existing business strategy has been identified in Anheuser-Busch, a leading alcoholic beverage producer, that “takes its role seriously…(and) has long invested in the communities where (they) live and work” (anheuser-busch.com, 2007, p.3). The efforts undertaken by this non-competitive entity only reinforces that business must restructure and change their strategic focus in order to remain in control and flexible to meet key trends that impact buying behaviour. Like any other business, it is often in a servant position due to economic trends that affect customer disposable income and their product preferences. The technological environment supports excellence in business and research did not uncover any threats to securing a stable and effective information technology support system. In fact, Pernod Ricard, with its autonomous sub-division strategies, developed an enterprise software application including PeopleSoft HRMS, BEA AquaLogic, Hyperion Financial Management, and ERP to include finance, collaborative intranets, human resources, legal and supply chain (Ulis, 2009). These systems are necessary to maintain its focus on cross-functional interdependence and also empowerment models that provide self-leadership to its business divisions. A SWOT analysis identified one key weakness with Pernod Ricard that impacts its development and growth potential. Strengths include a solid brand reputation and the acquisition of other brands that already had a consumer following and loyalty. The business seems well-positioned for gaining market share with many of its products due to its strengths in marketing and the assessment of non-performing branded products. The weakness impacting growth and success lies in its debt load, a hefty burden that requires ongoing divestment of key business divisions in order to finance further growth strategies. The business priced $1 billion of 10-year notes in an attempt to trim this load and build alignment with its foreign currency exposure (online.wsj.com 2011, p.1). This is a common strategy to restructure or revalue its financial position when operating in an environment where foreign currency, valued against domestic currency, continues to fluctuate. Divestment of low-performing brands that have opportunities for growth indicates its reliance on side-stepping debt in order to seize an opportunity for expectant growth. Why is the business forced to divest? There seems to be a trend in the consumer market that is driving cost-cutting in competitor and non-competitor industries that is driven by rising supply chain costs or changing buyer preferences. Fuhrman (2010) describes the efforts of various brewers that have been forced to reduce staffing and their primary marketing budgets. With high regulation in advertising in this industry, cuts to the advertising budget at Pernod Ricard would only further limit their reach in multiple consumer markets and therefore divestment remains a routine strategy. Assessment would indicate that debt reduction should be a priority with this company when it is reliant on sales success and volume and lending practices to explore new opportunities for sustainment or growth. “In 2005 and 2006, everybody was talking about the death of beer and how everybody was going to be drinking cocktails and wine” (Theodore, 2009, p.23). Again, this illustrates how beverage manufacturers changed their strategic objectives and their production methodology to adapt to buying trends and consumption patterns. 2006 for Pernod Ricard reflects a logical conclusion that trend-focused buyer sentiment improved their actual sales by approximately $700 million as described in the case study income statement. The acquisition of Allied Domecq in this same time period also represented a new financial burden for the company, but still managed to improve its actual profit in this period despite the added costs to the business for restructure, financing or cross-developmental training. Consumer influence and attitude directly impact the success of Pernod Ricard making social factors as part of the PESTEL diagram more important for focus. Competitive strategies Pernod Ricard competes through advertising and branding activities associated with its marketing function. It is through market development and diversification that Pernod Ricard gains new sales in new markets. Through acquisitions, the business provides existing products to new markets are part of new market development and diversifies through research and development or key investment strategies in other non-core business areas. In 2008, Pernod Ricard divested Wild Turkey Bourbon and all of its associated inventories for $581 million (pernodricard.com 2008), this in pursuit of new market growth and further acquisitions of existing brands. These market development strategies under Ansoff’s Matrix give the business new opportunities to gain ground in building a solid brand. After the purchase of Seagram, the company was able to capitalize on a well-known international brand and the physical distribution network established by this brand over its long period of market presence. Through acquisitions it provides new market development opportunities and the ability to identify with new customers without the added costs of building a new distribution platform from the ground upwards. A highly-burdened company with a large debt load takes many advantages through acquisition-based strategy and when divestment is a key capital producer. Marketing is a key function in competitive activities for Pernod Ricard. The company decided to differentiate the company or reposition its key brands’ reputations by changing to a focus on advertising through quality focus. Higher demand for premium quality products had been identified in Europe and the United States during a high period of growth which prompted these competitive strategies (Thadamalla & Shah 2009). Stakeholder value is also created, externally-driven, by changing living conditions and increases in labour-related payments to consumers in developing nations such as India and China (Thadamalla & Shah). By attracting a more premium positioning in competitive advertising, a new type of premium customer was available to extend the brand under a new distribution network provided by certain brand acquisitions. Achievement of more efficient distribution channels does not represent a weakness for Pernod Ricard and further diversifies its product line. The case study identified that Pernod Ricard, either through market research or experience in key markets, understands what is driving the social, economic and competitive activities in new and existing markets and is willing to change its position on the market to adapt. Growth strategy under Hamills Motives Strategic motives for Pernod Ricard are branding that will provide long-term value in terms of recognition and product preference, key terminology in operational marketing function. The emphasis is to differentiate the business from other competitors through these strategies with a long-term focus on branding outperformance. Whilst internal issues and structural dynamics continue to evolve, acquisitions provide the ability to built a larger family of brands each with its own character and benefit. Economic motives under this model are clear: Gain market share in key target audiences or physical selling locations without burdening the company with further debt. However, as previously identified, divestment of opportunistic low-performing brands to finance these efforts continues to exist in debt issues. Behavioural and managerial motives inspire the restructuring of the business and its implementation of technologies, such as its aforementioned ERP system support, to build better human capital. Autonomizing each division gives them a leadership position without losing control over the corporate image by remaining cross-functional and applying the appropriate technologies to ensure knowledge transfer. Changing human resources focus, likely using many psychologically-sound strategies for loyalty and motivational development, is achieved through such acquisitions by adopting new corporate talent in needs management. Just a more competitive and knowledgeable organisation with localized market understanding is a primary driver for merger and acquisition when internalized activities such as advertising are critical to its branding mission. Successes once achieved by recently acquired brands carries over into Pernod Ricard and provides a new talent focus. The acceptability of these strategies is apparent in the case study that described the success factors achieved through decentralisation and acquisition of new internal talent in this cross-functional environment. It is a value-added motivation that allows each brand or division to remain independent and self-managed without a great deal of corporate support other than decision-making at the strategic level. Such efforts are not only feasible, but necessary when external talent becomes part of the Pernod Ricard culture and must adapt in areas of motivation and loyalty. The budgets and human labour capacity for these efforts was supported by the case study. Affordability is an issue due to the high debt load experienced by the company. Technologies to support cross-functionality are not inexpensive, however necessary to achieve knowledge transfer and limited strategic management presence in its independent business units. Sustainability is achieved through divestment of low-performing brands in pursuit of a more long-term, rewarding strategy and is sustainable through the software and dedicated support staff used to operating in leadership roles. The safety of acquisitions and mergers is guaranteed through the intellectual property focus that company takes to ensure it is protected against trade secret or other key business strategies that can be leveraged by other firms. Analysis of future strategies The case study identified that leadership was based on nepotism, thus loyalists within the business considered the Chairman’s departure to be a dilemma. Just two years prior, Pernod Ricard was losing market share in Europe due largely to changing consumption demands and lifestyles associated with the beverage industry (Thadamalla & Shah). It did not represent a dysfunction of leadership, but was driven by external social forces. In the same period, smaller companies were becoming competition to this large organisation, another uncontrollable externality for an industry that must provide easy entry if these smaller producers become a sales and strategy threat. The business is sustainable due to its decentralized structure operating with top talent in desirable areas of the business contribute to its leadership in advertising, human resources and strategic management. Unlike its largest centralized competitor, Diageo that is removed in some fashion from the decision-making process, Pernod Ricard’s top leadership can distance themselves from routine operations and ensure they run successfully whilst focusing on new strategic priorities and conducting external research on key market trends. This is something lacking at Diageo and thus provides opportunities for improving market share through resource management. Therefore, it should be offered that it is not the specific Chairman leadership that drives the business forward, it is the decentralised workforce offering innovations and key talent support to develop strategy. The departure of this particular Chairman does not look to be a problem so long as the business remains devoted to its human capital development and uses appropriate motivational strategies. Nearly every problem with sustainable business or growth is dependent on the consumer sentiment as well as the competitive tactics of large-scale threat producers. Promotional programs or new target market identification created in mid-tier management authority provide this knowledge where the case study identifies that only financially-driven or strategic decision-making occurs at the Chairman level at Pernod Ricard where the heart of the business lies in its cross-functional talent development. As long as high-level of mid-tier leadership within the business sub-units can remain knowledgeable regarding consumer attitudes in desired growth markets or sustainable markets, Chairman-level leadership does not impact future growth for this company in a way that is individualized and associated only with a specific leader. Outperforming Diageo, as one example, is remaining true to environmental and competitor analyses using trusted models of research to focus on consumer consumption and beliefs regarding alcohol consumption and monitoring changes to operations at the competing firms. Conclusion Pernod Ricard is in a unique position where acquisitions drive its forward strategy that is a perfect match for its talent development structure. Independent knowledge-sharing between sub-units of the business provide talent transfer and innovations through intranet systems and other technology mediums for instant decision-making. The company clearly understands its key markets, but is too reliant on divestment in order to gain new brands for its product line. Debt reduction activities, however, are difficult during economic periods of low interest production or changing trends on the stock markets, either way a financial problem that plagues the company. Responsiveness to consumer attitudes and knowledge of what trends exist that seize market share as related to customers will carry this business forward regardless of its Chairman-level leadership. References Anheuser-busch.com. (2007). [internet] Annual Report – Anheuser Busch Companies, p.3. [accessed April 3, 2011 at http://www.anheuser-busch.com/Stock/2007/BUD07_Annual_Report.pdf Beverage World. (2009). A package with promise. Vol. 128, February 15, p.1795. Fuhrman, E. (2010). Beer: the middle is no place to be, Beverage Industry. 101(3), pp.12-18. online.wsj.com. (2011). [internet] Pernod Ricard hedging opportunity in dollar debt, Wall Street Journal Online. [accessed April 6, 2011 at http://online.wsj.com/article/BT-CO-20110405-710093.html] Pernodricard.com. (2008). [internet] Annual Report Pernod Ricard 2008/2009, p.9. [accessed April 2, 2011 at http://www.pernodricard.com/medias/Finance/PDF/RapportAnnuel/20082009/couv%20amont_GB.pdf pernod-ricard.com. (2010). [internet] Pernod Ricard Annual Report 2009/2010, p.3. [accessed April 5, 2011 at http://www.pernod-ricard.com/medias/Finance/PDF/DocumentDeReference/Reference-Document-2009-2010-EN.pdf] Thadamalla, J. & Shah, P. (2009) Global wine and spirits giant Pernod Ricard’s Growth Strategies. IBS Research Center. Theodore, S. (2009). Beer defies the odds, Beverage Industry. 100(4), pp.22-26. Ulis, L. (2009). [internet] Pernod-Ricard optimizes its enterprise applications with ActivNetworks. [accessed April 2, 2011 at http://download.activnetworks.com/press/091116-Pernod-Ricard-ActivNetworks-en.pdf Bibliography Lien, N. (2001). Elaboration likelihood model in consumer research: a review. Proc. Natl. Sci. Counc. 11(4), pp.301-310. National Taiwan University. Van Dam, K., Oreg, S. & Schyns, B. (2008). Daily work contexts and resistance to organisational change: the role of leader-member exchange, development climate, and change process, Applied Psychology. 57(2), p.313. 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