International Marketing Research Arts Alliance - Case Study Example

International Marketing Research

Introduction

Investing in a market is a complex process which requires thorough understanding of the target market, customer profile and industry trends. It is important for the firms to gain an insight into their business and its capability to invest in the product, in the new or existing markets (Teece, 2010). The current study focuses on Arts Alliance which is a UK based venture capitalist. The company is considering investing in the rights of the Lambs rum brand. Therefore, the study will aim to make recommendations whether the company should make investments in the UK alcohol market. Therefore, a market and industry analysis would be carried out to know the alcohol’s market current performance.

Alcohol Retail Analysis

Market Volume and Growth

The alcohol industry of the UK is worth £39 billion in sales and provides employment to nearly about 590000 people (WSTA, 2015). The sales of the alcohol drinks have increased over the years and it is expected that the sales would further increase to 4% in 2016 which shall equate to healthy growth of 17 percent, over the last 5 years (Eads, 2016). According to KeyNote’s report, total expenditure on the alcohol in the UK has increased by 9.3 percent between 2011 and 2015 from £43.58 billion to an estimated £47.64 billion (Key Note, 2016).

Table 1: Total expenditure on Alcohol

(Source: Key Note, 2016)

Figure 1: Total UK spirits and liqueurs market by sector by value share

(Source: Key Note, 2016)

It can be observed from the above figure that liqueurs, tequila and other spirits have better market share in the UK in comparison to rum, vodka, scotch, whisky, etc. It can be pointed that rum has low market value but increasing preference for rum would increase the value in future (Key Note, 2016). Moreover, the expenditure on the alcohol has increased over the years, which indicates a positive growth of the alcohol industry (Key Note, 2016). Furthermore, online alcohol retailing in the UK generated revenues of £416 million with an annual growth rate of 15.9% in 2015 (IBIS World, 2015).

Table 2: The UK Rum Sector by Value at Current Price (£m at rsp and %), 2011-2015

(Source: Key Note, 2016)

In the rum sector, the market has grown in value by 18 per cent from £500 million in 2011 to £590 million in 2015 (Key Note, 2016). Therefore, it could be pointed that Arts Alliance would be able to capture the advantage of the UK alcohol market by launching lamb rum brand.

Customer Analysis

The consumption of alcohol by the consumers is shaped by different factors such as social status, personal interest or other aspects (MacKillop and Murphy, 2007). In the UK rum market’ context, the consumption of rum has increased to 14% among the people which have led to increase of growth in rum industry (Key Note 2016). The increase in consumption has enabled the liqueur distributors and retailers to stock more rum brands in order to meet the demand of the customers (Hallgren, Leifman and Andréasson, 2012). As a result, it has contributed in the UK alcohol retailing market growth.

On the other hand, it has been found that people aging between 45-64 years have a high tendency to consume alcohol (Mintel, 2016). It is also observed that there is a tremendous increase among the youth for consuming alcohol (Hallgren, Leifman and Andréasson, 2012). The increasing in the consumer base in the UK for different spirits and liqueurs shows that alcohol retailing market in the UK has a better future in terms of generating revenue and contributing to the economy (WSTA, 2014).

Competitor Analysis

Captain Morgan would be a strong competitor to Arts Alliance and its Lambs rum brand. Captain Morgan is one of the largest brands in the category of rum, which has increased by 500000 cases in 2012 (Paskin, 2012). The strong demand for Captain Morgan rum has helped the company to deliver a five per cent increase in the sales (Bar Team, 2016). It is also evident that the firm is considerably active in advertisement of its brands (O'Reilly, 2016). The television advertising campaign with a tagline “Got a little Captain in You?” supported 15% sales in the total Captain Morgan rum sales in the UK (Johnston, 2013).

Havana Club could be the other potential rival to Arts Alliance. Havana club rum has a complex and intense aroma with a palate of cocoa, chocolate, honey, dry fruits, sweet tobacco and spicy Notes (Havana-club, 2016). Its rum brands are available on different online channels and supermarkets like Tesco. The rums of Havana Club are crafted with hundred percent natural Cuban ingredients. The company uses only local ingredients for producing the Havana Club rums (Thewhiskyexchange, 2015).

From the discussion of potential competitors, it could be illustrated that Arts Alliance could face substantial challenges which can create resistance to seek rights of the Lambs rum brand. Lambs rum brand has been in the UK alcohol industry for number of years and holds a strong position among the number of rum brands available in the market (Kiely, 2016). The Lambs rum brand would be able to gain edge over the competitors due to its unique taste and flavour such as spiced rum. It indicates that Lambs rum brand would be a profitable venture for Arts Alliance and the company should consider acquiring the rights to Lambs rum from Allied Domecq.

Trends Analysis

General Industry Trend and Insights

As per the data given by Case Study (2016), the consumer confidence has increased in the UK for the seventh consecutive quarter, scoring 103 points. It indicates that confidence of the consumers have risen not only on savings but also on spending. Overall, the economy of the UK is in better shape in comparison to other European nations. It has been further assessed that with the continuous declining rate of unemployment and increasing wage inflation in the UK economy, the buyers are able to receive the benefit of reduced cost of energy and fuel. Moreover, the spending of the households is redirected proportionately to non-food goods and beverages (Case Study, 2016).

The researchers of Deloitte observed based on the CCI (Consumer Confidence Index) score that though headwinds exist in the UK in the form of geopolitical uncertainty and foreign exchange risk, there is still an opportunity for positive growth. The global investments would be made continuously in the UK’s industries. Further, it has been reported that the economy of the UK has witnessed an increasing growth of 2.6% which is nearly close to the growth experienced in 2007 (Deloitte, 2015). On the other hand, the confidence score of the UK shows that the consumer spending would further increase in different food and drinks categories such as beverages, alcohol, confectionery and snacks. However, UK is still behind eleven nations in terms of consumer confidence score (Case Study, 2016). It is important for the economy to invest in branded innovation and promotions in order to increase the spending of the consumers.

The alcohol industry in the UK has a significant position like other major alcohol sectors across the world. This particular industry has emerged as a major commercial sector, which highly contributes to the GDP of an economy. However, a high degree of rivalry among the key players to acquire maximum market share is considered as the major impediment to the growth of alcohol market in the UK and other nations (Savell, Fooks and Gilmore, 2016). On the other hand, it has been observed that the increasing prices of raw materials, stringent licensing requirements for the production of alcoholic beverages and availability of non-alcoholic beverages are restraining the growth of alcohol market to some extent (IAS, 2016). However, it is expected that alcohol and the alcohol retail industry would grow as the sales of alcoholic beverages is positive despite the certain decline in consumption (Mintel, 2016).

Figure 2: What concerns the shoppers most

(Source: Case Study, 2016)

Apart from that, there are other factors which concern the shoppers the most such as economy performance, prices of products, health, work-life balance, crime and others (Case Study, 2016). In context to the alcohol industry, the major concern among the consumers is their health. It has been found people are becoming more health centric and in order to remain healthy and fit, alcohol consumes have drop the consumption level to some extent (Key Note, 2016). According to the data provided by Case Study (2016), the biggest concerns for the shoppers over the period of next six months are increasing utility bills, economy, food prices, immigration, job security and other factors. However, it could be pointed that different shoppers have various opinions while shopping which may or may not relate with other shoppers. The shopping concerns shape the buying decision of the consumers and if they find the shopping situation to be favourable then it is most likely that they would be buying the desired product(s) (MacKillop and Murphy, 2007). Further, it has been reported that frequency of visits of the consumers would fluctuate over time (Case Study, 2016). It would depend on the satisfaction level attained from the specific product and service. If the customer find better alternative to one product with similar attributes then there is high chance of customer penetrating to other stores or products to meet their expectation. Therefore, it could be pointed that the shopping behaviour trend of the customers may not be same always as the customers may change their preferences based on market, prices, substitutes, etc (Fleisher and Bensoussan, 2008).

Figure 3: The number of store visits

(Source: Case Study, 2016)

It could be seen from the above figure that there is significant difference in visits by the consumers to stores year-on-year. Therefore, there is high fluctuation in the trend which indicates that the customers would more likely to visit the stores when they are provided with expected products and services along with potential offers (Case Study, 2016).

Figure 4: The number of items bought in the store

(Source: Case Study, 2016)

Furthermore, it can be observed that there is positive increase in visits and spending. Customers usually buy 6-10 items from the stores as per the data of 2015 (Case Study, 2016). However, the spending on the items would increase as per the requirements of the customers. If the buyers do not have a need of more products then they would be buying only what is actually needed. However, it can be pointed that if offers are given on the specific items then it would increase the visits and spending of the consumers. Therefore, it can lead to a positive shopping trend.

Global Insights

Globally, alcohol consumption is considerably high and the consumers of alcohol are categorised into different groups such as age, family, established people, older couples and others. It has been found that people aging between 55 and 64 buy alcohol (rum) more, followed by consumers aging between 35-44 years (Case Study, 2016). The following figure of demographic profile buyer index illustrates that the different class of people are likely interested in consuming alcohol which enables the global alcohol retailers to sale more alcohol brands.

Figure 5: Demographic Profile Buyer Index

(Source: Case Study, 2016)

On the other hand, the key retailers of spirits and rum are TW Retail, Northern Star, First Step Stores, Worthingtons, Carter Foods and G-Mart (Case Study, 2016).

Figure 6: Retailers of Rum and their % of value sales

(Source: Case Study, 2016)

It could be observed from the above figure that retailers generate positive vale from the sale of rum which contributes to their return on investment. However, it could also be pointed that demand for other spirits than the rum is slightly more with some retailers. Further, it is evident that the companies generate potential return from investments on TV advertisement. For instance, average returns on investment from the timing of TV advertising are £1.03 (Case Study, 2016). Moreover, other advertising platforms such as online, broadband service, banner, website and paid search effectively contribute in generating returns (Case Study, 2016). Therefore, it would be important for Arts Alliance to use advertising channels for attracting the customers and increasing sales.

Further, it has been studied from the Case Study (2016) that the gain or loss of a seller of rum in the retail market of the UK relies on the value of the product which leads to market penetration, preferences of brands by consumers lead to specific repertoire and varying buying capacity of customers leads to varying weight of purchase and switch of customers from one brand to other. Therefore, the role of each source in deciding potential loss or gain of the vendor is described in below figure;

Figure 7: Contribution of factors to decide gain or loss of vendors

(Source: Case Study, 2016)

It could be analysed that gain or loss of a vendor would depend on the way the consumer purchase and satisfied from the products. If the customer is satisfied then they would purchase and stick to same brand and vendor and visa-versa.

Figure 8: Sources in the gain/loss of alcohol sellers

(Source: Case Study, 2016)

It can be illustrated from the above figure that the major gain is received from the sale of beer, vodka and non-creams. All other alcohol types also have positive contribution but the value of contribution is less. However, it can be pointed that the sellers would not face loss due to positive demand for rum and other drinks available.

Future look for business model

Based on the UK alcohol industry, market trends and global consumer and market insights, it would be pointed that Arts Alliance has a potential opportunity to gain advantage and better return from investment on the Lambs rum brand. It has been observed that the sales of alcohol beverages have increased in the UK and globally, which indicates that people prefer consuming different alcohol types (Case Study, 2016).

On the other hand, while spending on the consumer products, the customers seek information from variety of sources such as own experience, perception and peer reviews. Moreover, the customers are also more likely encouraged to buy a specific good due to some external forces like advertisement, product experience of strangers and colleagues and friends experiences (Case Study, 2016). The following figure shows which factors influences the buying nature of the customer most.

Figure 9: Factors contributing to buying nature of consumers

(Source: Case Study, 2016)

It could be mentioned based on above figure that the opinions and experiences gained by the friends from the use of the products influences one consumer’s buying behaviour the most in the world. Therefore, it can be analysed business model depending on rum market would be able to target the potential customers which can help in increasing further consumer base for specific alcohol brands.

On the other hand, the demand for flavoured rum has risen which is a positive sign for Arts Alliance to gain benefit from its Lambs rum brand that is available in different flavours (Mintel, 2016). However, the company would require to continuously investing on advertising in order to retain the existing customers and attract new customers. This would help in obtaining better returns in the future. The rum market in the UK is quite less in comparison to whisky and beer but the growth of rum market has been positive (Case Study, 2016). Therefore, Arts Alliance could capitulate on the Lambs rum brand.

Recommendations

For gaining expected return from the investment on the Lambs rum brand, Arts Alliance would require to consider the supply chain in order to make sure that the rum brand is available for meeting the demand of the customers. Moreover, the distribution channels need to be taken in account so that exact numbers of products could be picked from the warehouse or suppliers for the specific target markets, stores, supermarkets, etc. This would support Arts Alliance to attain the rum requirement of targeted market, which can contribute in increasing the return.

On the other hand, Arts Alliance could consider building a partnership with an alcohol retail chain. It can help in increasing the sales of Lambs rum brand. Moreover, the company would be able to share the cost of operations, which can enable the firm to save capital that can be used for product advertisement purpose. The partnership can help in effective promotion of Arts Alliance’s new venture. The partner can support in informing its existing customers to consume the Lambs rum brand. As a result, Arts Alliance would be able to increase its revenues and profits over the operating costs.

Conclusion

The study has focused on the UK alcohol industry and retail market in order to decide whether Arts Alliance would be able to generate expected returns. It has been analysed that the alcohol market in the UK is in a better shape despite the slight drop in consumption level. However, the demand for flavoured rum is on the rise in the country. Moreover, the sales of rum are high in comparison to other spirits and liqueurs. Therefore, it is clear that Arts Alliance has a potential opportunity for Arts Alliance to maximise return on Lambs rum brand investment.

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