Strategic Management - Globalizing an Australian Wine Company - Essay Example

Table of Contents: Sl. No. Particulars Pg. No Executive Summary 2 2. Account of BRL Hardy’s post merger success 3-6 3. Source of tension between Stephen Davies and Carson 7-9 4. How effectively has Steve Millar handled their differences 10 5. Should Millar Approve Carson’s proposal to launch D’instinto 10-13 6. Recommendations pertaining to conflicting proposals for Kelly’s Revenge and Banrock Station 13-16 7. Conclusion 17 8. Exhibits – 1&2. 18 9. References 19 Executive Summary BRL Hardy, an Australian wine company holds a market leader position in wine exports 2/3rd share of its exports to Great Britain. It is the second largest sold wine brand in the Britain’s off-trade and is now on a drive to globalize its products to improve the size, impact and reputation of its existing and future brands. The company also exports its brands to U.S., Germany and Japan for which growth forecasts show an encouraging picture better than that of Britain that by 2025, U.S. market is set to overtake the Britain’s market in the total volume of sales. A bird’s eye view on the Australian wine industry, at this juncture, would be appreciable. Wines in Australia though are 200 years old, the industry was sluggish in its initial years. They have now caught pace in New-world countries that they are considered the ‘Hot Trends’ in the market. Thomas Hardy & Sons wine company, known for its quality wines, was established in Australia in 1853 and was most respected for its culture and polite values. Berri Renmano Ltd. (BRL), a co-operative and merged entity was known for aggressiveness and commercial success. Hardy group had to incur huge losses after acquiring some French, Tuscan and Italian old wineries. At the same time, BRL was also facing financial hardship, but nevertheless proposed and merged with Hardy which according to the industry analysts was not a great arrangement. Owing to the financial strength of the BRL team, BRL Hardy had more of BRL’s executives at the top notch in the merged entity while the Hardy’s executives were a bit suppressed. Irrespective of all these happenings, the group was an initial success. After the initial success, there were differences regarding the marketing and distribution of some key brands of the company between Stephen Davies, the Group Marketing and Export Manager based at the head office at Reynella, Australia and the Managing Director of U.K. management team – Christopher Carson. For instance, while Davies was planning to launch a global brand, Carson tried to develop a low price wine brand D’instinto. This attempt was criticised by Davies citing examples of Carson’s failure in renewal of distribution agreement of Caliterra (wine brand) and disappointing launch of brand Mapocho with a Chilean sourcing. Nevertheless, Steve Millar, the Managing Director of the BRL Hardy Company as a whole understood these delicate issues and tactically dealt with both of them. Similarly, the head office was planning to launch Banrock station, a product which was a terrific hit in the Australian market, as a global brand into Europe and North America. All the remaining branch offices agreed for the suggestion except for U.K. Management which was already in the plan to launch a lower end brand called the “Kelly’s Revenge” and for which label graphics and the quirky taste of the brand were already finalised by the successor of Carson – Paul Browne. In this backdrop, the following interesting facts may be analyzed: Reasons for BRL Hardy’s post merger success: 1. The merged entity stressed on the sales for branded bottles requiring a strong commitment to maintain quality initially in the Australian and European market and later on focus on the globalization. As it is, in the Australian market, both the companies combined, before the merger, accounted for 22% of the domestic market which amounts to almost 1/4th of the market capitalization. With the merger, the new entity had access to good quality brands on the supply side and huge grape crush and bulk-packaging economies on the production side which when assimilated with a focussed strategy on quality had to capture the market for a great success. This can be envisaged in the Exhibit 4 – The Key Historical Data of BRLH Europe Ltd. which accounted for 60% of the company’s sales, wherein in 1992, though the contribution margin was squeezed by .2%, the actual advantage was due to reduction in the administrative costs arising due to large scale economies, by a total of 1% which improved the PAT (1.3%) and ROI (11.2%) figures. Similarly, in 1993, lower contribution margins were compensated by lower administrative costs thereby improving PAT (1.7%) and ROI (17.9%) figures. As PAT and ROI figures are the major trendsetters in the mindset of the major stake holders, following the public listing of the company in 1992, the organization was considered to be a huge success post-merger. 2. The marginal productivity of Sales per employee also improved which can be seen in the Exhibit 6 wherein the volumes increased almost to a double in Domaine de la baume and Chile wineries. French agencies almost improved their volumes by 50% and there was a considerable increase in the sales volumes of Hardy also. This was achieved by improved sales tactics of the personnel and also due to a drastic reduction in head count, courtesy to Carson, that the remaining employees were too low in numbers in comparison to the improved sales growth. The retrenchment of non-performing personnel was a subtle warning to the remaining staff that they went on a focussed approach that the stock turnover ratio at the year end of 1992 improved by 8% to 18.2% implying greater efficiency of the management. (Jain & Narang, 2006). The next year, the staff settled a bit comfortably and as such, the stock turnover got reduced to 15.5 implying a slight lethargic attitude which usually sets in any organization given the cushion of huge profits. 3. In the initial stages, the merged entity was a stranger to the employees of Hardy Company who had to struggle hard and earn their stripes for influencing the management of BRLH which was dominated with the ex-BRL executives. Obviously, to sustain themselves in the new management, the Hardy team had to put in that extra effort failing which, they could be expelled. With fear psychosis, they worked incessantly setting aside all the immaterial differences for the time being. 4. Millar was an efficient executive that even though Hardy’s team was not given utmost opportunities, he could envisage the importance of their efforts and as such could keep the Hardy’s team on par with the BRL’s team in his behavioural expression that Hardy’s team could find solace that their efforts never went unnoticed. Further, his push towards decentralization was a soothing feather that the Hardy’s team at U.K. which is the major contributor of sales volume at that time felt the freedom of expression to some extent which was a crucial motivating factor for the employees. In this way, he motivated them; created confidence in them and built up their morale so that they could perform well for the organization. (Prasad. L.M. 2006). 5. At the same time, Hardy’s management which was known for taking risky decisions was controlled due to Millar’s cool reactions for smaller risky jobs. In this way, he ensured that the group does not concentrate only on few projects which had to be 100% right but go on experimenting on many more projects which could be 80% right still beating the 100% results on the fewer projects. However, care needs to be taken while going on such number of projects that sometimes the group may end up being a Jack of all trades with no masterpiece to its credit. To check these possibilities, Millar outlined a clear scope of achieving marketing success within the country against the competitors laying down emphasis on quality of his brands in the domestic market. (Baca. C, 2005). 6. The Italian Ricasoli operations which were purchased by the Hardy group before the merger were excluded in the merger plan which suggests that if these losses were to be combined in the post merger entity, then the organization would not have reported a profit figure at all. It was the shrewdness of the BRL executives that they did not allow these losses to be borne by the merged entity thereby putting the Hardy team alone into hardship in a clever manner. In this way, the post merger was in fact reported to be a success which may not be the original case if given the details of the Ricasoli operations. 7. The exchange rate fluctuations on the Australian $ however had no impact visibly for the year 1992 as the last year’s figures were excluded for further comparison. However, for the year 1993, an increase in the Australian/£ exchange rate, has had a total 14% growth in the PAT figures as illustrated in exhibit-1. Naturally, once a good set of numbers were presented and the merged entity was widely accepted by the major stake holders, it becomes extremely important for the organization to continue its impetus to grow at the same rate, if not at a faster pace. But, given the baseless improved numbers which were banked on reduction in head count /cost cutting processes (which cannot be recurring in nature) and deceptive numbers that they have not reported the Ricasoli operations, reporting profits in the coming years would be hectic. New marketing strategies have to be drawn by the top level executives and they need to arrive at a consensus on the strategies to be played for an improved growth in the future also which became the source of tension between Davies and Carson in view of the following happenings: 1. Carson stressed that the U.K. management would focus on the sale of Hardy brands as they, according to him, had more potential to grow in the U.K. market. He particularly wanted to save a Chilean brand Mapocho, whose sales were highly unstable for the mere fact that he visualized a great potential of growth for this brand in the years to come. For this reason, he promised to Davies that he would improve the sales volume of this brand from the existing 20,000 cases in 1991 to around 60,000 cases in the next year which he did to keep up his promise. But, if we go through the sales volume of the next year i.e. 1993, we can understand that the sales volume of that brand was even more less than half of the previous year’s sales. If not for the tremendous performance of the Hardy brands which improved 3 folds, this failure should have been reflected in the financial reports of 1993. Going further, in 1994, 95 and 96, the sales volume of this brand were on a growth story but again in 1997, they plunged back to the 1992 levels. This speaks of the instability of the brand which may push or pull the organization drastically given the occurrence of fixed costs irrespective of the sales volume fluctuations (Exhibit – 2). Actually from the time of launch of this brand, it’s performance was disappointing given reasons like increase in the supply price, losing the pick price of the grape harvest in 1997, the arguments between the suppliers and wine maker, amounting to a sales volume of 15,000 cases as against planned 80,000 cases, which in the view of Davies is attributable to Carson’s irresponsibility. Davies who could read through these numbers wanted to avoid such high risk given the organization’s strategy of avoiding such high beta occurrences. As such, he was in the lookout of evolving an international brand which could stabilize such fluctuations. 2. Carson led U.K. management on the other hand were sceptic about the bulk oriented nature of BRL management. Given the approximation of quality to attain more profits, brand building would be a tough job for the BRL management as brand building required more patience and quality maintenance at any given circumstance. It also required great understanding about the markets and the target customers who are to be served in the market. (Lancaster. G, Massingham. L, Ashford. R, 2002). Particularly the U.K. market was always on the lookout for something new in taste and has not attained any brand status. It should appeal the women customers who account to about 60% of the U.K. sales who go into the super markets to purchase unknown brands. Hence, brand building in U.K. was highly impossible according to them. 3. The brands of Stamps and Nottage hill which accounted for 80% of the U.K. sales were to be repositioned and re-launched for better future prospects. Keeping this point in mind, Carson tried to convince the head office. Davies who wanted to have a major control on the marketing, branding and labelling strategies put him under a tight leash before granting the permission under the disguise of performance to be proved by Carson. This has emanated a feeling of sourness in Carson’s mind that he started out rightly dismissing some of Davies suggestions, though given in a good sense. 4. Davies on the other hand was concerned about losing his control on branding, labelling and pricing decisions as he wanted to dominate Carson given his superiority in authority. Also, he felt while all the other branch offices had no problems dealing with him, how come Carson negated all his decisions citing some reasons to pull back his strategies. Moreover, he was not very much impressed of Carson’s performance given his failures in dealing with the renewal of Caliterra brand which was awarded to another U.S. winemaker and the failing launch of Mapocho. Considering all the above facts, it can be said that both Davies and Carson had a Parent ego in them that they exhibited a mixture of hurtfulness and helpfulness that they would hurt people who would not bow down to their egoistic behaviour. At the same time, for those whom they support they extend their helpfulness in an utmost way. For instance, when Carson let his successive team to work on a new brand “Kelly’s Revenge”, to be led by Paul Browne, though Browne did not possess the requisite skills, Carson backed him for the sole reason that he has promoted Hardy’s brand. This is an example of his helpfulness without thinking about the consequences of such helpfulness. His behaviour with Davies on the other hand ignited hurtfulness feelings in David who in return retorted in the same way to Carson. Davies was on the other hand helpful to the group heads of other branches particularly to show down Carson. Steve Millar, who possessed an Adult Ego which expresses reasoning, information providing and seeking help from all colleagues and subordinates could get along well with both of them because he had an understanding of the would be problems if these both persons were let to sail along in the same organization. So, he designed the organizational chart in such a way that Carson could directly report directly to him as regards the matters of profit performance of the U.K. management. However, when it came to marketing of brands, Carson had to get along with Davies as this would result in an itchy competition between both of them which can transform to be quite healthy for the organization as both of them would try to cut down on their mistakes and at the same time on the lookout for the mistakes of his opponent who tries never to commit a mistake for the fear of being chided. At the same time, Davies would also not feel bad that Carson is directly reporting to Millar neglecting his authority. Thus Millar had tried to solve the issue by balancing the reporting systems to extract the tremendous potential from both of them. (Prasad, 2006). From the inception of BRLH, Carson was instrumental in supporting the Hardy brands that he had a contention that Australian red wine shortages which could impinge production could be offset by establishing alternative sources as a distributor on a full length from the northern to the southern hemisphere. He thought that this idea was in line with the Head office’s strategy of developing a global brand for which, there has to be a pronounceable name and should be priced at the base point. For this reason, he has selected the brand’s name to be D’instinto from the wines of Sicily which should depict a strong instinct to the consumer. He planned to launch this brand with a lot of secrecy pertaining to its label and packaging designs to take the customer to surprise and delight. Also, a small booklet would be attached to the bottle inviting the customers to fill in their details and suggestions if any. This would help in increasing the customer database so that they could be sent with information of newer launches in the later period on a regular basis thus ensuring that the brands which would be launched in future would be better marketed with least efforts. He was so pro-active in his presentation that at the outset, the Australians were convinced about the brand’s success. But, as time went on, issues pertaining to his previous failures of Mapocho brand and Caliterra renewal encompassed the launch. The £400,000 loss to be incurred in the Mapocho operations for which Carson’s team was ready to make a commitment to the Chilean management of a sales volume of 150,000 cases in 1998 as against 50,000 cases in 1997 was an ambitious plan (for details, see exhibit – 2). Apart from this, the Ricasoli operations which were not included in the merged entity still had their impact on the minds of those old veterans of the head office that they were reluctant to accept the launch of this brand. Davies and other Australian management team were concerned that the price range of premium wines of D’instinto were in the price range of £5.99 and £4.99 replicating the price range of Hardy’s two important brands Nottage Hill and Stamps which contributed to 80% of the U.K.’s sales. Naturally, if two brands are released of the same price range, the result would be that the demand would be almost the same as that of only one brand and it would be divided between the two brands. As a result, the increase in the demand of D’instinto would in fact be a pull back from the demand for the Nottage Hill and Stamps brands. This implies that while the fixed costs for the newer brand would naturally increase, the demand being the same redistributed into more brands, the resultant revenue would not increase to cover the fixed costs. As such, the approximate £100,000 investment for the D’instinto brand would prove to be a mere waste given no returns arising of such an investment. But then, Carson, an experienced market man still insisted to go along with this launch just to take a risk of low cost investment which if clicked may return huge revenues to the company. This point can be clearly understood by the fact that Carson had estimated a sales volume of 160,000 in the first year which could be further increased to 500,000 cases by the fourth year. Unless Millar himself pointed out that achieving these numbers are highly impossible that too at the cost of losing demand for the existing brands of the company, then only, Carson’s over confidence was subdued. His over ambitious plan of making a millions of cases and even exporting Italian wines to Australia had its own share of sacrifices down the line: 1. First of all, the investment of £100,000 was not to be compensated in the present year given the probability of demand shift from the company’s existing brands to the new premium brand as they are all on the same price line. 2. After the initial investment, experience from the Mapocho brand and Ricasoli operations says that huge amounts have to be deployed on a yearly basis to support any brand. Given the doubtfulness of this brand clicking and also not snatching the demand of the existing brands, the taking up of such a financial risk is questionable. 3. The forecast of huge sales volumes is a distant reality. However, even if it becomes true, owing to the thinly spread head count in the U.K. branch, would overload the staff with huge work pressure which can jeopardize the organization’s performance as a whole. 4. Finally, given the problems in the Mapocho brand and also taking necessary actions to maintain the existing brands, if more time is vested to the development of a newer brand, these old ones would suffer as some other competitor would try to take advantage of the pre-occupations of Carson with the D’instinto brand. At that point, his concentration may be lost and all the brands old and new may collapse without efficient backing. 5. Even if all went as planned, it was too high a risk to be taken up keeping the time and funding at stake and praying for improved sales which may or may not be considered to be effective in the real sense. Thus, investing in the development of D’instinto brand would be a waste at the present point of time given the uncertainty of demand for the product. In fact, if the maintenance of secrecy was to be foregone and a sampling of the same product could be done with the marketing executives of the company, then, further decisions could be taken up depending on the customer’s response because in today’s market only a good product according to the customer’s perception is saleable. A poor product cannot be sold more than once. (Moffatt. L. 2002). Keeping this point in view that the customer should be targeted while introducing any product, Carson started thinking on a newer brand at the lower end for the first time youngster wine drinkers with a light quirky taste. Because the target customers were young people, this brand was to be promoted @£3.99 stating a discount of £.50 thus making the selling price to be £3.49. This type of discounting the price is a penetration pricing tactic that it can help in development of unique markets for the product and thus enable the organization to diversify. At this point, Millar had been stressing Carson to support delegation of work so that his successors can also be trained for on the job experience. After many being chewed up, Paul Browne was the best man to be selected who vigorously took to promotion of the product “Kelly’s Revenge”. Great importance was laid on the naming, labelling and graphics of the brand with the idea that the customers would find it irresistible when placed in the super markets. (Kotler, 2005) At the same time, the BRLH head office team was itself developing another brand “Banrock Station” named after the 1,800-hectare cattle grazing property of the company wherein only 400 hectares were planted with fruit trees thereby enhancing the land quality through restoration of natural wetlands. Naturally, as there was no conviction of the quality of the fruit produced, the wine produced from that fruit would be of the best quality and that was proved as the best seller in Australia and also in New Zealand. This brand was capitalizing on the green growth strategies which are becoming the political and economic debates worldwide. In the present scenario, renewing resources has to go hand in hand with development of resources failing which shortages of inputs would be faced by the industries in the coming years. Hence, International Energy Agency is stressing on the need to utilize the resources efficiently and also stress on replenishing of the existing resources which this brand is emphasizing by its slogan “Good Earth, Fine Wine” and can thus become a great positive point in marketing this product (Gabriel. S, 2008). The Canadian and North American management identified the potential of this brand and immediately accepted its promotion in their areas. However, in U.K, accepting Banrock Station (BS) implied sacrificing the Kelly’s Revenge (KR) proposal as the company could not afford two launches simultaneously. Paul Browne who is mastermind behind KR proposal, supported by Carson, was not willing to sacrifice all the hard work done in designing the brand. He was taking it more as a personal defeat to accept BS instead of KR. Millar though knew that Paul did not possess the skills to support a brand, because he had earlier rejected Carson’s D’instinto project is very mindful about Carson’s feelings. In the light of all these developments, the following inferences can be drawn: Though Kelly’s Revenge is a new low end product and its success is not yet established given the fact that when it was placed in the super market ASDA, there was hardly any response for the product, it does not mean that the brand had no potential. It only implies that the brand has to undergo some product promotion time before it is observed and accepted by the general public. On the other hand, Banrock Station banking on the caption of green growth has already been established as a brand in Australia and New Zealand but given the U.K. market where the consumer is not brand conscious and only craves for some new taste every season, launching such a high priced product in the U.K. market may not be as successful as planned. The price for BS is decided to be ranging from A $4.95 to A$7.49 which can overlap with the premium brands of Eileen Hardy etc. accounting only for 20% of sales volume. If BS has a great brand potential as envisaged in the other markets, it may exceed that 20% mark but only at the cost of losing the demand for Eileen Hardy products as is the problem in the case of D’instinto. Pricing for KR as is already decided keeping in view that it does not overlap any other product range, is just fine and need not be considered for any further revision if launched. One more important point to be noticed here is that the company may have to lose the lower end market for which it was serving all these years and those customers who have been loyal to the company all these years, if it goes with the launch of BS. Naturally, as these customers cannot afford higher pricing brands, they may shift to another brands thus giving room for increased competition by the company’s rivals which is one of the product’s five forces to be avoided for any company to save itself from falling into trouble (Porter, 1980). The production costs of the KR has to be separately taken up by the U.K. management team while if BS is promoted, it is already produced in Australia and hence can bank on large scale economies given its demand in the other markets. However, as it is a lower end product, that too there is a huge potential in the market for that segment given the fact that there are no other products serving that segment, the demand for the same is 9 out of 10 chances to be highly positive. In this backdrop, the production costs could be easily covered given the fact the brand is expected to break-even very easily. Also, the labelling and graphics of KR are more attractive than BS and even though many international agencies are stressing on the need for green growth, advertising such a caption has to be re-thought as this caption in itself does not give any direct benefit to the customer and consciousness of energy replenishment from the customer’s point of view is not established in any marketed product till now. As such, any customer would not spend that extra money for the caption of green growth given the lower end customer base of the U.K. market. Conclusion: Keeping all these points into view, whether Carson or Millar, any prudent manager should go for the launch of KR instead of BS in the U.K. market but with the change in the management style wherein opportunists like Paul Browne should not be given the ultimate authority as their decisions may not be very fruitful for the success of the company. As Carson, I would support the launch of KR as it suffices to the lower end market and meets the consumer requirements which are the basic essential point for any product promotion. Also, given the fact that KR is the brain child of my project team which I have supported by encouraging my sub-ordinates, I would surely support the launch of KR with Paul as the head of the team in U.K. while BS could be launched as a global brand in the other markets. As Millar is a more knowledgeable and understanding person, putting myself in his place, I would support the launch of KR only in the U.K. market which can save the company from losing those lower end customers and at the same time cash on the first time wine drinking youngsters who would be attracted by the colourful label graphics and quirky taste of the product but with a different project head than Paul. Hence in both the ways, in the U.K. market, which is estimated to lose its sales potential in competition to U.S. by 2025, by introducing KR instead of BS, may regain its lost customers and also its growth figures. BS though may be successful as a brand in the remaining branches of BRLH, given the distinctive nature of the U.K. branch, should be launched only at a later stage if financials permit after the launch of KR. Exhibit - 1 1992 1993 Sales for BRLH Europe Ltd.(£) 12,434 15,521 G.P. % of sales 11.6 10.3 Admin % cost of sales 9.4 7.6 Profit after tax (£) 157 266 % of growth in sales 19.89 % change in G.P. -12.62 % reduction in Admin costs 19.15 % of growth in profit 40.98 % of growth in profit due to exchange rate fluctuations: 14.56 Exhibit – 2: Chart for the sales of Chilean brand. Year 1991 1992 1993 1994 1995 1996 1997 Volume 20,000 58,848 24,855 76,775 112,954 120,540 50,537 Book References: Baca, C. (2005). Managing Project Change. Project Manager’s spotlight on Change Management. United States of America. Harbor Light Press. Pgs.6-9. Jain & Narang, (2006). Ratio Analysis. Advanced Accountancy. Volume – II. New Delhi. Kalyani Publishers. Pgs II-934. Lancaste, G. Massingham, L. & Ashford, R. (2002). Selling and Sales Management. Essentials of Marketing. London. Mc. Graw Hill Publishing Co. Chapter – 10. Moffatt, L. (2002). The Art of Customer Service. Ahead of the Game: Marketing guide for small business. U.K. Mc. Grawhill International Ltd. Unit – 8. Pgs. 156-167. Porter, M. (1990). The Competitive Advantage of Nations. New York. Free Press In: ed: Gupta, V. Gollakota, K. Srinivasan, R. (2006). International Strategies. Business Policy and Strategic Management: Concepts and Applications. New Delhi. Prentice Hall of India Pvt. Ltd. Chapter – 9. Pg. 220. Prasad, L.M. (2006). Interpersonal Behaviour & Leadership. Organisational Behaviour. Ed. 6. New Delhi. Sultan Chand & Sons Educational Publishers. Pgs. 226-227 & 312-313. Internet References: Kotler, P. ( August, 2005). Marketing Mix, Learn Marketing.net. Last Accessed: 20th November, 2008. Available: http://www.learnmarketing.net/price.htm Newspaper References: Gabriel, S. (17th November, 2008). Strategies for green growth. The Hindu. Pg. 9. Hyderabad. The Hindu Publishers. Last Accessed: 20th November, 2008. Available: http://www.hindu.com/2008/11/17/stories/2008111755200900.htm Read More