Brown-Forman Corporation Strategy Assignment
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Transcript of Brown-Forman Corporation Strategy Assignment
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Major CaseGroup 2 Introduction – Kyndle Huey Environmental Analysis – Shelley ScarbroughStrategy Evaluation – Cole RigneyProblem and Exec Summary – Zac ChismRecommended Strategy – DB Irwin and Andrew TerryForecast and Recap – Zac Chism
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Introduction and Industry Overview
• Brown-Forman is a producer and marketer of fine alcoholic beverage brands
• In 2008, the U.S. beverage industry contributed nearly $388 billion to U.S. economic activity• Distilled spirits accounted for $115 billion, or 30% of all alcoholic
beverages
• Over $90 billion in wages and 3.9 million jobs for U.S. workers were generated by the U.S. alcohol industry
• The Distilled & Blended Liquors industry is highly competitive and heavily concentrated with just 20 companies accounting for more than 90% of the industry’s overall revenueSource: Distilled Spirits Council of the United States
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Location• Headquarters in Louisville, Kentucky
• Approximately 1,000 employees• 3,900 Total employees worldwide
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History• 1870
• Founded as JTS Brown and Bro. Distillery by George Garvin Brown, a pharmaceutical salesman, and his half-brother
• Brown had the idea to bottle and sell whisky straight from the distillery
• Old Forester• 1890
• George Forman becomes business partner; name changed to Brown-Forman
• 1902• Brown Family buys all of Forman’s
stake in the business
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History• 1923
• First acquisition – Early Times• 1964
• Acquire Jack Daniels Distillery• Early 1990’s
• Acquisitions have continued; Brown-Forman owns Canadian Mist, Southern Comfort, and Bolla Wines
• 1991• Forms wine division with Jekel Vineyards
• 1995 • Created and introduced a new alcoholic drink category with
Tropical Freezes, the first blended frozen cocktail
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History• 2000
• Global alliance with Altia Group, with 45% ownership of Finlandia Vodka
• 2004• Acquires remaining stake in Finlandia
• 2006• Chambord liqueur
• 2007• Herradurra Tequila
• 2008• Sells Bolla and Fontana Wines
• 2011• Sells Fetzer Vineyards; only wines left are Korbel and Sonoma-Cutrer• Jack Daniels Tennessee Honey• Jack Daniels RTDs
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Current Product Lineup• Whisky
• Old Forester• Canadian Mist• Collingwood• Early Times• Jack Daniels• Woodford Reserve
• Vodka• Chambord• Finlandia
• Tequila• Don Eduardo• El Jimador• Herradura• Pepe Lopez
• Liqueur• Chambord• Southern Comfort• Tuaca
• Champagne• Korbel
• Wine• Sonoma-Cutrer
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U.S. Market Share
Fortune Brands(Beam Inc.)
26.60%
Diageo23.30%
Brown-Forman20.50%
Pernod Ricard13.20%
Other 16.40%
Source: Business & Company Resource Center
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Sales
2007 2008 2009 2010 2011$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$2,806$3,282 $3,192
$3,226$3,404
Brown-Forman Sales (in millions)
Sales
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Stock Performance
Source: Brown-Forman 2011 Annual Report
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Stock Performance
Source: Google Finance
Brown-Forman Class B Stock52-week high: $77.5652-week low: $61.41Close on Nov. 4: $74.57
Diageo Stock52-week high: $84.3152-week low: $83.01Close on Nov. 4: $83.98
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Company Leadership
• Background• Intern Summer 1986• Jack Daniels Brand Manager, Senior
Vice President, and • Chief Marketing Officer
• Education• 1982 – University Kentucky - Finance• 1985 – Purdue University - MBA
• Salary• $7.1 million dollars, down from $7.7
million in 2010
President, CEO and Chairman of the BoardPaul C. Varga
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Company Leadership
• Important Notes:
• Former CEO Owsley Brown II
• History of CEO duality
• Director of Family- Shareholder Relations in 2009• Varga realized need first time in 140 years• No current family in top structure with retirement and death of
Owsley Brown
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Company Leadership
• Background• VP Morgan Stanley• Joined in 1989 - Corporate Planning • Assistant to CEO and HR for beverage
company• Education
• Princeton – Economics• Salary
• $2.2 million dollars in compensation (Including stock awards, non-equity incentive plan compensation, and a pension plan)
Vice ChairmanJames S. Welch, Jr.
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Company Leadership
• Background• CPA at Ernst Whinney in IL• Brand manager Carnation• Assistant to President• Senior VP and Director of Corporate
Finance• Education
• Undergrad – Augustana College (Rockport, IL)
• MBA – Wharton School of Business (U Penn)
• Salary• $2.2 million in 2011
Executive Vice President and Chief Financial OfficerDonald C. Berg
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Company Leadership
• Background• Began at Cadbury VP Marketing• Executive VP for Red Lobster• Started at Brown-Forman as Chief
Brands Officer in 2006 – newest addition
• Education• University of Western Sydney,
Australia – Bachelor Food Science• Salary
• $1.9 million 2001
Executive Vice President and Chief Operation OfficerMark I. McCallum
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External Environment:Economic
• Spirits industry faring well in recession – profitable
• People stay home for cheaper ways of entertainment
• Many individuals looking for cheaper brands
• Rise in consumption means rise in alcoholism and public scrutiny
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External Environment:Legal
• Landmark case results in creation of liquor label warnings
• Advertising• Accusations – targeting minors• Mad Men
• Alcohol Taxation
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External Environment:Technological
• Recently implemented a new position in 2008: • Director of Finance and Technology• Controller Jane Morreau
• New Product Life Cycle Management Software
• Social Media Use
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External Environment:Social• Distilled Spirits Council of the United States (DISCUS)
• Developed liquor industry standards for advertising and marketing practices
• Founded by former chair, Owsley Brown• Received Mad-Men complaint
• T.U.R.F.• Tailgaters Urging Responsibility & Fun• Brown-Forman charitable giver
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Existing Strategy• Our mission at Brown-Forman is to enrich the experience of
life, in our way, by responsibly building beverage alcohol brands that thrive and endure for generations
• Values and Goals• Our Thinking About Drinking
• Responsible leaders; partner with responsible retailers; trusted policy advocate; harness brand power; be a credible voice
• Five Strategic Imperatives• Being responsible in everything we do; responsible drinking;
environmental stewardship; employee relations; community involvement
• Core Values• Integrity; respect; trust; teamwork; excellence
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Existing Strategy• Competencies
• Brand quality• Diversity of their retail base
• Markets
Percent of Sales
United States - 45%
Europe - 27%
All Others - 28%
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Existing Strategy• Objective
• Be the industry leader• Double business by 2020• Be a credible voice for responsible drinking
• Overall Strategy• Differentiation among brands on a global scale• Expand Jack Daniels family• Grow other brands faster than Jack Daniels• Grow U.S. business and grow market share of dollar sales• Grow international business faster than U.S. business• Be responsible in everything they do
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Existing Strategy
• Target Market• All adults anywhere in the world of legal
drinking age• They are putting some emphasis on Eastern
Europe, Asia, and Latin America
• Global Strategy• Stick to what sells the best and market Jack
Daniels family
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Product Strategy - Porter Framework
ROI
Market Share
Diageo
Brown-Forman
Jim Beam Brands
Constellation Brands
Mackmyra Svensk
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Product Strategy - Product Life Cycle
Introduction Growth Maturation Decline
Old ForesterCanadian Mist
Tennessee Honey
Gentleman Jack
Ready-to-Drink
Single Barrel
Tennessee Whiskey
Woodford Reserve
Collingwood
Early Times
Early Times - 354
Country Cocktails
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Product Strategy - Product Market Strategy
Market Penetration•Current Jack family in U.S. and Europe
Product Development•Expanding Jack family in U.S. and Europe•RTDs and Tennessee Honey
Market Development•Current Jack family in Asia, Latin America, and Eastern Europe
Product Diversification•RTDs in Eastern Europe
New Market
Old Product
Old Market
New Product
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Product Strategy - Product Position
Taste - Taste +
Price -
Price +
Woodford
Jack Daniels
Jim Beam
Evan Williams
Maker’s Mark
Early Times
Black Velvet
Black Diamond
Jack Daniels SB
Crown Royal
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Place Strategy
• Operate multiple distribution centers• Distribute directly to retailers and wholesalers• Set up partnerships with retailers that share the
same values about responsible drinking• They want to be the first company contacted
for raising awareness for responsible drinking• Brick and mortar retailers• LIFO inventory management
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Promotion Strategy
• About $366 million spent on advertising• Responsible marketing
• Compliance with laws• Only to adults of legal drinking age
• Content restrictions• Placement restrictions
• Responsible consumption requirements• Good tastes and appropriate use
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Price Strategy - Demand Curve
Price
Demand
Jack Daniels - $18Priced at kink
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Strategy Issues and Problem Identification
•The overall problem is declining profitability and stagnant sales due to a limited product line
Overall Problem
•The root cause of the problem is the corporate management structure
Root Cause
Insert your sources here
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Strategy Issues and Problem Identification
• Brown-Forman is not the name brand• Individual products have strong brand
recognition • Marketing strategy needs to be more focused • Product Line
Product
• Elastic (substitutes)• Brands Strategically placed • Cannibalism Price
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Strategy Issues and Problem Identification
•Brick and Mortar only•Online buying could effect B&M policy•Distribution Network
Place
•Marketing must be responsible•Male dominated Ads•Creativity Needed
Promotion
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Path of Continued Strategy
2011 2012 2013 2014 2015 2016 2017 2018 2019 20200
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
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Current VisionWhat We DoAt Brown-Forman, we enrich the experience of life, in our own way, by responsibly building beverage alcohol brands that thrive and endure for generations.
Our vision is to be the best brand builder in the industry, and in order to accomplish that vision, we focus on five strategic imperatives that drive our actions.
Building Strong Consumer FranchisesBuilding powerful, long-lasting friendships between our brands and consumers is essential to growing brands.
Winning at the Point of PurchaseWe must engage the consumer and the trade with flawless execution of our brand plans through the optimal route to consumer.
Allocating Resources SuperblyBy deploying our financial and human resources to their highest and best use, we can focus on our priorities more effectively.
Developing and Engaging Exceptional PeopleWe strive to continually grow, enable, and recognize the people who build our brands profitably in all different ways throughout the company.
Being Responsible in Everything We DoTo us, this means leading by example. It means making decisions and taking actions that drive social, environmental, financial, civic, and personal responsibility.
By expertly executing these imperatives, we will outperform the industry over the long term, deliver consistent, exceptional performance, and ultimately create a growing and enduring Brown-Forman
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New Mission Statement
Builds off Corporate slogan “Building Forever”
Our highest purpose is to enrich the experience of life, by creating a growing family of brands that encompasses every
adult in a worldwide community of responsible drinkers
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Objectives
• Promote a community of responsible drinkers
• Build a family of brands that encompasses every kind of drinker
• Capture traditionally neglected markets
• Evoke a spirit of friendship among U.S. regions
• Create a sense of patriotism in every sip
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Overall Strategy
• Go Private
• Purchase 4 regional breweries
• Implement a “Drink Local, Drink America” campaign
• Leverage Trading Up/Trading Down to capture shifting markets
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Addressing The Problem
• Beer is in a high growth cycle • Product diversification
• Beer is a lower cost, faster cycle market than spirits• Lower costs and quicker results
• Go Private • Addresses misalignment between
management and share holders• Further enhances family image
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Porter Framework
ROI
Market Share
SABMiller
In Bev
Molson Coors Craft Beer
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Price
• Regional differences allow for dynamic pricing
• Utilize expertise of local distributors
• Under price high end beer market, but over price general market
• Utilize EDLP
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Price
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Price
• Existing market
• Existing price points/Anchoring effect
• Lower cost strategy
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Target Market• Men and women ages 21-35.• College Educated• 35k or more a year income• People who are wanting to trade up with regards to beer of
choice
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New Product Strategy
• “Drink Local Campaign”
• Sales associate team for all 4 brews
• Billboard campaign on interstates entering major cities throughout the country
• Beer tastings
• Grass Roots Approach
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Place• Rogue Ales- New Port, Oregon• Sweet Water-Atlanta, Georgia• Magic Hat- South Burlington, Vermont• Shiner Bock- Shiner, Texas• Expand promotion of each beer within its surrounding regions
before launching a national campaign• Grocery and Package stores
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Local Recognition
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National Recognition
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Promotion
• Seek out sponsorship opportunities at local community events within each outlined region of the country
• Tie in with the “eat local” campaigns found in cities and small towns
• Farmers Markets• Beer tastings performed by sales associates at
community events, grocery stores, package stores, etc• Sponsorship in locally owned businesses and events.• No national chains strategy is to seem uniquely apart of
the community
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Forecast – Financials - RecapCurrent Income Statement & Projected Statement
Period End 4/30/2011 4/30/2021
Reported in Millions
Total Revenue $3,404.00 $17,041
Total Cost of Revenue -$1,680.00 -$6,986
Gross Profit $1,724.00 $10,055
Operating Expense -$2,549.00 -$3,663Other Expense -$26.00 -$37Total Expense -$2,575.00 -$3,700
Net Income $829.00 $6,355 Net Income (Less Tax) $572.00 $4,321
**Dividends have been paid every year since 2007 to common stock**
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Forecast – Financials - Recap NPV ANALYSIS
YEAR 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021Sales 3404 3847 4385 5174 6106 7144 8501 9946 11736 14201 17041
Market Share (current strategy) 20% 21% 22% 21% 20% 19% 18% 18% 17% 15% 14%
Market Share (based on planned strategy) 20% 21% 23% 26% 24% 30% 31% 36% 37% 37% 39%Incremental Market Share (% points) 0% 0% 1% 5% 4% 11% 13% 18% 20% 22% 25%
Incremental Margin (Gross Gain After Investment) $0 $0 $44 $259 $244 $786 $1,105 $1,790 $2,347 $3,124 $4,260
Product investment (development cost of Craft Beers) $75 $30 $10 $5 $5 $5 $5 $25 $10 $10 $10Place investment $0 $24 $10 $5 $5 $5 $5 $10 $10 $10 $10Price investment $0 $3 $3 $2 $1 $1 $1 $1 $1 $1 $1
Promotion investment $0 $100 $100 $100 $100 $100 $100 $100 $100 $100 $100Total incremental investment $75 $157 $123 $112 $111 $111 $111 $136 $121 $121 $121
Cash Flow (Incremental margin less total incremental investment) ($75) ($157) ($79) $147 $133 $675 $994 $1,654 $2,226 $3,003 $4,139
Discount Factor (figures represent 10% cost of capital) 1 0.9091 0.8264 0.7513 0.683 0.6209 0.5645 0.5132 0.4665 0.4241 0.3855
NPV (Cash flow x discount factor) ($75) ($143) ($65) $110 $91 $419 $561 $849 $1,039 $1,274 $1,596
Cumulative NPV (NPV summed year by year) $5,655
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Forecast – Financials - Recap
•Net Income has increased 43 percent since 2007•EPS Analysis•Revenue Growth vs. Expense Increases•Handled recession well
Currently at Brown-Forman
•Add four additional brands of Craft Beer•Increase revenue by 23 percent and Net income by 8 percent•Distribution and infrastructure utilization •Targets “Beer Drinkers”
After Recommendation