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Spirits Industry - Strategic Approach
Transcript of Spirits Industry - Strategic Approach
Beverage alcohol is the most taxed product in the United States, followed by cigarettes.
Any tax increase will have a negative impact on hospitality jobs and the industry in general.
Federal and state governments continually debate the necessity and structure of the distilled spirits tax. Governments argue that an increased tax will reduce the amount of alcohol consumed and have positive societal and economic impacts.
The Federal excise tax rate on distilled spirits is almost three times the rate on table wine and two times the rate on beer. • Steady and stable growth rates
As disposable income increases demand for spirits products also increases specially the higher-end premium brands.
The distilled spirits industry market share edged upward in 2012, gaining share from both beer and wine, as companies innovated with new, sophisticated line extensions and as a decade of regulatory modernization for spirits continued to pay dividends.
According to the US Distilled Spirits Council, 2012 Industry Review, dated Feb 6, 2013, the Spirits industry showed a volume growth of 3%, a revenue growth of 4.5%, a revenue market share growth of 34.3% and a record export of $1.5B. Social Responsibility:
Several social and environmental organizations have advocated consumers to use the products caring for the environment and minimizing the impact on the environment.
Building upon a longstanding history of corporate social responsibility and recognizing the power of collective action, the distilled spirits industry created The Century Council in 1991 as an independent, national, not-for-profit organization whose mission is to fight drunk driving and underage drinking and to promote responsible decision making regarding beverage alcohol. The funding companies do not want their products to be misused or consumed illegally. Technology: opportunities with distribution and warehousing
The move in the industry to embrace technology is relatively new. A material handling systems integrator which has installed systems at wine and spirits distribution centers throughout Florida, including Premier Beverage Company, Johnson Brothers Liquors, Southern Wine & Spirits, and others.
The industry has been somewhat reluctant to try new distribution technologies.
Most wine and spirits companies have been using manual operations, with a simple conveyor system bringing the product to a person who manually merges multiple lines together, which are then conveyed to shipping where the cases are loaded on a truck. It wasn't until the early-2000s that most distributors started to make the switch. Environment:
Many spirits company have addressed the environmental issues that come along with alcohol production.
Bacardi’s recent reform included implementing two specialized wind turbines using wind power as a source of energy for powering up their distillery. The governor of Puerto Rico, Luis G. Fortuño, hopes that other companies would use Bacardi’s as a role model to further sustain the health of the environment. Additionally, Bacardi has developed an anaerobic digester technology to treat wastewater.
The natural degradation of waste materials forms biogas that are used to power the distillery saving about half the energy that is used and decreasing the dependence for imported oil or gas.
Moreover, nothing is wasted during Bacardi’s production of their rum. For instance, the carbon dioxide produced are recovered and sold to third parties mostly for carbonated beverage production. Bacardi also treats wastewater, which is then used to cool towers during the production process conserving water usage.
They also do simple things, such as recycling their old barrels and old banners. HIGH!
• Numerous manufacturers in the market!
• Low levels of product differentiation; driven by brand identification that increases rivalry.
• High profits led to price wars for bigger market share.
• The brand awareness is most likely to drive sales
• There have been many mergers and acquisitions in the last years
• High barriers to exit due to requirements of extensive capital and regulatory investments
• Serves the same customer segment HIGH!
• Proprietary product differences
• Brand identity
• Capital requirement
• Unequal access to distribution channels
• Strict Government policy control
• Beers manufacturers enter the spirits market
• High level of advertisement – a high amount of capital would need to be invested into advertisement, marketing, and sponsorship to make and keep the brand reputable
• Numerous taxes imposed MEDIUM-HIGH
• Shift to beer
• Shift to wine
• Shift to non-alcoholic beverages (healthy trend)
• Shift to energy drinks
• No brand loyalty- customer will easily switch to from one brand to another (spirits v. beer) if the prices is to high LOW-MEDIUM
• Raw materials required are normally commodities
• It is customary to have manufacturers that own part of the crops
Suppliers usually have long term contracts in place for the purchase of significant raw materials including glass, other packaging, bulk grains, vegetables, neutral spirits, cream, rum and grapes
In addition, forward contracts are in place for the purchase of other raw materials including sugar and cereals to minimize the effects of short term price fluctuations HIGH!
• Company use a consumer PULL strategy to bring definitive customers to liquor stores
• Highly regulated as it is not possible to sell directly to final customer
• Manufacturers have to offer different kinds of incentive to the channel, as well as promotions and other marketing support
• Shelves and bars are not in control of manufacturers
• Final consumer has multiple choices for purchase
• Price and brand awareness play fundamental roles in final decision, as well as the bartender or sales personnel in retail.