Term Paper on "Expansion Plan"

Term Paper 15 pages (4780 words) Sources: 12 Style: Harvard

[EXCERPT] . . . .

Olde Distillerie

Going Global with Scotch Whisky

The market for Scotch Whiskey in the UK is a mature market. The first written record of whisky occurs in 1405 in Ireland (Celtic Whiskey Campagne, 2003). However, it is suspected that the process of rendering grains into whisky originated with the Picts (Celtic Whiskey Campagne, 2003). This makes whisky an integral part of Irish and Scottish culture. Whiskey from Scotland that has been aged for at least three years is referred to as "scotch" whisky. Although Scotch is a cultural staple of celtic culture, sales in the UK have been steady or declining for several years.

The Olde Distillerie in Dumfrieshire, Scotland was once a top whisky producer. However, like many other small producers, their sales have been on a steady decline. The distillery traditionally relied upon the UK as their key market. However, they can no longer rely on this market to sustain them. They are considering the global market as a potential resource to pull them out of their slump and return them to profitability. Recent years have seen the closure of many smaller whisky producers and they do not wish to be next.

Entry into the global marketplace is tricky, especially for the small producer. There are many barriers to entry, such as excise taxes and value-added taxes. These can place a damper on profits. The Olde Distillerie cannot afford such mistakes and must be certain of their move. This move will be a costly endeavor and they will not get a second chance for success. Due to these factors, the Olde Distillerie has retained the services of World Consultants to help locate the proper market and to help ensure that the project is a success.

World Consultants has identified four potential prospects for the expansion project. They are Sweden, Italy, the Czech Republic, and Ireland. There are advantages and disadvantages to each of these choices. World Consultants will explore each of these possibilities and suggest the one that is most likely to result in success for the Olde Distillerie.

Part I: Market Situation

The Olde Distillerie produces a line of whiskies that are aged from between 5-15 years in oak barrels from local Scottish trees. This process is not unusual in the industry, but the Olde Distillerie produces its own unique lines based on the aging process. Each of their whiskys has its own unique flavors and aromas. They market to various customers based on the price of the product being produced. Each of their price ranges attracts a different demographic group. Malts are a growing market among the younger generation, while older clients typically prefer a longer aged product. The younger crowd is not as willing to pay a premium price, therefore, products targeted toward them are sold at a lower price.

After the initial distillation process, the expense incurred in all of the products is relatively equal. All they have to do is to sit in oak barrels for the proper amount of time. There is little energy consumed after they are placed in their mellowing barrels. Therefore, the highest profit is obtained from whiskys that are aged the longest and sell for the highest price. However, the lower end whiskys provide for a steady cash flow, which is necessary for operations.

One of the key problems that plagues the Scotch whisky segment of the market is that large, chain retailers create an artificial price competition among various brands. This market is different from other markets in that retailers have a profound influence on the sales and popularity of a brand. They can position a certain brand in their store so that it draws more attention. They can lower and raise the price at their whim. This scenario is not good for the producer, as they have little control over the sales volume of their product.

There is no suggested retail mark up in this scenario. Retailers can discriminate or show preference at their discretion. This is the first area that needs to be addressed, regardless of the international market that is chosen for entry. The Olde Distillery must gain control of their final selling price. Currently, pricing is flexible based on the distribution method used to reach the final customer. Little has been spent on advertising to help move the product into a higher priced category. As a result, the Olde Distillerie brand is seen as a high-priced whisky, but it must compete with discount brands. This may account for lagging sales in the UK.

The Olde Distillerie cannot simply abandon the problem of lagging UK sales and concentrate fully on the expansion project. They must fix the problems in the original market first, before they can attempt entry into the global market. This is because they must contend with market position and branding before they carry these problems overseas. If they do not fix their image and clearly establish themselves as a leader in the UK, they will only carry their problems with them.

Scotch Whisky Market

The Scotch Whiskey Association is a consortium of whisky producers that have agreed to a set of standards that govern the production and sales of Scotch whisky in the UK and abroad. In order to be labeled and sold as scotch whisky, the product must meet several criteria. All of the whiskys produced by Olde Distillerie meet these criteria. Yet, the Olde Distillerie did not join this association. Failure to join this trade organization does not allow them to take advantage of the prestige associated with membership. They must consider joining this organization, as it an important step to establishing their image as a premium product. Without this endorsement, it is difficult to back up claims regarding the quality of their products. Joining this organization is a key step in advertising and in establishing themselves as a leader in the upper-end market that they desire.

There are several different categories of Scotch Whisky. Single malt, Single grain Scotch Whisky, Blended Scotch Whisky, Blended Malt Scotch Whisky, and Blended Grain Scotch Whisky (Scotch Whisky Association, n.d.). There are almost 2,500 brands of Scotch Whisky sold on a global basis (Scotch Whisky Association, n.d.). However, only 200 are attainable in the UK. Many of the whisky makers have established small, local niche markets based on the local geography and tastes. Olde Distillerie needs to combine this targeted type of approach with a more global perspective. They need to establish their niche in the upper-end market, only expand it to the country that is selected for targeting.

The Scotch whiskey market is locally saturated. There is room for expansion on a global level. producers can establish a larger niche market based on positioning, rather than geography. On a global level there is already an established market in the U.S. And in France. Scotch whisky can be successfully marketed on a global basis. There are many opportunities for expansion into emerging economies and for introducing Scotch whisky into another culture. Even whisky of a poor quality brings a premium price in the U.S. And in France. This demonstrates that a demand exists in these areas. It also indicates a shortage of supply. Global markets could easily make up for lagging local sales.

The UK typically ranks third or fourth in world Scotch whisky consumption. France appears number one frequently, as does Spain and the U.S. (Ludo, 2006). The market for Scotch whisky is more promising from a global standpoint than the UK market at the current time. Alcohol has a cultural aspect that affects the marketability of certain products in various countries. It was surprising to see France at the top of the consumer list for Scotch whisky because Cognac is so popular. When placed in perspective, this does not mean that Scotch Whisky replaces Cognac, it is simply sold in addition to it. This will be an important consideration in the current marketing campaign. Scotch whisky is not a part of the culture in three of the countries that will be explored. Other alcoholic beverages are more important in these cultures. Scotch whisky can be introduced and can experience considerable sales, but it is not likely to replace the culturally accepted drink.

Part 2: Expansion Candidates

There are a number of markets that have been suggested as possible candidates for the initial marketing campaign. It is possible that the campaign will be expanded further after the first successful global launch. However, capital issues determine that only one new market can be attempted at a time. Global expansion is a risky proposition and is capital intensive. A number of factors can affect the chances for success. First, one has to have a willing population that will accept the product. The second set of factors are determined by the government, such as trade restrictions and taxes that may not make the project feasible. These issues will be discussed for the four countries chosen: Ireland, Sweden, Italy, Czech Republic.

Sweden

Compliance with EU rules and regulations places certain mandates and restrictions that regulate… READ MORE

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