Industry ReportAlcoholic Beverages & Tobacco Distillers and vinters 2 3 1 CONCENTRATION EXPECTED GRADUATIONBielick, Josh ENTREPRENEURSHIP RIGHT AFTER THISCruickshanks, Sarah ACCOUNTING – MANAGERIAL DEC 2012Krouse, Stephen ACCOUNTING – INFO SYSTEMS MAY 2013Kulik, Ksenia MARKETING/INT’L RELATIONS RIGHT AFTER THIS
IBIS 312142a) Alcoholic Beverages & Tobacco Distillers and vintersDistilleries in the US Key Players IBIS 31214 Wine & Spirits Market Share Major Business BROWNFORMAN Distilleries that purchase raw materials and 19% BEAM 40% manufacture them into CONSTELLATION spirits (not beer). 24% • is(lling D OTHER • lending B 17% • o0ling B
2b) Strategic Challenges • Brown-Forman – “…if we experienced a disruption in the supply of new oak barrels in which to age our whiskies, our business could suﬀer”1 • Beam Inc. – Our failure to attract and retain qualified personnel could adversely aﬀect our business.2 – Recent Restructure from Fortune Brands • Constellation Brands – purchases raw materials under short-term supply contracts, and is subject to substantial price fluctuations & limited group of suppliers of glass bottles.3
3b) Largest Employment Categories • Transportation and Material Moving Occupations • 62,030; 37.77% • Sales and Related Occupations • 56,310; 34.29% • Total Industry 164,210 people
4a) Trends in strategic and ﬁnancial ratios Return on assets Return on Assets 06-‐11 (BF.A, BEAM, STZ) 25.0% 20.0% 15.0% BF.A Return on Assets 10.0% BEAM 5.0% STZ 0.0% 2005 2006 2007 2008 2009 2010 2011 2012 -‐5.0% -‐10.0% Year
4b) Trends in strategic and ﬁnancial ratios Operational efficiency OperaIonal Eﬃciency ‘06-‐’11 (BF.A, BEAM, STZ) 80.00% 75.00% Gross Margin as a as a percentage of sales 70.00% 65.00% 60.00% BF.A 55.00% BEAM 50.00% STZ 45.00% 40.00% 35.00% 30.00% 2005 2006 2007 2008 2009 2010 2011 2012 Year
5) Five Forces Analysis Force Strength Evidence Steady Growth1 Compe((on High Industry is highly concentrated1 Consumer preference shiWing towards healthier products such as wine 1 There is a large variety of both alcoholic and non-‐alcoholic subs(tutes 1 Subs(tutes High The beers, ciders & FABs account for 49% of the markets’ value, Spirits – 29%1 Capital outlays, startup & equipment costs and regulatory hurdles New Entrants Weak deter entry1 Many suppliers on the market operate small scale (commodity Supplier Power Moderate inputs)1 Increase in grain prices which somewhat boosts supplier power. Switching costs for retailers are not high and consumers have a lot of inﬂuence on retailers’ stocking decisions1 Buyer Power Moderate There are not a lot of opportuni(es for backward integra(on because generally consumers’ preferences are highly based on quality and brand image1 Expected proﬁtability is about equal to the cost of capital.
6) Key Success Factors Key Success Factor Description Promotion and brand positioning is essential toEﬀective Product Promotion1 success due to intense competition among brands. Mass production reduces average and marginalEconomies of Scale1 costs, which is important for companies that compete mainly on price. A diverse array of product oﬀerings can reduce the impact of bad performance in a speciﬁcEconomies of Scope1 segment and appeal to a wider range of customersAbility to limit exposure to price Firm viability is dependent on procurring the necessary amount raw materials, many of whichchanges of key inputs1 can volatile changes in price. Innovative ﬁrms are better able to proactivelyProduct Innovation2 meet the needs of consumers with changing tastes and preferences.
7) Calculation for KSF Measurement Key Success Factor Selected Measure Example: Beam Inc. Net Revenues 2,203 ÷ 333.2 = Eﬀec(ve Product Promo(on Marke(ng Expense 6.61 (Net Revenues -‐ Net Income) (2,203 -‐ 699.5) ÷ 10,082.9 = Economies of Scale Total Assets 0.149 Economies of Scope ( ) Total Costs Net Revenues [(2,203 -‐ 699.5) ÷ 2,203] ÷ 70 = 0.87% Product Line Breadth Limited Exposure to Price Variance of Changes of Key Inputs 0.000194 (Cost of Goods ÷ Sold Revenue) 3 year period Deprecia(on Expense 90.9 ÷ (2,203 -‐ 699.5) = Product Innova(on Total Costs 6.49%
8) Raw-Data Quantitative KSF Calculation Comparison ConstellaIon Brown-‐Forman Key Success Factor Beam Inc. Brands CorporaIon Eﬀec(ve Product Promo(on 25.65 9.26 6.61 Economies of Scale 0.421 0.791 0.149 Economies of Scope 1.16 2.38 0.87 Limited Exposure to Price Changes of Key 0.000916 0.000098 0.000194 Inputs Product Innova(on 4.30% 1.98% 6.49%
Works Cited • Beam, Inc. (2011). 10-K Annual Report 2011. Retrieved from SEC EDGAR website http://www.sec.gov/edgar.shtml • Beam, Inc. (2009). 10-K Annual Report 2011. Retrieved from SEC EDGAR website http://www.sec.gov/edgar.shtml • Beam, Inc. (2007). 10-K Annual Report 2011. Retrieved from SEC EDGAR website http://www.sec.gov/edgar.shtml • Brown Forman Corp. (2011). 10-K Annual Report 2011. Retrieved from SEC EDGAR website http://www.sec.gov/ edgar.shtml • Brown Forman Corp. (2009). 10-K Annual Report 2011. Retrieved from SEC EDGAR website http://www.sec.gov/ edgar.shtml • Brown Forman Corp. (2007). 10-K Annual Report 2011. Retrieved from SEC EDGAR website http://www.sec.gov/ edgar.shtml • Constellation Brands, Inc. (2011). 10-K Annual Report 2011. Retrieved from SEC EDGAR website http://www.sec.gov/ edgar.shtml • Constellation Brands, Inc. (2009). 10-K Annual Report 2011. Retrieved from SEC EDGAR website http://www.sec.gov/ edgar.shtml • Constellation Brands, Inc. (2007). 10-K Annual Report 2011. Retrieved from SEC EDGAR website http://www.sec.gov/ edgar.shtml • (2012). Hoover’s Industry Overview. Distilleries in the United States. Retrieved June 17, 2012 from Hoover’s. • (2011). IBISWorld Industry Report 31214. Distilleries in the US. Retrieved June 15, 2012 from IBISWorld database. • (2012). MarketLine Industry Proﬁle. Alcoholic Drinks in the United States. Retrieved June 14, 2012 from MarketLine. • Kell, J. (2012, Feb 12). Corporate news: Upbeat beam sees glass as half-full. The Wall Street Journal. Retrieved from http:// search.proquest.com/docview/919736621?accountid=12725 • May 2011 national industry-speciﬁc occupational employment and wage estimates. (2012, March 27). Retrieved from http://www.bls.gov/oes/current/naics4_424800.htm • Standard & Poors. (2011, August 9). Industry surveys: Advertising. Retrieved from November 21, 2011http://80- www.netadvantage.standardandpoors.com.library.uor.edu/NASApp/NetAdvantage/index.do