Brown-Forman Corporation Strategy Assignment

6,254 views
5,794 views

Published on

MBA 651

Published in: Business, Education
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
6,254
On SlideShare
0
From Embeds
0
Number of Embeds
3
Actions
Shares
0
Downloads
101
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide
  • About half from marketing (1 and 4) and 2 and 3 from finance sector
  • Passed away last month
  • works closely with the family shareholders and is responsible for HR decisions for almost 4,000 employees in 25 countries.
  • n the 1990’s Brown-Forman was involved in a landmark case regarding an 18-year-old Texas college freshman who died as a result of Jack Daniel alcohol overdose.
  • Brown-Forman 2011 annual reportBrown-Forman 2011-2012 corporate responsibility report
  • Brown-Forman 2011 annual report
  • Brown-Forman 2011 annual report
  • Brown-Forman 2011 annual report
  • Hoover’s Company Records.
  • Brown-Forman website. Company history timeline.
  • Brown-Forman 2011 annual report
  • Source: Wine Enthusiast Magazine. Found at http://buyingguide.winemag.com/
  • Brown-Forman 2011 annual report
  • Brown-Forman Corporations Marketing, Advertising, and Promotional Policy for Beverage Alcohol
  • Google images search.
  • Source: Wine Enthusiast Magazine. Found at http://buyingguide.winemag.com/
  • STRATEGY ISSUES AND PROBLEM IDENTIFICATION         Overall Problem         Root Cause         Markers for Collins Stages         Problem by Marketing Mix Area         Outcome if not corrected short-term, long-term         (Show graph that illustrates problem by showing market share gain/loss now and in the future if problem is not corrected)FORECAST, FINANCIAL RESULTS, RECAP                   Graphical and numerical presentation of impact of strategy on sales, profits, and market share. This will also include an income statement from the base year and for the tenth year of forecast, and a ten year discounted NPV analysis (per class format). Begin this explanation by showing previous graph from problem statement that showed market share gain/loss in the future - but now also showing market share with your new strategy in place. Brief recap of situation, problem and strategy (In presentation only)
  • Brown-Forman Corporation Strategy Assignment

    1. 1. Major CaseGroup 2Introduction – Kyndle HueyEnvironmental Analysis – Shelley ScarbroughStrategy Evaluation – Cole RigneyProblem and Exec Summary – Zac ChismRecommended Strategy – DB Irwin and Andrew TerryForecast and Recap – Zac Chism
    2. 2. 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
    3. 3. Location • Headquarters in Louisville, Kentucky • Approximately 1,000 employees • 3,900 Total employees worldwide
    4. 4. 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
    5. 5. 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
    6. 6. 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
    7. 7. Current Product Lineup• Whisky • Tequila • Champagne • Old Forester • Don Eduardo • Korbel • Canadian Mist • El Jimador • Collingwood • Wine • Herradura • Early Times • Sonoma-Cutrer • Pepe Lopez • Jack Daniels • Liqueur • Woodford Reserve • Chambord• Vodka • Southern Comfort • Chambord • Tuaca • Finlandia
    8. 8. U.S. Market Share Other Fortune Brands 16.40% (Beam Inc.) Pernod Ricard 26.60% 13.20% Brown-Forman Diageo 20.50% 23.30%Source: Business & Company Resource Center
    9. 9. Sales Brown-Forman Sales (in millions)$4,000$3,500 $3,404$3,000 $3,282 $3,226 $3,192 $2,806$2,500$2,000 Sales$1,500$1,000 $500 $0 2007 2008 2009 2010 2011
    10. 10. Stock PerformanceSource: Brown-Forman 2011 Annual Report
    11. 11. Stock Performance Brown-Forman Class B Stock Diageo Stock 52-week high: $77.56 52-week high: $84.31 52-week low: $61.41 52-week low: $83.01 Close on Nov. 4: $74.57 Close on Nov. 4: $83.98Source: Google Finance
    12. 12. Company LeadershipPresident, CEO and Chairman of the BoardPaul C. Varga • 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
    13. 13. 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
    14. 14. Company LeadershipVice ChairmanJames S. Welch, Jr. • 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)
    15. 15. Company LeadershipExecutive Vice President and Chief Financial OfficerDonald C. Berg • 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
    16. 16. Company LeadershipExecutive Vice President and Chief Operation OfficerMark I. McCallum • 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
    17. 17. 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
    18. 18. External Environment:Legal • Landmark case results in creation of liquor label warnings • Advertising • Accusations – targeting minors • Mad Men • Alcohol Taxation
    19. 19. 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
    20. 20. 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
    21. 21. 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
    22. 22. Existing Strategy• Competencies • Brand quality • Diversity of their retail base• Markets Percent of Sales United States - 45% Europe - 27% All Others - 28%
    23. 23. 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
    24. 24. 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
    25. 25. Product Strategy - PorterFramework Brown-Forman Diageo Mackmyra Svensk Jim Beam BrandsROI Constellation Brands Market Share
    26. 26. Product Strategy - Product Life Cycle Old Forester Canadian Mist Early Times Tennessee Whiskey Gentleman Jack Country Cocktails Woodford Reserve Single Barrel Ready-to-DrinkTennessee Honey Collingwood Early Times - 354 Introduction Growth Maturation Decline
    27. 27. Product Strategy - ProductMarket Strategy Old Product New Product Market Penetration Product Development •Current Jack family in U.S. •Expanding Jack family in U.S. and Europe and EuropeOld Market •RTDs and Tennessee Honey Market Development Product Diversification •Current Jack family in Asia, •RTDs in Eastern Europe Latin America, and Eastern EuropeNew Market
    28. 28. Product Strategy - Product Position Price + Jack Daniels SB Woodford Crown Royal Maker’s Mark Early Times Jack Daniels Taste +Taste - Jim Beam Black Diamond Evan Williams Black Velvet Price -
    29. 29. 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
    30. 30. 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
    31. 31. Price Strategy - Demand Curve Jack Daniels - $18 Priced at kinkPrice Demand
    32. 32. Strategy Issues and Problem Identification • The overall problem is Overall declining profitability and stagnant sales due to a Problem limited product line Root • The root cause of the problem is the corporate Cause management structureInsert your sources here
    33. 33. Strategy Issues and Problem Identification • Brown-Forman is not the name brand • Individual products have strong brandProduct recognition • Marketing strategy needs to be more focused • Product Line • Elastic (substitutes) Price • Brands Strategically placed • Cannibalism
    34. 34. Strategy Issues and Problem Identification • Brick and Mortar only • Online buying could effect B&M Place policy • Distribution Network • Marketing must be responsible Promotion • Male dominated Ads • Creativity Needed
    35. 35. Path of Continued Strategy500045004000350030002500200015001000 500 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
    36. 36. Current VisionWhat We DoAt Brown-Forman, we enrich the experience of life, in our own way, by responsibly building beverage alcohol brands that thriveand 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 strategicimperatives 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 throughoutthe company.Being Responsible in Everything We DoTo us, this means leading by example. It means making decisions and taking actions that drivesocial, environmental, financial, civic, and personal responsibility.By expertly executing these imperatives, we will outperform the industry over the long term, deliver consistent, exceptionalperformance, and ultimately create a growing and enduring Brown-Forman
    37. 37. New Mission StatementBuilds 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
    38. 38. 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
    39. 39. Overall Strategy• Go Private• Purchase 4 regional breweries• Implement a “Drink Local, Drink America” campaign• Leverage Trading Up/Trading Down to capture shifting markets
    40. 40. 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
    41. 41. Porter Framework In Bev SABMiller Craft Beer Molson CoorsROI Market Share
    42. 42. 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
    43. 43. Price
    44. 44. Price• Existing market• Existing price points/Anchoring effect• Lower cost strategy
    45. 45. 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
    46. 46. 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
    47. 47. 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
    48. 48. Local Recognition
    49. 49. National Recognition
    50. 50. 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
    51. 51. Forecast – Financials - Recap Current Income Statement & Projected StatementPeriod End 4/30/2011 4/30/2021Reported in MillionsTotal Revenue $3,404.00 $17,041Total Cost of Revenue -$1,680.00 -$6,986Gross Profit $1,724.00 $10,055Operating Expense -$2,549.00 -$3,663Other Expense -$26.00 -$37Total Expense -$2,575.00 -$3,700Net Income $829.00 $6,355Net Income (Less Tax) $572.00 $4,321 **Dividends have been paid every year since 2007 to common stock**
    52. 52. Forecast – Financials - Recap NPV ANALYSIS YEAR 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Sales 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 $10 Place investment $0 $24 $10 $5 $5 $5 $5 $10 $10 $10 $10 Price investment $0 $3 $3 $2 $1 $1 $1 $1 $1 $1 $1 Promotion investment $0 $100 $100 $100 $100 $100 $100 $100 $100 $100 $100 Total incremental investment $75 $157 $123 $112 $111 $111 $111 $136 $121 $121 $121Cash 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
    53. 53. Forecast – Financials - Recap • Net Income has increased 43 percent since 2007 Currently at • EPS Analysis Brown-Forman • Revenue Growth vs. Expense Increases • Handled recession well • Add four additional brands of Craft Beer • Increase revenue by 23 percent and Net After income by 8 percentRecommendation • Distribution and infrastructure utilization • Targets “Beer Drinkers”

    ×