Challenge based on 2010 BCG Strategy Cup about Old Spirit Group

1. 1
OLD SPIRIT GROUP :
2010-2025
CHEN YAXI
CHOW SHEK YIN
CLUZEL THOMAS
DAUCHY LOUIS
DELAPORTE THOMAS
EL ALAMI YOUSSEF
2010 BCG Strategy Cup

2. Executive summary
Looking for growth : roadmap 2010-2025
2
 Four investments needed before 2025 for seven millions euro
Investments
 Two regular production lines in 2017 in 2024 for two millions euro each
 One premium production line in 2023 for two millions euro
 One bottling line in 2021 for one million euro
Profitability levels
Red Peacock Cast Island Dreamalt
Margins 12,02% 17,00% 29,30%
ROCE 16,29% 14,06% 8,47%
 Weak ROCE for luxury product due to high inventories
Proposal strategy
 Cooperation with Whisky association in France to stimulate the market
 Joint-venture with an Indian producer
 Optimisation of marketing expense
 Launching a new product : Black Phoenix

3. Old Spirit Group
Forecast sales and global market share
3
250 A global presence of
A bright future the Group in 2009
200
China
Total sales for 0% UK
150 mass (k cases) 23%
US
36%
100 Total sales for
classic (k-cases) France
9%
50 India
Total sales for 1%
luxuary (k-
Spain
0 cases)
31%
2011
2012
2013
2015
2018
2021
2022
2023
2025
2028
2031
2032
2033
2009
2010
2014
2016
2017
2019
2020
2024
2026
2027
2029
2030
In a changing market : new demands and new customers
A growing market with a
Strong development of Decline of the “mass” segment The explosion of the “luxuary”
+3% CAGR in the six
China with a CAGR of 18% in mature markets segment : +254%
main countries

4. Heavy investments
Four investments needed before 2025 for seven millions euro
4
2009
Production lines Regular production
100
90 Current capcity: 60MUoA
80 Forecast by 2017 : 61,05 MUoA
70 Total production 2017
60 of regular new Investment in a new regular
50 make spirit production line : 2M€
(MUoA） Extra-capacities : 20MUoA
40
Total production Bottling line
30
of premium new Current capacity : 80MUoA
20
make spirit Forecast by 2021 : 82,21 MUoA
10 (MUoA）
0 2021
Investment in a premium
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
production line : 1M€
Premium production Extra-capacities : 20MUoA
Current capacity: 40MUoA
120 Bottling lines Forecast by 2023 : 41,00 MUoA
100
2023
Investment in a premium
production line : 2M€
80
Extra-capacities : 20MUoA
Regular production
60
Current capacity: 80MUoA
40 Total Bottling in MUoA
Forecast by 2024 : 80,92 MUoA
20 2024
Investment in a new regular
0 production line : 2M€
Extra-capacities : 20MUoA
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2025

5. Profitability
Margins and ROCE inversely related
5
In € Red Peacock Cast Island Dreamalt Relation between margins and ROCE
Sales 5 658 300 12 699 072 1 844 424 0.35
% 28% 63% 9% 0.3 29.3%
EBIT 680 235 2 158 382 540 489 0.25
0.2
Net Income 476 165 1 510 867 378 342 17.0%
0.15
Margins 12,02% 17,00% 29,30% 12.0%
0.1
Inventories 1 180 517 7 895 500 4 060 940 0.05
0
Capital employed 2 922 750 10 747 502 4 466 706
0 0.05 0.1 0.15 0.2
ROCE 16,29% 14,06% 8,47%
ROCE = net income = net income x sales Impact on Old Spirit Group
capital employed sales capital employed
 Luxury segment threathens the firm because of the
Margins Net asset low net asset turnover : the Group needs to
turnover develop a basic product with fast maturation to
generate cash
 Global ROCE of the firm is dependent of the mass
Lower margins for mass Weak ROCE for luxury segments: segment product which is decreasing globally
• High inventories due to whisky
segments
maturation : 6 years  In the luxury market, due to the long ageing of
• High proportion of marketing
• Dreamalt accounts only for 9% of the whisky, the only solution to increase ROCE is to
expense compare to the sales
sales for 31% of the inventories in 2009 improve margins (increase prices or lower costs)
overhead

6. Countries strategies
6
 Maintain the global marketing budget but maximise the effectiveness of marketing expenses
 Keep our position in decreasing markets and gain new market shares in emerging ones
 Market trend is to consume more  USA has a relatively stable growth
 Increase marketing expenses in high quality whisky with a decline of for the mass segment in a declining
mass segment based on the the mass market segment along with market
decrease market shares of Read our market shares
Peackock from 5% to 3% in a  USA will stay the biggest market for
 We recommend to focus more on luxury for the next 10 to 15 years
segment increasing by 5.7%
classic and luxury segments and
gradually cutting expenses in mass  We recommend to keep our positions
market in this region

7. Countries strategies
7
 In a booming market, the mass and
 A 2,2 percentage points declines
 The most fast growth market for the classic segments underperformed
marketing share in a shrink market
moment but the absolute numbers is dramatically
small  High taxes block the penetration of
 Due to the inanition of the market, the Indian market
we recommend to set up marketing
 We recommend to invest more in  We recommend to establish a joint-
activities co-working with Scotch
China before the important breaking venture with a domestic producer:
Whisky Association to stimulate the
point in 2024 when China will sharing industrial know-how and
market
become the third largest luxury gain access to the Indian market
market

8. New product proposal : Black Phoenix
8
 Context
 Mass segment isn’t dynamic for the next 15 years apart from Premium spirit
India and China
 Classic product makes solid profits net income among all three
 Classic and luxury are the most attractive segments for the Group Dreamalt
for the six current markets
 Luxury has the higher growth forecast but ROCE are too low Mass Luxury
because of the ageing process
 Increase cash constraint pressure
Red Peacock Cast Island
 Objectives
 Increase the liquidity of cash flow to support future luxury growth Regular spirit
 Increase market shares in both classic and luxury segments
Production factors Objectives by 2020 Black Phoenix
Regular line 6 000K Sales 14 286 456 Ageing 4 years
Premium line 4 000K EBIT 3 571 614
60% premium new make spirit
Botteling 3 000K Net income 2 500 129,8 Proportion
40% regular new make spirit
Total 15 000K Margin 25%
Price 18€/L
Inventories 9 711 464,845
Production
Equipment 5 824 528 2011
time
Capital employed 15 535 992,85
ROCE 16,09% Launch time 2015

9. 9
THANK YOU FOR YOUR ATTENTION
ANY QUESTIONS ?