Downloaded 21 times
![The Times, They Are Changing May 15 Naed [Autosaved]](https://cdn.slidesharecdn.com/ss_thumbnails/thetimestheyarechangingmay15naedautosaved-12735050512432-phpapp01-thumbnail.jpg?width=640&height=640&fit=bounds)
Bcg case competition team 2 final for linked_in
- 1. Portsmouth Vineyard November 17,2011 Naian (Tim) Chang, Brandon Foster, Kate Halldorson, Joe Hodges, Billy McCormick
- 2. Executive Summary Portsmouth Vineyardmanagement should sell the company to Ocean Spray for $27 million to improve its market position while maintaining its unique culture and story. Brand Image Market Dynamics Operations Maintain Brand Equity Competitive Industry Many Benefits • Sustain culture • Many substitutes • Economies of scale • Market unique story • High supplier bargaining power • Distribution • Preserve high quality • High buyer bargaining power • Access to suppliers Generate cumulative net income of over $14 million with a 22% CAGR over 6 years 1
- 3. Brand Image Brand equityis Portsmouth Vineyard’s greatest competitive advantage 2 Brand Image Market Dynamics Operations Financials
- 4. A continuation offounding principles is key to maintaining competitive advantage with target market Quality Image • Eccentric Start • Creation of natural fruit beverage • 3 Original flavors Founding Founding • Creative Packaging • Small-scale experimentation to • Pure cane sugar develop new products • 4x juice content of other major • Experience-driven industry Maintenance brands Maintenance expertise • Resourceful advertising • Quality ingredients in bulk • More resources to experiment • Production standardization • Great fundamental story for Potential promotes quality assurance Potential larger marketing budget Source: Case 3 Brand Image Market Dynamics Operations Financials
- 5. SWOT analysis suggestsselling as the best course of action to improve weaknesses and minimize threats -Current -Distribution chain management -Marketing budget -Brand image/story -Plant scheduling -Commitment to -Low profit margins quality -Increase supermarket access -Compromised quality -Increase marketing to improve profit budget margins -Quality controls -Supply shortages -Supply chain -Loss of distributors advantages Source: Case 4 Brand Image Market Dynamics Operations Financials
- 6. Market Dynamics Competitive marketconditions expose Portsmouth Vineyard’s weaknesses 5 Brand Image Market Dynamics Operations Financials
- 7. A five forcesanalysis shows that Portsmouth Vineyard has many barriers to overcome in the New Age beverage industry Suppliers: High -Competitors control suppliers -Commitment to higher fruit content increases supplier dependency Entrants: Low Substitutes: High -Large startup costs Rivalry: -Many New Age -Tough existing High beverages competition -Soda, sport drinks, etc. Buyers: High -Price sensitive -Many substitutes -No switching costs Source: IBIS World 6 Brand Image Market Dynamics Operations Financials
- 8. An acquisition bya company with greater market share would provide multiple benefits for Portsmouth Vineyards Increased marketing budget to tell story Ability to Better get product distribution into more methods stores Benefits Higher More priority with competitive suppliers 7 Brand Image Market Dynamics Operations Financials
- 9. Ocean Spray providesthe greatest operational benefits while maintaining the Portsmouth Vineyard brand image Operational Benefits Brand Image Source: Case , Company Websites 8 Brand Image Market Dynamics Operations Financials
- 10. A breakdown ofspecific criteria emphasizes that Ocean Spray is the best fit Criteria Ocean Tropicana Pepsi Triarc Cadbury Starbucks Welch’s Coca-Cola Spray Culture Image/ Story Quality Distribution Grocery Stores Market Share Supply Chains Potential Bid Source: Case 9 Brand Image Market Dynamics Operations Financials
- 11. Operations Ocean Spray’s infrastructurewill improve the efficiency of Portsmouth Vineyard’s operations 10 Brand Image Market Dynamics Operations Financials
- 12. Portsmouth Vineyard cantake advantage of economies of scale to lower production costs Feature Execution Economies of Scale Benefits -Tap into larger manufacturing facilities -Decrease costs per -Bulk or mass unit production -Low overhead -Increase margins 11 Brand Image Market Dynamics Operations Financials
- 13. Stronger and widerdistribution networks can increase market share and lower costs Feature Distribution Execution -Consolidate into one Benefits successful network -Increase market share -Increase access to retail markets through -Reduce cost through existing networks abolition of incentive program -Entirely in-house salesforce -Increase control of stocking and merchandising 12 Brand Image Market Dynamics Operations Financials
- 14. Working with OceanSpray’s suppliers would support product consistency and development Feature Execution Access to suppliers Benefits -Integration of purchaser‟s supplier -Greater variety of network ingredients -Long-term supplier -Greater competitive contracts advantage -Prevent future ingredient shortages 13 Brand Image Market Dynamics Operations Financials
- 15. Financials Ocean Spray andits Portsmouth Vineyard division will benefit financially from the acquisition 14 Brand Image Market Dynamics Operations Financials
- 16. Acquisition by OceanSpray will generate cumulative net income of over $14 million with a 22% CAGR by 2013 Key Assumptions 16000 $14,325 Revenue increases by 10%, then 15%, and then 14000 tapers off Thousands of Dollars • Driven by marketing 12000 and distribution 10000 CAGR= 21.8% Cost decreases 15% in the first year and then by less each year thereafter 8000 • Driven by economies of scale and supplier 6000 relationships 4000 Costs and expenses are based on DCF 2000 assumptions 0 2008 2009 2010 2011 2012 2013 Total Source: Case, IBIS World 15 Brand Image Market Dynamics Operations Financials
- 17. Conclusion Portsmouth Vineyard managementshould sell the company to Ocean Spray for $27 million to improve its market position while maintaining its unique culture and story. Brand Image Market Dynamics Operations Maintain Brand Equity Competitive Industry Many Benefits • Sustain culture • Many substitutes • Economies of scale • Market unique story • High supplier bargaining power • Distribution • Preserve high quality • High buyer bargaining power • Access to suppliers Generate cumulative net income of over $14 million with a 22% CAGR over 6 years 16
- 18. Appendix • Group Members •IBIS World Report for Juice Production in the US • Other Options in Depth • Performance without IPO • Stonyfield Farms: Case Comparison • Ocean Spray: Story and Cultural Similarities • Income Statement- Projected • Assumptions 17
- 19. Group Members Brandon Foster, ‟13 Naian (Tim) Chang, ‟13 BSBA Consulting BSBA EXSS-Sport Administration Kate Halldorson, „13 BA, Economics and Joe Hodges, ‟13 International Studies BSBA, Consulting and Finance Billy McCormick, ‟13 BSBA, Consulting and Finance BA, Economics 18 Back to Appendix
- 20. IBIS World Reportfor Juice Production in the US Key Success Factors IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are: Market research: Firms must be able to identify the geographic areas and demographics where it would be appropriate and profitable to sell their products. Economies of scope: Companies that produce a wide range of brands can achieve a cost advantage in distribution and advertising over smaller competitors. Distribution management: Market power in the industry's distribution networks is very high, so any potential entrant must have access to them to survive. Economies of scale: The size of the operation will determine unit prices, which is a key variable with respect to competitiveness. 19 Back to Appendix
- 21. Other Options inDepth Criteria Status Quo Ocean Going Spray Sale public Culture Image/ Story Quality Distribution Grocery Stores Market Share Supply Chains 20 Back to Appendix
- 22. Performance without IPO PVfor 2003 PV for 2004 PV for 2005 PV for 2006 PV for 2007 PV for 2008 (year0) (year1) (year2) (year3) (year4) (year5) $7mil $11mil $14mil $19mil $24mil $27mil Assumptions For all years For 2008 and years after 2008 Calculation date for Jan. 1st of each Cost of sales as % of revenue 70% each year year Discount factor 11% Total expenses as % of gross profit 80% Capital expenditure $200 D&A as % of gross profit 5% per year Required working capital as % of gross profit 7% Tax rate 40% Growth rate for 2010 onward 4% Capitalization rate 0.07% 21 Back to Appendix
- 23. Performance without IPO Portsmouth Vineyard’s Firm Value since 2003 30 The slope suggests a 25 $4 mil average y = 4.14x + 6.57 Sum of PV ($mil) annual growth, which 20 R² = 0.99 is a 59% annual growth rate 15 10 5 0 0 2 Years 4 6 22 Back to Appendix
- 24. IPO Failure IPO Data for Other Comparable Portsmouth Vineyard’s Data Companies without IPO 30 Market Current Annual Value Market Company Growth 25 in 2003 Value Rate ($ mil) ($ mil) Sum of PV ($mil) Saratoga 20 7.7 6.3 -17.8% Beverages Panamerican 15 59% 2451.0 3249.2 32.6% Beverages annual 10 growth Odwalla 30.0 38.3 27.5% rate Redhook Ale 70.8 49.0 -30.8% 5 Brewery Pete’s 118.0 52.5 -55.5% 0 Brewing Assumptions 0 2 4 6 Public companies have steady linear growth throughout years Years 23 Back to Appendix
- 25. Stonyfield Farms: CaseComparison “At first, we sold yogurt only to fund our school….They milked the cows, made the yogurt, made sales calls and even delivered the yogurt. As our business grew, we realized a successful yogurt company could make a bigger difference for family farms and the environment than our school could, so we decided to run with yogurt. Now our organic business helps to support hundreds of family farms and keep over 200,000 agricultural acres free of persistent pesticides and other chemicals commonly used on nonorganic farms and known to contaminate soil, drinking water, air and food.” Stonyfield Portsmouth • Organic focus for • Dedicated to using 100% fruit health, taste, and environment juice, pure cane sugar • Drawback: Extensive agricultural Founder’s Commitments • Further Advantage: No regulatory techniques, on large scale, also certification required; much easier have detrimental effect on to grow than organic environment • Network of small, family-run dairy farms • Jack-of-all-trades businessmen • Distribution similarities: haphazard with experience-based expertise at first, now include • Further Advantage: Culture not Atypical Business Model supermarkets, colleges, and other difficult to incorporate on larger outlets scale • Drawback: Much criticism that they have lost sight in creating “Big Organic” 24 Back to Appendix
- 26. Ocean Spray: Storyand Cultural Similarities “Ocean Spray was formed in 1930 by three cranberry growers with a simple love of cranberries…Since then, the Ocean Spray cooperative has grown to more than 600 grower families all across North America. The cooperative‟s first product was jellied cranberry sauce, followed by original Ocean Spray Cranberry Juice Cocktail hitting the shelves in the early 1930s, beginning a long tradition of quality, innovation, and success.” Ocean Spray Portsmouth Vineyards Humble Beginnings • 3 growers embrace opportunity • 2 friends found company • Started with just peach drink • Started with just cranberry jelly • Experimentation to diversify flavors Creativity and Innovation • First to blend juices and product lines • Created juice boxes • Resourceful packaging Commitment to Founding • Cooperative-based model • Quality • Commitment to farmers across Principles • Relaxed company culture entire history 25 Back to Appendix
- 27. Income Statement- Projected December 31 of each year (000s) 2008 2009 2010 2011 2012 2013 Total CAGR Total Revenue $37,448.00 41192.8 47371.72 51161.46 54231.15 55858.08 Cost of Sales $26,213.60 22805.83 20981.37 19827.39 19232.57 19040.24 Gross Profit 11234.4 18386.97 26390.35 31334.07 34998.58 36817.84 Marketing and Advertising 3370.32 6343.504 10470.37 13053.38 15308.97 16909.98 General and Administrative 5617.2 8366.07 10641.91 12013.87 12689.89 12544.29 Total Expenses 8987.52 14709.57 21112.28 25067.25 27998.86 29454.27 EBITDA 2246.88 3677.394 5278.071 6266.813 6999.715 7363.567 Depreciation & Amortization (D&A) 561.72 919.3484 1319.518 1566.703 1749.929 1840.892 EBIT 1685.16 2758.045 3958.553 4700.11 5249.786 5522.675 EBIT Margin % 4.50% 6.70% 8.36% 9.19% 9.68% 9.89% Income Tax Expense 674.064 1103.218 1583.421 1880.044 2099.915 2209.07 Net Income (Loss) 1011.096 1654.827 2375.132 2820.066 3149.872 3313.605 14324.6 21.88% 26 Back to Appendix
- 28. Assumptions Year on Year Growth Rates Incremental Benefits from Sale Assumptions Growth Rates 2008 2009 2010 2011 2012 2013 IRG- Total 10% 15% 8% 6% 3% IRG- Marketing 4% 6% 5.0% 4% 2% IRC- Total, Net Inflation -13% -8% -6% -3% -1% IRG- GP Distribution 6% 9% 3.0% 2% 1% IRG- Total 10% 15% 8.0% 6% 3% Increased Advertising IRC- Budget 15% 15% 5% 5% 5% Ingredients -5% -5% -4% -2% -1.0% General and Administrative 0% 0% 0% 0% 0% Total Expenses IRC- EBITDA Economies of Scale -10% -5% -3.5% -4% -2.0% IRC- Total -15% -10% -7.5% -5% -3.0% D&A 0% 0% 0% 0% 0% EBIT Inflation Rate 2% 2% 2% 2% 2% EBIT Margin % Increased Income Tax Advertising Expense 0% 0% 0% 0% 0% Budget 15% 15% 5% 5% 5% Portsmouth Definitions Ocean Spray Vineyards Incremental Revenue Supermarket Supermarket IRG Growth 27 Market Share 6.60% Market Share 0.288% Back to Appendix ICD Incremental Cost Decline
Editor's Notes
- #8 More money to tell their storyBetter distributionMore power against competitorsHigher priority with suppliersAbility to get product into more supermarkets and convenience storesCreate additional flavors?