Marketing Analysis for the Olde Distillerie
The spirits industry the world over has been faced with some tough challenges in recent years as more and more consumers make the switch to wine and beer. The Olde Distillerie has not been immune to these trends either. This company is a small independent Scotch whisky distillery based in Dumfrieshire, South-west Scotland. As a consequence of the stagnant/declining UK market, the company has decided to investigate the sales potential overseas. The purpose of this study is to provide the first stage (secondary data) of a comprehensive research program by identifying one market that can subsequently be explored in greater depth through primary research. The market environment for four potential countries is provided to this end (i.e., Eire the Republic of Ireland, Sweden, Italy and Czech Republic), a comparative market attractiveness analysis for these four countries including relevant demographic and economic metrics is followed by a proposed market entry strategy in the concluding chapter.
Review and Analysis
Part a: Market Environment Study:
An analysis of the respective environments of the four markets under consideration is provided below. As will be noted below, because across-the-board comparison are difficult to make based on differences in drinking patterns and frequency of consumption, there are some valuable insights that can be gained from the various studies to date concerning these issues as they relate to these individual countries. Some of the common metrics available that were used for this purpose included per capita income levels, population, median age and excise tax considerations.
Republic of Ireland.
According to Sheridan (2003), “The Irish are more associated with alcohol than most other nations. Tourist advertisements encouraging visitors to Ireland almost always figure a pint or two as part of the campaign. A country with such a reputation, one might expect, would have the most liberal of laws for the consumption of alcohol” (p. 28). In response to this hard-drinking image, the Irish government has taken a number of steps in recent years designed to reduce overall alcohol consumption rates, and these initiatives appear to be increasing in both frequency and level of oversight involved. In this regard, while England and Wales appear to have encouraged more “civilized” alcohol consumption through relaxed licensing laws, Ireland is headed in the other direction because of the continuing high consumption rates. According to Sheridan, “Ireland has a love-hate relationship with alcohol. The Irish enjoy a reputation for cordiality: pub culture is the centre of social life and, according to some reports, per capita alcohol consumption is one of the highest in Europe. On the other hand, up to 25 per cent of cases in accident and emergency units in Irish hospitals are alcohol-related, and assaults related to drinking have increased dramatically in recent years” (2003 p. 28). Indeed, Irish president Mary McAleese characterized the Irish attitude to drink as “unhealthy” and “sinister'” (quoted in Sheridan at p. 28).
This perspective is not surprising given the alarming alcohol-related statistics. For instance, in 2000, Ireland experienced nearly 15,000 cases of reported public intoxication and a comparable number for abusive or insulting behaviour (Sheridan, 2003). According to this author, “In an attempt to stem the huge growth of these offences, the government updated the Intoxicating Liquor Act that year. The hope was that if opening hours were extended and the drinking regime liberalised, people would moderate consumption. The government underestimated the strength of Ireland’s alcohol culture. Consumption increased, as did incidences of violent behaviour. A commission was set up to look into the problem, taking submissions from all sectors related to the drinks industry” (Sheidan, 2003 p. 29).
In February 2000, the Commission on Liquor Licensing released its final report containing several recommendations that the government intends to implement in coming years. Among these:
The legal age of consumption will remain 18 but endemic under-age drinking will be tackled by requiring everyone under 21 to show proof of their age on licensed premises.
Under-15-year-olds will be banned from pubs after 8 p.m. The ID requirement is intended to catch out older-looking 16-year-olds.
The government will also back-pedal on provisions in the 2000 act that allowed premises to remain open until 12.30am on Thursdays (in addition to Fridays and Saturdays).
Police may start recording customers on video camera as they leave premises, using the tapes as evidence if people are subsequently charged for being drunk. With 40 per cent of fatal road accidents being drink-related and an average of 25 alcohol-spurred assaults per night, the government sees such enforcement as the solution.
These measures are largely pragmatic measures designed to address the enormous costs associated with alcohol abuse in Ireland, believed to cost the Irish economy almost two billion euros in lost productivity (Sheridan, 2003). Interestingly, the Irish are even responsible for the “e” being added to the word, “whiskey” (Eckert, 1998).
According to Kurzer (1998), the Swedish people have a global reputation for enjoying their alcohol, something the Swedish government apparently despises and has taken steps to address it. Likewise, as Heath (1995) reports, “The Swedes are reputed to be heavy drinkers. Sweden is known as one of the countries in the ‘vodka belt’ across northeastern Europe. However, when looking at the total consumption of alcohol in Sweden in 1990, and comparing it with thirty other countries, Sweden is number 28” (p. 280). In this regard, Kurzer reports that, “Whatever the original explanation for Swedish people appear to have an unhealthy attitude towards drinking, social reformers in the early 20th century clamored for strong restrictions on drinking. After 1945, Sweden created state monopoly systems to control every aspect of the alcohol trade. State retail stores sold liquor to consumers and a state production company manufactured distilled spirits and imported alcoholic beverages from abroad” (1998 p. 2). At the time, Systembolaget was the only legal seller of strong beer, wine, and spirits in Sweden and Vin och Sprit produced and marketed distilled spirits, imports, and established prices for all alcoholic beverages throughout the country (Kurzer, 1998).
During the 1960s, though, these efforts lost their momentum in the wake of consumer resistance, and Swedish authorities resorted to two fundamental approaches to discouraging excessive drinking among their population while promoting light alcoholic beverages. According to Kurzer, “A restricted number of retail outlets with limited opening hours inhibited spur of the moment shopping trips and extraordinarily high excise taxes discouraged unplanned purchases” (1998, p. 2). The author also emphasizes that, “By all accounts, Swedish alcohol control policies have been a great success. In 1988 alcohol consumption in Sweden stood at 5.3 liters of pure alcohol per person. Moreover, most Swedish consumers have abandoned distilled spirits. In 1990, spirits accounted for 33% of total consumption of 100% alcohol in Sweden. Beer became the most popular alcoholic drink sometime around the mid-1970s in Sweden” (emphasis added) (Kurzer, 1998 p. 3).
The popular perception of Swedes being heavy drinkers is perhaps related to the manner in which many of them drink. Compared to many other countries where people may consume alcohol in private at home or with friends, people in Sweden enjoy consuming their alcohol in public and in large quantities when they do: “In Sweden, drinking frequently takes place outside of the home, and alcohol is consumed in such quantities that people frequently are drunk. This pattern often occurs on holidays. The Swedish drinking pattern has ancient cultural roots” (Heath, 1995 p. 280). While the percentage share for wine continues to decline in France, the demand for wine has increased in the majority of other Western countries; for instance, the demand for wine has more than tripled in the last 40 years for Sweden (Selvanathan & Selvanathan, 2005a).
In addition, in the majority of Western nations, the allocation of alcohol expenditure on spirits has decreased during the same 40-year period and this decline in market share has been assumed by wine for the most part but also by beer to some extent. According to Selvanathan and Selvanathan (2005a), “Overall, in the 1950s the Australians and the British were the heaviest beer drinkers and have been beaten by the Japanese in recent years. With respect to wine, throughout the last five decades, the French continue to lead all the other nine nations. With regard to spirits, within alcohol, consumers in Canada, Finland, France, Norway, Sweden and the U.S. continue to dominate all other countries” (emphasis added) (Selvanathan & Selvanathan, 2005 p. 128). Indeed, wine has assumed the same status as gasoline or other inelastic consumer products in Sweden today: “Wine is a luxury in Australia, Canada, Finland, Norway and the U.S. And a necessity in France, New Zealand, Sweden and the UK” (Selvanathan & Selvanathan, 2005a p. 128).
According to Heath (1995), while the annual per capita alcohol consumption rate in liters of absolute alcohol has been declining for some time now, alcohol production remains an important industry in Italy today. “Trade in alcoholic beverages represents approximately 10% of the gross national product,” Heath notes, and “vineyards cover fully 10% of Italy’s total surface; and nearly 14,000 companies are active within this sector” (p. 156). Not surprisingly, wine is far and away the most popular alcoholic beverage in Italy: “Italy is a country where people do not drink pure alcohol. Rather, Italians consume wine and, to a minor extent, other alcoholic beverages. Among alcoholic beverages, wine pervades most private and public spheres of life. It constitutes a basic ingredient of the Italian material culture as much as grapevines are an omnipresent component of the landscape” (Heath, 1995 p. 156).
This does not mean that everyone in Italy drinks wine, or any kind of alcohol, though. For instance, an analysis of alcohol consumptions trends across 15 European countries showed that abstinence rates, like consumption rates, tend to vary from country to country. According to Bloomfield and her colleagues (2003), “Among women, the rate of abstention was highest in Portugal and lowest in Denmark. Among men, the abstention rate was highest in Italy and lowest in Denmark” (p. 95). A study by Hupkens and her associates (1993) involving 12 EU member countries determined that Spain had the highest frequency of drinking for men, Italy had the highest frequency for women, and Ireland had the lowest frequency for both genders (cited in Bloomfield et al., 2003 at p. 96). Other researchers have determined that among various European countries, Italy had the highest daily drinking rates (see further analysis in Part B below).
According to one authority, “In the Czech Republic, beer is consumed the way wine is consumed in Mediterranean countries: regularly, on an almost daily basis, with meals [but] the manner of consumption was more important than the type of beverage” (Rehm, Gmel, Sempos and Trevisan, 2003 p. 39). In 2000, the International Research Group on Gender and Alcohol conducted a comparison among men and women in 10 countries in an effort to identify gender differences in drinking. Based on comparable measures constructed from the data sets collected in the study countries, the group found that lifetime abstention for both men and women was highest in Israel (ages 18-40 years) and lowest in the Czech Republic (Bloomfield et al., 2003). Likewise, a study by Wilsnack and associates (2000) was based on a sample of 10 countries and found the highest frequencies of drinking (i.e., number of drinking occasions in a month) among Dutch women and Czech men and the lowest frequencies among Estonian women and men (cited in Bloomfield et al., 2003 at p. 96).
Part B: (Comparative Market Attractiveness Analysis).
Because of the fundamental differences in drinking patterns that exist in different countries, there is no single best instrument that provides a basis for measuring consumption patterns and identifying dynamic preferences among consumers (Bloomfield, Stockwell and Rehn, 2003). Nevertheless, the relationship between the marketing function and the demand for alcoholic beverages represents fairly stable percentage of total consumer budgets for all countries other than the United States; for example, 6-8% is expended on alcohol products based on the experience of Australia and the United Kingdom (Fisher, 1993). In spite of this apparent stability in the relationship between marketing and demand, it is important to keep in mind that market structure differs dramatically according to the location; for example, as Fisher points out, “Australians show a marked preference for beer whereas Britons more often drink spirits” (p. 116). With regards to advertising, this author identifies three primary conclusions:
Advertising does increase demand slightly for the beverage advertised usually in a 10:1 proportion (i.e., a 10% increase in advertising yields a 1% increase in demand).
Due to the beverage substitution effects, advertising affects market structure through category switching; thus an increase in advertising of one beverage type will increase the share for that category, but there will be compensatory declines in other categories.
Given the interrelationships between beverage type consumption, the direct effects of advertising are dissipated system-wide such that the net effect of advertising on absolute alcohol consumption is negligible or nonexistent (Fisher, 1993).
A comparison of various demographic and economic metrics for the four countries under consideration herein is provided in Table 1 and illustrated in Figure 1 through 3 below.
Comparison of Respective Demographic and Economic Metrics: Ireland, Sweden, Italy and Czech Republic.
Per capita income
Excise tax represents major source of government income; however, in real terms, the excise tax has declined since the early 1980s. Excise tax is adjusted each year to keep pace with inflation. Spirits (over 70 proof) were taxed at 38.7% per glass and 66% per bottle of whiskey.
Extraordinarily high excise taxes.
Excise tax is imposed on spirits is based on the quantity of alcohol they contain (not applied to wine). Spirits (over 70 proof) are taxed at about $653 per 100 liters.
Excise tax is imposed on beer, spirits and wine. In addition, starting 1 July 2005 spirits are also to be labeled with a spirit stamp.
Source: U.S. Government: CIA World Factbook (2007); Kurzer (1998); “Chapter 23, Italy: Other indirect taxes”; Selvanathan and Selvanathan (2005b); and, “Excise tax: Czech Republic,” Price-Waterhouse (2007).
Figure 1. Respective Per Capita Incomes: Ireland, Sweden, Italy and Czech Republic.
Source: Based on tabular data in CIA World Factbook, 2007.
Figure 2. Respective Median Ages: Ireland, Sweden, Italy and Czech Republic.
Source: Based on tabular data in CIA World Factbook, 2007
Figure 3. Respective Population Rates: Ireland, Sweden, Italy and Czech Republic.
Source: Based on tabular data in CIA World Factbook, 2007 comparison of the respective annual percentage change in the average inflation of consumer prices in provided in Table 2, followed by a graphic representation of this data in Figure 4 below.
Inflation, Average Consumer Prices: Annual Percent Change.
Country 2004 2005 2006 2007 2008 Czech Republic 2.8-1.8-2.5-2.9-4.4 Ireland 2.3-2.2-2.7-2.5-2.1 Italy 2.3-2.2-2.2-1.9-1.9 Sweden 1.0-0.8-1.5-1.9-2.0
Source: International Monetary Fund, 2007.
Figure 4. Inflation, Average Consumer Prices: Annual Percent Change: Czech Republic, Ireland, Italy and Sweden.
Source: Based on tabular data in International Monetary Fund, 2007.
A comparison of the respective averages of frequency of drinking patterns during the past year is provided in Table 3 and shown graphically in Figure 5 below.
Respective Averages of Frequency of Drinking in Past 12 Months: Ireland, Sweden, Italy and Czech Republic.
Average Frequency of Drinking
Source: Bloomfield et al., 2003 p. 96.
Figure 5_. Respective Average Frequency of Drinking Rates: Ireland, Sweden, Italy and Czech Republic.
Source: Based on tabular data in Bloomfield et al., 2003 at p. 96.
A comparison of the World Bank’s knowledge assessment methodology for the four countries under consideration herein is provided in Table 4 and shown graphically in Figure 6 through 9 below.
World Bank Basic Scorecard: Ireland, Sweden, Italy and Czech Republic.
Annual GDP Growth (%), average 2001-2005
Tariff & Nontariff Barriers, 2007
Regulatory Quality, 2005
Rule of Law, 2005
Source: World Bank Knowledge Assessment Methodology, 2007.
Figure 6. Annual GDP Growth (%): Average 2001-2005: Ireland, Sweden, Italy and Czech Republic.
Source: Based on tabular data in World Bank Knowledge Assessment Methodology, 2007.
Figure 7. Tariff & Nontariff Barriers (2007): Ireland, Sweden, Italy and Czech Republic.
Source: Based on tabular data in World Bank Knowledge Assessment Methodology, 2007.
Figure 8. Regulatory Quality (2005): Ireland, Sweden, Italy and Czech Republic.
Source: Based on tabular data in World Bank Knowledge Assessment Methodology, 2007.
Figure 9. Rule of Law (2005): Ireland, Sweden, Italy and Czech Republic.
Source: Based on tabular data in World Bank Knowledge Assessment Methodology, 2007.
Part C: (Proposed Market Entry Strategy).
According to Rugman and Brewer (2001), “One of the classic issues in international business is foreign market entry strategy. This is a decision by a firm in a home country (country 1) to supply the market in a foreign country (country 2). Foreign market entry involves uncertainty, relating to either demand side factors, such as the size of the foreign market, or supply side factors, such as foreign costs of production” (p. 96). The foregoing approach to analyzing the most appropriate market for the company’s high-quality line of whiskies is congruent with these authorities, who note that it is possible to “partition the state of the environment into a number of different categories, or ‘states of the world’, and then assign a subjective probability to each” (Rugman and Brewer, 2001 p. 96). Although there are a number of approaches to foreign market entry, export is one of the most common and straightforward approaches available, especially in the increasingly seamless trading environment being developing in the European Union (Rugman and Brewer, 2001).
Of the four countries analyzed, Ireland emerged as the clear winner in terms of per capita income, average frequency of drinking, a stable inflation rate, but seriously lags behind the other three countries in terms of population. Ireland also enjoys a clear lead in terms of GDP growth, regulatory quality and rule of law compared to the other three countries, and is comparable on the other metrics. A viable market entry strategy for this environment would relate to product positioning for the company’s various products based on price as shown in Table 5 and Figure 10 below.
Respective Retail Prices of the Olde Distillerie’s Whiskies.
Distillery Shop Retail Price
Aulde Lang Syne
Figure 10. Respective Retail Prices of the Olde Distillerie’s Whiskies.
Given the relative affluence of the Irish people compared to their counterparts in Sweden, Italy and the Czech Republic, it would be reasonable to assert that a focus on marketing the top two or three brands in terms of cost would represent a sound approach to testing the Irish waters before introducing the lower-cost brands. Based on consumer response to these exports, the remaining four lower-cost brands could be positioned to take advantage of budget-minded consumers who still prefer whiskey over other types of alcoholic beverages. Caution should be exercised during this phase to ensure that the introduction of these brands does not diminish the market share gained by Auchland Moor and Monreith Malt. Ultimately, the company could seek to establish a strategic alliance with a domestic distributor to help generate additional sales abroad. Before this step is taken, though, the company’s management should ensure that the Irish distributor possesses a comparable corporate culture and has experience in importing from overseas markets (Melewar and Saunders, 1999).
The research showed that alcohol consumption patterns are changing the world over, with wine and beer becoming increasingly popular at the expense of spirits of all types, including the high-qualities whiskies manufactured by the Olde Distillerie. Despite these trends, the research also showed that Ireland may represent an excellent market for the company’s line of products given its healthy per capital income levels, modest inflationary rates, and youthful population. In addition, compared to the other countries reviewed, Ireland emerged as the only country where the consumption of spirits has not been dramatically declining in recent years, despite the best efforts of the government to the contrary. Notwithstanding the country’s relatively modest population compared to the other countries reviewed, Ireland appears to represent the best opportunity for marketing the Olde Distillerie’s fine product line abroad.
Bloomfield, Kim, Tim Stockwell, Gerhard Gmel and Nina Rehn. 2003. “International Comparisons of Alcohol Consumption.” Alcohol Research & Health, 27(1), 95.
Chapter 23 Other indirect taxes.” 2007. Price-Waterhouse. [Online]. Available: http://e-fpo.fpo.go.th/e-fiscal/PWGuides/individualguides/DOCS/wcd0000f/wcd00f76.htm.
Eckert, Fred. 1998, June 28. Ireland Keeps Eyes Smiling. The Washington Times, 1.
Excise Tax: Czech Republic. 2007. Price-Waterhouse. [Online]. Available: http://www.pwc.com/cz/eng/ins-sol/spec-int/taxguide/other/other_excise.html.
Fisher, Joseph C. 1993. Advertising, Alcohol Consumption, and Abuse: A Worldwide Survey. Westport, CT: Greenwood Press.
Heath, Dwight B. 1995. International Handbook on Alcohol and Culture. Westport, CT: Greenwood Press.
Hupkens, C.L., R.A. Knibbe, and M.J. Drop. 1993. “Alcohol consumption in the European Community: Uniformity and diversity in drinking patterns.” Addiction, 88(10), 1391- 1404.
Kurzer, Paulette. 1998, Autumn. “Alcohol policy in Sweden and Finland: Challenges for the future.” Scandinavian Review [Online edition]. [Online]. Available: http://findarticles.com/p/articles/mi_qa3760/is_199810/ai_n8818952.
Melewar, T.C. And John Saunders. 1999. “International Corporate Visual Identity: Standardization or Localization?” Journal of International Business Studies, 30(3), 583.
Rehm, Jurgen, Gerhard Gmel, Christopher T. Sempos and Maurizio Trevisan. 2003. “Alcohol- Related Morbidity and Mortality.” Alcohol Research & Health, 27(1), 39.
Rugman, Alan M. And Thomas L. Brewer. 2001. The Oxford Handbook of International Business. New York: Oxford University Press.
Selvanathan, S. And E.A. Selvanathan. 2005a. “Empirical Regularities in Cross-Country Alcohol Consumption.” Economic Record, 81(253-1), 128.
2005b. The Demand for Alcohol, Tobacco, and Marijuana: International Evidence. Durham, NC: Duke University.
Sheridan, Gavin. 2003, June 23. “There’s Whiskey in the Glass.” New Statesman, 132(4643), 2.
U.S. Government: CIA World Factbook. 2007. [Online]. Available: https://www.cia.gov/library/publications/the-world-factbook/.
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