Drinks Business Flashcards
factors affecting price
1) production costs
2) other costs: marketing, tax, profit
production costs
1) raw material
2) energy costs
3) fermentation and distillation
4) maturation
5) bottling, dry goods, and logistics
raw material
molasses cheapest source of fermentable sugar, then grains, then grapes, then potato
if region from which to source product is delimited by law then costs are likely to be higher
energy costs
conversion process
heat for distillation
energy recovery
fermentation and distillation
capital costs (equipment) maintenance and repair
maturation
capital costs (barrels, warehouses, casks, forklifts, …)
costs of money tied up in stock
loss (evaporation)
bottling, dry goods, logistics
capital and maintenance costs of bottling line
bottles, labels, closures, cartons, etc
standard designs much less expensive than special designs
marketing
spirits business much more heavily branded than wine business
tax
in many countries tax forms the largest single factor contributing to the cost of a standard brand spirit
profit
spirits more profitable than wine
premium more profitable than standard
North America
most sales increase come from premium and more profitable sector so warrants investment in brands and marketing
global spirits category
can be divided into: local spirits and international spirits. local has limited sales outside country of production. international has substantial global distribution
local spirits
most local spirits are consumed in the asia/pacific region
emerging middle class
show new wealth by switching from local to international spirits
Diageo
largest spirits co.
focused on core spirits business has sold non-core companies such as Gleneagles hotel and its wine brands
Pernod Ricard
second largest spirits co.
divided into two groups: brand companies and market companies
classifies brands as: Global Icon brands, and Strategic premium spirits brands
EBITDA
Earnings Before Interest Tax Depreciation and Amortization. a way of valuing a company
Beam Suntory
merger to improve access to Asia for Beam but also to give better distribution for Suntory in USA
focused on innovation
Moet Hennesy
drinks arm of LVMH which owns 66% (Diageo owns other 34%)
second most profitable business group in LVMH behind “fashion and leather”
Bacardi
owned by 600 descendants of founder Don Facundo Bacardi Masso
as a family-owned company does not release financial information
dispute with Pernod Ricard/Ron de Cuba regarding “Havana Club”
Brown-Forman
43% of sales in USA, 31% in Europe, 11% in Australia
as recently as 1993 90% of sales in USA
E & J Gallo
best known for wines with expanding spirits portfolio
Key Developments in the Global Spirits Market
Premiumization Increased Range of Flavored Spirits Convenience Products Reduced-Calorie products Emerging Markets Craft Movement Government Action in China
Premiumization
in mature markets premium brands are increasing market share at the expense of standard brands
Travel Retail, and “Limited Edition”
Flavored Spirits
ubiquitous in USA and Western Europe. Was vodka now whiskey
