Drinks Business

Question 1

factors affecting price

Answer 1

1) production costs

2) other costs: marketing, tax, profit

Question 2

production costs

Answer 2

1) raw material
2) energy costs
3) fermentation and distillation
4) maturation
5) bottling, dry goods, and logistics

Question 3

raw material

Answer 3

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

Question 4

energy costs

Answer 4

conversion process
heat for distillation
energy recovery

Question 5

fermentation and distillation

Answer 5

capital costs (equipment)
maintenance and repair

Question 6

maturation

Answer 6

capital costs (barrels, warehouses, casks, forklifts, …)
costs of money tied up in stock
loss (evaporation)

Question 7

bottling, dry goods, logistics

Answer 7

capital and maintenance costs of bottling line
bottles, labels, closures, cartons, etc
standard designs much less expensive than special designs

Question 8

marketing

Answer 8

spirits business much more heavily branded than wine business

Question 9

tax

Answer 9

in many countries tax forms the largest single factor contributing to the cost of a standard brand spirit

Question 10

profit

Answer 10

spirits more profitable than wine

premium more profitable than standard

Question 11

North America

Answer 11

most sales increase come from premium and more profitable sector so warrants investment in brands and marketing

Question 12

global spirits category

Answer 12

can be divided into: local spirits and international spirits. local has limited sales outside country of production. international has substantial global distribution

Question 13

local spirits

Answer 13

most local spirits are consumed in the asia/pacific region

Question 14

emerging middle class

Answer 14

show new wealth by switching from local to international spirits

Question 15

Diageo

Answer 15

largest spirits co.

focused on core spirits business has sold non-core companies such as Gleneagles hotel and its wine brands

Question 16

Pernod Ricard

Answer 16

second largest spirits co.
divided into two groups: brand companies and market companies
classifies brands as: Global Icon brands, and Strategic premium spirits brands

Question 17

EBITDA

Answer 17

Earnings Before Interest Tax Depreciation and Amortization. a way of valuing a company

Question 18

Beam Suntory

Answer 18

merger to improve access to Asia for Beam but also to give better distribution for Suntory in USA
focused on innovation

Question 19

Moet Hennesy

Answer 19

drinks arm of LVMH which owns 66% (Diageo owns other 34%)

second most profitable business group in LVMH behind “fashion and leather”

Question 20

Bacardi

Answer 20

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”

Question 21

Brown-Forman

Answer 21

43% of sales in USA, 31% in Europe, 11% in Australia

as recently as 1993 90% of sales in USA

Question 22

E & J Gallo

Answer 22

best known for wines with expanding spirits portfolio

Question 23

Key Developments in the Global Spirits Market

Answer 23

Premiumization
Increased Range of Flavored Spirits
Convenience Products
Reduced-Calorie products
Emerging Markets
Craft Movement
Government Action in China

Question 24

Premiumization

Answer 24

in mature markets premium brands are increasing market share at the expense of standard brands
Travel Retail, and “Limited Edition”

Question 25

Flavored Spirits

Answer 25

ubiquitous in USA and Western Europe. Was vodka now whiskey