C & C PLC Analysis Strategic Management C&C Group plc headquartered in Dublin, Ireland and with manufacturing plants in Clonmel, is a leading manufacturer, marketer and distributor of cider, such as the leading Irish cider brand Bulmers and the premium international cider brand Magners. The company also distributes niche spirits and liqueurs brands across a number of international markets, such as Tullamore Dew, globally the #2 Irish whiskey brand, and Frangelico. The brands are distributed by two companies: Hollywood &Donnelly and Quinns Reihill McKeown. RoW-Rest of
World RoI-Rep. of Ireland Operating Profit by Division 2007/8 Operating Profit by Region 2007/8 [pic] [pic] Geographic Operating Profit by Region 2008/9[1] [pic] Recent events Over the last year the rapid economic deterioration and the resulting impact on consumer confidence have been very challenging for the group. In addition, the poor summer weather of 2008 militated against recruiting cider drinkers, and a substantial strengthening of the Euro against Sterling reduced the group’s cost competitiveness in its UK market.
Business in the key markets of the UK and Ireland has therefore been difficult with each experiencing downward pressure on pricing and volumes, as well as the impact of the accelerated trend from the On-trade market to the Off-trade market. For C&C these trends were exacerbated by a loss of share in both Ireland and the UK. The company has announced the resignation of the CEO Philip Pratt per October 9th 2008 and has installed a sub committee of the Board, lead by Philip Lynch, to conduct an in depth review of its marketing and commercial strategies. I Macro Environment- PEST Analysis
I. A Political and governmental policies and regulations The Republic of Ireland, where C & C is based, has experienced instability and weakness following the financial crisis. Ireland was the first to act unilaterally by guaranteeing deposits and debts of its six largest financial institutions on September 30th 2008 when problems started occurring. This was an act which was largely criticized by neighbouring countries. In 2000 the Lisbon Agenda was introduced with focus on the following priorities to increase work opportunities and boost growth throughout the EU: ? economic ? social environmental The plan would be to restructure and renew the European economy over a period of ten years until 2010. The plan was renewed in 2005. The EU GDP accounts 15% to trade services and goods, meaning it is very outward-oriented and interdependent. There is now more trade and investment which has led to: ? Productivity gains through greater competitiveness ? Innovations through more competition ? Better specialisation through comparative advantage Ireland, through the New Reform Programme (NRP) and the Lisbon Agenda has seen greater economic growth and employment performance.
Through different external factors, the government has influenced the alcoholic beverages market in Ireland. In Ireland taxes on alcohol are high which comes from a plan created by the government to prevent alcohol related incidents and mortalities. The government has furthermore introduced the following fiscal measures: ? The current VAT rate is at 21%, which makes it one of the higher rates in the EU. ? The excise duty on cider was increased in 2002 to 0. 185 per litre, bringing it in line with beer ( Higher revenues followed (
Governmental restrictions on alcohol promotion (Less underage drinking and overall problems with alcohol ? The increase of taxation on alcohol and the rising price of raw material costs resulted in a slowdown in sales from 2007 through 2009, loss of share and sharply decreased operating profits. These facts have led to the shift towards premiumisation, or sales of premium products which leads to a competitive market. Furthermore the smoking ban which was introduced in July 2007 has influenced the decision of consumers to go out for a drink.
People prefer to stay at home more and spend less money in pubs. This has shown in relative rapid changes in the distribution philosophy of C&C. Where the government is promoting a healthier lifestyle to people companies have followed the guidelines. C&C has followed by creating a lighter version of its cider with Magners Light. C&C is currently thoroughly working on environmental standards throughout their plant by improving their facilities and installing a Carbon Neutral plant, to meet with standards that the EU is imposing. I. B Economic conditions
Ireland’s original economic focus on the agricultural sector has changed over the last 10 years to a modern knowledge based economy dependent on trade and investments and based on high-tech industries and services. From the period 2000-2005 there was a 7% growth (as opposed to the 1995-2000 period where there was a 10% growth) due to the 2001 global financial crisis. The leading sector in Ireland is the industrial one, accounting for 46% of GDP and export plays a fundamental part in economic growth for the country. [2] Ireland, as well as the UK, has been hit hard by the financial crisis.
Ireland launched, by the end of October 2008, a full-scale rescue plan of its financial system by issuing ? 316 billion to cover key liabilities of its largest banks and mortgage lenders. This made Ireland the first euro zone state to be officially in recession. This recession showed the following consequences: • Unemployment saw a rapid increase to double digit territory for the first time since the early nineties • Cuts in available bank financing and higher taxes Similarly the UK has entered into the deepest recession since the war and has engaged on massive rescue and nationalisation exercises towards its embattled financial sector.
Consequently Sterling has devalued vis a vis the Euro, GDP is contracting at approximately 3,5 % and the population is experiencing commensurate losses in purchasing power and consumer confidence. The economic slowdown has led to less consumption, therefore affecting C&C. Cider sales and operating margin ? C&C reported a 12% decline in cider volume over the six months leading to August 2008; shares in off-trade fell from 8. 3% to 7. 5% and shares in bottled ciders for pubs in Britain fell from 69% to 52% ? Overall sales are expected to be 8% lower ? The Irish inflation rate stands at 4. 3%, compared to the European 3. % average ? Investment and trading in new materials and equipment is likely to decrease therefore making competitiveness higher. ? Operating profit on cider fell by a hefty 40% during the book year 2007/8 and 30% during the book year 2008/9. As already stated above this was partially due to overall drops in sales and bad summer conditions, however exacerbated by the strengthening of the Euro against Sterling, the loss of market share and the price hikes on raw material. ? To stem the negative tide C&C has started an aggressive marketing campaign on its cider brands, increasing the marketing expenditure by 41%.
Spirits and Liqueurs The performance of C&C’s spirits and liqueurs division has proven to be notably more resilient in the face of these downward trends: in the company’s March 3rd 2009 trading statement it is reflected that shipment volumes in Spirits and Liqueurs are level year on year. Volumes of Carolans have grown, but are balanced by the disappointing performance of Frangelico and Irish Mist. Weakening consumer demand and de-stocking by distributors adversely affected Tullamore Dew. There is a strong performance in Germany and the US, being offset by poorer trading in Spain and Latvia.
Overall Operating profit for 2008/9 in the Spirits and Liqueurs division is expected to be in line with 2007/8. I. C Socio-cultural environment Consumers have generally become more sophisticated in their taste in products and are looking for higher quality products for the price they pay. Magners needed to change its image, as cider was often associated to something of the past. This is where the ‘over-ice’ initiative helped; Magners became more fashionable and set a trend for cider. Health has also started play an important role for consumers: • Fruit showed a 12. 9% increase, vegetables a 6. % increase in sales, making it the highest sales volume since 20 years. • Confectionary, soft drink and alcohol sales decreased. • Alcohol consumption in restaurants and at home fell by 3. 1% Magners has launched a lighter edition of its cider as a result, targeting the health-concerned consumers, especially aimed at women. Certain trend and demographical factors have led to the decrease in sales for C&C: • Lack of summer days in 2008, which means less people buy cider, a drink which is linked to warm days and sunshine • Cider goes in and out of fashion ( trend-unsure The ageing of the population (by 2025 one third of the population will be 55+) has led to the decrease of sales in alcohol I. D Technology The importance of technological development for the cider market comes through two factors: • Development of production sites • Development of product innovation, packaging and serving methods C&C also has made a step towards environmental innovation: • Instalment of a Carbon Neutral plant on their site in Annerville. An agreement was signed with Sustainable Energy Ireland to achieve the Energy Standard IS 393. • Creation of an anaerobic water treatment plan (as mentioned above). C&C also started recovering the CO2 as a by-product of cider-making process and after cleaning and treating it, it is used to carbonate their products. This has two advantages: it cuts their purchases of CO2 and reduces the carbon footprint. New bottling halls ( Higher and faster production Looking at the population of drinkers in the U. K. : • The heaviest drinkers are between 45-54 years old and are in the • AB socio-economic group • Men are more likely to drink than women This socio-economic group is of importance to C&C as it means these consumers have a higher disposable income.
The growth of the cider market can be attributed to innovation and reinvigoration ( New marketing strategy: ‘over-ice’ ( younger target audience [pic] Image A. II. Competitive Analysis Porter’s Five Forces (see image A. ) III. Strategic Evaluation Ansoff Matrix [pic] [pic] IV. Recommendations for C&C As demonstrated above,C&C is currently under severe pressure, sales have dropped by 15% over a two year period whilst profits have approximately halved during this same two year period, meanwhile C&C has decided to increase marketing expenditure on cider by 41%.
Based upon the Pest-, Porter’s five forces- and Ansoff Matrix analyses, at a high level the following threats and opportunities can be identified for C&C: • Shift of emphasis to light cider, but in how far will this lead to cannibalization ? • Migration from on- to off-trade and the consequent buyer power and margin erosion. Is there an opportunity to strongly emphasize white labeling and house brands? • Foreign exchange shows a structural weakening of Stirling to the Euro; this will lead unavoidably to margin erosion, C&C’s production facilities are after all in the expensive Euro zone.
Therefore my strategy recommendations are premised upon the assumption that for the foreseeable future trading conditions will be under pressure consequent to strongly increasing buyer power, product substitution rather than growth in the home markets, structurally adverse conditions in the foreign exchange market and potential risks of white labeling and the consequent erosion of brand equity. Strong strategy recommendations: Anticipate the future; preparation for flat sales and profit in 2009/10 ( Ongoing pressure on all markets( Volume throughput in factories, because of the trend from on-trade to off-trade C&C needs to be prepared for bigger participation in white-labeling to increase market share in house brands. C&C needs to consider its premium pricing and competition whilst off-trade is growing. • Protect brand equity through marketing campaigns for premium brands: focus on AB socio-economic group with wider spending margin. Product placement, advertising expansion through new campaigns and packaging.
C&C cider needs to get a new and permanent brand power in the home markets. • Continue to nourish growth in off-shore markets with S&L as this has shown the strongest stability in relative profitability; but limit marketing expenditure to the two major S&L growth markets Germany and US ( marketing for 86 countries is unsustainable. • Strengthening of strategy in UK and Ireland ( Strategy of ‘uniqueness’ ( Power of brand through creating an illusion/dream or ideal around product (aimed at friends, festive occasions etc. ( differentiate and sidestep competition by being unique and the best brand through strong positioning ( be the best in what the company is known for: cider (promote new and existing products around cider) ( different, better, stronger. • Innovation through new product development and dimensions ( Target young generation (12-16 year olds) through new branded product launch with a non –alcoholic version of cider. Further sponsorship of sports events and student activities to promote C&C’s products and health promotion through light version of cider.
The importance lies in aiming a meaningful part of marketing expenditure at future generations to capture a new target market as the existing population is ageing. [pic] Bibliography • Burns, A. C. , Bush, R. F. (2005) Marketing Research 4th ed. Pearson Prentice-Hall: New Jersey • C&C Group plc (2008) 2008 Annual Reports and Accounts [Internet] Dublin, Ireland Available from http://www. candcgroupplc. ie/financial_reports. asp [Accessed on 9th January 2009] • C&C Group plc (2009) C&C Trading Statement Year Ended 28 February 2009- 3 March 2009 [Internet] Dublin, Ireland Available from http://www. candcgroupplc. e/dynamic/img/C&C_Trading_Statement_Release_3_March_2009. pdf [Accessed on 1st March 2009] • Central Statistics Office Ireland (2009) IMF Data Page for Ireland [Internet] Dublin, Ireland Available From http://www. cso. ie/statistics/imfsummaryire. htm [Accessed on 27th February 2009] • David, F. (2008) Strategic Management: Concepts and Cases 12th ed. Pearson Education • Haberberg, A. , Rieple, A. (2007) Strategic Management: Theory and Application OUP: Oxford • Hill, C. W. L. (2007) International Business: Competing in the Global Marketplace 6th ed. McGraw-Hill Irwin: New York • Mullins, L.
J. (2002) Management and Organisational Behaviour 6th ed. FT Prentice-Hall: Essex, UK ———————– • [1] Source: C&C Group Plc (2009) C&C Trading Statement Year Ended 28 February 2009- 3 March 2009 [Internet] Dublin, Ireland Available from http://www. candcgroupplc. ie/dynamic/img/C&C_Trading_Statement_Release_3_March_2009. pdf • [2] Central Statistics Office Ireland (2009) IMF Data Page for Ireland [Internet] Dublin, Ireland Available From http://www. cso. ie/statistics/imfsummaryire. htm ———————– Less demand( Less production ( Less sales ( Leading to lower revenues
DETERMINANTS OF SUPPLIER POWER • Switching costs • Brand power • Forward integration of suppliers • Customer fragmentation DETERMINANTS OF BUYER POWER • Large players • Undifferentiated small suppliers • Cost of switching between suppliers RIVALRY AMONG EXISTING FIRMS • Threat of substitute buyers, suppliers and products: entry most likely THREAT OF SUBSTITUTE PRODUCTS • Product-for-product substitution • Generic substitution • Necessity of product II. D Threat of Substitute Products • High • Products easily substituted (competing brands such Strongbow, Sirrus, Thatcher’s Somerset) • More alternatives( elasticity of demand Substitutes not necessarily rivals (i. e. cider versus wine) • Prices constrained by substitute products • C&C’s products not a necessity for consumers ( possible replacement by healthier or non-alcoholic beverages for lower prices THREAT OF NEW ENTRANTS • Differentiation • Cost of entry • Distribution channels • Cost advantages II. C Supplier Power • Medium • Raw material costs have risen( profit from industry • Suppliers have control over premium brands • Employee Solidarity • Expertise within C&C; no outside suppliers needed II. B Buyer Power • Very high • Low switching costs Buyers (switch from on-to off-trade (strengthens buyer power structurally ( dependent on consumers • Spread market share, buyers purchase significant proportion of output II. A Threat of New Entrants: • Medium • C&C market leader in cider in Ireland and UK and Irish whisky • C&C shows cost efficient level of production (high Minimum Efficient Scale) • Differentiation risk: easy to switch to other brands (competing brands such Strongbow, Sirrus, Thatcher’s Somerset) • Distribution within company by Hollywood & Donnelly and Quinns Reihill McKeown + independent and leased distributors internationally (e. . Skyy Spirits US) • Accelerated trend from on-trade to off-trade market, therefore making switch easier • International distribution growth of Tullamore Dew whisky and other spirits to 85 countries, • Vulnerable to external uncontrollable factors: climate, consumer fickleness and foreign exchange Financial profile 2007/8 and 2008/9 Sales 2007/8:Euro 679mm(-6,4%),Sales 2008/9:Euro 590mm(-13%) Op. Pr. 2007/8:Euro 125,2mm(-36,6%) “ 2008/9:Euro 90mm(-30%) Geographic op. rofit 2007/8 :RoI:51%,UK:43%, RoW 6% Geographic op. profit 2008/9: RoI:48%,UK:43%, RoW 9%(1st half) Market penetration: • C&C is realigning its marketing with commercial in its key markets of the UK and ROI • Broadening its current brands by introducing new promotion strategies and using marketing experience • C&C leading brand positions in growth: Irish whisky + cider: extensive promotion to drive out competition • Marketing expenditure increase by 41% for promotion of existing + new products
Market development: • C&C seeks new markets to introduce cider internationally • Investment focus: brand and market combinations with growth potential • C&C acquires niche spirits and liqueur brands selectively internationally ( Growth potential notably US and Germany Product development: Introduction of new brands into existing markets: innovation (‘over ice’ effect + Magners Light) • New product interest by consumers ( Product expansion + regeneration • Healthier lifestyle + higher quality products ( Premiumisation ( New demands Diversification • C&C is not introducing new products into new markets • Main focus: International growth with S&L and developing existing and new products in home markets
