4. 3
Executive Summary
This marketing plan was developed for the craft distillery St. Augustine Distillery. The company
is known for its support of the local farming. The Distillery uses only local raw materials native
to the local are for the production of its vodka, gin and seasonal rum and bourbon. The Distillery
has no international experience, and this marketing plan analyzes different international markets
that the company should enter as a first step towards global expansion. The alcohol industry has
always been profitable and alcohol is a part of almost any culture. This industry is in its mature
stage of the life cycle which means there is still time to make profit.
Based on this research the best option for the Distillery is to expand into Japan. This country has
high alcohol consumption; it is among the countries with high population and GDP. The main
global competitors in this industry are Bacardi & Company, Diageo PLC, Pemod Ricard SA and
Beam Suntory. The recommended mode of entry is licensing due to the low risk and low costs
that allow keeping competitive prices. In the future St. Augustine Distillery could try to actually
build or purchase a distillery and establish company-owned location.
5. 4
1 Company Analysis
1.1 The Company
1.1.1 Brand Image
Originally built as a power plant in 1905, the ice plant building (same building is used as was
expanded in 1917 into the first Florida facility to generate commercial block ice. After sitting
empty or sorely underutilized for nearly 60 years 4 locals – retired businessmen Philip McDaniel
and Mike Diaz, Café Eleven founder Ryan Dettra, and The Floridian co-founder Patricia
McLemore – poured 3 years and nearly $3 million into financially sound business venture. Due
to Florida laws governing the production, distribution and sales of spirits, the St. Augustine
Distillery and The Ice Plant Bar had to be established as separate business entities. In 2012,
McDaniel and Diaz purchased the southern half of the building for $437,500; McLemore, joined
by her parents and Dettra’s parents, bought the northern half for $450,000. The Ice Plant Bar
opened in September 2013, while the more extensive engineering work required on the distillery
pushed its opening date to March 2014.1
Figure 1: St. Augustine Distillery’s Logo2
1.1.2 Human Resource Management
The core value of St. Augustine Distillery is to provide premium crafted spirits of the highest
quality by using only locally grown sugar cane, wheat, corn, and citrus. Thus the Distillery is
engaging their farming partners to help preserve local heritage by growing crops unique to the
region.3
The company’s mission is to “capture the taste and flavors of Florida and reflect the
passion, care and commitment of the people who make them”.4
The founders of St. Augustine
Distillery are fascinated with the idea of making craft spirits. They are challenging the status quo
of commercially produced spirits. After Florida State passed the bill on lifting some of the
restriction limiting sales of spirits directly from distilleries St. Augustine Distillery was able to
expand. Thus their hiring rate went up and the company was able to hire almost 30 team
members during the past year.5
1
http://staugustinedistillery.com/journal/2014/11/folio-weekly-how-the-st-augustine-distillery-put-history-on-ice/
2
http://staugustinerestaurants.com/st-augustine-distillery/
3
http://staugustinedistillery.com/about-us/
4
http://staugustinedistillery.com/
5
http://staugustine.com/news/local-news/2015-04-28/house-passes-bill-will-help-local-distillery-others-around-state#.VhWgKGsR7Qo
6. 5
1.1.3 Corporate Social Responsibility (CSR)
St. Augustine Distillery supporting local farmers by using only locally grown ingredients
original to the area. This way the company is contributing to local economy.
1.2 Organizational Structure
1.2.1 Internal Analysis
St. Augustine Distillery is a private company that operates in the alcohol industry. The Distillery
sells primarily vodka and gin, but it also offers rum and bourbon from time to time as a seasonal
special. For example until the end of this year the company offers Discovery series rum. The
Distillery also has a gift shop offering different types of merchandise with the company’s logo.
Free tours of the Sr. Augustine Distillery are offered every day for the public. During the tour
visitors are also able to participate in sampling of the spirits, and even buy readymade and
packaged products right at the Distillery.
As St. Augustine Distillery is a small company it undergoes certain challenges while growing
and expanding. Table 1 demonstrates a SWOT analysis for St. Augustine Distillery.
Strengths
High quality, unique product
Strong connection to the local community
Ability to sell directly from the Distillery to consumer
Usage of the local ingredients reduces some costs
Weaknesses
Young and small business
Limited selection of the product offered
No international presence
Opportunities
Target segment is big (67% of adults in U.S. only)6
Growing industry
Possibility of co-branding
Threats
Big corporate brands
Legal issues (taxes and licensing)
Shifts in consumer tastes (wine and beer over spirits)
Table 1: St. Augustine Distillery
6
http://www.gallup.com/poll/141656/drinking-rate-edges-slightly-year-high.aspx
7. 6
1.2.2 Target Market Profile and Product Categories
The core value of the company is using the locally grown ingredients, which shows that it is
targeting the local population. The owners of the company are trying to establish close
connection and trust with the community. The Distillery uses a great marketing strategy by
giving free tours and free samples to its visitor who is coming from all over the country. St.
Augustine is the oldest city in U.S. and a tourist destination, thus these tours are promoting the
brand outside of Florida. The targeted segment is very narrow at this point due to the limited
selection of the product, but high quality speaks for itself. “Most of the St Augustine Distillery’s
business is vodka – it represents about 65% of the distillery’s total volume, followed by gin –
35%”7
– thus vodka (Figure 2) and gin (Figure 3) drinkers are the primarily target. Special
seasonal offers like rum (Figure 4) and bourbon (Figure 5) help to broaden the target segment
and attract more people.
Figure 2: Florida Cane Vodka Figure 4: Discovery Series Rum
Figure 3: New World Gin Figure 5: Florida’s Only Small Batch Bourbon8
1.2.3 Financial Information
St. Augustine Distillery is a private company and does not have to share its financial information
with the public. When the Distillery was in the process of planning its forecasted capacity was
20,000 to 30,000 cases a year.9
The average price for 1 bottle is about $3010
which puts the
average Revenue estimate ranging between $7.2 and $10.8 million.
7
http://www.bizjournals.com/jacksonville/news/2015/07/13/how-st-augustines-small-town-distillery-made-a-big.html#i1
8
http://staugustinedistillery.com/spirits/
9
http://jacksonville.com/business/2013-05-03/story/distillery-takes-shape-st-augustine
10
http://broudys.com/catalogsearch/result/?q=st+augustine
8. 7
1.2.4 International Business Activities
St. Augustine Distillery operates only in U.S. and has only 1 manufacturing location – St.
Augustine, and 750 off-site distributing locations stretched out between Jacksonville and
Tampa.11
1.2.5 Marketing Overview
The font and design of the St. Augustine Distillery’s logo (Figure 6) speaks of connection to
history, tradition and heritage. Thus this connection associates with “handmade” high quality
product that was made without any rush. It tells the consumer that people take time to make a
premium quality spirits.
Figure 6: St. Augustine Distillery’s Logo12
The founders of the Distillery were fighting hard along with other distillery owners for lifting
restriction on sales of alcohol straight from distilleries. Companies were not allowed to sell more
than 2 bottles per person per year directly from the distillery. After the bill was passed,
companies can sell up “to two bottles annually per customer of each brand of liquor that a
distiller makes. If a craft distiller produces only one type of liquor, however, four can be sold”.13
This bill opened a new marketing strategy for St. Augustine Distillery: during their free tours of
the Distillery visitors can try free samples of the product, and if they liked something they could
buy it right there. This brings more profit because the sale is done without any distributors; the
profit from selling 3.5 bottles off site equals to profit of selling 1 bottle on site.14
1.2.6 Industry Analysis
During the next five years, the industry will benefit from stronger consumer sentiment and
discretionary spending, which will help increase demand for higher-priced craft and imported
spirits. In the five years through 2020, IBISWorld forecasts industry revenue to grow at an
average annual rate of 6.2% to $64.6 billion.15
Furthermore, distilleries are projected to benefit
from expansion in the population of legally aged drinkers and rising per capita alcohol
consumption.16
Figure 7 represents Porter’s Five Forces Framework for liquor industry.
11
http://staugustine.com/news/2015-03-28/fernandina-distillery-opens-now-real-work-begins#.VhVnZWsR7Qq
12
http://staugustinerestaurants.com/st-augustine-distillery/
13
http://floridapolitics.com/archives/191191-bill-would-delete-craft-distillery-sales-limits
14
http://staugustine.com/news/2015-03-28/fernandina-distillery-opens-now-real-work-begins#.VhVnZWsR7Qq
15
http://clients1.ibisworld.com.ezproxy.rollins.edu:2048/reports/gl/industry/industryoutlook.aspx?entid=400
16
http://clients1.ibisworld.com.ezproxy.rollins.edu:2048/reports/us/industry/ataglance.aspx?entid=290
9. 8
Intensity of Rivalry: Competition between the distilleries on the global scale is high. The
competition is not just between the distilleries, wineries and breweries represent threat as well.
The major competitors are Diageo PLC (27.2% market share), Bacardi & Company Limited
(10.7%), Pernod Ricard SA (20.9%), and Beam Suntory Inc. (7.6%).17
Threat of New Entrants: The threat of new entrants is medium because of the international
regulations. Some countries trying to protect local producers increased their tariffs on import.
For example, domestically produced whiskey makes up over 98.0% of the Indian market,
protected by the Indian government, which collects tariffs of over 50.0% on imports.18
Threat of Substitutes: The biggest threat in this case is coming from wineries and breweries.
These 2 products – wine and beer – are lighter and easier to drink, whereas liquor requires an
acquired taste, unless making a cocktail which is more time consuming.
Bargaining Power of Suppliers: Without suppliers there is no product. In the industry like this
it is important to have a good relationship with the suppliers. This industry requires raw material
that take a lot of space to grow, thus giving the supplier a little higher bargaining power, which
means the company has little of it.
Bargaining Power of Buyers: Buyers have little power over the prices of the product, but they
do have power to influence the reputation of the company. Studies show that a satisfied customer
will tell 2-3 people about his/her experience with a company. A dis-satisfied consumer will share
their lament with 8-10 people and some will push that number to twenty.19
Figure 7: Porter’s Five Forces for Liquor Industry
17
http://clients1.ibisworld.com.ezproxy.rollins.edu:2048/reports/gl/industry/majorcompanies.aspx?entid=400#MP10166
18
http://clients1.ibisworld.com.ezproxy.rollins.edu:2048/reports/gl/industry/industryoutlook.aspx?indid=400
19
http://money.howstuffworks.com/customer-service2.htm
Rivalry
High
Threat of
New
Entrants
Medium
Buyer
Power
Medium
Threat of
Substitutes
High
Supplier
Power
Medium
10. 9
1.2.7 Competitor’s Table
Company Market Share
(in %)
Revenue
(in mil. $)
Net Profit
(in mil. $)
Established # of Full Time
Employees
St. Augustine Distillery <1 7-9 1.35 2013 50
Diageo PLC 27.220
13,018 246721
1997 36,00022
Pernod Ricard SA 20.9 10,005 86123
197524
18,23225
Bacardi & Company 10.7 5,098 765 186226
5,94527
Beam Suntory Inc. 7.6 3,626 3202829
201130
3,400
Table 2: St. Augustine Distillery’s Major Competitor’s Table
1.3 Conclusions and Recommendation
St. Augustine Distillery offers premium quality crafted spirits. The company offers a very unique
product and a small variety. The small selection might limit the company in terms of expansion.
In this era of mass customization the Distillery should offer a bigger verity of spirits. For
example they should make their rum a permanent product not just seasonal,
2 Global Market Search
2.1 Country Selection
2.1.1 Criteria Selection
St. Augustine Distillery is present only in US. This might have its own challenges and
advantages. First of all the main challenge is that the company has no experience in international
expansion, and management does not know what will or will not work. The advantage is that
there is a lot to choose from. Since the list of the countries is huge, in order to limit their numbers
a Likert scale is used. The scale helps to determine comparative advantages of the countries that
most fit for St. Distillery’s expansion. Each criterion is rated on a scale 1 to 5, 5 is the highest
score. The countries with the highest scores, based on these ratings, will be the top candidates for
the expansion. Population was the first criterion that helped to narrow the list of the countries –
the higher the better. In this case we will look at the countries with population above 50 million
people. The next criterion is the Gross Domestic Product (GDP) per capita minimum $6,000 US.
Since the spirits of St. Augustine Distillery are not one of the cheapest, GDP per capita will help
to determine the willingness of the population to spend their money on something like alcohol
(which is not a necessity). Third criterion considered is alcohol consumption per capita (in liters)
– this shows if the population drinks and how heavy the drinking is. And the final criterion is the
20
http://clients1.ibisworld.com.ezproxy.rollins.edu:2048/reports/gl/industry/majorcompanies.aspx?entid=400
21
https://www.google.com/finance?q=NYSE:DEO&fstype=ii
22
https://en.wikipedia.org/wiki/Diageo
23
http://markets.ft.com/research/Markets/Tearsheets/Financials?s=RI:PAR
24
https://www.google.com/search?q=when+pernod+ricard+was+established&ie=utf-8&oe=utf-8
25
https://www.google.com/finance?cid=668747
26
https://www.google.com/search?q=when+pernod+ricard+was+established&ie=utf-8&oe=utf-8
27
http://www.bacardilimited.com/Content/uploads/corporate/responsible/pdf/2014_About_BL.pdf
28
http://www.suntory.com/about/financial/pdf/201412.pdf
29
https://www.google.com/search?q=38363000000+yen+in+dollars&ie=utf-8&oe=utf-8
30
https://www.google.com/search?q=when+pernod+ricard+was+established&ie=utf-8&oe=utf-8#q=when+beam+suntory+was+established
11. 10
consumption of the spirits versus other alcohol drinks. This is important because St. Augustine
Distillery predominantly specializes on gin and vodka (occasionally rum and bourbon).
Countries
Population
in mil31
GDP per capita
(in thsnd. $US)32
Alcohol consumption
per capita (in liters)33
Spirits consumption
% vs other alcohol
Brazil 204.3 11.4 4.5 20
China 1367.5 7.6 15.1 69.2
France 66.6 42.7 12.9 23.1
Germany 80.9 47.6 14.7 18.6
Italy 61.9 35 9.9 11.5
Japan 127 36.2 10.4 52
Mexico 121.7 10 12.7 22.2
Russia 142.4 12.7 22.3 51
South Africa 53.7 6.5 27.1 16.7
Turkey 79.4 10.5 17.3 27.9
UK 64.1 45.6 13.8 21.8
Table 3: Country Side-by-Side Comparison (Top 11)
2.1.2 Country Comparison
1 2 3 4 5
Population (in mil) < 75 75 - 100 100 - 125 125 - 150 > 150
GDP per capita (in thsnd) < 10 10 - 20 20 - 30 30 - 40 > 40
Alcohol consumption per capita (in liters) < 6 6 - 9 9 - 12 12 - 15 > 15
Spirit consumption vs other alcohol drinks < 15 15 - 30 30 - 45 45 - 60 > 60
Table 4: Likert Scale (Top 11)
Country Ratings Equally weighted Weighted
Brazil 5 2 1 2 2.5 3.05
China 5 1 5 5 4 3.8
France 1 5 4 2 3 2.8
Germany 2 5 4 2 3.25 3.2
Italy 1 4 3 1 2.25 2.2
Japan 4 4 3 4 3.75 3.85
Mexico 3 2 4 2 2.75 2.7
Russia 4 2 5 4 3.75 3.55
South Africa 1 1 5 2 2.25 1.75
Turkey 2 2 5 2 2.75 2.45
UK 1 5 4 2 3 2.8
Table 5: Country ratings
31
http://www.census.gov/population/international/data/idb/region.php?N=%20Results%20&T=6&A=separate&RT=0&Y=2015&R
32
http://data.worldbank.org/indicator/NY.GDP.PCAP.CD
33
http://www.who.int/substance_abuse/publications/global_alcohol_report/msb_gsr_2014_3.pdf?ua=1
Criteria
Ranking
Criteria
12. 11
Eleven countries are ranked on a Likert scale in Table 5. Table 6 shows ranking of the countries
as if they were weighted equally, i.e. each criterion is 25%. The countries presented in Table 5
are: Brazil, China, France, Germany, Italy, Japan, Mexico, Russia, South Africa, Turkey and
UK. The weighting used in Table 6 was determined by the importance of the criteria of
evaluation. Population is considered the most important and accounts for 40%; GDP accounts for
30%; alcohol consumption per capita per year and spirit consumption versus other alcohol drinks
are weighted equally accounting for 15% each. The individual ratings and overall weighted
ratings are presented in Table 6.
2.2 Country Evaluation
The evaluation of the countries is based on the ranking according to the Likert scale; the scores
are ranging from 5 – highest and 1 – lowest. Each criterion was assessed based on the weighted
importance for the business expansion, population being the most important. Second important is
the GDP per capita. And finally the alcohol consumption and spirit consumption are weighted
equally. As seen in Table 6 there are 3 countries that scored the highest.
2.3 Conclusion and Recommendation
According to Table 6 the top 3 countries are China (3.8), Japan (3.85) and Russia (3.55). This is
only the first step in selecting the first country to enter. In order to make a decision a further
thorough analysis of each country is necessary.
3 Global Market Search
3.1 PEST Analysis
3.1.1 China34
Political Factors: China has a communist state form of government with chief of sate president
XI Jinping and head of government Premier LI Keqiang. China operates under its constitution
that was promulgated December 4th
1982 which was amended several times. China is a member
of many international organizations including World Health Organization and World Trade
Organization (WTO).
Economic Factors: Since the late 1970s China has moved from a closed, centrally planned
system to a more market-oriented one that plays a major global role - in 2010 China became the
world's largest exporter. China in 2014 stood as the largest economy in the world, surpassing the
US for the first time in modern history. Still, China's per capita income is below the world
average. China’s GDP is $10.38 trillion. China is a world leader in gross value of industrial
output; mining and ore processing, iron, steel, aluminum, and other metals. By the end of 2012,
China's population at working age (15-64 years) was 1.004 billion (2014 est.), which makes
China number 1 in labor force with the low rate of unemployment of approximately 4.1% in
2014. In 2014 China’s inflation rate was 2%.
34
https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html
13. 12
Social Factors: China has a population of 1367.5 million people with 0.45% annual growth rate
(2015 est.). About 55.6% of the population lives in urban areas (2015), which consist of cities
such as Shanghai, Beijing, Chongqing, Guangdong, Tianjin and Shenzhen.
Technological Factors: China has totaled of 507 (2013) airports 463 of which are with paves
runways, 47 heliports, 191,270 km of railways, 4,106,387 km of roadways, and 110,000 km of
navigable waterways. China has also very developed communication system with fixed
telephone lines of 249.4 million subscriptions and total mobile cellular telephones users of 1.3
billion. China’s internet users make up 46% of the population – 626.6 million.
3.1.2 Japan35
Political Factors: Japan’s form of government is a parliamentary government with a
constitutional monarchy and received its independence in 1947. Japan’s latest constitution was
approved in October 1946, adopted in November 1946 and effective 3 May 1947. Japan has civil
law system based on German model; system also reflects Anglo-American influence and
Japanese traditions; judicial review of legislative acts in the Supreme Court. Japan participates in
international organizations such as UNESCO, APEC, WHO, WTO, etc.
Economic Factors: In the years following World War II, government-industry cooperation, a
strong work ethic, mastery of high technology, and a comparatively small defense allocation (1%
of GDP) helped Japan develop an advanced economy. Two notable characteristics of the post-
war economy were the close interlocking structures of manufacturers, suppliers, and distributors,
known as keiretsu, and the guarantee of lifetime employment for a substantial portion of the
urban labor force. For three decades, overall real economic growth had been impressive - a 10%
average in the 1960s, a 5% average in the 1970s, and a 4% average in the 1980s. Estimated GDP
in 2014 was $4.751 trillion, unemployment rate 3.6%, and inflation rate 2.7%.
Social Factors: Japan’s population is 127 million people with annual growth rate -0.16%.
Majority of the population lives in the urban areas – 93.5%, which consists of cities like Tokyo,
Osaka-Kobe, Nagoya, Kitakyushu-Fukuoka, Shizuoka-Hamamatsu and Sapporo.
Technological Factors: Japan has a very developed communication systems: 63.61 million
fixed telephone lines, and 152.7 mobile cellular telephone users. Internet users make up 86% of
the population – 109.3 million. Japan also has developed transportation system which consists of
175 airports, with 142 of them with paved runways; 16 heliports, 27,155 km of railways,
1,217,128 km of roadways, and 1,770 km of waterways.
3.1.3 Russia36
Political Factors: Russia’s form of government is federation and received its independence in
1991. Latest constitution was adopted in 12 December 1993, effective 25 December 1993, and
amended 2008. Russia has a civil law system with judicial review of legislative acts. Russia also
is a member of many international organizations such as APEC, UNESCO, WHO, WTO, etc.
35
https://www.cia.gov/library/publications/the-world-factbook/geos/ja.html
36
https://www.cia.gov/library/publications/the-world-factbook/geos/rs.html
14. 13
Economic Factors: Russia is one of the world's leading producers of oil and natural gas, and is
also a top exporter of metals such as steel and primary aluminum. Russia's manufacturing sector
is generally uncompetitive on world markets and is geared toward domestic consumption.
Russia's reliance on commodity exports makes it vulnerable to boom and bust cycles that follow
the volatile swings in global prices. The economy, which had averaged 7% growth during 1998-
2008 as oil prices rose rapidly, was one of the hardest hit by the 2008-09 global economic crisis.
Russia’s GDP is $3,565 trillion; unemployment rate is 5.1%, and inflation rate is11.4%.
Social Factors: Russia’s population 142.4 million people with annual growth rate of -0.04%.
Major urban areas consist of Moscow, Saint Petersburg, Novosibirsk, Yekaterinburg, Nizhniy
Novgorod, and Samara, which are populated by 74% of total population.
Technological Factors: Russia has a developed communication system with 39.43 million of
fixed telephone lines and 221million mobile cellular users; and 84.4 internet users. As for
transportation, Russia had 1,218 airports in 2013, 594 of which are with paved runways, and 49
heliports. It also has 87,157 km of railways, 1,283,387 km of roadways and 102,000 km of
waterways.
3.2 Competitive Analysis
3.2.1 Main Competitors
In China37
Niulanshan Distillery led volume sales of spirits, with the fastest increase in share in
2014. This is because Niulanshan Distillery remained immune to the ban on the use of public
funds for dining and wining in the anti-extravagance campaign, thanks to its product portfolio
focusing on the low-end market. In addition, Niulanshan Distillery strengthened its
merchandising outside Beijing, its home base, and developed robustly in other areas, particularly
Shanghai, Jiangsu and Zhejiang in 201438
.
In Japan Suntory Liquors remained the leading company in spirits in 2014, with a 17% volume
share. In addition to Jim Beam increasing its sales by 10%, the company’s Funwari Kyogetsu
and Sumiwataru Umeshu liqueurs showed favourable performances in 2014. Jim Beam
significantly increased its sales, as consumer attention towards the brand became higher after
Suntory’s acquisition of Beam Inc. Also, the company’s promotion suggesting the citrus
highball, mixing citrus juice with highball, was favourably accepted by consumers. Funwari
Kyogetsu, a flavoured shochu launched in 2013, continuously increased sales by attracting
female consumers in their 20s and 30s, who appreciate the convenience of the brand as it enables
the preparation of cocktails easily. Furthermore, the company launched a new umeshu brand,
Sumiwataru Umeshu in 2014, which was so successful that it was temporarily out of stock.
Whilst umeshu is usually cloudy, Sumiwataru Umeshu is clear and less sweet, which attracted
young female consumers39
.
37
http://www.euromonitor.com/spirits-in-china/report
38
http://www.euromonitor.com/spirits-in-china/report
39
http://www.euromonitor.com/spirits-in-japan/report
15. 14
In Russia Spirits in Russia is highly diversified with joint small companies accounting under
“others” for 59% of volume sales in 2014. Synergya led total volume sales of spirits in 2014 with
an 8% share. The company has led sales since 2011 due to its well-known brands in vodka and
brandy supported by strong marketing campaigns. Its mid-priced vodka brands Myagkov,
Gosudarev Zakaz and Belenkaya and premium vodka brand Beluga jointly generated 6% of total
vodka sales in 2014, and its mid-priced brandy brand Zolotoy Rezerv held a 4% volume share.
Also Synergya benefits from a portfolio of premium international brands that it distributes to
Russia, with the key partner of William Grant & Sons40
.
3.2.2 Globalization
Globalization shows how open the country is to other cultures. The KOF Globalization Index is
used to measure 3 different aspects: economic, social, and political. The higher the score, the
more globalized the country is. Table 8 illustrates the top 3 countries in terms of their
globalization level.
Country Economic
Globalization
Social
Globalization
Political
Globalization
Globalization
Index
China 49.8 52.61 85.32 60.15
Japan 47.57 66.58 90.1 65.87
Russia 53.27 64.8 84.91 65.9
Table 8: Globalization Indexes41
As the Table 8 shows, Russia is the most globalized out of 3 countries, and China is the least
globalized.
3.3 Country Selection
3.3.1 Criteria Selection
In order to conduct a more in depth assessment, a second Liker scale is used. In addition to
original 4 variable 4 new variables are used to rate the remaining countries. First criterion that
was added is ease of doing business. This criterion ranks economies from 1 to 189 showing
which one is the most favorable to conduct business operations42
(the lower numerical rating the
better). The second criterion added is the inflation rate of the country43
. The third one is the
unemployment rate44
and finally, the last one is the cultural distance which is calculated based on
the Hofstede Model45
.
40
http://www.euromonitor.com/spirits-in-russia/report
41
http://globalization.kof.ethz.ch/media/filer_public/2015/03/04/rankings_2015.pdf
42
http://data.worldbank.org/indicator/IC.BUS.EASE.XQ
43
https://data.oecd.org/price/inflation-cpi.htm
44
https://www.cia.gov/library/publications/the-world-factbook/geos/rs.html
45
http://geert-hofstede.com/united-states.html
16. 15
In order to rate the added factors, the original 4 factors account for 86% of the rating, thus the
added ones account for 14%.
3.3.2 Country Side-By-Side Comparison
The following table represents the top 3 countries in comparison to each other based on specific
criteria that are important for conducting business in alcohol industry. The further ratings for the
first 4 factors are borrowed from the original data represented in Table 4.
Criteria China Japan Russia
Population in mln 1367.5 127 142.4
GDP per capita (in thousand $US) 7.6 36.2 12.7
Alcohol consumption per capita (in liters) 15.1 10.4 22.3
Spirits consumption percentage vs other alcohol 69.2 52 51
Ease of Doing Business 84 34 51
Inflation Rate (%) 2 2.75 7.83
Unemployment (%) 4.1 3.6 5.2
Cultural Distance 236 226 283
Table 9: Country Side-by-Side Comparison (Top 3)
1 2 3 4 5
Population (in mln) < 75 75 - 100 100 - 125 125 - 150 > 150
GDP per capita (in thsnd) < 10 10 - 20 20 - 30 30 - 40 > 40
Alcohol consumption per capita (in liters) < 6 6 - 9 9 - 12 12 - 15 > 15
Spirit Consumption vs other alcohol drinks < 15 15 - 30 30 - 45 45 - 60 > 60
Ease of Doing Business > 61 46 - 60 31 - 45 16 - 30 1 -15
Inflation Rate (%) > 8 6.1 - 8 4.1 - 6 2.1 - 4 1 - 2
Unemployment (%) > 5.1 4.1 - 5 3.1 - 4 2.1 - 3 1.1 - 2
Cultural Distance > 300 251 - 300 201 - 250 151 - 200 > 150
Table 10: Likert Scale (Top 3)
Criteria
China Japan Russia
Population 5 4 4
GDP per capita 1 4 2
Alcohol consumption per capita 5 3 5
Spirits consumption percentage vs other alcohol 5 4 4
Ease of Doing Business 1 3 2
Inflation Rate 5 4 2
Unemployment 2 3 1
Cultural Distance 3 3 2
Equally Weighted 3.825 3.68 3.47
Weighted 3.668 3.781 3.313
Table 11: Country Ratings (Top 3)
Country
RankingCriteria
Country
17. 16
3.3.3 Evaluation and Country Selection
Table 13 (above) shows that the top country for St. Augustine Distillery international expansion
is Japan. This is conclusion was made based on the weighted ratings; whereas equally weighted
ratings put China on the top of the list. Japan’s high alcohol consumption and preference towards
spirits rather than beer and wine present a favorable environment for the international expansion
of St. Augustine Distillery.
3.4 Conclusion and Recommendation
After thorough research and analysis it was determined that Japan is the first international market
that Sr. Augustine Distillery should enter. But the research does not stop here. Next step is to
determine mode of entry and the marketing mix. And after that further, research is required to
determine the STP (Segmenting, Targeting and Positioning Process), which will help to attract
specific groups of consumers. These steps are necessary in order to understand the competitors in
a new market. This understanding will give St. Augustine Distillery a competitive advantage in
the new country.
4 Marketing Plan
4.1 Market Entry Mode
St. Augustine Distillery has no experience when it comes to international expansion. Given this
circumstance the ideal and less risky mode of entry would be export. But prices for alcohol in
Japan are very cheap, considering all the additional cost of exporting; this will lead to lower
profit margins. Thus the best option would be licensing – the process of transferring the rights to
a firm’s products, for a set royalty fee, to an overseas company for the purpose of producing or
selling it there46
. This method will allow St. Augustine Distillery to keep the production costs
low since the company will be producing on the territory of Japan; thus, this will help to keep the
profit margins.
4.2 Marketing Mix: 4 P’s
Since the chosen mode of entry is licensing, this will help the adaptation of the product. St.
Augustine Distillery encourages local farmers by using only their produce for the production of
the company’s goods. Thus licensing will allow St. Augustine Distillery to use local farmers in
Japan as well, which will also contribute to building a positive local image of the company.
There might be some adaptation when it comes to raw material used for the product; it will
depend on the available resources of the local area. The placement of the product should be
standardized due to the fact that Japanese buy their alcohol in supermarkets, department stores,
convenience stores and liquor stores47
. St. Augustine Distillery should also adapt prices for their
product considering that alcohol is very cheap in Japan48
. Adaptation of the promotional
strategies might not be necessary since Japanese culture is very much open to the western one.
46
Ilan Alon & Eugene Jaffe, Global Marketing (New York: McGraw-Hill, 2013), 209.
47
http://www.japan-guide.com/e/e2037.html
48
http://www.tripadvisor.com/ShowTopic-g298184-i861-k6492886-Advice_on_saving_money_on_alcohol_spirits_if_visiting_Japan-Tokyo_Tokyo_Prefecture_Kanto.html
18. 17
Standardize Adapt
Product
Price
Promotion
Placement
Figure 8: Standardization vs. Adaptation
4.2.1 Product
Japan is very open to the western culture. However St. Augustine Distillery should use
adaptation when it comes to the product. Recently the most popular drink in Japan was
considered Shochu. It is the national spirit of Japan, and while most Americans’ first free
association of alcohol and Japan will be sake, shochu is more popular and has outsold sake in
Japan for the past decade49
. Shochu is a distilled spirit very similar to vodka: just as clear and
could be made out of different raw materials like barley, rice, sweet potatoes, or buckwheat49
. St.
Augustine Distillery could use this favorable similarity of this drink to vodka and adapt to
producing shochu. Once the Distillery will gain recognition among the local consumers, the
company can further introduce their gin, rum and bourbon.
4.2.2 Price
Average price for vodka is in Japan $8.58 for 0.7 liters50
. But the adaptation of the product
towards shochu will lead to more favorable pricing. Average price of shochu varies from $17 for
a 720ml bottle up to around $50 per the same size bottle51
. Considering that St. Augustine
Distillery average price is about $30 per bottle of vodka or gin, and the mode of entry which
allows to keep the costs low, company’s adaptation of the product will lead to higher profit
margins. The exchange rate, as of December 11th
, is 1 JPY equals 0.0082 USD52
. This rate will
mostly affect the business after the product was already sold and when it comes to money
transfer to the corporate office. When it comes to operating the business the rate will not have
much effect since the mode of entry used is licensing. One of the factors that can influence the
currency value is the inflation and in Japan it is at 0.3%53
. But this influence will have affect only
when transferring the profit share. When it comes to making a decision on setting up a price,
licensee can determine for themselves based on the location, costs and the local consumer.
4.2.3 Promotion
Since Japan is open to Western culture, adaptation could be used to some extent. The promotion
should be somewhat adapted on order to appeal to the local consumer. ”In Japan […] alcohol
manufacturers […] must, among other things, refrain from airing commercials between 5 a.m.
49
http://www.forbes.com/sites/larryolmsted/2013/08/06/the-best-spirit-youve-probably-never-tasted-japans-shochu/
50
http://www.globalalcoholprices.com/alcohol_prices/Japan/
51
http://www.snooth.com/wines/shochu/
52
http://www.xe.com/currencyconverter/convert/?Amount=1&From=JPY&To=USD
53
http://www.tradingeconomics.com/japan/inflation-cpi
19. 18
and 6 p.m., include warnings for pregnant women about likely health risks and refrain from using
under-aged models in advertisements. Outside of these guidelines, however, advertising for
alcohol can be found everywhere. Beer ads are generally prominently displayed on the walls of
trains for all to see, while many TV commercials in the evening feature scenes of drinking.54
”
The color pallet in the logo could be changed just a little: the beige needs to change a little
towards orange, the color that communicates balance and energy in Japanese culture55
. It is
important to promote the product the most appealing way to the local consumer. For example,
most alcohol beverages are advertised in the United States in the form of party drink, where
everyone is having fun. But in Japanese culture “business drinking is very popular”. “This is a
culture where drinking parties are job requirements… Sixty percent of […] drinkers are salaried
businessmen who claim that getting drunk with clients or coworkers is part of their job and a
mark of company loyalty. To refuse a drink from the boss is a terrible insult that can damage a
career.”56
Cultural distance is very big between U.S. and Japan – 224. Japanese are always
conscious of their hierarchical position in any social setting and act accordingly. Japanese culture
also shows many of the characteristics of a collectivistic society. Japan is one of the most
Masculine societies in the world. However, one does not see assertive and competitive individual
behaviors which we often associate with Masculine culture. Japan is one of the most uncertainty
avoiding countries on earth, partially due to the constant treat of natural disasters. This country is
also one of the most Long Term Orientation oriented societies. Japan is also a culture of
Restraint57
. Thus St. Augustine Distillery needs to be very careful when it comes to promotion of
the product, it has to use high level of adaptation.
Figure 9: Hofstede Model of U.S. and Japan57
54
http://www.japantimes.co.jp/life/2014/08/30/lifestyle/dealing-addiction-japans-drinking-problem/#.VlxpvOIR7Qp
55
http://lab.zoho.co.uk/lab/interactive-colours-in-culture/#/?region=japanese&culture=energy
56
http://thisjapaneselife.org/2012/05/09/on-drinking-too-much-in-japan/
57
http://geert-hofstede.com/japan.html
40
91
62
46
26
68
54
46
95
92
88
42
Power Distance Individulaism Masculinity Uncertainty
Avoidance
Long Term
Orientaiton
Indulgence
U.S.
Japan
20. 19
4.2.4 Placement
” Drinking out can be an expensive business in Japan (see below) but alcohol, due to the
relatively low taxes levied on it, remains a cheap proposition when purchased from a liquor
store.”58
In order to keep high profit margins St. Augustine Distillery should try to offer its
product to the restaurants first. This will increase the value of the product itself. Rather than
putting on the shelves of a liquor store for a cheap price, the product could gain more respect
being offered as a little more expensive option at a local restaurant. Once the local consumer is
familiar with the product and the label it could be moved to a liquor store, but this will allow
keeping the price relatively higher than the average.
4.3 STP Process
4.3.1 Segmentation
Alcohol industry is not for any consumer. Minimum legal drinking age in Japan is 2059
, which is
about 75% of the total population (2014 est.)60
. The company can build its strategy based on
income. For example, shochu is a more expensive drink and it could appeal to a population with
the higher income. Vodka on the other hand (primary product of St. Augustine Distillery in U.S.)
will appeal to a population segment with the lower income. Since vodka and shochu could easily
be made into a cocktail female consumer will be attracted to the product as well.
4.3.2 Targeting
In order to target a bigger segment, St. Augustine Distillery needs to use differentiated approach.
Shochu can be produced with many different flavors so can vodka. The Distillery can use all the
different flavors that are already used in the production of shochu, plus the company can
incorporate some of the flavors that are common to U.S. This will give the company a
competitive edge compared to the other companies, and recognition among America-loving
consumer.
4.3.3 Positioning
Differentiation of the company is the best way to compete for the Distillery. It would be hard to
compete with big companies. The very first step is to win the hearts of the local consumers by
producing shochu and especially with different flavors. This will draw attention to the brand and
gain some recognition. Once the position in the local market is stabilized the company can push
towards bigger segment or the segment in a different location.
4.4 Conclusion and Recommendation
The very first step would be to actually determine exact location that the St. Augustine Distillery
should go. It will require additional research to analyze the specific locations in Japan and try to
58
http://www.japanvisitor.com/japanese-culture/drinking-in-Japan
59
http://drinkingage.procon.org/view.resource.php?resourceID=004294
60
http://www.stat.go.jp/english/data/nenkan/1431-02.htm
21. 20
determine which one of them is most favorable for this type of company with this type of
product. Because of the relatively cheap prices for the primary product, producing on the
territory of the country should be considered at all times, despite the fact that export would be the
leas risky. St. Augustine Distillery has the potential to gain market share as long as it will use
adaptation and diversification as its marketing strategies.
