MBA 651

1. Major Case
Group 2
Introduction – Kyndle Huey
Environmental Analysis – Shelley Scarbrough
Strategy Evaluation – Cole Rigney
Problem and Exec Summary – Zac Chism
Recommended Strategy – DB Irwin and Andrew Terry
Forecast and Recap – Zac Chism

2. Introduction and Industry Overview
• Brown-Forman is a producer and marketer of fine alcoholic
beverage brands
• In 2008, the U.S. beverage industry contributed nearly $388
billion to U.S. economic activity
• Distilled spirits accounted for $115 billion, or 30% of all alcoholic
beverages
• Over $90 billion in wages and 3.9 million jobs for U.S. workers
were generated by the U.S. alcohol industry
• The Distilled & Blended Liquors industry is highly competitive
and heavily concentrated with just 20 companies accounting
for more than 90% of the industry’s overall revenue
Source: Distilled Spirits Council of the United States

3. Location
• Headquarters in Louisville, Kentucky
• Approximately 1,000 employees
• 3,900 Total employees worldwide

4. History
• 1870
• Founded as JTS Brown and Bro.
Distillery by George Garvin Brown, a
pharmaceutical salesman, and his
half-brother
• Brown had the idea to bottle and sell
whisky straight from the distillery
• Old Forester
• 1890
• George Forman becomes business
partner; name changed to Brown-
Forman
• 1902
• Brown Family buys all of Forman’s
stake in the business

5. History
• 1923
• First acquisition – Early Times
• 1964
• Acquire Jack Daniels Distillery
• Early 1990’s
• Acquisitions have continued; Brown-Forman owns Canadian Mist,
Southern Comfort, and Bolla Wines
• 1991
• Forms wine division with Jekel Vineyards
• 1995
• Created and introduced a new alcoholic drink category with
Tropical Freezes, the first blended frozen cocktail

6. History
• 2000
• Global alliance with Altia Group, with 45% ownership of Finlandia
Vodka
• 2004
• Acquires remaining stake in Finlandia
• 2006
• Chambord liqueur
• 2007
• Herradurra Tequila
• 2008
• Sells Bolla and Fontana Wines
• 2011
• Sells Fetzer Vineyards; only wines left are Korbel and Sonoma-Cutrer
• Jack Daniels Tennessee Honey
• Jack Daniels RTDs

7. Current Product Lineup
• Whisky • Tequila • Champagne
• Old Forester • Don Eduardo • Korbel
• Canadian Mist • El Jimador
• Collingwood
• Wine
• Herradura
• Early Times • Sonoma-Cutrer
• Pepe Lopez
• Jack Daniels
• Liqueur
• Woodford Reserve
• Chambord
• Vodka
• Southern Comfort
• Chambord
• Tuaca
• Finlandia

8. U.S. Market Share
Other
Fortune Brands
16.40%
(Beam Inc.)
Pernod Ricard 26.60%
13.20%
Brown-Forman Diageo
20.50% 23.30%
Source: Business & Company Resource Center

9. Sales
Brown-Forman Sales (in millions)
$4,000
$3,500 $3,404
$3,000 $3,282 $3,226
$3,192
$2,806
$2,500
$2,000
Sales
$1,500
$1,000
$500
$0
2007 2008 2009 2010 2011

10. Stock Performance
Source: Brown-Forman 2011 Annual Report

11. Stock Performance
Brown-Forman Class B Stock Diageo Stock
52-week high: $77.56 52-week high: $84.31
52-week low: $61.41 52-week low: $83.01
Close on Nov. 4: $74.57 Close on Nov. 4: $83.98
Source: Google Finance

12. Company Leadership
President, CEO and Chairman of the Board
Paul C. Varga
• Background
• Intern Summer 1986
• Jack Daniels Brand Manager, Senior
Vice President, and
• Chief Marketing Officer
• Education
• 1982 – University Kentucky - Finance
• 1985 – Purdue University - MBA
• Salary
• $7.1 million dollars, down from $7.7
million in 2010

13. Company Leadership
• Important Notes:
• Former CEO Owsley Brown II
• History of CEO duality
• Director of Family- Shareholder Relations in 2009
• Varga realized need first time in 140 years
• No current family in top structure with retirement and death of
Owsley Brown

14. Company Leadership
Vice Chairman
James S. Welch, Jr.
• Background
• VP Morgan Stanley
• Joined in 1989 - Corporate Planning
• Assistant to CEO and HR for beverage
company
• Education
• Princeton – Economics
• Salary
• $2.2 million dollars in compensation
(Including stock awards, non-equity
incentive plan compensation, and a
pension plan)

15. Company Leadership
Executive Vice President and Chief Financial Officer
Donald C. Berg
• Background
• CPA at Ernst Whinney in IL
• Brand manager Carnation
• Assistant to President
• Senior VP and Director of Corporate
Finance
• Education
• Undergrad – Augustana College
(Rockport, IL)
• MBA – Wharton School of Business (U
Penn)
• Salary
• $2.2 million in 2011

16. Company Leadership
Executive Vice President and Chief Operation Officer
Mark I. McCallum
• Background
• Began at Cadbury VP Marketing
• Executive VP for Red Lobster
• Started at Brown-Forman as Chief
Brands Officer in 2006 – newest
addition
• Education
• University of Western
Sydney, Australia – Bachelor Food
Science
• Salary
• $1.9 million 2001

17. External Environment:
Economic
• Spirits industry faring well in recession – profitable
• People stay home for cheaper ways of entertainment
• Many individuals looking for cheaper brands
• Rise in consumption means rise in alcoholism and public
scrutiny

18. External Environment:
Legal
• Landmark case results in creation of
liquor label warnings
• Advertising
• Accusations – targeting minors
• Mad Men
• Alcohol Taxation

19. External Environment:
Technological
• Recently implemented a new
position in 2008:
• Director of Finance and Technology
• Controller Jane Morreau
• New Product Life Cycle Management
Software
• Social Media Use

20. External Environment:
Social
• Distilled Spirits Council of the United States (DISCUS)
• Developed liquor industry standards for advertising and
marketing practices
• Founded by former chair, Owsley Brown
• Received Mad-Men complaint
• T.U.R.F.
• Tailgaters Urging Responsibility & Fun
• Brown-Forman charitable giver

21. Existing Strategy
• Our mission at Brown-Forman is to enrich the experience of
life, in our way, by responsibly building beverage alcohol
brands that thrive and endure for generations
• Values and Goals
• Our Thinking About Drinking
• Responsible leaders; partner with responsible retailers; trusted
policy advocate; harness brand power; be a credible voice
• Five Strategic Imperatives
• Being responsible in everything we do; responsible drinking;
environmental stewardship; employee relations; community
involvement
• Core Values
• Integrity; respect; trust; teamwork; excellence

22. Existing Strategy
• Competencies
• Brand quality
• Diversity of their retail base
• Markets
Percent of Sales
United States -
45%
Europe - 27%
All Others - 28%

23. Existing Strategy
• Objective
• Be the industry leader
• Double business by 2020
• Be a credible voice for responsible drinking
• Overall Strategy
• Differentiation among brands on a global scale
• Expand Jack Daniels family
• Grow other brands faster than Jack Daniels
• Grow U.S. business and grow market share of dollar sales
• Grow international business faster than U.S. business
• Be responsible in everything they do

24. Existing Strategy
• Target Market
• All adults anywhere in the world of legal
drinking age
• They are putting some emphasis on Eastern
Europe, Asia, and Latin America
• Global Strategy
• Stick to what sells the best and market Jack
Daniels family

25. Product Strategy - Porter
Framework
Brown-Forman
Diageo
Mackmyra Svensk Jim Beam Brands
ROI
Constellation Brands
Market Share

26. Product Strategy - Product Life
Cycle Old Forester
Canadian Mist
Early Times
Tennessee Whiskey
Gentleman Jack
Country Cocktails
Woodford Reserve
Single Barrel
Ready-to-Drink
Tennessee Honey Collingwood
Early Times - 354
Introduction Growth Maturation Decline

27. Product Strategy - Product
Market Strategy
Old Product New Product
Market Penetration Product Development
•Current Jack family in U.S. •Expanding Jack family in U.S.
and Europe and Europe
Old Market •RTDs and Tennessee Honey
Market Development Product Diversification
•Current Jack family in Asia, •RTDs in Eastern Europe
Latin America, and Eastern
Europe
New Market

28. Product Strategy - Product
Position
Price +
Jack Daniels SB
Woodford
Crown Royal Maker’s Mark
Early Times
Jack Daniels Taste +
Taste -
Jim Beam Black Diamond
Evan Williams
Black Velvet
Price -

29. Place Strategy
• Operate multiple distribution centers
• Distribute directly to retailers and wholesalers
• Set up partnerships with retailers that share the
same values about responsible drinking
• They want to be the first company contacted
for raising awareness for responsible drinking
• Brick and mortar retailers
• LIFO inventory management

30. Promotion Strategy
• About $366 million spent on advertising
• Responsible marketing
• Compliance with laws
• Only to adults of legal drinking age
• Content restrictions
• Placement restrictions
• Responsible consumption requirements
• Good tastes and appropriate use

32. Price Strategy - Demand Curve
Jack Daniels - $18
Priced at kink
Price
Demand

33. Strategy Issues and Problem Identification
• The overall problem is
Overall declining profitability and
stagnant sales due to a
Problem limited product line
Root • The root cause of the
problem is the corporate
Cause management structure
Insert your sources here

34. Strategy Issues and Problem Identification
• Brown-Forman is not the name brand
• Individual products have strong brand
Product recognition
• Marketing strategy needs to be more focused
• Product Line
• Elastic (substitutes)
Price • Brands Strategically placed
• Cannibalism

35. Strategy Issues and Problem Identification
• Brick and Mortar only
• Online buying could effect B&M
Place policy
• Distribution Network
• Marketing must be responsible
Promotion • Male dominated Ads
• Creativity Needed

36. Path of Continued Strategy
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

37. Current Vision
What We Do
At Brown-Forman, we enrich the experience of life, in our own way, by responsibly building beverage alcohol brands that thrive
and endure for generations.
Our vision is to be the best brand builder in the industry, and in order to accomplish that vision, we focus on five strategic
imperatives that drive our actions.
Building Strong Consumer Franchises
Building powerful, long-lasting friendships between our brands and consumers is essential to growing brands.
Winning at the Point of Purchase
We must engage the consumer and the trade with flawless execution of our brand plans through the optimal route to consumer.
Allocating Resources Superbly
By deploying our financial and human resources to their highest and best use, we can focus on our priorities more effectively.
Developing and Engaging Exceptional People
We strive to continually grow, enable, and recognize the people who build our brands profitably in all different ways throughout
the company.
Being Responsible in Everything We Do
To us, this means leading by example. It means making decisions and taking actions that drive
social, environmental, financial, civic, and personal responsibility.
By expertly executing these imperatives, we will outperform the industry over the long term, deliver consistent, exceptional
performance, and ultimately create a growing and enduring Brown-Forman

38. New Mission Statement
Builds off Corporate slogan “Building Forever”
Our highest purpose is to enrich the
experience of life, by creating a growing
family of brands that encompasses every
adult in a worldwide community of
responsible drinkers

39. Objectives
• Promote a community of responsible drinkers
• Build a family of brands that encompasses every
kind of drinker
• Capture traditionally neglected markets
• Evoke a spirit of friendship among U.S. regions
• Create a sense of patriotism in every sip

40. Overall Strategy
• Go Private
• Purchase 4 regional breweries
• Implement a “Drink Local, Drink America”
campaign
• Leverage Trading Up/Trading Down to
capture shifting markets

41. Addressing The Problem
• Beer is in a high growth cycle
• Product diversification
• Beer is a lower cost, faster cycle market than
spirits
• Lower costs and quicker results
• Go Private
• Addresses misalignment between
management and share holders
• Further enhances family image

42. Porter Framework
In Bev
SABMiller
Craft Beer Molson Coors
ROI
Market Share

43. Price
• Regional differences allow for dynamic
pricing
• Utilize expertise of local distributors
• Under price high end beer market, but
over price general market
• Utilize EDLP

44. Price

45. Price
• Existing market
• Existing price points/Anchoring effect
• Lower cost strategy

46. Target Market
• Men and women ages 21-35.
• College Educated
• 35k or more a year income
• People who are wanting to trade up with regards to beer of
choice

47. New Product Strategy
• “Drink Local Campaign”
• Sales associate team for all 4 brews
• Billboard campaign on interstates entering major
cities throughout the country
• Beer tastings
• Grass Roots Approach

48. Place
• Rogue Ales- New Port, Oregon
• Sweet Water-Atlanta, Georgia
• Magic Hat- South Burlington, Vermont
• Shiner Bock- Shiner, Texas
• Expand promotion of each beer within its surrounding regions
before launching a national campaign
• Grocery and Package stores

49. Local Recognition

50. National Recognition

51. Promotion
• Seek out sponsorship opportunities at local community
events within each outlined region of the country
• Tie in with the “eat local” campaigns found in cities and
small towns
• Farmers Markets
• Beer tastings performed by sales associates at
community events, grocery stores, package stores, etc
• Sponsorship in locally owned businesses and events.
• No national chains strategy is to seem uniquely apart of
the community

52. Forecast – Financials - Recap
Current Income Statement & Projected Statement
Period End 4/30/2011 4/30/2021
Reported in Millions
Total Revenue $3,404.00 $17,041
Total Cost of Revenue -$1,680.00 -$6,986
Gross Profit $1,724.00 $10,055
Operating Expense -$2,549.00 -$3,663
Other Expense -$26.00 -$37
Total Expense -$2,575.00 -$3,700
Net Income $829.00 $6,355
Net Income (Less Tax) $572.00 $4,321
**Dividends have been paid every year since 2007 to common stock**

53. Forecast – Financials - Recap
NPV ANALYSIS
YEAR 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Sales 3404 3847 4385 5174 6106 7144 8501 9946 11736 14201 17041
Market Share (current strategy) 20% 21% 22% 21% 20% 19% 18% 18% 17% 15% 14%
Market Share (based on planned strategy) 20% 21% 23% 26% 24% 30% 31% 36% 37% 37% 39%
Incremental Market Share (% points) 0% 0% 1% 5% 4% 11% 13% 18% 20% 22% 25%
Incremental Margin (Gross Gain After Investment) $0 $0 $44 $259 $244 $786 $1,105 $1,790 $2,347 $3,124 $4,260
Product investment (development cost of Craft Beers) $75 $30 $10 $5 $5 $5 $5 $25 $10 $10 $10
Place investment $0 $24 $10 $5 $5 $5 $5 $10 $10 $10 $10
Price investment $0 $3 $3 $2 $1 $1 $1 $1 $1 $1 $1
Promotion investment $0 $100 $100 $100 $100 $100 $100 $100 $100 $100 $100
Total incremental investment $75 $157 $123 $112 $111 $111 $111 $136 $121 $121 $121
Cash Flow (Incremental margin less total incremental investment) ($75) ($157) ($79) $147 $133 $675 $994 $1,654 $2,226 $3,003 $4,139
Discount Factor (figures represent 10% cost of capital) 1 0.9091 0.8264 0.7513 0.683 0.6209 0.5645 0.5132 0.4665 0.4241 0.3855
NPV (Cash flow x discount factor) ($75) ($143) ($65) $110 $91 $419 $561 $849 $1,039 $1,274 $1,596
Cumulative NPV (NPV summed year by year) $5,655

54. Forecast – Financials - Recap
• Net Income has increased 43 percent
since 2007
Currently at • EPS Analysis
Brown-Forman • Revenue Growth vs. Expense Increases
• Handled recession well
• Add four additional brands of Craft Beer
• Increase revenue by 23 percent and Net
After income by 8 percent
Recommendation • Distribution and infrastructure utilization
• Targets “Beer Drinkers”