A Strategic

Analysis
Of

Submitted to: Submitted by:

Prof. K.S. Prasad Sarthak
Shrivastava
Faculty, BPSM 10M33, Div. A
 G.H. Patel Postgraduate Institute of Business
Management
Preface

A strategic analysis is important to understand an organization’s present

scenario as well as its impact on its future. It is a theoretically informed
understanding of the environment in which an organization is operating, together
with an understanding of the organization’s interaction with its environment in order
to improve organizational efficiency and effectiveness by increasing the
organization’s capacity to deploy and redeploy its resources intelligently. Here, I
have talked about Pernod Ricard, a global distillery giant that has strong hold
on the international spirits business. The tools that have been used include
SWOT analysis, PESTEL analysis, Michael Porter’s 5-forces and the BCG matrix.
At the end of it all, I have also tried to make some recommendations that I
think would be helpful to the organization in the long run. I hope this report is
helpful in understanding the global spirits arena and is able to throw some
light on the methods of strategic analysis.

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 Acknowledgement

I extend my heartfelt acknowledgement to many people who directly or indirectly

contributed in the completion of this analysis report. My special humble thanks go to
Prof. K.S. Prasad, faculty BPSM for giving me the opportunity to undertake this
strategic analysis. Without his constant support and inputs, this report would not have
been materialized.

I am also thankful to our library, computer lab and other supporting staffs of the
department for their help. I will be failing in my endeavors if I do not acknowledge
many of my friends for their kind co-operation. Finally I would like to pay gratitude to
all those who helped me in some way or the other during the preparation of the
report.

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 Table of Contents

Ch. No Particulars Page No

1 Overview of the Indian Liquor Industry 05

2 Overview of Pernod Ricard 07

3 SWOT Analysis 09

4 PESTEL Framework 11

5 Michael Porter’s 5-Forces Model 14

6 BCG Matrix 16

7 Recommendations 18

8 Bibliography 19

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 Overview of the Indian Liquor Industry

There was a time when India known as the land of snake charmers. The land of mystery. In this
country, poverty and wealth meet in the middle. How can such a contradiction survive together?
The answer is strongly religious social fabric, bound by tradition. Still a profoundly religious
country in Hindu faith deems it a virtue to come to terms with one’s own being. Spiritual growth
surpasses wealth and power, as the former the brings the later too. The spiritual would is one
where all come together. India is a country where all the flavors are strong. Peaking of all
flavors… Scotch whisky comes to mind doesn’t it?

Ok, may be not. But do you know where it comes from? Scotch has a interesting and perhaps
surprising history. The Irish monks brought Irish learned it from Spanish. The Spanish learned it
from Arab. And Arab in turn learned it from India. Imagine that, alcohol in India, as elsewhere, has
been around for a while. Wine, for example, has been around since prehistoric times. Now whether
alcohol is welcome or not… that is another issue. Most parents raise their kids with the same
morals and values that were thought to them by their parents. Indian traditionally put more
emphasis parade on education, white thinking alcohol leads to a deterrent of one’s goals in life,
since it is sometimes connected not only to alcoholism, but also to other problems. Dusk was
setting in a small village, and the villagers were returning from the fields.

Normally, the women headed home, while the men hit the bars. But one day, the women did not go
home. They armed themselves with chili powder and broomstick, and then they waited by the
village road. When jeep down to mud tracks, carrying the village’s weekly alcohol supplies, they
attacked it. Within minutes they through chili powder into drivers eyes, Set fore on the hundred of
bottles, and thrashed the man inside the vehicle with their lives rather allow more alcohol into their
village. Soon anti alcohol protests spread through out the region. What does this say? These
women were outraged by what alcohol in other ways, such as knowing drunk driving victims,
alcoholics, and / or what not. Other what Capt. Morgan’s ship seemed to reach everyone’s harbor.
In 1996, a prohibition in other countries has not been learned. And efforts at enforcement, as well
as attempts to curtail infringement or avoid corruption, degenerated into farce.

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In India alcoholic sales are regulated by the state governments, which get revenue from taking it.
But above this, the mind frame instilled in the people of India by the great leaders of the past
especially some freedom fighters, still exist today. There’s modal advocate the temperance. Gandhi
ji did not believe in losing control of mind and body through one’s own will. He also believed in
alcohol’s negative impact on India. Even though alcohol is present in the country, even welcomes
in some states, over all, the population does not regard it as a virtue. But it still is a social taboo for
young generation.

The different kinds of alcoholc products that constitute this category are explained as under:

WHISKY

It is the most popular distilled liquor known all over the world. It is spirit from starch. Best known
whiskies come from Scotland. The production of whisky is along and tedious process. The whisky
is a sprit, which is obtained by distillation of malt or cereal grains like maize, rice, rye, barley and
malt.

BRANDY

Brandy is generally obtained of fruits, through most commonly used fruit is grape. The best quality
of brandy is cognac, which is made in cognac in France.

RUM

Rum is distilled from the fermented juice of sugar cane of molasses. In such a manner distillate has
the taste, aroma and the characteristics generally attributed to rum. Best rum comes from west
Indies, Cuba, Fiji, India and Mauricio us. In India, rum is fast emerging as ,most popular of all the
distilled liquor, there is generally feeling that rum is more satisfying and has better food value then
any other sprite. It is also sold comparatively at low price. Rum is being produced at almost all part
of our country. This is generally due to the fact that sugar cane molasses is available in plenty in
India. In some place fermented gur is also used to produce rum. Gur gives affine quality of sprite
and is increasingly being used in the production of rum.

GIN

It is popular distilled liquor. It is artificial sweetened or unsweetened grain specially flavored with
essential flavor of juniper berries.

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 Overview of Pernod Ricard

Pernod Ricard is a French company that produces distilled beverages. The company's eponymous
products, Pernod Anise and Ricard Pastis, are both anise-flavoured liqueurs and are often referred
to simply as Pernod or Ricard. The company also produces several other types of pastis.

After the banning of absinthe, Pernod Ricard was created from the Pernod Fils company, which
had produced absinthe. It is now a worldwide conglomerate.

Pernod Ricard owns the distilled beverage division of the former corporation Seagram, along with
many other holdings. In 2005, the company acquired a British-based competitor, Allied Domecq
plc.

In 2008, Pernod Ricard announced its acquisition of Swedish-based V&S Group, which produces
Absolut Vodka.

To sum up the key profile and strategy of the company, here are some important points:

• Created by the link-up between Pernod and Ricard in 1975, Pernod Ricard has based its
development on both organic growth and acquisitions. The purchase of part of the Seagram
businesses (2001) and the acquisitions of Allied Domecq (2005) and Vin&Sprit (2008)
have propelled the Group to the position of leader in the Premium segment and world co-
leader in Wines & Spirits.

• With leading brands in each category, Pernod Ricard holds one of the most comprehensive
and Premium portfolios in the industry including ABSOLUT, Ricard anise and Scotch
whiskies led by Chivas Regal, as well as Ballantine’s, The Glenlivet, and Royal Salute,
Jameson Irish whiskey, Martell cognac, Havana Club rum, Beefeater gin, Kahlúa and
Malibu liqueurs, Mumm and Perrier-Jouët champagnes and Jacob’s Creek, Brancott
(formerly Montana), Campo Viejo and Graffigna wines.

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• Pernod Ricard is now a major player in mature markets, and in recent years has become the
industry leader in Asia, holding the leading position in China and India. This provides
Pernod Ricard with a competitive edge that allows it to leverage future sources of growth
in the industry.
• Pernod Ricard has made upscaling its brands and creating more Premium categories its
strategic priority. This approach, known as‘Premiumisation’, generates greater profitability
and is underpinned by substantial marketing expenditure. As a recognised brand-builder
Pernod Ricard understands the importance of innovation as a driver of growth. From
product extensions to new digital media and event planning, innovation is not limited to
marketing—it infiltrates every area in the company: Sales, Human Resources, Production,
and Finance.

• The Pernod Ricard organisation is made up of Brand Companies and Market Companies
representing more than 18,000 employees in 70 countries. The Market Companies locally
adapt the global strategy defined by the Brand Companies. This flexible and responsive
organisation guarantees the best understanding of the specifics of each market and the
expectations of its consumers. It is supported by complete control of distribution in the
form of a proprietary global distribution network.

• In a decentralised organisation, it is corporate culture that binds the whole. The Pernod
Ricard spirit is best captured by the Group’s own byword: ‘Conviviality’. This is reflected
in the new corporate tagline,‘Créateurs de convivialité’. It is both a managerial approach,
built around simple, direct relationships between employees, and a sentiment that each of
the Group’s brands strives to create with its consumers. The culture relies on three values:
entrepreneurial spirit, mutual trust, and a sense of ethics.

• For several decades, the Group has been committed to a policy of social responsibility.
Today, this policy embraces three priorities: responsible drinking, environmental ethics,
and the development of cultural initiatives or social entrepreneurial projects.

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 SWOT Analysis

SWOT analysis is a strategic planning method used to evaluate the Strengths,

Weaknesses/Limitations, Opportunities, and Threats involved in a project or in a business venture.
It involves specifying the objective of the business venture or project and identifying the internal
and external factors that are favorable and unfavorable to achieve that objective. The technique is
credited to Albert Humphrey, who led a convention at Stanford University in the 1960s and 1970s
using data from Fortune 500 companies.

Setting the objective should be done after the SWOT analysis has been performed. This would
allow achievable goals or objectives to be set for the organization.

• Strengths: characteristics of the business, or project team that give it an

advantage over others
• Weaknesses (or Limitations): are characteristics that place the team at a
disadvantage relative to others
• Opportunities: external chances to improve performance (e.g. make greater
profits) in the environment
• Threats: external elements in the environment that could cause trouble for
the business or project

Identification of SWOTs is essential because subsequent steps in the process of planning for
achievement of the selected objective may be derived from the SWOTs.

First, the decision makers have to determine whether the objective is attainable, given the SWOTs.
If the objective is NOT attainable a different objective must be selected and the process repeated.

Here is a SWOT analysis of Pernod Ricard:

Strengths:

• Pernod Ricard is the market leader in Asia. This is a big advantage because although, it
does not have a strong hold over Indian liquor market like a lot of other foreign
countries, but it has the funds to channelize into India for being at the top.

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 • The organization’s main focus is on innovation. In this highly competitive arena,
innovation is the key to survival and ultimately success. Where other organizations
might lose out on certain technical expertise, Pernod Ricard has the advantage of being
the veteran in the field.

Weaknesses:

• The main weakness of the organization lies in the fact that the consumers are not totally
aware of all its brands. Being the innovation leader in the field, it’s a big disadvantage
if the consumers are not aware about the organization’s capabilities and its commitment
towards consumer satisfaction.

• The organization hasn’t got any brand in the bear category. This is a weakness because
the prime rival (United Breweries Ltd.) thrives mainly because of its bear business.
Unless it gets some tough competition there, its almost impossible to get to the top in
the spirits business.

Opportunities:

• Market research reports by Crisil show that the overall market of Indian liquor
consumers is to grow by 12% annually. This a great opportunity for the organization to
grab a strong hold on the upcoming whole new generation of drinkers and get a virtual
first-mover advantage.

• The same report talks about the reduction in the price sensitive attitude of the Indian
consumers. This is again a big turnaround of events as Pernod Ricard is mainly into
premium segments of the spirits business.

Threats:

• There is very fierce competition in the Indian liquor industry. The main competitor
being United Spirits Ltd. which has a 55% market share; against which PR holds only
35% of the market share.

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 • Due to the latest budget, there are going to be heavier duties on all the alcoholic
beverages. This poses a serious threat to the organization’s margins, specially when it
has to spend so much to make a strong hold at the ground level.

PESTEL Framework

PESTEL framework stands for "Political, Economic, Social, Technological, Environmental and
Legal" framework and describes the macro-environmental factors used in the environmental
scanning component of strategic management. It is a part of the external analysis when conducting
a strategic analysis or doing market research, and gives an overview of the different macro-
environmental factors that the company has to take into consideration. It is a useful strategic tool
for understanding market growth or decline, business position, potential and direction for
operations.

• Political factors are how and to what degree a government intervenes in the economy.
Specifically, political factors include areas such as tax policy, labour law, environmental
law, trade restrictions, tariffs, and political stability. Political factors may also include
goods and services which the government wants to provide or be provided (merit goods)
and those that the government does not want to be provided (demerit goods or merit bads).
Furthermore, governments have great influence on the health, education, and infrastructure
of a nation

• Economic factors include economic growth, interest rates, exchange rates and the inflation
rate. These factors have major impacts on how businesses operate and make decisions. For
example, interest rates affect a firm's cost of capital and therefore to what extent a business
grows and expands. Exchange rates affect the costs of exporting goods and the supply and
price of imported goods in an economy

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 • Social factors include the cultural aspects and include health consciousness, population
growth rate, age distribution, career attitudes and emphasis on safety. Trends in social
factors affect the demand for a company's products and how that company operates. For
example, an aging population may imply a smaller and less-willing workforce (thus
increasing the cost of labor). Furthermore, companies may change various management
strategies to adapt to these social trends (such as recruiting older workers).

• Technological factors include technological aspects such as R&D activity, automation,

technology incentives and the rate of technological change. They can determine barriers to
entry, minimum efficient production level and influence outsourcing decisions.
Furthermore, technological shifts can affect costs, quality, and lead to innovation.

• Environmental factors include ecological and environmental aspects such as weather,

climate, and climate change, which may especially affect industries such as tourism,
farming, and insurance. Furthermore, growing awareness of the potential impacts of
climate change is affecting how companies operate and the products they offer, both
creating new markets and diminishing or destroying existing ones.

• Legal factors include discrimination law, consumer law, antitrust law, employment law,
and health and safety law. These factors can affect how a company operates, its costs, and
the demand for its products.

Here is a PESTEL framework for Pernord Ricard:

Political:

• There is a very high level of taxes being levied on the liquor companies. Right from the
acquisition of raw materials to selling the final product, each and every step involves
payment of a high amount of taxes or duties. This makes it very difficult for liquor
companies to make high margins.

• There are strict restrictions on direct advertising of alcoholic products in the whole
country. This makes it very difficult for the liquor companies to increase awareness
about its products within the market.

Economic:

• The latest economic surveys show that there has been a rise in the level of disposable
income of an average individual of the country. This poses a great opportunity for the
liquor industry as liquor is already seen as a luxury product.

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 • The lending rates to liquor companies have been increased by the banks as a result of
the lower margins being raised by those companies. This has posed serious threat for
the industry, because sooner or later every company needs to approach the banks for
financial support.

Sociocultural:

• There are various religious and cultural barriers against consumption of liquor in most
parts of the country. Some religions don’t permit drinking, while some cultures have
been looking at it as a vice. Fighting these perceptions is the prime requirement of the
industry.

• With the changing times and increase in modernization of the country, the acceptance
of liquor has increased amongst the youth. This again raises a market segment to be
tapped by the industry.

Technological:

• With the advent in the field of biotechnology, new, cheaper and easier ways of
blending and malting have been discovered. This has helped the companies to cut down
heavily on the costs incurred on production.

• The spare grains left after the manufacturing of malted scotch whiskies are now being
used in new ways to broaden the product line and offerings of the companies.

Environmental:

• Since all the distilleries use a lot of water to produce their products, there is always a
problem faced regarding water pollution. A no. of steps have been taken in the
direction, but the problem still remains.

• Another environmental concern is regarding the emission levels of the manufacturing

plants. Also waste disposal planning is an important activity undertaken by these
companies towards controlling environmental pollution.

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Legal:

• Alcoholic beverages have been facing different types of bans in some parts of the
country. E.g. Gujarat has banned the manufacturing and sale of these beverages in the
entire state; whereas some of the north-eastern states have banned the manufacturing
units of alcoholic beverages in their territories.

• There have been amendments in rules regarding the increase in the category of
alcoholic products. This has kept the companies from expanding their product portfolio
the way they set they plan.

Michael Porter's 5-Forces Model

Michael Porter's 5-forces model is a framework for industry analysis and business strategy
development formed by Michael E. Porter of Harvard Business School in 1979. It draws upon
industrial organization (IO) economics to derive five forces that determine the competitive
intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall
industry profitability. An "unattractive" industry is one in which the combination of these five
forces acts to drive down overall profitability. A very unattractive industry would be one
approaching "pure competition", in which available profits for all firms are driven to normal profit.

Three of Porter's five forces refer to competition from external sources. The remainder are internal
threats.

Porter referred to these forces as the micro environment, to contrast it with the more general term
macro environment. They consist of those forces close to a company that affect its ability to serve

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its customers and make a profit. A change in any of the forces normally requires a business unit to
re-assess the marketplace given the overall change in industry information. The overall industry
attractiveness does not imply that every firm in the industry will return the same profitability.
Firms are able to apply their core competencies, business model or network to achieve a profit
above the industry average. A clear example of this is the airline industry. As an industry,
profitability is low and yet individual companies, by applying unique business models, have been
able to make a return in excess of the industry average.

Porter's five forces include - three forces from 'horizontal' competition: threat of substitute
products, the threat of established rivals, and the threat of new entrants; and two forces from
'vertical' competition: the bargaining power of suppliers and the bargaining power of buyers.

Threat of new entrants: Profitable markets that yield high returns will attract new firms. This
results in many new entrants, which eventually will decrease profitability for all firms in
the industry. Unless the entry of new firms can be blocked by incumbents, the abnormal
profit rate will tend towards zero (perfect competition).

• Threat of substitute products: The existence of products outside of the realm of the
common product boundaries increases the propensity of customers to switch to alternatives.
Note that this should not be confused with competitors' similar products but entirely
different ones instead.

• Bargaining power of buyers: The bargaining power of customers is also described as the
market of outputs: the ability of customers to put the firm under pressure, which also
affects the customer's sensitivity to price changes.

• Bargaining power of suppliers: The bargaining power of suppliers is also described as the
market of inputs. Suppliers of raw materials, components, labor, and services (such as
expertise) to the firm can be a source of power over the firm, when there are few
substitutes. Suppliers may refuse to work with the firm, or charge excessively high prices
for unique resources.

• Intensity of competitive rivalry: For most industries, the intensity of competitive rivalry
is the major determinant of the competitiveness of the industry.

The Michael Porter’s 5-forces model for Pernod Ricard can be explained as follows:

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Threat of new entrants:

This threat is low because of the high tax rates and duties. This regulatory
environment automatically creates a barrier to entry in this industry.

• Threat of substitute products:

This threat is moderate. As such there can be no substitute to liquor, but as far as the
intoxication is concerned, tobacco, marijuana and other addictive drugs can be of
some threat to the industry.

• Bargaining power of buyers:

Because of fierce competition from the United Spirits Limited, which currently holds
55% of the market share in this country, the bargaining power of buyers is high.

• Bargaining power of suppliers:

Again because of the fierce competition faced by the firm, the bargaining power of
suppliers is also high.

• Intensity of competitive rivalry:

The intensity of competitive rivalry is high for Pernod Ricard because of the strong
hold of United Spirits Limited over the spirits market.

BCG Matrix

The BCG matrix (aka B-Box, B.C.G. analysis, BCG-matrix, Boston Box, Boston Matrix, Boston
Consulting Group analysis, portfolio diagram) is a chart that had been created by Bruce
Henderson for the Boston Consulting Group in 1968 to help corporations with analyzing
their business units or product lines. This helps the company allocate resources and is used
as an analytical tool in brand marketing, product management, strategic management, and
portfolio analysis. Analysis of market performance by firms using its principles has called
its usefulness into question, and it has been removed from some major marketing
textbooks.

To use the chart, analysts plot a scatter graph to rank the business units (or products) on the basis
of their relative market shares and growth rates.

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 • Cash cows are units with high market share in a slow-growing industry. These units
typically generate cash in excess of the amount of cash needed to maintain the business.
They are regarded as staid and boring, in a "mature" market, and every corporation would
be thrilled to own as many as possible. They are to be "milked" continuously with as little
investment as possible, since such investment would be wasted in an industry with low
growth.

• Dogs, or more charitably called pets, are units with low market share in a mature, slow-
growing industry. These units typically "break even", generating barely enough cash to
maintain the business's market share. Though owning a break-even unit provides the social
benefit of providing jobs and possible synergies that assist other business units, from an
accounting point of view such a unit is worthless, not generating cash for the company.
They depress a profitable company's return on assets ratio, used by many investors to judge
how well a company is being managed. Dogs, it is thought, should be sold off.

• Question marks (also known as problem child) are growing rapidly and thus consume
large amounts of cash, but because they have low market shares they do not generate much
cash. The result is a large net cash consumption. A question mark has the potential to gain
market share and become a star, and eventually a cash cow when the market growth slows.
If the question mark does not succeed in becoming the market leader, then after perhaps
years of cash consumption it will degenerate into a dog when the market growth declines.
Question marks must be analyzed carefully in order to determine whether they are worth
the investment required to grow market share.

• Stars are units with a high market share in a fast-growing industry. The hope is that stars
become the next cash cows. Sustaining the business unit's market leadership may require
extra cash, but this is worthwhile if that's what it takes for the unit to remain a leader. When
growth slows, stars become cash cows if they have been able to maintain their category
leadership, or they move from brief stardom to dogdom.

As a particular industry matures and its growth slows, all business units become either cash cows
or dogs. The natural cycle for most business units is that they start as question marks, then turn into
stars. Eventually the market stops growing thus the business unit becomes a cash cow. At the end
of the cycle the cash cow turns into a dog.

The overall goal of this ranking was to help corporate analysts decide which of their business units
to fund, and how much; and which units to sell. Managers were supposed to gain perspective from
this analysis that allowed them to plan with confidence to use money generated by the cash cows to
fund the stars and, possibly, the question marks.

The BCG matrix for the product portfolio of Pernod Ricard can be shown as depicted below:

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 Recommendations

Based on the broad analysis of the organization, here are some recommendations for the firm to
have a strong and effective influence on the market.

• The organization should introduce sales promotion schemes to increase awareness and
build a strong base for a greater market share. These schemes may include a free trip for a
lucky winner or coupons encouraging customer loyalty and brand awareness.

• The organization should provide higher incentives to retailers than the competing firms.
This would help in a higher sales of the products and more importantly encouraging a

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 negative word-of-mouth for the competing organization, that in turn would help grab a
larger market share.

• Last, but not the least, the firm should exert some control over its distribution channel.
There is an old marketing belief ‘seen more, sold more’. The firm should lay emphasis on
bombarding the retailer with its brands at the right time so that the customers can actually
know the whole brand portfolio rather than just knowing two or three products from the
brand. This would let the customer know better about the available products from the firm
and hence increase awareness.

References

• www.pernodricard.com, accessed on March 20, 2012

• http://www.crisil.com/Ratings/Commentary/CommentaryDocs/liquorind_vivek.pdf,
accessed on March 21, 2012

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• http://en.wikipedia.org/wiki/Pernod_Ricard, accessed on March 19, 2012

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