Course : GEP Advanced Global Marketing Title: Product Portfolio Planning at Estonia's Saku Brewery (Ivey Case) Date: Thursday, July 7, 2011 Group: Luis Santo Santo Amaro, Tomas Paulauskas, Anna Ding, Jiale Chen
SAKU BREWERY CASE 1. Problem Statement
The CEO and the marketing marketing director director of Saku Olletehase AS must decide on the company's company's product portfolio plan. Saku enjoyed market leadership in Estonia with its brand Saku Originaal; however, the strength in market share has weakened in recent years due to increasing competition and greater market marketing ing acumen acumen from from other other domest domestic ic produc producers ers.. Althou Although gh domest domestic ic beer beer sales sales have have fallen fallen,, the company has experienced increases in other product lines, such as alcoholic long drinks, cider, and nonalcoholic beverages, which complement its existing agreement to sell Pepsi and 7Up. For the last three years, the company has had the exclusive right to resell three well-known international beer brands (Guinness, Kilkenny, and Carlsberg) in Estonia. With so many options and finite marketing resources, the company needs to decide where to focus its effort. 2. Key Issues
Sales Sales of Saku Saku Origin Originaal aal,, the compan company’s y’s tradem trademark ark product product,, have been declini declining. ng. Saku Saku needs needs to determine if the profit from exporting the product to neighboring countries such as Finland and Sweden will outweigh potential loss of domestic domestic sales of this product to tourists tourists from these countries. Since the growth of cider and long drinks markets is reaching saturation point, the company has to decide if it should reposition or discontinue these product lines. The company also has to decide whether to increase its market share in the growing bottled water, soft drinks and imported beer segments. 3. Production Overview
The flags flagship hip brand for Saku is the Saku Origi Originaal naal,, howeve howeverr Saku Saku has created created other other brands brands.. These These include, include, Saku Rock, Saku Tume, Saku Sorts, Saku Valge and Saku Originaal Originaal Light. These different different brands of beers and have been aimed at different market segments; however the market’s fragmentation makes the product lines not sustainable. sustainable. Saku also has a cider line called called Kiss and an Ice Tequila Tequila long drink. These drinks are gaining popularity in Baltic state region and therefore give positive result for the compan company. y. Nonethe Nonetheles less, s, it is relati relativel vely y new product productss that that are just findin finding g the key market market,, which which is targeted pretty well. The problem is that it’s not clear how long the growth will continue. For the last three years Saku has had the exclusive exclusive right to resell resell well known international international beer brands; brands; Guinness, Kilkenny Kilkenny and Carlsberg. Carlsberg. These imported brands proved to have their audience, but besides besides being profitable, might be a threat to owned local brands. The company additionally has licensed the name Vichy Classique Classique and Montavit; Montavit; sparkling sparkling and mineral mineral waters and has had an existing agreement agreement as the distributor or Pepsi and 7-Up products. Bottled water market is constantly growing, but Saku isn’t in the leading positions. 4. SWOT Analysis Strengths
• •
• • •
• •
Market leader on the Estonian beer market. Saku Originaal, the company’s trademark product is the most popular beer in Estonia. Solid growth of other alcoholic drinks, Kiss and Iced Tequila drink Imported beer and soft drink brands sales are increasing Distributor of 2 strong brands: Carlsberg and Guinness. First to target women Promotion through concerts and cross country skier and has a Saku Rock hotel
Weaknesses •
• •
•
•
Market share is dropping due to increasing competition from domestic companies as well as imported beers. Exporting beer to Finland might impact domestic sales to Finnish tourists. Saku’s market share in bottled water and soft drinks segments is disappointing even though these markets are growing. New business distraction from the flagship brand Saku Originaal Small local market
Opportunities •
• • •
•
•
Further growth in tourist section from countries such as Finland and Sweden are attracted by the lower price of beer in Estonia. Estonians desire to consume global brands. Popularity of long drinks is growing. Exporting Saku’s products to Finland will probably boost sales because Finns are familiar with Saku’s products as well as beer is expensive there. Expand to other Baltic States (Latvia, Lithuania) After entering EU, economic growth might increase disposable incomes.
Threats •
• •
• •
•
Imported beers are competing for local market share. Coco-cola dominates the soft drink market. A Le Coq, largest domestic competitor, has products in all the market segments that Saku is operating in. Mid rang price may effect consumers choice and brand perception Inventory and marketing investments are wide spread through different product’s segments Market share for long drinks and cider is likely to stagnate soon.
5. Competitive Analysis by Category Beers:
Local: The biggest competitors in the Estonian beer market are Tartu and Viru, with 35.4 percent and 10.2 percent of the beer market respectively (2004). Tartu followed advertising strategy in order to compete more aggressively, but this proved to be a failure. Following this, they improved the quality of their beer. Tartu now owns different beer brands and is an active promoter of Estonia’s national football and basketball teams. This has brought brand awareness and big market share to Tartu. Viru also has several beer brands and a big market share. Imported: While SAKU was a distributor for three top international brands – Guinness, Carlsberg and Kilkenny, Tartu owed license of Heineken distribution, which accounted for 18% share of the imported beer market. The other imported beer Koff, led by a Finnish company took an insignificant market share. Long drinks:
Compared with SAKU, which held 13 percent of the long drink market, Tartu had 11 percent market share and others brand contributed to the other 76 percent of the market share. Mineral water, cider and soft drinks :
One of the main players was Coca-Cola, however in the mineral water market, SAKU and Tartu held the same market share with 15 percent, and Coca-Cola accounted for 23 percent and others 47 percent. In the cider market, SAKU held 23 percent of the market share while Tartu held 20 percent and others 56 percent. In soft drinks market, Coca-Cola held 66 percent of the market, followed by Tartu with 16 percent, SAKU with 4 percent, and others, 14 percent.
6. BCG Matrix Analysis
As illustrated by the BCG matrix (Appendix 1), three product categories are in star zone, one in Cash cow zone, one in question zone and one in dog zone. SAKU BERS contributes a lot to gross margin but the sale increase is limited because of market saturation. Imported mineral water is in star zone, but its contribution and growth are all small relatively. Other SAKU alcoholic including gins and ciders is in low percentage of gross margin to total, but the potential growth is obvious. Imported soft drink is similar to imported mineral water, but the growth is negative. Imported beer is negative GM% but the growth rate is high. SAKU mineral water is in dog zone, which has to be re-designed/shelved/discarded. From the graph, we can conclude that SAKU beers should be keep to generate cash and support the company. Imported beers and other SAKU alcoholic are used to experience high growth and bring future benefits to brewery, and other SAKU alcoholic should develop first because it has already contributed to total gross margin, saying it has opened initial market. SAKU mineral water should be shelved/discarded, while imported mineral water and soft drinks should be handled carefully because they are doing not so good compared to SAKU beers and their future growth maybe slow or even negative compared to imported beers and other SAKU alcoholic.
7. Recommendations (Table on Appendix 2)
A solution for Saku is to streamline offerings of their current Saku beer product portfolio. This would include eliminating such items as Saku Hele which is .5% of the Saku Beer sales in 2003 and take’s up 1% of the marketing (exhibit 6 p.19). Also, the Saku Tume decreased by .4% from 2002 to 2003 and only holds .7% of the Saku beer sales and takes up another 1% of the marketing budget. Eliminating these brands will increase the amount of capital available for marketing the stronger brands and it will free up the production line and ultimately be more cost effective for the company. Another solution for Saku would be to drop the imported brand Kilkenny. This brand has never picked up for Saku and will open up more distribution space for Carlsberg & Guinness; increase marketing dollars available and free up in store space; thus creating more room for these higher producing imports. A third solution would be to reevaluate the entire product portfolio. Saku has six different product categories. It would need to do a cost based evaluation of for each category of the number of dollars spent, compared to the total of the company. It would also need to research trends in more developed markets to figure out which nonalcoholic segment is growing. Is it water is growing, new age beverages, carbonated soft drinks, and or tea? This would help Saku decide what to pursue and what to eliminate. For instance, mineral water market has lot of growth potential. At 13%, Saku has the second largest market share and the market is not significantly dominated by any one company. Saku could invest heavily in marketing and promoting its products in this segment and increase its market share. With 24% market share, Saku is leading the Cider market, with Tartu at 20% being the only significant competitor. Since the cider market is expected to stagnate after a couple of years, Saku can continue to offer these products but should not overspend. Even though the soft drinks market is growing, it is heavily dominated by Coco-Cola. Consumers are increasingly opting for water and energy drinks with caffeine, instead of soft drinks. Since Saku barely has 4% of market share in this segment, it can re-evaluate its strategy in soft drinks market The long drinks market still has some growth potential. At 13%, Saku is leading in this segment. But looks like this segment is very fragmented with no other company besides Saku and Tartu having a significant market share. 8. Conclusion
In order for Saku to continue their growth in the beer market, it is necessary for them to move to newer markets. Accession to the EU, further makes it easier and necessary for Saku to go abroad and Finland (with 400 million liters per year) is a great market. In addition, for Saku to maintain sustainable growth they need to reevaluate the entire product portfolio and re-focus as a national beverage company (considering the tradition of brewing as well as developing new beverage categories). Saku should focus more by increasing their spending on the Cider (24% market share) and long drinks market as these products have a good margin. Then, it should reduce their soft drinks and beer products line by removing non-performing beers (Hele, Tume…) and focus on the premium beer segment (emphasizing the next exclusive brands, like Carlsberg). This way, the company would be able to increase its market share as well as free up resources that would allow it to promote better-performing brands, create new product lines and foster international expansion. Appendix 1 – BCG Matrix
The six category of the product has been put into four quadrants according to two variables: gross margin after advertise % of total and sale increase%, which are calculated from the appendix chart. The GM after ADV % total reflects the percentage of gross margin this product category contributes to the total GM of the company, which equal to the market share of the original BCG Matrix. Sale increase% represents the sale increase of this product category, which is equal to the market growth rate in traditional Matrix. The four quadrants are as following: star product category is high contribution to total GM and high sale increase; Cash cow is high contribution to total GM but low sale increase; Question is low contribution but high growth; Dog is low GM percentage and low growth. Appendix 2 – Product mix & strategy FOCUS
HIGH VOLUME
STRONG MARGIN
Product
Beer - Saku Originaal
Cider - KISS
Price
Mid-class keep competitiveness for local as well as imported beer
Above average – be more competitive because of very specific target market.
Adv. & Promotion
Lower the budget, already strong market position
High budget to have and sustain leading position for market share
Target market
Very broad
Niche – very narrow
Differentiation
Branding, New product (Light/Beverages).
Premium product line
Appendix 3 – Lever Analysis
Sales 2002
Sale s 200 3
% incre ase
Gro ss Mar gin 200 3
GM %
Adv % Of TOT AL
Adv Spe nd
GM afte r Adv
GM after ADV % of TOT
REQ’D sales to equal curren t GM*
REQ’ D sales – Curre nt sales
SAKU BEERS
Original
1860 7
187 33
0.7
333 4
17.8
34
Rock
1739
235 6
35.5
441
18.7
7
230
211
9.7
29182
2682 6
Sorts
452
353
21.9
67
19
1
33
34
1.6
28721
2836 8
Ice
294
424
44.2
79
18.6
4
131
-52
-2.4
29339
2891 5
Valge
632
707
11.9
148
21
1
33
115
5.3
25986
2527 9
Tume
248
165
33.5
30
17.9
2
66
-36
-1.6
30486
3032 1
Hele
158
118
25.3
23
19.3
1
33
-10
-0.5
28275
2815 7
Original Light
452
589
30.3
97
16.5
3
99
-2
-0.1
33073
3248 4
118
0
22
18.3
0.5
16
6
0.3
29820
2970 2
235 63
4.3
424 1
18
53.5
175 7
248 4
114.3
Presidendi
TOTAL
2258 1
111 7
221 7
102.1 30657
26553 8
1192 4
2419 75
IMPORTED BEERS
463
-21.3 24805
2392 5
99
-25
-1.1
20988
2070 3
1.5
49
-43
-2.0
22738
2271 4
24.5
805
532
-24.5 68531
6734 2
Carlsberg
468
880
88
194
22
20
657
Guinness
186
285
53.2
74
26
3
34
24
29.4
6
24
688
118 9
72.8
273
23
Kilkenny
TOTAL
SAKU MINERAL WATER
M. CARBONIZED
67
58
13.4
5
8
1
33
-28
-1.3
68213
6815 5
MONTAVIT STILL
52
47
-9.6
4
7.9
1
33
-29
-1.3
69076
6902 9
119
105
11.8
8
8
2
66
-58
-2.7
TOTAL
13728 8
1371 83
IMPORTED MINERAL WATER
VC Carbonized
666
732
9.9
116
15.9
1
33
83
3.8
34321
3358 9
VC Still
615
649
5.5
105
16.2
1
33
72
3.3
33685
3303 6
1281
138 1
7.8
222
16
2
66
156
7.2
68006
6662 5
TOTAL
OTHER SAKU ALCOHOLIC
Gin
690
963
39.6
231
24
5
164
67
3.1
22738
2177 5
Ciders
159
943
493. 1
252
26.7
9
296
-44
-2.0
20438
1949 5
35
100
185. 7
19
19
0.5
16
3
0.1
28721
2862 1
884
200 7
127
502
25
14.5
476
26
1.2
71897
6989 0
Other
TOTAL
IMPORTED SOFT DRINKS
Pepsi
512
344
32.8
66
19.3
0.5
16
50
2.3
28275
2793 1
7UP
489
244
50.1
44
17.9
0.5
16
28
1.3
30486
3024 2
Zingo
137
333
143. 1
64
19.2
0.5
16
48
2.2
28422
2808 9
Limps
-
111
0
22
19.8
1
33
-11
-0.5
27561
2745 0
Kali
-
78
0
15
19.7
1
33
-18
-0.8
27701
2762 3
115
96
4.4
14244 4
1413 34
217 2
100
75370 3
7243 48
TOTAL
1138
111 0
-2.5
211
19
3.5
ALL TOTAL
2669 1
293 55
100
545 7
18.6
100
328 5
