Competitive Strategy Coopers Brewery
[pic] Competitive Strategy Assessment 3 – Individual Assignment: Business Report 29th November 2010 Coopers Brewery Grant Semmler Student ID: 110013428 [pic] executive Summary This report examines the current competitive strategies of Coopers Brewery Limited (Coopers); a family owned South Australian based beer producer. Coopers is a public company which is not listed on the Australian Stock Exchange, currently holding a 3. 4% market share of the Australian beer market (Coopers Chairman’s Report, 2009).
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Its major competitors are the Fosters Group and Lion Nathan together holding 94% of the Australian beer market (Byrom & Lehman, 2009). The company exports to 26 countries worldwide including the USA, UK, India and Russia. Although still small, exports currently account for 2. 6% of Coopers’ total sales. In 2005 Coopers resisted a A$420 million hostile takeover attempt by Lion Nathan, successfully persuading its shareholders that the future lay in family hands as opposed to those of the multinational.
The company also changed its constitution to prevent any future takeovers by large corporations. Through the use of various tools, including SWOT, PESTLE and Porters 5 Forces, this report investigates the key strategies employed by Coopers in order to analyse the company, its financial situation, competitors and competitive advantage. As competition in the beer industry in Australia is intense, this report will make recommendations, including blue ocean strategies, to develop new product lines and the possible expansion and establishment of a new bottling plant on the Australian East Coast.
Along with the continued strong management focus, these recommendations will assist Coopers to remain a sustainable and profitable company within the industry. Contents Executive Summary1 1. Company Background3 2. Company Analysis SWOT and PESTLE4 Porters 5 Forces4 3. Financial Analysis5 4. Competitor Analysis6 5. Competitor Advantage7 6. Recommendations8 References11 Appendices Appendix 1: SWOT13 Appendix 2: PESTLE 15 Appendix 3: Porters 5 Forces16 Appendix 4: Competitor Brands and Major Brands v Coopers17 Appendix 5: Coopers Value Chain19
Appendix 6: Balanced Scorecard20 1. COMPANY BACKGROUND Thomas Cooper arrived in the colony of South Australia in 1862. Despite having trained as a stonemason in his native Yorkshire, Thomas Cooper quickly established himself as a successful brewer, devising Coopers Sparkling Ale and Extra Stout; products which are still made today. Upon his death in 1897, control of the firm passed to four of his sons. Two successive generations continued to develop the company throughout the 20th Century, maintaining the firm’s traditional products, whilst introducing new lines such as lagers.
By the mid-1990s, it was apparent that expansion in capacity would be needed for the firm to develop. In 1997, the business purchased a $40 million state of the art manufacturing, bottling and distribution plant in Regency Park, South Australia. With advanced robotics and a commitment to an eco friendly plant and processes to reduce their carbon footprint, Coopers has never lost sight of their mission. Dr Tim Cooper, a fifth generation member of the family, oversaw the development of the new site and is now Managing Director and Chief Brewer.
His cousin, Glenn Cooper, is Chairman, with various other members of the Cooper family occupying seats in the boardroom and within the Company itself. The expansion of the brewery at the new site allowed Coopers to increase production and expand away from its South Australian heartland into the larger markets on Australia’s eastern seaboard. Exports have also become more significant, with 35 per cent volume growth between 2006 and 2007. However, at 2. 6 per cent of total sales, the company’s sales in international markets are still a small proportion of their overall business.
MISSION & VALUE STATEMENTS Mission: “Family brewery creating great craft beers and other natural product for the enjoyment of everyone” Vision: “Coopers is passionately committed to celebrating 200 years in the manufacture and distribution of the finest beers and brewing products” 2. COMPANY ANALYSIS SWOT & PESTLE The SWOT analysis (Appendix 1) shows that Coopers has a competitive advantage in the company’s style of advertising and its ‘crafted beers’ position. The main threats are from being a small niche player and having no imported beer products.
In simple terms, niche (marketing) can be defined as fulfilling the needs of a tightly-defined market segment (Kotler and Keller 2006). Through its products, Coopers focuses on various niches, but the principal market for its main product group consists of those drinkers aged over 35 for whom product quality is important and price is not a primary consideration. From PESTLE (Appendix 2) the key findings are: • Compliance and understanding of the implications and ever evolving laws associated with manufacturing and distribution of alcohol (e. g. excise duties increases). Implementation of innovative technology. This is evidenced through its state-of-the-art brewing, bottling and manufacturing robotics in the Regency Park plant. • Fulfilment of environmental obligations through eco-friendly plant and processes to reduce its carbon footprint. This was recognised and awarded by the South Australian Government (Coopers Chairman’s Report, 2009). • Implications of the South Australian water shortage – if this was to prohibit the way Coopers manufactures, the company may need to consider new markets, or even consider a change in manufacturing location.
PORTERS 5 FORCES MODEL The Porters 5 Forces model (Appendix 3) reveals the following insights into the brewing industry. Rivalry continues to be the strongest force (Porter, 1979, pp. 7-8); and is particularly fierce in this industry with Lion Nathan and Fosters holding 94% of the market. The competition is in the form of pricing and positioning product as premium. Coopers has differentiated itself as a distinct niche brand that is not affected by pricing which mitigates the rivalry force.
Buyers also hold some power in that the switching cost for consumers is low and fashion and tastes can affect the decision of which beer to buy at point of purchase. Coopers have circumvented this force through developing the Coopers Club and having a distinctive tasting product. The opportunity is to convince new buyers for growth. Substitutes, potential new entrants and suppliers are considered low forces as demonstrated by the chart in Appendix 3. 3. FINANCIAL ANALYSIS Coopers total yearly revenue has been steadily increasing for the past 5 years, from $127. million in FY05 to $171. 3 million in FY09. For the past 3 years FY2006-2009 net profit after tax has remained relatively constant at $19-$19. 6 million. These figures combined with retained earnings increasing year on year indicates Coopers has been returning capital to fund future infrastructure, growth and reduce debt. During FY2008/2009, Coopers overall growth declined to just 1% largely due to the impact of the GFC. In its primary market of South Australia growth was negative, therefore a 1% growth overall was a good result for the business.
Total assets have increased approximately $39 million in the past 5 years, highlighting that the company remains in a growth mode. The increase has been predominantly made up by $17 million in property, plant and equipment and $18. 5 million in debtors. Trade creditors have increased $3 million and current debt increased $7 million, but non current liabilities have decreased $10 million in the FY2009, thus a net result in total liabilities. Coopers has been able to maintain the cost of goods sold while still increasing revenue, indicating a good use of assets.
The Current Ratio of 1 indicates Coopers is able to meet its short term debt obligations, although the company remains highly geared at a ratio of 1:66. As shown in the IBIS World Report on Coopers, 2009 (Table 1), Coopers has maintained a positive financial growth for the period FY2004-2009. Table 1 (IBIS World Report on Coopers, 2009) |Financial Growth (Average for the period FY2004-2009) | |Total Revenue Growth | 9. 7% | |Sales Revenue Growth | 9. % | |Net Profit after Tax |15. 7% | |Total Assets |11. 1% | 4. COMPETITOR ANALYSIS Coopers has two main competitors: Fosters and Lion Nathan. Together, these two firms have a combined beer market share of around 94 per cent with significant holdings in the soft drink market and other alcoholic beverage industries as well. Smaller boutique brewers such as Little Creatures, Redoak and Platinum Blonde only account for 1. % of total sales. A comprehensive review on competitors is located in Appendix 4. [pic] By using a strategic group map we can see that Coopers’ position in the market is differentiated from its major competitors and the others through a focus on the premium end of the market with a reasonable range of products. 5. COMPETITIVE ADVANTAGE A competitive advantage is gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and services that justify higher prices (Burke & Jarratt, 2004, p. 130).
Coopers invites its consumers into a South Australian family brewing tradition that differentiates it from its competitors, creating a clear market space (Kim & Mauborgne, 1999, p. 83). The beer produced provides one of the key points of difference for Coopers and allows it to market to its various niches. Coopers produce a core range of ales, stouts and lagers which are available bottled and, in most cases, on tap or canned. Focusing on premium beer styles and bottle fermentation, Coopers’ flagship ‘Pale Ale’ is a unique product rivalling more exclusive imported brands.
Research conducted in 2009 by Byrom and Lehman reveal that Coopers’ competitive advantage is in three areas: 1. Advertising 2. Family tradition 3. Market position of their products The Coopers advertising agency is Adelaide based KWP! , known for its quirky advertising campaigns for diverse brands such as SA TAB, RAA and SA Lotteries Instant Scratchies. This quirky and innovative approach has assisted Coopers in gaining market share and remaining top of mind with beer drinkers. It also acts as a defensive strategy against other brands (Roberts, 2005), appealing to the customer base.
Below are a few examples of Coopers print advertising, highlighting this quirky approach: [pic] [pic] As a family tradition the company has been in family ownership since 1862 (Coopers, 2010, p. 2). These family values are represented in advertising, beer production and the company vision and mission (Byrom & Lehman, 2009, p. 520). The family continues to own the business and is hands on in its daily operation. As one of the few family firms which remain in the brewing sector, Coopers readily stress this particular angle to their business.
In part this is apparent through the role of the two family members at the top of the business as spokesmen and advocates for the brand. By emphasising the presence within the firm of a continuous line of Coopers from the founder, Thomas Cooper, to the present management team and board, the firm is able to highlight the role of ‘family values. ’ Despite this emphasis on tradition, Coopers is very much a modern brewing firm, as is apparent in its investment in the new brewery site. It had had the ability to put strategy into action.
With further recent expenditure on the labelling facility, Coopers now have the fastest bottling line in Australia – an impressive 1200 bottles per minute. Given that the environmental impact of corporations is now central to much public discourse, Coopers is also keen to stress its green credentials. In one of the driest states of Australia, water consumption is a contentious topic and to surmount this, Coopers points to the fact that it relies on its own aquifers as opposed to Adelaide’s reticulated water supply. Operationally, energy efficiency is promoted, as are the recyclable nature of packaging and the safe disposal of any waste.
At the product level, the company points to the fact that natural ingredients, rather than artificial ones, form the basis of its beers. By setting score by aspects of the brewing process such as these, the consumer is given further reassurance that the company is one that can be trusted – pledges which smaller, family-owned firms are clearly more capable of giving than their larger rivals. I view these attributes as strategic measures that can be tracked by using a balanced scorecard approach. Strategy mapping (Kaplan and Norton 2000) uses the Balanced Scorecard approach to achieve the results. Appendix 6) The market position of the products is another comparative advantage for Coopers. The Ale products are perceived as premium, visually offered in the same dark brown glass bottle. The beer has a cloudy appearance that demands attention from the consumer (Coopers, 2010, p. 11) and the way to prepare the beer for drinking has been another quirky way to promote the beer on TV, print ads and at point of sale (Byrom & Lehman, 2009, p. 520). The label is traditional and hasn’t changed in over 30 years making it instantly recognisable whilst adding value to the premium brand position.
Of the five generic competitive strategies, Coopers has adopted a focused differentiation strategy where the company offer a niche product to the market place while also pursuing a focused low-cost strategy to maximise products (Porter, 1980, pp 35-40). In the future Coopers should move to a broad differentiation strategy as it actively promotes more of its range for increased market share. The Coopers core competency is brewing beer. Its distinctive advantages are its brand, the unique brewing process to develop a unique product, the tradition and its advertising. 6. RECOMMENDATIONS
A key opportunity for Coopers is to find a sustainable competitive advantage over rivals that can continue the innovation achieved by Coopers with Pale Ale to develop other blue ocean opportunities (Burke et al, 2010). To be sustainable Coopers needs to review the following recommendations: Red Ocean Recommendations Develop an imported beer brand Coopers needs to investigate an alliance with a foreign brewery to import a beer to generate a competitive advantage (Kaplan et al, 2010, p. 115). An example could be Coors which currently does not have an Australian distributor.
Coors shares a similar company structure and core competencies to Coopers meaning that it could be a good strategic fit for not only importing from Coors, but also exporting from Coopers. Expand light beer sales Cascade Light (Fosters) and Hahn Premium Light (Lion Nathan) are the two dominant light beer products. Although Coopers offers a premium light beer it is in the same shaped bottle as the rest of its range. There is an opportunity for Coopers to take on its rivals with a new bottle device to reflect current fashion and evolving customer needs (Jacobides, 2010, p. 3). Blue Ocean Recommendations New product lines Coopers has taken market leadership in the development and promotion of the Pale Ale brand. However, Coopers can find some blue ocean if they are prepared to become a first mover in new styles of beer (Hegarty, 2010, pp. 46-48; Shaw & Kotler, 2009, p. 23). Recently, this was seen in the 1862 and Clear products. Coopers needs to continue this activity to capture first mover advantage and to develop a new range of beers unique to Coopers. Relocate Currently Coopers is competing away from the Australian East Coast Market.
In Appendix 5, the value chain indicates Coopers is currently at the mercy of South Australian producers and incurs large distribution costs to ship product to the growing east coast market. However, if Coopers locates a plant in this area it can increase its resource pool by recruiting from a larger population of skilled employees for R&D. Additionally, this increases its ability to buy raw materials outside South Australia. This uses the comparative advantages capturing value within the value chain (Jacobides, 2010, p. 83) to reduce the cost of goods, thereby allowing lower prices and increased market share. REFERENCES
Burke, A, van Stel, A & Thurik, R 2010, ‘Blue Ocean vs Five Forces’, Harvard Business Review, May, viewed 29 April, http://hbr. org/2010/05/blue-ocean-vs-five-forces/ar/pr Burke, GI & Jarratt, DG 2004,’The Influence of Information and Advice on Competitive Strategy Definition in Small- and Medium-Sized Enterprises’, Qualitative Market Research: An International Journal, vol. 7, no. 2, pp. 126-138 Byrom, J, Lehman, K 2009, ‘Coopers Brewery: heritage and innovation within a family firm’, Marketing Intelligence & Planning, vol. 27, no. 4, pp516-23 Byrom, JW and Lehman, KF (2008) Coopers Brewery: A family firm competing with the big boys.
In: Academy of Marketing (UK) Annual Conference, 7-10 July, Aberdeen, UK. Coopers 2009 Chairman’s Report, viewed 24 April 2010, http://www. coopers. com. au/corporate/corporate-information Coopers Student Information Booklet, Coopers Brewery Limited, Adelaide, 2010 Ferguson, A 2010, Add licences to worrisome brew at Foster’s, Sydney Morning Herald, 21 April 2010, http://www. smh. com. au/business/add-licences-to-worrisome-brew-at-fosters-20100107-lwvo. html Hegarty, Sir J 2010, ‘Brands of the Future and the Importance of Style’, Market Leader, Quarter 2, pp. 46-48 IBIS World Report on Coopers, viewed 24 April 2010, http://www. bisworld. com. au/enterprisefull/default. aspx? entid=1489 Jacobides, MG 2010, ‘Strategy Tools for a Shifting Landscape’, Harvard Business Review, January-February, pp. 77-84 Kaplan, RS, Norton, DP & Rugelsjoen, B 2010, ‘Managing Alliances with the Balanced Scorecard’, Harvard Business Review, January-February, pp. 114-120 Kim, WC & Mauborgne, R 1999, ‘Creating New Market Space’, Harvard Business Review, Jan-Feb, pp. 83-93 Kotler, P. and Keller, K. L. (2006), ‘Marketing Management’ 12th edition Upper Saddle River, NJ: Pearson. Lion Nathan website, 2010, 21 April 2010 http://www. lion-nathan. om. au/Great-Company/About-Us/Overview. aspx Porter, ME, 1980, Competitive Strategy, Free Press, New York Porter ME 1979 ‘How Competitive Forces Shape Strategy’, Harvard Business Review, March/April, Reprint Number 79208 Roberts, JH 2005, ‘Defensive Marketing: How a Strong Incumbent can Protect it’s Position’, Harvard Business Review, Nov, viewed 10 May, http://hrb. org/2005/11/defensive-marketing/ar/pr Sankrusme, Sinee, 2008, ‘A study of the beer market leader, challenger and niche market’, world academy of science, engineering and technology, viewed 14May 2010, http://www. akademik. unsri. ac. d/download/journal/files/waset/v43-90. pdf Shaw R & Kotler P 2009, ‘Rethinking the Chain: Leaner, Faster and Better Marketing’, Marketing Magazine, July-August, pp. 18/23 Thompson, AA, Jr, Strickland, A. J. II & Gamble, JE, 2010, Crafting and Executing Strategy: The Quest for Competitive Advantage, McGraw-Hill Irwin, New York. The Nielsen Group website, 2010, viewed 23 May 2010, http://au. nielsen. com/site/index. shtml IBIS World Report on the Beer and Malt Manufacturing, viewed 22 April 2010, http://www. ibisworld. com. au/industry/retail. aspx? indid=116=1 APPENDICES Appendix 1 – SWOT |Opportunities | |Strengths | | |‘Family’ owned company, focussed on delivering premium products|To continue to trade on being a boutique beer label | |& profit |Explain to the consumers the Coopers story as a point of | |Quality Executive team and Board |difference | |Market leader beer – Pale Ale |Continue to expand into new ‘fashion’ beer trends and as a | |Full range of beer types and markets |small brewer having the opportunity to be nimble in reaction to| |Premium brand |market trends | |Nationally recognisable brand |Sell Coopers into international markets through alliances and | |Strong interstate growth in brand (6. 3% in 2008/9) (Coopers, |partnerships then follow the beer entry with homebrew, malt | |2009) extract and soft drink offers | |Ability to release new beers for market fashion – Coopers 62 |Remind consumers that Coopers is local and have this focus in | |Pilsner & Clear |advertising | |Diverse products outside of traditional beer lines – Homebrew, |Increase pourage rights within regional SA and interstate to | |Malt Extract and Soft Drinks |grow market share | | |Create rebates with retailers to promote Coopers product, | | |keeping the premium pricing and perception but providing value | | |adds to purchases as a point of difference within emerging | | |markets | | |Trade on the international experience, telling local consumers | | |that it is voted the best imported beer | | |Create a point of difference against imported beer by | | |positioning Coopers range as ‘premium’ or better than imported | | |beer | | |Remove focus from Pale Ale and redirect this on new labels or | | |other brands to grow market share | | |Threats | |Weaknesses | | |SA based |Multi-nationals have more advertising money and can target | |Limited expertise that comes from not being a major listed |Coopers ith advertising or labels against their products | |entity |Another attempt to buy Coopers in order to get the labels | |Loss of Budweiser brand to Lion Nathan |Reliance on one brand predominately – Pale Ale – can be | |Only own 3. 4% of the national beer market (Coopers, 2009) |imitated by other brands or if there is an issue with this | |Outside of Pale Ale there are only middling or low brands in |product (contamination etc) would adversely affect the company | |the market |Risk that Coopers is too focussed on brewing or its by | |Lack of advertising spend available compared to the majors |products.
If beer becomes unpopular a decline in sales could | |Only 1% growth across the business during 2008/9 (Coopers, |occur | |2009) due to GFC |No international beer brands in the label since the loss of | |Negative growth in SA during 2008/9 (Coopers, 2009) due to GFC |Budweiser to Lion Nathan, therefore no way to counteract | | |imports other than producing more premium local beer | | |Non-premium beers (Coopers Draught, Coopers Light) have little | | |market share in SA or interstate | | |Lack of R resources as compared to the MNC, therefore can lag| | |behind new technology and be slow to react to market fashion | | |and trends | | |Limited brand awareness interstate and overseas | | |Tightly held pourage rights with SA and Interstate by the MNCs | | |– Fosters & Lion Nathan | | |New entrants such as Coca-Cola with new bottled imported beers | | |and potential future entry by other international brewers | | |Ability of other labels to aggressively discount due to market | | |size and profitability | Appendix 2 – PESTLE |Political |Technological | |Excise Duty / CPI Applied twice P.
A | | | |New plant = Improvements in brewing/bottling/manufacturing (robotics) | |International politics in export countries |& Distribution | | | | |One of few Australian Companies that is 100% family owned | | |Economic |Environmental | |Impact of Australian/Global Recession |Carbon footprint | | |Power generation and efficiency | |Import duties – imported beer |Waste management | | |Shortage of water | |Price Wars |Recycling | | | | |Australian Dollar fluctuations – export implications | | |Society |Legal |Alcohol Consumption & drive against excess |Alcohol Legislation | | |Global/Export Laws | |Diet / nutrition / lifestyle changes (low carb beer) |Alcohol Consumption / Marketing | | | | |Well known local family business – local jobs & income | | Appendix 3 – Porters 5 Forces Appendix 4 – Competitor Labels and Major Brands verus Coopers Competitor Labels Fosters Group Fosters is a diversified beverage company selling beer, wine, spirits, cider and soft drinks. Head office is based in Melbourne and the company has a market share of 51% (Ferguson, 2010). • Victoria Bitter • Carlton Draught • Fosters • Crown Lager • Pure Blond Cascade • Corona • Asahi • Stella Artois Lion Nathan Lion Nathan is a diversified beverage company selling beer, wine and spirits. Head office is based in Sydney with the main office in New Zealand and the company has a market share of 44% (Lion Nathan, 2010). • Tooheys New • Tooheys Extra Dry • XXXX GOLD • West End Draught • Hahn Super Dry • James Squire • James Boag • Beck’s • Heineken Coopers Coopers is a diversified company selling beer, homebrew, malt extracts and soft drinks. Head office is based in Adelaide and the company has a market share of 3. 4% (Coopers Chairman’s Report, 2009). • Pale Ale • Sparkling Ale • Stout • Lager & Light 62 Pilsner • Clear Others (boutique brewers) The other brands in the market are boutique brewers such as Little Creatures, Redoak and Platinum Blonde. These brands, along with over 100 others, represent a market share of 1. 6%. • Little Creatures • Redoak • Platinum Blonde [pic] Appendix 5 – Coopers Value Chain Current [pic] Future with plants near the Eastern State Markets [pic] • note changes in Red Appendix 6 – Balanced Scorecard [pic] ———————– Potential new entrants • Cola companies such as PepsiCo • International Brewers entering direct Rivalry • Price sensitive • Pricing war • Two major companies having 94% of the market share. New innovations in product F&Bs • High levels of advertising • Increasing sponsorships • Minor increase in market size Buyers • Competitive market – many brands, labels & pricing to choose from • Move towards more premium ‘imported’ lagers, low-carb beers & craft beers Substitutes • Wine Products • Alcoholic Ciders • Premixed Spirits • Imported Beers • Soft drinks Suppliers • Raw product suppliers could decide to make their own beer such as a local winery eg Neagles Rock • Manufacture their own Malt to sell direct to Kraft • International brewers entering direct Competitive Advantage • Family owned business • Differentiated product line • Unique products