Integrative Case
Group 6
Leslie Sosa
Christophe Delachanal
Sébastien Lacour
Charbel Makhoul
July, 1st 2010
BRL HARDY
Globalizing an Australian
Wine Company
Integrative Case
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Table of Content
1 Introduction ................................................................................................................................ 4
2 Hardy & BRL Merger & Acquisition Success Analysis ................................................... 5
2.1 Wine Industry – Porter Forces Analysis ........................................................ 5
2.2 Pre-M&A Conditions - Evaluation ................................................................ 6
2.3 Post Merger Management ........................................................................... 6
3 The “Stephen Davies & Christopher Carlson” Case ........................................................ 8
3.1 Sources of Tension ...................................................................................... 8
3.2 Steve Millar: Management of The Situation ................................................. 8
3.3 Reflecting the situation – Global Management Teams ................................. 9
4 New Product Launch: D’instinto ...................................... Error! Bookmark not defined.
4.1 Evaluation of the Business Case ........................ Error! Bookmark not defined.
5 CONCLUSION ............................................................................................................................. 12
6 References ................................................................................................................................. 13
7 Appendix .................................................................................................................................... 14
7.1 Hardy & BRL: Differences & Fit .................................................................. 14
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1 Introduction
This document presents the case study of BRL Hardy: Globalizing an Australian Wine Company
(REF), performed by Group 6.
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2 Hardy & BRL Merger & Acquisition Success Analysis
The remarkable post merger success is mainly based on three main key factors. The first key factor is
the external environment. The Porter forces will describe and analyse the environmental matter. The
pre and post merger decisions are another factor that the businesses endured that allowed them to
align their goals and strategy for a successful future. (detailed in the following paragraphs).
2.1
Wine Industry – Porter Forces Analysis
Bargaining power of customers, High 5/5
Customers buying this type of wine and don’t have a cultural knowledge of real one such as CôteRôtie, Cheval Blanc or Romanée Conti can switch easily form on brand to another. Customers might
be use to a grape variety such as merlot or Cabernet Sauvignon but they don’t have an idea about
land where the vineyard has been cultivated and the culture associated to it. Customers buy this type
wine because it’s cheap, easy to drink, and they can make an analogy with the global non tasty
international food that is appreciated by the majority party of the world. There is neither a switching
cost for customers nor a risk for customers to choose another similar brand, especially taking into
consideration that there are numerous players and wine producers. One of the beneficial aspects
about Australian wine is that it was becoming highly fancy and ‘fashion driven’, becoming trendy
they were able to sell at a higher price than other nations. The consolidation and rationalization
increased the power of wine wholesalers and retailers. In addition, in countries such as Sweden,
Canada, there are monopolies from the state which gives them strong power. In England the big
Super Markets control most of the market and dominate the import businesses.
Bargaining power of suppliers, High 4/5
Depending on the contract, it can be easy for suppliers to sell production to another company; this is
why a strategy for having a strong Joint Venture with a producer is important. It’s also difficult for
the vintage to ensure sustainable quality on the grapes produced.
Threat of substitutes, Medium 3/5
In Australia and others country such as England, there are some changes in consumer habits. Moving
from beer to wine consumption increases domestic consumption. This trend could change as wine is
perceived as containing more alcohol than beer. On the market for ‘young drinker’ Alcopops such as
‘Ice Smirnoff’ represents a big share of the market
Threat of new entrants, low 2/5
The industry and value chain associated to new entries is complex and very difficult to infiltrate,
especially taking into consideration the strong concentration and consolidation that occurs. The 10
largest companies have 84% of the grape crush and 4 companies control 75% of domestic branded
sales
Rivalry among current competitors, High 5/5
The competition among players is really high and because of Alcohol perception, wine consumption
declines in countries such as France, Italy, Chile and Argentina giving it more space for exportation
and reinforces global competition.
Changes in regulation, Medium 3/5
One of the major risk is from the government that can adopt more restrictive laws about alcohol and
driving. There is a potential threat also on sulphite regulation. Finally, countries such as France and
Italy try to protect their market with AOC and DOC denomination.
Economical trends, low 0/5
There is a good economical trend for BRL Hardy. The exchange rate is in favour for Australia in
export. Furthermore, the market condition is very good thanks to local and international growth and
Australian wine becoming trendy.
Social pressure, low 0/5
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According to cardiologist, they are saying that one glass of good wine is healthy.
Technology breakthroughs, high 4/5
Large-scale wine suppliers from New World countries (US, SAm, SAf, Australia) were exploiting
modern viticulture and more scientific winemaking practices to produce more consistent “highquality wines”.
Additional forces: Complements 0/5
No comment.
2.2
Pre-M&A Conditions - Evaluation
Before BRL and Hardy’s merger they were considered rivals with different point of views in their
strategic process to the wine industry that led them each to have a different organization overall.
Hardy was known for its polite and traditional approach with award winning quality wine and BRL’s
approach was focused on an aggressive and commercial culture that followed its fortified, bulk, and
value wines.
Hardy started out strong, a family owned business that gained recognition and respect as beginning
the largest winemaker in Australia. In 1882 Hardy won his first international gold medal at
Boudreaux. Hardy’s goal was to manage a team with marketing expertise, brands and winemaking
know-how. They were focusing on global external brand awareness.
On the other hand, BRL was on a commercial exporting level considered “the oil refinery of the wine
industry”. BRL was following Hardy’s path of being the second “largest crush in Australia”. In 1916
BRL was the first cooperative winery, with 130 Italian grape growers. BRL’s success came in 1980’s
when it started to sell its bulk wines aboard mainly in Scandinavia. BRL had access to fruits, funds,
and disciplined management.
Because of BRL and Hardy’s power status in the wine market, their goals they had in mind and
financial problems among the companies they thought it would be a good idea to merge and
hopefully give them the ability to upgrade their business and encounter new opportunities. The pre
conditions of both companies are one of the reasons that allowed BRL Hardy to thrive in their post
merger success.
2.3
Post Merger Management
According to literatures and an interview with Andy Tinlin, the success factors of post merging are:
(1) Focusing on value creation where the company spend more energy on customer retaining,
building the brand image, cost savings and securing revenues. (2) Resources availability where the
company within its cost saving process should be careful to keep enough people to run, handle and
execute value creation tasks. For example People should be on the ground following the customers in
order to show this latter company’s consistency and commitment. (3) Managing the merging process
as an integrated program with a very clear responsibilities reducing the probability that day to day
tasks being ignored, hence increasing the success of the integration and (4) Human component which
is a very important factor in this value chain and where we can correlate it to clear role definition and
responsibility in the organization. This role definition will define the level of effectiveness and
efficiency of an employee in any organization. On top of that we can add change management related
to company’s culture and values by assigning a management team able to take decision and accept
others opinion.
Coming back to BRL Hardy case study, the following paragraph analyse to which extent
these post merging factors were applied by the company’s management.
1. Focus on value creation :
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A. Customer retaining:
i. BRL Hardy’s management focused on domestic markets (why? Any more
information to add??)
B. Brand:
ii. The company concentrated on branded bottle sales for growth (quality
commitment)
iii. The company’s slogan is “Making Quality Wines for the world”
C. Cost savings:
i.In UK Carson cut the product line from 870 items to 230
ii. In UK Carson reduced the headcount from 31 to 18
iii. In Davies Mind, the first priority was to clean up operating problems sources of
financial problems. He also initiated a program to rationalize the line and reposition a
few key brands in a stepstair hierarchy from simple entry level products to fine wines
for connoisseurs. (low end line focused on Nottage hill and stamps; top end he
targeted the Eileen Hardy brand).
D. Securing Revenues
i. It was clear in Steve Miller’s mind that the first task to undertake was to deal with
financial situation. We’re not talking in here about cost savings but about meeting
their forecasts and market expectation. So the strategy was to protect the share of the
bulk cask business and concentrate on branded bottle sales growth.
2. Resources availability (have sufficient allocated resources to achieve value creation tasks)
A. ??
3. Managing the merging process as an integrated program
A. ??
4. Human component
A. In Miller’s mind, there was a need to change the company’s culture and management
style. This illustrates the awareness of Miller towards the importance of this topic. So he
aimed a more decentralized approach, but at the same time holding management
accountable. We note that Miller noticed that ex Hardy team was held back by being
resources constraints and excluded from major decisions. Miller encourages delegation for
the small risks aiming to create a “Have a Go” mentality. An interesting thought shared by
David Woods illustrating the state of mind of ex Hardy’s employees “Many of us from
Hardy felt like outsiders, unsure if we would be allowed into meetings”. This is partially
described by Andy Tinlin as anxiety of employees.
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3 The “Stephen Davies & Christopher Carlson” Case
3.1
Sources of Tension
Several key sources of tension could be identified: Post M&A context, “Technical” leadership
conflict, Power & Autonomy issue, Organizational dysfunctions.
The post merger context is very challenging and not comfortable for Christopher Carlson. Indeed, the
situation is quite uncertain for an ex-Hardy reporting to a new top line management of ex-BRL.
Moreover, ex-Hardy have to “earn their strips” to gain recognition, credibility on their function. This
leads to a very uncertain situation for Christophe Carlson: despite his track record inside the company
and his past performances he has to act and behaves like a new comer toward his new management.
There’s what we can call a “technical leadership” conflict between the two persons concerning
Marketing; and this could even be generalized to UK subsidiary Vs the headquarters: “within the
Hardly-built European company, (…), there were questions about whether their bulk-wine-oriented
BRL colleagues understand international marketing”, “a real feeling of us Vs them”. Concerning this
point, the source of tension is dual: 1) experienced & competencies in the market segment (bulk Vs
bottles), and 2) and in the market place (local Vs global, UK Vs Australia). Hence, in practice
European team and especially Christopher Carlson don’t see the Stephen Davis and the headquarters
credible and legitimate on the topic.
Power & Autonomy issues of course! Stephen Davies has the ownership on the Marketing and
Export Strategy and he’s ready to defend this position. On the over side, Christopher Carlson
(especially at the beginning when Stephen Davies is more present), perceives that as a “leash”. On
top of the two previous points (post merger context and technical leadership) this results in a strong
desire of autonomy towards the headquarters and a search of power concerning marketing strategic
issues (remind that UK represents 2/3 of Sales export of BRL Hardy).
Several organisational dysfunctions could be notified that increase the tension between the two
protagonists. Mismatch between the title/role and the actions on the field. Stephen Davies is the boss
of the Marketing and Export strategy. Indeed, on the field, based on the case, it can be noticed that
Christopher Carlson is much more implicated and active on this. He has the vision, he sees
opportunities, he drafts strategies and executes them, and he develops new products & partnerships…
And earlier after the merge, what Stephen Davies just said about that: “It was better to let people
follow a cause they believe in…” A REVOIR. Finally it’s not clear who has the lead on the
Marketing and Export strategy!
Communication between the two protagonists is not effective. Due to the other sources of tension and
good bottom-line performance of the UK subsidiary, the communication between the two persons /
entities is limited and weak. Christopher Carlson is even complaining about difficulties to get
feedbacks on proposals. On top of that, based on the case, it’s difficult to see any team spirit. Finally,
stepping back, it looks as if there were two different companies: the Australian company and the UK
company.
Additionally, as developed in the next paragraph, Steve Millar didn’t manage the situation properly.
3.2
Steve Millar: Management of The Situation
At short term, just after the merger, Steve Millar handled the situation effectively. Steve Millar
clearly recognized the expertises and the potential of the two managers for the company and its
future. Definitely, his intension to get them working together was very good. Finally, in terms of UK
and global strategy, the decision to maintain Christopher Carlson was instrumental: “a pull from
abroad strategy with off-shore champions”(REF ARTCLE).
On the other side, Steve Millar did several management errors that didn’t improve the situation and
even deteriorate it.
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The two lines of reporting decision is pretty ambiguous. This could be pretty uncomfortable for
Stephen Davies knowing that Christopher Carlson has a direct access to his boss as well;
Despite the conflicting situation, he didn’t set a framework, structure to help the protagonists to
efficiently worked together: “hoped for negotiation”. The good P&L performances of the UK served
as an umbrella to the problem; i.e. as long as the performances are good… why to bother too much?
This isn’t effective in the long run;
He didn’t ensure and control that they were really working and communicating together.
Change management at global management team was light. The decentralized approach was stated…
and that’s all! It couldn’t be notice within the case any efforts to integrate efficiently the new
management team and especially the critical integration of ex-Hardy & ex-BRL managers to one core
BRL Hardy management team.
3.3
Reflecting the situation – Global Management Teams
Reflecting the situation through the model proposed in (REF):
Steve Millar as a senior executive didn’t put enough efforts to coordinate and balance Stephen Davies
and Christopher Carlson, and took the late decision to provide Christopher with a Marketing Manager
to learn beside him. The design of the organization wasn’t optimal: 3 persons for 4 key roles, i.e.
there’s either an overlap or someone or a role missing.
Christopher Carlson accumulates two specialist roles. As the Managing Director and later on as the
European Managing Director, he acted as Country Manager. He was definitely sensitive to the UK
market and maintained the responsiveness of the company. In addition, maybe due to his previous
position as Marketing Manager, he acted as the local Functional Manager (in Marketing). He largely
invested himself into entrepreneurial activities such new ventures & partnership exploration, new
product design… Focus on learning and Innovation. Worldwide Learning.
Stephen Davies was responsible for the Marketing and Brand strategy, accumulating two specialist
roles: Business/Product Manager he oversaw the Brand/Product portfolio at the global scale and
Global Functional Manager for Marketing.
Several key improvements could be drafted: 1) clarification of the role (especially for Marketing
Functional Manager), 2) Steve Millar efforts and implication into managers coordination, 3) leverage
Christopher Carlson entrepreneurship at global/corporate level.
4
New product launch: D’instincto
Before answering the question, let’s first expose and understand UK market specificities and
Carson’s objective behind the creation of D’instinto.
Carson believed in brand power tailored for UK. He elaborated that it should be managed as
progression from commodity to commodity brand to soft brand to hard brand insisting of the
importance of labelling.
Several factors and events based on market facts and shifts have accelerated his thinking. The most
important are based on UK market where retailers’ own labels dominated the market. Grocery
chains are rationalizing their suppliers. They want to focus on key suppliers able to provide them
with a broad line of quality products. It simply means, the more brands and quality products you
supply, the better chance you get to access retailers’ shelves. On top of that, a market fact
emphasizing the importance of women representing 60% of the supermarket wine buyers. This
important segment is more attractive to appealing labels. On the other hand, his agreement with the
leading Chilean import would not be renewed which led him to seek Brand control.
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With his new brand, Carson’s objective is to target average wine consumer interested in wine but
not necessarily very knowledgeable about it. This objective could partially be correlated to the
market facts regarding women expressed in the previous paragraph. On top of this, he aimed to
offset projected Australian red wine shortages and finally, create a sense of belonging to a
community based on D’instinto wine and people participation for cooking recipes.
Based on these facts and objectives, we can see that the new branding idea of Carson is very much
justified. At least something has to be changed to follow the market trends. Let’s go deep in
analyzing the pros/cons and implications of launching D’instinto to the UK market.
4.1
Pro’s
Generally speaking, there is a fit between the positive impact of D’Instincto launch in UK and both
the market shift and objectives that Carson has fixed for this new brand.
This fit is emphasized with market positioning of the brand covering low to mid end wine market
(from £3.49 to 5.99) representing more than 80% of total sales. At the same time, it will represent
the good image of Italian wine connected to Mediterranean life style with good and consistent
quality and control.
In terms of positive implications, Carson BRL Hardy UK will be positioned as a key supplier for
retailers and supermarkets. Carson’s idea about creating a community will surely increase customer
loyalty and attachment to the brand increasing consumption as consumer will try to follow and
receive the new recopies. If this business model and service is successful in UK, it might be
exported to similar markets like US and even parts of Europe.
Beside the positive impact on BRL Hardy’s financials, launching D’instincto might increase the
influence of Carson within the company.
4.2
Con’s
On the other hand, launching D’instincto could be risky for BRL Hardy on several levels. The first
one is related to the risk of competing on the same market segmentation with Stamp and Nottage
Hill. However from our perspective this risk does not stand up because D’instincto does not target
the same consumer as Stamp and Nottage Hill.
“targeted average consumer interested in wine but not necessary very knowledgeable about it”;
“targeted women that represent 60% of the supermarket wine buyers with appealing labels”.
On top of that and according to the movie that we saw this morning, retailers classify wine on their
shelves based on countries. It means that BRL Hardy’s brands will not share the same shelves.
Another risk would be related to inventory cost in case of commercialization failure of D’instincto.
This risk is relevant. However we think that the fact that Carson has created a partnership with
Italian producers, this might give him flexibility regarding volumes. We think that producers might
also be delivering to other customers which will minimize the risk for them. If not, we believe that
Carson should undertake discussions with his suppliers in order to reach an agreement or a solution
for this issue.
Another important risk that we should mention is more related to human resources availability.
Based on the fact that cost reduction is one of the major post merging success factors, it becomes a
crucial to Carson to take it into consideration especially if he needs to hire. OR, reallocate Mapocho
resources in case this latter is badly performing or facing issues. In terms of worldwide scale,
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Miller should rework his organization and define clearly the roles and responsibilities for his
managers in order to avoid overlapping and misunderstanding.
To conclude on this, we believe that even if there are some risks associated with D’instincto the
outcome of the project is positivity greater than the negative effect. Millar should accept Carson’s
proposal. So we believe he should say yes because this latter has identified an opportunity and a
market.
Another recommendation, we think that Millar should drive his company and management to think
global. We believe that they should now tail a global strategy and brand taking into consideration
each country’s specificity not just using Push product and strategy shadowed by Australian
domestic market.
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5 CONCLUSION
A COMPLETER.
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6 References
1
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7 Appendix
7.1
Hardy & BRL: Differences & Fit
Item
Known for
Hardy
Australia’s largest winemaker
Award-wining quality wines
Won international gold medal at
Bordeaux
Culture/Values Polite and traditional
Family ownership
“Thomas Hardy & Sons”
(1853)
Core
“Marketing expertise, brands, and
competencies winemaking know-how”
Export
Experience
Goals
1)Long history of exporting much
higher value added wines
2)Track record at export/global
External brand awareness
3)1989: acquisition of Whiclar and
Gordon, a respected UK based
wine importer – distributor +
agency rights for France / Chile /
South African wines.
1) Looking for wineries in Europe
to reach critical mass + credibility
to give access to Europe.
2) Looking for multiple sources of
supply to reduce risk of vintage
(Optimistic acquisition in France
and Italy 92).
3) Looking for loan + financial
partners.
BRL
Second “largest crush in Australia”
Fortified, bulk, value wines
“The oil refinery of the wine
industry”
Aggressive and commercial
Cooperative
(1916: 1st cooperative winery, 130
Italian grape growers)
Huge-volume grape crush
Bulk packaging operations
“access to fruit, funds, and
disciplined management”
Limited international experience in
Scandinavia
Struggling and looking for ways to
expand and upgrade its business
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7.2
7.2 Swot Analysis
Strengths
-Strong presence in UK and
Australia
-Great knowledge of domestic
markets (UK & Australia)
-Suppliers from different part of
the world
-Good and wide portfolio
-expertize in Wine making,
marketing and destribution
-Strong branding
Opportunities
-Consolidation of wholesalers
Customers moving from beer
consumption to wine consumption
-Highly Fragmented industry
-Very few global players
-Opening of global markets
-New technology allowing
production of more grasp
-Strong growth is forecast in US,
Germany and Japan
-Cardiologist encourage Wine
consumption over others Alcohol
product
-Retailers rationalizing suppliers
-Women attraction to labeling
Weaknesses
-Company's Organisation is not
clear (overlaping between Carson
and Davies; Carson is reporting to
CEO & Davies)
-Too Many poject going on
-Operation capabilities
-Finance to support the growth
-Carson not focus on his
European Managing Director
function
Threats
-Social impact of alcohol
abuse
-Legislation (sulphite,
wood shaving)
-Exchange rate
-Price war
-anti branding mentality in
old Europe
-D'Instincto Commercial
failure
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