egrative Case

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Sosa ophe Delachanal tien Lacour el Makhoul

July,

Integrative Case

BRL Hardy Globalizing an Australian Wine Com

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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.................9 3.3 Reflecting the situation Global Management Teams...9
4 New Product Launch: Dinstinto...........................................10

4.1 Evaluation of the Business Case................................10

5 CONCLUSION.......................................................................11 6 References..........................................................................12 7 Appendix............................................................................13

7.1 Hardy & BRL: Differences & Fit..................................13 Hardy & BRL: Differences & Fit

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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 dont have a cultural knowledge of real one such as CteRtie, Cheval Blanc or Romane 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 dont have an idea about land where the vineyard has been cultivated and the culture associated to it. Customers buy this type wine because its 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. Its 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

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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 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 Hardys 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 BRLs 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. Hardys 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 Hardys path of being the second largest crush in Australia. In 1916 BRL was the first cooperative winery, with 130 Italian grape growers. BRLs success came in 1980s 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 Hardys 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 companys 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 companys culture and values by assigning a management team able to take decision and accept others opinion. 6/15

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Coming back to BRL Hardy case study, the following paragraph analyse to which extent these post merging factors were applied by the companys management. 1. Focus on value creation : A. Customer retaining: i. BRL Hardys 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 companys 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 Millers mind that the first task to undertake was to deal with financial situation. Were 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 Millers mind, there was a need to change the companys 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 Hardys 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. Theres 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 dont 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 hes 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 its 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, its 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 didnt manage the situation properly.

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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 didnt improve the situation and even deteriorate it. 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 didnt 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 isnt effective in the long run; He didnt 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 thats all! It couldnt 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 didnt 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 wasnt optimal: 3 persons for 4 key roles, i.e. theres 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.

New product launch: Dinstincto

Before answering the question, lets first expose and understand UK market specificities and Carsons objective behind the creation of Dinstinto. 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.

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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. With his new brand, Carsons 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 Dinstinto 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. Lets go deep in analyzing the pros/cons and implications of launching Dinstinto to the UK market. 4.1 Pros

Generally speaking, there is a fit between the positive impact of DInstincto 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. Carsons 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 Hardys financials, launching Dinstincto might increase the influence of Carson within the company. 4.2 Cons

On the other hand, launching Dinstincto 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 Dinstincto 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 Hardys brands will not share the same shelves. Another risk would be related to inventory cost in case of commercialization failure of Dinstincto. 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 10/15

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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, 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 Dinstincto the outcome of the project is positivity greater than the negative effect. Millar should accept Carsons 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 countrys 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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1 Appendix
1.1 Hardy & BRL: Differences & Fit Hardy Australias largest winemaker Award-wining quality wines Won international gold medal at Bordeaux Polite and traditional Family ownership Thomas Hardy & Sons (1853) Core competenci es Export Experience Marketing expertise, brands, and winemaking know-how 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

Item Known for

Culture/Val ues

Goals

Struggling and looking for ways to expand and upgrade its business

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1.2

7.2 Swot Analysis

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