Case SummaryIn: Other TopicsCase Summary

Extended case study

Australian Beverages Ltd—Pre-seen case study information

A - Introduction to Australian Beverages Ltd

- 1937, Australian Beverages Ltd (ABL) commenced manufacturing soft drinks [non-alcoholic drinks rather than

‘hard’ drinks that contain alcohol].

- 1970s and 1980s, the company expanded beverage portfolio by entering into other non-alcoholic beverage

categories, such as fruit- and milkbased drinks.

- 2011, the company was Australia’s largest supplier of non-alcoholic beverages.

- -Tom Dwyer, current Managing Director since 2008.

- Joined the company at a time when carbonated soft drinks (CSDs) growth was stagnating and shareholder

confidence in the company was waning.

- Dwyer established a strategic planning team to assess the current product portfolio and identify organic and

acquisition growth opportunities.

- From this review the importance of operational excellence was identified

- Strong investment was made in world-class manufacturing facilities and systems.

- Process re-engineering was implemented to reduce the costs of manufacturing and time-to-market.

- Given the declining consumption of CSDs, Tom Dwyer has sought to reduce ABL’s reliance on them, focusing on

growing new products and entering new non-alcoholic beverage Categories.

- Significant investment in product development of other non-alcoholic beverages

- Several acquisitions made to grow the market share of non-CSD based beverages in the company’s portfolio

- Entry into the Australian snack food market recently undertaken.

- Finalised the integration of a snack food business acquisition just over 12 months ago,

- Latest acquisition enabled ABL to leverage its strong distribution capabilities to supermarkets, convenience stores

and hospitality channels by adding complementary food products to non-alcoholic beverages.

- CSDs still accounted for 68 per cent of company revenue in 2011.

- The board has requested the company continue to accelerate entry into other complementary products to

counteract the expected strong decline in the CSD business over the next five years.

- The only major non-alcoholic beverage not produced by the company now is bottled water

- Bottled water is an industry that has been of interest for some time to the company as it had grown fast in recent

years and is not subject to negative health concerns.

-

B - The Australian bottled water manufacturing industry

- Bottled water - relatively new industry, in 1990 evolved out of soft drink manufacturing industry.

- 2011, bottled water was the fastest growing category in the non-alcoholic beverage market in Australia.

- Currently in the growth stage.

- Growth achieved due to the increase in per capita consumption of bottled water, albeit from a relatively low base

compared with other more established beverages.

- Consumers more health conscious and change their drinking habits away from CSDs to healthier beverages.

- Bottled water drink of choice and will result in expected increase in bottled water sales.

1 - Demand and consumption trends

- Bottled water is a category within the broader non-alcoholic beverage industry.

- Trends in this broader industry also impact on bottled water.

- Total non-alcoholic beverage revenue in Australia was over $10 billion in 2011, including CSDs, bottled water, fruit

juices,energy drinks, sports drinks, ready-to-drink teas and milk beverages.

- 2011, Australians consumed 963 million litres of bottled water.

- Australian consumption significantly lower compared with the consumption of the top 10 global bottled water

consuming countries.

- Compared to similar markets, such as the United States, Italy, France and Spain, data suggests Australian market

has potential for a higher rate of consumption and sales growth before it reaches maturity.

- Drivers for bottled water consumption can differ.

- Climate or lack of clean drinking water impacts consumption levels in countries such as Mexico and the United

Arab Emirates.

- Italy, France and Austria, consumption of bottle water is driven by fashion.

- Global Earth Policy Institute concluded that global consumption of bottled water rose 56.8 per cent to 164 billion

litres from 2007 to 2011.

- Bottled water fastest growing part of the non-alcoholic beverages industry.

- Historical industry growth has been derived from increased consumption per capita aided by broader distribution,

new products launched over the past five years and increasing awareness of health issues.

- Reserach shows, people want better tasting and healthier alternatives to many of the soft drinks.

- Increasing awareness of the obesity problem in Australia, firmly established focus toward health and wellbeing, is

ensuring strong future growth for ‘healthy’ beverages.

- This has resulted in the introduction of sugar-free or diet CSDs.

- Older Australians not switching to sugar-free versions of the CSDs they used to drink. Rather moving to alternative

beverages.

- General decline in the consumption of CSDs lead to a rise in the consumption of perceived healthy beverages

such as bottled water, juices, flavoured milks, energy drinks, sports drinks and ready-to-drink teas.

- These trends are expected to continue in the future

- Bottled water will continue to increase market share of the non-alcoholic beverage market.

- Water become fashion accessory due to increase health consciousness.

- Consumers carry bottle of water with mobile phone and iPod therefore packaging is critical.

- Consumers prefer small plastic bottles as they are re-sealable, perceived to be more contemporary and can fit in

car cup-holders.

- Convenience factor means most popular pack size around 600 ml.

- An important consideration for convenience when travelling for business or leisure.

- Convenience aspect has driven the growth in bottled water.

2 - Industry segmentation

Two segments – Still and Sparkling Water

• Still water

- 2011- 76 per cent of consumption volume.

- Consumed for hydration and thirst satisfaction at home, in the office or while travelling.

- An alternative to other packaged beverages for consumers when they want to moderate calorie intake and seek

an unsweetened, clean-tasting and natural product.

- Water is the best and healthiest form of hydration as it is a fat-free and calorie-free thirst quencher.

- Consumers also drink bottled still water when they are not satisfied with the aesthetic qualities (e.g. taste, odour

and colour) of their tap water.

- Many people wish to drink something that is refreshing, clean and pure, and avoid certain chemicals used in the

treatment of public water supplies, such as chlorine and fluoride.

- Convenience is a major factor in the growth of the still water segment, as consumers require the convenience of

bottled water for their refreshment.

- Especially the case with the development of more widespread leisure activities and the expansion of travel, for

both business and pleasure.

- Significant growth in bottled still water in Australia has occurred over the past six years, and driven most of the

overall industry growth.

-

• Sparkling water:

- 2011- 24 per cent of consumption volume.

- Essentially still water into which carbon dioxide gas has been dissolved, resulting formation of bubbles.

- Generally consumed as a refreshment beverage mostly while dining out rather than for hydration or thirst

satisfaction alone.

- Last few years, supermarkets started to stock premium sparkling water brands.

- The majority of the sparkling water consumed is comprised of premium imported spring waters, such as Eau de

Vivre, which is the world’s premier sparkling water brand.

- Average price per litre for sparkling water is substantially higher than that of still water.

- This reflects the increased cost of manufacturing required to carbonate the water, different closure types required

to retain the carbonation, the cost of imports and the premium nature of this product.

3 - Distribution channels

- Bottled water has several distribution channels.

Table 2: Major distribution channels—Share of revenue, 2011

- Historically, bottled water was sold to wholesalers who on-sold to a range of retail and hospitality customers.

- Past few years, large retailers and hospitality operators increasingly buying direct from the manufacturer to

eliminate the wholesaler margin from purchase price.

- This has been facilitated by improved information systems that now provide timely information to manufacturers for

production planning, thereby enabling them to engage in direct sales to a larger numbers of customers.

- Increase in direct distribution has been most notable among major industry competitors as major retailers want to

purchase from fewer, larger companies.

- Beverage wholesalers still play an important role in distribution for smaller bottled water manufacturers due to

narrow product range and are unable to meet major retailer demands for inventory management and direct to store

delivery.

- Sales in convenience stores have always been an important distribution channel for soft drinks.

- This importance is growing for both soft drinks and bottled water.

- Driven by more frequent convenience shopping for ‘time-poor’ consumers.

- Success in the convenience store channel is critical for any new product to succeed.

- If the brand recognition is achieved, it is often quickly followed with brand extensions, leveraging the brand to offer

new flavours and packaging.

- Vending machines and refrigeration units are placed in distribution outlets by non-alcoholic beverage

manufacturers to lock out rivals as key strategy.

- This ensures that their products are stocked and presented for the best possible sales while making it difficult for

competitors to get refrigeration space.

- Distribution outlet has to invariably agree not to stock competitor products as part of the terms of using the

refrigeration equipment supplied.

- Vending machines are increasing in variety, size, style and sophistication, depending on where they are located.

- Distributors in some locations, such as private or non-government schools, have worked with the manufacturers to

introduce the use of smart card technology for payment and therefore avoid the need for cash.

- Similarly, in the hospitality arena, manufacturers have to tender for the supply of beverages to key entertainment

and sporting venues.

- Once a manufacturer has secured a contract with a venue, their product has guaranteed sales for a defined period

of time.

- Quite often, patrons are not allowed to bring in their own beverages for consumption or are limited in the amount

they are allowed to bring in.

- Main distribution channel for sparkling waters is Hospitality, through restaurants and cafes and common practice

for venues to be locked into one particular manufacturer.

- Exports and imports represent about 5 per cent of industry production and levels not expected to change in the

future due to the high cost of transporting the heavy weight and bulk of water.

- The Australian bottled water manufacturing industry is protected to some extent from the threat of water imports

due to the high volume and low unit value of water, even though water with no additives is exempt from tariffs.

- For water that has added sugar or other sweeteners, there is a 5 per cent import tariff.

- Main distribution channel for imported waters is cafes and restaurants, which primarily serve premium sparkling

waters.

4 - Industry profitability

- Bottled water has the highest profit margins of all non-alcoholic ready-to-drink beverages.

- Due to the strong growth industry has achieved.

- Manufacturers able to sell all production in a year.

- Industry rivalry is relatively low, as the major competitors are focused on supplying through different distribution

channels.

- Purchases include water supplies, labels and other packaging materials such as glass and plastic resin bottles

and closures which are generally purchased on five year contracts.

- Key costs is polyester (PET) resin for bottles; however, there is no forward market for PET resin that would enable

producers to lock in prices for a defined period of time and thereby provide certainty of costs.

- As a commodity, PET resin has been subject to price rises over recent years, as the price of oil has increased.

- This is reflected in a minor decline in gross and net margins experienced by manufacturers in 2009.

- Overall, however, the cost to create bottled water is relatively inexpensive. Therefore, water is a more profitable

product than other non-alcoholic beverage categories.

- A net margin of 16.3 per cent was achieved by the industry in 2011.

- Current levels of profitability are expected to continue.

- However, it is noted that as sales through the supermarket distribution channel increase, so too will the buyer

power of these large retailers and this may have a negative impact on profitability levels.

- The increasing power of major retailers will squeeze the small competitors in both the food and beverage

businesses.

- Without modern technology, smart systems and economies of scale, it will be very difficult for small manufacturers

to generate an acceptable return on capital employed and maintain current levels of profitability.

5 - Industry key success factors

• Product innovation:

- Ability to launch new products to suit changing consumer consumption trends and fashions.

- Packaging and labelling are important factors for success in the industry.

- Launching new varieties of water and the design of the bottle including the label contribute to the appeal of a

product.

- Convenience is a key benefit of bottled water. Hence bottle size, shape and functionality form a basis of

competition.

- Bottles are designed with particular uses in mind (e.g. some water bottles have a pop-top cap for ease of use

when playing sport or training).

- Recent growth in bottled water is related to the successful positioning of a number of brands as fashion

accessories.

• Brand marketing:

- Market research and speed-to-market are important capabilities.

- Successful competitors need to be able to clearly segment the market and develop products that reflect the

requirements of different customer groups.

- The ability to effectively promote their brand is also important.

- First movers with effective distribution have an advantage in that new competitors need to spend heavily on

marketing to catch up.

- The effectiveness of strong advertising, a sophisticated distribution chain and a focused strategy are critical in

influencing consumer choice.

- Strong brand names contribute to the appeal of bottled water as an accessory as well as building product

reputation, allowing bottlers to win market share within particular consumer segments and charge premium prices.

• Distribution and inventory management systems:

- Control of distribution channels through an established and comprehensive network of distribution outlets to gain

access to end consumers is essential to ensure timely delivery, low costs and maximised product reach through

effective placement. If they are not operating in a niche market, manufacturers must become a major competitor in

the wider market.

- In general, a major competitor needs to have at least a 20 per cent share of at least one distribution channel.

- Large retail buyers (both in the supermarket and convenience store channels) prefer to deal with large

manufacturers or suppliers that can provide a large product range.

- Access to and use of market data also important.

- The larger the competitor, the more likely they are to have retail check-out scanning data to understand what their

customers are buying. In this way, manufacturers can ensure retailers replenish their stock as required. This

provides larger manufacturers with an advantage of responsiveness and flexibility as they make use of this

information and respond quickly.

• Economies of scale and scope:

- Economies of scale are very important for a low-value product since high volumes must be produced and sold to

maintain profitability.

- Manufacturers must have effective cost controls and access to the most efficient manufacturing and distribution

processes, tracking technology and techniques to monitor sales and respond accordingly.

- Economies of scale particularly important for competitors who have undifferentiated products.

- Some manufacturers have commenced contract bottling for smaller industry participants in order to secure

manufacturing volumes.

- Economies of scope via breadth of product range enables efficiencies in distribution, marketing and administration.

- Such efficiencies are gained when a competitor uses their manufacturing process to produce a wide range of

beverage brands (and possibly also complementary products) which are provided as part of a total solution to the

various distribution channel customers.

- Being a total beverage provider to major customers is becoming more important as these major customers are

increasing in concentration and prefer to deal with fewer larger manufacturers.

C - Industry competition

- The Australian bottled water manufacturing industry is dominated by large beverage manufacturers.

- Two of the major competitors are subsidiaries of global food and beverage conglomerates that are also major

competitors in the non-alcoholic beverages market.

- It should be noted that Australian Beverages Ltd (ABL) is not currently in the Australian bottled water

manufacturing industry, despite being a major competitor in the Australian non-alcoholic beverage market.

Table 3: Market share by distribution channel and major competitors, 2011

- The industry has grown significantly to date.

- Product innovation and share of distribution channels have been important bases of competition.

- To keep industry profitability levels relatively high, the industry’s major competitors have tended to dominate one

or two distribution channels only, rather than all channels.

- In this way, they hope to avoid strong head-to-head competition.

- This has assisted in keeping the overall level of industry rivalry relatively low to date, however, is expected to

change in the future as consumption growth begins to slow.

- Several new competitors have entered the market over the last five years.

- In addition, industry consolidation has occurred.

- Major industry competitors have acquired smaller competitors to increase economies of scale, scope, market

share and profitability.

- In 2011, the four largest competitors accounted for approximately 83 per cent of industry revenue.

- No major change is expected to this trend in the future as further consolidation will be difficult due to the relatively

high market shares held by the four major companies.

- Regulatory concerns about restriction of competition will also affect further consolidation.

- Butlers Corporation and International Beverages, are owned by global food and beverage conglomerates that use

Australia as the base for their non-alcoholic beverages operations in Asia.

- Industry experts believe that acquisition of either of these companies, to be used as a mode of entry into the

industry and gain significant market share, is not possible.

- The parent companies will be unwilling to sell their Australian operations.

- The bases of competition for non-alcoholic drinks are primarily price, convenience and taste.

- The main basis of competition by which bottled water competes against other beverages, such as CSDs, fruit

drinks, sports drinks and energy drinks, is health appeal. Given zero or very low sugar content, water has

successfully developed an image of being healthier than other drinks and this has driven growth in the industry.

- Home filters also serve as a source of competition, mainly against the bulk water segment.

- Tap water is also an external competitor, with a clear advantage in price.

D - Australian Beverages Ltd (ABL)

1 - History

- Australian Beverages Ltd (ABL) - formerly known as Australian Soft Drinks Ltd.

- Ccommenced operations in 1937.

- Established by a group of enterprising pharmacists who had previously made carbonated soft drinks in their

pharmacies which were then offered for sale in sealed bottles.

- 1938 first manufacturing plant opened in Sydney.

- Business began slowly.

- 1942 - arrival of American soldiers in Australia had a significant impact on both sales and market acceptance of

carbonated soft drinks.

- 1984 – ABL initiated move into noncarbonated soft drink beverages when it began manufacturing fruit drinks.

- Followed by acquisition of a fruit juice manufacturer in Victoria.

- Fruit drinks business expanded nationally over 10 years.

- 1990, ABL entered the milk drink market with the purchase of manufacturing facilities from a dairy co-operative.

- 1996 officially changed name to Australian Beverages Ltd upon listing on the ASX to reflect broader beverage

base of the business.

- Since listing, ABL has adopted a multi-beverage strategy

- Product range has been expanded to cover all categories of the non-alcoholic beverage market. However, bottled

water remains outside this product range.

- Moved into the manufacture and distribution of snack food products through its acquisition of several small

businesses to strengthen distribution relationships with convenience stores and hospitality channels.

- These developments have resulted in ABL’s revenue composition changing from 90 per cent CSD-based in 2000

to 68 per cent CSD-based in 2011.

- Aim is to further reduce dependence on CSDs by 2017.

- ABL intends to increase its market share of non-CSD beverage products so that CSDs will represent less than 40

per cent of company revenue as part of its multi-beverage strategy.

2 - Business strategy

- ABL’s vision: ‘To satisfy Australia’s thirst by being a manufacturer of non-alcoholic beverages for every occasion in

every location’.

Aims to achieve this vision by pursuing the following strategic goals for 2012 to 2017:

1. Offer a complete range of products in the non-alcoholic beverage and complementary markets.

2. Grow the company’s share of the non-alcoholic beverage market to move from the second largest to the largest

competitor.

o Goal will be achieved by offering a wider range of products;

o Increasing per capita consumption of non-alcoholic beverages through branding,

o Product and packaging innovation; and

o Expanding into new non-CSD beverage categories.

3 Extend key customer relationship capabilities and grow product availability through effective placement of

refrigerated drink equipment and outlet expansion.

o Strategy would help to establish a major presence in all major non-alcoholic beverage distribution channels.

4 Maintain world-best practices throughout the company’s operations

o to deliver cost discipline,

o low cost leadership;and

o timely responsiveness to changing market demand.

5 Ensure that the company’s operations are environmentally and economically sustainable.

- MD - Tom Dwyer outlined the company’s intention to be a major competitor in all categories of the non-alcoholic

beverage market at a recent strategy presentation to market analysts

MD - Tom Dwyer stated that:

- ABL hopes to achieve this aim by:

o being the supplier of choice for the distribution channels of supermarkets, convenience stores and hospitality

outlets.

- Finalised the integration of a snack food business acquisition

- Given predicted continuing decline in the CSD market, Tom Dwyer need to to identify further growth options

- January 2012 - strategic planning team to undertake another review of future growth opportunities, specifically

identifying products where the company would have the capabilities for successful entry.

- Bottled water was an industry that was identified, based on its complementary nature to the existing beverage

portfolio.

- Bottled water industry had been identified as ‘of interest’ in ABL’s first strategic review in 2005 but at that time the

market was deemed too small and unsophisticated.

- Since the initial review, Australia bottled water manufacturing industry has grown significantly.

- Dwyer has requested a detailed review to determine whether entry into the domestic bottled water manufacturing

industry is now a viable strategic option.

- It is hoped that ABL’s position in the snack food market, which it recently entered via acquisition, would be made

stronger by another potential acquisition in line with the general consolidation already taking place in the food and

beverage supply industry in Australia. Such an acquisition would add further breadth to the company’s total product

offering to its customers in all major distribution channels.

- Of all the competitors, ABL would provide the greatest share of beverage and snack foods.

- By offering a broader product range, ABL expects to leverage its market power in soft drinks to sales of related

products.

- It also aims to control product supply, apply discounts, introduce loyalty rebates or promotions, and secure

conditions of use on supplied refrigeration equipment.

- As more Australians now drink different beverages at different times of the day, Dwyer highlighted his belief that a

modern beverage company needs to be highly flexible in manufacturing, distribution and marketing as well as being

able to operate in all product areas.

3 - Business operations

- ABL currently the second largest competitor in the non-alcoholic beverage market in Australia,

- Market leader is Butlers Corporation.

- ABL’s large size has enabled economies of scale, making it worthwhile to invest in state-of-the-art systems and

technology.

- This helps the company to track and monitor product demand through the various sales channels, enabling

manufacturing operations to respond accordingly.

- Flexible response backed up by sophisticated distribution systems.

- ABL has about 40 per cent of the packaged soft drink market in Australia.

- This scale enables the company to justify the significant investment needed to create one of the most highly

automated warehousing and distribution systems in Australia.

- Industry analysts expect that the cost reductions and increased speed to market generated by these systems will

give the company an even greater advantage over its competitors and provide a solid base for its continuing

expansion.

- Being a major supplier to the non-alcoholic beverage market has afforded ABL significant power over its

customers.

- Enabled to retain cost reductions achieved through efficiency gains rather than pass them onto the retailers.

- Efficiency gains have enabled the company to enjoy higher profitability levels than the industry overall, and

supported continuous investment to improve technology and infrastructure.

3.1 Infrastructure

- 2010 ABL undertook significant infrastructure investment.

- Major manufacturing plant capable of processing over one billion drinks per year was built in New South Wales.

- Co also introduced a state-of-the-art automated warehouse system in its Victorian distribution centre that

significantly reduced employee levels by 75 per cent from 200 down to 50.

- Similar reduction in labour is expected when the system is implemented in New South Wales.

- Modern warehouses are also operated in Perth and Brisbane.

- ABL offered contract bottling services to smaller competitors in the past

- Due to own growth can no longer offer this service as it needs the bottling capacity for its own manufacturing

operations.

3.2 Technology and systems

- Core element of ABL’s multi-beverage strategy is its ability to deliver products quickly to retailers.

- This requires efficient distribution systems, particularly among very small retailers such as convenience stores

(which form about half the market).

- A significant investment in IT means that the company now offers vendor-managed inventory (VMI) to its major

customers in the distribution channels of supermarkets, convenience stores and hospitality outlets.

- Through this system, vendors can manage their own inventory in accordance with an agreed set of inventory

parameters established at the start of each year.

- ABL undertakes all inventory replenishment and management functions for a nominated period which includes

providing assistance with merchandise presentation.

- Customer service representatives periodically ensure that services are being delivered as required.

- As business conditions change, these representatives also have the authority, within defined parameters, to

amend agreed arrangements.

- The VMI system only possible where there is networked access to real-time scanning data, made available as

products are checked out at the store.

- Means company receives immediate information and is able to reshuffle its manufacturing requirements so as to

respond to changes in demand for any stocked item.

- Knowledge of stock movements and sales is also linked to an extensive database of customer information.

- Competitions are regularly run to collect customer information that can be used not only to understand who is

buying certain products, but also to contact customers electronically and via text message for special offers that can

assist in clearing slow moving products, as well as targeting marketing information to specific customer groups.

3.3 Marketing and product innovation

- ABL’s multi-beverage strategy also involves tailoring marketing campaigns to customer groups and to beverages

for different times of the day.

- Rrange of products able to match the various consumer beverage needs at different times of the day (e.g. fruit

juice for the morning, coffee for the afternoon and sparkling water for the evening).

- ABL recently acquired several coffee bean businesses to capitalise on the growth of the coffee market in Australia.

- Based on key consumption patterns continuously monitored by ABL, it is exploring a new product idea— ready-to-

drink chilled coffee—to be offered through convenience stores.

- ABL is expecting strong growth for ready-to-drink chilled coffee, given this market has not achieved the same level

of growth in Australia as that achieved in the United States.

- A new product development team tests new products in small markets to assess their viability.

- Using focus groups and market research, the team monitors changes in consumer tastes and behaviours.

- An alliance with a US-based food and beverage conglomerate is in place to monitor trends in the United States,

since Australian consumer behaviour usually follows trends in that country.

- Investment in market research has kept ABL’s product development at the forefront of global trends. This has

resulted in the company winning numerous industry innovation and marketing awards over a long period of time.

- ABL expects to extend its beverage product development capability into the food industry as it grows its range of

snack foods, thereby extending the breadth of products offered to major customers.

- Key focus of the product development team is further development of ‘diet’ beverages.

- This would help to maintain market share for CSDs while stemming any negative perception associated with being

a major CSD supplier and the link of CSDs to growing obesity levels.

- ABL first Australian beverage manufacturer to introduce sugar-free drinks using Stevia, a natural sugar

replacement.

- Stevia is extracted from a native plant of Paraguay in South America.

- A natural product compared with the chemically synthesised artificial sweeteners, such as aspartame, that are

used in most diet drinks.

- ABL had to wait two years to get Australian Food Standard approval to use Stevia, despite the fact that the

product had already been approved by the Therapeutic Goods Administration.

- Product development also extends to packaging innovation.

- ABL prefers to work together with key suppliers and service providers to develop packaging ideas.

- Because packaging innovation requires a high degree of engineering design capability, is not a core strength of

the company.

- As part of the collaborative process, ABL provides the market, customer and trend information to packaging

specialists to develop into new concepts.

- A recent packaging innovation success entailed working with suppliers to reduce the weight and amount of PET

used in bottle plastic by 20 per cent and thereby reduce the cost of packaging.

4 - Management

- Current MD, Tom Dwyer, has a strong background in the beverages market.

- 20 years working in senior roles with the international food and beverage giant, Butlers Corporation.

- Roles covered sales, marketing and operations.

- Was also the head of the Australian business operations for several years.

- Constant cost cutting at Butlers and a lack of autonomy due to increasing head office involvement in the Australian

operations motivated his move to ABL.

- Dwyer established an internal strategic planning team to assess the current product portfolio and identify organic

and acquisition growth options within this product range.

4.1 Operations and performance

- Operational improvements achieved through strong investment in world class manufacturing facilities and systems

as well as process re-engineering to reduce time-to-market.

- Dwyer led the charge in collecting customer information and investing in the systems that would enable data to be

used in product and market development decisions.

- Building this approach over 10 years has meant that the company now has a strong innovation culture with a

continuous focus on new product development.

- Ideas can come from all employees and if the data supports the concept, investment is made in testing the

concept.

- If an idea actually gets to market, the employee who presented the idea receives an immediate bonus. However,

all employees participate in a company share scheme, making success a shared goal.

- ABL also has a strong performance focus.

- Return on investment and market share are performance measures used in all business units.

- Recognising that some beverage categories have better profitability than others, different benchmark levels are

applied to different categories.

- Benchmarks for the different categories are set based on understanding the performance of leading US and

European beverage manufacturers.

- Co employs rigorous financial and compliance reporting systems and is proud of its ability to complete end-of-

month reports in half a day.

- Compliance with relevant legislation is paramount as is a focus on sustainability in four key areas:

o the environment,

o employees,

o workplace and

o community.

- ABL is the first Australian beverage manufacturer to implement triple bottom line reporting.

- ABL is very conscious of the impact that its packaging has on landfill.

- Has several projects underway to find out ways to reduce its environmental impact.

- ABL operates a decentralised organisational structure.

- Each major beverage category and the new snack food business operate as separate business units.

- Leaders of each business unit hold strategic and decision making power over the products and manufacturing

operations within their portfolio.

- To maximise efficiencies, various business units supported by a centralised shared-services function for product

distribution, receivables, payables, payroll, reporting and capital expenditure management.

4.2 Skills and experience

- It is critical that the business unit leaders have the commercial acumen and technical skills to operate their

business units on a stand-alone basis.

- Limited support is provided by Head Office in terms of product strategy and manufacturing operations.

- In the recent acquisition of the snack food business by ABL, access to the required technical skills became an

issue when the incumbent managing director and the manufacturing manager resigned within 12 months of the

acquisition.

- These resignations created a significant skills gap in the business.

- ABL had to quickly recruit replacements for these key roles, offering to pay higher than market salaries to lure staff

away from competitor companies.

- Ensuring availability and retention of the right skills for the business would be an important consideration in future

acquisitions.

- Senior executives of ABL are active participants in industry bodies.

- ABL is a member of the Beverage Council of Australia which has been proactive in approaching the Federal

Government, particularly in relation to health and obesity issues.

- Such involvement provides the company with a better understanding of public policy and its implications for the

business as well as the ability to shape the policy debate to maximise business outcomes.

- Currently, the senior executive group of ABL is working on assessing options and developing a ‘healthier’ policy

for CSD placement and promotion to children and young adults.

- Employing and training the right people in customer service roles continues to be a challenge for the company’s

management.

- ABL has grown rapidly and has had to integrate employees from acquired organisations.

- This has required a significant investment in training and development.

- All new employees must complete a week-long induction program which provides an overview of the range of

activities conducted by the company.

- New sales and customer service representatives must also undertake a week of training each year to update their

skills in using company technology and systems to ensure that the data they enter into the system is correct and

meaningful for further analysis and reporting.

- A graduate employment program is also in place.

- The graduates are rotated through different business units and each graduate spends six months working in a

business unit over a two-year period.

- Following this training, an assessment is made of their capability and an appropriate career plan developed.

5 - Latest developments—April 2012

- The Federal Government has recently announced a major package of health reforms targeted at preventative

health, which includes the offer of incentives to individuals to maintain good health.

- The government also announced sweeping measures to addressing the issue of obesity and diabetes in

Australian children, banning of television advertisements for CSDs, fast foods and snack foods during children’s

television shows between 3.30 p.m. and 7.30 p.m.

- Hailed as a significant step forward by health professionals, this policy would have a significant impact on CSD

sales, as about 20 per cent of CSDs are consumed by children, with a further 30 per cent by young adults.

- In addition, bans on all full-calorie CSDs in government-owned primary and secondary schools were announced to

take effect from the start of the 2011 school year.

- Several tertiary institutions had come out in support of the bans and announced that they would also voluntarily

withdraw full-calorie CSDs from sale in on-campus cafeterias and vending machines.

- Over the coming weeks, information sessions are scheduled to be run in all states by officials from the Department

of Health to outline how the bans would be enforced and the penalties that would ensue for those schools that failed

to comply.

- Consultation with the non-alcoholic beverage industry would also be undertaken, with several proposals for

industry compensation being considered.

- These include incentive payments to manufacturers who offer bottled water as well as compensation for lost CSD

sales over the next three years. Such measures should provide the industry with sufficient time to move into

alternative beverage categories and compensate for the expected decline in CSD sales.

- In light of this news, the board confirmed that bottled water is now a critical category to have in its beverage range

to meet its strategic goal of having a beverage for every occasion to meet ABL’s future growth targets, and that ABL

will enter the Australian bottled water industry.

- The board has requested ABL’s strategy team to urgently evaluate entry into the Australian bottled water

manufacturing industry, assess potential acquisition targets from existing competitors within the industry and

summarise the potential implementation issues related to an acquisition.

- The strategy team has identified two companies for review against these criteria. These are Hydrate Water and

Fountain Springs.

- The board has requested that Dwyer and the senior management team provide a recommendation at the next

board meeting as to which company to target for acquisition.

- Sensitive to the problems experienced with the company’s acquisition of its snack food business, the board has

requested the identification of possible implementation risks in relation to the potential acquisition of these identified

companies.

- Further, a detailed implementation plan needs to be drawn up at the outset with recommendations to resolve the

potential issues identified.

- It is commonly known that ABL has not previously been a part of the Australian bottled water manufacturing

industry as it was deemed too small.

- Going ahead with entry into this industry via an acquisition would therefore require an explanation to existing

company employees as to the reasons for the change in strategy.

- One such reason is to defray the company’s reliance on CSDs.

- It would also be important to show the positive benefits to the company’s reputation by reducing the reliance on

CSDs and fruit juices, given the link between these beverages and diabetes and obesity.

- Over recent years, ABL had been widely criticised by leading dieticians and health professionals for its role in

contributing to these health issues, particularly in children.

- The company’s recent employee survey indicated dissatisfaction with the way reasons for the acquisition of the

snack food business were communicated to employees.

- The board did not want a repeat of this poor employee communication.

- Dwyer also recognised that a plan for generating some quick wins by the potential new bottled water business

would lessen concern over the acquisition and assist employees to appreciate the value being added to ABL’s total

operations.

- Short- and long-term incentives would need to be developed for shared-services staff to ensure a seamless

integration of the acquired bottled water business to realise back-office synergies.

- This was an area that had been handled particularly badly by the company in the past.

- Dwyer knew that he needed his employees to be in favour of the potential acquisition if it was going to be

successfully integrated into the rest of the company’s activities.