ABL - Case Summary

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Case SummaryIn: Other TopicsCase SummaryExtended case studyAustralian Beverages LtdPre-seen case study informationA - 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 Australias 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 ABLs 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 companys 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 segmentationTwo 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 worlds 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 channelsShare 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 s