Canadian Whisky:
Capitalizing on World Recognition
A
Thirst for More
Rick
Clemens opened an independent whisky distillery 15 years ago in a
small town in British
Columbia, Canada. Since that day, his business has slowly grown,
gaining first a local, then
regional and finally national following. It has since grown from a
two-person operation to a thriving
business with an in-house team of six and the contracted services
of an off-site bottler and
distributor.
After
many years of operating at a healthy profit, Rick and his team
decided to begin exporting to
the
U.S., as many Canadian distillers do. Although Rick had some
reservations about expanding
the
business, this move proved beneficial to the company, and within
two years the U.S.
expansion project had also become very profitable.
Recently, the company, Comox Valley Distillers, has shot into
popularity with the release of its
single
malt whisky brand, CV One. Produced from locally grown barley and
aged for a minimum
of
five years, CV One has placed in the top ten of the Canadian Whisky
Awards in the past three
years.
This year, much to Rick’s and his team’s excitement, CV One became
the first Canadian
whisky
to win an international award, being declared the best single malt
whisky in the world by
John
Mullings, renowned whisky aficionado and author of The Whisky
Authority.
As a
result of the international recognition, Rick is contemplating
further expansion into the global
market. He feels the team should take advantage of the spotlight to
grow the business. His
preliminary research suggests the Indian, Japanese and South Korean
spirits markets have great
potential for CV One and perhaps other high-end spirits produced by
Comox Valley Distillers.
Intoxicating Investigation
The
first thing Rick did was pull his project team together to consider
how to approach the new opportunity. The team consists of a master
distiller, who is responsible for production, two assistant
distillers, a distillery manager, who is responsible for sales and
shipping, a vice president, who is also responsible for sales and
who spearheaded the U.S. expansion, and Rick, the president, who
oversees operations and leads the company’s strategic planning
initiatives.
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FITT
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Feasibility of International Trade Module — Situational
Analysis
The
team first discussed lessons learned from its international
endeavour into the U.S. It was an extremely smooth transition and
the team agreed this was due in large part to the import company it
used, PVS, who won the U.S. Whisky Importer of the Year award in
previous years. The importer was incredibly organized and
dependable, and had been extremely helpful throughout the process.
Unfortunately, PVS only imported into the U.S. and wasn’t able to
assist the distillery with its new expansion. The team knew though,
when the time came, it would need to find an equally knowledgeable
importer/exporter to assist with a smooth transition into a new
market.
To
assess the company’s readiness for further expansion, each team
member completed an online questionnaire offered by the Canadian
Trade Commissioner Service. After comparing their findings, two
gaps were identified. First, the team members lacked sufficient
knowledge of how to export successfully to a country with different
regulations, culture and language than their own. Secondly, the
distillery had grown over the years without any mass marketing
efforts. It had always used a grassroots type of marketing strategy
based on its growing reputation and by cultivating strategic
relationships. Becoming successful in an overseas market would
require a strong marketing strategy and the ability to execute that
strategy. These issues would need to be addressed soon.
In the
meantime, Rick and the vice president, Joanna, began researching
the three potential new markets. Their preliminary findings,
conducted primarily through online research, were as follows:
India
The
imported spirits market in India is expanding rapidly, with 25
percent growth over the last couple of years due to favourable
demographic trends, changing cultural norms and the rapid growth of
the increasingly lucrative middle class. Whisky is the most widely
consumed imported spirit in India. There are some big players
already selling alcohol in India, including Diageo, AB InBev,
Pernod Ricard and Carlsberg.
India
has a huge population of potential consumers. In 2014, there were
485 million Indians of drinking age with another 150 million
expected over the following five years. India and Canada do not
have a trade agreement, and exporting spirits into India incurs
duties and taxes of approximately 150 percent. In addition, all
advertising related to the sale of alcohol is banned, with the
exception of some types of signage, which are strictly
regulated.
Japan
With a
population of 127 million, the market in Japan is fairly mature and
has shown little growth recently, due to low consumer confidence,
price competition and a declining drinking population. Japanese
consumers are increasingly sophisticated and discerning of where
they spend their money, and have been trading down to economy
products to stretch their budgets.
In
2011, the Canadian whisky market in Japan was worth over USD 54
million and was projected to grow by 15.3 percent over the
following five years. However, current trade data shows whisky
exports from Canada to Japan decreased by 50 percent from 2014 to
2015.
Recently, Canada signed the Trans-Pacific Partnership, a free trade
agreement between 12 Pacific Rim countries, including Japan.
Although the deal is yet to be ratified, should it proceed, it will
mean the lowering of duty tariffs for importing spirits into
Japan.
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FITT
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Feasibility of International Trade
Module
— Situational Analysis
South
Korea
The
Canada-Korea Free Trade Agreement entered into force January 1,
2015. In this agreement,
South
Korea agreed to protect the terms “Canadian whisky” and “Canadian
rye whisky” as
geographical indications, ensuring their exclusivity to Canadian
producers. Another result of the
trade
agreement was to drop the 20 percent import duty on rye whisky
being imported into South
Korea.
As
Asia’s fourth largest economy, South Korea has a population of 48.5
million, with 38.6 million
consumers over the legal drinking age of 19. According to South
Korea's Economic Information
Education Center, South Korea is enjoying steady employment
increases, a slowing of inflation
and
stable consumer prices, but facing a downturn in its overall
economy, with mining,
manufacturing and retail sales declining.
South
Koreans are known for leading the world in the amount of liquor
consumed per capita; as
a
result, the alcoholic beverage market is showing growth in all
areas. South Korea’s drinking
culture is shifting toward a preference for higher quality
products, increasing sales in a few key
categories, including premium brand whiskies. A 2014 survey of
different whisky brands showed
growth
on average for sales of single malt whiskies. At the same time,
single malt whisky still
accounts for less than 4 percent of the South Korean market.
Drinkable Dilemma
After
discussing their findings with the team, Rick and Joanna strongly
feel further research is
required prior to selecting the optimum target market for the
planned expansion. Joanna, having
managed the previous exporting endeavour, has been considering
different methods for gathering
information from consumers in both developing and developed
countries, as will be required for
further research into the three target markets. In her research,
she has found a relatively recent
method
of surveying potential consumers using mobile phones. New
technologies are emerging
for
the use of SMS or text-based surveys in areas with lower bandwidth
and high cell phone
usage.
According to the World Bank, mobile phone use in developing
countries has surpassed
that
of the developed world; therefore, this may be one option for Comox
Valley Distributors to
use in
the next phase of research. One thing is certain: at this stage of
the game, Rick and his
team
are even more convinced they are making the right move by looking
for expansion
opportunities overseas.
Learning Outcomes
•
•
•
This
case study relates to the following learning outcomes from the
module Situational Analysis
in the
course Feasibility of International Trade:
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FITT
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Assess
the readiness of the organization to undertake the potential new
international
trade
initiative or expansion.
Screen
potential international markets to identify priority markets.
Design
the research plan and conduct the designated research.
Feasibility of International Trade Module — Situational
Analysis
Case
Study Questions
1.
Comox Valley Distillers identified two gaps in the readiness of its
organization to expand further internationally. How should the team
address these gaps?
2 What
risk factors are present in each of the three target markets
identified?
3.
Based on the results of the research already conducted, what types
of data should the team investigate further?
4.
Joanna suggested using mobile phone surveys as a method of primary
research. Is this the best method of primary research based on the
facts in the case? Support your answer with reasons.
5.
Which target market would you advise Rick to choose? Why?
Although based on research of actual events, organizations and/or
individuals, this case study is fictional and is intended to
support learning. Cases are not intended to serve as endorsements,
sources of primary data or illustrations of effective or
ineffective management.