Negotiation

Chulalongkorn University (Thailand)

Brown-Forman Wine Estates (WE) Case Analysis

Proudly Presented by

Team Members

Vipada Ungvichian

Anek Tipayavat

Prinya Dharmarak

Grace Wongseelashote

Advisor: Prof. Melanie Billings-Yun

Executive Summary

Brown-Forman Wine Estates (WE) is a new group in the Brown-Forman Corporation (BFC). It specializes in the sale of high quality Californian and Australian wines. Currently, it is facing slowing growth in the US premium markets. However, there are opportunities to expand abroad as the demand for premium wines are increasing in the global market.

Three proposed alternatives are very thorough. Putting more emphasis on the U.S. premium segments is can be very profitable, as it relies upon WE’s core competency. Conversely, WE could try to increase sales of lower priced brands simultaneously with attempting to reduce costs to better the entire company performance. Lastly, WE could establish an international foothold, which would reduce cost per unit through economies of scale, while widening WE’s market base.

WE’s crucial strength is its competency and high degree of experience in premium wines. Hence, WE should deploy such advantage to the maximum level by expanding its U.S. premium wine market through focusing on on-premises sales, as this channel yields the highest profit margin. Another attractively profitable market to pursue is East Asia, where demand for premium wines is expected to grow enormously.

The first part of the implementation would be to transfer the lower imaged brand, Bel Arbor, to BFC. This is to remove the risk of losing prestige of the high end products. Secondly, Bonterra, a premium brand, will be upgraded to super-premium status. This will be accompanies by a change in marketing for this brand to further penetrate the on-premise market. For international growth, we would develop and East Asian Sales Unit. The initial wines targeted for this expansion will be the super and ultra premium Jekel and Geoff Merrill Res.

Situation

Brown-Forman Wine Estates (WE) is a new group in the Brown-Forman Corporation (BFC), specializing in high quality Californian and Australian wines. Currently, it is facing slowing growth in the US market. This is especially clear in the premium level where the growth rate has slowed from double digits to 6%. Desiring to maintain a high ROA, the company must come up with a plan to compete in this prestigious market.

A significant challenge is increased competition for share of the premium wine market. Consolidation in the industry allows for more powerful competitors, while the growing number of smaller vineyards and globalization will stimulate fiercer competition. This is offset by a growing market for premium wine all over the world.

Steve Dorfman, Managing Director of WE, sees two major challenges in these trends. In this prestige market, image is key. However, the newly formed group consists of brands of various images, which could pull down the prestige of the top brands. Secondly, with the slow growth in the US market, the company is looking towards international expansion as an additional source of revenue.

Objective: to attain BFC’s ROA target by enhancing WE’s portfolio image as a premium wine and expanding its market.

Alternatives

More emphasis on U.S. premium wine segment: