PERNOD RICARD

IB Term Project

SEC-B | GROUP 7
ANUGRAHA SATHEESH- PGP05059
BARATH SINGH- PGP05063
MUDIT SINGH- PGP05078
SEJAL AGARWAL- PGP05091
SHREY KARN- PGP05092

Contents
Introduction Pernod Ricard................................................................................
Background of Pernod Ricard............................................................................
Objective of the Project......................................................................................
Methodology.........................................................................................................
II. Literature Study:................................................................................................
1. Business Model................................................................................................
Decentralization Model....................................................................................
Interaction between Regions, Brand Companies and Market
Companies.........................................................................................................
Regional Presence............................................................................................
Market Companies............................................................................................
Brand Companies..............................................................................................
2. History and Organization...............................................................................
Laying the Foundations of Worldwide Network...........................................
Consolidation and Organization.....................................................................
Refocusing the Business Strategy.................................................................
III. Company Assessment.......................................................................................
International Strategy........................................................................................
McKinseys 7S Framework..................................................................................
VRIN ANALYSIS:....................................................................................................
COMPETITIVE & COMPARATIVE ANALYSIS........................................................
IV. Market Assessment: Global Spirits & Wine Industry.................................
CAGE Analysis:...................................................................................................
Global PESTEL analysis.....................................................................................
PEST Analysis for Asia...................................................................................
V. Discussion: Performance Evaluation.............................................................
Region-wise Performance:...............................................................................
Entry Mode Rationale: Localization vs Globalization...................................
VI. Alternative Recommendation.......................................................................

Introduction Pernod Ricard

For functioning globally, companies adopt various strategies to enter into other local
markets. It can be through acquisitions, mergers, joint ventures or Greenfield
investments. Access to markets, acquisition of resources, and minimisation of risks and
economies of scale are some of the reasons why businesses go global. There are many
reputed companies which emerged through subsidiaries also. Pernod Ricard is one such
company which entered International business with the help of subsidiaries. Pernod
Ricard is a French company which involved in Alcohol business worldwide. Global Alcohol
market is a growing market with high global expenditure and high market demand
worldwide. Asia Pacific is the highest-demand market, region wise with Japan, China,
India and Thailand being the major alcohol trade-markets.
Background of Pernod Ricard
Pernod Ricard is a French company that produces distilled beverages. It is a
worldwide conglomerate and owns the distilled beverage division of the former
corporation Seagram, along with many other holdings. In 2005, the company acquired a
British-based competitor, Allied Domecq plc. In 2008, it announced the acquisition of
Swedish-based V&S Group, which produces Absolut Vodka.
Pernod Ricard boasts a large portfolio of premium international and local brands. 37
premium international brands are organized in the House of Brand and the Group
strongly invests and bases its development on these prestigious names. The USP for
Pernod Ricard amongst the other players in the industry is their consistency, positioning
and richness of the brand portfolio. Premiumisation and Innovation are two major focuses
of their strategy to create value and capture leadership. Some of the key figures are:

No.
1 premium and prestige spirits
18,000
Global
Net sales

Employees around the world

Market Companies & 3 Main Regions
Profit from recurring operations
Production sites
Group Net Profit

7945 M

80

2056 M

101

1185 M
Objective of the Project
The main objectives of the project are as follows:

Market Entry Risk Assessment: Analyse the decision of choosing the mode of
entry into a foreign market, understand the various economic, political and
environment risks associated with the decision and the economies of scale that the
companies seek to achieve. (Anugraha)

Market Entry Decision Rationale: Understand the decision of Pernod Ricard to

expand globally through subsidiaries.

Performance Evaluation:
o

Analyse the corporate structure of Pernod Ricard and the amount of control,
ownership and risk that is associated between the parent company and its
subsidiaries

Compare the performances of the various subsidiaries of Pernod Ricard in each

of these countries through comparative and competitive analysis.

Analyse how Pernod Ricard achieved this strategic and cultural fit and aligned
it with its own visions.

Alternative Strategy: Understanding the performance in various countries, give

recommendations on an alternative strategy that would have worked in favour of
Pernod Ricard. (Shrey)

Methodology
The project analysis will include collecting data through secondary research. The
following websites and databases will be used for the purpose of analysis:
1) Market Realist- To get an overview of the alcohol industry
2) Pankaj Ghemawats official website- For CAGE analysis and globalization index
3) Pernod Ricards annual report to gauge its current performance
4) World Bank Database and Hofstede Index to look at the cultural and economic
parameters of the various regions
5) Proquest Database and EuroMonitor- To get insights on the alcohol market
6) Harvard Business Review on Strategic Alliances to understand the rationale
behind setting subsidiaries

II. Literature Study:

1. Business Model
The Pernod Ricard business model is first and foremost a culture that creates a common
bond throughout the Group and underpins the achievement of all its goals. This culture is
a genuine source of competitive advantage, setting Pernod Ricard apart from its rivals
and driving its success. It is based on both a way of working decentralisation - and a
way of being - conviviality. Three core values (entrepreneurial spirit, mutual trust and
sense of ethics) are at the basis of our model. The model is centred around the following:
1. A way of working: decentralisation
2. Three fundamental values: entrepreneurial spirit, mutual trust and a strong sense of
ethics.
3. A way of being: conviviality

Decentralization

The Values

Entrepreneurial Spirit
Mutual Trust
Sense of Ethics

Way of Working

Way of Being

Conviviality

A Collective Commitment to Performance

Decentralization Model
The company organizes its operations under two groups: Brand companies and
Market companies. The brand companies own the brands, define their global strategy,
coordinate production and ensure quality assurance. These companies are responsible
for developing the overall strategy and all production aspects of the brand portfolio.

Pernod Ricards six brand companies are The Absolut Company, Chivas Brothers, Martell
Mumm Perrier Jouet, Irish Distilleries, Premium Wine Brands, and Havana Club
International. These companies are headquartered in Cuba, France, Ireland, the UK,
Sweden and Australia. The market companies adapt the global strategy to their local
market and are responsible for the distribution of the global and local brands. The
company has 75 market companies including Pernod Ricard Asia, Pernod Ricard
Americas, Pernod Ricard Europe, Societe Pernod and Societe Ricard.
The company classifies its business into three geographic divisions: Asia/Rest of the
World, Americas and Europe.
Pernod Ricard respects the operational independence of its affiliates based on the
principle of subsidiarity. This allows decision-making as close as possible to the market,
enabling it to be highly responsive to the needs of customers and consumers, regardless
of the country concerned. Consequently, every affiliate is managed as a profit centre and
has full responsibility and autonomy for achieving the objectives it is set.

Perno
Brand Companies
The Absolut Company
Chivas Brothers
Martel Mumm Perrier-Jouet
Irish Distillers
Pernod Ricard Winemakers
Havana Club International

The Decentralized Model

Interaction between Regions, Brand Companies and Market Companies
Pernod Ricard is a Brand Builder. This requires both long-term vision and implementation
as close as possible to the consumer, which is what the Groups decentralised structure
allows based on the dichotomy between:
Brand companies charged with devising strategy for brands and categories,
Market companies charged with developing the Groups international brands while
managing regional and local brands. Market companies are grouped into Regions (and,
where applicable, Clusters or groups of affiliates within a Region).
This direct relationship between Brand Company and Market Company is the cornerstone
of the organisation and is relevant for every market and brand, whatever the size. The
development and implementation of brand strategies are the result of permanent
dialogue between Brand companies and Market companies.
Pernod Ricard markets its brand portfolio through its own affiliates. Brand companies are
expected to use the Groups distribution network. Although, with the Holdings approval,
certain Group brands may be distributed by third parties and third-party brands by
Pernod Ricard.

Brand Companies

Regions

Holding Company

Market Companies

Interaction between Holding Company, Regions, Brand Companies and Market

Companies
Apart from the autonomy given to the Brand and Market Companies, a set of ground
rules are implemented that need to be followed:

Levels of financial authority.

The need for all changes affecting a strategic brands positioning, formula or
packaging to be referred to, and validated by, the Holding company.
The need for all significant HR decisions concerning an employee (e.g. internal
mobility, salary increase, etc.) to be validated by at least two levels of
management.

Regional Presence
Regions have operational responsibility for managing the Groups business in their
respective geographic areas. They are empowered to ensure implementation of Group
strategy and key policies and are accountable for business development as well as cash
and profit generation in conjunction with Brand companies.
Regions operate on two levels:

At Regional Level: Defines priorities, optimises resource-allocation and seeks to

enhance ways of working with Brand companies, approves the strategy and key
attributes of local and regional brands, identifies and shares best practice.
At Market Level: Sets objectives and budgets for its affiliates and ensures their
achievement, oversees the implementation of brand strategies agreed between
Brand and Market companies, ensures the provision of an optimised sales
structure to serve brands and Group strategy

Market Companies
Market companies are responsible for managing the Groups business in their local
market. They report to the Region and are empowered to implement the Groups strategy
and key policies, develop their business and deliver profit in the local market. They are
managed as profit centres.
Market companies key responsibilities are to:

Implement the annual budget approved by the Region

Agree and implement brand strategy in conjunction with Brand companies
Allocate resources to maximise commercial performance
Manage and develop local brands
Implement and share best practice.

Brand Companies
Brand companies are located in the country of origination of their brands and are in
charge of developing and implementing the strategy for the brands in their portfolio in
conjunction with Market companies. They are accountable for the overall profitability
(Contribution after Advertising & Promotion) of their brands. In line with Group principles,
Brand companies must submit any major changes to a strategic brand, such as those
affecting product formulation, new products or advertising for Holding-company approval.

2. History and Organization

Creation of Pernod Ricard
Pernod Ricard was created in 1975 from a merger of Pernod SA and Ricard SA who were
long time competitors in the French anise-based spirits market. This link-up enabled the
two 2 take advantage of new resources to develop new distribution networks and brand
portfolios. It also made the 2 companies the largest and the strongest in the French
Market.
Pernod Ricard gave priority to whisky in its initial acquisitions because it had one of the
highest levels of worldwide consumption, and the United States was the worlds biggest
market for the Wines & Spirits segment. This led to the Group acquiring Campbell
Distillers, a Scotch whisky producer, in 1976, followed by Austin Nichols, the producer of
Wild Turkey American bourbon, in 1981.
Laying the Foundations of Worldwide Network
Over a period of ten years, the Group extended its coverage to all 15 European Union
member countries, establishing a strong brand presence.
Pernod Ricard acquired Ramazzotti in 1985 which had been producing Amaro Ramazzotti,
a well-known bitter, since 1815. This acquisition brought with it an extensive sales and
distribution structure in Italy.
The Group took over Irish Distillers in 1988, the main Irish whiskey producer and owner of
the prestigious Jameson, Bushmills, Paddy and Powers brands. Since acquisition, the
brand has delivered average annual growth volume of 10%, rising from 0.4 million to 4.7
million 9-litre cases from 1988 to 2014
In order to extend its network to Australia, the group purchased Orlando Wines in 1989,
Australias number 2 wine producers. The company went on to form the Orlando
Wyndham group with Wyndham Estate, in 1990.
In 1993, Pernod Ricard and the Cuban company Cuba Ron created Havana Club
International. This joint venture markets and sells Havana Club rum, which has since
been one of the fastest growing spirits brands in the world.
Consolidation and Organization
In 1997, the Group added to its white spirits portfolio through the acquisition of Larios
gin, the number 1 gin in Continental Europe. This helped Pernod Ricard acquire a
prominent position in Spain, one of the worlds biggest spirits markets and also allowed it
to distribute both its international products and local brands.
During the period from 1999 to 2001, the Group consolidated its positions in Eastern
Europe through the acquisition of Yerevan Brandy Company (Armenian brandies,
including the ArArAt brand), Wyborowa (Polish vodka) and Jan Becher (Czech bitter).

Refocusing the Business Strategy

In 2001, the company acquired 38% equity in Seagram in partnership with its competitor
Diageo from Great Britain. Pernod Ricard acquired four famous brands of Seagram
(Chivas Regal, Glenlivet Whiskey, Martell Cognac, and Seagrams Gin) which together
had combined sales of more than $1 billion a year. This acquisition opened opportunities
to access Asian Markets, especially India where Seagram held a strong foothold since
1994. With this deal the company became the worlds third largest producer of spirits
and six in wine market in 2004.
In July 2005, Pernod Ricard successfully acquired the UK based Allied Domecq for $14.1
billion which ranked 2nd in the world with its famous brands Beefeater Gin, Stolichnaya
Vodka, Montana, Mumm, Perrier-Jouet Champagnes. The aim of this acquisition was to
enable the Group to strengthen its presence in markets with high-growth potential (North
America in particular) and to round out its portfolio by adding a number of new white
spirits and liqueurs.
The effectiveness of Pernod Ricards growth model was demonstrated unequivocally by
its ability to overcome the worldwide economic and financial crisis of 2008, due to its:

Rounded portfolio of premium brands

Global sales network and leading positions in emerging markets.

III. Company Assessment

1. International Strategy
Year

Company

Reason

Country

Creation of Pernod Ricard

To become a major
French beverage
company

France

1975

1976

Acquisition of Campbell Distilleries

(Scotch Whiskies)
Purchased Cusenier

No International
brand in their
portfolios. They
were expanding
their portfolio of
white spirits and
wine to increase
their global
presence and get
access to
established sales
and distribution
structures

Scotland
Argentina

1985

Ramazotti

Italy

1988

Irish Distillers

1989

Orlando Wyndham (Wine)

1993

Created Havana Club International

(Rum)

1994

Altai Brand of Vodka

1997

Larios (Gin, Brandies and Wines)

1999

Yerevan Brandy Company

To obtain
international
distribution rights

Armenia

2001

38% equity in Seagramacquisition of 4 major brands

To cater to
opportunities in the
Asian Markets
where Seagram
had a strong
foothold

Asian Markets,
especially India

Ireland
Australia
Cuba
Russia
Spain

2005

Acquisition of Allied Domecq in

partnership with Fortune Brands

Enabled PR to
become worlds
number 2 wine and
spirits operator

World

2008

Purchased V&N Group including

their Absolut Vodka

Very popular in
Europe

Sweden

2013

6 Affiliates set up operation in

African countries

To accelerate its
presence in the
African Continent

Ghana, Kenya,
Nambia, Morocco,
Angola and Nigeria

2014

Acquisition of Kenwood (Premium

Californian Wine)

To increase its
shares in Super
Premium Tequila
Avion

USA

2. McKinseys 7S Framework

Strategy: Premiumisation, Innovation and expansion into new markets- based on long
term vision. The Top 14, composed of the 14 strategic brands, posted record growth of
10% in value this year, and now represents 60% of the net sales. It also concentrates
more on its core wine and spirits business and divested its non-alcoholic business which
helped finance the purchase of Seagram and Allied Domecq.
Structure: Decentralized model where the holding company is responsible for defining
overall Group strategy and managing its implementation, as well as overseeing the
Groups activities, setting objectives and creating an environment for best-practice
sharing across all subsidiaries. The management teams of these subsidiaries operate as
if they were running their own companies and so are entirely responsible for operational
decisions.
System: Internal control and risk management system in relation to the company
financial reporting process, automated systems for manufacturing, waste disposal
system. To guarantee that its products are of the highest quality, the Group does the
majority of its product manufacturing in-house and may occasionally use subcontractors.

Style: Pernod Ricard encourages straightforward, direct relationships across hierarchical

boundaries to speed up decision-making. The Group promotes opportunities for its
employees to mix with the aim of fostering the exchange of ideas and experience.
Staff: Over 18,000 employees in 80 markets across 3 major regions. They are highly
committed towards achieving the visions and missions of Pernod Ricard.
Skills: The Pernod Ricard Research Centre (CRPR) has technical expertise and material
resources (analysis equipment, pilot workshop) that is unrivalled in the spirits industry. It
is also available to provide direct technical support for affiliates, the Holding Company
and the Groups innovation structures (BIG, Kangaroo Fund) for the development of new
products, process improvements and food safety.
Shared Values: Entrepreneurial spirit is at the core of Pernod Ricards identity. It is a key
part of Pernod Ricards management philosophy because of the Groups decentralised
nature. Pernod Ricard expects all its employees to have a strong sense of ethics, with
respect and transparency as its watchwords and promotes mutual trust between its
people and entities.

3. VRIN ANALYSIS:
VRIN
Framework

VALUABLE

RARE

INIMITAB
LE

NONCompetitive
SUBSTITUTAB Implications
LE

Brand Equity
(Tacit
knowledge)

Yes

Yes

Yes

Yes

Sustained
Advantage

Entrepreneurial
Culture

Yes

Yes

Yes

Yes

Sustained
Advantage

Distribution
Strategy
(synergy)

Yes

Yes

Yes

Yes

Sustained
Advantage

Decentralized
Operational
Structure

Yes

Yes

Yes

Yes

Sustained
Advantage

Premiumisation
and Innovation

Yes

No

Yes

Yes

Competitive
Parity

Leadership

Yes

No

No

Yes

Competitive
Parity

Commitment to
Ethics

Yes

Yes

No

Yes

Competitive
Parity

Marketing

Yes

Yes

No

No

Competitive
Parity

4. SWOT

Weaknesses
-Declining liquidity position
-Legal hassles

Strengths
-Geographically diversified
operations
-Strong brand portfolio
-Strong solvency position

SWOT
Threats
-Economic instability of EU nations
-Expansion by competitors
-Fluctuations in raw material costs
-Limitations on commercialization

Opportunities
-Growing spirits market in the US
-Increasing consumption of wine in
the US
-Product and brand innovation

IV. Market Assessment: Global Spirits & Wine Industry

1. Global Distance Study: CAGE Analysis

Observations: It is seen that China, Australia and Japan are very similar to France as the
CAGE distance between them is very less. This distance between USA, SA, UK and France
is also low but India is very far from France on the basis of the CAGE distance. That
implies the entry strategy for high distance countries have to be different as compares to
the ones with low distance.

2. Risk Assessment: Global PESTEL analysis

Opportunity/Risk
Assessment

Positiv
e
Effect

Negativ
e Effect

Observation

Environment
Global number of 15-34 year
olds increasing.

15-34 year olds spend the most on alcohol

and are key target market.

Asia
currently
consumes
roughly half of whisky sold
worldwide. Expected to rise to
70% by 2017

Emerging markets for Pernod Ricard in India,

China, and South-east Asian countries.

Social/Cultural
High end brands are growing
in demand across the world.

Pernod Ricard is a premium brand carrier

with successful premiumisation strategy.

Consumers
have
used
beverage choices to signal
individuality or sophistication.

People want to identify with a premium/UltraPremium brand.

Increased
consciousness
healthier and
brands

Pernod Ricard has 4 categories of premium

brands: Prestige, Ultra, Super & Premium
strategies in different countries

healthincreases
high priced

Political/Legal
High Trade Tariffs in emerging
countries
Strict laws and regulations on
alcohol advertising.

Can lead to difficulties

emerging markets.

importing

into

Creates high costs in marketing department.

Economic
Emerging Markets beginning
to have a more disposable
income.
Asia alcohol market has seen
30% growth for 3 consecutive
years.

Emerging markets become more westernized

and having more disposable income may
lead to higher alcohol sales.
Key drivers of growth were single malt
Scotch whisky, brandy, fortified wine and
domestic premium lager.

Decreasing per-capita
consumption in countries like
US, UK and Australia

Declined sales volume in market companies

like USA, UK, SA despite increased market
share.

Slow economic growth and

aging population in Europe

28% of Pernod Ricards net sales come from

Europe.

Technological
The need for distilleries that
can produce gluten free
products is on the rise.

We have the resources and capital to create

these products.

Online market for buying and

selling
alcohol
related
products.

This causes more competition for Pernod

Ricards products in retail stores.

3. Competitive Landscape Analysis: Advantage Framework

Comparative Advantages of Countries

No Advantage

Advantage

I
-Inter-industry Trade
-International Vertical integration of firms
-Nationally Segmented Markets

No Advantage

Competitive Advantages of Firms

II
-Intra-industry Trade
and horizontally integrated firms with different
-International
configurations
Horizontal
of Market
integration
penetrations
of firms
and sourcing sites
Advantage

Observation:
Pernod Ricard lies in the third quadrant (III) as it has been successful in leveraging both
its competitive and comparative advantages through clever acquisitions, seamless
integration and organic growth.

V. Discussion: Performance Evaluation

Region-wise Performance:

WEIghts of different regions

Others; 4%
Asia; 7%
Oceania; 2%
Africa-Middle East; 3%
Central & South America; 7%
Eastern Europe; 7%

Western Europe; 32%

North America; 38%

ASIA
As the worlds most dynamic zone and the growth engine for the Group, Asia chalked up
spectacular advances. At the forefront are China, where sales volumes rose by 50% this
year, and South Korea, where the Group saw its market share for whisky jump from 4% to
35%** following the acquisition of Allied Domecq. India is also among the frontrunners,
while Thailand experienced difficulties associated with an unstable political-economic
situation.
Europe
Russia, Greece and the Scandinavian countries progressed rapidly, Italy and Germany
had to cope with a more difficult environment. Europe, which nonetheless remains the
Groups primary region with more than 30% of volumes, was however able to derive
benefits from the acquisition of Allied Domecq.
America
The Americas Region is indisputably the one that has most benefited from the Allied
Domecq acquisition. Pernod Ricard now has a leading position on the three North
American markets, the United States, Canada and Mexico. In the United States, where
the Group now ranks 3rd, the potential for growth is enormous. In Latin America,
performances over the past year have been exceptional: Pernod Ricard is No. 1 on a
market that just keeps growing.
Pacific
Following the acquisition of Allied Domecq, Orlando Wyndham Group (OWG) and Allied
Domecq Wines New Zealand (ADWNZ) were merged to form a new entity, Pernod Ricard
Pacific. Created in February 2006, the subsidiary plays a dual role: Brand Owner for the
Groups Australian and New Zealand wines and distributor of the entire Pernod Ricard
brands portfolio for the Pacific region.

Volume-wise Performance:
Breakdown of International Spirits Consumption

2%
2%
6%
14%
7%
18%

51%

White Spirits and

Rums

Other Whiskies

Scotch Whiskies

Cognac and Brandy

Liqueurs

Bitters

Anise Based Spirits

Breakdown of Pernod Ricard's Volumes

3%6%
7%
4%

28%

17%

White Spirits and

Rums

Other Whiskies

Scotch Whiskies

Cognac and Brandy

Liqueurs

Bitters

Anise Based Spirits

35%

World Ranking of Pernod Ricard

White Spirits and Rums: No. 2
Other Whiskies: No. 1
Scotch Whiskies: No. 2
Cognac and Brandy: No. 2
Liqueurs: No. 2
Bitters: No. 2
Anise Based Spirits: No. 1
Entry Mode Rationale: Localization vs Globalization

Countri
es

CAGE
Distanc
es

Mode of
Entry

India

HIGHEST

Acquisition of
Seagram

LOW

Acquisition of
Seagram

LOW

Acquisition of
Seagram

HIGH
HIGH

Marketing of
premium
Vodka and
Whiskey
Brands
Set up

China

Japan

USA
SA

Risk
High
Political
and
Administra
tive Risks
High
Economic
Risks- Low
consumpti
on
No Risk as
of Now.
Social Risk
in the
future
High
Economic
RisksChanging
consumpti
on patterns
High

Form

Rationale of
Strategy

Market
Company

Localization with four

key brands

Brand
Company

Adaptation to the
local tastes and
flavors

Brand
Company

Adaptation to the
local tastes and
flavors

Market
Company
Market

Increasing demand
Access to local

operations

UK

Australia

HIGH

Acquisition of
Allied
Domecq

LOWEST

Purchase of
Orlando
Wines

Political
Risks
High
Political
and
Economic
Risks
High
Economic
RisksDeclining
demand

company

markets and
international exports

Market
Company

Premiumisation

Brand
Company

To expand its sales

and distribution
network

VI. Alternative Recommendation

VII. Appendix
CAGE ANALYSIS METHODOLOGY
The cultural parameters were taken from Hofstede Index and the ratings were assigned
accordingly. The administrative parameters were referred from the ease of doing
business site, economic parameters were taken from the PCI Index and geographic
factors were taken from census. The parameters were chosen on the basis of relevance
and the values were found individually for each of the countries. The final score that was
calculated was normalised to achieve the desired result.
PEST Analysis for Asia
JAPAN
Political Factors
Japan is a politically stable, multi-party democratic constitutional monarchy with a bicameral legislative system (CIA 2012). It is the worlds only country with a pacifist
constitution, although it does currently have the 4th highest military expenditure (GFP
2011).This is mostly driven by security issues due to territorial disputes with
neighbouring Peoples Republic of China (China), Republic of China (Taiwan), Republic of
Korea (South Korea) and the Russian Federation, as well as the threat of conflict with the
Democratic Peoples Republic of Korea (North Korea).
Economic Factors
With a population of roughly 126 million, of which its labour force is 62.64 million strong
(MoIA 2011) and only 2.88 million unemployed, Japan is a market with huge sales volume
potential. It is the 16th largest beer consumer in the world (GMID 2002). Despite the
bursting of the Japanese bubble in the 1990s, Japan remains a strong exporter and in
fact, due to the on-going recession. Traditionally strong and deliberately byzantine import
regulations have weakened over the last decade, although imported goods do tend to be
sourced from within East and South-East Asia, and in particular it must be noted that
trade and cultural relations with neighbouring Republic of Korea have rarely been
stronger.
Societal/Cultural Factors
Japan is an East Asian country with a unique culture based on powerful native belief
systems of Shintoism and Bushido influenced by India (Buddhism), China (Confucianism),
and the West* (nationalism, imperialism, democracy) (Nitobe 1900). This diverse and

mixed heritage has led to Japan being described by many as a country of contrasts.
From a market entry viewpoint for an alcohol beverage product, however, the most
pertinent societal and cultural factors are the following:

the legal drinking age is 20, the traditional age of majority;

alcohol is an essential social tool with important community functions similar
(though not identical) to the role of coffee in Arab countries, or tea in the United
Kingdom;
beer drinking is a non-gendered activity (doubling the potential market for such
drinks);
fruit-based alcoholic drinks are also non-gendered (doubling the potential market
for such drinks);
long working hours, and lifestyles built around them, mean that many Japanese
drink alcohol every night of the week;
drinking alcohol on public transport and in public places is socially acceptable
(one of the main root causes for the rampant success of Ready-To-Drink (RTD)
products in Japan);

An important demographic feature of the Japanese population is that they have one of
the oldest populations of any country with over 35 million people over 55 years old, this
longevity often being attributed to a Japanese lifestyle and diet (Bennett and Blythe
2002).
Technological Factors
Despite Japan being known for its high technology exports, the use of technology within
the country can seem to lag behind many foreign visitors expectations (Kerr 2002). The
only relevant technological issues for marketing an alcohol product in Japan, however
relate to data storage practices, distribution of goods and the role of the internet in
marketing/sales. Despite being well known for its computers, many Japanese
organisations from banks and the post office, to schools and private firms tend to use
computers as a back up and paperwork still very much means work with paper (Morris
2002). This is commonly ascribed to a combination of labour laws that make it very hard
for firms to fire employees, and the English-language centric nature of a lot of the
software available to those organisations.
PESTEL India:
Political:

There is a very high level of taxes being levied on the liquor companies. Right from
the acquisition of raw materials to selling the final product, each and every step
involves payment of a high amount of taxes or duties. This makes it very difficult for
liquor companies to make high margins.
There are strict restrictions on direct advertising of alcoholic products in the whole
country. This makes it very difficult for the liquor companies to increase awareness
about its products within the market.

Economic:

The latest economic surveys show that there has been a rise in the level of
disposable income of an average individual of the country. This poses a great
opportunity for the liquor industry as liquor is already seen as a luxury product.
The lending rates to liquor companies have been increased by the banks as a result
of the lower margins being raised by those companies. This has posed serious threat
for the industry, because sooner or later every company needs to approach the banks
for financial support.

Sociocultural:

There are various religious and cultural barriers against consumption of liquor in most
parts of the country. Some religions dont permit drinking, while some cultures have
been looking at it as a vice. Fighting these perceptions is the prime requirement of
the industry.
With the changing times and increase in modernization of the country, the
acceptance of liquor has increased amongst the youth. This again raises a market
segment to be tapped by the industry.

Technological:

With the advent in the field of biotechnology, new, cheaper and easier ways of
blending and malting have been discovered. This has helped the companies to cut
down heavily on the costs incurred on production.
The spare grains left after the manufacturing of malted scotch whiskies are now being
used in new ways to broaden the product line and offerings of the companies.

Environmental:

Since all the distilleries use a lot of water to produce their products, there is always a
problem faced regarding water pollution. A no. of steps have been taken in the
direction, but the problem still remains.

Another environmental concern is regarding the emission levels of the manufacturing

plants. Also waste disposal planning is an important activity undertaken by these
companies towards controlling environmental pollution.

Legal:

Alcoholic beverages have been facing different types of bans in some parts of the
country. E.g. Gujarat has banned the manufacturing and sale of these beverages in
the entire state; whereas some of the north-eastern states have banned the
manufacturing units of alcoholic beverages in their territories.

PESTEL UK and Europe

Political

Changes and reforms of Licensing Laws in line with Government policy

Relaxation of opening hours and late night opening
National minimum wage increase affecting salaries and wages
EU influence and legislation regarding measures of drinks
EU and National Government guidelines regarding health
Local and National Government concerns regarding negative aspects of binge
drinking
Budget increases in duty on alcohol

Economic

Social

National and international economic downturn means people generally have less
disposable income for socialising
Rise in staff wages due to National Insurance and Minimum Wage increases
Cut price offers for alcohol in supermarket promotions
Increases in transport costs in line with Fuel pricing

Culturally pub centre of social life, place to meet friends and for locals to socialise
Easily accessible as pub situated close to Town Centre on main route in and out of
town
Localised venue known for gigs, live music, themed nights for younger consumers
Demographically increased local student population
Media concern with negative aspects of binge drinking
Increased awareness of health concerns
Increased advertising on mainstream media of consuming alcohol responsibly
Wider choice and taste of alcoholic drinks in supermarkets for consumers

Technological

Developments in delivery of cold beers and chilled ale

Development of wide range of flavoured alcoholic drinks
Local interest in nightlife promoted via multimedia, websites, blogs and social
networking
Advertisements for alcohol awareness and responsible drinking on mainstream
media
Increased advertisement for alcohol brands via multi media

Legal

Smoking Ban
Stronger enforcement of underage drinking regulations on local and national level
Changes in Drink Driving Laws
EU legislation on measures of drinks served

Environmental

Recycling
Waste, litter, refuse produced in local area
Transportation and delivery costs of goods