Brown Forman Corporation Case

Case Study – Strategy Report

Brown-Forman Corporation
(Jack Daniel’s)

Strategic Issues Considered:

Resource-Based View
Product/brand reputation
Organizational culture

International Expansion

Sustainability Risk

Course: Strategic Management

KEY ISSUES From reviewing the book case study and researching the Brown-Forman Corporation, there are several key strategic concepts and issues that characterize the company. The issues addressed in this strategy analysis include the strength of their product and brand reputation, international strategy, and future sustainability of Brown-Forman’s successful wine and spirits products. From a Resource-Based View, Brown-Forman has
maintained a competitive advantage over competitors through their strategic assets of product and brand reputations and organizational culture. The Resource-Based View is the concept that a company’s resources are the main determinant of a sustainable competitive advantage and superior performance. These resources are considered strategic assets through being simultaneously valuable, rare, nonsubstitutable, and imperfectly imitable. Through their Jack Daniel’s brand and other products, Brown-Foreman has been able to maintain successful performance through applying a consistent product and brand strategy. They have relied on the simple black label of Jack Daniel’s and a small-town roots marketing strategy for both domestic and international business to maintain a sustainable competitive edge. By maintaining a consistent brand strategy, they have created a strong strategic asset in product and brand reputation. Additionally, their strong culture has played a key role in their ongoing success. Brown-Forman’s culture consists of integrity, respect, trust teamwork, and excellence which guide them in their day-to-day business. It’s this culture that consumers have become familiar with and loyal to that has given the Brown-Forman company another key strategic asset through company reputation. With the globalization of business, Brown-Forman’s global expansion is another key strategic issue to evaluate. Recently, along with competitors, Brown-Forman has enjoyed significant success by expanding abroad. However, with the recent downturn in the overall global economy, Brown-Forman’s international strategy for wine and spirits may need re-evaluated. In 2007, Brown-Forman’s international revenues accounted for 46.6% of the company’s total revenues. The company has been able to gain and maintain international growth through their consistent brand strategy and the tailoring of advertising to align with local overseas cultures. In order to maintain their continued international success, Brown-Forman may need to re-assess its international strategy as its current strategy and success may be adversely affected by the global economic crisis. Sustainability is another key issue as Brown-Forman looks to the future. They have been able to maintain and sustain strong overall company performance at the domestic and international levels when compared to competitors. However, looking into the future, Brown-Forman is presented with risks that may affect their future success and sustainability. Some of the issues that may affect their current competitive sustainability include overall economic conditions, industry consolidation, new government regulations, growing wine markets, and changing preferences of both domestic and international consumers. A failure to recognize and strategize for these potential future issues could be detrimental to Brown-Forman’s overall future success and sustainability.
ALTERNATIVES
For Brown-Forman to remain both domestically and globally competitive, they must continue to leverage their strategic assets of brand and company reputation and consider strategizing for future alternatives and opportunities in order to maintain growth and sustainability. Some strategic alternatives for Brown-Forman to consider are international growth through acquisitions and mergers, improving operational practices, focus on growth of wine market, and understand future changing preferences of consumers. Brown-Forman should look at an acquisition and merger strategy on a global basis which may lead to additional markets for their wines and spirits. Brown-Forman should review global operations in order to identify synergies and process improvement opportunities such as their production redundancies and low inventory turnover. Focusing on the global wine market is another alternative for Brown-Forman to consider as a way to grow the company and its revenues. Americans have become some of the largest consumers of wine over recent years. American consumers are expected to account for approximately one quarter of the global wine consumption while wine consumption is growing in other countries as well. Previously the wine market has been dominated by France and Italy producers. The growing of their presence in the global wine market is a key alternative for Brown-Forman to consider.
With the changing global economic conditions, Brown-Forman must continue to review, analyze, and strategize for consumer preference changes. Some of these changes are affecting personal income which may result in less dining out, less liquor consumption, more beer consumption, and cultural changes. By practicing industry foresight, Brown-Forman may be able to anticipate changes better than its competitors.
ALTERNATIVES (PROS AND CONS) For Brown-Forman to remain competitive and successful, they must look to the future in terms of new opportunities and alternatives for continued growth. When evaluating their possible alternatives, Brown-Forman must consider the positives and negatives associated with any changes in strategy and be willing to accept trade-offs in order to implement new strategies for additional opportunities and alternatives. Through leveraging their brand and company reputation, Brown-Forman will continue to achieve a competitive advantage in the market place both in the US and abroad. Their brand loyalty allows them to differentiate themselves from competitors which will lead to continued revenue growth and increased market share. The failure to continue to globally promote their intangibles strategic assets of brand and company reputations will lead to a decrease in revenues and market share. The strategic alternative of focusing on international business growth through acquisitions and mergers presents a couple of advantages to Brown-Forman. First, by growing their international business, the company may reduce their dependence on the domestic market. Secondly, further international expansion would increase its revenue streams from other potential markets thus leading increased profitability if done in a cost effective manner. Third, through acquisitions and mergers, they may obtain both cost and operational synergies as well as other strategic benefits that will contribute to improved and increased financial growth. The downside of further international growth may require additional resources both domestically and abroad, added costs, additional capital requirements, and potential organizational culture issues that arise through acquiring or merging with other companies. By reviewing current operational activities and functions, Brown-Forman can improve upon their current cost structure and profitability. Production efficiency and their inventory utilization are two areas where improvements may be beneficial to their cost structure and profitability. Traditionally, Brown-Forman inventory turnover rate has been poor when compared to their competitive industry. By improving production efficiencies and inventory turnover rates, Brown-Forman would reduce some if its cost and improve its product margins. The negative side to improving operational processes includes increased capital for improvements, possibly additional resources for new projects, and increased short-term costs. Additionally, the failure to do any continuous improvement may lead to increased costs and decreased margins due to inventory being discounted for sale because of poor inventory management. The alternative of placing a greater emphasis in growing the US wine and international markets provide several positives for Brown-Forman. By growing these markets, they will increase their consumer base, increase revenues and profitability potential. The downsides to this alternative include the time and resources needed to research the wine markets and the risk of jeopardizing their spirits brand reputations due to a more concentrated effort in the wine markets. With the changing world economics, Brown-Forman needs to continuously review and understand the potential changes in consumer preference and market conditions to remain competitive and profitable. By understanding what the future may potentially hold, they will be able to plan accordingly in a cost effective manner and be in a better position for success than the competition. A failure to perform industry foresight and adapt to changes will eventually lead to lost business to competitors resulting in decreased revenues and profits and potentially overall company collapse.
RECOMMENDATIONS
I would first recommend that Brown-Forman continue to focus growing their spirits business both domestically and abroad. There are some markets such as Latin American that can be explored for growth as well. The company can continue the growth of these markets by relying on and promoting their existing strong product and brand reputation for Jack Daniel’s and other products. The current brand strategy has provided significant positive results for the company by providing a sustainable competitive edge and should be continued to be leveraged. A second recommendation would be to concentrate on the US and global wine markets. In reviewing information and data for this company, the US and global wine markets are growing and the opportunity assist for Brown-Forman to tap into this market. Some data predicts that Americans will soon become the largest consumer group of wines and traditional French and Italian wine producers are susceptible to competition. With Brown-Forman’s reputable wine products, the growing global wine markets are a great opportunity to increase revenues and profitability. I would suggest that they rely on their strategic assets of company and brand reputations to promote and grow their wine business. Thirdly, I would recommend that Brown-Forman be sure to focus on the future through practicing industry foresight. As discussed in class and reviewed in Seeing the Future First article, industry foresight is the process of trying to gain an understanding better than competitors the trends that may effect the industry and competitive landscape. Brown-Forman has enjoyed success with their Jack Daniel’s and other products on both the domestic and international levels. However with the ever changing global economic conditions of today and affects it may have on consumer habits and preference changes, it is critical for Brown-Forman to understand the future in order to establish a leadership position in their markets.
IMPLEMENTATION CONSIDERATIONS There are several implementation considerations that are common to the above recommendations. With the continued effort towards growing both their wines and spirits markets on a global level, Brown-Forman must consider implementation factors that include current economic conditions and projections, cultural preferences and differences, current and future government regulations, additional resources including capital and people, and increased costs. The major economic concern would be that of the current state of the global economy. With less people working and less disposable income to spend, sales would likely decrease. Other economic considerations would include such items as the currency fluctuations and international taxing policies. One must consider cultural issues that may affect the business. Brown-Forman will have to have a good understanding of cultures and consumer preferences within potential markets in order to implement the appropriate strategy for a particular market. Brown-Forman will need to be cognizant of government regulations both domestically and internationally as they attempt continued growth and expansion. Traditionally, the alcohol industry has been heavily regulated with regards to advertising. Other considerations of note are trade barriers, tariffs, and taxes which can have significant impacts on exports. The issue of possible additional resources and added cost must be considered with a continued growth strategy. These resources may include time, capital, and employees all of which come at an additional cost to the company.

Appendix I

COMPANY DESCRIPTION

The Jack Daniel’s brand is produced by the Brown-Forman Corporation. Brown-Forman produces and markets many of the most well-known and best-loved wines and spirits in the world. Some of their popular spirits include Jack Daniel’s, Canadian Mist, Southern Comfort, Gentleman Jack, and Early Times. A few of their wine labels include Fetzer, Bolla, Bel Arbor, and Michel Picard. The Brown-Forman Corporation is one of the largest American-owned companies in the wine and spirits business. They are considered a top diversified producer and marketer of fine quality consumer products within their industry. Headquartered in Louisville, Kentucky, Brown-Forman was founded in 1870 by George Brown and John Forman as small town distillery producing Old-Forester brand bourbon. They compete in the distillery industry that includes about eighty companies with combined annual revenues of $ 6 billion. Today, the company employs approximately 3800 people in the U.S. and abroad. For fiscal year 2008, the Brown-Forman company had sales revenue of approximately $ 3.3 billion with a net income of $ 440 million.
In 1956, Brown-Forman purchased the Lynchburg, Tennessee-based Jack Daniel’s. They maintained the simple black Jack Daniel’s label. The Brown-Forman Corporation has found global success by introducing Jack Daniels to overseas markets. The Jack Daniel’s product is the company’s leading brand and is the largest selling American whiskey by volume in the world. Brown-Forman has been able to grow the Jack Daniel’s brand in the U.S. and internationally through building a strong brand strategy. They have built their success through promoting the image of a small town Tennessee distillery for the brand with strong company’s values which has worked within in their international expansion as well.
The company continued to expand its alcohol and non-beverage line throughout the years. Some notable acquisitions included Canadian Mist in 1971 and a top-selling liqueur Southern Comfort in 1979. In 1988, they launched Gentleman Jack Rare Tennessee Whiskey which was the first new whiskey to come from its Jack Daniels distillery in more than 100 years. The company also expanded through non-beverage acquisitions including Lenox (maker of fine china, crystal, and gifts) and Dansk International Design (maker of china and crystal). However, in 2007, the company decided to solely focus on their alcoholic beverage business and sold all its remaining non-alcohol related business units.
Today, the company continues to experience success for their brands through the promotion of their strong company values, corporate governance practices, social integrity, and international strategies.

Appendix II

PURPOSE OBJECTIVES

What We Do

At Brown-Forman, we enrich the experience of life, on our own way, by responsibly building beverage alcohol brands that thrive and endure for generations.

Vision

Our vision is to be the best brand builder in the industry, and in order to accomplish that vision, we focus on five strategic imperatives that drive our actions.

Building Strong Consumer Franchises

Building powerful, long-lasting friendships between our brands and consumers is essential to growing brands.

Winning at the Point of Purchase

We must engage the consumer and trade with flawless execution of our brand plans through the optimal route to consumer.

Allocating Resources Superbly

By deploying our financial and human resources to their highest and best use, we can focus on our priorities more effectively.

Developing and Engaging Exceptional People

We strive to continually grow, enable, and recognize the people who build our brands profitably in all different ways throughout the company.

Being Responsible in Everything We Do

To us, this means leading by example. It means making decisions and taking actions that drive social, environmental, financial, civic, and personal responsibility.

Values

Integrity, Respect, Trust, Teamwork, Excellence

Appendix III

INTERNAL ANALYSIS

Jack Daniel’s position on a SWOT analysis chart would most likely fall within cell 1, supporting an aggressive strategy. The company has a majority of internal strengths over weaknesses leading it into the sectors on the right of this chart. Despite the risks of the declining economy there are a number of environmental opportunities present for Jack Daniel’s to push the company’s position above the horizontal line. The company’s major internal strengths focus around its consistency in the product and brand strategy. Jack Daniel’s marketing strategy and brand have been consistent since 1957. The company uses the image of the simple black label and old distillery photographs in its advertisements. Focusing on the small-town roots has allowed Jack Daniels to increase appeal globally and avoid anti-American sentiment. The company retains full control of all global advertisements through its U.S. advertising agency ensuring the consistency of the brand message. Jack Daniel’s has also done a good job of understanding local culture and tailoring the company advertisements to the region. For instance, in some areas customers respond better to photographs of the distillery and in others the Jack Daniel’s bottle. Jack Daniel’s has supported its global growth by expanding global distribution networks and language options on the company web site. The company does not have any major weaknesses currently identified. However, Jack Daniel’s should understand that young consumers at some point may no longer connect with the old time distillery and down-home message. The parent company, Brown-Forman also experienced a shard decrease in cash and increase in short-term debt over the last two years as it completed two key acquisitions. While this growth appears good for the company, with the current economy the decrease in available cash may have left the company in an unfortunate situation. There are a few key opportunities the company is presented with in the current global market. First, the weak dollar will benefit the export market making the brand more affordable to foreign consumers. Second, trade barriers with key foreign countries have been lifted recently opening up these markets to Jack Daniel’s. Finally, young drinkers around the world are showing a preference to premium American whiskey. This trend in consumer preference is obviously very favorable towards Jack Daniel’s. Combined with a foreign trend that has increased cocktail consumption overall the week dollar, open markets, and preference for brands like Jack Daniel’s presents an overall opportunity in foreign markets for the company. Despite the large opportunity the company must be aware of looming threats. The trend towards American whiskey is not specifically for Jack Daniel’s. Direct competitors are also realizing the benefits of this market and are expanding their business, domestic and abroad, as a result of these trends. The deteriorating economic conditions in the U.S. and abroad present considerable threats to the company. While the weak dollar benefits U.S. exporting sales, if consumers income and confidence decreases their consumption of premium drinks will probably drop as a result. Reduced travel, bar, and restaurant sales as a result of the economy are also a major threat to Jack Daniel’s sales. Constantly looming threats also include trade barriers, currency fluctuations, material price increases, and marketing regulations all of which can vary at any time. Finally, a major threat to the company would be a change in consumer preference. This would obviously have a large effect on the current market moving Jack Daniel’s into the lower half of the SWOT analysis chart.

Appendix IV
FINANCIAL RATIOS
Financial analysis is a quantitative tool used to assess the financial health and stability of a firm. This is primarily accomplished by calculating various ratios from the firm’s financial statements and comparing these ratios with other competitors within the industry. Comparisons can also be made between ratios from the current time period and ratios from historical data for the same firm. Care should be taken to ensure that comparisons are made between similarly sized firms within the industry. The most popular ratios used in this analysis include Profitability, Liquidity, Leverage, Activity, and Valuation ratios.
Profitability Ratios
Profitability ratios are used to assess a business’s ability to generate earnings as compared to its expenses in a given time period. Three of the more popular Profitability ratios include: Return on Equity-which measures how much profit a company is generating with the money the shareholders have invested, and is calculated as (Net Income/Shareholder Equity)
Return on Assets measures how much profit a firm generates in comparison to its total assets, and is calculated as (Net Income/Total Assets).
Gross Profit Margin is used to assess a firm’s financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. It is calculated as ((Revenue-Cost of Goods Sold)/Revenue).
In all three of these ratios, the higher the number the more attractive and stable the firm is thought to be. The following chart defines these ratios for Brown-Forman Corporation.

Year
Return on Equity
Return on Assets
Gross Profit Margin
2008
26.4%
12.7%
51.6%
2007
22.9%
11.0%
52.8%
2006
22.9%
11.7%
54.2%
2005
25.7%
11.6%
52.7%
2004
27.1%
10.7%
51.4%

These ratios indicate consistent performance for Brown Forman Corporation and a strong foundation for future performance. Further comparisons should be made against competitors within the industry for a clearer picture of the firm’s position.
Liquidity Ratios
Liquidity ratios are used to assess a firm’s ability to pay off its short term debt obligations. Generally speaking, the higher the value of the ratio, the larger the margin of safety.
Two of the more popular liquidity ratios include the current ratio and the quick ratio.
Current Ratio-compares current assets with current liabilities and is also known as a cash asset ratio or simply a cash ratio. A current ratio less than 1.0 indicates an inability to pay off short term obligations if they came due at this point in time. The current ratio is calculated as (Current Assets/Current Liabilities). If companies cannot convert inventories quickly, this ratio may be overstated.
Quick Ratio focuses on the firm’s ability to meet short term obligations with its most liquid assets. This yields a more conservative comparison than the current ratio and is calculated as ((Current Assets-Inventories)/Current Liabilities). The following chart defines these ratios for Brown-Forman Corporation.
Year
Current Ratio
Quick Ratio
2008
1.46
.8
2007
1.21
.7
2006
2.83
1.93
2005
2.12
1.32
2004
2.06
1.43

These ratios indicate that Brown-Forman has been doing a good job managing short term obligations and have not overextended
Activity Ratios
Activity ratios are a set of ratios used to measure a firm’s ability to convert different accounts from their balance sheet into cash or sales. Two of the more popular activity ratios are the asset turnover ratio and the inventory turnover ratio.
The asset turnover ratio measures the amount of sales generated for every dollars worth of assets, and is calculated as (Revenue/Assets). This is an efficiency measure in that it reviews how the firm is using assets to generate revenue. It may also indicate pricing strategy in that companies with low profit margins tend to have high asset turnover while those with high profit margins have low asset turnover.
The inventory Turnover ratio provides information on how many times a company’s inventory is sold and replaced within a period. Caution should be taken when reviewing this ratio and should be compared with the industry average. A low turnover may imply poor sales and therefore excess inventory. High turnover may indicate strong sales or poor buying habits. The following table indicates year over year consistency, however compared to the industry average, Brown-Forman is lagging. This is an important consideration as high inventory levels are unhealthy as they represent an investment with a return of zero. This is also risky as firms stand to loose if prices begin to fall.
Year
Asset Turnover Ratio
Inventory Turnover Ratio
2008
.76
3.77
2007
.62
3.19
2006
.71
3.8
2005
.68
3.85
2004
.93
3.97

Leverage Ratios
Leverage ratios are used to determine a firm’s ability to meet its long term obligations. There are a number of rations available, and one of the most common is the debt ratio. The debt ratio is calculated as follows: (Total Debt/Total Assets). This number indicates the amount of debt used by the firm to finance the firm’s assets.
Year
Debt Ratio
2008
.49
2007
.56
2006
.43
2005
.50
2004
.54

Brown-Forman has performed well in managing the degree of leverage used in managing operations. This position is rather conservative; however it positions them to address opportunities for growth as they present themselves.
Valuation
Valuation is the use of a set of ratios and statistics in determining the current worth of an asset or a company. This is a complex undertaking and requires an overall review of the firm. One of the most frequently used ratios in valuation analysis is the price earnings ratio. The price earnings ratio compares a company’s share price with it’s earnings per share. Higher price earnings ratios suggest investors are expecting higher earnings growth in the future compared to companies with lower price earnings ratios. Care should be taken to only compare ratios of companies within the same industry, the market in general, or the firm’s own historical price earnings. Brown Forman’s PE ratio is 15.62 which is comparably higher than the industry average.

Competitor Comparisons
The following chart provides comparison information from key competitors of Brown-Forman and the industry average. What the chart indicates is strong performance by Brown-Forman in a number of areas and opportunities to improve, specifically in the area of inventory turnover.
Ratio
Brown-Forman
Fortune Brands
Diageo
Industry Mean
ROE
26.40
12.10
26.50
10.9
ROA
12.70
4.60
8.80
4.0
Gross Profit Margin
51.60
49.90
59.90
29.30
Current Ratio
1.46
1.70
1.2
1.51
Quick Ratio
0.8
.80
.60
.90
Asset Turnover
.76
.60
.50
1.10
Inventory Turnover
3.77
1.90
1.20
6.80
Debt Ratio
0.49
.36
.47
.31
Price Earnings
15.62
7.56
--
13.09
Price Book
1.73
1.0
1.0
1.6

Appendix V
EXTERNAL ANALYSIS
Economic Factors The major economic factors concerning Jack Daniel’s include the decline of the U.S. economy. This is already resulting in a decline in foreign economies linked to the U.S. The economy is especially troubling for luxury and premium brands such as Jack Daniel’s as consumers may not have the discretionary spending to support premium products. The decrease in the U.S. dollar has provided a benefit to the company’s current exporting position. However, currency fluctuations can change rapidly and the company cannot count on this benefit long-term. In fact, while the dollar is weaker compared to most foreign countries one year ago, this is not the current trend. In the last month the dollar has gained some strength, particularly against the Euro.
Social Factors Social factors include the trends toward cocktails and bourbon in both the U.S. and foreign markets. A cocktail culture, or trend away from beer towards wine and spirits, has affected the global alcohol businesses. Further, younger drinkers are increasing their preference for bourbon. Jack Daniel’s Tennessee whiskey is technically a bourbon, and benefiting from this change in social preference. Even in Moscow, young drinkers prefer American whiskey over vodka. Different cultures have varying values and norms which affect the advertising message the consumers will respond to positively. For instance, some cultures appreciate the rich heritage of the distillery and Lynchburg home, but others, particularly those with consumers who may have moved from poorer regions, do not find this image inspiring. Jack Daniel’s must be aware of these cultural differences in the global market. The overall underlying message of Jack Daniel’s marketing strategy is consistency in the brand and company. During this time of uncertainty in the marketplace, a reliable brand may resonate with consumers who themselves are seeking stability.
Political Factors Trade barriers are major political factors that affect the success of Jack Daniel’s exporting venture. Recently, many trade barriers have been lifted to foreign countries improving the foreign market. However, trade barriers such as restriction, tariffs, and taxes can change quickly causing a negative effect on exporting. Government regulations regarding advertising have been strict recently for the alcohol industry. Recently, alcohol companies were found to be meeting the required standards so the regulations were not increased. The company must be aware of any adverse developments regarding alcohol industry marketing or trade practices. These regulations may also be increased in foreign markets, and Jack Daniel’s must be aware of any regulations in export countries. With the recent U.S. presidential election the company must be aware of any changes in the political climate stemming from the change to a Democratic government. This may include changes is regulations or taxes for the domestic alcohol industry. There may be subsequent international effects as in the current economic crisis as other country’s economies are linked to the U.S.
Technological Factors
Technological improvements in supplier management tools and communications will assist the company in its exporting businesses. This is already evident in Jack Daniel’s ability to retain control over global advertising. Technology should allow Jack Daniel’s to share information with global vendors developing strong relationships to work together for international success. Competitors will also have access to technological advances. Jack Daniel’s must be able to utilize the available information as well as or better than its major competitors.
Ecological Factors The major ecological factor for Jack Daniel’s is the recent trend towards “going green”. Both businesses and consumers are making efforts to have less of a negative impact on the economy. The natural limestone caves and distilling process do not appear to harm the environment, but the business should be aware of any practices it partakes in that may have a negative impact.

Appendix VI
INDUSTRY ANALYSIS
The liquor industry has had a rough history through the market, and is still in the process of finding better economic positioning, and higher quality markets to increase sales and profit. With beer being the top seller in the alcoholic beverage industry, liquor companies have worked through consolidation via mergers and acquisitions to create stronger, more resourceful firms. Many of the larger companies within the spirits industry have been created through mergers, and have become instructive to other companies in the industry as to how to become successful. It is necessary for those opposing companies to find the process to develop market strength and profit in order to succeed in the industry. The industry has been faced with the challenge of how it is to be regulated. This in turn creates questions within the industry as to whether the market forces would be able to stay structured within the regulation. Regulation within the liquor industry involved setting a floor on pricing which was “originally enacted to prevent predatory pricing in what was then referred to as a ‘carnival atmosphere’” (Singer 1). State regulation had imposed the rule of selling liquor for at least 12% above the wholesale price back in 1987, but it was not seen at the time to have any real effect on business (Singer 1). The regulation that was used did not deteriorate the sales in the industry, because of the difficulty in sales at certain times; there was no issue of competitive pricing. Within the liquor industry, the opportunity for mergers and acquisitions is available; however it does not always tend to lean towards the way of success within the market.
“You don’t have to be a giant to succeed,” said John Wakely, an analyst at Lehman Brothers, “From a consumer viewpoint, the fact that they have this giant portfolio is immaterial. It doesn’t affect your enjoyment. The history of consolidation in this industry hasn’t been a very good one. The success stories have been about individual brands, not success through consolidation” (Bagli 1). However, the companies that have merged and consolidated, such as Allied and Guinness have used this process to become dominant forces within the liquor industry. Consolidation allows for companies to enhance sales and is intended to give liquor companies complete control of their products (New York Times 1). “If you don’t go out there, the best distributor will belong to a competitor,” said Fiona Mathieson, an industry analyst. “By controlling brand and product rights through the point of sale, your own management skills are at test. You are effectively wiping out the competition” (New York Times 1). Therefore, the theory of consolidation allows for a company to build a single brand with many companies, and eliminate the struggles in succeeding with a one-brand company. In all, the main objective in the liquor industry is to grab the biggest piece of market and create strength with the
brand. The main competitors of the Jack Daniel’s Company and Brown-Forman Corporation are the Beam Global Spirits & Wine Corp., and Constellation Brands. Beam Global Spirits & Wine is the main competitor in the liquor industry because it is owner of Jim Beam, the best selling branded bourbon in the world. As mentioned before, the use of mergers has created another large power in the industry, which is Constellation Brands. This corporation purchased the wine operations from Beam Global in 2007 for $885 million (Hoovers 1). This merger has allowed for Beam Global to concentrate its efforts solely on the spirits business, and have that grow into becoming a larger success.
However, in comparison of overall figures, the Brown-Forman company has higher overall sales than its main competitor in Beam Global. The recent annual sales figures for Brown-Forman were at $3.3 billion, while Beam Global’s sales were only at $1.6 billion, half of its main competitor. Also, in correlation with the regulation that has been developed within the liquor industry, Brown-Forman’s gross-profit margin is an admirable 50.6%, while Constellation Brands only holds a figure of 34.6%. This in turn shows the success that Jack Daniel’s and its parent, Brown-Forman, are having within the industry against its competitors. In all, the growth of the company is still occurring within the market because Brown-Forman’s current 12-month revenue growth is at 14.7%, while its competitor Constellation Brands is at a loss of 12.8% (Hoover’s 2). The company’s place in the industry, amongst its competitors is at a successful level, and is still in the process of growth where it can become the dominant force within the industry. Through the late 20th century, the struggles of liquor sales were very common, but through the implementation of consolidation and mergers, powerful firms have emerged to overtake the main operations of the liquor industry. The Brown-Forman Corporation has matched its sales with those of companies who have completed large mergers, such as Beam Global and Constellation Brands, and is still continuing to grow. Also, the history of the industry has involved the regulation of the pricing, which have not affected the growth nationally and globally of the Brown-Forman Corporation and the Jack Daniel’s brand.

Appendix VII
COMPETITIVE ANALYSIS Jack Daniels relies on its brand image to give them a competitive advantage. The alcohol industry in general is a growing market. There has been, and will always be, a high demand for alcohol in the United States and other global markets. The idea of a growing market and increasing demand does have a downside – it opens the door for competitive entries. The three major competitors for Brown-Forman (parent company to Jack Daniels) are Fortune Brands, Inc., Constellation Brands, and Diageo. Fortune Brands, Inc has several subsidiaries that account for their growing business. They are front runner in the spirits industry; with its main subsidiary being Beam Global Spirits & Wine, Inc., but also have auxiliaries in golf and home/hardware products. The main competition for Jack Daniels is Beam Global Spirits and Wine. They have a wide array of liquors that focuses on bourbon and whiskey. Their number one selling bourbon is Jim Beam (most popular) followed by other smaller kinds such as Knob Creek and Maker’s Mark. Beam Global was formally known as Jim Beam Brands Worldwide until they decided to change their name to incorporate the many other spirits they offered in 2006 (Business Wire, 2008). They wanted to build a brand that also included their other liqueurs such as whiskey (Lord Calvert Canadian), cognac (Courvoisier), and tequila (Sauza). One of the strengths that the company has is its partnerships with other businesses in order to extend their branding. The most popular partnership is with Starbucks Coffee Company in 2005 with a release of a coffee liqueur (Coventry, 2005). It was a smart branding move to combine two well known beverages into one specialty drink. They have also ventured their brand to other countries as well. They have corporate headquarters in Spain, India, Germany, and Hong Kong. Their manufacturing plants are located in Spain, Portugal, France, and Scotland to name a few. Globalization has been a very good move for Beam Global. They allow them to stay competitive in the alcohol industry and be ranked as the number 4 seller of spirits and liqueurs worldwide. Constellation Brands, Inc.
is a leader in the spirits industry. They cover a wide variety of alcoholic beverages including beer, liqueur, and wine, and are the only US company to be involved in all three areas. The majority of their sales come from their wine department. They specialize in selling wine in both the US and globally across Europe. Their most famous wines are Fanciscan, Arbor Mist, and Ravenswood. The spirits division includes Fleischmann’s gin/vodka, Black Velvet whiskey, and Skol gin/vodka. They are present in over 150 countries and strive to market the diversity of their spirit inventory (Hoovers, n.d.). They sell products in North and South America, United Kingdom, Europe and Asia. Their strategy is not to rely on one specific category for their business to grow. Although wine does account for 55% of their sales, they like to keep their options open for numerous other spirits to be marketed and distributed to target a vast
audience. Diageo may have the most popular brand names when it comes to beers and liquors. Some of the widely known brands are Smirnoff vodka, Johnnie Walker scotch, Jose Cuervo tequila, and Captain Morgan rum. They supply nine of the top twenty premium spirits worldwide. This allows them to rely heavily on their well established brand names to grow into new markets. Globally, they are currently in over 180 countries across North America, Europe, Asia, and International (consisting of Latin America, Africa, and the Middle East) (Hoovers, n.d.). With their wide array of spirits, they are able to use this as a competitive advantage to penetrate other global markets to extend their growth. They are currently looking at new markets in Brazil and India (where Beam Global has a headquarters) to be able to compete with others in the industry. Overall, Jack Daniels is in a solid spot in the competitive market. Its ability to globalize the business to various countries has certainly helped keep up with its competitors. It will need to continue to rely on its strong brand image to get them ahead in the spirit industry. As it seen by its three major competitors, the brand image carries a lot of weight. All of these companies have a strong brand that they have spent many years perfecting. The threat of new entrants is always imminent in a growing business, but it would take them a long time to establish the premium status that Jack Daniels, Beam Global, Constellation, and Diageo has built over the years. The strong branding encourages Jack Daniels aggressive strategic approach and allows them to look into emerging territories where they know they can continue to build off their high quality products.

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