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Business Strategy @ UB Group
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UB Group
Analysis of Corporate level Strategy
Overview
o Introductiono Portfolioo Strategy Formulation
n Missionn Business Portfolio Analysis : Internal & Externaln Competitive Analysis
o Industry Attractiveness v/s Business Position matrix
o Recommendations/Conclusion
UB - Groupo The UB Group was founded by Scottish gentleman named
Thomas Leishman in 1857.
o The UB Group, is the market leader in both Spirits & Beer business in the country
o The Group has a turnover of Rs 3700 crores
o The core Beverage Alcohol business account for 80% of the group turnover
o Other interests include Fertilizer, Engineering , Life Science, Infrastructure development, Aviation & Media
UB Group
o Five Core listed companies have a market cap of USD 1.7 billion.
o Market cap has grown 10 times in last 5 years.
o The Group is professionally managed and is headed by Dr Vijay Mallya, the Group Chairman
Group Holding Structure
(UB City Project)Investments Real Estate
Spirits Business
United Spirits
Shaw Wallace Ltd
BeerBusiness
United Breweries
Millenium Alcobev
Aviation Others
Kingfisher
Airlines Ltd.
Aventis Pharma
Mangalore Chemicals &
Fertilizers
UB Engineering
UB (Holdings) Ltd.
(36.54%)(37.50%)
(50%)
(100%)
(10.28%)
(30.44%)
(34.74%)
(55%)
( Erstwhile McDowell & Co Ltd)
(75%)
Air Deccan (26%)
Whyte & Mackey
UB GroupUB Group composition
59%17%
14%
3% 6% 1%
Spirits Beer Fertilizer
Engineering Airlines Pharma
Composition (1990)
25%
18%
8%
29%
6%7% 7%
Pharma Engineering Beer Spirits Pharma Others Paints
Year : 2006
Mission – UB Group
o We constitute a large, global group based in India. We associate with world leaders in order to adopt technologies and processes that will enable a leadership position in a large spectrum of activities.
o We are focused on assuming leadership in all our target markets.
o We seek to be the most preferred employer wherever we operate.
o We recognize that our organization is built around people who are our most valuable asset.
o We will always be the partner of choice for customers, suppliers and other creators of innovative concepts.
o We will continually increase the long-term value of our Group for the benefit of our shareholders.
o We will operate as a decentralized organization and allow each business to develop within our stated values.
o We will be a major contributor to our National Economy and take full advantage of our strong resource base.
Strategic Management Process
EXTERNAL ANALYSIS INTERNAL ANALYSIS
Corporate Strategy
Business Strategy
Functional StrategiesF M M IT HR
IMPLEMENTATION IMPLEMENTATION
FORMULATION
StructureCultureControl
EXPECTATIONS AND POWER OF STAKEHOLDERS
OpportunitiesThreats
Key Success Factors
StrengthsWeaknesses
Competences
FORMULATION
Levels of Strategy
CorporateWhat business + general direction
Business / CompetitiveHow to compete in the given business
FunctionalHow to translate competitive strategy in action plans
Corporate Strategy
o The ultimate goal is GROWTH of the company
o Focus on primary line of businesso Effort to sell the same products to a new
market
GROWTH BY CONCENTRATION, MARKET DEVELOPMENT,MERGER AND ACQUISITION
MERGERS - UB
o Following entities being merged:n McDowell & Company Limited (Listed)n Herbertsons Limited (Listed)n Triumph Distillers & Vintners Private Limitedn United Distillers India Limitedn Baramati Grape Industries Limitedn Phipson Distillery Limitedn United Spirits Limitedn Asian Opportunities & Investments Limitedn McDowell International Brands Limitedn Zelinka Limitedn Shaw Wallace Distilleries Limited together with its subsidiariesn WHYTE & MACKAYn 26% stake in Air Deccan
External Analysis
o PEST Analysis
o Opportunities &Threats
o Competitive advantage
PEST o Political
n Regulatory hurdles constitute an entry barrier to the industry.
n The alcohol distribution structure is 65% State government controlled.
n Deregulation is now starting to happen which will benefit the industry in general & USL in particular-
Policy Change Benefits
- De-cartelization in 2001 - Industry has doubled - State Govt has taken over - Net Realization has doubled the wholesale trade - Changes in the Annual - Price increase tender policy
PEST
Economical:o With 8% + GDP growth expected over the next few years the Industry
have a bright future.
o High Disposable Income.
o Domestic Air Traffic – grew by 23% to 21.82 million passengers in 2005, over 17.70 million passengers in 2004.
o The buoyancy in the corporate sector with the economic boom, business and leisure travel is expected to far exceed first time travel.
PEST
Social:
o Demographics, Higher disposable income & change in spending patterns favour growth of more profitable products
o Changing Lifestyles
o Attitudes of work & Leisure
o Rapid urbanization - middle class already exceed 300 million
PEST
Technological:
o New packaging initiatives to reduce costs and curtail counterfeiting.
o New product developments – Diet Whisky
o Innovative CRM Techniques
Opportunities & Threat
Opportunity
o Market conditions very attractive for growth especially booming real estate and aviation.
o Create credible alternatives in the premium and high end segment.o Facilitate entry into new segments, such as wines, Aviation etc.o Provide access to non traditional global markets, particularly Russia and
China.o Incorporate B2C e-commerce portal.
THREAT
o Government regulations
o Stiff competition to products
o Alternative drinks and health conscious customer.
• Strongest brands• Significant
upgradation
• Least vulnerable to policy volatility due to large spreadBranding
Local Sourcing
Value Chain ownership
Segment-Market
Presence
Manufacturing Technology
UB Group
UB Group
• Optimal, as almost completely locally sourced
• Largest manufacturing base• Maximum capacity utilisation
• Initiatives planned for integration into retailing
The UB Group’s competitive advantage
Management Team
• Professionally managed• Seasoned professionals with
significant industry experience
Internal Analysis
Internal Analysis
o Strengthso Weaknesseso Financialso Critical Success Factors
Strengthso Cost Management
o Ability to manage scale up
o Extensive Product Portfolio
o Brand value
o Ability to manage synergies among SBUs
Weakness
o High Reliance on United Breweries.
o Less focus on other SBU’s.
o Use of E-commerce in some SBUs
Financials – United Spirits
Growth 2006 2005Net Sales/Income from Operations 18% 2,087.48 1,769.08Other income 43.42 50.27
Total Expenditurea) (Inc)/Dec in stock in trade (15.25) (1.76)b) Consumption of Raw Materials 461.33 419.10c) Purchase of Finished Goods 226.24 70.63d) Consumption of Other Materials 455.82 440.22e) Staff Cost 155.03 158.91f) Other expenditure i) Advertisement & Sales Promotion 241.02 239.88 ii) Others 340.47 357.25
1864.65 1684.22Earnings Before Interest, Depreciation and Tax 97% 266.25 135.14
Interest / Finance Charges (Net of receipts) 163.87 58.25
Depreciation 25.24 25.57
Profit Before Non-recurring Items & Tax 50% 77.14 51.31
Non-recurring items (Net) - (30.25)
Profit Before Tax 266% 77.14 21.06
Year Ended March, 31
Rs. Crores
Financials- KFA – FY 06
Revenue Statement – Major Items
Rs. Mio Rs. Mio
Income 5,845.00
Fuel Cost 2,356.00
Total Operating Cost 6,806.00
Other Cost 760.00
EBIDTA (1,721.00)
PBT (1,908.00)
KFA 12
Core Competencieso Focus on Brand Imagery
• Since Beer is a category with little product differentiation, consumer’s brand choice is largely on imagery
• With multiple brands in each segment of beer, UB has successfully positioned different brands on different platforms relevant to different consumers, different need states
• Kingfisher has appropriated some of the category values including `refreshment’
o Brand Association• With Fashion, through Kingfisher Fashion Awards and the Kingfisher
Swimsuit Calendar• With high visibility events like the Mumbai Marathon, the Delhi Half
Marathon, the International Film Festival of India• With events important to the ethos and culture of people in key regions
like the Goa Carnival, the Bangalore Habba
Core Competencieso Focus on Value to Consumer.
o Develop Synergies Through Mergers and Acquisitions.
o Dominance at point of purchase / consumption through
• Visibilityo Innovation
• In product• In packaging
New Product Initiatives
USL 15
To achieve the national roll out of McDowells’ Diet Mate whisky (using a proprietary and US patented technology from the Group Research Foundation – VMSRF)
Launching of unique Launching of unique
Diet Vodka (usingDiet Vodka (using
another US patented another US patented
technology from VMSRF)technology from VMSRF)
New Marketing Initiatives
USL 17
- To pursue the launch of existing products in
innovative packaging variants (tetra packs,
pre-formed sachets, etc) and there by reduce
the packaging cost as well as the price point
to consumers in addition to the convenience
of the pack itself .
Pre-formed
Sachets
180ml Tetra Pack
Saving
of Rs.30/-
per Cs.Saving of Rs.12/-
per Cs.
UB Group in transition
From
o Primarily volume focus
o Growth driven by market share across segments
o “Spirits” player
o Focus on India
To
o Primarily top-line and profitability focus
o Growth driven by increased “premium-ness” of the portfolio
o Spirits, wine, Aviation , Pharma, Infrastructure & Fertilizers player
o Global ambitions – pragmatically calibrated through M&A’s
GE – Matrix Parameters
• Market Attractiveness • Competitive strength
- Market size - Relative brand strength (marketing)
- Market growth rate - Market share
- Market profitability - Market share growth
- Pricing trends - Customer loyalty
- Competitive intensity / rivalry - Distribution strength and production capacity
- Overall risk of returns in the industry - Record of technological or other innovation
- Entry barriers - Quality
GE Matrix Analysis Breweries Aviation Fertilizers Infra Pharma
Market Attractiveness
- Market size + + + + +
- Market growth rate + + + + +
- Market profitability + - moderate + Moderate
- Pricing trends + - moderate moderate
- Competitive intensity / rivalry moderate - - - -
- Overall risk of returns in the industry moderate moderate moderate + moderate
- Entry barriers moderate + + - -
Industry Strengths
- Relative brand strength (marketing) + + moderate moderate moderate
- Market share + - moderate - -
- Market share growth + + + moderate moderate
- Customer loyalty + moderate moderate moderate +
- Production capacity + moderate - moderate -
- Technological or other innovation + + + - -
- Quality + + + + +
Industry Attractiveness v/s Business Position
High Medium LowH
igh
Invest Selective Growth
Up or Out
Med
ium
Selective Growth
Up or Out Harvest
Low
Up or Out Harvest Divest
Bu
sin
es
s P
os
itio
nIndustry Attractiveness
Breweries
Aventis
Fertilizer
KFA
Infra
CONCLUSION
o Based on the GE matrix and the PEST,SWOT analysis we feel:• The group should keep on investing in the
Breweries division as the portfolio offers promising future.
• Aviation is in growth phase so needs focused growth strategies.
• It can divest from the Pharma business and concentrate on the Infra division specially.
RECOMMENDATIONS
Strategic Themes
o Increase profitability to bring USL in line with other FMCG companies in India
o Focus on increasing market share in premium segments
o Managing market share for profitability in other segments
o Enhance focus on brand building by increasing outlay on ATL, formalising innovation processes and controlling BTL
Metrics & Objectives
o Value growth to lead volume growth
o Enhance MS in scotch and premium whisky segments – 25% in scotch by 2008-09
o Increase Market share
o Spends increasingly towards ATLo Develop and implement product innovation
agendao Leverage scale with trade
Strategic Themes
o To Increase exports
o Enter wines segment
o Align performance metrics with the strategic plan
Metrics & Objectives
o Indian whisky to be exported in bulk to Africa and America.
o Development of Existing Brands
o Acquisition of International brands.
o Introduce balanced scorecard to assess performance
RECOMMENDATIONS
