Table of Content
1 Introduction 4
2 Hardy & BRL Merger & Acquisition Success Analysis 5
2.1 Wine Industry – Porter Forces Analysis 5
2.2 Pre-M&A Conditions - Evaluation 6
2.3 Post Merger Management 6
3 The “Stephen Davies & Christopher Carlson” Case 8
3.1 Sources of Tension 8
3.2 Steve Millar: Management of The Situation 9
3.3 Reflecting the situation – Global Management Teams 9
4 New Product Launch: D’instinto 10
4.1 Evaluation of the Business Case 10
5 CONCLUSION 11
6 References 12
7 Appendix 13
7.1 Hardy & BRL: Differences & Fit 13
1 Introduction
This document presents the case study of BRL Hardy: Globalizing an Australian Wine Company (REF), performed by Group 6.
2 Hardy & BRL Merger & Acquisition Success Analysis
The remarkable post merger success is mainly based on three main key factors. The first key factor is the external environment. The Porter forces will describe and analyse the environmental matter. The pre and post merger decisions are another factor that the businesses endured that allowed them to align their goals and strategy for a successful future. (detailed in the following paragraphs).
2.1 Wine Industry – Porter Forces Analysis
Bargaining power of customers, High 5/5
Customers buying this type of wine and don’t have a cultural knowledge of real one such as Côte-Rôtie, Cheval Blanc or Romanée Conti can switch easily form on brand to another. Customers might be use to a grape variety such as merlot or Cabernet Sauvignon but they don’t have an idea about land where the vineyard has been cultivated and the culture associated to it. Customers buy this type wine because it’s cheap, easy to drink, and they can make an analogy with the global non tasty international food that is appreciated by the majority party of the world. There is neither a switching cost for customers nor a risk for customers to choose another similar brand, especially taking into consideration that there are numerous players and wine producers. One of the beneficial aspects about Australian wine is that it was becoming highly fancy and ‘fashion driven’, becoming trendy they were able to sell at a higher price than other nations. The consolidation and rationalization increased the power of wine wholesalers and retailers. In addition, in countries such as Sweden, Canada, there are monopolies from the state which gives them strong power. In England the big Super Markets control most of the market and dominate the import businesses.
Bargaining power of suppliers, High 4/5
Depending on the contract, it can be easy for suppliers to sell production to another company; this is why a strategy for having a strong Joint Venture with a producer is important. It’s also difficult for the vintage to ensure sustainable quality on the grapes produced.
Threat of substitutes, Medium 3/5
In Australia and others country such as England, there are some changes in consumer habits. Moving from beer to wine consumption increases domestic consumption. This trend could change as wine is perceived as containing more alcohol than beer. On the market for ‘young drinker’ Alcopops such as ‘Ice Smirnoff’ represents a big share of the market
Threat of new entrants, low 2/5
The industry and value chain associated to new entries is complex and very difficult to infiltrate, especially taking into consideration the strong concentration and consolidation that occurs. The 10 largest companies have 84% of the grape crush and 4 companies control 75% of domestic branded sales
Rivalry among current competitors, High 5/5
The competition among players is really high and because of Alcohol perception, wine consumption declines in countries such as France, Italy, Chile and Argentina giving it more space for exportation and reinforces global competition.
Changes in regulation, Medium 3/5
One of the major risk is from the government that can adopt more restrictive laws about alcohol and driving. There is a potential threat also on sulphite regulation. Finally, countries such as France and Italy try to protect their market with AOC and DOC denomination.
Economical trends, low 0/5
There is a good economical trend for BRL Hardy. The exchange rate is in favour for Australia in export. Furthermore, the market condition is very good thanks to local and international growth and Australian wine becoming trendy.
Social pressure, low 0/5
According to cardiologist, they are saying that one glass of good wine is healthy.
Technology breakthroughs, high 4/5
Large-scale wine suppliers from New World countries (US, SAm, SAf, Australia) were exploiting modern viticulture and more scientific winemaking practices to produce more consistent “high-quality wines”.
Additional forces: Complements 0/5
No comment.
2.2 Pre-M&A Conditions - Evaluation
Before BRL and Hardy’s merger they were considered rivals with different point of views in their strategic process to the wine industry that led them each to have a different organization overall. Hardy was known for its polite and traditional approach with award winning quality wine and BRL’s approach was focused on an aggressive and commercial culture that followed its fortified, bulk, and value wines.
Hardy started out strong, a family owned business that gained recognition and respect as beginning the largest winemaker in Australia. In 1882 Hardy won his first international gold medal at Boudreaux. Hardy’s goal was to manage a team with marketing expertise, brands and winemaking know-how. They were focusing on global external brand awareness.
On the other hand, BRL was on a commercial exporting level considered “the oil refinery of the wine industry”. BRL was following Hardy’s path of being the second “largest crush in Australia”. In 1916 BRL was the first cooperative winery, with 130 Italian grape growers. BRL’s success came in 1980’s when it started to sell its bulk wines aboard mainly in Scandinavia. BRL had access to fruits, funds, and disciplined management.
Because of BRL and Hardy’s power status in the wine market, their goals they had in mind and financial problems among the companies they thought it would be a good idea to merge and hopefully give them the ability to upgrade their business and encounter new opportunities. The pre conditions of both companies are one of the reasons that allowed BRL Hardy to thrive in their post merger success.
2.3 Post Merger Management
According to literatures and an interview with Andy Tinlin, the success factors of post merging are: (1) Focusing on value creation where the company spend more energy on customer retaining, building the brand image, cost savings and securing revenues. (2) Resources availability where the company within its cost saving process should be careful to keep enough people to run, handle and execute value creation tasks. For example People should be on the ground following the customers in order to show this latter company’s consistency and commitment. (3) Managing the merging process as an integrated program with a very clear responsibilities reducing the probability that day to day tasks being ignored, hence increasing the success of the integration and (4) Human component which is a very important factor in this value chain and where we can correlate it to clear role definition and responsibility in the organization. This role definition will define the level of effectiveness and efficiency of an employee in any organization. On top of that we can add change management related to company’s culture and values by assigning a management team able to take decision and accept others opinion.
Coming back to BRL Hardy case study, the following paragraph analyse to which extent these post merging factors were applied by the company’s management.
1. Focus on value creation:
A. Customer retaining:
i. BRL Hardy’s management focused on domestic markets (why? Any more information to add??)
B. Brand:
ii. The company concentrated on branded bottle sales for growth (quality commitment)
iii. The company’s slogan is “Making Quality Wines for the world”
C. Cost savings:
i.In UK Carson cut the product line from 870 items to 230
ii. In UK Carson reduced the headcount from 31 to 18
iii. In Davies Mind, the first priority was to clean up operating problems sources of financial problems. He also initiated a program to rationalize the line and reposition a few key brands in a stepstair hierarchy from simple entry level products to fine wines for connoisseurs. (low end line focused on Nottage hill and stamps; top end he targeted the Eileen Hardy brand).
D. Securing Revenues
i. It was clear in Steve Miller’s mind that the first task to undertake was to deal with financial situation. We’re not talking in here about cost savings but about meeting their forecasts and market expectation. So the strategy was to protect the share of the bulk cask business and concentrate on branded bottle sales growth.
2. Resources availability (have sufficient allocated resources to achieve value creation tasks)
A. ??
3. Managing the merging process as an integrated program
A. ??
4. Human component
A. In Miller’s mind, there was a need to change the company’s culture and management
style. This illustrates the awareness of Miller towards the importance of this topic. So he
aimed a more decentralized approach, but at the same time holding management
accountable. We note that Miller noticed that ex Hardy team was held back by being
resources constraints and excluded from major decisions. Miller encourages delegation for
the small risks aiming to create a “Have a Go” mentality. An interesting thought shared by
David Woods illustrating the state of mind of ex Hardy’s employees “Many of us from
Hardy felt like outsiders, unsure if we would be allowed into meetings”. This is partially
described by Andy Tinlin as anxiety of employees.
3 The “Stephen Davies & Christopher Carlson” Case
3.1 Sources of Tension
Several key sources of tension could be identified: Post M&A context, “Technical” leadership conflict, Power & Autonomy issue, Organizational dysfunctions.
The post merger context is very challenging and not comfortable for Christopher Carlson. Indeed, the situation is quite uncertain for an ex-Hardy reporting to a new top line management of ex-BRL. Moreover, ex-Hardy have to “earn their strips” to gain recognition, credibility on their function. This leads to a very uncertain situation for Christophe Carlson: despite his track record inside the company and his past performances he has to act and behaves like a new comer toward his new management.
There’s what we can call a “technical leadership” conflict between the two persons concerning Marketing; and this could even be generalized to UK subsidiary Vs the headquarters: “within the Hardly-built European company, (…), there were questions about whether their bulk-wine-oriented BRL colleagues understand international marketing”, “a real feeling of us Vs them”. Concerning this point, the source of tension is dual: 1) experienced & competencies in the market segment (bulk Vs bottles), and 2) and in the market place (local Vs global, UK Vs Australia). Hence, in practice European team and especially Christopher Carlson don’t see the Stephen Davis and the headquarters credible and legitimate on the topic.
Power & Autonomy issues of course! Stephen Davies has the ownership on the Marketing and Export Strategy and he’s ready to defend this position. On the over side, Christopher Carlson (especially at the beginning when Stephen Davies is more present), perceives that as a “leash”. On top of the two previous points (post merger context and technical leadership) this results in a strong desire of autonomy towards the headquarters and a search of power concerning marketing strategic issues (remind that UK represents 2/3 of Sales export of BRL Hardy).
Several organisational dysfunctions could be notified that increase the tension between the two protagonists. Mismatch between the title/role and the actions on the field. Stephen Davies is the boss of the Marketing and Export strategy. Indeed, on the field, based on the case, it can be noticed that Christopher Carlson is much more implicated and active on this. He has the vision, he sees opportunities, he drafts strategies and executes them, and he develops new products & partnerships… And earlier after the merge, what Stephen Davies just said about that: “It was better to let people follow a cause they believe in…” A REVOIR. Finally it’s not clear who has the lead on the Marketing and Export strategy!
Communication between the two protagonists is not effective. Due to the other sources of tension and good bottom-line performance of the UK subsidiary, the communication between the two persons / entities is limited and weak. Christopher Carlson is even complaining about difficulties to get feedbacks on proposals. On top of that, based on the case, it’s difficult to see any team spirit. Finally, stepping back, it looks as if there were two different companies: the Australian company and the UK company.
Additionally, as developed in the next paragraph, Steve Millar didn’t manage the situation properly.
3.2 Steve Millar: Management of The Situation
At short term, just after the merger, Steve Millar handled the situation effectively. Steve Millar clearly recognized the expertises and the potential of the two managers for the company and its future. Definitely, his intension to get them working together was very good. Finally, in terms of UK and global strategy, the decision to maintain Christopher Carlson was instrumental: “a pull from abroad strategy with off-shore champions”(REF ARTCLE).
On the other side, Steve Millar did several management errors that didn’t improve the situation and even deteriorate it.
The two lines of reporting decision is pretty ambiguous. This could be pretty uncomfortable for Stephen Davies knowing that Christopher Carlson has a direct access to his boss as well;
Despite the conflicting situation, he didn’t set a framework, structure to help the protagonists to efficiently worked together: “hoped for negotiation”. The good P&L performances of the UK served as an umbrella to the problem; i.e. as long as the performances are good… why to bother too much? This isn’t effective in the long run;
He didn’t ensure and control that they were really working and communicating together.
Change management at global management team was light. The decentralized approach was stated… and that’s all! It couldn’t be notice within the case any efforts to integrate efficiently the new management team and especially the critical integration of ex-Hardy & ex-BRL managers to one core BRL Hardy management team.