Essay on Brown-Forman Distillers Corporation

For the purpose of calculating the net present value of the project, an appropriate cost of capital has to be calculated at which free cash flows of the project should be discounted. Since the project will be solely financed by selling new shares, cost of equity will be used as the discount rate. Beta for the company can be assumed to be equal to average of the betas of the competitors of the company. This average beta value comes out to be 1.2. Risk free rate is 0.17% while risk premium has been estimated to be 6%. Thus by putting these values in CAPM formula, we can find the cost of equity for the company which is 7.39%.

1. Why is Brown Forman considering buying Southern Comfort? In your answer consider the strategic motives of Brown and the arguments in favour of and against the acquisition.

= 5.0% + 8.4% = 13.4%. DCF (Direct Cash Flow) = 13.6 DC+ RP = 12.3

The next project was bottling Gordon Biersch signature beer and retailing it. This had three biggest challenges: this project was entirely Gordon’s baby and demanded time and attention; secondly the freshness of the bottled beer versus the freshly brewed was an issue for which they decided the beer would have a shelf life no longer than three months. Thirdly and the most exciting challenge was the head-to-head competition with other microbreweries and premium beers. Despite the tough competitive environment, Gordon Biersch aimed to achieve 11% of the market in three years (by 1996). This retail venture required huge investment, thus they decided to start small to prove to the investors that they could pull it off.

Throughout most of its history, the Coors Brewing Company (Coors) has been a regionalized brewer within the United States, specializing in high-quality beer through by virtue of its source water selection, stringent production standards, and cold filtered brewing approach. As the company expanded its distribution to new markets within the U.S. in attempt to gain market share, it made a strategic decision to maintain a majority of its brewing operations at its primary production facility in Golden, Colorado. This decision was based upon the desire to preserve its core production strengths through close family control. However, as the company desires to expand its market presence beyond the

Given these approximations, the CAPM model would total the risk-free rate and the market risk premium times beta to arrive at a cost of equity of 9.68%, which reflects the investors’ expected return from investing in shares of the company.

Larry Brownlow, a young entrepreneur, wanted to operate his own business after completing graduate school. He agreed to a distributorship opportunity with Coors. The brewery company was looking at expanding their market potential of a Coors beer distributorship to a two-county area in southern Delaware. Brownlow used his resources to find and contact Manson and Associates, a research company,

Bonny Doon currently has an enviable position in the 1990’s Californian wine-producing industry. The company has successfully differentiated itself from its competition and achieved a first mover advantage in terms of selling “undervalued” wines. However, due to increased rivalry and a changing and increasingly challenging market,

Brown-Forman Distillers Corporation is by analysis in a generally more favorable financial position relative to its major competitors. In the FY1978, the company held a relatively higher profit margin, higher anticipated return on investment as well as higher profit margin. The FY1978 financial report indicates that the company was in a positive position since the balance sheet indicated strong results in regard to asset management as wells relatively low level of debt to equity ratio. Even though the industry was facing a sluggish growth rate in terms of sales, the company defied the odds of the market and continued to experience growth. These allowed the company the opportunity to succeed in financing an expansion strategy via the acquisition of Southern Comfort.

A documentary film made in 2009, Beer wars features and describes the American beer industry distinguishing between the large and small breweries. The large breweries feature some main corporate companies like Coors Brewing Company, Anheuser-Busch, and Miller Brewing Company whereas the small breweries include craft beer producers like Moonshot 69, Stone Brewing Company, Dogfish Head Brewery, Yuengling, and others. The documentary shows how the beer market is controlled through advertising and lobbying, which is harmful for the competition in the market. There is a reason why the small companies are falling behind and the large corporates are controlling the market, which in turn makes it essentially oligopoly economy.

1. In the last five years the growth in sales for the company has been around 10% per annum, except for the 1997, the growth was 18.78%. In the case, nothing is mentioned that company has made any drastic changes in its strategy to grow faster. In such a scenario, projected a consistent growth of 20% per annum for the next 5 years is too optimistic.

Brown-Forman is a leading producer, marketer and importer of wines and distilled spirits. The company was the fifth-largest distiller in the United States. However, the company's success will largely due to the massive amounts of advertising expenditures on their premium brands. The company spent significantly less on low profit brands and as a result the whiskey market declined. Their response was to move into faster growing product lines to alcoholic beverages and this analysis considers a horizontal acquisition of the Southern Comfort brand.

This case explains the challenges of newly promoted Domestic Brand Director, Anne Regnante, as she explores different options to increasing profits by 10% for Stewart’s household product division. Regnante’s primary concern is generating growth for its outdated and stagnant product, Reliance Baking Soda (RBS).

Existing Marketing Mix Strategies. With a large market to cover in terms of wide variety of products within the Jack Daniel’s range, Brown Foreman consistently covers all four elements of the marketing mix- Price, Product, Place and Promotion. The three most prevalent attributes of the Jack Daniel’s Brand all across these four elements are culture, tradition and quality which really help to preserve and continue with the brand voice that Jack Daniel’s has owned for a long period of time. Jack Daniel’s proven staying power of 130 years in the market is a result of these three aspects

Overall future of the beer looks tough as four main brewers are experiencing overall decline in business performance. There has been a drop in sales and yet new shift in customers´ preferences. Effective competing approaches are no longer a matter of differentiation of regular beer but increasing a variety of low-alcohol products.