Moet Hennessy

Synopsis

Moet et Chardon, a leading champagne manufacture and Jas. Hennessy & Co, the world’s fourth largest cognac seller merged in 1971 and became the successful brand Moet-Hennessey making it one of the leaders in the luxury business. The similarities in both companies’ corporate strategies were of mutual benefit, thus the merger

Prior to the merger, Moet et Chardon had established itself as the worlds favorite champagne with its superior quality distinguished flavor as well as its seductive personality. In 1969 it ventured into the perfume market by acquiring 70% shares of Dior from the Boussac group. The acquisition was in line with Moet et Chardon trying to maximize Dior’s financial, luxury brand image and international sales distribution position. On the other hand, Hennessy was the leader in cognac by the virtue of the quality of its products. However the company was interested in a merger with a public company because of the older retiring generation owners of the company.

In 1973, Moet-Hennessey started producing a new sparkling wine with the label name “Domaine Chandon” and in 1978 expanded in the beauty products market when it acquired Roc Laboratories. Acquiring Schiefflein & Co. in 1980 cumulated in its expansion into the international market and in 1985, it started the manufacturing of “Petite Liqueur” - the world’s first sparkling liqueur. Other lines of expansion were the Dior line of women’s cosmetics and men’s fragrances thereby having a major market share in Europe, USA and the Far East.

Key Issues

In the three major segments in which Moet-Hennessey competed in, there were several key issues particular to each segment. The first segment, the champagne and wine products even though had the classic characteristics of a luxury product, it suffered from shortage of grapes because of the limited supply of raw materials.

The second segment, cognac and spirit product however had an overabundance supply of grapes but the market was in a declining state due to the falling consumption of hard liquor.

The third major segment, Perfumes and beauty products was confronted with the changing consumer preferences where the perfume wearer bought 90% dream and only 10% fragrance. Brand loyalty was in sharp decline as “in vogue” meant wearing the latest available scent. Under the luxury cosmetics market Dior was only commanding a lowly 2%.

Problem Statement

Moet-Hennessey strategic future policies were among the questions raised at the buffet lunch. The various segment which it operated in were experiencing strategic issues and it was left for the management to find out if it would either diversify, consolidate its various segments or even change its management structure. This analysis will focus on the problems faced with the consolidation of the different market segments in which Moet-Hennessy operates in.

Alternate Solutions

Alternate 1: Invest in R&D

In the different segment in which Moet-Hennessy operates in, continuous innovation helps to drive sales. Dior for instant is stated to have the most operating cash flow. In a market where 56 new perfumes where introduced in a single year, brand positioning was very paramount in building brand loyalty. The same goes for the champagne sector. With successful trials of Pierlant in France, Domaine Chandon in the USA, Germany and Australia were next in the list of new products made from its horticulture department. The cognac segment also had some gains with the world’s first and only sparkling liqueur “Petite Liqueur”, possessesing only 18% alcohol with fewer calories, paving way for a new generation of alcohol that appealed to the sophisticated drinkers of premium liqueurs.

Alternate 1: Refocus corporate strategy by divesting in some segments.

Moet-Hennessey is well known as a luxury brand and especially as a leader in the luxury beverage segment. Minimizing its human and financial resources allocated to high investment constituents of its products (high cost of advertising prestige brands in the perfume market)…. and non-performing segment like the beauty care products by Roc laboratories can help to refocus and attain better profits.

Recommendation

The best strategic solution for Moet-Hennessey’s immediate and future strategic growth and expansion is to invest in R&D. The horticulture department would be the bedrock for all the products Moet-Hennessey makes. Taking each segment and analyzing the importance of the R&D, one will find out that new product development is the only way to continue to maintain brand positioning.

The champagne and wine segment is basked with the three confluences of causes that make the economics of the industry special. There is the physical, climatic as well as the competitive nature of the product. With only a limited amount of land allocated to farmers of its raw materials (35,000 hectares of land), only 5,000 is left for scheduled planting by 1990. The climatic constraints include harsh weather that could potentially destroy as much as 50% of the harvest, since the lands allotted for planting and harvesting the grapes are located in the temperate areas of Bordeaux and Beaujolais. With high profit margins that can be achieved by the champagne grape growers competition also occurs from the small growers helping to increase grape prices. With a steady investment in the viniculture and other R&D methods, the new products developed under the horticulture department would bring in tremendous profits for Moet-Hennessey

The economics of the cognac and spirit segment for Moet-Hennessy were different. In fact they have abundance supply of grapes. But the declining demand for spirits was beginning to affect the sales and growth of this segment. R&D investment would help to generate new products that would help the spirit segment and help it grow. With a new focus on only the VS and XO, R&D can develop new products that would be healthier with less alcohol and calories. These products will connect with liqueur consumers that