Saku

Problem Statement

Saku’s executives must decide on restructuring the company’s current product portfolio to plan the coming year’s performance. Saku’s market share of domestic beer had experienced erosion in the last two years due to aggressive marketing from other domestic producers. While its flagship brand �Saku Originaal’ has been a market leader, the situation demands proactive measures in eliminating non performing brands and augmenting the portfolio with products that are in tune with futuristic demographic tastes. Saku must also decide on taking its products to foreign markets.

Situation Analysis

Micro Factors:

• Saku had registered gains in both market share and profits with its other alcoholic and non-alcoholic beverages such as long drinks, cider and water (See Exhibit 1). Nevertheless Saku’s goal was to be the leader and innovator in the beer market.

• The most important competitor Tartu with its flagship brand A Le Coq filled the void between what consumers liked about Saku and what they didn’t. Besides fiercely competing in the local beer market, A Le Coq owned an exclusive agreement to distribute Heineken and offered a wide range of beverages like long drinks, ciders, fruit juices, water, sports drinks and soft drinks.

• The other local competitor Viru had a new line of energy drink called Hustler. 500,000 litres of energy drinks were being consumed with an estimated growth of thirty percent for the future.

• The imported beer segment was led by the Finnish brand Koff with 6% of the market share. Due to its aggressive advertising and cheap prices it was not possible for other foreign brands to compete successfully against Koff.

Macro Factors: Market Analysis, Environment

• 78% of Finnish tourists in Estonia bought alcohol to take back home since its price was two thirds less than that of in Finland. As a result Saku had established a strong brand presence in Finland.

• Finland is Estonia’s biggest export partner contributing to 21% of Estonia’s exports. Also, Estonia was the quickest of the former USSR countries to integrate free market mechanisms into the economy which could be used to exploit the Finnish beer market.

Saku Alternatives

Our team has examined several alternatives that are presented below:

Alternatives

Pro’s Con’s

Only Expand Portfolio • Fill the gap that Saku is missing in targeting new trends

• Compensate the losses in market share

• Increase the barriers to entry • Additional costs to produce, advertise, and distribute

• Non performing brands still remain in the portfolio

Only Eliminate Brands/Products • Shed costs from non profitable brands

• Better performance of the sales team

• Better results with the advertising investment since it can focus on few products • Affected customers might demonstrate resentment toward Saku

• The product may play an important role before its competitors

Expansion into other countries • Take advantage of a group of customers that is already familiar with Saku beers and other line of alcoholic beverages • Expansion might be difficult and costly.

• Saku will face a new environment and a established competition with strong share and brand awareness

Recommendation

From the information on sales and gross margin by product shown in the Exhibit 1 we can conclude that several products are widely affecting the company’s performance. We recommend a mixed strategy of eliminating some non-performing brands and at the same time adding some products to the portfolio which would take care of the futuristic market trend. The brands to be eliminated along-with the rationale for their elimination are shown in the Exhibit 3, and a graphical representation of brand performance of domestic beers is shown in Exhibit 4.

The elimination of brands would help Saku divert advertising expenses to more strategically profitable brands and markets. It also is recommended that Saku consider a product line extension by entering into the energy drinks market which has an estimated growth rate of more than thirty percent and Viru already has an energy drink in its product portfolio.

The other recommendation we make is about entering the neighbouring markets of Finland and Sweden as explained below:

• Our decision is based on focusing our expansion in the Helsinki and Stockholm markets, closest cities in Finland and Sweden, as both cities have ports to facilitate the distribution. See Exhibit 5.

• The consumer expenditure on beer in Sweden and Finland is 953 million EUR and 1246 million EUR respectively in 2003 compared to 47 million EUR in Estonia. This gives a significant scope for expansion.

• Saku