Alcohol Industry Exam PDF

LECTURE 6. THE ALCOHOL INDUSTRY. - FINAL EXAM FROM NOW ON. The business of alcohol: Alcohol, spirits and wine have traditionally been a profitable business. Gin was an early example on the impact of trade policy and unintended consequences on alcohol policy. Rum’s history and development has alwa...

LECTURE 6. THE ALCOHOL INDUSTRY. - FINAL EXAM FROM NOW ON. The business of alcohol: Alcohol, spirits and wine have traditionally been a profitable business. Gin was an early example on the impact of trade policy and unintended consequences on alcohol policy. Rum’s history and development has always been influenced by politics. Gin craze: For many years alcohol has been mixed with juniper berries and other herbs, for flavoring and medicinal purposes. 16th century Dutch created “genever” = gin, shorted by the British It was inexpensive to make and very popular, but also political William III, the king of England in the late 1600s placed large tariffs on French brandy and wine, he also gave tax breaks to British distillers of Gin. William III was annoyed because of France’s alcohol competition and the amount of money they made from it. William III introduced the idea of Gin in the 1600s. Gin Lane in London, shops around England, people struggling with public drunkenness. Gin became very expensive (cheaper than beer) and regularly abused. This led to a backlash that included temperance movements and new government licensing to control production. Gin Act of 1751: Granted retail licenses only to larger establishments, such as inns and taverns. This restriction put the small unlicensed distillers and retailers out of business. With less competition worries, innkeepers were better able to control the amount and quality of the gin they sold. In the 1800s gin recovered as a popular drink. This was in part because it was mixed with quinine water as an anti-malaria potion. This became gin and tonic. The british remained huge players in the Gin industry Rum: Rum is distilled from molasses, a by-product of sugar manufacturing. Rose to popularity in the late 1600s but especially in the 1700s.  Large sugar plantations were created in both French and British colonies in the Caribbean. Rum required cheap plentiful labor, which led to a dramatic increase in the importation of African Slaves. Starting in 1731, the British sailors received a daily pint of Jamaican rum for each man and a half. The sailor rum ration decreased over time, but the tradition lasted until the 1970s, this also happened with the Canadian navy for some time. Rum remained political for much of its history. American producers were discouraged by the British and turned to whiskey instead. Cuba: Founder of Bacardi = Facundo Bacardi Bacardi had been a supplier of rum to Spanish royalty from the 1800s to facilities in Cuba. Rum and Coke is called “Cuba Libre” which took on a different twist after the Cuban Revolution. After the Revolution, Castro seized distilleries. The Bacardi family fled to establish new facilities in Puerto Rico and other locations. They became a huge global producer of rum. They have thrived but continue to seek compensation from Cuba. The politics persist into the situation of Cuba because of the alcohol situation Prohibiting: Restraining the liquor trade. Prohibition is the act of practice or forbidding by law, the manufacture, storage, transportation, sale, possession and consumption of alcoholic beverages. The prohibition was largely based on protestant church moral beliefs, but also on an economic argument. The alcohol prohibition affected companies because of it being profitable. In Alberta, 1918, $12,000,000 were spent on booze. Prohibition movements in Canada were very influenced by both British and American examples. In 1800s, two major Canadian organizations for alcohol prohibition: - Dominion Alliance for the Total Suppression of the Liquor Traffic - Women’s Christian Temperance Union - Prominent roles for women, due to men spending their money on alcohol, or their husbands being drunk all the time.  Politics of prohibition: - Scott Act: The Canada Temperance Act, also known as the Scott Act, was a federal law passed in 1878 that gave local governments the power to prohibit the sale of alcohol in their communities: and Local Option - Sir John A and drinking: Many Canadians recall John A. Macdonald as a politician with an alcohol problem. This view of a key architect of Confederation affects perceptions of national identity and inhibits biographical analysis. Macdonald had a serious but intermittent drink problem for 20 years from 1856. - Reformers (liberals) tended to favor prohibition. The 1898 referendum: The Wilfried Laurier Government elected in 1896 had a large temperance segment. It also had a large following in Quebec which opposed prohibition. Laurier (first french-canadian) decided to hold a non-binding referendum. Results were close: 278,380 in prohibition, 264,493 against. Every province except Quebec saw a YES vote, but Quebec was over 80% against. Laurier decided to do NOTHING. His idea was to do anything for people not to complain. World War I (1914 - 1918) and prohibition: In 1901 Prince Edward Islands introduced prohibition, which would last until 1948. The other provinces began to do so in World War I. It was seen as patriotic, as well as conserving food. Only Quebec did not. In March 1918 the federal government stopped the manufacture and importation of liquor. Loopholes for medical purposes, etc. You could order it by mail if that was the case. Na Poo was soldier slang for “there’s no more”. “Demon Rum”: Alcohol in the Trenches Most of the Canadian soldiers received a daily rum ration. It was considered essential as a morale-booster for soldiers for being faced daily with death and living in horrible conditions. Also used for medical purposes. Canadian infantryman Ralph Bell wrote that, “when the days shorten, and the rain never ceases; when the sky is ever grey, the nights chill, and trenches thigh deep  in mud and water; when the front is altogether a beastly place, in fact, we have one consolation. It comes in gallon jars, marked simply SRD.” Prohibition: After the war, the lack of success in eliminating alcohol and the idea that the enforcement was unbalanced and often unfair began to take hold. For some the idea that the state limited this “right” was an issue. Soldiers wanted their alcohol for fighting for the nation. Criminal distribution also came to be seen as a problem. The American Experience Prohibitionists were successful in passing the 18th amendment to the US constitution in 1920. Alcohol remained illegal until 1933 when the 21st amendment repealed the 18th. Ken Burns in a PBS documentary noted: ○ On the whole, the initial economic effects of Prohibition were largely negative. The closing of breweries, distilleries and saloons led to the elimination of thousands of jobs, and in turn thousands more jobs were eliminated for barrel makers, truckers, waiters, and other related trades. ○ Lack of Success A history of Labatt’s brewery notes that in Canada the impact on business was severe: ○ "The doors of thirty-five Ontario breweries had gone dark. Across the nation, prohibition had a similarly devastating effect on a once vibrant industry. The personal fortunes of many brewers were lost, legacies vanished, and hundreds of well-paying jobs disappeared." This was accentuated by the fact that the "business" of alcohol was simply driven underground into a thriving black market. This opened the door to organized crime. End of Prohibition In 1927 Ontario ended prohibition, replacing it with government control. Over time the laws became more liberal. For some years prohibition remained in the U.S., making Canada a tourist destination for American drinkers and the U.S. a market for smugglers from Canada. Alcohol was illegal in the U.S until 1933. LCBO The solution in Ontario was to create a government monopoly on distribution under tight controls = LCBO. The Premier of Ontario, Howard Ferguson, stated that the Liquor Control Act was "... to allow people to exercise a God-given freedom under reasonable restrictions." Ferguson was further quoted as saying the purpose of the LCBO was to "promote temperance sobriety, personal liberty and, above all, to restore respect for the law." Evolution of LCBO In 1947, the LCBO began to allow cocktail bars, which marked a shift in social drinking norms. Initially, purchasing alcohol from the LCBO required a customer to obtain a "permit book" or "passport," which tracked their purchases. This practice was meant to monitor and control individual alcohol consumption. In 1958, this system was abolished, signaling a move towards more modern and less invasive purchasing processes, as the LCBO began to trust consumers to regulate their own behavior. After the end of the passport system, the LCBO introduced pass cards as a less awkward way to identify and track customers. However, these were also discontinued in 1962. This further simplified the process of purchasing alcohol, reflecting a continued effort to modernize and reduce bureaucracy in the LCBO’s operations. Up until the late 1960s, LCBO stores operated more like warehouses than retail outlets. Customers had to request items from a clerk, who retrieved them from the back. In the late 1960s, wine displays were introduced, allowing customers to browse and select bottles themselves. This change marked the beginning of the LCBO's transition into a modern retail experience, emphasizing customer convenience and engagement. Marketing brands and control in the Alcohol Industry Brand Growth: The global market is controlled by a small number of MNEs. The largest one is AB InBev, with an annual revenue of $45.6 billion USD in 2017. AB InBev was created through a merger of AmBev and Interbrew, an amalgam of Latin American, Canadian and European brewery interests. In 2008, Anheuser-Busch was acquired, and acquisitions of Grupo Modela in 2012 and South Korea. Oriental Brewing helped the international penetration in 2014. In 2016, a merger was negotiated with African rival SABMiller to create AB InBev. The AB InBev merger was the 3rd largest in corporate history, establishing a dominant market position of an estimated ⅓ of all beer sold worldwide. Differences between Alcohol MNEs and others: Unlike many MNEs, the growth of alcohol major companies is often driven by heritage brands and familiar names. They often deal with restrictions. Technology can be a factor, but name recognition is more important. Tensions between health and profit: The fact that alcohol has clear health implications like: atherosclerosis, damage to brain function, cirrhosis, chronic heart failure, reproductive dysfunction, pancreatitis, etc. Governments want to control levels of consumption but company profits rely on the increase of consumption. Regular drinkers give companies the most profit. This has meant some level of restriction on advertising in most countries. Restricting Advertising: There are two methods countries can employ to limit advertising of alcohol. Voluntary codes of conduct from producers are one. Restrictions by law or regulation is the other. Voluntary codes are much less effective than regulatory. Loi Evin: France’s regulation of alcohol marketing - 1990s A high level of community and medical concern led to the adoption of legislation to prohibit advertising on television, cinemas and all sponsorship in sport events. The advertising that is allowed is print media for adults and on some radio channels and billboards, is restricted to information about the product and no images of people and lifestyle. Content controlled advertising. A health message should be included on each advertisement to the effect that alcohol abuse is dangerous to health. Law’s success: More successful with tobacco control. Producers have lobbied to roll back some of the limitations with their political influence and power. MNEs and Regulation: ARTICLES. Wine Industry: Until the end of the 1980s, the European countries, and particularly France and Italy, dominated the international market for wine. Subsequently, significant changes in the market, namely decreases in consumption by traditional consuming countries, the entry of new inexperienced consumers, and the increasing importance of large distribution have threatened this supremacy. Initially, the USA and Australia and later emerging countries such as Chile and South Africa, gained increasing market shares in both exported volumes and value, at the expense of incumbents. However, some of these newcomers (e.g. Australia) have shown slower growth, opening opportunities for newer entrants such as Argentina and New Zealand. At the same time, some of the incumbents (especially Italy) have innovated, challenging the leadership of France in key markets such as the USA. Wine production and more broadly agricultural activities have always been heavily subsidized in the European Union. Since the inception of the European Common Market in 1957, top wine-producing countries such as France, Italy and Spain have taken advantage of subsidies and incentives for domestic activities, as well as protection of their internal markets from foreign competition. As a result of centuries of tradition, in the 1960s the main European producers – France, Italy, Spain, Germany and Portugal – dominated the wine industry, accounting for 63% of world wine production by volume, with France and Italy alone accounting for almost half (47%). In that period per-capita wine consumption reached 124 l in France and 108 l in Italy, well above the world average of 7.2 l. The globalization of wine was still to come, and a mere 11% of world wine production was exported, with France, Italy, Portugal and Spain accounting for almost 40% of the total global market Italy and France are the top wine producing, exporting and consuming countries. Since the 1970s, the traditional European producers have experienced a drastic reduction in the quantity of wine being consumed, driven by lifestyle changes, with wine becoming a beverage for special occasions, and with much more attention to quality than before. In fact, the reduction in the volume of consumption has been matched by an increase in unit value, due to a shift in the type of consumption from bulk to premium wines. These new consumers lacked the experience to appreciate differences related to wine regions, and had no knowledge about European appellations. Their preference was for ‘easier-to-drink’, affordable wines from the NW. The quality upgrading of wine demand coincided with an increase in wine purchases from supermarkets and the rising importance of large-scale distribution. To exploit the new, rapidly growing markets, supermarkets required large volumes of international wine varieties such as Sauvignon, Cabernet and Chardonnay. In the 1990s, supermarkets also began to source and ship wine directly from NW producers, with great reductions in costs allowing lower retail prices. Australia and California were the first to exploit the new market segment, taking advantage of their favourable land and capital factor endowments. Quality ratings provided by wine experts and guides played an increasing role in shaping the perception and behaviour of potential consumers. These highly qualified professionals, sometimes described as flying winemakers, work as consultants for wine companies around the world and transfer vast amounts of tacit knowledge, contributing to the diffusion of new, more rigorous approaches to winemaking. Stimulated by the government, in 2002 the South African Wine and Brandy Corporation (SAWB) was created to enhance the industry’s competitiveness. A process of institutional renewal has also taken place in Chile; in 2007 the two major winery associations in Chile, Vi˜nas de Chile and Chilevid, merged to form Vinos de Chile to provide a single voice aimed at achieving a more coherent strategy to guide the industry. Alongside the adoption of new technology, modernization has included more attention to marketing and branding. For example, screw-cap bottles of European wines, and wine in boxes, have become common for table wines. Increasingly, individual wineries and wine consortia are contracting with communication and marketing agencies to advertise their products, especially to enter international markets (often supported by national vouchers under EU wine policy. For example Italy and Spain have upgraded their competences in popular as well as top-quality wines (e.g. sparkling wine), and innovated in order to address new consumer requirements while keeping the industry firmly rooted in the local terroir. Similarly, the competitive advantages of world-renowned French wines (e.g. Champagne, Bordeaux) have been reinforced based on their unique territories, and have gained market share in both traditional and emerging markets (e.g. China). In contrast, French popular wine producers’ (especially cooperatives) lack of market knowledge combined with their dogged adherence to the terroir model has proved less successful because many regional appellations are not immediately recognizable by foreign consumers. Since the early 2000s, global consumers’ tastes have changed qualitatively, mainly favouring OW producers. This new class of consumers is more sophisticated and better educated, and pays more attention to variety and intangible features such as the history and authenticity of the wine. These knowledgeable and demanding consumers belong to the emerging wealthy and middle classes in developed (e.g. UK) and emerging economies (e.g. China), and want mainly high-status goods. Recent figures indicate that China’s domestic consumption in the last decade has grown faster than that for any other country in the world. Although consumption is still low in per capita terms, total wine consumption in China is close to that of traditional wine countries. The wealthy middle class that has emerged in China is becoming more sophisticated and more westernised. This affluent group searches for high-status goods such as imported wines. Therefore, demand for luxury iconic French wines and Australian branded super-premium wines has been particularly high. The Asian (and particularly the Chinese) wine industry is attracting international capital and is expanding internationally. Chinese investors have acquired a number of French châteaux and have made investments in US and Australian wine companies. These are tangible signals within the Asian business community of growing interest in the wine industry LCBO: LCBO’s first day of business was on June 1, 1927. The first outlets were nothing like the boutique liquor stores of today: the original system was designed to make the experience of purchasing alcohol feel as shameful as possible, and to allow the province to pry into the private habits of Ontarians. If the customer passed muster, they would be given a passport-sized permit book. To make a purchase, they filled out an order form and took it to a clerk, who reviewed their buying history. The system was highly prejudicial — women and visible minorities were effectively prevented from working in stores, while members of First Nations weren’t allowed to hold permits until 1959. Permit books were scrapped in 1958, replaced by wallet cards, which remained in effect until 1962. Eventually, liquor was allowed to be displayed on the sales floor: small wine displays appeared in 1958, followed by catalogs in 1965. LCBO officials sensed that Ontarians were tired of being made to feel ashamed when buying alcohol, but the agency still feared the influence of temperance activists, who complained that government money should be spent on education or health care, rather than better liquor stores. Although the LCBO announced in 1973 that all stores would convert to self-service, it would take another 20 years for the last counter-service locations to be phased out. The LCBO retail experience lurched toward its current form when former Metro Toronto police chief Jack Ackroyd was appointed chairman in the mid-1980s. The awards for store design and innovative retailing that the LCBO received by the end of the 20th century would have horrified the early shapers of the agency. It remains to be seen which incarnation of the LCBO — stern and sterile, or colorful and customer-friendly — will be used as a blueprint for the marijuana stores of the 21st century. Brand and Alcohol Marketing: The commercial use of brands developed during the industrial revolution of the eighteenth and nineteenth centuries, and many of today’s famous consumer brands, like Coca-Cola, Bass beer, Quaker Oats, Kodak, Heinz and Prudential Insurance, originate from this time. However, it was probably during the period following the Second World War where the growth of brands really took off, and they have now become an integral feature of our everyday lives. Many of the best-selling alcohol brands, such as Smirnoff, Bacardi, Budweiser, Stella Artois and Blossom Hill, are now very familiar to most adult consumers. Research suggests that many young people, in particular, do not recognise alcohol promotion via such mediums as ‘marketing’, yet the messages being conveyed to them likely shape their drinking behaviours once they have entered adulthood. A related marketing approach used by companies to potentially grow sales of their products and increase consumer awareness of the brand is ‘brand extensions’ or ‘brand stretching’. Brand stretching can be achieved through two means. The first is through line extensions, whereby the brand name is applied to a product in one of the company’s existing categories – in other words, products that are variations on the same brand in the same category. Line extensions have been around for a long time, with a classic example being Coke introducing a sugar-free alternative, called Diet Coke, in the early 1980s. A more recent example is Starbuck’s development of a premium coffee liqueur. It has been estimated that more than half of all new products introduced each year are line extensions. In the alcohol beverage industry, there are numerous recent examples of line extensions in the beer category. Brands have introduced lower calorie or ‘light’ beers as an extension to their core sellers – see Bud Light, Miller Lite and Coors Light – and new citrus-flavoured beers such as Carling Zest, hoping to win appeal in the female market. However, it is the second means of brand stretching, namely category extensions, which is of most interest. This occurs where the company applies an existing brand name to a new product category. There have, again, been many examples of this practice. Perhaps the best known is Virgin, which has extended from music recordings into airlines, radio stations, beverages and financial services; other examples include Caterpillar extending from heavy machinery into clothing and shoes, Ikea extending from furniture to hotels, and Yamaha offering motorbikes and sports equipment in an extension to its original musical instrument business. The idea behind category extensions is that brand associations and attitudes are transferred from the well-established, parent brand to the new extension product. They also help build brand equity, that is, the commercial value of having a well-known brand name, and are thought to encourage purchases of other products from the company. Such a strategy can cause erosion of the core brand, in that the new product might simply attract existing customers away from the original, or might insinuate that the core brand has problems – for example, a low fat version might imply that the original version is high in fat. Marketing research also indicates that perceived fit determines the success of brand extensions – as noted above, one of the main reasons for the failure of Coors beer extension into bottled water was that the new product did not represent a good fit with the parent brand. Alcohol Concern continues to call for tougher restrictions on alcohol marketing in the UK, including an end to alcohol industry sponsorship of cultural and sporting events, and the requirement that alcohol marketing messages be restricted to adult audiences and contain only factual information about products. QUIZ, WEEK 6:  1. According to the article on "Catch up" in the wine industry, which two countries led the breakthrough of NW producers? Australia and the USA 2. An advantage of category extension for alcohol is... avoid regulations on advertising 3. The LCBO was created in Ontario in which year? 1927/1928 4. Which country is involved in a conflict with the Bacardi company? Cuba 5. Which disease helped to restore the popularity of gin? Malaria 6. In the 1898 referendum in Canada which province voted against prohibition? Quebec 7. The dominance of Old World wine producers has been threatened, in part because… The increasing importance of large distribution 8. Diet coke is an example of... Line extension. 9. Which country experienced the "Gin Craze"? England 10. The French law to restrict advertising of alcohol is called... the Loi Evin LECTURE 7. TRAVEL AND TOURISM INDUSTRIES. Roman Holiday Rome’s power and empire made tourism possible. Two of the preconditions for tourism are: Security to travel without fear and resources to do so.