Rick Clemens opened an independent whisky distillery 15 years ago in a small town in British Columbia, Canada. Since that day, his business has slowly grown, gaining first a local, then regional and finally national following. It has since grown from a two-person operation to a thriving business with an in-house team of six and the contracted services of an off-site bottler and distributor.

After many years of operating at a healthy profit, Rick and his team decided to begin exporting to the U.S., as many Canadian distillers do. Although Rick had some reservations about expanding the business, this move proved beneficial to the company, and within two years the U.S. expansion project had also become very profitable.

Recently, the company, Comox Valley Distillers, has shot into popularity with the release of its single malt whisky brand, CV One. Produced from locally grown barley and aged for a minimum of five years, CV One has placed in the top ten of the Canadian Whisky Awards in the past three years. This year, much to Rick’s and his team’s excitement, CV One became the first Canadian whisky to win an international award, being declared the best single malt whisky in the world by John Mullings, renowned whisky aficionado and author of The Whisky Authority.

As a result of the international recognition, Rick is contemplating further expansion into the global market. He feels the team should take advantage of the spotlight to grow the business. His preliminary research suggests the Indian, Japanese and South Korean spirits markets have great potential for CV One and perhaps other high-end spirits produced by Comox Valley Distillers.

Intoxicating Investigation

The first thing Rick did was pull his project team together to consider how to approach the new opportunity. The team consists of a master distiller, who is responsible for production, two assistant distillers, a distillery manager, who is responsible for sales and shipping, a vice president, who is also responsible for sales and who spearheaded the U.S. expansion, and Rick, the president, who oversees operations and leads the company’s strategic planning initiatives.

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Feasibility of International Trade Module — Situational Analysis

The team first discussed lessons learned from its international endeavour into the U.S. It was an extremely smooth transition and the team agreed this was due in large part to the import company it used, PVS, who won the U.S. Whisky Importer of the Year award in previous years. The importer was incredibly organized and dependable, and had been extremely helpful throughout the process. Unfortunately, PVS only imported into the U.S. and wasn’t able to assist the distillery with its new expansion. The team knew though, when the time came, it would need to find an equally knowledgeable importer/exporter to assist with a smooth transition into a new market.

To assess the company’s readiness for further expansion, each team member completed an online questionnaire offered by the Canadian Trade Commissioner Service. After comparing their findings, two gaps were identified. First, the team members lacked sufficient knowledge of how to export successfully to a country with different regulations, culture and language than their own. Secondly, the distillery had grown over the years without any mass marketing efforts. It had always used a grassroots type of marketing strategy based on its growing reputation and by cultivating strategic relationships. Becoming successful in an overseas market would require a strong marketing strategy and the ability to execute that strategy. These issues would need to be addressed soon.

In the meantime, Rick and the vice president, Joanna, began researching the three potential new markets. Their preliminary findings, conducted primarily through online research, were as follows:

India

The imported spirits market in India is expanding rapidly, with 25 percent growth over the last couple of years due to favourable demographic trends, changing cultural norms and the rapid growth of the increasingly lucrative middle class. Whisky is the most widely consumed imported spirit in India. There are some big players already selling alcohol in India, including Diageo, AB InBev, Pernod Ricard and Carlsberg.

India has a huge population of potential consumers. In 2014, there were 485 million Indians of drinking age with another 150 million expected over the following five years. India and Canada do not have a trade agreement, and exporting spirits into India incurs duties and taxes of approximately 150 percent. In addition, all advertising related to the sale of alcohol is banned, with the exception of some types of signage, which are strictly regulated.

Japan

With a population of 127 million, the market in Japan is fairly mature and has shown little growth recently, due to low consumer confidence, price competition and a declining drinking population. Japanese consumers are increasingly sophisticated and discerning of where they spend their money, and have been trading down to economy products to stretch their budgets.

In 2011, the Canadian whisky market in Japan was worth over USD 54 million and was projected to grow by 15.3 percent over the following five years. However, current trade data shows whisky exports from Canada to Japan decreased by 50 percent from 2014 to 2015.

Recently, Canada signed the Trans-Pacific Partnership, a free trade agreement between 12 Pacific Rim countries, including Japan. Although the deal is yet to be ratified, should it proceed, it will mean the lowering of duty tariffs for importing spirits into Japan.

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Feasibility of International Trade

Module — Situational Analysis

South Korea

The Canada-Korea Free Trade Agreement entered into force January 1, 2015. In this agreement, South Korea agreed to protect the terms “Canadian whisky” and “Canadian rye whisky” as geographical indications, ensuring their exclusivity to Canadian producers. Another result of the trade agreement was to drop the 20 percent import duty on rye whisky being imported into South Korea.

As Asia’s fourth largest economy, South Korea has a population of 48.5 million, with 38.6 million consumers over the legal drinking age of 19. According to South Korea's Economic Information Education Center, South Korea is enjoying steady employment increases, a slowing of inflation and stable consumer prices, but facing a downturn in its overall economy, with mining, manufacturing and retail sales declining. South Koreans are known for leading the world in the amount of liquor consumed per capita; as a result, the alcoholic beverage market is showing growth in all areas. South Korea’s drinking culture is shifting toward a preference for higher quality products, increasing sales in a few key categories, including premium brand whiskies. A 2014 survey of different whisky brands showed growth on average for sales of single malt whiskies. At the same time, single malt whisky still accounts for less than 4 percent of the South Korean market.

Drinkable Dilemma

After discussing their findings with the team, Rick and Joanna strongly feel further research is required prior to selecting the optimum target market for the planned expansion. Joanna, having managed the previous exporting endeavour, has been considering different methods for gathering information from consumers in both developing and developed countries, as will be required for further research into the three target markets. In her research, she has found a relatively recent method of surveying potential consumers using mobile phones. New technologies are emerging for the use of SMS or text-based surveys in areas with lower bandwidth and high cell phone usage. According to the World Bank, mobile phone use in developing countries has surpassed that of the developed world; therefore, this may be one option for Comox Valley Distributors to use in the next phase of research. One thing is certain: at this stage of the game, Rick and his team are even more convinced they are making the right move by looking for expansion opportunities overseas.

Learning Outcomes

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This case study relates to the following learning outcomes from the module Situational Analysis in the course Feasibility of International Trade:

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Assess the readiness of the organization to undertake the potential new international trade initiative or expansion.

Screen potential international markets to identify priority markets.

Design the research plan and conduct the designated research.

Feasibility of International Trade Module — Situational Analysis

Case Study Questions

1. Comox Valley Distillers identified two gaps in the readiness of its organization to expand further internationally. How should the team address these gaps?

2 What risk factors are present in each of the three target markets identified?

3. Based on the results of the research already conducted, what types of data should the team investigate further?

4. Joanna suggested using mobile phone surveys as a method of primary research. Is this the best method of primary research based on the facts in the case? Support your answer with reasons.

5. Which target market would you advise Rick to choose? Why

Answer rating: 100% (QA)

The team should address those two gaps by Maintain organization stand Be challenging to the outside ... View the full answer