International globalization of company brands has been a move that many companies are taking in different countries worldwide. The main aim of this is to improve company sales and profits by making the brand, the company name, popular by introducing the product in new markets in both developing and developed countries. SABMiller, a South African Beer Company, based in England, decided to acquire Grolsch as its subsidiary in the brewing business. To improve their sales, they developed this company to conquer the upcoming markets for premium beer in Latin America and Africa, where they have the route. Still, they needed to stiffen competition by bringing in a new product. Grolsch is a well-known brand for the production of premium beer in the North European markets, and it has beaten major companies like Heineken. Therefore, its decision to expand to the global markets by being an independent subsidiary is a good market strategy. While taking into account the cage strategy, we shall cross-examine the vital elements in the Grolsch market strategy and look at the limitations of the same
Cage Analysis of Grolsch as a Global Market Company
Ghemawat 2001- The cage analysis is a laid-out framework of assessing the distance between the global markets while considering; the physical geographic distance, cultural and administrative, the difference currencies and trade agreements and economic difference in terms of the GDP. This framework help countries in the global markets assess possible market opportunities and risks in trading in the international markets.
The Grolsch brand is Dutch; pitching the product in some countries is a problem, especially in African countries like South Africa, where the Dutch culture is not shared. If the product is to be sold via mass production, the strict German purity policy may not be applicable, and if it’s the selling mark of the product, it may lose its value. Grolsch has solely based its products in Europe as communication and marketing are more accessible in Northern Europe with English as the market language. However, if the company were to venture into smaller countries in Africa, they would have to spend a lot more on marketing by having translators develop more suitable advertisements to lure the customers to their beer brand.
The absence of colonial ties to the country you are venturing into may be a potential risk due to unfamiliarity with the trade zone. It is a giant leap of faith because the marketer has to learn about the market from scratch. To this effect, Grolsch, a subsidiary of SABMiller, will be of great importance while expanding to the African market since England had colonial ties with a good number of the African countries. Another limitation to global expansion is the different currencies in the markets. It brings difficulty when pricing the products in the foreign markets, which may work against or for the country being sold to, considering the financial stock prices.
However, in areas where the trade agreements are well established, like in North Europe, this works to the company’s advantage. In the home market, in the Netherlands, it is considered a standard lager. The beer is of premium status, especially in France and Russia- Amsterdam, where it is the priciest premium lager. While expanding outside the political boundaries, it is good to do so in a politically friendly zone. The political crisis may affect businesses like in the case of Russia currently, where all European countries are boycotting Russian Brands and are refusing to sell their products to them.
While discussing the administrative distance, we cannot mention institutional weakness. Worldwide sales of the Grolsch brand have been in decline since 2004. Total volumes have remained steady since 2004 because the losses are compensated by growth in Amsterdam, which is a non-premium brand. Although sales in millions of Euros has increased by 30% from 2000 to 2007, EBITDA as a percentage of sales had declined from 22% in 2000 to 18% in 2007 Net profit as a percentage of sales has also declined since 2000 .Net profit per share has also declined from 2000 to 2007. The total debt to equity ratio has increased from 62% in 2000 to 82% in 2007. The company was more highly levered, partly due to the new brewery building. The Current Ratio, a measure of liquidity, has decreased from 1.93 in 2000 to 1.48 in 2007. Although more than 50% of the volume is international, 88% of its revenues and 94% of its contribution margin are Western Europe. This brief outline is clear why the company had to be a subsidiary to expand its market. Despite having the potential, its sales have dwindled over time, and therefore, it needs to outsource its administration.
The position of the Netherlands has made the trade of the Grolsch Brand overseas, In Northern Europe, easy. Other than the good geographical position of the country of origin, the good marketing strategy has enabled them to sell the beer brand all over European supermarkets, bars, and restaurants.
When talking about economic distance, the following factors should be considered.
In comparison to other brands, the Grolsch is the 51st largest brewery globally at the time. SABMiller’s logic of choosing it was based on it being a high-quality product, a premium brand in the North of Europe. Its establishment as a brand in the market prompted SABMiller to take the deal to help develop its premium beer business and have the edge over other competitive brands like Carlsberg. SABMiller sees huge potential for the brand in their global footprint, especially in emerging markets like Latin America and Africa, where they have a strong
Grolsch is a world-class brand that is befitting in the global market. The sole decision of SABMiller having it as a subsidiary will see the brand in the upcoming markets of Latin America and South Africa as a leading lager that is rare, pure, and hard to compete against if the business assessment is done well. The brand is made more attractive and its novice presented to the global market each day through proper marketing.