CASE Cool Spirits (Fictitious Company) Please Note all numbers, facts and information for this case are fictitious, do not represent actual companies, and are used for the purposes of this case only WHAT YEAR IS THIS CASE BASED IN 2021 Instructions Read the Case Answer the questions in the table below the case content COMPANY BACKGROUND Early in 2021, Larissa Martinez and Arjun Burman were in a meeting to review the product categories and brands of Cool Spirits alcoholic beverage offerings The company had been in business for 10 years now in the Canadian market, building a unique offering of alcohol beverages Cool Spirits based their business on producing what they considered to be mid level quality alcohol products that are priced in the middle end of the price spectrum Their offerings included Vodka, Gin, Whiskey, Tequila, Beer, Wine and Coolers In recent years, the alcohol beverage industry has experienced a slow down in growth of its core products Larissa, EVP Operations and Arjun, EVP Marketing have been charged by Jules MacMillan, the company's founder and CEO, to develop proposals for driving growth and profitability for the company Jules is targeting to achieve an increase in sales revenue of 4 in 2021, and 5 in 2022 in an industry that has been experiencing very moderate growth in recent years ALCOHOL BEVERAGE INDUSTRY As mentioned above, in recent years, the Canadian and U S alcohol industry has been exhibiting very slow growth volume (See Exhibit 1) Exhibit 2 illustrates what considerations Canadian consumers use when purchasing a specific brand of alcohol EXHIBIT 1 Consumption of Spirits, Wine, and Beer in Canada USA Canada market in million litres sold 2018 2019 2020 2021 2022 2023 2024 2025 Expected Annualized Growth Rate (2018 2025) Brandy 6 6 6 6 6 6 6 6 0 Gin 11 12 12 12 13 13 14 14 4 Liqueurs Other Spirits 208 217 219 234 248 261 273 285 7 Rum 34 34 32 33 33 33 33 33 0 Vodka 55 56 54 56 56 57 58 58 1 Whisky 55 55 53 55 55 56 57 57 1 Total Spirits 369 379 376 395 411 426 441 454 4 Fortified Wine 8 7 7 7 7 7 7 7 2 Sparkling Wine 24 26 27 29 31 32 33 35 8 Still Wine 571 578 559 573 582 590 596 601 1 Total Wine 602 612 593 609 620 629 637 642 1 Beer, at home 2095 2093 2089 2084 2079 2074 2070 2066 0 Beer, out of home 637 646 504 574 619 653 681 697 2 Total Beer 2732 2739 2593 2658 2698 2727 2751 2763 0 USA market in million litres sold 2018 2019 2020 2021 2022 2023 2024 2025 Expected Annualized Growth Rate (2018 2025) Brandy 270 280 267 278 286 293 298 302 2 Gin 65 64 60 61 62 62 62 62 1 Liqueurs Other Spirits 386 399 381 393 403 412 417 421 2 Rum 165 166 156 158 159 161 163 164 0 Vodka 570 573 541 558 570 579 584 587 1 Whisky 478 486 462 477 485 493 498 501 1 Total Spirits 1934 1967 1866 1926 1964 1998 2023 2037 1 Fortified Wine 302 308 296 309 319 327 334 340 2 Sparkling Wine 251 268 262 278 291 302 313 321 5 Still Wine 3547 3559 3428 3584 3702 3803 3891 3959 2 Total Wine 4099 4136 3986 4171 4311 4432 4537 4619 2 Beer, at home 18209 18221 17764 17794 17777 17747 17694 17623 1 Beer, out of home 5557 5640 4322 4939 5313 5589 5808 5921 1 Total Beer 23765 23861 22086 22733 23090 23336 23502 23544 0 EXHIBIT 2 What Considerations Consumers Use When Buying Spirits in Canada COOL SPIRITS PRODUCTS AND MARKETING STRATEGY Cool Spirits marketing strategy could best be summed up as on trend, updated versions of traditional alcohol products As such, their target audience trended to slightly more youthful customer markets, with a focus on social occasions and get togethers for consumption of their products Much of their advertising communications would involve youth at restaurants socializing with friends and family while enjoying Cool Spirits products They also stressed focus on quality ingredients and production processes that made their products a quality buy for their target group, not considered to be premium nor discount products, but a mid range quality priced set of products Cuervo Tequila business was just acquired 2 years ago from a competitor In recent years, sales of most of their brands had remained stable Exhibit 3 below shows sales for the company by brand since 2018 and projected for 2021 EXHIBIT 3 COOL SPIRITS SALES VOLUMES Million litres sold Cool Spirits Brands 2018 2019 2020 2021 Projected Expected Annualized Growth Rate Glacier Gin 1 6 1 8 1 7 2 0 4 6 Strawberry Surge Vodka Cooler 1 9 2 0 2 0 2 1 2 0 Lime Life Gin Cooler 0 6 0 7 0 6 0 6 0 0 Clearstream Vodka 1 7 1 8 1 7 1 7 0 0 Prairie Whisky 2 4 2 2 2 1 1 6 7 8 Cuervo Tequila 2 0 2 3 2 5 2 7 6 2 Social Suds (Flavoured Beer) 0 9 1 0 1 0 1 2 5 9 Spring Valley Merlot (Wine) 0 4 0 4 0 5 0 4 0 0 Total Spirits 11 5 12 2 12 1 12 3 1 4 NEW OPPORTUNITIES FOR LARISSA AND ARJUN Larissa and Arjun have been considering opportunities to grow their business One potential business opportunity idea was brought to them by a distributor of alcohol beverage products in the U S A , looking for a manufacturer to provide a sparkling wine for distribution into the northeast U S A Cool Spirits had not previously produced sparkling wines, but was a product category that the company could venture into given its experience (albeit somewhat limited) with wine A second business opportunity for the company is to grow their beer category in Canada In recent years, specialty and craft beer has been growing in popularity in Canada and North America A third opportunity was to consider entering the U S market with a broader selection of their spirits products EXHIBIT 4 CANADA CRAFT BEER VS NON CRAFT BEER MARKET Can$ (million) Category Segment 2014 2015 2016 2017 2018 Expected Annualized Growth Rate Craft Ale 905 2 1,127 90 1,311 90 1,480 90 1,656 60 12 8 Lager 82 8 102 3 117 1 134 7 147 6 12 3 Others 50 3 58 5 64 6 70 9 76 5 8 7 Wheat beer 6 5 14 8 20 2 24 29 9 Dark beer 3 2 4 3 5 5 6 5 7 3 17 9 Craft total 1,041 40 1,299 40 1,513 90 1,713 30 1,912 10 12 9 Non craft Lager 15,440 90 15,656 20 15,800 30 15,831 10 15,926 50 0 6 Ale 1,732 10 1,698 00 1,702 00 1,720 00 1,746 80 0 2 Flavoured beer 223 9 247 2 265 2 295 7 323 7 7 7 Stout 302 6 306 8 305 5 293 3 287 6 1 0 Wheat beer 25 5 26 9 26 9 28 2 29 6 3 0 Other top fermented 8 5 8 6 9 4 10 1 10 8 4 9 Dark beer 1 1 2 4 3 5 4 5 4 1 30 1 Non craft total 17,734 60 17,946 00 18,112 80 18,182 90 18,329 30 0 7 Source Global Data, 2019 Cool Spirits began producing a craft beer (as shown in Exhibit 3 Social Suds Pale Ale) in 2018 from their small operation This operation has capacity to produce more and different types of beer products if the company would decide in the future to pursue such an opportunity The craft beer market local producers (community by community) are growing at much higher rates than national competitors, but their scale is small COOL SPIRITS VALUE PROPOSITION FOR CONSUMERS What made Cool Spirits a successful business was the approach the company took to its product By 2018, Traditions, Social Libations and Collective Craft were the main competitors of Cool Spirits in Canada Traditions' company mission is to provide the highest quality ingredients in its products (Vodka, Gin, and Whisky) Their product skewed to a slightly older target audience than Cool Spirits Social Libations is a marketing driven brand that has strong appeal with youth, with premium quality product not being their core focus They believe that focusing their efforts on the youth segment with more attractive pricing will provide them with success Collective Craft is focused on beer, and in particular, produce popular and good quality craft beer They also have a small wine business that focuses on white wines (similar in size to Cool Spirits wine business) Management believed that what separated Cool Spirits from its direct competitors is the value provided for a mid range priced product in essence, Cool Spirits is focusing on the upper range of the youth market (25 35 years old) that is health and environment conscious, a segment that still will be focused on social occasions, but are starting to look for better quality products as their income starts to increase Cool Spirits focused on using ingredients that are organic and harvested using sustainable practices With that, the focus of its marketing is to promote 'organic' and 'sustainable' at a mid range price COMPETITION Competition in the alcohol beverage industry is very intense The following information has been assembled by the Cool Spirits management team in analyzing how they stack up against their direct competitors and some indirect competitors EXHIBIT 5 Competitor Advantages and Disadvantages Competitor Product Categories Main Advantages Main Disadvantages Cool Spirits Gin Vodka Whisky Tequila Coolers Red Wine Craft Beer Mid high range quality ingredients in its spirits category Priced at the upper end of the mid price range to align with their upper age youth target segment, Diversified portfolio of products across spirits, wine and beer categories with historical focus on spirits Their proprietary beer, Social Suds Flavoured Beer, is highly popular among its loyal customers This beer is perceived to be a high quality offering by its customers for its mid level price Historically, very focused and committed to Canadian market customers perceive them as being locals (even though they have a national presence) Mid range pricing leaves some customers wondering if their product is a premium or discount product Brand name recognition not as high as its direct competitors (especially Social Libations) due to lower marketing expenditures Larger in scale compared to many of its direct and indirect competitors which may Traditions Vodka Gin Whisky Tequila Rum Red Wine White Wine Highest sales revenues of its main competitors Highest quality ingredients Been in business for over 80 years and have built a loyal following for their products Packaging (bottles and labels) are highly impactful, winning marketing design awards Historically strong marketers with a heritage base of customers, with reasonably big budgets, but marketing spend has been lessening recently due to declining market share Target market is customers 40 years of age who are 'salt of the earth' Canadians, are mid to high income earners, and who enjoy their alcohol beverages in social settings Price of products is on average, 6 8 above competitive products which limits their access to certain target markets Marketing is centred mainly on tradition, which may be less appealing to a younger target customer Cost base is higher than competition due to focus on producing the best possible products and heavy marketing expenditures on more traditional media Social Libations Coolers Vodka Gin Tequila Low quality ingredients which creates a sometimes, inconsistent taste in their products High brand recognition and awareness due to high marketing expenditures Appeal to lower age range youth target markets Strong market share in bar club distribution channels Lower quality limits its target audience appeal U S A based headquarters (not Canadian), but have been in Ontario for 20 years Cost of production not significantly higher than its main competitors, but operating expenses are high due to high marketing expenditures Collective Craft Beer White Wine Perceived as having excellent tasting craft beers, among the most popular Also perceived as being a part of local society in the eyes of their target markets due to high marketing spend in local communities White Wine product has won local awards for taste and appeal Craft beers are narrowly focused Collective Craft focuses more on IPA's, lagers and stouts and hasn't yet entered the flavoured beer category White Wine business has low market share due to lack of focus on promotion The above table only captures information on the main competitors There are many other small, independent alcohol beverage companies that compete with Cool Spirits in individual categories, but not across all 3 of the major alcohol beverage categories (alcohol, wine, beer) New entrants into this industry also have significant challenges that can impact success of the business in the start up phase including capital requirements for production facilities, access to ingredients and raw materials, and marketing communication expenditures required for successfully establishing and retaining the desired target market, establishing a low cost structure so that the business is price competitive, and differentiating the offering from its competition in order to have a unique offering that consumers want to purchase Ingredient suppliers to the alcohol manufacturers have experienced significant price pressure due increases in their production and to the size of the alcohol beverage manufacturing base, making their profitability a challenge on a yearly basis Larissa and Arjun believe that not only are their direct competitors a threat, but also indirect competitors such as non alcoholic beverages In addition, because of the legalization of cannabis for recreational and medicinal purposes, these producers are also exerting competitive pressure on alcohol beverage industry, specifically the spirits business EXHIBIT 6 Retail sales of legal cannabis stores in Canada from 2018 to 2020 (in million Canadian dollars) EXHIBIT 7 Volume of Non Alcoholic Beverages Canada The following information in Exhibit 7 as been also pulled together by Larissa and Arjun's management team to help them better understand some of the financial information on the Cool Spirits and its competition EXHIBIT 8 Estimated Financial Information For Cool Spirits Main Competitors in Canada AS OF 2021 PRODUCER VALUES Estimated Average Selling Price (To Retailers) Per Litre Estimated Average Variable Cost Per Litre Estimated Average Contribution Margin Per Customer Order Estimated Fixed Costs 2021 Sales Revenue Cool Spirits $18 10 $14 75 $3 35 $35,570,000 $226,250,000 Traditions $19 45 $15 90 $3 55 $42,000,000 $245,530,000 Social Libations $17 00 $12 75 $4 25 $35,675,000 $185,670,000 Collective Craft $10 05 $6 95 $3 90 $27,000,000 $155,980,000 As can be seen in the Exhibit 8, Cool Spirits has established itself as a solid participant in the alcohol beverage industry with the 2nd highest revenue generation amongst its competitive peers COOL SPIRITS PORTFOLIO OF BUSINESESSES Cool Spirits product sales and profitability breakdown is shown in Exhibit 9 below Larissa and Arjun are convinced that the company is in a strong enough position to consider expansion of the business They need to convince their CEO, Jules that now is the time, and to make a recommendation on how to achieve growth EXHIBIT 9 Cool Spirits Product Offerings and Various Financial and Operational Data FUTURE EXPANSION To consider the best options available, Larissa flew to upstate New York to meet with government officials and potential new ingredient suppliers to learn about any restrictions and legislation obstacles in advance of potential geographic expansion, and potential product suppliers in the local area In a meeting with potential new suppliers the next day in New York, Larissa was offered (and accepted) to attend a professional basketball game in one of the potential supplier's corporate boxes (value of attending 1 event in a corporate box is about $7000 USD) Meanwhile, Arjun completed more research on competition in both Canada and the United States He learned that in northeast U S , that competition is extremely intense Many manufacturers were very focused on lowering costs, and in many cases, this meant lowering quality levels of product ingredients Arjun believes that in order to compete in the northeast United States, Cool Spirits would have to lower its cost base One idea that Arjun thought about is to purchase ingredients from lower cost providers with whom he has had contact in the past These providers all are USDA Organic certified for the relevant ingredients, but there has been questions about sustainable harvesting practices with these providers SEE NEXT PAGE FOR QUESTIONS Answer the following questions (use as much space as required) Case Questions Answer Column Provide Your Answers In The Cells Below Marks 1 Competitor Analysis Using Porter's 5 Forces model, provide a competitive analysis for Cool Spirits Of the 5 competitive forces and based on information in the case, which one do you believe provides the greatest competitive intensity Provide your rationale for your answer 10 2 Business Strategy Which generic business strategy do you believe that Cool Spirits is currently pursuing Provide your rationale Do you agree with their strategy Why or why not 5 3 Marketing Strategy Positioning From our discussion on positioning earlier in the term, what positioning strategy do you believe that Cool Spirits is using Support your response Do you believe that this positioning represents a sustainable competitive advantage for this company over the long term Why Why not 5 4 Growth Strategies Using the supplied BCG Matrix to the right, plot the growth strategy profile of Cool Spirits individual product offerings in the appropriate quadrant using company initial behind the indicated name below Plot the appropriate initial beside the Cool Spirit product on the BCG matrix on the right Glacier Gin ( G ) Strawberry Surge Vodka Cooler ( SSV ) Lime Life Gin Cooler ( LL ) Clearstream Vodka ( C ) Prairie Whisky ( P ) Cuervo Tequila ( CT ) Social Suds Pale Ale Beer ( SSP ) Spring Valley Merlot Wine ( SV ) Should Cool Spirits consider pursuing other opportunities to grow their business based on what you observe from plotting the above strategies on the BCG matrix Provide your rationale 6 4 Growth Strategies Regardless of your decision above to grow the business, make an assumption that the Cool Spirits decides to pursue a growth strategy by any of the following options Purchasing a major supplier of prominent beverage ingredients for many of its products Having Cool Spirits expand into northeast U S market with a broad selection of their products Launching a retail bar club business with multiple locations in Southwestern Ontario Starting to offer consumer incentives (e coupons) on social media to encourage purchases of existing products Purchasing a competitor that produces rum, scotch whisky, and an expanded selection of coolers and liqueurs Distribute sparkling wine in the northeast U S A Grow their market share of Social Suds Pale Ale beer business in new areas of Canada Enter into the U S A with a bottled water offering Place the roman numerals (eg i , ii , iii , etc) in the Ansoff matrix quadrant of your choice for all of the above growth strategy options Assume that Cool Spirits is defining its current business model as a producer and marketer of specific alcohol beverage products 4 4 Growth Strategies Given your work in question 4b above which one of the growth strategies do you believe would work best Provide your rationale 2 5 Operation Financials What would be Cool Spirit's annual breakeven volume in units Show any calculations and state any assumptions 2 5 Operations Financials Calculate annual breakeven volume in units for Traditions and Social Libations Show any calculations and state any assumptions 6 5 Operations Financials Based on the analysis in 5a and 5b above, who is best positioned to have financial success if the alcohol beverage market faces a downturn in demand Why 2 6 HR Ethics Could the acceptance of attending a sports event in the potential new supplier (valued at $7000 USD) by Larissa be constituted as a conflict of interest Explain why why not 3 6 HR Ethics If Arjun decided to pursue a partnership with one of the new organic ingredient suppliers that do not have certified sustainable harvesting practices, provide a point of view on how this would align to the company's social responsibility stance Explain why why not 3 7 Leadership As the leaders of Cool Spirits, what should Larissa and Arjun recommend to Jules MacMillan about next moves based on the 3 business opportunities available Provide your rationale 5 TOTAL 53

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CASE: Cool Spirits (Fictitious Company) Please Note: all numbers, facts and information for this case are fictitious, do not represent actual companies, and are used

CASE: Cool Spirits (Fictitious Company)

Please Note: all numbers, facts and information for this case are fictitious, do not represent actual companies, and are used for the purposes of this case only

WHAT YEAR IS THIS CASE BASED IN: 2021

Instructions:

Read the Case
Answer the questions in the table below the case content.

COMPANY BACKGROUND

Early in 2021, Larissa Martinez and Arjun Burman were in a meeting to review the product categories and brands of Cool Spirits alcoholic beverage offerings. The company had been in business for 10 years now in the Canadian market, building a unique offering of alcohol beverages. Cool Spirits based their business on producing what they considered to be mid-level quality alcohol products that are priced in the middle end of the price spectrum. Their offerings included Vodka, Gin, Whiskey, Tequila, Beer, Wine and Coolers. In recent years, the alcohol beverage industry has experienced a slow down in growth of its core products. Larissa, EVP Operations and Arjun, EVP Marketing have been charged by Jules MacMillan, the company's founder and CEO, to develop proposals for driving growth and profitability for the company. Jules is targeting to achieve an increase in sales revenue of 4% in 2021, and 5% in 2022 in an industry that has been experiencing very moderate growth in recent years.

ALCOHOL BEVERAGE INDUSTRY

As mentioned above, in recent years, the Canadian and U.S. alcohol industry has been exhibiting very slow growth volume (See Exhibit 1). Exhibit 2 illustrates what considerations Canadian consumers use when purchasing a specific brand of alcohol

EXHIBIT 1 - Consumption of Spirits, Wine, and Beer in Canada + USA

Canada market in million litres sold

2018

2019

2020

2021

2022

2023

2024

2025

Expected Annualized Growth Rate (2018-2025)

Brandy

Gin

Liqueurs & Other Spirits

208

217

219

234

248

261

273

285

Rum

Vodka

Whisky

Total Spirits

369

379

376

395

411

426

441

454

Fortified Wine

-2%

Sparkling Wine

Still Wine

571

578

559

573

582

590

596

601

Total Wine

602

612

593

609

620

629

637

642

Beer, at home

2095

2093

2089

2084

2079

2074

2070

2066

Beer, out of home

637

646

504

574

619

653

681

697

Total Beer

2732

2739

2593

2658

2698

2727

2751

2763

USA market in million litres sold

2018

2019

2020

2021

2022

2023

2024

2025

Expected Annualized Growth Rate (2018 - 2025)

Brandy

270

280

267

278

286

293

298

302

Gin

-1%

Liqueurs & Other Spirits

386

399

381

393

403

412

417

421

Rum

165

166

156

158

159

161

163

164

Vodka

570

573

541

558

570

579

584

587

Whisky

478

486

462

477

485

493

498

501

Total Spirits

1934

1967

1866

1926

1964

1998

2023

2037

Fortified Wine

302

308

296

309

319

327

334

340

Sparkling Wine

251

268

262

278

291

302

313

321

Still Wine

3547

3559

3428

3584

3702

3803

3891

3959

Total Wine

4099

4136

3986

4171

4311

4432

4537

4619

Beer, at home

18209

18221

17764

17794

17777

17747

17694

17623

-1%

Beer, out of home

5557

5640

4322

4939

5313

5589

5808

5921

Total Beer

23765

23861

22086

22733

23090

23336

23502

23544

EXHIBIT 2 - What Considerations Consumers Use When Buying Spirits in Canada

COOL SPIRITS PRODUCTS AND MARKETING STRATEGY

Cool Spirits marketing strategy could best be summed up as on trend, updated versions of traditional alcohol products. As such, their target audience trended to slightly more youthful customer markets, with a focus on social occasions and get togethers for consumption of their products. Much of their advertising communications would involve youth at restaurants socializing with friends and family while enjoying Cool Spirits products. They also stressed focus on quality ingredients and production processes that made their products a quality buy for their target group, not considered to be premium nor discount products, but a mid-range quality priced set of products. Cuervo Tequila business was just acquired 2 years ago from a competitor.

In recent years, sales of most of their brands had remained stable. Exhibit 3 below shows sales for the company by brand since 2018 and projected for 2021

EXHIBIT 3 - COOL SPIRITS SALES VOLUMES

Million litres sold - Cool Spirits Brands

2018

2019

2020

2021 Projected

Expected Annualized Growth Rate

Glacier Gin

1.6

1.8

1.7

2.0

4.6%

Strawberry Surge Vodka Cooler

1.9

2.0

2.1

2.0%

Lime Life Gin Cooler

0.6

0.7

0.6

0.0%

Clearstream Vodka

1.7

1.8

1.7

0.0%

Prairie Whisky

2.4

2.2

2.1

1.6

-7.8%

Cuervo Tequila

2.0

2.3

2.5

2.7

6.2%

Social Suds (Flavoured Beer)

0.9

1.0

1.2

5.9%

Spring Valley Merlot (Wine)

0.4

0.5

0.4

0.0%

Total Spirits

11.5

12.2

12.1

12.3

1.4%

NEW OPPORTUNITIES FOR LARISSA AND ARJUN

Larissa and Arjun have been considering opportunities to grow their business. One potential business opportunity idea was brought to them by a distributor of alcohol beverage products in the U.S.A., looking for a manufacturer to provide a sparkling wine for distribution into the northeast U.S.A. Cool Spirits had not previously produced sparkling wines, but was a product category that the company could venture into given its experience (albeit somewhat limited) with wine. A second business opportunity for the company is to grow their beer category in Canada. In recent years, specialty and craft beer has been growing in popularity in Canada and North America. A third opportunity was to consider entering the U.S. market with a broader selection of their spirits products.

EXHIBIT 4 CANADA CRAFT BEER VS. NON-CRAFT BEER MARKET - Can$ (million)

Category

Segment

2014

2015

2016

2017

2018

Expected Annualized Growth Rate

Craft

Ale

905.2

1,127.90

1,311.90

1,480.90

1,656.60

12.8%

Lager

82.8

102.3

117.1

134.7

147.6

12.3%

Others

50.3

58.5

64.6

70.9

76.5

8.7%

Wheat beer

6.5

14.8

20.2

29.9%

Dark beer

3.2

4.3

5.5

6.5

7.3

17.9%

Craft total

1,041.40

1,299.40

1,513.90

1,713.30

1,912.10

12.9%

Non-craft

Lager

15,440.90

15,656.20

15,800.30

15,831.10

15,926.50

0.6%

Ale

1,732.10

1,698.00

1,702.00

1,720.00

1,746.80

0.2%

Flavoured beer

223.9

247.2

265.2

295.7

323.7

7.7%

Stout

302.6

306.8

305.5

293.3

287.6

-1.0%

Wheat beer

25.5

26.9

28.2

29.6

3.0%

Other top fermented

8.5

8.6

9.4

10.1

10.8

4.9%

Dark beer

1.1

2.4

3.5

4.5

4.1

30.1%

Non-craft total

17,734.60

17,946.00

18,112.80

18,182.90

18,329.30

0.7%

Source: Global Data, 2019

Cool Spirits began producing a craft beer (as shown in Exhibit 3 - Social Suds Pale Ale) in 2018 from their small operation. This operation has capacity to produce more and different types of beer products if the company would decide in the future to pursue such an opportunity. The craft beer market local producers (community-by-community) are growing at much higher rates than national competitors, but their scale is small.

COOL SPIRITS VALUE PROPOSITION FOR CONSUMERS

What made Cool Spirits a successful business was the approach the company took to its product. By 2018, Traditions, Social Libations and Collective Craft were the main competitors of Cool Spirits in Canada. Traditions' company mission is to provide the highest quality ingredients in its products (Vodka, Gin, and Whisky). Their product skewed to a slightly older target audience than Cool Spirits. Social Libations is a marketing driven brand that has strong appeal with youth, with premium quality product not being their core focus. They believe that focusing their efforts on the youth segment with more attractive pricing will provide them with success. Collective Craft is focused on beer, and in particular, produce popular and good quality craft beer. They also have a small wine business that focuses on white wines (similar in size to Cool Spirits wine business).

Management believed that what separated Cool Spirits from its direct competitors is the value provided for a mid-range priced product - in essence, Cool Spirits is focusing on the upper range of the youth market (25-35 years old) that is health and environment conscious, a segment that still will be focused on social occasions, but are starting to look for better quality products as their income starts to increase. Cool Spirits focused on using ingredients that are organic and harvested using sustainable practices. With that, the focus of its marketing is to promote 'organic' and 'sustainable' at a mid-range price.

COMPETITION

Competition in the alcohol beverage industry is very intense. The following information has been assembled by the Cool Spirits management team in analyzing how they stack up against their direct competitors and some indirect competitors.

EXHIBIT 5 - Competitor Advantages and Disadvantages

Competitor

Product Categories

Main Advantages

Main Disadvantages

Cool Spirits

Gin

Vodka

Whisky

Tequila

Coolers

Red Wine

Craft Beer

Mid-high range quality ingredients in its spirits category
Priced at the upper end of the mid-price range to align with their upper age youth target segment,
Diversified portfolio of products across spirits, wine and beer categories with historical focus on spirits
Their proprietary beer, Social Suds Flavoured Beer, is highly popular among its loyal customers. This beer is perceived to be a high quality offering by its customers for its mid-level price
Historically, very focused and committed to Canadian market - customers perceive them as being locals (even though they have a national presence)
Mid range pricing leaves some customers wondering if their product is a premium or discount product
Brand name recognition not as high as its direct competitors (especially Social Libations) due to lower marketing expenditures
Larger in scale compared to many of its direct and indirect competitors which may

Traditions

Vodka

Gin

Whisky

Tequila

Rum

Red Wine

White Wine

Highest sales revenues of its main competitors
Highest quality ingredients
Been in business for over 80 years and have built a loyal following for their products
Packaging (bottles and labels) are highly impactful, winning marketing design awards
Historically strong marketers with a heritage base of customers, with reasonably big budgets, but marketing spend has been lessening recently due to declining market share
Target market is customers 40+ years of age who are 'salt-of-the-earth' Canadians, are mid-to-high income earners, and who enjoy their alcohol beverages in social settings
Price of products is on average, 6-8% above competitive products which limits their access to certain target markets
Marketing is centred mainly on tradition, which may be less appealing to a younger target customer
Cost base is higher than competition due to focus on producing the best possible products and heavy marketing expenditures on more traditional media

Social Libations

Coolers

Vodka

Gin

Tequila

Low quality ingredients which creates a sometimes, inconsistent taste in their products
High brand recognition and awareness due to high marketing expenditures
Appeal to lower age range youth target markets
Strong market share in bar/club distribution channels
Lower quality limits its target audience appeal
U.S.A based headquarters (not Canadian), but have been in Ontario for 20+ years
Cost of production not significantly higher than its main competitors, but operating expenses are high due to high marketing expenditures

Collective Craft

Beer

White Wine

Perceived as having excellent tasting craft beers, among the most popular
Also perceived as being a part of local society in the eyes of their target markets due to high marketing spend in local communities
White Wine product has won local awards for taste and appeal
Craft beers are narrowly focused: Collective Craft focuses more on IPA's, lagers and stouts and hasn't yet entered the flavoured beer category
White Wine business has low market share due to lack of focus on promotion

The above table only captures information on the main competitors. There are many other small, independent alcohol beverage companies that compete with Cool Spirits in individual categories, but not across all 3 of the major alcohol beverage categories (alcohol, wine, beer)

New entrants into this industry also have significant challenges that can impact success of the business in the start-up phase including capital requirements for production facilities, access to ingredients and raw materials, and marketing communication expenditures required for successfully establishing and retaining the desired target market, establishing a low cost structure so that the business is price competitive, and differentiating the offering from its competition in order to have a unique offering that consumers want to purchase. Ingredient suppliers to the alcohol manufacturers have experienced significant price pressure due increases in their production and to the size of the alcohol beverage manufacturing base, making their profitability a challenge on a yearly basis. Larissa and Arjun believe that not only are their direct competitors a threat, but also indirect competitors such as non-alcoholic beverages. In addition, because of the legalization of cannabis for recreational and medicinal purposes, these producers are also exerting competitive pressure on alcohol beverage industry, specifically the spirits business.

EXHIBIT 6 - Retail sales of legal cannabis stores in Canada from 2018 to 2020 (in million Canadian dollars)

EXHIBIT 7 - Volume of Non-Alcoholic Beverages - Canada

The following information in Exhibit 7 as been also pulled together by Larissa and Arjun's management team to help them better understand some of the financial information on the Cool Spirits and its competition.

EXHIBIT 8 - Estimated Financial Information For Cool Spirits + Main Competitors in Canada

AS OF 2021 PRODUCER VALUES

Estimated Average Selling Price (To Retailers) Per Litre

Estimated Average Variable Cost Per Litre

Estimated Average Contribution Margin Per Customer Order

Estimated Fixed Costs

2021 Sales Revenue

Cool Spirits

$18.10

$14.75

$3.35

$35,570,000

$226,250,000

Traditions

$19.45

$15.90

$3.55

$42,000,000

$245,530,000

Social Libations

$17.00

$12.75

$4.25

$35,675,000

$185,670,000

Collective Craft

$10.05

$6.95

$3.90

$27,000,000

$155,980,000

As can be seen in the Exhibit 8, Cool Spirits has established itself as a solid participant in the alcohol beverage industry with the 2nd highest revenue generation amongst its competitive peers.

COOL SPIRITS PORTFOLIO OF BUSINESESSES

Cool Spirits product sales and profitability breakdown is shown in Exhibit 9 below. Larissa and Arjun are convinced that the company is in a strong enough position to consider expansion of the business. They need to convince their CEO, Jules that now is the time, and to make a recommendation on how to achieve growth

EXHIBIT 9 - Cool Spirits Product Offerings and Various Financial and Operational Data

FUTURE EXPANSION

To consider the best options available, Larissa flew to upstate New York to meet with government officials and potential new ingredient suppliers to learn about any restrictions and legislation obstacles in advance of potential geographic expansion, and potential product suppliers in the local area.

In a meeting with potential new suppliers the next day in New York, Larissa was offered (and accepted) to attend a professional basketball game in one of the potential supplier's corporate boxes (value of attending 1 event in a corporate box is about $7000 USD).

Meanwhile, Arjun completed more research on competition in both Canada and the United States. He learned that in northeast U.S., that competition is extremely intense. Many manufacturers were very focused on lowering costs, and in many cases, this meant lowering quality levels of product ingredients. Arjun believes that in order to compete in the northeast United States, Cool Spirits would have to lower its cost base. One idea that Arjun thought about is to purchase ingredients from lower cost providers with whom he has had contact in the past. These providers all are USDA Organic certified for the relevant ingredients, but there has been questions about sustainable harvesting practices with these providers.

SEE NEXT PAGE FOR QUESTIONS ..........

Answer the following questions (use as much space as required):

Case Questions

Answer Column: Provide Your Answers In The Cells Below

Marks

1.Competitor Analysis:

Using Porter's 5 Forces model, provide a competitive analysis for Cool Spirits.

Of the 5 competitive forces and based on information in the case, which one do you believe provides the greatest competitive intensity? Provide your rationale for your answer

2. Business Strategy

Which generic business strategy do you believe that Cool Spirits is currently pursuing? Provide your rationale
Do you agree with their strategy?
Why or why not?

3. Marketing Strategy / Positioning:

From our discussion on positioning earlier in the term, what positioning strategy do you believe that Cool Spirits is using. Support your response
Do you believe that this positioning represents a sustainable competitive advantage for this company over the long term?
Why/Why not?

4. Growth Strategies:

Using the supplied BCG Matrix to the right, plot the growth strategy profile of Cool Spirits individual product offerings in the appropriate quadrant using company initial behind the indicated name below. Plot the appropriate initial beside the Cool Spirit product on the BCG matrix on the right

Glacier Gin (G)
Strawberry Surge Vodka Cooler (SSV)
Lime Life Gin Cooler (LL)
Clearstream Vodka (C)
Prairie Whisky (P)
Cuervo Tequila (CT)
Social Suds Pale Ale Beer (SSP)
Spring Valley Merlot Wine (SV)

Should Cool Spirits consider pursuing other opportunities to grow their business based on what you observe from plotting the above strategies on the BCG matrix? Provide your rationale

4. Growth Strategies:

Regardless of your decision above to grow the business, make an assumption that the Cool Spirits decides to pursue a growth strategy by any of the following options ...
Purchasing a major supplier of prominent beverage ingredients for many of its products
Having Cool Spirits expand into northeast U.S. market with a broad selection of their products
Launching a retail bar/club business with multiple locations in Southwestern Ontario
Starting to offer consumer incentives (e-coupons) on social media to encourage purchases of existing products
Purchasing a competitor that produces rum, scotch whisky, and an expanded selection of coolers and liqueurs
Distribute sparkling wine in the northeast U.S.A.
Grow their market share of Social Suds Pale Ale beer business in new areas of Canada
Enter into the U.S.A. with a bottled water offering

Place the roman numerals (eg. i., ii., iii., etc) in the Ansoff matrix quadrant of your choice for all of the above growth strategy options. Assume that Cool Spirits is defining its current business model as a producer and marketer of specific alcohol beverage products

4. Growth Strategies:

Given your work in question 4b above which one of the growth strategies do you believe would work best? Provide your rationale.

5.Operation Financials:

What would be Cool Spirit's annual breakeven volume in units

Show any calculations and state any assumptions.

5. Operations Financials

Calculate annual breakeven volume in units for Traditions and Social Libations.

Show any calculations and state any assumptions.

5. Operations Financials

Based on the analysis in 5a and 5b above, who is best positioned to have financial success if the alcohol beverage market faces a downturn in demand? Why?

6.HR / Ethics:

Could the acceptance of attending a sports event in the potential new supplier (valued at $7000 USD) by Larissa be constituted as a conflict of interest?

Explain why / why not.

6.HR / Ethics:

If Arjun decided to pursue a partnership with one of the new organic ingredient suppliers that do not have certified sustainable harvesting practices, provide a point of view on how this would align to the company's social responsibility stance

Explain why / why not

7.Leadership:

As the leaders of Cool Spirits, what should Larissa and Arjun recommend to Jules MacMillan about next moves based on the 3 business opportunities available? Provide your rationale?

TOTAL