Achieving High Performance in the Alcoholic Beverages Industry

The US$900 billion global market for alcoholic beverages is experiencing a period of unprecedented change. While much of the market is still in the hands of small, local enterprises, truly global players are steadily emerging. Six of these leaders already meet Accenture's criteria as high-performance businesses. And although they have yet to command the premium from investors that other high-performance consumer goods companies enjoy, they are well positioned to do so, thanks to highly focused merger and acquisitions strategies in key, value-growth markets.

There remains much to play for, but Accenture research suggests that the lion's share of future value will go to a select group of companies that have unlocked value in developed markets, bought new revenue streams in emerging markets and whose product portfolios encompass all three major categories of alcoholic beverage—beer, spirits and wine.

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The alcoholic beverages industry offers few opportunities for organic growth. The notoriously high costs of distribution and brand building have created huge barriers to entry—hence the importance of acquisitions. Consolidation continues apace as aggressive acquirers seek to demonstrate that they can wring value out of the companies they buy, especially if they have paid a premium. Yet the market remains very fragmented.

Like many others, the alcoholic beverages industry is also feeling the effects of dramatic shifts in demography and lifestyle. Today's drinkers are more affluent and sophisticated. Encouraged by restrictive legislation, they also are increasingly health conscious. These consumers demand premium products—preferably products they can customize—and they are willing to pay a premium for them.

The path to future success lies in being global—but with a focus on the right markets and the right categories within them. Yet virtually every company in the industry is jostling to do just that—and struggling to squeeze the last drop of cost out of the bottom line. How do the industry's high-performance businesses manage to stay ahead of the pack?

Accenture defines a high-performance business as one that consistently outperforms its peers through economic cycles, industry cycles and changes in leadership. Our extensive cross-industry research has identified three building blocks that underpin high performance in any industry and that all such businesses have mastered:

Market Focus and Position
High-performance businesses display an exceptionally deep understanding of both volume and profit dynamics across different markets. They recognize exactly where future profit opportunities lie. They continuously reassess evolving opportunities within categories and geographies. And their superior business intelligence and analytics support the sort of partnerships and alliances that help strengthen their leading positions. The upshot: They are always in the right category and the right market at the right time.

Distinctive Capabilities
High-performance businesses in this industry display three distinctive capabilities that set them apart from their peers and make them very difficult to emulate. They leverage scale, control the route to the consumer and display exceptional brand and category leadership.

• Leveraging scale: Companies that embrace a high-volume, global model with a wide portfolio of brands can offset high fixed costs. Leveraging scale, moreover, has two aspects:
  
  
  • Cost—High-performance businesses continually seek to reduce duplication in processes and functions and regularly refocus investment to prioritize the spending that will achieve the highest returns.
    
  • Capability—High-performance businesses are keenly aware that in-market scale is even more important than global scale in delivering economic profitability. For brewers this means, in effect, creating a global market of key local brands that deliver high market share and drive profitability.
    
    
• Controlling the route to the consumer: High-performance businesses ensure the availability of their products and brands to target consumers in the outlets of their choice. And they can do so because they can connect directly with their customers. Thanks to their in-depth understanding of not only who their customers are, but also where and on what occasions they buy, high-performance businesses drive greater pull-through at the point of purchase.
  
  
• Brand and category leadership: High-performance businesses leverage superior segmentation by matching brand portfolio priorities and trends within each sales channel. Working the channel landscape identifies relevant channels, their relative attractiveness and what opportunities they offer. By spotting trends and opportunities early—a function of being able to control the route to the consumer—these companies are always ahead of the pack in delivering desirable brand imagery.

Performance Anatomy
High-performance businesses in the alcoholic beverages industry have developed operating models and corporate cultures that can drive higher levels of performance from both established businesses and new acquisitions, managing largely for value in mature markets and for growth in emerging markets. They have crafted an approach to post-merger integration that protects and leverages the unique assets acquired—usually brand equities but also customer and distribution assets, especially in emerging markets—while simultaneously integrating non-core, back-office functions into highly efficient regional service models.

The peer group set for the study comprised 24 international beer, wine and spirits companies with annual revenues in excess of US$1 billion. Six of these companies emerged from our analysis as high-performance businesses.

These six outstrip their peers in revenue growth (although this is clouded by the high level of consolidation in the industry) and returns on invested capital (which is three times as good as the peer group), as well as total returns to shareholders. Indeed, they are returning four times as much to their shareholders as the S&P 500.

Most strikingly, our research shows that over the past five years, the high performers have, on average, demonstrated better efficiency in generating economic profit—not only in terms of accessing new markets and dominating categories, but also by ruthlessly stripping out cost from both their base and acquired businesses. And it is this drive to profit that is compelling the leaders to develop the operating model of the future.

Nevertheless, no single player dominates across all metrics. And measurement of future value (that component of enterprise value that relates to future growth, profitability and returns on invested capital) is somewhat distorted by as-yet-unresolved expectations about emerging markets. Clearly, the current gap between high and average performers is far from insurmountable.

By creating an international distribution model that provides competitively advantaged and sustainable routes to market in each country, high-performance businesses develop a global footprint that can help leverage future acquisitions. These businesses have achieved their advantaged position by maximizing their exposure to incremental profit streams and developing a value-led operating model with three distinctive capabilities that rest on outstandingly efficient foundation capabilities.

The bar to high performance is being constantly raised as all companies seek to cut costs and maximize revenue growth. Future winners will be distinguished by their success in driving a restructuring and reinvestment cycle that not only finds new sources of revenue, but also makes existing revenues more profitable. Above all, they will develop a model that embraces all three major sectors of alcoholic beverage—beer, spirits and wine. Those who succeed will end up dominating the sector. Those who fail will struggle to grow—or succumb to acquisition themselves.

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