Question

Rupbani Beverage Limited

Rupbani Beverage Limited entered the Indian wine industry in 1975 by acquiring the Mastana Wine Company of Shimla and two other smaller wine companies at Kalka for Rs. 50 lakh. Despite hostility expressed by other wine makers and predictions that Rupbani would very soon fail as other outsiders such as Parminder Wine Company had, the entry succeeded. Rupbani Limited performed the unheard of feat of establishing a volume of 30 lakh cases within two years and taking the market share away from premium brands such as the National Wine Company of Bombay, Pearl Drink Limited of Pune and Syndicate Cola Limited of Madras.

Rupbani advertised heavily and incurred Rs. 10 lakh in one year and standardised the taste of its wines with considerable success. It also invested Rs. 48 lakh in a large, new winery at Ahmedabad. A Rupbani Executive said, "By 1995, consumption of wine in India will be a liter per capita, compared with half a liter today."

The industry reacted to Rupbani's presence by doubling and tripling advertising expenditure. ABC and Company began a costly campaign to market premium and varied wines while reducing marketing emphasis on its cheap wines such as Nahan Drinks and the Gola Beverage. ABC maintained its 25 percent market share but had to resort to some heavy price discounting to do so.

In 1982 Pearl Drinks formed a special wine unit to combine efforts for all its brands. Mr. Sailesh Kumar former Vice President of the National Wine Company had directed a project to coordinate Pearl's world-wide wine business and develop a world wide strategy. The new unit was, in fact, a result of his work.

In1983, wine consumption changed from growth at a rate of 5 per cent to no growth. The government also lifted the ban on imports of wine. This presented an even greater challenge because imported wines were cheaper as well as superior in quality.

In1984 Mr. Ranganathan took over as Managing Director of Rupbani. He reviewed the recent performance of the company and its competitive position. He noted that the company was losing its hold over the market and it was not getting the return as expected. He also found that the company's performance in the syrup business was excellent. He, therefore, thought of selling out the wine business to Pearl Drinks, He convened an executive meeting and apprised the executives of his proposal. He also informed them that Pearl Drinks had offered the company to recapture its investment in the wine business which was about Rs. one crore. Mr. Arun Mehta, General Manager, observed that Rupbani was in and out in the past six years and has joined different organisations in trying the wine business. The finance Manager, M. Subhash Ghai said, "The return on assets in the wine business is not the 30 to 35 per cent, which Rupbani is used to getting in the syrup business. Gaining share and trying to compete with ABC and Company left Rupbani with, eventually, the number two position in the wine industry with profits of Rs. 60 lakh on Rs. 220 lakh in sales. The stockholders wanted immediate return and hence, the company could not afford to make long-term investments necessary to popularise the brands. Had they stayed for five more years, they would have been a key leader in a large and profitable industry."

Pearl Drinks immediately went from the sixth position in the industry to a strong second place with an 11 per cent market share. The Chairman of Pearl Drinks stated: "We believe you can make money in this business in two ways -- remain a small boutique winery or become large and achieve economies of scale."

Mr. Harish, Marketing Manager of Rupbani said, "It is no use selling out our business to Pearl Drink and get back what we have invested. We can compete with our competitors successfully and improve our market share if we manufacture wines of varying qualities to suit the varied preferences and pockets of diverse sections of society. We should also offer price discounts to attract the consumers. There should be wide publicity of our brands throughout the country."

Questions:

1.      Perform SWOT analysis of Rupbani.

2.      In the light of opportunities and threats of Rupbani Beverage and its strengths and weaknesses, what strategy should it formulate to improve its performance and strengthen its competitive position?

3.      Should Rupbani spend on advertising in line with its competitors? Discuss.

4.      What other strategies would you suggest for Rupbani for increasing their share of the market?

Answer 1

1. Perform SWOT analysis of Rupbani.

SWOT analysis is a strategic planning technique used to help a person or organization identify strengths, weaknesses, opportunities, and threats related to business competition or project planning. Here we apply SWOT analysis to Rupbani Beverage Limited:

1. Strengths
   1. Advertising - Rupbani advertised heavily and incurred Rs. 10 lakh in one year
   2. Standardization – Rupbani standardised the taste of its wines across wineries.
2. Weaknesses
   1. Competitors had well established brands and were present in the market for a long time.
3. Opportunities
   1. Consumption of wine in India was growing.
4. Threats
   1. Competitors – ABC and Company increased its marketing budget and reduced prices to maintain market share. Pearl Drinks formed a special wine unit to combine efforts for all its brands.
   2. Market growth - In1983, wine consumption changed from growth at a rate of 5 per cent to no growth.
   3. Macroeconomic factors - Government lifted the ban on imports of wine. This presented an even greater challenge because imported wines were cheaper as well as superior in quality

2. In the light of opportunities and threats of Rupbani Beverage and its strengths and weaknesses, what strategy should it formulate to improve its performance and strengthen its competitive position?

Rupbani Beverage has 2 options: Selling wine business to Pearl Drinks or compete in the wine market to achieve leadership position.

To improve its performance and strengthen its competitive position, Rupbani will go with the latter option. To improve its performance, it should follow the following strategy:

• Segment the market –
  • Identify different user groups and their preferences for wine.
  • Identify under served segments
  • Develop new brands and target these segments aggressively
• Improve supply chain – Rupbani has wineries in Shimla, Kalka and Ahmedabad. It’s distribution network might be strong in North and West India, however it might be expensive to transport wines to eastern and southern parts of India. It should look for national level distribution partners who can transport wines at a lower cost.

3. Should Rupbani spend on advertising in line with its competitors? Discuss.

No, Rupbani shouldn’t spend no advertising in line with its competitors because of the following reasons:

• ROI in wine business is not as high as expected by shareholders of Rupbani wines. An increase in advertising spend would only make it worse in the short term.
• Its competitors are cash rich and can outspend Rupbani easily. Hence an increase in advertising spend won’t translate into increased market share.

Instead, Rupbani should focus on innovative advertising styles like guerrilla marketing to capture user attention.

4.       What other strategies would you suggest for Rupbani for increasing their share of the market?

For increasing market share, Rupbani can follow below strategies:

• Lower prices – This can help gather market share, however profit margins will decline.
• Increased advertising spend - This can help gather market share, however profit margins will decline.
• Segment the market and develop new brands to serve the untapped market – This would require investment in the short run, however in the long run it would be able to capture market share.
• Expand geographically – Improve its supply chain across India to newer cities
• Tie up with international wine companies and serve as bottling and distribution partner for these wines in India.
• Inorganic growth – Buyout smaller competitors to capture their market share.

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