Strategic Management Adnams Case Study

 Part One - Theoretical underpinning and identified key issue(s) Adnams is a mid-sized brewery in Suffolk which has commissioned this report to analyse their competitive strategy and position. Their core business remains the brewery, however, the sales of beer have been declining (Sparkes, 2011), and, therefore, Adnams are diversifying and differentiating concentrating on narrow niche markets in order to remain competitive because they cannot compete with either micro or macro-breweries which causes sustainability issues making niche markets their preferred position. Firstly it is important to define competitive strategy. Competitive strategy is an action plan that is generally long-term and is devised to gain a competitive advantage over the competition within the market, especially important in saturated markets (Web Finance, 2016). Barney (2002) defined competitive strategy as: "…a firm experiences competitive advantages when its actions in an industry or market create economic value and when competing firms are engaging in similar actions" (Barney, 2002, p.9). Barney (1991) contends that organisations gain a competitive advantage when applying successful strategy(s) that is not being pursued equally by competitors. In order to be more competitive Adnams have diversified into three different thematic areas, hotels, retail outlets and a distribution centre. These are examples of forward integration and conglomerate diversification. Campbell, Edgar, & Stonehouse (2011) stated this type of diversification comes with increased risks as it comes with a loss of parental control, whereas the diversification into the distribution centre and distillery are examples of backward integration as well as concentric diversification. This type of diversification is closely related to Adnams core business competencies, therefore, this is a safer option as they already have industry knowledge, capabilities and experience of this type of market. This analysis will use Porters Generic Strategies to examine the issues identified by Adnams strategic position and strategy. Porters Generic Strategies will allow Adnams to identify which strategy is most advantageous, for example, how broad or narrow a market section to pursue (Strategy-Train, 2009). Porter (1998) stated that any company that ascertains its niche effectively will learn what its customer wants, this will be done by identifying an effective competitive strategy. Marketing distinctive product/s provides customer dependability (Hlavacka, Bacharova, Rusnakova, & Wagner, 2001). Porter (1985) states there are rudimentary company strategies; cost leadership, differentiation and focus but that it is most efficient to focus on a single strategy (Fig 1). However, there are academics that suggest a company may perform better (competitive advantage) if they utilise more than one of Porters strategies (Karnani, 1984; Miller & Friesen, 1986; White, 1986; Hill, 1988; Fuerer & Chaharbaghi, 1997; Hlavacka et al., 2001). Porters Generic Strategies are criticised by academics on experiential grounds (Miller & Friesen, 1986; Dess & Davis, 1984) and on speculative grounds (Murray, 1988; Chrisman, Hoffer & Boulton, 1988). Although these criticisms highlight some limitations and ambiguities (Hendry, 1990) Porter’s generic strategies continue to be the most commonly used model (Miller & Dess, 1995). Fig 1. Sourced from: (Ormanidhi, & Stringa, 2008, p.58). The Ansoff Matrix (Fig 2) will also be employed in order to examine Adnams’ strategic options; this is not a competitive model of positioning but it helps to understand the competitive strategies Adnams are pursuing. The Ansoff Matrix will be used to analyse Adnams existing strategies. These include diversification into hotels, which is an example of forward integration and conglomerate diversification undertaken to increase competitiveness. In this context ‘diversification involves departure from familiar business areas, while remaining in the geographical environment(s) in which the firm has previously been successful’ (Ansoff, & McDonnell, 1988, p.44). Fig 2. Sourced from: (Ansoff, 1957, p.114). Mintzberg’s (2000) criticism of Ansoff’s Matrix suggests that it is over-reliant on the assumption that future events can be foreseen. Tamara (2015) also suggests that the main reason the Ansoff Matrix receives criticism is due to its perceived simplicity and because it does not consider all factors that can affect the market, for example, the external environment. The Ansoff Matrix is a 2 × 2 representation of the options available for increasing revenue including Market penetration, Market development, Product development and Diversification (Taylor, 2012). The two dimensions of the Ansoff Matrix are concerned with markets and products (vertical and horizontal). Although ‘old’, it remains a very powerful model, as it provides a simple framework that identifies possible strategic options (McDonald & Meldrum, 2013) therefore Adnams have chosen to invest in diversification. Part Two - Strategic analysis The analysis has already established that Adnams is a mid-sized brewery in Suffolk that cannot compete with micro or macro-breweries. This section will utilise the chosen models of Porter Generic Strategies and the Ansoff Matrix to analyse and evaluate Adnams’ competitive strategy(s). Adnams have chosen to focus on small, narrow niche markets, identified using Porters Generic Strategy model. The market is already saturated, the Campaign for Real Ale state that there are over nine hundred and ninety-nine competing breweries in the United Kingdom (UK) (Thomas, 2012), therefore Adnams are focusing on differentiation to compete in an increasingly competitive market. Adnams have created a ‘brand’ culture which is locally and nationally well recognised, evident in the marketing slogan, ‘Adnams beer from the coast’ (Adnams PLC, 2016, p1), which emphasises the local provenance. Verity & Turnbull James (cited in Johnson, Whittington, Scholes, & Angwin, 2013) illustrate how Adnams are focusing upon niche markets, examples within the case study include the annual Suffolk Show, the Norfolk Show and other events and festivals. This is an example of Adnams taking its established branded products to the locals in order to increase sales to customers within the local market. Verity & Turnbull James (cited in Johnson et al., 2013) also illustrate how Adnams have formed partnerships with Ipswich Town (a local football team) and Newmarket (the closest racecourse) to host events with the aim to increase brand awareness and gain an increased customer base. Adnams is focusing on using a differentiation strategy, by creating a brand name, which creates a better entry barrier but this also generates less market share than the low-cost strategy. Adnams must continue to market its local ‘brand’ as this is one way they can position themselves against the competition in the minds of its customers. It is the Adnams brand that stands out and forms a favourable position between its customers and competitors (Proctor, 2014). Adnams has already produced some new products and these products will engender varying profit margins and cash flows, however, they must continue to introduce new products to sustain long-running profits (Stephen, Carlotti, Coe & Perrey, 2004). Verity & Turnbull James (cited in Johnson et al., 2013) state that Adnams also utilise the internet as a marketing tool by setting up a Twitter account to connect with locals as well as a broader market. The effect of using Twitter and other social platforms has created a greater awareness of the brand name which is essential as a growing number of consumers purchase products with provenance. Thus, Adnams’ marketing capabilities assist its competitiveness. As previously stated, Adnams have diversified several times since its inception as a brewery. They now include three different thematic areas: hotels, retail outlets and a distribution centre. This has been achieved by substantial investment in new assets and the updating of existing assets. However, what is not clear from the case study is why Adnams diversified into hotels and retail and whether this was effective. This analysis will use the Ansoff Matrix to examine the implications of this diversification. From the evidence within the case study the conglomerate diversification and forward integration into owning hotels appears to have been successful as it further acts to cement the local element of the company brand and further enhance local connections. Forward integration into retail was a poor management decision as explained in the case study; the management team in 2006/07 admitted that with hindsight it was not the correct time to expand Adnams portfolio. The shareholders also expressed discontent concerning the dilution of their holding. However, fortunately, for Adnams, by 2012 their retail outlets were making sales of eleven million pounds which accounted for over a fifth of Adnams total turnover and an increase in market share in the local market (Verity & Turnbull James, cited in Johnson et al., 2013). The retail outlets have increased Adnams’ portfolio increasing the sale of products and customer base which now includes more women. Conglomerate diversified products sold within retail outlets included Adnams’ branded classic cookware, spirits, mixers, cordials, peanuts, and bottled water, to name a few; it was the eventual success of these products that accounted for the new customers, fifty percent of which were female customers. As previously mentioned, Adnams have made a substantial investment in new assets and also into updating and modernising the existing assets. The investment in modernising the brewery resulted in it becoming one of the UK’s most ethical and eco-efficient breweries which created a positive image pleasing the locals and also enticing a new environmentally aware customer base: another niche market for Adnams to focus upon. Adnams branding is now an eco-friendly production; with the use of eco-friendly bottles and locally sourced ingredients it has created unique product(s) which are difficult to imitate. They have also gained a competitive advantage in controlling the supply chain through utilising its three key outlets of hotels, retail outlets and public houses. Adnams can be seen to be using Porters Generic Strategy of cost leadership by focusing on low costs. In order for this strategy to be successful, Adnams must maintain low costs in the production process so the profitability on the sale of its products is high. Adnams are lowering the costs of production by updating the brewery and investing into a distribution center which is both environmentally friendly, efficient and an example of backward integration. The updating of the brewery allowed Adnams to produce its main product, beer, in a market leading low-cost way. This also led to an increase in quality consequently the number of barrels returned, due to substandard beer decreased from 1 percent to 0.1 percent. Verity & Turnbull James (cited in Johnson et al., 2013) illustrate how the opening of an eco-friendly distribution centre in 2006, requiring no heating or air-conditioning, will save Adnams £500,000 in utility bills over the next ten years when compared with a non-eco-friendly building, this reduces production costs and increases profitability. Adnams now own one of the most modern breweries and distribution centres in the UK which will allow them to produce products at a lower cost than its competitors. In regards to the shareholders the initial concern was the Return on Capital Employed (ROCE), however, this concern was soon quashed as the long-term impacts of these investments were profitable. Verity & Turnbull James (cited in Johnson et al., 2013) illustrate how in 2010 Adnams opened a Bio Energy site which is filled with the waste from Adnams food and brewing businesses. This waste is converted into biogas which Adnams uses to fuel its trucks. The dual-fuel trucks (biogas and diesel) do cost more to purchase than conventional diesel trucks, however, it is projected by the operations director that by converting all Adnams delivery trucks to dual-fuel they will save £290,000 per annum. This will also contribute to lowering costs by significantly reducing delivery costs. Porters’ differentiation strategy is being used by Adnams to achieve what their competitors have not, for example, Adnams is the only brewery that manufactures as well as distributes, delivers and markets, their own products. Adnams distribute their products directly to their shops, hotels and their seventy licensed pubs which eliminates the need to contract outside companies, therefore, saving considerable marketing costs and increasing profitability. In 2010, when the UK tax rules changed, Adnams began producing spirits and used the same methods of marketing and distribution which enhanced Adnams’ competitive advantages in the market, contributing to increased sustainability. The way Adnams treats its employees is another example of differentiation from its competitors. Karen Hester is used as an example in the case study; she began employment with Adnams as a cleaner in 1990 and with training progressed to a director by 2010. Employees at Adnams feel a sense of belonging and pride which reduces turnover, increases productivity and reduces absenteeism levels.  Part Three - Conclusion and Recommendations Verity & Turnbull James (cited in Johnson et al., 2013) highlights how Adnams are currently developing their marketing capabilities, Andy Wood considers Adnams as having a national market and is looking to expand overseas, however, it is not clear what Andy Wood’s intentions are for overseas opportunities. It is unadvisable to penetrate an international market by setting up a separate brewery, this is because Adnams have established themselves as a local brand and the branding represents this; this analysis suggests that to take the brewery out of Suffolk or even set up an additional brewery would negatively dilute the ‘brand’ and lose provenance. However, if the overseas opportunities refer purely to marketing Adnams’ products through the world-wide-web then this could prove to be advantageous. This analysis has highlighted three main strategies being utilised by Adnams which are, diversification based on the Ansoff Matrix, Cost leadership through lower costs strategy and differentiation strategy based on Porters Generic Strategies model. There are dangers involved in any diversification strategy, especially over the long-term, these relate to financial sustainability and the danger of losing parental control. However, this strategy has proved successful, thus far, as Adnams have developed mature markets. Adnams is using the cost leader through low costs strategy very successfully and with their controlled supply line, production line and delivery line this should remain the case for the foreseeable future. Adnams are also using the differentiation strategy very successfully; by making a substantial investment into updating and creating new assets Adnams have created a ‘brand’, especially in relation to the beers that cannot be imitated which is an advantageous position to hold in the contemporary marketplace. As stated in Part one of this analysis there are academics and theorists who have stated that the use of more than one strategy could foster better competitive advantages (Karnani, 1984; Miller & Friesen, 1986; White, 1986; Hill, 1988; Fuerer & Chaharbaghi, 1997; Hlavacka et al., 2001). Whereas Porter (1985) stated that organisations will perform most effectively if they choose one strategy to concentrate upon. It is recommended, despite Porters rhetoric, that Adnams continue to use two strategies, the cost leader through low-cost strategy and the differentiation strategy. The diversification strategy has been successful but should be used with extreme caution it is considered to be a risky business manoeuvre. From analysing the case study Adnams have successfully diversified into the new markets they have entered and by doing so increased their competitiveness and sustainability. However, over diversifying could have devastating consequences, so despite the success Adnams are currently experiencing this analysis strongly advises the cessation of any further diversification.  References Adnams PLC. (2016). beer-from-the-coast – Adnams Southwold. Retrieved from http://adnams.co.uk/beer/our-beers/attachment/beer-from-the-coast/ Ansoff, H. I., & McDonnell, E. J. 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