VeeV on the Rocks?Presented By:Ivetta Bunkina - 5727901Chen Ssu Ying- 1129104Dipan Patel- 5573890Ilham Jallu- 5590701Robin Wilson- 4941535

Company Overview

VeeV First alcoholic beverage infused with acai

berries Founded & launched in 2007 Brothers Courtney & Carter Reum Experienced rapid growth 

Situational Synopsis

VeeV Launched as a super premium brand In exclusive & trendy cities As a green company & all natural brand Targeting young adults Restaurants, Bars & Liquor Stores

Problem Statement

3 pressing challenges confronting VeeV : How should the equity of the new

company be split ? How should VeeV handle the product

quality issue? How far should the company go in their

efforts to be ‘green’ and socially responsible ?

Ethnical Issues Sustainability

Organizational Issue - Distillation process Firm worked with distiller to go “carbon-neutral” Individual issue due to using acai berries Firm - only organic, sustainable berries, donates to acai charity

Underage drinking Must market towards appropriate audience

Marketing as healthy product Individual issue due to unique berry use Firm cannot promote drink as healthy but promote differentiation

Alcohol advertising Self imposed ban relaxed to promote on niche channels with adult

audiences

Suppliers, Customers & Investors (Owners) of Firm committed to making Ethical/Sustainable Decisions

External AnalysisIndustry Structure

Value Chain Supplier -> Distiller -> Distributer ->

Consumer

DistributionSales by Category

Supermarkets/ Hybrids 49.90%

Bars/Restaurants 27.70%

Specialty Retailors 15.00%

Other 7.40%

External Analysis Industry Economics

Market dominated by Big Players

Industry Market Share

2008 Market Share

Beer, Cider & Liqueurs 51.40%

Wine 17.30%

Spirits 31.30%

External Analysis Industry Economics

Profits High mark up attracts entrepreneurs

Boutique alcoholic beverages

Spirits Very good performance on sales Short Product Life Cycle Increase in cocktail consumption

External Analysis Industry Trends

Product Differentiation Flavoured Spirits Super Premium Brands

Social Drinking Signature Cocktails

Target Market Increased growth expected in younger consumers

More willing to experiment

Exit Strategy Small brands sell to major player

External Analysis Competitive Forces

Threat of New Entrants “Boutique” spirit can be launched for

$100,000-$250,000 with 500% mark-up Heavy Government regulation by TTB

Threat of Substitute Products Consumer preference

Moving to Cocktails from Beer Liquors have short shelf life

Consumers move to next hot product

External Analysis Competitive Forces

Bargaining Power of Suppliers Reputation

Quality – Distiller linked to Firm Availability – Distributer

Bargaining Power of Consumers Buyers are fickle & move towards hot items. Low loyalty to un-established brands Large choice of substitutes Demand quality & expected experience Motivated to try new brand based on recommendation

External Analysis Competitive Forces

Competitive Rivalry within the Industry Big Players control market Firms must create brand extension &

reputation for continued growth Differentiation based on Quality and

Additives Increase in advertising

$4.3 million in 2000 to $120.4 million in 2007

External Analysis Analysis Conclusion

Competitive Approach & Strengths Competitors are larger & dominate shelf space

Firm position to offer more-for-same Position – Quality, perceived class & social status

Perceived health benefits from acai berry Social benefits from sustainable development.

Short-term growth dependant on consumer preference 

Internal Analysis Financial Analysis

2007 2008

VeeV Rock 838 1298 Sales RevenueCases Sold (in Thousands)

% of sales price

Estimated Revenue 2007 2008

Retailer 18.2 $28.62 828 $23,698.87 $-

Distributor 22.5 $20.75 8868 15576 $184,002.75 $323,187.51

$209,708.62 $323,187.51 *Assumptions: numbers were in cases, cases are 12 bottles per case and retail in $34.99.

Internal Analysis Financial Analysis

Liquor Industry Growth: $143.7 billion (2004), $153.4 billion (2007), projected $156.4 billion (2008)

Growth is driven by increased consumption of cocktails $5-10 mln in capital comes from investors Cortney invested $250,000 in capital You invest, you get 122% return Carter gets involved in business at the idea

development stage $34.99 per bottle of VeeV Different perception of brothers’ inputs. First 3 months

Cortney alone, next 5 years brothers are together in the business

Internal Analysis Operational Analysis

Distiller capable of infusing acai into alcohol Shares commitment to environmental sustainability

6 months to create final formula Lack of information-

Loss of time at the development stage Misrepresentation on the labels Website issues

Approval from government & distiller Special license to self-distribute in California August 2007 hired the distributor (SWS) to

expand into other markets

Internal Analysis Operational Analysis

Reums- retained control of where & how to launch Production Problem

Distiller is creating different formula iterations Ship less than 200 milliliters to qualify as samples. Appeared in its bottle only after the first full production

run Discoloration

Tinker with the formulation The response to customers: you didn’t notice with the

first run, all natural product that have shelf life In fall 2007 the problem was resolved

Stabilizer was removed from VeeV

Internal AnalysisMarketing & Competitive Position Capitalize on vodka’s current momentum

Not be pigeon holed Classified as a liquor

Stands out by not being colored First organization classified as carbon neutral Distiller – Wind Power Encourage employees to practice social responsibilities

5% to 10% bonuses are tied to both personal and work-related efforts Reums donated $1/bottle to The Sustainable Acai Project (SAP) in

Brazil Acai is sustainable

Helps protect the rain forest Sustenance & subsistence for local inhabitants

Evaluation of AlternativesEquity 90 – 0 60 – 40 (or any other

split)50 – 50 50 – 50 more votes

Effect on Stakeholders

Carter completely sidelined, ignored by company

Courtney maintains power and money

Carter’s efforts recognized, not as significant, “smaller brother”

Courtney gives up some power and money, but maintains majority

Both brothers own the same amount

Both brothers important and equally responsible for the company

Courtney no longer has majority

Both brothers own the same amount

Both brothers important and equally responsible for the company

Originally Courtney’s idea, company, and risk recognized

Costs None Lose significant equity of business

Lose significant equity of business

Lose significant equity of business

Fit with Current Process

No, Carter’s work should be recognized

Better, recognizes Carter’s work but gives Courtney majority

Ok, recognizes Carter’s work but does not recognize that business is Courtney’s

Better, recognizes Carter’s work allows Courtney to “retain majority”

Risk Lose Carter Lose some equity, but maintain majority

Lose significant equity and say on decisions

Lose significant equity

Evaluation of AlternativesDiscoloration Continue to Sell Recall

Effect on Stakeholders Customers may feel cheated, may lose faith in VeeV

Reum’s will be only postponing the eventual

Customers will not be able to buy product, may raise questions about brand

Reum’s will lose business

Costs No costs to implement May lose business in future

Recall and destruction costs Opportunity costs

Effect on Brand Image High quality will come into question

Brand image will be tarnished

High quality will come into question

Brand image be effected, but can be salvaged

Market Share Maintain or grow in the short term

Lose in mid to long term

Lose market share in short term Gain back market share in mid

to long term if re-launched

Evaluation of AlternativesCSR Green All The Way Cut Back on Green No Green

Effect on Stakeholders Reum’s will be continuing to be green

Customers may be happier to spend on VeeV

Shareholders may feel that company is giving away needed money

Reum’s will continue to be green

Customers may be happier to spend on VeeV

Shareholders will see more money coming into company

Reum’s will have to compromise on their principles

Customers may or may not be affected

Shareholders will see more money coming in

Costs Cutting from company profits

Cutting less from company profits

Company keeps its profits

Effect on Brand Image Greener, more socially responsible company

Still, green and socially responsible

Another alcohol company

Improve Goodwill Significantly Some what Not at all

Recommendations Share Equity – 90% remaining

Profits split equal but Courtney retains more of deciding votes Reasoning: Courtney did most of the foot-work,

established the investment, initial risk, idea generation.

Conclusion: Courtney should retain the higher number of voting shares

Recommendations Discoloration

Recall current products in the market Demand distiller to change filter or change

distiller Legal proceedings against distiller Relaunch product

Reasoning: Already happened once and explaining

again will hurt the reputation (duty to the customers)

Recommendations Efforts to be ‘green’ & socially responsible

Decide if “green” & Social Responsibility is a good marketing strategy for this type of product

Reasoning: being Green is good ethical and marketing tool but at this young stage the focus should be on the business and growing profitability because without profits from business donations are not possible. Continue donating $1 can be continued but the rest of the campaigns should be stopped for the moment

KANT THEORY

ImplementationShort-term

Pull out all discolored product off shelves Address the problem with distiller: demand

fixing the problem or the distiller will be changed

Assuming that distiller is willing to fix the problem rush production to replace pulled product at distiller’s cost

Inform customers of a short-term backorder due to the production issues

Reduce CSR activities to $1 per bottle until the company resolves the discolor issue

As per our recommendation profits should be split equally, deciding vote remains with Courtney (taxes)

ImplementationMed-term

Assumption: the distiller is willing continue producing VeeV at premium quality

Continue with current distiller as they own the formula but the company should start looking for another distiller to recreate the formula

ImplementationLong-term

Go after distiller for losses due to tainted product if the distiller wasn’t willing to absorb the pulled and reproduction losses

Change the distiller Revisit CSR strategy depending on

success rate

Contingency Plan Divest and try to absorb losses by selling

company Reasoning: by selling to a major player the

risk is being transferred. Bigger pockets and more knowledge, the ability to launch internationally at a faster rate. At the end the product is still on t he marker. Control will be lost but the product is still out there and no debt remains.

Financial Implications2008

VeeV Rock In Market (unused) Inventory Sales RevenueCases Sold 473.5 3552 2008

Distributor 22.5 $ 20.75

5,682.00 42624

$ 1,002,304.58 $ 1,002,304.58

Legal FeesCost of DistructionProduction rerun

* Assumption In Market (unused) 50% of product is left