DCF of Distil PLC for Suntory AcquisitionEssay

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Distil PLC, a UK-based company owns Blavod Original Black Vodka, Blackwoods Vodka, Blackwood's Vinage Gin, RedLeg Spice Rum and few other liquor products. Distil sells international in the U.S.A., the UK, Spain, Germany, Russia, and Australia. Its main operations are in England with main territory in the United Kingdom. Its chief product, Blavod Vodka is the world's only kind of black vodka and comes from Black Catechu, an uncommon extract found within the Uncaria Gambier trees in Asia. This is important to note because Suntory has base operations in Japan. This report will give the pros and cons of investing in Distil PLC.

Pros

Distil PLC has products that are unique and offer value over time. Blavod Vodka as mentioned in the introduction is a one of a kind product because it is a black vodka. The extract needed comes from Asia and if Suntory were to market this specific product in their company, they would be able to source the product easily because Suntory's base operations are located in Japan and they have several locations in Asia. Because vodka is not as popular in Asia as it is in America and Europe, Suntory would have to focus the products should they acquire the company towards their neglected European division, which would increase sales, and help the company expand.

If Suntory is looking to expand into Europe and continue expanding into America, vodka is the best option as it is the drunk spirit in North America and certain parts of Europe like European Russia. People enjoy the multiple flavors vodka has to offer and the uniqueness of specialty vodkas. Black vodka from the Blavod brand owned by Distil will be sure to please with consumers looking for novelty and specialty drinks and cocktails. Glancing at the Distil March 2015 reports, Blackwood sales have been ahead of expectations and the company has looked to improve their already existing line-up by repackaging it and beginning distribution in the Virgin Islands, the United States, and Puerto Rico.

Distil PLC seems to desire expansion into parts that Suntory have not truly expanded to with RedLeg Rum distribution in Australia. Although the company has had some hiccups in terms of financial loss for the year, they have reduced operating costs further as well as continually lowered staff and administrative costs moving officers to smaller locations and so forth.

Gross profits and margins from our brands have risen in the period as we focused on brand building through increased distribution, marketing and promotion. In particular, we have made significant progress in establishing our presence in the U.S.A. And also domestically where we have been successful in securing a number of listings for Blackwoods and RedLeg in major UK retail multiples. Despite this success however, two issues -- the unexpected delays in securing, held the overall performance back TTB approval for Blackwoods Small Batch Gin and the effect this had on expected revenues and also a significant drop off sales in Eastern Europe for our Blavod black vodka brand (distil.uk, 2015, p. 3).

The company seems ready to downsize if needed as well as handle distribution into other territories. Their outlook seems optimistic.

Distil also sells and has locations in Germany. Suntory's Germany location may work well with Distil's and their common product area, wine may be a great addition to Suntory. Since Distil operates much of its effort into vodka, they may be good for Suntory to use to sponsor things in the United States and the UK as sponsorship of certain events leads to higher customer brand awareness and customer loyalty. "Alcohol brand sponsorship must be viewed as a major alcohol marketing strategy that generates brand capital through positive associations with integral aspects of culture, creation of attractive brand personalities, and identification with specific market segments" (Belt et al., 2014, p. 1977). Distil PLC's consolidated statement of comprehensive income shows their overall costs have decreased from last year noticeably. Costs of sales have diminished from 1,830 to 260 (£'000). Administrative expenses have lessened from 575 to 406 and promotional costs have lessened from 235 to 148.

Distil is actively attempting to lessen their load and rebalance their efforts. This shows a proactive approach to problem solving and may be compatible with the Suntory company policy. Furthermore, since Distil PLC wishes to expand into the United States where vodka is consumed, they may see an increase in profits. The United States is a great place for vodka products to grow and expand (Rothbaum, 2007).

Although Distil has some negative numbers in recent reports, it seems Distil is looking to rebrand itself and repackage some of its products to appeal to new markets. They have solid distribution routes in the works and are willing to downsize if needed in order to maximize profits. Distil PLC has been active for over a decade and specializes in vodka, one of the favorite spirits of the United States, a region Suntory may wish to further expand into. Certainly Distil PLC deserves some consideration in regards to acquisition. Suntory may be a good match for Distil PLC in particular do their shared interest in wines and locations in Germany.

Cons

Suntory has experience-selling whisky. Distil PLC does not. All their products are either vodka or rum. This may make potential positive outcomes uncertain because the sale of whisky is not the same as vodka and rum. There is a different market target group for these beverages. Furthermore, Suntory has European companies in Germany and France. Another company in the UK may stretch the company to its limits when it comes to administrative duties and communication. Most of their focus is in Asia with locations in Japan, Southeast Asia, and China. The companies that are in Europe are either for wine or non-alcoholic beverages.

Although they sell some vodka brands like Pinnacle, they sell these in North America with Larios Gin in Europe. The company pushes whiskey more than any other spirit, specifically Japanese brand whiskey. Whiskey is a popular accompaniment to many alcoholic drinks in Asia with whiskey added to bottled green tea. Vodka is not as popular in Asia as whiskey and may be a problem to market (Morrish and Deacon, 2015, p. 16). Several articles mark how whiskey's popularity has risen, especially in China and other parts of Asia. "Today, Scotch whisky is experiencing record sales. Statistics show that Scotch whisky export sales topped $4.9 billion in 2009. For example, over 11% growth when compared to sales recorded in 2006. Also sales in 2007 rose by 75% in China, 36% in India, 27% in Europe, and 6% in North America" (Dow and Jung, 2011, p. 108).

Essentially, Suntory would have to market the newly acquired vodka-based company in Europe and handle the wine production/selling and non-alcoholic beverages they possess in Germany and France as well work with the UK location of Distil. It would be too much strain and investment to acquire such a company with the various already established locations and products and lack of appeal vodka has in Asia. Suntory already has so many products they manage from non-alcoholic beverages to spirits (mainly Japanese whiskey) to wine production and selling, that it would put too much strain on their company if they acquired one in a location they did not have before that sells products they do not typically sell.

Glancing at the Distil PLC reports, the company finished a "transition from being a third party brand distributor to a brand focused, brand owning business" (distil.uk, 2015, p. 3). They had losses during this period (to March 31st 2015) of £289k on sales of £666k. A newly formed "brand owning business" will have trouble acclimating and changing to the identity of Suntory. Suntory has a very clear and distinct attitude towards and marketing strategy towards customers. If Distil managed to join Suntory, there may be communication problems and administration difficulties.

Distil in their recent reports have also started their desire to reach out to other parts of Europe and the United States. They have no clear plans for expansion in Asia. Suntory's base operations is in Japan and many of its companies are in Asia. There would be a clear divide for the two companies if an acquisition were to occur. Distil is also redesigning one of their brands, Jago's and have already redesigned Diva, a wheat-based vodka. Distil seems to have many projects happening in terms of redesign and investment in vodka. Suntory's focus when it comes to spirits is whiskey.

Additionally, Distil PLC may have bitten off more than they could chew with sales volume declining and sales turnover falling by 9%. "Total volume of owned brands sold declined year on year as a result of a significant fall in volume sales of Blavod Black Vodka in Eastern Europe" (distil.uk, 2015, p. 3). Although the company experienced in increase in sales with RedLeg Spice Rum, they also experienced a decline in sales of the specialty vodka, Blavod Vodka "Volume sales of Blackwoods Gin, Blackwoods Vodka… [END OF PREVIEW]

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