Introduction
Deep Roots Distillery (DRD) is family owned business involved in the production of liqueurs and spirits. The company is located in Warren Grove, Prince Edward Island (PEI) which is a village approximately 15 kilometers away from Charlottetown, Canada (Beamish, 2016). The company is owned by Mike Beamish and his family and has been in operating in one year since its inception. In order to improve the performance of the company in the market, Mike Beamish and the family develops specific goals to guide their operation. In essence, the company has specific goals which are included its mission, visions, and values.
Mission, Vision and Values
Mission : The mission of the company is to provide the customers with high quality wines and liqueurs that can best satisfy their needs
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Vision: The vision of the company is to become a market leader and the ultimate distillery choice for the customers in Canada. The company intends to expand to other regions in Canada as well as Europe.
Values : The main values of the company include honesty, transparency and accountability.
The Challenges Facing DRD
DRD as a distillery company operating in Warren Grove, Prince Edward Island (PEI) is faced with several challenges that can affect its operation in the market. The first challenge that the company faces is the high competition in the market. Although there are three main distilleries in the market, there are other wineries and breweries in the region that offers rival products to the customers. Apart from DRD, other small distilleries in the region included Prince Edward Distillery, Myriad View Artesian Distillery, and Matos Distillery.
The other challenge that the company faces was associated wit its financial performance. As a startup company, DRD depends on the capital from the family members. In essence, the family members were not able to raise enough capital that can help to finance all the activities and operation of the company. As a result, the company leased the production facility from Bearnish Orchard at a cost of $ 500 per month. In addition, the company incurred a loss of $ 16,822 during its first year of operation (Beamish, 2016). Lack of adequate capital to invest in business was, therefore, a major challenge for the company which was interested in expansion to enable it becomes competitive in the market.
The third challenge of the company was the choice of appropriate marketing strategies to create its awareness in the region and improve its sales performance. Although there are a variety of marketing techniques that the company can use, it was appropriate for the company to know the best strategy that can help improve its performance in the market.
Business Environment
The business environment where an organization operates can have a significant influence on its operation and activities. There many factors that exists in the business environment with significant influence on its operation. The analysis of the business environment can inform the company on the variables that can hinder or support its business ( Hamilton & Webster, 2015) . DRD as a company operates in one region within Canada where it faces many challenges and opportunities due to its surrounding internal and external business environment. In analyzing the business environment of DRD TOWS strategic tool is considered.
The TOWS Analysis
The TOWS is analytical tool that is used to analyze bother internal and external environment of an organization. TOWS analyses the threats, opportunities, weaknesses and strengths of an organization. The result of the TOWS analysis can be used to make informed decision regarding the strategies that an organization can pursues in order to become competitive in the market. DRD can use TOWS analysis to know its position in the market as well as the factors that affects its business.
Opportunity
There are many opportunities that exist in the business environment where DRD operates. One of the opportunities is to expand in other regions in Canada. Currently, DRD operates in Prince Edward Island which a small village with a population is of 140,000 individuals. Expanding in other markets can enable the company to increase its sales and become profitable in the market. Another opportunity for the company is to increase its brands to attract more customers. The company only offers four products that Include Island Tide, Blueberry, Maple Liqueur and Camerise Liqueur. The production of a variety of product can also help it increase its market share and become competitive.
Threats
The threats that business faces can pose a significant challenge to the operation of organization in the market ( Wetherly, 2014) . As a result, it is critical that companies identify the various threats that can affect their operation in order to develop strategies to reduce their impacts. One major threat of the company is increase in the level of competition in the wines and liqueur market. There is a threat of new entrants, substitute products and competitive rivalry. These threats often lead to a reduction of market share, sales and profitability of a company. The main competitors of the company include Edward Distillery, Myriad View Artesian Distillery, and Matos Distillery.
Weaknesses
Weaknesses are the internal environment factors that have a negative impact on the operation of an organization. The internal environmental factors can reduce the performance of the company in an industry. One of the internal environmental factors of the company is the lack of adequate capital for its operation and expansion plans. For instance, the company has not been able to pay the employees since it lacks the cash to pay the employees. Besides, it made a huge loss of $ 16,822 in 2014 which was its first year of operation (Beamish, 2016). Therefore, adequate measures should be put in place to improve its performance.
Another weakness of the company is lack of appropriate personnel to manage the company. The company is a family business without an external employee who has the required management skills. This implies that it can make wrong decisions that can eventually compromise its performance.
Strengths of the Company
An organization should leverage on their strengths to ensure that it improve on their performance. Although DRD faces numerous challenges in the market, it has certain strengths that can make it become a big player in the industry. The major strength of the company is that it is family owned and thus there are no external people who can have control over its operation. This implies that the decision making in organization is independent without external influence from third parties. Besides, the profit of the company is only shared by the family members.
Strategic Areas for Improvement
The TOWS analysis provides important information and insight that an organization can use to develop effective strategies to enhance its performance ( Hamilton & Webster, 2015) . The TOWS analysis can provide an insight to the management of DRD to implement appropriate business objectives to enable it gain a competitive edge in the market. Based on the TOWS analysis of DRD, it is important for the company to improve on various areas that include its management, marketing and branding, capital, and expansion.
Management is one issue that clearly affects the performance of DRD in the market. The company is family owned and thus there is no appropriate management structure and policy in the company. The lack of appropriate management policy makes its difficult for it to make informed management decisions that can make it outperform its competitors. There is a need for the company to introduce appropriate management structure and assign each employee to specific roles and responsibility to achieve. The assigning of the responsibility to the individuals can make them more accountable to their jobs and thus works hard towards achieving them.
The presence of high competition in the market makes it difficult for the company to enjoy high sales volumes. As a result, it should invest in the initiatives that can help boost its performance in the market. In essence, the company should embark on a strong marketing and branding to help improve its performance. DRD should use various marketing techniques to ensure that a large number of its customers are attracted to its products. With regards to the branding, it is necessary for the company to improve on its brands and make them highly differentiated from those of the close competitors.
There is also a need for the company to increase its capital base to enable it fund some of the essential operation to its operation. The company clearly lacks money to acquire resources that are critical to its business operation. For example, it has failed to pay its employees since it started its operation and this makes the employees. It also needs to significantly invest in marketing at a cost of $ 17,150. This requires it to get additional expenses to fund such operation.
The Areas to Address
In order for DRD to become competitive in the business environment, it is necessary that it addresses the major issues that affect its business operation. The company should prioritize certain areas that can enable it to become successful in the business environment. Some of the areas of priority that it needs to address include the marketing and branding and management. The company should attempt to address these issues to become competitive in the business environment.
The important area that the company should address is the marketing and branding. It is evident that the intense competition in the market is one of the factors that contributed to low sales volumes and a loss to the company in its first year of operation. The marketing and branding can help the company improves on its performance. It is necessary that the company embark on intense marketing strategy to ensure that it gains a competitive edge in the market. Through marketing, the company can create awareness of its products to many customers in the region where it operates. DRD has been on operation for one year and thus a new company in the market. In comparison to its close competitors, ADR is not well known in the market and thus needs to enhance its marketing activities. At this stage, the company should use a number of marketing strategies to such s promotion, media and print advertisement. Evidently, the competition in the Prince Edward Island started some 20 years ago and thus ADR which has just entered the market should ensure that it improves on its marketing strategies to increase its awareness in the global marketing.
Another factor that makes ADR to consider addressing the issue of competition in the market is its low sales volume that has enabled it to lag behind its competitors in the market. During the few months of operation in the distillery industry, the performance of the company has been poor mainly due to lack of awareness of its brand by a majority if the customers in the Price Edward Regions. The marketing should target the various distributors of wines and liquors within the region of its operation.
The second area that ADR should address in its effort to improve its performance in the market is concerned with the branding. Notably, ADR is new in the market and thus needs to create its awareness among the diverse clients in the territory. It should make a good effort to increase its brand awareness. This can involve creating of a unique brand. The brand of the company should be highly differentiated from those of the competitors in the region.
The company also needs to address the areas of management. As it stands now, there is no formal management structure in the organization. The proper management can imply that the organization changes its business structure and leadership style. For instance, it should hire skilled individuals to help develop and implement appropriate marketing and business strategies that can ensure it improves its performance in the market. Professional employees can drive the company to success since they have appropriate skills and competencies that they can use to improve on their performance. In essence, the professional employees will be focused on the performance metrics as opposed to the profitability of the company in the market.
The Financials
The analysis of the financial statements of an organization can provide important insight towards its performance in the market. In addition, the financial health of a company can be determined through assessment of its financial statements. The three financial statements that can be used to assess the financial health of the company include balance sheet, cash flow statement and income statement ( Wagner et al., 2015) . The financial statement is used to determine the profitability of a firm. In 2014, ADR made a loss of $ 20,462 as reported in its financial statement. The revenue in that period was $ 14,480 while the cost of goods sold was amounted to $ 8,478. From these figures, it can be noted that the company made a gross profit of $ 6,002. Although the company made a gross profit, it failed to make a net profit at the end of year owing to many expenses. The expenses of the company were $ 22,824 which is higher than the gross profit and this resulted to the net loss. From the analysis of the financial statement, it can be argued that the company recorded a net loss due to its high expenses in the initial year. The net expenses such as advertisement, product development, professional fees and training are expected to reduce and this can make the company to make a profit.
The balance sheet of a company shows the assets and liabilities possessed. It is a financial statement that companies use to assess their financial health ( Miller-Nobles et al., 2016) . The analysis of the balance sheet of the company uses various liquidity ratios to determine its financial health. The ratios that are considered include working capital ratio, current ration and quick ratio. The table below shows that calculated liquidity ratio of the company.
| Liquidity Ratio | Value |
| Current Ratio | 0.383719 |
| Quick Ratio | 0.454752 |
| Working capital | -43666 |
From the above table, it can be noted that the liquidity ratios of the company are unfavorable during the 2014 fiscal year. A low liquidity ratio indicates that the company can find difficulty in paying its short term financial obligations. As a result, the company might find it difficult to obtain loans and credit facility from the banks and lending institutions. This can make it difficult for the company to realize its expansion plans in the market. As a result, it is appropriate if the organization can work towards improving its balance sheet such as investing in assets and reducing its current liabilities.
The profitability ratio can also be used to assess the financial performance of the firm. The two important profitability ratios include return on assets and return on equity. The table below shows the calculated return on assets and return on liability of the company.
| Profitability Ratio | Value |
| Return on Equity | -204.62 |
| Return on Assets | -0.40525 |
All the profitability ratios are negative and this shows that the company is making losses in the first financial year. As a result, it needs to change its strategy to enable it become competitive in the market and improve its financial performance.
Based on the calculated liquidity profitability and liquidity ratios, it can be conclude that the financial health of the company is not good. There are certain issues that contribute to its poor financial problems. One of the issues is its high expenses during the initial year. The company spend huge amounts on advertise, product development and professional fees among other promotional activities. The company also acquired many credit and loan facilities to fund its operation. The high amount of liability can make it difficult for the company to pay its short liabilities and this can expose it to risk such bankruptcy.
Strategy
Given the poor financial health of the company, it is necessary that it should develop appropriate strategies to help improve its performance in the market. The recommended strategy is for the company to increase its marketing initiatives in the region to help increase its product awareness and improves its brand. The company needs to allocate huge funds towards advertisements and promotional activities. This can help it attract new customers as well as retain the existing customers in the market.
The key players required to help accomplish its marketing goals include the marketing manager, human resource manager, marketing executives and sales representatives. The strategy requires the company to recruit employees to help in the marketing and promotion of its products. It also needs to assign responsibilities to each of the marketing team to ensure that they fulfill their mission and help the company meets its objectives. The human resource managers will be involved with recruitment of employees that are able to accomplish the objectives of the company as well as train and develop the employees to become competitive.
In order to ensure that the marketing plan developed by the company is working, there is a need for the company to design appropriate goals. The goals of the marketing plan include the following.
To increase the sale volume by 30 % in 2015
To make a profit of approximately $ 50,000 in 2015
To increase the market share by 20 % in the industry
The goals of the company are in aligned to the company’s vision, mission and value statement. Since the company aims to become a market leader in the industry, its goals of increasing market share by 20 % can enable it become the leading company in terms of sales volume. Besides, the company will reduce the level of competition when it increases its market share and profit margin. A profitable company is in a position to fund research and development initiatives and become competitive in the business environment.
The Key Performance Indicators
The key performance indicators can be used by the company when assessing if it has accomplished its marketing objectives. The key performance indicators for the marketing strategy include the profit margin, the sales volume and number of customers served. The company should compare its real performance with the established goals to determine if it is meeting the established objectives. The key performance indicators should be specific and measurable to enable the management determine if the company is performing as per the expected goals and objectives.
Each of the key performance indicators is used to assess the success of accomplishing each of the established objectives. The profit of the company will be determined by the amount of profit that the company realized during the specified period. The number of customers served by the company will give an insight regarding the market share in the industry. Lastly, the sales volume in dollars determines the total sales that the company generates during the period.
Summary
The marketing and promotion of the company’s product is the best that can help ADR gain a competitive edge in the market. It should be noted that the main concern of the company is low sales volume that makes it to incur losses in the market. The low sales volume is also due to the fact that ADR is new in the market thus many customers are still not aware of its products. As a result, marketing and promotional activities are the effective means that can make the company to survive in the business environment. Although it is an effective strategy for the company, there are certain risks associated with its implementation. One of the risks is lack of capital by the company. The strategy requires the company to invest huge amount of money in its marketing efforts. Also, the new employees are needed and this can increase the cost of operation of the company.
References
Beamish Paul (2016). Deep Root Distillery Case Study. Richard Ivey School of Business Foundation.
Hamilton, L., & Webster, P. (2015). The international business environment . Oxford University Press, USA.
Miller-Nobles, T. L., Mattison, B., & Matsumura, E. M. (2016). Horngren's Financial & Managerial Accounting: The Managerial Chapters . Pearson.
Wagner, D., Block, J. H., Miller, D., Schwens, C., & Xi, G. (2015). A meta-analysis of the financial performance of family firms: Another attempt. Journal of Family Business Strategy , 6 (1), 3-13.
Wetherly, P. (2014). The business environment: themes and issues in a globalizing world . Oxford University Press.
