The drinks industry in Ireland, particularly the off-trade categories have been navigating a difficult economic climate for the past 7 years. This presentation will substantiate that statement whilst exploring the causes of this decline from an economic, governmental policy and consumer-led point of view. For scoop, the exploration will be from the point of Molloy’s Liquor Store, an off-trade retailer based in Ireland. Molloys have suffered a number of finally losses over the past 7 years and in need of business innovation. I will first give an overview of the off-trade industry as it currently stands and then focus on Molloy’s difficulties. I will look at the current trends in the industry and identify opportunities for growth. From that, I will propose a strategy for digital disruption. The implementation of this strategy will be outlined in more details from the consumer and Molloy’s experience of the new product. I will also present case studies and timelines for implementation.
The Drinks Industry in Ireland has seen dramatic changes in its competitive environment since the Recession began in 2007. Since the Bailout, Ireland has been faced with massive interest bills and debt on the e85 billion borrowed from the EU and IMF in 2008 (Telegraph, 2011). In order to cover this bill, expenditure needed to be reduced and revenue found. Each budget since 2008, saw public spending cut and taxes being raised in order to meet the repayment deadline scheduled by the IMF. A series of three austere Budgets saw opportunities for spending cuts completely exhausted. As the Recession continued, the Irish government began to look more and more at discretionary spending like cigarettes and alcohol (Telegraph, 2011). For context, of the e6.4 billion alcohol expenditure in 2011, e1.8 billion was VAT and excise (Foley, 2013). A recently published European Commission Report saw Ireland being named as the second most expensive country in Europe to purchase alcohol. On average Irish consumers pay 70% more than their European counterparts for alcohol (Europa Report, 2015). With these economics barriers, it is understandable that the Drinks Industry in Ireland has struggled to retain market share and competitiveness.
Molloy’s Liquor Stores is a family business run by chief executive Kevin Molloy. It is a part of the Molloy Holdings group, who operates the off-license chain Molloys Liquor Stores and a number of pubs. There are currently 10 Molloy liquor stores throughout Dublin in a variety of economic areas (Irish Times, 2011). It also has property development and investment interests. This property portfolio has been the main cause of difficulties for the group. There were a number of development in progress as 2010 drew to a close. These exposures saw the companies turnover fall from €36.7 million to €26.2 million (Irish Times, 2011). These factors coupled with the difficulties is the Drinks Industry have seen Molloys working through very difficult times with significant lay-offs, operating losses, as well as drops in sales.
As illustrated by the numbers from the Independent Craft Brewers of Ireland, the Craft Beer Industry has been experiencing a surge in interest and customer based. This is fueled in part the breweries but also a general move by consumers towards supporting local produce. A recent Irish Examiner survey found that 69% rated “the use of Irish/local� as important when going out for a local meal.
From my research interview with Ian Bergin, I got a fuller sense of the obstacles and barriers caused by Ireland’s licensing laws. These laws date back to the founding of the state, almost 100 years ago. The landscape was very different in Ireland and these laws now seem archaic and prohibitive to small microbreweries, aimed more towards macrobreweries like Guinness and Smithwicks ie.20 litre or a keg is the minimum amount available to sell. The most pressing currents barriers to business for microbreweries is the prohibitive cost involved in purchasing licenses. A license can cost many tens of thousands and is a massive outlay to a burgeoning business. There is also a limited number of license available as a result of them being bought up by retailers and “hold on to�. As a result, the only option open to breweries is to have their product stocked elsewhere, preferably nearby, and send a customer to purchase it from there. Alternatively a customer can purchase the minimum order of 20 litres of beer from the brewery. All in all, this adds up to many painpoints and creates system waste. But through these painpoints opportunities for disruption exist and will be discussed.
User journey maps are used by Service Designers to tell the story of the customer’s experience. They plot the engagements and touchpoints experience by the customer while using the service or product. They are a powerful tool for highlighting pain points and touchpoints within the journey. A journey map can also highlight various stakeholders within the journey and offer assistance in establishing key metrics for which the success of a service can be measured against (Schneider and Stickdorn, 2012) Four pain points are highlighted within this journey - The beer is not able to be sampled on site - The customer is informed he can only purchase a minimum of 20 litres on-site - The user being sent off site to purchase smaller quantities - The frustration experienced by the brewer at the strict regulations This tool gives a very powerful overview of the current service experience, and can be used as a key metric to measure the new service offering.
Through the establishment of pain points experienced by the User during his brewery tour, we can highlight the System Waste and also Opportunities. The System Waste in this scenario mostly centres around the potential loss of sales due to the strict licensing regulations imposed by the Irish government on breweries. The user can, in some cases not taste alcohol on site. They can only purchase a minimum of 20 litres of beer, a deterring amount, or they must exit the Brewery to find the nearest stockist. The System Waste is set forth in this slide from the Brewer’s point of view and the value offering from Molloys helps to remove barriers and transform the waste into a service or product.
A recent Bloomberg report outlined how critical it was for companies to disrupt the supply chain in order to achieve innovation and growth (Botero, 2013). The Business Model I have used is the Exemplar canvas to digitally disrupt this company. The Exemplar model is also used by Made.com and Naked Wines who have successfully disrupted the supply chain by creating a new innovative business model. Both Business Models are based upon an online platform that links producers often of high end or artisinal products, to customers. The key element of the model is customers purchase items in advance of production thus lowering risk for manufacturers, retailers and producers (Guidici, 2014). Made.com is an online platform that links innovative designers to customers seeking designer furniture. Customers sign up to buying a piece of furniture and when the necessary amount of people have committed the order goes into production (Guidici, 2014). The benefits of this kind of demand-driven and supply chain innovation are the company keeps overheads, production costs low as well as practicing effective cash management (Guidici, 2014). There are very low barriers to implementation for Molloys so this model should be easily implementable
Rationale for Stages: 1. The targeted local advertising is used to attract people like Steve who stay and shop in the area. The call to action is for Steve to either sign up online or in-store. If Steve attends in store he will be able to have a face to face interaction with one of Molloy’s knowledgeable staff. This is intended to be the beginning of the relationship. And also establishing Molloys as a centre for knowledge in the area of craft beer. 2. Steve signs up to The Brew Dock. From there he is prompted to enter his taste preferences. Molloys can start to create a database of Steve’s preferences, these will be stored in Steve’s online cellar. Molloys in the future will be able to target more preference specific items to Steve. They will also be connecting and building a better profile of their customers’ tastes and preferences.
Rationale for Stages: 3. Firming the relationship established with Steve when he signed up to the service by remembering Steve’s preferences. 4. As Steve orders, Molloys and the brewery build a greater user profile for him that can be used to make recommendations for future brews. 5. The Brewery receives Steve’s order and this advance sale assists them with cash flow to produce the beer. 6. The Brewery ships the order through Molloys existing logistics chain, keeping costs low for all concerned. 7. This informing Steve of the stages of production, keeps relationship in tact and also creates a more enjoyable experience for Steve, through excitement. 8. Steve receives a personalised box and is impressed by the branding. 9. Through Steve leaving feedback, Molloys and the brewery are involving Steve in co-creation. They are also getting direct feedback from customers, so can closely monitor customer preferences and predict future sales.
Both Made.com and Naked Wines have used digital to disrupt the supply chain creating a new innovative business model. A recent Bloomberg report outlined how critical it was for companies to disrupt the supply chain in order to achieve innovation and growth (Botero, 2013). Made.com is an online platform that links innovative designers to customers seeking designer furniture. Customers commit to buying a piece of furniture and when the necessary amount of people have committed the order goes into production (Guidici, 2014). It is this kind of demand-driven innovation that is laid out in the Bloomberg Report (Botero, 2013). The benefits of this supply chain are the company keeps overheads, production costs low as well as practicing effective cash management (Guidici, 2014). And as the numbers display, the results are impressive. Naked Wines too have disrupted the market with a similar supply chain. Users of the online platform and linked with quality independent winemakers from around the world. The can choose to be an “angelâ€? investor in the wines with a ÂŁ20 subscription service. The sales are direct and costs low, so Naked Wines can pass on savings to their customers. In terms of mechanisms and benefits, it is very similar to Made.com (Guidici, 2014).
The Business Model Canvas was devised by Alexander Osterwalder. It is a visual aid used to capture “the model of a company”. It is a commonly used tool in strategy as it helps lay out key elements involved in a business. It is divided into nine sections each section represents a different part of the business activities (Fritscher and Pigneur, 2014). There are five over-arching themes; infrastructure, offering, customers, channels and financing. The Business Model Canvas can be used at any time in an organisation’s life, as a tool to capture its current state or to model a possible future value adding innovations (Fritscher and Pigneur, 2014). Through the use of this canvas, we can see the current opportunities open to Molloys and how its implementation would open new markets to the business, as well as satisfying existing customers. It also clearly captures the infrastructures already at Molloys’ disposal, like online store, retail spaces, knowledgeable staff and logistic links. The Business Model Canvas demonstrates the feasibility of “The Brew Dock” strategy.
As part of the Blue Ocean Strategy, Kim and Marbauborge, discuss the principles of red and blue ocean thinking. Red ocean represent all the industries that currently exist within the marketplace. This market space is cut throat as all the industries are fighting for a small niche part of market, the “red oceans” The backbone of blue ocean strategy is the strategy of “value innovation”. It is the “simultaneous pursuit of differentiation and low cost, creating value for both the buyer, the company, and its employees”. This value is created not by competing but by completely changing the “playing field” (Kim and Marbauborge, 2005). Building on this blue ocean disruption of the highly regulated drinks industry, Molloys could continue to disrupt the convenience industry by bringing a wide range of artisanal foods to the local towns. Molloys could become a one stop shop for atisanal foods available in a single retail space in a convenient and local towns. Teagasc, the development board in Ireland published a report stating, the speciality food market in Ireland is worth t500 million a year. This sum is divided amongst only 300 producers so there is plenty of scope for new entrants.