I.

INTRODUCTION AND BACKGROUND OF THE STUDY

1.1 Executive Summary

1.1.1 Board of Directors

Andrew L. Tan

Chairman of the Board

Mr.Tan, was elected as Director and Chairman of the Board on August 28, 2013. He

has served as Director of Alliance Global Group, Inc. since 2003 and as its Chairman of

the Board and Chief Executive Officer from September 2006 to present and as Vice-

Chairman of the Board from August 2003 to September 2006. Mr. Tan concurrently

holds the following positions in publicly-listed companies: Chairman of the Board and

President of Megaworld Corporation, Chairman of Empire East Land Holdings, Inc. and

Global-Estate Resorts, Inc., and Director of Travellers International Hotel Group, Inc.

Winston S. Co

Director and President

Mr. Co was elected as Director and President on 28 August 2013. He is a Director and

President of Emperador Distillers, Inc. since 2003. He has served as Director of Alliance

Global Group, Inc. since 1998 where he previously was Vice Chairman of the Board

from November 1999 to August 2003 and Chairman from June 1998 to October 1999.

His field of expertise is in finance and marketing of consumer products.

Katherine L. Tan

Director and Treasurer

Ms. Tan was elected as Director and Treasurer on 28 August 2013. She has served as

Director and Treasurer of Alliance Global Group, Inc. since February 2007. She is a

Director and Treasurer of Emperador Distillers, Inc. since 2003, and of Alliance Global

Brands, Inc., Yorkshire Holdings, Inc., and New Town Land Partners, Inc.

Kingson U. Sian

Director

Mr. Sian was elected as Director on 28 August 2013. He has served as President and

Chief Operating Officer of Alliance Global Group, Inc. since February 2007. He is

currently a member of the Board of Directors of Megaworld Corporation and is its

Executive Director and is concurrently President and a Director of Travellers

International Hotel Group, Inc..

Kendrick Andrew L. Tan

Director

Mr. Tan was elected as Director on 28 August 2013. He has served as Corporate

Secretary and Executive Director of Emperador Distillers, Inc. since 2007 and its Head

of Research & Development. He is concurrently Director of Anglo Watsons Glass, Inc.,

Consolidated Distillers of the Far East, Inc., Emperador Brandy, Inc., The Bar Beverage,

Inc., The Andresons Group, Inc., and Yorkshire Holdings, Inc. Mr. Tan graduated from

Southern New Hampshire University with a degree in Bachelor of Science in

Accountancy.
Miguel B. Varela

Independent Director

Mr. Varela, Filipino, was elected as Independent Director on 28 August 2013. He is

currently an Independent Director of Global-Estate Resorts, Inc. and Megaworld

Corporation. He is presently the President of the Philippine Chamber of Commerce and

Industry (PCCI) was formerly President and now presently Director of Manila Bulletin

Publishing Corporation, Director of AusphilTollways Corporation, Director, NPC Alliance

Corporation, Vice Chairman Richmonde Hotel, among others. He is also Chairman of

the Employers’ Confederation of the Philippines (ECOP), Board of Trustee of

Philippines Trade Foundation, Inc.

Dina D.R. Inting

Chief Finance Officer, Corporate Information Officer and Compliance Officer

Ms.Inting was elected as Compliance Officer and Corporate Information Officer on 28

August 2013. She has served as First Vice President for Finance of Alliance Global

Group, Inc. since January 1996 and is also its Compliance Officer and Corporate

Information Officer. She is currently director of ProgreenAgricorp, Inc

Dominic V. Isberto

Corporate Secretary

Mr.Isberto was elected as Corporate Secretary on 28 August 2013. He is also the

Corporate Secretary of Alliance Global Group, Inc. and the Corporate Secretary and
Assistant Corporate Information Officer of Global-Estate Resorts, Inc., both publicly-

listed companies. He is also the Corporate Secretary of Twin Lakes Corporation,

Eastwood City Estates Association, Inc., Suntrust Properties, Inc. and Fil-Estate

Properties, Inc.

Rolando D. Siatela

Assistant Corporate Secretary

Mr.Siatela was elected as Assistant Corporate Secretary on 28 August 2013. He

concurrently serves in PSE-listed companies Suntrust Home Developers, Inc. as

Corporate Secretary and Corporate Information Officer and in Megaworld Corporation,

Global-Estate Resorts, Inc. and Alliance Global Group, Inc. as Assistant Corporate

Secretary. He is a member of the board of Asia Finest Cuisine, Inc. and also serves as

Corporate Secretary of Oceanic Realty Group International, Inc.

1.1.2 Organizational Chart

1.1.3 Board Committees

A. Nomination Committee - The Nomination Committee shall have at least three (3)

members, one of whom is an independent director. The Nomination Committee shall (1)

ensure that the Board of Directors has an appropriate balance of required industry

knowledge, expertise, and skills needed to govern the Corporation toward achieving its

intended goals and objectives; (ii) review and evaluate all candidates nominated to

Officer positions in the Corporation that require Board approval prior to effectivity such

appointments or promotions; and (iii) shortlist, assess, and evaluate all candidates

nominated to become a member of the Board.

B. Compensation and Remuneration Committee shall have at least three (3)

members, one of whom is an independent director. The Compensation and

Remuneration Committee shall:

1. Establish a formal and transparent procedure for developing a policy on

remunerations of directors and officers to ensure that their compensation is consistent

with the corporation’s culture, strategy, and the business environment in which it

operates;

2. From time to time, review and evaluate the standard arrangements pursuant to which

the directors and officers are to be compensated for any services provided, including

amounts payable for participation in different committees or other special assignments,

vis-à-vis the approved compensation policy, and, where necessary, to recommend

changes thereon for approval of the Board of Directors;

3. Review, subject to the approval of the Board of Directors, all recommendations for

additional compensation in the form of bonuses or options; and

4. Supervise and oversee the Company’s stock option and other compensatory plans.

C. Audit Committee shall have at least three (3) members, who shall preferably have

accounting and finance backgrounds, one of whom shall be an independent director

and another with audit experience. The chair of the Audit Committee shall be an

independent director. The Audit Committee shall:

1. Assist the Board in the performance of its oversight responsibility for the financial

reporting process, system of internal control, audit process, and monitoring of

compliance with applicable laws, rules, and regulations;

2. Provide oversight over Management’s activities in managing credit, market, liquidity,

operational, legal and other risks of the corporations;

3. Perform oversight functions over the corporation’s external auditors and internal

auditors, if any;

4. Review the annual audit plan to ensure its conformity with the objectives of the

corporation;

5. Prior to the commencement of the audit, discuss with the external auditor the nature,

scope, and expenses of the audit, and, if more than one audit firm is involved, ensure

proper coordination in the activity to secure proper coverage and minimize duplications

of efforts;

6. Organize an internal audit department, and consider the appointment of an

independent internal auditor and the terms and conditions of his/her engagement and

removal;

7. Monitor and evaluate the adequacy and effectiveness of the corporation’s internal

control system, including financial reporting controls and information technology

security;

8. Review the reports submitted by the internal and external auditors;

9. Review financial statements before their submission to the Board;

10. Coordinate, monitor, and facilitate compliance with laws, rules, and regulations;

11. Evaluate and determine the non-audit work, if any, of the external auditor and

disallow any non-audit work that will conflict with his duties as external auditor or may

pose a threat to his independence;

12. Establish and identify the reporting line of Internal Auditor (if any) to enable him to

properly fulfill his duties and responsibilities.

Board Committee Members

A. NOMINATION COMMITTEE

a. Alejo L. Villanueva Jr. (Independent Director) - Chairman

b. Winston S. Co

c. Kendrick Andrew L. Tan

B. COMPENSATION AND REMUNERATION COMMITTEE

a. Alejo L. Villanueva Jr. (Independent Director) - Chairman

b. Andrew L. Tan

c. Winston S. Co
C. AUDIT COMMITTEE

a. Alejo L. Villanueva Jr. (Independent Director) - Chairman

b. Miguel B. Varela (Independent Director)

c. Andrew L. Tan

1.1.4 Conglomerate Map/Affiliations

Emperador Distillers Inc. is a subsidiary of Emperador Incorporated. It has since

then increased its control in the brandy industry, with several acquisitions of companies

abroad. Below is the conglomerate map which shows the relationships of Emperador

Distillers Inc. with their related parties.

1.2 Company Profile

1.2.1 Nature of the Business

Emperador Distillers Inc. (EDI) is in engaged in the business of bottling,

manufacturing and distributing of distilled spirits and other alcoholic beverages in the

Philippines and throughout Europe. It is a subsidiary of Emperador Incorporated. It

operates under these names: Emperador, Generoso, Carlo Rossi, and the Bar.
1.2.2 Head office of the company

Emperador Distillers Inc.’s head office is located at 7F 1880 Building Eastwood

Ave Eastwood City Cyberpark E Rodriguez Jr Ave Quezon City.

1.2.3 Historical Background

Prior to the introduction of Emperador Brandy in 1990, the Philippine spirits

industry was dominated by longstanding and well-established gin and rum

manufacturers. Through dynamic marketing and by establishing a reputation for product

quality, EDI created demand for brandy in the Philippine spirits market following the

launch of Emperador Brandy. EMP, through EDI and its subsidiaries, is an integrated

manufacturer, distributor, and bottler of brandy and other alcoholic beverages.

In 2008, The BaR Beverage, a subsidiary of Emperador Distillers, Inc was founded. It is

the company responsible for bringing the hippest and trendiest party drink, The BaR. It

was created to appeal to the younger, more outgoing crowd.

In 2010, Emperador Light was introduced, becoming the country’s first light yet full-

flavored brandy. Factoring in the brand’s monumental success are its exceptional

quality, widespread market availability, and charming campaign focused on keeping

things light.

In 2011, the brand launched its “Gawin mong Light” campaign, which encouraged

drinkers to look at the lighter side of life’s daily challenges. This philosophy resonated

well with our target consumers, who constantly work hard to achieve their personal

goals but prefer to keep things light when it comes to their social life.

Dr. Andrew L. Tan’s vision of Emperador as a producer of worldclass quality products

led to the acquisition of the renowned Bodega San Bruno in Jerez – the brandy capital

of the world. This investment included sweeping tracts of vineyards in Toledo, the latest

viniculture technology, and a sizable inventory of high-quality brandy that is now being

meticulously aged in sherry-oak casks at Bodega San Bruno.

Emperador’s acquisition of Bodega San Bruno brings together over two centuries of

brandy-making tradition. This enables the company to pursue innovations in brandy

production in a competitive and thriving global market. More importantly, the acquisition

provides a platform to expand Emperador’s global footprint and product offerings.

The launch of Emperador Deluxe in 2013 further strengthened the company’s brandy

portfolio. This fine spirit has been well-received by consumers who enjoy its

unparalleled taste and top-notch quality. In less than a year, Emperador Deluxe became

one of the largest brands in the imported liquor segment. This established Emperador

as a global brand, and a major player in the premium liquor category.

In 2013, the company sold 400 million bottles in Asia, primarily in the Philippines and

the Middle East making it the world’s best-selling brandy. It is a brandy of unparalleled

quality, smoothness and flavor. Emperador Brandy owes its success to an intricate

blending and aging process. All it takes is one sip to fully appreciate Emperador Brandy

as a world-class product – that just happens to be conveniently affordable.

On October 31, 2014, The Company through its wholly-owned subsidiary Emperador

UK Limited, completed a deal for the acquisition of Whyte and Mackay Group Limited

(WMG), a manufacturer of Scotch whiskey. Through WMG, EMP now offers these

brands: "The Dalmore Single Highland Malt"; "Jura Premium Single Malt"; "Whyte &

Mackay Blended Scotch Whiskey"; "Valdivar"; "Glayva"; "Claymore"; and "John Barr".

II. RESEARCH DESIGN AND METHODOLOGY

2.1 Sources of Information

Data used in external analysis was gathered from various sources. These sources

include government sites such as the Philippine Statistics Authority. The financial

statements used was obtained directly from the Securities and Exchanges Commission.
Various information was also gathered from the official website of Emperador Distillers

Inc. and its main competitors, Ginebra San Miguel and Tanduay Distillers.

Industry data used for industry analysis was gathered from the annual reports of

Emperador Distillers Inc. Articles and research news about the industry that were

published by respected media outlets such as ABS-CBN News and Philippine Daily

Inquirer were also used to gather information about the industry as a whole. As for the

internal analysis, we used data from the annual report of Emperador Inc, which is the

parent company of Emperador Distillers.

Information about the competitors of Emperador Distillers Inc. was taken from the

annual reports of each competitor, namely Ginebra San Miguel and Tanduay Distillers.

The financial statements of those companies were also used to assess the performance

of Emperador Distillers. This helped in comparing the financial prospects of Emperador

Distillers Inc. againsts their competitors. Also, the annual reports of each competitor was

also a good source of data to provide support to internal and competitor information.

III. VISION, MISSION AND CORE VALUES

3.1 Mission Statement

“To develop and sustain a cutting edge competitive sales force with top morale level.

To ensure product availability in all SKU’s, at all times, in all store shelves & customer
warehouses nationwide.

To equate EDI’s image with reliability and dependability as a trade partner through

sustained impressive customer service and relations.”

Essential Components Viability Comments

1. Customers Yes “…sustained impressive

customer service and

relations”

2. Products and Services Yes “To ensure product

availability in all SKU’s”

3. Markets No “To establish control over

the industry.”

4. Technology No “…adopt an objective

attitude towards change

and innovation”

5. Concern for survival, Yes “To ensure product

growth and profitability availability in all SKU’s at

all times, in all store

shelves & customer

warehouses nationwide.”

6. Philosophy Yes “EDI’s image with reliability

and dependability”

7. Self-concept No “Emperador: The maker of

the world’s no. 1 brandy”

 8. Concern for public Yes “To equate EDI’s image

image with reliability and

dependability”

9. Concern for employees Yes “…cutting edge

competitive sales force

with top morale level”

3.1.1 Revised Mission Statement

“Emperador: The maker of the world’s no. 1 brandy

“We aim to establish control over the industry. We plan:

To develop and sustain a cutting edge competitive sales force with top morale level.

To ensure product availability in all SKU’s, in all store shelves & customer warehouses

nationwide.

To equate EDI’s image with reliability and dependability as a trade partner through

sustained impressive customer service and relations, and to adopt an objective attitude

towards change and innovation.”

3.2 Vision Statement

“To be the undeniable market leader in the wine & spirit industry with top quality brands,

most competitive sales force, with product placement in each and every outlet in all

trade levels, and more reliable business partner.”

IV. EXTERNAL ANALYSIS

4.1 General Environment

4.1.1 Political, Governmental and Legal Forces

1.) The excise taxes collected from harmful products such as alcohol jumped by more

than 20% in July in the Philippines, following the implementation of higher tax rates

earlier in 2015

2.) Curfew and Liquor Ban in certain barangays in the Philippines

Manila

City Ordinance 5555, which prohibits the selling and consumption of alcoholic

beverages in city streets

Marikina

City Ordinance 31 Series of 2014, sets the operating hours of eateries, bars and

clubs, billiard halls, restaurants, and similar establishments and serving of liquors

would be allowed until 3 a.m. and 1 a.m., respectively

Davao

City Ordinance No. 004-13 Series of 2013, which prohibits the serving, selling and

drinking of intoxicating drinks along city streets, parking areas and uninhabited

places as well as establishments selling and serving liquors, alcoholic beverages,

coconut wine (tuba) and other nature wines and all other public places in the city

from 1 a.m. to 8 a.m.

 Baguio

City Liquor Code - The time of operation for nightclubs, cocktail lounges, beer

gardens, bars with dancing, duly accredited tourism-oriented firms, bar, disco pads

and cabarets would be from 5:00 p.m. to 2:00 a.m. Ordinary beer garden without

dancing, cocktail lounge or bar without dancing, cocktail lounge, folk houses or

folden serving beer only, restaurants with liquor, bar or coffee shops serving beer

or liquor and internet cafes will be allowed to operated from 3:00 p.m. to 12 noon.

Cebu

City Ordinance 1413, or the Liquor Ordinance of Cebu City, which says that those

who want to sell and serve liquor to their customers even if it is outside the

prohibited areas are still required to secure permit for their operation but only until

10 p.m.

3.) Liquor Ban for minors and the imposition of penalties for selling Liquor to minors.

P.D 1619

4.) Liquor is banned from certain places like hospitals, schools, government forces

and public transport.

4.1.2 Economic Forces

1.) Foreign Exchange Rates

Since most of Emperador’s products comes from Spain, the weakening and

strengthening of exchange rates can affect the importation of the ingredients for their
 products. However these Risks can be mitigated by hedging When a

currency trader enters into a trade with the intent of protecting an existing or

anticipated position from an unwanted move in the foreign currency exchange rates,

they can be said to have entered into a forex hedge. By utilizing a forex

hedge properly, a trader that is long a foreign currency pair, can protect themselves

from downside risk; while the trader that is short a foreign currency pair, can protect

against upside risk.

2.) Energy expenses

The increase of electricity in the Philippines affects the utilities expense of Emperador.

The high cost and sketchy reliability of electricity supplies in the Philippines are now the

main deterrents to investing in the country, according to foreign business leaders who

see the problem as a persuasive reason to invest elsewhere. In addition, the power grid

network also needs enhancements to avoid regular rolling blackouts and the government

is working on adding more capacity and acknowledged that it needs to add around 1,000

MW of new generating capacity every year between now and 2030 if it is to overcome the

country energy crisis.

The Philippines are the only country in South-East Asia that does not subsidize electricity

companies and the generating capacity per capita is also relatively low – roughly 5 times

lower than Malaysia and Thailand. The Philippines electricity prices at cost of 18.2

USc/kWh for industrial supply in 2012 are some of the highest in Asia and then

considering GDP per capita of US$2,600, the prices become prohibitive. When

benchmarking Philippines against similar emerging countries such as Thailand,

Indonesia and Malaysia then we can see that Philippines is badly suffering from a dip in
foreign direct investment (FDI) into the country with electricity prices playing the part of

bad actor. In the ‘90s Philippines FDI were at the same level of the other benchmarked

countries and 25 years later Philippines FDI stayed at a level of US$1.5bn per year with

the other three benchmarked countries FDI going up to values between US$7 bn per year

to US$18bn per year.

Now considering that Philippines have committed to install 1,000 MW per year, each year

for the next 15 years, and assuming a split 25/75 between new renewable power

plants and new thermal power plants then we are talking about US$2.25bn per year, that

is equivalent to 150% of today FDI values.

Philippines government has some work to do to ensure there is the right balance between

energy policies and electricity price to attract more foreign investment coming into the

country to support the power generation growth in Philippines.

3.) Employment costs and “ENDO”

The President approved a P1,000-pension hike this month with a corresponding 1.5%

contribution rate hike in May 2017, and an increase in monthly salary credit to P20,000

from P16,000,". The SSS contribution will affect Emperador because of the employer-

employees share. There is also a threat by ending ENDO or contractualization that was

promised by President Duterte Under the current setup, as contractualization has

developed, the company using the labor is not the direct hirer of the worker. The

enterprise in need of labor services uses the labor service provider to hire workers.
In short, the productive enterprise deals only with the labor provider in terms of the hiring.

By using the labor service provider, the productive enterprise develops no direct

employer-employee relationship with the worker.

In the course of years, high labor standards have been adopted: labor protection

provisions include regulated working hours and overtime pay, holiday benefits, protection

from firing, 13th month pay, sometimes, cost-of-living allowances. There are also benefits

related to pension (social security); housing finance (Pag-Ibig); and health care

(PhilHealth).

To top this, there is the highest component of labor cost, the wage. In reality, this is partly

determined by the minimum wage. Since the late 1980s, the minimum wage has been

determined on the basis of regional minimum wages applicable in the respective regions

of the country. Despite this, the Manila minimum wage sets the anchor for all the regional

wages.

Philippine labor costs have become relatively high. Thus, Philippine labor has become

less competitive compared to some developing countries in the ASEAN region.

Many labor intensive operations that used to be located in the country have moved to

other countries out of the volition of wrong labor policies: in the 1980-90s, to China,

before; to Vietnam, and now to Cambodia. In the early 1980s, the movement of labor-

intensive operations from investment operations went to Thailand and Indonesia.

4. Sari-sari stores entrants to market

Sari-sari stores are now becoming a popular source of alcoholic drinks in local

communities and can influence the distribution of the company as well as increasing the

reach of their products in urban communities

4.1.3 Social, Cultural, Demographic Forces

1. Increasing disposable income among Filipinos:

As Confidence among Filipino consumers continue to be the highest in Southeast Asia,

the increase of disposable income can be a good target for alcohol industry, they have

more money to spend on alcohol or other leisure items.

The Nielsen consumer confidence index measures perceptions of local job prospects,

personal finances and immediate spending intentions, among more than 30,000

respondents with Internet access in 63 countries. Consumer confidence levels above and

below a baseline of 100 indicate degrees of optimism and pessimism.

Under three-quarters (72%) of Filipino respondents say local job prospects are

good/excellent in the next 12 months, compared to the global average of 48%. Further,

eight in 10 of Filipino respondents (81%) perceive their personal finances to be in

good/excellent state over the next 12 months compared to 56% global average. More

than half of Filipino respondents (52%) also believe that it’s a good time to buy.

2. Population Growth and the new generation

The current population of the Philippines is 103,297,399 as of Tuesday, March 7, 2017,

based on the latest United Nations estimates. The Philippines population is equivalent

to 1.38% of the total world population.The Philippines ranks number 13 in the list

of countries (and dependencies) by population.

We have one of the highest population of young people, according to UNFPA country

representative Klaus Beck, adolescent girls aged 10-19 currently make up 10 percent of

the Philippines’ 100 million population.

Adolescent Boys and Girls can provide a stable target market for consumers of alcohol in

the Philippines.

4.1.4

Technological Forces

1.) Mobile adaption and broadband penetration

Continued increases in mobile adoption and broadband penetration, particularly in the

developing regions. This opens up the new form of advertising, which is done thru
Facebook, Twitter and Youtube commercials that can reduce cost from the traditional

advertising from televisions

2.) E-Commerce growth

THE PHILIPPINES ranked 89th out of 137 countries and territories worldwide in terms of

readiness to support online shopping Business to Business (B2B) and other business-to-

consumer electronic commerce (or B2C e-commerce), according to the United Nations

Conference on Trade and Development (Unctad).

Among emerging economies in Asia and Oceania, the Philippines ranked 9th in the

Unctad’s B2C E-commerce Index 2016. In comparison, neighboring Malaysia ranked 4th

among developing economies in the region and 10th among such economies worldwide.

Unctad said an increasing number of countries were designing national policies and

strategies to harness the full potential of e-commerce for economic development.

4.1.5 Competitive Forces

1.) Emperador acquires fundador and now becomes #1 globally in brandy products

LISTED liquor company Emperador Inc. owned by tycoon Andrew L. Tan has acquired

Fundador Pedro Domecq, Spain’s largest and oldest brandy, in an “all-cash” deal worth

275 million euros, or P13.8 billion, the Inquirer learned Monday.

The purchase solidifies Emperador’s position as the world’s largest brandy company and

makes the Tan-led firm one of the largest foreign investors in Jerez, the brandy capital of
 Spain. Under the deal closed on Saturday in Madrid, Grupo Emperador Spain S.A., a

company owned by Emperador Inc., will acquire the brandy and sherry business of Beam

Suntory in Jerez.

Aside from Fundador Pedro Domecq, the acquisition includes Terry Centenario, Spain’s

top-selling brandy; Tres Cepas, Equatorial Guinea’s leading brandy; and Harvey’s, the

United Kingdom’s top sherry wine.

4.2 Industry and Competitor Analysis

4.2.1 Porter’s Five Forces Analysis

Threat of New Entrants/Competitors(Low)

There are numerous entry barriers in this industry. With the liquor market in the

Philippines being predominantly controlled by San Miguel Corporation, Asia Brewery Inc,

Tanduay Distillers Inc, and Emperador Inc, there is a low threat posed by new or

prospective entrants. It is a competitive oligopoly market.

Another entry barrier is the requirement of a huge capital investment. This is

because it is very difficult to gain a brand name in this market, aside from the fact that the

four companies that were mentioned already have the prestige, reputation and the loyalty

of customers.

With President Duterte recently saying that there will curfews implemented for

drinkers, it makes this industry much less desirable for prospective entrants. There are

also government regulatory policies being implemented. In 2005, the Philippine

government raised excise taxes on alcohol and tobacco products. On January 1, 2013,

Republic Act No. 10351, or the 2012 Sin Tax reform took effect. Those 2 laws makes it

much more difficult for potential competitors to enter the industry

Threat of Substitute Products/Services(High)

Substitute products in this industry pose a high threat. It is due to some factors, like

consumer preference, product pricing and differentiated products. There are many types

of liquors. Beer, Gin, Lights, Wine, Whisky are some of the examples. One of the main

reasons why the threat of substitute products is high is the fact that Filipinos are drinkers.

However, there are some people who drink to socialize. And in turn, they might not

want to get drunk. So they will buy a drink that is low on ethanol. There are a lot of options

for people to drink. Those options all pose a high threat as substitute products. There are

also people that are loyal to the type of liquor they drink. These are all factors to

determining the threat of substitute product.

Product Differentiation is the biggest reason for the threat of substitute products.

This give people the different options to choose from.

Rivalry Among Competing Firms(High)

As mentioned earlier, the liquor industry is dominated by the Big Four: San Miguel

Corporation, Asia Brewery Inc, Tanduay Distillers Inc and Emperador Distillers Inc. Due

to the fact that these Four companies control the market, it is inevitable that they compete
for market share. All four have been around for a long time, so it is clear that they have

their spot locked up in the top of the industry.

Ginebra San Miguel is Emperador’s biggest competitor. Due to the fact that they

are part of a conglomerate, they pose the biggest threat to Emperador. Add in the fact

that its target market caters to drinkers of all ages due to the fact that their products are

well differentiated, then it is clear that the rivalry and competition between those two is at

an all time high.

With the fact that the playing field is mostly even, the rivalry among the big four

companies becomes much more intense.

Bargaining Power of Suppliers(High)

All competitors strive for competitive advantages. Having a strong foundation in

terms of suppliers gives them its competitive strength when it comes to factors that are

qualitative in nature such as deliveries that are delivered on time, wider network of

distribution and compromises in times of abrupt changes.

Due to the fact that the nature of all four companies’ business is high volume

production, they cannot afford to have delays. Suppliers of liquor have the specific

expertise or technology needed to produce the products. This gives them more power as

the operations of these companies cannot continue without their service. In most cases,

this gives suppliers the power to demand premium prices and set their own timelines.
Bargaining Power of Consumers(High)

Buyers or Consumers are like the trophies that competing companies are always

trying to win. In Filipino, “Sila yung palagi mong sinusuyo.” This power has a major effect

on the industry’s competition. The strongest power that these buyers can exert is to lower

prices, which in turn impacts the potential profits. Buyers can also demand higher quality

of services and products, or force the competitors into having price wars. It was never

been easy for competitors to win these buyers.

In this industry, the power of consumers is high. One reason for this is the fact

that the rivalry among competing firms is also high. These competitors also offer products

that are of the same kind. Or in other words, their products can be looked upon as

substitute goods. In the case of Emperador Distillers, the consumers have the bargaining

power simply because they are not the only company that produces alcoholic

beverages. If the consumers find that the price that they charge for their products is too

high, they can easily buy the products of their competitors.

4.2.2 Competitors’ Analysis

Emperador Distillers Inc. has 2 main competitors in the brandy industry. These are

Ginebra San Miguel and Tanduay Distillers Inc.

GINEBRA SAN MIGUEL. Majority-owned by San Miguel Corporation, Ginebra San

Miguel was incorporated in 1987. They are engaged in manufacturing and distribution of

alcoholic and non-alcoholic beverages, until the company disposed its non-alcoholic

beverage assets in favor of San Miguel Brewery Inc, sometime in April 2015.

The company was formed on July 10, 1987 as the legal entity for the acquisition by

SMC of the production assets of an existing liquor production company that had been in

operation since 1902. Among its subsidiaries are Distileria Bago Inc. (DBI), an entity with

a distillery located in Bago City, Negros Occidental, that converts sugar cane molasses

into alcohol, which entity became a wholly-owned subsidiary of the company in 1996, and

Agricrops Industries Inc, which was incorporated as a wholly-owned subsidiary in 2000.

They are primarily engaged in the production of cassava starch milk, an alternative raw

material for the production of alcohol.

Some of their products include Ginebra San Miguel Premium Gin, G.S.M Blue,

G.S.M Blue Light, Gran Matador Light, Gran Matador Brandy and Primera Light Brandy.
 TANDUAY DISTILLERS, INC. It is the sister company of Asia Brewery focused

on producing hard drinks. They were incorporated in the Philippines as Twin Ace Holdings

Inc on May 10,1988. The company is a wholly owned subsidiary of LT Group Inc. The

company is primarily engaged in, operates, conducts and maintains the business of

manufacturing, compounding, bottling, importing, exporting, buying, selling or otherwise

dealing in, at wholesale and retail such as goods as rhum, brandy, whisky, gin and other

liquor products; and any and all equipment, materials, supplies used and/or employed in

or related to the manufacture of such finished goods. The company sells its products in

the domestic market mainly through major distributors.

The company has brands in all major liquor categories – rum, gin, brandy, vodka,

whiskey and wine. But Tanduay Rhum, which has been produced in the Philippines for

over a century, is their main product. This rhum reflects the hallmark of Tanduay’s rich

and lively heritage, and the ageing process of this belnd is extended for 5 long years. It

also accounts for 72% of Tanduay Distillers’ total sales by volume, and it also accounts

for 75% of the revenues.

Tanduay Distillery has been considered one of the largest distilleries in the

Philippines. Tanduay Rum’s slogan used for marketing is, "keeps pouring on the good

times". A bottle of Tanduay gin, is more preferred by the youth because of its more

intoxicating and stronger quality than that of the beer.

4.3 Summary and Conclusion
4.3.1 External Factor Evaluation Matrix

WEIGHTED
Key External Factors WEIGHT RATING
SCORE

Opportunities
Increasing International Expansion 0.1 4 0.4
Youth Age Dynamics 0.1 4 0.4
Acquisition of Facilities 0.08 4 0.32
Healthier/Lighter Alternatives 0.1 4 0.4
E-Commerce 0.1 3 0.3
Increased Disposable Income 0.1 3 0.3

Threats
Excise Tax Reforms 0.1 2 0.2
Curfew 0.02 2 0.04
Liquor Bans 0.1 1 0.1
Increasing Employment Costs 0.04 3 0.12
Trend of Being Alcohol Free 0.03 1 0.03
Emerging Global Competition 0.06 4 0.24
Substitution of Light Alcoholic drinks 0.05 4 0.2
Foreign Currency Transaction Loss 0.02 2 0.04
TOTAL 1 3.09

EFE MATRIX

EFE Matrix serves as a very important tool in strategic management for the company to

formulate and assess its environment and develop new strategies. It also aids for the

identification of existing opportunities and threats as well as the identification of possible

opportunities and threats as the company modifies and implements its strategies.
EMPERADOR’S RESPONSE TO MAJOR OPPORTUNITIES:

Increasing international expansion

Product diversification in the beverage industry in the Philippines is very vital for a

company. One way to diversify a product is to expand internationally to meet and adopt

to the needs of various customers around the globe. Emperador was able to respond to

this kind of opportunity by exporting various products especially in the U.K.

Young Age Dynamics

Although alcohol consumption in the Philippines wasn’t strictly monitored by most people,

Emperador was not able to utilize the opportunity by refusing to develop or modify a

product that is applicable to minors.

Acquisition of Facilities

The cities in the Philippines were overpopulated but the provinces aren’t. Land and

building investment in the provinces could possibly play a significant role for the

production of Emperador’s products. Emperador was able to grab the opportunity

especially when they start expanding their factories in Laguna. Last May 2012,

Emperador Distillers acquired Laguna factory from the multinational firm Jhonnie Walker

brand to increase its bottling capacity.

Healthier and Lighter Alternatives

Adopting to healthier way of making products is a great way to diversify a product line.

Since the introduction of Emperador light, Emperador was able to increase it sales and

start to gain market penetration.

E- COMMERCE

Vast changes in the technology makes or breaks a company. Emperador was able to

respond to these changes. Various company information from vision mission, basic

company profile and corporate governance down to annual sales and various financial

statements are accessible online. Their product line which is the most important is also

available on their website. They have an active social media accounts that aims to

promote and adopt to the current trends of the market.

Disposable Income

Emperador cannot escape various taxes because of its product nature. Emperador

should take advantage of the current situation before the taxes and duties go high.

EMPERADOR’S RESPONSE TO MAJOR THREATS

Excise Tax Reforms

Emperador cannot escape various taxes because of its product nature. As DOF aims to

push higher sin tax on alcohols and tobaccos last September 2016, Emperador might

consider adding new non-alcoholic drink to their line-up.

Liquor Bans

Liquor bans during some holidays in the country greatly affects Emperador’s sales.

Emperador was able to adopt by reminding their consumers about responsible drinking.

Alcohol beverage companies cannot fully avoid these liquor bans, but they can promote

responsible drinking like what Emperador did. It is more of a corporate social

responsibility management.
Increasing employment costs

Inflation in the current market is inevitable and the weakening peso power affects the

market also. These happenings might trigger the employees of staffs to demand higher

salaries. According to various interviews from the factory employees, Emperador was

able to adjust to their needs somehow by adjusting some of their incentives and bonuses.

Emerging Global Competition

Introduction of various imported brands here in the Philippines negatively affects the

share of the Emperador. Although this type of threat does not have a significant damage

to Emperador as of today, Emperador must continue to adopt to the international market

of alcohol beverage in order to compensate the introduction of imported alcoholic drinks

in the Philippines.

Substitution of Light Alcoholic Drinks

Many companies try to create a light drink beverages for the teenagers or young

consumers. Although Emperador was known before for having a great alcohol percentage

in their drinks, they still continue to adopt to the current trends of the market.

Foreign Currency Translation Loss

The need of supplies from international suppliers will potentially result to FOREX

transaction losses, due to depreciation of peso value

V. COMPANY ANALYSIS

5.1 Management

5.1.1 Strategic Management Concept

Emperador adopts a corporate governance approach with an efficient and effective

risk management team calculating the pros and cons of every management decisions.

The Emperador have 4 committees designed to help them achieve their various financial

and non-financial goals. The Audit Committee is composed of three members, at least

one of whom must be an independent director, and is tasked to oversee and review

financial and accounting matters. The Nomination Committee is composed of three

members, at least one of whom must be an independent director, and is responsible for

the selection and evaluation of qualifications of directors and officers. The Compensation

and Remuneration Committee is composed of three members, at least one of whom must

be an independent director, and determines an appropriate remuneration system for

directors and officers. The Risk Management Committee is composed of three members,

at least one of whom must be an independent director, and oversees the management of

the Company’s risk policy and activities.

The committees cited above helps Emperador visualize their long term and short term

goals in terms of profitability and investment aspect.

5.1.2 Employee Morale and Turnover

Employee turnover refers to the rate or percentage of employee replacement. Measuring

turnover can be helpful in estimating the cost-to-hire for budget purposes. Also,

measuring employee turner helps an organization assess whether the top or mid-level

managers and performing well. According to various surveys and forums, employees tend

to stay for a longer period of time compared to others because of a very pleasant working

environment and very abundant bonuses and reasonable salary.

On the other hand, some employees tend to shift to other companies because of personal

reasons or maybe because of their willingness to enhance or continue their knowledge

acquired from the Emperador, the others plan to put up their own business.

5.1.3 Skill Enhancement and Training Strategies

Employee morale in Emperador is high which gives everyone a chance to succeed in

their own field thru discussions and trainings with superiors. Although the said discussions

and trainings were not included in the corporate governance report of the Emperador,

some employees said in the oral surveys that some of their supervisors give an ample

time for their training and skill enhancement.

Various employee improvement related programs designed to engage and motivate

employees are being implemented in order to retain and improve key talents. Delegation

of authority still depends on the type of manager/leader and the willingness of the

employees to participate. But then in Emperador, superiors are well guided by individual

development plan or employee improvement program to help their subordinates achieve

their functions.
5.2 Marketing

5.2.1 Advertisements:

Emperador – Emperador advertisements tend to be slightly more “classy” than their

tanduay and SMB counterparts. They appeal to a more upper class demographic, which

shows in the people appearing and their adverts. Their ads also appear in train stations

today, however, compared to Tanduay, the advertisements are noticeably smaller. They

make up for this by placing their small ads all around the train platform, so they

practically cover a larger area of sight than Tanduay. Emperador also has a preference

with using quantities and figures on their adverts as a strategy to convince people that

their products are well researched, and grounded on facts.

5.2.2 Online presence:

Emperador has a more updated facebook page, evidenced by the frequency of their

posts. They have fewer likes compared to their competitors however. They are

attempting to make their online presence stronger because their target market often

uses social media, and they perceive this as an opportunity to keep their customers

informed, as well as attract new customers as well.

5.2.3 Market share:

Emperador, based on the company’s claims, is in possession of 50% of the total share

of the Brandy/spirits market, indicating its dominance in that aspect. Sales in NCR

approximate 72% of sales volume; Provincial Luzon, 52%; Visayas 30%; and Mindanao,

36%. They are doing well in the product that they mainly handle in that there being more

than 1 competitor, they are dominating the market segment in which they are dedicated

to.

5.2.4 Market Segmentation:

The alcoholic beverage market is well segmented in the Philippines. It’s divided into the

Beer, Spirits, and Wine segments. The Beer segment can be further divided into extra

strong, light, and standard sub-segments. Spirits can be divided into whiskey, vodka,

rum, brandy, etc. Emperador focuses on the spirits segment of the market.

5.2.5 Market research:

Emperador rarely conducts a customer oriented market research, because of their

confidence in their product quality. They are saying that they developed Emperador as

an upgrade to the alcohol market in the Philippines, so they are confident that the

customers they have garnered will remain.

5.2.6 Pricing Strategy:

750mL of Emperador Gold costs 84.53php, and 375mL, 41.74php. These prices are

commensurate of the costs, plus mark-up. On average, there is little difference between

the prices of Emperador, with the prices of other brandy products sold in the Philippines.

5.2.7 Sales Distribution:

The company has a sales and distribution network of 21 sales offices across the entire

Philippines; supplying customers, hypermarkets, supermarkets, wholesalers, traders,

grocery outlets, convenience stores, and even sari-sari stores. They report

approximately 1,000 sales personnel; with a direct delivery service for over 112,500

accounts, and a fleet of more than 270 vehicles.

5.3 Products

Brand Description Packaging Indicative Target

Retail Market

Price

Emperador With notes of Palomino 700ml P160.00- Male

Deluxe Spanish grapes, toffee, almonds P180.00 consumers

Edition and honey, this is a aged 40 and

premium luxury brandy up, white

of golden amber blend. collar in

Warm, silky and full- middle

 bodied with 30% alcohol management

volume. Blended and level and

bottled in Spain socially

upward

mobile.

Emperador Deep rich gold dolor, 350ml P40.00 Mass

Brandy light fruit bouquet, 750ml P90.00 consumers

mellow with medium 30 years old

body and a sweet and above

aftertaste; 36% alcohol traditional

volume brandy

drinkers

Emperador Light, fruity taste with 500ml P65.00 Younger

Light 27.5% alcohol volume 750ml P90.00 consumers

1 liter P120.00 (18 to 30

years old)

Andy Player Matured with fine malts 500ml P160.00 – Middle class,

Black Blended for a rich aroma, this is a P180.00 millenials

Whisky premium risky with a

smooth complex taste;

35% alcohol volume

Smirnoff Mule Ready-to-drink blend of 330ml P35.00 – Younger

Vodka premium Smirnoff vodka, P40.00 Consumers

(under license) ginger beer and lime (18 to 24

flavored mixer with 6% years old)

alcohol volume. Under

license from Diageo

North America Inc,

The bar flavors- Light, fruity and very 700ml P80.00 Younger

 Apple easy to drink. Fruit consumers;

Vodka flavored alcoholic 18 to 35

 Orange beverage at 25.3% years ol;

Vodka alcohol volume. primarily

 Strawberry women

Vodka Tequila with 35% alcohol

 Lemon volume

and Lime

 Gin Margarita with 20%

 Silver alcohol volume

 Cocktails-

Margarita

 Citrus-

Tequila
5.4 Finance/Accounting

The financial condition of the firm as reflected by its liquidity, leverage, working capital,

profitability, asset utilization, cash flow, and equity determines its overall

attractiveness to prospective investors. The Finance/Accounting is technical in its

approach as the values in the financial statements dictate how competitive a firm is. It

also determines if the firm is doing well or not. Financial statements can also provide

guidance in determining the key strength and weaknesses of a firm. Identifying those key

strength and weaknesses aids the company in making decisions to change its standing

or current position in the market that they are engaged in.

Key Finance/Accounting findings Source

1. Assets increased by 157% from 2012 Interpretation of data gathered.

to 2013.

2. The company obtained an interest Financial statements

bearing loan in 2014.

3. The debt ratio was fluctuating from Financial Ratios

2011 to 2015.

4. Days Sales outstanding went up in Financial Ratios

2014 and 2015.

 5. 2013 was the best year in terms of Financial Ratios

efficiency in using the assets to

generate revenue.

 5.4.1 Investing/Financing Decisions

Investing

Emperador Distillers Inc. acquired Spanish brandy company Bodega San

Bruno last 2013. They acquired a 100 percent interest, which means that Bodega

San Bruno will be their wholly owned subsidiary. This acquisition will include the

San Bruno trademark, which has been registered since 1942. Winston Co,

president of Emperador, said that this acquisition will “further strengthen their

position as the world’s No. 1 brandy company by volume and help boost their

competitiveness as a global brandy producer.” Emperador has also invested

5,800,000,000 pesos in its expansion to Spain. This came after the acquisition of

Bodega San Bruno.

Financing

Emperador Distillers Inc sold a near 10 percent stake to Singapore’s

sovereign walth fund GIC last 2014. This purchase will result in proceeds of 17.6

million for EDI, and it included an equity investment of 12.32 billion for the

purchase of 1.12 billion common shares.

  5.4.2 Ratio Analysis

Liquidity Ratios

Liquidity ratios measure the ability of the firm to pay its short term obligations.

It is usually composed of the Working Capital, Current Ratio and Quick Ratio.

Ratios 2015 2014 2013 2012 2011

Working 8,221,638,579 11,137,171,612 12,196,057,275 4,750,632,060 2,578,326,912

Capital

(Current
(16,921,876,687 – (24,444,799,458 – (15,623,631,277 – (7,626,391,779 – (5,270,090,530 –
Assets –
8,700,238,108) 13,307,627,846) 3,327,574,002) 2,875,759,719) 2,691,763,618)
Current

Liabilities)

Current 1.94 1.83 4.70 2.65 1.96

Ratio

(Current
(16,921,876,687 ÷ (24,444,799,458 ÷ (15,623,631,277 ÷ (7,626,391,779 ÷ (5,270,090,530÷
Assets ÷
8,700,238,108) 13,307,627,846) 3,327,574,002) 2,875,759,719) 2,691,763,618)
Current

Liabilities)
 Quick 1.50 1.48 3.59 1.53 1.36

Ratio

( Quick
(13, 050,700,494 (19,740,850,683 ÷ (11,953,592,424 ÷ (4,414,087,779 ÷ (3,655,083,348 ÷
Assets ÷
÷
13,307,627,846) 3,327,574,002) 2,875,759,719) 2,691,763,618)
Current
8,700,238,108)
Liabilities)

Analysis:

As displayed, the working capital increased every year from 2011 to 2013. It

increased by 84% from 2011 to 2012 and by 157% from 2012 and 2013. There is a big

spike in 2013 as far as assets are concerned, as it also had the highest current ratio and

quick ratio. This may be due to the high number of sales recorded that year. Current ratio

is the measure of how many assets a firm has for every liability. A healthy current ratio is

generally considered to be 1 to 1.50. Considering that fact, it is clear that Emperador

Distillers has a healthy current ratio, as the lowest current ratio is had in the last 5 years

was 1.83 in 2014. As for the quick ratio, Emperador Distillers also did well.
 Leverage Ratios

A leverage ratio is one of the ways to measure risk as it identifies how much of a

company’s capital comes from debt or investors. Having debt obligations is either good

or not depending on the ability of the company to maximize the utility of these

obligations while taking into accounts the ability of the firm to pay off the debts.

2015 2014 2013 2012 2011

Debt 0.32 0.41 0.18 0.29 0.41

Ratio

(Total
(8,792,349,251 (13,395,307,445 (3,393,470,880 (2,905,638,415 (2,704,061,741
Liabilities
÷
÷ ÷ ÷ ÷
÷ Total
32,669,130,835)
Assets) 27,086,389,522) 18,977,979,159) 10,059,497,676) 6,667,989,768)

Equity 0.68 0.59 0.82 0.71 0.59

Ratio

(Equity ÷
(18,294,040,271 (19,273,823,390 (15,584,508,279 (7,161,359,657 (3,963,928,027
Total
÷ ÷ ÷ ÷ ÷
Assets)

27,086,389,522) 32,669,130,835) 18,977,979,159) 10,056,283,225) 6,667,989,768)

 Debt to 0.48 0.70 0.22 0.41 0.68

Equity

Ratio
(8,792,349,251 (13,395,307,445 (3,393,470,880 (2,905,638,415 (2,704,061,741
(Liabilities
÷ ÷ ÷ ÷ ÷
÷ Total

Equity) 18,294,040,271) 19,273,823,390) 15,584,508,279) 7,161,359,657) 3,963,928,027

* No Times Interest Earned as there is no interest expense

Analysis:

Emperador Distillers always had a higher equity ratio compared to debt ratio. This

is a positive result for them as it means that they have higher equity than liabilities.

Remember that total assets are equal to total liabilities and total equity. Another

observation is the fact that the total liabilities increased to 13,395,307,445 in 2014, up

from the 3,393,470,880 it had in 2013. This is probably due to the interest bearing loan it

obtained in 2014. It was settled in that year as the 2015 total liabilities went down to

8,792,349,251.

Activity Ratios

These ratios measure the efficiency of the firm’s use of assets to generate

revenue.
 2015 2014 2013 2012 2011

Accounts 4.20 3.68 10.13 10.80 7.07

Receivable

Turnover
(26,006,604,096 (27,836,980,965 (28,606,991,751 (22,786,033,678 (16,994,657,222
(Revenue
÷ ÷ ÷ ÷ ÷
÷
6,196,441,364) 7,566,313,608) 2,825,090,139) 2,109,838,302) 2,402,599,070)
Accounts

Receivable)

Inventory 4.63 3.97 5.78 4.62 7.88

Turnover

(Cost of
(17,237,451,766 (17,815,804,601 (19,812,309,972 (14,723,357,368 (12,550,113,509
Goods Sold
÷ ÷ ÷ ÷ ÷
÷
3,726,514,020) 4,491,257,736) 3,424,838,953) 3,189,665,937) 1,593,268,260)
Inventory)

Asset 0.96 0.85 1.51 2.27 2.55

Turnover

(Revenue
(26,006,603,096 (27,836,980,565 (28,606,991,751 (22,789,033,578 (16,994,657,222

÷
÷ ÷ ÷ ÷ ÷
Total Assets) 27,086,389,522) 32,669,130,835) 18,977,979,159) 10,059,597,676) 6,667,989,768)

Days Sales 86 days or 98 days or 36 days or 33 days or 51 days or

Outstanding 85.71 97.83 35.54 33.33 50.90

or

Collection
(360 ÷ (360 ÷ 3.68) (360 ÷ 10.13) (360 ÷ 10.8) (360 ÷ 7.07)
Period

4.20)
(360 days

Accounts

Receivable

Turnover)

Holding 78 days or 91 days or 62 days or 78 days or 46 days or

Period 77.75 90.68 62.28 77.92 45.69

(360 days

÷ (360 ÷ 4.63) (360 ÷ 3.97) (360 ÷ 5.78) (360 ÷ 4.62) (360 ÷ 7.88)

Inventory

Turnover)
 Analysis:

In the years covering 2011 to 2015, Emperador Distillers is most efficient in the

year 2013. That year produced the highest Accounts Receivable, Inventory and Asset

turnovers, which means that they were most effective in using their assets to generate

revenue that year. Another trend to consider is the growing days of the collection period.

This means that throughout the years, they have accepted more credit sales, but they

have more difficulties in collecting those credits.

Profitability Ratios

Profitability ratios are a class of financial metrics that are used to assess a

business's ability to generate earnings compared to its expenses and other relevant costs

incurred during a specific period of time.

2015 2014 2013 2012 2011

Gross 34% 36% 31% 35% 26%

Profit

Margin
(8,769,151,330 (10,021,176,364 (8,859,595,727 (8,062,676,210 (4,444,543,713
(Gross
÷ ÷ ÷ ÷ ÷
Profit

26,006,603,096) 27,836,980,965) 28,606,991,751) 22,786,033,578) 16,994,657,222)

÷
Sales)

Return 18% 22% 16% 18% 12%

on

Sales
(4,805,723,853 (6,081,174,129 (4,652,959,075 (4,197,532,572 (2,029,688,703
(Net
÷ ÷ ÷ ÷ ÷
Income

26,006,603,096) 27,836,980,965) 28,606,991,751) 22,786,033,578 16,994,657,222)

÷

Sales)

Return 18% 19% 25% 42% 30%

on

Asset
(4,805,723,853 (6,081,174,129 (4,652,959,075 (4,197,532,572 (2,029,688,703
(Net
÷ ÷ ÷ ÷ ÷
Income

27,086,512,835) 32,669,130,835) 18,977,979,159) 10,059,497,676) 6,667,989,768)

÷

Assets)

Return 26% 32% 30% 59% 51%

on

Equity
(4,805,723,853 (6,081,174,129 (4,652,959,075 (4,197,532,572 (2,029,688,703
 (Net ÷ ÷ ÷ ÷ ÷

Income
18,294,040,271) 19,273,823,390) 15,584,508,279) 7,153,859,261) 3,963,928,027)

Equity)

Analysis:

A healthy profit margin is considered to be 25% or better. In that regard, Emperador

Distillers performed well, as its lowest profit margin in those 5 years is 26%. The best year

in terms of returns is 2012. Although it only had an 18% return on sales. This can be

explained by the fact that its expenses went up that year to 2,116,916,063.

Growth Ratio

Growth ratios measure the company's growth and its ability to maintain its position

in the industry. These ratios reflect how constant, drastic or minimal a growth of a

company is.
 2015 and 2014 2014 and 2013 2013 and 2012 2012 and 2011 2011 and 2010

Growth -6.57% -2.69% 25.55% 34.08% 113.48%

Ratio on

Sales
[(26,006,603,096 – [(27,836,980,965– [(28,606,991,751 – [(22,786,033,578 – [(16,994,657,222 –
[(Current
27,836,980,965) ÷ 28,606,991,751) ÷ 22,786,033,578) ÷ 16,994,657,222) ÷ 7,960,845,070) ÷
year’s
27,836,980,965] x 28,606,991,751] x 22,786,033,578] x 16,994,657,222] x 7,960,845,070] x
revenue –
100 100 100 100 100
previous

year’s

revenue) ÷

Previous

year’s

revenue] X

100

Growth -20.97% 30.69% 10.85% 106.81% 69.52%

Ratio on

Net
[(4,805,723,853 – [(6,081,174,129 – [(4,652,959,075– [(4,197,532,572– [(2,029,688,703–
Income
6,081,174,129) ÷ 4,652,959,075) ÷ 4,197,532,572) ÷ 2,029,688,703) ÷ 1,197,347,053) ÷
[(Current

year’s net
income – 6,081,174,129] x 4,652,959,075] x 4,197,532,572] x 2,029,688,703] x 1,197,347,053] x

previous 100 100 100 100 100

year’s net

income) ÷

Previous

year’s net

income] x

100

Analysis:

Based on the data above, it can be said that Emperador Distillers experienced the

biggest growth from 2010 to 2011. It was an upward trend in their sales until 2013 to

2014. This means that its sales declined that year. This is probably due to increasing

number of competitors, as well as a competitive market. As for the growth on net income,

it was also an upward trend until 2014 to 2015.

5.5 Production/Operations

Emperador Distillers Inc. (EDI) controls 97 percent of the Philippines’ brandy market. With

33 million cartons that is equals to 400 million bottles per year, it is no surprise that it’s

main product, Emperador Brandy, is the globe’s best selling brandy. Emperador Distillers

has 2 plants. And each plant is complete with 5 krones lines. (blow-moulding machines

for producing polythylene terephthalate (PET) bottles, plus fillers, labellers, bottle

washers, pasteurisers, inspectors, packers and palletisers). Each plant produces 18,000

bottles per hour.

Emperador Distillers Inc operates its own glassworks for producing bottles. With an output

of 200 tons a day, these bottles exclusively supply the company’s brandy bottling plants.

Alcohol is made in a distillery in Batangas, while the bottling is made in Laguna. There,

the brandy is filled in four identically layouted Krones lines, which are installed next to

each other and their individual machines in each case linked up in a row one behind the

other.

Sources and Availability of Raw Materials

Manufacturing alcoholic beverage products requires a lot of raw materials. These raw

materials are distilled natural spirit, brandy distillates, grain and malt whiskies. It also

requires a regular supply of glass bottles and packaging materials, which will be further

discussed below. Subsidiaries and third parties can also be their suppliers. Water used

for blending meanwhile, are all sourced from two deep wells located in their Santa Rosa,
Laguna manufacturing facility. There is also a water filtration system for the water it uses

at its Laguna facilities.

Bottle Production

AWGI is the main source of bottles. They produce majority of the new glass bottles, and

the rest are imported. Emperador Distillers also uses Krones technology. They first used

Krones lines in 2002 when it commissioned two identical returnable-glass lines from

Krones as a turnkey order, with each rated at 18,000 bottles per hour.

Isofill VV, a classical vacuum machine for non-drip filling of spirits, is the heart of the four

lines. It ensures ultra-accurate file levels. The glass bottles are then dressed on a

Prontomatic cold-glue labeller, with one Linatronic empty-bottle inspector per line tasked

with a rigorous check of the bulk glass, and two checkmat units inspecting the bottles for

correct fill level and closure on one hand, and correct label placement on the other. The

bulk glass is unloaded from the pallets and fed into the line by a Pressant Universal 1N

sweep-off depalletiser. Because one third of the bottles are new, and two thirds come

from third-party firms that uses a widely ramified network to collect empty bottles, each of

the lines incorporate a jetting rinser, a special piece of equipment that sprays out the

interiors of the empty bottles with a 0.5 percent hot-caustic solution at 45 degress prior to

filling. Right after, the bottles are rinsed twice with warm water and once with cold water.
Packaging

EDI’s packaging process are fully automated. After the empty bottles are filled and

labelled, they are packed in wrap-around cartons by a Wrapapac. There are five different

bottle sizes that are filled, with the 750-millilitre and 1.0-litre bottles being the most

predominantly used bottles. In the Wrapapac, they are grouped into transport and sales

packs. The final palletising section is also automated, with a Pressant Universal 1N

palletiser. These four lines in the main facility are run in three-shift operation in 6 days a

week. According to Edwin Jaranilla, the plant manager, EDI has achieved 84 to 85 percent

efficnency levels. He adds: “A major contribution is being made here by Krones’ strategic

intelligent plant maintenance system SIPS that we are using. It leads the staff through the

maintenance cycle, and is a dependable database for our maintenance history and

machine data.”

Improvements

A fifth spirits line, which was one of the new projects implemented by EDI in 2013, was

erected in EDI’s second plant, which was purchased in 2012. This line is absolutely

comparable to the first four lines but it features the latest machine models that are

available, such as a Modulpal 2A palletiser or a Variopac Pro W wrap-around packer. A

VarioClean CIP system was also integrated into this line.

Two explosion-proof Multiblend mixing systems was also installed by EDI in its main
facility in 2013. Each is rated at 40,000 litres per hour. These are the highest-performance
mixing systems that Krones makes. To create the finished beverage, each of the two
machines processes the five different product floes. These multiblend mixing systems
enhances efficiency, as EDI can do “batching with fewer staff, more accurately and with
precision.”

Projections

In terms of obtaining Raw Materials, the company has not experienced significant
difficulty. They also project that there will be any difficulty in the near future. These raw
materials are obtained at satisfactory prices under its supply arrangements. In terms of
bottling, the company also does not expect its main source of bottles, AWGI, to have any
difficulty in sourcing glass bottles on behalf of the company from third party suppliers.

5.5 Internal Factor Evaluation Matrix

Key External Factors WEIGHT RATING WEIGHTED

SCORE

Strengths

ARTO improved from 3.68 to 4.20 0.05 3 0.15

ITO improved from 3.97 to 4.63 0.05 3 0.15

Healthy Current Ratio 0.05 3 0.15

Broad sales and distribution network 0.1 4 0.4

Wide source of Raw Materials 0.1 4 0.4

New Product Introductions on Spain & Philippines 0.1 4 0.4

Acquisition of Fundador, Emperador now #1 in Brandy 0.1 4 0.4

Segmented Advertising through it's local managers 0.05 4 0.2

Recycling of Bottles 0.05 3 0.15

Research and Development of new products 0.05 3 0.15

 Weaknesses

Weak Profitability Ratios 0.05 1 0.05

Downward growth on Sales 0.05 1 0.05

Highly Decentralized Management 0.1 2 0.2

Ranked 3rd in the alcohol industry, Philippines 0.1 2 0.2

TOTAL 1 3.05

Using the different frameworks of company analysis, the following are the identified

strengths and weaknesses of the company.

Strengths:

Accounts Receivable Turnover (ARTO) improved from 3.68 to 4.20

A good indication that the cash flow of the management improved, they prominently give

customers a discount if they pay early within a specific date and a credit term. ARTO can

be improved by setting limits on the amount of credit sales you will accept. Set an amount

or a percentage based on current cash sales. Alternately, encourage more cash sales by

offering a lower price for them.

Inventory Turnover (ITO) Improved from 3.97 to 4.63

A higher Inventory Turnover means that we are selling more inventory to the market. It is

also preferred, as it indicates that more sales are being generated given a certain amount
of inventory. That means if more inventory are flowing out of warehouses it can reduce

storage costs and holding costs.

Healthy Current Ratio

A higher current ratio is always more favorable than a lower current ratio because it shows

the company can more easily make current debt payments. It can easily pay its current

liabilities thus increasing our overall credit standing and timeliness.

Broad Sales and Distribution Network

EDI products are marketed, sold and distributed throughout the Philippines. Emperador

enjoys 47% share of national sales volume of total spirit products. Sales in National

Capital Region accounted for approximately 72% of sales volume; Provincial Luzon, 52%;

Visayas, 30%; and Mindanao, 36%. It has a distribution network of 21 sales offices across

the Philippines, which supply national and regional customers, hypermarkets,

supermarkets, wholesalers, traders, grocery outlets, convenient stores, and local

neighborhood small sari-sari, stores.

Wide Source of Raw Materials

EDI owns a distillery which produces distilled neutral spirit. It can also source raw

materials from subsidiaries and third party suppliers. All of the water for blending is

sourced from two deep wells located in the Santa Rosa, Laguna manufacturing facility. In

addition, major raw materials’ suppliers typically maintain a warehouse in close proximity

to the AWGI plant to cover possible delays in shipments and to prevent delivery

interruptions.
New Product Introductions on Spain and Philippines

From Bodegas Fundador S.L.U.

Brandy de Jerez, Fundador

Terry Centenario

Tres Cepas

Harveys

It is expected that these products will yield a new market and produce a hype in the

Philippines to taste the leading Brandy and alcohols from Spain, a market development

scenario.

Acquisition of Fundador, Emperador now #1 Globally in Brandy

Emperador Inc. of business tycoon Andrew Tan has acquired Mexico’s top brandy in a

landmark deal marking the company’s expansion into the Americas after successfully

buying two iconic European liquor brands in the past two years. In relation to this

acquisition, Emperador can now market the #1 brands of fundador and increase its sales

by reducing the competition. Emperador, through its Spanish subsidiary Bodegas Las

Copas purchased the Domecq brandies and wines of Pernod Ricard in Mexico as well as

Mexican brandy brands Presidente, known to be Mexico’s number one selling brandy,

Azteca de Oro and Don Pedro.

Segmented Advertising through its local managers

It entrusts a high degree of responsibility for sales and marketing efforts to approximately

31 local managers. Its creative consumer research has qualitative and quantitative
aspects and includes face-to-face interviews and information gathering exercises with

consumers at local neighborhood events and gatherings.

Recycling of Bottles

EDI sources its bottles from AWGI, which produces a majority of the new glass bottles;

and the rest are imported. EDI through Angelo Watsons Glass Inc. (AWGI) employs the

re-using of bottles and they maintain a deposit policy, you deposit an amount until the

bottle is returned to be re-used

Research and Development of New Products

EMP develops new products and regularly seeks to expand its existing product lines.

EMP researches new processes and tests new equipment to maintain and improve the

quality of its beverages. EDI has a research and development staff of approximately

twenty (20) people and also conducts extensive research and development for new

products, line extensions for existing products and for improved production, quality control

and packaging, as well as consumer preferences, habits and trends

Weaknesses

Weak Profitability Ratios

This indicates a bad standing in the industry, if not mitigated it may become a downward

trend on all its products or it is due to increase in expenses/costing.

Downward Growth on Sales

A downward growth on sales indicate that there is a changing consumer preference or a

weakness in the brand positioning strategy of the company that can indicate a weak

differentiation of your product from competitors and poor communication of the products

attributes.

Highly Decentralized Management

Decentralization increases the problems of coordination among the various units.

It increases the administrative expenses because highly-paid managers have to be

appointed. High Cost of Operation in establishing of various departments and

employment of specialists in each department will result in a higher cost of operation.

Lack of Uniformity, there shall not be uniformity in policies and actions, since each

manager will form his own genius in designing them.

Reliance on the Manager, decentralized organization has to place undue reliance on the

efficiency of the divisional managers. If they do not have enough skill or competence to

take appropriate decisions, the enterprise has to incur heavy losses due to their faulty

decisions. Self-Centered Attitude, each department will tend to be self-centered ignoring

the broader interests of other departments and that of the entire firm.

Ranked 3rd in the alcohol industry in the Philippines

In terms of the alcohol industry, beer is the primarily consumed alcohol in the Philippines

since Emperador is a main supplier of brandy products, consumer preferences affect their

sales and strategy. As of now the leading supplier in beer products is San Miguel.
Competitive Profile Matrix

Emperador Ginebra Tanduay

Critical Success
Weight Rating Score Rating Score Rating Score
Factors

Advertising 0.1 3 0.3 1 0.1 3 0.3

Product Quality 0.2 3 0.6 2 0.4 4 0.8

Price
0.2 4 0.8 4 0.8 2 0.4
Competitiveness

Management 0.15 3 0.45 3 0.45 3 0.45

Financial
0.1 4 0.4 2 0.2 2 0.2
Position

Customer
0.15 4 0.6 2 0.3 3 0.45
Loyalty

Global
0.05 4 0.2 2 0.1 3 0.15
Expansion

Market Share 0.05 4 0.2 2 0.1 2 0.1

1 3.55 2.45 2.85

Advertising

Emperador’s style of using ads takes a classier approach in order to attract a richer

demographic. While Tanduay takes on a more “appealing to men” approach. Ginebra,

being an old company (1834) does not feel the need to advertise its products because

of its long history in the Philippines. Ginebra’s ads tend to stick to using a traditional

Filipino Bonding theme, as well as a style similar to Tanduay in some cases, which also

attracts people to purchase their products.

Product Quality

Emperador Brandy’s quality was great enough to warrant international recognition as

the world’s number one brandy back in 2012. Ginebra’s “Gran Matador” brandy is a

dying product because it appealed to the older demographic, which is slowly thinning

down. Just like Emperador, Tanduay was given international recognition for producing

high quality rum.

Price competitiveness

Emperador is a competitor in price. Tanduay falls short in this category because the

hard liquor price on average, when compared to emperador is 80% higher. Ginebra

products, because of low demand, are being competitive when in terms of price. Law of

demand dictates that demand will increase if the price for the particular good decreases.
Management

All three companies are relatively equal in the management of their business, and

implementation of strategies. All companies follow their objectives, and act accordingly.

Based on their reports, they also adjust frequently based on their financial performance.

Taking emperador as an example, they managed to lower their tax expense because of

their reduction in taxable income, through raising operating expenses.

Financial Position
Emperador has the strongest financial position among the competitors, reporting Total

assets of 27,086,389,522php. Tanduay and Ginebra report assets of

16,918,096,854php, and 15,057,790,000php respectively.

Customer Loyalty

Ginebra customers are slowly decreasing because the majority population

(septuagenarians, sexagenarians) who purchase the brand is either dying, or slowly

leaning towards the brandy trend, which Emperador currently dominates. Tanduay

customers are also slowly leaning towards Emperador’s products, as evidenced by the

change in the comparative market shares of the companies between the first quarter of

2015 and the first quarter of 2016.

Global expansion

Emperador was given recognition as the world’s number one brandy due to the doubling

of its sales volume between 2011 and 2012. According to their website, such statement

was from the “Drinks International Millionaire Club” during 2012. This shows that

Emperador Brandy is globally recognized as a high quality drink. Tanduay, also having

received international recognition as one of the world’s best-selling rum brands shows it

has a competitive standing with the two other companies. Accolades aside, Emperador

has a distributor in the UK under the name of Emperador UK ltd. allowing them to sell

their products in Europe with lesser costs. The acquisition of Fundador will also allow

them to expand their operations in Latin-America, further increasing their international

strength.

Market share
Emperador, claims to own 48% of the brandy/spirits market based on their market

research during the first quarter of 2016. They are dominant in their dedicated market.

Tanduay, owning 22%, and Ginebra owning 29%.p

VI. STRATEGY FORMULATION

6.1 SWOT Matrix

The SWOT Matrix is an important tool that managers use to develop four types of

strategies. These strategies are the SO(Strengths-Opportunities), WO(Weaknesses-

Opportunities), ST(Strengths-Threats) and WT(Weaknesses-Threats). The matching of

the key Internal and External factors constitute the most difficult part of developing a

SWOT matrix, as this requires good judgment. What makes it difficult is that there is no

standard set or best set of matches. The goal of all managers is to be in a position in

which internal strengths can be used to take advantage of external trends and events.

Strengths Weaknesses
SWOT S1.) Asset Receivable W1.) Weak profitability
Turnover improved from ratios.
MATRIX 3.68 to 4.20 W2.) There has been a
S2.) Inventory Turnover decline on sales, or
improved from 3.97 to 4.63 downward growth.
S3.) The company has a W3.) Highly decentralized
healthy current ratio. management.
S4.) A broad sales and W4.) Emperador is only
distribution network. ranked 3rd in the Philippine
S5.) Wide sources for Raw Alcohol Industry.
Materials
S6.) Introduction of new
products in Spain and
Philippines.
S7.) With the acquisition of
Fundador, Emperador
Distillers Inc. is now the #1
brand in Brandy.
 S8.) Segmented
Advertising through local
managers.
S9.) Emperador recycles its
bottles, helping minimize
cost.
S10.) Research and
Development of new
products.
Opportunities S-O Strategies
O1.) Increasing 1.) Emperador should
International Expansion buy more plants to
O2.) Youth Age Dynamics be able to produce
O3.) Acquisition of Facilities more products to
O4.) Healthier/Lighter take advantage of
Alternatives the international
O5.) E-Commerce expansion and their
O6.) Increased Disposable broad sales and
Income distribution network.
(S4, O1) Market
Development
2.) Use the social
media and the
internet to further
market their
products to all age
groups, especially
the youth. (S8, O2)
Market Penetration
3.) Invest more in
acquisition of assets
to take advantage of
the momentum
brought by the
W-O Strategies
1.) Target new markets
internationally to sell
more products. (W1,
W2, O1,) Market
Development
2.) Forge partnerships
with other
companies
internationally to
develop synergy,
and in turn, improve
its standing in the
industry. (W4, O1)
Horizontal
Integration
3.) Use technology to
connect to more
customers. (W2,
O5) Market
Penetration

Threats
T1.) Excise Tax Reforms
T2.) Curfews imposed by
the government
T3.) Liquor bans
T4.) Increasing employment
costs
T5.) Growing trend of
avoiding alcohol, or being
alcohol-free.
T6.) Emergence of the
competition globally
T7.) Substitute products
such as light alcohol drinks.
T8.) Foreign Currency
Transaction Losses
purchase of
Fundador. (S7, O3)
Horizontal
Integration
4.) Hire more workers
for the new facilities
acquired. (S3, O3)
Product
Development
5.) Use the recycled
bottles to sell more
of the lighter and
healthier
alternatives. (S9,
O4) Related
Diversification
S-T Strategies W-T Strategies
1.) Emperador should 1.) Segregate the
take advantage of duties of employees
the new products to be more efficient
being introduced to in production of
avoid the threat of products. (W3, T4)
liquor bans. (S6, T1) Product
Related Development
Diversification 2.) New product for
2.) Innovate and foreign customers to
introduce new circumvent local
products that has no excise taxes and the
alcoholic content. local alcohol market
(S10, T5) Unrelated standing. (W4, T1)
Diversification Product
3.) Buy more of the Development
competition to
monopolize the
 market. (S3, T6) 3.) Initiate a merger
Horizontal with rival firms to
Integration lessen the
4.) Enter into a competition. (W4,
Purchase T6) Horizontal
commitment to Integration
international
suppliers (S5, S7,
T8) Product
Development

6.1.2 Frequency of Identified Alternative Strategies in SWOT Matrix

Alternative Strategies Frequency

1. Forward Integration 0

2. Backward Integration 0

3. Horizontal Integration 4

4. Market Penetration 2

5. Market Development 2

6. Product Development 4

7. Related Diversification 2

8. Unrelated Diversification 1

9. Retrenchment 0

10. Divestiture 0
 11. Liquidation 0

Analysis of SWOT:

As shown above, the top strategies for Emperador Distillers Inc. are Horizontal Integration

and Product Development. This is followed by a three three-way tie between Market

Penetration, Market Development and Related Diversification. Horizontal Integration

came in first because the competition in the industry is very intense. EDI would be better

served by acquiring more of its competitors. Since they are also starting to acquire more

companies abroad, it is very possible that they acquire more companies locally to assert

themselves in the market. Product development also came in first. This is due to the fact

that they can also afford to improve their products and penetrate more markets. Their

healthy current ratio attests to that. They are more than capable of improving their

products. Finally, three strategies came in third. This comes from the fact that they have

a lot of strengths at their disposal. They can afford to penetrate markets and/or enter new

geographical areas entirely. They have the international connections, which means that

it would be far fetched that they go this route. They also have a broad sales and

distribution network, which also helps in this regard. EDI can also try to diversify to related

products to avoid the threats that they currently face, such as the excise taxes and the

liquor bans. Overall, EDI is in a good situation.

6.2 SPACE Matrix

The Strategic Position and Action Evaluation (SPACE) matrix uses the internal factors

pertaining to financial strength (FS), with competitive advantage (CA) and external factors
pertaining to environmental stability (ES) with industry strength (IS). These will serve as

inputs to determine the overall strategic position of the company if it will pursue an

aggressive, conservative, competitive and defensive position.

Internal Strategic Position – Y AXIS

Financial Position (FP)

Asset Receivable Turnover 2

Inventory Turnover 3

The company has a healthy current ratio. 2

Total 7

2.33333
Average 3

External Strategic Position

Stability Position (SP)

Excise Tax Reforms -1

Curfews imposed by the government -1

Liquor bans -1

Increasing employment costs -7

Growing trend of avoiding alcohol, or being alcohol-free. -1

Emergence of the competition globally -4

Substitute products such as light alcohol drinks. -3

Total -18

-
Average 2.57143

Industry Position (IP)

Increasing International Expansion 7

Youth Age Dynamics 7

Acquisition of Facilities 4

E-Commerce 4

Market Penetration 5

Offering more healthy alternatives 6

Profit Potential through increased disposable income 5

Total 38

5.42857
Average
1

Competitive Position (CP)

Wide sources for Raw Materials -1

Introduction of new products in Spain and Philippines. -4

Vertical Integration -1

A broad sales and distribution network. -1

Segmented Advertising through local managers. -4

Research and Development of new products. -5

Total -16

-
Average 2.66667

Conclusion
Y- AXIS

FP Average (2.3333) + SP AVERAGE (-1.85714) =

-0.238095238

X- AXIS

CP Average (-2.6667) + IP AVERAGE (5.428571) =

2.761904762

RESULT: COMPETITIVE STRATEGY. BACKWARD, FORWARD, HORIZONTAL

INTEGRATION, MARKET PENETRATION, MARKET DEVELOPMENT, PRODUCT
DEVELOPMENT

Based on this strategy Emperador Distillers should pursue a Competitive strategic

position. Why did the SPACE MATRIX recommend a competitive strategy?

The high CP/IP score can be when:

▪ The industry is considered attractive and the company has competitive advantages
over its rivals

▪ The industry is considered attractive and the business is neutral on competitive

advantage.

▪ The industry is reasonable but the business has a strong competitive advantage.

The low FP/SP score can be when:

▪ The environment is unstable and the company is weak financially.

▪ The environment is considered to be unstable and the business has modest financial
resources.

▪ The business is weak financially but environmental stability is reasonable.

EDI has a neutral or modest on the competitive advantage but in an unstable and weak
financial condition.
The key strategic imperative is to acquire financial strength to compensate for the
environmental instability so that the business can then follow an aggressive strategy.

The business needs to split its attention between strengthening the balance sheet and
improving the underlying profitability of its sales.

To improve profitability of the business and take advantage of its strong combined
position on the industry attractiveness / competitive advantage axis
 6.3 BCG Matrix

RELATIVE MARKET SHARE POSITION

High 1.0 High 0.50 Low 0.0

High +20
INDUSTRY GROWTH RATE (PERCENTAGE)

II – STARS I – QUESTION MARKS

Medium 0

III – CASH COWS IV - DOGS

Low -20

The Boston Consulting Group (BCG) shows the relationship between the

company’s market position and the sales growth. The Emperador’s sales from goods

declined to P26B last 2015 from 2014 sales of P27.8B which is a decline of 6.47% from

2014. Emperador maintains its top position in terms of market shares having P26B of

sales last 2015, Tanduay with P12.1B and Ginebra San Miguel with P15.9B. It is highly

recommended for the company to increase and diversify its products and services in order

to adopt to the trends better and in order for them to increase their sales and maintain

dominance in the market.

6.4 Internal-External Matrix

The IE Matrix

IFE

STRONG 4 AVERAGE WEAK 1

HIGH 4 I 3.05(IFE) 3.09(EFE) II III

EFE MED IV V VI

LOW 1 VII VIII IX

IE Matrix interpretation:

Emperador’s position in this matrix would lie in cell I. In general, Emperador has a strong

position both internally and externally, as indicated by the weighted average ratings of

3.05, and 3.09 respectively. This implies intensive strategies directed towards growth of

the company. These would include the three types of integration, market penetration,

market development, and product development. So far, emperador seems to do well in

terms of market development, product development, and market penetration; as

evidenced by international expansions, the recent introduction of new products such as

“Emperador bunso”, and holding a large share in the Philippine market. This leaves the

integration strategies to consider. It can be said that Emperador thrives in horizontal

integration, because of the acquisitions explained in the international expansions

paragraph of the details section. Stated in the market penetration paragraph in the details

section is the fact that Emperador has performed a forward integration strategy, by

acquiring a company in the UK to allow exportation of brandy in that region. This leaves

Emperador with the backward integration strategy. It has vineyards in Spain, which shows

that they also take backward integration into consideration. They are committed to

maintaining their place as the world’s number one brandy producer solely through

acquiring entities that produce brandy, to minimize competition, and acquiring channels

in order to distribute the products in new regions. Product development is an acceptable

strategy here. Emperador focuses on brandy, which gives it power over one market

segment. Since they are already the best at their segment, they should expand to other

market segments in order to further increase their profit.

Details:

Market penetration is essential because theoretically, there are several brands of

brandy made outside the Philippines that can potentially be sold here. Emperador,

which currently possesses a significant amount of market share specific to brandy

(48%), must maintain it, in order to discourage other brands from entering the market.

Emperador was also able to penetrate the Latin American markets because of its

international ventures. Emperador UK ltd., a wholly owned Filipino company allows the

exporting of brandy to Europe as well.

Another thing to consider is international expansion. It isn’t enough that a product be

sold locally. Global recognition is a must, in order to maintain profits, because staying in

one market can be too risky for a business, in the event that something fortuitous

happens. Emperador has good global recognition, in that it was recognized as the

world’s largest brandy firm back in December of 2016 due to the acquisition of 2 iconic

European liquor brands in the span of 2 years.

6.5 Grand Strategy Matrix

Emperador industry is growing rapidly in the Philippines. The acquisition of

Fundador Pedro Domecq solidifies the Emperador’s position as the world’s largest brand

company. On the other hand, San Miguel Corporation is generally the favorite of the

Filipinos because of its abundance and affordability over Emperador. It is available on

every grocery and convenient stores. It is highly recommended for the Emperador to

increase the production of goods in order to penetrate the Philippine market. Additional

facilities in Laguna is the first step done by the Emperador to increase its production of

goods.

6.6 Summary of Matrices

SWOT SPACE IE GSM TOTAL

Product 1 1 1 1 4

Development

Market 1 1 1 1 4

Development

Market 1 1 1 1 4

Penetration

Horizontal/Vertical 1 1 1 1 4

Integration

Related 1 0 1

Diversification
 6.7 Quantity Strategic Planning Matrix

Strengths

ARTO improved from 3.68 to 4.20 0.05 0 0 0 0

ITO improved from 3.97 to 4.63 0.05 0 0 0 0

Healthy Current Ratio 0.05 0 0 0 0

Broad sales and distribution network 0.1 3 0.3 3 0.3

Wide source of Raw Materials 0.1 2 0.2 4 0.4

New Product Introductions on Spain &

0.1 0 0 0 0
Philippines

Acquisition of Fundador, Emperador now #1 in

0.1 0 0 0 0
Brandy

Segmented Advertising through it's local

0.05 1 0.05 3 0.15
managers
Recycling of Bottles 0.05 0 0 0 0

Research and Development of new products 0.05 3 0.15 1 0.05

Weaknesses

Weak Profitability Ratios 0.05 2 0.1 2 0.1

Downward growth on Sales 0.05 3 0.15 3 0.15

Highly Decentralized Management 0.1 0 0 0 0

Ranked 3rd in the alcohol industry, Philippines 0.1 3 0.3 3 0.3

1
Opportunities

Increasing International Expansion 0.1 2 0.2 3 0.3

Youth Age Dynamics 0.1 1 0.1 4 0.4

Acquisition of Facilities 0.08 1 0.08 2 0.16

Healthier/Lighter Alternatives 0.1 1 0.1 3 0.3

E-Commerce 0.1 0 0 0 0

Increased Disposable Income 0.1 1 0.1 3 0.3

Threats

Excise Tax Reforms 0.1 0 0 0 0

Curfew 0.02 0 0 0 0

Liquor Bans 0.1 0 0 0 0

Increasing Employment Costs 0.04 3 0.12 1 0.04

Trend of Being Alcohol Free 0.03 0 0 0 0

Emerging Global Competition 0.06 4 0.24 3 0.18

Substitution of Light Alcoholic drinks 0.05 2 0.1 4 0.2

Foreign Currency Transaction Loss 0.02 3 0.06 1 0.02

TOTAL 1 2.35 3.35

The Quantitative Strategic Planning Matrix is a strategic tool which is used to evaluate
alternative set of strategies. The QSPM incorporate earlier stage details in an organize
way to calculate the score of multiple strategies in order to find the best match strategy
for the organization.

VII. OBJECTIVES, STRATEGY RECOMMENDATIONS AND ACTION PLANS

Financial Projection
With regards to the implementation of the product development strategy there would be
an increase in Sales however there would also be an increase on expenses, namely the
Selling and Distribution because of additional costs in the development of products.
 Increase in admin expenses because of a plan to acquire facilities with the need
to acquire additional offices
 Gain on Disposal on PPE: There was no plan on any future disposals on PPE
Percentage of Sales Method 2015 2016 2017 2018
Growth: 2% 3% 4%

Sales 26,006,603,096 26,526,735,157.92 27,322,537,212.66 28,415,438,701.16

Projected 65% of Sales

COS 17,237,451,766 17,242,377,852.65 17,759,649,188.23 18,470,035,155.76

GP 8,769,151,330 9,284,357,305.27 9,562,888,024.43 9,945,403,545.41

Operating Expenses:
10% of Sales

Selling and Distribution 2,471,706,292 2,652,673,515.79 2,732,253,721.27 2,841,543,870.12

.003 of Sales

Administrative expenses 51,352,052 79,580,205.47 81,967,611.64 85,246,316.10

.002% of Sales

other operating income 36,737,306 53,053,470.32 54,645,074.43 56,830,877.40

2,486,321,038 2,679,200,250.95 2,759,576,258.48 2,869,959,308.82

Operating Profit 6,282,830,292 6,605,157,054 6,803,311,766 7,075,444,237

Other income (charges)

.007% of Sales

Finance Income 159,090,799 185,687,146.11 191,257,760.49 198,908,070.91

.001% of Sales

Finance Cost 20,178,587 26,526,735.16 27,322,537.21 28,415,438.70

Gain on disposal on PPE 1,522,346 0 0 0

140,434,558 159,160,410.95 163,935,223.28 170,492,632.21

Profit before Tax 6,423,264,850 6,764,317,465.27 6,967,246,989.23 7,245,936,868.80

.065% of Sales

Tax Expense 1,617,540,997 1,724,237,785.26 1,775,964,918.82 1,847,003,515.58

Net Profit 4,805,723,853 5,040,079,680.00 5,191,282,070.40 5,398,933,353.22

 2015 2016 2017 2018
Growth: 2% 3% 4%
Assets

Cash and Cash Equivalents 6,854,259,110.00 6,991,344,292.20 7,201,084,620.97 7,489,128,005.80

Trade and other receivables-
net 6,196,441,364.00 6,320,370,191.28 6,509,981,297.02 6,770,380,548.90

Inventories 3,726,514,020.00 3,801,044,300.40 3,915,075,629.41 4,071,678,654.59

Prepayments and other current
assets 144,662,193.00 147,555,436.86 151,982,099.97 158,061,383.96

Total Current Assets 16,921,876,687.00 17,260,314,220.74 17,778,123,647.36 18,489,248,593.26

Non- Current Assets

Investment in subsidiaries and
associates 3,902,075,583.00 3,980,117,094.66 4,099,520,607.50 4,263,501,431.80
Property Plant and Equipment -
net 5,804,977,071.00 5,921,076,612.42 6,098,708,910.79 6,342,657,267.22

Trademarks- net 123,313,026.00 125,779,286.52 129,552,665.12 134,734,771.72

Deferred tax assets 36,831,033.00 37,567,653.66 38,694,683.27 40,242,470.60

Other non-current assets- net 297,316,122.00 303,262,444.44 312,360,317.77 324,854,730.48

Total Non-Current Assets 10,164,512,835.00 10,367,803,091.70 10,678,837,184.45 11,105,990,671.83

Total Assets 27,086,389,522.00 27,628,117,312.44 28,456,960,831.81 29,595,239,265.09

Liabilities

Total Current Liabilities 8,700,238,108.00 8,874,242,870.16 9,140,470,156.26 9,506,088,962.52

Total Non- Current Liabilities 92,111,143.00 93,953,365.86 96,771,966.84 100,642,845.51

Total Liabilities 8,792,349,251.00 8,968,196,236.02 9,237,242,123.10 9,606,731,808.02

Equity

Capital Stock 12,500,000,000.00 12,750,000,000.00 13,132,500,000.00 13,657,800,000.00

Additional Paid-in capital 1,004,493,028.00 1,024,582,888.56 1,055,320,375.22 1,097,533,190.23

Revaluation reserves 20,088,482.00 20,490,251.64 21,104,959.19 21,949,157.56

Retained earnings 4,809,635,725.00 4,905,828,439.50 5,053,003,292.69 5,255,123,424.39

18,294,040,271.00 18,659,921,076.42 19,219,718,708.71 19,988,507,457.06

Liabilities and Equity 27,086,389,522.00 27,628,117,312.44 28,456,960,831.81 29,595,239,265.09

VIII. STRATEGY EVALUATION, MONITORING AND CONTROL

Balanced Scorecard

Financial Performance

Objectives Measures Target Initiative

Net Income Growth Increase of 30% in Gradual annual Improved market
net income increase in net penetration and
income in 2 to 3 increased product
years. production led by
Finance Officers
Maintain market Increase in Sales by To improve or Improved market
dominance 15-20% maintain market penetration and
share. increased product
production led by
Finance Officers

Internal Business Processes

Objectives Measures Target Initiative

Acquisition of Increased number Expansion of Proper place
additional facilities of facilities inside facilities up to rural assessment and
and outside of areas in 3 to 4 effective production
Philippines. years. program of
Operations Officers.
Increased product Increase in 1% to 2% increase Maximization of
production produced goods in product existing facilities.
annually. production in order
 to maintain and
improve sales.
Product Improved product Improved product Improved research
development quality. taste or quality and and development
branding or plan led by
labelling. operations offiers.
Product Larger product pool To have an Improved research
diversification available product for and development
health conscious plan led by
people. operations offiers.

Customer Perspective

Objectives Measures Target Initiative

Improved customer Customer Loyalty Maintain or surpass Improved marketing
satisfaction. Index 87% customer strategy plan by
loyalty index. Marketing
Department.
Growth in product Market share gain Increase in market Marketing and
abundance share gain and Sales department
nationwide. improved
distribution of
products.

Learning and Growth Perspective

Objectives Measures Target Initiative

Sales and Percentage of Increase in overall Strategic sales and
Marketing Training employees trained sales of the marketing plan by
company top managers.
Customer Percentage of Decrease in Seminars by
Relationships employees trained employee turnover Human Resource
management and increase in Group
training employee
satisfaction.