Ateneo Graduate School of Business

A Strategic Management Paper

for Ginebra San Miguel, Inc.

Submitted to Professor Hilda Teodoro

Submitted by:
Ma Mackylyn Fernandez Ragusta
June, 2017

I. External Factor Evaluation (EFE)

 A. General Environment (Socio-Cultural)

Different alcoholic beverages are loaded with various social meanings. In Western
countries, for example, champagne is usually equated to celebrations. To serve
champagne, in other words, is to purposefully and formally celebrate a particular occasion.
Beer, on the other hand, is commonly associated with informal and more relaxed settings.
Certain rules on drinking alcohol also exist in some cultures. In France, white wine is
served before red wine, and drinking brandy should come after meals. Among Hungarian
gypsies, however, brandy consumption must only be done in the morning.

Moreover, drinking alcohol is often perceived to facilitate social bonding. As can

be gleaned from wine-toasting ceremonies to casual night outs at a local pub, it is apparent
that drinking alcohol has a social dimension; it is a social act that encourages and
reinforces solidarity among peers. It is a sign of mutual trust and status levelling. Even
those who drink alone are likely to gravitate towards drinking with a group that he/she can
potentially associate with.

Interestingly, the choice of alcoholic beverage is indicative of social status in some

parts of the world. In Poland, wine is regarded as a middle-class drink, while beer and
vodka are seen as working-class options. In France, however, wine is a commonplace
beverage; the young French elite prefer imported beers.

Alcohol can also be seen in the context of national identity. Tequila is to Mexicans,
as Whisky is to Scots. Such drinks represent national values as well. As in the case of
Scottish Highlanders, whisky reflects their traditional values of egalitarianism, generosity,
and virility. In the Philippines, where beer is popular, alcoholic drinking signifies friendship,
camaraderie, youthfulness, and excitement.

Aside from the abovementioned sociocultural factors of alcohol drinking, the

physical environment where alcohol is consumed also points to other social aspects. In
countries where alcohol is a morally neutral part of life and is, therefore, traditionally
accepted—like Italy, Spain, and Greece—drinking places are often open and highly visible
 to the public. This is in stark contrast to North American and Scandinavian cultures, where
drinking places are designed for concealment and privacy.

In the Philippines, particularly in rural areas, drinking alcohol can be done just
outside the local variety (or sari-sari) store. Typically, working-class individuals share a
bottle of gin this way. Part of the Filipino’s drinking routine is eating appetizer-types of food
on the side, called pulutan. These can be deep-fried or chargrilled viands, or simple finger
food like nuts or chips. The pulutan is shared by the group. Sometimes, this act of sharing
also extends to the use of a single glass by a group when drinking. In a round-robin style
called tagay or tagayan, a designated pourer passes a single glass on to each member of
the group, who in turn is expected to consume the drink bottoms-up. In more traditionally
Filipino settings, every drinking session must begin with an offering to the spirits or alay
sa demonyo, where a shot of the alcoholic beverage to be consumed is poured on the
ground.

B. General Environment ( Technological)

While we are analyzing the company’s external environment we found out that
GSMI top competitor Emperador Distillers Inc. (EDI) has been using fully automatic end-
of-the-line packaging as part of their process. According to Edwin Jaranilla, they are
achieving 94 to 95 percent efficiency.1 They are using high-performance multi blend mixing
systems strategic intelligent plant maintenance system (SIPS). It leads the staff through
the maintenance cycle, and is a dependable database for our maintenance history and
machine data. In view of huge volume they are producing, they were able to absolutely
rely on the technology they’ve got. For them without SIPS managing this kind of volume
would be impossible for them. EDI also installed two explosion-proof multi blend mixing
systems in its main facility, each rated at 40,000 litres an hour.

C. General Environment (Economy)

Table 9 shows us the retail consumer expenditure on alcoholic drinks for the past
five years (2010-2015). As we can see, there are significant increases every year in the

1
AG, K. (n.d.). Krones AG. Retrieved October 31, 2016, from
http://www.krones.com/en/magazine/brandy-emperador-distiller-inc-complete-lines.php
 consumption of alcohol.

There are also significant increases in the sales volume of alcoholic drinks every
year. Table 10 shows us the increase of sales volume per alcohol category. In case of
GSMI, it belongs to the alcoholic drinks category.

The table 18 below shows us the total company shares of San Miguel Corp in
alcoholic drinks volume wherein SMC is the leading company followed by the top
competitor Alliance Global Group Inc. (EMPERADOR)

2
AG, K. (n.d.). Krones AG. Retrieved October 31, 2016, from
http://www.krones.com/en/magazine/brandy-emperador-distiller-inc-complete-lines.php

3
AG, K. (n.d.). Krones AG. Retrieved October 31, 2016, from
http://www.krones.com/en/magazine/brandy-emperador-distiller-inc-complete-lines.php
 4

GSMI rank third in the competitive position in the alcoholic drinks industry with a
share of 8.2% in the total volume share in the alcoholic industry.

D. General Environment (Political)

To protect minors (under 18 years of age) from the negative effects of alcoholic
beverages, the government imposed laws and ordinances to control substance abuse

4
AG, K. (n.d.). Krones AG. Retrieved October 31, 2016, from
http://www.krones.com/en/magazine/brandy-emperador-distiller-inc-complete-lines.php
5
AG, K. (n.d.). Krones AG. Retrieved October 31, 2016, from
http://www.krones.com/en/magazine/brandy-emperador-distiller-inc-complete-lines.php
 among the minority. An example of an existing law that was implemented is under the P.D
No. 1619.

“Presidential Decree No. 1619 "PENALIZING THE USE OR POSSESSION OR THE

UNAUTHORIZED SALE TO MINORS OF VOLATILE SUBSTANCES FOR THE
PURPOSE OF INDUCING INTOXICATION OR IN ANY MANNER CHANGING,
DISTORTING OR DISTURBING THE AUDITORY, VISUAL OR MENTAL PROCESS" 6

In this decree, any store that is authorized to sell any form of alcoholic beverage
to the public is prohibited from selling it to minors without exceptions.

On top of the decree given, local city ordinance depending on the city of residence
also prohibits any person from instructing any person under the age of 18 from buying
liquor, beer, spirits from stores. E.G Makati City Ordinance No. 2001-082.

“AN ORDINANCE PROHIBITING ANY PERSON FROM INSTRUCTING, ORDERING,

SENDING INTO AN ERRAND OR CO- OPTING ANY PERSON OF MINOR AGE TO
PURCHASE OR ACQUIRE BEER, LIQUOR AND OTHER INTOXICATING
BEVERAGES, CIGARETTES AND OTHER TOBACCO PRODUCTS FROM RETAIL
STORES, SARI-SARI STORES, CONVENIENCE STORES AND OTHER SIMILAR
BUSINESS ESTABLISHMENTS WITHIN THE CITY OF MAKATI, FURTHER
MANDATING THESE ESTABLISHMENTS TO POST A NOTICE THAT SELLING OF
BEER, LIQUOR AND OTHER INTOXICATING BEVERAGES, CIGARETTES AND
OTHER TOBACCO PRODUCTS TO MINORS IS PROHIBITED BY LAW, AND
PROVIDING PENALTIES FOR VIOLATION THEREOF.”

Some cities also prohibit the sale of any liquor and tobacco products within the
specific radius of the store to the schools.

Since consumption is based on how much it is being sold in the market,

government sought out a way on how to at least peg all alcoholic beverages at a higher
price. This is in the form of what they call the Excise Tax. All beverages that contains
alcohol on either local or imported are entitled to excise tax depending on the alcohol

6
P.D. No. 1619. (n.d.). Retrieved October 31, 2016, from
http://www.lawphil.net/statutes/presdecs/pd1979/pd_1619_1979.html
 content. This is meant to control the buying power of the consumer making sure that
consumption is kept to a moderate level. Currently there is a proposal in the senate to
increase the excise tax further to go up. Ad Valorem Tax is now at 20% on top of net retail
price and Specific tax is now at 21.63/proof.

E. General Environment (International)

In the modern world, majority of the businesses does not rely solely on locally
sourced materials or manufacturers. Today we are competing or sourcing out our
requirements not just locally but globally as well. Because of this many of the products
abroad finds its way in the Philippines because of international trade agreements. This
opens the door for new possibilities as well as threats to the local community.

Among the imported products are different alcoholic beverages to cater specific
age group in the market. Flavoured drinks are one for the popular imported alcoholic
beverages. Young individuals are finding flavored and mixed ready to drink liquors
appealing than traditional spirits because of convenience and taste. This creates a gap
between the local manufacturers of alcoholic beverages and the market since not all are
sold on the traditional taste of liquor or beers.

Last 2014, euromonitor's survey said that Filipinos are ranked 3rd heaviest
drinkers in the world. Among the top 3 were South Koreans, Russians and Filipinos. But
even with high consumption of spirits, imported liquors, beer and spirit continue to
penetrate the market making it heavily saturated.

F. General Environment (Natural)

Every company has its responsibility to its stakeholders. That is why the
Environmental Management Bureau along with the congress, implemented a law which is
the Republic Act 9003 or the "Ecological Solid Waste Management Act of 200”:

“AN ACT PROVIDING FOR AN ECOLOGICAL SOLID WASTE MANAGEMENT

7
Romero, B. A. (n.d.). Philstar.com. Retrieved October 31, 2016, from http://www.philstar.com/
 PROGRAM, CREATING THE NECESSARY INSTITUTIONAL MECHANISMS AND
INCENTIVES, DECLARING CERTAIN ACTS PROHIBITED AND PROVIDING
PENALTIES, APPROPRIATING FUNDS THEREFOR, AND FOR OTHER
PURPOSES” 8

This law mandates that all company should utilize environmentally sound methods
that maximizes the utilization valuable resources and encourages resource conservation
and recovery. Volume wastes reduction and segregation to biological to non-biological
waste is also within the scope of this law to have better waste management.

The primary goal of this law is to ensure public health protection as well as the
lessen environmental impact.

G. Task Environment (Customers)

Customer preference in the Philippines liquor market vary largely by geographical region.

1. Northern Philippines – Gin and brandy (Ginebra, Gran Matador, Primera Light, etc.)
2. Southern Philippines – Rum
a. Based on Market:

3. Premium Market – Ginebra Premium

4. Popular Market – GSM Blue/flavors, Antonov, Primera Light
5. Economy Market – Vino Kulafu, Ginebra San Miguel, etc.

H. Task Environment (Competitors)

Emperador Distillers, Inc. LT Group, Inc.
(Emperador Light) (Tanduay Rum )

8
R.A. 9003. (n.d.). Retrieved October 31, 2016, from
http://www.lawphil.net/statutes/repacts/ra2001/ra_9003_2001.html
 I. Task Environment (Suppliers)

a. Raw Materials of Alcohol:

1. Molasses – From a variety of accredited suppliers of SMC

2. Cassava Starch Milk – Locally produced in the recently constructed cassava starch milk
plant
a. Glass Bottles:
3. New Bottles – San Miguel Yamamura Packaging Corporation – Largest bottle
manufacturer in the Philippines,
4. Recycled Bottles – Various 3rd Party – Accredited suppliers who comply with the
requirements of supplier agreements with SMC.

J. Task Environment (Labor Market)

The 20% of labor market of the alcoholic drinks industry is composed of SMC group
(Brewery, Ginebra, Packaging, Food, Fuel and Oil, etc.).The employees are part of various
collective bargaining agreements. There are 32 labor unions and no labor disruption since
2003. They maintain good labor relationships and constant line of communication with
 employees. The corporate HR ensures to hire driven and competent employees.

K. EFE Matrix

Based from our analysis using STEPIN and TASK environment, We have identified
the top five opportunities and threats.

Note: weight score: 0.0 (not important) to 1.0 (very important)

Rating score: 4= major strength, 3= minor strength, 2= minor weakness, and 1= major weakness
 With a total weighted score of 2.75, GSMI has a slight, above-average ability to
respond to external factors. GSMI must be vigilant towards changes in the opportunities
and threats that may potentially affect it as an organization in order to remain competitive.
GSMI must engage in global market expansion through acquisition and communicate its
sustainable practices even more. Finally, GSMI must further boost its technological
capabilities to meet its competitors’ advancements in this field.