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Identify the mistakes that Foster's made and to suggest acti

One of the reasons for Foster's acquisitions was that it thought it could realize economies of scope from the sharing of resources/capabilities. They thought that both operational relatedness and activity sharing would easily develop. It is clear that Foster's did not have a real deep understanding of the wine business, as evidenced by their initial use of one sales force to sell both wine and beer.

--Identify the mistakes that Foster's made and to suggest actions that Foster's should have taken to create value.
--Identify some of the reasons why Foster's thought the combination of beer and wine made sense.

Foster's Group's slogan "Australian for beer" is fitting, given that it produces some of Australia's top beers, including Foster's Lager and Victoria beer. However, in 2008, wine contributed 76% of the company's sales earnings. Although Foster's was traditionally a brewer and distributor of beer products, it foresaw more growth prospects with the sales of wine than beer. It also perceived an opportunity to commingle the marketing and distribution of these two spirit products to create economies of scope. In 2001, Foster's bought Beringer Wine Estates, a leading California Winery with approximately $1.2 billion in sales. Then in 2005, Foster's acquired another premium winemaker, Southcorp; the acquisition of these companies made Foster's one of the world's biggest global wine companies.

In order to create synergy between the beer and wine assets, Foster's used one sales force to focus on the mass marketing of beer and cheap spirits as well as selling high-priced wine to specialized restaurant and liquor stores selling to wine connoisseurs with more sophisticated tastes. The sharing of these activities between businesses that focus on low-cost mass marketing and focused differentiation (premium wines) turned out to be a significant mistake. Furthermore, the assets, especially Southcorp, were purchased at a distinct premium. Although the higher growth rate potential for wine sales seemed like the perfect strategic fit with the low growth rate of beer sales, the synergy between these two businesses was apparently not realized. Furthermore, currency problems contributed to the performance problem; the Southcorp assets were devalued as the US dollar depreciated relative to the Australian dollar. One analyst said, "they (Foster's) paid too much and they bought at the wrong time in the cycle."

To correct the problem Foster's has recently been separating these businesses and creating a new marketing group for the wine business while maintaining its current expertise in the brewing and distribution of beer. Because th separation of these businesses, most likely the wine segment because its basic expertise among the key leaders and other personnel is in the beer business.

This is an example of related constrained diversification being poorly executed. Interestingly, a new CEO was appointed after the strategic mistakes occurred. Related constrained diversification focuses on managing different businesses, which are potentially highly related in regard to the manufacturing, sales, and distribution activities among the firm's related business portfolio. Unfortunately Foster's focused on the growth cycle differences and not the detailed implementation differences related to the sharing of actual activities between beer and premium wine, which were not as great a fit as earlier expected.

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Identify the mistakes that Foster's made and to suggest actions that Foster's should have taken to create value.

-- The first mistake that Foster's made was to use a single mass marketing unit for both wine and beer sales. Although the company's objective was to create synergy between the two assets, it worked against the company because it did not add value to Foster's wine segment. In order to add value, the customers need to see a strategically planned advertising campaign, coupled with an attractive brand strategy. This would add value to the product, and show the customers that the brand speaks for itself, due to elements like design, benefits to the customer as advertised by the company, and testimonials. Because we are ...

Solution Summary

Identify the mistakes that Foster's made and to suggest actions that Foster's should have taken to create value.
Identify some of the reasons why Foster's thought the combination of beer and wine made sense.

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