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Cooley Distillery, found in Dundalk, Co. Louth, was the first new whiskey distillery to be set up in Ireland in over 100 years and it is Ireland’s youngest, smallest and only independent whiskey distillery (“The Cooley Distillery”). John Teeling, a successful business enthusiast, investor, and Harvard Business school scholar, who found great interest and opportunity in Irish whiskey, established it in 1987. Cooley began distilling in 1989. The origins of Irish whiskey dates back to around 600 A.D., when Irish monks brought the alembic and the secret of distillation from the Middle East, according to the history of Irish Distillers.
The Irish name “uisce beatha” translates to “water of life” (Kennelly, 3). There are four types of Irish whiskey: single malt, single grain, “peated” malts, which are grains dried with Irish peat for a smoky taste, and blended, which contains a variation of malt and grain. The production of each is different by distillation process.
Irish whiskey is also aged in oak casks, where the whiskey will gradually take on the flavor and character of the wood cask it is stored in which creates variations in taste, smell, and color.
Cooley’s primary markets are responsible for 80 percent of total sales, and include the U.S., the UK, Ireland, France, and Germany. The largest market for branded sales was Germany, and 50 percent of sales were from its own branded products, but the U.S. sales doubled from 2009 to 2010 and retained Cooley’s most attractive market (Kennelly, 5). Cooley has a competitive advantage because of their commitment to quality and use of traditional methods to give a piece of Irish heritage in its whiskey.
Cooley maintains traditional distillation methods from hundreds of years ago, including making some of their Kilbeggan whiskeys in a 180-year-old pot (Kilbeggan). All Cooley whiskeys are matured in ex-Bourbon casks, with the exception of a few whiskeys finished in special casks. They also use native ingredients like peat, to produce the old-style Irish whiskey and preserve Irish history.
Teeling says, “Whiskey is Irish. It really cannot be made to the same quality anywhere else in the world. It is the Irish climate. Irish water is good, as is the barley, but it is the climate that gives Irish whiskey the unique mellow flavor” (Kennelly, 3). Cooley’s location in the foothills of the Cooley Mountains gives it access to clean, pure water from the Slieve na gCloc river that runs down from the mountain (Kilbeggan). Cooley also has a renowned brand portfolio and they have won many awards including European Distiller of the Year by the International Wine and Spirits Council (IWSC) four years in a row from 2008 through 2011, and the World Distiller of the Year award in 2008 (Kennelly, 8). The strong Teeling family ties and shareholders that have been with Cooley since its beginning is also a competitive advantage in control and strategic decisions for the company. Cooley originally produced two styles of Irish whiskey: single malt and a premium blend. But in 2011, it expanded its product offerings to the four primary categories: single malts, single grains, blended whiskies, and peated single malts.
This was to focus on Cooley’s mission to return the historic brands and distilling techniques of Irish whiskey. It is currently the only distillery in Ireland producing peated malt whiskeys and bottling single grain whiskey. Some of the old historic Irish whiskey brands which Cooley re-introduced to the Irish and international markets are Locke’s, Tyrconnell and Kilbeggan (“The Cooley Distillery”). Cooley structured their strategy around increasing sales of their high margin branded products, which represented 50 percent of sales revenue. But in order to provide cash flow, Cooley still had to produce for other Irish whiskey sellers for retail private label brands for large European supermarket chains, and bulk sales of whiskey to be used in production of candies, cream liqueurs, and various food products. Cooley also produced Irish whiskey for companies that had their own brands but did not want to distill it themselves, which accounted for 20 percent of Cooley’s sales in 2010. Cooley is a non-listed public company with 290 shareholders and 9,098,935 shares outstanding (Kennelly, 1).
The macro environment surrounding alcohol sales and consumption has generally been stable and has experienced incremental growth throughout history. In the United States, the number of per capita consumption of alcohol has declined slightly, but has consistently remained around 2.5 gallons, per person, per year. The lower class, specifically females in the lower class are responsible for a majority of alcohol consumption in the United States. The highest per capita consumption worldwide is as follows: Luxembourg, Ireland, France, Hungary, and Denmark, (the US ranks 22nd.) According to one article, “the beverage alcohol industry contributed over $21 billion directly to state and local revenues during 2010. Of that amount, distilled spirits accounted for over $8.8 billion or 41% of this direct revenue” (“Distillery Spirits”). The Irish whiskey industry in particular has suffered tremendously in the 20th century. in 1779, Ireland had 1,200 distilleries that accounted for nearly 60% of the world market.
However, into the 80s, there were only two remaining distilleries. At its lowest point, Irish whiskey sales accounted for only 2% of scotch whiskey sales, and seemed that it would inevitably be obsolete. However, there was a major revival in the industry in the late 1980s, and then by the end of 2011, Irish whiskey was experiencing annual growth around 11.5%. The United States is a major contributor to the recent success of Irish whiskey, and it was projected that by this year, sales would increase to over 8,000,000 cases, as sales have increased nearly 18% in the US alone in the last 10 years (Kennelly, Table 1). The total market share by category of whiskey however, remains minute as Irish whiskey holds only 3% of the total market share, producing only 5 million cases per year. While this demonstrates nearly $68.8 billion in sales, the trend in brown spirits is on the up and up, and Teeling is expecting to see continued growth in the industry.
Jameson with 61%, Tullamore Dew with 12%, Bushmills with 10%, and Cooley’s Kilebeggan with 5% represent nearly 89% of the worlds Irish whiskey sales (Kennelly, 3). There is tremendous opportunity for growth in a market that is constantly expanding and evolving. People are always looking for the next best thing, and with that Cooley Distillery has an advantage in that they hold the historic and iconic value that Irish whiskey once presented to the market so strongly a few centuries ago. Despite the Cooley Distillery’s role as a small market niche player in a market dominated by multinational competitors, the company has realized the necessary steps it needs to take to remain a competitive player. Teeling has made the company aware of its external environment and the weaknesses and threats that the company must face in order to remain successful in the market. He understands that it is important to tackle the company’s problems head on and implement strategies along the way to make up for these issues, while simultaneously exploiting the company’s opportunities and strengths.
Teeling has a way of pointing out the company’s weaknesses and threats by offering a strength or opportunity to accommodate these vulnerabilities. The distillery’s strengths are straightforward: traditional distilling methods with native ingredients in a climate that is perfectly suited to allow the company to focus on the quality of the whiskey. The quality and the distinctness of the product is something that separates Cooley from its competition. While Teeling feels that at the heart of a whiskey company, this should be enough to keep the company alive, he realizes and has made it known that limited mass marketing and distribution are obstacles standing in the way of branding and getting the products on the shelves. Cooley struggling to get brands on the shelves stems from two sources: huge multinational competitors and little funding. The need to compete in this industry has allowed Cooley to reinvest all of its profits back into the business.
While a negative aspect of this reinvestment is a lack of dividends realized by investors, a positive would be the loyal shareholder base that has been with the company since its beginning. Teeling feels that the endurance of the investors will pay off once the company is able to continue to grow. Little funding is another issue that ties into a lack of brands on shelves because Cooley simply does not have the marketing and distribution budget capacity of its competitors. The company has taken steps to invest in expansion efforts and improved facilities in order to increase efficiencies and provide new warehouses for storage. Because of the added presence of barriers to entry in the market, Cooley had to become more innovative by offering bulk whiskey sales and retail private labels – private label branded products for a range of large supermarkets and grocery stores.
While these strategies were successful in the short-run, they did allow Cooley to realize the need to focus on their highest profit-margin products which increased sales. One of the major issues for the Cooley Distillery would be the decline in the Irish whiskey industry. The company has taken steps to combat weaknesses and threats on a lower level but industry decline is a much larger issue. A joint venture or strategic alliance is something that the company is going to have to face in the coming years after the publication of this case study. Teeling alludes to the probability of a joint venture or strategic alliance in Cooley’s future, implying that such a thing will not come at a small price tag for the competitor that chooses to approach Cooley about the topic. He also realizes that a joint venture is inevitable to save the company from being overtaken by the industry competition.
There are many issues facing Cooley Distillery but the main issue that Teeling is attempting to solve involves his loyal stockholders. Teeling desperately wanted to repay Cooley’s investors who up to this point had not received anything in return for their investment. The company had only recently began to have positive earnings, but all of these earnings had to be reinvested back into the company to keep it afloat. He was not being pressured by the banks or his stockholders to deliver tangible returns; Teeling had their complete trust. Still, Teeling felt that it was time they saw something in return for their faith all of these years. In order to do this Teeling saw no fewer than five options. “First, Cooley could partner with a major spirits company. Second, it could sell out. Third, as some family members urged, Teeling could take the firm private. Cooley could also simply exit the branded whiskey business and set up as a producer for other companies that wished to field an entry in the category. Finally, Cooley could soldier on as it was: after all, it was still growing and making money, and its reputation had never been better” (Kennelly, 13).
Several major spirits companies had approached Cooley over the years and while a sale remained viable, it was not something that Teeling felt comfortable doing. He and his family had become emotionally attached to Cooley Distillery and a sense of pride kept him from wanting to sell it to a major company. He insisted that Cooley needed a “sugar daddy” who also has a need for Irish whiskey, however, in 2007 the category was too small for many of the major companies to invest that much capital at that time (Kennelly, 13). Teeling’s family was very interested in taking the company private but Teeling was having trouble convincing banks to take the risk because of the 2008 implosion of the banking system in Ireland and the recession that followed. Independent Irish whiskey was not a big enough of a market and banks did not think the risk was worth it. There was always the option of exiting the branded whiskey business and only supplying whiskey for other companies who were interested in selling the product.
Would Cooley have to abandon the qualities that had built such a great product by going this route? Margins would be lower, but marketing expenses would disappear. Competing with big corporations’ marketing campaigns was one of Cooley’s biggest problems and made it extremely difficult to get their whiskey on retailers’ shelves. “Cooley could continue on with its current strategy of selling its own branded products, and support those products with whatever marketing investment it could manage. In the rapidly growing Irish whiskey category, there was plenty of room for a niche player. After all, the fact that Cooley was small, independent, and Irish, itself represented a competitive advantage of some value” (Kennelly, 14). But the stockholders had been waiting patiently for so long and Teeling felt that it was time they are repaid for their loyalty. How does he repay them without completely abandoning all of the qualities that makes Cooley’s whiskey so special?
Teeling seemed to always know in the back of his head that he wouldn’t continue on his own or take the firm private, and he also seemed fairly realistic about the chances of Cooley finding a “sugar daddy” that would simply bankroll the distillery’s marketing expenses and distribution needs. He even remarked, “Of course, we shall eventually joint-venture it. There is absolutely no future for Irish whiskey trying to survive on its own in the international marketplace. It needs a big, powerful, worldwide partner. But that partner needs a product—a distinctively Irish product. There is now only one way they can get it: buy it from us or make it themselves. If they want to make it themselves, they are two to three years behind us” (Kennelly, 12). In saying that, he recognized what his company really needed, but he also recognized his company’s advantage in making a deal if such an opportunity ever arose.
Our group believes that Teeling was correct in assuming that a joint venture was inevitable, as we also believe that it was his best option all along. To sustain the type of the growth that he had in mind for Cooley while simultaneously repaying the stockholders for the faith that they had shown in his company, the resources of a major spirits company would have to be part of the equation. He had perhaps been somewhat conservative in his valuation of Cooley when he cited a value of “£44 million (approximately €53 million)” (Kennelly, 14). Nonetheless, Beam, Inc. decided to purchase the Cooley Distillery in 2012 for €71 million. The soft spot that Teeling and his family had developed for Cooley just couldn’t compare to an offer like that. Shortly after the sale, he addressed that fact by saying, “The nerds say we have sold out and they are right.
But it was impossible to compete with the big guys. Now we can get on every shelf in the US market.” (Smyth). The business world (entrepreneurs in particular) tends to view “selling out” as some sort of betrayal to one’s own entrepreneurial instincts or perhaps to the customer’s of the original business. In this case, though, it was the decision of a wise businessman that realized that he was not only running out of realistic options, but that he also had an excellent offer on the table. Teeling can now reap the benefits of a mutually beneficial agreement and move on to his next project. Furthermore, recognizing an opportunity like that and taking it for the good of the business serves as a shining example of how Teeling’s instincts have led to such success as an entrepreneur.
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