European Entrepreneurship Case Study Resource Centre

Sponsored by the European Commission for Industry & Enterprise under CIP (Competitiveness and Innovation framework Programme 2007 – 2013)

Project Code: ENT/CIP/09/E/N02S001 2011

Kofola Holding ()

Martina L. Jakl University of Economics,

Sascha Kraus University of Liechtenstein

This case has been prepared as a basis for class discussion rather than to illustrate either the effective or ineffective handing of a business / administrative situation.

The teaching notes for this case have been written by the case authors to instruct and aid academic lecturers, teachers, instructors, trainers and/or mentors in the use of this case study for classroom discussions, presentations and other forms of education. These teaching notes are a guideline, and do not have to be strictly enforced. Teaching Notes

Case Summary The Slovak top brand Vinea, a carbonized grape based is owned by Czech-Polish family company Kofola. In February 2008 Kofola acquired the Vinea brand from Slovak company Vitis Pezinok for more than Sk 200 million (€6 million), but despite 2009 being a good year in sales, the year was also marked for Kofola as being an integration year with Hoop into a common holding structure. The company now felt is was time to become more aggressive in the market and expand internationally with Vinea, as they already started to sell their flagship brand Kofola in nearby markets such as Germany or Austria. However, despite of many Slovakians living in the Vinea is not officially sold in the Czech Republic and the big question facing the company is; which strategy should they adopt. Several ideas are on the table and Martin has now to decide, which one is the best for entering the Czech market with Vinea.

Most important for Kofola are strong brands as their entire strategy is built on strong brands with Kofola being the most important brand in their portfolio. Therefore, all the positioning efforts should aim at building up a strong brand portfolio where they aim at having, apart from premium brands, labels for price sensitive buyer’s and private labels. This should be seen as precondition to evaluate the Pro’s and Con’s of the several suggested alternatives.

Kofola holding has evaluated three different possible strategies: There are many Pro’s when thinking of keeping the same marketing strategy for Vinea as in Slovakia. Expenditures can be diminished and the brand will receive a clarified image as the Czech Republic and Slovakia are geographically very close and also when it comes to culture and language. Furthermore, many people frequently travel to Slovakia from the Czech Republic, which makes it difficult to have separated positioning strategies. A Con, however, is the potential that people will get confused with being offered different brands of carbonized grape lemonade from the same producer which are almost in the same segment (stylish, for younger people) with the exception of the core Top Topic which is perceived as being somehow without profile. Regarding the third strategy, splitting sales channels between Vinea and Top Topic, this is a strategy which (apart from the mandatory different packaging) hasn’t been followed by Kofola. This is considered a strong Con as this strategy has no tradition in the company. Another Con is that Kofola can easily use its strong position in the retail sector to introduce new brands as Kofola’s presence in the HORECA sector is weak. Therefore, this strategy has more Con’s than Pro’s and seems not to use the full potential of Vinea. Alternatively, not to enter the Czech market with Vinea has also significant Con’s, with the strongest Con being the growth of the market in addition to the poor performance of Top Topic in the last year. A Pro would be to have a free market for Top Topic and initiate a relaunch for this brand.

In the end, the company decided to go for the same communication campaign as in Slovakia and positioned Vinea at the same level as Kofola, as premium brand. They perceived it as easier to reposition Top Topic which did not have a satisfying performance. The strategy for Top Topic flavors Ego and Freedom aims now at bars and nightclubs and includes, for instance, marketing campaigns with bar tenders for mixed drinks with top topic. For other retail channels, the strategy for Top Topic is to have a fade out of he brand in off-trade sales.

Teaching Objectives and Target Audience Students will be expected to draw on their knowledge of market research and marketing. This case helps students to develop understanding and skills in dealing with the positioning of products in foreign markets and evaluate market potential.

This case is intended for a course or seminar in entrepreneurship at the graduate level or for executive training courses. On the analytical dimension, the problem is stated and various alternatives are provided. Thus, students will be expected to analyze the data and generate decision criteria as well as a well founded on the right entry strategy.

Suggested Teaching Approach and Strategy This case focuses on the evaluation of three different possibilities to enter a foreign market with a premium product. The immediate issue is to decide which possibility offers the greatest potential. Other basic issues include market research of the respective foreign market and decision making in brand positioning, as well as the choice of a suitable strategy. Students should put themselves in the position of Martin Klofanda and analyse the following questions: 1. Which strategy is most promising regarding the entry of Vinea into the Czech market? 2. How would you position Vinea in the Czech market? 3. How big is the market potential for Vinea in the Czech Republic?

Analysis Techniques Recommended The aim of the case is to determine the right entry strategy for Vinea based on a Pro and Con evaluation of the possibilities presented in the case. Appendix Interview with Jaroslav Bartak, CEO of Kofola

Kofola aims to gain a bigger share in the on-trade soft drinks market Czech Business Weekly 26.11.2009, Martina Marečková

Q: What is the reason for falling drinks consumption? A: I think it’s a combination of factors. Certainly the fact is that people tend to spend less money—we know that there is growing unemployment and economic downturn. The fact that the amount of liters of soft drinks sold is unchanged and the value is decreasing can perhaps be explained by the fact that people are switching to cheaper segments or there is a price war among retailers. Retailers now fight [for market share] mainly through price wars. Kofola is such a strong and well-known brand in the Czech Republic that retailers like to use it as a loss leader [product sold at a substantial discount in order to generate additional sales].

Q: International markets, cost savings and innovations are key for growth for some of the leading global soft drink makers—what is your strategy? A: It’s very generic and it is perhaps valid for any company. The way to grow brands is via innovations of existing categories, entry to new categories, cost savings, and we want to pursue all these ways. As a group we currently operate in four markets—the Czech Republic, Slovakia, , and Russia—and we have a few export countries. In the coming period we need to consolidate our business in these four markets following the acquisition [of Polish soft drink maker Hoop] from last year so in the near future I don’t expect us to enter new markets.

Q: What is your role as a manager in this consolidation? A: I have 15 years of experience with management, mainly in Anglo-Saxon and partly also in German companies. We’re trying to apply in Kofola the standards of structure of work and system of work used in management of international firms which have been doing it well and for a long time. One of my tasks is to set management [structures], communication and processes comparable to standards of international companies. I’m responsible for all of Kofola’s activities in the Czech Republic—two production facilities and the sales team. Kofola Holding set some goals; my primary goal is to contribute to the good results of the group. As for specific synergy effects within the group, our results have improved because we are now a much stronger player than in the past, such as when we purchase material, for example. In retail, the stronger a player you are, the better conditions you can negotiate. Other synergies include the ability to save costs. If our colleagues in Poland invent something, we can implement it here. We share knowhow.

Q: You’re currently busy with the group’s consolidation, when will be the right time to enter new markets? A: We may consider an entry into new markets next year and perhaps we’re dealing with it already. Maybe our attempt to enter new markets will lead somewhere.

Q: So next year we may see Kofola in new markets? A: We plan to export to new countries, but we don’t plan to open new plants in the near future.

Q: Companies are cutting costs, closing plants and dismissing staff, have you been forced to take any of these measures in Kofola? A: This year we haven’t made any major layoffs and we don’t plan to do any major layoffs in 2010. We don’t belong to the industries which declined 30–40 percent compared to last year. In our production facilities we dismissed 3–4 percent of workers but it was not due to the economic downturn. We have old and new production lines … and these workers were not qualified to be transferred to the modern production lines. We implemented a world class manufacturing program and within this process made some production processes more efficient. As a result we had to say goodbye to a few people.

Q: Last year Kofola acquired the Vinea brand—are there other brands within the region which you find attractive and which would be suitable to add to your portfolio? A: Yes, there are, but I can’t tell you with which companies we negotiate or which brands we are considering [to add to our portfolio]. Our competitors are alert.

Q: Are any of the negotiations at an advanced stage? A: Yes, some of them are.

Q: What about your own brands, would you be willing to sell any of them? A: As far as I’m aware, we’re not in talks to sell any of our brands. Our portfolio is balanced, it can grow and we are at a stage when we don’t want to sell. We know how to build brands.

Q: Which of your brands generates the most sales on the Czech market? A: Naturally, Kofola is a very strong brand in the Czech Republic and in Slovakia. Rajec bottled water contributes to our business in Slovakia and in the Czech Republic; Jupí [fruit drink] brand is extremely strong. Hoop Cola is strong in Poland; it’s number two on the local market.

Q: Some soft drink segments such as iced tea, mineral water and energy drinks are absent in your portfolio, do you have a plan to add these drinks to your portfolio to become more competitive on the market? A: We have a plan and we’re working on it but I can’t disclose the details of the plan. We want to expand our portfolio and modernize it. Pubs or shops don’t want to have 20 suppliers but two to three, therefore these two to three suppliers must have a complex portfolio.

Q: Is it the reason why Kofola is not often present in fine restaurants or is it because these restaurants favor multinational brands?

A: It’s a combination of factors. Our competitors are very strong, they handle sales tactics well, but we are getting there. Talking about hospitality, we are still perceived as a Czech brand and when a restaurant owner opens a business, the first cola drink that comes to his mind is Coca- Cola or -Cola [PepsiCo]. Particularly Coca-Cola has a complex portfolio, phenomenal service and is good at sales. We are trying to position ourselves as a local alternative. You’re right when you say that particularly in prestigious and big restaurants our presence is weaker than we would like.

Q: How does it work when Coca-Cola and Kofola are sold in the same restaurant? A: It works in many restaurants. It depends on customers what they choose—some customers are loyal to Coca-Cola while others are to Kofola. And that’s our principle— let’s give customers a choice. Q: Looking at the Czech cola drink market, what are the main players and their share? A: Looking at the overall soft drink market, we are number three after Karlovarské minerální vody, with 17.8 percent share and Coca-Cola Česká Republika, with 16.6 percent share. We have 12.8 percent market share in the first nine months of this year; Pepsi-Cola, number four, has 6.9 percent market share.

Q: Has your market share changed over the past years? A: It’s been more or less flat in the past year, around 13 percent.

Q: What is your share on the cola drinks market? A: Talking about off-trade sales, Coca-Cola had a 47 percent market share in the first nine months of this year, Kofola had 27 percent and Pepsi-Cola 14.5 percent, according to a top market research firm. In on-trade sales, Coca-Cola is number one and Kofola number two, as well.

Q: Czech consumers remember your new brand Vinea from the times of former —when will we see the brand on the Czech market? A: We successfully sell the brand in Slovakia. It’s a question of a short time before we introduce the brand again to the Czech market, but I can’t tell you when it will happen.

Q: As a producer of bottled water Rajec what do you think of the novelty at some restaurants in this country to serve free tap water to customers? A: The customer does not know if the water is safe to drink because he doesn’t know what pipe it comes from. In the case of bottled water the quality is guaranteed. In some foreign countries it is common that customers are automatically given a complimentary jug of water with ice, but you don’t know what water. We perceive this as a legitimate activity of water supply companies and we plan to continue doing what we do. We let the customers choose. Q: What are the results of Kofola’s Czech operations for Q1–Q3? A: We don’t release results for separate markets. But generally speaking, we more or less follow the market [performance] which I consider a success. There’s only a small decline in sales in units of percent compared to last year. Off-trade sales declined by 3.5 percent, but in on-trade sales we’re not performing as bad as the general market, which declined by some 10 percent.

Q: What are your expectations for the full year 2009? A: We have two months ahead of us and I dare say that Czech operations will post nearly identical sales as in 2008.

Q: What are your plans for 2010? A: Kofola has a weaker presence in the hospitality industry so our focus will be to strengthen our position in hotels, restaurants and catering and we will continue to be active in the retail industry.

Q: How do you want to achieve that? A: Through innovation of our portfolio, we are preparing changes in the existing portfolio and adding new drink categories. It can be through acquisitions or innovations of brands.

Q: The advertising market declined this year, have you reduced your marketing and advertising expenditures? A: No, we didn’t and we don’t plan to do so. We believe in brand building and this represents advertising investments.