International Marketing Week 2

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16EXPORT AND IMPORT MANAGEMENT

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CASE 16-1 BREWDOG: ESTABLISHING A BEACHHEAD IN JAPAN, BUT WHERE DO WE GO FROM THERE FOR FURTHER EXPANSION?

BrewDog is a rapidly expanding British beer brewery based in Ellon, Aberdeenshire in Scotland, with a 2014 annual sales of £29.6million (or aboutUS$42million). The companyproduces bottled and canned craft beers in a variety of styles such as ale, stout, India pale ale (IPA), and lager. The bottled beers are distributed to British supermarkets and exported worldwide.

Founders of BrewDog, proud Scots JamesWatt andMartin Dickie, were school friends and beer aficionados, fans of very hoppy IPAs of the kind that could not be found in Britain. They had begun to brew their own in 2007. Their flagship beer, Punk IPA, is their best-selling flavor.

Neil Taylor, the BrewDog Head of International Bars, recently visited Tokyo and spoke about the company’s jour- ney at a British Chamber of Commerce held at a posh bar in a trendy Roppongi area of Tokyo. “Our mission is to make peo- ple as passionate about great beer as we are,” said Taylor, who clearly embodies this passion himself. “We never want to stop innovating.”

The company’s business philosophy for shared growth with its customers is also appealing, as it can claim to be Europe’s most successful example of crowd fundingwith three rounds of Equity for Punks, where they sold shares in the company to its customers,most recently bringing inGBP4.25million and over 15,000 shareholders. The company also created the BrewDog Investment Fund in 2014 to provide funds for start-up brew- eries in a bid to support the growth of craft beer worldwide.

Japan-based Whisk-e Limited has been working with BrewDog since its entry into the Japanese market in 2007. Through market research conducted by Whisk-e Limited, BrewDog learned that a major challenge for the company is limited space in Japan at both retailers and bars. BrewDog’s decision to support 12 × 330 ml bottle case formats and offer

Sources: “Success is Brewing for Scottish Craft Beer Company BrewDog,” Export to Japan, http://www.exporttojapan.co.uk/case -studies/success-is-brewing-for-scottish-craft-beer-company-brewdog, accessed March 10, 2016; and BrewDog company website, https:// www.brewdog.com/brewery/brewery.

20 liter kegs was a key factor in early take-up of the range. Development in one-way plastic keg technology by a Dutch company solved the problem of shipping returnable steel kegs around the world. As consumers became familiar with their beer out of the tap, brand awareness soared and bottle sales soon followed. BrewDog has a core range of five beers, and then produces new beers every month with limited edition offerings that can be one-off, seasonal or annual. As many companies in Japan have had limited-edition and seasonal products, Japanese consumers are not only used to but also enjoy such variations.

With the establishment of its bar in Roppongi in 2014, BrewDog has a good foothold in the heart of the Japanese market. This could be a great beachhead for the company, but many other issues remain for a further expansion in Japan. First, exporting “perishable” craft beer from Britain— particularly, limited-edition and seasonal kinds—requires precise demand forecasting in a highly competitive Japanese market where competitors are used to the same strategies as well as exporting arrangements. Second, the Tokyo market may be large and lucrative, but there are other major mar- kets to expand into. BrewDog executives are aware that there are wide regional and seasonal differences that Japanese con- sumers enjoy. Third, most ominously, the Japanese craft beer market is already crowded with many small breweries already operating and run by local pubs, restaurants, inns, and hotels that emphasize their locality.

DISCUSSION QUESTIONS

1. Discuss whether direct exporting from Britain could satis- factorily handle variety-seeking, fickle-minded Japanese con- sumers. 2. BrewDog relies heavily on its Japanese partner, Whisk-e Limited, for understanding the Japanese distribution chan- nel (mostly pubs at this stage) as well as consumers. Discuss whether BrewDog should develop its in-house marketing

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2 • Case 16 • Export and Import Management

research capabilities rather than relying on Whisk-e Limited if the company wishes to expand beyond the Tokyo market. 3. Although gaining brand recognition in Japan, the distribu- tion is pretty much limited to pubs and bars in Tokyo where prices can be high for BrewDog beers to justify the high costs

of importing from Britain. In order to appeal to a larger mar- ket segment, retail prices may have to be lowered somewhat before retail liquor stores and supermarkets are willing to carry BrewDog products. Would it require a change in its cur- rent strategy?

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CASE 16-2 AN UPSET MERCK

Purchasing medicines through internet pharmacies is the lat- est trend to hit the drug industry. This channel of distribution has existed for years now but it drew attention to itself when Pfizer’s popular drug for erectile dysfunction was released and consumers, who were too embarrassed to buy this drug offline, resorted to buying it online. At the time, drug compa- nies were not too distressed at this trend, given that it added one more channel of distribution of their products and drug companies willingly supplied pharmacies with drugs for sale over the internet.

However, the past couple of years have seen major U.S. pharmaceutical companies cutting off drug supplies to some Canadian pharmacies and now second largest U.S. drug com- pany Merck with sales of over $20 billion worldwide is the most recent one to join the bandwagon. The reason for this move: Canadian pharmacies that operate through the mail order or online channel provide drugs not only to Canadian consumers but also indulge in cross-border exports to patients in the United States who demand drugs at lower prices than those offered in the United States. The Canadian govern- ment controls prices of pharmaceuticals in Canada unlike the U.S. government and therefore prices of drugs tend to be cheaper in Canada than the same drugs that are available in the United States.

According to U.S. pharmaceuticals companies, this export–import practice affects Canadian consumers on one hand because drug exports to the United States results in a shortage of medicines for Canadian patients. On the other hand, firms such as Merck argue that such drug exports to patients are essentially risky due to the lack of stringent con- trols. Furthermore, the emergence of internet pharmacies that sell counterfeit medicines has increased the possibility of health hazards to patients who expect to get genuine products but do not. Also,Merck argued that some of its drugs provided under the U.S.’s Medicaid program are affordably priced and should preclude drug exports by Canadian pharmacies.

In January 2005, Merck’s Canadian subsidiary Merck Frosst sent a letter to Canadian pharmacies that export drugs

Source: “Pain of the Pill Market,” Maclean’s, February 21, 2005, pp. 28–29.

to the United States, stating that it would no longer sup- ply products to these companies unless they proved that they had discontinued such activities. According to the firm, drug exports violate their sales agreements with these retailers. The result of this dispute between Canadian pharmacies and U.S. drug makers like Merck is that the pharmacies are left strug- gling to fill orders from consumers in the United States.

However, this business has proved to be extremely attrac- tive for the pharmacies. Sale of prescription and other drugs over the internet started off on a small scale but over the years, due to the high demand for this method of sale, these firms have grown so much that drug companies are becoming more vigilant and defensive against such activities. Nevertheless such moves by Merck and others have man- aged to curb drug exports to a certain extent. Since Merck’s decision to boycott these pharmacies, internet pharmacies have reduced their workforce. There are some, however, that are still going strong by obtaining drugs from wholesalers and retailers behind closed doors. Still others are now look- ing toward other foreign countries, mainly in Europe, to supply drugs.

It is interesting to see whether or not drug exports will cease in the future but that might need some strict regulation and governmental interference. Amidst complaints by phar- maceuticals giants, the Canadian government has considered passing a law to shut down internet pharmacies. But, the talks are still on.

DISCUSSION QUESTIONS

1. What else canMerck do to reduce the exports of drugs back into the United States by Canadian pharmacies?

2. Should the United States and Canadian governments step in to solve this problem? If so, what can the governments do in this matter?

3. WillMerck’s recent move prevent further exports by Cana- dian pharmacies?

4. What does the future likely hold for this retail method for drugs in particular?