UK Assessment This Report Discusses the Market Term Paper

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UK Assessment

This report discusses the market attractiveness of the United Kingdom. In particular the report explores the attractiveness of the Vodka segment of the Spirits industry. The industry has experienced a tremendous amount of growth in recent years and is not the fastest growing segment of the industry. The industry also employs thousands of people in the UK. Our report found that most of the Vodka that is sold in the UK is produced in Scotland.

We also found that the United Kingdom has a solid economy and an excellent infrastructure. The country has a national and international communications system that is technologically advanced. In addition, the countries transportation system is extremely efficient with railways, highways, airports and ports. These facts and the growth of the Vodka segment of the industry, make the United Kingdom an attractive market.

We recommend that the Polish company focus on the Vodka segment of the industry. We found that the target market is composed of people between the ages of 18 and 24 and that most of the consumers of vodka are women. We concluded that the marketing strategy for the company must include advertisements that utilize radio, television and the internet. Our recommendations also suggest that the company position products in the most populous places in the United Kingdom. This will aid them in reaching their target market and allow them to compete effectively with other brands in the industry.

Introduction

Vodka is an extremely popular drink in the United Kingdom and the sale of the drink has had a tremendous effect on the economy and the governmental revenue of the UK. The purpose of this discussion is to assess the attractiveness of the UK market as a potential export destination for a Polish manufacturer of premium Vodka. We will begin by describing the Spirits market in the UK. Then we will discuss the demographics of those that consume Vodka. When our assessment is complete we will recommend segmentation, targeting and positioning strategies for the Polish manufacturer to implement as the firm moves into the UK market.

The Spirits Market in the UK

Sales

The graph on the left depicts Vodka sales in the UK from 1988 to 1998. The largest part of the market is composed of home sales.

According to the Gin and Vodka Association (2003), sales of Vodka in the United Kingdom are increasing faster than any other segment of the Spirits market. From 1997 to 1998 Vodka sales in the UK rose 3%.

The alcohol consumption league reports that the UK is 19th in the world in alcohol consumption, with 7.6 liters of alcohol per person.

The Gin and Vodka Association also reports that the UK spirits industry leads the world in sales and production. According to the industry's annual report,

Gin and vodka together are now the largest sector by value in the UK Spirits market at £1.59 Billion. This is up from £1.51 Billion a year ago, and accounts for approximately one third of the industry by volume. The Association represents approximately 95% of UK gin and vodka production - almost 70 Million liters of pure alcohol (LPA)." (Annual Report, 2000)

Production

This graph depicts the production of Vodka in the ten years spanning 1988 to 1998. As you can see Vodka production grew tremendously during this ten-year period.

Much of the Vodka sold in the UK is produced in Scotland. According to the annual report, the UK has recently made efforts to consolidate ad relocate facilities to Scotland.

The report explains,

The last twelve months have been marked by the completion of a major relocation of facilities to Scotland. In consequence, some 75% of UK gin and vodka now comes off the bottling lines in Scotland. Consolidation has been caused by the need to cut costs and reduce overheads in order to achieved returns comparable with our competitors. But the room for further cost cutting is limited, and achieving growth in the UK spirits sector is becoming more and more difficult." (Annual Report, 2000)

The spirits market in the UK is also essential to the economy and the workforce. It is estimated that more than a million people in the UK are employed by the spirits industry. (Revenue Taken by the UK government) The Gin and Vodka segment of the industry currently employs about 10,000 individuals. (Revenue Taken by the UK government) In addition to providing employment the Gin and Vodka industries also produce an estimated £660 million per year in VAT and Excise to the UK economy.

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It is also estimated that between 65% and 75% of the retail price of Vodka is given to excise tax. (Revenue Taken by the UK government) The production of Gin and Vodka is also critical for the rural economy because large amounts of acreage are used to produce the white spirits; much of this is arable land. (The UK Spirits Industry Leads the world.) In addition, a great deal of Gin and Vodka is exported from the UK.

Demographics

The majority of Vodka drinkers in the UK are women. In 1997 it was estimated that 51% of Vodka drinkers in the UK were women. The Gin and Vodka Association reports, "The 18-24 age group is the largest vodka drinking age group in UK. This has consistently been at 36-37% of total vodka drinkers since 1989. The 25-34 age group accounts for 24-25% of all vodka drinkers. Vodka drinkers are spread across the whole UK population" (Consumer Profiles)

The current population of the United Kingdom is 59,778,002.

According to the World Factbook, 65% of the population is between the ages of 15 and 64. The majority of the population in this age range is male. About 18% of the population is composed of people from the ages of 0 to 14.

General Economy and infrastructure

In general the United Kingdom has an excellent economy. It is one of the leading economies in the western hemisphere. The world factbook states that the government has sought to reduce public ownership in recent years and to also reduce social welfare programs. (United Kingdom) The largest portion of the nations GDP can be attributed to insurance, banking and business services. Interest rates and unemployment in the United Kingdome are extremely low. Currently the government is considering joining the European Economic Monetary Union. The prime minister has vowed to only join the EMU if it will improve the UK's employment, investment and overall growth. (United Kingdom)

As of 2002 the country's purchasing power parity was 1.52 trillion and the GDP growth rate was 1.6% in 2002. (United Kingdom) Individual incomes average around $25,300 annually. The consumer price index (inflation) is 2.1% and 29.7 million people make up the United Kingdom's workforce. Exchange rate of British pound to U.S. dollar as of 2002 was 0.6981. (United Kingdom)

The United Kingdom also has an excellent infrastructure. The world factbook the United Kingdom has a national and international telecommunications system that is technologically advanced. (United Kingdom) The country has about 700 radio stations and 230 television stations. There are also more than 400 Internet Service Providers and over 34 million internet users. (United Kingdom)

In addition, to having an excellent communications system the United Kingdom also has an excellent transportation system. The country boasts 16,878 km of railways and 371,603 km of paved highway. (United Kingdom) There are 3200 km of waterways and several ports and harbors through the country. Additionally there are 470 airports and 334 of them have paved runways. (United Kingdom)

Recommendations

As a consultant, I would definitely recommend that the Polish company get involved in the Vodka segment of the market. Our assessment has shown that the Vodka segment of the industry is growing at a rapid pace. It would be advantageous for the company to go into this segment of the industry. However there is a considerable challenge that the company will face as it endeavors to export Vodka to the United Kingdom.

One of the first challenges has to do with the current stage of the product cycle. The Vodka industry is currently at the maturity stage of the product cycle. This means that competition is high and that the market is saturated. To challenge the competition and to combat saturation, the company must cater to the target market.

Our investigation has shown that most drinkers of vodka are women between the ages of 18 and 24. The Polish company must make a concerted effort to reach this market if they expect their product to be successful in the United Kingdom. I would recommend an aggressive strategy that combines the use of radio, television and the internet. We know from our investigation that media is a major part of life for the people living in the United Kingdom. We also know that 34 million people are internet users; I think that it is safe to assume that many.....

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