GINEBRA SAN MIGUEL INCORPORATION

Presented by:

Norman M. Nocom

Karl Angelo Carpio

Nancy L. Villaver

Adrial Lyn A. Dayrit

Fatima T. Obenita

Russeller S. Santos

BAFM- 4B

Presented to:

Mr. Jonas C. Javier

 I. EXTERNAL ANALYSIS

A. PESTEL ASPECT

POLITICAL FORCES

REPUBLIC ACT NO.6956

An act modifying the excise tax on distilled spirits, wines, fermented liquor and
cigarettes, amending for the purpose sections 138(A) and [ 139, 140 and 142 (C) and
(D) of the NATIONAL INTERNAL REVENEU CODE, as amended. ]

REPUBLIC ACT NO.10586

An act penalizing person driving under the influence of alcohol, dangerous

drugs, and similar substances, and for other purposes.

S.B. NO. 2363 ( introduced by: Senator Ramon Bong Revilla JR. )

An act prohibiting the access of minors to alcohol and penalizing establishments

that furnish alcohol to minors.

In the Philippines it is disturbing that due to lenient monitoring and

implementation, alcohol such as beer and hard drinks can easily be bought in grocery
and convenience store by teenagers. This law sets the minimum legal drinking age at
18, nevertheless underage drinking is widespread and prevalent. A good number of
young people get alcohol from home. If not from their home, they get hold from friends
or they can discreetly buy from themselves as it is relatively easy for an underage teen
in our country to obtain alcohol from store.

As a result, a number of cases of violence; sexual and drug abuse and suicide
among Filipino teenagers have been attributed to drunkenness or alcohol intoxication.
For this reason, this is already a growing concern in our society especially in youth
behaviours, as well as to the culture of our country.

This bill seeks to guarantee that our nation’s youth would carry out their
responsibility in building our nation; prescribe minors from drinking alcohol, penalize
those who abet them to gain access to alcohol and punish establishments that sell
alcohol to minors.

This law may affect those companies that involved in the alcohol business. One
of those company or corporation is the GINEBRA SAN MIGUEL. It will affect the number
of their market, so in that case their operation and income will lessen.

WWW.PHILSTAR.COM/HEADLINES/

Manila, Philippines – The taxes are going up. This fourth year in a row that levies
on the so-called sin products have increased under the SIN TAX REFORM BILL passed by
Congress in December 2012.

This another law signed by ex-president Aquino in that same month was a big
impact on the sales of their product of GINEBRA SAN MIGUEL because of that
increasing taxes they must need to adjust their prices. It also may affect their supply
and demand.

RESOLUTION NO.10095

The Commission on Elections (COMELEC) issued Resolution no. 10095, or the rules
and regulation on the LIQUOR BAN in connection with the May 9, 2016 national and
local elections. The liquor ban will be in force on the day before election (May 8, 2016)
and on Election Day (May 9, 2016). On these days, it will be unlawful for any person,
including owners and managers of hotels, resorts, restaurants, and other establishments
of the same nature, to sell, furnish, offer, buy, serve, or take intoxicating liquor anywhere
in the Philippines. Violations are punishable with imprisonment.
ECONOMIC FORCES

The Gross Domestic Product (GDP) in the Philippines was worth 304.90 billion US
dollars in 2016. The GDP value of Philippines represents 0.49 per cent of the world
economy. GDP in Philippines averaged 73.16 USD Billion from 1960 until 2016, reaching
an all-time high of 304.90 Billion in 2016 and a record low of 4.40 USD Billion in 1962.

As presented above the Gross Domestic Product of the Philippines is rising, the
economy is in good shape. The amount of production that is taking place in the
economy and the citizens have a higher income and hence are spending more. There
is a demand on exporting and selling the products of GSMI.

Gross National Product (GNP) in Philippines increased to 2,582,445 PHP Million in

the second quarter of 2017 from 2,522,142 PHP Million in the first quarter of 2017. Gross
National Product in Philippines averaged 1564166.10 PHP Million from 1998 until 2017,
reaching an all-time high of 2,582,445 PHP Million in the second quarter of 2017 and a
record low of 944,320 PHP Million in the second quarter of 1998.
 As presented above the Gross National Product (GNP) of the Philippines is
increasing, the production of goods and services within the country is growing there is
also a demand for GSMI within the Philippines.

Total recorded per capita consumption of Filipinos is 3.75 litres of pure alcohol for
those 15 years and above and increases by 10% every year 38.9% of Filipinos are
occasional alcohol drinkers, 11.1% are regular drinkers (13% males and 5.9% females)
while 4.8% are heavy drinkers (6.6% males and 1.3% females) though children Filipino
drinkers drink beer (78.5%), liquor--rum, gin, whisky and lambanog (70.6%), and wine,
tuba, sangria, sherry (42.4%) Filipinos drink to socialize (45.5%), to remove stress and
burden (23.8%), or just be happy and gain pleasure (17.5%). 60% of Filipino youth ages
13 years and above have taken or are taking alcoholic beverages—79% males and
21% females. Figures for moderate and heavy drinkers among the young and women
from 2001-2004 are found to be increasing, still with more males at 66.6% and women
slowly catching up at 33.4%. Drinking is still more acceptable among males among the
young, and those likely to drink are those who are not living with their parents, whose
parents approve of drinking, who frequent social gatherings or parties, bars and discos
and those who do not normally take part in any sport activity.
Social Cultural Forces

Drinking as what the Filipinos would call it – has always been a staple to every
celebration. May it be in a birthday party, a fiesta, or just a simple get-together, the
Filipinos would always find a reason to gather around a small table, buy cases and
cases of beer, and just chat the night away.

While drinking is a part of every country’s cultures, there is still something that sets
them apart from the others. Here are some of the things that make drinking uniquely
Filipino.

Filipinos love to have a good time. One of the best ways they do this is by
drinking, especially on a special event.

When there’s a special occasions the sales of alcoholic beverages will rise and
because of new technology other businessman choose to open a business like Bar’s
which primary product offer is liquors. Nowadays the population of alcoholic drinker is
rising and most of them choose to buy the products of Ginebra San Miguel because of
its popularity and affordable price.

NATURAL ENVIRONMENTAL FORCES

Natural calamities, such as typhoon, affect the production of the company. The
main ingredients in making alcoholic and non-alcoholic beverages are distilled from
molasses produced from sugarcane and sugar and high fructose corn syrup (HFCS),
which are agriculturally produced. During a typhoon calamity, crops are usually
damaged. In that case, the liquor company cannot easily acquire raw materials.

TECHNOLOGICAL FORCES

The emergence of television as an advertising medium really affected the

brewery industry. TV allowed brewers to get their name out there at a more national
level involving less time and effort. It also gave the largest brewers a huge
advantage over the smaller brewers who could not afford to advertise on TV.
Advertising on television was not without its drawbacks however, the costs were
extremely high.

Also social media helps in advertising and promoting their products because
most of people are into social media they can easily aware of what is trending.
GSMI can use social media on advertising to gain and expand their market
 B. INDUSTRY ANALYSIS

The Company is the market leader in the local hard liquor industry. Major
competitors include Tanduay Distillers, Inc., International Distillers Philippines,
Consolidated Distillers, Inc. and Emperador incorporated. . Competition in the hard
liquor industry revolves around brand equity, price, security of raw material supply,
production efficiency and distribution network.

The hard liquor industry is currently dependent on the supply of molasses, the raw
material for alcohol. The country’s molasses supply in the past five (5) years has been
erratic. Shortages have occurred in previous years, resulting to importations. This has put
pressure on hard liquor manufacturers as imported molasses is more expensive due to
high tariff and freight rates. In response to this, the Company has invested on alternative
raw material in the form of cassava. The use of cassava is expected to cushion the
sudden fluctuations in molasses supply. The hard liquor industry is currently dependent
on the supply of molasses, the raw material for alcohol. The country’s molasses supply in
the past five (5) years has been erratic. Shortages have occurred in previous years,
resulting to importations. This has put pressure on hard liquor manufacturers as imported
molasses is more expensive due to high tariff and freight rates. In response to this, the
Company has invested on alternative raw material in the form of cassava. The use of
cassava is expected to cushion the sudden fluctuations in molasses supply.

Hard liquor manufacturers also compete in terms of production efficiencies, as the

price sensitive nature of the industry’s consumers makes them more reliant on cost
improvements than on price increases to brace against profit squeezes from an
inflationary operating environment. Currently, the Company has leading brands in both
the gin and the brandy segments.

Beer is the most consumed alcoholic beverage in the Philippines, a Filipino will drink an
average of nearly 20 Litres of beer in a year.
 C. PORTERS FIVE FORCES

Threat of new entrants

The threat of new entrants is low.

The barriers to entry in the brewery industry are extremely high, especially if one
intends to compete with the top brewers. Building a single brewery that could compete
with the scale of the upper echelon brewers would cost a lot. On top of that,
advertising and distribution costs could cost so much per year. GSMI is leading in the
local hard liquor industry in the country and really makes it hard for new entrants to
compete.

Threat of Substitute

The threat of substitute is HIGH

There are many substitutes for liquor beverage. One of the most powerful
substitutes for liquor is soda. Both liquor and soda are considered casual drinks that you
drink in leisure time. Unlike soda however, liquor is not very socially acceptable. By this
mean you cannot consume it wherever you want. It is not acceptable to drink liquor at
work, while you are driving, or basically while you are out in public. This gives substitute
products like juice, water and soda a distinct advantage over liquor. Other substitute
like hard liquor, and wine coolers are more comparable to brandy. They all contain
alcohol and serve the same purpose which one a person chooses to drink is a personal
preference that can heavily influenced by marketing. Substitutes also include home-
made beer and beer coming from microbreweries that serve on premises.

Bargaining power of Customers

The industry has two main sets of buyers. They are retailers and wholesalers,
Retailers had few alternatives if they wanted cheap, well-known brandy in high
quantities. Most of these retailers, like bars and liquor stores relied heavily on the
product to make their money. The brewery industry on the other hand did not have to
sell to them to survive. Wholesalers are a slightly different story. Brewery companies
relied on wholesalers to open large accounts, secure prime shelf space, and fund local
promotions. There were also only a few wholesalers per market this gave the
wholesalers some bargaining power if a new beer wanted to enter a market.
Bargaining Power of Suppliers

The key ingredients in the liquor products are distilled from molasses produced
from sugarcane grown and milled in the Philippines. Large and efficient markets existed
for all of these commodities. This means that the power of supplier is low because
efficient markets mean that there are plenty of sellers, so no single seller can control the
prices. But sellers of these commodities do not rely solely on the brewery industry for
their existence, but the brewery industry relies heavily on these commodities to do their
business. These gives the supplier a little bit of bargaining power but not much. Overall,
the suppliers in the brewery industry possess a moderate amount of power.

Industry Rivalry

Rivalry between existing firms in the brewery industry is extremely intense. This is
probably the strongest force in the five force model in terms of the brewery industry.
Before, the demand for alcoholic beverages is extremely low. Therefore these
companies are going to be fighting even harder to keep old customers and gain new
ones. The brewery industry is one where your rival can force you into action. It is hard to
differentiate liquor, since it is a fairly standard product. Therefore your success in the
industry will be based on how well you can beat your rivals. Rivalry is very high in the
brewery industry and is probably the most important force.
 D. OPPORTUNITIES AND THREATS

Opportunities

 Low risk of new entrants

GSMI is the market leader of local hard liquor industry in the country. Therefore, it
would be hard for new entrants to compete.

 High opportunity in exporting products

International trade increases the number of goods that domestic consumers can
choose from, decreases the cost of those goods through increased competition, and
allows domestic industries to ship their products abroad.

 Economic growth

In 2016, there is an increase in Gross Domestic Product which means there is an

economic growth. There is a great opportunity for GSMI to increase its profitability.

 Well-established market position

GSMI has been operating since 1987. It already has already positioned itself in
the hard liquor industry.

Threats

 Government policies

Laws such as R.A. No. 6956, S.B. No. 2363 and R.A. No. 10351 serve as are major
threats that affect the company’s production and selling of products. The raise in excise
taxes on alcohol and tobacco products and distilled spirits produced from indigenous
raw materials significantly changed the rate on the tax required.

 High substitution rates

GSMI competes with all kinds of beverages. Direct competitors are local hard
liquor companies. Indirect competitors are alcoholic drinks such as wines and non-
alcoholic drinks such as juices and drinking water.

 Natural Calamity

Uncertainties such as natural calamities affect the operation of the company,

since the raw materials used in the production of liquors are agriculturally produced.

 There are a lot of entities who want to venture in this type of market.
 II. INTERNAL ANALYSIS

A. History and Background

Ginebra San Miguel, Inc. (GSMI) grew out of a family-owned Spanish Era distillery
which, in 1987, introduced what was to become the company’s flagship brand, the first
ever Philippine gin and the largest selling in the world-Ginebra San Miguel.

GSMI has since evolved from being a solely gin-driven business into a progressive
and dynamic organization whose strength lies in the proud heritage of its flagship
product, its extensive experience in alcohol production and distribution, and the never-
say-die spirit of its workplace. Ginebra’s San Miguel, Inc.is the world’s largest gin
producer by volume as well as the market leader in the domestic hard liquor market,
with core products such as Ginebra San Miguel Gin, GSM Blue gin, Primera Light Brandy
and Vino Kulafu. It also produces and sell distilled spirits in Thailand under a joint venture
agreement with Thai Life Group of companies. In addition, Ginebra owns one distillery,
three liquor bottling plants, one cassava starch milk plant and five toll bottlers
strategically located throughout Philippines and one bottling plant and one distillery in
Thailand.

In June 1834, Casa Roxas ( a partnership between Domingo Roxas and Antonio De
Ayala ), the precursor of Ayala Corporation, founded the first distillery in the philippines.
It produced a variety of drinks including anis, anisette, cognac, rum, whisky and its
trademark gin, Ginebra San Miguel. The distillery was located in Quiapo, Manila and
was a major business of Ayala Y Compania ( successor of Casa Roxas ) when it was
acquired by La Tondena on June 21, 1924.

Ginebra San Miguel , Inc, (GSMI) is a Philippines based beverage company . it is

subsidiary of San Miguel Corporation. The company is engaged in the manufacture
and sale of alcoholic and non-alcoholic beverages. Key brands offered by the
company include GSM Blue, Gran Matador Brandy, St. George Premium Whisky,
Antonov Vodka, Erg and Tondena Manila Rum. GSMI has three liquor bottling plants
located at Mandaue City, Cebu; Santa Barbara, Pangasinan; and Cabuyao, Laguna.
The company also operates a distilling plant at Bago City. In addition, the Company
utilizes external toll-manufacturers to produce liquor products in Pampanga, Laguna
and Quezon. GSMI principally operates in Philippines and also exports its product all
over Asia. The company is headquartered in Manila, Philippines.
 B. Product and Services

Alcoholic Beverages

 Ginebra San Miguel

 G.S.M Blue
 Ginebra San Miguel Premium Gin
 Gran Matador Brandy Solera
 Gran Matador Brandy Solera Reserva
 Añejo Rum
 Antonov Vodka
 Antonov Flavored Vodka
 St. George Premium Whisky
 Don Enrique Mixkila Distiled Spirit
 Vino Kulafu
 Don Enrique Silver Brandy
 Don Enrique Gold Brandy
 Ginebra San Miguel Flavors
 Gran Matador Primo (new product, Launched in April 2010)

Non- Alcoholic

 Supremo Cane Vinegar

 Magnolia Healthtea
 Magnolia Fruit Drink
 Magnolia Purewater
 Magnolia Powdered FruitDrink Mix
 Magnolia Powdered Iced Tea
 Berri (imported from National Foods Australia PTY Ltd.)
 Lifedinks
C. Current Issue Facing

MANILA, Philippines – The Court of Appeals has junked the plea of Tanduay
Distillers, Incorporated (TDI), which it found liable for unfair competition and
infringement for using the “Ginebra Kapitan” trademark of its arch-rival, Ginebra
San Miguel Incorporated (GSMI).

TDI operates under the Lucio Tan’s LT Group, Incorporated, GSMI is largely
owned by San Miguel Corporation led by Ramon S. Ang. SMC has long used the
“Ginebra” mark for its gin products.

The CA did not give weight to the argument of TDI that it should have dismissed
outright GSMI’s appeal for being improper and on the ground of forum
shopping.

The appellate court declared that “the mere use of ‘Ginebra’ by TDI in its
‘Ginebra Kapitan’ gin products is trademark infringement by itself.”

The CA noted that its findings on TDI’s liability for trademark infringement and
unfair competition is consistent with the decision dated August 15, 2013,
rendered by the Special Former 13th Division on a similar case involving the same
parties.

The November 2014 decision also ordered TDI to remove from the market all its
gin products bearing the mark “Ginebra” including all bottles, labels, signs, prints,
packages, wrappers, receptacles, and advertisements.

—Rappler.com
D. Financial Statement Analysis

Liquidity Ratio

Current Ratio = Current Assets / Current Liabilities

( Ability to meet short – term obligations )

YEAR 2010 YEAR 2009

1.41 : 1 1.33 : 1

This is indicator of the company’s readiness to meet its obligations. The

Company’s exposure relates to its debt obligation to banks, suppliers of printing
materials and services and to government regulating and taxing authorities. The
Company’s approach to managing liquidity is to ensure, as far as possible, that it
will always have sufficient liquidity to meet its liabilities when they are due, under
both normal and stressed conditions, without incurring unacceptable losses or
risking damage to the Company’s reputation.

The company focuses on its cash sales transactions, which assists it in

monitoring cash flow requirements and optimizing its cash returns on investments,
specifically on modern machinery. Typically, the Company ensures that it has
sufficient cash on demand to meet expected operational expenses for a period
of 30 days, including the servicing of financial obligation, this excludes the
potential impact of extreme circumstances that cannot reasonably be
predicted such as natural disasters. In addition, the Company maintains the lines
of credit with certain local banks.

As of December 31, 2010, total current assets amounted to P 11,522,309

while total current liabilities were computed at P 8,144,012; current ratio was
1.41:1.
Profitability

Return on assets =Net Income / Total Assets

( Effectiveness in the use to generate profits )

Year 2010 Year 2009

0.05 0.05

Return on Assets is an indicator of effectiveness in the management or use

of the company’s Assets to generate profit. For the calendar year 2010, net
income registered at P917,454 while total assets used to generate such income
totalled to P 18,683,168.

Solvency

Debt Ratio – Total assets / Total liabilities

( Indicator of the long- term solvency of the company )

Year 2010 Year 2009

1.88 : 1 2.21 : 1

Total assets of the registrant amount P 18,683,168 as against its total liabilities of P
9,948,202 or 1.88 : 1 Debt Ratio. This is an indicator of the long-term solvency of the
Company.
Earnings per Share

EPS = Profit after tax / No. of shares

Year 2010

( In Thousand )

EPS = 864,674 / 285,088,208 = 3.03

Basic and Diluted earnings per share is computed by dividing net income
for the year by the weighted average number of common shares issued and
outstanding during year, after giving retroactive effects to stock dividends
declared, stock rights and exercised and stock split, if any , declared during the
diluted per share are the same.
E. Strengths and Weaknesses

Strength

 Technological Advancement

Technological Advancement is one of the reason why GINEBRA SAN

MIGUEL still in the competition in the market. Advancing of technology
may result in the competitiveness of the company.

 Strong market position

The Company is the market leader in the local hard liquor industry.

 Trade Mark

Because of popularity of the company, they can attract more

investors to invest to their company that may lead in the one of the best
hard liquor supplier in the industry not only in local but also in international.

Weaknesses

 Trademark

All marks used by the Company in its principal products are either
registered or pending registration in the Philippines and in foreign countries
where they are sold, in its name or in the name of SMC, its parent
Company.

 Limited products

The company is focusing in hard liquor product and they are not
engaging in beer products.

 The Company is not dependent upon a single or few customers, the loss
of any of which will have a material adverse effect on the Company and
its subsidiaries taken as a whole.
 F. Conclusion and Recommendation

CONCLUSION

The highly elastic demand for mainstream liquor products also leads major players
to compete on the basis of pricing.

In this area, GSMI employs rational pricing policies that are in line with prevailing
consumer purchasing power and current operating cost levels. Also, the Company
ensures that its products provide utmost value for money to its consumers.

The hard liquor industry is currently dependent on the supply of molasses, the raw
material for alcohol. The country’s molasses supply in the past five (5) years has been
erratic. Shortages have occurred in previous years, resulting to importations. This has put
pressure on hard liquor manufacturers as imported molasses is more expensive due to
high tariff and freight rates.

In response to this, GSMI has invested on alternative raw material in the form of
cassava. The use of cassava is expected to cushion the sudden fluctuations in molasses
supply.

Hard liquor manufacturers also compete in terms of production efficiencies, as the

price sensitive nature of the industry’s consumers makes them more reliant on cost
improvements than on price increases to brace against profit squeezes from an
inflationary operating environment.

GSMI gets ahead of the competition through strategies that maximize the retrieval
of second-hand bottles, the usage of which in production may result to significant
improvements in the Company’s cost structure.

Manufacturers compete in the breadth of their distribution network.

GSMI distribution network of one hundred three (103) dealers, three (3) Company-
owned liquor bottling plants, and four (4) toll manufacturers are strategically dispersed
throughout the country, ensuring that consumers are immediately served with high-
quality liquor products.

Recommendation
 The researchers recommend major restructuring for GSMI in their products for
their sales for the past years is declining due to low sales of liquor. We suggest that they
lessen their offered liquor especially those products that not popular to the market and
focus to the products that sells good in the market.

People may often lost interest in a product easily, they will patronize whatever is
new in the market. The researchers recommend to innovate their product instead of
producing new one, With that it may increase the sales without affecting the
production cost.

We also recommend to improve packaging to be more attractive to the

customers.