1.

Honduras environment
- Located in central America
- Not much stability in politics (rule weak, policies change all the time)
- 6 mil people in a small country
- Poor country
- Lack of hard currency for foreign exchange (limited in international partnering)
- High population growth
- High unemployment rate
- High interest rate (finance by bank problem)
- Infrastructure: not good (building, electricity)
2. Five forces
2.1. Rivals: -> low
- 3 players in the Honduran market in 1990s
- Several smaller competitors and black-market operations
- Weaker by individual main brands, only win for total brands
- Demand declining
2.2. Suppliers
- Input from northern Honduras through contracting with producers each year
- Shortage happened at the end of the year
- Could not acquire molasses from outside countries due to transportation costs
2.3. Subs -> high
- Taste changing to wine and beer, light alcohol
2.4. Buyers -> high
- Distributors -> consumers
- 3 inventories
- Distributors can sell different brands
2.5. New entrants: high
- Grupo Coban
- Merge offer
3. Barjum
- Founder and president of ALDECA
- Purchased Yuscaran and provided to distributors with very low price
- Sent message to distributors to discourage them from doing business with Grupo
- Talked with his son Tony about their company culture after getting the merger offer
- Concerned when a lot of distributors considering Grupo’s offer
- Think about a course of actions like:
+ give credit to wholesalers
+ lower prices
+ tell distributors that they can not pick different brands
+ sell directly to cantinas (no much retail experience)
4. Grupo Coban
- A large conglomerate that had been able to establish a virtual monopoly in Guatemalan market, was planning to
expand its business into Honduras
- Offered incentives to the largest San Pedro distributors in exchange of carrying its brands
- A major threat to ALDECA with high market-share on the Guatemalan market and high capacity
- Owned a bank and a sugar mill, wide connection with other companies in the industry
- Cost advantage with respect to raw materials, cheaper input from Guatemala
- Purchased a small distillery in Honduras, as well as the rights to use several brands of aguardiente that have been
popular
- Purchase facilities, testing market, build networks with distributors (giving away bottles)
Distributors need to stick with company brand due to its exclusive shape of bottle.
 Testing stage
- Get the acceptance from 2 distributors
- Planning to introduce 2 new aguardiente brands into the market, each having a traditional Honduran name
- A lot of ALDECA’s distributors considering proposal
5. ALDECA
5.1. Strengths
- Big market share
- Management team
- Good relationship with distributors
- Good equipment for ops
5.2. Weaknesses
- Brand by brand: no good
- 80% capacity
- Marketing, brand, distributors
- Storage not enough
- Not automated operations -> cost
5.3. O
- Expanding distribution to the south (from merger)
- New products (from merger)
5.4. T
- Demand going down slowly
- People switching to light alcohol
6. Merge
6.1. Pros
- Capacity
- South expansion
- Repurpose the current locations
- Efficiency
6.2. Cons
- Taste changing
- Lost of control of marketing and operations
- Layout costs
7. Decision
- No merge – Stand and fight
- Distribution – Nestle and Playtex
- Hurricane Mitch
8. ALDECA info
- Background:
+ found in 1967 by Barjum; focused on quality industrial alcohol in Honduras
+ went into liquor business with products: aguardiente
- Marketing:
+ loading cases into his car and driving around, successful with direct sales to customers
+ small competition at first days
+ important market: Northern Honduras (85% sales)
- Management team:
- Lost money on each bottle of Yuscaran it delivered to San Pedro Sula
- Faced a merger offer, which:
+ have additional capacity
- less direct control over marketing and ops
9. Product: Aguardiente
- Inexpensive, clear, very strong liquor
- Purchased by poor, uneducated males, 26-45
- 60% customers drink it straight, 40% with lemon, salt, water
- Trend in using smaller bottle (750-125 ml)
- 7 lines of aguardiente -> multi-brand strategy
- Got a lot of brands into the market to confuse the market
10. Production process
- Input from northern Honduras through contracting with producers each year
- Shortage happened at the end of the year
- Could not acquire molasses from outside countries due to transportation costs
- Could not build additional storage tanks in current locations due to land adjacent developed
- Receiving input -> mixing process -> converting to alcohol -> bottling process -> shipment
- Recycled its bottles
- Not much automated, still labor-intensive
- Not use new equipment since first days, some technical problems
11. Marketing
- Difficult because consumers are illiterate and poor, common means like newspapers and TV advertising are not
effective
- Radio is a good way
- Key vehicles: POSM through distributors, FOC products
- Tried to improve mkt campaigns by hiring local marketing firm but not work
- New product testing and introduction: sales departments when they visit the cantinas, followed up by sales calls
to finalize the contract
12. Competitors
- 3 players in the Honduran market in 1990s
- Several smaller competitors and black-market operations
- Weaker by individual main brands, only win for total brands
13. Financial performance
- Factory sales dropped due to government tax policies
- Improved by transferring products to an in-house distributor at a lower price -> reduce tax on the final price to
wholesalers
- At the same time, got dividends from distributors based on sales results
14. The Honduran aguardiente market in 1995
- Shrinking slowly, people shifting to lighter alcohols like wine and beer
- The demand also declined through Central America
- New competitors and present tight competition
15. The merge with Licorera de Boaco
- Another Honduran distillery
- Also concerned about Grupo entry the market
- The merge details:
+ Move manufacturing into new facilities
+ supervise the process but using Licorera technical procedures
+ Keep the land and building
+ Mutually agreement on decision making (3 seats for ALDECA and 4 for Licorera)
+ Licorera good with mkt and distribution but not good with product development’
+ larger storage facilities -> price advantage
+ need to follow operations, marketing (Licorera right to brand name) -> time and responsibility constraints
+ need to pay 1.2 mil for worker’s compensation
- 1995 ALDECA situation
+ running 80% capacity
+ land surrounded and small for expansion or additional construction
- Licorera situation:
+ 3 times capacity
+ 15-20% lower production cost
+ not a strong brand name for its aguardiente