Little white rabbits – the logic of multiple brands

Western Australian craft/micro brewer Little World Beverages (LWB) has announced that its adding another line of beers to its stable. The listed firm, which currently brews several beers under the Little Creatures label, is opening a new brewery just outside Melbourne, and the beers out of this new location will be called White Rabbit. This raises a few strategic management questions:

Scale: Is there a maximum efficient scale for microbrew brands? To clarify, Little Creatures is a very successful boutique beer, priced above the mainstream Aussie faves and around the same as imports. It gets reasonable shelf (or tap) space in most decent pubs and bottle shops. There are currently a few different variations in the Little Creatures range (Pale Ale, Pilsner, Bright Ale and lower alcohol Rogers), all of which maintain consistent branding, with the usual shifts in label colours.

It appears White Rabbit will be run as a distinct brand (hopefully looking much niftier than my effort to the left). Presumably this an attempt by LWB to achieve more shelf (or tap) space, i.e. they can have two pale ales on the shelf (for example), thus doubling their chance of grabbing consumer attention. Had the firm hit diminishing returns from the Little Creatures marque?

Segments: Traditionally craft or micro-brewing has been seen as a bit of an “us against them” situation. The bad guys were the big brewers (i.e. Fosters and Lion Nathan), and beer aficionados have often bemoaned the instrusions into the craft segment by pseudo-brands such as James Squire (a Lion Nathan effort), Matilda Bay and Redback (both from Fosters’).

The legitimacy of such brands is questioned, in particular if they are seen as simply copy-cat or as shutting out more honourable or real microbrewers. The strategic question is has this segment matured (or segmented further) such that this effort by Little Creatures is not seen as selling out? Or alternatively, is the choice to run multiple brands a deliberate attempt to dodge such a bullet (i.e. stay legitimate in this fussy segment)?

Photo by: avlxyz

The Value Chain: This aspect is a bit more complex. LWB has traditionally shipped beer in bottles and kegs over 3000 kilometres from Perth to Melbourne (and beyond). It appears they are going to continue to do so, while scaling up the White Rabbit operations over time.

It is unclear how any economies of scope advantage can be developed here, as the firm presumably will need to bottle, label, package etc on site in Victoria (i.e. away from the Perth operations). Any gains in terms of delivery costs would seem pretty marginal as it may necessitate more movement to end up with centralised warehousing… but then the current delivery truck (see photo above) doesn’t seem overly cutting edge either 🙂

All in all, it is a very interesting move. Taking my strategic management hat off, I am, of course, excited by some more beer choices and wish White Rabbit many happy years to come…

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Talking up tea

A key business strategy challenge is raising consumers’ willingness to pay. There are huge gains to be made if you can persuade customers that your product offers much greater benefits. Several authors have spoken about the idea of Trading Up, whereby seemingly unglamourous product markets are altered by the emergence of high-end, boutique-style brands.

This article explores the experience of just such a firm – Mighty Leaf, a firm based in San Francisco who have developed a wide range of exotic sounding and attractively packaged teas. They appear to have ticked off all the required boxes so as to appeal to their target consumers: biodegradable materials, obscure flavours to request (pu-erh anyone?), and ample theatre at purchase.

The economics for their major customers (i.e. restaurants) looks very, very appealing also:

Mighty Leaf spends 20 cents on an average tea bag – the couple contracts out the production of the bags. It then sells its bags at an average 40 cents. Is the restaurant going to complain about the price? No. The theatrics enable it to sell the resulting beverage for up to $7.

This is a clear example of effective differentiation. As the article notes, Might Leaf’s success is attracting the attention of the big tea brands. In many ways, this is comparable to the attempts by large scale beer brewers to elbow in on the microbrewing (or craftbrewing) niche. The challenge for the big players is gaining legitimacy in the eyes of consumers who are paying not just for the product itself but also for the experience of engaging in something distinct or exclusive. Of course, the larger firms often have huge cost advantages spring from economies of scale and scope (for example, you would imagine they could dramatically reduce the costs of getting the teabags to the restaurants, and also target a lot more restaurants through their existing distribution networks).

Do jeans make you blue?

The manufacturing processes behind common consumer products are not often discussed in the media. Clothing is one exception, as there are sporadic debates and exposés about the likely sweatshop roots of popular brands. This story from the Saturday Age looks at the world of jeans manufacturing. It claims to expose a variety of production processes which may be harmful to the folks making the jeans (and the components thereof) and to the environment where the manufacturing occurs (often developing countries).

Multinationals have to be very careful about the perceptions of the impact of their products, in terms of both workers’ rights/experiences, and also the environment. This article suggests that the jeans being sold in Australian vary considerably in terms of the damage they have done before we buy them.

It is far from a simple cheap labour/low cost strategy story either, as the firms offering these products are often engaged in these practices so as to achieve differentiation in the highly competitive fashion market. You might even argue that they are highly innovative and adventurous firms. Also, the firms whose brands appear on the jeans are typically not directly involved in the production process themselves. They might, therefore, claim little/no awareness of, or responsibilty for, any damage done.

This not an issue that will go away. It remains to be seen whether consumer behaviour is significantly altered by such revelations, and whether firms can create any genuine advantage from taking a more socially responsible position by altering manufacturing practices.