Deep Roots Distillery

Introduction and background

Deep Roots Distillery (DRD) is a small family-run business located in Warren Grove, Prince Edward Island and established in 1990. DRD was originally a fruit orchard called Beamish Orchard but in 2012, Mike Beamish, the owner, decided to develop and produce their own apple cider. Beamish felt that there was a niche in the market for an “organically certified” spirits and liqueurs, specially since in 2005 Beamish Orchard’s acquired full organic certification from Atlantic Certified Organic.In February 2013, Mike and his son, Paul, attended a week-long Artisan Distillery Workshop through PEI BioFoodTech, a government unit that provided technical services to PEI food and bioprocessing industries, to learn the fundamentals of the industry. DRD was incorporated as a craft distillery in November 2013 while using their own organically grown fruit as material. DRD’s product direction was to focus on small-batch, local craft spirits and liqueurs.

Issues:

1) How can Mike create a strategy to stabilize the business and support $80,000 a year in salaries?

2) Given capital and resource constraints, how could DRD grow into a competitive business?

3) What kind of product differentiation strategy should the company pursue?

4) Would the startup’s current product/market strategy allow it to achieve its goals? If not, which expansion route should DRD take?

External Analysis

Rivalry: Rivalry in the industry is relatively high. There are three small distilleries, four wineries and a growing number of craft beer companies. The three distilleries are funded by the government and have a solid recognition within local market. Prince Edward Distillery seems to be the most competitive one, with possible expansion towards Europe.

Buyer Power: The buyers power is high because consumers have many alternatives in terms of products that have overall the same quality and low switching costs. Also, most of the sales are made to PEILCC which gives them the power of choosing the most competitive price.

Supplier Power: Suppliers are the companies themselves in most of the cases, as they produce the organic products that they then use to distil their liquors. Therefore, DRD has low need of purchasing products. In case the company wants to distil a different liquor based on another organic fruit, then the supplier power would become medium.

Threat of New Entrants: This is medium/high. There are licensing regulations to join the market and it seems that the capital required ranges between $100,000 -150,000. There are existing companies that control the market with new products but apparently there are