European Entrepreneurship Case Study Resource Centre

Sponsored by the European Commission for Industry & Enterprise under CIP
(Competitiveness and Innovation framework Programme 2007 – 2013)

Project Code: ENT/CIP/09/E/N02S001

2011

Kofola Holding (Slovakia)

Martina L. Jakl
University of Economics, Prague

Sascha Kraus
University of Liechtenstein

This case has been prepared as a basis for class discussion rather than to illustrate either the
effective or ineffective handing of a business / administrative situation.

The teaching notes for this case have been written by the case authors to instruct and aid
academic lecturers, teachers, instructors, trainers and/or mentors in the use of this case
study for classroom discussions, presentations and other forms of education. These teaching
notes are a guideline, and do not have to be strictly enforced.
 Teaching Notes

Case Summary
The Slovak top brand Vinea, a carbonized grape based soft drink is owned by Czech-Polish
family company Kofola. In February 2008 Kofola acquired the Vinea brand from Slovak
company Vitis Pezinok for more than Sk 200 million (€6 million), but despite 2009 being a good
year in sales, the year was also marked for Kofola as being an integration year with Hoop into a
common holding structure. The company now felt is was time to become more aggressive in the
market and expand internationally with Vinea, as they already started to sell their flagship brand
Kofola in nearby markets such as Germany or Austria. However, despite of many Slovakians
living in the Czech Republic Vinea is not officially sold in the Czech Republic and the big
question facing the company is; which strategy should they adopt. Several ideas are on the table
and Martin has now to decide, which one is the best for entering the Czech market with Vinea.

Most important for Kofola are strong brands as their entire strategy is built on strong brands with
Kofola being the most important brand in their portfolio. Therefore, all the positioning efforts
should aim at building up a strong brand portfolio where they aim at having, apart from premium
brands, labels for price sensitive buyer’s and private labels. This should be seen as precondition
to evaluate the Pro’s and Con’s of the several suggested alternatives.

Kofola holding has evaluated three different possible strategies:

There are many Pro’s when thinking of keeping the same marketing strategy for Vinea as in
Slovakia. Expenditures can be diminished and the brand will receive a clarified image as the
Czech Republic and Slovakia are geographically very close and also when it comes to culture and
language. Furthermore, many people frequently travel to Slovakia from the Czech Republic,
which makes it difficult to have separated positioning strategies. A Con, however, is the potential
that people will get confused with being offered different brands of carbonized grape lemonade
from the same producer which are almost in the same segment (stylish, for younger people) with
the exception of the core Top Topic which is perceived as being somehow without profile.
Regarding the third strategy, splitting sales channels between Vinea and Top Topic, this is a
strategy which (apart from the mandatory different packaging) hasn’t been followed by Kofola.
This is considered a strong Con as this strategy has no tradition in the company. Another Con is
that Kofola can easily use its strong position in the retail sector to introduce new brands as
Kofola’s presence in the HORECA sector is weak. Therefore, this strategy has more Con’s than
Pro’s and seems not to use the full potential of Vinea. Alternatively, not to enter the Czech
market with Vinea has also significant Con’s, with the strongest Con being the growth of the
market in addition to the poor performance of Top Topic in the last year. A Pro would be to have
a free market for Top Topic and initiate a relaunch for this brand.

In the end, the company decided to go for the same communication campaign as in Slovakia and
positioned Vinea at the same level as Kofola, as premium brand. They perceived it as easier to
reposition Top Topic which did not have a satisfying performance. The strategy for Top Topic
flavors Ego and Freedom aims now at bars and nightclubs and includes, for instance, marketing
campaigns with bar tenders for mixed drinks with top topic. For other retail channels, the strategy
for Top Topic is to have a fade out of he brand in off-trade sales.

Teaching Objectives and Target Audience

Students will be expected to draw on their knowledge of market research and marketing. This
case helps students to develop understanding and skills in dealing with the positioning of
products in foreign markets and evaluate market potential.

This case is intended for a course or seminar in entrepreneurship at the graduate level or for
executive training courses. On the analytical dimension, the problem is stated and various
alternatives are provided. Thus, students will be expected to analyze the data and generate
decision criteria as well as a well founded on the right entry strategy.

Suggested Teaching Approach and Strategy

This case focuses on the evaluation of three different possibilities to enter a foreign market with a
premium product. The immediate issue is to decide which possibility offers the greatest potential.
Other basic issues include market research of the respective foreign market and decision making
in brand positioning, as well as the choice of a suitable strategy.
Students should put themselves in the position of Martin Klofanda and analyse the following
questions:
1. Which strategy is most promising regarding the entry of Vinea into the Czech market?
2. How would you position Vinea in the Czech market?
3. How big is the market potential for Vinea in the Czech Republic?

Analysis Techniques Recommended

The aim of the case is to determine the right entry strategy for Vinea based on a Pro and Con
evaluation of the possibilities presented in the case.
 Appendix
Interview with Jaroslav Bartak, CEO of Kofola

Kofola aims to gain a bigger share in the on-trade soft drinks market
Czech Business Weekly 26.11.2009, Martina Marečková

Q: What is the reason for falling cola drinks consumption?

A: I think it’s a combination of factors. Certainly the fact is that people tend to spend less
money—we know that there is growing unemployment and economic downturn. The fact that the
amount of liters of soft drinks sold is unchanged and the value is decreasing can perhaps be
explained by the fact that people are switching to cheaper segments or there is a price war among
retailers. Retailers now fight [for market share] mainly through price wars. Kofola is such a
strong and well-known brand in the Czech Republic that retailers like to use it as a loss leader
[product sold at a substantial discount in order to generate additional sales].

Q: International markets, cost savings and innovations are key for growth for some of the
leading global soft drink makers—what is your strategy?
A: It’s very generic and it is perhaps valid for any company. The way to grow brands is via
innovations of existing categories, entry to new categories, cost savings, and we want to pursue
all these ways. As a group we currently operate in four markets—the Czech Republic, Slovakia,
Poland, and Russia—and we have a few export countries. In the coming period we need to
consolidate our business in these four markets following the acquisition [of Polish soft drink
maker Hoop] from last year so in the near future I don’t expect us to enter new markets.

Q: What is your role as a manager in this consolidation?

A: I have 15 years of experience with management, mainly in Anglo-Saxon and partly also in
German companies. We’re trying to apply in Kofola the standards of structure of work and
system of work used in management of international firms which have been doing it well and for
a long time. One of my tasks is to set management [structures], communication and processes
comparable to standards of international companies. I’m responsible for all of Kofola’s activities
in the Czech Republic—two production facilities and the sales team. Kofola Holding set some
goals; my primary goal is to contribute to the good results of the group. As for specific synergy
effects within the group, our results have improved because we are now a much stronger player
than in the past, such as when we purchase material, for example. In retail, the stronger a player
you are, the better conditions you can negotiate. Other synergies include the ability to save costs.
If our colleagues in Poland invent something, we can implement it here. We share knowhow.

Q: You’re currently busy with the group’s consolidation, when will be the right time to
enter new markets?
A: We may consider an entry into new markets next year and perhaps we’re dealing with it
already. Maybe our attempt to enter new markets will lead somewhere.

Q: So next year we may see Kofola in new markets?

A: We plan to export to new countries, but we don’t plan to open new plants in the near future.

Q: Companies are cutting costs, closing plants and dismissing staff, have you been forced to
take any of these measures in Kofola?
A: This year we haven’t made any major layoffs and we don’t plan to do any major layoffs in
2010. We don’t belong to the industries which declined 30–40 percent compared to last year. In
our production facilities we dismissed 3–4 percent of workers but it was not due to the economic
downturn. We have old and new production lines … and these workers were not qualified to be
transferred to the modern production lines. We implemented a world class manufacturing
program and within this process made some production processes more efficient. As a result we
had to say goodbye to a few people.

Q: Last year Kofola acquired the Vinea brand—are there other brands within the region
which you find attractive and which would be suitable to add to your portfolio?
A: Yes, there are, but I can’t tell you with which companies we negotiate or which brands
we are considering [to add to our portfolio]. Our competitors are alert.

Q: Are any of the negotiations at an advanced stage?

A: Yes, some of them are.

Q: What about your own brands, would you be willing to sell any of them?
A: As far as I’m aware, we’re not in talks to sell any of our brands. Our portfolio is balanced, it
can grow and we are at a stage when we don’t want to sell. We know how to build brands.

Q: Which of your brands generates the most sales on the Czech market?
A: Naturally, Kofola is a very strong brand in the Czech Republic and in Slovakia. Rajec
bottled water contributes to our business in Slovakia and in the Czech Republic; Jupí
[fruit drink] brand is extremely strong. Hoop Cola is strong in Poland; it’s number two on
the local market.

Q: Some soft drink segments such as iced tea, mineral water and energy drinks are absent
in your portfolio, do you have a plan to add these drinks to your portfolio to become more
competitive on the market?
A: We have a plan and we’re working on it but I can’t disclose the details of the plan. We want to
expand our portfolio and modernize it. Pubs or shops don’t want to have 20 suppliers but two to
three, therefore these two to three suppliers must have a complex portfolio.

Q: Is it the reason why Kofola is not often present in fine restaurants or is it because these
restaurants favor multinational brands?

A: It’s a combination of factors. Our competitors are very strong, they handle sales tactics well,
but we are getting there. Talking about hospitality, we are still perceived as a Czech brand and
when a restaurant owner opens a business, the first cola drink that comes to his mind is Coca-
Cola or Pepsi-Cola [PepsiCo]. Particularly Coca-Cola has a complex portfolio, phenomenal
service and is good at sales. We are trying to position ourselves as a local alternative. You’re
right when you say that particularly in prestigious and big restaurants our presence is weaker than
we would like.

Q: How does it work when Coca-Cola and Kofola are sold in the same restaurant?
A: It works in many restaurants. It depends on customers what they choose—some customers are
loyal to Coca-Cola while others are to Kofola. And that’s our principle— let’s give customers a
choice.
Q: Looking at the Czech cola drink market, what are the main players and their share?
A: Looking at the overall soft drink market, we are number three after Karlovarské minerální
vody, with 17.8 percent share and Coca-Cola Česká Republika, with 16.6 percent share. We have
12.8 percent market share in the first nine months of this year; Pepsi-Cola, number four, has 6.9
percent market share.

Q: Has your market share changed over the past years?

A: It’s been more or less flat in the past year, around 13 percent.

Q: What is your share on the cola drinks market?

A: Talking about off-trade sales, Coca-Cola had a 47 percent market share in the first nine
months of this year, Kofola had 27 percent and Pepsi-Cola 14.5 percent, according to a top
market research firm. In on-trade sales, Coca-Cola is number one and Kofola number two, as
well.

Q: Czech consumers remember your new brand Vinea from the times of former
Czechoslovakia—when will we see the brand on the Czech market?
A: We successfully sell the brand in Slovakia. It’s a question of a short time before we introduce
the brand again to the Czech market, but I can’t tell you when it will happen.

Q: As a producer of bottled water Rajec what do you think of the novelty at some
restaurants in this country to serve free tap water to customers?
A: The customer does not know if the water is safe to drink because he doesn’t know what pipe it
comes from. In the case of bottled water the quality is guaranteed. In some foreign countries it is
common that customers are automatically given a complimentary jug of water with ice, but you
don’t know what water. We perceive this as a legitimate activity of water supply companies and
we plan to continue doing what we do. We let the customers choose.
Q: What are the results of Kofola’s Czech operations for Q1–Q3?
A: We don’t release results for separate markets. But generally speaking, we more or less follow
the market [performance] which I consider a success. There’s only a small decline in sales in
units of percent compared to last year. Off-trade sales declined by 3.5 percent, but in on-trade
sales we’re not performing as bad as the general market, which declined by some 10 percent.

Q: What are your expectations for the full year 2009?

A: We have two months ahead of us and I dare say that Czech operations will post nearly
identical sales as in 2008.

Q: What are your plans for 2010?

A: Kofola has a weaker presence in the hospitality industry so our focus will be to strengthen our
position in hotels, restaurants and catering and we will continue to be active in the retail industry.

Q: How do you want to achieve that?

A: Through innovation of our portfolio, we are preparing changes in the existing portfolio and
adding new drink categories. It can be through acquisitions or innovations of brands.

Q: The advertising market declined this year, have you reduced your marketing and
advertising expenditures?
A: No, we didn’t and we don’t plan to do so. We believe in brand building and this represents
advertising investments.