Bailey's Irish Cream and International Demand for Alcohol
Bailey's Irish Cream and International Market Demand of Alcohol
The global liquor market has changed immensely in the last 20 years. Since the early eighties, people have discovered that it is better for their health if they drink in moderation, as opposed to heavy drinking. Due to this change in consumers drinking habits, people generally drink less liquor than they used to. According to our text, the per capita consumption of liqueurs (liters per person over 18) dropped from 1 liter in 1986 to 0.90 liters in 1990. In addition to consumers drinking less, liquor makers, like Baileys, were faced with increasing tariffs and taxes.
At the time of this case study, the tax margins between retailer and distributor were fairly close in the US: 15-20% for retailers and 10% for distributors. The United States also imposed a $22 per case import duty, and state excise taxes were as high as 20%. If you were a foreign liquor producer at the time and you sold a case of liquor at a price of $150 to a retailer in the US, you would see $128 after the import duty, which forces liquor makers to greatly increase their prices up to $177. For example, the retailer has $177 case of liquor that he has to pay a 20% Paddington tax, which makes the case cost him $212.40. Now the retailer gets to add his or her profit margin to the case of alcohol, lets pretend that the retail price of the case is $250. In this case, when the consumer finally gets to buy this product he or she has to pay for the $62.40 in taxes thus far plus an additional 20% in taxes on the final retail price. Basicly a case of liquor that originally costs retailers $150, now costs consumers about $305. American companies also have all of the taxes, just not the import duties, which can cause enough of a price increase to urge consumers to buy American. For Baileys Irish Cream, the problem was not just the US but every country in Europe had similar taxes and tariffs; in the international market it is just something that must be dealt with.
Another issue in the global liquor industry is dealing with copycat competition. Due to all of the expenses involved with developing a foreign market, it is easy for other companies to make a similar product within a...