Which of the following divesting decision is due to corrective strategic reasons?
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Which of the322mned following divesting decision is due to corrective strategic reasons?
908N04 MORE VINO LTD.—EXPANSION PROPOSAL Julie Gosse wrote this case under the supervision of Elizabeth M. A. Grasby solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e)
[email protected]; www.iveycases.com. Copyright © 2008, Richard Ivey School of Business Foundation Version: 2018-05-31 It was late March 2017, when Arthur Greenway reviewed the TT$600,0001 request for additional funding to help finance the renovation of an outdoor patio area from Christian and David Stone, founders of More Vino Ltd. Greenway was an accomplished businessman, shareholder and silent partner of More Vino, a wine retailer located in Port of Spain, Trinidad. Greenway, along with his investment partner Ross Moore, had provided a major portion of the start-up capital for the Stone brothers to open the business. Since then, More Vino had grown in popularity and was now considered the newest local hot spot for food, drink and entertainment. Greenway believed More Vino was a good investment, and he knew that Christian and David were relying on him and his partner for funding, but he was uncertain whether lending additional capital at this time was the best thing for the business. TRINIDAD AND TOBAGO2 The Republic of Trinidad and Tobago comprised two islands located at the southern-most end of the Caribbean, 10 kilometres from the east coast of Venezuela (see Exhibit 1). Trinidad, the larger and more populous of the two islands, had an area of 4,800 square kilometres and a population of 1.3 million. Tobago was 32 kilometres off the northeast coast of Trinidad with a substantially smaller area (300 square kilometres) and a population of just over 54,000. The Republic was primarily English speaking, with 40 per cent of the population being of African descent, 40 per cent of Indian descent, and the remaining ethnic mix a combination of European, Chinese or Middle Eastern ancestry. While Tobago was the centre of the Republic’s booming tourism industry, Trinidad was an industrialized island with a diversified economy based, to a large extent, on oil and agriculture. In the past 10 years, the country had shown consistent growth in its tourism and service industries. Trinidad was equally known for its cosmopolitan lifestyle and many festivities. The capital city and centre of government, Port of Spain, was the epicentre of business activity and the Republic’s major financial hub. It was also host to Carnival, a ritual over 150 years old, where partygoers (locals and tourists) participated in a widespread week-long 1 All funds are expressed in Trinidad & Tobago dollars. CA$1:TTD$5.80 (approximately). 2 The information represented in this paragraph was largely comprised from material accessed from the Trinidad and Tobago Tourism Development Company, www.tdc.co.tt/index.htm and Welcome to Trinidad and Tobago www.visittnt.com/index.asp. This document is authorized for use by Jonathan Kalombo, from 08/10/2022 to 12/31/2022 in the course: FI 4020: Jha - Financial Analysis and Introduction to Loan Structuring (Fall 2022), Georgia State University. Any unauthorized use or reproduction of this document is strictly prohibited. Page 2 9B08N004 celebration with elaborate parade costumes, dancing and singing to native calypso, soca and steel band music. Overall, the Republic exhibited and celebrated a vibrant cultural heritage, expressed through dance, music, art and cuisine, originating from the mix of different ethnic groups. COMPANY BACKGROUND The Stone Brothers Christian was the eldest of the two Stone brothers. Born and raised in Trinidad, he had always had aspirations to be an entrepreneur. Christian came to Canada to complete his university education, where he graduated with an honors degree in business administration from the Ivey Business School at Western University. Upon graduation, Christian moved back to Trinidad to explore a number of entrepreneurial ventures that he and his brother could pursue as co-owners. David also graduated from The University of Western Ontario with a degree in economics, and he joined Christian in the search for a viable business opportunity. Although he had lived outside of Trinidad for a number of years, Christian remained interested in returning home to start a business. Through his travels, he had observed that there remained a large disparity in Trinidad’s standard of customer service and the service he had experienced in other parts of the world. Consequently, he believed there was a unique opportunity to combine a more advanced concept of service with the traditionally relaxed attitude of the Caribbean, and he therefore sought to incorporate this competitive advantage into his own entrepreneurial venture. The Opportunity While in Ontario, Christian had become familiar with the province’s beverage alcohol industry and noted that wine sales, in particular, represented a major portion of the market. Christian had also visited a number of Canadian bars and restaurants that specialized in mass selection and specialty vintage wines to accommodate their customers’ growing appreciation for wine and wine culture. In Trinidad, locally made rum and beer tended to dominate sales; however, with rising income levels, premium imported products were gaining in popularity. Individual consumers could purchase wine and other alcohol products at bars, restaurants, grocery stores, variety stores or at one of the few specialty retailers on the islands. Commercial consumers could source their large orders from a few well-established distributors. Although liquor was widely available through these many channels, there were few retail establishments in Trinidad that specialized exclusively in imported wine and wine products. The Trinidad and Tobago retail market for wine was estimated at TT$48 million with considerable growth anticipated for the next five years.3 Sensing the opportunity to meet an emerging market need, Christian believed that he and David could build a successful wine-retailing business emphasizing good service and unique entertainment. More Vino’s original entry into the market was the establishment of a dedicated liquor store to serve both retail and wholesale customers with exclusive brands and the widest variety of wines available in the country. The business would operate four subunits: wholesaling and distribution, a retail store, a bar and restaurant, and a delivery service. The retail store business was deemed necessary to appeal to individual consumers, but the brothers believed that the greatest portion of revenue would come from wholesale accounts, such as hotels and restaurants, that carried extensive inventories of wine and required large quantity orders. 3 Information obtained from the More Vino business case, prepared by David Simpson, for Ivey Management Services, 2007. Source: The Trinidad and Tobago Central Statistical Office. This document is authorized for use by Jonathan Kalombo, from 08/10/2022 to 12/31/2022 in the course: FI 4020: Jha - Financial Analysis and Introduction to Loan Structuring (Fall 2022), Georgia State University. Any unauthorized use or reproduction of this document is strictly prohibited. Page 3 9B08N004 Arthur Greenway Arthur Greenway, a family friend to the Stones, was the vice-president of a global consumer beverage firm and an accomplished businessman. Given his breadth of knowledge and experience, the brothers were grateful for Greenway’s input on their venture and were overjoyed when their concept was met with great favor from Greenway and his investment partner, Ross Moore. With the help of Greenway’s expertise in strategic planning and access to regional contacts in the beverage industry, the brothers prepared a business plan for the project. They sought and secured seed funding and bank financing of over TT$1,500,000 in loans, but also approached Greenway and Moore for a portion of the start-up capital. After reviewing the brothers’ proposal, Greenway provided funding to open the bar but remained a silent partner and split his two-thirds controlling ownership in the business with Moore. Christian and David invested their own money, taking ownership of the remaining one-third of the company. With financing in place and a workable business plan set for implementation, the brothers had to choose a location for More Vino. They rented a building that was a former residence adjacent to Ariapita Avenue, a strip well known as home to many of the island’s finer restaurants. The building’s interior was large enough to display hundreds of wine vintages and accommodate a warehouse and office space. A large garden area that could be renovated for future expansions also surrounded the property. RESTAURANT AND BAR EXPANSION Christian expected to have an even sales split between wholesale and retail consumers when More Vino opened; however, the brothers soon discovered that the majority of More Vino’s sales had come from on- site consumption (see Exhibits 2 to 6 for fiscal 2016 and fiscal 2017 information), with the remaining sales divided equally among wholesale and distribution, the retail store and delivery service. Although little headway had been made in the wholesale and distribution market, it became clear that More Vino’s small bar operation was growing in popularity as an after-work destination for young professionals. In response to this unexpected outcome, the brothers produced a plan to expand More Vino’s bar and restaurant area to encourage the momentum of this part of the business. Approval was granted to renovate the building’s exterior garden space into an outdoor patio area and to expand total seating capacity to 250. The brothers soon rearranged the wines displayed in More Vino’s retail area to allow some additional seating, resulting in customers’ beginning to rely more heavily on More Vino’s detailed product catalogue to make their selections. In addition to wine, beer and spirits, the product catalogue was also expanded to include a menu of hors d’oeuvres and appetizers. The bar’s