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Global Wine War 2009: Old vs. New country

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The case study analyzes global wine competition in 2009, focusing on market positions and strategies of various wine-producing countries including France, Italy, South America, the United States, and Australia. It identifies France and Italy's strengths in tradition and production volume, while highlighting the competitive advantages of new world producers like Australia and South America in terms of innovation and cost. The study suggests strategies for each region to improve market positions, aiming to capture at least 1% market share.

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Case Study: Global Wine War 2009 BRANDON BULLOCK GABRIEL ESUOLA JAMES JENNINGS CHRISTA THOMAS RICHARD ZERBE
Primary Question  Could a winemaker finally capture 1% market share if its home country was strategically positioned?
Secondary Questions  What is France's ideal competitive position and what strategies lend to optimal performance?  What is South America's ideal competitive position and what strategies lend to optimal performance?  What is the United States' ideal competitive position and what strategies lend to optimal performance?  What is Italy's ideal competitive position and what strategies lend to optimal performance?  What is Australia's ideal competitive position and what strategies lend to optimal performance?
New World vs. Old World Old World New World Countries France, Italy, Spain, and Germany Argentina, Chile, United States, Australia, and China Characteristics - Rich in Tradition - Innovation leaders in industry - Heavy Gov‟t involvement- - Utilize full Value Chain- excel in regulations and subsidies distribution and marketing - High costs of production - Medium to low markets - High Quality/ Higher Prices - Moderate to Low Prices - Home of 4 of the six largest wine - Relatively new to wine industry for markets by consumption both producers and consumers - Limited distribution and marketing
Segments in the Wine Industry Icon Ultra Super Premium Basic Premium Premium Price Range More than $20-50 $10-20 $5-10 >$5 $50 Consumer Connoisseur Wine lover Experimenter Experimenter Price- Focused Purchase driver Image, style Quality, Brand, Quality Price, Brand Price Image Retail Outlets Winery, Specialty Better Supermarket Supermarket, Boutique Shop, good supermarket, Discounter shops, Food service Specialty shop service Availability Scarce Scare Sufficient Large Surplus quantities
France WHAT IS FRANCE’S IDEAL COMPETITIVE POSITION AND WHAT STRATEGIES LEND TO OPTIMAL PERFORMANCE?
Generic Strategy Clock France Formerly Why: successful: Vineyards grow grapes: Customer base was spread • Large producers made wine out and small. Although • Small producers sold using merchants grapes to merchants by fragmented the value chain, volume producers needed logistical • Merchants blend, bottle, help, and customers were and distribute not price-conscious yet Wine became culturally and Focus was on large volume economically significant. production, not quality In 1750‟s = 2nd largest export Grand Strategies The wine market was The extent of differentiation Existing was a governmental complex and highly New Products fragmented. The Products classification system of classifications helped quality based on rules and Existing Market Penetration or Product customers understand controls Consolidation Development purchases Market - New Industry New Market Diversification Market Development - Little Competition - First Mover Advantage WEAK STRONG Competitive Position:
Changes to the Industry Applicable to Applicable to Chronological Order of Innovations Effect on France Old World New World Dramatically improved production capacity and Mass production of bottles and cork stopper. enabled longer storage. Birthed the global wine Late 1700's Pasteurization X X market. 1800's Vineyard horses & planting in rows X X Increased efficiency and competitiveness 1850's Classification system for wines X X Allowed differentiation and consumer understanding 1880's Phylloxera-resistant vines X X Improved health and life of vines Controlled drip irrigation (enables use of Less competitive 1900's marginal land X Mechanical harvesters and pruners (reduced Less competitive late 1900's labor costs) X late 1900's Night harvesting (maximizes grape sugars) X Less competitive late 1900's Modern trellis systems (vineyards 2x denser) X Less competitive Fertilizers and pruning methods (increased Less competitive late 1900's harvest yield and improved grape flavor) X late 1900's Marketing specific consumers X Less competitive Late 1900's Producers own and control entire value chain X Less competitive Reverse osmosis (color and taste Less competitive 1990's enrichment) X Incorporate stainless steel barrels, computers, and oak chips in Less competitive 1990's fermentation/aging process X Packaging changes (decreased shipping costs Less competitive 1990's and facilitated storage) X - Lack unique - Lack core - Fragmented value - Inefficient - Incoherent - Risk of the Kodak resources competencies chain strategies complex WEAK STRONG Competitive Position:
Strategy Recommendation Target Icon/Ultra Directional Matrix: Icon/ Ultra Premium Wines Premium Wines! Icon/Ultra Premium Wine Profitability Unattractive Average Attractive SWOT: Icon/UP Wine Production in France France’s Weak Strengths Weaknesses Potential Competitive Average Icon and  French producers have  Asset allocation is not Capability UP Wines experience focused; many Strong  French wine is vineyards are branded as high end dedicated to below- Porter’s 5 Forces: Icon/ already due to the premium wines Ultra Premium Wines French‟s commitment  Fragmented value to technique and high- chain and distribution Medium Force... Spain and Italy are strong rivals; New price processes Intensity of Rivalry World producers are less threatening.  Climate is conducive Bargaining Power Benign… suppliers can be easily replaced; moreover, to growing premium  New World producers of Suppliers cost increases can be passed down to the customer grapes can often produce high Benign… there exists no major customer in this end wines at lower Bargaining Power  Grape-growing industry. Buyers can exercise power only by switching costs/higher margins of Buyers restrictions are brands. lightening  Consumer purchasing Medium Force… the barriers to entry are moderate. power may not be Threat of New  Regulation New entrants are disadvantaged by start-up costs and great enough to afford Entrants environment fosters lack of brand image. the growth of premium wines Threat of Strong Force… customers can substitute for less- premium over basic Substitutions expensive wines or alternative drinks easily. Opportunities Threats WEAK STRONG Potential Competitive Position:
Necessary Changes in France‟s Competitive Position: Value Chain Wine Independent Independent Independent Retailer/ Producer Distributor Distributor Distributor Customer “A long, multilevel value chain, with service providers in many of the links lacking either the scale or expertise to operate efficiently” Engage FORWARD VERTICAL INTEGRATION to Achieve this Value Chain: Wine Wine Producer + owned/controlled Independe nt Independe nt Independe nt Retailer/ Producer Customer distributor Distributor Distributor Distributor Low Cost High Cost High Scope Recommended Necessary Generic Original Strategy Low Scope
Necessary Changes in France‟s Competitive Position: 1.0 + Icon/Ultra Recommended Premium Wine in France Industry Boston Consulting Group Matrix Growth 5% Increase Relative Market Share! _ + Relative _ Market Share Existing Products New Products Grand Market Penetration Existing Market Product Development Strategy or Consolidation If the product focus is on Icon/Ultra Premium Wines, all New Market Market Development Diversification Grand Strategies can be used
Necessary Changes in France‟s Competitive Position: Unique Resources & Core Competencies For Icon/Ultra Premium Wine Production in France Relative Significance Relative Significance Unique Resources Core Competencies (scale: 1 – 5) (scale: 1 – 5) Strict Regulation Environment 2 Complying with Regulations 3 Pre-established image as a Producing high quality, Existing high end wine producer 4 expensive wines 5 Leveraging experience and Experience 5 expertise 5 Condensed, efficient value Squeezing value out of the chain 5 value chain‟s components 4 Recommended Ability to conduct useful Strong brand image 5 market research 4 High quality grapes and plots Acquiring highest quality of land 3 resources 4 By adjusting the Value Chain, Strategies, and Unique Resources and Core Competencies France may be more competitively positioned to obtain at least 1% market share…
Italy WHAT IS ITALY’S IDEAL COMPETITIVE POSITION AND WHAT STRATEGIES LEND TO OPTIMAL PERFORMANCE?
Italy‟s Current Conditions Grape Production 1996-2006 By Country • Italy is the global leader in wine production World Rank Country Production 2006 % Change 1996-2006 and exports (by volume) and is also the (US Tons) global leader in grape production • Italy is home to 3 of the top 20 wine brands 1st Italy 8,700 (12.25%) by volume 2nd France 7,700 (7.17%) 3rd Spain 7,500 22.41% Global Positioning 4th United 6,417 (1.47%) Italy France United States Australia States 50,000 5th China 6,100 125.61% 45,000 40,000 35,000 • As a high volume producer 30,000 Italy has found itself 25,000 operating in the moderate- 20,000 to-low cost end of the wine 15,000 10,000 industry. 5,000 • The wine industry is a 0 crucial part of Italy‟s Consumption Production Exports economy and culture.
Current Industry Trends Segmentation and Growth Trends Country Increased Consumption • Premium segments are growing as wine consumption increases in US and UK driving higher priced wine sales Russia 74.89% • Mature Markets such as France, Italy, Spain, & Canada 45.65% Germany are still top 6 markets despite a drop in China 39.5% consumption United Kingdom 17.99% • New markets without established wine palates tend to United States 13.67% prefer the Premium and Super Premium segments 5 Forces- Premium Ultra Icon Premium Super Premium Premium Basic Buyers-Medium: retailers control sale of majority of Market Trend Little Little Growth Growing Growing Decreasing segment Growth Rivalry-High: price and Increasing (brand branding Gradually Fierce (brand Competition Limited Increasing and quality/price and price) Price New Entry-High: branding ratio) not as significant Volume Market 1% 5% 10% 34% 50% Suppliers- Low: Excess Share supply in EU Availability Scarce Scarce Sufficient Large Surplus Substitutes-Medium: many quantities low cost alcohol substitutes
Strategy Recommendations Generic Strategy Competitive Position Low Cost High Cost • Italy‟s history and resources allow it to be the leading wine Broad producer in the world. Scope Competitive Scope Global Premium/ • Heavy volume production SP doesn‟t allow for a high end Narrow Markets differentiated product due to it Scope only being 6% of entire industry. Core Competencies/Unique Resources Resources Rank (1-5 scale) • Italy already has a history of being the Experience (Old World) 3 leader in wine production Volume Production 5 • Narrowing down to two segments will allow Italy to focus in on core Heavy Supply (Prestige) 4 consumers • Being the largest exporter in the world Proximity to Largest 4 allows to build on current distribution Markets networks worldwide
Italy‟s Competitive Strategy Directional Matrix BCG Matrix Premium/SP Wine Profitability Unattractive Average Attractive Italy’s Potential Weak Competitive Capability Average Premium Strong /SP Wines Premium/SP Segment Grand Strategy Ansoff‟s Existing Products New Products Matrix • Italy is the largest volume imported Existing Market Penetration Product wine in the US. Penetrate that Market or Consolidation Development growing market and consolidate in saturated European countries. • China, Canada, and Russia will be areas for market development as New Market Market Development Diversification wine consumption as skyrocketed in each.
Additional Recommendations Value Chain Grape Wine Grower Producer Distribution Retailers Consumers Backward Vertical Integration -Global distribution(forward integration)of high volume of product is extremely costly -Backward integration allows wine producers to control suppliers and efficiently lower the variable costs per bottle increasing margins on heavy volume • Both technology development and operations are areas in the value chain where efficiency can be improved thus cutting costs. • Marketing and sales will be crucial in working with distributers and retailers to leverage more cooperation and sales.
South America WHAT IS SOUTH AMERICA’S IDEAL COMPETITIVE POSITION AND WHAT STRATEGIES LEND TO OPTIMAL PERFORMANCE?
South American Wines  Chilean & Argentinian Grape Production 1996-2006 By Country World Country Production 1996- Production % Change Rank 2000 2006 1996-2006 (US Tons) (US Tons) 1st Italy 9,914 8,700 (12.25%) 2nd France 8.295 7,700 (7.17%) 3rd Spain 6,127 7,500 22.41% 5th China 2,704 6,100 125.61% 8th Argentina 2,456 2,700 9.94% 10th Chile 1,827 2,200 20.42%
Wine Consumption by Country Top 3 Countries in Wine Consumption World Country Consumption Consumption % Rank 2002 2006 Change (Hectoliters) (Hectoliters) 1st France 34,820 32,800 (5.8%) 2nd Italy 27,709 27,300 (1.48%) 3rd United States 23,650 26,883 13.67% 40,000 35,000 1st - France 30,000 2nd - Italy 25,000 3rd - United States 20,000 15,000 5th - China 10,000 7th - United Kingdom 5,000 8th - Russia 0 2002 2003 2004 2005 2006
South American Wines PESTEL Analysis Opportunities Importance Threats Importance Political NA N/A • Low labor costs in Asia • Low labor costs in South America Economic High • Highly competitive low- High • Low cost of land price segment • Worldwide wine consumption • Consumption is starting to increase of 6.8% from 2002-2006 Social High trend higher for super, ultra, Moderate • Wine adopted as Chilean and and premium wines. Argentinian culture. • Technology from U.S. and • New developments lower cost Technological Moderate Australia may take longer to Moderate and increase quality reach South America. • Ideal climate and soil for growing Environmental Moderate N/A grapes • 2005 US Supreme Court ruling triggered a series of state and federal regulation challenges that Legal Moderate N/A began to open up the US distribution system.
Low Cost Wine - Five Forces Low Cost Wine Segment Threat of New Among the five tiered classification for wine Competition cost, the basic segment could be attract for High new entrants. Threat of Substitute Creating a low cost wine could be much easier Products/Services and cost effective for many wineries. Large Moderate existing companies could also develop low cost brands. Bargaining Power of As consumer‟s tastes and preferences change. Buyers The demand for higher quality wines may High continue to grow. Bargaining Power of Many new world wineries control their Suppliers product from the grapes to the store shelves. Low Intensity of Competing Competition among U.S., Australian, South Products American and eventually Chinese low cost High wines.
South America SWOT Analysis Strengths Opportunities • Low production costs, cheaper • Low labor cost in South America. than Australia. • 6.8% global wine consumption • Concha y Toro, 4th among top growth from 2002 to 2006. wine brands at 11 million cases in • New technological developments 2007. • Ideal climate and soil for growing • Control over value chain grapes. • Better access to U.S. wine distribution system. Weaknesses Threats • Could be stuck in low-cost wine • Wine producing countries with low labor segment costs and fertile land. • Increasing cost of raw material • Wine consumption trending towards • Distribution costs higher priced wines, especially in new • Currently a surplus amongst basic low- markets. cost wines. • New world technologies may be slower to reach South America.
Competitive Position - Ansoff
Strategies  Continue to offer low-cost wine, maintaining higher margins than competitors.  Increase advertising in promising emerging markets (China, Russia, US, UK).  Acquire new companies in emerging markets.
United States WHAT IS THE UNITED STATES IDEAL COMPETITIVE POSITION AND WHAT STRATEGIES LEND TO OPTIMAL PERFORMANCE?
Global Wine War 2009: Old vs. New country
Global Wine War 2009: Old vs. New country
United States Wines PESTEL Analysis Opportunities Importance Threats Importance Political N/A •N/A Economical •“Most attractive wine High •Extremely high land costs in US High market in the world” •High labor costs Moderate Social •Wine consumption High •Higher demand for imported High increase wine •Demand for higher High premiums in US market Technological •Advanced technology Moderate •Old World slowly allowing for Low over Old World technology advancements Environmental •Large vineyards Moderate •Lack of available land in Moderate premium areas Legal N/A •Illegal immigration control Low (higher labor costs) •2005 US Supreme Court ruling triggered a series of state and High federal regulation challenges that began to open up the US distribution system.
SWOT Analysis Strengths Weaknesses •Top three in World Wine Companies •Higher prices on similar rated •Nine brands in the Top 20, claiming Australian wines the number one spot •Global price/quality ratio •Posses large amount of land on average •Not able to capture the “home” market (213 hectares) •Lack of available premium land for •Distribution expertise knowledge expansion Opportunities Threats •Increased demand for premium based •Weather/Droughts wines •High demand for imported wines •Increased wine consumption •Inflation •Generation Y (overall increased •Surplus (“Two Buck Chuck”) demand) •Old World acquiring new technology •Demand in Asia, Russia, Canada for •Wine producing countries with low wine consumption rising labor costs and fertile land.
Ansoff Matrix
Recommendations  Continue with the super and ultra premium brands, as they contribute to the growing 15% market share and are currently successful.  Premium brands account for a growing 30% of the market, which the United States is lacking. Focus on product development, coming up with a premium brand that is at a comparable cost with imports will attract more customers and increase sales.  Increase advertising and promotions in the United States to attract to more Generation Y customers who are typically buying imported wines.
Australia WHAT IS AUSTRALIA’S IDEAL COMPETITIVE POSITION AND WHAT STRATEGIES LEND TO OPTIMAL PERFORMANCE?
Australia‟s Earlier Position  Australia was one of the late adopters toward New World‟s opening markets. Reasons:  Dominant British heritage made beer the alcoholic beverage of preference.  Lack of well established reputation  Wine consumer mostly by Old World immigrants  Post WWII saw Australia attempt to attract the global market.
Core Competency  Australia „s core competency is Innovation. Compared to competitors from New and Old wine companies, They have separated themselves by going against traditional ways.  In a mature market, this position of differentiation has proven to be a viable strategy for Australian wine makers.  Drip irrigation was not used until Australia utilized it on their land when growing the grapes used to make the wine. This created larger vineyards where innovative equipment was implemented to reduce the labor costs. - “Wine in a box” - Screw caps instead of cork screws
Australian Wines PESTEL Analysis Opportunities Importance Threats Importance Political Government linked up with High- Compared to N/A Australian winemakers to US and France, develop strategy for Australia is given less continued growth of the regulations with their industry. government. Strategy 2025, ensures government support at least until 2025 Economical Lower costs of land High Lower labor costs in South Medium compared to US and France America and Asia. Social Wine consumption in High Consumption trending toward Moderate increase more price sensitive Demand for higher consumers minimizing Ultra premiums in US market and Super premium. Technological N/A Environmental Sunny climates and Moderate Surpluses that lower costs High irrigation system. overall on wine Droughts leading to major cost increases with water. Legal 2005 US Supreme Court Moderate Stricter drinking laws Low ruling triggered a series of throughout different state and federal regulation countries. challenges that began to open up the US distribution system.
Comparison France Australia US Hectares 7.4 167 213 Cost of pruning land $350 $120 $350 (Cain Napa) Brands in top 20(2004- 1 4(two in the top 10) 9 ( Number 1 out of 20) 2008) Generic Strategy Narrow to a segment “Icon” Broad Differentiation with High cost producer. that is differentiation. France product uniqueness. Differentiation and has the traditional history to Australia‟s 2025 plan wants Narrow. General focus brand and promote the to implement sub-brands within Super and Ultra highest of classes in wine. that would target separate premium. However numbers show consumer groups. Australia volume market share is 1% should be recommended to and Little growth NOT compete in low cost long term. Government Involvement EU agricultural policy changes Governments wine export Illegal immigration leading to subsidizing body linked with Fed. Of affecting labor costs marketing and promotion. Australia to promote (Possible shortage?) Also, Regulation regions. continued growth in the industry.
Ultra and Super Premium Wine- Five Forces Threat of new Entrants- Moderate Bargaining Buyer Power Price of land and large capital High investment. It can take 3-4 Trends have impacted the years on average to produce industry such as Super, their first harvest. Time is Ultra, or Premium quality also a major deterrent for Rivalry and grape flavor. new entry High Competition high between US, France and unknowns like Asia. Suppliers Power Low Substitutes There are vineyards and Moderate grape growers. Huge wine For Low or High surpluses in the 2000‟s premium costs, allowed Australian producers substitutes exist always to use their cost advantage, as consumers may look driving prices lower. This to bourbon and whiskeys. made Australian perception to Switching cost is be “Cheap” moderate.
SWOT Analysis Internal Strengths Weaknesses 1.Leader in winemaking innovation 1. Not able to capture the highest class 2. Strong distribution system wine market. 3. Responsible for “Wine-in-a-box” 2. Australian Wine has been considered 4. typically sunnier climates allowing cheap and less pristine (due to Yellow maximum wine producing Tails success as a low cost product.) 5. 60% of the worlds top wine companies 3. Operational costs starting to rise. External Opportunities Threats 1. Demand in Asia , Russia, Canada for wine 1. Serious droughts ( weather) consumption rising. 2. Changing drinking preferences 2. US consumers preference for imports 3. Inflation in penetrating markets instead of domestic. 4. Old Country using same technology 3. Resources to break into the Premium-High 5. Major market in UK declining in premium market. consumption 4. Generation Y ( Gen. Y has more of a demand for wine compares to Gen. X) Looking at the SWOT, it is fair to question should Australia’s competitive position continue be a low cost producer despite a demand for high premium wines? Exports in 2007 increased in the US to 31% but image perception was the wine is “Cheap.” Cost’s are rising and it is clear to have a better margin, low cost is not primarily recommended.
Ansoff Matrix Brand “Pensfold” Red Wine range from Prem-Icon Strategy 2025 Australia is positioning toward Product development to stay away from the “Cheap low cost” stigma they have carried. Market Penetration in the US will be critical. US consumers prefer higher quality wines and US wine makers face much more expensive production costs related to land and labor. Product Development has been considered for the “Strategy 2025” plan that will appeal to 4 consumer groups with emphasis on innovation and design.
Caution! For Australia‟s strategy, they must be mindful of two things:  1. South America‟s low production cost‟s allow them to have lower grape costs and production. (Further inclination, competing in Low cost is not wise)  2. US holds 9 spots in the worlds top 20 Brands (2004-2008)
Recommendations  Continue to stick with the Strategy 2025 plan. Data shows it has been successful in exports( grape and export production grew 530% to 782 million liters in 2006)  Reposition Australian wines as a premium for US Generation Y consumers. They prefer imports over domestic which is an advantage. US producers face higher production costs and France’s system doesn’t allow them to respond to consumer demand as quickly.  Continue with the innovation in brand, packaging, and image that allowed Australia to be a big player in the Wine industry. Studies showed 65% US consumers had no idea what they would choose when entering a wine store.  Look to emerging markets like Russia, and Canada. China has great growth potential, but may be more attractive toward a primary low cost producer.  Focus on Premium, Super, and Ultra. Combined they represent 49% volume market share. Consumer profile says these are “experimenters”  By using this competitive positioning Australia should be able to capture 1% of the global market by 2025!
Questions?

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Global Wine War 2009: Old vs. New country

  • 1. Case Study: Global Wine War 2009 BRANDON BULLOCK GABRIEL ESUOLA JAMES JENNINGS CHRISTA THOMAS RICHARD ZERBE
  • 2. Primary Question  Could a winemaker finally capture 1% market share if its home country was strategically positioned?
  • 3. Secondary Questions  What is France's ideal competitive position and what strategies lend to optimal performance?  What is South America's ideal competitive position and what strategies lend to optimal performance?  What is the United States' ideal competitive position and what strategies lend to optimal performance?  What is Italy's ideal competitive position and what strategies lend to optimal performance?  What is Australia's ideal competitive position and what strategies lend to optimal performance?
  • 4. New World vs. Old World Old World New World Countries France, Italy, Spain, and Germany Argentina, Chile, United States, Australia, and China Characteristics - Rich in Tradition - Innovation leaders in industry - Heavy Gov‟t involvement- - Utilize full Value Chain- excel in regulations and subsidies distribution and marketing - High costs of production - Medium to low markets - High Quality/ Higher Prices - Moderate to Low Prices - Home of 4 of the six largest wine - Relatively new to wine industry for markets by consumption both producers and consumers - Limited distribution and marketing
  • 5. Segments in the Wine Industry Icon Ultra Super Premium Basic Premium Premium Price Range More than $20-50 $10-20 $5-10 >$5 $50 Consumer Connoisseur Wine lover Experimenter Experimenter Price- Focused Purchase driver Image, style Quality, Brand, Quality Price, Brand Price Image Retail Outlets Winery, Specialty Better Supermarket Supermarket, Boutique Shop, good supermarket, Discounter shops, Food service Specialty shop service Availability Scarce Scare Sufficient Large Surplus quantities
  • 6. France WHAT IS FRANCE’S IDEAL COMPETITIVE POSITION AND WHAT STRATEGIES LEND TO OPTIMAL PERFORMANCE?
  • 7. Generic Strategy Clock France Formerly Why: successful: Vineyards grow grapes: Customer base was spread • Large producers made wine out and small. Although • Small producers sold using merchants grapes to merchants by fragmented the value chain, volume producers needed logistical • Merchants blend, bottle, help, and customers were and distribute not price-conscious yet Wine became culturally and Focus was on large volume economically significant. production, not quality In 1750‟s = 2nd largest export Grand Strategies The wine market was The extent of differentiation Existing was a governmental complex and highly New Products fragmented. The Products classification system of classifications helped quality based on rules and Existing Market Penetration or Product customers understand controls Consolidation Development purchases Market - New Industry New Market Diversification Market Development - Little Competition - First Mover Advantage WEAK STRONG Competitive Position:
  • 8. Changes to the Industry Applicable to Applicable to Chronological Order of Innovations Effect on France Old World New World Dramatically improved production capacity and Mass production of bottles and cork stopper. enabled longer storage. Birthed the global wine Late 1700's Pasteurization X X market. 1800's Vineyard horses & planting in rows X X Increased efficiency and competitiveness 1850's Classification system for wines X X Allowed differentiation and consumer understanding 1880's Phylloxera-resistant vines X X Improved health and life of vines Controlled drip irrigation (enables use of Less competitive 1900's marginal land X Mechanical harvesters and pruners (reduced Less competitive late 1900's labor costs) X late 1900's Night harvesting (maximizes grape sugars) X Less competitive late 1900's Modern trellis systems (vineyards 2x denser) X Less competitive Fertilizers and pruning methods (increased Less competitive late 1900's harvest yield and improved grape flavor) X late 1900's Marketing specific consumers X Less competitive Late 1900's Producers own and control entire value chain X Less competitive Reverse osmosis (color and taste Less competitive 1990's enrichment) X Incorporate stainless steel barrels, computers, and oak chips in Less competitive 1990's fermentation/aging process X Packaging changes (decreased shipping costs Less competitive 1990's and facilitated storage) X - Lack unique - Lack core - Fragmented value - Inefficient - Incoherent - Risk of the Kodak resources competencies chain strategies complex WEAK STRONG Competitive Position:
  • 9. Strategy Recommendation Target Icon/Ultra Directional Matrix: Icon/ Ultra Premium Wines Premium Wines! Icon/Ultra Premium Wine Profitability Unattractive Average Attractive SWOT: Icon/UP Wine Production in France France’s Weak Strengths Weaknesses Potential Competitive Average Icon and  French producers have  Asset allocation is not Capability UP Wines experience focused; many Strong  French wine is vineyards are branded as high end dedicated to below- Porter’s 5 Forces: Icon/ already due to the premium wines Ultra Premium Wines French‟s commitment  Fragmented value to technique and high- chain and distribution Medium Force... Spain and Italy are strong rivals; New price processes Intensity of Rivalry World producers are less threatening.  Climate is conducive Bargaining Power Benign… suppliers can be easily replaced; moreover, to growing premium  New World producers of Suppliers cost increases can be passed down to the customer grapes can often produce high Benign… there exists no major customer in this end wines at lower Bargaining Power  Grape-growing industry. Buyers can exercise power only by switching costs/higher margins of Buyers restrictions are brands. lightening  Consumer purchasing Medium Force… the barriers to entry are moderate. power may not be Threat of New  Regulation New entrants are disadvantaged by start-up costs and great enough to afford Entrants environment fosters lack of brand image. the growth of premium wines Threat of Strong Force… customers can substitute for less- premium over basic Substitutions expensive wines or alternative drinks easily. Opportunities Threats WEAK STRONG Potential Competitive Position:
  • 10. Necessary Changes in France‟s Competitive Position: Value Chain Wine Independent Independent Independent Retailer/ Producer Distributor Distributor Distributor Customer “A long, multilevel value chain, with service providers in many of the links lacking either the scale or expertise to operate efficiently” Engage FORWARD VERTICAL INTEGRATION to Achieve this Value Chain: Wine Wine Producer + owned/controlled Independe nt Independe nt Independe nt Retailer/ Producer Customer distributor Distributor Distributor Distributor Low Cost High Cost High Scope Recommended Necessary Generic Original Strategy Low Scope
  • 11. Necessary Changes in France‟s Competitive Position: 1.0 + Icon/Ultra Recommended Premium Wine in France Industry Boston Consulting Group Matrix Growth 5% Increase Relative Market Share! _ + Relative _ Market Share Existing Products New Products Grand Market Penetration Existing Market Product Development Strategy or Consolidation If the product focus is on Icon/Ultra Premium Wines, all New Market Market Development Diversification Grand Strategies can be used
  • 12. Necessary Changes in France‟s Competitive Position: Unique Resources & Core Competencies For Icon/Ultra Premium Wine Production in France Relative Significance Relative Significance Unique Resources Core Competencies (scale: 1 – 5) (scale: 1 – 5) Strict Regulation Environment 2 Complying with Regulations 3 Pre-established image as a Producing high quality, Existing high end wine producer 4 expensive wines 5 Leveraging experience and Experience 5 expertise 5 Condensed, efficient value Squeezing value out of the chain 5 value chain‟s components 4 Recommended Ability to conduct useful Strong brand image 5 market research 4 High quality grapes and plots Acquiring highest quality of land 3 resources 4 By adjusting the Value Chain, Strategies, and Unique Resources and Core Competencies France may be more competitively positioned to obtain at least 1% market share…
  • 13. Italy WHAT IS ITALY’S IDEAL COMPETITIVE POSITION AND WHAT STRATEGIES LEND TO OPTIMAL PERFORMANCE?
  • 14. Italy‟s Current Conditions Grape Production 1996-2006 By Country • Italy is the global leader in wine production World Rank Country Production 2006 % Change 1996-2006 and exports (by volume) and is also the (US Tons) global leader in grape production • Italy is home to 3 of the top 20 wine brands 1st Italy 8,700 (12.25%) by volume 2nd France 7,700 (7.17%) 3rd Spain 7,500 22.41% Global Positioning 4th United 6,417 (1.47%) Italy France United States Australia States 50,000 5th China 6,100 125.61% 45,000 40,000 35,000 • As a high volume producer 30,000 Italy has found itself 25,000 operating in the moderate- 20,000 to-low cost end of the wine 15,000 10,000 industry. 5,000 • The wine industry is a 0 crucial part of Italy‟s Consumption Production Exports economy and culture.
  • 15. Current Industry Trends Segmentation and Growth Trends Country Increased Consumption • Premium segments are growing as wine consumption increases in US and UK driving higher priced wine sales Russia 74.89% • Mature Markets such as France, Italy, Spain, & Canada 45.65% Germany are still top 6 markets despite a drop in China 39.5% consumption United Kingdom 17.99% • New markets without established wine palates tend to United States 13.67% prefer the Premium and Super Premium segments 5 Forces- Premium Ultra Icon Premium Super Premium Premium Basic Buyers-Medium: retailers control sale of majority of Market Trend Little Little Growth Growing Growing Decreasing segment Growth Rivalry-High: price and Increasing (brand branding Gradually Fierce (brand Competition Limited Increasing and quality/price and price) Price New Entry-High: branding ratio) not as significant Volume Market 1% 5% 10% 34% 50% Suppliers- Low: Excess Share supply in EU Availability Scarce Scarce Sufficient Large Surplus Substitutes-Medium: many quantities low cost alcohol substitutes
  • 16. Strategy Recommendations Generic Strategy Competitive Position Low Cost High Cost • Italy‟s history and resources allow it to be the leading wine Broad producer in the world. Scope Competitive Scope Global Premium/ • Heavy volume production SP doesn‟t allow for a high end Narrow Markets differentiated product due to it Scope only being 6% of entire industry. Core Competencies/Unique Resources Resources Rank (1-5 scale) • Italy already has a history of being the Experience (Old World) 3 leader in wine production Volume Production 5 • Narrowing down to two segments will allow Italy to focus in on core Heavy Supply (Prestige) 4 consumers • Being the largest exporter in the world Proximity to Largest 4 allows to build on current distribution Markets networks worldwide
  • 17. Italy‟s Competitive Strategy Directional Matrix BCG Matrix Premium/SP Wine Profitability Unattractive Average Attractive Italy’s Potential Weak Competitive Capability Average Premium Strong /SP Wines Premium/SP Segment Grand Strategy Ansoff‟s Existing Products New Products Matrix • Italy is the largest volume imported Existing Market Penetration Product wine in the US. Penetrate that Market or Consolidation Development growing market and consolidate in saturated European countries. • China, Canada, and Russia will be areas for market development as New Market Market Development Diversification wine consumption as skyrocketed in each.
  • 18. Additional Recommendations Value Chain Grape Wine Grower Producer Distribution Retailers Consumers Backward Vertical Integration -Global distribution(forward integration)of high volume of product is extremely costly -Backward integration allows wine producers to control suppliers and efficiently lower the variable costs per bottle increasing margins on heavy volume • Both technology development and operations are areas in the value chain where efficiency can be improved thus cutting costs. • Marketing and sales will be crucial in working with distributers and retailers to leverage more cooperation and sales.
  • 19. South America WHAT IS SOUTH AMERICA’S IDEAL COMPETITIVE POSITION AND WHAT STRATEGIES LEND TO OPTIMAL PERFORMANCE?
  • 20. South American Wines  Chilean & Argentinian Grape Production 1996-2006 By Country World Country Production 1996- Production % Change Rank 2000 2006 1996-2006 (US Tons) (US Tons) 1st Italy 9,914 8,700 (12.25%) 2nd France 8.295 7,700 (7.17%) 3rd Spain 6,127 7,500 22.41% 5th China 2,704 6,100 125.61% 8th Argentina 2,456 2,700 9.94% 10th Chile 1,827 2,200 20.42%
  • 21. Wine Consumption by Country Top 3 Countries in Wine Consumption World Country Consumption Consumption % Rank 2002 2006 Change (Hectoliters) (Hectoliters) 1st France 34,820 32,800 (5.8%) 2nd Italy 27,709 27,300 (1.48%) 3rd United States 23,650 26,883 13.67% 40,000 35,000 1st - France 30,000 2nd - Italy 25,000 3rd - United States 20,000 15,000 5th - China 10,000 7th - United Kingdom 5,000 8th - Russia 0 2002 2003 2004 2005 2006
  • 22. South American Wines PESTEL Analysis Opportunities Importance Threats Importance Political NA N/A • Low labor costs in Asia • Low labor costs in South America Economic High • Highly competitive low- High • Low cost of land price segment • Worldwide wine consumption • Consumption is starting to increase of 6.8% from 2002-2006 Social High trend higher for super, ultra, Moderate • Wine adopted as Chilean and and premium wines. Argentinian culture. • Technology from U.S. and • New developments lower cost Technological Moderate Australia may take longer to Moderate and increase quality reach South America. • Ideal climate and soil for growing Environmental Moderate N/A grapes • 2005 US Supreme Court ruling triggered a series of state and federal regulation challenges that Legal Moderate N/A began to open up the US distribution system.
  • 23. Low Cost Wine - Five Forces Low Cost Wine Segment Threat of New Among the five tiered classification for wine Competition cost, the basic segment could be attract for High new entrants. Threat of Substitute Creating a low cost wine could be much easier Products/Services and cost effective for many wineries. Large Moderate existing companies could also develop low cost brands. Bargaining Power of As consumer‟s tastes and preferences change. Buyers The demand for higher quality wines may High continue to grow. Bargaining Power of Many new world wineries control their Suppliers product from the grapes to the store shelves. Low Intensity of Competing Competition among U.S., Australian, South Products American and eventually Chinese low cost High wines.
  • 24. South America SWOT Analysis Strengths Opportunities • Low production costs, cheaper • Low labor cost in South America. than Australia. • 6.8% global wine consumption • Concha y Toro, 4th among top growth from 2002 to 2006. wine brands at 11 million cases in • New technological developments 2007. • Ideal climate and soil for growing • Control over value chain grapes. • Better access to U.S. wine distribution system. Weaknesses Threats • Could be stuck in low-cost wine • Wine producing countries with low labor segment costs and fertile land. • Increasing cost of raw material • Wine consumption trending towards • Distribution costs higher priced wines, especially in new • Currently a surplus amongst basic low- markets. cost wines. • New world technologies may be slower to reach South America.
  • 26. Strategies  Continue to offer low-cost wine, maintaining higher margins than competitors.  Increase advertising in promising emerging markets (China, Russia, US, UK).  Acquire new companies in emerging markets.
  • 27. United States WHAT IS THE UNITED STATES IDEAL COMPETITIVE POSITION AND WHAT STRATEGIES LEND TO OPTIMAL PERFORMANCE?
  • 30. United States Wines PESTEL Analysis Opportunities Importance Threats Importance Political N/A •N/A Economical •“Most attractive wine High •Extremely high land costs in US High market in the world” •High labor costs Moderate Social •Wine consumption High •Higher demand for imported High increase wine •Demand for higher High premiums in US market Technological •Advanced technology Moderate •Old World slowly allowing for Low over Old World technology advancements Environmental •Large vineyards Moderate •Lack of available land in Moderate premium areas Legal N/A •Illegal immigration control Low (higher labor costs) •2005 US Supreme Court ruling triggered a series of state and High federal regulation challenges that began to open up the US distribution system.
  • 31. SWOT Analysis Strengths Weaknesses •Top three in World Wine Companies •Higher prices on similar rated •Nine brands in the Top 20, claiming Australian wines the number one spot •Global price/quality ratio •Posses large amount of land on average •Not able to capture the “home” market (213 hectares) •Lack of available premium land for •Distribution expertise knowledge expansion Opportunities Threats •Increased demand for premium based •Weather/Droughts wines •High demand for imported wines •Increased wine consumption •Inflation •Generation Y (overall increased •Surplus (“Two Buck Chuck”) demand) •Old World acquiring new technology •Demand in Asia, Russia, Canada for •Wine producing countries with low wine consumption rising labor costs and fertile land.
  • 33. Recommendations  Continue with the super and ultra premium brands, as they contribute to the growing 15% market share and are currently successful.  Premium brands account for a growing 30% of the market, which the United States is lacking. Focus on product development, coming up with a premium brand that is at a comparable cost with imports will attract more customers and increase sales.  Increase advertising and promotions in the United States to attract to more Generation Y customers who are typically buying imported wines.
  • 34. Australia WHAT IS AUSTRALIA’S IDEAL COMPETITIVE POSITION AND WHAT STRATEGIES LEND TO OPTIMAL PERFORMANCE?
  • 35. Australia‟s Earlier Position  Australia was one of the late adopters toward New World‟s opening markets. Reasons:  Dominant British heritage made beer the alcoholic beverage of preference.  Lack of well established reputation  Wine consumer mostly by Old World immigrants  Post WWII saw Australia attempt to attract the global market.
  • 36. Core Competency  Australia „s core competency is Innovation. Compared to competitors from New and Old wine companies, They have separated themselves by going against traditional ways.  In a mature market, this position of differentiation has proven to be a viable strategy for Australian wine makers.  Drip irrigation was not used until Australia utilized it on their land when growing the grapes used to make the wine. This created larger vineyards where innovative equipment was implemented to reduce the labor costs. - “Wine in a box” - Screw caps instead of cork screws
  • 37. Australian Wines PESTEL Analysis Opportunities Importance Threats Importance Political Government linked up with High- Compared to N/A Australian winemakers to US and France, develop strategy for Australia is given less continued growth of the regulations with their industry. government. Strategy 2025, ensures government support at least until 2025 Economical Lower costs of land High Lower labor costs in South Medium compared to US and France America and Asia. Social Wine consumption in High Consumption trending toward Moderate increase more price sensitive Demand for higher consumers minimizing Ultra premiums in US market and Super premium. Technological N/A Environmental Sunny climates and Moderate Surpluses that lower costs High irrigation system. overall on wine Droughts leading to major cost increases with water. Legal 2005 US Supreme Court Moderate Stricter drinking laws Low ruling triggered a series of throughout different state and federal regulation countries. challenges that began to open up the US distribution system.
  • 38. Comparison France Australia US Hectares 7.4 167 213 Cost of pruning land $350 $120 $350 (Cain Napa) Brands in top 20(2004- 1 4(two in the top 10) 9 ( Number 1 out of 20) 2008) Generic Strategy Narrow to a segment “Icon” Broad Differentiation with High cost producer. that is differentiation. France product uniqueness. Differentiation and has the traditional history to Australia‟s 2025 plan wants Narrow. General focus brand and promote the to implement sub-brands within Super and Ultra highest of classes in wine. that would target separate premium. However numbers show consumer groups. Australia volume market share is 1% should be recommended to and Little growth NOT compete in low cost long term. Government Involvement EU agricultural policy changes Governments wine export Illegal immigration leading to subsidizing body linked with Fed. Of affecting labor costs marketing and promotion. Australia to promote (Possible shortage?) Also, Regulation regions. continued growth in the industry.
  • 39. Ultra and Super Premium Wine- Five Forces Threat of new Entrants- Moderate Bargaining Buyer Power Price of land and large capital High investment. It can take 3-4 Trends have impacted the years on average to produce industry such as Super, their first harvest. Time is Ultra, or Premium quality also a major deterrent for Rivalry and grape flavor. new entry High Competition high between US, France and unknowns like Asia. Suppliers Power Low Substitutes There are vineyards and Moderate grape growers. Huge wine For Low or High surpluses in the 2000‟s premium costs, allowed Australian producers substitutes exist always to use their cost advantage, as consumers may look driving prices lower. This to bourbon and whiskeys. made Australian perception to Switching cost is be “Cheap” moderate.
  • 40. SWOT Analysis Internal Strengths Weaknesses 1.Leader in winemaking innovation 1. Not able to capture the highest class 2. Strong distribution system wine market. 3. Responsible for “Wine-in-a-box” 2. Australian Wine has been considered 4. typically sunnier climates allowing cheap and less pristine (due to Yellow maximum wine producing Tails success as a low cost product.) 5. 60% of the worlds top wine companies 3. Operational costs starting to rise. External Opportunities Threats 1. Demand in Asia , Russia, Canada for wine 1. Serious droughts ( weather) consumption rising. 2. Changing drinking preferences 2. US consumers preference for imports 3. Inflation in penetrating markets instead of domestic. 4. Old Country using same technology 3. Resources to break into the Premium-High 5. Major market in UK declining in premium market. consumption 4. Generation Y ( Gen. Y has more of a demand for wine compares to Gen. X) Looking at the SWOT, it is fair to question should Australia’s competitive position continue be a low cost producer despite a demand for high premium wines? Exports in 2007 increased in the US to 31% but image perception was the wine is “Cheap.” Cost’s are rising and it is clear to have a better margin, low cost is not primarily recommended.
  • 41. Ansoff Matrix Brand “Pensfold” Red Wine range from Prem-Icon Strategy 2025 Australia is positioning toward Product development to stay away from the “Cheap low cost” stigma they have carried. Market Penetration in the US will be critical. US consumers prefer higher quality wines and US wine makers face much more expensive production costs related to land and labor. Product Development has been considered for the “Strategy 2025” plan that will appeal to 4 consumer groups with emphasis on innovation and design.
  • 42. Caution! For Australia‟s strategy, they must be mindful of two things:  1. South America‟s low production cost‟s allow them to have lower grape costs and production. (Further inclination, competing in Low cost is not wise)  2. US holds 9 spots in the worlds top 20 Brands (2004-2008)
  • 43. Recommendations  Continue to stick with the Strategy 2025 plan. Data shows it has been successful in exports( grape and export production grew 530% to 782 million liters in 2006)  Reposition Australian wines as a premium for US Generation Y consumers. They prefer imports over domestic which is an advantage. US producers face higher production costs and France’s system doesn’t allow them to respond to consumer demand as quickly.  Continue with the innovation in brand, packaging, and image that allowed Australia to be a big player in the Wine industry. Studies showed 65% US consumers had no idea what they would choose when entering a wine store.  Look to emerging markets like Russia, and Canada. China has great growth potential, but may be more attractive toward a primary low cost producer.  Focus on Premium, Super, and Ultra. Combined they represent 49% volume market share. Consumer profile says these are “experimenters”  By using this competitive positioning Australia should be able to capture 1% of the global market by 2025!

Editor's Notes

  • #21: Represent around 1/3 of the production from the 3 highest producing countries, all old world wine producersEnormous growth in production for China, will talk about later for low-price segment competitionIn the future, we can expect old world production to continue to slow because of ultra (5%), super (10%), and premium (34%)2007 French encouraged farmers to uproot 200,000 hectares (hek-tar) Italy and Spain may follow soon to decrease supply
  • #22: Small but significant in France and Italy as they are 1 and 2 in consumptionShaper decline for Italy while France experiences small decline year to yearEmerging Markets – US, China, UK, and RussiaAll have experienced growth in this 5 year periodUK (18%) and US (14%) steady increases. Significant growth Russia (75%) and China (40%)Larger scale 1966 to 2005, per capita annual consumption in the United Kingdom rose from 3 to 20 litersDuring the same period per capita annual consumption in France/Italywas around 110 to 120 liters; by 2005 it was about 50 litres
  • #23: ECONOMIC*Cost of pruning an acre in 2008 US and France$350, highly mechanized Australia $120 ,or in low labor cost Chile $75*As we saw earlier China #5 spot with 125% growth in grape production from 1996-2006SOCIAL*Due in large part to the emerging markets we just looked at, consumption increase up 6.8% over 5 yearsU.K. offered a more attractive market (the €3-5 segment accounted for 57% of sales) US 11 billion in 1993 to 30 billion in 2007*Early on in the 1960s, adopted wine into their own cultures 80 liters in Argentina and 50 liters in Chile *Almost all countries have increased demand for higher quality wine. jug wine sales in the United Statesdeclined from 800 million to 600 million liters, while consumption of premium wines increased from150 million to 600 million liters. Premium & Super premium have 40% of global market, 50% in younger markets. However basic wine under $5 still is 50% of global market.TECHNOLOGICAL*Reverse osmosis, drip irrigation, stainless steel barrel aging, trellis, fertilizing, night harvesting, new pruning methods*Old world wineries initially restricted in taking part for many of these new approachs.ENVIRONMENTAL*Lots of land cheap, good soil, and sunny climateLEGAL*US initially had regulatory strictures differ state-by-state , and a complex three-tier distribution system that forced all sales to pass through state-licensed wholesalers.
  • #25: *The cost of pruning an acre in Napa in 2008 was $350, similar to the cost in France, but much higher than in highly mechanized Australia ($120 an acre), or in low labor cost Chile ($75 an acre).*Concha Y Toro is a Chilean brand and ranks 4th behind 2 US brands and 1 Italian brand*New World wine companies typically controlled the full value chain, extracting margins at every level and retaining bargaining power with increasingly concentrated retailers. More knowledge in this approach having a direct line to sales at the retail level, easier to meet new consumer demand.*By selling low-cost wine globally, South American countries may not have a chance to break in to the ultra, super, or premium wine markets if they wanted to by being labeled as a low cost wine. Consumers may not see the value in more expensive offerings*As South American countries before more developed the cost of raw-materials for wine production will continue to grow.*Distribution costs will continue to rise with the price of oil and overall transportation costs*Currently low-cost wines have a higher supply than present demand
  • #27: *Half the world market by volume. *4 and a half times more expensive to harvest in US and France, almost twice as expensive to harvest in Australia.Australia could land its bulk table wine in the US at $0.80 a liter, Argentina’s price was $0.36 a liter.*While other countries move from basic wine segment to premium and super-premium to improve their cost to profit margins, South American wineries will gain higher market share.*Emphasis on China and Russia experiencing huge growth in consumption and also US and UK .*Acquiring brands that people in that country will already be accustomed to. This approach will help South American wine companies break in to new markets and be successful.
  • #29: The United States dominates the Top 20 Wine Brands by having a total of 9 brands in this rank, followed by Australia with only four of the Top 20.
  • #30: The United States controls the top three spots in the Top 15 World Wine Companies, having four companies in the top five.
  • #33: Market Penetration - The United States needs to focus on Market Penetration within their borders; to increase sales and demand for domestic rather than imported wines. Product Development - With Generation Y demanding premium lower cost wines there needs to be a form of product development to reach out to this competitive market that the imports are dominating.Product Development – The United States is focusing on Product Development to enter into the premium wine market. Since the United States already excels in super and ultra premium brands as well as basic brands, they are now trying to compete with the Australian market in the premium wines. Market Penetration – The United States need to focus on penetrating their own home market to sway customers to purchase domestic wines rather than imports.
  • #34: 65% of US customers have admitted to not knowing what type/brand of wine they will purchase when entering the store, focus on advertising and promoting to attract to these customers.
  • #37: Examples of Innovation have been “Wine-in-a-box.” This pioneered the way wine could be packaged that resulted in reducing shipping costs.Implementing irrigation systems“Screw caps” instead of cork screws to preserve the Wine.
  • #39: Strategy 2025 was developed from Australian government looking to capitalize on the success.Australia faces the least amount of barriers governmental wise compared to US and France.
  • #40: Australia’s brand, “Yellow Tail. –Selling 10 million cases a year worldwide
  • #41: Looking at the SWOT, it is fair to question should Australia’s competitive position continue be a low cost producer despite a demand for high premium wines? Exports in 2007 increased in the US to 31% but image perception was the wine is “Cheap.”With the success of Yellow tail appealing to US consumers for price, image, and fruity content, Australia is not equipped long term, to be a major player in the Low Cost segment.
  • #42: Brand “Pensfold” Red Wine
  • #44: US market increased from 11 billion to a 30 billion dollar market in 2007. 48% represented the Premium market while growing at 15% p.a.Australia is prideful of their innovation to wine making and packaging. The Ultra, Super and premium show they are Experimenters which goes perfect with Innovation emphasis.