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?

France
Formerly
successful:
Vineyards grow grapes:
• Large producers made wine
• Small producers sold
grapes to merchants by
volume
• Merchants blend, bottle,
and distribute
Focus was on large volume
production, not quality
The extent of differentiation
was a governmental
classification system of
quality based on rules and
controls
Generic Strategy Clock
Why:
Customer base was spread
out and small. Although
using merchants
fragmented the value chain,
producers needed logistical
help, and customers were
not price-conscious yet
Wine became culturally and
economically significant.
In 1750‟s = 2nd largest
export Grand Strategies
The wine market was
Existing
complex and highly New Products
fragmented. The Products
classifications helped
Existing Market Penetration or Product
customers understand
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
Independe + owned/controlled
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
• Low production costs, cheaper
than Australia.
• Concha y Toro, 4th among top
wine brands at 11 million cases in
2007.
• Control over value chain
Weaknesses
• Could be stuck in low-cost wine
segment
• Increasing cost of raw material
• Distribution costs
• Currently a surplus amongst basic low-
cost wines.
Opportunities
• Low labor cost in South America.
• 6.8% global wine consumption
growth from 2002 to 2006.
• New technological developments
• Ideal climate and soil for growing
grapes.
• Better access to U.S. wine
distribution system.
Threats
• Wine producing countries with low labor
costs and fertile land.
• Wine consumption trending towards
higher priced wines, especially in new
markets.
• 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?
 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
•Top three in World Wine Companies
•Nine brands in the Top 20, claiming
the number one spot
•Posses large amount of land on average
(213 hectares)
•Distribution expertise knowledge
Opportunities
•Increased demand for premium based
wines
•Increased wine consumption
•Generation Y (overall increased
demand)
•Demand in Asia, Russia, Canada for
wine consumption rising
Weaknesses
•Higher prices on similar rated
Australian wines
•Global price/quality ratio
•Not able to capture the “home” market
•Lack of available premium land for
expansion
Threats
•Weather/Droughts
•High demand for imported wines
•Inflation
•Surplus (“Two Buck Chuck”)
•Old World acquiring new technology
•Wine producing countries with low
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
Political Government linked up with
Australian winemakers to
develop strategy for
continued growth of the
industry.
Economical Lower costs of land
compared to US and France
Social Wine consumption in
increase
Demand for higher
premiums in US market
Technological N/A
Environmental Sunny climates and
irrigation system.
Legal 2005 US Supreme Court
ruling triggered a series of
state and federal regulation
challenges that began to
open up the US distribution
system.
Importance Threats Importance
High- Compared to N/A
US and France,
Australia is given less
regulations with their
government. Strategy
2025, ensures
government support
at least until 2025
High Lower labor costs in South Medium
America and Asia.
High Consumption trending toward Moderate
more price sensitive
consumers minimizing Ultra
and Super premium.
Moderate Surpluses that lower costs High
overall on wine
Droughts leading to major
cost increases with water.
Moderate Stricter drinking laws Low
throughout different
countries.
 Comparison
France
Hectares 7.4
Cost of pruning land $350
Brands in top 20(2004- 1 4(two in the top 10)
2008)
Generic Strategy Narrow to a segment “Icon”
that is differentiation. France
has the traditional history to
brand and promote the
highest of classes in wine.
However numbers show
volume market share is 1%
and Little growth
Government Involvement EU agricultural policy changes
leading to subsidizing
marketing and promotion.
Also, Regulation regions.
Australia
167
$120
Broad Differentiation with
product uniqueness.
Australia‟s 2025 plan wants
to implement sub-brands
that would target separate
consumer groups. Australia
should be recommended to
NOT compete in low cost
long term.
Governments wine export
body linked with Fed. Of
Australia to promote
continued growth in the
industry.
US
213
$350 (Cain Napa)
9 ( Number 1 out of 20)
High cost producer.
Differentiation and
Narrow. General focus
within Super and Ultra
premium.
Illegal immigration
affecting labor costs
(Possible shortage?)
Ultra and Super Premium Wine- Five Forces
Threat of new Entrants-
Moderate
Price of land and large capital
investment. It can take 3-4
years on average to produce
their first harvest. Time is
also a major deterrent for
new entry
Suppliers Power
Low
There are vineyards and
grape growers. Huge wine
surpluses in the 2000‟s
allowed Australian producers
to use their cost advantage,
driving prices lower. This
made Australian perception to
be “Cheap”
Bargaining Buyer Power
High
Trends have impacted the
industry such as Super,
Ultra, or Premium quality
Rivalry and grape flavor.
High
Competition high
between US, France
and unknowns like
Asia.
Substitutes
Moderate
For Low or High
premium costs,
substitutes exist always
as consumers may look
to bourbon and whiskeys.
Switching cost is
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?