1. Case Study:Global Wine War 2009BRANDON BULLOCK GABRIEL ESUOLA JAMES JENNINGS CHRISTA THOMASRICHARD ZERBE

2. Primary Question Could a winemaker finally capture 1% market share if its home country was strategically positioned? 3. Secondary Questions What is Frances ideal competitive position and whatstrategies lend to optimal performance? What is South Americas ideal competitive positionand what strategies lend to optimal performance? What is the United States ideal competitive positionand what strategies lend to optimal performance? What is Italys ideal competitive position and whatstrategies lend to optimal performance? What is Australias ideal competitive position andwhat strategies lend to optimal performance? 4. New World vs. Old World Old WorldNew WorldCountriesFrance, Italy, Spain, and GermanyArgentina, Chile, United States, Australia, and ChinaCharacteristics- Rich in Tradition- Innovation leaders in industry- Heavy Govt involvement- - Utilize full Value Chain- excel inregulations and subsidiesdistribution 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 formarkets by consumption both producers and consumers- Limited distribution and marketing 5. Segments in the Wine Industry Icon UltraSuperPremiumBasicPremiumPremiumPrice RangeMore than$20-50 $10-20 $5-10>$5 $50Consumer ConnoisseurWine lover Experimenter Experimenter Price- FocusedPurchase driverImage, style Quality, Brand, Quality Price, Brand PriceImageRetail Outlets Winery,SpecialtyBetter SupermarketSupermarket, Boutique Shop, good supermarket,Discounter shops, FoodserviceSpecialty shop serviceAvailability Scarce ScareSufficient LargeSurplusquantities 6. France WHAT IS FRANCES IDEAL COMPETITIVE POSITION AND WHAT STRATEGIES LEND TO OPTIMAL PERFORMANCE? 7. Generic Strategy Clock FranceFormerlyWhy: successful:Vineyards grow grapes: Customer base was spread Large producers made wine out and small. Although Small producers soldusing merchantsgrapes to merchants byfragmented the value chain,volumeproducers needed logistical Merchants blend, bottle, help, and customers wereand distribute not price-conscious yetWine became culturally and Focus was on large volume economically significant.production, not quality In 1750s = 2nd largest export Grand StrategiesThe wine market wasThe extent of differentiationExistingwas a governmental complex and highlyNew Productsfragmented. TheProductsclassification system ofclassifications helped quality based on rules and Existing Market Penetration or Product customers understand controls ConsolidationDevelopmentpurchases Market- New Industry New Market DiversificationMarket Development- Little Competition- First Mover AdvantageWEAK STRONGCompetitive Position: 8. Changes to the IndustryApplicable to Applicable to Chronological Order of Innovations Effect on France Old World New WorldDramatically improved production capacity andMass production of bottles and cork stopper.enabled longer storage. Birthed the global wineLate 1700s Pasteurization X Xmarket.1800sVineyard horses & planting in rows X XIncreased efficiency and competitiveness1850sClassification system for winesX XAllowed differentiation and consumer understanding1880sPhylloxera-resistant vines X XImproved health and life of vinesControlled drip irrigation (enables use ofLess competitive1900smarginal landXMechanical harvesters and pruners (reducedLess competitivelate 1900s labor costs) Xlate 1900s Night harvesting (maximizes grape sugars)XLess competitivelate 1900s Modern trellis systems (vineyards 2x denser) X Less competitiveFertilizers and pruning methods (increased Less competitivelate 1900s harvest yield and improved grape flavor) Xlate 1900s Marketing specific consumers X Less competitiveLate 1900s Producers own and control entire value chain X Less competitiveReverse osmosis (color and taste Less competitive1990senrichment)XIncorporate stainless steel barrels,computers, and oak chips inLess competitive1990sfermentation/aging process XPackaging changes (decreased shipping costsLess competitive1990sand facilitated storage) X- Lack unique - Lack core - Fragmented value - Inefficient- Incoherent- Risk of the Kodakresources competencieschain strategiescomplexWEAKSTRONG Competitive Position: 9. Strategy Recommendation Target Icon/Ultra Directional Matrix: Icon/ Ultra Premium Wines Premium Wines! Icon/Ultra Premium Wine Profitability Unattractive Average AttractiveSWOT: Icon/UP Wine Production in France Frances WeakStrengthsWeaknesses Potential CompetitiveAverage Icon and French producers have Asset allocation is not Capability UP Winesexperience focused; many Strong French wine is vineyards arebranded as high enddedicated to below- Porters 5 Forces: Icon/already due to the premium winesUltra Premium WinesFrenchs commitment Fragmented valueto technique and high- chain and distribution Medium Force... Spain and Italy are strong rivals; Newpriceprocesses Intensity of RivalryWorld producers are less threatening. Climate is conduciveBargaining PowerBenign suppliers can be easily replaced; moreover,to growing premiumNew World producers of Suppliers cost increases can be passed down to the customergrapes 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 Buyersrestrictions arebrands.lighteningConsumer purchasingMedium Force the barriers to entry are moderate. power may not be Threat of New RegulationNew entrants are disadvantaged by start-up costs and great enough to affordEntrantsenvironment fosters lack of brand image.the growth ofpremium winesThreat of Strong Force customers can substitute for less-premium over basic Substitutionsexpensive wines or alternative drinks easily.Opportunities ThreatsWEAKSTRONG Potential Competitive Position: 10. Necessary Changes in Frances Competitive Position:Value Chain Wine Independent IndependentIndependent Retailer/ ProducerDistributor DistributorDistributorCustomer A long, multilevel value chain, with service providers in many of the links lacking either the scale or expertise to operateefficiently Engage FORWARD VERTICAL INTEGRATION to Achievethis Value Chain:Wine Wine Producer + owned/controlled Independe ntIndependentIndependent Retailer/ ProducerCustomer distributor DistributorDistributor Distributor Low Cost High CostHigh Scope RecommendedNecessaryGenericOriginalStrategyLow Scope 11. Necessary Changes in Frances Competitive Position: 1.0 +Icon/Ultra Recommended PremiumWine inFranceIndustry Boston Consulting Group Matrix Growth 5% Increase Relative Market Share! _ +Relative _ Market ShareExisting Products New ProductsGrandMarket PenetrationExisting MarketProduct Development Strategy or Consolidation If the product focus is onIcon/Ultra Premium Wines, allNew Market Market DevelopmentDiversificationGrand Strategies can be used 12. Necessary Changes in Frances Competitive Position:Unique Resources & Core CompetenciesFor Icon/Ultra Premium Wine Production in France Relative SignificanceRelative Significance Unique Resources Core Competencies (scale: 1 5) (scale: 1 5) Strict Regulation Environment2Complying with Regulations3 Pre-established image as aProducing high quality, Existing high end wine producer4expensive wines 5 Leveraging experience and Experience 5expertise 5 Condensed, efficient valueSqueezing value out of the chain5value chains components 4 Recommended Ability to conduct useful Strong brand image 5market research 4 High quality grapes and plots Acquiring highest quality of land3resources 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. ItalyWHAT IS ITALYS IDEAL COMPETITIVE POSITIONAND WHAT STRATEGIES LEND TO OPTIMALPERFORMANCE? 14. Italys Current ConditionsGrape Production 1996-2006 By Country Italy is the global leader in wine productionWorldRank Country Production 2006% Change1996-2006and exports (by volume) and is also the (US Tons)global leader in grape production Italy is home to 3 of the top 20 wine brands1stItaly 8,700(12.25%)by volume2ndFrance7,700(7.17%)3rdSpain 7,50022.41%Global Positioning4thUnited6,417(1.47%) ItalyFrance United States Australia States 50,0005thChina 6,100125.61% 45,00040,00035,000 As a high volume producer 30,000Italy has found itself25,000operating in the moderate-20,000to-low cost end of the wine 15,00010,000industry.5,000 The wine industry is a0crucial part of ItalysConsumptionProductionExportseconomy and culture. 15. Current Industry TrendsSegmentation and Growth TrendsCountry IncreasedConsumption Premium segments are growing as wine consumptionincreases in US and UK driving higher priced wine salesRussia 74.89% Mature Markets such as France, Italy, Spain, &Canada45.65%Germany are still top 6 markets despite a drop inChina 39.5%consumption United Kingdom17.99% New markets without established wine palates tend toUnited States13.67%prefer the Premium and Super Premium segments 5 Forces- Premium Ultra Icon PremiumSuper PremiumPremiumBasicBuyers-Medium: retailers control sale of majority ofMarket Trend LittleLittle Growth Growing Growing Decreasing segmentGrowth Rivalry-High: price andIncreasing (brandbranding GraduallyFierce (brand CompetitionLimited Increasingand quality/priceand price)PriceNew Entry-High: brandingratio) not as significantVolume Market1% 5% 10% 34% 50% Suppliers- Low: ExcessSharesupply in EU Availability Scarce ScarceSufficient Large Surplus Substitutes-Medium: many quantities low cost alcohol substitutes 16. Strategy RecommendationsGeneric StrategyCompetitive Position Low CostHigh Cost Italys history and resourcesallow it to be the leading wine Broadproducer in the world.ScopeCompetitive ScopeGlobalPremium/ Heavy volume productionSPdoesnt allow for a high endNarrow Marketsdifferentiated product due to itScopeonly being 6% of entire industry.Core Competencies/Unique ResourcesResourcesRank (1-5 scale) Italy already has a history of being theExperience (Old World)3 leader in wine productionVolume Production5 Narrowing down to two segments will allow Italy to focus in on coreHeavy Supply (Prestige) 4consumers Being the largest exporter in the worldProximity to Largest4allows to build on current distribution Markets networks worldwide 17. Italys Competitive StrategyDirectional MatrixBCG MatrixPremium/SP Wine ProfitabilityUnattractiveAverageAttractiveItalys Potential WeakCompetitiveCapabilityAveragePremiumStrong /SP WinesPremium/SPSegmentGrand Strategy AnsoffsExisting ProductsNew Products Matrix Italy is the largest volume imported ExistingMarket 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 RecommendationsValue ChainGrape WineGrowerProducer DistributionRetailers ConsumersBackward 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 thevariable costs per bottle increasing margins on heavy volumeBoth 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 AmericaWHAT IS SOUTH AMERICAS IDEAL COMPETITIVE POSITION AND WHAT STRATEGIES LEND TO OPTIMALPERFORMANCE? 20. South American Wines Chilean & Argentinian Grape Production 1996-2006 By Country World CountryProduction 1996- Production% Change Rank 2000 20061996-2006(US Tons)(US Tons) 1st Italy9,9148,700 (12.25%) 2nd France 8.2957,700 (7.17%) 3rd Spain6,1277,500 22.41% 5th China2,7046,100 125.61% 8th Argentina2,4562,700 9.94% 10thChile1,8272,200 20.42% 21. Wine Consumption by Country Top 3 Countries in Wine ConsumptionWorld CountryConsumption Consumption %Rank20022006 Change (Hectoliters) (Hectoliters)1st France34,820 32,800(5.8%) 2nd Italy27,709 27,300 (1.48%)3rd United States 23,650 26,88313.67%40,00035,0001st - France30,0002nd - Italy25,0003rd - United States20,00015,0005th - China10,0007th - United Kingdom 5,0008th - Russia0 2002 2003 20042005 2006 22. South American WinesPESTEL AnalysisOpportunitiesImportanceThreatsImportancePoliticalNAN/A Low labor costs in AsiaLow labor costs in South AmericaEconomicHighHighly competitive low- HighLow cost of land price segment Worldwide wine consumption Consumption is starting toincrease 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. andNew developments lower costTechnological Moderate Australia may take longer toModerate and increase qualityreach South America.Ideal climate and soil for growingEnvironmental Moderate N/A grapes2005 US Supreme Court rulingtriggered a series of state andfederal regulation challenges thatLegal Moderate N/A began to open up the US distribution system. 23. Low Cost Wine - Five Forces Low Cost Wine SegmentThreat of NewAmong the five tiered classification for wineCompetitioncost, the basic segment could be attract forHigh new entrants.Threat of Substitute Creating a low cost wine could be much easierProducts/Servicesand cost effective for many wineries. Large Moderate existing companies could also develop low cost brands.Bargaining Power ofAs consumers tastes and preferences change.Buyers The demand for higher quality wines mayHigh continue to grow.Bargaining Power ofMany new world wineries control theirSuppliersproduct from the grapes to the store shelves. LowIntensity of Competing Competition among U.S., Australian, SouthProducts American and eventually Chinese low cost High wines. 24. South America SWOT Analysis StrengthsOpportunities 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 developments2007. Ideal climate and soil for growing Control over value chain grapes. Better access to U.S. wine distribution system. WeaknessesThreats Could be stuck in low-cost wine Wine producing countries with low laborsegmentcosts 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. 25. Competitive Position - Ansoff 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 StatesWHAT IS THE UNITED STATES IDEAL COMPETITIVE POSITIONAND WHAT STRATEGIES LEND TO OPTIMAL PERFORMANCE? 28. United States Wines PESTEL AnalysisOpportunitiesImportance ThreatsImportancePolitical N/A N/AEconomicalMost attractive wine High Extremely high land costs in US Highmarket in the worldHigh labor costs ModerateSocialWine consumptionHigh Higher demand for importedHighincreasewineDemand for higher Highpremiums in US marketTechnological Advanced technology Moderate Old World slowly allowing for Lowover Old Worldtechnology advancementsEnvironmental Large vineyards Moderate Lack of available land in Moderatepremium areasLegal N/A Illegal immigration control Low(higher labor costs)2005 US Supreme Court rulingtriggered a series of state andHighfederal regulation challenges thatbegan to open up the USdistribution system. 29. SWOT AnalysisStrengths WeaknessesTop three in World Wine CompaniesHigher prices on similar ratedNine brands in the Top 20, claimingAustralian winesthe number one spot Global price/quality ratioPosses large amount of land on average Not able to capture the home market(213 hectares)Lack of available premium land forDistribution expertise knowledge expansionOpportunities ThreatsIncreased demand for premium based Weather/Droughtswines High demand for imported winesIncreased wine consumption InflationGeneration Y (overall increasedSurplus (Two Buck Chuck)demand) Old World acquiring new technologyDemand in Asia, Russia, Canada for Wine producing countries with lowwine consumption rising labor costs and fertile land. 30. Ansoff Matrix 31. Recommendations Continue with the super and ultra premium brands,as they contribute to the growing 15% market shareand are currently successful. Premium brands account for a growing 30% of themarket, which the United States is lacking. Focus onproduct development, coming up with a premiumbrand that is at a comparable cost with imports willattract more customers and increase sales. Increase advertising and promotions in the UnitedStates to attract to more Generation Y customerswho are typically buying imported wines. 32. Australia WHAT IS AUSTRALIAS IDEAL COMPETITIVE POSITION AND WHAT STRATEGIES LEND TO OPTIMAL PERFORMANCE? 33. Australias Earlier Position Australia was one of the late adopters toward NewWorlds opening markets. Reasons: Dominant British heritage made beer the alcoholicbeverage of preference. Lack of well established reputation Wine consumer mostly by Old World immigrants Post WWII saw Australia attempt to attract theglobal market. 34. Core Competency Australia s core competency is Innovation. Compared tocompetitors from New and Old wine companies, They haveseparated themselves by going against traditional ways. In a mature market, this position of differentiation hasproven to be a viable strategy for Australian wine makers. Drip irrigation was not used until Australia utilized it ontheir land when growing the grapes used to make the wine.This created larger vineyards where innovative equipmentwas implemented to reduce the labor costs. - Wine in a box - Screw caps instead of cork screws 35. Australian Wines PESTEL AnalysisOpportunitiesImportanceThreats ImportancePolitical Government linked up withHigh- Compared to N/AAustralian winemakers to US and France,develop strategy for Australia is given lesscontinued growth of theregulations with theirindustry.government. Strategy 2025, ensures government support at least until 2025EconomicalLower costs of landHighLower labor costs in SouthMediumcompared to US and FranceAmerica and Asia.SocialWine consumption inHighConsumption trending toward Moderateincrease more price sensitiveDemand for higherconsumers minimizing Ultrapremiums in US marketand Super premium.Technological N/AEnvironmental Sunny climates and ModerateSurpluses that lower costsHighirrigation system. overall on wine Droughts leading to major cost increases with water.Legal 2005 US Supreme CourtModerateStricter drinking lawsLowruling triggered a series of throughout differentstate and federal regulation countries.challenges that began toopen up the US distributionsystem. 36. Comparison FranceAustralia USHectares 7.4 167 213Cost 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 IconBroad Differentiation withHigh cost producer. that is differentiation. France product uniqueness. Differentiation and has the traditional history toAustralias 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 separatepremium. However numbers showconsumer 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 changesGovernments wine export Illegal immigration leading to subsidizingbody linked with Fed. Ofaffecting labor costs marketing and promotion.Australia to promote(Possible shortage?) Also, Regulation regions. continued growth in the industry. 37. Ultra and Super Premium Wine- Five Forces Threat of new Entrants- Moderate Bargaining Buyer Power Price of land and large capitalHigh investment. It can take 3-4Trends have impacted the years on average to produceindustry such as Super, their first harvest. Time is Ultra, or Premium quality also a major deterrent forRivalryand grape flavor. new entry High Competition high between US, France and unknowns like Asia. Suppliers Power LowSubstitutesThere are vineyards and Moderate grape growers. Huge wine For Low or High surpluses in the 2000spremium 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 toSwitching cost is be Cheap moderate. 38. SWOT Analysis Internal Strengths Weaknesses 1.Leader in winemaking innovation1. 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 allowingcheap and less pristine (due to Yellow maximum wine producingTails success as a low cost product.) 5. 60% of the worlds top wine companies3. Operational costs starting to rise. External OpportunitiesThreats 1. Demand in Asia , Russia, Canada for wine1. Serious droughts ( weather)consumption rising. 2. Changing drinking preferences 2. US consumers preference for imports 3. Inflation in penetrating marketsinstead of domestic.4. Old Country using same technology 3. Resources to break into the Premium-High5. Major market in UK declining inpremium market.consumption 4. Generation Y ( Gen. Y has more of ademand for wine compares to Gen. X)Looking at the SWOT, it is fair to question should Australias competitive position continue bea low cost producer despite a demand for high premium wines? Exports in 2007 increased inthe US to 31% but image perception was the wine is Cheap. Costs are rising and it is clear tohave a better margin, low cost is not primarily recommended. 39. Ansoff MatrixBrandPensfoldRed Winerange fromPrem-IconStrategy 2025Australia 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 muchmore expensive production costs related to land and labor. Product Development has been considered for the Strategy2025 plan that will appeal to 4 consumer groups with emphasis on innovation and design. 40. Caution! For Australias strategy, they must be mindful of two things: 1. South Americas low production costs allow themto have lower grape costs and production. (Furtherinclination, competing in Low cost is not wise) 2. US holds 9 spots in the worlds top 20 Brands(2004-2008) 41. Recommendations Continue to stick with the Strategy 2025 plan. Data shows it has beensuccessful in exports( grape and export production grew 530% to 782 millionliters in 2006) Reposition Australian wines as a premium for US Generation Y consumers.They prefer imports over domestic which is an advantage. US producersface higher production costs and Frances system doesnt allow them torespond to consumer demand as quickly. Continue with the innovation in brand, packaging, and image that allowedAustralia to be a big player in the Wine industry. Studies showed 65% USconsumers had no idea what they would choose when entering a wine store. Look to emerging markets like Russia, and Canada. China has great growthpotential, but may be more attractive toward a primary low cost producer. Focus on Premium, Super, and Ultra. Combined they represent 49% volumemarket 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! 42. Questions?