Global Wine WarsNew World Challenges Old

Porter’s 5 Forces AnalysisThreat of New Entrants is low as Entry Barriers are high:•Economies of scale exist•High start-up costs•Variable profit margins•High level of product differentiation•Access to distribution channels may be difficult

Threat of Substitution is high due to large number of Substitute Products:•Substitutes are readily available and attractively priced•Other products exist that perform the same or similar function•Substitute products satisfy price, value, and quality expectations

Varying Bargaining Power of Customers:•Switching costs are low•Substitutes are readily available•Buyers have ability to postpone and/or cut purchasing•Large number of buyers

Bargaining Power of Suppliers depends on size:•High differentiation•Switching costs vary with season and trends•Some suppliers may integrate backward

Rivalry within the industry is strong:•Industry growth has slowed•Diverse number of rivals•Aggressive price and marketing strategies•Buyer cost for switching brands is low

Conclusion/Profit Potential

The analysis concludes that the global wine industry is attractive to large and integrated wineries, as they have the ability to make profit and weather aggressive competitive strategies. Furthermore, because they control their entire value chain they can “extract margins at every level as well as retain bargaining power,” which makes them more attractive to buyers (Bartlett et al., 2008, p. 124). Additionally, their scope and scale offers them additional cost advantages, as they are able to avoid “more handling stages, hold less inventory, and capture intermediaries’ markup” (p. 133).Moreover, their size also provides them with the ability to respond to changes in trends and consumer preferences more effectively. The global wine industry is therefore appealing to large and integrated competitors in terms of profit.

French Competitive Advantage

Brand image/brand reputation Government protection

Classification schemes Agricultural subsidies

High local per capita consumption Low quality of non-European wines

New World Expansion in the 90’s

Industry developments Competitive battle between old and new world producers for market

share Old world producers held to old wine making techniques New producers embraced innovations in productions, marketing, and

distribution

New World Strategies Differentiation in production process

Planting larger vineyards Experimenting with new growing techniques Use of mechanical harvesters and pruners Development of the Trellis planting system Adopting the reverse osmosis technology Use of computer controlled stainless tanks for fermenting and aging

New World Expansion in the 90’s

Marketing and Distribution Strategies Marketing

New bottle sizes Wine in a box packages Screw caps on premium wines New branding techniques

Distribution Full control of value chain Controlled bargaining power with retailers Retain responsibility for product quality

New World Expansion in the 90’s

Changes in the Marketplace Decrease in consumption Change in consumer taste preferences Health issues Drunk-driving regulations

Changing Consumer Trends

Old World was unable to respond to changing trends due to: Tradition Government Regulation and Regulatory Bodies Fragmentation of Market Lack of Consensus of Industry Small Size of Wineries

Responding to Competition

Changes to Industry Structure Easing of strict wine-making regulations Change consumer perception of wine classification Develop new branding and marketing strategy Greater control of distribution channels Embrace new innovative techniques Product differentiation

References

Bartlett, C.A., Ghoshal, S., and Beamish P.W. (2008). Transnational Management: Text, cases, and readings in cross- border management. McGraw-Hill. New York.