INDEPENDENTSTUDY’ (26342)’ · ’ 3’ Abstract! ’...
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Student Number: 200915727 Word account: 5414 (without references) INDEPENDENT STUDY (26342) How did “Bordeaux” AOC red wines adapt their strategies to the new competitive environment? Evolution of the Bordeaux AOC’s strategies between the end of the 90’s and 2011. Module tutor: Steve BRAUND
Transcript of INDEPENDENTSTUDY’ (26342)’ · ’ 3’ Abstract! ’...
Student Number: 200915727 Word account: 5414 (without references)
INDEPENDENT STUDY (26342)
How did “Bordeaux” AOC red wines adapt their strategies to
the new competitive environment?
Evolution of the Bordeaux AOC’s strategies between the end
of the 90’s and 2011.
Module tutor: Steve BRAUND
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Table of contents
Abstract ............................................................................................................................................... 3 Introduction ...................................................................................................................................... 4 I. Background and literature review ..................................................................................... 5 A. The macro-environment and customers behaviour ............................................................. 6 B. Competitive rivalry and potential new entrants ................................................................... 7 C. BAOCs and strategies ....................................................................................................................... 8 D. BAOC and adaptive strategies .................................................................................................... 10
II. Research Methodology ....................................................................................................... 11 A. Research question .......................................................................................................................... 11 B. Methodology ..................................................................................................................................... 11 C. Findings and analysis .................................................................................................................... 12
III. Conclusion and recommendations ............................................................................... 18 Bibliography ................................................................................................................................... 20 Appendixes ..................................................................................................................................... 22
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Abstract
Purpose: After years of European monopoly in the international wine industry, red wines
from the New World, International regulation, customers’ trend consumption and emerging
markets, changed radically the Bordeaux AOC wines strategies. The purpose of this paper is
to understand how the BGRWs react and adapt to this new competitive environment. In
order to achieve this aim I have 3 objectives:
-‐ Determining the factors that have lead to the evolution of BAOCs’ strategies
-‐ Discovering the strategies that have been used to face to the new competitive environment
-‐ Determining the adaptive strategies of BAOC through the eye of managers of wineries
Research methodology: A quantitative study based on questionnaires sent to managers of
wineries producing Bordeaux AOC red wine. The questionnaire is divided in 3 parts: impact
of AOC, impact of environmental changes and adaptive strategies.
Data presentation: the research paper has been drawn up with secondary sources from
academic articles and newspapers, and primary sources from the questionnaires in order to
determine the adaptive strategies of the small Bordeaux wineries.
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Introduction
“Until recent years, wine was with us. We were the center, the unavoidable reference point.
Today, the barbarians are at our gates: Australia, New Zealand, the USA, Chile, Argentina
and South Africa” declared French Ministry of Agriculture in 2001. Flint and Golicic (2009) set
up an interesting parallel between the wine industry and the automobile industry. Indeed
The US “Big 3” automakers (General Motors, Ford, and Chrysler) always thought in the 70s
that Toyota and Honda would never be able to construct and sell sound and attractive cars
so they did not pay any attention about these Japanese competitors. Nowadays Toyota is
one of the most profitable automobile manufacturer and GM and Chrysler bankrupted.
Similarly with the wine industry, the Old continent has always thought it did provide the best
wine in the world and no one could have a chance to challenge it. In the beginning of the
2000s, after decades of oligopolistic situation over the global wine industry, France (much
more than Spain and Italy) has been hardy affected by New World Wines (NWW) that have
quickly conquered the Old Continent markets.
Despite its famous reputation and its brand equity the red wine from Bordeaux area has had
to deal with a huge and long crisis from 2000 that affected mainly the small wineries. Before
entering deeply in our subject, you have to know that French red wines are all classified into
a hierarchy according to their AOC (controlled designation of origin). There are 57 AOCs in
the Bordeaux area and the one we will focus on is the “Bordeaux” generic AOC (BAOC) that
corresponds to a red wine produced with grape varieties from the Bordeaux area. Basically,
BAOCs are blends of ordinary red wines, and are usually found in the "cheap" section of the
wine store. Most of the BAOC wineries can be considered as SMEs or SOHOs, light years
from Grands Crus’ comfortable way of life that represent just 4% of the Bordeaux area
production but more than 20% of the turn-‐over in 2011 (L’Express, June 2011). BAOCs had to
change and adapt their strategies to the new competitive environment despite their
attachment to traditions and values, their limited financial resources and their low influence
on the Bordeaux red wine lobbies. In order to make our study achievable we decided
adopting a general approach of strategies considered in business as “a design or plan for
achieving a company's policy goals and objectives” (Davies 2000).
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I. Background and literature review
The wine industry is a part of the French culture and the red wine from Bordeaux area
occupies a very special place in the regional and national French industry. The evolution of
the wine industry in France has been considerable between 1970 and 2011: from the peak
to the decadence. Regarding authors’ and mainly journalists’ works between the 90s and
2011 it would appear relevant to divide such evolution as following: 1970-‐2000, “The three
decades of prosperity”1 of the French wine, 2001-‐2006, the collapse of the sales, 2007-‐2009,
the impact of the global crisis and finally 2010-‐2011, back to business.
Our approach will be focused on the Industry environment that represents all the changes
(government regulations, technology, or the development of substitute products) that
impact on all competitors in a specific industry. On the other hand the competitive
represents all the changes in customers and direct competitors that influence the
competitive strategy of the business unit (Downes L. and Mui C., 1998). In other words the
Industry environment equals to the competitive environment plus the PEST but in order to
simply the reading we will use the generic term of competitive environment. Also we can
underline the concepts of market and industry (Appendix 1) The first one represents as a
geographic (international, national, regional or/and local) and product area covered by firms
that sell similar goods and services also providing substitutes form the buyer’s point of view.
The concept of industry brings group of product together that are closed substitutes from
the firm’s point of view (Lipczynski and Wilson, 2004).
Our work will firstly determining the evolution of the competitive environment studied by
Porter’s work (1980) that is still very useful to give a picture of the previous, actual or future
situation of an industry and its environment. However this is a static model (Steen Ehlers,
2009) and evolution can hardly be pointed out. Then firms’ strategies and adaptive
capacities will be pointed out.
1 Expression used by Jean Fourastié to describe the French period between 1946 and 1976
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A. The macro-‐environment and customers behaviour
The macro environment is the general cultural context of a specified geographical area and
contains forces recognized to have important influences on organizational characteristics
and outputs (Osborn and Hunt 1974). Farmer and Richman (1964) and Schein (1965)
grouped these forces into economic, educational, legal-‐political, and social-‐cultural
categories. In the last decades the macro-‐environment of the wine industry has considerably
changed in many ways.
First of all, according to the last FranceAgriMer’s study (2010) the trend consumption of
French customers has become more occasional, 41.3% of in 2005, and the wine non-‐
consumer was now about 28.8% in 2005 so as the remaining 20.7% in 2005 (46.9% in 1980)
was considered to be regular customers. Moreover OIV (International Organization of the
Wine) estimates the world wine consumption decreased about -‐0.2 M hl / -‐0,1% in 2010.
Then EU countries saw a small decrease of 0.2 Mhl in 2010 (same as 2009). Consequently,
the world currently is still producing more wine than it can consume and production
surpluses have ranged between 15% and 20% over the past ten years (Hussain et al., 2007).
Also consumers are becoming more educated about products/brands and demanding more
variety. This increased knowledge is expected to lead to discrimination between brands and
preferences for differentiated products thereby customers are looking for quality and
innovation from the product much more than low prices and attractive product backgrounds
(Anderson, 2003).
Secondly, economic policies had a huge impact on the wine industry environment. In 1999,
the WTO decided to use policies in order to get a balance between offer and demand of
wine by “reinforcing global competition, […] asking for better quality product to be
sustainable competitive […] and for a restructuration of the all wine industry” (European
Commission for the Development of the Agriculture).
Finally, the world economic situation and its successive crises have been a big restraint for
the wine industry. According to Pomel (2006) “Crisis” is exactly the term used by the latest
governments reports on the sector which serves as the basis for a new 90 million euro
rescue package. Moreover, wine is not a basic foodstuff and the strong euro can be a
weakness to export to the developing countries (Cardebat and Figuet, 2010).
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B. Competitive rivalry and potential new entrants
Until the end of the 90s, the European wine industry, led by the French, Spain and Italia, has
always tried to preserve monopoly rents by insisting upon the unique virtues of land, climate
and tradition (notion of terroir). Reinforced by institutional controls such as AOC the French
wine trade that has always insisted upon “producing wine of extraordinary quality” that
guaranteed a monopoly (Harley D., 2009). Moreover, Spain that has a much larger vineyard
did not have a high yield until the end of the 90s and Italy had to deal with a constant
overproduction that made the Italian wines’ prices going down and the decrease of the
Italian wineries’ incomes. Then, contrary to the industrial production structures used in the
New Word Wineries, the Bordeaux red wine industry is characterized by its atomisation,
about 10.000, 1.000 castles, 400 dealerships and 57 appellations. “The atomization of the
actors is a big weakness, we have to consolidate ourselves in order to enter the markets
under the “Bordeaux” banner, in fact we need powerful brands and big volumes to survive
abroad” said Mr Bertran from the Wines Interprofessional National Office (Onivins, 2005).
Globalization partly led by ICTs, technology transfers and global trade regulation easily
swept away the short-‐lived barriers implemented by France and the Old Country. So as
NWW quickly set up productive wineries, stable and good quality wines. Furthermore cheap
work force increased profitability compared to the French wineries. Located in much more
stable and predictable climate area and using the same grape varieties, NWW have been
able to produce permanent good quality wines at low prices. Then these new wineries are
relatively concentrated (Appendix 2) and managed as big businesses putting aside all the
traditional valued defended by the French wineries and implementing huge and expensive
advertising campaigns such as sponsoring sport events, TV advertisement… Finally with big
production volumes, a higher financial power, a stable quality product at a low price, a
image of new and young product and a very favourable political and economical global
environment (WTO), NWWs started really to enter on the European wine market at the very
beginning of the 2000s.
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C. BAOCs and strategies
Two main theoretical approaches of business strategies have been drawn up: the Porter’s
three generic strategies (1980) and the Ansoff’s growth vector matrix (1987). (Appendix 3)
On the first hand Michael Porter’s strategic typology (Appendix 4) has been one of the most
widely accepted methods of discussing, categorizing, and selecting company strategies.
Porter’s novel idea that strategies can be classified into generic types (differentiation, cost
leadership and cot or differentiation focus) has been the basis for much of the strategy
research and practice in the past quarter century. Porter contends that by implementing one
of these strategies, a company will have a competitive advantage and earn above average
industry returns (Akan Obasi and Allen Richard et al, 2006). On the other hand the Ansoff
matrix provides the basis for the objective setting process of a business, and it lays down the
foundation of directional policy for its future activities. Market penetration, product/service
extension, diversification, and market extension represent the options available to business
planners. (Anthony R. Bennett, 1994). The Ansoff matrix is very interesting for us because it
has been mainly used to analyze SMEs life cycles so it fits perfectly with our study. Moreover,
it is important to add that the diversification represent the most risky option for a SME
because it will have to deal with a new product in a new market. And because SMEs can
hardly afford for market studies and market forecasts, this is double or nothing.
It is essential to underline the fact that BOAC wineries are SME or SOHO (Small Office and
Home Office) that represent most of the Bordeaux areas but they do not face the same
difficulties than the Grand Crus Castles. Indeed the Grand Crus can rely on their notoriety
and brand equity so their prices target niches clients that have precious little been affected
by the NWW.
With a constant decrease of the European wine consumption since 1975 (Jenster 1992) and
a production still higher than the demand, the BAOC’s wineries have to deal with a declining
industrial environment in Europe. Indeed Grant (2008) stated the transition from maturity to
decline can be due to technological evolutions, evolution of customers’ preferences,
demographic shifts or foreign competition. An excess of capacity, a lack of technological
change, a declining rivalry among existing firms and an aggressive price competition
characterize industries affected by these evolutions of the environment. This is exactly what
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happened to the BAOC wineries between the 90s and the beginning of the 2000s. Harrigan
and Porter (1980) propose a model of strategies that can be used in declining industry:
becoming leadership by acquiring, encouraging competitors and increasing cost barriers,
being leadership on a profitable niche market, harvesting to maximize its cash flow by
cutting down costs and rationalizing, or adopting a diversification strategy.
In a competitive rivalry environment that was pierced by sale prices, new taste and big
volume from NWWs, BOACs turned out to be jammed in the market French they used to
lead. Unable to compete with prices or taste, one of their strategies has been to leave the
French market and to focus on developing new markets. Indeed, export constitutes the main
growth relay for the Bordeaux red wines: in 1990 less than 20% of the French production
was exported whereas in 2009 it was more than 33% (Cardebat and Figuet 2010). In 2011,
the AOCs from the Bordeaux area was the first French AOCs exported to the new market
developing areas such as Hong Kong (+16% in 2010) and China (+62% in 2010). In terms of
volume, China became in 2011 the main BOAC purchaser and Hong Kong the main purchaser
in term of value (€251M) before UK (€227M) and China (€164M) (Wine and Society, August
2011). Thanks to the overseas’ demand, the price of the generic red wine barrel is traded
around 1000€ in 2011 compared to 650€ in 2010 according to Laurent Gapenne, vice-‐
president of The Trade Association of the Bordeaux’s wines. However those figures are
global including the success of the Grand Crus that can hide a darker reality: are the all
French wine industry taking benefits from the global improvement?
Furthermore it is also import that an assistant plan called “Bordeaux Tomorrow” was set up
in 2009 and implemented in 2010 to be effective in 2011 in order to promote, segment,
protect the Bordeaux brand (Agri-‐media, 2011). That would mean that Bordeaux red wines,
more than being a historical French product, need the Governmental actions to survive and
to keep on being competitive.
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D. BAOC and adaptive strategies
The concept of adaptive decision making is defined by Etzioni (1990) as an idea that “entails
a mixture of shallow and deep examination of data – generalized consideration of a broad
range of facts and choices followed by detailed examination of a focused subset of facts and
choices”. Metts (2011) established a treatment of adaptive decision in literature. Sharfman
and Dean stated adaptive strategy is “a series of choices about how to respond to perceived
threats and opportunities”. Byers and Slack (2001) defined adaptive capacity as “the
response to environment contingencies or circumstances including competitors, suppliers,
changing economic conditions, government policy, weather, customer demand and current
trends”. (Appendix 5)
Today’s competitive environment requires the adoption of modern technical methods of
production in order to adapt oneself. However the preservation of History and traditions is
strongly linked to the French identity, so as wine is part of the French history. Moreover,
according to the ONIVINS, the policies lead by the government in 2003 to subsidize wineries
does not encourage the wineries to adapt and lets them keeping on producing in the same
way they used to do 20 years ago. For the French wineries, adaptation leads to a loss of
tradition (McKibben, 2004).
Most of the BAOC wineries are SMEs and SOHOs that we can be associated to manufactories
businesses because they transform inputs into outputs. Skinner (1969) also perceived
linkages between the business environment, decision-‐making, and manufacturing strategy.
The conceptualization of strategy includes decision making as an embedded process. The
business environment in SMEs is characterized by informality and resource scarcity that
limits the ability to scan and process relevant information due to resource limitation and
that drives to the need for adaptation (Garcia-‐Retamero and Rieskamp, 2009).
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II. Research Methodology
A. Research question
Considering the literature review, BAOCs appear to have lost the competitive advantage
based on the brand equity they used to have before the 2000s. Alderson (1957) states,
“every firm seek and find a function that enables it to maintain a position in the
marketplace”, then the perception of the market such as local, regional, national or global
will influence the opportunities to differentiate themselves.
The research question we posed (how did “Bordeaux” AOC red wines adapt their strategies
to the new competitive environment between the 90s and 2011?) is exploratory and as such
demands a methodology appropriate for digging deeply into how mangers interact with and
adapt to the competitive environment changes:
• NWWs and political environment have represented the hardest changes
• AOC label has a positive impact on the adaptive capacity of the firm
• Most of the BAOCs wineries have chosen market development and diversification as
their main strategies to face to the changes of competitive environment
B. Methodology
We drew up our questionnaire drawing our inspiration from an interview of Dominic
Ducourt, a BAOC winery manager, published in L’Express in June 2011, “The forecasted
death of the forgotten small wineries”. In this interview Ducourt criticizes the policies used
to help the BAOC wineries, he adds that the Trade Association of the Bordeaux’s wines focus
on the big producers and the most famous castles: the ones that contribute the most to the
notoriety of the Bordeaux area. The plan “Bordeaux tomorrow” that will drive the small
wineries to merger with the most profitable castle makes Mr. Ducourt intervening: “our
business model are raised to disappear in very close future” because their turnover is too
much linked with the decreasing French market according to the Departmental Federation
of the Farm Workers Unions (FDSEA). Indeed, according to the FDSEA, this range of French
wines with huge volumes has to compete with the NWW that have an equivalent or better
quality at a lower price.
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Because the French wine industry is composed by many different structure of firm we decide
to target only on wineries that produce only BAOC wines as their top product. Indeed
famous castles or vineyards do produce a huge range of product spread from the BAOC
wines to the highest range, the Grand Crus classés. We voluntary excluded the castles
producing such wines because they definitely do not have the same financial resources, the
same brand equity, the same customers and they did not tackle the environment changes in
the same way. In order to have as much as possible the most homogeneous results we
selected carefully the wineries that can be identified as SMEs or SOHOs.
In order to get concrete data from BAOCs wineries managers we decide to send
questionnaire divided in three main areas: impact of AOC, impact of the environment and
strategies used to face the environment. The questionnaire was composed by narrow and
open question and asks the managers to evaluate their own strategies compared to the
evolution of the competitive environment. (Appendix 6)
The more appropriate way to collect data from the managers would have been the
qualitative study but this turned out to be hard to do. So we used a quantitative study and
the questionnaire had to be short and effective to collect as much as information as possible.
We sent 87 questionnaires by emails and we got 22 answers after two weeks wait, that
equals to a 25,3% of positive answers. (Appendix 7)
C. Findings and analysis
General data from the sample have underlined that most of the wineries production is red
wine, (more than 60% of the global production) and very few produce huge organic wine
volume (around 10% of the global product). Their main ways of selling pass by exportations
(average of 41%), the wine dealers (26%), and direct sale to customers (20%) that underlines
the biggest distribution channels in term of volume such as large and middle-‐size
supermarkets (1,5%) and hotels, cafés and restaurants (1%) are not used at all or cannot be
used by the BAOC wineries. Exportation or trading abroad through the wine dealers do
appear to be the emergency exit to sell off the production because national wine dealers,
retailers and customers represent only from 40% to 58% of the purchasers depending on the
winery distribution channel strategy. This fact also points out LMSMs and HCRs fallow the
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actual customer consumption trend and expectations based on new tastes and new feelings
from all over the world.
The Bordeaux AOC impact
The French AOC system has been considered to be the most controlled and protected and so
the most respected by customers. It was supposed to reinforce the brand image, the
notoriety of French wines sold in the Europe and the rest of the world and France has kept
on expending this AOC strategy to all the vineyards and all the regional French product.
BAOC appears to be a useful standard label to be sold in France whereas this is essential if
any winery plan to sell abroad in the European Union or other part of the world (81,8%).
Indeed BOAC label increases the brand image (95,4%) and the exportation opportunities
(86,3%) whereas the value for money stays the same according to the managers.
Nevertheless, if is BOAC label increases the opportunities to be sold abroad it keeps on being
a huge administrative and intern burden because of rules and controls the wineries have to
fulfil (100%). Moreover, some managers underline that the BOAC label hide the notion of
terroir from customers that means customers have no means to be aware of the winery
traditions and values.
These results confirm what Corade and Del’Homme (2005) discovered in a survey of 73
winemakers from the Bergerac and Médoc regions (Bordeaux area): over 70% of them
(53/73) agreed that AOC regulations held them back in international competition (FIVS,
2006).
With the arrival of the NWWs and the degradation of the global economic environment, the
“All AOC’s strategy” revealed its complexity and restrictiveness and Ben (2006) drew up
several structural problems linked to such a strategy. First, AOC Explosion has made
consumers lost in a maze of 450 AOCs all over France. Secondly, there is a problem of quality
because AOC provides assurance as to origin and production methods, but does not directly
certify the quality of the final product. Moreover wine quality is variable both within and
across AOC zones, Berthomeau, (2001) claimed some AOC wines are “just average or even
unfit for the appellation”. Finally, the Regulatory Straightjacket has shown that rigidities
introduced by AOC certification prevent producers from taking advantage of technological
advances, and adapting to changing consumer tastes.
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Compared to the NWW where the restrictiveness of the production is epsilon compared to
the French ones, the “rural roots” and traditional know-‐how brand of French wine set up a
big interrogation: would GI protection of Basmati rice imply that farmers would have to use
animal traction for now and evermore (Ben, 2006)?
The evolution of the industry environment
The WTO and the European Union are clearly named to be responsible of the French wine
industry crisis (54,5%). The economic crisis of 2008 increased this scepticism vis-‐à-‐vis the
international authorities. Then, the French government, after having led policies for the wine
industry such as financial help and communication plan, seems to follow the European and
international policies that want a sustainable wine market with fair competitive means.
BAOC managers expected more support from the French government during the global
economic crisis times and they expected balanced helps for the French wine industry, not a
plan that mainly helped the Grand Crus castles.
According to most of the winery managers (63,6%) the impact of Spanish and Italian wines
has been stable and controlled. Some even answered Spanish wines competitive impact has
turned to be harder to control since 2011 than the Italian wines. Then if we consider
separately each NWW they have had a different impact on the BAOCs since 2000. Indeed,
between 2001 and 2006, NWWs had an impact hard to control on the BAOCs (63,6%) but
then because of the NWW national policies and national difficulties some competitors
turned out to be weak and controlled. The Australian situation is really interesting because
it is very close to the French one. Austrian wine industry has faced since 2007 to the "perfect
storm" whipped up by a strong currency, oversupply and cautious consumers. Australian
wine sales have fallen sharply as the industry faces its worst slowdown in a decade and a
half. "I have never seen it like this before," explains Brian McGuigan, an indomitable industry
veteran based in Pokolbin 160km (100 miles) north of Sydney, who began his winemaking
adventure half a century ago (Phil Mercer, BBC News, 18 September 2011). On the other
hand Chile has turned out to be a very tough competitors with strong intentions to compete
with the Californian wines in term of volume.
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In order to analyse in the evolution of the impact of the industry environment we decided to
draw up a diagram of Porter’s five forces from the 90s to 2011. New entrants and
competitive have been established following the quantitative evaluation of the managers.
The substitutes impact has been established according to our own readings about the beer,
soft drink and soda market trends that are still increasing while the global red wine
consumption is still decreasing. The buyers power is still high, retailers impact is still very
important but thanks to the new market such as China or Hong-‐Kong the purchasers
influences has been relaxed for the BAOC wineries. Then suppliers have always had a very
low power because most of the wineries own their vineyard.
The strategies to adapt to the evolution
Most of the managers have adopted marketing strategies such as exportation and new
market development (90,1%) as the first priority strategy. Then marketing product strategy
(86,3%) and product diversification (77,2%) have also been pointed out as main strategy to
adapt to the environment changes. Furthermore financial strategies such as cost reduction
and investment to modernize the winery are also important strategies according to the
managers. However, most of the managers (68,2%) focus on the regional competition
adding that competing with NWWs in term of price would be impossible.
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Moreover, managers do refuse (95,4%) to join cooperatives in order to increase the sales
opportunities and the influence on the main retailers that means managers are intentionally
or not for the fragmentation of the Bordeaux producers: will criticized become it is a big lose
in term of volume compared to the huge Australian or Californian wineries.
Regarding the literature review and the answers from the winery managers, exportation is
the first means to sell off the production (between 70% and 20% of the production) that
French consumers do not want anymore. European countries such as Germany, Belgium, the
UK and Denmark but also the USA and nowadays China and Hong-‐Kong represent the main
export destination but 36,6% of the BAOC wineries answered the cost of exportation curbs
the export opportunities. For these 36,6% of wineries future looks hard if they do no have
the financial resources to leave the overloaded French market: this is a vicious circle for
them. According to Ansoff’s matrix, export strategy is what it is called a market development
strategy. BAOC managers know that Asia is an open space, with the biggest potential clients
who are not necessarily as well educated about wine product as the European customers. In
order to make this market development successful BAOC managers, who think (68,2%) there
is complexity of the BAOCs identification tags for the foreign customers, have simplified the
identification tag and given a new look to the identification tag of the bottle. Furthermore
managers unanimously added that such strategy does not present lose of values and
traditions for the wine (95,4%)
Some BAOCs managers have also used a horizontal diversification strategy trough a product
development strategy by launching organic wines. In 2011, France was the third organic
wine producer behind Spain and Italia but before the USA, then in the same year 32% of the
French wine customers questioned has declared consuming organic wine (Craplet and Rey-‐
Coquais, IPSOS, 2011). Only 45,4% of the BAOC managers questioned said they produce
organic red wine, and just 22,7% plan to increase or to produce organic red wine. The main
reason given for this low implication in this market is the traditional difference between the
main organic wine producers located in Languedoc and the Bordeaux producers. Indeed,
most of the organic wines are rosé or white wine, mainly produce in Languedoc, then
Bordeaux produce a majority of red wine and it has still a strong brand equity compared to
the Languedoc area: organic wine represents a sound exit for the Languedoc wines not for
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the Bordeaux ones. Organic wine gives an opportunity to small wineries to get round the
financial cost of export, but the recent European Union agreements could represent a new
difficulty for small wineries that plan to increase the production or starting producing
organic wine. Indeed, in February 2012 the EU created a European Organic Wine label that
would allow organic French wine to have a European and international positive impact.
However, wineries have to fulfil with tough regulations and controls, moreover this
European label will favour and encourage the development of “industrial organic wineries”
able to produce huge organic wine volume and to spread it all over the European area and
also in the USA or China (Datin, 2012).
Summary of the evolution of the BAOCs’ strategies:
Before 2000
In 2011
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III. Conclusion and recommendations
In summary, the BAOC mangers had to face to a huge competitive environment changes:
new competitors with aggressive price policies, new international regulations, new
consumption trends and a displacement of the main consumers out of France. Because
BAOCs are produced by SMEs or SOHOs these one could not afford for any scenario planning
so they adopt more reactive strategies than anticipative strategies to adapt to the new
environment. The adaptation from the BAOC is more likely to be subjected than pro-‐active
because BAOC cannot compete on an equal footing with the Grand Crus Castles and the big
wineries from the New World. So BAOC had to find a new competitive advantage, in fact
they did not find a new one they just export this advantage into markets that were still
looking for such differentiation: Eastern Europe, China, Hong-‐Kong. Market development
and product development, with the organic wine, have been adopt by most of the BAOC
wineries and this do provide good results according to the last figures from Le Monde:
exportations +22% compared to 2010, 63% are French customers and China represents an
increase of +103% in term of value compared to 2010 (Le Monde, 12 March 2012).
Despite what we could have thought, small wineries managers do think that their business
has to be more focus on profitability and competitiveness (81,8%) than on tradition, roots
and the notion of terroir. Moreover, even if each manager has his own way of managing, our
research underlined there is two mainstreams of perspective: “I do it by myself” or “I wait
for a governmental help because my business is a part of the French patrimony”. Our study
reveals that the wineries that focused on exportation as the main solution strongly agree
with the idea of competitiveness, profitability and low influence of French government.
With “the strategic plan 2020”, Chile plans to overtake the USA in term of production
following its exportation strategy: 70% of its production (Les Echos, 22 August 2011). This
can represent a future threat for BAOCs if the Chilean wine reaches the Asian market with
huge volume and low prices, and if the Asian customers after 10 years drinking French wine
want to try something new. Moreover, if wineries do not manage to bring together in order
to have a stronger influence vis-‐à-‐vis the retailers that would present a real weakness in a
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close future. According to the managers nothing is decided yet about their future: as a long
term strategies we do think that wineries have to find a way to educate or to attract
generation Y that could constitute huge sales opportunities in the next ten years.
20
Bibliography
Academic Articles: Akan Obasi and Allen Richard et al, Critical tactics for implementing Porter’s generic strategies, Journal of Business strategy, 2006 Cardebat Jean-‐Marie and Figuet Jean-‐Marc, Les vins de Bordeaux en 2009-‐2010: bilan et perspectives internationals, Le vin et ses marches, 2010 Couderc Jean-‐Pierre and Marchini Andrea, Governance, commercial strategies and performances of wine cooperatives: An analysis of Italian and French wine producing regions, International Journal of Wine Business Research Vol. 23 No. 3, 2011 Flint Daniel and Golicic Susan, Searching for competitive advantage through sustainability: A qualitative study in the New Zealand wine industry, International Journal of Physical Distribution & Logistics Management Vol. 39 No. 10, 2009 Davies Warnock, Understanding strategy, Purdue University Press, 2000 Downes L. and Mui C., Unleashing the Killer App: Digital Strategies for Market Dominance, Boston: Harvard Business School Press, 1998. Glenn A. Metts, Decision Making and Strategy Development in SMEs: An Empirical Investigation into the Role of Adaptation, International Review of Business Research Papers, 2011 Grant Robert M., Contemporary Strategy Analysis, 6th Ed., Blackwell Publishing, 2008 Harvey David, The art of rent: globalization, monopoly and the commodification of culture, 2009 Jenster Per and Jenster Lars, The European Wine industry, 1992 Lipczynski John and Wilson John, The Economics of Business Strategy, FT Prentice Hall, 2004 McKibben Andrew, French Wine in Crisis? The Effect of Culture and Social Changes on the French Wine Economy, ISP Collection, 2004 Moussetis Robert, Ansoff revisited: How Ansoff interfaces with both the planning and learning schools of thought in strategy, Journal of Management History, 2011 Osborn Richard and Hunt James, Environment and Organizational Effectiveness, Administrative Science Quarterly, 1974
21
Shepherd Ben, Costs and Benefits of Protecting Geographical Indications: Some Lessons from the French Wine Sector, World Economy Group, 2006 Newspapers: Craplet and Rey-‐Coquais, Le vin bio, image et perception en France et en Allemagne, IPSOS, 2011, available on: http://www.ipsos.fr/ipsos-‐public-‐affairs/actualites/2011-‐10-‐21-‐vin-‐bio-‐image-‐et-‐perception-‐en-‐france-‐et-‐en-‐allemagne European Commission for the Development of the Agriculture, available on: http://ec.europa.eu/agriculture/markets/wine/index_fr.htm L’ Express, “In Bordeaux, the premeditate death of the little castles forgiven in the Vinexpo show”, 9th June 2011, available on: http://www.lexpress.fr/actualites/1/culture/a-‐bordeaux-‐la-‐mort-‐annoncee-‐des-‐petits-‐chateaux-‐oublies-‐de-‐vinexpo_1000924.html L’ Express, A Bordeaux, "la mort annoncée" des petits châteaux oubliés de Vinexpo, 9th June 2011, available on: http://www.lexpress.fr/actualites/1/culture/a-‐bordeaux-‐la-‐mort-‐annoncee-‐des-‐petits-‐chateaux-‐oublies-‐de-‐vinexpo_1000924.html Le Monde, Les vins de Bordeaux atteignent un record à l’export en 2011, 12 April 2012, available on: http://www.lemonde.fr/economie/article/2012/03/12/les-‐vins-‐de-‐bordeaux-‐atteignent-‐un-‐record-‐a-‐l-‐export-‐en-‐2011_1656275_3234.html Phil Mercer, Australian wine seeks new markets amid falling sales, BBC News, 18 September 2011, available on: http://www.bbc.co.uk/news/business-‐14850126 Viti.Net, Concurrence -‐ Les vins de Bordeaux à la peine face à la déferlante du "Nouveau Monde", 18th November 2005, available on: http://www.viti-‐net.com/vigne_vin/article/les-‐vins-‐de-‐bordeaux-‐a-‐la-‐peine-‐face-‐a-‐la-‐deferlante-‐du-‐nouveau-‐monde-‐24-‐25719.html
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Appendixes
Appendix 3: Competitive environment
23
Appendix 2: NWWs’ exportation and concentration
For instance: In Australia, the 3 first wineries represent 50% of the national production and 70% of the national
exportation
24
Appendix 3: Business strategies model
Porter’s three generic strategies
Ansoff’s growth vector matrix
COMPETITIVE FOCUS
Lower Cost Differentiation Broad Target COMPETITIVE
Cost Leadership Differentiation
SCOPE Narrow Target
Cost Focus Differentiation Focus
Market/ Product Present New
Present Do Nothing Withdrawal Consolidation Market Penetration
Product Development
New
Market Development Diversification:
related unrelated
25
Appendix 4: Wine industry before the NWWs came in Europe
Most of the suppliers are part of the wineries
The European wine industry: AOC “Bordeaux”
Vs. Local, Regional, National,
Spanish and Italian competition
Wines from the New World (NWW): Australia, South of Africa, Chile, California and
Argentina
Substitutes such as beer, soft drink and soda… due
to new trends
Customers: wholesalers, retailers,
restaurants, hotels, airline
companies, final customers…
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Appendix 5: Adaptation, definition and strategy
Treatment of adaptive decision making in literature (Metts 2011)
Source: Metts, Treatment of adaptive decision making in literature, 2011
Main drivers of SMEs’ adaptive capacity in the manufacturing sector (Metts, 2011)
Source: Glenn A. Metts, Decision Making and Strategy Development in SMEs: An Empirical Investigation into the Role of Adaptation, International Review of Business Research Papers, 2011
27
Appendix 6: Questionnaire General Data • Hectare cultivated: • Turnover: • Production (%):
Red: White: Rosé: Sparkling: Crémant: Organic: Others:
• Our BAOC buyers (%):
Large and middle-‐size supermarkets: CHR (cafés, hotels, restaurants): Catalogue sales: Direct sale to the customer: Caves: Export: Others:
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The Bordeaux AOC • Is it difficil to get the AOC accreditation: YES / NO
Why? (Financial investments, norms, regulations…): • Today is AOC a necessity to sell onself? (Chose the most significant answer) Essential Useful Negligible
In France In the European Union
In the rest of the world • Today what does a BOAC bring to you regarding…(chose the most significant answer) Improved Equal Lower
… The brand equity … The value for money
…. The export opportunities
…. The increase or the diversification of your buyers network*
…. The increase or the diversification of your retailing network*
*Could you be more specific:
Buyers: Retailers:
• What’s wrong with the AOC?
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Evolution of the competitive environment between 1990 and 2011 Quantify the impact of the changes on the BOAC (from 10 to 0) • About the Institutional impacts: Complete from 10 to 7 if the impact is positive, from 6 to 4 if the impact is meaningless, from 3 to 0 if this impact is negative. • About the NWW impacts: Complete from 10 to 7 if the impact has been hard to control, from 6 to 4 if the impact has been controllable, from 3 to 0 is the impact has been meaningless. Before 2000 2001-‐2006 2007-‐2010 Today
French institutions
European Union
WTO
Spanish red wine (RW)
Italian RW
Australian RW
Californian RW
South of Africa RW
Chile RW
Argentinian RW
• Have you been able to forecast such changes? YES / NO
Why?:
• Has the adaptation easier with the AOC label Why?:
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Quantify the adaptation of the BAOC to the competitive environment changes Quantify the importance you attach the following adaptive strategies from 10 to 0. Example: 10 for a first priority adaptive strategy
0 for a strategy you will never implement
Adapt your resources to the French wine industry climate
Adapt to economic environment
Adapt to political environment
Adapt to new markets
Adapter your resources to the new customer’s needs
Adapt your prices to the regional competitors
Adapt your prices to the national competitors
Adapt your prices to the European competitors
Adapt your prices to the NWWs*
Adapt by a product diversification (organic product)
Adapt by entering in new foreign markets
Adapt the marketing product: identification tag, bottle design…
Adapt by a product innovation
Adapt by joining cooperatives
Adapt by investments (assets modernization)
Adapt by reducing the costs *New World Wines
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Exportation has been pointed out to be the solution to BAOCs difficulties on the French
market:
• Do you export your BAOC? : YES / NO
• To which counties?:
• What proportion of you production?:
• Does the cost of the exportation curb you? YES / NO
• Do you plan to expand you exportations? YES / NO
If yes where?:
Also the complexity of the BAOCs identification tags for the foreign customers is very often
pointed out:
• Do you agree this statement? YES / NO
• Have you already simplified the identification tag? YES / NO
• Have you already given a new look to the identification tag? YES / NO
• Do the two strategies mentioned above lead to a loss of our values or traditions? YES /
NO
If you previously answered no:
• Do you plan to change the marketing of the identification tag? NO / YES
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How have you dealt with the organic trend consumption?
• Do you produce organic red wine? YES / NO
Why?:
If YES, in which proportion (%)?:
If NO do you plan to produce organic red wine?:
• Do you think this trend represents a sustainable market? YES / NO
Why?:
According to you, a small winery is…:
Classify from 1 to 5
Example: 1 if you completely agree, 5 if you completely disagree
A familiar business with its tradition and its roots
A business that has to be competitive and profitable
A business that has to make a compromise between being competitive and
keeping on having its own traditions
I disagree with every defintion
How do you see the future of the BAOCs?
Optimist, « the hardest things
are behind us»
Neutral, « nothing is
decided yet »
Pessimist, « there is still
big work to do»
Thanks!
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Appendix 7: Results
Winery / Production (%) Red White Rosé Crémant Others Organic Franquinotte 75 15 10 X X 8 Château de Lisennes 65 25 10 X X X Les Arromans 68 22 10 X X X Château Hateau Crabitan Bellvue 71 15 11 3 X 15 Château Les Ancres 60 25 15 X X X Château Lartigue-‐Cèdre 63 27,5 9,5 X X X Château Farizeau 65 20,5 14,5 X X 5 Château de Bonhoste 75 20 5 X X X Château Haut Domingue 70 25 5 X X 15 Château Anniche 60 30 10 X X X Château Belle Garde 67 13 8 2 X X Chatteau Loduc 70 25 5 X X 25 Domaine de Birot 68 16 16 X X X Château des Tuilières 59 27 14 X X 13 Château Haut Garriga 63 18,5 15 3,5 X 10 Château de L’Aubrade 71 19,5 9,5 X X X Château Legay 63 21 14,5 1,5 X 10 Château Ninon 75 14 11 X X X Domaine du Claouset 67 29 4 X X 15 Château de Bouillerot 62 15 20 3 X 10 Château de Gadras 65 17 16 2 X X Château Turcaud 65 19 16 X X X
