Strategic Management

Case Analysis (Competing in Global Wine Industry: A U.S Perspective)

Submitted to: Sir Ahsan Durrani

Submitted by: Mohammad Sharif (5945) Muhammad Wasif Qureshi (4701) Danish Ahmed Qazi (4440) Muhammad Danyal Siddiqui (5029)

Analysis of General Environment

Political and Legal Environment Some countries like Taiwan, japan, Hong Kong imposed high barriers on US wines. There was an issue that minors are using wines by give orders through internet and many citizen groups against the internet selling of wines. In most of the US states direct shipment of wines is illegal. Mexican government made high import tariff on US wines. There are countries some European countries government who did not recognize production methods of US wineries. Economic Environment In 1998 US 8th largest wine companies sold wines with the percentage of 77.7% by volume. The market share of imported wines fluctuated between, 1992 to 1998. Due to stagnant condition of per capita consumption of wines wineries started looking for export opportunity. Another factor was that because of maturity in US market wineries developed their interest in global market. The imports rose to 17.14 billion in 1998. Socio-Cultural Environment Because of immigrants population in America wine had not been culturally drink and wine was viewed as an elite drink. Due to affordability and availability the whiskey and beer were so populated in US. Customer preferences for the colors of wine shifted from white to red during 1990 to 1998. There is close tie between wine and Christian faith. Demographic Environment According to statistics US women were more likely to consume wine than men. Most of the wine drinkers were professionals and graduate people with the income level of over $60,000 annually. 15.7 million U.S adults were the core wine drinkers who had wine at least once a week and consumed 88% of wine by volume. Most of the drinkers were baby boomers.

Analysis of Industry Dominant Characteristics

Market Size & Growth Rate Statistics of 2000 shows that U.S was the fourth largest producer of wine and most of it was locally consumed The industry was growing and consumers preferences were also changing like the demand for red wines were also increasing Number of Rivals The U.S wine industry consisted of over 1600 wineries, a dozen of them were large volume producers dominated the market Industry consolidated to a smaller number of big players Scope of competitive rivalry Analysts believed that the wine industry was globalizing, Presence in foreign markets becoming more important from 1970 the wineries started competing at a global level Degree of product differentiation Some of the rivals in the industry like Robert Mondavi involved in differentiation. Through cold fermentation Mondavi created lighter and fruitier taste that differentiated its wine from European and other competitors in the U.S market

Industries Competitive Situation

1. Potential Entry of new Entrants

For new entrants it is hard to compete with large firms like E. & J. Gallo Winery and Robert Modavi, because of the huge amount of advertising and marketing to gain market share

producing wine on large scales requires great capital expenditures and therefore, a new entrant would need to secure a huge amount of capital funding to compete in the industry. Access to distribution channel measures barrier to entry due to the secure distribution channel created by the existing wine companies. Established firms usually have cost advantages which can not be copied by potential entrants 2. Competitive Pressures from Substitute Products Threat of substitutes in the wine industry is relatively low. Products like flavored malt beverages cannot really replace place wine and they are perceived as a complement to wine rather than a substitute 3. Bargaining Power of Buyers The bargaining power of buyers is low due to the structure of the industry. The winery dictates wholesaler inventory levels, control their pricing to retail, as well as local marketing style and strategy. There are many wholesalers who want to carry the major brands. Distributor has no choice but to obtain a particular brand from a particular winery 4. Bargaining Power of Supplier Bargaining power of supplier is low in the wine industry. There are many suppliers exist in the wine industry such as suppliers of corks, bottles, packaging product and grapes which are homogenous in nature and may be considered as commodity products. The prices of raw material are relatively stable. Backward integration has also lessen the power of supplier since the wineries can control their supply chain

Driving forces
Changes in long term industry growth Wine industry is growing at a rate of 8.5 percent since 1994, there are 1600 wineries are in operation only few are large volume producers. Actually wine was viewed as elite drink the society, as in U.S. there are several consuming segments. According to the Adams Wine Handbook 1998, women are slightly more likely to consume wine then men, with the majority of drinkers being in the "Baby Boomer" generation. Export opportunities The increasing trend for the export market since 1995 is due primarily to a change in the strategic priority that wine producing countries are placing on exporting as a method for growth Stagnant consumption of wine Per Capita consumption of wine had stagnated due to which wineries started looking for export opportunities. In terms of production U.S was fourth largest wine producer, but the export volume was only 4.2%. Maturity in the U.S market was one of the major cause for U.S wineries to develop their interest in the global market

Strategic Group Map of Selected US Wine Manufacturers

Global

Wente Bros

Geographic Scope

E&J Gallo Winery

Robert Mondavi Corporation

Beringer

Domestic

Low

Breadth of Product Line

High

Key Success Factors of Industry

U.S is one of the most favorable place to grow Grapes in the world and the quality of grapes is the most important variable in producing wine Large and growing market for premium wines Favorable demographic and macro trends

KSFs of E & J Gallo Winery Manufacturing Related Pioneers in developing new wine production techniques Backward integrated into wine yards, bottling, and foil production Distribution Related Forwardly integrated into wholesale distribution According to Gallo in 2000 a brand named Alcott Ridge would be available I all wall mart stores Marketing Related The company adopted the strategy of having its sales force, Push, for very visible shelf space in liquor and grocery stores KSFs of Robert Mondavi Technology Related Innovative method of producing lighter and fruitier wine thru cold fermentation Marketing Related Combining the French appellation and California varietal and elevating the brand image of its wines

KSFs of Beringer Wine Estates Manufacturing Related It was well regarded because of their high quality Marketing Related Increased product line breadth (Australian company Fosters purchased Beringer and combined Beringers portfolio of wine with its own wine subsidiary) KSFs of Beringer Wine Estates Manufacturing Related It was well regarded because of their high quality Marketing Related Increased product line breadth (Australian company Fosters purchased Beringer and combined Beringers portfolio of wine with its own wine subsidiary)

Competitive Profile Matrix

Gallo Winery Robert Modavi Beringer Wine Wente Bros

Strategic Factors

Weight Rating Weighted Rating Weighted Rating Weighted Rating Weighted Score Score 4 1.12 3 Score 0.84 3 Score 1.14

Quality of Wine

0.28

1.12

Global Expension

0.21

0.63

0.42

0.84

0.84

Technology/Innovation 0.17

0.34

0.68

0.34

0.34

Distribution

0.2

0.8

0.6

0.6

0.6

Differenciation

0.14

0.14

0.56

0.28

0.28

Total

3.03

3.38

2.9

3.2

Differentiation