MANAGERIAL COMMUNICATION-2

Assignment-1
Chateau Margaux Case Study

Submitted To: Submitted By:

Prof. Danesh Gojer Group-5
IIM Nagpur Section-A
 MEMO

To: Mr.X, Senior Consultant

From: Brad, Junior Consultant

Date: 21st February, 2006

Subject: Recommendation for future course of action for Chateau Margaux. Formatted: Strikethrough

Please find appended below a report that focuses upon the future course of action that Chateau Margaux
should take to scale and further grow the estate’s revenues Chateau Margaux’s business with an intact Formatted: Strikethrough
brand image. Formatted: Strikethrough

Start separate components of the report on separate pages

Executive Summary:
Chateau Margaux is one of the finest producer of the highest quality of first-wine in the Bordeaux
region, France which is famous for its wine production rephrase this last sentence. Chateau Margaux is
planning or was considering whether to expand their business and take control of the distribution
channels. The options available are as follows:
• Launching Chateau Margaux’s third wine
• Managing their own distribution system
• Continuing with the existing business model
The recommended course of action upon evaluation of option is that Chateau Margaux should expand
its business by taking up third wine through outsourcing. Rationale?
SITUATION ANALYSIS:
The Global wine industry has seen a radical shift in the entire supply chain with the New World
Producers review and rephrase this last sentence. In 10 years from 1994 to 2004, the demand for French
wines in the US market has decreased at a rate of 6.38% CAGR. Bordeaux, France where CM is located
is the largest wine making region whose classified growths’ share account for only 5% and... There is
a substantial difference between prices of first growths and the other classified growths which is
generally about 231% more than second growth and 601% more than the fifth growth why?. Pricing in
wine industry is usually decided by terroir and that gives Chateau Margaux an advantage over other
wine-makers to command a high price for the production isnt CM higher quality? Has a first growth
classification?. The trend in the market is usually for the négociants to market the wine thus providing Formatted: Highlight
a cushioning effect to the wine-producers in the years of bad vintagethis last sentence needs to be
rephrased. From Hout-Brian’s Clarendelle’s demand it can be inferred that there is a high demand for
third-wine at a cheaper rate amongst the connoisseurs. Review previous comment
Chateau Margaux has been able to maintain its brand image by making fine first-wine and
second-wine with consistent quality by carefully choosing the grapes and adopting new and
sophisticated production methods. The strategy has caused a reduction in production of first-wine but
prices have increased two-fold to ten-fold making it an attraction amongst ‘Luxury buyers’ and being a
major revenue generator for Chateau Margaux. This trend has brought a change in the consumer pattern
for Chateau Margaux with decrease in the number of loyal customers i.e., connoisseurs why is this
pertinent?. The estimated production cost is around €40 and selling price for Chateau Margaux is around
€100 for the medium vintage and around €180 for a good vintage revenues and profits the estate earns?.
However, the retailer’s mark up the price by at least 60% for a good vintage and by ~43% for a medium
one. Why is this pertinent? Chateau Margaux usually sells 10% of its leftover grapes in bulk with a non-
disclosure agreement and... Given to high profit margins, increasing demand for the third wines and
quality of grapes that the terroir of Chateau Margaux yields there is an opportunity to produce 42555
bottles of third wine with the leftover grapes. Potential benefits and risks?
Baron Philippe de Rothschild is the most famous third-wine producer?? produced and Formatted: Highlight
distributed the blended wine for the mass market and it has a market capacity of 22 million bottles year
which is about 100 times in quantity than their first-wine production. It resulted in doubling of their
profit in 16 years with 4.42% CAGR, with around €167 million in revenue. It reserves a small portion
of its growth for distribution by the company’s own sales network. The inference from the market share
of third-wine is that there’s a massive opportunity for Chateau Margaux to expand into third-wine and
thus increasing the revenue by manifold.
In addition to needing very significant rewriting the above SA needed to have gone into much greater
depth and detail. For instance you needed to have clearly and specifically analysed and ascertained
CM’s current competitive position including performing a financial analysis. you also needed to have
performed a clear and thorough analysis of the two main consumer segments. Potential benefits and
risks associated with the various options/courses of action available to the estate?

PROBLEM STATEMENT:
To formulate the future course of action to scale and further grow Chateau Margaux’s business with an
intact brand image.
OPTIONS:
Chateau Margaux can: Formatted: Strikethrough
 1. Take control of the distribution, sales and marketing functions of its wine business in its own Formatted: Strikethrough
hands.
2. Launch its third wine using Margaux-Appellation vineyards grapes. Quantity?
3. Launch its third wine using outsourced grapes from other regions. Quantity?
4. Continue with its current business without any modifications. This does not comply with the
Problem statement
CRITERIA FOR EVALUATION:
1. Brand image
2. Revenue
3. Customer Base
Ranking and rationale?
EVALUATION OF OPTIONS:
Option1: Chateau Margaux can take control of the distribution, sales and marketing of its wine business
in its own hands
Criteria1: Brand Image
1. The move will require a massive effort leading to a reduction of focus on manufacturing
process, thus compromising the quality of manufactured wine.
2. The efforts of Chateau Margaux to market its wine will be perceived as a sign of
weakness?? and affecting the brand image. and in turn..
3. Selling directly to customers will improve availability and remove the scarcity of the
wine in the market, reducing the value the customers have for the product.
Criteria2: Revenue
The option will enable more control over the pricing and can get the benefits of rising
price in wine due to aging. Wont the brand image dilution you earlier predicted lower
prices? Revenue will increase by 16M in good vintage and 9M in medium vintage.
Thereby increasing the operational charges. How have you arrived at these figures?
Profits?
Criteria3: Customer Base
Chateau Margaux is unable to reap the benefits of the final price the customer pays.
Also, the company is unaware of their latent demands??. Developing a distribution Formatted: Highlight
channel solves these problems.

Option2: Chateau Margaux can launch its third wine using Margaux-Appellation vineyards grapes.
Criteria1: Brand Image
Introducing a wine of inferior quality and at a lower price might impact the brand image of the
Chateau Margaux. What do you believe?
Criteria2: Revenue
By assuming production of 44,00,000 bottles of third wine is this a realistic target? for the price
of 12 euros and selling to the négociants, the company will generate a revenue of 52M. arent
costs 40 euros per bottle? There will be increase in expense to increase the production of grapes.
Refer previous comment
 Criteria3: Customer Base
The primary targets of the third growths will be the young people who are not the present
customers, but have the potential to move to the first and second growth wines in the future.
and..

Option3: Chateau Margaux can launch its third wine using outsourced grapes from other regions.
Criteria1: Brand Image
Wine manufactured from outsourced grapes cannot be labelled with Margaux appellation.
Thus, brand image will not get impacted. Wont consumers/the market know it is a CM product?
isnt this association needed to facilitate sales?

Criteria2: Revenue
By assuming production of 44,00,000 bottles of third wine for the price of 12 euros and selling
to the négociants, the company will generate a revenue of 52M. There will be increase in
expense to acquire the required grapes for producing. Risk of the quality of first and second
wines being produced getting detrimentally impacted?
Criteria3: Customer Base
The third growths can be served topay attention to your vocab the young people who are not Formatted: Highlight
the present customers, but have the potential to move to the first and second growth wines in
the future. Outsourcing of the grapes will increase the production of wines and will expand the
customer base. and require considerable management focus and effort?
Option4: Chateau Margaux can continue with its current business without any modifications
Criteria1: Brand Image
Brand image of Chateau Margaux will not have any impact going by this option. Could it not
further strengthen?
Criteria2: Revenue
There will be no immediate effects on revenue by continuing with the current business. But
revenue might decrease in the longer run because of deceasing consumer base of French wine.
Please elaborate further
Criteria3: Customer Base
The customer base might get a hitavoid such colloquialisms in the future as the penetration is Formatted: Highlight
low among the youth segment.

RECOMMENDATION
The recommendation is that Chateau Margaux should increase the production by launching its third
wine using outsourced grapes from other regions. The new product should have a different name along
with the signature, “From the makers of Chateau Margaux”. The strategy will increase the present
customer base without affecting the company’s brand image. why if a company famous for its
exclusive/premier image introduces an economical product?
ACTION PLAN
It is clear that a considerable portion of the profit is not getting transferred to Chateau Margaux. Hence
to reap the benefits the company should start investing in building a distribution channel gradually you
cannot implement more than one option?. The result can be achieved by selling 10% of the wine from
speciality stores which wine? and slowly moving towards own distribution channel. The time duration
for this transition is expected to be 5-7 years. By using a different name for the product, we are
mitigating the risk of dilution of brand image.

B-
Please focus upon your writing and language as there were several instances of unclear/poorly
constructed sentences.
Ensure that you adopt and maintain a strictly formal writing style.
Your analysis and evaluation needed to have gone into much greater depth and detail. For instance as
noted previously your SA needed to have been extended as did your financial analysis.
Concerning your recommendation I am not clear as to why you
- are confident the company can immediately start producing 4.4 million bottles of the new Formatted: List Paragraph, Bulleted + Level: 1 + Aligned
wine given management has no experience in this area at: 0.25" + Indent at: 0.5"
- have not addressed the risk that the effort and focus this would require would detrimentally
impact the quality of the first and second wine being produced
- have not evaluated the risk of brand dilution

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