GRAPE JUICE W INERY

Strategy Medium
difficulty
Food & beverage Interviewer-led case

This case focuses on redefining the strategy for Grape Juice Winery, a client that operates in the market
for low-cost wine. The case is primarily interviewer-led, but candidates are encouraged to drive the thinking
independently at times.

The case tests a candidate’s ability to think broadly around an open brief, and adapt his or her thinking as

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additional material is presented.

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Problem definition Pr a la
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Our client is Grape Juice Winery, a wine company that operates in the market for low-cost wine (defined as
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less than $12 per bottle) in the United States. The client makes, bottles, sells and distributes all its own
wine, and focuses exclusively on the US domestic market.
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20% of Grape Juice Winery’s revenue comes from direct-to-consumer sales via its own online store, while
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80% comes from wholesale sales to major retailers and grocery stores. The firm sells a total of six brands -
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three red wines and three white - and sells all its wine at a fixed retail price of $9.99.
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The market for low-cost wine in the United States is changing quickly, and at least three current or
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potential changes are concerning Grape Juice Winery:

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1. Consumers increasingly prefer 100% organic ingredients and are willing to pay more for them

2. Smart Wine, an up-and-coming wine producer, is growing 2x faster than all other companies due to its
online direct-to-consumer model, social media buzz, and wine subscription services

3. There are rumours that a large global wine company wants to enter the US market, with a strategy to
undercut the average wine price

Given these changing market conditions, how should Grape Juice Winery respond?

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 Additional information
If a candidate asks for Grape Juice Winery’s objectives, flag that:
• Grape Juice Winery is not limited to any particular sector or brand position, but that it is a for-profit
company with an overall goal of profit-maximisation
• Grape Juice Winery does not currently produce organic wines

Question 1 (Structuring)

How would you structure an approach to solve this problem?

Additional information
While there are many possible avenues to explore in this case, a common approach is to recognise the

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potential for Grape Juice Winery both to increase revenues and/or reduce costs in the face of these market

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changes, and to use a cost/revenue structure to answer this question accordingly.

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An alternative approach, however, is for a candidate to structure their answer around the options for Grape
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Juice Winery to increase its profits. Such a candidate may take their cues from the market changes
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highlighted in the problem definition, offering a structure through which they can explore the potential for
Grape Juice Winery to adapt to each of these changes. If using this kind of structure, a strong candidate
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should recognise that the client’s ability to reduce its costs will determine the feasibility of some changes.
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Possible answer
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1. New product lines: Could new product lines satisfy untapped market demand?
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a. Different kinds of wine (e.g., organic wines)

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b. Other beverages (e.g., whisky, beer)

2. Alternative distribution models: Could Grape Juice Winery grow through changing its distribution
strategy?
a. Shifting the mix of direct-to-consumer versus wholesale sales (e.g., through more D2C marketing)
b. Introducing new distribution models (e.g., subscription services)

3. New pricing models: Could different pricing approaches increase the attractiveness of Grape Juice
Winery's products?
a. Premium pricing
b. Discounted pricing

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 Question 2 (Numeracy)

Exhibit 1 outlines the overall market for low-cost wine in the US over the past year.

Based on this table, what is Grape Juice Winery’s market share in the low-cost wine market? What
does the exhibit suggest about GJW’s pricing in the market compared to Smart Wine’s?

Additional information

The candidate should be able to calculate that Grape Juice Winery has a 31% share of the total low-cost
wine market and describe how they reached that number. They should also be able to identify that Smart
Wine’s pricing is significantly lower than our client’s ($7.58 v $10).

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A strong candidate may highlight that competitive pricing is unlikely to be the only factor driving Smart

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Wine’s recent growth. The candidate might suggest other data points that would help to better understand
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the extent to which Smart Wine’s competitive pricing has driven its recent growth.
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Possible answer
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Grape Juice Winery has a 31% share of the total low-cost wine market, based on $31m Grape Juice Winery
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revenue over a total market revenue of $100m.

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Smart Wine’s pricing is significantly lower than our client’s. The average price-per-bottle for Smart Wine is
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$7.58, compared with $10 for our client. (Smart Wine: $11m revenue / 1.45m bottles = $7.58 per bottle;
Grape Juice Winery: $31m revenue / 3.1m bottles = $10 per bottle.)
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However, competitive pricing is unlikely to be the only factor driving Smart Wine’s recent growth. While
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Smart Wine is priced significantly more competitively than Grape Juice Winery, it is not the lowest-priced
wine on the market. Southeast Wines is the least expensive of the major players, with an average price-per-
bottle of just $5, but we know that Smart Wine is growing faster than them. We may want to conduct further
research understand what specifically is driving Smart Wine’s success, perhaps by reviewing customer
survey data, or the attributes of Smart Wine’s fastest-growing products.

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Exhibit 1

Company Revenue Bottles Sold

Grape Juice Winery $31m Red: 1.5m; White: 1.6m

West Coast Wines $22m Red: 2m

Southeast Wines $19m White: 3.8m

Smart Wine $11m Red: 1.25m; White 200k

Others $17m No data available

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Question 3 (Numeracy)

Our client is interested in understanding the pricing of Smart Wine’s different wine types.

Our research has found that Smart Wine prices its white wine at $5 per bottle. Given this, what
price is its red wine sold at?

Additional information

The candidate should realise that Exhibit 1 must be used once again to answer this question, but this
should be suggested directly if the candidate is unsure. A strong candidate should quickly establish a red
wine price of $8, and describe how they reached it.

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Possible answer

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If Smart Wine sells its white wine for $5 per bottle, its total revenue from white wine is $1m (200k x $5)
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Therefore, its total revenue from red wine must be $10m ($11m - $1m). The price-per-bottle for red wine is
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therefore $10m / 1.25m bottles = $8 per bottle. Red wine products are the vast majority of Smart Wine’s
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sales, and likely the primary driver of its growth, but are interestingly not the lowest-priced products for the
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firm.
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 Question 4 (Judgement and Insights)

Our client provides us with a graph illustrating how the input costs for each of its wines have changed over
the past five years (Exhibit 2).

What does the graph tell you? Does it suggest any changes the client might want to make?

Additional information

The candidate should briefly summarise what the graph shows, and may connect these insights to the data
provided earlier in the case: that GJW is more expensive than some of its competitors.

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However, a strong candidate would focus the majority of their time and attention on what Grape Juice

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Winery should do next. They may suggest a number of possible actions that Grape Juice Winery might

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want to take, as well as other data that could be useful in evaluating these actions.
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Possible answer
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The graph shows that input costs have been steadily rising across almost all of Grape Juice Winery’s
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brands. Given that GJW is more expensive than other low-cost wine brands (as we discovered from the
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earlier exhibit), the firm may need to focus on reducing these costs in order to remain competitive. Only one
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of Grape Juice Winery’s brands, R3, has seen its input costs decline since 2009.
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Grape Juice Winery may want to adjust its pricing to reflect the different input costs across its brands. We
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know that GJW’s brands are all priced the same despite significant differences in input costs. It appears that
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the input costs of Grape Juice Winery’s least costly brand (R3), for example, are only half of those for the
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next least costly brand, R1. However, it might also be helpful to understand more about the price-sensitivity
of GJW’s target customers in order to decide whether an alternative pricing structure would be effective.

Our client may also want to explore possible options to reduce its costs. These options could include:

1. Changing brand mix to focus on brands with lower input costs, perhaps by discontinuing more expensive
brands and/or developing new brands with lower input costs

2. Reducing the costs of inputs to existing brands:

a. Replacing more expensive inputs with less expensive alternatives
b. Identifying other ways to further reduce the cost of inputs, e.g. through purchasing or production
economies

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 Exhibit 2

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 Question 5 (Creativity)

The client provides us with the following information:

• Average total bottles sold per sale (online): 7 bottles
• Average total bottles sold per sale (retail): 2 bottles

GJW wants to maximise the number of bottles sold in each channel. What ideas can you suggest
for them to do this?

Additional information

This question requires the candidate to provide a number of ways in which the client could increase bottles
sold per sale. A good candidate will suggest a high number of such options.

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A strong candidate may further identify that the number of bottles sold per sale is significantly greater

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online than in retail stores, and may suggest ways to increase the proportion of sales taking place online or
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to capture some of the benefits of online shopping in conventional retail.
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A strong candidate may also identify that some of the ways in which the client could increase the number
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of bottles sold may not increase the overall basket size (e.g., If the client were to use discounts or
promotions). These may not be in the client’s overall interests.
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Possible answer
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There are a number of ways in which Grape Juice Winery can increase the number of bottles sold per sale:
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1. Discounts or price promotions

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a. Reducing the prices of all bottles

b. Promotional offers such as ‘3 for 2’ or ‘Buy one get one free’
c. Vouchers for threshold spends (e.g., $5 off purchases over $40)

2. In-store or online marketing

a. More information around each wine, e.g., Taste pairings
b. In-store taste tests
c. Posters and in-store advertising / banners and online advertising

3. New products or services

a. Subscription services
b. Party packs, e.g., glasses rental
c. Different volumes, e.g., cases, magnums, half-bottles

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 Question 6 (Creativity, Judgement & Insights)

As part of an effort to evaluate entirely new growth opportunities, Grape Juice Winery is thinking about
entering the bourbon market.

What should they consider when evaluating this move? How could they do this?

Additional information

This question requires the candidate to outline the various considerations that our client should consider
when deciding whether to enter the bourbon market. A strong candidate may also explore any unique
advantages that Grape Juice Winery may have over other existing players in the bourbon market, e.g.,

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ability to sell to existing customer base, transferable knowledge of production processes.

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The second part of this question requires the candidate to identify a few ways in which our client could
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enter a new market (eg. acquisition). A strong candidate may also consider how Grape Juice Winery could
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evaluate which approach would be the most appropriate.
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Possible answer
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There are a number of questions for Grape Juice Winery to consider when evaluating the bourbon market.
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1. How attractive is the bourbon market?

a. How many bourbon consumers are there in the US?
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b. How many bottles of bourbon does the average consumer consume annually?
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c. How much does the average consumer spend on a bottle of bourbon?

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2. How much would it cost to enter the bourbon market?

a. How much would it cost to set up a new bourbon operation?
b. How much would it cost to buy an existing bourbon producer?

3. Does our client have any unique advantages in the bourbon market? e.g.,
a. Reduced marketing spend: Could our client sell bourbon to its existing customer base?
b. Reduced R&D / production costs: Is any of our client’s proprietary knowledge transferable?
c. Reduced purchasing costs: Would the increased scale enable our client to negotiate better
terms from its suppliers?

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There are two primary ways in which Grape Juice Winery could enter the bourbon market: by setting up its
own operation, or by acquiring an existing bourbon producer. Our client should consider the costs of setting
up its own operation against the costs of acquisition, including:

1. Marketing: How much would Grape Juice Winery have to spend to market a new bourbon brand?

2. Infrastructure: How much would it cost to set up the infrastructure required to produce bourbon?

3. Talent: Would our client have to hire an additional team to build its bourbon operation? If so, how much
would it cost to hire that expertise?

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 Question 7 (Synthesis)

Overall, what would you recommend to the client?

Possible answer

Grape Juice Winery have asked us how they should respond to changing market conditions. Based on the
material we’ve seen, it appears there are at least three strategies that merit further exploration.

First, Grape Juice Winery should review its pricing structure. The average price-per-bottle at Grape Juice
Winery is significantly higher than that at Smart Wines, and an additional player is also likely to enter the
market at a low price point. Our client’s prices may be increasingly too high for the low-cost wine market.
However, our client’s costs have been escalating, and it may need to reduce these costs in order to compete

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on price.

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Second, the client should employ strategies to increase purchase volume in retail and online. Our team has
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identified a number of strategic options for our client to increase purchase volume in retail and online:
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discounts and price promotions, in-store and online marketing, and new products and services.
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Third, Grape Juice Winery should explore diversification of its product offering. We have identified a potential
opportunity in the bourbon sector in pursuit of this objective. This may be an area to explore further, along
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with other diversification opportunities, such as organic wines.

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Given more time, there are a number of additional strategies not yet explored that may be worth
investigating, including acquisition of competitors and international expansion.
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