Global Wine War 2015: New World Versus

Old

Presented by
Group 6
• I021 Raghav Gupta
• I022 Tarang Gupta
• I027 Dharmil Joshi
• I029 Rishabh Kalkal
• I045 Prachi Mundra
• I056 Biswadip Roy

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 Agenda
Case Analysis
PESTEL Analysis
Porter’s 5 Forces
Ansoff Matrix
Blue/Red Ocean Strategy
Competitor Analysis- Drivers and Strategic groups

Current Scenario

Recommendations

Learnings

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 Case Analysis
Old World wine producers New World wine producers

Wine was initially produced by Italy, France and To fulfill the gaps in the industry New world
Spain but due to old wine making traditions and companies from Australia, Chile and United
regulations brought about by the European Union States started producing wine and increasing
their growth rate started to fall. the market share.

Factors that affect the industry:

The consumer preferences ,taste ,business strategy and environment changed with the years, favoring
the agile approach of new world producers

Historical Facts:
Under the Roman empire, wine was considered peasant’s drink but buy the Middle Ages,
vineyards became a mark of prestige among the noble.
Production: Historically, the farmers could harvest about 3 ha of land but with the
introduction of vineyard horses they could harvest up to 7 ha. However, because of
fragmentation of land through inheritance it decreased to an average of 0.8 ha – lowering the
output of wine.
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 Case Analysis
Distribution and Marketing

The merchant traders – negociants control the entire distribution channel, resulting in higher
margins.

Buyer Power was low and the Supplier Power was high.

Regulation and Classification

• Various regulations around the production of wine resulted in it’s controlled production.
• Bordeaux committee was formed in 1855 to lay down the regulations around wine and
increase consumer awareness
• They classified 500 vineyards into 5 levels of quality from premier cru(first growth) to
cinquieme cru (5th growth)
• This helped the consumers identify the wine according to quality and was the first step
to increase consumer awareness
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 Case Analysis
Opening New Markets

• People were initially reluctant to adopt wine in new markets. Australians were reluctant
because of the weather and in US, the taste preference was different. However, post
World war-II, the demand for wine increased in new world countries.

• The per capita consumption in Australia increased 12 times within a period of 4 decades.

• The New World countries did not have to face the harsh regulation on production
imposed by the Old world countries in their countries. Hence they could experiment with
their production, package, distribution and marketing.

• They used latest technologies in production to increase their profits by lowering costs
and increasing efficiency.

• Due to this Australian wine makers were able to sell their wine at 50% lower costs than
the French producers. Driving heavy competition in the lower market segment.

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 Case Analysis
Reinventing Market Model
• New world wine makers
innovated in packaging an
marketing. They responded to the
consumer needs and tapped
different markets by catering to
the needs of the unsophisticated
palates.
• Another big change they brought
was in distribution which was
handed to retailers.
Judgment Of Paris
In March 1976, The Californian wine
triumphed in a blind taste competition
shaking up the entire industry by
proving that the new world producers
not only produce cheap but better
tasting products.
Maturing Markets, Changing Demand
• The industry changed completely after the
judgment of Paris. The French wine started
to see a larger downfall in it’s consumption
as compared to the rest of the world. But at
the same time UK’s demand increased by
29%, USA by 37% and China by 67%.
• This disruption in the industry required a
change in approach by the producers.
Demand for grape varieties also changed
and Red wine’s market share grew from 27%
in 1991 to 43% in 1996.
• The old world producers could not cope up
with this change. The growth was faster
outside than inside.
• German producers saw a drop of 33% in
exports in 5 years where as California saw
an increase of 36%
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 Case Analysis

Need for Restructuring

• The Old World producers were leaking their market share due to all reasons possible.

Consumer Brand Distribution

preferences Power power

• The new world companies started capturing all the segments of the market

• From 2000 to 2008, EU overproduced 10,864khl wine causing decrease in seller power

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 Case Analysis
Battle for China

• China accounted for 35% of the global export production. It grew at 20% from 2000 to
2009, fastest in the world

• Several regulations were made by China for importing wine

• 48% duty caused the increase in price of wine making the price increase by 6-7 times than
in Europe. This was also partially due to higher margins by Old World Producers

• Although only 3% population drank wine, it became the 5 th largest market

• France capitalized on it’s premium image and targeted the urban upper-middle class with
high quality wine.

• Whereas Australia built a value image by dropping the price by 50% in 2008 and saw a rise
of 32% in exports. They grew 8 times in 4 years with their business strategy.
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 Case Analysis
Battle Lines Re-drawn : New Strategies for France and Australia

• In 2008 French industry launched the 5 year industry modernization plan to

boost competitiveness. Promotion strategies

• Bordeaux wine industry introduced 3 year revitalization plan and new price • An image of chopsticks
based segmentation system. holding a Bordeaux bottle.

• EU doubled wine promotion budget and introduced reforms to improve • Wolf Bass sponsored
marketability through new products, processes and technologies. China’s National
Basketball Association
• Australia focused majorly on its deteriorating image and declining average price
of exports and eventually exports to China grew by 66%.

• The 2 wine groups in Australia were merged to from Wine Australia in 2015.

• Promotional Activities undertaken by France and Australia in China.

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 PESTEL Analysis
• • Farmers sold grapes based on
Restrictive industry
regulations weight
Deal climate and soil for growing
grapes Old World
• Complex toll and tax made • Inhibited by old wine making
cross border shipping traditions
expensive • Shift in consumer tastes
• Wine makers do not
Complex national and EU legislation
control full value chain lack of innovations
• Limited land

P S E
Politics Social Environment
E T L
Economy Technology Legal
Uneducated customers
Ideal climate and soil for growing
Less-Restrictive industry regulations
grapes

Complex national and EU

• •
New World
Controlled the full value chain Innovation in packaging and legislation
• Inexpensive land marketing- “Wine-in-a-box”
• Low cost of labour package
• Use of equipment • Controlled drip irrigation 10
• Reverse osmosis
Porter’s 5 Forces Analysis
THREAT OF
SUPPLIER POWER – COMPETETION - SUBSTITUTION -
WEAK HIGH MODERATE
There is a heavy  Low cost wine could
 New world be the new market.
competition from
wineries control Australia, South This has shown
the product from America, US and promise to grow.
grapes to shelves. China low cost wine  There were also
 They don’t have changes in the
products.
much power to country wise
control. manufacturing over
the years.
NEW ENTRANTS -
BUYER POWER –
MODERATE
MODERATE
There are 5 tier
The demand for high
classification of Global
quality wines
Wine War in the
continues to grow. Per-
Chinese Market. Out
capita consumption
of which the basic
increased in some
segment could be the
areas while decreases
market for new
in some others. 11
entrants.
Exhibit
New Entrants
Bottle wine positioning in China in 2014 (Exhibit 9b)

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Exhibit
Buyers Power
Wine Consumption in Selected Countries ( Exhibit 3)

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Ansoff Matrix
Existing New This strategy is used when the focus is on expanding to the same
market using the same product.

Non conclusive action present in case.

MARKET PRODUCT This strategy is used when the focus is on expanding to the same
Existing

PENETRATION DEVELOPMENT market using a new product.

STRATEGY STRATEGY Here, when going to the Chinese market using the cheap wines
provided product development strategy.

This strategy is used when the focus is on expanding to a new

market using the same product.

MARKET Early manufacturers of wine had same product but expanded it

DIVERSIFICATION
New

DEVELOPMENT across the markets.

STRATEGY
STRATEGY
This strategy is used when the focus is on expanding to a new
market using a new product.
Non conclusive action present in case

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Blue and Red Ocean Strategy
Red Ocean- Old Blue Ocean Strategy-
World Countries New World Countries

Compete in existing markets- Been there for Create uncontested market space- In

centuries countries where wine culture was new

Beat the competition- innovations in 18th Make the competition irrelevant- new

19th century innovations leaving behind OW

Create and capture new demand- In terms

Exploit existing demand- unable to do so as
of packaging, wine-in-a-box;
demand was falling, France 12% decline,
unsophisticated palates, mass appeal, shifts
Italy by 27%
in style, fashion

Make the value-cost trade-off- Income in

Break the value-cost trade-off
terms of weight

Strategic choice of differentiation or low Pursuit of differentiation and low cost-

cost- Differentiation though classification onsite labs 15
 Competitor Analysis
To gain advantageous
market position:
Larger market share
Increase presence around
the world
Competitors:
Old world countries Through competitive
Competitive
New world countries behavior:
rivalry
Inter and intra
Technology and innovation
Distribution network
Extensive vineyards
Acquisition

Competitive Dynamics:
Supporting government
classifications
NW experimented with practices
OW reacted after the blind tasting
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Market cycles- Slow to fast
 Drivers of Competitive Action
Awareness Motivation Ability
OW faced many
OW was unaware
The incentive was constraints and found
about the threat that
gaining the market it difficult to react to
NW could cause to
share changes- regulations
them.
and land holdings.

NW was changing
OW was losing more
along with demands
They continued using and more of its
and trends and hence
old techniques. markets to the old
captured more
world.
markets.

NW was aware about

the changes required
in packaging, cost Control of
14% drop in
reductions and the distribution with
worldwide
government policies negociants in OW vs
consumption.
in the OW self control in NW.

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 Strategic Groups
France Australia
US
Hectares 7.4 167 213
Cost of pruning land $350 $120 $350 (Cain Napa)
Brands in top 1 4(two in the top 10) 9 ( Number 1 out of 20)
20(2004- 2008)
Old world countries- EU
Generic Strategy Narrow to a segment Broad Differentiation High cost producer.
“Icon” that is with product Differentiation and
differentiation. France uniqueness. Narrow. General
has the traditional Australia's 2025 plan focus within Super New World Countries- Brand
history to brand and wants to implement and Ultra
promote the highest of sub-brands that would premium. Australia
classes in wine. target separate
consumer groups.
However numbers
Australia should be
New world Countries- US and
show volume market
share is 1% and Little recommended to NOT Chile
growth compete in low cost
long term.
Government EU agricultural policy Governments wine Illegal
Involvement changes leading to export body linked immigration
subsidizing marketing and with Fed. Of Australia affecting labor
promotion. to promote costs (Possible
Also, Regulation regions. continued growth in shortage?)
the industry.

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 Current Scenario

 Global wine market valued at USD 303.02 billion in 2017 and expected to
reach USD 423.59 billion by 2023- CAGR5.8%
 North America expected to dominate global wine market- changes in
lifestyle and increasing consumption of liquor
 US will dominate this market due to their increasing grape cultivation and
application of modern techniques
 Europe is the second market with scope to grow larger due to the large
number of producers and wineries.
 Asia is also expected to show rapid growth- increasing producers in India,
China, Japan and growing westernization
 Key players- Constellations Brand, Treasury wine estates, Accolade wines,
etc

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Source: Zion Market Research, 2018
Recommendations
Old World

• Create cooperatives – helps in reducing cost and ensuring

quality
• Marketing efforts – differentiating through packaging,
renewing image while restating superior quality
• Encourage French consumption – tastings, vineyard visits,
sponsoring events
• More flexible government regulations – taxes and labor cost
hinders growth

New World
• Increase communication on the quality of the wine through
vineyard visits, blind tests
• Create new differentiating premium wine range

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Key Learning's
Customer Connect

• Follow ups with the customer to increase the engagement in

order to know the changing preference

Competition
• Growing with time in order to maintain the competitive
advantage

Marketing
• New and improved ways of marketing the products and the
brand in general is extremely important

Distribution
• Identifying the core areas of concentration, distribution and
storage centres

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Thank You

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