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Group members

Nureen Bano

Saima Fazal

Syed Yasir Husnain Rizvi

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1. Analysis of General Environment /

Societal environment

Economic Technology

Legislation

&Regulations

Socio-cultural

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Societal Environment: Economic

Wine consumption does not decrease during economic

downturns. Changes in Demand

Vintners and Growers cited a continued economicdownturn as the most significant constraint to industrygrowth

Impact of Recession

Recession:

2.76% Trade deficit effect on GDP (4.2-6.96)

Trade Deficit & GDP

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Percentage Change in Wine Sales and GDP, US: 1948-1997

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Societal Environment: Technology

e-commerce infrastructure

New opportunities for wine connoisseurs & wine producers

The ability to ship small quantities directly to individual wine drinkers withoutpassing through layers of middlemen may mean that small niche growers may beable to find their position in a market dominated by large brand names

E-commerce

New wine production technique and growth of high quality grapes

Cold fermentation Oak barrel Aging

Stainless steel fermentation tank

Gentle grapes handling

Gravity flow sys

Improvement in production yields & better storage of wine

New developments in technology:

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Societal Environment: Legislation & Regulations

Few barriers and trade barrier to trade in the U.S. WI Non-tariff trade barriers for import.

Tariffs, the most important barrier to theinternational wine trade

World trade organization was helping alleviate :fostera more open market on a global scale

Stability of government

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Societal Environment: Socio-cultural

Spending power.

Growing group of earners from various countries. Shift in demographics in the developing countries

Scientific evidences: Health benefits to be derived from moderatedrinking of wine(red wine)

Large European Immigrant population

Lifestyle changes

Wine drinkers :professionals, managers, college graduate and made over$60000 annually.

Majority wine drinkers being in the Baby boomers.

Ingrained in the Christian faith, aids the spread of wine production andconsumption across Europe.

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2. Analysis of Industrys dominant characteristics

1999 was an $18.1 Billion market; growing at an annual averagerate of 8.5% .

Market size andgrowth rate

The industry was consolidating to a smaller number of bigplayers

Number of rivals

U.S. Wineries rivalry competes at regional, local, national,international and global level.

Scope of

competitive rivalry

adult, low prices, taste and quality

Buyer needs andrequirements

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2. Analysis of Industrys dominant characteristics

Cont.

Gentle grape handling, Cold fermentation, Stainless steel,fermentation tank, Oak barrel aging

Productinnovation

4th Largest wine producer in the world. U.S. share 9.3% in overall world wine consumption. Traditionally export only excess supplies

Supply/demandconditions

The technology of agricultural engineering started a revolution inwine production that expanded even more rapidly.

Process innovation Development of E-commerce technology to survive in global

market.

Pace oftechnological

change

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Most wineries opted either to purchase vineyards or assume the

high capital investment and agriculture maintenance cost or toenter into long term contract with dependable grapes suppliers

Verticalintegration

In U.S. wine industry has a trend of joint venture and verticalintegration company exchange their experience and knowledgeto gain market information and to have competitive edge.

Learning andexperience curve

effects

Less differentiated at domestic level with lower prices havinghigh competition

Creating differentiating at international level with high prices.

Degree ofproduct

differentiation

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3. Industry Competitive Situation

( Porters Five Forcees analysis)

Rivals

Threat ofnew

Entrants

Bargainingpower ofSupplier

Bargaininpower of

Buyer

Threat ofSubititute

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Competitive RivalryFactors HUF MUF NUTRAL MFA HFA Comments

Composition

of

Competitors

Equal Size * Unequal Size Equal size

competitor

Mkt. Growth

rate

Slow * High Market is

maturing

Scope of

competition

Global * Domestic Global &

Domestic

Fixed

storage Cost

High * Low Vineyard

Capacity

Increase

Large * Small Surplus

Degree of

differentiati

on

Commodity * High Not a high

degree of

differentiatio

n

StrategicStake

High * Low Sharing ofResources

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The rivalry among competing

seller into industry: In 2000 the domestic competition of wine sector was strong and the US market was

maturing domestically. The industry was consolidating to smaller number of big player and key player of US

market to target niches. Most of the US wineries was expanding internationally by exporting products and

competes globally. There were over 1600 us wineries operating those of which low volume, family managed

enterprises. Fewer are large volume producer was dominating the market. Both old and new world producer had begun implementing strategies targeted closely to

specific niches. In the US market the demand of wine are growing that shows the competition among

rivals is strong. Internationally US wine industry exported 13 percent of its production while old wineries

(France, Italy and Spain) exported at the average of 25 percent and new world producers(Australia exported over 40 percent of its production and Chile exported over 80 percentof its production.

US wine industry facing high competition at domestic and international market.

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Threat of New Entrants/ Entry BarriersFactors

HUF MUF NEUTRAL MFA HFA Comments

Economies of

scale Small * Large Pricing threat for entrant

Capital required

Low * High

Low investment is required to

compete

Access to

distribution

channelsAmple * Restricted Reduced Whole sellers

Expected

retaliation Low * High Not a strong defense from Rivals

Differentiation Low * High New taste may introduce

Brand LoyaltyLow * High Customer acquision prob

Experience Curve

Insig * SigComplexity of wine making

process

Govt. Action

Low * High With fewer restriction

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Potential Entries Of New

Competitors: E & J. Gallo winery, Canandaigua wine, the wine companies have captured

greater part of market share in US market. Their market share diminishes when new entrants in 1600 US producers come

and operate. Combined shares of 1600 companies increases while decreases themarket shares of market leader. See exhibit 5

US. Market had one of the worlds most open market for imported wines. With few restrictions placed on wine imports and with import brands free to

capture whatever market share they could get in completion against domesticbrands.

Low entry barriers to operate new business. Low entry barriers for foreign business in US.

US domestic wine producers facing strong competition and they have bigthreat for new foreign companies because they contain sufficient resource,capital to compete with US market leader.

In 1999 early 2000 import brands upped their share of the US market to 20% (up from 17% in 1998)

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Threat Of Substitute ProductFactors HUF MUF NEUTRAL MFA HFA Comments

Threat of

Obsolescence

of Industrys

product

High * LowWine

preferences

Aggressiveness

of substitute

products in

promotion

High* Low

Substitute

are

moderately

advertised

Switching Cost Low * HighSwitching

cost is low

Perceived

price/ valueHigh * Low

Quality with

Price

segmentati

on

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Threat of Substitutes: The first alcoholic beverages were to be mass-produced nationwide were beerand whiskey.

Beer and whiskey being more affordable as well as readily available in the USA. Wine was viewed as more of an elite drink.

Wine was considered for specific segment well to do individuals who earnedhigh income annually and was not embraced by a substantial part of thegeneral public untill the 2nd half of the 20th century.

Now there are over 1600 wineries operated in United States and buyers havemuch choices wine to purchase.

Product innovations and development firm the interest of buyer. The wine is available at cheaper price with low or moderate quality and high

level quality of wine are available at premium and ultra premium price. Wine industry is facing lessening the threat of substitutes by the increasing of

demand of wine, availability and affordability to consumers.

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Power of SupplierFactors HUF MUF NEUTRAL MFA HFA Comments

# of importantSuppliers

Few * Many

Few qualitysuppliers

available

Switching cost

High * Low

Quality

grapes

required.

Availability of

substitutes

Low * High

Few quality

suppliers

available

Threat of forward

integration High * Low

Complexity

of procedure

Importance of

Buyer industry to

suppliers profit Small * Large

Buyers giving

large profit

to suppliers.

Quantity

purchased by the

industry of

suppliers product

Low * High

Large

quantity

purchased

Suppliers product

an important input

to the buyers

business

Highly Imp * Less imp

Bargaining

power of

supplier is

high

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Bargaining Power of Suppliers: Before 19th century the bargaining power of supplier was very high because US infrastructure andproduction capacity was very small, companies majorly relied on foreign supplier.

In the 19th century the bargaining power of suppliers remained high although US. was developingvineyards but these were few in numbers and the US. wine production infrastructure was still quitesmall.

As the demand of wine rose up the significance of vineyard, wine producing equipments, bottle

manufacturers, bottle labeling and printing services and ad agencies had took attentions of wineries. Companies could start by the limited initial capital requirement by the outsourcing the grapes which

rose the bargaining power of supplier. But still it was not uncommon for wineries to compete aggressively for the high quality grapes of

certain reputable suppliers and thus bid up price. Hence, most wineries opted to purchase vineyardsand assume the higher capital investment and agricultural maintenance cost.

Simultaneously some firms enter in to long term contracts with dependable grapes suppliers whichdrastically reduce the bargaining power of suppliers.

By the increased of demand, number of suppliers in the market also increased which reduce thecompanies switching cost, and reduce the supplier bargaining power.

Besides the domestic market developments, international wineries acquisition and joint venture andmergers also placed effects on the suppliers bargaining power by the sharing of resources, marketinformation and access to market and etc.

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Power Of Buyer

Factors HUF MUF NEUTRAL MFA HFA Comments

Number of

Important

buyersFew * Many

Buyer market

Threat of

Backward

integrationHigh * Low

Firm have more

access on

quality & price

control

Product

suppliedCommodity * Specialty

Global &

domestic

competition

Switching

cost Low * High

Multiple

brands

available

% of buyers

costHigh * Low

Different price

segment

available

Profit earned

by buyerLow * High

Different price

segment

available

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Bargaining Power of buyers: U.S. is the open market for the importer with fewer restrictions

and also there are over 1600 domestic wineries are competingwith each other and creates buyers market.

Some of wineries are targeting niches and consumers are aware

off and brand loyal. Some of the wineries offer differentiated taste with low volume

and charging premium and ultra premium prices which reducethe bargaining power of end user

US wine industry consists of different companies which have

large product portfolio and price range to cover different marketsegments. Price completion is high in low priced lower quality of brands

and bargaining power of buyer is high because of low switchingcost because consumers have much more choice available in themarket with readily availability.

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Forces Average ValuesCriteria Unfavorable Neutral Favorable

Rivalry amongexisting firms

(1+1+1+2+2+3+3)/7

= 1.86Avg < 3 *

Threat of New

entrants

(1+1+1+2+4+4+5+5)/8

= 2.88 Avg < 3 *

Power of buyers (5+2+1+3)/4

= 2.75Avg < 3

*

Power ofSuppliers

(1+1+2+2+4+5+5)/7

= 2.86Avg < 3

*

Threat of

substitutes(2+2+3+4+4+4)/6

= 3.17

Avg > 3

*

Overall Industry attractiveness

HUF MUF NUTRAL MFA HFA

1 2 3 4 5

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Overall Industry attractiveness

Factors Unfavorable Neutral Favorable

Rivalry

Entry BarriersPower of buyers

Power of

Suppliers

Threat ofsubstitutes

*

*

*

*

*

Criteria: Avg > 3 : FavorableAvg

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4. Drivers of change

Changing societal concern, attitude and lifestyle.

Geographic expansion and strategically more importance on export.

Joint ventures, acquisition and vertical integration.

Product innovation and technology.

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High

Low

Low Ultra premiumModerate

Pro

duction

Capac

ity

5. Strategic Group Map of Selected Wineries

Premium

Wente5,100

E & J Gallo330,000 thousands

Gallon

Beringer 17,800

Mondavi17,387

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6. Key Success Factors For The US Wine Industry:

Market Share: revenue

Production Capacity: production capabilities to produce

Export Share:wine exporters shares, based on volume

Technology And Innovation: product development andability to innovated and to introduce new technology

Joint Venture: high capital requirements andcollaboration

Market Segment Coverage: ultra premium, superpremium, popular premium, jug wine and others

Geographic Expansion: presence and feasibility of USwineries in other countries.

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7. US Wine Industry Competitive Profile Matrix

(CPM)Critical Success

Factor

KSF

E & J Gallo Mondavi Beringer Wente Bros

Weight Rating Score Rating Score Rating score Rating score

Market Share .15 4 .60 3 .45 3 .45 3 .45Production Capacity .10 4 .40 2 .2 2 .2 1 .1

Export Share .25 3 .75 2 .5 1 .25 4 1Technology And

Innovations

.06 3 .18 4 .24 1 .06 1 .06

Acquisitions & Joint

Ventures

.14 1 .14 2 .28 3 .42 4 .56

Marketing &

Distribution

efficiency

.13 4 .52 3 .39 3 .39 4 .52

Geographic

Expansion.17 4 .68 3 .51 3 .51 4 .68

total 1.00 3.27 2.57 2.28 3.37