Global Wine War 2009: New World versus Old

Group 2Raffaella AngelicoAndrea BatticaniEleonora GanucciChiara NardelliFederica StrazzeriMatthias Trenkwalder

What is interesting about the case?

• Global Wine Industry

• Facts – New World vs. Old World Wine Producers• The role of Innovation (Q. 1)

• Marketing (Pricing, Distribution, Labeling, Branding) (Q. 4)

• Production Operations• Trends

• Porter Five Forces Framework

• National Competitive Advantage – Porter’s Diamond (Q. 2)

• Clusters (Q. 3)

“Companies approach INNOVATION in its broadest sense, including both new technologies and new ways of doing things. They perceive a new basis for competing in old ways”.

(Porter, 1990)

New World versus Old World

Innovation (1)

• “A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade.”

(Porter, 1990)

• New Production Operations• Controlled drip irrigation• Specialized equipment to reduce labor cost;• Fertilization and pruning methods to plant at twice the traditional

density;

• New Marketing Strategies• New Packaging: wine in a box + screw caps• New Distribution control over all value chain.• New Target youngest• New Identification use of grape variety (Merlot, Sauvignon)

Innovation (2)

Trends (1)Global Market Value:

Historical (2005-2009) and Forecasted (2009-2014)

CAGR = 2%

CAGR = 2%

Source: DataMonitor 360°

Trends (2) - World’s Wine Production

France17.56%

Italy17.38%

Spain14.20%

USA10.38%

Argentina4.52%

Australia4.38%

Chile3.69%

Germany3.47%

South Africa2.92%

Rest22%-Portugal

2,24%-Brazil0,90%

France

Italy

Spain

USA

Argentina

Australia

Chile

Germany

South Africa

Rest

World’s wine production by country 2009

A changing market…

World Wine Production:facts and trends

Percentage change by country (2006-2009):

Winners:

USA: +13,90%Chile: +16,83%Germany: +3,17%

Losers:

France: -11,36%Italy: -14,84%Spain: -13,00%Argentina: -21,41%Australia: -11,62%South Africa: -16,93%

Source: Wine Institute California, www.wineinstitute.org, World Wine Production by Country

Trends (3) – World Wine Consumption

World’s wine consumption by country (in liters 2006/2009)

Source: Wine Institute California, www.wineinstitute.org, World Wine Consumption by Country

2010: The U.S. surpassed France as the world's largest wine-consuming nation!

Trends (4) – Segmentation of the wine market

>50$ 5-10$10-20$ <5$20-50$

• Premium and Super Premium wines are the most growing segments.

• Basic Wines are decreasing in market share.

The new world wine producers are present in the Basic- and in every Premium- Segment but it’s hard for them to sell Icon Wines. This segment is still dominated by the old world producers.

Source: DataMonitor 360°

Porter’s Five Forces Analysis

Is it an attractive industry?• Competition is high

• It’s hard to have relations

with distributors

• High entry barriers

Porter’s Diamond Determinants of National Competitive Advantage

“In a world of increasingly global competition, nations have become more, not less, important.” (Porter, 1990)

“Each point on the diamond – and the diamond as a system – affects essential ingredients for achieving international competitive success.”

(Porter, 1990)

“The nation's position in factors of production, such as skilled labour or infrastructure, necessary to compete in a given industry.”

A country does not inherit the factors of

production, it creates them.

The New World nations invested in the creation of

new technologies to produce wine.

These innovations enhanced the efficiency and

the quality of production and led to a significant

cost advantage.

“The nature of home-market demand for the industry's product or service.”

New World companies:

Control the entire value chain (including distribution channels)

Closer to consumers than OW who don't own distribution channels.

NW wine producers have a better understanding of home market's preferences & are more inclined to adapt to changes in demand than OW wine producers.

“The conditions in the nation governing how companies are created, organized, and managed, as well as the nature of domestic rivalry.”

New World producers had to find an innovative way to enter a market that was already formed.

They introduced new technologies, new marketing strategies, and a new structure.

Domestic rivalry was very intense because of the concentration of producers in the regions of origin of the grapes.

“The presence or absence in the nation of supplier industries and other related industries that are internationally competitive.”

One of the most important characteristics of the wine industry is that it stimulates the formation of clusters.

The wine production process can be carried out only in some particular regions were the resources are available.

The Importance of Clusters

“Clusters represents a new way of thinking about location, challenging much of the conventional wisdom about how companies should be configured, how institutions can contribute to competitive success, and how government can promote economic development and prosperity.” (Porter 1998)

Main characteristics

Clusters are geographic concentrations of related and complementary companies relatedness is given by skills, input and technologies;

They enhance control over all the value chain (vertically and horizontally);

They may include the participation of both governmental and other institutions.

ClustersCompetition

Clusters can enhance competition in three different ways:

1.Increasing Productivity

Companies have a better access to professional employees and suppliers, to specialized information, and to complementarities.

2.Increasing Innovation

Thanks to the geographic proximity, companies can share immediately new evolving technologies. Flexibility and Capacity to act quickly!

3.Stimulating New Businesses

Individuals have an overview of the entire business so they can easily find gaps on which build new businesses.

Thanks to the pre-existed assets, skills, infrastructure and investors new businesses face low barriers to entry.

California Wine Clusters

• 680 Commercial wineries.

• Thousand independent grape growers.

• Links with

University of California

Wine Institute.

• Linkages with other clusters: agriculture, food and restaurants, wine-country tourism.

Serra Gaúcha Wine Cluster

-600 wineries & canteens

-34000 ha of vineyards

- Several universities involved in grape and wine researches

- Technological school specialized in viticulture and enology

- IBRAVIM Vision 2025.

Source : J.E. Fensterseifer “ THE EMERGING BRAZILIAN WINE INDUSTRY: CHALLENGES AND PROSPECTS FOR THE SERRA GAÚCHA WINE CLUSTER” 2006