Us Wine Case.docx

Majority of producers focused on low volume/high price to gain maximum return/margin Distributors focused on high volume/low price to maximize economies of scale Nearly impossible for a new company to establish itself Low barriers invite more players to wine market Heavy capital investment Production exceeded consumption by 15-20% from 1997 to 2001

How attractive is this industry? Threat of new entrants - high - low barriers to entry for new players - 40% expenditure for marketing and distribution

Existing rivalry - high - total number of wineries increased in the US by more than 400% - glut of grape supply due to low growth in demand - so, downward pressure on price and margins

Bargaining power of buyers - high - more players entering the market - production outstripped demand by 20% - consolidation of retailer and distributor

Bargaining power of supplier - low

Threat of substitute - low for budget category - only 10% people drank wine regularly - of the remaining 90%, 46% preferred beer or spirits - 35% drank alcoholic beverages other than wine

Should a company enter the industry?

Enter only if - can offer similar product at low cost for budget segment

- has a differentiated product (price premium) for premium segment - can create a blue ocean (untapped market demand and unknown market space)

Focus should be on expanding the market rather than targeting the already overcrowded market

Strategy: - target the 90% population that doesn’t drink wine - create a new market between premium and budget segment - try to change the perception of people about wine

Red Ocean Strategy - compete in existing market space -beat the competition -exploit existing demand -make the value-cost trade off

Blue Ocean Strategy -create uncontested market space -make the competition irrelevant -create and capture new demand -break the value-cost trade-off

Create new price segment, new varieties for wide range of consumers Raise general perception of wine among people Reduce focus on grapes Eliminate industry jargons

What strategy should an established player follow? Focus on expanding the market by targeting non-wine drinkers Tap the untapped market using blue ocean strategy Acquire new technology Acquire distribution channels

What are the factors the industry competes on and invests in? Premium Segment - competes on quality, invests in marketing and distribution, large acres of land for wineries and machine leasing

Budget Segment - competes on price, invests in shelf space, large acres of land for wineries and machine learning

How long has the industry competed on these factors? Wine industry has competed on these factors from the very beginning Requires high investment for land and machinery Quality has always been a crucial element of good wine