Global Wine Wars Essay

1. How did the French become the dominant competitors in the increasingly global wine industry for centuries? What sources of competitive advantage were they able to develop to support their exports? Where were they vulnerable? French wine makers also face challenges that are not internal to the industry. For instance, France lost market share in the United States due to informal boycotts in the wake of the Iraq war. The rise of the euro against other currencies, such as the 30% increase relative to the dollar in the last few years, has put French wines at a comparative cost disadvantage. But consensus among experts is that the primary threat to the French export market is internal to the industry: the inability of the appellation system to appeal to what is becoming a global way of understanding wines (Business Report, 2004). France is the largest overall producer of wine, at 5. 3 billion liters of wine in 2001, 20% of world production. France has traditionally set the standard for quality wine as well as defining these standards. French viticulture laws mandates four levels of quality as 1) Appellation d’Origine Controlee (AOC) 2) vins delimite qualite superieure (VDQS) 3) vins du pays and 4) vins du table. French wine makers also face challenges that are not internal to the industry. For instance, France lost market share in the United States due to informal boycotts in the wake of the Iraq war. The rise of the euro against other currencies, such as the 30% increase relative to the dollar in the last few years, has put French wines at a comparative cost disadvantage. But consensus among experts is that the primary threat to the French export market is internal to the industry: the inability of the appellation system to appeal to what is becoming a global way of understanding wines (Business Report, 2004). Although France has been slow to adapt to changing production and consumption trends it was an early player in international partnering and acquisition. The first joint venture was Baron Philippe de Rothschild’s venture with Robert Mondavi to create Opus One in 1979. Gallic presence in the Napa sparkling wine industry is strong as Domaine Caneros, Domain Chandon, Mumm Cuvee Napa, Pieper-Sonoma, and Roederer Estate are all owned by French champagne houses. Pernod Ricard owns wineries in Australia, Argentina, Chile and Spain (Economist, 1999). Most (90%) production is concentrated in California. Started primarily by French and Italian immigrants in the late 1800’s, California’s winemaking tradition is only a few generations old and was interrupted by Prohibition. A global reputation for fine wine is even more recent, when two Napa Valley wines won gold medals at a 1976 blind-tasting competition in Paris, a victory unexpected by the rest of the world, including many Americans (Lukcas, 2000). The US adapted the French appellation system with over 130 approved American Vineyard Appellations ranging in size from the multi-state Ohio River Valley to the smallest, Cole Ranch, a 150 acre property in Mendocino County (Wine Institute, 2003). One of the most acclaimed appellations is Napa Valley. Most American winemakers also label by varietal if a wine contains at least 75% of that varietal by volume. 2. What changes in the global industry structure and competitive dynamics led France and other traditional producers to lose market share to challengers from Australia, United States, and other New World countries in the late twentieth century? International competition on the wine market is characterized by a considerable disparity of strategies used by the different producers and wine-producing regions around the world. New World Challenges Old With the emergence of New World players in the global wine industry many of the Old World players have been losing market share. At first France, Italy, Spain, and Germany simply laughed at the wine-making techniques of the new players -U. S, South America, South Africa, Australia, and New Zealand. However, it quickly became apparent that the newcomers pose a serious threat to the traditional winemakers. The French were especially hurt when they began to lose their global market share as well as the coveted U. K. market to the Australians. Allows analysis of the way in which newcomers can change the rules of competitive engagement in a global industry. How incumbents can respond, especially when constrained by regulation, tradition, embedded values, and a different set of capabilities than those demanded by the emerging market by changing consumer tastes and market structures. The case contrasts the tradition-bound Old World wine industry with the market-oriented New World producers, the battle for the US market, the most desirable export target in 2009 due to its large, fast-growing, high priced market segments. REINVENTING THE MARKETING MODEL: New World producers revolutionized the packaging and marketing aspects of wine making. Americans and Australians greatly impacted wine packaging by replacing the Old World standard liter bottle with a half-gallon flagon in the U. S. and the innovative â€Å"wine-in-a-box† package in Australia. Australians have been praised for this idea because boxed wine not only saves on shipping costs but it has made storage easier for consumers. Australians have also begun to use screw on caps rather than the traditional corks on premium wines; this is to prevent spoiling due to deficient corks. On the marketing side, New World producers began to differentiate their products to attract customers unaccustomed to wine. Ripple, an American wine was said to be unsophisticated wine and was marketed toward customers unaccustomed to wine. It was wildly successful and led to an increase in branding and marketing alike. These were not the only major changes driven by New World companies, another was distribution. Previously the tasks of grape growing, wine making, distribution, and marketing were handled by different entities, many of which lacked the scale and knowledge to function proficiently. â€Å"In contrast, the large wine companies from the New World typically controlled the full value chain, extracting margins at every level and retaining bargaining power with increasingly concentrated retailers. † Since these producers held responsibility at every level, the quality of the final product was immaculate. Wine Traditionalists felt the New World’s established grape-growing and wine-making ways were embarrassing. Arguing that in their drive for efficiency, consistency, and their desires to cater to less sophisticated palates, New World producers had lost the character that came with more vintage wines made in the traditional fashion. Annoying Old World producers even further was the fact that new wineries would name their wines Burgundy, Champagne,†¦ 3. What advice would you offer today to the French Minister of Agriculture? To the head of the French wine industry association? To the owner of a mid-size, well regarded Bordeaux vineyard producing wines in the premium and super premium categories? Evaluation of different strategies †¢ †¢ †¢ †¢ †¢ Premium & Standard wine market Creation of an accessible French brand The Global wine company (acquisitions and mergers) â€Å"Appellation d’origine controlee† and competitive disadvantage Protectionism versus being marketing oriented.