However, with increasing globalization of the wine Industry, the changing nature of export markets, the early maturity of the New Zealand industry and the constrained apply facing New Zealand wine makers, Andrew Henry was faced with the decision of how to position a smaller company for the future. He had to decide whether the network-based strategies that served the company so well continued to be appropriate under conditions of industry concentration, increasing competition and emerging globalization. (Robbins S, 2006) 1. 1 The NZ wine industry When Andrew Henry established Coopers Creek, the New Zealand environment was highly regulated.
By 1984, the New Zealand government had initiated a programmer of deregulation, which included devaluation of the New Zealand currency, exchange ate flotation and general anti-inflationary measures. (Porter M, 2001) The opening of New Sealant’s domestic market meant that businesses had to improve their efficiency substantially over a short period. The agricultural sector sought out new markets, to replace the loss of their traditional dependence on the UK market with its increasing commitment to its European trading partners, and new products, reflecting a growing awareness that much of New Sealant’s exports were of a commodity nature.
This period saw growing exports to Australia, the united States, Japan and the rest of Asia and exports of predominantly sheep meat and dairy reduce being accompanied by more fresh fruit, venison and wine. A further response to fiercer competition at home and in overseas markets was an increasingly strong focus on quality, a case in point being the New Zealand wine industry.
The New Zealand wine industry accepted the consequences of the liberation’s of the domestic economy and recognized the need to understand how on-going changes In the international economic environment affected Its prosperity and how to plan accordingly.
Building from a low international base in the sass ($4. 5 million in exports in 1 987), New Zealand wine exports achieved phenomenal growth and counted for $168 million In 2007, comfortably exceeding the $100 million by 2007 target set in 1999. The I-J market was the most important export market for the industry in 2007, and at $84 million it accounted for around 50. 22 per cent of total exports by value and 54. 28 per cent by volume. Europe accounted for 66 per cent of exports with 85 per cent of that going to the I-J.
Four large firms, namely CORBA’s, Montana, Mobil and Villa Maria, dominated the wine Industry in New Zealand in Bradbury of Australia. Between them, these large firms accounted for around 80 ere cent of all exports in 2007, with another 17 medium-sized companies, of which Coopers Creek was one, handling 16 per cent in combination. For the most part, industry participants exported between 30 and 35 per cent of their production, but a few producers had much higher export intensity. (Wheeled, 2006) 2. Key Issues The key issues are: (Study Guide, 2008) (1) Despite entering early maturity, coopers creek remained constrained by issues of supply. (2) The cost of new land for grape planting was rising and more previously marginal land became economic to grow on, the problem was still one of access to UAPITA for these resources. (3) A possible over supply of grapes in New Zealand, which could lead to heavy discounting. (4) A contraction in ownership within distribution companies in New Zealand and in USA, which could lead to certain markets being effectively closed to coopers creek. 5) Protection of strategically important grape supplies so the can insure they still get a proportion of the very highest quality grapes. 3. 0 Planning 3. 1 Life Cycle From a demand perspective, the worldwide wine consumption has stagnated. According to the Wine Institute, there is only a 2. 04% growth in wine consumption from 1997 to 2001. In fact, worldwide consumption dropped from 227,875 hostilities to 226,646 between 1999 and 2000. Generally there is a drop in consumption from the traditional wine drinking countries like France and East European countries, whilst demand has growth significantly from China. Grant R, 2005) The production of wine has shifted from the traditional vineyards in France to the rest of the world. There are New-World Wines from Australia, New Zealand and South Africa. These wines are generally thought to be of moderate to high quality and are essentially challenging the traditional wine producers on the quality front. Furthermore, there are wines coming out from China and India. Because of the lower wages in these countries, wines can now be produced at a fraction of the costs of the French vineyards.
Price has now become a big challenge that the traditional wineries have to face. Some author’s even suggest that the Old-World producing countries like France has followed growth & decline and now has entered a second life phase. While the New- world countries are in an emerging or growth phase As the industry moves towards maturity phase of its life cycle, the pace of consolidation will increase. Times of India, 3. 2 PESTLE Analysts The following is a review of the major environmental factors, which will impact the industry to a large extent.
A closer examination of the more important factors amongst them will allow for a tighter integration between the external environmental factors and the corporate strategy chosen for Coopers. Political factors Government regulation has always played a major role in the WI. There are increasing concerns that there will be new barriers and trade impediments to trade in the WI. One such example is the trade disagreement between US and European Union in the level of farm subsidies that the US alleged that the EX. farmers receive.
The same allegations may also be similarly levied on the European vineyards. In the Wine Institute report on International Trade Barriers to U. S. Wine 2006, European wine producers were noted to have received certain subsidies . Tariffs also have been the most important barrier to the international wine trade. Some governments impose unusually high tariffs on wine imports . Recent announcement in the media like India opening its market and slashing duties on imported wine and spirits bring good news to the industry, as this will allow them to enter this lucrative untapped market.
Though due to WTFO pressure the tariff has been reducing, which has lead to major wine producing countries imposing various non-tariff trade barriers. One such non-tariff trade barriers are research findings made available by local governments to improve the overall harvest yields and quality of the country’s grapes . Economical factors The rising number of middle class worldwide has led to an increasing appreciation of wine and demand for wine. In developing economies of China and India, this class of consumer is expected to increase significantly over the next decade.
With the continued increase of economic growth rates for both countries, these consumers can now afford to consume wine is expected to grow significantly as well . The effect of currency fluctuations on the WI will continue to play an integral part in influencing the WI. The proportion of wine being exported outside the wine producing country has increased. Even in a traditionally large wine consuming market, the proportion of wine, which ends up in foreign land, has been increasing.
The continuing trend of exporting to new markets such as India and China is going to increase as wine reducers cope with the declining wine demand in traditional home markets As a result, the wine producers’ exposure to fluctuations in currency exchange rates will increase further. Socio-cultural factors The increased spending power, sophistication of the middle class in many countries with increased tendency of copying the west has helped to increase the demand for traveled & highly educated consumers with needs and wants for the better things in life.
The number of middle class across Asia is expected to grow by 1 billion in the next 8 years . With the shift in demographics in the developing countries, there will e more wine drinkers in the future. Increasingly, there are also more scientific evidences that there are health benefits to be derived from moderate drinking of wine especially red wine. As a result, there is an increasing acceptance of the beverage as “health-product” leading to a healthy heart. Technological factors Innovation and technological factors continue to drive improvement in production yields and better storage of wine.
The Australian WI today has transformed itself from a small cottage industry to one of the largest exporter of wines internationally, even to the extent of eclipsing some of the older Old-World countries. The great leap forward for Australia can be attributed to the Australian wine producers clustering to innovate and improve existing processes. (Read C, 2006) The growth of e-commerce infrastructure and the increasing acceptance of buying things online have led to new opportunities for wine connoisseurs and wine producers alike.
With this new technology, niche wine growers are able to reach out to the individual wine consumers without being drowned out by the marketing noise generated by the large wine producers. The ability to ship small quantities directly to individual wine drinkers without passing through layers of middlemen may mean that small niche growers may be able to find their position in a market dominated by large brand names . Environmental factors Within the Food and Beverage (F) industry, the WI is markedly different from the other products due to the fact that F products are limited by market, while the WI is limited by resource (land and grapes).
Reason being wine is grown in moderate climates and on certain types of soil. Sudden climatic changes may adversely affect production yields or may even destroy crops all together. The significant changes expected in the environment from global warming, rising sea levels, rising carbon emissions and increasing acidity in the waters will all add to contribute to the adverse conditions for which growers will find themselves in. These conditions together with a scarcity of good arable land may act to constrain or even reduce the industry’s supply.
On the positive side, in one of the rare articles published in Newsweek on the positive effects of global warming, the author highlights that fast melting of Artic glaciers and increase in global temperatures may lead to opening of ewe vineyards in many parts of the world with weather conditions similar to the France’s Champagne region. Legal factors factors changes. For example, the advent of the Internet e-commerce has resulted in changes in legislation for wine sales, which crosses state lines in the United States .
In addition, the origin of the grapes used to make wines also became a contentious issue for many wine-producing countries. The origin of these grapes and the proportion of local grapes used became an issue for branding and labeling of wines; as governed by new local legislation controlling wine labeling. 4. 0 Organizing . 1 Porter’s 5 forces analysis We have analyzed Coopers internal environmental factors using Porter’s Five Forces analysis. Being in a specialized industry, it is not easy for another player to Just come in wanting a portion of the pie.
The WI requires specialized skill sets, special knowledge and extensive experience to stay competitive. It also needs very high investment especially for equipments used for processing of wine. This indirectly induces high entry cost which is work as a barrier of for new entrants. There is also the expected retaliation faced by new entrants from existing players. Coopers gather with other existing players may collaborate to deter competitors from coming in. For example, Coopers may start dropping its price and the other existing players may follow suit leading to a price war.
On the whole, the force of threat of entry is low here. 4. 2 Threat of Substitutes This industry faces stiff competition from not only other wineries but also from other alcoholic drinks such as beer, spirit and pre-blended mixed drinks and carbonated drinks. Product-for-product substitution is also possible should customers of Coopers decide to try out other brands/types of wine. For the health conscious, bottled water, energy drinks and natural fruit Juices also provide competition.
Possibility of generic substitution is also there where as customers may prefer to spend on purchasing cigarettes rather than drinking wine. Thus, there is a high force of threat of substitutes in this industry. 4. 3 Threat of entry Competitive rivalry among existing firms is evident in this industry. Larger companies are acquiring smaller wine producers to monopolize the market resulting in dynamic competition amongst these companies. As the WI is at its mature stage, companies start to take market share from competitors to survive.
As there are too many wine producers, adding on to the high power of buyers, companies may decide to go for price wars due to high fixed costs to gain market share. This industry has high entry and exit barriers due to the extensive capital investment and knowledge & skill set needed. In addition one must have sustainable resource, as it takes several years for wine to mature. This means that industry players do not have many choices. Again this induces competition amongst them and price wars and low margins situations are likely to happen. Is “Medium Attractive”. 5. 0 Directing 5. 1 Porter’s Generic Competitive Strategies
Using Porter generic competitive strategies, we find that Coopers has the ability to outperform its competitors by adopting a strategy of “Focus Differentiation”. Porter proposed that a firm’s competitive advantage in an industry is determined by its competitive scope – I. E. , the breadth of company’s target market coupled with company’s unique resource (product range, distribution channels, target market etc. ), For Coopers the scope of the target market is narrow. It is mainly targeting niche markets for premium wines in the wine drinking markets of Europe, US, Australia, Japan and a few emerging Far Eastern Asian markets.
When targeting niche markets, the company either can go for “Cost Focus” or “Differentiation Focus”. Coopers should not be following the Cost focus strategy as NAZI compete in the high quality premium category wines. Reduction of overall cost is achievable only to a certain extent, as this industry is highly capital intensive with many inherent costs along the supply chain. Instead Coopers should concentrate either on particular market segment, or product line segment or geographic market with high growth potential or all three.
By following a differentiation strategy Coopers would be able to better focus TTS resources & capabilities to the serve the special needs of a narrow strategic target more effectively than its competitors. 5. 2 Bowman’s strategic clock Using “Bowman’s competitive strategy clock” too, Coopers falls under category 5, “Focused Differentiation”. This strategy is similar to the Porter’s generic model, which tries to provide high-perceived product benefits Justifying a substantial price premium usually to a selected niche market segment.
Coopers can use this strategy in new markets, by targeting sales into the same niches in more countries. While in established markets Coopers could even adopt Category 4 “Differentiation -with price premium ” by offering better wine at the same price or by pricing it slightly higher than competitive brands in the same price bracket, to take advantage of the fact that “fine quality wine will always demand a premium” and at the same promote it as premium category. Meredith R, 2007) Cost Leadership may not be sustained for Coopers because of some of the following reason: – Competitors can imitate – differentiation may not be sustainable it can easily replicated by competitors like South African or South American wine producers Bases of differentiation become less important to buyers – Competing on Just quality to demand high price may not be enough. For example in price conscious markets like I-J, Holland and Germany, wines from South American and South were seen as better value than NZ wine – Structure erodes – This could happen for Coopers’ target market in US, restaurants and boutique retailers.
They may form a group for centrally sourcing activities to drive down costs, somewhat similar to what happened with Tests Supermarket Chain (I-J). (Leeward, 2006)- Demand disappears – there may be new research findings in true that may lead to lower consumption of wine. Or even they may be new legislation banning consumption of alcohol products in public places similar to that of smoking, which may lead to total disappearance of a target segment. From the evaluation of Coopers core competencies, the followings were recognized. Coopers is a typical entrepreneurial venture in that the founding entrepreneur, Andrew, had driven its development and growth. A critical factor of success of Coopers is Andrews ability to build relationships, within the context of an innovative and flexible approach, in order to leverage critical resources to pursue growth. Coopers strategy was based on having a carefully controlled but finite quantity of wine to sell every year. With Andrews commitment to quality, it has earned itself a relatively good reputation in the industry.
From the evaluation of the SF of the WI, the followings were recognized. – Historically, the NAZI had focused on the production of premium wines, given its constrained supply, small scale, high cost structures and distinctive ‘clean and green’ growing conditions. Availability of consistent high quality products that has strong brand value and recognition are highly sought after and considered Skiffs. . 0 Monitoring 6. 1 Wineries Both management & employees of wineries play a key role and yield great power in terms of the quantity & type of wine to be produced.
Great deal of collaboration exists between the local wineries to share knowledge & costs. 6. 2 Grape growers Being key players, they control the quality and quantity of grapes grown. Many of the wineries are backward integrated by owning lands or having long-term contracts with individual producers. Power of suppliers is low. 6. 3 Industry Associations Wine Organizations in NZ like Wine Institute, former Wine Guild with backing of the NZ government are very powerful. All Wineries have to take up compulsory memberships and contribute towards funding & running of the organizations.
These key roles of these organizations are promoting NZ wine in international markets, lobbying with foreign governments to open new markets, lowering of trade the entire industry, funded by the wineries. (Clan T, 2005) 6. 4 Consumers The final end user, this group needs to be well informed & kept satisfied by providing high quality premium products with consistent quality and availability at affordable prices. Power high. 6. 5 NZ Government NZ government is a key player with considerable power who has played a pivotal role in the development of the NAZI.
The government has been implementing new legislations in consultation with NAZI to meet the current market requirements. Some examples would include changes in government policy in the sass making it favorable for local manufacturers to export to foreign markets . (Harvard University, 2007) 6. 6 Distributors, Retailers, Buyers Buyers like Supermarkets are powerful players who dictate the price & type of wine stocked on shelves. WI is a buyer driven industry, where buyers hold a lot of power. 6. Domestic and Foreign investors This group needs the minimal amount of effort.
They are satisfied as long as they get a good return on their investments. 7. 0 Critical Analysis 7. 1 Competitor Analysis The world WI is currently experiencing a situation of over-production. In the EX. alone, it was reported by Food & Drink. Com that there is a surplus o f 1. Bin elites of wine, enough for every European Union citizen to take roughly four free bottles each. Millions of Euros have been spent to turn these excess wines into industrial alcohol. (All Things, 2006) The WI is a highly fragmented, with over “a million wine companies” around the lobe.
None of the firms control more than 1% of the retail sales, with top 10 players controlling 11% of the global market share (based on volume) . These industry competitors come from different wine growing countries and continents. This is especially true for Old-World Countries in Europe (France, Italy, Spain, Portugal and Germany) accounts for 60% of the world wine production and 80% of world trade . In contrast, the New-World Producers (Australia, South Africa, Argentina, Chile, USA, New Zealand) wines are more consolidated. On average these countries appear to be more structurally attractive compared to Old-World Countries.
Moreover, in the last decade the industry structure has been undergoing dramatic change. There is a growing trend of consolidation. Cash flow rich alcoholic beverage companies are investing in the WI as their own markets of beer and spirits are maturing. The WI being a competitive industry has a varied, vibrant and balanced group of stakeholders, with frequent and varied channels of communication. All the forces involved try to build consensus within which the primary decisions in the industry are made. 7. 3 Life-cycle Analysis We have identified Coopers to be in the phase of “Mature” stage in the life-cycle model.
In view of its competitive conditions, we also identify there may be many competitors which are likely to resort to price-cutting strategy for volume. Therefore one of Coopers directive is to differentiate its product portfolio through leveraging on its enhance brand equity to promote customer’s retention and loyalty within its existing customer-based and new customer groups whilst consistently driving cost efficiency through economies of scales and innovative & efficient ways of bringing cost down. (Ape E, 2007) 7. 4 Positioning analysis Coopers currently enjoy relatively good brand equity amongst its market segment.
To infuse the same branding principle across distinctive first label allows them to capitalize on its already successful branding strategy, further maximizing the returns of their marketing investment especially for the second label. 7. 5 Value chain analysis Through new ways of doing things such as possible bottling in import markets to reduce shipping costs, backward integration either through ownership or long term leasing with good quality of vineyards across NZ and beyond, could potentially reduce their overall cost per unit yet enabling them to utilize cost advantage strategy to expand the perceived value for the brand. 6 Business profile analysis This growth strategy do not require a complete reinvention of wheels, it capitalizes on the existing goals and values of the group, its resources and capabilities, its structure and management systems and its industry environment to further produce enhanced features and products thus major increase in expenditures is not expected, instead an increase in financial perform is forecasted due to the additional opportunities from new market penetration. (Hickories, 2003) 8. 0 Recommendations: 1.
The expansion of the cooper’s creek network of export markets and the development of second labels. These second label wines could generally be sold at lower prices thus protecting the price status of the Coopers Creek labels but gaining extra sales volume for the company. In most cases the second labels will sell through different distributors. 2. The above strategy will also help with over reliance on a few key distributors. In the case of the rapidly growing US market, coopers creeks have not appointed one exclusive national importer.
Instead they will sell to some 20 independent importer/distributors in different states either by direct shipment from become a victim of the rationalization of a large importers or distributors catalogue f wines carried. (Gout B, 2006) 3. The steady acquisition of control of the vineyards producing their best grapes. That has taken the form of either complete acquisition by purchase, long term leases or the establishment of Joint ventures with the vineyards under cooper creeks management and tied up under long term supply contracts.
In the last two years they have purchased three vineyards, leased one and entered one Joint venture with an existing contract grape grower. They are currently looking at two further existing vineyards with a view to purchase or lease. 4. Continue to produce consistently high-quality products. 5. Maintain and increase its brand equity and recognition as a premium wine producer. 6. Establish international supply management to facilitate its global market operations.