Sula’s Wines Essay

Custom Student Mr. Teacher ENG 1001-04 9 September 2016

Sula’s Wines

Question 1: The Indian wine industry presents some interesting characteristics that can be analysed using the Porter’s five forces framework to understand to what extent it is a profitable one, and why it is attractive or not. Let us get started with Rivalry: here it is important to differentiate between the Indian and the global market. In fact, at the time the case was written, the Indian market was expanding so rapidly (25/30% per year) that business opportunities were flourishing and all the existing participants could easily sell their products without the need to attack others’ customer base.

However, if we broaden our point of view to the global industry, rivalry is way fiercer and exports are likely to be a less profitable business than the domestic one. Overall, LOW/MODERATE. Buyers’ power: in this industry, it is incredibly difficult to “lock in” a solid customer base made of individual consumers that face virtually zero switching costs and have different tastes for wine. Additionally, wholesalers and retailers can exert significant pressure on wine producers for what concerns shelf space and wine selection. Therefore, it seems that buyers’ power is HIGH compared to producers’, thus lowering profitability.

Suppliers’ power: if we think in terms of the raw materials needed to produce wine, i. e. grapes and juice, we can state that, being them commodities, these are subject to the seasonal fluctuations in price, quantity and availability typical of agricultural products. In periods of excess supply, high quality grapes could be purchased for lower prices and vice versa. Also, regulatory changes in 2001 reduced both sales taxes and the costs of imported bottling items, thus increasing profitability.

However, India has a major issue that turns out to be of crucial importance to farmers and producers, i. e. he lack of stable electricity supply; this could in principle give some bargaining power to suppliers of diesel and generators. Thus, suppliers’ power is LOW/MODERATE. Threat of substitutes: although the Indian government has recently granted several concessions and liberalizations for both sale and consumption of wine, the threat of substitutes is still HIGH, especially for cultural reasons whereby whiskey, for instance, is traditionally preferred by the majority of Indians to wine. However, given the rapid expansion of the industry, there seems to be more than a hope that this mind-set will change in the near future.

Barriers to entry: wine is definitely no easy business to start. There are several reasons to justify this point; first of all, as Sula’s case clearly shows, it takes time to obtain the various licenses; also, the knowledge and know-how required are extremely sophisticated and specific; additionally, wineries are capital intensive businesses and the initial investment to set them up is substantial. However, as we can see from the case, the Indian wine industry has benefited from governmental liberalizations that have encouraged many new wineries to enter the business.

We can conclude that BTE are MODERATE/HIGH. The Porter analysis provides us with a moderately profitable scenario, in which it is not easy to start a successful business unless the exact skills and capabilities needed are present. In the following answer, these resources will be analysed in the context of Sula’s activity. Question 2: The biggest challenge that Samant faced when he returned to India to produce wine was that of changing the “alcoholic tastes” of consumers. To do so, he had to rely upon a strategy that would leverage on the core resources and competencies he had brought back from California.

Also helped by a specialized consultant friend, Samant meticulously configured his piece if land in order to exploit the good potential of its location; additionally, he successfully realized that an unconventional growing/harvesting schedule had to be adopted if they wanted to take advantage of the seasonal characteristics of the weather, such as monsoons. He managed to earn a solid and valuable reputation, refusing to bribe officers to obtain the necessary licenses and took care of promoting its products, through marketing campaigns and wine tasting events, in the attempt of changing Indians’ culture towards wine.

For what concerns the type of wines to start production with, Samant successfully identified those that could best accompany the spicy flavours of the Indian cuisine and, subsequently, he diversified the firm’s portfolio by introducing more varieties of white and red wines. Finally, he has secured the unique and valuable expertise of some of the brightest players in the financial sector, who have enthusiastically joined him in the firm’s activities.

This combination of factors have allowed Samant to put Sula’s Vineyards in a very comfortable position to exploit the huge growth that everyone expects from he Indian wine market; right now, the firm seems to have a competitive advantage to further develop in the near future, if the right strategy will be pursued. Question 3: Looking at the numbers, Sula has been extremely profitable in 2007, with net profits that increased more than six fold since the year before; also, sticking to market forecasts, it seems that an explosive growth has just begun in India, an opportunity that should definitely be exploited.

Now that the business is well established and generates a steady stream of revenues, Samant may consider to raise additional debt to finance the long-term challenge of producing premium red wines in a separate winery, something that, if successful, would give Sula’s business a major boost both in sales and in reputation. In the meantime, revenues from national sales would provide the capital necessary to feed the already existing business. Moreover, it could also be worth it to “attack” the global market with initially lower prices to gain some market share also in Europe and in the U. S. at first, relationships with touristic targets such as hotels and restaurants would be established and, if this strategy worked out, then Sula would face an ever-growing demand for its products, at least for the next 10 years, that could be met by working together with other local producers of premium wine.

The idea of a “consortium” of Maharashtra firms could be attractive for many reasons, among which a significant increase in bargaining power towards the government when it comes to requesting the necessary improvements of regional infrastructures, such as roads, electricity supplies, etc.

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