Yellow tail wine Essay

Custom Student Mr. Teacher ENG 1001-04 19 March 2017

Yellow tail wine

Introduction Human beings have been dealing with wine for thousands of years, from the Mesopotamians to the ancient Egyptians, from the Greeks to the ancient Romans, the latter which under their vast empire spread viticulture through the Mediterranean region. Through centuries countries, such as France and Italy, obtained a consolidated position in the wine industry, both in demand and production. In the last part of the 20th century newcomers (Australia, South Africa, New Zealand, Argentina, Chile, USA, etc.) have successfully challenged the leadership of the so-called Old World that represented the majority of global market share.

Wine Industry Analysis using the Porter’s Five forces Model A brief Porter’s five forces analysis can help understand how the evolving of competitive environment is actually composed and why this market shake occurred. Figure 1. 1: Porter’s Five Forces Model For what concerns the threat of new entrants; the Old World companies completely underestimated this threat.

When the newcomers entered the market they could bargain market share of the pre-existing ones without facing real opposition, exploiting better marketing strategies and more efficient organizational approaches. Regarding to the threat of substitute products; this seems to be a challenge for the future, with the introduction of branding as a marketing approach; the threats from the beer industry and “soft drinks” producers must be taken into account.

Referring to the bargaining power of buyers and suppliers, the entrants are in a much better position because of bigger production plants which allow them to gain a stronger contractual power towards distributors; moreover their value chains are more concentrated removing the troubles of the too much fragmentation and variety of actors between the producer and the consumer, which on the contrary, Old World’s competitors are facing.

Furthermore analyzing the rivalry among existing competitors it is possible to understand that the traditional producers are facing much more difficulties, because they cannot exploit advantages the newcomers have, such as professional management, large marketing investments and economies of scale and scope. Unfortunately, these are not the only intricacies they are bearing with; the pre-existing producers have always been in competition one against the other, making it more difficult to achieve competitive advantages through cooperation.

Eventually the newcomers are concentrating their action in the new growing markets while the old ones are still mainly struggling in the Old World declining markets. Network value analysis It is also of a relevant importance introducing the Chain Value Model that was at first presented by Porter in “Competitive Advantage. Creating and Sustaining Superior Performance”. This model was introduces in order to better understand the activities through which a firm, in particular a wine firm, develops a competitive advantage and creates shareholder value (fig. 1. 2).

Concerning the primary activities we can see that in both the inbound and the outbound network logistics, the NW producers managed to reduce costs of transport and warehousing, exploiting new technologies of packaging (an example is the Australian “wine-in-a-box” instead of the classic glass bottle. ) Analyzing the outbound logistics, it is possible to explore the fact that as consequence of being big multinationals the newcomers can bargain power of the distributors, carving out margins which the European competitors are not able to gain due to the excess of fragmentation which reduce contractual power towards the distributors.

With reference to the inbound logistic a major role in reducing costs per unit is played by mechanization and scale economies, which are widely exploited by the NW producers. The same advantages are reflected on the operations where mechanization of harvesting and scale are making the incumbents competitors more profitable, moreover they are also exploiting scope economies, while in the Old World, the fragmentation and the wide specialization, which were the strength of the systems now are showing themselves as weaknesses.

Figure 1. 2: “Chain Value Model” by Michael Porter The use of new technologies and new organizational approaches are also incident on the quality of the final product, which is granted by the integration of the processes and an efficient network strategy by the newcomers, while in the OW these challenges have not been answered yet. One of the largest disadvantages the mature competitors are facing concern the activity of marketing and sales, where due to the newcomers approach they are loosing the market confront.

The Old World is exploiting factors largely underemployed by the Europeans, the use of professional marketing, market researches try to understand and forecast the market in order to be more responsive to the real needs of the demand. The correct use of branding from part of the NW producers is resulting as one of the strongest competition advantage towards the OW ones. Concerning the support activities the situation does not vary, the new-comers have advantages in the firm infrastructures mainly because of a more efficient organization of the all networks and because of a better organization and integration of the production chain.

As regards to the Human Resources Management the differences are mainly a consequence of the different organization types of the actors of the market; in the New World the companies are organized as multinationals with professional managers and marketers, in the Old World the firms are often too small, fragmented and in competition among them to have access to such resources. On the side of technology development the newcomers are exploiting the new technologies in order to gain efficiency and quality, developing new mechanical tools and new approaches mainly regarding harvesting.

Completely different is the approach of the New World competitors, strongly opposing the use of new technologies providing quality with a traditionalist method, an unfortunate approach for gaining market share. In terms of procurement it is unclear if there are advantages of one system towards the other. The outcome of the analysis shows how the New World could gain market share against the Old World, challenging a domination that lasted for centuries. 1. How did the French became the dominant competitors in the increasingly global wine industry for centuries?

What sources of competitive advantage were they able to develop in order to support their exports? Where were they vulnerable? * Competitive advantage sources: history and traditions; know-how; experience; strong internal demand; world wide quality recognition; leader in wine sector for centuries. * Weak areas: fragmented chain of production; too strict regulation and classification; scarce innovations; no differentiation of the product; poor marketing; no branding bargaining power.

As wine production grow up in the Mediterranean area, this alcoholic beverage became more and more blended with cultures, religious traditions and everyday life in the area that now is called the “Old World”. Wine first uses and its complex production made it not accessible for all, actually it was considered a luxury good.

But centuries of development in the production process, like vineyard horses or row plantations, innovations in the distribution and preservation of the wine, like cork stopper or mass production of glass bottles, made it affordable for everyone generating a strong internal demand in countries such us French, Italy, Germany and so on.

Specifically, regarding France, in 1966 the domestic demand accounted for 120 liters per capita and it became the country with the higher consumption of wine, followed by Italy with 110 liters. In order to better understand the dimension of the market, in the same year in Australia, USA and UK the annual per capita consumption was far less than 10 liters.

In France, wine was not only highly consumed in every house, but it became one of the business strengths of the country. Actually it was the second largest French export, because History and tradition made the French wine synonymous of quality in the whole world. Moreover, since there were hundreds of different types wine, French government codified a hierarchical classification (Appellation d’Origin Controllee – AOC, Vins Delimites de Qualite Superieure – VDQS, Vins de Pays) and nurtured the concept of terroir to help consumers recognize their finest wines in a highly fragmented market.

This significantly strict regulation was an important innovation that made the difference among the main competitors, such as Italy or Spain. French source of competitive advantage was not only the century know-how that permitted to have a high quality wine and the strong internal demand, but also the demand coming from the neighboring countries without a highly developed wine industry. Wine producers, in many countries of Europe, were isolated from each others, and most of the world’s wine drinkers consumed either local wines or imported from close winemakers.

This tradition made the fortune of France, since the climate and the soil in the United Kingdom didn’t allow grape growing enough to satisfy the huge internal demand, British were forced to import from the closest producer. The century tradition was an advantage for the French wine because it was a symbol of quality, but it was also a drawback, because it fiercely limited the flow of innovation and development concerning the production, distribution and branding of wine. Moreover, since the whole production chain was fragmented in many segments, there was a lack of economies of scale and integration that had terrible results in market power of the French producers.

Actually branding was poor or even not existing and a number of small producers with very small bargaining power were incapable to deal with retailers as supermarkets loosing market visibility and the connection with the whole segment of customers. The direct competitors, the Old World producers, were all in the same situation: fixed to the traditions and unable to satisfy the increasing fast-changing consumer tastes and preferences.

The fact that they had been the market leaders for centuries made them unconscious about the possibility of new hardened competitors growing in the New World. 2 What changes in the global industry structure and competitive dynamics led France and other traditional producers lose their market share to challengers firm Australia, US, and other New World countries in the late 20th century? In the last twenty years, the worldwide wine industry has become increasingly internationalized and sophisticated, though over the years, the market has become fragmented, international, multi-lingual, operating in many currencies, and information-intensive.

The wine industry globally faces continued shake-up and consolidation and the generation of mega wine companies has become inevitable as no one wine company – listed or private – currently has more than one percent of the world wine market, in stark contrast to other beverages. Global wine showed solid growth in volume terms in recent years, up nearly two percent to 25,066 million liters. Still red wine provided much of the impetus for volume growth in the world wine market over survey period, with sales rising nearly 12% between 1998 and 2003.

However, volume growth of global wine was dampened by changing patterns of consumption in important Western European markets, like Italy, France, Portugal and Spain, as younger consumers moved away from traditional everyday wine drinking to more occasional consumption. Globally, the two countries that are leading the wine production and consumption businesses are France and Italy. However, the irony is that these two countries are also witnessing a steady erosion of their global market share.

In our opinion there are five key success factors that we have identified that are extremely relevant to compete favorably in the global wine industry: * a strong existing domestic market * domestic market growth potential * economies of scale advantage * industry adaptability to change and * potential to attract foreign investment. First, a strong domestic market is one where a large volume of wine is purchased and where consumers readily select domestic wines.

Second, even more important is the potential for growth in a producer’s domestic market, as this shows if opportunities for additional sales exist where producers may have local knowledge and other native advantages such as local distribution. Third, countries where production is dominated by larger firms have the advantages of scale and scope as well as improved power in promoting and pushing their wines to consumers and retailers. Fourth, industry adaptability to change summarizes the willingness of producers to experiment with cost saving production methods or to pioneer new marketing techniques.

It also indicates if producers are free from excessive regulations or blind adherence to long standing traditions. Finally, countries that have business-friendly climates, favorable costs or other natural comparative advantages will attract foreign investment in wine production, which makes these countries stronger global competitors. Old World producers were the first to define tastes and quality standards and they have traditionally been supported by a strong local consumer base.

The New World has had to work hard to build their wine industry, both in infrastructure and reputation. Large scale wine production is relatively recent, and many of the New World producers faced difficulties such as currency collapse, prohibition and international sanctions. Per-capita consumption also lags that of the Old World countries. Yet New World producers have recently been successful in producing consistent quality wine and in capturing global market share. .The group with the strongest competitive position includes Australia, Chile and the United States.

Australia and Chile both have small populations that provide for a tiny domestic market with little potential for growth. However they are very well positioned to produce and export wine with their adaptive, large-scale producers and their great lure for foreign investments, providing them with a position of a strong competitive advantage. The US is a populous, affluent nation, and while the US wine market is already large, it has even more potential to expand. With all other key success factors strongly favorable, the US also possesses significant competitive advantages.

The countries with the weakest competitive advantages in the global wine industry are two traditional strongholds of wine production in the Old World: France and Germany. While they have large domestic markets, there is little opportunity for further growth. There are many causes of the decline of France, and the Old World in general, in the market share of this sector; these concerns globalization, changes in the demand, more responsive strategies of the rivals and also the lack of market research and marketing investments by the French firms and totally ineffective technology and innovation policy.

Moreover, the concentration of production into small wineries, complex labeling practices and inability to leverage new production and marketing techniques does also not bode well for effective competition in a global market place. Nor does either country hold much potential for attracting foreign investment, save for some traditionally undervalued areas of France, like Languedoc.

In response to the shrinking costs of transport, globalization allowed companies situated in different areas of the globe competing in the same final market, an example is the UK one, where in the past the demand was completely satisfied by French, Italian and German wines. Although consumption per person has decreased in traditional consuming and producing countries (Italy, Spain, France), the consumption and production of wine is increasing in new countries in northern Europe, Americas and Asia. Countries like South Africa, Australia, Chile and Argentina are radically modifying the industry’s competitive environment.

With the “globalization” of the wine market, the environment is becoming more competitive and producers are implementing new strategies. We can observe two very different production and marketing models. * The traditional French model, based on the certificate of guaranteed origin (AOC), whose objective is to turn out a high added value typical product in limited quantities through the combination of a demarcated territory called terroir and enforcement of constraining specifications and regulations.

* The second, is being implemented by producers in the so called New World (the United States/California, Australia, South Africa, Chile, Argentina). It is based on “industrialized” mass production and intense marketing of relatively standardized products which are easily identifiable through private brands. There are different observable relationships between the players and the production sites in the industry. In this context, the French wine industry appears to be in an insidious or even open crisis. In most producing regions, a major symptom is the decrease in domestic sales in a context of market shrink.

In addition, there is a loss of export market shares which is estimated at ten points in several countries that have traditionally been markets for French such as Great-Britain, Germany and Canada. In these cases, these losses are not due to an overall market decline, which is actually on the rise, but rather to the increase in competition by producers who are mostly from the southern hemisphere (Argentina, Chile, Australia, South Africa) and California.

The real alleged weaknesses of the French wine industry have been the subject of numerous analysis and reinforcement proposals: regulations which are too strict and consequently slow down innovation, a complex and hard to understand product supply, minimal or even no effort made concerning promotion and marketing.

Furthermore, we believe that the main mistake lies in the structural organization of the wine industry in France. Hence, we would like to not concentrate on the wine product and its specific qualities but will try to compare the way the industries’ players are organized, in order to analyze where the French industry is not adequate to modern challenges.

The terroir/AOC model has been a reference for worldwide wine production until the 1980s but it is no longer the case in the early 2000s. Why is France’s position on the international wine markets degrading while New World wines experienced spectacular improvements and now aim at catching up with traditional “Old World” products?

From an organizational point of view the terroir/AOC model seems to have a certain number of cumulative weak points in comparison to the new world’s model (identifiable with Porter-like clusters.) In terms of the supply structures, the French established supply model and infrastructure are characterized by fragmentation and a high number of small winemakers that have a negative effect on investment capacities (material or immaterial) in the industry as a whole.

This fragmentation has certainly a negative effect on the ability to innovate in terms of products, processes and even marketing and selling. The small scale of businesses and lack of tradition as regards pooling resources do not allow producers to find the financial means necessary for heavy investments.

This weakness tends to neutralize the local industry’s reaction capability when it faces the new environment pressures. The fragmented supply chain is, indeed, both the cause and the consequence of a “non-competitive/non-co-operative” tradition among producers; individual strategies of traditional producers aim to avoid all forms of comparison with neighbours and potential competitors. This lack of cooperation is, in Porter’s perspective, one of the major weak points.

On one side, for New World producers, wine-making is an economic activity and is taken on as such: producers define output, profit and market share growth objectives and give themselves the means to reach them. On the other, for traditional terroir producers, wine production, though highly lucrative, is not taken on in its economic dimension but rather centered round the “cultural” nature of the product. The “New World producers are turned towards innovation, the terroir is founded on immutability of tradition; it is consequently strongly resistant to change.

Terroirs’ organization model is traditionally supply driven in a context of scarcity. This avoids producers to think about productive environment and production method change. Consequently, traditional producers have had trouble in considering both the qualitative and quantitative evolution of demand and its consequences on supply, where “New World” producers are used to have a proactive behavior and, therefore, anticipating and stimulating it.

And even when the need to change is implemented, the existence of tight regulation within a specific AOC can make a substantial product modification or production method more difficult to happen. A further set of identifiable weak points is linked to the nature of the top-down complementary relationships between grape growers and wine traders and to the transaction costs that result. The terroir/AOC” model of organization tends to generate opportunistic behaviour that can call into question its very survival, specifically in a very competitive context.

In fact, while the perspective of getting an AOC label encourages players to enhance production quality, it may lead to let up on efforts made to maintain product quality once the label has been obtained, interfering with the overall image of the terroir and raising suspicion as regards product quality. To particularly highlight is the existence of incomplete contracts between grape growers and winemakers/wine merchants, the latter being responsible for the marketing of the product.

This “generates considerable price variations and makes it impossible to set up contracts that guarantee traders constant and adequate wine supplies in terms of quantity and quality. The problem can spread to wines beyond generic wines and condemns, in advance, all ambitious and viable marketing strategies from the traders. ” The presence of extremely heterogeneous quality levels within the same appellation can thus call into question the appellation itself and therefore the whole of the “terroir/AOC” organization and strategy.

To avoid such opportunistic behaviours, autonomous certification bodies should be entitled to reconsider such certification on a regular basis and ban weak products/producers. The industry’s players themselves or a third party must assume responsibility for product quality guarantee. A major terroir organization characteristic is fragmentation and corporatism. Consequently, taking responsibility for such guarantee scheme is extremely difficult owing to incompatible corporatist and general interests.

What is more, the existence of non-market regulation mechanisms (based on, for example, family or friendship ties) can in this case be counter-productive. Indeed, players can be tempted not to sanction one of their kin in the name of these relationships and later themselves avoid possible sanctions, whereas the intervention of a third party that is likely to guarantee this quality is difficult to promote with local entities.

Under the AOC label, regulation is indeed carried out at local level by local players themselves and therefore known to be rather lax: making it impossible to use the label as a genuine quality guarantee. 3. 1 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?

* French Minister of Agriculture: increase government investments in the wine industry; promote a responsible wine consumption of wine through events marketed at the new generation; create a new clear classification system based on the consumer tastes; promote the creation of big companies and disadvantage the proliferate of little-medium producers; sign contracts with other agriculture ministers of consumers countries in order to favour the French wine.

* Head of the French wine association: better integrate the network; quickly spread the know-how, techniques and innovations throught the French producers; promote wine events to increase the consumptions; promote the invention of new products made with wine; try to anticipate the next changes in the consumer tastes; advertise and invest more on the type of wine that is preferred by the consumers in that very moment; make advertisement aimed to a responsible and wealthy consumption of wine; try to drive the consumption to the type of wine that is over offered; lobbying the ministry of agriculture in order to have grants and privileges.

* Owner of the mid-size, well regarded Bordeaux vineyard: found a bigger company with the surrounding producers; invest in innovating the production process in order to increase the quantity and the quality; buy extensive land in the New World and exploit economic scale advantages. 3. 1 Possible advices to the French Minister of Agriculture Since the main objective of France is to take back the market share of the past and maintain the leader position in the wine market, it has to better exploit its competitive advantages and adopt some technical and marketing innovations in order to compete and defeat the new threatening producers.

The first functional recommendation for the French Minister of Agriculture is to increment the government investments in the wine industry. The larger flow of money would be used, firstly, to invent or to develop techniques and tools for harvesting or farm vineyards, secondly, to achieve and overtake the distribution and marketing level of the New World producers. All those developments will also increase the production of wine and fulfil a larger portion of the international demand.

In the last ten years, the new generation has grown with a high consumption of beer and super-alcoholic cocktails, the French Minister could aim to substitute these beverages with the wine. He might promote a responsible wine consumption through events directed to the new generation. It is important to advertise wine as a drink for all ages instead of a refined beverage just for mature people as this would implement the demand from part of the younger generation. One of the common problems of wine consumers is choosing which kind of wine and which brand purchase at the supermarket.

This issue could be solved with a classification of brands and wine names that could be easily understood and memorized by the consumers. Quality can be maintained and highlighted also gathering the large number of different types of wine in few clusters with easy names to remember. This problem is also due to the large number of brands in the market. The majority of potential consumers are confused and at the end they prefer to buy a bottle of beer of a well known brand. It’s possible to overcome this situation promoting the creation of big companies and disadvantage the proliferation of little-medium producers.

Big companies bring into the market well-known brands, which massively increase producers’ market power. In order to increase the French market power compared with the direct and New World competitors’ ones, the French Minister of Agriculture could sign contracts or agreements with other agriculture ministers of consumers countries in order to favour the French wine. Since, UK, one of the larger consumer countries is next to France, it would be easy to find something to exchange for a commercial agreement. 3.

2 Possible advices to the head of the French wine industry association As the Head of the French wine industry association to manage and represent all the wine producers, its objective is to promote and give advantage to its associates. Furthermore it would be useful to advise him to promote a better integration of the wine production process from the vineyards to the final consumer. This issue could be achieved through a cooperation or collaboration between the wine producers, merchant traders and the retailing sector.

A superior control, permitted by this form of collaboration, avoid more handling stages, holding less inventory, capturing the intermediaries’ mark-up, sharing common objectives and improving the time to market. Moreover, the cooperation can spread the know-how, technique and innovation through all the French associates. It is really important to promote higher investments in R&D in order to fill the gap that has occurred between France and the other New Word competitors. New innovations and technologies bring new developments and improvements to overtake and succeed on the marketing and distribution level of the competitors.

Concerning the distribution, communities, retailers, and consumers are demanding more sustainable, eco-friendly packaging options, whether for everyday items or higher end purchases like fine wine. For some products, the barrier to conversion has been package performance. Therefore would be important to spread the use of “green” materials to pack and deliver the products. Since the French has never developed an efficient marketing strategy it has been difficult to align the interests between supply and demand.

The French wine association has to try to anticipate the next changes in the consumer tastes, by means of market surveys and data collected through an effective wine industrial analysis. It is also important to drive the offer towards to the type of wine that is preferred by the consumers in that very moment. On contrary it is possible to drive also the demand and not only the supply of wine. Guiding the consumption towards the type of wine that is over offered or over produced it is hoped to avoid sure future losses.

Nowadays people are blasted with advertisement that recommends not consuming wine because it is unsafe for the drinkers’ life. There will be an increment of demand persuading consumers that a little quantity of wine is not dangerous but rather really healthy, in particular the consumption of red wine. As well as the French Minister of Agriculture the Head of the French wine industry Association might promote and arrange wine events to increase the new generation consumption of wine. 3. 3 Possible advices to the owner of a middle size well regarded Bourdeaux vineyard producing wine and premium and superpremium category.

The main issue for French wine producers in the actual competitive environment, considering how the newcomers are acting and consequently gaining market share, is size. One of the challenges each small producer has to face is a competitive market without boundaries, totally changed from what it was only 10 or even 5 years ago, in which large multinationals are now efficiently operating. There is no univocal solution to this problem, but a few advices could be given to small or mid sized European companies.

In order to gain advantage in terms of scale but even scope, the best way is to control the full production chain. From the vineyard to the glass, this can be obtained through either acquisition of neighbour producers, merging with other companies to better integrate or forming and exploiting networks. Each winemaker should analyze the market, an affordable process, and identify its possible cooperation/competition strategies. Maximum control over the value chain can often guarantee that the final product is produced and sold at the company’s standards.

One of the troubles the incumbents have to face is the inconstant quality often found within the same wine denomination. Bottles often sold at very high prices, due to a very lousy quality denomination system, are ruining the reputation of the other products of the same wine group. This is unacceptable as it ruins the whole regional system, but a solution can be found through the aforementioned network implementation or radical integration. It is often said of French producers that they are myopic as far as seeing new mar.

Free Yellow tail wine Essay Sample

A

  • Subject:

  • University/College: University of California

  • Type of paper: Thesis/Dissertation Chapter

  • Date: 19 March 2017

  • Words:

  • Pages:

We will write a custom essay sample on Yellow tail wine

for only $16.38 $13.9/page

your testimonials