Hunter Valley Wine Company - Business Strategies - Case Study Example

CONTENTS I.Executive Summary 1 II.Introduction 2 III.Findings 2 History and Strategic Development 2 Resources, Capabilities and Key Competencies 3 Competitive Advantages and Sustainability 4 Market Drivers and Wine Consumption Patterns 5 External Environment 6 International Market Entry Strategies, Entry Barrier and Trade Agreements 6 Blue Oceanic Strategic Opportunities 7 Strategic Leadership and Entrepreneurship 8 IV.Conclusion and Recommendations 8 The Hunter Valley Wine Company Strategic Plan I. Executive Summary This strategic plan will analyse at the position of Hunter Valley Wine Company (HVWC); its resources, capabilities and competencies as well as its competitive advantages and sustainability in order to identify strategic opportunities in continuing its growth, meet its national Australian wine demand as well as venture into international market. It will evaluate the internal and external environment of the company, consider the international entry strategies and blue oceanic strategies available in order to determine the strategic actions necessary. Finally, it will use the findings to provide recommendations and actions necessary for the implementation of the strategic plan. II. Introduction Hunter Valley Wine Company (HVWC) is a wine production company that has been in existence for 25 years. Over the last 10 years, it has experienced successes in growing its business which has resulted in increase in the demand of its wine and wine products across Australia. World economic activity is becoming more and more focused in Asia especially with the expansion of the Asian middle classes. This has resulted in an increased demand for luxury goods and services. This trend has affected wine consumption and sales which in turn has an increased demand for wine products in the Asian region. This strategic plan provides the HVWC with a five-year strategic actions that will enable the company to meet local demand, increase profits and venture into international markets – this will pave way for longer-term wine market development outcomes. III. Findings History and Strategic Development The Hunter Valley Wine Company (HVWC) was formed by the Smith Family in 1990. It is located in the picturesque Hunter Valley in New South Wales. It was started on a 25 hectares and is comprised of the Semillon, Chardonnay, Shiraz and Cabernet Sauvignon Vines. The company has since expanded the winery by acquiring a neighbouring vineyard which has increased its grape production potential, increased their wine production capacity and provided additional wine making equipment. The company has also developed strong relationships with other Hunter Valley grape producers that now supply additional resources to the winery. The company’s vintage production were modest in quantity and quality. However, the company improved both its viticulture and viniculture which improved both its yield and quality of grape production by 2000. HVWC majors in the production of four main varieties; Semillon, Chardonnay, Shiraz and Cabernet Sauvignon and can produce 10,000 of each annually. The company has won various awards in Australia and the quality of their wine has steadily improved over the last 15 years. HVWC has developed in sales and distribution from NSW only to 174 stores nationwide through a distributor. Resources, Capabilities and Key Competencies HVWC owns 25 hectares and has acquired the acquired neighbouring vineyard. The location of the firm in the picturesque Hunter Valley in New South Wales gives it a vantage point since this has been a rich wine production region in Australia. HVWC grows its own vines and has four main varieties; Semillon, Chardonnay, Shiraz and Cabernet Sauvignon which are among the top varieties in Australia. The acquisition of the neighbouring vineyard has increase its grape production potential and provided additional wine making equipment resources as well as the wine production capacity. The company has developed strong relationships with other Hunter Valley grape producers that now supply additional grape resources to the winery. According to Jordan et al (2006), there are a myriad of benefits for organization which have embraced the firm-firm collaboration in increasing competitive advantages. In terms of production, HVWC has improved its viticulture and viniculture techniques which has increased yield and quality of grapes. It has improve its yield and quality through increasing the company’s capacity and quality. The company is now and established producer of both medium and high quality wines. Through exhibition in all major wine shows annually, the company has won an array of bronze, silver and gold medals in its four varieties which has increased its demand in the Australian domestic market. Successes in the major Australian wine shows since 2000 has increased domestic wine demand consequent to which HVWC has signed an exclusive agreement with Dan Murphy’s to distribute its full range of wine products through 174 nationwide stores. Having success in major Australian Wine shows as well as establishing a name for medium and high quality wines is a major reputation resource for HVWC. Having a solid organizational reputation gives a company sustainable competitive advantage as well as improved performance (Carmeli & Haifa, 2001). Organizational reputation builds credibility, responsibility, reliability and trustworthiness of an organization. Purchaser respond to a product or a service according to their notion of the producer’s reputation (Carmeli & Haifa, 2001). To maintain the growth of its business and increase its demand for quality wine, HVWC need to maintain and improve this reputation resource. One area that has not been fully exploited is human resources; improving skills and knowledge as well as motivating and empowering employees. There are other areas that need to be explored in terms of capabilities which include marketing (innovative merchandising), research and development (innovative and digital technology) and management information systems. Competitive Advantages and Sustainability The company’s valuable capability of incorporating high quality grape production from other producers which has increased the winery’s production capacity and quality gives it a competitive advantage and sustainability. Through collaboration with other firms with a common business goal, HVWC would be able to improve its strategic advantage. According to Jordan et al (2006), organization have become increasingly aware of the benefits of strategically collaborating with other in securing competitive advantages. Collaboration in improving market competitiveness as well as technological innovation would increase the competitive advantage of the company especially in wine exports as the Australian brand. Creating value in the Australian brand against other world exporters would create competitive advantage for the company. This also applies in other areas like domestic marketing and research and development (Jordan et al, 2006). According to Gunning-Trant and Shafron (2012), the warm climate regions of Australia – which Hunter Valley is located have continued to account for the largest share in wine production in Australia. This locational advantage will continue to ensure its sustainability. The company has improved its yield, capacity and quality to curve itself a name as a recognised producer of medium and high quality wines. Having a recognised name is one of the intangible resource that helps the firm in demand increase. In addition, this analysis found out that the reputation resource that the company has, especially through its successes in wine shows in Australia creates gives it competitive advantage. Australia has enjoyed increased exports of wine in Asia especially high quality and high value segments. This demand is set to continue and the Australian wine market is set to continue benefiting. Australian wine exporters have significant opportunities from China, which dominates this emergence, as well as Japan, Singapore, South Korea, India, Thailand and Vietnam. By opening its wings to enter international market, the firm will increase its competitive advantage and ensure its sustainability. The strategic orientation of a firm helps it to improve its performance by changing certain aspects of its strategy to improve its performance (Jordan, Zidda & Lockshin, 2006). In a bid to open its business to the Asian market, collaboration with other firms and the national wine industry will be a great strategic action. This is because competitors with high market dependence respond strongly to attacks threatening their market position. Market Drivers and Wine Consumption Patterns There has been an increase in domestic wine consumption in Australia from 2007-2012. According to the Winemakers Federation of Australia (WFA) (2013), wines sold above $15 percent per bottle increased by 64% in terms of value and 42% in terms of volume. WFA (2013) note that winemakers with their wine retailing below A$10 per bottle face a great deal of profit pressure given the production value. In addition, their report shows that high—cost wine makers who do not have significant profitable distribution channels have greater pressure for profits. HVWC sells its wines to Dan Murphy’s at A$8 per bottle whose production cost is A$5 WFA (2013) note that success stories have continue to emerge in producers of high quality wine and fruit, lowest cost producers of both wine and fruit at every quality level and for players that are able to establish their niche in terms of market, brand and method of distribution. The ability of HVWC to transition to these models will increase its competitive advantage as well as increase its success. Appreciation of the Australian dollar (A$) has let to collapse of export returns as well as demand. In addition, there is the challenge of retailers wanting to extract margins from winemakers and growers. WFA (2013) predicted a continued growth in wine exports to China. Their report shows that over half of the increase in exports came from quality wines A and B which has a limited supply (WFA, 2013). This poses a challenge and an opportunity for HVWC to increase its production of A and B quality wines in order to address the need of limited supply. External Environment A firms faces influences from the external environment as it seeks to gain competitiveness and higher returns (Hanson, 2014). HVWC external environment provides the opportunity to venture into international market. Companies without profitable distribution channels, face a great pressure for profits from the Australian wine market. According to WFA (2013) the company has opportunities to curve a niche for itself in terms of brand, market and distribution. Although HVWC has the four main wine varieties in the Australian wine market, it does not yet have a niche market, brand or method of distribution. In addition, HVWC faces the threat of collapse of export returns from appreciation of the A$. However, there is a promising export market in China, especially for the A and B quality (WFA, 2013), since its demand is high and supply is limited. With the advancement of technology in marketing, HVWC has the opportunity of employing digital platforms to market and promote its wines and fruits. This is especially because Dan Murphy’s seem to be making greater profits distributing for company than the company itself is making. A strategic action that increases profits in sales and distribution and marketing will ensure that the future of HVWC remains profitable. International Market Entry Strategies, Entry Barrier and Trade Agreements Having captured the national Australian market, one of the greatest expansion opportunities that HVWC has is to enter into international market – in this case the Asian region. This is because, apart from the promising wine market for Australian wine in the Asian region, other international market forces like global integration push the company towards this direction. Besides the company has been growing its business and increased its demand locally and nationally. This will increase its market size because larger international markets offer higher potential returns. In addition, venturing into international market provides the firm with the opportunity to exploit core competencies through sharing resources and knowledge between units and network partners. HVWC needs an international diversification strategy in which it will expand sales of its goods the Asian region. Use of exports as the entry mode will give the company a short time opportunistic wine trading opportunities while affording it time and platform to monitor and evaluate the market for longer-term substantive wine market development. Since local distribution through an agent has not been profitable enough, the company should seek direct exporting. The Chinese-Australian Free Trade Agreement (FTA) has made it easier for Australia to export food products including wine. Wine shares over 50% of all agricultural exports sent to China (National Australian Bank, 2014). Another market that HVWC will look to venture into is Exports to Thailand. Australia has a FTA with Thailand which reduced tariffs on Australian wine from 54% in 2005 to 0% from January 2015 (Australian Trade Commission, 2015). The Wine market is growing in Australia and wine drinking is associated with social status. The Shiraz and the Shiraz blends, which HVWC produces, are the bestselling varieties in Thailand (Australian Trade Commission, 2015). Japan is another market that HVWC will venture into. Australian wine in Japan has cut itself a niche as high quality wine as compared to Chilean and Spanish wines (Australian Trade Commission, 2015). Imported wines are preferred in Japan and export of the Australian wine has been growing consistently with an increase of 11.7% from 2011 to 2013 (Australian Trade Commission, 2015). However, this market has competition from France and Italy. In addition, wine exporters have to observe the custom duties, liquor taxation and Food and Sanitation Law. Blue Oceanic Strategic Opportunities HVWC has the opportunity to align the whole system of the firm’s activities in pursuit of differentiation and low cost – pursue both value and cost reduction. One of the areas is through raising retail store involvement. Further, the company needs to come up with a marketing department that will distribute the wine instead of using Dan Murphy’s. This is because, the company makes only A$3/bottle selling their wine through Dan Murphy’s. The distributor seems to be making more profit than the producer. Further, there have not been technological use in sales and distribution. The only media use is through traditional media and Dan Murphy’s website. The company will aim at pursuing both low cost and value simultaneously. Use of social media tools in sales and distribution could be a great opportunity for HVWC. Strategic Leadership and Entrepreneurship Cost leadership is one of the strategies that HVWC will embrace in the Australian local market to ensure that it produces wine and wine products at the lowest cost with features that are acceptable to customers in the markets it has and those it is seeking (Hanson, 2014). This will be possible by producing all levels of quality from A to E. Further, the company will adopt cost-efficient distribution methods including taking on its distribution when the agreement period with Dan Murphy’s expires. In addition, the company will ensure tight controls of production costs and overhead. The company will be involved in strategic leadership for the period of the implementation of the strategy. This will be achieved through management teams for every department who will be responsible for resources management and strategic innovations in production and marketing. IV. Conclusion and Recommendations For HVWC to take advantage of the recent success in growing it business and meet the increased demand for quality Australian wine in Asia, it will adopt a cost leadership functional strategy which will ensure production of wine and wine products at the lowest cost (production and sales) with features that are acceptable to customers both locally and internationally. The company will venture into new international markets in Asia starting with China, Thailand and Japan as it considers other Asian countries like Singapore, Korea and Vietnam. The HVWC will also develop expertise in human resource in order to increase value in terms of production. References Australian Trade Commission. (2015). Wine to Thailand. http://www.austrade.gov.au/Export/Export-Markets/Countries/Thailand/Industries/Wine#.VS9pWPmUclQ Retrieve on April 13, 2015. Carmeli, A. & Cohen, A. (2001). Organizational Reputation as a source of sustainable competitive advantage and above—normal performance: an empirical test among local authorities in Israel. Public Administration and Management: An Interactive Journal, 6(4), 122-165. Gunning-Trant, C & Shafron, W. (2012). Australian wine grape production. Department of Agriculture, Fisheries and Forestry, Australia. Jordan, R., Zidda, P., & Lockshin, L. (2006). Behind the Australian wine industry success: does environment matter? 3 International Wine Business Research Conference, Montpellier, 6-8 July 2006. http://academyofwinebusiness.com/wp-content/uploads/2010/05/Jordan.pdf Retrieved on April 14, 2015. National Australian Bank (2014). Economic Report: China-Australia Free Trade Agreements- highlights. Group Economics. http://business.nab.com.au/wp-content/uploads/2014/11/china-australia-free-trade-agreement-highlights-november-2014-economic-report.pdf. Retrieved on April 13, 2014. Winemakers Federation of Australia. (2013). Wine industry report: expert report on the profitability and dynamics of the Australian wine industry. Centaurus Partners, Australia. Read More