The Wine Industry Analysis - Essay Example

Wine Industry Analysis Q Is this an attractive industry Ans: Production and consumption of wine s back to 4000 BC when wine produced in Zagros Mountains in the Middle-East was transported down the Euphrates and Tigris rivers for further trade. Subsequently many more process changes and formulations have transformed the wine into much more classy varieties. The wine industry itself is putting up with many more competitors like, soft drink, tea, coffee, beer and other finer varieties of liquor. Tracking the trail of wine through the ages, we find that popularity of wine kept increasing through the ages, despite some problems like the phylloxera epidemic of 1860s. But, the industry emerged back much more resolute. 19th Century Europe also saw alcohol being branded as 'source of many problems', but the attraction of the wine and the industry did not allow this drink to melt away. The main thrust of for demand for wine came after the Second World War, when the economic prosperity saw a phenomenal rise, leading to rise in demand of wine in almost all parts of the world. A large number of producers too are spread all around the globe with miniscule share of total production catering to respective areas of influence. Gradually the industry started modernizing all its processes and using fermentation and refrigeration for producing better quality products. As of now European market comprises of the majority of wine consumers, with other regions gradually joining in. Therefore the industry is indeed an attractive one, but the growing rivalry amongst the competitors has resulted in reduced margins for the industry. In addition threat of substitutes like other soft beverages has always kept the wine industry on the lookout for upgrading their own standards and quality. Some of the major wine producers are Constellation Brands, Inc. E. & J. Gallo Winery, Janton, Pernod Ricard etc. On account of increasing competition some consolidation is also taking place in the industry, with mergers and acquisitions. But the kind of competition amongst the large number of producers can be gauged from the fact that none of the major producers can boast of a market share of 2%. Observing the wine production figures since 1994 and projecting an estimate for the next five years till 2005, Morgan Stanley figured out that there could a marked decrease in the production levels in some countries, particularly after 2000, but this is more because of the increasing competition, which again is a pointer towards the attraction of the industry. Wine brings cheers to the consumers and has survived many adverse circumstances. But today the industry has made itself resilient enough towards such circumstances and facing them boldly. Q-2: What is the basis for competitive advantage Ans: Wine industry has in fact inherited some of the competitive strength in the form of its association with prestige and sharing happiness. In general the competitive advantage of wine industry is based upon the following facts; Quality of wine is decided as per the climatic conditions, the land and the ambience, which gives it a unique identity. Its shelf life is much more as compared to other drinks and beverages. Wine is mostly used as a pleasure drink, with friends and colleagues. Therefore the consumption of wine in a group tends to become more. Wine companies generally have a portfolio of products reflecting a wide variety of choices demanded by consumers in various style and price ranges. There are low-cost high volume varieties, premium varieties and ultra premium varieties. The market is ever growing with the drink becoming quite fashionable amongst the youth. Wine if taken in controlled quantity can have medicinal effects as well, therefore even doctors, other health professionals, NGOs too do not feel the need to be up in arms against the drink. It has been observed that citizens above the age of 50 years consume more wine than the younger ones. And with the a sharp rise in the average age of an individual, thanks to the advancements in health care and medical field, the average consumer base of wine keeps growing. As a result of the IT boom, some of the developing nations are also seeing a sharp rise in the average income levels and per capita income levels. That effectively means, rising spending power of the people. This has also helped the wine industry in widening its consumer base. Q-3: Why have French firms dominated this industry in the past Ans: French wine industry is one of the oldest wine industries producing the finest qualities and having a big share of the wine market. Though the French industry was projected to see a slowdown in production for the period 2000-2005, but wine continues to be a major drink and after some slack in production levels it has once again picked up. It's a fact that France is a major supplier of wine to Europe closely marked by Italy and Spain. With the consumption of wine being much more than beer and other spirits, French industry has a huge domestic market to serve, in addition to the export markets. French firms have dominated the wine industry because of the quality and aroma that comes to French wine from different regions in France. Terroir, the unique French identity in wine provides an edge to French wine industry. There are more than 100 french wine terroirs to cater to the industry. Wine making in France involves The choice of the terroir The climate (and the date of harvest) The choice of the grape-variety, it is determinant The type of container in which the fermentation will take place The temperature at which the juice of grape is maintained during the fermentation The fermentation period The type of container in which the maturation will take place France is also blessed with different wine regions like Alsace, Bordeaux, Burgundy, Champagne, Ctes du Rhne, Languedoc-Roussillon, Loire Valley, Provence, Corsica, and South West. French government too has taken firms steps towards improving the quality and standards of wine in the country. Rules on irrigation to the type of barrels that the industry must use to the information displayed on the bottle labels are some of the steps the French government has taken. French government has also punished some of the errant producers as well while encouraging the wine industry. The industry is one of the money spinners in revenue earning for the French government. Q-4: Why have new world companies been so successful and how has the industry structure evolved over the past few decades Ans: Though the wine industry is a labor intensive industry, requiring lot of patience as well for the duration of fermentation, distilling etc. But it is a lucrative industry as well, because the product that comes out has a long life and minimal maintenance. For this very reason, there are so many players in the industry with reasonable success. Over the past decade globalization has established itself as the most acceptable regime for the business ventures to succeed. Now companies are on the lookout of market while countries are on the lookout of quality products at competitive prices. Globalisation has been in existence for quite a while. In the early ages it was essentially limited to business and trade. But with the beginning of the new form of market driven governments, globalisation has filtered down to almost all walks of life like, media, culture, and of course the trade and business practices. If the European market appears saturated, there's huge potential in the thickly populated South Asian region. Therefore companies have stared exploring this market as well. Now instead of focusing on marketing their products, wine companies are entering into strategic alliances with regional companies, airlines, hotel chains etc. The industry also saw trends towards consolidation before reaching out to newer markets. Wine being an agricultural product, now companies are taking adequate precautions not to base all their hopes on one particular market and production site. This way some of the losses arising out of production dips at one site could be compensated from the other unit located in some other region/ country. Increasing emphasis towards establishing brand identity has become the mantra for quality improvements and customer care. Increasing competition in the globalization era bodes well for the wine industry in the long run. Exhibits Exhibits can be placed here from the case study itself. Read More