Strategic Management: Coopers Creek Winery - Essay Example

Strategic management case study: Coopers Creek winery of the of the school] The following paper provides strategic analysis of Coopers Creek winery - one of New Zealand's more successful mediumsized companies established in 1982. The analysis includes the competetive framework of Porter's Five Forces followed by industry analysis of political, economic, socio-cultural, technological environmental and legal factors. Further discussion of the winery's strategic position is emphasized within a life cycle analysis as well as defining and evaluating critical success factors necessary to compete in the winery industry. I. Competetive analysis: Porter's framework To identify whether the product of Coopers Creek has the potential to be profitable on the New Zealand winery market, Porter's Five Forces Analysis is conducted in this section. This analysis is useful, because it helps to understand both the strength of current competitive position, and the strength of a position the company is looking to move into. Graph 1 Porter's Five Forces The threat of new entry At the early maturity of the industry's lifecycle, the number of new entrants into the smaller production end of the industry continued to grow. However, concentration was occurring among the medium and large players as a result of both local acquisitions and acquisitions by overseas purchasers. The newer producing countries, such as Chile, are perceived to be the bigger threat due to rapid advancements in production quality. Buyer power The demand for the wine in the domestic market and in the international market was growing since the establishment of the company. We can see that from the fact that in 1998 from 120 tonnes of grapes crushed and less than 1 per cent export volume to 670 tonnes crushed in 1999 and greater than 49 per cent export volume, growth was achieved with minimal comparable overheads and infrastructure. The export figures testify that the growth of the buyer power is increasing over the time. According to the case, domestic customers value particular winery and vineyard labels while export customers are considered to be more price sensitive because they lack this local knowledge. Coopers Creek's own branded product was the winery's focus and, in 2000, it was anticipated that it would sell more in the USA than in the UK. The owner of the winery was concentrating on the development of a small number of markets and selling a broad range of higher margin wines in the on-premise segment. This focus allowed the company to reach consumers willing to pay more expensive prices as New Zealand wines became a permanent category on restaurant wine lists. Supplier power This factor defines the ability of a supplier to control the cost and supply of the inputs in the market. With the management of the quantity and quality of the grape supply proving to be a critical resource issue within the New Zealand industry, investment in plantings are important for the industry as a whole. In order to be successful and sustain profitability in the market, wineries are obligied to reduce costs of production by investing extensively in their own vineyard plantings. Over supply of the wine that takes place in the industry when the harvest is better than previewed, leads to production of lower-cost wines, either by growers forming a cooperative to utilise the excess grapes and produce their own wine or by wineries focusing on low-cost competition. It is anticipated that a low-cost competitor would affect the export market more than the domestic markets. Major decisions in the production of the wine are made at the supply stage and sometimes this involves the buying of bulk wine from other New Zealand producers to keep supplies going. For example, Tesco's in the UK wanted to do a summer price promotion in 1997 on a New Zealand wine. When one of the larger New Zealand wineries failed to respond, Coopers Creek took up the challenge, although it did not have all the wine to meet Tesco's requirements. The company sourced additional wine through a commodity purchase from some local companies and even made some money from the wine purchase. Threat of substitution There are a number of domestic and international competitors that threaten the company's ability to supply the product and to substitute it with identical products (see the next section). Competitive Rivalry Historically, the New Zealand industry had a small level of international ownership of wine companies. However, international wine companies from Australia, France and the Americas were becoming more active globally and in New Zealand. Of the original top 4 larger producers in the New Zealand wine industry, Corbans, Montana, Nobilo and Villa Maria, only one had been partly overseas owned in 1997. By 2000, only Villa Maria remained 100 per cent New Zealand owned. Whilst this international interest was motivated by portfolio ambitions, risk spreading and issues of market access, perhaps the key reason was to gain access to New Zealand's unique growing conditions and the local industry's technology, skills and talent. On the one hand, this could strengthen the resource base behind the New Zealand industry and facilitate access to increasingly concentrated distribution channels in Europe and the US, but, on the other hand, it could impact on New Zealand's unique position in world markets. Competition in the domestic marketplace is intense: there are four local competitors in the Wst Auckland area with whom the company is working in a collaborative manner. However, there is still a threat of competition between these rivarlies. In international market the competition for sales and market share is seen by New Zealand wine companies to be from other countries rather than from individual firms. II. Industry analysis: PESTEL framework Political There is a law called Food Regulations Act and the Food Act that all the wineries should refer to when producing the wine. Basing on this law, the Ministry of Health can suspend exports of the wine for certain wineries once the law has been breached. In March 1998 for example came an accusation that Coopers Creek had, in 1995, altered the composition and labelling of an export wine in breach of export regulations. In the media lax rules were blamed, together with a lack of government funding to police the compliance requirements of three different laws facing wine producers. The Wine Institute publicly expressed its concern that sloppy monitoring of wine producers was leaving the industry open to abuse and announced that it would take a more active role in policing wine standards and would act to safeguard wine authenticity. Economic The New Zealand wine industry accepted the consequences of the liberalisation of the domestic economy and recognised 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 1980s ($4.5 million in exports in 1987), New Zealand wine exports achieved phenomenal growth and accounted for $168 million in 2000, comfortably exceeding the $100 million by 2000 target set in 1997. The UK market was the most important export market for the industry in 2000, 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 UK. Four large firms, namely Corbans, Montana, Nobilo and Villa Maria, dominated the wine industry in New Zealand in 1999. The following year, Montana purchased Corbans and Nobilo was bought by BRL/Hardy of Australia. Between them, these large firms accounted for around 80 per cent of all exports in 2000, 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 a much higher export intensity. Technological Within the international marketplace there is cooperation betweeb the wineries, with industries across countries sharing information and learning about new techniques and processes. This international learning is achieved often through informal means. For example, Coopers Creek organises exchange visits by producers and sent its winemaker to spend the off-season in Northern Hemisphere wineries to build connections and to benefit from low-level technology exchange. Environmental Due to the industry specific requirements to produce wine during specific periods of the year, the adverse wheather conditions is an important environmental factor that infulences the amount of the supply of wine. For example, rising grape prices in the 1992, 1993 and 2000 seasons were due to poor yields. Legal Winery industry was highly regulated by a number of laws back in 80th when the company was established. By 1984, the New Zealand government had initiated a programme of deregulation, which included devaluation of the New Zealand currency, exchange rate flotation and general anti-inflationary measures. All New Zealand winemakers had to belong to the New Zealand Wine Institute. In order to sell wine, companies were legally obliged to acquire a licence and take out membership of the Institute. The Institute acted as a self-regulatory body for the wine industry. Among its regulatory activities, the Institute administered the Ministry of Health's export certification procedures, which involved chemical testing and blind tastings. In 2000, there were 293 members of the Wine Institute, with the majority comprising small, 'boutique' wineries. III. Key success factors A critical factor in the success of Coopers Creek is the ability to build relationships with suppliers and competitors, within the context of an innovative and flexible approach, in order to leverage critical resources to pursue growth. Coopers Creek established collaborative relationships with a group of four local competitors in the West Auckland area. These relationships were formed in 1990 on the initiative of Andrew Hendry who, on a visit to Australia, observed some Australian wineries collaborating locally. This group of Auckland companies regularly gathered in an informal committee to decide on their next collaborative efforts. Sometimes all five companies were involved, at other times only two or three went ahead with particular initiatives. The West Auckland group initially came together for joint advertising and promotions, increasing the custom from retailers, restaurateurs, wine vendors and visitors for the group of wineries beyond what they could achieve individually. The success of these marketing initiatives led to collaboration on the production side of the companies' operations, sharing equipment and processes like grape crushing at key times. Investigations made to collaborate on joint purchasing of key inputs, like barrels, corks and bottles, resulted in Coopers Creek sharing the costs of container-loads of barrels with three other wineries. Another key success factor that served the company and the industry to succeed in the competetive environment is a focus on horizontal or competitor-based cooperation. This cooperation meant collaborative efforts and avoidance of anti-competitive behaviour. According to Andrew Hendry, there were very few secrets in the wine industry as transfer of technology and know-how between wineries was highly developed and was a source of national competitive advantage for the industry. In international market the competition for sales and market share was seen by New Zealand wine companies to be from other countries rather than from individual firms, however, even within the international marketplace there was cooperation, with industries across countries sharing information and learning about new techniques and processes. This international learning was achieved often through informal means such as organisation of exchange visits by producers and spending the off-season in the competitors' wineries to build connections and to benefit from low-level technology exchange. IV. Recommendations Setting up strong relationships with few suppliers, fixing up the prices; Evaluating capital opportunities in order to ensure funds availability in case of poor yields of grape; Welcoming investors as the way to expand the business and inmprove credibility of the company on the domestic as well as on the international arena; Locking investments in for the long-term economic good of the industry and the country; Strive for self-funded, relationship-based approach to growth, namely the strong reliance on scarce resources on an annual basis. Purse new opportunities and new markets maintaining a focus on building relationships with few domestic producers and international producers once setting up on the international market; Evaluate the possibility of acquisition by investors as the way to grow and expand, as the way to increase the customer base. Read More