Coopers Creek and the New Zealand Wine Industry - Essay Example

Case Study: Coopers Creek and the New Zealand Wine Industry Today, international marketing is proving to be of ever-increasing importance to companies of all sizes, to their customers, and to national economies. Worldwide, most companies are now selling to, using materials or equipment from, or competing with products from other nations. For many companies, including middle-size enterprises, international sales provide additional profits and are all that enable some companies to make any profits at all. Consumers worldwide are familiar with international brands and additionally are using locally produced goods that include materials or components supplied from abroad. National and regional economic health and growth have become increasingly dependent upon export sales as an engine of growth and as a source of the foreign exchange necessary for the import of the goods and services (Johnson, Scholes, 1998). Each year, wine and spirits worth more than $1 billion are exported from New Zealand, Italy, and other European countries to all parts of the world. New Zealand Wine industry depends upon international economic environment that affects its prosperity. “New Zealand wine exporters achieved phenomenal growth and accounted for $168 million in 2000, comfortably exceeding $100 million by 2000 target set in 1997” (Case study). In New Zealand, the structure of the wine industry is quite complex. An intermediary plays an important role that varies according to region. All winemakers belonged to the New Zealand Wine Institute and had to acquire a license to sell wine. Some wine producers sometimes act as brokers and have stand­ing contracts to buy specified quantities of finished wine on behalf of various importers. They also buy grapes from growers to make their own wine, blending and bottling them under their own labels. Wine may be bottled and packed in cases by the producer. “Some institute members with export interests in specific markets had established special interest groups… to develop marketing plans and ... exploit export opportunities within the chosen market” (Case study). The global market was divided into two parts: Tier 1 represented UK, the USA and Australia, and Tier 2 where there was a smaller presence including Canada, Ireland, Japan and Germany. Coopers Creek is a medium-sized New Zealand winery that successfully competed on the international market and achieved initial growth and development. The initial success factors include cooperative relationships with export markets, the competition “for sales and market share was seen to be from other countries rather than from individual firms” (case study), sharing of information and technology between international wine producers, buying wine form other wineries to meet export demand, considering the requirement of each export market, sales through appointed agents. Cooperative relationships with export markets helped Coopers Creek to obtain a strong position on the market and create its brand image. The internationalization occurring is seen as resulting from a combination of factors in the home country market, the (prospective) host country market, the global environment, and characteristics of individual firms. A small home country market like they New Zealand one and competition from outside tend to encourage Coopers Creek to consider exporting and entering foreign markets. Coopers Creek is engaged in a network of business relationships comprising a number of different firms - export distributors, agents, foreign customers, competitors, and consultants as well as regulatory and other public agencies. These business relationships are connected by networks, where the parties build mutual trust and knowledge through interaction, and that interaction means strong commitment to the relationships (Hophe Woolf, 2003). One of the most dynamic environmental forces affecting Coopers Creek’a marketing strategy is competition. Coopers Creek saw a country’s market conditions as a major factor of competitive behaviour. Coopers Creek seeks and finds a function in order to maintain itself in the marketplace. It occupies a position which in some respects is unique such as location and product (Crawford, 2003). The result of strategy employed by Coopers Creek is the establishment of a differential advantage that gives Coopers Creek an edge over what others in the field are offering. In this situation understanding and managing cultural differences leads to innovative business practices and sustainable sources of competitive advantage. Competitive advantage of Coopers Creek lies in selling its products effectively. Thus, Coopers Creek has a way to develop and manage knowledge as pan of its competitive advantage. In determining what knowledge to manage Coopers Creek first has a clear strategic direction for itself. This means that Coopers Creek focuses resources on core skills rather than trying to develop knowledge and skills in a broad range of categories. “Coopers Creek’s strategy was based on having a carefully controlled , but finite quantity of wine to sell any other years. The company considered the requirements of each market for certain wine styles, and as the grapes came in, it looked at the targets, the price points and the maintainance if quality standards in each market” (Case study). Coopers Creek decided that it could gain competitive advantage by dedicating its knowledge base at the distribution and marketing points and concentrated on superior dealer service (McDonald, Christopher, 2000). Porter’s 5 forces (Porter, 1985) is a useful tool to assess competitive position of a firm on the market. Five forces include: the threat of entry of new competitors (new entrants); the threat of substitutes; the bargaining power of customers; the bargaining power of suppliers; the degree of rivalry between existing competitors. New entrants to an industry bring new capacity, a desire to gain market share and position, and, new approaches to serving customer needs. The decision of Coopers Creek to become a new entrant in the UK and US wine industry was accompanied by a major commitment of resources. The major barrier, economies of scale, refers to the decline in per-unit product costs as the absolute volume of production per period increases. In this situation, in the USA “Coopers Creek had changed to a larger distributor with expertise on-premise representation, being one of the top three distributors in New York” (Case study). Product differentiation, the second major entry barrier, is the extent of a prod­ucts perceived uniqueness. By Coopers Creek, differentiation is achieved as a result of unique product attributes and effective marketing communications. For instance, in the UK market, New Zealand wines became a permanent category on restaurant wine lists. A second force influencing competition in an industry is the threat of substitute products. The availability of substitute products places limits on the prices market leaders can charge in an industry; high prices may induce buyers to switch to the substitute. For Coopers Creek Australian and Chelan wines were the main competitors, proposing low cost products to the UK and US consumers. The ultimate aim of such buyers is to pay the low­est possible price to obtain the products or services that they require (Ennew et al, 1993). Usually, there­fore, if they can, buyers drive down profitability in the wine industry. To accom­plish this, Coopers Creek had to gain leverage over their vendors. One way Coopers Creek did this was to purchase in such large quantities that supplier firms were highly dependent on the buyers business. Also, a source of buyer power was the willingness and ability to achieve backward integration. Supplier power in the wine industry was the converse of buyer power. In the New Zealand, suppliers had enough leverage over industry firms, and could raise prices high enough to significantly influence the profitability of their organizational customers. This did not a great impact on Coopers Creek because of its production and organizational structure of business. According to M. Porter, suppliers ability to gain leverage over industry firms is determined by several factors. Suppliers will have the advantage if they are large and relatively few in number. Second, when the suppliers products or services are important inputs to user firms, are highly differentiated, or carry switching costs, the suppliers will have considerable leverage over buyers. Suppliers will also enjoy bargain­ing power if their business is not threatened by alternative products. These factors did not have a great impact on international activity of Coopers Creek and did not influence its position on the world’s wine industry. The next force is rivalry among firms within the industry. it refers to all the actions taken by firms in the industry to improve their positions and gain advantage over each other. For Coopers Creek rivalry manifests itself in price competition, advertising battles, product positioning, and attempts at differ­entiation. To the extent that rivalry among wine distributors occurs, it is a positive force. In “Tier 1” countries competition between existing competitors is fierce (Porter, 1980). Another strategy that helps to determine key success factors of Coopers Creek is generic strategies. Generic business strategies based on the two types or sources of competitive advantage: low-cost and differ­entiation. The combination of these two sources with the scope of the target market served yields four generic strategies: cost leadership, product differentiation, cost focus, and focused differentiation. The main success factor followed by Coopers Creek is focused differentiation. On the international market Coopers Creek focused on on-premise segment (including restaurants) and supermarket chains (primarily Tesco). This strategy aiming at the achievement of competitive advantage and supe­rior marketing strategy demand that Coopers Creek made choices. The choices concern the type of competitive advantage it seeks to attain (based on differentiation) and the market scope within which competitive advantage was attained. For Coopers Creek differentiation focus was an effec­tive strategy for defending market position and obtaining above-average finan­cial returns. Coopers Creek was extremely successful pursuing focused differentiation strategies backed by a strong export effort. Competitors diminished their advantage by trying to sat­isfy the needs of a broader market segment—a strategy which means a blunter focus. Also, focus was sustained because competitors could not overcome barriers that prevent imitation of the focus strategy, and because consumers in the target segment did not migrate to other segments that the focuser did not serve. ”Andrew Handry was concentrating on the development of a small number of markets and selling a broad range of wines in the on-premise segment” (Case study). Sharing of information and technology between international wine producers was one more success factor. Technology transfer was viewed as the sending of new seeds, processes, and production inputs from one country to another. In addition to the technology, international producers benefit, 1990). PEST analysis is another tool that helps to determine and analyze success factors. The macro environment contains a range of influences that affect not only an organization in an industry, but also the whole industry itself (Johnson, Scholes, 1998). Political /Legal factors: Recent development in the UK law has a negative impact on Coopers Creek’s international activity. In order to protect themselves, by 2000, the configuration of the UK Wine Guild “had changed and, with the end of government funding, the board of directors was disbanded and control came under the function of the Wine Institute. … according to Andrew Hendry, this strategy resulted in the loss of feeling of involvement in the Guild” (Case study). Economic Environment in Europe and the USA is marked by stable development. Low inflation rates, exchange rate stability, government budgets and the record of growth were the main advantages of wine market. This proposes a great opportunities for Coopers Creek with little economic risk. Social/demographic Unemployment rate in Europe is not high, and demographic situation did not a great influence on wine market. Technological factors/resources: Innovation in production technologies and computerized system of supply chain was the main opportunity for Coopers Creek’s. Knowledge sharing and resource-based view helped to achieve competitive position on international markets. Sales through appointed agents and personal involvement of Andrew Hendry could be seen as another success factor. The functions performed by agents were basically the same as those carried out by the domestic-based marketing agency of the same type. These foreign-based outlets were granted exclusive rights, there was every reason to expect that they would put extra effort into promoting the sale of a manufacturers products. All the rewards of this extra effort accrued to them rather than having to share with other agencies (Evans et al, 2004). Personal involvement Andrew Hendry helped to create a strong image of Coopers Creek. “Andrew Hendry visited his overseas importers on a regular basis spending 12 weeks per annum overseas, as much overseas contact as any other New Zealand winery regardless the size” (Case study). Regular visits encourage the agents to focus attention on the brand and strategic planning developed by Coopers Creek marketing team. As Coopers Creek was committed to direct export, then using exclusive agents was the easiest and least costly way of doing it (Stone, Jacobs, 2001) Taking into account the facts mentioned above, Coopers Creek’s initial success on the international market was caused by a number of factors including stagger and tactical personal involvement of Andrew Hendry and appropriate value chain for middle-size enterprise like Coopers Creek. Cooperative relationships with export markets, focus differentiation strategy and careful consideration of the requirement of each export market were the major factors of success. The initial growth factors of Coopers Creek include network-based strategies, resource leveraging via network of cooperative relationships with other winemakers, innovative and flexible approach to leverage critical resources, collaborative relationships with a group of four local competitors in the west Auckland area, a focus on horizontal or competitive-based cooperation and avoidance of anti-competitive behaviour, supply of grapes form own land, long-term contracts, three market segments including liquor stores, supermarket sales and on-premise sales, crush capacity, cost difference, reducing administrative costs, servicing of the export market, commissioned sales representatives. (Boone, Kurtz, 1992) Horizontal integration refers to development into activities which are competitive with, or directly complementary to, a companys present activities. The strategic logic behind horizontal development applied by Coopers Creek was typically to gain leverage and market power over suppliers and buyers. Higher volume generally con­fers greater scale economies in purchasing whereas larger product market share confers greater pricing power over customers. “Technology and know-hoe between wineries was highly developed and was a source of a national competitive advantage” (Case Study). For Coopers Creek horizontal development was a move resulting in higher market share within the same markets. It was difficult to open the business press without encountering details of a proposed or progressing merger or acquisition. In a merger the shareholders of a group come together willingly, to share the resources of the enlarged (firms, with shareholders from both sides. Another reason for competitor-based cooperation was the lack of knowledge and resources to develop a strategy internally. Achieving national cooperation was also about ensuring, when planning any innovation, that its implications on other aspects of policies and practice were fully considered and that further thought is given on how it could support those policies or practices. The aim was to adopt a more systematic approach by bundling poli­cies and processes. Horizontal cooperation meant aligning performance management strategies with other strategies concerned with valuing, paying, involving and developing people (Tayeb, 2000). SWOT (strengths, weaknesses, opportunities, threats) is used to analyze position of a firm on a particular market. It allows to examine the position of a company at a particular moment in time. The microenvironment comprises the industry in which the busi­ness competes. Coopers Creek operates on the dynamic market where the main objective was to maintain the high level of products quality and develop strategies to improve services (Johnson, Scholes, 1998). The strength of Coopers Creek was that it’s wines obtained a very competitive position on the national market. The brand had a hard core of loyal supporters, and developed lines of services to satisfy the needs of wide audience. Coopers Creek maintained high-speed growth through continuous optimization of its products mix and constant technological innovation. This was achieved through competitor-based cooperation and absence of anti-competitive behaviour between national firms. In general, as a middle-size enterprise Coopers Creek was well-positioned to take on this important leadership role in the New Zealand market. It has the resources and certainly has the technological capability. Knowledge and technology sharing was considered as a strength of Coopers Creek. Coopers Creek competed on both a price and a non-price basis. The strength of the company was that it was an expert and leader in the wine industry. Its marketing challenge was to position service offerings as the high quality, high value-add alternative. Another strength was people employed in the company (Dow, 1999). Coopers Creek maximized each employees potential as an individual and as a team member. Supply of grapes form own land was the major strength of Coopers Creek. Leadership of Andrew Handry supported corporate culture and communication. Without the direct participation and support of Andrew Handry leadership, this power could not be pushed to its full potential. His leadership required many of the characteristics common to all leaders, but also required special abilities to manage Coopers Creek in rapidly changing environment. Effective management was at the heart of organisation development and improved performance. The process of management, however, took place not in a vacuum but within the context of Coopers Creek setting. Applications of organisatinal behaviour and the effective management of human resources were upon the nature of the industry, and culture and climate of Coopers Creek. This strategy helped Coopers Creek to grow rapidly and achieve strong market position in a short period of time. Also, strengths of Coopers Creek were closely connected with situation on the New Zealand Market. “The wine industry strategy was to retain a fosuc on quality, differentiated product, hold its premium price position, play to its strengths in white wines and introduce more red wines into its portfolio” (Case study). Market segmentation, including three markets such as liquor stores, supermarket sales and on-premise was the strength. A major strength of this market segmentation was that it generated specialization. At the same time, segmentation involved costs, risks, and possible weaknesses in some cases, especially where accessibility was not easy. The main weakness of Coopers Creek was seasonality and the necessity to invest in vineyard plantings. Technological forces generated problem-solving inventions. The major eakness of the business was that it depends upon weather conditions. Also, in order to compete and sustain brand image Coopers Creek had to avoid low-cost competition. New regulations, standards and monitoring of wine producers passed by the wine Institute in New Zealand was also a weakness for Coopers Creek demanding to introduce technological changes and innovations. The opportunities of Coopers Creek included: high potential to growth and profitability of the company; promotion to other wines; improvement of services. There was a danger of ignoring the environment, as customers and their needs, competitors, changes in technology, etc., could play an important role in determining competitive success. From the economic side home improvement Coopers Creek had to spend its own resources in order to meet the requirements focusing on technological efforts and productivity. For instance, “the batch production system was well set up to produce in 25-30 tonne lots, a modular approach based on grape truck load capacities”, that gave Coopers Creek the major competitive advantage (Case study). The cost difference when installing the crushing plant was another opportunity for Coopers Creek. If “the production rose much above those levels, then the company would be moving into high administrative costs and away form quality based wines” (Case study). These technological advances were aimed to maximize security and fasten the process of production. Also, it allowed Coopers Creek to react faster delivering customer satisfaction. Technology replaced traditional methods of betting business, and caused growth of operations. Long-term contracts was considered an opportunity for Coopers Creek allowing the company to obtain stable competitive position of the market (Sterman, 2000). Competition from the newer production countries such as Chili was the major threat for Coopers Creek. The market was very fragmented in terms of supply, with a large number of smaller operators being characteristic. The majority of businesses offered products to a relatively small geographical area, particularly in the retail segment (Axelsson, Hеkansson, 1986). Consolidation was an ongoing process in the sector. The threat can be explained by the rapid advancements in production qualities. The threat of local competition was waning, but at the same time, potential synergies were decreasing. Another threat was the government policies towards devaluation of the New Zealand currency exchange rate and anti-inflation measures, and openness of New Zealand domestic market. In order to overcome these threats, Coopers Creek started international activity exports to “Australia, the US, Japan and the rest of Asia” (case study). Negative publicity prevented Coopers Creek from rapid growth. While some entrepreneurial innovations and technological changes have resulted in products and services meeting existing market needs, others have resulted in the creation of new demands (Clarke, Dolan, 1984). The innovations and changes have created new opportunities for Coopers Creek, while creating challenges and threats to other companies. Primarily, resource leveraging was the main factor determined growth of Coopers Creek. Purchase of the land in 1980 and ownership of 71.5%of the shares of the business. Collaborative relationships between Coopers Creek and four local competitors took the form of partnerships. This West Auckland group “initially came together for joint advertising and promotions, increasing the custom from retailers, restaurants and processes like grape crushing” (Case study). Building on its initial successes in the manufacturing and marketing of portable radios, Coopers Creek had grown into a superb marketer whose name is synonymous with a wide assortment of high-quality wine. Collaboration also occurred on the production side including equipment and process sharing. The recent changes included international distribution changes and own branding products. On the international arena Coopers Creek decided to sell more in the US than in the UK market. Andrew Hendry focused on-premise segment that allowed Coopers Creek “to reach consumers willing to pay more expensive prices as New Zealand wines became a permanent category on restaurant wine lists” (Case study). In this situation, the reasons include complete control over the marketing channel between nations, and the nonavailability of Coopers Creek’s agents capable of assuming all the duties of an exclusive distributor. In the UK, Coopers Creek’s “sales commenced with two new UK retail groups, the supermarket Aldi and a buying consortium” (case study). Own branding products helped to create a core of loyal supporters on the wine market and compete with international firms. In this situation, much depended upon the competitiveness of the new product to those already handled by the intermediaries. Henry Mintzberg discovered that strategy formulation is typi­cally not a regular, continuous process: "It is most often an irregular, discontinuous process, proceeding in fits and starts. There are periods of stability in strategy devel­opment, but also there are periods of flux, of groping, of piecemeal change, and of global change." (Mintzberg, 1987). This view of strategy formulation as an irregular process reflects the Coopers Creek’s tendency to continue on a particular course of action until something goes wrong. Coopers Creek was tended to follow a particular strategic orientation for about10 years before they make a significant change in direction. According to Philip Kotler’s theory the overall object of marketing is to ensure that the company obtains the reve­nues it needs to achieve its profit targets. Needs and wants were translated by Coopers Creek into demands for products from people who could and will pay for them. The production concept, which held that consumers favored those prod­ucts that were available and highly affordable, and therefore management concentrated on improving production and distribution efficiency by Coopers Creek. In 1990, core competences or distinctive capabilities were developed by G. Hamel and C.K. Prahalad. They were those who gave a detailed analysis of this phenomenon. The approach is inside-out, suggesting that businesses seeking competitive advantage must first examine and develop their own distinctive resources, cap­abilities and competences before exploiting them in their environ­ment. Prahalad and Hamel supposed that the relationship between core competences, knowledge and organizational learning is ". . . the collective learning of the orga­nization . . .". Later research also suggested that businesses cannot afford to be internally or externally driven. Instead, competitive advantage depends upon the ability of the organization to develop knowledge-based core competences which are essentially market-dri­ven strategies sensitive to customer needs, based upon organizational learning” (Hamel and Prahalad, 1990). For Coopers Creek this standpoint shares the use of any conceptual frameworks that assist in the pro­cesses of learning and the creation of new knowledge and product Bear in mind the information mentioned above it is evident that strategy employed by Cooper Creek included the determination of the basic long-term goals concerns the conceptualization of coherent and attainable strategic objectives. Without objec­tives, nothing else can happen. The adoption of courses of action refers to the actions taken to arrive at the objectives that have been previously set. The strategy of Coopers Creek contained three things. In order to achieve objective, Coopers Creek took the actions of creating strong national and international market position through cooperative activities. Coopers Creek proved the fact that to be effective, the company needed not always be a formal process. Studies of the planning practices of actual organizations suggest that the real value of strategic planning may be more in the future orientation of the planning process itself than in any resulting written strategic plan. In large, multidivisional corporations like Coopers Creek strategic planning was a complex and time-consuming. Research has revealed that organizations that engage in strategic management gener­ally outperform those that do not. The attainment of an appropriate match or "fit" between an organizations environment and its strategy, structure, and processes had positive effects on the Coopers Creek performance. References 1. Axelsson, B., Hеkansson, H. 1986. "The Development Role of Purchasing in an Internationally Oriented Company", in Research in International Marketing, Turnbull, Peter W. and Stanley J. Paliwoda, eds. London: Croom Helm. 2. Boone, L.E., Kurtz, D.L. 1992. Management, 2nd Edition, McGraw-Hill, New York. 3. Crawford C. Merle. 2003. 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