BS3100 – Strategy for Business
Week - 3
Module Leader: Dr. Senem Aydin
GLOBAL WINE WAR 2015:
NEW WORLD VERSUS OLD
Case Overview
■This case contrasts the tradition-bound Old World wine
industry with the market-oriented New World producers in
the battle for the Chinese wine market in 2015
■China’s wine consumption growth presented a large and
fast-growing export target that was extremely attractive for
both Old World producers burdened with oversupply and
declining demand and to New World winemakers faced with
rising costs and a deteriorating image
■Yet, changing Chinese market conditions and consumer
preferences require both sets of players to devise new
strategies to gain share in this fast-growing market
Characteristics of the Wine Industry
Global Wine War
■Rapid and dramatic changes to the global competitive
industry structure
■Entrenched competitors who had shaped the rules of the
industry and dominated it for two centuries saw their
competitive positions challenged and their market shares
seriously eroded in a few years
■Responsible were a group of new competitors
Discussion Question-1
■How was the Old World able to dominate the worldwide
wine trade for centuries?
Break-Out Rooms
■How was the Old World able to dominate the worldwide
wine trade for centuries?
■ Please discuss the possible factors with your peers
■ 5-minute discussion time
The Old World’s Dominance in the Wine Industry
Sources of Competitive Advantage
■Terroir: Suitable climate and soil for grape-growing
■Grape-growing experience: longstanding knowledge and
expertise in grape growing
■Wine-making skills: the French producers accumulated a
rich tradition of wine making
■Well-developed logistics and distribution
The Old World’s Dominance in the Wine Industry
Sources of Competitive Advantage
Natural and acquired capabilities gave the Old World
producers an enormous source of advantage as the export
markets developed during the nineteenth and twentieth
centuries
The Old World’s Dominance in the Wine Industry
Competitive Innovations
■Packaging innovations: The introduction of glass bottles,
the cork stopper, and pasteurization (➔ mass production,
longevity of the bottled wine)
■Developing differentiated segments: It was the monks
and then the aristocrats in France who first created the
differentiated “fine wine” segment
■Market positioning: The French AOC classification system
(➔ product classification and a guarantee of the quality)
The Old World’s Dominance in the Wine Industry
■Both competitive advantages and competitive innovations
contributed to building the image and reputation of the Old
World wine
Discussion Question-2
■How were the New World producers (e.g. Australia) able to
expand their market share so rapidly in the 1990s?
Break-Out Rooms
■How were the New World producers (e.g. Australia) able
to expand their market share so rapidly in the 1990s?
■ Please discuss the possible factors with your peers
■ 5-minute discussion time
“Judgement of Paris”
■Wine competition organized in Paris in 1976
■French judges carried out two blind tasting comparisons:
one of top-quality Chardonnays and another of red wines
(Bordeaux wines from France and Cabernet Sauvignon
wines from California)
■A Californian wine rated best in each category, which
caused surprise as France was generally regarded as
being the foremost producer of the world's best wines
➔ gave confidence to New World producers
NW Exports: 3% in 1980s NW Exports: 30% in 2000s
Grape Growing and Product Supply Capabilities
■Rapid growth in wine consumption in the New World in the
1970s and 1980s
■Suitable climate and soil for grape-growing without
unpredictability of weather (such as in Bordeaux and
Burgundy)
■Wide land availability unlike limited vineyards in Europe
■The introduction of production technologies such as drip
irrigation, mechanical harvesting
➔These capabilities significantly reduced the production costs!
Abilities in Wine Making
■No strict rules & regulations
➔experimenting for the best product and differentiating the
products
■Adopting new techniques and technologies such as reverse
osmosis
➔concentrate the grape juice for a deeper coloured, richer
tasting wine
■Adding oak chips to steel tanks
➔reducing the cost of aging
New Marketing and Distribution Practices
■No government-controlled classification system
■Clear and simple branding strategy
■Containerization (shipping a container of wine by ship from
Australia was similar to the cost of shipping cases by truck
from the South of France to the United Kingdom)
■Larger size of producers
➔scale economies to justify control of the full value chain
Chinese Wine Industry
■The decade’s most attractive market
■Wine became a prestige product ➔ top segment growth
■Domestic entry-level wine dominated most other
consumption
■With domestic production lagging demand growth, a large
import market opened up
Chinese Wine Industry
■Foreign producers had to navigate complex regulatory
requirements
■Chinese consumers moved to the middle market, Australia’s
simpler brands and good mid-priced wines became the new
favourites
■In 2015, Chinese wine imports reached €1.7 billion, with
France leading in value (45% import market share) and
volume (43%) but Australia, third in volume (14%) and
second in value (23%), was closing the gap
Discussion Question-3
■How did the Old and New World wine producers exploit
opportunities and respond to threats in the battle for the
Chinese wine market in 2015?
The Old World’s Responses to Threats &
Opportunities
■Using Hong Kong as the entrance point
■Forming Joint Ventures with local distribution agents
■Differentiating products and targeting premium segment
■Developing a wine culture among Chinese consumers
promotional events, tastings, and educational seminars
■In 2012, AOP (Appellation d’Origine Protégée) was
initiated as part of an industry modernisation plan
The New World’s Responses to Threats &
Opportunities
■Entering as a bulk producer of blended wines (➔ damaged
the image)
■Effort to become a renowned brand by investing in customer
education
■New austerity measures in 2012 became an opportunity for
the New World
The New World’s Responses to Threats &
Opportunities
■Becoming a sponsor for China’s National Basketball team
■Declining Australian dollar and a Free Trade Agreement
with China
➔boosted Australia’s higher-end prospects
■New high-status images and portfolios spanning many price
segments
Wrap up
■All industries are becoming increasingly challenged by
global forces that can change the industry structure in a few
years
■Responding to the change in the industry structure is
affected by not only industry forces but also by companies’
strategic mentalities that often become deeply embedded
and resistant to change
■A threat for an industry player can become an opportunity
for other players and vice versa
