INTERNATIONALIZATION AS A STRATEGIC FUNDAMENTAL PILLAR IN

THE WINE SECTOR. THE CASE OF THE FOUR STRIPES WINERY1

Two years after the start of the crisis, Pablo Álvarez, CEO of Vega Sicilia, heard a
famous winemaker from Castilla y León say that "he had been forced to export and that he expected
the worst part of the crisis to end, so that his wine would be drunk again in Spain. Bad start. I have been
asked several times why I travel so much if I sell everything what I produce ... and I always answer the same
way: if we have everything sold it is because we travel a lot". In Spain, he says, "the wine industry has
never moved so much wealth".
With an early harvest in a climatologically strange year, winemakers, distributors
and managers of wineries with certificate of origin share that optimism. The wine is going
well, maybe like never before, although it could be better.
Spain, with an area of 959,535 hectares, is the first country in terms of vineyard
cultivation area in the world. The 4,093 wineries and half a million holders of cultivations
generate a very dynamic economic ecosystem. The country is the third producer in the
European Union and the world's largest exporter by volume, a wealth that irrigates all the
regions in Spain and that is impossible to relocate to cheaper destinations. Foreign sales in
2016 and 2017 were around 3,000 million euros, setting a new record in that regard,
according to data from the Wine Market Observatory. And perhaps the best news is that
domestic consumption, for the first time in four decades, has slowed its decline to stand at
21 liters per person per year, according to the Wine Institute, compared to 60 liters in the
seventies. That was the real shock that transformed the industry: several generations
stopped drinking daily and the surplus had to be sold desperately. "We found that the wine
ceased to have the presence it had", acknowledges the manager of the certificate of origin
Navarra, Mr Jordi Vidal. The worst has come to an end, but the changes made do not
prevent that bitter aftertaste that Spain in the world of wine is still the little brother of
countries like France or Italy, with a great viticulture tradition (both in production and
export) and great roots for its national production.
"The truth is that we are producing the best wines in history," proclaims David Palacios,
president of the Spanish Confederation of Wine Regulating Councils, where 52 of the 69
Certificates of Origin are integrated. And also the worst wines, judging by the low prices in
bulk: exports in 2016 reached 2,915 million Euros, but at an average price of 1.06 € per
liter. France, which in volume sells slightly more than half that of Spain, earns 8,250 million
for its production and Italy, also with less volume, exports a volume of amount 5,600
million.
In Rioja, the certificate of origin that represents 41% of the value of wines with
protected indicative, they sell at an average price that exceeds by 128% the total average of
the market. "There are two great worlds, wine in bulk and the one with quality which is bottled" reflects
José Luis Lapuente, its director. "The bulks have their market, but it is not loyal, it moves at the stroke
of the moment. If you want to build a strong business model you have to think about capturing the added

1 Prepared for the Strategic Management course from original articles by María Fernández and Vidal Maté, published in the newspaper El

País on September 2, 2017, and corporate documents from the Cuatro Rayas winery hosted on its website http: / /www.cuatrorayas.es.

1
value". However, he admits that the country cannot convert all its production into quality
wine. There is also much to improve, thinks Rafael del Rey, director of the Wine Market
Observatory. "But believe me, the road is the good one. Spain suffered a huge drop in consumption during
the crisis, mainly in bars and restaurants. To the crisis it was added the regulatory change which caused that
a large part of the wine distilled with European aids, it stop being transformed, and it was necessary to
reconverted and channeled. It is now already solved."
Now the domestic demand increases slightly, between 2.5% and 4% per year, as a
result of a wider offer, a greater care in labeling and a better service in catering. But in the
surveys carried out at the Wine Interprofessional association, when talking about
consumption it is estimated that, in many cases, the drinker chooses other products, such
as beer, because he is sure of what he will find in the glass, while the same does not happen
with table wine, beyond the wines with a named brand or certificate of origin. Another
disturbing fact is that it is mainly men over 50 who really support the domestic market,
with very little presence of other demographic segments. Maybe that is the reason why
there are scheduled conferences such as the one organized by Lidl in Madrid under the
eloquent title: "SOS wine in Spain", to encourage consumption.

Source: Wine Market Observatory, Informs, El País (2017)

2
 "There is a lot pending to be done in order to rescue that culture that once it was established. Wine
has gone from being part of the diet to protagonist of moments of consumption a little elitist", recognizes
David Palacios. Young people, in that dream named reconquest, are at the center of the
target. But it happens as in Spanish tourism, we have been talking for decades about it,
recognizing that we have to expand the sun and beach model, but we never succeed. In
wine the discourse of seducing new generations is recurrent, although for now there is no
trace of those millennial´s delighted with a glass of wine. "We have a different message. We say:
the most important thing is that you like it"says Jordi Vidal. Beer, he says, has sought to sell itself
as an experience for certain moments."On the other hand, in wine we have complicated the discourse
for years, moving it as a complex drink in which one has to be introduce somehow after an initiation". In
Ribera del Duero they also talk about the necessary learning. "We know how to produce very well
and we do not know how to sell, as it has happened with olive oil, with ham ... we have to invest more in
promotion, education, in forming export teams", says Miguel Sanz, general director of the certificate
of origin. In the words of José Moro, president of Emilio Moro, everything begins with
ourselves: "The winemakers ourselves we have to believe it and know what we have". And he qualifies,
"we also have to know what the competition has".
The starting point is the recovery of consumption and the great external demand.
Ricardo Alcón, responsible for New Businesses of the Nielsen Strategic Management Consultancy,
notes the greater growth of the hospitality channel focused on quality wines, than other
traditional channels such as the large commercial distribution or the specialized store. "It is,
perhaps, one of the best news. In the food segment, consumption hardly falls. It is true that certain barriers
remain for young people to enter this world. The first is the taste, for those who are not use to it, it is
difficult to accept its taste. That's why the categories of fresh and easy to drink wines are growing." On the
supermarket shelves, there is an increase in low-grade products that help to recover old
uses, such as mixed wine, to encourage domestic consumption. It is the tendency to
simplify what it is complex in order to resemble to other categories which have grown
lately without stopping.
The demand for beer, an increasingly tough rival, already reaches 46.4 liters per
person per year. It is a market dominated by a few groups (Mahou San Miguel, Heineken,
Damm, Hijos de Rivera) with huge budgets for advertising and a huge social penetration.
"Wine is another story, and perhaps it is good that it continues to be so", according to sector
managers, to protect their land, the exclusivity and the variety that makes the country a
good producer.
The largest Spanish company, García Carrión (which has brands as Don Simón and
Pata Negra) does not manage to have a turn over around 700 million. The second in the
ranking is far below: Felix Solis (with brand as Albali) whose sells are just over 200 million,
according to information from the consultants Informa. Afterwards, we have four producers
who bill between 100 and 200 million. And at the bottom, companies like Segura Viudas,
Faustino, Ramón Bilbao, Barbadillo or Vega Sicilia, which have a turn over between 25 and 50
million. The truth is that between the 4% of the wineries obtain around 65% of the
exploitation income of the sector but in general, the size of this type of companies is quite
small. Anyway, despite the small size, Carlos Villar, director of Protos says that "we are very
profitable, in the crisis we grew double-digit in hospitality because of the refuge effect that occurred on our
brands" (when in times of crisis people has less money to consume, their purchases tend to
be much more conservative, that is, they tend to buy well-known brands, as it is the case of
Protos, which produces wines since 1927 and which was the first winery in the region that
today is known as Ribera del Duero).

3
Source: Wine Market Observatory, Informs, El País (2017)

There is another piece of information to reflect on, and that is that wine has hardly
received any external investment, at least not as other sectors. It is true that Changyu, the
Chinese emporium capable of manufacturing 400 million bottles with only one of its
brands has bought Marqués del Atrio in Rioja. Other funds have timidly bet on the land, but,
as summarized by Miguel Sanz, whoever wants to buy market share in Spain should buy
many wineries, and it is not easy. "The dimension of the industry is the reason why there is no
commitment to invest." Lapuente sees from Rioja the entry of Chinese or Russian capital in his
certificate of origin as something "that is not determinant nor does not it suppose a type of bias. We
are talking about an important structure group, so I see it more as a strategic partner. We could analyze the
phenomenon if there was a massive influx of capital, but for now it is testimonial." The reason is that,
in addition to certain glamour, to be a successful winemaker is a huge effort for the
necessary financial fixed assets. "You have to be very crazy to have a stock of three million bottles in a
warehouse waiting for them to age," said Muga, from Muga Bodegas a few months ago. The funds
need to visualize the profitability to digest the investment. On the other hand, the
companies of the New World, from Australia to Chile or Argentina, provide the market
with a commercial character and the English way of doing business, and so it have a more
attractive dimension for capital.
In this plural vision of the industry there are other realities, as indicated by Cristina
Alcalá, manager of the certificate of origin Ribeiro. "There is the most industrial part, with great
actors who make wines, grape juices, distillates, and then the wineries (many) of smaller certificates of origin,
which in export terms move slower. There is a huge variety of markets for many types of wine." China, she
values, is a country that grows and everyone wants to seduce, but, she warns, it is also
planting a lot of vineyards. What it will happen in five or ten years, when their new
grapevines are in production? "In addition, the knowledge is being carried to China by European
professionals. That is why I believe that we should never abandon the domestic market while breaking the
lack of entrepreneurial culture towards exports. The value of small certificates of origin is in the genuine, the
autochthonous, in the differentiating identity itself, because our wine will not be understood by all the States
of the United States, but it has its market. You have to know very well where you want to export and what
4
you're going to promote, that's the key." And cases like Ribeiro, with 5,000 wine growers and 115
wineries, we can find a few in Spain.
What you have already read are the lights of the sector. However, the Spanish is a
fertile land for the vineyard and for traps. The secretary general of Asaja in Ciudad Real, a
region in Spain, wondered this week how it is possible that producers were selling large
reserve and reserve wines "at 1.20 or 1.30 Euros". The agricultural union in Castilla-La
Mancha, the largest grape producer in Spain, has asked to intensify controls for another
year, as they a the suspicion of possible irregular practices in the wine sector within the
region: "It is not possible to have the same prices in wineries from different autonomous communities, as
all the grapes can not be equal. One can be stupid, but dumb year after year, no way," said his
spokesman, Florencio Rodríguez. The industry denies it. "Controls are extraordinary, not only
because they are common, but also because many certificates of origin have specific regulations and it have
very rigorous inspection services," they argue from the Wine Observatory. Here we have the
heads and tails of a world in pretty good shape. "Because there is also wine tourism," recalls
David Palacios: "We convey how this passion is made and passed on to the consumer, because the aftertaste
is not only in the wine, but in how good has been the experience".

Cuatro Rayas Winery: the commitment to internationalization as an

option for survival and growth

The Cuatro Rayas Winery of La Seca (Valladolid) began its activity in 1935, with the
aim of offering its customers high quality wines at a reasonable price. At present, it
produces almost 20% of the bottled wine of the Rueda certificate of origin (it is the largest
company within this certificate of origin), with an annual production level of around 15
million bottles. Its wines (mainly of the Verdejo variety) are leaders in the consumption of
white wine in Spain with more than two thousand customers in the hospitality and large-
scale distribution channels and also have a large presence in foreign markets (in more than
fifty countries).

The Winery Cuatro Rayas, leader in the production and marketing of white wine in
Castilla y León, closed the fiscal exercise 2016 with a record turnover in its more than eighty
years of history, reaching more than 27 million Euros in revenue, an amount 17 percent
higher than the previous year. The winery operates under a cooperative regime, in which its
more than 300 members contribute with 2,300 hectares of their own vineyards. The
company, headed by a manager, under the supervision of a president elected by a vote of
the farmer members, currently employs more than 70 hired workers and it has just
completed the construction of a new warehouse and a bottling plant. The new facility will
double the bottling capacity, and it was made because it was essential for the next launch of
5
new wine brands, and it will mean to improve the response time to winery customers, both
national and international. On the other hand, this investment has allowed the winery to
increase the profit margin per bottle produced by substantially reducing the costs of
electricity (the new installation is more efficient), the costs of glass and bottle labeling (due
to the economies of scale derived from the increase in production). In addition, during the
periods in which it is not used to bottle its own production, the facility is rented for the
bottling of other companies of different certificates of origin.

In 2016, Agrícola Castellana, the company's founding name, changed it to the name
of Cuatro Rayas Winery, which was the name how it was known by its customers, because
Verdejo Cuatro Rayas has been its most popular wine brand for decades. The winery
produces another thirty brands of whites, reds and rosés, a large part of them bottled for
large distribution companies such as Mercadona, Carrefour or El Corte Inglés thanks to the
signing of exclusivity agreements based on the prestige of their wines. Many of these wines
are often not identified as belonging to the winery by consumers, so a new corporate
emblem has been created, which it will be gradually incorporated into the wine brands to
improve its identification.

The more than 2,300 hectares owned by the Cuatro Rayas winery produce, in addition
to the verdejo variety, a wide range of wines of great variety (tempranillo, sauvignon blanc,
viura, fine palomino), among which there are young wines, aging, aging in barrels, vintage,
fermented in barrels or frizzantes wines of low graduation. Of all of them, in addition to
the two million bottled units (of different brands) for large companies in the distribution
sector (which, although they have a high market share, they provide little margin, so the
winery is gradually reducing its production until its total disappearance in 2020), it
highlights as the main products of the company the following:
• Cuatro Rayas (verdejo). More than 50 years ago, the best vineyards were located
at a point where four towns converge: La Seca, Rodilana, Medina del Campo and Rueda.
For this reason, this place was named as the Pago de las Cuatro Rayas, from which its
name comes. It is a young fruity white wine with a fairly contained price, but not
exempt of high quality. In 2016 almost 8 million bottles were sold for around 22
million Euros. Its market share in the white wine market is quite large and its
growth has been constant and it is growing each year.

6
 • Cuarenta Vendimias (verdejo). It is the star wine currently in the winery, a white
wine with a special selection of grapes which come from wines of around 40 years
old. With a higher price, it closed 2016 with sales of almost one million bottles for
around 3 million Euros. Its market share is relatively small, but its demand grows
every year.
• Vacceos (tempranillo). It is a red wine aged in oak barrels, very appreciated by a
small group of consumers who know it (who consider it a delicatessen), it has a
very low production and a very limited distribution. The fact that La Rueda
Certificate of Origin has opted for the production of white wines (95%) compared
to the rest of the varieties, makes this wine, whose price is really low, to have a very
small market share. The winery produces smaller series each year due to the
absence of demand
• Viñedos Centenarios (verdejo). Among its land, the winery owns a small part of
centenary vineyards planted in "glass" or "low foot" that, with a lower level of
production, are manually harvested. A premium quality white wine is born from
this well-taken care of grapes. It is a small and exclusive production born as a
tribute to the 75 years of life of the winery, which in 2016 had a production of
200,000 bottles that were sold at a relatively high price for nearly one million Euros.
Its sales have been stagnant for years, due to the fact that its production is limited
exclusively to vineyards over 100 years old (its extension is quite small). It is
distributed only through the hospitality channel in which it is a sales leader in its
segment and in May 2015 an agreement was reached with Iberia to offer it as a
premium white in the wine lists of its Business Class.
• Cuatro Rayas Ribera del Duero Roble (tempranillo). Red wine that spends 5
months in French oak and American oak barrels and many other years resting in
the bottle. It made its debut in May 2014, after a collaboration agreement with a
Ribera de Duero certificate of Origin winery located in Fuentecén (Burgos), which
facilitates a production of 25,000 bottles to the Cuatro Rayas winery, which only
has to label the bottles with its brand. Its market share is very small and these three
years has not experienced any growth. Therefore, with the intention of increasing
penetration in the market of red wines in 2017, the winery has brought to the
market, thanks to the acquisition of a small winery of Pedrosa de Duero (Burgos), a
second brand of Certificate of origin Ribera del Duero (to be sold under the name
Cuatro Rayas Cuarenta Vendimias Ribera del Duero), with a circulation of just over
20,000 bottles of a special selection of high quality tempranillo wine from forty-year-
old vineyards that will be sold exclusively for hospitality and specialized stores.

Cuatro Rayas has maintained a commitment to support the elite sport of its region
for a decade, both with the Club Baloncesto Ciudad de Valladolid and for the fourth
consecutive season the main sponsor of the Real Valladolid Football Club, which plays in La
Liga 123 (second Spanish division) and supporting in a similar way the Recoletas Atlético
Valladolid (ASOBAL handball league). It understands that all these clubs represent
exceptional showcases to promote their wines. In addition to the sponsorship of elite clubs,
7
it supports base sports in various modalities (i.e collaboration with the Liga de Futbol 7 for
companies in Valladolid) or events of wide popular roots (i.e. its collaboration with the
annual biker festival named Pingüinos, or its support to the celebration of the International
Women's Day, etc.).
Due to the economic crisis of 2008, it was decided to change the commercial
strategy, and so: it expanded its sales channels by making a clear commitment to
internationalization. So, it continues the strategic plan implemented at the beginning of this
decade. The results were that it tripled its presence in foreign markets in the recent years.
And the company intention is to continue with that degree of growth in the near future. To
this end, an important restructuring of the export department was carried out, multiplying
by five the number of professionals employed in it.
The winery has multiplied its presence in foreign markets since 2009. We must
highlight the increases in turnover in the Netherlands, Germany, United Kingdom, United
States, Mexico, France, Norway, Switzerland, Belgium and Japan. All the international
activities of the winery in these countries are directed from the headquarters at La Seca
(Valladolid). The next established goal is to get sales abroad reaching 30% of the total
turnover of the winery, by entering to the Scandinavian countries, in addition to achieving a
greater presence in the Asian market.
The winery began a couple of years ago to sell its wines in restaurants of high
gastronomy in Shanghai, Beijing and Guanzhou (China), through the establishment of a
company in China with 50% of Spanish capital, with a local partner of the sector of the
hostelry that is responsible for the promotion and marketing of the project (the productive
part and distribution strategy are carried out from La Seca). After Japan and Malaysia, and
after entering China, the next steps in Asia are focused on India, South Korea and Taiwan.
They have also begun to introduce small production to new destinations such as Russia and
Canada, through the opening of distribution offices owned by the winery, which are
expected to function in the future as commercial subsidiaries with their own autonomy and
adapted to the particularities of those markets In addition, since 2015, a strategy has been
implemented by introducing several of its premium wines in the menu of some
international airlines (the aforementioned agreement with Iberia, joined the one made for
the International Business Class of Air Canada). In short, in the last decade, sales of quality
bottled wine abroad have gone from representing a turnover of just over half a million
euros to nearly 4 million euros, mainly due to the increase in the number of collaborating
distributors in the United States, Mexico and Asian countries and the good performance
registered in some of the food chains that are used as the main distribution channels in
European countries.

8
QUESTIONS TO BE ANSWERED

1.- Make a brief x-ray of the winery sector in Spain, analyzing and pointing out the
following issues:

1.1.- The characteristics of the stage of its life cycle (emerging, maturity, growth or decline).

SECTOR BASIC
EXPLANATION AND DATA
CHARACTERISTIC

1.2- The degree of concentration / fragmentation of the industry based on the market
shares of the different companies or other variables such as income, assets and employees,
etc.
SECTOR BASIC
EXPLANATION AND DATA
CHARACTERISTIC

1.3.- The degree of internationalization of the Spanish wine market, analyzing the presence
and sales of Spanish wineries in international markets. What problems does the sale of
Spanish wine abroad have when compared with wine from other countries such as France
or Italy?

2.- Based on the matrix growth-market share of The Boston Consulting Group
(Matrix BCG) for the main products of the Cuatro Rayas winery, answer the
following questions:

2.1. Represent the matrix graphically and explain the conclusions that are drawn about the
future management of these products by the company.

2.2.- What is the generic competitive strategy carried out by the Cuatro Rayas winery? Is it
the same for all its products / businesses or are there variations?

9
 PRODUCT COMPETITIVE GENERIC STRATEGIES

Cuatro Rayas (verdejo)

Cuatro Rayas Cuarenta

Vendimias Ribera del Duero

Vacceos (tempranillo)

Viñedos Centenarios (verdejo)

Cuatro Rayas Ribera del Duero

Bottled wine for large

companies in the distribution
sector

3.- Regarding the Certificates of Origin (DO) of the food industry

3.1.- What is a Certificate of Origin? Point out some of the most relevant wine Certificates
of Origin in Spain.

The more representative wines Certificates of

Certificate of Origin explanation
Origin (10 examples)

3.2.- How important are the Certificates of Origin in the generic competitive strategies of
the wineries?

3.3.- How does Cuatro Rayas benefit from the use of the certificates of origin Ribera del
Duero to commercialize its products?

10
4.- Based on the innovation of the Cuatro Rayas winery:
4.1.- What type of innovation is the construction of a new warehouse and bottling plant in
the winery?

ACTION INNOVATION TYPE

Construction of a new warehouse

and bottling plant.

4.2.- Is the innovation strategy carried out by the Cuatro Rayas winery consistent with the
type of industry and the stage of the life cycle in which it is located?

5.- Complete the current Business Model of Ostelwalder & Pigneur (Canvas) of the
Cuatro Rayas winery.

6.- Cuatro Rayas winery commissioned a well-known consultancy firm to help

shape its growth strategy. Taking into consideration the following strategies, some
have been implemented and others not.
6.1.- Classify the different strategic growth alternatives recommended to the Cuatro Rayas
winery and determine if they have finally been launched or not.
11
 GROWTH WAY OF IMPLEMENTED
ACTION
DIRECTION GROWTH (YES OR NO)
To construct a new
warehouse and bottling
plant.
To enlarge the product
portfolio with the
manufacture and
commercialization of
cocktails and wine-based
combinations (Sangría).
To create wine tourism
activities in the facilities
of the winery itself.
To start production of
the Cuatro Rayas wine
Forty Grapes Ribera del
Duero.
To offer Cuatro Rayas
wines on Iberia and Air
Canada flights.
To rental the bottling
plant to other
companies.
To develop an internet
platform for online sales.
To buy a vineyard in the
Alt Empordà to make
wine with certificate of
origin Empordà.
Agreements with
different cheese factories
in Valladolid (Cañarejal
Cheese, Campoveja Cheese
Factory and Cantagrullas
Farm) to make pairs.
The make pairs between
wine and food is the
process of
metaphorically marrying
a food with a wine with
the intention of
enhancing the pleasure
of eating them.
To establish a collection
and recycling center for
glass bottles.
12
 An agreement with a
construction company to
requalify some rural land
owned by the winery to
convert it into a building
land to build 100 social
housing.

6.- Regarding to internationalization strategies, answer the following questions:

6.1.- Fill in the following chart referred to the process of internationalization of the
companies of the Cuatro Rayas winery.

WAYS AND
COUNTRY OF INTERNATIONALITZATION
MECHANISMS OF
ENTRANCE APPROACH
ENTRY
The Netherlands,
Germany, great
Britain and USA.
China

Russia and Canada

6.2.- Regarding its possible entry into the markets of four countries (Italy, Saudi Arabia,
Nigeria, Venezuela), the aforementioned consultant recommended not to enter them. What
was the main cause of this decision in each of them?

COUNTRY CAUSE OF REJECTION TO INTERNATIONALIZATION

Italy
Saudi Arabia
Nigeria
Venezuela

6.3.- Changyu is a leisure emporium, vineyards and vines that has the capacity to produce
400 million bottles a year of only one of its brands. Find information about this group and
analyze what has been its internationalization strategy in recent years.
BUSSINESS
COUNTRY OF GROWTH MECHANISM
YEAR ACTION
ENTRANCE DIRECTION OF ENTRY
DESCRIPTION

13