New World Producers O Wine Quality example essay topic

TABLE OF CONTENTS 1. Introduction... 12. World wine producers...

13. World wine exports... 24. France productions, exports and international image... 35. Success of New World over the Old World: key factors...

46. Evaluation of different strategies... 5-86.1 Premium & Standard wine market 6.2 Creation of an accessible French brand 6.3 The Global wine company (acquisitions and mergers) 6.4 Appellation d'origine control ee and competitive disadvantage 6.5 Protectionism versus being marketing oriented 7. World wine market: long term predictions... 88. Conclusion...

91. Introduction International competition on the wine market is characterized by a considerable disparity of strategies used by the different producers and wine-producing regions around the world. The objective of this report is to provide an understanding of the competition mechanisms between countries which are traditionally exporters - the "Old World" producers, represented by European countries - and the so called "New World" countries which today compete for the supremacy of the traditional model of wine growing and production. 2. World wine producers The distribution of the world wine producers is clearly detailed in the map below.

The Old World producers are located in Europe. France, Italy and Spain are the main producers, followed by Portugal, Balkan states, UK and Germany. The European countries are still detaining a dominant position and they accounted for 70% of world production and consumption in 1999 (by data acquired by Euromonitor). The New World producers are scattered around the world and are represented mainly by: Australia, Chile, United States, South Africa, New Zealand, Argentina and Canada. 3. World wine exports The world wine export are still dominated by the Old World producers (see diagram below), with only three countries (France, Italy and Spain) which account for 60% of the world volumes exports in 2003.

Among the New World producers, the largest exports are coming from Australia, Chile and United States. Another interesting characteristic is showed by the diagram below: the value of wine in exports market are increasing at greater rate than volume. 4. France productions, exports and international image France accounts for 20.3% or the world wine production, with one third of domestic production exported to other European countries (UK, Belgium, Germany, The Netherlands) and outside Europe (major clients are United States, Canada, Denmark and Japan). In the most recent years, domestic sales of wine has declined constantly. The wine consumption is becoming more occasional.

This is partially due to an aggressive anti-alcohol campaign and driving restrictions set by the local government, but also facilitated by a lack of marketing strategy: the wine market is loosing touch with the youth (the average age of wine drinker is gone up from 35 to 55) and young people are getting more keen to beer or alcohol pops. Lowered domestic sales may result in a greater emphasis on exports, however the recent trend showed how French exports continue to loose market share to the New World (see diagram below). Global Trade Atlas-Global Trade Information Source 2004 Considering France international reputation and image, it is useful to analyse its strengths and weaknesses, taking into consideration the important differences existing between standard and premium market. Strengths: France remain quality leader in the premium market; its international image express Sophistication, Tradition and Charm. Weaknesses: There are many weak points to be addressed. The puzzling classification and labeling, the unreliable quality, the rigid "appellation d'origine control ee" which dictates strict rules on methods of production (see more details on par.

6.4). Its international image is often seen as intimidating, boring and old fashioned. 5. Success of New World over the Old World: key factors Question 1: "What accounts for the New World's success over the Old World's wine producers?" The following analysis aims to elucidate the main reasons accounting for the New World success over the Old World. We identified the following key factors: o Taste of wine: Many people like the sophistication of wine but not so much the taste; Old World provides a wine which taste need to be acquired (more acidic, dry and harsh) and the rigid appellation control ee does not allow manipulations (the only exception is the adding of sugar known as). The New World wine is by contrast easy to drink (less acidic, sweet and fruity), therefore appealing to a wider range of consumers. o Labels: Traditionally the labels of Old World wine are very cryptic.

They are in foreign language, denomination of wine is by place of origin (by naming the specific vineyard or "chateau" or the region where the wine has been produced, following the terror concept as "unique combination of subsoil and amount of days of sun and rain during the growing season"). New World wine labels are by contrast easy to understand. They are in English, with indication of grapes variety (i.e. Chardonnay, Cabernet S avignon, Merlot), and additional information like taste description and meal suggestions. With enticing attractive labels, New World wine is just more accessible and easier to understand than European wines.

Recently, some producers from the Old World has responded to the new consumer needs and starting to provide fully descriptive labels in english. o Image and brand: Old World wine hold a strong image only in the premium market The Old World needs to build a global brand and strengthen its international image for the standard market to compete with the strong image and wine brands created by the New World producers (places associated with sun, youth and fun). o Wine Quality: The unreliable and too often irregular quality of Old World wine is finding difficult to compete with the very regular quality provided by the New World. o High fragmentation: The archaic structure of production which still in place in the Old World is characterised by small family vineyards or huge cooperatives supported by government subsidies (and traditionally more preoccupied with maintaining low price rather than achieving better quality). In both cases their culture is far from the marketing orientation needed in the modern wine market. New World production is offered by few big companies with high capital and strong marketing orientation. o Expensive production: The high fragmentation and little scale of production does make difficult for Old World producers to be very profitable: often the costs are too high, allowing no margins to spend on promotion, market research and product development. They must compete with the large scale production of New World, always very cost effective and with large margins to invest in research and promotion. 6.

Evaluation of different strategies The remaining questions ask to evaluate alternative courses of action suggested in a discussion by the Bordeaux winemakers: we will analyse positive and negative sides of each strategy. 6.1 Premium & Standard wine market Suggested strategy: "Stick to what we have always been doing and build upon our unique terrier. After all the world's wine critics, wine enthusiasts and our local customers remain discerning and are loyal to our wines". Evaluation: It is important to distinct between Standard and Premium wine market.

Old World wines may have struggled to stop the advance of their New World competitors in the mass market - at least in non-producing countries such as the UK - but the premium market has largely remained dominated by French, and to a lesser extent, Spanish and Italian producers. "In the standard market, France's obsession with tradition and maintaining the status quo will result in the bankruptcy and collapse of many producers who refuse to recognize the competitive nature of the global wine market" (M. Parker, Jr., 2004). The approach would be successful in the Premium market where increasing demand of fine wine from such countries like Asia, South America, Central and Eastern Europe and Russia will make rise considerably top wine prices. The Premium market will see growing demand and profits. (Faced with declining margins from 'standard' wines, New World producers are also shifting their marketing focus to premium products- examples are Chilean drinks group CCU, establishing a joint venture with French wine maker Ch^a teau D'assault in 2001 for the production of super-premium wines in Chile and America's E&J Gallo with its recent efforts to enhance the equity of the UK's number one Californian brand, Wine Cellars, which has been re-launched under the new name Ernest & Julio Gallo Sierra Valley). 6.2 Creation of an accessible French brand Suggested strategy: "Adopt Australian methods of wine production and branding for international markets.

We must develop an accessible French brand, learning from British Diageo with their "Le Pi at d'Or" or American Australian South corp with "Vachon". Evaluation: Branding has proved to be a fund ament al factor for the success of New World producers. In order for wine producers to develop an international brand for French wine French government recently agreed to double financial support for the industry to EUR 15 m (lb 9 m). Consumer insight are inspiring the creation of accessible French wine brands that avoids the pretensions of the Old World to appeal to real people. In particular in the UK, one of the major key market for France wine exports, there has been an effort with the following brands and related advertisement campaigns: o Burgundy's logo and "Red Dress" ads Press campaign: newspapers, food and wine pubs Budget: lb 650,000 o Vin de Pays d'Oc: "It's all happening in the Oc " Transformation campaign: address region's lack of clear identity, used in UK Budget: lb 500,000 o Rh^one "Think Red.

Think C^ones du Rh^one". o French Connection has become the fastest growing French wine brand; it is now listed as the number three French wine brand, and number 12 in the top 20 list of all wine brands sold in the UK (AC Nielsen). 6.3 The Global wine company (acquisitions and mergers) Suggested strategy:" Follow the example provided by French LVHM and Pernod Ricard and buy into the new world wines' position and marketing expertise (LVHM own Australian Green Point and Californian Domaine Chandon; Pernod Ricard owns Australian Jacob's Creek and South African Long Mountain) Evaluation: This is definitely the quickest way forward for Old World producers in order to acquire the marketing knowledge and strategic strength they so urgently need. With growing consolidation in the global alcoholic drinks market, and given the highly fragmented nature of the wine market, there is strong possibility for further merger and acquisition activity in the new wine market (as new research from Euromonitor International have confirmed). Industry consolidation is likely to make life harder for the smaller local wineries in the short term. Lack of capital is a major barrier to growth for smaller players, and this factor drive them into acquisition by larger companies. This trend will lead eventually to a new structure of the wine production model: we are going toward the global wine company of the future.

The new global wine company will have a truly global organizational culture, will develop a series of global brands at different price to meet consumer expectations, and will create extraordinary communication systems to support an enormously complex production and marketing interface. 6.4 Appellation d'origine control ee and competitive disadvantage Suggested strategy:" Seek the disestablishment of appellation control ee for many of our wine-growing areas so that we can develop the global French brand we need". Appellation d'origine control ee is the French system of designating and controlling both the geography and the quality of wines (as well as some food products). Near the end of the 19th Century, French vineyards (as well as most all vineyards in Europe) suffered the devastation of vine diseases and pests accidentally introduced from America. European viticulture was very nearly destroyed before measures were found to deal with these problems.

In the intervening years, the available quantity of the fine wine was reduced to a trickle and French wine was in the highest demand. Fraud and adulteration were rampant and widespread until a series laws were passed in the beginning of the 20th Century aimed at ending these deceptions. The laws specify and delimit the geography from which a particular wine (or other product) may originate and methods by which it may be made. The regulations are administered by a powerful quasi-governmental body, Institut National des Appellations d'Origine, or INTO, founded in 1935.

Every imaginable facet from producer to consumer has been considered controlled or regulated and the use of AC terms on labels of French wine requires absolute compliance. Evaluation: We believe that this strict system of regulations lead to a competitive disadvantage for French and other Old World producers. Competitive disadvantage deriving from expensive production (the mandatory use of expensive oak barrels to flavour instead of the cheaper oak chips widely used by the New World producers is one of the factor and also the rigid rules regarding the appellation upon which an Old World Chardonnay must be 100% compared to 85% for New World), not allowed manipulations in order to reach a better taste, and confusing labels practice previously mentioned. Furthermore, the historic reasons which lead to its creation are not justified today, at least with regards of its most severe rules and considering the standard wine market.

The Old World should seek the disestablishment of Appellation d'origine control ee at least for the lower category wine. Since in the Premium market the Appellation characterises the product as original and distinctive we would not consider this strategy as successful as in the lower market. 6.5 Protectionism versus being marketing oriented Suggested strategy:" We must protect our consumers from practices that undermine our European heritage; we need to use our political clout in the EU as well as in our own parliament". Evaluation: We believe protectionism is not the answer. The new global economy and competitive system should eventually lead to the point of mutual recognition that high quality wine can be made in many different places around the globe allowing the consumers to decide which wine they like best. In today's global community we should be reveling in the diversity of wines available to consumers, and we should be doing everything we can to promote appreciation of the wines that result from different terror, viticulture, and wine making styles rather than erecting protectionist trade barriers to the free flow of wine around the world.

7. World wine market: long term predictions We would like to end this analysis considering a few interesting predictions formulated by Mr. Robert M. Parker, Jr., wine advocate and undeniably the world's most prominent wine critic (recently published in the October 2004 issue Food & Wine magazine)". The wine Web will go mainstream": there will be a full range of Web sites tailored to disseminate information about new wines and new producers supported by experts, consultants, specialists and advisors which will assume the role of today's wine publications. "World bidding wars will begin for top wines": World's greatest wines will reach a prohibitive price due to the increasing demand coming from new developing countries, i.e. Asia, South America, Central and Eastern Europe and Russia. The most limited production wines will become even more expensive and more difficult to obtain". France will feel a squeeze": "France's obsession with tradition and maintaining the status quo will result in the bankruptcy and collapse of many producers who refuse to recognize the competitive nature of the global wine market".

Spain will be the star, Southern Italy will ascend": Both these countries continue to make regional wines as they have for centuries, but they have adopted the New World style to some extent to increase their share of the new wine market. Spain will rise as a leader both in wine quality and creativity, benefiting from the combination of tradition with a modern wine making culture. In Italy the wine making revolution has commenced and its rewards will become evident over the next ten years. "Value will be valued": Due to increased competition in the market, more high-quality and low-priced wines will generally be available". Diversity will be the word": Quality wines will come from unexpected places like Bulgaria, Romania, Russia, Mexico, China, Japan, Lebanon, Turkey and perhaps even India.

8. Conclusion In the modern wine market the Old world producers are seeing their share of the exports market decreasing rapidly as they start to recognise the urgency to change their mentality in order to challenge new competitors with strong marketing orientation. In the recent years, New World producers have successfully taken market share from Old World competitors through a combination of successful factors. These are aggressive marketing and effective branding, consistent product quality and reliable supplies. The Old World future ability to counter the ongoing threat from New World producers will depend on adopting an extensive marketing approach: size, branding, distribution channels and new mergers in order to benefit from the new global economy will all play a fundamental role in determining its success. 9.

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