IBM 416 Lecture Notes - Lecture 10: New World Wine, California Wine, Australian Wine

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Case Study - MontGras: Export Strategy for a Chilean Winery
· What are the top five wine producing countries by 2011? (
producing_countries) Italy, France, Spain, U.S., China
· What is the current standing of Chile in the current list? (
producing_countries) No.8 on the list
· How is Chilean wine is positioned? (p 1) Chile, the world’s 10th-largest wine producer, had enjoyed an export
boom in the 1990s and had grown to become the fourth-largest wine exporter, its wines positioned mainly in the lower end
of the fine-wines price range.
· What was the strategic focus of Montgras since it was born? (p 1) MontGras, an early 1990s winery born into
this boom, tackled its business entirely from the perspective of export growth.
· Why did the international wine market looked gloomy? (p 1) There was projected worldwide and domestic
overproduction, intensifying global competition, and ongoing consolidation in the distribution channels.
· In which countries Montgras has significant market share? (p 1) Ireland and the United Kingdom
· Which country does Montgras want to enter? (p 1) Chile
· How was the wine industry transformed in the 1980s? (p 2) the entry of new producers from outside Europe. A
number of large “New World” producers had challenged traditional European practices in both production and marketing
and had enjoyed considerable success. Nevertheless, the industry remained fragmented, with the largest player,
Californian E&J Gallo, accounting for 1.5% worldwide market share. The industry was also in transition at the consumer
and distribution
· How were the old world wine brands named? (p 2) were named after the growing regions themselves, such as
Bordeaux, Chianti, or Rioja, which resulted in considerable complexity of designation
· Which countries dominate the new world wine industry? (p 2) dominated by Australia, the United States, South
Africa, Chile, and Argentina
· What are the differences between the old and the new world wine industry? (p 2) New World wines were
usually single grape rather than blends and so were often designated by grape variety. The New World wine industry also
differed in its approach to marketing, with several large players supporting varietals with substantial promotional budgets
to create international brands.
· How did the consumption of red wine and table wine changed? (p 2) At the consumer level, consumption of
table wine (below $5 retail price) was in decline, while consumption of fine wine (above $5) was increasing.
· What was the shift in the world wine consumption? (p 2) There was also a relative shift in world wine
consumption from traditional wine-producing countries to import-dependent countries, driven by both declining per capita
consumption in traditional producer countries such as France, Italy, and Argentina and increasing per capita consumption
in markets such as the United Kingdom, the United States, Scandinavia, and emerging wine markets such as Japan
· What is the French Paradox? (p 3) refers to the coincidence in France of lower-than-average mortality rates from
cardiovascular disease and higher-than-average consumption of saturated fats, such as butter and cheese. In 1991, before
35 million American TV viewers, Doctors Curt Ellison and Serge Renaud presented research findings that attributed this
to the beneficial effects of the higher-than-average consumption of red wine. Red wine sales jumped dramatically after the
· How did it change the consumption of red wine? (p 3) the publicity accorded the “French Paradox” spurred a
change in consumer preference toward red wine
· What was the prediction of Australian trade commissioner about the wine industry? (p 3) the wine industry
would be marked by fierce competition, leading to a drop in overall prices. Combe also quoted a winemaker at Neibaum-
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Coppola, one of California’s prestige wineries, as saying, ”Guys who used to sell wine easily for $50 a bottle will find
things going sour. . . . Before long, I am certain that you’ll see wine that used to sell for $40 going for $30.”
· How did the distribution of wine change? (p 3-4) was the growing concentration in distribution. According to the
Wine Institute (the Californian wine trade organization), the number of wine wholesalers in the United States had shrunk
by close to 75% between 1963 and 2000,10 and about one-third of all wines were sold through just five of them.
Distribution concentration was even greater in the United Kingdom, where most wines were no longer bought in specialty
liquor stores but in supermarkets, which now accounted for 60% of wine volume. Supermarket purchasing executives
favored suppliers that could provide large volumes and contribute to marketing budgets, and they preferred to deal with a
small number of wholesalers offering a comprehensive selection of wines from around the world. The consequent
difficulty experienced by small and medium-sized wineries in accessing distribution had resulted in a number of alliances
with larger players.
· Why was the Australian wine cited as a role model? (p 4) transforming an agricultural commodity into a quality,
branded-image product.
· What were the characteristics of the Australian wine industry? ( p 4) - role model for transforming an
agricultural commodity into a quality, branded-image product. In order to secure a growing share of the international
wine market, the Australian wine industry, which enjoyed considerable government support in its export drive, undertook
a five-year strategic-planning process.
· How was the Chilean wine industry affected after the crisis in 1983? (p 5) - when overproduction and a
significant reduction in domestic consumption produced a sharp decline in prices.14
· What lead to the export boom in the 1990s? (p 5) - there was a shortage of wine in California and in Australia,
15 so American and Australian wine producers came to Chile to buy in bulk to make up their volumes. The price of grapes
went up 400% between 1992 and 1998. This drove people to continue planting in Chile.
· What happened to the wineries that exported to Japan? (p 5) - In 1998, Chile benefited from the boom of the
Japanese market, where consumers were ready to pay high prices for good wine. Some Chilean wineries stopped
supplying some of their existing customers in order to take advantage of this opportunity. But then the Japanese market
contracted significantly, and those wineries had difficulties restarting their previous commercial relationships, since the
trust had been lost.
· What was the main reason for low cost of Chilean wine? (p 6) - mainly because of land prices: the price of the
land could vary from $2,000 to $20,000 per acre (unplanted), some six to 60 times cheaper than in California’s Napa
· What was the reputation of the Chilean wine? (p 6) - “value for money
· What were the effects of the increasing investment by French, Spanish, and Californian wineries? ( p6) -
which not only increased quality but also opened new marketing channels
Why did do you think Montgras joined Chilevid? (p 6) - MontGras, focused on exports of higher-quality wines. The
boutique wineries were represented by Chilevid, an industry association founded by six firms in 1992 with the sole
objective of developing export promotions. Chilevid, of which Middleton was chairman in 2001, had 35 members,
representing 10% of total Chilean wine exports.
· What are the challenges of the Chilean wine industry? (p 6-7) “to build an image that differentiates us from our
· What would the consequences of decreasing grape prices? (p 6) - Oversupply had already caused downward
price pressure—according to Middleton, the price of grapes had decreased by 40% between 1998 and 2001. Grape
growers who had not secured contracts to sell to wine producers, and wineries without a strong brand and distribution,
were especially vulnerable.
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