“GLOBAL WINE WAR 2009”New World VS Old World44B COMBINE SYNDICATE

Background • In Egypt and Greek era, wine was used as tributes to the dead pharaohs and tempestuous Gods.

• In the Christian era, wine became part liturgical services, monasteries planted vines and built wineries.

• By the Middle Ages planting vineyards as a mark of prestige (first niche market for premium wine).

• Early 19th century vines being planted in rows and efficient tending and one person to work plot of 7 hectares.

Background (Wine Production)• Most small farmers sold their grapes to the

local wine maker or vintner.• Payment based on weight little incentive to

pursue quality by reducing yield.

Background (Distribution & Marketing)• Sold in bulk to merchant traders blended and bottled the

product before distributing.

• Cross border shipping extremely expensive because (1) poor roads, (2) complex toll and tax systems (3) pass through 31 toll stations.

• Late 18th century mass productions of glass bottles (cork stoppers and pasteurization revolutionized).

• Increased vine plantings and expanded production followed global market was born.

Background (Regulation & Classification)

• Because the industry developed, cultural and economic life of the producing countries are increasing too.

• In France, grape accounted for one-sixth of France’s total trading revenue and the second largest exporter.

• Laws and regulations control almost every aspect of wine making.

• In Germany, scheme prescribed 65 classes of quality with rules from ripeness to minimum sugar content.

Regulation & Classification (cont’d)

• Producers often supported and even augmented them as a way of differentiating their products and raising entry barriers.

• It gained wide recognition, leading the government to codify, and expand it in AOC (Appellation d’Origin Controllee) laws (defined regional boundaries and set detailed and quite rigid standards for vineyards and wine makers).

• VDQS (Vins Delimites de Qualite Superieure) inexpensive but very drinkable wines for French tables and increasingly for export.

• Belief that quality was linked to terroir, but couldn’t guarantee consistent quality.

Background (Stirrings New

World)

• Many vineyards and wine makers had been set up in New World countries since the 18th century.

• In the 1960’s, consuming wine had become a national culture in Argentina (80 liters per capita) and Chile (50 liters per capita).

• In the pre-World War II era, wine was largely made by and sold to European immigrant communities in the U.S.

• In the postwar era, demand for wine increased rapidly in the U.S., Australia, and other New World producers.

Stirrings New World (cont’d)

• In the postwar era;– Consumption of wine per

annum in the U.S. grew from 1 liter to 9 liters by 2006.

– Consumption of wine per annum in Australia grew from less than 2 liters in 1960 to 24 liters by 2006.

– This growth also gaining demand for higher quality of wines and domestic demand that proved a boost for the young New World wine industry.

Exhibit 3 Wine Consumption Per Capita (in Selected Countries 1966-2006)

Exhibit 4 World Grape Production By Country

Exhibit 5 World Wine Consumption : By Country

COMPETITION ANALYSIS

OLD WORLD• Old World producers : France,

Italy, Spain, etc.• Middle ages European began

planting vineyard as a mark of prestige to served their best quality wine at table (1st niche market for premium wine).

• Cooperative growers join the trend

• Traded by negociants, sophisticated one can handled exports.

• Wine consumption in Old World drops for about 50-60% from 1960’s to 2005.

• While Old World went down, wine trend in New World goes up.

• Wine industry’ growing new laws and regulations for government differentiation their products & raising entry barriers (competition with new world)

• Has terriorz not consistent with is quality

STRENGTH

• Old Worls is the trendsetter of wine with its popular history branding itself.

• High quality – assured of wine (no expirated date because it has no chemical ingredients).

• Has a uniqueness taste as differentiation of its product

• Low cost wine with high quality

• Has entered US market share and increase its exported wine

• Able to capture economic advantages, Drive for efficiency and consistency

WEAKNESS

• Could not sense the change in consumer preference and martket trends

• Traded by outsourced negociants, they didnt do marketer role lack of marketing role

• Governments laws and regulation control every aspect of wine industry limit their movement and growth

• Lack of innovasion and technology if its compare to New World’s digital system

• Sold product exclusively (per bottle)• Has a long-multilevel value chain with

many links which did not operate efficiently

• Has complex regional designations that promoted by Old World producers consumers find it hard to understand and penetrate.

• Couldnt plant new variety vineyard to fullfill world’s demand

• Took long time to produce its product keep the exclusiveness and quality

• High production cost

WEAKNESS

OPPORTUNITY

• Has entered US market share and increase its demand.• Fast growth of exclusive lifestyle in the world

• Growth of New World wine industry shows good progress from year to year (competitor).

• Many subtitues product enter beverage industry give many optins to consumer to satisfy their needs and taste

• More and more laws and regulations from government can hamper their innovation

• Fast growth of consumer’s taste of wine

THREAT

• Vineyard and wine marker has been set up in many new world countries since the 18th century

• New world producer – America, Australia, Chile

• In the Post era war demand for wine increased rapidly in the us, Australia, and other new world producer

• In 2006 consumption per capita increase from 1 liter 9 liter , 2 liter in 1960 24 liter by 2006

• Grow consumption coupled with growing demand for high quality wine boost for the young new world wine industry

NEW WORLD

Competitive Ways• New world producer developed

industry environment different from their European (old world)

• The economic impact of these and other innovation became clear in comparation of the cost.

• The French cost per tone of e 238 was 74% higher than the Australian cost e 137

• South American grape cost were lower driving down the price popular premium wine in Europe e2 bottle

• Judgment of Paris, American entries took top honors in both red and white competition

• Publicity rise awareness that the new world produce quality wines, this is the momentum for new world producer fight in export sales

• There was changing in global demand, where the traditional producer have declining demand 20 % drop worldwide and there was growing in many wine country (UK, Belgium, Canada and Asia)

• The radical shift in demand proved extremely changing to old world producer

• Biggest problem was declining demand at home and loss of share in export market had caused a structural wine surplus (European wine lake)

• Crisis distillation program, purchase surplus wine for distillation into industrial alcohol

Competitive Analysis

Competition Market • Us as the most attractive

market in the world, has grown its market faster than any other major wine market

• Wine sold for e 5 ($7), 48% market share, three time rate for lower price segment

• Key driven for US market growth was generation Y

• Wine import into US increased by 185% between 1995 and 2006, 31% market share

• The price of wine segmented into super premium and ultra premium due to high land cost and prevailing global price/quality ratio

• Europe penetrate market in US by different segmentation (super premium/ luxury segment), become number three in import by volume

• Australia strategy 2025, reduce price in all export market boom in export sales. Cheap and cheerful, the image was particularly problematic as cost started to rise.

Competition Market

SWOT ANALYSISStrength Weakness

Learned the value of differentiating their products and making them more appealing to palates unaccustomed to wine.

Image problems born of their willingness to lower prices aggressively in an area of excess supply.

Able to sense changes in consumer preference and respond to shift in distribution channels

They had fallen behind prevailing global price/ quality ratio

Innovation with grape growing and winemaking technology

Use chemical ingredients, the product has limited expire

Low cost wine with high quality

Innovated in packaging , marketing and brandingAble to capture economic advantages, Drive for efficiency and consistency

Opportunity Threat

The capacity and regulation freedom to plant new varieties in new vineyards and could respond

Emerging sign of saturation in several major markets.

Declining demand at home and a loss of share, Shifting demand of mature marketRegulation, restriction from governmentGlobal oversupply wine productionChange in wine consumer cultureCompetitor with high quality brand and low cost penetrate into the market

SWOT ANALYSIS

In 2001, the greatest wine export were Italy (27%), Spain (23%) and France (22%), there was problem declining demand at home, culture change and there were recent growth of new market in UK, Belgium, Canada and Asia

22%

27%

5%

23%

5%

12%

6%

ExportsFrance Italy Argentina SpainGermany Australia UK US

EXPORTS

6% 3%

20%

37%

34%

ImportsFrance Italy Argentina SpainGermany Australia UK US

In 2001 , the world largest wine importer were UK (37%), US (34%) and Germany (20%). UK as the largest importer because the UK offer more attractive market and in order to satisfy demand for its country, as we can see UK didn’t Produce wine. The most attractive market in the world was US, because the faster growth in wine market.

IMPORTS

Comparison Analysis

NEW WORLD

OLD WORLD

New World Old World

Production

Producer began to experiment with grape growing and winemaking technology• Controlled drip irrigation allowed

expansion into marginal land and reduced vintage variability

Irrigation was strictly forbidden

Cost of Production : cheap• Riverina District (Australia) : €137

Cost of Production : expensive• Langedoc region (French) : €238

Many innovation into viniculture• Night harvesting• Experiment in fertilizer and pruning

methods

Comparison Analysis (Production)

Italy France Spain US China Australia $(20.00)

$-

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

Production Change (1996 - 2006)

96 - 00 2002 2003 2004 2005 20060

2000

4000

6000

8000

10000

12000

Production By Country

ItalyFranceSpainUSChinaAustraliaAx

is Ti

tle

New World Old World

Marketing

Price of premium wine : cheap• South American wine : €2

Price of premium wine : expensive• France wine : > €3

Packaging in American : “Wine-in-a-box” package

Packaging in Europe : bottle of “Vin de table”

Make differentiation of their product• Ripple (US) Barossa Pearl (Australia)

No differentiation in their product

Many consumer marketer brand join (Coca Cola, Nestle, Pillsbury, Seagram)

Comparison Analysis (Marketing)

Comparison Analysis

New World Old World

Distribution They control the full value chain and their name was on the final product the quality is controlled

The wine maker only sell the wine to merchant trader, so they don’t control the full value chain

Suitable land was widely available and less expensive

Limited land and regulated by government

Grape Grower

Wine Production

Cooperative

Wine maker

Private Winery

Distibution

Wholesaler

Merchant Trader

Auction

Retailing

Food service

Supermarket

Speciality Shop

Consumer

Comparison Analysis (Regulation & Technology)

New World Old World

RegulationSuitable land was widely available and less expensive

Limited land and regulated by government

Technology

There is on-site labs• Experimented with reverse

technology osmosis• Develop process that allowed

fermentation and aging to occur in huge, computer-controlled, stainless steel tanks

• Some company added oak chips

Reverse technology osmosis is “removing the poetry of wine”

It was a forbidden practice under AOC regulations

Suggestion

New World Old World

ProductionStill use effective high technology so producers can compete with globalization era

Cut the supply chain without decreasing their quality

Marketing

Give consumer a basic ingredient to ensure why the price of premium wine is cheap

Improve marketing communication for premium wine

Good relationship with consumer to avoid lack of trust

Use interested packaging to get the target market

SuggestionProduction & Marketing

New World Old World

Distribution Control the urgent value chain

Good relationship between wine maker and people who control the value chain

Regulation Plot the land use to plant grapes

Use vertical technology land to plant grapes

Make a win-win solution between producers and government

Technology Use effective technology to reduce cost

Use latest technology to compete with New World

CONCLUSIONMake costumers satisfaction division to still care with them

Make innovations for each process without forgot the costs

Distrubution - Regulation - Technology

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