44B COMBINE SYNDICATE

GLOBAL WINE WAR 2009 New World VS Old World

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.

 Because the industry developed, cultural and economic life of the producing countries are increasing too. In France, grape accounted for one-sixth of Frances 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.

Background (Regulation & Classification)

 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 dOrigin 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 couldnt guarantee consistent quality.

Regulation & Classification (contd)

 Many vineyards and wine makers had been set up in New World countries since the 18th century. In the 1960s, 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.

Background (Stirrings New World)

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

Stirrings New (contd)

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 World 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 1960s 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

 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

STRENGTH

 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 Worlds 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 worlds demand Took long time to produce its product keep the exclusiveness and quality High production cost

OPPORTUNITY

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

THREAT

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 consumers taste of wine

NEW WORLD

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

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 ANALYSIS
Strength Learned the value of differentiating their products and making them more appealing to palates unaccustomed to wine. Weakness 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
Innovation with grape growing and winemaking technology Low cost wine with high quality Innovated in packaging , marketing and branding Able to capture economic advantages, Drive for efficiency and consistency

They had fallen behind prevailing global price/ quality ratio

Use chemical ingredients, the product has limited expire

SWOT ANALYSIS
Opportunity The capacity and regulation freedom to plant new varieties in new vineyards and could respond Threat Emerging sign of saturation in several major markets.

Declining demand at home and a loss of share, Shifting demand of mature market Regulation, restriction from government Global oversupply wine production Change in wine consumer culture

Competitor with high quality brand and low cost penetrate into the market

Exports
France Italy Argentina Spain Germany Australia UK US

EXPORTS
5% 23%

0%

6%
12% 22%

27% 5%

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

Imports
France Italy Argentina Spain Germany Australia UK US

0% 6% 34% 3%

0%

20%

0%

37%

IMPORTS
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 didnt Produce wine. The most attractive market in the world was US, because the faster growth in wine market.

NEW WORLD

OLD WORLD

Comparison Analysis

Comparison Analysis (Production)

New World Old World Producer began to experiment with Irrigation was strictly forbidden grape growing and winemaking technology Controlled drip irrigation allowed expansion into marginal land and reduced vintage variability Production Cost of Production : cheap Riverina District (Australia) : 137 Many innovation into viniculture Night harvesting Experiment in fertilizer and pruning methods Cost of Production : expensive Langedoc region (French) : 238

Production Change (1996 - 2006)

$140.00 $120.00 $100.00 $80.00

$60.00
$40.00 $20.00 $$(20.00) Italy France Spain US China Australia

Production By Country
12000 10000 8000 Axis Title 6000 4000 2000 0 96 - 00 2002 2003 2004 2005 2006 Italy France Spain US

China
Australia

Comparison Analysis (Marketing)

New World Price of premium wine : cheap South American wine : 2 Packaging in American : Wine-in-abox package Marketing Make differentiation of their product Ripple (US) Barossa Pearl (Australia) No differentiation in their product Old World Price of premium wine : expensive France wine : > 3 Packaging in Europe : bottle of Vin de table

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

Comparison Analysis
New World Distribution They control the full value chain and their name was on the final product the quality is controlled Old World The wine maker only sell the wine to merchant trader, so they dont control the full value chain

Suitable land was widely available and Limited land and regulated by less expensive government

Wine Production
Cooperative Grape Grower Wine maker Private Winery

Distibution
Wholesaler Merchant Trader Auction

Retailing
Food service Supermarket Speciality Shop Consumer

New World Regulation

Old World

Suitable land was widely available and Limited land and regulated by less expensive government 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

Technology

Comparison Analysis (Regulation & Technology)

Suggestion

New World

Old World
Cut the supply chain without decreasing their quality

Production

Still use effective high technology so producers can compete with globalization era Give consumer a basic ingredient to ensure why the price of premium wine is cheap Good relationship with consumer to avoid lack of trust

Marketing

Improve marketing communication for premium wine

Use interested packaging to get the target market

Suggestion
Production & Marketing

New World

Old World
Good relationship between wine maker and people who control the value chain Use vertical technology land to plant grapes

Distribution

Control the urgent value chain

Regulation

Plot the land use to plant grapes

Make a win-win solution between producers and government

Technology CONCLUSION

Use effective technology to Use latest technology to reduce cost compete with New World Make costumers satisfaction division to still care with them Make innovations for each process without forgot the costs

Distrubution - Regulation - Technology

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