MONTGRASCASEREPORT:

EXPORTSTRATEGYFORA
CHILEANWINERY

KELVINHAMKAPUTRA
LISAOETOMOE
SABIILAKHAIRINSATRIANI

VINCENT

CASEWORKSHEETQUESTIONS
1. Definetheproblem
TheproblemstothiscaseisthatMontgras,aChileanwineexporter
whoproduceahighexportqualitywines,hadbeenaskedtoprovideafive
yearexportstrategywhichisconsistentwiththeoverallmarketingstrategyof
positioningMontgrasasahighqualityoffinewinesproducer.Theirwinery
achievementwasshownwhentherewasasignificantmarketshareinIreland
andUnitedKingdom,howevertheirprimaryfocuswasontheUnitedStates
markettoachievethesalesgrowthbyincreasingtheproductionplannedin
2005.
Middleton, who is the CEO of MontGras, had to close the new
distribution agreement with U.S distributors after two disappointing
experienceswiththem;andthusraisedcriticalstrategicdilemmas,whether
theyshouldfocusonvolumesandsticktothevalueformoneyproposition
thathadbeenthesuccessoftheChileanwinesabroadoradviceamargin
strategybasedonthefactthatMontGraswasproducingahighqualitywine.
SincethatMontGrasplannedtoformulateanexportstrategy,ithas
raised some questions regarding the opportunity that Middleton had been
facedtoinvestinamarketingeffortbythewholeChileanwineindustryin
order to upgrade the image of the country and an unexpected offer to
participateinaU.Ksupermarketpromotionthatwouldboostvolumes.Such
questionsthatappearwere;whatwouldMontgrasgainfromsuchcampaign?
Andhowwoulditimpactthemarketingstrategyandbudget?
2. Listanyoutsideconceptsthatcanbeapplied
MontGrasframeworkwasbasedontheglobalwineindustryfromthe
emergence of large New Wine World producers that shifts the Old Wine
Worldproducersbasedonbothproductionandmarketingstrategy.
AnotherframeworkwasbasedontheAustralianwineindustrywhereit
isservedasabasisfortransforminganagriculturalcommodityintoaquality,

brandedimage product. The Australian wine industry took a fiveyear

strategicplanningprocess,whereitsfuturelayinthebrandedwineproducts,
andreflectsthedistinctivenessofvariety,regionandproducer,andaimedat
maximizingtheadvantageofwineinthegrowthofbusinessindustry.
Theirprinciplewasbasedonexportstrategyandmarketingstrategy.
MontGrasexportstrategyistosellChileanwinetothetopmarketssuchas
U.S, U.K, Canada and Germany. In each country in which MontGras
exported,anindependentlocalagentmanagedthedistribution,andusuallythe
agentistheonlyMontGrasdistributorthatiscontractedbasedontheregionin
thatcountry.BothMontGrasandtheagentjointlydevelopedastrategicplan
consistofafiveyearsales forecast,productmix,positioning,pricing,and
channelmix.Theagentthenpreparedandsubmittedforanapprovalintheir
marketingplan,includingsalespromotion,media,publicrelationevents,wine
tasting, price promotions and sales force incentives. As for the marketing
strategy,MontGrasisfocusingmoreonthepositioningofthepricingstrategy,
whereMontGrasdividethesegmentsintoiconandultrapremiumsegments
whereitdriveconsumerstotradedowntolessexpensivewinesandconducted
apriceelasticitytestinUnitedKingdom.
3. Listrelevantqualitativedata

TheNewWorldwineindustry,whereitislocatedonAustralia,U.S,
SouthAfrica,Chile,andArgentina,wereusuallymadefromsingle
graperatherthanblendsanddesignatedbygrapevariety(suchas

cabernetsauvignonormerlot),ratherthanbytheplaceoforigin.
Thenewworldwinehavedifferentmarketingapproach,whereitis
mostlybasedonvarietyofseverallargeplayerswithpromotional

budgettocreateaninternationalbrands
Atconsumerlevel,consumptionoftablewine,whereitisbelow$5at
retailprice,declined;whileanincreaseoftheconsumptionoffine
wineshiftstheworldwineconsumptionfromtraditionalwine
producingcountriestoimportdependentcountriessuchasU.K,U.S,
Scandinavia).

Chilewastheoldestwineproducerinthenewworldanditnatural
conditionsforgrapevineproductionhadattractedmanymigrant

Europeanwinemakers.
Bythemid1980s,Chileanwineries,manynowunderforeign
ownershipormanagement,startedtoproducehigherqualityvarietal

winesforexport
Comparedwiththelocalconsumer,whowasmainlybuying
inexpensivelowqualitywine,theforeignconsumerwasmore
sophisticatedandhadgreaterbuyingpowerandthereforeconsumes

finerwine.
Chileanwinehadachieveavalueformoneyreputationacrossall
pricepoints,wheremostcommentatorsagreedthatthequalityof
Chileanwineshadimprovedconstantlythrough1990s,andresulted
fromincreasinginvestmentbyFrench,SpanishandCalifornian
wineriesinjointventureswithChileanvintnerstoopennewmarketing

channels.
Chilehadtotakeadvantageofthequalityofgrapes,developing

premiumwinesacrossawiderspectrumofvarieties.
AccordingtoVinasdeChile,grapeownerswhohadmotsecuredtheir
contractstoselltowineproducersandnostrongbrand,couldgenerate

anincreaseinexportsofbulkwineswithcompetitionbasedonprice
Winemakingwascapitalincentives,intermsofbothfixedassetsand
workingcapital.Processingequipmentandbuildingswerecostlybut

wereutilizedforonlyashortperiodoftheyearafterharvest
ThequalityofMontGrassproductswasdeterminedbythequalityof
thesoilandthegrapes,anddifferentstylesofwinerequireddifferent

fermentationandagingprocess.
Mostconsumersknowlittleaboutwine,thereforeagoodwordof
mouthandrecommendationsbywinewriterscouldhelpconsumersto
lookforguidanceandthusincreasingsalesvolumes.

4. Listrelevantquantitativedata

RobertMondaviCorp.,theworldsninthlargestwinemakerhave
morethan$500millioninannualsales

Worldwinebusinesswasvaluedat$150billioninconsumervalue

andat$60billioninwholesalevalue
Internationalwinetradehadgrownata4.3%compoundannualrate
between1995and1999,andduringthesameperiod,tradevolume
growthfromNewWorldcountriesreacheda18,3%compounded

annualrate
Yearlyincreaseofconsumptionoflessthan1%upto2006(The

WorldWineReport,2001)
IncreasesintheNewWorldcountrieswouldgeneratedanestimated

worldwideoverproductionof2.080milliongallonsby2006
ThenumberofwinewholesalerintheU.Shadshrunkbycloseto

75%between1963and2000
Chileanwineindustryasawholegeneratedoperationalmargins

around15%andreturnoncapitalaround7%
By2000,Chileexportedalmost$600millionofwineto90countries

on5continents
TheAsociacionVinasdeChileforecastasurplusof30million

gallonsofChileanwineby2006
Oversupplyhadcausedadownwardpricepressure,wherethepriceof

grapeshaddecreasedby40%between1998and2001
MontGrasProductMix(Tableonthecasestudy)
MontGrasvineyardsproduced62%ofthewinerygrapessupplyand

investedover$3millioninvineyardsonNinquenhillduring1990s/
99%ofMontgrassannualproductionwasexported,toatotalof24

countriesin2000.
MontGrasexportsalestotheU.K(Tableonthecasestudy)
MontGrasexportsalestotheU.S(Tableonthecasestudy)
U.Kretailmarketwasthedominanceoftheleadingsupermarket
chains,thetop4ofwhichaccountedfor75%ofallgroceryand60%

ofallwinesales
In2000,importedChileanwinesaccountedfor11%ofU.Swine

shipmentsbyvolume
Worldwineproduction(Tableonthecasestudy)
Worldwineexportsinvolume(Tableonthecasestudy)
Worldwineexportsinvalue(Tableonthecasestudy)
Worldwineconsumptionbycountry(Tableonthecasestudy)
MontGrasproductportfolio(Tableonthecasestudy)
Worldwidewineimportersbyvolume(Tableonthecasestudy)

Worldwidewineimportersbyvalue(Tableonthecasestudy)
Chileanmacroeconomicdata(Tableonthecasestudy)
EstimatesontotalinvestmentsintheChileanwineindustry(Tableon

thecasestudy)
BreakdownofChileanwineexports(Tableonthecasestudy)
Evolutionofplantedareabymaingrapevarieties(Tableonthecase

study)
Chileanconsumptionpercapitaofwinevs.beervs.softdrinks(Table

onthecasestudy)
MainMontGrassprofit&lossandbalancesheetvariables(Tableon

thecasestudy)
MontGrascoststructureofgrapeproductionandwinemaking(Table

onthecasestudy)
MontGrasexportdestinationbycountryandproductrange(Tableon

thecasestudy)
MontGrasaverageFOBpricepercaseversustheoverallChileanwine

industry(Tableonthecasestudy)
MontGras2001marketingbudgetbycountry(Tableonthecase

study)
EconomiesoftheexportstotheU.Smarket(Tableonthecasestudy)

5. Describetheresultofyouranalysis

ThebiggestobstaclethatovercamebytheChileanwineindustryistheone
andonlytheirimageasacountry.Because,thecountryitselfisnotreally
famousaroundtheworld.TherearenosignatureproductsfromChile.But
what most people do not know is that, Chile has a premium grade of
qualityfortheirgrapes.Theirgrapescanbemadeforapremiumquality
wine and can be competed in the wine world market. Therefore, the
Chileanshavetobuildtheirimage;sothatpeoplewillknowaboutthe
ChileanssignaturewinesandtheirChileanswinesthathaveapremium
quality.Also,theyhavetodistincttheirproducts(thewine)isbetterand
differsfromotherbrandsortheircompetitors.

Ithasbeenstatisticallyshownthatthedemandforthepremiumquality
winebrandisincreasing,becausepeoplearoundtheworldnowadayswant
toenjoythefinestwinetheycouldfind.Thatisalsowhythedemandfor
thecheapbrandkeptdecreasingfromyeartoyear,becausethereareno
pointsinconsumingthelowqualitywine,sincetherearenoenjoyments
outofthat.

6. Describealternativeactions

Oneoftheirkeyweaponsisprice.Eventhough,theycameupwiththe
premiumqualitywinethatdoesnotmeantheycanjustputtheirpriceon
topofthemarket.ItreturnstotheimageoftheChileasacountry.The
image of Chile as a country is quite low, because they do not have
particular signature products. That is why in order to gain their brand
awareness,theyshoulddecreasethepriceinordertocompetewithother
brandsintheworldmarketandshowtheworldthatChilehasabetter
premium wine quality but with the same price with other highquality

brandsinthemarket.
Theyalsocangaincustomersmorebydoingproductspromotion.Thebest
strategyforMontgraswineproductisbywordofmouth,becausebyusing
word of mouth, it can personally strengthens customers trusts. Brand
loyaltyisallabouttrusts,whenpeoplealreadyhavetheirtrustsonthe

brand,theywillnotsubstituteever.
Thequalityofthewineitselfisalsooneofthemostimportantkeys.Ifthe
quality of the winecannot bemaintained, then it will lead to losethe
customers trusts. Then the bad news is the customer will substitute
Montgraswithotherbrands.So,qualitycontrolisimportantnotonlyto
maintain the quality of the wine itself but also to maintain customers

trustsorloyalty.
Theproductdistributionalsoneedstobewellmanaged.Thebestproduct
distribution based on the dominance of the market is in Retail level,
because,itistheclosestwaytointroducetheproductdirectlytotheend
customers,andsellitinahugequantity.

7. Describeyourpreferredactionplan

Intheshortrun,Montgrasshouldadjusttheirpriceleveltothesamelevel
of their competitor brands so that Montgras can compete in the
international market with other brands. However, they also have to
produceahighqualitywinewithalowprice,sincethatistheirsignature
topresenthighqualitylowpricewineinordertoincreasetheirimageas

theChileanwinebrand.
Inthemediumrun,theyhavetoworkonthepromotionstrategy,whichis
word of mouth from the alternative actions. By doing this promotion
strategy, Montgras will be able to gain the customers trusts and by
gainingthecustomerstrusts,itmeansthattheywillperceivethehigh
valueoftheMontgraswines.Iftheyalreadygainthecustomerstrusts,
theywillbeabletochangetheirpricelevelbyincreasingtheprice,andthe
customerswillfollowthechanginginpricelevelbecausetheyalready

havetheirbrandloyaltyinMontgrasasthepremiumqualitywinebrand.
Inthelongrun,theyshouldmaintaintheirpremiumqualityinorderto
maintain their customers trusts. This would be the most challenging
actionplaninordertostabilizeMontgrassellingrevenuesorevenincrease
it.

CASESTUDYQUESTIONS
1. DefineandexplainthedifferencebetweentheNewandOldwineworldas
wellasitsimpactonthewinemarket.
The old world wine industry was centered mostly on European
countriessuchasFrance,Italy,Spain,Portugal,andGermany;wherethewine
production was based on the importance of territory that assumed every
vineyard in each countryside was unique in terms of the varieties of soil,

topography,microclimate,andalsotheskillsofthewinemaker.Theseold
worldwinesalsomadefromablendofdifferentgrapesandwerenamedafter
thegrowingregionswhichcreatedacomplicateddesignationofnamesbased
onregisteredoriginnames. Theyalsohave highlevels ofregulation from
productiontolabelingandmarketing.
Asforthenewworldwineindustry,whereithasbeendominatedby
Australia,UnitedStates,SouthAfrica,ChileandArgentina,isfocusingmore
on exports and use a more scientific approach to operations of the wine
industry and the high level of innovation in production. These new world
winesaremodemostlyonsinglegrapesratherthanblendsanddesignatedby
the variety of grapes. Their marketing approach was based on substantial
promotional budgets to create international brands with broad competitive
marketsandseverallargeplayers.
IntheOldWineWorld,theprocessofmakingwinebyblendingall
typesofgrapestobecomeonetypeofwinethroughatraditionalandspecific
ways which was used in European country. In the New Wine World, the
processofmakingwineusedonsinglegraperathertanblendsandhavea
differentwaysofprocessingthegrapeitself,byusingscientificapproach.
The impact on the wine market is that; inthe oldwine world, the
winemakerfocusesonmakingthewinebasedonthedifferentregionthatis
producedandnamingitbasedonthecountrywhereitisproduced.Thatis
whyintheoldwineworld,sincethattheyhaveahighlevelofregulation,
winemakerneedstohavearegisteredoriginnames.IntheNewWineworld,
eachcompanywantstomakeabetterwineandalsosellalotofwine.The
companysalesaretheirmaingoalandthereforetheyneedtoimprovetheir
qualityofwinebyprocessingthewineinamoreinnovativeways.Thenew
worldalsohadtheirownstrategyofmarketingbyexportingthewinethey
producesothebuyerdoesnthavetogodirectlytotheycountrythatproduceit
buttheycanjustbuyatretailerorwholesalerintheircountry.IntheNewwine
world, the industry grew into a more competitive consumer luxury goods
industry.

2. EvaluateMontgrasMarketingstrategy:isitpositionedinattractive
markets/segmentsorwillitsufferastheindustrysuffersaperiodofover
supply?
MontGrasiscurrentlyapplyingtheattractivemarketingstrategy.Itis
sobecauseofitslowproductioncostandstrongerimagethancompetitors.
Generally,Chileanwineswereknownforbeinginexpensivesoitwillinflicta
lackofprestigeforwineconnoisseursbutthelowcostattractcustomersasit
isnowforgerelationshipswithUnitedStatesandUnitedKingdom.Forthe
oversupplyissue,itwillaffectalmostallproducersasitisinfactalready
happenedinUnitedKingdomwhere60%ofwineissoldinsupermarketrather
inwinespecialtystores.Butwithitslowcost,MontGrascouldlaunchmore
products,stabilizingitsoutputlineandpartnerupwithforeigndistributorsto
attractbuyersandtopromotetheproductstoenterhighendsupermarkets.By
doing so,MontGras will notsuffer from image degradation due to grapes
oversupply.Besides,MontGrasalreadyhadNinquenwineasitsflagship.It
should be use as a leverage to compete with competitors because as it is
alreadystated,Chileanwinesusuallyperceivedaslowqualitygoods.Byusing
Ninquenandexportingit,companysimagewouldbegoodbyitselfandit
wouldbebetterduetoitslowpricefromtheresultoflowcost.

3. EvaluateUKandUSoptionsdescribedinthecase.Whichwouldyou
recommendandwhy?
WerecommendUSmarket,eventhoughMontGrasshasexperiencedmany
badsituation,itisstillasafemarkettodoabusiness,especiallyinexporting.
Thoughtheprocessfromgettingthegoodstothemarkettookalongtime,but
itwillgivetheselleranassuranceaboutthesafetyoftheproductintermsof
sellingandhandling.Theassurancethatthecompanycangetisthedistributor
ofthegoodsisastatedlicensedpersonwhounderstandsandisclassifiedfor

doingthatbusiness.AlthoughthemarketinUSishardtopredictbutthat
doesntmeantheyrenotinterested,infact,in2013,USmarketbecamethe
biggestwinemarket.U.Speopletendtobuymoreratherthanconsumeit,and
thatsalsothereasonwhysellingwineinUSmarketisagooddecision.The
betterthequalityofthegoods,thehigherthepricesare,butthatdoesntstop
peopleinUStobuywine.