European Wine Case

1. European Wine Case • Wine manufactures • Buyers – off-trade, on-trade • Suppliers – grape growers, bottles • How to use and analyze market data • Datamonitor, Euromonitor

2. Industry Analysis

3. Rivalry Among Competitors Rivalry is greatest when: • Competitors are numersous or are roughly the same size • Industry growth is slow • Exit barriers are high • Rivals are highly committed to business and have leadership aspirations • Firms cannot read each others signals

4. Power of Buyers Power increases if: • Few buyers and larger purchase volumes • Industry products are standardized • Buyers face few switching costs • Buyers can threaten to integrate backward

5. Power of Suppliers Power increases if: • Is more concentrated than the industry it sells to (Microsoft) • Supplier group does not depend heavily on the industry for its profits • Switching costs are high (Bloomberg terminals) • Suppliers offer differentiated products (Drugs) • Suppliers can threaten to forward integrate

6. Threat of New Entrants Barriers to entry • Supply-side economies of scale (Intel) • Demand-side economies of scale (ebay) • Customer Switching costs (SAP software) • Capital requirements • Incumbency advantages regardless of size • Unequal access to distribution channels • Restrictive government policies

7. Threat of Substitutes • It offers an attractive price-performance trade-off • Cost of switching is low

8. Broader Industry Map

9. Rivalry • Highly fragmented (top three hold less than 10% share) • Forward integration (winemakers>retail): rare • Backward integration (winemakers>grower): common • New players restricted by regulation • Vulnerable to substitutes

10. Buyer Power • Supermarkets/Hypermarkets (41.8%) • Retail concentration varies by country (FR/UK concentrated Carrefour/Tesco, others competitive) • Switching costs moderate • Produces can differentiate products • Consumers demand variety • Backward integration unlikely

11. Supplier Power • Vertically integrated business, but: • Large growers also source grapes, usually for lower priced products • Independent growers can find alterative markets (sugar) and forward integrate • Quality is important

12. Market Entry • New company, diversifying, exporting • Government regulation of alcoholic beverages • Import taxes (moderate, except NO, SE) • Advertising and drinking age regulations • Margins low on non-premium products

13. Substitutes • Alcoholic beverages: spirits/beer • Low switching costs • Per unit costs higher/lower (spirits/beer) • Need for refrigeration • Channels: some must have (restaurant) others don’t • Use: occasions (i.e. champagne)

14. How can the European Market be Segmented? • Geographic • Demographic • Psychographic • Behavioral

15. Psychographic Behavioral How people use the product What roles people have in the buying process How people respond to the product • Interests • Activities • Opinions • Habits • Lifestyle • Hobbies Geographic Demographic • Age and life cycle • Life Stage • Income • Generation • Social class • Gender • Country • Region • Geographical Borders • Language • Historical geo-political

26. France off-trade vs. on-trade

31. Pricing

33. Projections

36. Emerging Market Trends

38. China Case Study

39. China Case Study