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Introduction As we already know, wine is one of the most ancient commodities which have been enjoyed for many

generations. Wine history goes a long way, and in their path wine has suffered many dramatic changes in techniques, market trends and diversity. A few decades ago the wine production and most of its consumption was pretty much restricted to just a few European countries. In the last 30 years or so this market has experimented radical changes as new competitors have been born. Now we have companies from all over the world trying to brand and position their wines. Chile has been one of these big new players in the new wine market, and has maintained an export expansion strategy that has impulse a lot of economic growth in the areas devotes to wine branding. The Chilean wine has usually fallen into the lowest part of the value spectrum, but has maintained a good value for money category. MontGras is the Chilean winery to be analyzed in this case. This research paper seeks to explain a little bit about the companies profile, the overall global market, the different trends within the wine market, and most importantly: The strategies that would be suggested to MontGras in order to win more popularity. In this essay we seek to explain why we would choose to participate in the promotional program proposed by Tesbury, a UK based supermarket chain. We will explain we think that MontGras should enter the American market and why it should do it through Cabo imports. We will also explain how we think that the Wines of Chile program will impact Monagass strategy and if it should or should not enter their international campaign.

Companys profile. MontGras was a Chilean winery founded on 1992 by Hernn Gras, third-generation winemaker with international experience, his brother Eduardo Gras; and Cristin Hartwig. Their goal was to be able to produce and commercialize fine wines that had export quality. They established their vineyard in a region called Conchagua, and by 2001 was already one of the biggest winery boutiques. The company was ranked as the 20th largest wine exporter in Chile. Montgrass strategy was not to compete against other larger producers, but instead trying to overcome their own quality in order to make better and better wines that could be sold at premium prices. MontGras consisted of 97 employees, with only 13 working at the Santiago headquarters and the rest of them working on the vineyards and winery. The president of the company was Hernn Gras, while the CEO from 1995 was called Patricio Middleton, who started as the export manager. The company first started planting on 1993 and had its first harvest the next ear. Within a few years they had already expanded from 124 acres to 500. By 1996 they had overcome by far their sales expectations for 2005, selling 220,000. This proved that the company had what was needed to program a big expansion in the following years, establishing a goal of selling up to 650,000 bottles by 2005. The vineyard manager was Alejandro Hartwig, who had 42 people under his charge and had to deal with some temporary hiring. Hartwig managed to make the vineyard produce up to 62% of MontGras grapes self-consumption, which was important in terms of maintaining a big wine reserve that could assure stable quality for the years to come, even when facing temporary climate adversities whatsoever. The rest of the grapes were purchased to Santa Laura vineyards that usually signed three-to-five years supply contracts with wine producers from the Colchagua valley. During the 90s decade MontGras invested up to 3 million dollars on vineyards up on Ninqun Hill that was a strange place to plant, but was also very promising. There would be a very small production from these fields, but this production was promising as it was supposed to give birth to an ultra-premium-quality wine.

The finished wine was stored for at least a year, and they had to have enough wine in their inventories to supply next year sales. And as the wines became better more capital was needed to finance the aging process and as a result have a really fine premium wine. 98% of what MontGras produced was for exportation purposes. By the year 2000 they were commercializing their wine in around 24 countries and their largest market was in the United Kingdom. Also, MontGras at this point only commercialized wines under their own label and was managing to have a solid and continuous raise in their prices, reaching the 32.5 USD by 2000 in their FOB price. Montgrass sales and export manager was Benjamin Silva and in every country where they sold their wine they had a sales agent with who they had an exclusivity agreement in which the agent was the only sales representative in the territory and Montgrass wine would be the only Chilean wine they would sell. The marketing strategy was planned and financed by both parts of the business deal. By the year 2000 MontGras was selling over 100,000 cases of wine a year in the UK, while they felt like they needed to focus on the penetration of the American market in order to potentiate their sales force. This would become one of their main near future campaigns.

Wine global market As we know, drinking wine has been a European tradition since before America was even discovered, and before 1980 the wine production was pretty much all located in countries such as Spain, Portugal, France, Italy and Germany. It was in the 80s decade that New world competitors started emerging, and they were not only competing with the Old world but they were also challenging the market with innovative production and marketing techniques. The wine industry is highly fragmented as it is a commodity vastly produced in the world. The European producers had long-standing traditions on the making, selling and regulating of their wines. These European countries had a big domestic market and a whole structure built around the wine business. The wine categories of the old world were in terms of the regions where the grape was grown, and they always made wine blends using different kind of grapes. In the 80s some important international players from the new world started emerging as global competitors, mostly from USA, Chile, Argentina, South Africa and Australia. These competitors had a less variable climate that allowed them to make more regular harvest. In the new world there were not rules or restrictions on the wine as there were in the old world, this allowed the competitor to innovate and think outside the box the European had built over the decades. The new world usually designated their wines in terms of the grape they used, being mostly single grape wines. As the wine was not a substantial part of the new worlds culture these competitors mostly had an export orientated strategy in order to scale in terms of sales volume. The worlds wine market was valued in 150 billion USD in consumer value and 60 billion USD in wholesale value. Between 1995 and 1999 there was a 4.3% compound annual rate increase in consumption. But for the new worlds competitors the growing rate was an amazing 18.3%. After the 90s export boom for the new world producers the business started getting a little rougher. By 2001 the world scenario showed a huge grape oversupply, and the projected consumption growth until 2006 was estimated to be of 1% annually. This represented huge trouble since it was predicted that the wine market would face fierce competition and an overall drop on prices.

Another trend clearly showed that the distribution channels were changing as well, concentrating in a few hands and shrinking the amount of actors in scene, going from specialty stores to big supermarket chains. This also caused that the small and medium size wine producers had to make alliances with bigger players, since big distributors preferred big suppliers. There was a clear path that showed market researchers that people were starting to go for the premium finer wines, so the expectations said that by year 2025 the sales on wine will drop as the market value will increase. This trend showed that there had to be a change from being an agricultural commodity to becoming a quality, branded-image product. As we can observe, the wine market is a very complicated one. It had experiment a lot of changes within the years, from the market entering of new world participants on 1980, to the export boom of 1990 that strongly positioned these new wines into the global market, to the grape oversupply on 2001. There is no room for comfort in this business as it all depends on the abilities of the companies to adapt to the changing scenarios.

Position Statement & Action Plan How should MontGras enter the U.S. market? With which distributor? Why? Entering a new market is always difficult. MontGras had already tried to enter US market twice. Yet they had no success. In the case there are two main distributors to choose. The first is World Wine Importers. This distributor was already distributing another Chilean winery, but the company was still interested in distributing MontGras Wines, specially the reserva line. This company was looking for a value for money strategy. They wanted the MontGras wines to be competitive against the more expensive Californian wines. They recommended a retail price at $7.99 - $10.99. Based on that retail sale price, World Wine Importers forecast volumes of 40,000 cases during the first year, and increase the volume up to 120,000 cases by the third year. This was a tempting options because of the high volume of sales. The problem is that the strategy of Value for Money wasnt exactly what MontGras wanted for they wines, since they see their wines as premium ones. And yet another reason to think twice about this partnership is that in previous relationships with big distributors such as World Wine Importers, their wine didnt sold as expected, and the distributors didnt played much attention to the MontGras wines. The other importer is Cabo Imports. This importer started in 1978 selling just one Italian Wine, but by 2001 they had grown to a portfolio of 50 brands, with 70% of their sales still coming from Italian imports. This imported already sold Chilean wine, but it was a low-end brand aiming a retail price of $5.99 - $6.99. With was a complete different market from what MontGras was looking for. The strategy of Cabo Imports was almost opposite to World Wine Importers. They intentions was raise the perception on MontGras quality, therefore raise the price, and maximize return for all parties. Part of the strategy included to create a brand champion a full-time MontGras employee based in the US who would be the face of the brand for retailers and customers and would organize tasting in wine shops and promotions and incentives for the sales force. This would cost about $120,000 annually. Cabo Imports suggested a retail price of $7.99 $14.99, and their forecast for the first year was 25,000 cases in the first year, and increase the volume up to 60,000 in the third year. They also wanted to use Ninqun wine as a flagship for the line, targeting a retail price of $24.99 with a forecast of sales of 1,500 cases by year two. We think MontGras should make a partnership with Cabo Imports because of tree main reasons. The first one is that MontGras makes premium wines, and they had never 6

intended to pursuit a value for money strategy. It is true that most of the Chilean wines are perceived by consumers as lower quality than Californian wines, but the studies of Australia suggest that by 2025 consumers will be buying less wines, but paying more for the better quality. Cabo Importers strategy to position MontGras as a premium wine is more alike with the vision MontGras had for their wines. The second reason to choose Cabo Imports is that the World Wine Importers already sell Chilean wine. MontGras already had bad experiences with the distributor paying almost no attention to their wines, so selecting a smaller distributor that has no similar wines is a smart choice to avoid having the same problems again. And the third reason is that the Wine Spectator magazine had already made a good review on the MontGras wine, it placed their wines at the higher ranks of Chilean wines and justified prices up to $15 at retail, which is the price Cabo Importers had suggested. Would you recommend MontGras to participate in the promotional program proposed by Tesbury? Why? Tesbury is one of the leading supermarkets chains in the UK. There are two proposal from Tesbury to MontGras. The first one was a promotion in their Merlot Reserva 2000 which had been awarded with a gold medal by the leading UK wine magazines annual survey of the market. They won the gold medal for the Best Value Wine. Tesbury was planning a Gold Medal Wines promotion in which 10 medal-winning wines would be offered for a 1 off. The second proposal that was planning to take place tree months later, was to include MontGras in a promotions of South American Wines. The promotion would take a %15 off the price of 6 South American wines. Booth promotions would be supported by 100,000 of press advertising, direct marketing to regular store costumers, and point-offsale materials. The mix of promotions, press ads and the in-store merchandising, could make MontGras one of the best-known Chilean wines in the UK. We would recommend MontGras to participate in the program because is a unique opportunity. There are just a few things to consider before accepting the proposal of Tesbury. The first one and most important is the risk of being perceived as a low-class wine because of the low prices. Even though it is risky, and people could perceive the wine as a more common and low-class wine, the proposals are just promotions for a period of time. The regular price of the Reserva is 6.79 ($10.18 USD) which still places the Reserva in the Super Premium quality segment according to the graphic on the case. So the risk of being perceived as a lower-class wine are not that big. Supermarket chains in 7

the UK are fighting for the wine sales since the liquor stores are disappearing. It is normal to see many promotions at the supermarkets, and it is normal for the supermarkets to promote those wines that are attractive to the public, like award winning wines. And even if the regular promotions in the Reserva line make the audience perceive the wine as a more low-class wine. They still have their premium wines selling at restaurants and specialty stores. And they can still archive the premium market with the DeGras line, or the Ninqun wines. How would the Wines of Chile campaign impact MontGras strategy? Would you recommend MontGras to join in the Wines of Chile campaign? One of the major questions that M. Middleton had to answer in is analysis of MontGras case was whether or not he should join the Wines of Chile campaign. Before we can answer this question, it is needed to formulate the impacts of the campaign on the global business strategy of MontGras. The campaign: Wines of Chile is a wide range campaign to promote not the Wines of MontGras but the whole selection of Wines coming out of Chile every year. The first problem that we can observe in this situation is that most wines of Chile are known for great quality attached to a small price (5$-10$) if compared to European wines. Why would that be a problem? Because the whole strategy of MontGras is based on his Reserva selection (12$-25$) which is a higher-end version of the normal Chile wine. Therefore, engaging in a global campaign to promote the lower-end Chile wines would not be correctly aligned with the business strategy of MontGras which would delude the efforts of the company. And thus resulting in a waste of resources for MontGras.

In the contrary, where the Wines of Chile campaign would focus on promoting the higherend wines or at least the high quality of the Chileans wines the impacts would be a lot different. Having a better international image on the high-end wines of Chile would greatly help the strategy of MontGras. First of all, with a better renown, it will be easier for MontGras wines to penetrate new markets as their name and brand would be known and appreciated. Mostly if we consider that the wine industry is highly connected to what the experts think on a certain name or brand of wine. In addition to facilitating the entrance in new markets, the campaign could greatly help the product position in the consumers eye. That could lead in different directions, depending on the strategy chosen by M. Middleton. With a better position, M. Middleton could more easily raise the whole price of his Reserva 8

selection (probably more than the U.K. elasticity experience demonstrated) or he could instead lower the price of his line of product and take bigger shares of the market. Due to having a better position on his prime product: the Reserva wines. In consequence, that M. Middleton go in either direction we could foresee a raise in the margin profit on the Reserva line of product. More important are the market shares means a better economy of scale and raising the price of a product with a low elasticity can both raise the margin on profit of each bottle.

In addition, a greater renown for MontGras could lead in a reorientation of the companys strategy. With the name and quality already made in the global market, M Middleton could refocus his interest. By example, he could easily lower is marketing needs and cost and relocate those resources in his salesforces, thus augmenting is sale without really raising its costs.

With this said, what is the answer to our primary question: Should MontGras join the Wines of Chile campaign? Overall, the impacts on MontGras business strategy will highly depend on how much does the Wines of Chile campaign aligned their needs on the needs of MontGras. Therefore, M. Middleton should only join the Wines of Chile campaign if the goals of the campaign. In addition to having the same goals (promoting the high quality/high-end wines of Chile) the campaign will also need a couple of other points for it to be acceptable by MontGras management team. First of all, the campaign should be able to obtain better marketing results then a MontGras-made campaign. If the Wines of Chile campaign is able to obtain better results than a campaign solely made by MontGras it also has to do it for a smaller cost then if MontGras would have done it alone. The campaign, for it to be accepted, should also focus on the same region that M. Middleton wish to focus his exportations. If all those criteria are filled by the Wines of Chile campaign, then there is no doubt that M. Middleton should join the nationwide campaign.

In the case where the campaign would not have common goals with MontGras high-end strategy, M Middleton should not join it. Even if it fills the other criteria mentioned above.

Conclusion The strategies developed to penetrate the U.S. market and at the same time consolidate the success of MontGras in the U.K. are as follow: To penetrate the U.S. market we proposed to go with the smaller distributor Cabo Import. Mainly due to their strategy not involving a Value for money orientation but instead focused on making the Reserva line a premium product. Which is directly in the same line of idea of the original MontGras strategy. To further implement the success achieved in the U.K. we propose MontGras to accept the offer of Tesbury. Even if that would positionate the product in a lower end class because the size of the partnership is simply too big to ignore. Due to the difference of market between the U.S. and the U.K. , having a lower end imagine will not be negative for MontGras due to the high market shares they will gain and the fact that they also own an higher end brand in the U.K. , DeGras. Finally, M. Middleton should only join in the Wines of Chile campaign if they share the same goals (promote the high end wines of Chile) and if the campaign fits the criterias mentioned above (strong marketing, cost efficient, same regions). Overall, we consider that following these recommendation will be enable MontGras to penetrate the U.S. market and to maintain its success in the U.K.

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