Capitello Wines

MGMT 321
November 30th, 2015
Team A
Eric Davis
Chase Hanley
Vincenzo Cangilose
Zeyi Wang
So Tauch
Brandon Weichers

Description of Company:
Capitello Wines was founded in 2003 by Ray Welsh in Eugene, Oregon. Having over a decade
of experience from King Estate Winery, Ray is considered to be one of the best & brightest
winemakers in Oregon and has crafted award-winning and internationally recognized Pinot Gris
and Pinot Noirs. Capitello Wines crafts low-production, artisan wines including Pinot Noir,
Sauvignon Blanc and Gewrztramine and so much more. Capitello Wines are produced in the
Willamette Valley, as well as Rays native country of New Zealand. This allows Capitello Wines
to create a unique business model that is able to showcase the different flavors of wine between
Oregon and New Zealand.
Description of Competitive Advantage:
The strategic vision of Capitello Wines is to create and feature the differences in which Capitello
wines are made from. Ray considers himself a New World winemaker and is constantly
experimenting with unique techniques to produce his wines. Capitello Wines are backed by
craftsmen who stand behind their work. Wines are created with immense pride, integrity, and
superior artisan craftsmanship. Capitello Wines believe in buying from growers that are the best
of the best in the wine industry. They are able to bring forth exclusive taste with innovative ideas
to the wine trade, while creating a new approach and present a refreshing style to the Willamette
Valley. Based on this, Capitello Wine creates a strong differentiation strategy compared to their
competitors in the Willamette Valley.
With Rays undisputed reputation working with Villa Maria Estate, New Zealands most
awarded winery, and his experience with King Estate Winery, Oregons largest wine producer
and the nations standard for producing Pinot Gris, Capitello Wines is able to leverage Rays
advantage into a direction that creates superior value for their products. Ray was the first wine
maker in Oregon to use the process of dealcoholization for his wines and has experimented with
using biolees to improve taste, quality, and texture. His innovativeness and craftiness expanded
in 2012, when Capitello Wines began to produce the Pacific Northwests first straw wine.
Captellios New World approach of creating high quality wines, along with their ability to
source resources from both New Zealand and the Willamette Valley, creates a desirable
competitive advantage that stands out amongst their competitors.

Industry Background:
Oregons wine history can be dated back to the mid-nineteenth century when it was first settled.
Wines were simpler and less plentiful. Now, in the beginning of the twenty-first century, the
wine industry is booming. Wines are becoming more complex and the market is becoming more
and more saturated with over 500 producers in the Willamette Valley alone. With so many high
quality producers, the Willamette Valley has been thrust into the spotlight as not only one of
America's top wine producing regions, but one of the worlds top wine producing regions. As the
wine industry in Oregon continues to grow, and wines become more complex, the industry
shows no signs of slowing down.
Problem:
After we conducted interviews with both Ray, the CEO of Capitello Wines, and Jeff, a new hire
Tasting Room Associate, we were able to more fully understand where Capitello Wines
weaknesses lie. Some problems with the company and their strategy they implement include:
1. Capitello Wines faces stiff competition from Oregon Wines Lab, which is located a few
blocks away. Oregon Wine Lab has captured many customers in the Eugene area and has
taken many customers away from Capitello Wines. Oregon Wine Lab offers many
different wines from various vineyards, along with creating a casual dining experience
while also providing live entertainment, that which Capitello Wines is not doing.
2. Another challenge that Capitello Wines is facing is that it creates its wines in New
Zealand. This means they have to incur shipping cost and custom fees which could be
very expensive for their budget.
3. Statewide competition from over 500 wineries and local competitors from reputable
vineyards such as King Estate, Sweet Cheeks, Iris Vineyards, Silvan Ridge, Cooper
Mountain, Willamette Valley Vineyard, etc.
4. Another challenge is the limited number of both manpower and proper management for
Capitello Wines. In most cases, the Capitello Wines depends on Ray for the direction and
guidance. Over- dependence on Ray can be disastrous because if he were to make a
mistake at any point, the company can suffer a lot. The reality is that Capitello Wines
cannot effectively run when Ray is not present. With Capitello Wines being run
exclusively by Ray, the company lacks organization. It is unclear as to what duties Ray,

Jen, and Gina each have. Surely a company that wishes to make profit and thrive in such
a competitive industry cannot solely rely on one, two, or three people, one of which is
just a manager.
5. After talking to Ray, he slightly mentioned that his business is not very profitable. The
wine industry takes high capital, paying thousands of dollars for wine barrells, hours of
man labor for harvest, and years of letting inventory age, Ray barely manages to get buy.
There are two types of motivation, extrinsic and intrinsic. Ray mentions he loves the art
of making wine which would be intrinsic, and compensatory rewards would be extrinsic.
With the lack of motivation through making money with his business, Ray has no reason
to want to implement strategy to grow his business.
Solution:
Upon analyzing Capitello Wines and the problems they face, possible solutions include:
Capitello Wines should focus on the target market of consumers within the Eugene area. If they
are able to steal customers away from Oregon Wine Lab, then theyll be able to create more
brand awareness and foot traffic for their store. This will lead to increased profits, greater brand
recognition, and create the opportunity to hire more employees and ultimately expand their
business throughout Oregon.
In order to expand his business, which he hopes to do, Ray cannot hold all of the responsibilities
and duties. Hiring new employees, especially on the management level, would help ease the
structural organization of Capitello Wines. Ray seems overwhelmed with the number of duties
he has and having a greater management workforce can create company efficiency when it
comes to tasks such as public relations, developing marketing promotions, or even crafting wine.
Capitello Wines could also look into purchasing an estate within the Willamette Valley and
begin to grow their own grapes instead of purchasing from local wineries and also shipping
products from New Zealand. By having a local estate, Capitello Wines will cut their overhead
cost greatly. Annual shipping costs and possible custom fees from New Zealand can add up and
make a huge dent on their budget. By having an actual estate, Capitello Wines can develop a
much stronger foundation and foot place within the Eugene and Willamette Valley area.

Capitello Wines could also expand with their promotional and marketing efforts as well. Not
much marketing takes place for Capitello Wines, and as mentioned above, Capitello Wines could
create partnerships and discount rates with hotels around the area. Since a majority of visitors are
guest from nearby hotels and U of O parents, a type of promotional campaign could be made.
Further advertisement effort could be developed within the U of O campus aimed towards
students, since this area has a large population of potential consumers.
Furthermore, Capitello Wines could open up their tasting room and host live bands, food
catering, and tasting events. This would be a great way to promote the company and influence
more customers to buy their wine. Wine journalism would be another suggestion in combination
with their backroom tasting events. Capitello can invite a Wine Journalist to critique their wine
and write a blog, post or article in the local newspaper. This will create more exposure and allow
for further brand recognition for Capitello Wines.
A successful business is normally judged by its sales, and its profit margin. Ray has decent sales
for a business, but the profit margin is low. To solve this problem, it is really up to Ray to decide
if he wants to increase his profit margin. From there, it will begin with organization. Organizing
a strategy, besides the love for wine. This would start with specific delegations of tasks. Most
employees have a lack of skill and knowledge of what they should be doing. From there,
research on how to decrease the cost of materials would be next. Ray stated many times that the
cost of materials is the most expensive factor in the wine industry. There are ways that he could
possibly work around this like partnering with another company, or finding another company
within the states to supply him with what he needs.
Being a small winery in an enormous industry, Ray needs to implement changes immediately
and effectively if he hopes to increase profit margin and expand his company. Continuing to
differentiate his products will still be an effective strategy as he begins to change his overall
strategic vision. Starting with upper management, by delegating his many different roles to new
or promoted employees, to expanding his winery by purchasing an estate and growing his own
grapes right here in the Willamette Valley. By implementing these changes along with a few
others, Ray can successfully create higher profit margins, less employee turnover, and more
brand recognition for Capitello Wines.

Appendix
a). Organization Chart

b). Mission Statement,

After researching this business, they do not have a mission statement. This directly
relates to the lack of organization, motivation, and profit margins. This could be a beginning step
to helping this business be more successful.
c). List of Key Players,
Ray Walsh, CEO. Jeff Patriarca, Tasting Room Associate.
d). Company History:
Capitello Wines was founded in 2003 by Ray Welsh in Eugene, Oregon. Having over a
decade of experience from King Estate Winery, Ray is considered to be one of the best
& brightest winemakers in Oregon and has crafted award-winning and internationally
recognized Pinot Gris and Pinot Noirs. Capitello Wines crafts low-production, artisan
wines including Pinot Noir, Sauvignon Blanc and Gewrztramine and so much more.
Capitello Wines are produced in the Willamette Valley, as well as Rays native country
of New Zealand. This allows Capitello Wines to create a unique business model that is
able to showcase the different flavors of wine between Oregon and New Zealand.

e). SWOT and 5-Forces Analysis

SWOT
Strength:
Capitello Wines is located right in the middle of Eugene, Oregon. Their downtown location
allows for customers to sample their wide selection of wines without driving out of city limits.
Capitello Wines also has a different business model, not very common within the wine industry.
Capitello buys some of its grapes from local vineyards and produces them here, however, they
also partner with vineyards in New Zealand to produce their pinot gris as well as their pinot noir.
This model allows for Capitello to provide a very unique product mix and differentiation in taste
and quality giving them a comparative advantage to other wineries within the Willamette Valley.
Weakness:
Capitello Wines has a limited amount of staff presence, since there are only 7 total employees
within the entire company. With such a small workforce, Capitello relies heavily on their owner
Ray Walsh for direction. From our experience with trying contact and find more information
about Capitello Wines, being too dependent on Ray can lead to mismanagement and
disorganization on a company structural level. Capitello Wines has only been in business for 12
years, compared to their competitors such as King Estate which opened in the early 1990s,
Capitello Wines is still emerging within the wine industry. Capitello Wines popularity and
familiarity may not be as strong compared to King Estates or Willamette Valley Vineyards.
Another weakness that we observed was the lack of profits that the owner Ray admitted to
making. He stated that the wine industry is not always very profitable and it has been especially
hard for him to make a living at it. Lack of profits could be leading to a low amount of
employees, and lack of motivation by Ray. A weakness that all wineries have to face is the cost
of the production equipment. Most the equipment is made across seas and are extremely
expensive. Wine barrels are one example and cost hundreds of dollar per barrel. Also, by only
creating their wines in New Zealand, quality control and expensive shipping cost could be
expensive for their budget. This could create unnecessary overhead cost compared to growing
fruit, processing and packaging their wine locally.
Opportunities:
Capitello Wines innovative and new world mind set allows for the creation of different
products such as straw wine, something never done before in the Pacific Northwest. With
creative and innovative ideas from Ray, Capitello Wines has the opportunities to craft even more
unique wines. There is also a lot of room for Capitello Wines to grow within the Eugene market
as well. As they are one of the few wineries in town, Capitello Wines has a great advantage to
expand their business and attract more consumers, in particular the chance to tap into the student
population on campus. Currently a majority of their customers are new visitors, particularly
people residing at nearby hotels or visiting the U of O. Capitello Wines has the opportunity to
market and promote their brand to hotels and visiting parents. Partnerships and discount rates
with these hotels could be created as a promotional campaign.
Another opportunity Capitello has is to explore wine journalism. They can bring in a wine
journalist who will be able to review their wines and publish their findings in local papers and

magazines such as the Oregonian and the Willamette Valley Life magazine. Studies have shown
sales increase an average of 16-18% after a wine journalist reviews a company's wine.
Threats:
Capitello Wines faces many threats on a local level. Oregon Wine Lab, which is located just
around the corner from Capitellos retail store, has captured a majority of customers within the
Eugene area. Oregon Wine Lab offers different varieties of wine from different vineyards, while
creating a relaxed atmosphere by having local bands perform and establishing a restaurant-type
feel. This can lead to a decrease in profits and popularity for Capitello when their competitors
can offer something they do not have. Most importantly, by creating a winery within the
Willamette Valley, Capitello Wines faces stiff competition from top named vineyards and
wineries such as King Estate, Sweet Cheeks, Iris Vineyards, Silvan Ridge, Cooper Mountain,
and many more.
Five Forces
Rivalry among existing competitors: Being in the Willamette Valley, there is high rivalry
amongst existing competitors because of the large quantities of wine being produced. The market
is saturated with more than 500 high quality producers. In terms of direct competition, Oregon
Wines Lab, Capitellos arch rival, is located very close to Capitello wines and produces a variety
of wines which statistically are more popular than Capitello Wines. In that regard, the sales trend
has shown slower performance of Capitello wines. While Capitello produces its wines in both
Oregon and New Zealand, Oregon Wine Lab offers different wines from various vineyards in
Oregon. In addition, the company faces competition from other reputable vineyards and
wineries, such as King Estate.
Bargaining power among buyers: As with any business, there are companies that produce the
same product with the same or higher quality than Capitello; therefore they have more variety
from where they can choose. In order to compete, Capitello Wines will have to adjust their
quality and pricing so as to meet the demand of the customers. Because there is a winery that
produces a variety of different wines right across the street, consumers dont have to think twice
about venturing to a new winery if they do not like the selection they see at Capitello. Ray notes
that most young people today are getting into wine and they cannot afford expensive bottles. So
the wine producers have to consider the costs of production when making inexpensive bottles of
wine. Capitello has to make profit, however it needs to provide the consumer with a quality wine
at a fair price. This makes the profit margin low because the prices of wine have to be reduced so
as to meet the market demand.
Bargaining power of suppliers: Capitello does not have their own personal estate in Oregon, so
they work together with other estates that are already established around the city. These estates
supply them with grapes so Capitello can produce wine here in Oregon. Although they do not
incur costs for owning an estate, buying grapes year after year can add up. Furthermore, because
of the existence of other wineries in town, the supply can take advantage of this to exploit
Capitello as they are well aware that there are more demands for their raw materials elsewhere.
Additionally, due to the small size of the company it cannot enjoy economies of scale, such as
getting discounts when they buy in large quantity.

Threat of substitutes: The threat of substitutes is high as there are many high quality producers
and wines in the market. Across the street from Capitello, Oregon Wines Lab offers a variety of
wine products that present people with a different choice. Those who drink wine like choosing
from varieties and if a company cannot offer what they are looking for then it loses customers.
Moreover, many companies that are joining the market are very willing to offer such a variety to
their customers. In addition, Oregon has a lot of powerful beer producers that compete with
Capitello wines which leads to reduced market share. It is becoming more apparent that young
people choose to drink beer, especially because it is cheaper and more of a party drink.
Threat of new entrants: There is an increasing number of entrants in the wine industry that
pose a potential threat to Capitello Wines. In Oregon, and more specifically the Willamette
Valley, the number of producers continues to increase, however it is getting harder and harder to
enter this market, as competition is strong. Capitello is working on differentiation and
progressive economies of scale to avert the market size threat.
f). Analysis Proposal
1) What company do you plan to analyze?
Capitello Wines
540 Charnelton St,
Eugene, OR 97401
2) What are the names of the individuals who you will be interviewing at this company?
Ray Walsh: Owner of Capitello Wines - Jeff: Tasting Room Associate.
3) What is your connection to this company and who made the contact?
We have no direct connection to this company. We all made contact by driving over to
the winery and introducing ourselves. We chose this winery because it is local and they
are located inside Eugene, not around Eugene. Also, none of us have ever heard of this
winery before and thought it would be a great idea to learn more about it.
4). What course topic will you be analyzing at this company?
We will analyze the strategic vision of Capitello Wines and focus on what they do to get
their competitive advantage.
5). What questions will you ask your contact? The answer to this question is made up of
parts A through C below:
A. What questions will you ask to help describe the course topic as it applies to your
company?
1. How do you keep your employees motivations aligned with the ideals and objectives of
the company?

2. How do you maintain differentiation of your products to keep the competitive advantage
of your company over your competition?
3. How does upper management decide on the new products they will deliver to your target
market? (since it is a small company we will be asking Ray these questions since he is
most likely the one making the decisions.)
4. What is your marketing budget? (you can give a range)
5. What is your promotional strategy? (ex: traditional advertising like
6. magazines, websites)
7. Who are your competitors/rivals?
B. What questions will you ask about problems or challenges the company is facing on that
topic?
1. Who is your biggest competitor?
2. What new challenges have recently arisen in your field? How have you solved them?
3. Are your wines currently sold in restaurants? Do you sell in other countries? If so, how
many? Do you plan to expand in the future?
C. What are your questions about possible solutions the company has planned?
1. How have you adapted to the increasing population of market competitors?
2. How have you used benchmarking in your company?
D. OTHER Questions.
1. Personas? (Have you noticed different groupings of people who come to your winery (ex:
wine connoisseurs)
2. How do most people find out about your winery in general?

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