What type of organisation is Schultz Wines?

Schultz Wines is a family-owned company, listed on Australian Stock Exchange 1992. It was founded in 1840s
by Barossa Valley and has been run by a fifth generation winemaker, Frederich (Fred) Schultz.

What industry, product segments/markets does Schultz Wines operate in?

Schultz is the 8th winemaking company in Australia and producing only high quality premium wines for
domestic and export sales.

What is the current life-cycle position of the industry?

The Australian winemaking industry is at the mature stage of its life cycle. The domestic consumption has
shown a low average growth rate of 1.4% pa. As the exports has been a significant component of total sales
(60.7% of total sales of table wine in 2009), the low consumption rates of the main traditional wine drinking
nations like France, Italy and Portugal (with average growth rate declined by 2.7%, 2.1% and 14.5%
respectively as shown in Table 7) and with the consumption in both France and Italy is shrinking by about 1%
per year, it indicates that the industry is approaching to mature stage of its life cycle. The experiences of
domestic consumption growth, increasing numbers of wine brands and industry consolidation through a
number of mergers and acquisitions is the evidence of a mature industry. The production has increased an
average of 12.8% (based on data in Table 1) over the last ten years. However, due to the innovative
winemaking styles, flavour and value for money, despite the decline in total wine consumption around the
world, Australian winemaking industry are growing rapidly in the international wine industry. This is
demonstrated by the strong export growth as shown in Table 2, 5 and 6. Over the ten years, it seemed that
the export of table wine has experienced a strong average growth rate of 20.3% pa, the export of sparkling
wine and fortified and other wine were 11.9% and 25.9% pa respectively.

What have been the key issues affecting the historical industry growth? What was their impact?
Based on the data in Table 2,5 and 6, the productions of table wine, sparkling wine and fortified and other
wine have grown by an average of 10.6%, 4% and -1% respectively, indicating strong average growth in table
wine and low average growth in the other two segments. There has been a strong growth in wine industry
due to the sound growth of global economy for some years. The increase in wealth and incomes in the past
10 to 15 years have changed the consumer tastes both in Australia and overseas to premium wines. While
both domestic and export sales have grown over the last 10 years, export sales have contributed the most
growth.
Refer to Table A below demonstrates by using the remote environment analysis model how the historical
growth rates to date has been affected by the following issues:

Nature of impact Assessment of

on industry growth impact on
industry growth
Social factors:
1. Health concerns that red wine reduce risk of cardiovascular disease Positive High
and increase overall lifespan
2. Wine consumption by regular and moderate consumption Positive Medium
(changing role of women and ageing of Australia's population)
3. Low domestic consumption per capital compared with other Positive, domestic consumption Medium
countries Table 9 (p8) is below other country level and
has opportunity to grow to these
level
4. Wealth and incomes increased, consumer tastes have changed. Positive
 Premium wines are favoured more. P.9
5. Trend of eating out and expanded wine can be consumed Positive Medium
6. The overall impact of social change is positive for industry growth
Demographic factors
1. High level of beer consumption in Australia
2. Growth in income and rising living standards raised per capita wine
consumption in Australia
2. The overall impact of demographic factors in neutral for industry growth
Cultural factors:
1. Lifestyle change expanded changes, wine is a mainstream alcoholic
beverage accompany meals in the home
3. Consumer preferences extend western behaviours and tastes to Asia providing an even greater
market growth opportunity

What have been the key issues affecting the future industry growth? What was their impact?
Despite rising incomes in both traditional and non-traditional wine consuming countries, global demand for
wine is not responding as more wine drinkers move into retirement (with the reduction in income as they
move out of the workforce) and younger age groups exhibit a preference for other alcoholic and non-
alcoholic beverages. No major changes are expected in the political and legal barriers to imported wine and
wine distribution within European and US markets in the foreseeable future. Through leadership in product
innovation and world-class technology, Australian wines will still provide high growth for the industry. Even
though the import tariffs on wines have declined, the high transportation costs have give a natural
disadvantage for imported wine. The global financial crisis has reduced the growth in the industry but this is
expected to be short term as the global economic has started to recover. Increasing acceptance of wine as a
drink for a range of social occasions, supported by increasing incomes, is expected to ensure continued
growth in wine consumption.
Wine stocks to sales ratios are expected to increase in the next few years as production growth is expected
to outstrip sales growth. Deteriorating economic conditions and strong competition in key export markets
are the main factors behind the expected slowdown in wine sales in the coming years. As export is the major
part of the total wine sales, the exchange rates, incomes and general economic conditions in key overseas
markets are the important determinants of demand.
In summary, the industry is expected to have low to medium growth, primarily due to exports.

What have been the key issues affecting historical industry profitability? What was their impact?
Australian winemaking industry is facing the challenge of maintaining profitability in a market environment
of relatively flat demand, increasing supplies and declining prices.

Industry profitability has declined due to lower wine prices in key export markets and higher grape costs
caused by drought conditions in 2007. As the export sales demand has not grown at the same rate as
production growth, the excess stockholdings has depressed the export price particularly in the last two years
the price per litre of red wine has fallen below that of white wine. Even though there was increase in revenue
due to the market consumption trends towards the premium wine, the declining average GP margin (Table
10) has been due to exports being increasingly subject to price pressure from strong buyers in the UK and US
markets, the average price per litre of Australian wines has been declining in the highly competitive UK and
US markets (Australian winemakers receive only $3.81 per litre for UK exports compared with $5.27 per litre
for sales to the US). Also, the unfavourable exchange movements in Australian dollar has reduced price per
litre for export wine.
Using Porter’s five forces model (and the extended eight forces model) to review the historical profitability, it
can be concluded that industry rivalry has increased. This is the result of the following factors:

Future industry profitability

Over the medium term, concentration of major retailing buyers will continue to see producer margins
squeezed in both domestic and export markets, especially the UK.
Overall, the continuing global over-production and excess stockholdings, the competitiveness of new wine
countries and the increasing power of the retail sector will be hurting Australian wine prices.
On the basis of the discussion above, it is concluded that the future profitability of the industry will continue
be medium and declining.

What business strategy currently pursuing and has it been achieved?

Using the five questions approach:
 Does Schultz Wines plan to grow?
Yes, its vision is to become Australian’s most prestigious winemaker and top five wine companies in
Australia
 What product/services will Schultz Wines provide?
Its strategy stated is ‘being a producer of superior ultra premium and premium varietal wines’
 In what markets will Schultz Wines operate?
It plans to expand the distribution base of Schultz Wines’ products in both the domestic and export
markets through widely recognised brands and strong distribution relationships
 What generic strategy Schultz Wines adopt?
Leader strategy focusing on differentiation and low cost. Differentiation strategy based on focus on
premium varietal table wines and low cost strategy which is achieved through crushing grapes for
other wineries to achieve production economies of scale.
 What position in the industry does Schultz Wines plan to hold?
To become Australia’s most prestigious winemaker and in the top five wine companies in Australia.

Has Schultz Wines been pursuing this stated strategy?

Schultz Wines has clearly been following its stated strategy of growth as evidenced by:
- The listing on Australian Stock Exchange in 1996 in order to raise capital to invest in the future
development of the business and to ensure a strong financial position to take advantage of
future market growth
- Increase direct sales by establishing The Schultz Cellar Club in 1999 to sell their own branded
wine
- Attempt to expend the Schultz Wine Cellar Club into UK and US
- Awarded the contract to supply ultra premium red wines by Indian government provide
significant growth opportunities in Indian market
- Schultz Wines is working with Air Australia to develop a new product line of 150ml wine bottles
for passengers on flights to India
Stated strategy of focus on superior market to produce ultra premium and premium varietal wines:
- Strong and enduring friendships with local grape growers means Schultz Wines has access to the
widest variety of best Barossa Valley grapes available
- Strong branding and relationships with well established wine merchant in both domestic and
overseas market
 - Strong brand marketing and promotion
- The Schultz Cellar Club to sell their own branded wine and has won the ‘Best winery tourism’
(national) and ‘Best winery’ (South Australia) each year for the last five years
Stated strategy of low cost:
- Schultz Wines crushes grapes for other wineries to achieve production economies of scale
- Schultz Wines’ net margin was 37.2% in 2009 which is higher than the Industry average of 34.9%
and its key competitor average of 33.1%.
The only area where Schultz Wines has not achieved its stated strategy is in relation to the position within
the industry that it wants to become the prestigious winemaker and be in the top five wine companies in
Australia. Schultz Wines is currently ranked 8th in size, while Schultz Wines has experienced strong growth
compared with these competitors and is closing the gap, at 1.6% industry market share there is still a very
large turnover difference between Schultz Wines and its competitors (In 2009, the three largest Australian
winemakers namely, Allens Group, Brooks Wine and Capricorn Wines collectively accounted for over 60%of
the industry revenue, refer Table 13).

What are the strategic capabilities of Schultz Wines, do these meet the strategic goals of the company? Are
the strategic capabilities consistent with the industry’s key success factors?
Strategic capabilities of Schultz Wines, and do these meet the strategic goals
of the company's
Strategic capability tests”
1. Are they valued by the customers?
2. Are they better than the competition?
3. Are they difficult to replicate or imitate?
Valued by Better than
the the Not easily
customers? competition?
replicated?
Industry experts summarise the following factors as critical to future success in the industry:
Production of wine varieties currently favoured by the market / x x
Guaranteed supply of grapes and other key inputs / / x
Economies of scale / / /
Funding capability / / /
Establishment of export markets / x x
Strong branding and marketing relationships / / /

Only positive responses for all three questions represent a strategic capability.
Factors that are strategic capabilities:
It is clear on the basis of the returns that Shultz Wines is able to achieve compared with its competitors that
being a low cost operator provides them with a clear strategic advantage. (It is a low cost operator because
of the economies of scale achieved through crushing grapes for other wineries). Although Schultz Wines’
competitors are able to try and replicate this low cost structure, the key issue as to why issue as to why
Shultz Wines has a strategic capability in this area is that these competitors are not able to match Shultz
Wines’ low cost operation (as evidenced by higher GP margin%, Net margin % and ROA %, refer to Table 14).
This factor, therefore, becomes a strategic capability to Shultz wines because, whilst it is the 8 th largest
company in the industry in terms of market share, it leads to the industry in terms of profitability.
Shultz Wines’ low cost leadership allows funding to be directed towards the company for necessary working
capital for the continued operation and growth of the company and for Schultz Wines to stay abreast of the
latest improvements in viticulture, oenology and technology.
Export wine sales are distributed through well established wine merchants in these major markets, with
whom Schultz Wines has forged strong relationships. This has proven to be a great asset for the company.
Such relationships have enabled Schultz Wines to secure access to prestige hotels and restaurants in the UK
and the US, thereby ensuring strong consumer demand for its wines in these markets. Combined with strong
brand marketing and promotion, its relationships with all of its wine merchants has protected Schultz Wines
to a certain degree from the global economic crisis and declining margins in the supermarket sector, both
domestically and internationally.

Factors that are not strategic capabilities:

The fact that Schultz Wines purchases grapes from about 185 local independent growers who look after
about 900 individual vineyards in the Barossa Valley is not a strategic capability to produce wine varieties
currently favoured by the market. This is because Shultz Wines’ key competitors, Allens Group, Brooks Wine
and Capricorn Wines have all access to much bigger range of diversified vineyards that secured them of the
access to a much wider variety of grapes types.

The strong relationships with its grapes growers appear to be a strategic capability of Schultz Wines to
guaranteed supply of grapes. However, given the high risk of disease and unfavourable climatic conditions
that can impact the industry, self-sufficiency is critical for guaranteed quantity and quality of supply. Since
Schultz Wines is currently only 20% self –sufficient, it does not provide Shultz wines with a strategic
advantage on this basis.

Export market development is crucial as the domestic market is small and mature. The fact that the three
major competitors have already established their distribution channels within the main export markets, given
the relatively smaller size of Shultz Wines, it does not have a strategic capability to compete in the existing
export markets.

Future growth and development are clearly important factors in the Schultz Wines business model, as the
first Australian winemaker to implement Hazard Analysis Critical Control Points (HACCP) plan, this has
provided Shultz wines with a strategic advantage over other winemakers in relation to export sales.

Who are Schultz wines key stakeholders, what are their objectives and are
Aligned with stragtegic goals?
1. Frederich Schultz, the fifth generation winemaker
Objective:
a. Growth and prevent Schutlz from being takeover Yes, wants to keep growing and
successfully rally small shareholder
to against Allens Group’s takeover

b. Prestige in the family company No, may not be interested in deals

c. Personal power over a large empire with key competitors due to need
maintain ‘family’ control

2. Contract grape growers

a. Secure contract and special relationship Yes, ensure to access widest variety of
grapes
b. Maximise profitability No. may result in higher growing cost

3. Schutlz wine employees Yes, ensures low turnover and

a. Secure employment prospects maintains culture
b. Traditional family-based values

4. Government/AWBC
a. Ensure efficient industry Yes, actively assist Australian
companies to expand other market
such as India

5. Wine merchants
a. Strong relationshps secure prestige distribution channel Yes, an asset for access to hotel and
restaurants in UK and US

How has Schultz Wine performed to date?

Schultz wine's performance can be assessed by using the balance scorecard approach:
Financial perspective-Strong
Schultz wine's financial performance is excellent as indicated by its gross and margin and its return on
investment which are higher than both the industry average and its main competitors. Schultz wines’ gross
margin of 37.2 %( 2009) is the highest as compared to the industry average of 34.9% and its main
competitors’ average of 33.1%. Despite the declining return on assets (declined from 8.6% (2007) and
8.2%(2008) to 8.0% (2009)), it is still higher than the industry average of 5.8%(2009) and its main
competitors’ average of 7.7%(2009), and in fact, the ROA % has also declined for whole industry. Moreover,
despite its major upgrade of its production facilities, Schultz Wines still achieve a strong performance of ROA,
it definitely demonstrates that Schultz wines has a high asset productivity.
Customer perspective-Low to medium
Schultz wine's performance has a large gap between Schultz wine's industry market share (1.6%) and the
three largest Australian winemakers namely, Allens Group, Brooks Wine and Capricorn Wines, collectively
accounted for over 60% of the industry revenue, Schultz Wines is at real risk of having no sustainable
differential value proposition for the customer and becoming a ‘me too’ operator in their eyes.
Internal business perspective-Strong
The internal operating efficiency is excellent with the net margin of 20.7% which is higher than the industry
average (16.3%) and the main competitors’ average (14.3%). Schultz Wines’ ROA also demonstrates high
internal asset utilisation, with economies of scale achieved through increased production volume (crushing
grapes for other wineries.
Learning and growth perspective-Strong
Schultz Wines has been actively focusing on the future growth of the business. Constantly exploring into new
markets e.g., India and markets that enable direct sales to the public. Schultz Wines also constantly ensure
that it stays abreast of the latest improvements in viticulture, oenology and technology and can influence
research directions. The "golden grape" was chosen as the company’s corporate logo, reflecting Schultz
wines’ ambition for a golden future for the company.
Summary-Medium
Even though Schultz wines is a listed company, but it is still persist on conserving adequate funds to provide
the necessary working capital for the continued operation and growth of the company. The fact that Schultz
is in a relatively low market share indicates that the company has scope to grow.

Who are Schultz Wine’s key competitors? What generic strategies are these competitors pursuing? What
are their strengths and weaknesses? What is Schultz Wine’s future competitive position relative to these
key competitors?
Future
Generic Value
Strength Weaknesses competitiven
strategy proposition
ess
Allens Focus
Fully integrated Highest market share Strong
group -premium wine

- Australian wine division of

Starfire, the largest wine
brand range
Brooks Broad-range company in the world
covers all prices Strong
Wine differentiation - Brook Wine brand is the
points
second largest selling label in
UK

- Best known in export

markets for Barossa Springs
range and biggest selling Risk of focus on relatively
Differentiation -
Less expensive wine since 1996 small number of brands
Capricorn focused on
best-known - The single largest selling and with the vineyards Medium
wines growing of its
wines Australian bottled wine in located mostly in South
existing brands
the UK, Ireland, Norway, Australia.
Japan, Singapore & New
Zealand

- A potential takeover
target for large overseas
Predominant companies due to poor
McMillan
non-varietal Strong growth in total export performances
Chamber Focus Medium
bulk wine sales - Cancellation of large
Wines
producer overseas order resulted
in discounted McMillan
wines

Small company, The size

of a winemaking business
International is playing an increasingly
acclaimed important part in the
Focus - Owns three wineries in three
Stefano Gallant One that ability to compete, both
premium diverse premium wine Weak
Wines had set industry within the domestic and
quality wines regions
benchmark for international market, in
dessert wines terms of determining
access to markets and
distribution channels.
 Small company, The size
Well known of a winemaking business
brands with is playing an increasingly
reputation for important part in the
McFarlan innovative Reputation for innovative, ability to compete, both
Differentiation Weak
e Wines advanced advanced technology within the domestic and
technology international market, in
wineries and terms of determining
vineyards access to markets and
distribution channels.

- in terms of profitability and

productivity, it has
outperformed the industry
overall and the major
competitors in Australian
industry
- strong brand marketing and
promotion and strong
- only 20% self-
relationships with wine
Best ultra sufficiency, strong
merchants
Shultz premium red relationship with grapes
Leader - strong relationship with Medium
Wines wine for last 10 growers are critical
grapes growers
years - smallest among the
-susccessful cellar sales as
major participants
awarded Best winery
tourism and best winery
awards -
Senior employess ensure the
company to stay abreast of
the latest improvement in
viticulture, oenology and
technology

Summary of Schultz Wines current Strategic position

Schultz Wines’ current strategic position is assessed as medium.
Special relationship that exists between grape growers and Schultz Wine, trust, loyalty and friendships
relationship that Schultz has access to the variety of the best Barossa Valley grapes available. Schultz Wines
focuses on making premium varietal table wines and generally outperformed the industry overall and its
competitors in Australian industry over last five years.
Schultz Wines crushes grapes for other wineries. Extra activity enables the company to achieve production
economies of scale and keep its cost competitive with its larger rival winemakers.
The responsibilities to the community, the environment and sustainability seriously, the company was the
first Australian winemaker to implemental a Hazard Analyses Critical Control Points (HACCP) plan for food
safety system. This has provided strategic advantage in relation to export sales.
However, despite these positive factors, Schultz Wines is only the 8 th largest winemaker in the highly
competitive industry.

Key strategic issues for Schultz Wine

The key strategic issues for Schultz wines can be summarised as follows:
1. The gap between the stated strategy of being the Australia’s most prestigious winemaker and be in the
top five wine companies in Australia and its actual position as 8 th company in 2009
With the three largest winemakers namely, Allen Group, Brooks Wine and Capricorn Wines, holding
61.8% (Table 13) of the total industry market share, Schultz Wines needs significant market share growth
to rival them.
Consolidation of the Australian liquor retailing industry and the tendency for large retailers to deal with
large suppliers means that smaller wineries often have to sell output through cellar door sales and mail
orders. It is likely that distribution considerations will drive future mergers between medium-sized
operators.
The size of a winemaking business is playing an increasingly important part in the ability to compete, both
within the domestic and international market, in terms of determining access to markets and distribution
channels.
All of these mean that multiple acquisitions would be required for Schultz Wines, with the risk of strategic
misfit leading as a result.

2. Being a producer focusing on superior premium varietal wines and the increasing competition in the
premium wine segment
The fact that Allens Group also competes at the premium wine segment and is actually the leading wine
company globally, also the fact that Brooks Wine’s company strategy is to shift also towards higher
margin bottled product, the increasing price competition in this segment and the strong position of the
major retailers will squeeze margins and impact on Schultz Wines’ profitability.

3. Acquiring top quality grapes by developing further the strong relationships between the company and the
grape growers
Schultz wines focuses on premium wines, but market has ever-changing tastes. Schultz wines needs to
secure the access to a wide variety of grape types and the ability to change production and blending
processes quickly as the tastes change. Given the high risk of disease and unfavourable climatic conditions
that can impact the industry, self-sufficiency is critical. The vineyards that Schultz wines owns only
produce about 20% of its requirements, the strong relationships between Schultz wines and the
independent growers become crucial for the guaranteed supply of the grapes it requires. Further, the fact
that Capricorn Wines, who is best known in export markets for the Barossa Springs range, holds about
2000 hectares of vineyards that are mostly located in South Australia has exposed Shultz Wines to a
vulnerable competitive position.

4. The gap between the stated strategy of expanding the distribution base of Schultz Wines' products in
both the domestic and export markets through recognised brands and strong distribution relationships.
With Allens Group; Brooks Wine and Capricorn Wines are International corporate, Schultz wines need to
development of export markets is crucial and domestic market is relatively small and mature. Control over
distribution channel within export markets is also crucial

5. Schultz wines has no sustainable significant differentiating factor compared with its competitors
The strengths outlined in ***(Qn above) for Schultz wines do not provide a source of exclusive
competitive advantage for the company. With the three major competitors now controlling 61.8% of the
market, Shultz wines is at real risk of having no sustainable differential value proposition for the customer,
and becoming a ‘me too’ operator in their eyes.
What are the strategic options for Schultz Wines?
To maintain its competitive advantage, Shultz wine should consider some possibilities:
1. To diversify through an merger with other winemaker such as Australian Beverages
2. Further opportunities for forward (The Schultz Cellar Club) or backward integration (Contracts with wine
merchant partners to extend to the direct-to-consumer distribution), Air Australia
3. Establishment of export markets and control over distribution channel with other cournties
4. Supply contract for the suppliers 1. Bottles, corks and stelvins, capsules, labels and cartons
5. Production of wine varieties currently favoured by the market: Consider expand portfolio with other wines
1. Sparking wine 2. Fortified and other
6. Build strong branding and marketing relationships
7. Guaranteed supply grapes via contract growers
8. Expand market in India, a new export market

Using Ansoff product/Market matrix to identify strategic options for Schultz Wines
Short to medium-term recommendations
1. Market penetration-existing product into existing markets
Schultz wines’ ability to achieve high growth through this option is limited due to the domestic market is
mature. With the slow domestic grow and the limited market size, instead of organic growth, further
growth would be achieved only through industry rationalisation. On this basis, it is recommended that
the following key strategic of merger/acquisition targets be considered:
McFarlane Wines-
Due to its growing/processing capacity, technological focus. As the smallest of the major companies,
McFarlane Wines will need to form an alliance in order to maintain volumes required to offset its capital
investment in processing technology.
Stefano Wines-
Own three wineries producing premium quality wines, all with cellar door operations. The merger would
add competitive advantage to the current position of Schultz Wine in direct-to-public market segment
by increasing the market share in this segment. Schultz wines may also gain benefits due to McFarlane
Wines’ Gallant One which had set the industry benchmark for dessert wines and draw consumer
demand by strong branding wine. Further, Giuseppe Stefano, who is now nearing retirement and the
succession planning might give Schultz Wines the opportunity to put own management in place
relatively quickly.
McMillan Chamber wines-
due to its relatively poor financial performance by the major customers cancellation of large overseas
order led to discounted McMillan wines. It is a predominant non-varietal bulk wine producer, the
merger would provide opportunity to enter inexpensive Australian wines segment, and this would allow
effective diversification of risk. The merger would also provide opportunity to increase sales in UK and
US.
All three targets provide complementary capabilities to those of Shultz Wines and, subject to capital
constraints and/or competition policy issues, should all be considered as possible acquisitions.

2. Product development - New products into existing markets

Due to the high level of beer consumption in Australia and an increase in the consumption of non-grape
based spirits, Schultz wines could expand into producing beer and non-grape based spirits, such as
whisky, bourbon and rum.

3. Market Expansion-Existing products into new markets

Given the success of The Schultz Cellar Club in domestic market, Schultz Wines should establish its direct
sales model to the UK and US market. Given India has one of largest and most diverse mixes of races in
 the world, Australian government actively assist Australian companies to tender for business in India to
ensure their success. Schultz wines could investigate the opportunity for the development.

Long-term recommendation

4. Diversification-New Products into new markets

Due the high level of beer consumption in Australia, Germany, UK and US, Shultz Wines could also
expand the processing of beer into these overseas markets.

The average value of Australian wine exported during 2003-2004 was $4.27 per litre, down from ´from the
$4.67 recorded in 2002/03.´ (17) This drop in average prices was partly the result of heightened competitive
pressures in both of Australia´s largest overseas wine markets. At the same time Californian wine producers
had started to ‘work smarter, to increase their focus on quality outcomes, and deliver what the winery
customer wants at a commensurate price´ (18) Problems had also beset the British wine market, that while
in volume and value terms had doubled since 1995, had seen the average price of a bottle of wine ‘growing
at only 2 per cent a year in supermarkets and bottle shops.´ (19) Analysts claimed that this trend was likely to
continue, given the growing power of supermarkets, and a global net increase in quality-wine supply,
‘keeping prices low in real terms´. (19) Another growing threat to Australia's wine export success emanates
from mainland China

Evaluation of Schultz wines strategic options

Internal consistency
Given the current strategic, operational and functional capabilities of Schultz, it is evident that market
penetration and market expansion are highly consistent strategies. Schultz wines' already has the key
internal requirements to successfully undertake these options and, as such, the risk to the company of
pursing these options is assessed as low.
The real issue arises from evaluating how internally consistent product development and diversification.
Schultz wines current capabilities are not so well suited to these option, which involve the management of
expand products and market portfolios. Accordingly, these options carry an increased inherent risk for the
business-they require new strategic capabilities and skill set as well as changes to the existing functional
strategies of Schultz wines. However, that is not to say that these options should not be pursued. Rather,
Schultz wines should undertake a detailed analysis of changes that the business would be required to make,
if it were to adopt any of these strategies. It should also consider the issue of how easily the changes can be
enacted.
External consistency
Schultz Wines is currently the eighth largest competitor in the Australian winemaker and only compete in
premium wines segment. On this basis, it is clear that again the Market penetration and market expansion
are consistent with the external environment. Opportunity still exists for Schultz wines to create further
economies of scale and grow within the current industry; however, it must be noted that future growth is
going to be slow and this will make such a target more difficult to achieve than previously. It should be
further noted that the key competitors will also be looking for such opportunities. Schultz wines needs to
ensure that it continues to look for new opportunities in this area to stay one step ahead of the competition.
Feasibility
While market penetration is certainly both internally and externally consistent, how realistically it can be
achieved is questionable given the strong competition that will ensure from the three key competitors. As
already discussed, industry rivalry is likely to increase in the future as a result of the need to improve
economies of scale. Profit growth is unlikely to come from market growth alone, given its slowing nature. As
such, the feasibility of becoming the Australia’s most prestigious winemaker and be in the top five wine
companies in Australia seems questionable.
In order for the whole industry to survive and grow, it has to export a large percentage of wine to wine
consumers in the rest of the world because the Australian wine drinking populations is too low that it is not
large enough to enable the industry to stay viable, to grow and to remain competitive in the very
internationally competitive industry. Market expansion appears quite feasible option given Schultz wines’
existing capabilities in these areas.
Strategic advantage creation or maintenance
It is clear that Schultz wines already has some factors which have given rise to a competitive advantage. The
strategy of further market penetration alone will not give rise to greater strategic advantage for Schultz;
however, if it results in the achievement a low cost generic strategy that other industry participants are
unable to emulate, then this would be of strategic advantage. Schultz wines must continue to produce wine
varieties currently favoured by the market and maintain strong branding and marketing relationships with
wine merchants in order to stay one step ahead of its competitors. On this basis, Market penetration may
assist Schulz in maintaining a strategic advantage.

However, to create long-term strategic advantage, Schultz really needs to look to expansion options that
ensure strong growth and profitability. On this basis, expansion of exports to India will provide a good
foundation upon which these targets can be achieved, as will diversification in general.
However, it is vital that the risk attached to such options is carefully considered by Schultz before embarking
on these options. They will significantly change the underlying business model of Schutlz, increasing the level
of complexity and uncertainty assoicated with revenue streams generated from new products and markets.
In order to successfully integrate such expansion into the existing business, Schutlz wines must ensure that
risk management become an essential component of the business planning cycle, with contingency plans
developed to deal with unfavourable outcomes should they arise.

*******Rumelt’s criteria (a summary of the above)*****

Strategi
Internal External Strategic
c Feasibility
consistency consistency advantage
options
Does the
Is the
Is the strategy strategy
strategy Is the strategy
  internally create/maintain
externally feasible
consistent? competitive
consistent?
advantage?
Option 1 Yes Yes Yes Yes
Option 2 No No No No
Option 3 Yes Yes Yes Yes
Option 4 No No No No