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WAC Submission

Decision Report: Marketing Chateau Margaux’s

Indian Institute of Management Rohtak

14/09/2017

Submitted to Submitted by
Dr. Niva Bhandari Himanshu Garg
PGP08220

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Letter of Transmittal

01 Jan 2006

To
Miss Corinne Mentzelopoulos
Chateau Margaux
Bordeaux, France

Subject: Decision report regarding future course of action for Chateau Margaux

Dear Ma’am

We have analyzed the current scenario and the growth prospect of Chateau Margaux. Based on
the analysis of all the viable options, please find the enclosed recommendation report on the most
appropriate future course of action for your company.

If you have any questions concerning this report and the analysis please feel free to contact the
undersigned.

Thanks & Regards


Himanshu Garg

Enclosure: Decision Report

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Table of Contents

Executive Summary ...................................................................................................................................... 4


Situation Analysis ......................................................................................................................................... 4
Problem Statement ........................................................................................................................................ 5
Options .......................................................................................................................................................... 5
Criteria for Evaluation .................................................................................................................................. 5
Evaluation of options .................................................................................................................................... 6
Recommendation .......................................................................................................................................... 7
Action Plan.................................................................................................................................................... 7
Exhibit 1 ........................................................................................................................................................ 7

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Executive Summary

Chateau Margaux has been the finest producer of the highest quality of wines in the Bordeaux
region. They are experiencing major competition from new entrants and substitutes due to
changing consumption pattern. Due to this production of the first growth wine had halved and
the price had doubled. Also they were constrained by the tight regulations which dictated exactly
how much to produce. Though they believe that first growth wine is a high end product and will
not be affected by the changing tastes, the profits are declining. So, the various options available
to them are launching Chateau Margaux’s third wine, building own distribution system and
status quo.

The above-mentioned options were evaluated based upon following criteria:

1. Impact on investment
2. Impact on potential gain
3. Impact on brand image
4. Impact on revenue

The recommended course of action upon evaluation of option is to keep their status quo intact as
they have strong strategic position in the wine industry and have well served the target
consumers of connoisseurs, who favor quality of wine over taste.

Situation Analysis

Chateau Margaux has been following the long-standing tradition of the Old World wine-makers;
however, the wine industry has changed. The young owner Corinne Mentzelopoulos who has
inherited the estate is now faced with the dilemma of continuing with the status quo or
considering other alternatives to the current operations and processes. She is wondering if
Chateau Margaux was performing to its full potential or not. The wine market has changed
because of the New World wine producers, who have entered the market with drastically
different strategies in terms of wine tastes, process of wine aging, price point, marketing
strategies, and means of distribution.

The increase in number of new players from California, Australia, South Africa and New
Zealand has put the French wine industry in crisis as the latter are continuously losing on market
share. Due to high regulation upon the French growers for the particular grape type, they are
finding difficult to cope with new emerging players who provide more variety of tastes, different
flavours and easier understanding of the wines with comprehensible labels.

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The five first growths in Bordeaux regions are operating on either sale through barrels from their
estate or through bottles together with other branded wines of Chateaux owners. Margaux brand
is able to command premium prices from the merchants when selling through bottles from the
merchants in lieu of giving them access to the en primeur system for the next vintage.

To keep up with the New World wine-makers, some first growths Old World wine-makers have
expanded their product lines using the “left over grape” and also by outsourcing additional grape
from other wine-makers in the Bordeaux region. The distribution is handled in the traditional
manner; it is outsourced to the Bordeaux wine merchants. The 400 wine merchants have well-
established relationships with the wine buyers. This distribution process establishes the price,
based on quality, and scarcity within a futures trading type of scenario.

The premiere wine market drivers have now shifted. The United States presents a 50% of the
demand along with Asia. In the past, the UK, Belgium, Netherlands, and Germany were the main
consumers. Mentzelopoulos is considering the loyalty of these customers and wants to ensure
that any actions on Chateau Margaux’s part will not alienate the long-standing relationships. Due
to the unknown longevity of this new trend, the wine producers must consider the time it takes to
change the wine. It is unknown when another shift in the current “tannic taste” trend could
happen. Chateau Margaux has spent 150 years building a high quality, uniquely elegant and
sophisticated wine. Making drastic changes to the operations can pose some risks. Lastly, the
influencers of the wine trend have also changed from the formal wine connoisseurs to new wine
critics who use a less formal approach.

Problem Statement

Is Chateau Margaux performing best to its potential?

Options

The following options are available with the management:

1. Launching Chateau Margaux’s third wine.


2. Building own distribution system.
3. Status Quo

Criteria for Evaluation

The above mentioned options were evaluated against the following criteria:

1. Impact on investment
2. Impact on potential gain

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3. Impact on brand image
4. Impact on revenue

Evaluation of options

A. Launching Chateau Margaux’s third wine

1. Impact on investment - Negative: It will be challenging to launch third wine for them as
it will require them to make more investment in order to purchase new land for growing
different type of grapes.

2. Impact on potential gain - Positive: It will help them set up their consumer base in new
booming markets of China, Japan and Russia and also reach consumers who cannot
afford expensive wines.

3. Impact on brand image - Negative: It will affect the brand image of the company to a
great extent as they have always positioned themselves on the basis of quality and a
brand for the experts. Thus, launching a cheaper product will have a negative effect on
the brand.

4. Impact on revenue – Negative: They will only produce 40000 bottles of new wine
which would be classified as third growth. The total revenue will be 1600000, which is
very less as compared to their current revenue.(Exhibit 1 )

B. Building own distribution system

1. Impact on investment - Positive: No major investment will be needed as they only need
to strengthen their contacts and have good inter personal relationships with the importers,
whole sellers and retailers.

2. Impact on potential gain - Positive: It will help them to reach out to new customers
using the e-commerce i.e. selling the wine online.

3. Impact on brand image – Positive: It will keep their brand image intact as they will still
be positioned as high quality product and thus can be seen as luxury product among
people in other areas across the globe.

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4. Impact on revenue – Positive: The brokerage in the distribution system is 33%. Selling
the wines directly will provide them the 33% as the profit. With increase in profits the
company can even look to expand their business after a short period of time (Exhibit 1)

C. Status Quo
If the company decides to maintain its status quo, there will be no major change in the
parameters. Rather the increasing competition and the declining sales of the vintage wine will
reduce their revenue and hence the company will not be able to sustain itself in the long run.

Recommendation

Chateau Margaux should go with building their distribution system

Action Plan

Chateau Margaux should keep working with their present distribution strategy by selling from
estate to the merchants, and side by side start with their distribution channel. They should reduce
their dependency on external distributors and start looking to sell wine online along with gaining
knowledge of the customers and the targeted market.

Exhibit 1

90% of grapes production produces (150000 + 200000) bottles of first growth and second growth

So, 10% of the grapes will produce approximately 40000 bottles

Average Retail price


Growth Number of bottles Brokerage (@33%) Revenue
per bottle
First Growth 150000 170 127.82 25500000
Second 200000 60 45.12 12000000
Third 40000 40 30.08 1600000

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