Group 5

Section G
SM Assignment

Sandlands Vineyards
1. Assess the attractiveness of the premium wine segment (i.e. making premium wines) using
Porter’s five forces framework. Is the level of attractiveness likely to change in the future?

Threat of new Threat of Bargaining power Bargaining Power Rivalry among

entrants Substitutes of suppliers of buyers existing
competitors
Availability of old Consumption Number of Top few large Premium
vineyards/ old -Beer and other suppliers for distributors winemakers
vine grapes for alcoholic spirits – growth and control maximum don’t spend
purchase – low have slightly transformation is market – high much on
different target high marketing and
High capital need audience, won’t Small distributors promotion, thy
but high margins switch Large wineries – promote allow the wine to
allow cost preferences long term selection of sell itself,
recovery easily contracts, large premium wines – building on its
demand to medium – Risk of consumption
New brand entry Occasion – outsource grape large firm base
by existing Gift/Celebration production takeover
companies Can be No competitive
happens in substituted by Small wineries – Retailers sell pricing in the
premium champagne or Personal relation majorly value premium
segment other gift items with farmers, wines, no jostling segment,
like chocolates, source grapes for shelf space by company can
Time required for flowers etc from vineyards premium wines charge higher
newly planted owned by observed margins for
vines is high, so Social Appeal – themselves quality produce
return on new Wine has a Can import Direct purchase
farming is certain grapes too if provides least Most premium
delayed recognition on needed power to buyers segment
various occasions as they are producers are in
Low switching which is Grape quality waitlisted and for the
costs for the irreplaceable by and standard is served as per experience, and
consumers – just other items, like important and company’s not the money,
the product price red wine on thus is the major production hence the
dates or formal differentiating competition in
Government parties etc.. factor between traditional sense
regulations - suppliers is low
heavy taxes
4 2 2 3 1
*Scoring out of 5, where 1 is low and 5 is high
 Group 5
Section G
SM Assignment

Analysing Attractiveness
Analysing Attractiveness
Threat of new entrants
4

2
Rivalry among existing competitors Threat of Substitutes

Bargaining Power of buyers Bargaining power of suppliers

The Future:

The CAGR of the industry, wines in general is increasing positively, currently at about 4.67% CAGR.
Premium wines is at a CAGR of about 10-11%. Further, the switching costs are low and there aren’t
many barriers to entry or exit (i.e. exit costs). While there is a need for technological investment, it is
not a huge cost especially if you already have some type of winery set up (say a volume based
winery or another brand). Further, it is already observed that companies prefer to venture into this
segment to expand their brand, called “premiumisation”. Another factor to consider is that being a
premium wine producer/winemaker is also a matter of prestige and fun over profit. There are
already a number of celebrities who own wineries, for the experience, not profit. However, all of
these factors will increase the number of rivals. Thus, as the number of options increases, with no
switching cost for consumers, the rivalry will increase. However, for at least the next 10 years, the
costs of increasing competition can be combatted by higher margins since consumers are willing to
pay more for luxury wines.

2) Does Sandlands Vineyards have a sustainable competitive advantage in the premium wine
market? (Note: Use VRIN framework to assess the sustainable competitive advantage).
3) 2. Does Sandlands Vineyards have a sustainable competitive advantage in the premium
wine market? (Note: Use VRIN framework to assess the sustainable competitive
advantage).
4) VRIO Analysis:

Resources Value Rareness Inimitable Organisation Verdict

Tegan Passalacqua High High High Yes Sustained Competitive
Advantage
Old Vineyards High High Medium Yes Partially Sustained
Competitive Advantage
Own Rooted High Medium Medium Yes Temporary Competitive
Advantage
Forgotten Classics High High High Yes Sustained Competitive
(Classic Grapes Advantage
/Flavours)
 Group 5
Section G
SM Assignment
Dry Farming High Medium Low Yes Competitive Parity

Organic Farming High High Medium Yes Partially Sustained

Competitive Advantage
Relationship with High High High Yes Sustained Competitive
Farmers Advantage
Affordability High Low Low No Temporary Competitive
Advantage
Brand Equity High High High No Temporary Competitive
Advantage
Direct Customer High Low Low Yes Competitive Parity
Allocation
Leased Space for High Low High No Temporary Competitive
R&D and Production Advantage

3) What should the Passalacquas do: buy the Eastside Meats building and develop it into a winery;
buy another old vineyard; or do something else?

a) Purchasing eastside meats

It can be used to make an independent winery.

Pros :

 Passalacquas wouldn’t have to limit their output

 Can experiment with more variety of wine and grapes

 He can own the vineyard and a winery and thus fulfilling his dream and can integrate
Kirschenmann and Sandlands.

 Requires lower investment than buying another vineyard

 As the demand for Sandlands is already there, there won’t be any additional effort required to sell
the extra produce. Hence, demand is not an issue

Cons:

 Won’t be able to buy another vineyard in the next five years due to less capital

 Require time and efforts and he was already very busy with his job and the vineyards

 Going completely independent would make them face more risk as the safety of Turley’s high
position job would be absent.

Finanacial Analysis:

Cost of purchasing: $500,000

Group 5
Section G
SM Assignment
Cost item Cost per case (in $)

Grapes 35

Labor 50

Shipping 45

Other cost 37

Fixed Cost 34

Price per case: 12 ((13*0.25)+(26*0.75)) = $ 273

Break even point: 500,000/72 = 6944 cases

If he can increase his capacity to around 4000 cases per year he can break even in around 1.75 years

b)Buy another vineyard

Pros:

 He can have more control and lower cost of grapes for Sandlands

 The prices of vineyards are rising and he can sell the vineyard in future to reap more rewards

 He can already use the Turley’s facilities

Cons:

 Very much expensive to but a vineyard at the current prices

 He is willing to take a loan that would make him focus more on profits rather than quality

 No increase in output due to restriction put by Turleys

8 ACRE 10 ACRE 15 ACRE

Cost 2,500,000 1,900,000 1,000,000

Group 5
Section G
SM Assignment
Extra cases (assuming 5 tons 3250 2600 4875
per acre and 65 cases per
Ton)

Decrease in cost due to not 166 166 166

buying Grapes: (201-35)

Unit profit per case= (273 - 347750 278200 521625

166)=$107

years to recuperate his cost 7.1 6.8 1.91

4) Can you write a strategy statement for Sandlands Vineyards?

Strategy Statement:

The purpose of the winery was to make good wines which are affordable and of good quality.
The strategy that could help us achieve this mission would be:

Maintain a good relationship with the growers:

Maintaining a good relationship with the growers will give us a competitive advantage. Trust is
an important part in building a relationship with the growers as they are ones which will give
Sandlands’ the best fruit from their vineyards.

Inclusive customer experience:

We can make the wine making process more inclusive and customer centric by inviting people to
wine tasting events, this would give us the opportunity to reach out to potential customers in
the long-run along with word of mouth promotion.

Merge the two projects:

Merging the two projects Kirschenmann Vineyard and the Sandlands winery could help in better
utilization of each of the resources and could provide a healthy synergy between the two.

Passion for winemaking:

Sandlands wine-making, for Passalacqua, was more of a passion than just a business
opportunity. The differentiation he provided in terms of his experience and passion for the
classic and forgotten wines was unmatched. This will continue to be a point of differentiation.

Profitability:

Significant changes is required in turning the business into a profitable one. Higher margins
could be gained by reducing the discount offered to distributors and increasing the number of
Group 5
Section G
SM Assignment
distributors. There is an active and growing secondary market for Sandlands wines, so an
incremental increase in the retail prices of each case would increase the profitability.