Global Wine Wars

Q 1 and 2 are for all groups to analyse and come prepared with a response.

1. How did the French become the dominant competitors in the increasingly global wine industry
for centuries? What sources of competitive advantage were they able to develop to support their
exports? Where were they vulnerable?

Reasons for the dominance of French:

● The rules and regulations ensured the high quality wine

● This allowed them to price their wines higher as compared to the new world competitors
● First mover advantage
● It was ranked higher by the committees
● Geographical conditions
● Huge experience in wine making

Sources of competitive advantage:

● Mass production of glass bottles

● Cork stoppers increased the wine longevity
● Proximity to european markets

Vulnerability

● Small land holding

● Too fragmented
● The average holding in France was 5.5 ha
● Less knowledge about current trends because distribution was handled by merchants
negociants
● Increasing prices for producing wine
● Complex distribution networks
● Long multilevel value chain
● Risk of bad weather and diseases

2. What changes in the global industry structure and competitive dynamics led France and other
traditional producers to lose market share to challengers from Australia, United States and other
New World countries in the late twentieth century?

● Old:
○ Complex classification: government classification systems were too confusing
and complex for consumers in traditional
 ● New world:
○ suitable land was widely available and less expensive, allowing the growth of
much more extensive vineyards.
○ unconstrained by tradition, they began to experiment with grape growing and
winemaking technology;
○ They used mechanical harvesters, irrigation methods.
○ Other experiments with fertilizers and pruning methods increased yield and
improved grape flavor.
○ They broke the many wine making traditions and used on-site labs to provide
analysis helpful in making growing and harvest decisions.
○ As a result of these innovations in production they were able to reduce their cost
per tonne nearly to half of French wine
○ New innovations like ‘Wine-in-a-box’ packaging with steel caps
○ New World producers controlled the whole value chain, extracting margins at
every level and retaining bargain power
○ Branding became popular because it made consumers comfortable when
choosing products, leading consumers to stray away from traditional old world
producers
○ went from fragmented old world superpremium to less complex, branded,
cheaper new world wines that penetrated deep

Please note: The tasks related to the next three questions are distributed across groups:

The following three questions (Q 3 to 5) are to be seen from different perspectives. In the
manner of a role-play/ role-identification. Each group may also note that within each country, the
three different stakeholders (Govt/ Minister, Head of Association, Vineyard Owner) may typically
have contrasting perspectives. So, put on different hats, assume different roles and come up
with a combination of responses. You may want to "assign" roles within the group accordingly

Q 3. Focusing in particular on the opportunities and risks presented by the Chinese market,
what advice would you offer today to the French Minister of Agriculture? To the head of the
French Wine Industry Association? To the owner of a mid-sized French vineyard producing
wines in the premium and super premium categories?

Opportunities in the Chinese Market:

● Market size - 1.7 billion euros

● Chinese consumers admired France’s wine, and considered it prestigious.
● Increase in consumption (frequency) of wine
● Opportunity to capture mid priced wine market, as it is opening up.
Risks/ Threats in the Chinese Market:

● Increase in competition - importers (Australia, UK) and local players as well

● Australia’s simpler brands and good priced wines became the new favourites
● The import tariffs on Australian wine were to be reduced from 14% in 2015 for bottles
and 20% in 2019 for bulk.
● Competition in the premium segment from Australian Products

French Minister of Agriculture:

The basic idea would be to limit the government's involvement in the Industry and act more as a
catalyst to push the industry to gain global competitiveness.

● Land, labour and monetary policies (Land consolidation, skill training, technological
infrastructure investment) ought to be introduced to enhance the quality and quantity of
the French Wines
● Negotiate trade deals with the Chinese Counterpart to make the wines more competitive,
at the same time premium
● Re-examine AOC regulations, to give license to the industry to innovate, and limit the
AOCs powers to regulate and allow the industry to control it’s value chain.
● Allow increased use of technology in production of wine, packaging and quality control to
effectively compete against newer winemakers from say California
● The government should stop buying surplus wines and encourage production of higher
quality wines in manageable quantities to truly project french wines as limited high
quality prestigious products

Head of French Wine Industry Association:

- Create consensus among winemakers to double down on technology and research

investments. Research to understand impact of soil quality, temperature, humidity,
watering mechanisms is a must to improve product quality
- Establish collective labs that are even accessible to small winemakers to improve quality
control
- Encourage production cuts, in coordination with the government. Would recommend
winemakers whose large portion of production is absorbed by government buyback
programmes to shut business
- Establish an updated classification of wines in coordination government
- Establish alliances with Chinese wine bodies and large chinese wine marketers to get
better deals.
- Such Alliances also ensure that the identity of french makers is well protected and are
not overshadowed by local chinese brands. Its essential that Premium French wines are
sold under their own labels
- Invest in marketing activities, as well encourage established players to invest in
marketing and branding efforts to gain global competitive advantage.
Mid - Sized French Vineyards (Premium and Super premium categories)

- Set up own labs to ensure quality control.

- Better and easy to store packaging
- Alliance with chinese makers to market wine under the french label itself
- Eliminate intermediaries and try to scout out and enter into agreements with chinese
local partners directly or at least through the association
- Unite with regional winemakers and create an identity for wines from their region
- Focus on China si fine and all but tapping newer Asian markets should also be a key
priority
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