NARSEE MONJEE INSTITUTE OF MANAGEMENT STUDIES

SCHOOL OF BUSINESS MANAGEMENT

Case Analysis : Sandland Vineyards

Industry and Competitive Landscape

FTMBA, Trimester II, 2021-22

Course Instructor: Prof. Nitin Bolinjkar

Group Details:

Student Name Roll Number

Diptesh Ganguly B003
Neha Damle B013
Samyak Poddar B033
Fahd Patel B043
Numair Shirqhi M B053
Saumya Agarwal B063

Question 1. Should Passalacquas buy the Eastside Meats Building?

Passalacquas has the option to either buy the Eastside Meats building or save the amount to
buy another vineyard in the future. His decision could primarily be based on the following
factors:

 Investment opportunities
Passalacquas and his wife can afford to make only one of the above investments.
Opportunities to invest in another old vine vineyards would be attractive to upscale his
production, but they do not get offered very often. Although the Eastside Meats building
was not up for sale, Passalacquas saw possibility of a negotiation on that front for sale.
Further, the value of the building would appreciate in the long run and prove cheaper
than developing a new vineyard.

 Integration of present investments and moving towards greater vision

Passalacquas’s present investments, the Kirschenmann Vineyard and the Sandlands
winery were two independently run projects. Investment in the new building gave an
opportunity to integrate the two. Further, it is one step closer to Passalacquas’s long
term vision of owning the end to end wine experience from owning the grapes to sale
of wine experience. The Building also promises an alternate use of tasting room for
Sandland wines.

 Revival of old and forgotten varieties and flavours

Passalacquas’s wine making trajectory exhibits a pattern different from the conventional
winemakers. His belief in experimentation and creating new unique flavours as well as
reviving old Californian flavours from such regions and vineyards which have
remained as outliers could further be strengthened through the investment in the
building. Not only will it serve as a budding ground for new flavours but also the tasting
room for these flavours will give Passalacquas a chance to experiment and provide a
complete wine experience to consumers who value well-crafted wines and develop a
palette for it.

 Upscaling production and use of past experience

Passalacquas’s past experience has given him an edge over others in the development of
the wine making craft. With the new building, he can use his past experience to greater
use while not having to limit production levels owing to lack of space. The demand for
Passalacquas’s wines is estimated to increase in the future. With additional production
facility, he can cater to the needs of potential buyers who were currently in the waiting
list for orders.
Thus, Passalacquas should invest in purchasing the Eastside Meats Building.

Question 2. Is the premium wine market an attractive market to invest?

Peculiarities of the premium wine market in the US:

 Value of Brand and Price:

 The customers of categories Everyday Loyals, Image seekers, Engaged Newcomers and
Enthusiasts who cover 60% of the total wine consumers and account for 77% of the wine
profits consider wine experience and brand as an important consideration for purchase.
 Among the frequent wine consumers, close to 70% value the brand before consumption.
 Most consumers associated price with higher quality.

 Demand and Sentiment for Premium Wine Market :

For the wines among the premium category priced $50 and above per bottle, over 40% of the
adults have spent on the wines in the premium category. This is indicative of demand for the
premium wines and a sentimental value associated with premium wine consumption for various
occasions.

 Growth Rate of the Premium wine segment:

Although the value category of wine represented 80% of the volume and 60% of the revenues,
for wines priced more than $10 falling in the premium category, there was more than 10%
increase in the share as compared to 2015 records on an average, when some of the value
segment wines even recorded negative growth. This indicated growing demand for the premium
category.
The above facts are positive indicators for investment in the Premium Wine Market. They indicate the
growing trend in premium market referred to as ‘Premiumization’. A study of Porter’s five forces
before entering the market would suggest the following:

Porter’s five forces Particulars for Premium Wine Segment Rating

Threat of new entrants  Heavy capital investment at lower operating margins Low
 The segment is heavily taxed at state and federal
levels
 The premium wine segment has a lower market share
of only 20% of the total volume
 Wine consumption per capita increased close to 3
gallons in 2016
 Small wineries lost money due to varying
profitability levels

Threat of substitutes  Wine amounted to only 15% of the consumption High

among total alcoholic beverages whereas beer
amounted to 50% and others like vodka, rum etc
amounted to the balance 35%
 Market for non-alcoholic beverages is huge including
juices, soft drinks etc.

Bargaining power of  The quality of grapes is the point of differentiation High

suppliers among the different brands
 High growth in the number of wineries available for
the premium wine market segment which amounted
 to 98% of the total wineries in 2017
 Technological variation in growing grapes and
experience important in picking the right grapes. The
sellers of premium wine sought to buying grapes for
production of wine

Bargaining power of  Sentimental value attached to the wine consumption Medium

buyers and market is not price elastic
 Brand was an important factor for wine consumption
as per more than 40% of the users

Rivalry among  The pricing strategy is proportional to the quality of Medium

competitors product delivered. Hence the pricing and profit
margins can be controlled by the suppliers in the
Premium segment by charging higher prices.
 Most suppliers do not merely work for profit but for
an experience

Thus, based on the analysis of porter’s five forces, the premium wine segment does not look attractive
for investment upon consideration of factors other than profit margins and segmental growth.
However, if the trends of premiumization are to continue, the segment will record growth. In this
scenario, entering the market would become favourable for the high pocketed investors, since
profitability margins depend upon the scalability of the business.

Question 3. How is the industry likely to evolve?

The evolution of the wine business as a whole is influenced by a number of factors:
 All aspects of the wine supply chain, including trends and regulations, are consistently
changing and evolving- including growing grapes, making wine and distributing wine.

 From the given case we can clearly make few conclusions and drive decision towards
evolution in Wine industry:
 As per the trends, the demand for wine is constantly increasing which makes it attractive
for all the new competitors to invest into the market.
 There will be competitors who would penetrate the industry with the “joy” of selling
wine rather than profits
 The distribution sector is becoming increasingly popular among producers.
 The same can be said for retailing, or in this case, direct-to-consumer (DTC) trends, as
globalization accelerates due to the ease with which online and other direct selling
channels may be used.
 The need for a 3rd-party (or "middleman") distribution company is gradually
diminishing, as evidenced by the case. Winemakers are no longer bound by prohibition-
era laws aimed to limit the overall sale of alcohol, according to the 2005 Supreme Court
ruling Granholm v. Heald.
 Direct selling and delivery to not just retailers but also customers will be the most
significant changes to the current system in the future.
 There will be new technologies enabling wineries to sell, currently the trend of direct
selling is on the go with mobile applications making efficient optimisation in supply
chain operations.
 Replacement of old vines in favor of more popular and productive varieties that could
increase the yields and reduce the costs could be the possible step towards evolution
 The rise of social media plays a big factor for customers to gain information about the
new product as well as sellers to promote without going towards conventional media
where the wine labels have to use surrogate advertising for promotion
 The supply chain optimisation and cost reduction may lead to additional sales of the wine
for consumers to experience regular use rather than occasional one.