GLOBAL WINE WAR: CASE ANALYSIS

GLOBAL BUSINESS STRATEGY SUBMISSION

GROUP 9

Vansh berry PGP/26/057

Akash Agarwal PGP/26/064
Raghunandhan.K.S PGP/26/146
Gurtej singh kohli PGP/26/204
Yogeshwar PGP/26/367

INDIAN INSTITUTE OF MANAGEMENT KOZHIKODE

JUNE 2023 | TERM IV | PGP 26
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?

French – Dominant competitor

• Grape growing in France provided livelihoods for many families and generated significant export
revenue. France's detailed classification system became a recognized marketing tool globally.
France pioneered reverse osmosis technology for juice concentration, resulting in enhanced wine
flavour and their government implemented AOC laws to enforce rigorous winemaking standards.

• Favourable geography and climatic conditions allowed for the production of balanced wines,
attracting British consumers who couldn't produce high-quality wines in their own cold climate.

• France revolutionized the distribution system for wines to nearby regions by introducing mass
production of glass bottles and cork stoppers, as well as developing the pasteurization process. This
was a response to the high costs associated with cross-border distribution due to poor roads, tolls,
and tax systems.

Competitive advantage

• The success of the French wine industry can be attributed to various factors. First and foremost,
there is a strong emphasis on quality and adherence to traditional winemaking methods. Rather than
focusing on quantity, small vineyards in France prioritize quality due to local competition. The mass
production of glass bottles and the widespread use of cork stoppers played a crucial role in
globalizing the wine industry, allowing the French to age their wines and expand their export
capabilities.

• Government regulations and the classification of wine varieties, coupled with stringent winemaking
restrictions, have significantly contributed to the exceptional quality of French wines and intensified
competition among domestic wineries. Special committees were established to incentivize French
winemakers to continuously strive for the highest quality standards. This commitment to excellence,
combined with the popularity and high ratings of French wines, has empowered producers to
command higher prices, providing them with a distinct competitive advantage in the market.

Vulnerabilities

• The French wine industry encountered several obstacles. Firstly, stringent regulations within the
industry imposed limitations on producers. Additionally, the costly transportation resulting from
poor roads and complex toll systems made cross-border shipping expensive. Furthermore, changes
in consumer preferences, particularly for long-distance exports, left Old World producers isolated,
as wine marketing in France primarily relied on "negociants." The reliance on land transportation
for a considerable portion of shipments added to the challenges.

• While haulage costs increased, the expenses associated with delivering and packaging wine in
containers decreased. Despite frequent promotional efforts, the lack of global consumer recognition
continued to be a persistent issue. In contrast, New World grape growers capitalized on favourable
climates and soil, facing fewer regulatory constraints, which granted them more flexibility in
marketing and selling their wines. Additionally, the higher cost of French grapes posed a
competitiveness challenge.
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?

• New emerging markets, primarily consisting of New World countries, have seen significant
growth in their wine industries. In these nations, vineyards and winemakers have a history
dating back to the seventeenth century. The favourable climate and soil conditions in the New
World have provided ideal conditions for grape cultivation. Inspired by the wine-producing
nations of ancient times, the demand for wine has experienced a remarkable surge, particularly
in the post-war period. By 2006, wine consumption in the United States reached 9 litres per
person, while Australia reached 26 litres per person. This increased demand led to the expansion
of domestic wine production in these New World nations.

• Technological advancements and changes in production norms boosted the New World wine
industry. Larger vineyards, mechanized equipment, and innovative processes like reverse
osmosis and computer-controlled tanks increased wine production. Controlled drip irrigation
expanded cultivation areas. These enhancements propelled the success of the New World
wine industry

• The New World wine industry underwent a re-invention in its marketing model. Innovations in
packaging, such as the introduction of "wine in a box," reduced shipping costs and enhanced
user storage convenience. Australian producers also replaced traditional corks with screw caps,
improving packaging and preventing spoilage while reducing expenses. These marketing
advancements led to a shift in consumer demand, with more preference for wines produced
using innovative processes rather than traditional methods. By developing marketing expertise,
New World nations successfully branded and exported their wines, aligning with evolving
consumer tastes.

• New World countries demonstrated increased distribution power by effectively controlling the
entire distribution chain, from vineyard to retailer. They understood and catered to retailers'
requirements for consistent supply, strong brands, favourable price-to-quality ratio, and robust
promotion support. With reduced shipping costs, the New World countries could potentially
export approximately half of the world's wine production, surpassing the Old World
counterparts

• New World countries enjoyed the advantage of not being restricted by regulations like the AOC
system. Compared to France, Italy, and other Old World nations where vineyard holdings
averaged 1.3-7.4 hectares, the average vineyard size in New World countries ranged from 167
to 213 hectares. This difference in land availability allowed New World countries to have larger
vineyards, providing them with greater flexibility and scalability in wine production.
3. Focusing in particular 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?

To the Minister of Agriculture:

• Support sustainable practices – like promote sustainable agriculture and environmentally friendly
practices in Chinese vineyards.
• Invest in R&D - improve grape varieties and winemaking processes specific to the Chinese region.
• Foster international partnerships: Encourage collabs and partnerships between Chinese wine
producers and established vineyards or wineries in traditional wine-producing regions

To the Head of the Chinese Wine Industry Association:

• Enhance branding and marketing efforts - promote Chinese wines domestically and internationally
and highlight their attributes
• Invest in wine education and related training - Develop a skilled workforce and foster a culture of
wine appreciation and knowledge in the region
• Improvise the quality - stringent quality checks and standards from grape cultivation to bottling.

To the entrepreneur planning to enter the market:

• Invest in vineyard and winery infrastructure
• Conduct thorough market research
• Build strong distribution networks and enhance the supply chain
• Leverage the power of digital platforms and social media - Put eCommerce and digital marketing
to use