Human beings have been dealing with wine for thousands of years, from the Mesopotamians to the ancient Egyptians, from the Greeks to the ancient Romans, the latter which under their vast empire spread viticulture through the Mediterranean region. Through centuries countries, such as France and Italy, obtained a consolidated position in the wine industry, both in demand and production.
In the last part of the 20th century newcomers (Australia, South Africa, New Zealand, Argentina, Chile, USA, etc.) have successfully challenged the leadership of the so-called Old World that represented the majority of global market share.
Wine Industry Analysis using the Porter’s Five forces Model
A brief Porter’s five forces analysis can help understand how the evolving of competitive environment is actually composed and why this market shake occurred.
Figure 1.1: Porter’s Five Forces Model
For what concerns the threat of new entrants; the Old World companies completely underestimated this threat. When the newcomers entered the market they could bargain market share of the pre-existing ones without facing real opposition, exploiting better marketing strategies and more efficient organizational approaches.
Regarding to the threat of substitute products; this seems to be a challenge for the future, with the introduction of branding as a marketing approach; the threats from the beer industry and “soft drinks” producers must be taken into account.
Referring to the bargaining power of buyers and suppliers, the entrants are in a much better position because of bigger production plants which allow them to gain a stronger contractual power towards distributors; moreover their value chains are more concentrated removing the troubles of the too much fragmentation and variety of actors between the producer and the consumer, which on the contrary, Old World’s competitors are facing.
Furthermore analyzing the rivalry among existing competitors it is possible to understand that the traditional producers are facing much more difficulties, because they cannot exploit advantages the newcomers have, such as professional management, large marketing investments and economies of scale and scope. Unfortunately, these are not the only intricacies they are bearing with; the pre-existing producers have always been in competition one against the other, making it more difficult to achieve competitive advantages through cooperation. Eventually the newcomers are concentrating their action in the new growing markets while the old ones are still mainly struggling in the Old World declining markets.
Network value analysis
It is also of a relevant importance introducing the Chain Value Model that was at first presented by Porter in “Competitive Advantage. Creating and Sustaining Superior Performance”. This model was introduces in order to better understand the activities through which a firm, in particular a wine firm, develops a competitive advantage and creates shareholder value (fig.1.2).
Concerning the primary activities we can see that in both the inbound and the outbound network logistics, the NW producers managed to reduce costs of transport and warehousing, exploiting new technologies of packaging (an example is the Australian “wine-in-a-box” instead of the classic glass bottle.) Analyzing the outbound logistics, it is possible to explore the fact that as consequence of being big multinationals the newcomers can bargain power of the distributors, carving out margins which the European competitors are not able to gain due to the excess of fragmentation which reduce contractual power towards the distributors.
With reference to the inbound logistic a major role in reducing costs per unit is played by mechanization and scale economies, which are widely exploited by the NW producers. The same advantages are reflected on the...