THE AUSTRALIAN WINE INDUSTRY
‘The Boutique Producer’
4 students (anonymous)
This report provides an overview of the Australian Wine Industry using Porter’s Five Forces industry analysis framework and seeks to provide recommendations based on the impact of the forces for a start up boutique producer.
Through the use of Porters framework and the application of economic theory, the report will provide detailed insight into the drivers of each force and the pressures that these forces put on the industry. These insights will then be used to determine the competitiveness of the industry and formulate recommendations for a start up boutique producer.
The report initially provides a market definition to contextualise the analysis before focusing in on the particular forces within the framework and presenting their impacts independently relative to a start up boutique winery. The analysis of this framework provides a dynamic picture of the industry and at the present time.
Finally this report provides clear, substantiated recommendations for a start up boutique winery that are supported by both framework analysis and economic theory.
Table of Contents
Analysis of Porters 5 Forces plus 1 - The Australian Wine Industry5
Barriers to entry5
Threat of Substitutes..................................................................................................6
The Australian wine industry is the 6th largest producer globally and comprises roughly 2000 wine companies , employs an estimated 31,000 people, and generated a turnover of $3billion in 2007 (AWBC, 2008).
In the Australian industry a winery is generally consider Boutique when it produces an average of $75,000 per year (Edwards et al, 1990; Johnson, 2003).
These factors combine to make the boutique consumer inelastic and more brand loyal relative to other segments (refer to Table 1). They do however expect consistent quality and consider products to be socially representative.
Table 1. Demand Elasticity for Alcohol
The cost structure of boutique wineries requires product to be sold from a minimum price point of $15, under this price competition is difficult (WFA, 2007). Boutique retailers, such as restaurants, however have a markup anywhere between 50% - 70% (WFA,2007). Therefore, a $15 bottle can be sold for $22, greatly increasing potential elasticity whilst banding off product demand to the boutique consumer, or at best the ‘experimental consumer’ (Johnson, 2003) whom may only consider the product at this price when bundled with cuisine.
Cellar doors create an environment for the consumer of exclusivity and allow boutique producers to increase price due to the value add of the experience. The value add of the experience also helps to improve demand through bundling by capturing market segments that would not traditionally purchase wines at this price point.
Often particular varieties of wine are only sold through cellar doors. This further reinforces the environment of exclusivity and limited availability.
Boutique wineries focus on targeted distribution and sales such as cellar doors and restaurants rather than compete for shelf space with the big wholesalers. This is to the advantage of final consumers, as retail buyers develop a strong relationship with a favoured...