a.Porter’s Five Force Model
To assess the industry attractiveness we will use the Porter’s Five Force Model.
•Threat of substitutes
Wine has been the preferred alcoholic beverage of the European people. But with the changing taste of younger generation, wine is loosing customer share to other drinks. •Threat of entry
The wine industry is not capital-intensive, as it does not require heavy machinery and investments. Moreover, the wine production techniques are not patented or difficult to copy. In Europe, governments have made regulations on how the production of wine should be carried out. Lately, the new world producers are trying to increase entry barriers by operating on large volume and taking advantage of economies of scale. •Bargaining power of suppliers
The basic raw material of wine industry is grapes. The quality of wine depends a lot on the quality of grapes. In Europe, the grape farmers had tried to form cooperation to get a bargaining power against the wine manufacturers. In the new world, however, many wine producers have integrated backwards and have their own vineyards. They try to control the operations right from production to distribution thus reducing supplier’s bargaining power. •Bargaining power of customers
The bargaining power of customers depends a lot on the size of the producers. The old world producers operate on a low scale. Hence, they lack bargaining power when dealing with the hypermarket chains. The new world producers have large scale of production. Due to their large market share and volumes, they can control their retail operations, thus reducing bargaining power of customers. •Rivalry amongst existing players
In Europe, there are a huge number of players with no company having a significant market share. In the new world, there exist large players with significant market share. Companies have tried to differentiate their products using the variety of grape and the geographical region where the grapes are grown. b.Industry evolution
The wine industry has evolved over time with changes in the way wine is produced, stored, transported, distributed, marketed and sold. Application of BCG’s Strategic Environments Matrix gives us an understanding of how the wine industry has evolved.
•Scope for differentiation
The government of France introduced AOC certification. Other European nations introduced similar certifications. The producers of wine used it as a measure to create product differentiation. Later companies tried to differentiate their products using the quality of grapes grown and the location of where the grapes were grown. However, these efforts were not able to generate long-term customer perceived differentiation. •Size of potential competitive advantage
When the old world producers dominated the wine industry, there wasn’t much competitive advantage enjoyed by any company. The new world producers brought radical changes to the wine industry. The new world producers produced wine using innovative techniques. They could produce better quality wines at lower costs. They introduced new ways to pack and transport wine, which reduced the transportation cost. The new world producers started marketing their wines in a new manner by controlling retail and branding. In this way, the new world producers could create competitive advantage in the wine industry over their old world producers. Earlier the wine industry had high scope for differentiation and low level of potential competitive advantage. Now the industry has low level of differentiation and high size of competitive advantage. Hence, the industry has moved from being fragmented to volume based industry. 2.Strategic groups: definition and impact
a.Strategic groups of global wine industry
In order to determine the strategic groups of global wine industry, we differentiated the current competitive advantage positions of four Old and four New World wine producing...