ROBERT MONDAVI AND THE WINE INDUSTRY CASE ANALYSIS by Alberto Vicentelli Global wine industry structure. How and why is this structure changing?
Production and consumption of wine was mostly localized until the early 1990’s. Wine producers in different countries were traditionally isolated from each other, and most of the world’s wine drinkers consumed either local wines or imports from nearby producers. Winemakers had minimal cross-border interaction and followed local traditions.
The wine industry is divided geographically in two areas:
The Old World countries, defined as those within Europe, have a long, uninterrupted history of wine production and consumption. The four largest European producers, France, Italy, Spain, and Germany, account for more than half of global production and 40% of consumption.
New World countries are defined as those outside Europe. Five of the largest and most established New World producers are the United States, Argentina, Australia, South Africa, and Chile. These five countries comprise 23% of global production and 21% of consumption.
However, competitive positions and consumption patterns in Old and New World countries have changed radically and rapidly in recent years. For example, global wine exports as share of global production have increased from 15% to 25% percent over the 1990s. Decreasing tariffs, logistical cost reductions and the lowering of certain trade barriers have provided wine producers the opportunity to sell their products outside of their own region. This new international access is transforming the way wines are produced and consumed alike, and those countries best able to adapt to this wider and more competitive playing field will gain significant national competitive advantage. Moreover, there has been a significant increase in export orientation by both New and Old World producing countries. In 2001 five New World countries, Australia, Canada, Chile, New Zealand, and the US, joined forces by signing the Mutual Acceptance Agreement on Oenological Practices. In response to increased competition from the New World, many Old World countries have expanded their target markets to Asian countries such as China and India. Asia represents an export destination with long-term prospects for producers due to the potential for increases in per capita consumption.
The effects that wine producers are experiencing from globalization, especially wider and stronger competition, are further intensified by the following factors: Increased consolidation at the producer, distributors, retailing sectors and shifting consumer behavior patterns and the competitive advantages of the different winemaking countries. Increased consolidation at the producer, distributors and retailing sectors The wine industry globally faces continued shake-up and consolidation and the generation of mega wine companies has become inevitable as no one wine company - listed or private - currently has more than one percent of the world wine market, in contrast to other beverages . By means of mergers and acquisitions, consolidation is occurring among wineries worldwide. When an industry starts to mature, firms enhance profits by consolidating to become bigger players, creating competitive advantages through economies of scale and in gaining negotiating power with distributors. Closely tied to these mergers and acquisitions is the increased rate international technology transfer; employees from big and small firms alike are spending more time abroad studying the other countries winemaking techniques.
In regard to distribution, the 20 largest wholesalers control 70% of US distribution. Large distributors enjoy economies of scale and are able to pass some of their lower costs to the retailers, increasing the total efficiency of the supply chain. However, distributor consolidation has made it increasingly difficult for smaller producers to get their product onto the retailers’ shelves....
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