The US wine industry in 2001 was characterized by a mature market with a few large players dominating the low price segment. The top 8 firms produced over 75% of the volume while approximately 2,500 other firms split the remaining 25%. It was difficult for new companies to enter the industry due to high startup costs, oversupply of grapes, and consolidation among retailers and distributors. A company considering entry would need to target the 90% of the population that did not regularly drink wine or create a new market segment. The best strategy would be a blue ocean approach to expand the market rather than compete in the already crowded premium and budget segments. Established players should also look to tap new demand and acquire distribution to grow. The industry

1. Crafting Winning Strategies in
a Mature Market
The US Wine Industry in 2001
Ankur Kislaya-DM18206
Ajay Norman-DM18202
Melissa Alex-DM18233
Saurabh Arora-DM18246
Shivam Shukla-DM18248

2. The Industry Landscape in 2001
• US: 4th largest wine producer in the world
• US: 34th in world per capita wine consumption
• Top 8 firms produce more than 75% of all the wine volume
– Estimated 2500 firms produce the remaining 25%
• Dominance of few large players in the low price market
– Greater shelf space & high marketing budget
• 1990s: Consolidation of retailers and distributors across US
• No of distributors fell from 5000 to 250 by 2000
– Only 50 to 100 left with access to widespread national distribution
• Large retail consolidation in US
– Top 10 supermarkets control 55% of the US market in 2000

3. • Majority of producers are focused on low volume/high price
to gain maximum return/margin
• Distributors are focused on high volume/low price to
maximize economies of scale
• Near impossible for a new company to establish itself
• Low barriers invite more players to wine market

4. Two strategic groups
• Two strategic groups:
Retail Price/ Bottle Price Segment % of Total volume % of Total revenue
Premium Over $14 Ultra Premium 7 25
$7 to $14 Super Premium 16 27
Budget $3 to $7 Popular Premium 33 31
Below $3 Jug Wines and others 44 17
100 100

5. Startup Costs
• Heavy capital requirements
• For a new entrant:
– Undeveloped piece of land: $15000 to 40000
– Cost of establishing a winery between $125000 to $500000
– Fixed cost: $300 to $700 per barrel
– Salary of winemaker (small winery): $64,000
– Salary of winemaker (large winery): $111,000
– 40% of expenditure went as marketing and distribution costs

6. Demand
• Production exceeded consumption by 15 - 20 % from 1997 –
2001
• US: 10% drank regularly
• US: Of the remaining 90%-
– 44% don’t drink
– 46% preferred beer or spirits

7. How attractive is this
industry?

8. Porter’s five forces analysis
• Threat of new entrants – HIGH
– Low barriers to entry for new players in wine industry
– Firms spent 40% of their expenditures on marketing and distribution
• Existing rivalries in industry – HIGH
– Total no of wineries in US increased by more than 400%
– Glut of grape supply due to low growth in demand
– This put downward pressure on price and margins
• Bargaining power of Buyers – HIGH
– More players are entering the market
– Production outstripped demand by 20%
– Consolidation of retailer and distributor

9. • Bargaining power of Suppliers – LOW
– Wine producers with their own vineyards attempts to control the
operations starting from production to distribution
• Threat of Substitutes – LOW for Budget
– Only 10% people drank wine regularly
– Of the remaining 90%, 46% preferred beer or spirits
– 35% drank alcoholic beverages other than wine

10. Should a company enter this
industry and if yes, what
should their strategy be?

11. • A company can enter the industry only if:
– It can offer similar product at low cost for budget segment
– It has a differentiated product (Price Premium) for premium segment
– It can create a blue ocean (untapped market demand and unknown
market space)
• Focus should be on expanding the market than targeting the
already overcrowded market
• Strategy:
– Target the 90% of population that doesn’t drink the wine
– Create a new market between the Premium and budget segment
– Try to change perception of population about wine

12. Applying Blue Ocean Strategy

13. • Create
– New price segment
– New varieties for wide range of consumers
• Raise
– General perception of wine among population
• Reduce
– Focus on grapes, etc.
• Eliminate
– Industry jargons which are difficult to understand

14. What strategy an established
player should follow?

15. • Focus on expanding the market by targeting non-wine
drinkers
• Tap the untapped market using blue ocean strategy
• Acquire new technology
• Acquire distribution channels

16. What are the factors the
industry competes on and
invests in?

17. • Premium Segment
– Competes on quality
– Invests in Marketing &
distribution
– Large acres of land for
wineries and machine leasing
• Budget segment
– Competes on Price
– Invests in shelf space
– Large acres of land for
wineries and machine leasing

18. How long has the industry
competed on these factors?

19. • Wine industry has competed on these factors from the very
beginning
• Requires high investment for Land & Machinery
• Quality has always been a crucial element of a good wine

20. Thank you