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Five Forces Wine Industry

Essay by   •  February 12, 2013  •  Essay  •  628 Words (3 Pages)  •  1,817 Views

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Different wineries all around the world, all of them with brand recognition. All of them has to compete with large, medium and small companies.

The main competitive advantage in the industry is the distribution channel, because there are many producers on the market the companies with better ways to distribute the products have advantages. There are three big players in the industry: E&J Gallo Winery, The Wine Group and Constellation Brands, with a large variety of product which can easily distribute all of them with retailers and wholesalers.

Alcohol distributors also play a big role, i.e. Diageo. Using these kind of services the margins of the companies will be lower, because they ask for the commission to sell the products, but they have better opportunities to place the bottles in shelves.

High Competitive Rivarly within the Industry

The wine consumption per resident has been growing steadily since 1994 (Wine Institute, See Appendix). The "boomers", 47 - 64 years old, are the main consumers (Silicon Valley Bank, See Appendix).

Customers can choose over a wide variety of wines, it doesn't matter which grape they prefer. The buying decisions are made according to a relation between price and value, the consumers are price sensitive they will try to get the best option setting a price they want to pay.

A specific niche of buyers is loyal to a brand or a specific winery, but if the price goes up for a significant amount they will try other brands according to the price they want to pay. Sophisticated drinkers are part of this group, they know how to value a good wine and they can easily replace the products.

High bargaining Power of customers

Grapes are the main input for the wine production. There are two main sources for getting them:

Own vineyards - the producer has the total control for the suppliers. They only have to purchase the seeds for new plants, which can be found in a wide variety of places and only when they need to grow new plants.

Buy the grapes on the "market" - the wineries can choose from a wide variety of suppliers the type of grape they are looking for. The grapes' prices are established as a market price, so the suppliers don't have a big power. Only if there is a bad year for a specific grape the seller have the advantage to set the prices.

Other inputs for the wine production can be easily substituted, such as bottles, corks, water.

Low bargaining Power of suppliers

Grapes can only be havrest in specific geographical areas, the quality of the product is direclty related with the soil and weather. The land is sold for this specific



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