Global Wine War 2009: New World Versus Old

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such as night harvesting, on-site lab testing, and fermenting in huge stainless steel tanks instead of oak barrels. These innovations not only put the New World producers at a quality and time advantage, but also an economic one. These new ways of producing wine were much more economical and wines were priced accordingly. In France prices were about 75 percent higher due to production costs. Another change proposed by the New World, were innovations in packaging and labeling. This new approach to marketing wine created the first possibility of a successful brand. For example, Australia introduced “wine-in-a-box”, which made shipping and storage easier. Companies also began to replace corks with screw caps to avoid any spoiling due to bad corks. All of these new ideas were ways of differentiating one company’s product from another, and more importantly differentiating Old World and New World. The New World did however face one challenge throughout this time of innovation and success. The European Union made it illegal to use the same designation names of traditional producers. Therefore, names such as Chablis, Burgundy, and Champagne were not to be used on New World wine packages. They quickly overcame this challenge by identifying their wines by the grape variety used. This new classification proved to be easier for consumers, and led to a rise in consumption. The other major change driven by New World companies occurred in distribution. Historically, fragmented producers and tight government regulations had created a long, multilevel value chain, with service in many of the links lacking either the scale or the expertise to operate efficiently. In contrast, the large New World wine companies typically controlled the full value chain, extracting margins at every level and retaining bargaining power with increasingly concentrated retailer. Also, this facilitates better quality control.

Perhaps one of the most important reasons, if not the most important for traditional producers’ loss of market share was what is known as “The Judgment of Paris”. A blind tasting was conducted in Paris by a panel of nine French judges to compare French and Californian wines. For two consecutive judging’s, Californian wine took the lead in both red and white categories. This event caused a dramatic decline in demand for both France and Italy, putting New World competitors in the lead for market share.

How should the Australians, Americans, and French respond to their respective situations? What advice would you offer companies from each of these countries?

Australians, Americans, and The French should carefully analyze their respective situations. They should focus on their strengths rather than their weaknesses, take actions in their opportunities, and try to figure out the best methods to deal with their threats.

Many major problems affected the Australians including brand image, overproduction, and under consumption. Having over production since the year 2000 led the Australians producers to aggressively reduce their prices in all export markets. This boomed their exports sales but it also build a bad image on the Australian wine being labeled as “Cheap and Cheerful”.

We advise companies in Australia to focus on remaking their image and to move out of the highly competitive low price segment. They could reposition their wines as a premium and target the US market. Innovate the brand, packaging, and image of their products.

To resolve the problem of overproduction, they can find alternatives such as subsides and bailouts by the government, encouraging winemakers to shift the production to other crops, slow down production, or maybe try eliminating some vines. To deal with the under consumption they face, we suggest they look into emerging markets, like China, Canada, and Russia. Having a fresh new start, avoiding the mistakes they committed in the past, and educating the new customers, give consumers a basic ingredient to ensure why the price of premium wine is cheap, as well as establishing a good relationship with consumers to avoid lack of trust. Stick to the Strategy 2025 plan, which data shows has been successful.

We advise companies in the United States, to focus on product development. Strive to come up with a premium brand comparable at cost with its competing imports, this will attract more customers and increase sales. They must try to capture their own market share, which is the most attractive market in the world. Increase promotion and advertising to attract generation Y consumers who mainly buy imported wines. Exploit their strengths, take advantage of their distribution expertise knowledge, possessing large amount of lands, and having nine brands in the top 20, claiming the number one spot. Go after other markets; try entering China, Russia, and Canada.

France has a strong pre-established image as high-end wine producers, experience, high quality grapes and plots. They should use their unique resources to their advantage. Its popular history leads the wine to brand itself. High quality, uniqueness in taste is strengths they should not ignore. We advise France to try to innovate to the latest technology. Find a win-win situation between the government and producers. They lack consumer knowledge and marketing skills. They should Work on a marketing, packaging, and positioning strategy. Keep doing what they do best, which is high quality premium wine. Cut supply chain without decreasing their quality. Companies in France should try to avoid competing with substitution products and keep their focus on a higher target market.

References

Bartlett, C., & Beamish, P. (2014). Global Wine War 2009: New World versus Old. In Transnational management: Text, cases, and readings in cross-border management (7th ed., pp. 117 - 134). New York, NY: McGraw-Hill