Global Wine 2009

Case Analysis: Global Wine War 2009—New World vs. Old

1. France, as an early entrant into the wine industry, accrued First-mover advantages and established its place as the dominant competitor in the global wine industry (Hill, 174). It is true that France and Italy demonstrate decreasing trend of consumption rate over the years since 1966 (Exhibit 3). However, according to 2001 data, Franceand Italy still had the highest liters per capita of 46 and 52, compared to 9 of the U.S. and the highest production value (Exhibit 5). French wine producers became the dominant competitor as a result of three following reasons. First of all, French wine producers gained First-mover advantages by becoming the first niche market for premium wines and thus gaining Economies of Learning. French wineproducers expanded the production of vintage wines that are exclusively handled by négociants, and this helped to affirm the reputation and history of French wine. As the high wine consumption and production rates of the Old World demonstrate, wine is intertwined with the culture of economic aspects of people’s lives; by the mid-18th century, there were 1.5 million families in wine-relatedbusinesses (Bartlett, 2). Second, the government assistance further fostered the image and reputation of French wine. Emphasizing the importance of quality, the government imposed strict regulation on wine production and quality; the Appelalation dÓrigin Controllée (AOC)laws of 1935 “set detailed and quite rigid standards for vineyards and wine makers” (3). Lastly, French producers could take advantage ofthe late 18th century innovations such as glass bottles, cork stoppers and the development of pasteurization (2). Again, being the first-mover to take advantage of technology and innovations, French wine producers expanded production and gave birth to global wine market.
2. Since the 1990s, however, the New World Producers challenged the French wine which was constricted by restrictive industryregulations and wine-making traditions (Bartlett, 1). Through differentiation and technological innovation, nine slots out of top fifteen Wine company list are taken by the New World companies (Exhibit 8). The triumph of the New World producers can be demonstrated through the Porter’s Diamond (4+2 additional factors). 1. First, the Relating and Supporting Industries factor provides explanation tohow the New World could differentiate from the dominant, traditional market. Due to a strict regulation, French wine industry could not add sugar even though the consumer taste was moving from a bitter, deep wine to a sweet wine (Bartlett, 4). Also, traditional wines were expensive, so there was an absence of cheap-wine supplier industries in the international market. Tailoring to the new consumerpreferences of sweet and cheap wine, the New World invented white wine splitzers and cheaper price products; this new-emerged industry was successful as “by the late 1980s, white wine represented over 75% of U.S. sales” (7). 2. Secondly, the New World producers understood the consumer preference better than the Old World producers did. They affected Demand Condition through a greateradvertisement of the health benefit of wine: help to prevent heart disease (7). Furthermore, they recognized how to capture consumers through “accessibility and consumer understanding” and “design advantage” (Exhibit 11). As a result, New World companies claimed 14 of the world’s top 20 wine brands in 2007 (8). 3. Regarding the Firm strategy, Structure, and Rivalry, the New World wine industry is organizedto mass produce lower quality products with advantage in price competition. Despite a disadvantage of too much domestic rivalry, the New World expanded its market share by breaking the traditional wine making rules and taking advantage of its capital-intensive nature and of largely consumed cheap products. 4. The New World companies fostered Factor Endowments status thorough advanced factors...