Old World Versus New World: the Origins of Organizational Diversity in the International Wine Industry

Bonny Doon Vineyards, a successful winery business based in Santa Cruz, California, has grown from selling 5,000 cases of wine a year in 1981 to 200,000 cases a year in 1999. To keep growing and be more profitable, the business must choose amongst three possible strategic directions. The first strategy is to start importing wines from Europe into the United States. The second alternative is branching into a retail outlet for unusual wines of great value, accompanied by a high level of service. Lastly, the business’ D.E.W.N could be expanded to include wines not made by the company itself but by other wineries that follow the same values and philosophy.

The assignment for this week was to write a paper based on the case Global Wine War 2009: New World versus Old. We experienced that it was an interesting case considering both Porter’s five forces model and Resource-Based theory, because they give two different perspectives of competitive advantage: Outside in and Inside out. Besides that we could have a closer look at innovations and what they mean for the competitiveness in the world wine market. In this paper we make an effort in explaining what the main aspects

The structure of the wine industry is quite different around the world. The barrier to entry is relatively higher in the New World than in the Old World. Referring to the market data on the level of concentration in 1998, people can see a few players dominate the markets in Australia and the U.S. while the level of concentration is quite low in Europe. Therefore, the rivalry in Old World is intense there.

The Old world refereed here constitutes the countries in Europe specifically France, Italy and Spain and the New world refers to US, Chile, Argentina and Australia. France’s dominance of the wine industry has increasingly come under threat from emerging wine producers who are more aggressive in marketing their product in the markets previously dominated by France. Although France is still the world’s largest wine producer, it has seen a substantial decline in its global sales over the last one decade arising from a number of factors; some of them internal and others which are external.

Smaller firms such as the family run operations in Europe may not be able to realize these same cost efficiencies. Furthermore, grapes represent 50 to 70% of a winemakers COGS, thus the competition for sourcing high quality grape growers is quite high. Just as Mondavi does for 75% of its purchases, most premium wine makers enter into long-term contracts with growers to not only ensure that their demand is met but also to make sure that they receive grapes that are consistent in quality.

Wine production involves two parts of economic activity – viticulture and wine making in the winery. In the global context, wine production is dynamic due to the influence of globalization, technological advancements and extensive research. These have essentially influenced the nature, spatial patterns and the ecological dimensions of the wine industry.

The most important necessary inputs for the production of wine are grapes, bottles and labor. Concerning the grapes, there is an outstanding difference between the traditional wine producing countries for example in Europe (the south of France, Spain, Italy and Southeastern Europe) and big wine factories that operate as oligopolies like in the US and Australia. Due to the bond to traditions and the higher demand for quality in Europe most of the wineries here still stick to the original way of producing wine, including the growth of the grapes on the land around the winery, a so called vertical integration (which is often considered by producers where the supplier's price is too high or the offer is insufficient, in our case this trend results rather in traditional and cultural values than in financial ones). This eliminates the percentage of dependence on agricultural suppliers significantly, whereas concerning a big wine company the negotiation power of the supplier is quite high. These wine companies tend to have a low sensitivity towards the price they are charged, as grapes are a crucial component of wine production. However, in both cases the price of the grapes is always

The New World wine producers including Australia, Argentina, Chile, South Africa, and the United States have several strategic advantages over their Old World competitors. Most significant is how each of the wine producers in New World competitive economies are free to innovate, creating disruption and value creation that are redefining centuries-old processes. In the best-selling book The Innovator's Dilemma (Christensen, 2007) Dr. Clayton Christensen of Harvard University discusses how new market entrants, unencumbered by decades or in some cases centuries of government intervention and high cost structures, can quickly overtake a market and establish market dominance. The role of disruptive innovation in redefining value chains is a core message of his research and book (Christensen, 2007). This is exactly the same dynamic occurring between the New World and Old World wine producers. At the center of the New World win producing nations' competitive advantage is the freedom and immediate economic benefits of innovation.

Bonny Doon currently has an enviable position in the 1990’s Californian wine-producing industry. The company has successfully differentiated itself from its competition and achieved a first mover advantage in terms of selling “undervalued” wines. However, due to increased rivalry and a changing and increasingly challenging market,

The supply of grapes, apples, bulk wine and grape juice concentrate for Vincor’s wine products comes from a combination of sources. Privately owned vineyards (Canada, U.S., Australia) provide somewhere between 35% to 57% of the raw products needed to

Retailers. The current trend, further than the wine market, is clearly the concentration of the “off-premises” retailers. The well known Wal-Mart and others became very large retailers, concentrating as well high bargaining leverage. For example, Costco is currently the largest wine retailer in the U.S.

The Robert Mondavi Winery became one of America’s most innovative, high-quality winemakers in the late 1960s and early 1970s. There are over 1 million wine producers worldwide and no winery accounted for more than 1% of global retail sales. Because of this and the fact that there are many substitutes, there is an issue to try to gain economies of scale and become a leader in the wine market. Wine tends to stay it its local region, which makes it harder to compete with its substitutes. In the strategic analysis portion of this case analysis, we discuss Porter’s Five Forces and how they affect the Robert Mondavi Winery. We conclude that in order for the winery to stay

The United States wine industry is a 12 billion dollar industry and is composed of 7,000 wineries and around 1,800 different companies. The three major companies within the industry are Constellation brands, E&J Gallo, and The Wine Group Inc. The industry has made its way through the economic crisis at a better rate than some of the other U.S industries however in order for them to continue to see any type of growth it is important that they acknowledge their issues and find ways in which they can rectify them. The majority of the issues among the industry are problems that cannot be directly controlled by individual wine companies. Therefore it is imperative that wineries find away to use these issues to their

In a short time, the Douro has created itself as Portugal’s premium wine region. The change that is now taking place in this most extraordinary wine regions. The suddenly joined vineyards hold some delightful terroirs. Because the economic domination of the Port trade it is only lately that these have been broadly oppressed to produce premium wines. Table wine has continuously been made here but, with a couple of noteworthy omissions, it has been unattractive stuff, typically badly made from low quality grapes that were leftover to the requirements of Port producers. Numerous factors have united to change this situation. Most significantly, a critical mass of concurring winemakers has arisen, passionate about making the very best wines that these extraordinary terroirs are proficient of. Dirk Niepoort has been a key player in current developments in the region. As well as producing some dazzlingly expressive Douro wines himself, he has been acting as a ingredient by inspiring the leading wine producers to get together and spur each other on to better things. (Goode 2016.)

This case describes the growth of a medium-sized New Zealand winery – Coopers Creek. It is concerned with the changing collaborative arrangements employed by Coopers Creek to service domestic and international markets since its inception. These changes are set against the background of a small, rapidly internationalising industry within a global market environment. Readers are encouraged to analyse Coopers Creek’s value chain configuration over time in the context of the changing value system/network in order to consider future strategic options.