Wine Industry - Porter's Five Forces

2847 Words Nov 6th, 2012 12 Pages
Porter’s Five Forces
Wine Industry

Contents

1. Bargaining power of buyers………………………………………………………………………….1
2. Bargaining power of suppliers………………………………………………………………………2
3. Rivalry between existing companies………………………………………………………….…4
4. Threat of new entrants………………………………………………………..……………………….5
5. Threat of substitutes…………………………………………………………………………………….6
6. References………………………………………………...……………………...…………………………8

1. Bargaining power of buyers

The buyer’s power within the wine industry varies between different places in the world. There are for example strategic differences between Europe and the “New World”. The “New World” includes countries like the US, Australia, Chile and South Africa. In Europe there is a big competition
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The key issues of this force are the ease with which a wine producer can switch between the different input suppliers and of course the bargaining power of both the supplier’s and the buyer's (in this case the wine company's) party.

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…