Wine and Alcoholic Beverage Firms

1567 Words Oct 21st, 2012 7 Pages
1. Why are large alcoholic beverage firms Diageo, Foster’s and Allied Dominique entering the premium wine business?
There are a number of factors which enticed alcoholic beverage firms to enter the premium wine business:
• Recent and expected market consumption: Beer consumption between 1990 and 1998 was basically static, with little change (Case Exhibit 8a). The beer market is not growing. Conversely, the wine market is growing steadily 1-2% a year and this trend is expected to continue (Case Exhibit 7). There is already strong rivalry in the beer industry and with flat sales competition will only grow more fierce.
• Wine has become a substitute for the beer and spirit markets (see Pucci Exhibit A - Substitutions).
• Alcoholic
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- Notable economies of scale can be gained by winemakers as higher levels of production are reached. Regarding distribution: a small winery could pay as much as $2.00 per bottle in materials compared with larger producers who might have costs as low as $0.30.
- There are notable advantages to a strong wine brand and product loyalty
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