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Abc Mondavi

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Nicole Terry
MBA 810
Mondavi Case Study

The Wine Industry - Old World versus New World

The wine industry has evolved throughout history and no longer does the European “old world” market dominate the industry. More recently there has been a push from what has become known as “New World” wine manufacturers to capture more of the market share. As new companies enter into this market and the wine industry as a whole shifts the question remains, is the “New World” approach structurally stable enough to sustain growth and shift the industry from what we know as the traditional or “Old World” thinking? This case analysis will make a comparison between the “old and new world” within the wine industry and also use the five force model to analysis the structural soundness of the “new world” approach within the global wine industry. To compare the Old World to the New World in the wine industry it is best to look at the strengths and weaknesses of both segments. The Old World wine industry has years of experience to build on, an unique ability to cater to those who enjoy consuming wine that is handpicked, authentic to Europe and specific to certain regions. Strengths for the “old world” include first in industry with a consumer base already built up. Old World has no governmental regulations on the distribution process but government does play a role in the processing of their wine and this regulation creates a major weaknesses in comparison to the “new world”. The New World's strengths can be found in the fact that they are larger publicly traded firms that make use of technology and automation. Compared to the “old world” use of smaller family owned labor intensive processes, this use of technology allows them to both reduce costs and improve the quality of their product. Weaknesses however for the “new world” include their inability to keep up with premium wine consumption growth and governmental regulations regarding the US distribution of wine. To consider the structural attractiveness of the “new world” wine industry lets look at three aspects of the Five Force Model: Threats of Entry, Intensity of Rivalry, and Threats of Substitutes to get a better understanding. Looking at threats of entry the wine industry is a very “capital-intensive business”, with most of the cost for capital coming from acquiring land. The use of technology and automation is also an important tool within the “new world” structure and equipment can be expensive. High capital requirements and scarcity of undeveloped land can make it hard for new firms to enter the market with ease. Another threat to entry to consider but not as much within “new world” industry is restrictive government policy. Governmental regulation within “new world” countries is less restrictive regarding the processing and selling of wine. There is some restrictions within the US market regarding distribution of the wine which in some cases bans direct distribution. The intensity of rivalry among the “old world” and “new world” and countries within those segments is high. The “new world” is competing through use of technology and with the ease of less regulation in comparison to the “old world” which sticks with tradition and a heavily regulated process. Also, the rivalry within the “new world” market among countries operating under the same restrictions and process is high as well. The “new world” structure also has more leading global wine firms within the top ten of market share (Exhibit 17). The US, Australia and South Africa are all competing for market share and according to (Exhibit 5) they are in stiff competition with similar amounts of producers but the US has taken a slight edge in regards to the market share of top wine brands. As Porter puts it the “new world” organizations are jockeying for position amongst each other. For the “new world” industry the threat of substitutes is pretty high when you consider the consumers ability to substitute with other alcohol beverages or beverages in general. A major benefit for the “new world” manufactures is their ability to capitalize on the customers changing needs. Customer needs play a vital role and according to the case consumption within the “new world” countries for wine has been increasing year over year in comparison to the “old world” consumption which has remained the same (Exhibit 7). Also, consumption of substitute products such as beer and spirits has been on the decline (Exhibit 8a &8b). Based on my analysis I would have to say that the “new world” wine industry is a structurally attractive industry. Information given in the case would suggest that the market growth potential is there as wine consumption continues to increase in countries that are part of this “new world” industry. Also the ability to produce wine products with limited government regulation allows this industry the ability to be flexible and adapt to changes in the environment as well as the use of technology and automation. It is because of the non-ease of entry, medium level of rivalry and low level of substitutes that I feel the “new world” wine industry is structurally attractive.

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