Global Wine War 2009-New World Versus Old

7 July 2016

In the 1960s, 1970s or even 1980s, if you ask someone, which countries produce the best wine in the world? They would have said France, Italy or Spain. However, if you ask someone the same question nowadays, the answer would be different. The new wine industry players such as Australia, the United States and Chile are changing the global industry structure, leading the global industry trend, and challenging the traditional wine makers by introducing innovations at every stage of the value chain.

This article analyzed the development of global wine industry from the old world to the new based on Case 2-1 Global Wine War 2009: New World Versus Old, and gave some advice to the both sides in the fierce battle according to the analysis. The Brilliant Old World Grape growing and winemaking are indispensable aspect in the progress of human civilization. After thousand-year development, innovations revolutionized the industry. As the industry developed, wine became increasingly important to the cultural and economic life of the producing countries.

Global Wine War 2009-New World Versus Old Essay Example

As the major European producing country which has a long winemaking history, France is a representative country of the old world of wine industry. The main factors determined the French to become the dominant competitors in the increasingly global wine industry for centuries include: Long history of grape growing and winemaking, long-standing wine culture and a prosperous economy formed an excellent development environment. Strict and recognized laws and regulations to control almost every aspect of winemaking to ensure the quality of wine and to help consumers identify their finest wines.

The terroir, combination of soil, aspect, microclimate, rainfall and cultivation, gave the wine from each vineyard its unique character, to cater the demands of different tastes and to ensure the taste and the quality of wine. And above factors are also the competitive advantages of the countries of Old World supporting their exports. In addition, with the innovations of wine storage and delivery technologies, greater wine stability and longevity, distribution to distant markets and bottle aging of good vintages is also helped countries of Old World to expand production and export to the global market.

In spite of the size and reputation of the wine production of Old World countries made themselves the dominant competitors in the increasingly global wine industry for centuries, they constrained by their wine-making traditions, restrictive industry regulations and complex national and European Community legislation, New World is catching up with them tightly, and a fierce battle has been fighting between Old World and New World. The Emerging New World

Under the influence of immigrants from the Old World wine countries, wine industries in Argentina, Chile and South Africa have developed rapidly since 18th century. And in the postwar era, demand for wine increased rapidly in the United States, Australia and other New World producers, this growth resulted in a boom in domestic demand that proved a boost for the young New World wine industry. Furthermore, climate and soil allowed grape growing to flourish in the New World, the consumption of wine in these countries varied widely. Innovations and Broken Traditions

New World producers broke many grape growing and winemaking traditions, including: They experimented with grape growing and winemaking technology, such as drip irrigation and specialized equipment used in vineyards, to expand into marginal land, reduce vintage variability and reduce labor costs. Innovation of viniculture such as night harvesting, trellis systems, fertilizers and pruning methods pursued to increase yield and grape flavor. Large estates usually had on-site labs to provide analysis helpful in making growing and harvest decisions.

New World wine makers developed processes that allowed fermentation and aging to occur in huge, computer-controlled, stainless steel tanks rather than in traditional oak barrels. The economic impact of these innovations largely decreased the production costs of the New World comparing with the Old. Changed Marketing Model In addition to the innovations of grape growing and winemaking, New World also innovated in packaging and marketing. They developed collapsible plastic bag and replaced cork stoppers with screw caps to reduce shipping costs, to save storage space and to avoid the defect of corks.

They learned the value of differentiating their products and making them more appealing to palates unaccustomed to wine. These experiments provided valuable lessons in branding and marketing. Some experienced marketers such as Coca-Cola, Nestle, Pillsbury and Seagram entered the wine industry and left behind the consumer focused attitudes and the sophisticated marketing skills. The large New World companies typically controlled the full value chain, extracting margins at every level and retaining bargaining power with increasingly concentrated retailers.

These changes brought more profits, more recognition of consumers, more market share and more marketing experience to New World companies. Global Competition between New World and Old With the intensifying competition between New World and Old, significant changes happened during the last quarter of the 20th century made the competition increasingly fierce. Maturing Global Markets and Changing Global Demand Patterns A declining demand in worldwide consumption occurred from 1970 to 1990, especially in the highest-consumption countries, such as France and Italy, and countries with drinking cultures, such as Spain.

Key causes of the decline were a younger generation’s different drinking preferences, and older generation’s concern about health issues, and stricter drunk-driving penalties. At the same time, demand was growing in many wine-importing countries, including the U. K. and some Asian countries such as China, Japan and South Korea, emerging markets arose under these growing demands. This shift in market demand escalated the competition for export sales into a global wine war. Following the development of economy, demand for higher-quality wines became a worldwide trend in wine industry.

Meanwhile, with the shift to quality, a greater fashion element began to influence demand, and the demand for different grape varieties also moved with fashion. As these various demand trends continued, the rankings of the world’s top wine companies underwent radical change. Old World The radical shifts in demand proved extremely challenging to Old World producers. Firstly, there was often no new land available to plant, particularly in controlled AOC regions. Secondly, the regulations prescribing permitted grape varieties and winemaking techniques that greatly limited their flexibility.

Thirdly, the biggest problem was that declining demand at home and a loss of share in export markets had caused a structural wine surplus. New World In spite of the swings in fashion posed a problem for growers, New World wine regions had the capacity and the regulatory freedom to plant new varieties in new vineyards and could respond. Consequently, New World companies took nine slots in a list of the world’s top 15 wine companies. Increasing Distribution Power of New World The significant changes of demand trends in global wine markets had great impact on the distribution chain of wine industry. Old World

Facing the changes of demand trends, most Old World producers were still isolated from fast-changing consumer tastes and market trends. And they didn’t have sufficient understanding of the rapidly concentrating retail channels. New World Because most large New World wine companies controlled their distribution chain from the vineyard to the retailer, they were able to sense changes in consumer preferences and respond to shifts in distribution channels. Furthermore, the New World companies were able to capture even more economic advantage by him and reducing handling stages, holding less inventory, and capturing the intermediaries’ markup.

Size also gave New World companies bargaining power in the sophisticated negotiations that a concentrated retail sector now demanded. Advantages of Positioning and Branding Appropriate positioning and recognized brand are the key factors for wine producers to appeal to consumers and to increase their market share. Old World While a handful of icon brands prospered at the top of the market based on image and quality, the fragmentation of Old World vineyards forced most to compete at the low end on price. When some chose to take on the New

World brands under the umbrella of the AOC’s reputation, it soon became clear that they lacked the skills or resources to succeed in the last growth middle market. Furthermore, few European wine companies had the volume to support a branding strategy. Historically, only the handful of Old World producers whose wines achieved icon status were recognized brands, and these brands appealed to the elite, who represented only a tiny fraction of the global market. New World New World producers had made branding a routine part of wine marketing.

They built their marketing expertise in their home markets, learned how to respond to consumer preferences for the simpler. They then took those wines and the marketing and branding skills they had developed at home into the export markets. By 2007, New World companies claimed 14 of the world’s top 20 wine brands. Response of Old World Facing the declined demand of consumers and increased market share of New World in global market, Old World indeed did something to respond to the trends. The EU’s initial response to the structural wine surplus was to pay farmers to uproot their vineyards.

A parallel “crisis distillation program” provided for the EU to purchase surplus wine for distillation into industrial alcohol. After a reform proposal in 2006, EU agricultural policy changes shifted the focus from reducing oversupply to subsidizing marketing and promotion, European wines began growing their market share in the U. S. French wines extended their penetration into the super premium segment. France beat all other countries in terms of import value. Its price per bottle, at 77% above the average of all imports, reflected its strong position in the luxury segment.

The growth in Italian imports was occurring mostly in the popular priced range that was their historic strength. Challenges to New World In spite of the success achieved in the competition with Old World, New World wine companies were also facing challenges. Problems of global oversupply were made worse by emerging signs of saturation in several major export markets. There was also some evidence that New World wines were developing image problems born of their willingness to lower prices aggressively in an era of excess supply. Advice to Both Sides

Facing the challenges of changed demand, restrictive industry regulations, increasing costs and competitors, how to survive from the fierce battle? Regardless of government, wine industry association or wine producers should think over it. Advice to the U. S. (Secretary of Agriculture, Major Wine Industry Association, and Wine Producers) The United States market had grown faster than any other major wine market. Therefore, the U. S. should take actions to defend the domestic market. On the other hand, it should also increase the export value. Advice to the U. S. Secretary of Agriculture

Since the extremely high land costs and the increasing labor costs, government should give producers subsidies or taxes exemption to subsidize them and to reduce the costs. Advice to the Major Wine Industry Association The wine industry association should improve the industry regulation to oversee and control the quality of wine consistently, establish clear classifications of variety of wines to instruct consumers’ purchase. Advice to the Wine Producers American producers should not only focus on their large, high priced domestic market, but also the prevailing global price/quality ratio.

In addition, due to the unavailable land and increasing labor costs, they should develop advanced techniques to improve the yield and the efficiency of production. Advice to Australia (Secretary of Agriculture, Major Wine Industry Association, and Wine Producers) Advice to the Australian Secretary of Agriculture The government should support domestic brands which are targeted in separated consumer group, and these actions should cover accessible premium brand wines and promote ease of enjoyment. In addition, the government should develop the association between Australian regions and wine varieties or styles.

Also, the government should support Australia’s high profile aspirational wines and provide an umbrella of world-class reputation. Advice to the Major Wine Industry Association The wine industry association should analyze the accessibility and consumers understanding, manage the best practice of winemaking and viticulture relative to price point, site and varietal expression, and provide instructions to the produces. Advice to the Wine Producers Australian wine was also facing price and image problems, its bumper crops of 2004-2006 had led Australian producers to aggressively reduce prices in all export markets.

While this led to a boom in export sales, it also established an image of Australian wines as “cheap and cheerful”. Furthermore, Australian wine could not compete long-term in a low-cost battle. Consequently, the export business should focus on full-bodied, quality wines that can raise its image. Natural and economic factors caused an increase in production cost, so the producers should improve their efficiency further to reduce the production costs despite their achieved high efficiency of production.

Advice to France (Secretary of Agriculture, Major Wine Industry Association, and Wine Producers) Advice to the French Secretary of Agriculture The government should offer direct support to wineries in financial difficulty, and provide funds to relaunch French wines into the world market. Furthermore, a new national wine committee should be built to work on simplifying the complex classification systems. And the government should provide more funds to distill surplus wine into industrial alcohol. Advice to the Major Wine Industry Association

Since the value of AOC was weakened not only by its complexity, but also by the erosion of consumers’ confidence in the classification scheme as an assurance of quality, the wine industry association should simplify the restrictive industry regulations and complex national legislation. Advice to the Wine Producers Since the demand of consumers has changed significantly, the producers should have sufficient understanding of the fast-changing consumer tastes, market trends and the rapidly concentrating retail channels. In addition, they should control their distribution chain to capture more economic advantage.

Furthermore, since there are only handful of icon brands prospered at the top of the market based on image and quality, the producers should support a branding strategy to bring more recognized brands to the global markets to improve the image and reputation. A fierce battle has been fighting between Old World and New World following the demand of consumers and market trend, each side is trying its best to produce wines with high quality and various tastes to expand market share and to increase sales. No matter which side will be the winner, consumers would be the ultimate beneficiary.

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