The Australian Wine Industry - Essay Example

?Global & International Business Contexts Table of Contents Introduction 3 The Australian Wine Industry 3 Company Overview 4 Contextual Analysis 6 Porter’s National Diamond Model 6 Factor Conditions 7 Demand Conditions of the Market 8 Related Supporting Industries 9 Firm Strategy, Structure and Rivalry 10 Product Life Cycle Theory 11 4Ps of Gancia 14 Price 14 Product 14 Place 14 Promotion 15 Conclusion and Strategic Recommendation 15 Critical Evaluation 16 References 18 Introduction The Australian Wine Industry In comparison to the US, the UK and New Zealand wine markets, which are termed as the largest markets of wine, the Australian Wine Industry has been remarked to be most potential of all. Statistically stating, 55% of the total Australians who are above 18 years old drink 21 glasses of wine in a period of less than 30 days. While on the contrary, 30% of the potential customers belonging to other economies consume an average of only 10 glasses within the same period (Levine & Pownall, 2004). Figure 1: The Ranking of Australian Wine Industry in the Global Market Source: (Australian Wine and Brandy Corporation, 2006). Hence, it is quite evident that the Wine Industry due to its increasing contribution has gained a significant position in the Australian economy and the world economy as well. However, the global outlook of the industry has changed much in the recent years. Noteworthy, the industry in its long term periodisation has witnessed numerous fluctuations, offering various challenges and opportunities to its contributors. To be precise, the Australian Wine Industry similar to any other industry, also posses few major opportunities and drawbacks which in turn affect the participating companies. The discussion of the report therefore shall focus on the analyses and the identification of the business opportunities and the challenges laid by the industry as a result of the influences of various factors from a business perspective. The analyses of Australian Wine Industry in this case shall be conducted with the assistance of Porter’s National Diamond model and Product Life Cycle framework. Hence, the aim of the report shall be to suggest certain significant strategies to the company willing to establish its business in the Australian economy, i.e. The F.LLI Gancia & Co. Company Overview Gancia, propounded by Carlo Gancia in 1829, is in the present context one of the most renowned leaders in the Italian wine market. The company today serves a few of the most royal blend of wines such as the Piedmontese wines to its targeted market including Japan, Portugal, Belgium, Russia, China, Korea, France, Finland and United States. The products which the company presently deals with are the Sparkling Wines, Wines, and Aperitifs. The company by its origin manufactures wine solely in its Italian farms comprising of 30 hectares of its own vineyards and 2000 of its controlled vineyards. However, the company deals with the aspects of marketing not only by serving the national markets but also by exporting its products to the international markets (Gancia, 2009). With a point of view to expand its market to the Australian boundaries, the company shall consider the business opportunities along with the challenges existing in the Australian Wine Industry. The report thereby, shall emphasise on relating the target market trends with the current status of the company in order to suggest an appropriate strategic alliance for the company to enter the Australian Market. Contextual Analysis Porter’s National Diamond Model Figure 2: Graphical Representation of Porter’s National Model Source: (Dagmar Recklies, 2001). The Porter’s National Diamond Model exhibits four major variables related to the macro and micro economic conditions of an industry. They are the factor conditions, the demand conditions of the market, related supporting industries and firm strategy, structure and rivalry. These factors, as is evident from the above represented diagram, shall be elaborated in the paper further. Factor Conditions This certain factor included by Michael Porter in his diamond model refers to the various attributes existing in the industrial environment related to the sole operations of the company. For instance, the Gancia Company is a manufacturer and marketer of wine as well. Therefore, it relates to the factors influencing the production and the marketing of wine in its native country and in the targeted economy as well. However, in this case the company pursues a core value to manufacture its products solely in three regions of Italy, i.e. Piedmont, Apulia and Sicily (Gancia, 2009). The entering of the company in the Australian market shall be strictly centred on the marketing aspect rather than the manufacturing aspect. Relating to the Australian Wine Industry, the company therefore, shall need to abide by the factors related to wine marketing such as the legal, political and socio-economic factors. The wine industry in Australia had witnessed a restructuring process during the year 2009-10 affecting the potential of the industry as a promising wine market. Moreover, the products such as wine and beer are highly taxed in the economy and are likely to increase in future, which again proves to be an obstacle for wine marketing (Pettrie, 2010). On the contrary, Australia itself is a large manufacturer and exporter of wine. This feature creates another major challenge for the company to cement its operations in the market. Moreover, the production of wine in the economy is at a moderate growth with an increasing export and decreasing import. This is due to the reduction in domestic consumption of wines. However, the economy also offers certain significant advantages in the marketing perspective. For instance, the economy is a large producer of Sparkling wine and Australian wine but lacks its efficacy in the marketing of Piedmontese Wine which is a sole brand of Italy. This attribute therefore, shall prove to be highly advantageous for the company (Pettrie, 2010). Demand Conditions of the Market The legal, political and the socio-economic trends also influence the demand conditions of a market at large. For instance, the recent trends reveal that the numbers of potential customers are moving at a decreasing rate in the Australian economy. To be specific, majority of the targeted customers presently comprise of infrequent buyers which shall affect the overall market demand at large. While on the contrary, the economy is also witnessing an increase in the number of potential female consumers. On the other hand, the perceptions of the targeted customers are also recorded to change which is fundamentally caused by the lowered rate of income and affordability (Australian Wine and Brandy Corporation, 2006). In a nutshell, the trends of the economy related to the demand conditions of the market is slightly at an unstable situation. This is due to the consequences raised by the restructuring of the industry and the changing perceptions of the potential customers of the industry. Figure 3: The Trend of Australian Wine Market in Terms of Import and Export Source: (Pettrie, 2010). Related Supporting Industries Industries which relate as supporting industries to the wine producing and marketing commerce are the agricultural industry, transport industry, food and beverage industry. In this case the agricultural industry supports the wine industry in terms of wine grape production. Contextually, the wine grape production in Australia was recoded to decline in its consecutive three years, i.e. from 2008 to 2010 the decline was calculated to be 5%, and in comparison to 2009 the decline was recorded to be 12%. To specify the intake amount of red and white wine separately, the data reveal that the Australian consumers prefer the red wine more than white, as the intake amount has reduced steeply by 15% since 2009, while the decline in white wine intake was on a decreasing rate of 8% annually. The figures further conclude that the consumption of red wines is 7% higher than the intake of white wine in the Australian market (Winemakers’ Federation of Australia, 2010). In order to specify one of the major trends in the Australian Wine Grape production sector, the economy is witnessed to suffer the risk of over supply with an increasing rate of production and decreasing rate of consumption. Moreover, as the analysts state, the decline is likely to continue in the further years as a long lasting affect of the global recession (Sellars & Et. Al., 2010). Firm Strategy, Structure and Rivalry This phase used by Michael Porter in his diamond model, reflects the structure of an organisation which influences its strategies and determines the overall competitive rivalry of the firms participating in the industry. For instance, the Australian Wine Industry comprises of more than 100 different varieties of wine grape in 60 major wine regions and more than 2000 wineries scattered all around the country. The structure and the strategies of the firms contributing to the industry are fundamentally customer oriented (Wine Australia, 2010). However, the industry quite recently decided to be restructured which not only influenced the regulatory system of the industry but somewhat changed the organisational structure and strategies as well. The collaboration of major bodies participating in the industry has thus minimised the competitive rivalry among the national players, but on the contrary it also has increased the challenge of high competition for the foreign players (Marsh & Shaw, 2000). Product Life Cycle Theory To analyse an industry strategically and develop an in depth knowledge regarding the strategies which should be adapted by a firm (i.e. Gancia) to enter a foreign market (i.e. Australia), the implication of the Product Life Cycle theory shall be highly beneficial and supportive. According to the theory, the performance of a particular product is measured in terms of its demand in the provided market which assists the strategic alliances to be adapted by the entering firms. With this point of view, the strategic position of wine industry in the provided market of Australia shall be analysed graphically. Figure 4: Product Life Cycle of the Australian Wine Industry The journey of Australian Wine Industry can be identified during the 1980s when the industry was remarked to hold a position of the net importer of wine with only 2% of the total production in the international market. Gradually, the industry entered its growth phase during 1986-1990 gaining an accelerated demand in the domestic and the international market as well. Since then the industry has registered a continuous growth until 2000, reaching its maturity level (Marsh & Shaw, 2000). The maturity period is evident to continue till the end of 2007, before the economy was affected by the global recession. From 2008, the industry steadily started to decline with an increased amount of supply and lowered amount of domestic consumption causing constant pressure of export. The fact can be depicted in the image represented below (Pettrie, 2010). Figure 5: The Declining Phase of Australian Wine Industry Source: (Pettrie, 2010). Therefore, from the above analysis it is quite evident that the Australian Wine Industry is at its declining phase. This intends to specify that the strategies of Gancia are to be set according to the life cycle phase of the industry, i.e. the initial declining phase. 4Ps of Gancia In the European Market In the Prospective market of Australia Price The price structure which Gancia amends in the market of Europe ranges from approximately ?9.96 to more than ?37.73 per bottle (Wine Searcher, 2011). The average pricing range of wine in the Australian market was recorded to be AUS $690 per metric ton and is estimated to continue falling in the near future (Pettrie, 2010). Product The products which Gancia deals with in the Italian market are the Sparkling Wine, Wine, Aperitif and Speciality, both as white and rose (Gancia, 2009). The Australian market is already known for its Shiraz sparkling wine and red wine at large. Hence, marketing the white Piedmontese wine shall be fruitful. Complementarily, other red wine products can be marketed. Place The company markets its product in different parts of the world including Japan, China, US, and Russia along with its native continent Europe (Gancia, 2009). The products of Gancia can be marketed in specified regions of Australia such as Queensland and New South Wales which are termed to be the major markets of the continent. Promotion The marketing philosophy of Gancia is concentrated on its quality and uniqueness. The company hence promotes its products through brand promotional activities such as advertising through magazines and other media (Gancia, 2009). The company with this intention should promote its products utilising the various channels of media such as internet, television, and magazines in Australia. Conclusion and Strategic Recommendation The Australian market is one of the most challenging markets for wine industry. Certain major challenges include the increase in the amount of stock of wine products, decrease in the consumption affordability and high rivalry among the domestic and the foreign companies. Even the pricing can be a major factor to influence the market negatively. However, the import of wine is set to be rising in case of Italian wine which indeed can be quite advantageous for the company. Hence, the company should emphasise on the market segmentation strategy following the price constriction and the changing perception of the market along with the differentiation strategy to overcome the challenges in terms of competition. Critical Evaluation In the present framework, there are numerous models, theories and approaches to efficiently analyse an industry. Few of them are: Porter’s Five Forces model, PESTLE model, Porter’s Value Chain, Product Life Cycle Model and Porter’s National Diamond model. In this particular report regarding the Australian Wine Industry analysis the Porter’s National Diamond model (PND) was considered. To be highlighted, similar to every other model frameworks, the PND model also posses certain significant advantages and disadvantages as well which can be identified from the above presented report. The PND model fundamentally concentrates on four broad influencing factors affecting the strategic position of a firm, i.e. the factor conditions, the demand conditions of the market, related supporting industries and the firm strategy, structure and rivalry. Relying on these variables an industry can be analysed with an in depth understanding from both the economic and the business perspective. The Australian Wine Industry was analysed in detail considering the factors such as the industry structure, its future prospects and the current trends. But on the contrary, the model falls back to demonstrate or specify the factors to be elaborated in order to gain a thorough insight regarding the industry. This constraint was also quite visible in this context. In comparison to the Five Forces model or the PESTLE model where the factors are highlighted it shall be much easier to analyse every aspect related to the industry. Despite this certain constraint which was recognised in due course of the analysis, the model can be termed as an appropriate one reflecting its advantages. In a nutshell, the model describes the competitive rivalry aspect existing within an industry which is undoubtedly beneficial to support a strategic analysis. It also reflects the trends of other related industries which in turn enhances the efficacy of the model. References Australian Wine and Brandy Corporation, 2006. Wine Australia: Directions to 2025. Global Consumer Trends. [Online] Available at: http://www.wineaustralia.com/australia/LinkClick.aspx?fileticket=8mCneGIpB3M%3D&tabid=3533 [Accessed January 14, 2011]. Dagmar Recklies, 2001. Porter’s Diamond – Determining Factors of National Advantage. Recklies Management Project GmbH. [Online] Available at: http://miha.ef.uni-lj.si/_dokumenti3plus2/193000/porter_diamond.pdf [Accessed January 14, 2011]. Gancia, 2009. Company. Public. [Online] Available at: http://www.gancia.it/gancia/public/home.jsp?language_id=2&dt=1295001430801 [Accessed January 14, 2011]. Levine, M. & Pownall, S., 2004. Wine Industry Outlook: Consumption Demographics, Market Segmentation, Trends And Opportunities. 2004 Wine Industry Outlook Conference. [Online] Available at: http://www.roymorgan.com/resources/pdf/papers/20041201.pdf [Accessed January 14, 2011]. Marsh, I. & Shaw, B., 2000. Australia's Wine Industry. Collaboration and Learning as Causes of Competitive Success. [Online] Available at: http://www.strategic-partnership.tsemedia.com/f/wine_study.pdf [Accessed January 15, 2011]. Pettrie, G., 2010. Australia. Wine Annual. [Online] Available at: http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Wine%20Annual_Canberra_Australia_2-26-2010.pdf [Accessed January 14, 2011]. Sellars, P. & Et. Al., 2010. Grape Glut Hurting Sunraysia. Weekly Times Now. [Online] Available at: http://www.weeklytimesnow.com.au/article/2010/02/10/156861_horticulture.html [Accessed January 15, 2011]. Winemakers’ Federation of Australia, 2010. 2010 WFA Vintage Report. Second Year of Decline in Australian Crush. [Online] Available at: http://www.wfa.org.au/resources/1/Reports/2010_WFA_Vintage_Report.pdf [Accessed January 15, 2011]. Wine Australia, 2010. Wine Australia Marketing Strategy. Consumer Checklist. [Online] Available at: http://www.wineaustralia.com/australia/Default.aspx?tabid=3821 [Accessed January 15, 2011]. Wine Searcher, 2011. Gancia Wines. Europe. [Online] Available at: http://www.wine-searcher.com/find/gancia+wines/1/europe [Accessed January 15, 2011]. Read More