On MICHAEL PORTER'S FIVE FORCE MODEL FOR U.S.A WINE INDUSTRY
SHANKAR GAJARA (115 )
2ND YEAR MMS- MARKETING SUBMITTED TO PROF. RUSHI ANANDAN
Threat of New Entrants: High
1. Economies of scale. 2. Customer switching costs are minimal because of the competition in the higher markets which was more about quality and the competition in the lower markets was more about the price, shelf space and branding. 3. Retaliation from existing industry players is assumed to be very low 4. Access to industry distribution channels is difficult for lower segments of the wine market but accessible by brands in the higher market segment 5. Capital requirements are not very high as personal savings and loans were used to start a winery
Bargaining power of Suppliers: Low
1. Wineries integrate backwards into supply. This is stated by the fact that the purchase of Byron winery and fifty-five acres of vineyards by Mr. Robert Mondavi 2. The suppliers were more than the buyers. Thus, the buyers had very little or no bargaining power
Threat of Substitutes: High
1. Wine consumption as compared to other alcoholic beverages in just 10%. 2. Americans prefer other alcoholic beverages to wine. 3. Wine is costlier than its substitutes 4. Not much switching costs related to substitution 5. 46% people in U.S prefer beer or spirits.
Intensity of Rivalry: High
1. Little growth in demand: There is oversupply of wines in the market but the demand has remained constant thus increasing competition for the target market. 2. Increase in number of wineries to more than 400%: This is due to availability of land, small capital investment etc. 3. Large players in the wine industry spend 40% of their expenses on marketing and
distribution.
Bargaining Power of Buyers: High
1. There is lot of supply and the demand doesnt match the supply in any way. Thus, the consumption rate is slower than the production rate. 2. The winery came to be known as California wine industrys best practices in the production of world class wines. This allowed them to demand only for standardized and best products 3. Presence of high competition: The number of wineries entering the market especially in the low cost segment is high. 4. Low switching costs: Switching from one brand to another costs almost nothing in this industry. 5. Good Distribution network: Retail and distributors are strongly collaborated thus availability of wines has increased. 6. Excess Production: There is oversupply of wines as compared to consumption. Production overtakes consumption by 15-20%. This is due to good weather conditions which in turn results good supply of grape
THREAT OF SUBSTITUTES: HIGH
High consumption of low priced alcoholic beverages INDUSTRY COMPETITION: Large consumption of beer HIGH /spirit
THREAT OF NEW ENTRANTS:
HIGH Low barriers to entry Economies of scale
Little growth in demand
Oversupply of grapes Low pressure on price and margins BARGAINING POWER OF Increase in number of SUPPLIERS: LOW wineries
BARGAINING POWER OF BUYERS:
HIGH Presence of high competition Low switching costs Good distribution network Excessive production
Backward integration of wine
producers Cheap availability due to more number of suppliers