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Paper Abstract: Growth and problems of the California wine industry. External variables affecting sales, consolidation and acquisition. Current financial difficulties. Use of NASA technology. Applies Porter's give-force model to the California wine industry. Potential competitors, rivalry among established firms, bargaining power of buyers and suppliers, substitute products. Paper Introduction: THE CALIFORNIA WINE INDUSTRY External Variables The wine industry, world-wide depends on five major factors: weather, grape quality, amount of harvest, price, and demand. In each of these categories, the California wine industry has managed to grow and prosper over the past decade. What may not have been generally known is that The United States is arguably the best place to grow grapes in the world…Few other countries boast such a large market base and compete against one another simultaneously for an expensive, non-durable consumer market (Eyler, 1999, p. 2). At one time, the only wines considered “drinkable” by wine connoisseurs were from France, with an occasional Italian or Portuguese vineyar Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. Driving the trend is the surge in sales of so-called premium wines over the past decade. However, now there is a downturn. CO 1). Aside from prices and harvest over-abundance, we will haveto see how to post-September 11 economy will affect consumer consumptionand purchases of premium wines. Obviously, acquisitions for billions ofdollars would not occur if there was a serious doubt about the growth andultimate stability of the California wine industry, even if furtherconsolidation narrows the number of major players. Another interesting aspect of California's wine industry is theinnovative use of NASA. Even family-run enterprises, such as Sebastiani is selling its Turner Road Vintners, which includes two wineries and a distribution center...The proceeds will help Sebastiani to compete better against rivals and to develop its name-brand ultrapremium wine (Quinn, 2 , p. European producers have a long-standing marketing in the U.S. There's room for consolidation, sure, but there is never going to be a Cisco of wine. It's just never going to happen....Once you get past the top 15 or so wineries, they get really, really small. Smaller wineries continue to be scooped up, though. The fact that these global companies can turn toproduction not merely from Europe or California, but Australia, Chile, andSouth Africa will cause some serious problems for these smaller "labors oflove" wineries. This is more true today than ever, when in the Californiawine industry a few family-owned enterprises held the majority of acreageand sales. markets, putting added pressure on California wine producers to find ways to compete (Eyler, 1999, p. For California wines priced higher than $15 a bottle, for example, sales have soared to an estimated billion from just $38 million in 199 ...By comparison...(there was) a three-fold increase in sales for mid- priced wines between $3 and $15 a bottle, and a 28% drop in the cheapest jug wines over the same period (Carlton, 2 , p. California wines were considered low quality. HowPorter's five-force model applies to the California Wine Industry willprove the potential problem areas, we well as opportunities:Risk of Entry by Potential Competitors As has already been demonstrated above, California wine-makers arebeing absorbed, merged, and/ or bought by overseas firms, Foster's ofAustralia being only one of the latest. Quality and quantityseems to be the only major future threats.oldings by Foster's Brewing Group of Australia could mark the start ofaggressive consolidation among wine industry players References Carlton, J. Unlike the beer industry in the U.S. The Chilean wine industry has penetrated U.S. At one time, the only wines considered "drinkable" by wineconnoisseurs were from France, with an occasional Italian or Portuguesevineyards mixed in. Now, many vineyards and wine makers are facingfinancial difficulties. 2). 1). In other words, future competitors will come not from start-ups, butfrom established international firms, or mergers of present-day competitorswho realize, as Hardy (2 2) writes, that some of these amateur wineryowners don't get the fact that there are too many $35 Chardonnays outthere.Rivalry Among Established Firms As more and more firms merge, competition will stiffen. CO1).The bargaining power of buyers Unlike some other commodities that might be considered necessities,the purchase of wine is not a must, but often a status symbol. Kendall-Jacksonpurchased Mat6anzas Creek Winery and Mondavi bought Arrowood Vineyards andWinery. Vintners" TheWashington POST, Oct. which has found a profitableniche for so-called "micro-breweries" the start-up costs and maintenancefor vineyards, and wine production, not to mention distribution andmarketing are enormous in comparison. That haschanged in recent years, especially with French companies brining theirviticulture expertise. and a great deal of market power. A neighbor, Kendall-Jackson, has also been looking for amerger partner. "'It's terrible,' said Don Galleano, owner ofGalleano Winery in Mira Loma, who put much of his 2 1 harvest in storage.'There was very little demand for grapes outside the region'" (McAuliffe,2 2, p. C 1).As Quinn points out (2 1) some recent combinations look likely to increasethe pressure on the smaller, family-owned California vineyards -- those whoare like boutiques and who would find it tougher to compete with globalwine conglomerates. "Fine Whine" FORBES Magazine, Jan 7, 2 2 McAuliffe, D.: "Inland California Vineyards Take Hit Due to LowerPrices, Smaller Harvest" Washington DC: Knight-Ridder Tribune BusinessNews, Feb. It is interesting to note the differential between the inlandCalifornia wine growers and those on or near the Pacific coast. Until this year, however, California wineprices have risen. This wouldpermit wines made from grapes grown within the 14 million acres to put'California Coast' on the label" (Doyle 2 1 1) In other words, theCalifornia wine industry is now imitating the very possessive Frenchindustry which values location, location, location. "California's $6.2 billion wine industry has usedinfrared airplane photos for field mapping for at least a decade, Satelliteimaging joined the mix when NASA developed new technology last year" (Tong2 1 A 5) The downturn in prices for grapes, despite the technological advancesaiding growers, comes at a time when international competition ispenetrating the American market. Response" SacramentoCA: The Sacramento Bee, April 12, 2 1 Eyler, R.C.: "The International Competitiveness of the California WineIndustry" Sonoma State University (1999) Hardy, Q. 21, 2 1 4 ). The guppies will be swallowed by the whales or allowed theirsmall space in the consumer ocean. 1 ). His wine-maker didn't like their first vintage, so they didn't sell it. In each of thesecategories, the California wine industry has managed to grow and prosperover the past decade. As opposed to the hard-liquor industrywhere bourbons are being replaced by "lighter" products, vodkas and gins,wines may be price-sensitive, but chances are consumption will not slip or,during the economy's downturn, slip only briefly.Conclusion Obviously mergers and acquisitions will swing the marketing balance inCalifornia. While it wasa status symbol in recent years to serve guests an expensive wine (whetherfrom California or not), as the economy now falters and downsizing hascreated larger unemployment, even among the managerial class, it will haveto wait for this coming year's figures to see whether premium wines areslipping, whether the switch is to lower-priced wines, or whether wineconsumption as a whole is on a down-trend, in favor of, say beer or evennon-alcoholic drinks (see Porter's fifth point, below). There is abattle going on about labeling. Instead of letting vineyards outside thiscoastal area label their wines with the unregulated term "coastal", "theCalifornia Coast Alliance wants the sea-breezed area from Mendocino Countyto the Mexican border designated as one viticultural region. The reason is two-fold: First, the lower price of grapes due to over-production, and the fearof a bacteria that has attacked nurseries and other plants in the majorwine-growing area, Napa Valley. That was in 2 . Their second hasn't hit the market but will; cost $1 a bottle or more...It's definitely a labor of love (Hardy, 2 2, p. (2 ): Surge in Premium Wine Sales Sparks Consolidation-California Vintners Embark on Acquisition Spree to Meet Growing Demand"Wall Street Journal, Sept 12, 2 Doyle, M.: "Labeling Battle Draws Unusual U.S. What may not have been generally known is that The United States is arguably the best place to grow grapes in the world...Few other countries boast such a large market base and compete against one another simultaneously for an expensive, non-durable consumer market (Eyler, 1999, p. For example, "the $1.5 billion acquisition....of Napa's Beringer Wineestates Holdings by Foster's Brewing Group of Australia could mark thebeginning of aggressive consolidation among wine industry players" (Quinn,2 , p. There aren't home runs to be hit in this industry (Quinn, 2 , p. A firm's prosperity is created, not inherited" (Eyler,1999, p. For many growers, the romance is all that's left. Many if theseacquisitions were initiated by foreign firms who continue to see aprofitable future for the California wine industry. But, as has been demonstrated, even the seemingly most "settled"financially -- the Gallos, Beringers, Kendall's and Mondavis are nowlooking for mergers, acquisition, or some sort of marketing partnerships inorder to survive the see-saw trends of cost versus consumption. Claude Blankiet, a former textile executive, has spent more than $5 million on a winery that will probably yield just 1,2 cases of wine this year. 1).The pressure comes in a price niche, especially as the premium wines areincreasing in price, the low-cost "jug wines" may have dropped their market-share, but chances are they may well have been replaced by low-pricedChilean imports. The growers are very often also the producers. 13, 2 2 Quinn, A.: Grape Expectations MERGERS..." Santa Ana CA: Orange CountyRegister, Aug 31, 2 Tong, E.: "NASA Explores Sideline of Aiding Calif. While overall in California, prices rose to $591 a ton in2 1, local Inland growers saw their average price slip 9.9 percent. There is, also, amarketing effort to "prove" that moderate consumption of red wines is heart-healthy!The bargaining power of suppliers Chances are this may the weakest of Porter's points, as far as theCalifornia Wine industry is concerned, because often the suppliers are thewineries themselves. B 4).This has increased vintner consolidation and acquisition. It's still a cottage business. In other words, as in other industries, chances are that theCalifornia wine industry will be the survival of the strongest, with globalpartnerships or influence. Foster's is, of course, best knownin the country as a maker of beer (the commercials claim that theAustralian word for beer is "Foster's") We have already seen The Lafiteorganization in France make inroads in California's viticulture. THE CALIFORNIA WINE INDUSTRYExternal Variables The wine industry, world-wide depends on five major factors: weather,grape quality, amount of harvest, price, and demand. Thebargaining power comes, really, from the wine makers, who may reject avintage (as was illustrated above), of weather variants, or, worst of all,some disease attacking vines, roots or ripening grapes.Substitute Products Chances are that wine drinkers will remain wine drinkers, even thoughthey may switch to lower-priced premium wines that are imported from labor-intensive areas other than the U.S. Since California produces over 9 % of U.S.wines, this is a critical area.THE PORTER MODEL AND THE CALIFORNIA WINE INDUSTRY "Porter's idea (is) that....the firm's ability to compete depends onhow it can compete. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.