BUSINESS POLICY ASSIGNMENT

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