Porter's Five Force Model (Detail Analyses)
â€¢ Rivalry within Industry
a. Price is an issue for undifferentiated products: Rivalry low as players are using segmented product to attract the market. Companies have tried to differentiate their products using the variety of grape (which is impacted by weather, soil and diseases). In an increasingly crowded retail market, market access is a critical issue. Supermarket dominance will require brand owners to adopt sophisticated marketing techniques in order to survive.
b. No of competitors & Size of competitors: Rivalry high as there are there are a huge number of players with no company having a significant market share. Medium size ...view middle of the document...
b. Learning Curve effect: Rivalry high as players are trying to put their experience to produce high quality wine which has high sales revenue though percent sales volume is low. Any wine grape producer without a secure purchase contract or who is not already in the market with a well established market by now will not succeed in the next 10 years [Bruce Kemp, Global Wine Advice, Sept 2000].
c. Brand preference/ Customer loyalty: Rivalry low as customer has no prior brand preference rather they have fascination on quality.
d. Capital Requirement: Rivalry high as the wine industry is not capital intensive, as it does not require heavy machinery and investments. The amount of capital required to start a winery depend on the scale of production. Very small wineries could be started with a capital investment of roughly $ 1 million and could source grapes from outside growers.
e. Access to distribution channels: Rivalry high as wine producers doesnâ€™t have direct access to distribution channels. They have to satisfy and sell through a whole seller.
f. Regulatory policies: Rivalry high as wine producers had to sell to a whole seller, who then sold it to an established customer base of grocery stores, liquor stores, hotels and restaurant. A winery could sell directly to customers only if it had a gift shop located on its premises. Mailing lists and direct sales via the internet could be used in only a limited number of states because most states had made direct shipment illegal.
â€¢ Pressure from Substitute Products
a. Whether price of substitute is attractive: Rivalry high as wine is viewed as more of an elite drink and is not embraced by the general public as high price range (between $20 to $100 per bottle). On the other hand alcoholic beverages such as beer and whisky are more affordable as well as readily available and also low price.
b. Whether buyers view the substitute in equal terms: Rivalry low as the buyers donâ€™t consider substitute in equal terms. Low income and general people take beer and whisky but elite people generally drink wines.
c. Whether buyers can switch to substitutes easily: Rivalry low as the buyers will not switch to substitutes because wine drinkers tended to be professionals or managers, they had wine at least once a week and consumed approximately 88 percent of the wine by volume and they will prefer wine rather than taking normal beer and whisky.
â€¢ Pressure from Supplier Bargaining Power
a. Rivalry high as the basic raw material of wine industry is grapes. The quality of wine depends a lot on the quality of grapes. In Europe, the grape farmers tried to form cooperation to get a bargaining power against the wine manufacturers. In the new world,...