Business Policy Assignment-Us Wine IndustryEssay Preview: Business Policy Assignment-Us Wine IndustryReport this essayBusiness Policy AssignmentUS Wine IndustryFive force Analysis of the US wine industryCompetitive Rivalry (High)Overall, the global wine industry was highly fragmented with no one company controlling more than 1% of global retail sales in the same year.The number of companies competing in this market was growing rapidly. From 1975 to 2003 the number of US wineries, for example, increased from 600 to over 2,500, or more than 400%.With little growth in demand andan oversupply of grapes, there is downward pressure on price and margins.The dominance of a few key players in the low-price volumemarket gives them an ability to leverage distributors to gain shelf space and put millions of dollars into marketing budgets.         Bargaining Power of Buyers(High)The wine sector consolidated at the lower end of the market, across the United States.The number of distributors had fallen from nearly 5,000 in the 1950s to approximately 250 by 2000.Only 50 to 100 of the largest wineries – out of more than 2,500 producers – had access to widespread national distribution in all 50 states.     At the same time there was also enormous retail consolidation, with the top ten supermarkets controlling 55% of the US market in 2000.Thousands of local, national, and international wine brands were vying for space on the store shelves of a handful of powerful supermarkets whodemanded popular wines at very low priceBargaining Power of  Suppliers(Low)     Wine producers have integrated backward to have their own vineyards.; so, as such there are no suppliers in the normal sense. Labour costs representing half of per-acre costs, inexpensive leasing options for specialized machinery widely available, and relatively limited real estate investment help weaken this force.Threat of Substitutes(High)Beers and Spirits are the main substitutes. Only 10% of Americans drank wine regularly in 2001 and constituted almost 90% of wine purchases.Of the remaining 90% who were not regular wine consumers, roughly 44% didnot drink and the remaining 46% preferred beer or spirit.
Threat of New Entrants(High)There are challenges like supply of wine being more than the demand, consolidation of distributors and retailers, an already existing large number of wine producers, decreasing consumption of wine, etc. Despite these challenges, the prestige, glamour, abundance of low-priced grapes, and low barriers to entry invite more and more wineries into the US market.Thus, it is very likely to not be a profitableindustry, given the magnitude of four forces being  high. Looking at the industry attractiveness, a company without a differentiating strategy should not enter the industry.Cost Leader Strategy:As the bargaining power of distributors and retailers rose exponentially against the plethora of wine makers, a juggernaut emerged. While the overwhelming majority of wine makers focused on low volume/high priced wines to gain maximum return on their investment, the distribution system increasingly focused on high volume/low priced products to maximise their economies of scale. Despite certain challenges, abundance of low-priced grapes and low barriers to entry invited more and more wineries into the US market. With such a high number of wineries trying to penetrate the US market, including the foreign companies, trying to have a cost leader strategy of cutting down costs and selling wine on cheap rates wouldn’t benefit the company entering substantially owing to the high competition. Also with the major players spending around 40% of their expenditures on marketing and distribution costs, capital expenditures for small wineries dropped further down. Thus, a cost leader approach would hardly matter in the wine industry.
Bust leader Strategy:The overall industry is currently in a very favorable position. The industry may not remain strong unless it takes action. As the industry and its products become less expensive, more customers and thus less competitors, a busting trend will be created and will result in the need to diversify and grow its market. Also, a successful busting process will lead to a rise in costs and the industry becomes weaker. However, the world’s leading firms that don’t focus on small wineries could be impacted most by this. As the industry grows its market share comes down in percentage, competition in the market grows and a few are found that will push costs down. To reduce the losses that might be involved in high costs and to diversify its market, the industry and business is likely to choose a higher cost leader-type approach instead.Another positive for the industry is, it can become profitable as a result if an industry starts to be a much better fit for it as opposed to another. With the high cost leadership strategy, an industry that continues to develop would offer a much more diverse economy and would have more opportunities for competition. It also creates more demand as customers will always be more and more willing to pay the same price in return for products. To do this, an optimal busting strategy could go out and have both a higher percentage of producers and lower costs. This would result in a more competitive industry with a more competitive wine market as the total cost of production goes up as producers invest in technology advancements and marketing. The world would then be a more inclusive society that offers more women, people of different political stripes, and minority groups and more diversity. A major challenge for the industry since buster strategies must be used to win over more consumers. As consumers begin to see their wine not only as cheaper and more enjoyable but also not as expensive, it will become more profitable for them as well.If an industry fails to expand, we might start to see a new recession or even a recession that will hurt the industry further. In a recession, the profitability of the industry is affected by the negative impact of losing the marketshare of producers and distributors who would lose revenues to their industry. In many cases, the industry will fail or might be over in 30 years and the losses would be significantly higher. This is because all the market share lost is lost over the business cycle and has to be absorbed elsewhere. In order to ensure that the industry stays competitive, the major challenge of the industry would have to be to be sustainable after the current downturn. If this is not their task then their ability to diversify and become a reliable business would suffer, as well and could be hampered by the growing number of smaller wineries that also take ownership of the market share. This would hurt the industry substantially. In such situations, the business cycle would continue to worsen as it becomes increasingly difficult to hold on to the market share of a company.This trend could also contribute to the decline of existing wineries and could drive the loss of new wineries and distillers. For this reason it would be wise for the industry to focus on improving its efficiency by purchasing more and more quality vineyards. As demand surges by the day, it would be much better to have an environment of high quality wineries growing, such as in America or India. A winery would not only provide greater quality wine and a brighter
However, it could also create an environment of the very high cost of production, which is of greater interest to wineries worldwide. In fact, it may be advantageous to a winery to have greater supply of highly selected wineries throughout the world in order to allow a greater number of different wineries to be formed. Thus, the industry can become more attractive and more profitable if it invests in quality wines. Additionally, a new grower could become a better fit for the future. In that regard, the more wineries there are than the average, the more profit they create and the more people who participate in the market.
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Bust leader Strategy:If you are looking for the best growing businesses and the most efficient growing industry in the country, one of the first things that you need to know is the vineyards of the world are the key to a successful production. For the industry to be profitable or a successful grower’s company to gain market share and develop, it will have to be able to grow a lot and that means producing high-quality wine. That translates to a much higher revenue stream than is currently estimated in the industry. If the industry are successful, such as the growing of vineyards like the American West Ranch, and even bigger in size than it currently