Essay About Old-Vine Wines And Small Winery

Project Sandland Vineyards
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Your case analysis must follow the case format with the four headings listed below. The questions should guide your overall structure; the sub questions must be addressed in the course of your case analysis. How you incorporate these elements into your case analysis is up to you; just try to ensure that there is a good flow to your writing.Identification and Problem StatementIdentify the company’s current overall situation and strategy.Since 2012, Passalacqua and his wife Olivia owned both a 20-acre vineyard; the Kirschenmann Vineyard and also a small winery called Sandlands Vineyards, which produce old-vine wines. Additionally, Passalacqua also works as head winemaker at Turley Wine Cellars and his wife has a full-time job in brand management at Folio Fine Wine Partners, a wine importer and a marketing agency and on top of that they are parents of two. In December 2017, Passalacqua has a privilegiate information about the Eastside Meats processing facility. Although the building was not listed for sale, Passalacqua had been told that the owner of the building would be willing to sell.  State the central problem/opportunity with one clear statement.The Passalacqua’s faced an important decision: should they spend $500,000 to buy the building down the road from the Kirschenmann Vineyards and develop it into a winery and possibly a tasting room for the Sandlands wines, or should they saver their limited resources with the goal of buying another vineyard?External Analysis What are the key characteristics of this industry?Profitability & Cost-structure Sales of the wine industry in 2016: $60 billionAverage operating margins of growers = 9% ; 20-40% for the growers of the most expensive wines2 products segments:Value (<10$/bottle): 80% of the volume and 60% of the revenuesPremium (>10$/bottle) 20% of the volume and 40% of the revenues1 acre = 2-10 tons of grapes (high-end/low-end)1 ton of grapes = 65 cases of wineOpportunities & ThreatsOpportunity 1: buy a facility off the market from Eastside MeatsOpportunity 2: potential vineyards to sell in Contra Costa County and in Lodi (San Joaquin County)Threat 1: temperature and rainfall will largely affects the production yield, the taste of the wine, the quality of the grapesThreat 2: Dealing with diseases and pests Threat 3: rising cost of lands due to restrictive zoning and strict environmental regulations Threat 4: Consolidation of wineries, distributors and retailers over the last 20 yearsGeneral environment analysisDemographic EconomicPolitical / LegalThe production, distribution, and sale of wine is regulated extensively and taxed heavily at both federal and state levelsRestrictive zoning and strict environmental regulations SocioculturalTechnologicalGlobalCompetitor analysisFuture objectivesCurrent strategies40% of winemakers are willing to lose money to make better wine, 80% wouldn’t sell their winery to get a higher return in the stock marketBoth production type (value/premium) requires all producers to make decisions along the processGrowing grape (Sourcing):Own/lease the vineyards, which give full control over growing practices and harvest decisionsControl of the harvest; pick all grapes or only best clusters?Grow with pesticides or organically?Buy grapes on the spot market or long-term contractsBuy wine made by others and resell it under a proprietary brand nameMaking wine (Producing):                        Pressing: destem the grapes or press full clusters?Fermenting: 1 or 2 fermentation?Aging: which kind of barrel?One of the most important decisions was how much to intervene in the processStrategic groupsThere are two main strategic groups: those who produce value wine and those who produce Premium wines. The same producer can produce both, hence each product falls in a different groups. Passalacqua falls the the Premium group, making smaller batch of old-vine wines, selling above 10$/ bottle.In the Value segment, the strategy is to maximize production with decent quality and low costLow price point dictates how you grow the grape and make the wineIn Premium segment, there are considerable variations in farming techniques and the desire to grow high-quality grapesSmall-Premium wineries focus on prestige, fun and profit rather than only profit maximizationAssumptions about industry and future of itConsolidation of wineries at the top end will continue to occur in the coming yearsCapabilities of competitor VS Sandlands’ capabilitiesCompetitor responseIs the premium wine market an attractive market, a good place to invest?Industry Attractiveness analysis[pic 1]Force of SuppliersGrowers (Vineyards)5,900 wine grapes growers in California = 600,000 acresLargest grower (Bronco) had 40,000 acres, revenues of $182 million90% of the growers had fewer than 100 acres50% of growers had fewer than 5 acresRegion of Lodi had 85 wineriesSmaller vineyards are used for premium winesForce of BuyersDistributorsDirect-to-consumers (7%)Direct-to-retailer (3%)3-tier Distribution – wholesale (90%)600 distributorsTop 5 control 50% of the market, top 20 controls 75%, and top 100 control 95%Competitive rivalryProducers (Wineries)Monopolistic competition(many sellers, easy to entrance, differentiated products, local advertising)9,000 wineries in the US (4,000 in California)80% produced < 5000 cases3 largest cies control 60% of wine productionHIGHLY COMPETITIVEProduct substitutesWine represents 15% of the market of the alcoholic beverages, 50%: beer, 35% distilled spiritsBarriers to entry/ Threat of new entrantEconomies of scaleSmall wineries lost money on averageLarger wineries sold lower-priced (value) wines, used distributors, and generated higher margins Large variability in profits margins at each size levelCapital required initially Starting a winery is a daunting endeavor because of large capital commitmentDegree of concentration and size of cies9,000 wineries in the US (4,000 in California)80% produced < 5000 cases3 largest cies control 60% of wine productionContracts/ agreements b/t buyers & sellersContracts with large distributors are hard to supportRegulations/state protectionThe production, distribution, and sale of wine is regulated extensively and taxed heavily at both federal and state levelsRestrictive zoning and strict environmental regulations Level of technology used + cost of implementationThe biggest intangible cost is the knowledge and the experience rather than the technology to implement for small producers. However, if a new entrant targets mass production, the production processes ought to be very efficient and productive, automated production lines are required to be competitiveIs it likely to get more or less attractive in the future?Threat 3: rising cost of lands due to restrictive zoning and strict environmental regulations Threat 4: Consolidation of wineries, distributors and retailers over the last 20 yearsInternal AnalysisWhat factors determine the advantage or disadvantage?ResourcesPhysicalPassalacqua possesses the  Kirschenmann vineyard in Lodi, and a small winery which is Sandland and also uses Turley’s facilities and equipment