THE BIG FOUR AUSTRALIAN WINE COMPANIESFrom exporter to global producers

Case study

BY Mohammed Sobahan Nicole Falterbaum Sonja Bertling

DATE 03.12.2015MODULE Strategies for International Market EntryCOURSE MSc. International Marketing

3

AGENDA1) THE FOUR AUSTRALIAN WINE COMPANIES2) SWOT ANALYSIS OF THE AUSTRALIAN WINE INDUSTRY 3) THE “BIG FOUR’S” EXPANSION STRATEGIES ABROAD 4) REASONS TO ENTER FOREIGN MARKETS5) FOREIGN MARKET ENTRY STRATEGIES USED BY THE AUSTRALIAN COMPANIES6) INFLUENCING FACTORS “BIG FOUR”7) CHALLENGES THEY FACE8) FACTORS OF SUCCESS IN THE UK9) REPLICATING SUCCESS IN OTHER COUNTRIES10) STATISTICS 11) REFERENCES

4

THE FOUR AUSTRALIAN WINE COMPANIES

BERINGER BLASS SOUTHCORP

BRL HARDYORLANDO WYNDHAM

AUSTRALIAN WINE

COMPANIES

5

BERINGER BLASS• acquired by Foster‘s Brewing Group• three-channel-strategy: maintaining its traditional

channels, acquisition of specialist wine packaging operations and acquisition of wine clubs

• benefits from Mildara Blass extensive international distribution network

• Beringer acquisition is expected to assist the distribution of Mildara Blass brands in the US market

6

SOUTHCORP• Corporation of Lindemans and Penfolds brands• signed a number of JV in the 1990s• focusing on exporting to Languedoc in France• aim: becoming the world‘s leading global branded wine

company• 50/50 JV with Californian producer Robert Mondavi• 2001: acquisition of Rosemount high-valued brands; well-

recognized in international markets

7

BRL HARDY• Merger of Berri Renmano and Thomas Hardy

• well-established distribution channels in New Zealand, the UK and US

• Still developing its channels in Continental Europe

• 50/50 JV with Casa Vinicola Calatrasi (Italy)

8

ORLANDO WYNDHAM• Pernod Ricard acquired the two Australian companies

Orlando and Wyndham

• focus on a single brand: Jacob‘s Creek (leading wine brand sold in UK)

• new vineyards in Argentina, Chile, South Africa and China “New World”-portfolio

• has intensified its distribution in Asia

9

TIMELINE1989/90Pernod Ricard

acquired Orlando

and Wyndham

1990Thomas Hardy

purchases in the

Languedoc-Rousisillion region of France,

Domaine de la Baume

1991Merger between Wolf Blass and

Mildara

1992BRL

Hardy is a result of

the merger of

Berri Renmano

and Thomas Hardy

1993Jacob’s Creek

(Orlando Wyndham) becomes

the leading wine brand sold in the

UK

1995Mildara

Blass was acquired Foster’s Brewing Group

2000Foster

acquired

Beringer Wine

Estates

2001Southcorp acquires Australian producer

Rosemount

200150/50 JV with US

company Constellatio

n Brands

10

Q1

Carry out a SWOT analysis of the Australian wine industry and indicate whether the „Big Four“ have adopted the same or

different strategies to expand abroad.

11

SWOT ANALYSIS OF THE AUSTRALIAN WINE INDUSTRY

SWOT analysis is the analysis and evaluation of a company’s internal environment

strengths and weaknesses, and the external

environment opportunities and threats (Kotler and Keller 2012).

Weak-nesses

ThreatsOppor-tunities

Strengths

12

• C• Technological innovation• Production focus• Financial resources

SWOT ANALYSIS OF THE AUSTRALIAN WINE INDUSTRY - STRENGTHS

Strengths “The internal environment of

a cooperation consists of

variables (strengths and weaknesses) that are within

the organization itself” (Wheelen and Hunger, 2010,

pp. 64-65).

• Core strengths• Consistent product quality• Fair prizing• Product portfolio

• Australian Wine Export Council Exporting• UK market dominance• Low psychic distance between UK and Australia

successful in countries with low psychic distance• Low competition in the UK strong market position• Positive image and high reputation in the UK

strong market position• Diversification of production location • E.g. Joint Ventures in Chile and the US

13

SWOT ANALYSIS OF THE AUSTRALIAN WINE INDUSTRY - WEAKNESSES• Export orientation:• High dependence on export markets (especially UK)• Struggle to diversify • Ability to operate successfully in export markets

with high psychic distance• Focus on production rather than marketing• Low awareness of Australian wine in Germany

• Southcorp, BRL Hardy and Foster potential takeover targets

Weak-nesses

“The internal environment of a cooperation consists of variables (strengths and weaknesses) that are within the organization itself” (Wheelen and Hunger, 2010, pp. 64-65).

14

• UK market market expansion• • Increase of wine consumption

• Acquisition of distribution channels and production facilities • Acquisition of know-how and expertise

• Market development:• US as the most profitable market

• New world brand portfolio and option to produce in “New World” countries

• Southcorp, BRL Hardy and Foster potential takeover targets• Rise of stock price • Synergies

• • Low domestic competition•

• Low psychic distance

• Greater excess to know-how and resources

SWOT ANALYSIS OF THE AUSTRALIAN WINE INDUSTRY - OPPORTUNITIES

Oppor-tunities

“A marketing opportunity is an area of buyer need and

interest that a company has a high probability of profitably

satisfying” (Kotler and

Keller, 2012, p. 70).

15

SWOT ANALYSIS OF THE AUSTRALIAN WINE INDUSTRY - THREATS• Southcorp, BRL Hardy and Foster potential takeover targets• High dependence on the UK market• Challenging export markets: • Low awareness of Australian wine in Germany• Low wine consumption in Japan• Complex distribution channels in the US

• Increased competition • Competition from other European wine companies • France as a major competitor

• New market entrants low-cost new world producers• Cultural specific factors influence wine consumption in different markets• Global wine glut

Threats

“An environmental threat is a challenge posed by an unfavourable trend or development that, in the absence of defensive marketing action, would lead to lower sales or profit” (Kotler and Keller, 2012, p.71).

16

• Three-channel strategy• Traditional

channels• Acquisition

Specialist wine packaging operations

• Acquisition Wine clubs

• Joint Venture (JV) production

• Acquisition Wine company

Beringer Blass

• New World investments production and distribution

• Focus: developed European and Asian countries

• Single brand and “New World brand”

Orlando Wyndham

• Stakes in distribution companies

• 50/50 JV production, product launch and distribution

• Global and local brand strategy

BRL Hardy

• Sourcing strategy

• JV and Partnerships product launch

• Purchase of land vineyards

• Acquisition production

• Global and local brand strategy

Southcorp

• Three-channel strategy• Traditional

channels• Acquisition

Specialist wine packaging operations

• Acquisition Wine clubs

• Joint Venture (JV) production

• Acquisition Wine company

Beringer Blass

• New World investments production and distribution

• Focus: developed European and Asian countries

• Single brand and “New World brand”

Orlando Wyndham

• Stakes in distribution companies

• 50/50 JV production, product launch and distribution

• Global and local brand strategy

BRL Hardy

• Sourcing strategy

• JV and Partnerships product launch

• Purchase of land vineyards

• Acquisition production

• Global and local brand strategy

Southcorp

• Three-channel strategy• Traditional

channels• Acquisition

Specialist wine packaging operations

• Acquisition Wine clubs

• Joint Venture (JV) production

• Acquisition Wine company

Beringer Blass

• New World investments production and distribution

• Focus: developed European and Asian countries

• Single brand and “New World brand”

Orlando Wyndham

• Stakes in distribution companies

• 50/50 JV production, product launch and distribution

• Global and local brand strategy

BRL Hardy

• Sourcing strategy

• JV and Partnerships product launch

• Purchase of land vineyards

• Acquisition production

• Global and local brand strategy

Southcorp

THE “BIG FOUR’S” EXPANSION STRATEGIES ABROAD - CHARACTERISTICS

17

THE “BIG FOUR’S” EXPANSION STRATEGIES ABROAD - SIMILARITIES① 1980s: export growth② 1990s: market development③ 2000s: global operators• Same aim: “from exporters to global producers”• Lower dependence on the UK market• Extent production period during the yearDecrease of operational risks

• Approach of foreign markets: more simultaneous• Foreign Market Expansion Strategy: Investment

Entry• Change from export to alliances and FDI

Increase of control and profits• Mainly vertical alliances or acquisitions

Export

Joint venturesand strategic alliances

FDI

Adapted from Bradley, Frank (2005), International Marketing Strategy 5th. ed. Harlow Prentice Hall pp. 291, 264

risks

,, am

ount

of

requ

ired

reso

urce

s

high

low

Franchising and licensing

highlow control

THE “BIG FOUR’S” EXPANSION STRATEGIES ABROAD - CONCLUSION

18

• Purpose of Joint Ventures and acquisitionsDifferences

• However they all develop from export to JV and/or FDI• Investment entry• More simultaneous approach to enter markets

Similarities

• Overall they used similar expansion strategies abroadConclusion

19

Q2

Identify and discuss the influencing factors behind the decision of the „Big Four“ to switch from the use of exporting to other foreign market entry strategies and discuss the challenges resulting from a switch.

20

REASONS TO ENTER FOREIGN MARKETS

• Reducing their dependence on the UK market• Diversify their export market• Access to new geographic markets• Increase the sales & profit

21

FOREIGN MARKET ENTRY STRATEGIES USED BY THE AUSTRALIAN COMPANIES

Joint Ventures

Acquisitions

Partnerships

22

INFLUENCING FACTORS “BIG FOUR”

• To access distribution networks in international market. E.g. US

• Create new brand portfolio e.g. “New World”-Brand• Lunch global brand of Italian Wine • To become high value brand• Joint Ventures: sharing of risks and costs with a partner

ExportingJoint VentureAcquistion

Partnerships

23

INFLUENCING FACTORS “BIG FOUR”

• Access to greater resources, including specialised staff, technology and finance , • reduce production cost • market entry barrier : It overcomes market entry barrier

by acquiring an existing organization• Partnerships with local companies can help to understand cultural differences in

business and consumer behaviour • Increase profit and control in foreign country• Increase market share in foreign country• Reduce potential competition • Access local infrastructure and need of raw materials

ExportingJoint VentureAcquistion

Partnerships

24

CHALLENGES RESULTING FROM THE SWITCH• High dependence on the UK & US market, leaving the industry venerable

to develop in this 2 market. • The Australian 4 company have number of partnership in different country

-the liability of the partners for the debts of the business is unlimited• there is a risk of disagreements and friction among partners and

management• Integration problems in accusation :The activities of new and old

organizations may be difficult to integrate• Production oriented-Australian companies have been criticised for being

production rather than marketing orientated. • Capital investment , they are investing everywhere without happy return

25

CHALLENGES RESULTING FROM THE SWITCH• rumoured to be takeover targets- While Southcorp, BLR Hardly and

foster have been making acquisitions. • Australia face stiff competition from the established European

market • Australia ,s Low cost New world brand cannibalised other Australian

whine in chilli , south Africa and Argentina. • Big 4 companies have number of joint venture around the world–

which may conflicting goal and objectives between partners. • Unpredicted increase of new whine plant may leas to global whine

glut • Managerial difficulties due to multicultural clashes

26

Q3

Discuss whether the „Big Four“ Australian wine companies are able to replicate the same success experienced in the UK market in other export markets such as the U.S., France, Italy, New Zealand, Japan and China. If not, why not?

27

28

FACTORS OF SUCCESS IN THE UK- consumers favoured the Australian wine- no domestic competition

“consumers shift away from beer”- low psychic distance (Australia vs. UK)

individualistic countries; share the same values, Australia used to be a British colony

- Australian wines are high-valued full flavour and generic images of Australia are positive

- Success was underpinned by help from the Australian Wine Export Council- Steady growing consumption over the last ten years

29

ARE THEY ABLE TO REPLICATE THE SUCCESS IN OTHER COUNTRIES LIKE

30

REPLICATE THE SUCCESS IN UNITED STATES

• booming economy • increasing spend and

consumption habit of its wine drinking population (rise of 13.12%)

• AUSFTA free trade agreement• Low psychic distance• More than 2/3 of production

goes to U.S. and UK

• Growing number of wineries/• 4th biggest wine production in

the world• Complex distribution channels

31

REPLICATE THE SUCCESS IN CHINA

• premium wine is high valued• is expected to make a return to the

top 5 consumption countries more middle class Chinese buy everyday wine for consumption at home

• Chinese-Australian Free Trade Agreement

• short transport route• Wine has a cultural function

“keeping face”•Wobbling economy, government

crackdown on goods •2nd largest vineyard acreage in the

world (11% of the world)• fast rising vineyard acreage (+33,9%!)• production of own wine “Sake”•psychic distance: high

• Competitors: France (42.28%), Australia (12.4%)

• Fast growing export market

32

REPLICATE THE SUCCESS IN JAPAN

• Economic Partnership Agreement (JAEPA)

• Wine from Australia is high valued

• Short transport route

• Expensive• Production of own “yellow

wine”• Overall consumption remains

modest

33

REPLICATE THE SUCCESS IN NEW ZEALAND

• ANZFTA free trade agreement;• Rising wine consumption• Short transport route• Low psychic distance• Rich country

Purchasing power

• Low level of consumption• Small amount of population• Similar climate

34

REPLICATE THE SUCCESS IN ITALY

• Wine is highly valued• 3rd highest wine consumption

per capita• Wine is part of the culture “la

dolce vita”

• Declining wine consumption -11.50%

• 4th biggest vineyard acreage• Established market• High psychic distance• Long transport route• Traditional supplier

35

REPLICATE THE SUCCESS IN FRANCE

• Growing market (+11.38% consumption)

• Highest consumption per capita,• Wine is an important part of

their culture, high values

• Many competitors, difficult to penetrate; 84% of the most famous wine brands are French• Long transport route• 3rd biggest vineyard acreage • high import restrictions (without partnerships with french companies)

36

STATISTICS - WINE CONSUMPTION BY COUNTRY

Population Wine consumption 000 Liters

Consumption per capita

US 313.847.465 3.217.500 10.25France 65.630.692 2.790.000 42.51Italy 61.261.254 2.040.000 33.30New Zealand 4.327.944 93.000 21.49Japan 127.368.088 348.000 2.73China 1.343.239.23 1.580.000 1.18

37

STATISTICS - CHANGE IN WINE CONSUMPTIONRanking Country % change in

consumption 2011-2014

% of world consumption

1 US +1.71% 13.12%2 France - 4.85% 11.38%3 Italy - 11,50% 8.32%5 China + 3,93% 6.45%16 Japan + 21.25% 1.42%35 New Zealand + 3.45% 0.38%

Source: TDA

38

STATISTICS - VINEYARD ACREAGE BY COUNTRYRanking Country Acreage % of world

totalDifference 2014/2011

2 China 1.974 11% +33.9%3 France 1.876 10.4% -0.6%4 Italy 1.705 9.5% -3.8%6 US 1.035 5.8% +6.0%32 New Zealand 88 0.5% +6.3%40 Japan 43 0.2% -1,7%

Source: TDA

39

STATISTICS - WINE PRODUCTION BY COUNTRYRanking Country Wine

production% of world production

Difference 2014/2011

1 France 4.670.100 16.54% +5.4%2 Italy 4.473.900 15.85% -4.3%4 US 3.021.400 10.70% +12.2%8 China 1.117.800 3.96% -3.4%15 New Zealand 320.400 1.13% +13.9%28 Japan 82.000 0.29% -1.2%

Source: TDA

40

REPLICATING SUCCESS IN OTHERCOUNTRIES

Trade Agreement Short transport routesWine is high valued

41

WHY NOT NZ, ITALY AND FRANCE? European markets are established High Australian Dollar makes them less price competitive

42

CONCLUSION Q3

Successful Unsuccessful

43

REFERENCES• Kotler, P. and Keller, K. L. (2012) Marketing Management. 14th

Edition. Harlow: Person Education Limited.• https://d28wbuch0jlv7v.cloudfront.net/images/infografik/

normal/chartoftheday_3445_the_worlds_biggest_wine_producers_n.jpg

• Statista• Trade Data And Analysis (TDA)• Wheelen, T. L. and Hunger, J. D. (2010) Strategic Management

and Business Policy: Achieving Sustainability. 12th Edition. New Jersey: Prentice Hall.

44

THANK YOU FOR YOUR ATTENTION. ?

ANY QUESTIONS