Professional Documents
Culture Documents
2014
APPENDIX
CHAPTERS
1.0 BACKGROUND AND MARKET DEFINITION 2.0 ENTRY 2.1 DIFFERENTIATION OF PRODUCT 2.2 REQUIREMENTS OF CAPITAL 2.3 EXPERTISE 2.4 GOVERNMENT SUPPORT 2.5 COMPETITORS REACTIONS 2.6 ECONOMIES OF SCALE 2.7 ACCESS TO DISTRIBUTION CHANNELS 3.0 SUPPLIER AND BUYER POWER
PAGE
2 3 3 3 4 4 4 4 5 5 5 6 6 7 7 7 8 9
3.1 SUPPLIER 3.2 BUYER 4.0 SUBSTITUTES AND COMPLEMENTS 5.0 INTERNAL RIVALRY 5.1 COMPETITORS AND MARKET CONDITIONS 5.2 EXIT BARRIERS 6.0 CONCLUSIONS 7.0 BIBLIOGRAPHY
All of the above parameters rank all companies in strategic groups. The first group includes the giants of this industry, which facilitate in bottlIing wine and marketing various other alcoholic beverages. These are Tsantalis SA, J. Boutari & Son SA, MALAMATINAS E. & Son SA and Kourtakis D. Greek Wine Cellars SA. The second group includes the companies whose operating production of bottled wines is on limited production with particular characteristics. These companies usually have their own wine variety and quality like Domaine Porto Carras SA, Antonopoulos Vineyards SA, Union of Santorini Cooperatives and Domaine Sigalas. The third group consists of firms with small volume production which mainly
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produce bulk wine and serve the needs of the local market. Here we meet all those small family wineries that are scattered in the Greek countryside. Finally the fourth group belongs to the companies that have sizable production volumes which are active in the industrial market. These companies make moves so as to make their position in the market stronger and become known in general public. Such companies are: Koutsodimos G.A.AE, INO - Oinopraxia Boeotia SA, Evoiki Winery SA, Dionysus Winery SA, Vinellas SA and Lafazanis G. & S. Spiliopoulou. The boundaries between these strategic groups make the work of both the analyst and manager of each company easier, concerning the strategy of each company, by monitoring the movements of direct competitors. The strategic groups have set boundaries in direct competition and moving from one group to another is relatively difficult and certainly costly.
2.0 ENTRY
In each industry, over time, a status quo is created in which every company has taken its place and has made clear its attitudes towards its competitors and the market. This status quo is threatened by the entry of a new company which may produce a new and promising product. The degree, of course, in which the entrant will affect the image of the industry is determined by many factors, many of which are not related to its own capabilities, but to the obstacles that may be put in the competitors. Through a series of parameters we will give the image and intensity of this force in the present state of the art of winemaking in Greece. 2.1 Differentiation of a product The differentiation of a product, whether it is real or it just created this sense to consumers, is always an important factor for the success or failure of a new entrant. In the wine industry, the product does not have real differentiation. Any differentiation which occurs is most often the result of marketing actions and has to do with the methodical creation of a new brand name by these companies. More specifically in the field where competing businesses of our strategy group take place, there is a complete lack of product differentiation, both real and perceived. At this level, therefore, it is understandable that the product differentiation will not cause any real problem to the new entrant that has overtaken all the other barriers. 2.2 Requirements of capital If a company really wants to enter the wine industry and compete on equal terms with the companies of its size, it should provide a sufficiently high initial capital. The mechanical equipment is the one thing that will require the lion's share of the capital. Of course, cutbacks in purchasing the mechanical equipment is a bad
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idea due to the fact that they will have a major impact in the quality of production. In a realistic scenario the company will also have a lot of other expenses such as wages, bills which in combination with low sales at the beginning can cause a big headache. 2.3 Expertise For a successful career in the wine industry the possession of expertise is necessary, both on the winemaking process and of course on the overall operation and management of a winery. Although expertise is not particularly complicated to acquire and understand, it takes some time to acquire. History has shown, that the people involved in the production of wine from early age had an intense love for this and deal with care for the production and disposal by making basically something that fills them. The fact remains that someone who has lack of expertise and experience in this process is doomed to be rejected. 2.4 Government support Regarding government support to investments that have to do with creating new units of wine industry, we can say it is from zero to minimum, while there is lack of general support measures by the Greek government. 2.5 Competitors reactions The entry of a company in an industry is a threat to all existing companies. The intensity of their reaction is mainly related to the chances they have to surpass their competitors in the industry. Regarding the wine industry it is sure that existing businesses will make a war on distribution networks so as to achieve the exclusion of new companies. The strategy will certainly include a barrage of benefits to the customers mainly in the sector of price reductions and service. 2.6 Economies of Scale The existence of economies of scale in winemaking is a fact and its not associated in a severe way with the purchase of the main raw material, but mainly with the purchase of secondary materials as well as other operating expenses. Its very easy to understand that the higher quantity of a product the company produces, the lowest cost per unit it has so it can sell larger quantities at a very attractive price for the costumer. However, a new company does not have the best volume production may have to accept the fact that its profit margin will be quite low compared to others. When that company achieves to have the ideal volume production, then its profit margin gets higher and higher by reaching a satisfying profit margin.
2.7 Access to the distribution channels The sector of the wine market is divided into three sub categories depending on who we consider to be our customer. At first, we have the so called cold market which includes companies like clubs, catering etc. At second, the warm market uses as distribution channels supermarkets and liquor stores and considers the final consumer as the costumer. At third we have the large bottling companies that are usually very large wineries which use the buying product by putting their trademark on the bottle while bottling it. The first distribution channel usually does not include middlemen who come in contact with customers, but they sale and distribute the final product directly to the costumer. It is possible that the existence of distribution centers make the product distribution to costumers more appealing due to the fact that shipping costs vanish and the costumer is serviced directly. On one hand in each case the hard part for the entrant will be the high cost of buying merchandise (cars) to distribute the product and on the other hand the small amount of clients that will have at the beginning. The second distribution channel is associated with supermarkets, liquor stores, and some wholesalers. Access to such a channel is extremely difficult. It is difficult for a new entrant to make a business deal with a retail giant. In liquor stores, things are bit easier but even there, the name of the company and the personal agreement will not be a guarantee for appropriate promotion.
that only 4-6 of them are considered to be reliable and trustworthy is a fact that we should bear in mind. The foreign markets are also an alternative option, however the cost difference is not satisfactory most of the time. The supplier sales of each kind in the wine industry represent a large proportion of the products sold by them, about 30% -40 %, but it is important to note the lowest profit margin they have compared with other activities. 3.2 BUYER POWER As in any industry, so in the wine industry, strong buyers can affect the overall performance of the sector and of course the wine business in particular. Each business aims to achieve the maximum profit from the sale of its products, but on the other hand however, the interest of the buyers is aimed at the lowest possible prices and at the most favorable terms in matters of faith and service. The answer of who will ultimately win this war will depend on the correlation of these forces and on how essential is one force for another. The main buyers of wine products are separated in three major categories and because of the differences they have we should study them separately. The first category of buyers are businesses, merchants and bottlers. As a sum, the quantities that are moving in this sector are quite high (40%), but most of the buyers dont buy large quantities. However they compile a huge part of the market and their bargaining power is significant. The second category consists of the giants of retailing, big supermarket chains, grocery stores and liquor stores. Things get more complicated for wine suppliers because the barriers to enter that specific market are many. The concentration of the buyers is very big, especially in the retail case which sometimes works as a cartel by determining the wine prices. Retails case biggest advantage is the large network of shops it has in the country. The third category has only a few buyers who prefer not to change supplier but even though such a buyer represents a large part of the market.
seasonal hit, wine has many other advantages for its contribution to good health in the circulatory system, but also the prestige for a toast, something that certainly cannot be experienced so strongly with a glass of beer. As a result of the above we see that the pressure that wine gets of its substitutes, especially beer, may in no circumstances lead to a complete replacement, but only for one seasonal decline in consumption. We observe that the price of beer is lower and therefore acts as a deterrent for a price increase attempt in wine. On the other hand, comparing the quantities of beer and wine consumed in a meal, we will see that the economic difference is less than that it originally appears, as the amount of beer consumed is greater. As a conclusion, i believe that definitely beer can put a limit on the price of wine, however its not one of the most important factors that can regulate its price.
industry sector. This fact along with the limited growth and limited new entrants in the industry observed in recent years limits even further the opportunity for a successful sale of the equipment. The result is that the industry must stay in business and continue to operate without profit simply waiting until a buyer is found. The pressure on the market from these businesses is huge and leads to abnormal compression of the profits of healthy firms.
6.0 CONCLUSIONS
The art of winemaking in Greece consists of too many wineries of different capacity. The large winemakers have always some advantage due to cost by taking advantage of economies of scale and distribution channels but of course this does not mean that the market has no place for smaller winemakers, especially if they launch a quality product. The saturation appearing in the industry as consequence of the low growth rate may be the biggest problem. The total market share remains almost constant and so the competition between existing business is growing more and more, causing discomfort especially under the pressure of constant and increased operating costs. In this phase the entrance of a new firm in the industry would have an increased degree of risk, both because of the large initial capital required but mainly because of the difficult phase the market passes and the intense reaction the existing companies will show. The product presents a poor differentiation, especially in terms of bulk buying and the hard to create distribution channels make the entry of the company even more difficult. The suppliers are certainly not a negative point for the industry. Producers of raw material (grape), dont work in groups in most cases, while the sharp increase of vineyards in recent years has brought a redundancy offer. In regards to the second group of major suppliers (packaging materials), it appears to be in need of stronger attention at this stage, since the reliable companies are just a few and the cost can be quite different. As for the supply of both main raw materials, wineries can (and do) turn to the foreign market, something which gives them the advantage of lower costs. Within this war raging in the market the buyer determines the game. Since the product cannot alone create any significant travel costs for the primary buyers it is up to the company to apply the correct price policy. There are differences in the treatment of each buyers category, but certainly the important thing is that each one of them has an equal power on the business. The main substitute of wine for the Greek market is beer. The beer market is highly seasonal and substitutes mainly red wines in summer. Certainly there is no question of a complete substitute of wine, but beers price can effect the upper value limit of wine due to the lower average price of beer, however despite all that the wine industry in Greece is relatively attractive.
7.0 BIBLIOGRAPHY
www.antagonistikotita.gr www.wineroads.gr/news_in.php?nid=193 www.eneka.gr/eneka_site/katalotiko_kinima.html www.ypes.gr/el/Ministry/Actions/Reformation/ www.gspa.gr/%289507825744324214%29/eCPortal.asp?id=4591&nt=19&lag =1&pID=2459&lang=1 www.ependyseis.gr/SUB/nomos3299/n3299.htm www.espa.gr/en/Pages/default.aspx