Situational Analysis:

The global wine market has taken many turns since the 17th century. Historically, the old
world, Europe dominated the wine industry, but over time, the New World winemakers entered
the market. In the mid-1850s, the old producers welcomed increasing regulations, policies and
classifications because it was a way to differentiate their product from competitors. However,
it turned out to be a barrier for them a few decades later as the New World producer countries
like Australia and the United States of America started to produce wine using breakthrough
technologies and innovations because of fewer government controls. They started gaining
market share over old world producers, and global demand and consumption started shifting
towards new world producers. The government rules were stopping old world producers from
being more efficient, innovative, and different.

Over time, there were radical changes in the younger generation’s different drinking
preferences, consumer’s growing demand for higher-quality wines, an emphasis on light foods,
which resulted in an increase in demand for white wines and the publication of a medical report
identifying red-wine consumption as a healthy choice. Thus, further increasing wine produced
by new world producers. Also, the availability of land and the structure of the value chain
provided the New World countries a considerable advantage in comparison to old-world
producers where the average vineyard was less than one hectare. Moreover, the Old world wine
process was divided into several phases of production like grape growing, winemaking,
distribution and marketing, whereas the new world producers had control over the full value
chain, extracting margins at every level and controlling quality throughout the chain.

In the 1990s, the consumption of wine flourished in China. China’s wine market grew 20 per
cent a year from 2000 to 2009. With domestic production lagging demand growth, a large
import market opened up, but they had to navigate through complex regulatory requirements.
Following this, local and foreign companies alike worked to develop a wine culture by
educating consumers through classes and wine tastings. During the 2000s, Australia became a
major exporter to China. By 2010, China was Australia’s fastest-growing export market. In
2012, the Chinese economy began to slow; demand for fine wine plummeted, and overall wine
sales grew sluggish. Consumers started to try a wider variety of wines. As a result, by 2014,
entry-level wines accounted for 80 per cent of consumption. This resulted in a price drop, and
entry-level consumers grew more knowledgeable and started looking for more mid-priced
wines in the premium segment. As Chinese consumers moved to the middle market, Australia’s
simpler brands and good priced wines became the new favourites. Also, the import tariffs on
Australian wine were to be reduced from 2015 levels of 14 per cent for bottles and 20 per cent
for bulk to elimination by 2019. With new high-status images and portfolios spanning many
price segments, Penfolds and its Australian counterparts were poised to battle France for
dominance. The global wine wars are entering a new phase. It also poses the question of how
players can respond, especially when constrained by regulation, tradition, and different
capabilities than those demanded by changing consumer tastes and market structures.

Problem Statement:
China's wine consumption presents an extremely fast-growing export opportunity that is
attractive both to Old World producers, burdened with oversupply and declining demand and
the New World winemakers, faced with rising costs and a deteriorating image. The problem is
both the producers need to devise new strategies to gain share in this fast-growing market given
the changing Chinese market conditions and consumer tastes and preferences.

Recommendation:
1. France:
 They cater to only ultra-premium or icon segment which makes only 1% of the
market and hence has a narrow window for growth. In order to capture the market,
France will have to reposition its wine segment.
 French Governments should come up with stronger co-operatives due to higher land
fragmentation which took place in the past. Therefore, land consolidation steps
should be taken place so as to enhance the quality and quantity of the French Wines.
 French Wine cooperatives have not brought much changes in its products hence the
Product-Life cycle is on a maturity rate as other companies have come-up with new
packaging and production styles as the consumer taste references have changed
frequently. So French companies should come up with more innovative methods to
meet its customer demands.
2. USA:
 Increase the advertising and promotions to attract the younger generation who are
brand conscious and hence they prefer high quality imported wines.
 Continue with the super and ultra-premium brands so as to focus on their core
competency skills.

3. Australia:
Australia was late in adopting the wine making business as the country was greatly
influenced by dominant British heritage of Beer making. Post WW II Australia
attempted to cater the global wine demand, its core competence was innovation as
compared to old world which followed more traditional approaches. This different
positioning of Australia proved a viable strategy for Australia Wines makers. They
innovated on drip irrigation, wine in box, screw caps instead of cork which led to a
reduction in overall cost. It also had the advantage of land holding per capita. Australia
being one of the lowest suppliers of wine making them as the cheapest among the group.
Some recommendations, as Australia can target the US premium wine consumer as they
prefer imported wine other than their domestic wine. Also, it should continue to
innovate in brand, packaging and image that allowed Australia to become the big player
in wine industry. It should try to target only premium customers as they comprise of
greater market volume.