Market entry strategy for Vinos Andinos vineyard in Europe

Vinos Andinos Vineyard Report

Dating back to antiquity, wines have always been considered among the best alcoholic beverages, being associated with mythology, gods, powerful rulers, simple men and they are even referred to in the Bible. Today, wines are being consumed at both social as well as business meetings by all kinds of people, coming from all social backgrounds and registering all incomes. This means that the wine industry has to produce a wide variety of drinks, suited for all tastes and all pockets.

A major change in the behaviour of wine consumers is the early age of drinkers. This does not necessarily imply that young people are increasing their alcohol consumption, but that they change their drinking behaviour. As such, instead of drinking bear or other commercial or cheaper beverages, young consumers turn to wines. This change in behaviour is sustained by increased revenues and by a more demanding and select clientele.

The international wine industry encompasses a multitude of vineyards that produce both commercial and less expensive wines as well as wines designed for finer tastes that are being sold at high prices. As such, a bottle of wine can be purchased at prices from a couple of dollars up to thousands of dollars. Vinos Andinos is a small vineyard in Chile specialized on producing seven wine types, four reds and three whites. The producer has decided to expand its business onto the European market by launching rose wines, wine boxes, fortified wines and sparkling wines. Now, the management at Vinos Andinos has to select the most appropriate countries. The marketing team at Vinos Andinos will identify the selection criteria and then compare it with the particular features of the European countries in order to choose those countries that are most likely to embrace the Chilean wines.

2. Selection criteria

Europe is the world's largest producer and consumer of wines - this bringing about both an advantage as well as a disadvantage to Vinos Andinos' penetration of the European market. As such, by producing impressive annual quantities of wine, European countries have sufficient wine to satisfy the need of their entire population and even export their products abroad. European countries are becoming more and more specialized on the wine market moreover since the formation of the European Union. For instance, in 2004, "the EU was the world's major wine producing region in volume terms, producing approximately 15,965 mega-litres. Of this, 5,850 mega-litres came from France, 5,300ML from Italy and 4,000ML from Spain. The EU exported 4,675 mega-litres in 2004 worth $16.8 billion and accounting for 65% of global exports by volume."

On the other hand, consumers are accustomed to a wide product palette and their demands and expectations grow exponentially moreover when the producers are always there to satisfy them. In this order of ideas, the new wines might be welcome as a pleasant change as they would increase consumers' access to diverse products.

In order to identify the most suitable countries for the expansion of the Vinos Andinos wines, the marketing team has to segment the market based on the following four criteria:

GDP per capita;

Amount of wine consumed

Amount of wine produced

Competition on the wine market

1. GDP per capita

The GDP per capita is a most significant criterion as it reveals inhabitants' wealth and their capability of purchasing the Vinos Andinos wines. Countries with a low gross domestic product per inhabitant are less likely to purchase wines that cost 8 up to 17 Great Britain pounds per bottle (in United States dollar, prices vary from $16 up to $35 per bottle). The prices of the existent wines are affordable to the inhabitants of countries with average GDP per capita; but the new products are more specialized, incorporate more alcohol, require more specific production methods, imply increased costs and consequently have higher prices.

As such, the existent products should be predominantly exported to average income countries and the new wines should be predominantly exported to high GDP per capita countries. Here is a list of the European countries by the GDP per capita the management has to analyze in order to choose their destinations:

Country GDP per capita Based on these figures, Chilean

Luxembourg $66,821 producer of wines Vinos Andinos

Norway $41,941 should consider Luxembourg,

Ireland $40,003 Norway and Ireland as its main

Denmark $34,718 three destinations for the Switzerland $33,168 specialized wines they intend to Austria $32,962 launch; and Sweden, Italy and Belgium $31,549 France as targets for the already

Finland $30,818 existent products.

Netherlands $30,363

United Kingdom $30,309

Germany $30,150

Sweden $29,537

Italy $29,414

France $29,203

Spain $24,803

2. Wine consumed

The level of wine consumption in each country is a relevant criterion when selecting the most appropriate European destinations as it sets the demand for wines and wine-based products (such as fortified wines and sparkling wines). As such, countries with increased wine consumption generate high demand and encourage imports, whereas countries with low levels of wine consumption have a low demand and import decreased amounts of wine. Below is the list of the first ten wine consuming countries in Europe with the actual amount consumed, for 2001:

Country Wine consumption per capita (in litres)

Luxembourg 59.22

France 57.17 Greece ranks 13, Germany - 14,

Italy 52.92 Belgium - 15, Netherlands - 18,

Portugal 46.74 United Kingdom - 20, Sweden

Croatia 43.20-22, and Ireland - 25.

Switzerland 42.37 Based on this particular criterion,

Spain 34.57 the most suited three European

Hungary 31.56 destinations would be Slovenia 31.13 Luxembourg, France and Austria 30.46 Italy.

3. Wine produced

The amount of wine each European country produces is an important criterion as it reveals the country's capacity to internally produce and satisfy the citizens' demands. As such, a country with a high level of produced wines can easily satisfy the customers' needs and would import reduced amounts of wine. On the other hand, a country that does not possess natural resources, skilled workforce, sufficient technologies, or any other element that reduces their capacity to internally produce wines, will register increased imports of wine. In 2002, the European wine producers were classified as follows:

Country Metric tons produced

France 5,199,930 Based on the amount of Italy 4,460,413 wine produced internally

Spain 3,444,310 and the rationale that a Germany 1,017,595 decreased production

Portugal

626,500 encourages imports, the Greece

500,000 three most suitable

Romania

500,000 European destinations

Hungary

380,000 for the Vinos Andinos

Russia

343,000 wines would be Moldova,

Austria

260,000 Croatia and Austria.

Croatia

220,000 However, Croatia and Moldova

210,000 especially Moldova register low GDPs and would barely afford the prices of the wines.

4. Competition on the wine market

However less important than the previous three criteria, the competition on the country's wine market is a relevant selection criterion as it points out the Chilean producer's chances of successfully penetrating the European market. As such, countries that import and sell a multitude of wines, fostering fierce competition among wine producers are more difficult to enter. On the other hand, countries that do not present customers with a diversified product palette are easier to enter, assuming of course that wine consumers desire new products and will purchase them.

3. Decision and rationale

According to market segmentation criterion number one - GDP per capita - the most suitable European destinations for the new wines are Luxembourg, Norway and Ireland. These countries have high incomes per inhabitant and would therefore afford to pay the high prices of the new wine-based products. Following the same criterion, the countries that register average income per citizen and afford the prices of the existent white and red wines are Sweden, Italy and France.

Directly linked to the second segmentation criterion - wine consumed per inhabitant - Vinos Andinos ought to launch their product in Luxembourg, France and Italy. Since these countries register high levels of wine consumption, they would welcome and appreciate the new products as they lead to the diversification of the wine supply on the market.

The third criterion - the amount of wine produced internally - points out that the Chilean producer should focus on the countries that produce low levels of wine and that would welcome the import of Chilean wines. These countries are: Austria, Croatia and Moldova.

Following the segmentation criteria, the best choices would be Luxembourg, Switzerland and Austria.

Luxembourg

Luxembourg (first by GDP, first by consumption) is a desired destination of the Vinos Andinos wines as the country consumes large amounts of wines and has increased incomes, allowing consumers to afford the prices of the specialized Chilean wines. In addition, the country produces low amounts of wine, therefore encouraging imports and allowing foreign wine producers to enter their market.

The relatively reduced wine production of Luxembourg's, in comparison to other European countries, can easily be explained by the country's limited territorial expansion and by the citizens' commitment to quality in the detriment of quantity. As such, the consumers would welcome the Chilean specialized wines and would appreciate the diversity they generate as well as their high quality.

Yet another argument in favour of the expansion towards Luxembourg is the fact that the country is most specialized on producing high quality white wines. This means that Vinos Andinos has an increased chance of selling their red and rose wines to a population that might desire a change from Luxemburg's white wines.

Austria

Austria (sixth by GDP per capita, tenth by wine consumption and tenth by wine production on the old continent) is a suitable European destination as it registers high GDP, revealing price affordability; consumes increased amounts of wine per year and does not cover the demand from internal production.

Australia is the world's thirteenth largest consumer of wines and the force that drives increased consumption is high quality. Given the high quality of the Chilean wines, the Vinos Andinos are likely to be welcome on the country's market. The country's citizens generally prefer white wines, but there is also an increasing demand for red and rose wines. Furthermore, another opportunity is the abolition of the luxury taxes, leading to an increased demand for sparkling and fortified wines.

4. Conclusions

Chile is the world's eleventh wine producer and the country's products are met with international recognition and a reputation of high quality. Vinos Andinos is a small vineyard that produces four types of red wines and three types of white whines. Most of this production is sold to local off-license outlets and the remaining is exported to Bolivia, Peru, Columbia and Japan. In order to expand their business, the management at Vinos Andinos has decided to launch four more products, consisting of rose wines, wine boxes, fortified wines and sparkling wines. Both existent and new products will be launched on the European continent, beginning with three countries.

Country

Reasons

Luxembourg high incomes that reveal price affordability increased levels of wine consumption low levels of internal production

Switzerland high GPD, resulting in price affordability high consumption and demand for wines limited internal production

Austria increased incomes leading to price affordability increased demand and wine consumption

Two things should be considered when launching the Chilean wines on the European market. First, the producer should widen their distribution and aside from off-licence outlets, they should also sell to licensed bars. This means that customers could easily familiarize with the products as they could purchase on glass of wine while at the bar. Given that they like it, customers would then purchase larger quantities from off-license facilities. This would test the success of the Chilean wines and would generate minimal risks and low costs.

Secondly, Vinos Andinos should launch their products as limited edition wines. Generally, limited edition products register a better success with customers as clients desire to try the new and shortly available product. Given the outcome of the limited edition wines and the feedback received from European partners, the Chilean wine producer would decide the next steps.