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¶ … wine industry attractiveness in a comparative approach between the New World producers (Chile, U.S., Australia, South Africa) and the Old World producers (Europe), we will be using Porter's Five Forces Model in each case.

In terms of the threat of new entrants, we can point out towards the fact that this threat is much higher in New World markets. The reason for this is that the consumers in these areas are less experienced and easier to satisfy. Further more, demand for premium wine is constantly growing in the New World, which makes it an incentive for new comers to discover a certain niche on the market they can operate. On the other hand, in Europe, the market is much more settled and it is more difficult to become a new player here. Consumers tend to be much more traditionalistic and will stick to a selected type of wine or a certain area where the grape is cultivated for a long period of time. Extensive marketing would be necessary to enter the premium wine market in Europe - some names have simply been around too long and are too well-known.

The threat of substitute products remains at high levels in both cases. We only need to think of the entire spectrum of beverages to discover that you have many alternatives to wine, ranging from lighter beverages (beer) to stronger ones (scotch, vodka, gin). The only advantage that wine has is that it practically has no competing product on the 12-14% alcohol content range.

The bargaining power of suppliers is higher in the New World than in Europe. In Europe, many of the activities related to wine production are still done in the same vineyard, while in the New World, many of these are usually outsourced. In this sense, the bargaining power of suppliers in the New World is intrinsically higher than in the New World as the number of suppliers one has to deal with is much higher as well.

The bargaining power of buyers in Europe remains high, because buyers of premium wines are considered to be connoisseurs here. If the taste of a wine slightly modifies from the one that is known to the buyer, the instant reaction will be to change it and choose something else. This means that the consumer will also regulate the market to such a degree as to determine the results of the company. The New World markets are more flexible in this sense: although the buyer can turn to other beverages if dissatisfied with the wine product, he is less inclined to recognize a faulty wine. Measures such as those used by Mondavi to popularize wine drinking are a step forward in alphabetizing consumers in these countries.

In terms of rivalry among firms, the European market is highly fragmented, which means that rivalry among firms remains at low levels. The market is not dynamic enough to encourage such rivalry and, additionally, government incentives and regulations draw out a market share for almost all assortments of wine, ensuring a reduced rivalry. On the other hand, newer markets are much more dynamic and stimulate competition. There are 20 firms controlling 75% of the U.S. market, for example, the type of oligopoly that ensures rivalry and competition.

Drawing a conclusion on the subject of market attractiveness, the European market still remains a very pretentious and exigent one, with experienced consumers and difficult entry on the market. The New World market offers more opportunities, but, at the same time, the rivalry among firms and the bargaining power of suppliers is higher here.

2. We should probably start an analysis of the company's supply chain with a few words on the company's human resource and organizational structure. In my opinion, this is one of the most important competitive advantages that the company possesses over the other players on the market. The three business units that have been created through reorganizing the company in 2001 ensure that each brand can be easily positioned on the market with the best and most efficient results. These results, because the business units functioned decentralized, can be evaluated and the appropriate measures can be taken in each case.

Second of all, in terms of HR, the company has the benefit of the enormous figure of Robert Mondavi. Indeed, this can be quintessential in a company, because it provides a strong image for company development on the market, while at the same time growing confidence from the consumers.

Marketing was approached on two different plans. First of all, it attended to the experienced consumers, the type of consumers that attends wine tasting and seminars. On the other hand, lately the company has also turned to popular marketing, for a much wider segment of customers. The two approaches complement each other a great deal. On one hand, premium wine is usually addressing a category of consumers who turn to this type of wine not only as people enjoying a good wine, but also for a social perspective. For this category, the marketing methods formerly described are best. On the other hand, why not promote premium wine to anybody who listens to the radio or reads the magazines, for example? Nevertheless, this category of consumers needs to be educated into enjoying premium wine, which means that thematic trips, exhibitions and popularization methods. This is risky, though, as the Disney theme park, mentioned in the case study, has shown.

In terms of distribution, the company has managed to develop a remarkable network covering over 100 independent distributors. While on one hand covering wide geographical areas, the disadvantage of distributing wine by using independent distributors is related to brand loyalty. Indeed, as seen, many of the distributors commercialized a large number of brands and many of their portfolios also included competitors' brands. It is difficult for Morandi to use independent distribution as a marketing methods as well, as it would have had it possessed the means to finance its own distributors. As it is, its team of salespeople, albeit much larger than in 1995, still can only deal with a small amount of consumers and their role became more that of promoters than actual salespersons.

3. Allied Domecq is primarily entering the premium wine business because (1) it has enough money from a consistent cash flow to spend on acquisitions and (2) because it has identified markets which are still yet to mature or saturate (the new World markets). In this sense, it has chosen to diversify its business and we are referring here to a related diversification, with expansion into connecting fields of activity (the company was an important global player on the distilled spirits and wine markets).

Let's refer to each of the two points separately. First of all, the company's franchising activities have made it highly profitable and, even more important, disposing of a solid cash flow resource. If we consider the company's total revenue and the percentage coming from non-wine, non-spirits activities, this would total an amount ranging around $400 million annually. Certainly, not all of this can be transformed into cash flow, nevertheless, we would still be left with a solid amount of money to spend, money that can be used in expanding in other areas.

Second of all, the premium wine markets still have largely unexploited areas in the New World. We have previously referred to the consumers' inexperience in premium wine consumption, but we can also add their enthusiasm for trying out new products here. The European market is much more conservative and it is usually the case that people tend to stick with a type of wine. This is why CEO Philip Bowman has chosen only markets with high potential of growth and has only acquired companies in these areas that were already important local players. Additionally (relating here to the four conditions he has laid out before making an acquisition), the campaign that Allied Domecq has chosen and that it will pursue in the future relies greatly on realizing efficient synergies between the acquired companies and the present time firm, with benefic effects in the future.

I am sure that the Allied Domecq CEO refers not only to potential synergies between the companies producing premium wine that are currently being acquired, but also to synergies between existing wine producing facilities and the other economic activities that the company has. The effect of synergies cannot be properly evaluated, but it is certain a positive one in the given conditions. The advantage of cash flow is, however, determinant in this case. With the money it can dispose of, Allied Domecq plans further acquisitions in 2002 and, additionally, a wave of new products launched on the market. We nee to keep in mind that the New World wine market are dynamic and will easily turn to new products, even if for a trial period. In Europe, it is less likely that an experienced wine consumer will pick out an new brand simply because it has appeared on the shelf. In the New World, however, curiosity is the word of order: why not try a new premium wine brand?

On the other hand, competition with Mondavi is not an easy task for Allied Domecq. The main advantage Mondavi possesses over Allied Domecq is the fact that it has a series of well established brands, brands which have become well-known to the market through marketing campaigns that ensure that the brand has a distinct identity and unique image. Additionally, in my opinion, until the synergies begin producing results, the tactics of simply buying players on the market needs time to sediment and to become cohesive. From this point-of-view, Mondavi, as a family business first of all, has always being united around a common idea and figure.