17. A Strategic Approach to the Analysis of Global Wine Industry Positioning
American Association of Wine Economists
10th Annual Conference
June , 2016
Bordeaux, France
Professor Geoffrey Lewis, Melbourne Business School,
The University of Melbourne

18. Outline of Presentation
Update of the 2013 AAWE conference presentation.
Purpose is to gain insights into the way the major wine producing countries have positioned themselves in the key wine markets.
Data collection – source and building the data set.
Approach to the analysis – Google Motion Charts.
What's new in this presentation?
Updated to include 2014 data.
Expanded to include data from 1993 (vs 1997).
Expanded data set to cover 10 producers and 7 markets.
What story does the data tell us? The Winners and the Losers.

19. A Business Strategy Perspective
Business strategists are primarily concerned with the way firms compete in a market. Firm-level data are not available … we are limited to trade statistics … but rather than analyzing export data we have looked at import data in local currencies.
From a business strategy perspective it is Total Value, not Volume that is important:
Volume (market size x share) x Unit Value (price) = Total Value
Looked at Volume and Unit Value and Total Value using the 6-digit Harmonized Commodity Description and Coding System (HS) :
All wine HS code 2204
Bottled wine HS
Bulk wine HS (> 2 litres)
Sparkling wine HS
Issues: Unable to track bulk wine bottled in-market and red vs. white.

20. Data Collection
For the 2013 analysis we used three databases: USITC (USA) and Eurostat (UK and Germany) and UN Comtrade (China).
This most recent analysis is based on data entirely from the UN Comtrade database, which provides the data in US dollars. The data were converted into the local currency using a system designed by Prof Werner Antweiler, the University of British Columbia Sauder School of Business.
Producing countries:
1. France
2. Italy
3. Spain
4. Chile
5. Australia
6. USA
7. Germany
8. New Zealand
9. Argentina
10.South Africa
Markets:
1. USA
2. UK
3. China
4. Germany
5. Canada
6. Japan .
Australia

21. Approach to the Analysis
We have not done traditional statistical analysis … instead we have used Google Motion Charts to interpret the data – to see what story the data tells us.
The motion charts allow us to examine in detail the dynamic interplay between Unit Value, Volume and Total Value over several decades.
Changes in strategic positioning – Unit Value (effectively Price) and Volume (reflecting Market Share) and the impact on Total Value – can be readily observed.
The Google motion charts are available to other researchers at:
Let's take a look at what the data look like – start with the US market.

22. Front Page of Website

23. USA: All wine

24. USA: Bottled wine

25. USA: Bulk wine

26. USA: Sparkling wine

27. Wine World Cup: Winners & Losers
Ranking in terms of Total Value in local currencies [cumulative ]*
USA UK
China
Germany
Canada
Japan
Australia
France 1 2
Italy 3 5
Spain 4 6
Chile 7 - 8 9 NZ 10
Argentina
Sth Africa
* Based on analysis of UN Comtrade data not Motion Chart analysis

28. Wine World Cup: Winners & Losers
Ranking in terms of Total Value in local currencies [2014]
USA UK
China
Germany
Canada
Japan
Australia
France 2 1
Italy 5 3
Spain 4 6
Chile 7 - 8 10 9 NZ
Argentina
Sth Africa
* Based on analysis of UN Comtrade data not Motion Chart analysis

29. Summary Conclusions – By Producer Country
The Winners
France is very clearly the overall winner. Both in terms of cumulative value over the period, but also still the leader in While it has lost value in some markets from its peak this has usually been as a result of it consolidating its position in the high price / low volume strategic position. Its only serious competitor is Italy, who has secured the low price / high volume strategic position in most markets.
Italy is also a winner with the low price / high volume position in most markets. In recent years this has put Italy into the #1 value position in the US market, although France still leads in cumulative value.
Italy is also the winner in the German market, but it is relatively weak in China where Chile appears to be securing the low price / high volume strategic position. This is a concern given the rapid growth of this already large market.

30. The strategic positioning of France and Italy

31. The strategic positioning of France and Italy

32. Summary Conclusions – By Producer Country
The Challenger & Game-changer
Australia is strong global player who changed the rules of the game when it emerged in the UK and US markets in the 1990s. In terms of cumulative and 2014 value it ranks #2 or #3 in the largest markets. It was, however a much stronger player in the mid-2000s before commoditisation and price collapse in the US and UK.
Australia's strategic position has changed over time between niche player, high price / low volume, low price / high volume. It has challenged France and Italy in the US and UK, but the challenges have been unsustainable.
The one important market where commoditisation has not occurred is China. Australia has sacrificed volume to maintain price.

33. Strategic positioning in China

34. The strategic positioning in China

35. Summary Conclusions – By Producer Country
Spain is worldwide a major player, ranked 3/4/5 in most markets in terms of value. However, Spain is not making progress in most markets and is weak in China. It has not been able to secure a clear strategic position like France and Italy and is vulnerable to New World producers. Its value rank is likely to continue to slide.
Chile China is a key element of Chile's positioning in international markets, because in this market it looks like it is securing Italy's low price / high volume position. Chile has the low cost / weak currency situation to support this positioning, but now that China has a greater area under vine than France and domestic producers supply 70-80% of the market, this low price segment may be assumed by domestic producers.
Germany's position is weak and not improving. It has lost position relative to New world producers and does not have a clear strategic position. It is not clear what its positioning could be.
USA The US is strong in the Canadian market, where it is positioned alongside France and Italy. It is, however, not really going anywhere in other markets. It is likely to remain a high price niche player. Exports are probably not a high priority for the large US industry.

36. The strategic positioning in Canada

37. Summary Conclusions – by Producer Country
The High Price Niche Player
New Zealand Although a relatively small player, it has been remarkably successful in establishing high price niches in many markets. Just how NZ have managed to achieve these high prices is not clear, but there may be lessons here for other small players.
New Zealand also dominates the Australian market where it has taken the low price / high volume position taken by Italy in other markets.

38. The strategic positioning of France and NZ

39. Summary Conclusions – by Producer Country
Argentina has a strengthening position in the US market. It could attempt to be the low price / high volume player, but it would have to displace Italy and China. Better to establish a niche like NZ's sauvignon blanc around Argentina / Andes / Malbec – although volumes would not grow rapidly.
South Africa is almost the lowest value producer in all markets (except Germany where it is still a distant #5 behind the European producers and the US). It is not clear how South Africa can position itself in international markets and what the future holds.

40. Commercial Implications
The analysis raises interesting questions about how these positions were achieved and sustained.
For example, France started in a dominant high price (and usually lower volume) position in all these markets. But how did it develop and sustain this position? Was it just a first mover advantage and the reputation of French wine?
We know it is firms, not countries, that actually compete. So who were the firms and what were their strategies and capabilities?
Australia failed in the US and UK (I have reported on commoditization as the cause of this failure – JWE May, 2014) and Australia is now slowly regaining a sustainable position).
How has NZ established such high prices in many markets? Who are the firms and what is their marketing strategy? Does NZ's success provide lessons for countries such as Argentina?
What strategies should firms be adopting in China?

41. Discussion … and my thanks to Prof. Hans Rosling
If we torture the data long enough, they will eventually confess …
… but if it is insights we are interested in, we must let the data speak for themselves.
Discussion
… and my thanks to Prof. Hans Rosling