1. Nathan Washburn Associate Professor Jon M. Huntsman School of Business
Blue Ocean Strategy
Nathan Washburn Associate Professor Jon M. Huntsman School of Business

3. 5 forces in the US wine industry
Budget Wines
Premium Wines
New Entrants
Unlikely. Access to distribution channels – 1933, 21st amendment with three-tier system (distributor has the power). Economies of scale – capital requirements – capex for Robert Mondavi was 78 million in 2000
Lower barriers – use smaller distribution channels. Can charge higher prices to get around economies of scale
Substitutes
Large threat - Beer and other drinks can substitute at family picnics and other casual gatherings. Low switching costs
Small threat – Differentiated drink that is complex and for special occasions
Buyer Power
High – distributors are very powerful (250 distributors)
High power
Supplier Power
Low – grape glut in US
NA – they produce their own grapes
Competitive Rivalry
High rivalry (E&J Gallo and Constellation Brands dominate). They are also diversifying their offerings and shifting up market
Moderate to high rivalry – differentiation limits rivalry. However, supply was overwhelming demand by 15-20%. US is 4th largest producer, but 34th in consumption per capita

4. The American Dream – Strategies for US Success
Entrants need to be niche-focused:
Volume opportunities “played out”
Major distributor books full
Alliance partners with distribution muscle scarce
Acquisitions prohibitively expensive
Value opportunities are opening up
Build appellation awareness – industry
Deploy top-end Shiraz
Target “on-premise” – hand sell
Seek out “regional” distributors
Take Away?
Strategy for success in the US Market:
“Niche-Market…Up Market!”
Presentation by John Grant (President of Kendall-Jackson Wine Estates) to the Australian Wine Marketing conference in 2001

5. Blue Ocean Strategy
Identify the factors of competition (attributes or benefits of the product/service) in the industry
Rate companies based on what they offer on each of those factors
Look across customers, strategic groups within industries, alternative industries, etc. to identify alternative strategies
Decide which factors to eliminate, reduce, raise and create
Make sure the strategy is focused, differs from others, and has a compelling tagline that speaks to the marketplace

6. Strategy canvas: On what factors does the US wine industry compete?
High
Low

7. On what factors does the US wine industry compete?
High
Premium Wines
Budget Wines
Low
Price
Label
Terminology
Marketing
Aging
Quality
Vineyard
Prestige
Wine
Complexity
Wine
Range
Easy
Drinking
Ease of
Selection
Fun

8. To create a new value curve, focus on alternatives and noncustomers
Price
Label
Terminology
Marketing
Aging
Quality
Vineyard
Prestige
Wine
Complexity
Range
Low
High
Budget Wines
Premium Wines
A New
Value
Curve
Which factors
should be reduced
should be
eliminated
should be raised
created?

9. To create a new value curve, focus on alternatives and noncustomers
Price
Label
Terminology
Marketing
Aging
Quality
Vineyard
Prestige
Wine
Complexity
Range
Low
High
Budget Wines
Premium Wines
A New
Value
Curve
Which factors
should be reduced
should be
eliminated
should be raised
created?
Casella wines looked at noncustomer Americans who thought wine was intimidating and pretentious
Rather than creating a sophisticated wine for special occasions, their problem was to make wine fun and easy to enjoy every day

10. Casella created [yellow tail], a wine that appealed to Americans who didn’t understand wine (intimidating and pretentious). Targeted every day consumption by these noncustomers
Price
Label
Terminology
Marketing
Aging
Quality
Vineyard
Prestige
Wine
Complexity
Range
Easy
Drinking
Ease of
Selection
Fun
Low
High
Budget Wines
Premium Wines
[yellow tail]

11. Results of their Blue Ocean Strategy
First year goal was 25,000 cases – actually sold 500,000 cases
By 2005, selling 7.5 million cases to US market (compare to 10.9 – the total number of cases imported from France)
Fastest growing wine in the history of the US
#1 imported wine
Compare to the 6,500 other wine brands sold in the US. 96% of these brands sold less than 100,000 cases
Competitors responded with hundreds of ‘critter’ brands: Monkey Bay, Little Penguin, dogs, wallabies, etc. – nearly 1 in 5 of new wines introduced in the US from featured an animal on the label

12. Three characteristics of a strategy that can unlock blue oceans
Focus: does not diffuse effort across all key factors of competition
Divergence: differs from the other players value curves
Compelling tagline: a simple story that is believable

13. Focus, divergence, and a compelling tag line that speaks to the marketplace
Price
Label
Terminology
Marketing
Aging
Quality
Vineyard
Prestige
Wine
Complexity
Range
Easy
Drinking
Ease of
Selection
Fun
Low
High
Budget Wines
Premium Wines
[yellow tail]

14. Blue Ocean Strategy
Identify the factors of competition in the industry
Rate companies based on what they offer on each of those factors
Look across customers, strategic groups within industries, alternative industries, etc. to identify alternative strategies
Decide which factors to eliminate, reduce, raise and create
Make sure the strategy is focused, differs from others, and has a compelling tagline that speaks to the marketplace