Introduction
This case analysis is based on the case study of “Concha y Toro” by Rohit Deshpande, Gustavo Herrero and Ezequiel Reficco, published in June, 2010 issue of Harvard Business Review.
Background of the company
Concha y Toro was established by Don Melchor de Concha y Toro in the year 1883. It became a public limited company in 1922 and exported its first consignment in 1933. It has been a family business and the modernization was initiated in second half of the century. It started to expand to global markets by 1990s and was listed on New York Stock Exchange in 1994 and became the first to do so in winery industry. In the following year, it created two subsidiaries Vina Con Sur in Chile and Tri even to in Argentina.The controlling interest has been in the hands of the family throughout its history.
It had expanded its global business to 110 countries by 2006. The global strategy was formed based on opportunities and sales-drive to proliferate the brands. It started to sub-brand the products under the umbrella of Concha y Toro. Sub-branding was done based on market segmentation with different products to target different groups.
Problem
The global expansion exposed Concha y Toro to global risk as well, leading to some problems, mainly:
• Operating profits dropped by 20.9%
• Operating Margins decreased from 16.1% to 12.4%
• Increased supply of wine in global market forcing the prices down
• Stronger Chilean Peso against U.S. Dollar
. Situation Analysis
Global Wine Industry
Wine production was mostly based in France, Italy and Spain, accounting for more than 50% of the total worldwide production.However, the market share of three major wine-producing firms accumulates to be only 7% of the market.This also shows that there is an intense competition within the market. The global market was divided into New World producers and Old World producers. The differentiation was based on many elements, although the most significant characteristics associated were subtle for Old World wines, while New World wines were considered bolder.
Experts believed that there is a “Halo Effect” associated with wine industry which leads the global wine industry. For example, French due to their general perception of classy and romantic (positive attributes) had an implication on products like Wine. New World producers were innovative in their approach and switched to different grape varieties like Cabernet, Merlot or Malbec. Traditional or Old World wine producers lost their dominance after the Judgment of Paris, whereby top wine-testing experts were not able to differentiate between California wines and French wines. This global shift was stepping towards the growth for New World producers including Concha y Toro.
The companies have tried different promotional activities and product developments to increase sales and customer loyalty. An Australian producer started a campaign of “BOGOF” (Buy 1 Get 1 Free) to target UK. New World producers were focusing on developing wines to conform to customer likings. However, the wine industry in general has a very limited marketing.................
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