Vina San Pedro Harvard Case Solution & Analysis

Problem Statement

The President of Vine San Pedro is aiming to keep a balance between foreign and domestic markets and is considering the efforts that are required to achieve this objective. With the recent expansion in capacity, VSP needs to consider the changing market trends and the president should consider a new positioning strategy as well.

Key Issues

  • The question regarding the production capacity that whether it is adequate to match the projected increase in sales and are there any bottlenecks in the production that require further investments.
  • The advantages that VSP has in the current domestic and international market.
  • For the American market, which is the most suitable wine that should be promoted and what will be its implication on the production capacity, cash flow and quality.
  • Are there any added risks of the strategy proposed by the president regarding fluctuations in the exchange rate.
  • How the strategy for meeting the return on capital employed will be adjusted.

Production Capacity

With an extended capacity of 1150 hectares, VSP was acquired by CCU with 48.4% shares whose main aim remained on decreasing expenses. Due to the lack of resources and direction VSP wines were not able to attain the desired results. In order to meet the requirements CCU invested $864 million and $178 million for maturing and plantation of new wines in order to deliver premium red wine which extended share of CCU by 51.4%. Grapes were the major contributors of making the wine, which were grabbed from local cultivators.

During the years 1995 and 1996 the company saw maturity and growth with profit reaching $305 million due to increase in clients and deals increasing by 29%. This was quite an encouraging factor for CCU. The last three years were not as productive as the recent two years, which is why the company hired a new president, Matias Elton in order to keep the pace going and sustain the growth. Elton in his initial move spent an additional amount of $17.7 billion in order to extend the capacity and produce more.

With this additional investment the production capacity increased to 36.3 liters with a packaging limit of around 25,000 jugs an hour. To meet the demands, the company under the guidance of the new president saw some major investments that include $8.2 billion in vineyards and $3 billion in vinification. Besides this, $819 million was invested in maturing limit, and $5.6 billion to increase the packaging limit. These investments paid off, and VSP became the market leader in the domestic market with around 10% share and the company focused on its international ventures.

As the company is highly dependent on Grapes for production, therefore, the shortfall of grapes created a bottleneck in production. To manage the local demand along with international demand was becoming a difficult task for the company that is why additional investments are required to increase the production capacity in order to meet the growing demands of grapes.

New yards are required for producing grapes and lifting off the dependency of local cultivators to meet the domestic and international markets.

Advantages

In the domestic market, VSP has the largest wine yard and is considered as one of the finest producers of wine and with additional investments in the production capacity different varieties were introduced at low cost.

VSP is amongst the market leaders with a market share of around 11% with a strong reputation in the Chilean market. The company’s ability to sense the market trends and understanding the consumer behavior is a major strength of the company in the local or domestic market. VSP’s main focus in the domestic market remains on delivering quality that is not the usual trend in the Chilean market. The local producers focused more on price and saved the cost of packaging, but VSP delivered high quality with quality packaging.

Succeeding in the international market is a challenging task for VSP as the company is not aware of the trends in the international market and is almost new to the international market. Besides the presence, the acceptance in the international market is highly dependent on delivering quality that is a motivating and encouraging factor for VSP..........................

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