Montgras Case Report

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IKEA’s Global Sourcing

Group07_Montgras IB CASE Chapter 14 Question 1

MONTGRAS CASE REPORT:

EXPORT STRATEGY STRATEGY FOR A CHILEAN WINERY

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VINCENT

CASE WORKSHEET QUESTIONS

1. Define the problem

The problems to this case is that Montgras, a Chilean wine exporter who produce a high export-quality wines, had been asked to provide a fiveyear export strategy which is consistent with the overall marketing strategy of positioning Montgras as a high quality of fine wines producer. Their winery achievement was shown when there was a significant market share in Ireland and United Kingdom, however their primary focus was on the United States market to achieve the sales growth by increasing the production planned in 2005. Middleton, who is the CEO of MontGras, had to close the new distribution agreement with U.S distributors after two disappointing experiences with them; and thus raised critical strategic dilemmas, whether they should focus on volumes and stick to the “value for money” proposition that had been the success of the Chilean wines abroad or advice a margin strategy based on the fact that MontGras was producing a high-quality wine. Since that MontGras planned to formulate an export strategy, it has raised some questions regarding the opportunity that Middleton had been faced to invest in a marketing effort by the whole Chilean wine industry in order to upgrade the image of the country and an unexpected offer to

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participate in a U.K supermarket promotion that would boost volumes. Such questions that appear were; what would Montgras gain from such campaign?


And how would it impact the marketing strategy and budget? 2. List any outside concepts that can be applied

MontGras framework was based on the global wine industry from the


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branded-image product. The Australian wine industry took a five-year strategic planning process, where its future lay in the branded wine products, and reflects the distinctiveness of variety, region and producer, and aimed at maximizing the advantage of wine in the growth of business industry. Their principle was based on export strategy and marketing strategy. MontGras export strategy is to sell Chilean wine to the top markets such as U.S, U.K, Canada and Germany. In each country in which MontGras exported, an independent local agent managed the distribution, and usually the agent is the only MontGras distributor that is contracted based on the region in that country. Both MontGras and the agent jointly developed a strategic plan consist of a five-year sales forecast, product mix, positioning, pricing, and channel mix. The agent then prepared and submitted for an approval in their marketing plan, including sales promotion, media, public relation events, wine tasting, price promotions and sales force incentives. As for the marketing strategy, MontGras is focusing more on the positioning of the pricing strategy, where MontGras divide the segments into icon and ultra-premium segments where it drive consumers to trade down to less expensive wines and conducted a price elasticity test in United Kingdom. 3. List relevant qualitative data

The New World wine industry, where it is located on Australia, U.S,

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South Africa, Chile, and Argentina, were usually made from single grape rather than blends and designated by grape variety (such as


cabernet sauvignon or merlot), rather than by the place of origin. The new world wine have different marketing approach, where it is mostly based on variety of several large players with promotional budget to create an international brands At consumer level, consumption of table wine, where it is below $5 at retail price, declined; while an increase of the consumption of fine


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conditions for grapevine production had attracted many migrant

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European winemakers. By the mid-1980s, Chilean wineries, many now under foreign

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Chile was the oldest wine producer in the new world and it natural

ownership or management, started to produce higher quality varietal •

wines for export Compared with the local consumer, who was mainly buying inexpensive low-quality wine, the foreign consumer was more sophisticated and had greater buying power and therefore consumes

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finer wine. Chilean wine had achieve a “value for money” reputation across all price points, where most commentators agreed that the quality of Chilean wines had improved constantly through 1990s, and resulted from increasing investment by French, Spanish and Californian wineries in joint ventures with Chilean vintners to open new marketing

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channels. Chile had to take advantage of the quality of grapes, developing

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premium wines across a wider spectrum of varieties. According to Vinas de Chile, grape owners who had mot secured their contracts to sell to wine producers and no strong brand, could generate

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an increase in exports of bulk wines with competition based on price Winemaking was capital incentives, in terms of both fixed assets and working capital. Processing equipment and buildings were costly but

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were utilized for only a short period of the year after harvest The quality of MontGras’s products was determined by the quality of the soil and the grapes, and different styles of wine required different

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fermentation and aging process. Most consumers know little about wine, therefore a good word of mouth and recommendations by wine writers could help consumers to

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look for guidance and thus increasing sales volumes.


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and at $60 billion in wholesale value International wine trade had grown at a 4.3% compound annual rate

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between 1995 and 1999, and during the same period, trade volume

World wine business was valued at $150 billion in consumer value

growth from New World countries reached a 18,3% compounded annual rate Yearly increase of consumption of less than 1% up to 2006 (The World Wine Report, 2001) Increases in the New World countries would generated an estimated worldwide overproduction of 2.080 million gallons by 2006 The number of wine wholesaler in the U.S had shrunk by close to 75% between 1963 and 2000 Chilean wine industry as a whole generated operational margins around 15% and return on capital around 7% By 2000, Chile exported almost $600 million of wine to 90 countries on 5 continents The Asociacion Vinas de Chile forecast a surplus of 30 million gallons of Chilean wine by 2006 Oversupply had caused a downward price pressure, where the price of grapes had decreased by 40% between 1998 and 2001 MontGras Product Mix (Table on the case study) MontGras vineyards produced 62% of the winery grape’s supply and invested over $3 million in vineyards on Ninquen hill during 1990s/ 99% of Montgras’s annual production was exported, to a total of 24

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countries in 2000. MontGras export sales to the U.K (Table on the case study) MontGras export sales to the U.S (Table on the case study) U.K retail market was the dominance of the leading supermarket chains, the top 4 of which accounted for 75% of all grocery and 60% of all wine sales In 2000, imported Chilean wines accounted for 11% of U.S wine shipments by volume World wine production (Table on the case study)


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Worldwide wine importers by value (Table on the case study) Chilean macroeconomic data (Table on the case study) Estimates on total investments in the Chilean wine industry (Table on the case study) Breakdown of Chilean wine exports (Table on the case study) Evolution of planted area by main grape varieties (Table on the case study) Chilean consumption per capita of wine vs. beer vs. soft drinks (Table on the case study) Main MontGras’s profit & loss and balance sheet variables (Table on the case study) MontGras cost structure of grape production and winemaking (Table on the case study) MontGras export destination by country and product range (Table on the case study) MontGras average FOB price per case versus the overall Chilean wine industry (Table on the case study) MontGras 2001 marketing budget by country (Table on the case study) Economies of the exports to the U.S market (Table on the case study)

5. Describe the result of your analysis •

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The biggest obstacle that overcame by the Chilean wine industry is the one and only their image as a country. Because, the country itself is not really famous around the world. There are no signature products from Chile. But


what most people do not know is that, Chile has a premium grade of quality for their grapes. Their grapes can be made for a premium quality wine and can be competed in the wine world market. Therefore, the Chileans have to build their image; so that people will know about the


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It has been statistically shown that the demand for the premium quality wine brand is increasing, because people around the world nowadays want to enjoy the finest wine they could find. That is also why the demand for the cheap brand kept decreasing from year to year, because there are no points in consuming the low quality wine, since there are no enjoyments out of that.

6. Describe alternative actions

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One of their key weapons is price. Even though, they came up with the premium quality wine that does not mean they can just put their price on top of the market. It returns to the image of the Chile as a country. The image of Chile as a country is quite low, because they do not have particular signature products. That is why in order to gain their brand awareness, they should decrease the price in order to compete with other brands in the world market and show the world that Chile has a better premium wine quality but with the same price with other high-quality

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brands in the market. They also can gain customers more by doing products promotion. The best strategy for Montgras wine product is by word of mouth, because by using word of mouth, it can personally strengthens customer’s trusts. Brand

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brand, they will not substitute ever. The quality of the wine itself is also one of the most important keys. If the quality of the wine cannot be maintained, then it will lead to lose the customer’s trusts. Then the bad news is the customer will substitute Montgras with other brands. So, quality control is important not only to

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maintain the quality of the wine itself but also to maintain customer’s


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7. Describe your preferred action plan

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In the short run, Montgras should adjust their price level to the same level of their competitor brands so that Montgras can compete in the international market with other brands. However, they also have to produce a high quality wine with a low price, since that is their signature to present high-quality low price wine in order to increase their image as

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the Chilean wine brand. In the medium run, they have to work on the promotion strategy, which is word of mouth from the alternative actions. By doing this promotion strategy, Montgras will be able to gain the customer’s trusts and by gaining the customer’s trusts, it means that they will perceive the high value of the Montgras wines. If they already gain the customer’s trusts, they will be able to change their price level by increasing the price, and the customers will follow the changing in price level because they already

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have their brand loyalty in Montgras as the premium quality wine brand. In the long run, they should maintain their premium quality in order to maintain their customer’s trusts. This would be the most challenging action plan in order to stabilize Montgras selling revenues or even increase it.

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CASE STUDY QUESTIONS Read Free For 30 Days Sign In

1. Define and explain the difference between the New and Old wine world as well as its impact on the wine market.


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topography, microclimate, and also the skills of the winemaker. These old world wines also made from a blend of different grapes and were named after the growing regions which created a complicated designation of names based on registered origin names. They also have high levels of regulation from production to labeling and marketing. As for the new world wine industry, where it has been dominated by Australia, United States, South Africa, Chile and Argentina, is focusing more on exports and use a more scientific approach to operations of the wine industry and the high level of innovation in production. These new world wines are mode mostly on single grapes rather than blends and designated by the variety of grapes. Their marketing approach was based on substantial promotional budgets to create international brands with broad competitive markets and several large players. In the Old Wine World, the process of making wine by blending all types of grapes to become one type of wine through a traditional and specific ways which was used in European country. In the New Wine World, the process of making wine used on single grape rather tan blends and have a different ways of processing the grape itself, by using scientific approach. The impact on the wine market is that; in the old wine world, the winemaker focuses on making the wine based on the different region that is produced and naming it based on the country where it is produced. That is why in the old wine world, since that they have a high level of regulation, winemaker needs to have a registered origin names. In the New Wine world,

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each company wants to make a better wine and also sell a lot of wine. The company sales are their main goal and therefore they need to improve their


quality of wine by processing the wine in a more innovative ways. The new world also had their own strategy of marketing by exporting the wine they produce so the buyer doesn’t have to go directly to they country that produce it but they can just buy at retailer or wholesaler in their country. In the New wine


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2. Evaluate Montgras Marketing strategy: is it positioned in attractive markets/ segments or will it suffer as the industry suffers a period of oversupply?

MontGras is currently applying the attractive marketing strategy. It is so because of its low production cost and stronger image than competitors. Generally, Chilean wines were known for being inexpensive so it will inflict a lack of prestige for wine connoisseurs but the low cost attract customers as it is now forge relationships with United States and United Kingdom. For the oversupply issue, it will affect almost all producers as it is in fact already happened in United Kingdom where 60% of wine is sold in supermarket rather in wine specialty stores. But with its low cost, MontGras could launch more products, stabilizing its output line and partner up with foreign distributors to attract buyers and to promote the products to enter high end supermarkets. By doing so, MontGras will not suffer from image degradation due to grapes oversupply. Besides, MontGras already had Ninquen wine as its flagship. It should be use as a leverage to compete with competitors because as it is already stated, Chilean wines usually perceived as low quality goods. By using Ninquen and exporting it, company’s image would be good by itself and it would be better due to its low price from the result of low cost.

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3. Evaluate UK and US options described in the case. Which would you Read Free For 30 Days Sign In

recommend and why?

We recommend US market, even though MontGrass has experienced many bad situation, it is still a safe market to do a business, especially in exporting. Though the process from getting the goods to the market took a long time, but


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doing that business. Although the market in US is hard to predict but that doesn’t mean they’re not interested, in fact, in 2013, US market became the biggest wine market. U.S people tend to buy more rather than consume it, and that’s also the reason why selling wine in US market is a good decision. The better the quality of the goods, the higher the prices are, but that doesn’t stop people in US to buy wine.

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Montgras Case Report

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