Competitive Analysis Of Porters Five Forces Model

Competitive psychoanalysis Of Porters Five Forces Model1. Competitive Analysis of Porters Five-Forces ModelPorters Five Forces example is a widely used approach to determine the strength of the warring forces that volition influence a company. (Exhibit1) The matched pressures that Robert Mondavi constructions in the U.S. domestic wine-coloured-colored-colored diligence establish on Porters Five-Forces Model ar described d admit the stairs1.1. Bar assumeing Power of SuppliersRMC has used backward integration strategy to change magnitude control of grapeshot suppliers. He has successfully convinced many of Krugs raising grape suppliers to sign long term contract with RMC for approximately 75% of its purchases. ( professor Roberto, 2002)He also worked closely with each beginer to improve grape woodland and the contract has been structured where the compensation was tied to the grape quality crop yields. This leave improve the stability of the price as more than(pre nominal) or less of the growers depend on RMC for sustenance, thus give them very little negotiate provide over RMC. Mondavi also convinced Krugs blow over 2 suppliers to load down financial stake in his juvenile winery. (Silverman, Gilinsky, laugh at Baack, 2001) Since now they be the stakeholders admit long term contractual relationship with Mondavi, it has reduced the likeliness that suppliers will subjoin price.Furthermore, RMC has invested more than $50mil over the past 10 old age to replant vineyards after the phylloxera epidemic. For long-term plan, Mondavi also acquired additional vineyards to append its internal grape sourcing to 25% by 2005 so that his wineries wont trust heavily on independent growers. (Professor Roberto, 2002) As such(prenominal), curse of supplier negotiate power is low for RMC as they attempt to control the suppliers operations function from harvestingion to distri just nowion.1.2. Bargaining Power of CustomersSales of wine in U.S. ar principal(prenominal)ly controlled by three-tier distri just nowion system. RMC sells wines to their customers who be the wholesalers/distributors, who then provided wines to local retails businesses which accounted for 78% of total sales volume in U.S. Super markets alone have contributed 52% of retails wine sales. (Silverman, Gilinsky, computerized tomography Baack, 2001)However major changes had taken place in wholesale and retail wine business. Number of alcoholic beverage distributors had f all told by 75% in early 1960s and substantial market share are now controlled by merry-go-round 5 distributors. (Exhibit 2) As a result, self-aggrandising distributors are have a go at iting economies of scales and prefer to distribute merely top selling wine nocks since the product screw be replenished quickly. Bargaining power of distributors had increased significantly since they have a lot of wine brands to drive from.Furthermore, quintette stark naked serviceman cou ntries Australia, Canada, Chile, New Zealand and U.S. have signed peck agreement in 2001 to keep markets open and reduce change over barriers. (Castaldi, Cholette, Hussain, 2006) With the sphericalization of wine labor, a lot of international wine brands are eyeing for put on the store shelves of these few powerful supermarkets. As a result, RMC face up increasing competition as they relied heavily on top distributors retails kitchen range for domestic sales, which accounted for two-third of its r nonethelessue. (Professor Roberto, 2002) As a result, bargaining power of customers is high for RMC1.3. potential difference Entry of New CompetitorsConsolidation is occurring among wineries human racewide by merges and acquisitions in wine industry. In 1970s, several food and beverage conglomerates, like Nestle and Coca-Cola have entered allowance market by acquiring aid to ultra- insurance agiotage wineries. In 1980s, spheric alcoholic beverage companies, like Canandaigu a and The vino Group have acquired wineries to backup their beer distilled spirits businesses. In 1990s, there were some 200 newfound wineries in the Napa Valley coped with RMC in reward market. (Silverman, Gilinsky, Guy Baack, 2001)A maturement number of these wineries were nearly owned by multinational companies which have free-flow of hard currency and able to gain economic of scales in wine industry through merger or requisition strategy. Furthermore, they have substantial investment in working big(p) and funding to acquire new vineyards or even fee higher prices for grape supplies. Although RMCs skills expertise are difficult to imitate, but the knowledge and experience of these new competitors in alcoholic beverage industry with the support of their existing distribution assets will be an added advantage for them to compete in wine industry.As a result, the new competitors with huge capital have dwindled capital resources of RMC, which ended in public listing to find oneself more capital to compete and take advantage of future day opportunities (Silverman, Gilinsky, Guy Baack, 2001) As such, scourge of new competitors is high for RMC especially when the big companies deal mergers and acquisitions as attractive ways to grow.1.4. Rivalry among Competing FirmsRivalry among competing firms is often the difficultest of the five competitive forces especially in U.S. wine industry, which was composed of approximately 1,500 wineries with the top 10 accounting for 70% of U.S. production. (Silverman, Gilinsky, Guy Baack, 2001)RMC has experient intense contention from few dominant large volume makers like EJ Gallo Winery and Canandaigua Wine which have controlled 40-50% of market share (Exhibit 3). Furthermore, EJ Gallo also start to enter the reward wine segment aggressively to capitalize on changes in consumer have toward premium wines. This will affect RMC which is primarily competing for premium wine market.Besides, large volume cause r like EJ Gallo also gained economies of scale and have been viewed as sales powerhouse by many industry observers. They adopted strategy of substantial vertical integration by owning glass container manufacturer, bottle dock operation, lime quarry, a fleet of trucks and network of distribution centres passim the country. (Professor Roberto, 2002) This enabled Gallo to enjoy a significant damage advantage. In this situation, rivalry is more likely.Furthermore, nigh of the rivalries have focused on channels promotions strategy to increase brand awareness and broaden its customer base in the premium market. They apply a count sales force, organize wine competitions, wine tourism as tumesce as wine testing and education activities at their vineyard to build the publics awareness. To sustain the competitiveness, RMC has gone far with the launched of its first radiocommunication television advertising campaign nationwide. As such, rivalry among competing firms is high for RMC i n premium wine segment.1.5. Potential Development of Substitute crossroadsThere are a lot of categories in alcoholic beverage industry such as beer and distilled spirits. When considering substitute for wine, many people will always imagine the wine substitute is beer. Actually all these are more of a compliment than substitute as each product has its own property, can be differentiated and used to accompany different occasion.However the threat of substitute products is moderately high for RMC within the wine category. For example, an incident happened in 1999 where all the distributors began to substitute competing Chardonnay brand on retailers shelves after RMC experienced shortfall in supplying Woodbridge Chardonnay brand. (Silverman, Gilinsky, Guy Baack, 2001) Furthermore, there are a lot of wines with similar price, taste quality are pronto available from local or multinational brands. The wide selection of wines has admirerless the customers during the buying process a nd always have trouble to remember which wines they bought and liked. (Castaldi, Cholette, Hussain, 2006) As a result, the brand loyalty of customers is low and switching to an alternative product is more likely during the purchase process.Although RMC has presence in all premium categories and hold a competitive advantage in economic of scales and price, but the threat of substitute products is still possible as closely of the distributors only prefer to buy the wines which gained most awards and acclaim from wine enthusiasts.Finally based on Porters Five Forces, it can be concluded that only threat of suppliers are favorable to RMC. Due to the high competitive and continuous threats from new entrance such as alcoholic beverage companies, it is of import for RMC to be more innovative in developing world-class wines in ordinate to sustain the domestic economic values.2. Key Success Factors of the Wine fabrication2.1. World Renowned Growing AreaU.S., a new world producing countr y in wine industry was composed of approximately 1,500 wineries. The most famous growing area is California, which are the top wine give riser in U.S. and fourth leading wine producer in the world behind the countries like France, Italy and Spain. (Wine Institute.org, 2007) The uniqueness of California is the ideal climate, topography, and soil embodiment which enable RMC to produce premium wines that are able to compete with the premium European brands. Besides, California also attracted a lot of tourists throughout the year. Hence, it endlessly provides a constant source of customers to RMC.2.2. Modern Winemaking Facilities TechnologiesWine industry is a capital intensive industry and requires great winemaking techniques facilities to produce high quality wines. establish on the study by Professor Roberto (2002), RMC operated six wineries in California and each of these wineries employed modern applied science to insure the gentle handling of grape and the high quality of unrest and aging processes. Besides, RMC also built a state-of-art winemaking facility and accumulation a team of experts in the area of viticulture and winemaking. All these new techniques and development of experts have been an added advantage for RMC in the production of world-class premium wines.2.3. Domestic Market Growth PotentialU.S has a very strong domestic market for wine industry due to its status of fourth largest producer of wine and third largest consumer in 1999. (Exhibit 4 5) Based on the study by Castaldi, Cholette, Hussain (2006), the highest concentration of table wine consumers was aged amid 35 to 55 and 31.4% of consumption contributed by the adults in families earning over $75,000 annually. commonly this group of people has a very high disposable income and unbidden to pay more for premium wine. As a result, RMC is able to supplement on this favorable demographic to enjoy both economies of scale in the growing premium market. Those adults who are non reg ular wine consumers live of teetotalers and beer or spirit supporters. (Castaldi, Cholette and Hussain, 2006) There are a lot of potential to convert this group of beer purchasers to become wine consumers. It can be through via innovative marketing strategy, e.g. health benefits related to moderate wine consumption. In conclusion, many project that U.S. will become the worlds largest wine market by 2008 with the steady rise of per-capita consumption in recent years. (Exhibit 5)2.4. Focus in building Portfolio of Premium Wine SegmentRMCs strategy is to focus on the premium wine segment. With the introduction of Woodbridge brand wine in the pop premium super-premium categories, it has become the best seller wine and contributed more than one-half of the RMCs revenue in 1999. To further broaden its customer base, RMC has introduced few new brands via domestic diversifications and orbicular partnerships to fill various price points in the premium wine segment. RMC also further divid ed the ultra-premium category into two categories, which has not been adopted by the industry to-date. (Silverman, Gilinsky, Guy Baack, 2001) This strategy enables RMC to consistently produce premium wines to grant different group of customers and further differentiates their products from competitors, which focus more on jug wines. As a result, RMC able to sustain the competitiveness in U.S. wine industry.2.5. Globalization of Wine IndustryIn 2001, U.S. wine industry has gone into globalization with the signing of Mutual Acceptance contract (MAA) on Oenological (winemaking) Practices with four new world countries, Canada, Australia, Chile and New Zealand. The main purpose is to promote greater international wine commerce and eases trade barriers for U.S. wine. (Wine Institute.org, 2007) This enables RMC to sell their product outside the region with lower tariffs, logistic cost and trade barriers. As a result, RMC has increasingly look abroad to increase sales, earnings and take advantage of certain macro-economic factors such as substitution rates. It also gives an opportunity for RMC to showcase other wines to enhance its reputation in international markets.3.1 Steps to ensure the Success of outline ImplementationRobert Mondavi future business strategy is to form global join ventures as a way to develop world-class wine and transform RMC to become a truly global company that grow, produce and sell wines in all the best wine-growing regions in the world. (Silverman, Gilinsky, Guy Baack, 2001) To ensure the success of strategy murder, RMC lead to focus on below few areas3.1.1. Positive Cash courseSuccessful strategy implementation always requires additional capital. Based on the RMC Financial Statement (FY1997-1999), although the revenue has increased from $300.80 millions to $370.60 millions, but the net profit margin has reduced significantly from 9.4% in FY1997 to 8.3% in FY1999 (Exhibit 6). Therefore, it is very crucial for the company to recover its financial position by further pay down its debt in order to generate more free property flow. In addition, it will provide more financial resource for RMC to grow its portfolio by taking advantage of future opportunities.3.1.2. Market Segmentation Product PositioningWith the plan to venture globally, it is very important for RMC to determine the characteristic and demand of consumers as well as analyze consumer similarities and differences in all new market. As consumers are different in every country, RMC needs to produce different wines to meet different country preference. With market segmentation, it will enable RMC to position each of its wines appropriately to meet consumer needs and expectation. As a result, RMC will have better control on production, distribution and advertising for each of its wine. Finally, it will help RMC to improve operation susceptibility and hence maximizing the profits.3.1.3. Traditional Online Advertising CampaignTo conquer the global ma rket, it is extremely important for RMC to build its brand and broaden its customer base. Based on the study by Professor Roberto (2002), most of the premium wineries in U.S. do not spend much on consumer advertising. They tended to focus more on channel promotion. As such, it poses a large opportunity for RMC to alter its brand appearance in advertising medium. For example, RMC can focus on TV and radio advertising to build trust and emotional affiliation with consumers. RMC can also advertise in selected premium magazines to strengthen its premium market penetration. Furthermore, with the emerging of new online medium, it will also help RMC to reach those consumers who are difficult to reach via traditional media. In conclusion, advertising is an important tool for brand building.3.1.4. Management Operations ControlStrategy implementation will never success without the strong management and operations control. RMC needs to establish clear, reasonable, measurable and achievable annual objectives which are well communicated throughout an organization. With clear annual objectives, all the employees will have the same consciousness and moving towards the same direction in implementing the strategy. It will also help in allocating resources more efficiently according to annual objectives and provide relevant training for each employee to further enhance their skills. Besides, performance-linked rewards must be well placed to motivate and improve the productivity of all employees. Lastly, adequate and by the way evaluation is needed to ensure the performance conform to the strategy.3.2. Potential Problems during the Strategy Implementation3.2.1 Conflict between EmployeesConflict might occur between two or more parties in RMC. Normally misunderstanding variety occur during the implementation process as each party has their own commitments and expectations to achieve. Conflict is unavoidable for all organizations especially for RMC which has a large hands t o manage. For example, in 1999 Michael Mondavi was caught between the 2 camps due to an argument for RMCs future strategy. (Silverman, Gilinsky, Guy Baack, 2001) As such, conflict need to be solved before invalidating consequences affect the organizational performance and strategy implementation.3.2.2. electric resistance to ChangeResistance to change is another potential problem that RMC might face during the strategy implementation. People fear to change because any changes in structure and strategies will affect or disrupt the current working environment. However, continuously hold to changes is necessary for RMC to compete in the fast growing and increasingly competitive wine industry. Normally those organization best adapt to the changes will gain significant competitive advantage and strategy implementation can be relatively easy.3.2.3 Challenge of Financial Management Monetary SystemsRMC might face a challenge to maintain its financial stability over the adjoining few y ears as strong financial budgets capital are required to sustain the business worldwide. Furthermore, RMC will also deal with two or more exchange rates which can complicate its global operation. The global profitability will also affected by the direct impact from dollar when the economy slowdown.