Global Wine War

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Competitive advantages of the French winemakers

The competitive advantages of the French winemakers come from its rich tradition in making wine and its reputation for high quality. The production started from individual farmers and has grown to an important industry in the country, establishing a large economic scale in growing grapes and producing wine. Many farmers have the knowledge in making wine and the quality is strictly ruled by government regulations which can ensure a delivery of high quality wine.

Another advantage is its established position in the global super premium and icon wine market. The world highly recognizes its ability in delivering extremely high quality wine, given its long history and the high standards in wine production. Also, as the development of the complex AOC classification system and a long history in wine consumption, the Frenches may have the most knowledge in appreciating wines, and wine connoisseurs from France might influence the global wine grading system to a large degree, giving French wines the favorable position in the super premium and icon wine market.

Changes in the global industry structure and competitive dynamics

• Increasing challenges from the New World

The New World winemakers’ innovation has brought challenges to the Old World in many ways. Aside from the New World’s native advantages in growing grapes, its wine producers are able to pursue innovative techniques to raise the productivity with lower costs and improve the quality of grape flavor, while those techniques were forbidden in the Old World due to the AOC regulation. Because of the tight regulation environment, wine producers in the Old World keep producing at a much higher costs and the quality is largely subject to the climate.

The innovation also extended to packaging and marketing skills. This allows the New World wine producers to save shipping costs in the global exportation and to differentiate itself, making it more appealing to a larger customer base. Another competitive advantage is the efficient distribution channel. Different from the business model of the Old World where there are multiple levels between the producers and the end customers, the New World producers tend to control the entire value chain, which saves the distribution costs and enables the producers to respond to market changes more swiftly.

• Changes in consumer behavior

Another change is in the consumer behavior. For the Old World, mainly France, Italy, and Spain, the domestic demand for basic wine has dropped dramatically while the demand in some emerging markets like Asia is increasing, which forces the Old World winemakers to compete with the New World producers in the global market, and the advantages the New World producers have established in production, distribution and marketing boost their competitive edge in the global competition.

Although the global consumption for basic wine is decreasing, the demand for high quality wine keeps surging. To compete for this appealing segment, the wine producers are forced to find a way to better educate their customers. The traditional AOC classification appears to be too complicated for new customers in this segment and it fails to provide consistent assurance of quality, while the New World wine producers adopt the more simple grape variety rating system and widely use the branding and marketing skills to influence customers’ choice. Also, the consumers change their flavor more rapidly, which requires the wine producers to have the flexibility in production to make response to these changes very quickly. All these changes in the consumer behavior require the Old World producers to innovate their traditional production pattern and marketing methods to be able to compete in the new dynamics.

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