Mini Case 8
Differentiation in the wine industry: an Australian success story
Successful differentiation needs to be based on what customers value.
By 2001 the traditional dominance of French wines in the UK had ended, with sales of Australian wine outstripping them for the first time. By 2000, Australian wines accounted for 19.5 per cent of UK wine sales in terms of value (up 25 per cent over 1999), with French wines showing a steady decline. And for wines over £5.00, Australian wine had already overtaken French wines. In the prestigious 2000 wine sampling contest in London, the Australians had won awards for three-quarters of the wines entered.
However, many wine experts still regarded Australian wines as inferior to French wines. For example, in some top London restaurants such as Le Gavroche, Australian wines were not served because they believed that customers preferred the quality of French wine over 'something more than a chemist's blend' (FT, 11 February 2001). Whilst French wine still tended to be favoured for eating out, Australian wine was favoured by take-home drinkers -and 84 per cent of all wine sold in the UK was drunk at home.
The success of Australian wines with retailers was put down to several factors. The quality was consistent, compared with French wines that could differ by year and location. Also, whilst the French had always highlighted the importance of the local area of origin of the wine within France, Australia had, in effect, 'branded' the country as a wine region and then concentrated on the variety of grape - a Shiraz or a Chardonnay, for example. This avoided the
confusing details of the location of vineyards and the names of chateaux that many customers found difficult about French wines. Terry Davies, managing director of Beringer Blass, explained: 'you can pronounce the name on the bottle on our wines', the inference being that people often could not on a bottle of French wine.
Historically the European wine makers had also focused on their home markets. This was particularly the case in Italy, but French producers also tended to assume that consumers overseas would buy wine in much the same way as in France. This was changing, however. French wine makers were becoming less insular. Caroline Gilby, a consultant to the industry, explained that one well-known Chablis producer had spent time working in Chile, the US and Australia before taking up his present job. 'Wine makers interested in quality will have travelled. That's quite a change and it has started to happen only in the last five years.' Mike Paul of Destination Wine also believed that 'there are signs that there could be a backlash from the old world as France and Italy get their act together' (FT, 3/4 March 2001).
- What other reasons might account for the success of Australian wines?
- What would you advise French wine producers to do to counter the Australian success?
1. Australia’s Success in the Wine Industry
Quality and integrity remains a core reason for the success of the Australian Wine Industry. While the France Wine Makers increased competition in making wine in different locations within the nation, issues of quality change arose as each used a different standard of wine testing and quality. As such, the issue of integrity arose as the producers focused more on sales rather than providing the best for the market.
On the other hand, Australia retained high integrity and quality of their products despite sourcing the berries from different locations. Quality remained fundamental in their sales scenario and thus managed to acquire a stronger name in the industry. According to Grant, Mounter, Fleming, Griffith & Villano (2015). Value for money is essential in the present competitive world as it builds a long-term return purchase scenario. As such, the Australian Wine industry benefitted from the case immensely.
Secondly, knowledge development remained critical to the success of the Australian wine industry. France had maintained a strong name in the Wine industry and thus relied on the name and increased demand in meeting the demands of the market. However, Australian Wine producers focused on knowledge management where an insightful research was sought towards increasing knowledge on the production of the best wines in the market in consultation with long-term wine makers such as Ray Beckwith, Max Schubert, and Sydney Hamilton contributing in innovations (Johnson & Bastian 2015).
Knowledge management focused on provision of intelligence report on the global wine market, response to inquiries within the wine sector, provision of information on Australian wine, and collaborative data collection on views assists in development of market(Morrison & Rabellotti 2017). Thus, research and development on the best quality increased their prefer ability of the products in the market.
Thirdly, market development was a key attribute towards the development of the Australian wine market. While the French Wine makers boasted of acceptability of their product widely enjoyed in most nations, the Australian market received wide acceptance in take-away and home consumptions due to quality issues. The consistent quality led to an increased in demand thus enhanced penetration of the products in the market.
At the same time, the open policy between the nation and others across the globe fostered its expansion of market and acceptability of the wine in diverse continental markets (Cameron 2018). Market in the commonwealth nations boosted its sales and the likelihood of product growth surpassing the one set by the French Wine Makers. Therefore, the growth strategy, proactive export of the product, entrepreneurial environment, and less legislative bureaucracy boosted the sales and development of the wine industry.
2. Advise to French Wine Producers
As a country previously leading in the wine sector, the nation has learned lessons that can be of help in their present endeavor towards growth. The wine tax in Australia is putting a strain on the product sales margin not only within the nation but also in countries of export. As such, the French government can take the opportunity to boost the nation’s sales and prowess by initiating a tax break to enable the rise of the nation to their previous position in wine industry (Loubère 2014). As a firm that had lost its name in the wine industry, the move can be explored towards embracing growth.
Quality remains of essence in the competitive market in wine industry. The tax case in Australia encourages the production of cheap wine and oversupply of the same. Thus, the situation presents the opportunity to strengthen the production of quality wine by the French wine industry in regaining the superior name and increasing monopoly status in production of quality but affordable wines. In boosting quality, the possibility of mergers becomes real in building less popular brands while growing the ultimate wine industry (Uhlenbruck, Hughes-Morgan, Hitt, Ferrier, and Brymer 2017).
Therefore, the French wine industry can benefit from creation of superior quality and having a strict quality check to the wines exported to ensure they match the expected international quality. The move would go a long way towards increasing the market for the French wine which in remaining consistent would lead to overtaking of the Australian wine industry.
Consistence in quality is critical towards success in the wine industry. The French wine makers need to engage in research and innovation measures towards quality increase and maintenance to outdo the situation created by the Australian market (Liu, Leach and Chugh 2015). Aggressive marketing can only be sought whenever the quality of product reaches market acceptability. Therefore, France, as a nation that previously enjoyed the monopoly and large market share can regain its position through conducting market survey and competitor intelligence while coming up with stronger wine tastes that match the expectations of the market.