Strategic Management Of De Bortoli Wines: SWOT, Capabilities, Essay, Competitive Advantage.

Analysis of internal environment

Discuss about the Strategic Management.

The subject of the business report is “De Bortoli Wines”. This business strategic report deals with inter and external environment of the organisation. The internal environment of the company includes capabilities, resources, and the distinctive competencies. The report further presents the swot analysis of the company including its strengths, weaknesses, future opportunities and threats. The report also discusses the PESTEL analysis of the industry to understand the factors that impact the organisations’ macro environment. Based on the porter’s five force analysis the report shows the company’s internal and external competitiveness. The paper focuses on the company’s strategic direction and its position in the current situation. The report finally summarises the business and corporate level strategy recommendations for promoting the business of De Bortoli Wines.

In this section, the De Bortoli Wines’s internal environment is studied through SWOT analysis of the company resources. This section also discusses about the financial support of the industry and its competitive advantage.

SWOT analysis is undertaken to identify the company’s internal strength and weaknesses as well as the external threats and future opportunities. This analysis is important to identify the competitive advantage of the business and to determine the later steps in planning to accomplish the organisational goals (Phadermrod et al. 2016). The industry practice of SWOT analysis may turn the weakness into strength and break the threats of the business using innovative solutions.

Strength	Weakness	Opportunities	Threats
·                     It is the Australia’s one of the large, old and privately owned companies ·                     Under its portfolio, the company owns more than thirty five brands ·                     The most successful brand of the company is the sweet white “Noble One” ·                     The company has developed three wineries in Australia. These three regions are diverse and impart variety of qualities to the brand ·                     The company holds wineries and vineyards in same region which saves cost and increases the efficiency of the operations ·                     The company was rewarded by Gourmet Traveller WINE as “Awardee Winemaker of the Year”	·                   The major challenge of the company is to process and to ferment the high sugar  level which is overall complicated ·                   Increase in cost due to increase in electrical prices  which demands frequent upgrade to energy and cost efficient technologies	·                Being the fourth largest exporter of wine in the world, the company has huge market to serve and further expand ·                The wine industry has diverse wine regions in Australia producing wide varieties of wine. Thus, it has advantage of particular Terroir such as soil type, topography and climatic differences. Therefore, the Australian wine industry has good global marketing prospects. ·                The company boasts of its “Yarra Valley Winery”, which is very popular and features “Northern Italian inspired cuisine. This is already a highly awarded restaurants and it can explore diversification into similar sectors ·                It has broad prospects to expand its beer business	·                The biggest threat of the company is huge loss due to inappropriate care of the vineyards ·                The brand image may be effected by the issue of cork taint ·                It is challenging to comply with the government regulations   at different regulations. There is a threat of rejection of exports in large quantities  ·                Risk of huge loss due to heavy rains

 (Source: Chong 2014, Fleming et al. 2014, Logan 2014, and PTY 2014)

The company produces wide variety of wines such as the red and white table wines, sparkling wines, fortified wines and sweet white wine, and many more (PTY 2014). It offers wine varietals which include Moscato, Sauvingnon Blanc, Chardonnay, Riesling, and all other respective blends. The De Bortoli’s wines are supplied to wide various hotels and restaurants (Drinksbusiness 2015). According to Agriculture.gov.au (2016) this wine industry also operates domestic distribution branch offices in Sydney, Melbourne, Brisbane, Perth and South Australia as well as in Europe and North America. The wine products of this company are exported to different parts of the world. This wine making company has made IT central to its business growth and for gaining competitive advantage.

Established in 1928, this sixth largest wine industry of Australia headquartered in New South Wales (Bilbul) is today managed by third generation of the De Bortoli family (Winetitles.com.au 2016). It has employed more than 400 workers and has turnover in excess of $170 million/year. Logan (2014) highlighted that the company confidently commits an investment of $1 million in research and development on the “Zero Waste Winery’ program”. The company annually saves 392 kilowatt-hours of electricity. In last five years it has decreased its “projected capital spend” of over $350,000 on new energy equipment. This was possible by optimising existing systems. Its major achievement is the decrease in the “greenhouse gases of 247 tonnes” CO2e per annum. The company has productivity gains of 20-30% on all its packaging lines. The company has a wine processing capacity of 100,000 tonnes as recorded in 2015 (Winetitles.com.au 2016). The upgrading of the facility of waste water treatment has been one of the main success stories. Engagement in this sustainability advantage program has helped the company to develop practical skills in lean manufacturing and in substantial savings in operational costs (Logan 2014).

Capabilities

De Bortoli Wines have tough competitors and the main ones in Australia are:-

1. Pernod Ricard Winemakers
2. Accolade Wines
3. Treasury Wine Estates
4. Brown Brothers Milawa Vineyard
5. Kingston Estate Wines (Logan 2016)

According to Richardson (2012) De Bortoli wines is consistently ranked 6^th in terms of total revenue generated since 2011-2014. However, “Treasury Wine Estates” is consistently holding its first position since 2011 to 2015 in terms of total revenue generated. This company is followed by Pernod Ricard Winemakers in second position and Accolade Wines in third position. The De Bortoli’s competitors “Brown Brothers Milawa Vineyard” and “Kingston Estate Wines” are holding 10th position and 12th position respectively. These two competitors are behind De Bortoli in terms of total wine producing capacity. In terms of the “top wine producers by vineyard area owned” the De Bortoli Wine company is in 10th position with 845 hectares and Brown Brothers is in 12th position with 787 hectares. With the Vineyard area of 9133 hectares the Treasury Wine Estates was ranked in the category of “top wine producers”. The Kingston estate is in 5th position with 1500 hectares and Accolade Wines is in 8th position with 1002 hectares (Winetitles.com.au 2016).

The study executed by Richardson (2012) found that the company’s biggest competitive advantage is its market, high brand image and engaged suppliers and staff. This is evidenced by 80% decrease in lost “Time Injury” rates and 26% decrease in process non-conformances. The company is ahead of its competitors Brown Brothers and Kingston Estate in terms of implementing eco-friendly practices successfully, and total revenue generated (Winetitles.com.au 2016). De Bortoli wines has more wine processing capacity (100,000 tonnes) than its competitor “Treasury Wine Estates” with wine processing capacity of 55000 tonnes. This gives the company a great competitive advantage (Agriculture.gov.au 2016). De Bortoli wines are ahead of Brown Brothers and other competitors such as “Qualia Wine Services” and “Taylors Wines” in terms of total owned vineyard hectare in Australia and total amount of branded wine sold in Australia (Varsei and Polyakovskiy 2016).  De Bortoli hold first position in terms of the total wine produced in Australia in 2015 whereas Brown Brothers was ranked 18^th position (Bianchi et al. 2014).  

In this section, the report discusses about the external environment of the De Bortoli wines considering the Political, Economical, social, environment, technological, and legal factors

During the process of decision-making and wine making operations the company’s macro environment is influenced by various factors combined in single word as PESTEL which is abbreviated as “political, economic, social, technological, environmental and legal” (Grünig and Kühn 2015). The PESTEL analysis for De Bortoli wines is given below-

Distinctive Competencies

Political factors (Varsei and Polyakovskiy 2016 and Jeffery 2016)

• Government has link with the winemakers in Australia
• Wine making regulation enforced by “Australian Wine and Brandy Corporation” in Australia to be followed stringently
• Australian government supports the wine industry by general industry grants
• Improvement in market access and trade condition of wine exporters through government support
• Bilateral trade agreement on trade in wine

Economic factors (Storchmann 2016; Crabb 2016)

• Australia has lower cost of land
• Higher labor cost
• Increase in wine consumption in Australia from all socioeconomic groups
• Increase in market penetration and sales
• Surge in Australian wine due to low value of “low value of the Australian dollar against the US dollar” increasing wine plantings
• De Bortoli has good position to export wine to Asian Pacific Countries

Social factors (Richardson 2012)

• Increase in rate of wine consumption
• Demand for higher premiums in US market
• Increase in price sensitive consumers
• Increase in good winemakers due to excellent educational facilities

Technological factors (Jeffery 2016; Lagos et al. 2013)

• Australia has high percentage of R&D
• Australia provides facility to use advance technologies for wine making industries such as remote sensing, proximal sensing, soil monitoring and robotics in agricultural activities as well as wine making and packaging. This has improved the quality of wine and its quick production by many wine industries (Chong 2014).
• Good presence of online services for product marketing
• Strong base machinery and effective chemical formulas
• Strong presence of social media

Environmental factors (Galbreath 2014)

• Good irrigation system
• Favourable sunny climate allowing maximum production of wine
• Threats of droughts
• Threat of decrease in cost due to surpluses
• Global warming effecting the ripening of the grapes and their quality
• Effect on distribution cost due to energy waste
• Carbon foot print: huge amount of CO2 in wine production
• Quality of water
• Kyoto Agreement gives challenge to the whole country

Legal factors (Agriculture.gov.au 2016)

• Series of state and federal regulations in wine making
• Stringent drinking laws in Australia
• Australian wine industries are subjected to commonwealth and state legislations

Saliba (2013) analysed that Australian government supports the wine industry by general industry grants. It is applicable for wine producers like De Bortoli, Pernod Ricard Winemakers and other high profile companies. The “Winemaker’s Federation of Australia” administers the environmental accreditation scheme of the wine making industry. As per the recognised standards the wine makers receive formal certification for their practice. The Australian government administers the “Australian Grape and Wine Authority Act 2013” and “Australian Grape and Wine Authority Regulations 1981” (Bianchi et al. 2014). It collects and distributes levies on the industry behalf. The government addresses the national policy matters pertaining to taxation, and natural resource management. Internationally the government works with “Department of Foreign Affairs and Trade and Austrade” to improve market access and trade conditions for Australian exporters. Further, it has also established the “Australia – European Community Agreement” on trade in wine. This has assisted De Bortoli to easily penetrate the EU market (Fleming et al. 2014).

According to Chong (2014) When compared to France and US, Australia has lower cost of land as a result it aids in decreasing the production cost of DE Bortoli. However, it faces a threat of competition from its rivals due to high labor cost in Australia when compared to Asia and South America. Hence, De Bortoli has not been able to recruit large number of employees at cheaper rates like its competitors. Since 2000 there is an increase in consumption of wine globally (Spawton 2013). The falling prices of many wines have assisted in wider consumption of wine by all socioeconomic groups of people. Therefore, wine industries in Australia are growing successful. This allowed Australia to successfully penetrate markets and increase its domestic sales. As per the “strategy 2025 document” published by the “Australian wine sector in 1996”, the Australian wine must achieve its key target of “annual sales of $4.5 billion by the year 2025” (Oczkowski 2016). The government has welcomed the regional bodies to present a clear plan and offers tax breaks for additional plantings. This opportunity has helped De Bortoli to gain investment opportunities and increase its plantings.

Porter’s Five Forces model

The industry environment of De Bortoli is analysed through Michael Porter’s Five forces Model and is discussed in subsequent sections-

Figure 1:

Competitive Advantage

(Source: www.notesdesk.com)

Porter’s five forces Model helps to explore five key areas of the environment in which an industry operates. This model is effective in assessing the competitive strength of a business. This strategic business report uses this model to review the competitive advantage generated by De Bortoli. The degree of challenge from the company’s potential competitors can also be seen through this model. Based on the five force analysis the wine industry in Australia is vertically integrated.  There is a pressure on wineries profitability margins due to consolidation in the retail sector. The market is highly fragmented (Oczkowski 2016).  The five key factors in this context are discussed below.

The cost of wine has five-tired classification among which the basic segment can highly attract the new entrants. Due to increase in customer’s preference to cheaper wine, De Bortoli is facing a threat from new low cost wine producers although they are not well reputed. There is also increase in the new wineries from Argentina, New Zealand, South Africa and Chile entering the Australian market (Xzbu.com 2016). This is increasing their popularity as substitutes for De Bortoli’s wine. However, the threat of the new entrant is low due high reputation and brand image of De Bortoli (Spawton 2013).

Thompson (2013) highlighted that there is a low bargaining power of suppliers. In 2013 the overall wine grape crush was 1.83 million tons while the mount purchased was 1, 067, 000 tones indicating oversupply therefore, the price of the wine grapes can be bargained. Also between  2012-2014 the  process collapsed giving competitive advantage to DE Bortoli.

In wine industry, the power of the buyer is the strongest point.  There is frequent change in the consumer’s tastes and preferences. For example, there is a decrease in wine consumption in the major market of De Bortoli in UK. However, there is an increase in consumption in Australia, Asia, Canada, and Russia. There may be a continuous growth in demand for higher quality of wine. Therefore, the bargaining power of buyers is high according to  Saliba et al. (2013). As overall operational costs starts to increase there is threat of being unable to capture the highest-class wine market.

It is easy for De Bortoli to produce low cost but high quality wines (Flint et al. 2015). It is cost effective for many wineries. It can also develop low cost brands to gain competitive advantage. Thus, there is a moderate threat of substitute products or services argued (Crabb 2016). The Australian wine is considered less pristine after the “Yellow Tail success” as a low cost product. One of the most influential news company, BBC stated that “red wine is good for health” on its website which gives high power of substitutes. Substitutes exist moderately for De Bortoli in case of low and high premium costs as consumers may always look to Whiskeys and bourbon (Oczkowski 2014).

Rivalry

There is high intensity of competition among Australian, U.S, Chinese and South American low cost wines (Spawton 2013). Since De Bortoli still uses some of its traditional wine making processes its competitors such as “Pernod Ricard Winemakers”, “Brow Brothers”, and “Treasury Wine Estates” has greater advantage for using advance technologies. De Bortoli however has competitive advantage because it focuses on “boutique wine as well as on low price wines” (Xzbu.com, 2016). Thus, De Bortoli wines have a sustainable advantage of attracting customers in different income levels and increase their sales. Further, De Bortoli is recently adpating to the latest wine making techniques so as to satisfy consumer’s tastes and preferences. Consequently, it preserves the company’s market share and product loyalty enhancing its competitive advantage (Lagos et al. 2013).

Market orientation

Globally, wine industries are pushed towards marketing orientation. There is a distinction between “market orientation and marketing orientation” stated by Flint et al. (2015). De Bortoli market orientation places the consumers in first position. However, the customers in wine industry are very fickle. Therefore, it is not encapsulating the “marketing concept” of the matching process. Hence, it is not marketing orientation. However, recently the true marketing orientation has evolved in the industry realising the inadequacies of “production and sales orientation”. Therefore, De Bortoli gives equal weight to the industry requirements as well as to the customer’s demands (Lukas et al. 2013). The company choose its markets. It also manages its own productive capabilities in order to achieve its goals in pursuit of a “strategic policy”. The company is keen to adapt their products and service according “current and latent market needs”. The company is highly engaged with the social media to promote its products and satisfy full spectrum of customers.

Based on the critical analysis of the De Bortoli’s business, its internal and external environment, strategies have been  recommend supporting with explanation.

To overcome the threat of entrants De Bortoli must make its domestic market position stronger exploiting its advantage of being old wine producer and of tradition behind it. In old European cultures the wine was integral part of the old world immigrants. Prior to that, the dominant British heritage made “beer” alcoholic beverage of preference. After world war II Australia tend to attract the global market. Therefore, the new world countries may have weaker position in domestic market. This is a disadvantage for De Bortoli to penetrate the foreign market with oldest wine cultures (Felzensztein et al. 2014). De Bortoli must ensure its domestic growth as there is an increase in national social campaigns against “alcoholism and drink driving” due to increasing rate of alcohol abuse among Aboriginals (Hogan and Terrell 2015). Thus, De Bortoli should alternately plan to expand its market and increase its growth by penetrating into market having oldest wine culture such as Argentina, Italy, and France. In order to enhance its competitive advantage, De Bortoli should not concentrate its productions only to small wineries, complex labelling practices rather leverage new production techniques (Anderson 2015).

Since the power of buyer is high the De Bortoli has to intensely engage in e-business such as “EANnet” that is useful in managing electronic order process. This will ensure the company’s position in national supermarket chain supplier as a “sustainable competitive advantage” (Saliba et al. 2013). De Bortoli must manage adaptability to industry changes. Taking advantage of “strategy 2025”, De Bortoli must strive for greater international expansion as it has little room for expansion in Australia with stringent legislations against Australia. In Australia, De Bortoli Wines has strong competitive advantage, therefore, increasing its prospects of foreign investment. Since, its products are of high quality, large foreign investment will ensure significant production expansion for De Bortoli (Lewis and Zalan 2014). The major threat of De Bortoli is the changing preferences of the wine customers. The customers in wine industry are highly fickle. Therefore, in order to be successful the strategic policy for the company would be to correctly balance the “customer and company needs”. The company is advised to improve the customer service level and deliver programs to increase brand loyalty. To further improve its brand image and business the company is advised to give “attractive discounts and offers to their business clients”. In addition, the company is expected to use “competition based and/or complex dynamic strategies” for its products. (Lukas et al. 2013). Since the climatic changes are other major threat to wine industries, it is recommended that the transformation decision to include “broader set of considerations” than making incremental changes. De Bortoli should take into account the attitudes, and values of the stakeholder as well as the supply chain position (Fleming et al. 2015). I personally believe that strategic planning is a sure way to ensure business’s accountability, focus, communication, and is a predictable way to achieve strategic goals although the challenge of people overcomplicating is always present. 

Conclusion

De Bortoli is emerging as leading wine making industry in Australia ready to overcome its competitors challenge and position. The company has effectively brought the shareholder’s vision. It has maintained sustainable growth inspite of the threat of new entrants and Australia’s legal factors effecting company.  It can be concluded that overall De Bortoli wines are of high quality and pricing strategy is such that it satisfies full spectrum of consumers. It has favourable political and economic factors supporting its business development. De Bortoli Wines has strong competitive advantage Australia with high bargaining power of buyers and low bargaining power of suppliers. However, since recent times it is experiencing little room for expansion of market due to Alcohol related legistaions. Therefore, it needs implementation of innovative techniques to expand its foreign market. The company has broad prospects to expand in beer business. The industry has good global marketing prospects due to its current stable market positioning and adaptive large scale producers to export wine. Moreover, it has moderate threat from new competitions in domestic and international market therefore; De Bortoli has an advantage of setting their producing and selling strategies as per market requirements.

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