M&a in Wine Country

After going through the simulation I observed that the wine industry is a capital-intensive industry. To not only be involved in but also to be successful in the wine industry, you must acquire large amounts of land and develop that land into vineyards. Making wine requires a long period of time, with the storing and aging necessary to make good wine. This process requires a large amount of money to be invested right away.

Wine production in the United States was the world’s largest wine market based on pure dollar value but was only the third largest, behind France and Italy, in terms of unit volume. Not helping domestic wine production, there was a global oversupply of wine, which led to price pressures in the US from 2001-2006. Wine-makers tried their hardest to resist the pressures and make due but wholesalers were still able to get discounts on wine and lower-priced brands were offered to consumers.

Typically in the wine distribution cycle a winery producers the wine and sells it to a wholesaler who then goes ahead and sells it to a retailer who sells to consumers. These distribution channels were becoming more heavily concentrated because of consolidation. Wine companies with the quantity of merchandise and the sales ability to handle the distribution of the vast amounts of wine started to cut out the wholesalers from the process. Marketing costs also varied greatly among the competitors in the industry with larger wineries having differing marketing plans to smaller wineries.

The wine industry had only a handful of publicly traded companies with two major companies comprising 31% of the US market. International Beverage and Power Beverages. Taking the offensive approach in a potential M&A can allow a company to gain a large market advantage over its competitors. In an industry that requires you to have extremely large amounts of capital available merging two companies is a great way to set up for future success. Synergies are