Wine Industry Analysis

Wine Industry Analysis

Threat of Entry – Medium

For large producers of wine, there are large capital requirements needed that would make it hard for new entrants, they would also not have access economies of scale which increases the barriers to entry.  For small premium wineries the barriers to entry are lower, they face smaller capital requirements and have easy access to specialized machinery and require limited land investments (Page 6).  

The Bargaining Power of Buyers – High

Supermarkets contribute to the high bargaining power of buyers with consolidation, “the top ten supermarkets controlling 55% of the US market in 2000 (Page 5).” The wine producers had to fight for shelf space and because the supermarkets were large they were able to demand lower prices. The number of distributors in the industry also decreased through consolidation, “leaving only 50 to 100 of the largest wineries - out of more than 2,500 producers - with access to widespread national distribution (Page 5).”

The Bargaining Power of Suppliers – Low

The wineries have been able to decrease the bargaining power of suppliers in the industry by integrating backwards and having their own vineyards to produce grapes, this way they don’t have to rely on suppliers to produce the needed inputs. The cost of There is a large availability of grapes and they are low-priced (Page 6), both are factors that contribute to weakening supplier power.

Threat of Substitutes - High

The threat of substitutes for the wine industry is high as substitutes are readily available, consumers have other choices for alcoholic beverages such as spirits and liquor. “Only 10% of Americans drank wine regularly and constituted almost 90% of wine purchases (Page 7).” Carbonated drinks, water, and energy drinks are also substitutes for wine; they are healthier choices for consumers and are generally priced more attractively. Consumers also face low switching costs for substitutes.