Vincor and The New

World of Wine
SGMT 3000 – Case 1
Bogdan Tudose – 208 969 115
10/27/2009
Vincor’s Global Competitive Position

Since the start of its operation in 1989, Vincor has grown in three stages, the first being

leveraged buyouts during the time period of 1989-1995, the second stage being a period of

consolidation and rationalization in Canada, and the third stage being the current one of building

an international wine company. During the first two stages, Vincor’s strategy was based mainly

on an overall cost leadership, as it was trying to aggressively construct efficient-scale facilities

and leverage fixed costs through mergers and acquisitions of Canadian companies. Through

these mergers, Vincor has managed to integrate its sales, marketing, production and account

which led to economies of scale and a 21% Canadian market share in 2000. These first two

stages have put Vincor in a favourable position for its third stage of globalization and becoming

a top 10 global player. Through its mergers in the US market of premium and ultra-premium

wine producers, Vincor has shifted its strategy to that of differentiation focus. As it can be seen

in Table 1 of the Appendix, Vincor is now differentiating itself by focusing on the narrow

segment of high quality wine products and diversifying by acquiring companies with similar

wine portfolios in the U.S. By moving towards differentiation, Vincor was able to capture

significant market share in the U.S., and is now in an even greater position to expand

internationally. Furthermore, the focus on high quality wine products will offer Vincor higher

margins, and the ability to build a strong image and global brand. For example, one of Vincor’s

strongest brands, Inniskillin, has received international awards and is recognized and sold all

over the world. In addition to Vincor’s high potential of becoming a strong global brand,

industry trends are also a significant factor that explains why it makes sense for Vincor to try and

become a global top 10 player. Over the past few years, the Canadian wine market has become

more saturated and is starting to mature; however, there are high potential growths in the world
with wine consumption projected to expand by 120 million cases by 2010, with most of the

growth expected in the UK, US and Australia. The global wine market was very fragmented in

2002, with its top 25 brands representing only 7% of the global market. The market was

consolidating in terms of its retail, wholesale, and production operations, and many mergers and

acquisitions were happening all over the world. The keys to success were distribution and

marketing and acquiring the expensive yet significantly important information about the various

niches and distribution networks in foreign markets. As a result, Vincor’s strong position in

Canada and North America, along with the global opportunities of strong growth and

premiumisation are good rationales for Vincor trying to become a global top 10 player.

Future Market Development – US vs. Australia

One of the major dilemmas Vincor is now facing is to whether expand into a distant

country such as Australia, or further develop closer markets such as the United States. Some of

the advantages of staying in the US are the trends in increasing growth in sales, and the size of

the market. More advantages of developing the US market can be seen in Table 2 in the

Appendix along with advantages for expanding in Australia. As it can be seen from the

advantages, Vincor could easily become one of the top wine producers in US by developing

further in this market. On the other side, there are many more advantages to expanding

internationally into Australia, one of the main advantages being higher chance of becoming a

global top 10 player. The most obvious advantage is the increase of the size of potential markets

for Vincor’s products – not only will Vincor be able to introduce its premium brands in

Australia, such as the icewine, but also be able to further expand to UK and other countries using

the Australian know-how of exporting high quality products at a low cost. Other advantages can

be seen in Table 2 of the Appendix. However, there are also some risks with international
expansion. Currency risks – currency fluctuations can pose substantial risks; a company with

operations in several countries must constantly monitor the exchange rate between its own

currency and that of the host country, even a small change can result in a significant difference in

the cost of production or net profit when doing business overseas. However more significant are

management risks – managers might have many challenges in operating the company overseas in

Australia, some of the factors including deteriorated communication due to distance and different

time zones, difference in culture, customs, customer preferences, distribution systems, etc.

Nonetheless, Vincor’s experience with mergers and acquisitions will help in reducing these risks,

and expanding into Australia seems to be the better solution in order for Vincor to meet its global

strategy.

Recommendation of Goundrey Acquisition

Goundre is one of the largest wineries in Western Australia and by acquiring it Vincor will have

access to the Australian wine market. This will not only benefit Vincor by being able to import

its products to Australia, but it will also benefit Vincor because it will give access to other

markets such as UK and European countries. A more detailed list of advantages to acquiring

Goundrey can be seen in Table 3 of the Appendix. As a result my recommendation is to buy

Goundrey; it will enable Vincor to quickly enter the Australian market and acquire new skills

and competencies as well as a wide variety of value creating activities – sales forces, distribution

channels, and manufacturing operations. However, Vincor should not neglect its position in the

US market, and should continue growing on the side and improving efficiencies and distribution

channels to target a larger population of the US market.

Appendix 1
Table 1 – Evolution of Vincor’s Portfolio – Table Wine
Source : Vincor and The New World of Wine – Ivey Case
F'95 F'02
% By
% By Vol $ % By Vol % By $
Popular 83 80 47 28
Premiu
m 17 20 53 72
Table 2 – Advantages of Developing in US vs Advantage of Expanding in Australia
Advantages US
-trends in increasing growth in sales
-the size of the market
-US is the third largest wine market in the world
- still high potential of growth – market is believed to be
untapped as only 7% of population currently represents 86% of
US wine consumption
-trends of sales growth for high quality wine is favourable for
Vincor which specializes in Super Premium and Ultra
Premium wine production
– the 2002 trend for grow was 8% for super premium wines
and 3% for ultra premium wines
-Vincor’s acquisitions of R.H. Phillips and Hogue have
provided valuable access to national network of distributors
and sales professionals that can tap into the high potential US
market
- US market is still fragmented, with the largest producer E&J
supplying 30 per cent and no other producer supplying more
than 15%, Vincor could easily become one of the top wine
producers in US by developing further in this market
Table 3 – Advantages to acquiring Goundrey
- Goundrey is one of the largest wineries in Western Australia
- has great distribution network and own sales force in
Queensland and New South Wales – in all regions Goundrey
most important winery for the distributor
- through Goundrey, Vincor can expand into the Australian
market, similarly to how it expanded in the US market with
R.H. Phillips
- can introduce its icewine and benefit from Goundrey’s local
expertise of marketing and sales – Goundrey has been
operating for a lot longer than Vincor – 1972 vs 1989 – 17
more years
- can diversify its ultra premium portfolio
Advantages Australia
- higher chance of becoming a global top 10 player
- the increase of the size of potential markets for Vincor’s
products – not only will Vincor be able to introduce its
premium brands in Australia, such as the icewine, but also be
able to further expand to UK and other countries using the
Australian know-how of exporting high quality products at a
low cost
- expansion into Australia can also extend the life cycle of
Vincor’s products –Vincor’s icewine could be soon maturing
in its home market, Canada, and by expanding into Australia it
could generate greater demand
- expansion into Australia can lead to optimization of the
physical location for every activity in its value chain it will be
easier to market and sell Vincor’s wine products in Australia if
it is producing them directly there – this would be cheaper than
exporting products to Australia
- attain more economies of scale – share marketing and R&D
of Canada and US with Australia – lower fixed costs per # of
slaes
- risk reduction – wine industry heavily affected by climate and
weather changes  new distant market can provide reduction
of agricultural risks – if US and Canadian agriculture are
performing poorly, maybe Australia will be different
-although Goundrey had a weak exporting sales force – 3%
export, vs 97% domestic – Goyndrey had a large processing
winery – 3,5000 tonnes of grapes – winery had own bottling
capability, enabling it to support an export business where each
export market has different labelling requirements
- through Goundrey and access to Australian market – Vincor
had a higher chance of tapping the UK market – most of the
UK New World consumption came from Australia
- Australia known for its significant economies of scale –
Australian industry was structured to be able to deliver large
quantities of high quality branded wine to the world’s major
markets – through Goundrey’s distribution network will be
able to expand exports in UK
Bibliography

Case – Vincor and The New World of Wine, Richard Ivey School of Business

Strategic Management – Creating Competitive Advantages – Dess, Lumpkin, Peridis