History of Wine Industry and Its marketing
Wine is one of the alcoholic beverages consumed by many people across the globe. In most cases, wine is made from grapes fruits that are left to ferment without adding food additives, enzymes, sugar, and water because grapes have a chemical balance that provide optimal conditions for yeast to function effectively. During the fermentation process, yeast and natural enzymes digest and oxidize sugar compounds and later covert them to alcohol. Wine beverages contain different alcohol content levels with some having higher alcohol content than others. The difference in alcohol percentage depend on types of grapes one uses, biological and chemical reactions involved, types of yeast and enzymes applied and human influence in the fermentation process. This implies that the interconnection between these constructs determine the amount of alcohol content contained per given volume of wine. More than eighty per cent of wine consumed worldwide is made from fermented grapes fruits (Murray, en tal 2000). In other words, other types of fruits apart from grapes are used in the manufacturing of wine and account for the remaining twenty per cent of the total wine consumed globally. However, wine made from other fruits is named differently from the one made from grapes. Normally, fruit wine bears the same name with the type of fruit used to make that particular wine. For instance, apple wine is one of the fruit wines available in the market. The brand name “apple wine” notifies the consumer that the apple fruits have been used to produce the wine in question; an idea that distinguishes this particular wine from the rest.
Wine has existed throughout history and cut across almost all facets of the society ranging from culture, social, economic and political aspects. This is a clear indication that wine has existed since time immemorial and it has evolved and developed significantly over the years; to the extent of forming part of American culture, diet, and lifestyle. Wine has a fascinating and thrilling history that remains traceable millions of years ago. Historians, agree that wine history can be traced during 4500 BC and 6000 BC, especially in the region around Georgia and its environs (Robinson, 2006). Historians hold the view that the first wine was produced in Georgia before spreading to other parts of the world. During this period, many communities living in Greece, Rome, Europe, and Thrace participated in production and consumption of wine and used it for various purposes. It was commonly used in traditional ceremonies such as weddings, child naming, rites of passage, funerals, national holidays and harvesting ceremonies, to name, but a few. Most of the communities in Ancient Greece and Rome used wine for religious purposes. During religious rituals, divine men sprinkled wine on a sacrificed animal as a way of satisfying the community against the evil spirits. This practice did not vanish with time, but prevails in the modern society and in various religious ceremonies. Nowadays, Christians and Jewish believers use wine to perform their religious rituals and ceremonies; an aspect that manifests in our daily experiences. For instance, Catholics use it in Christian Eucharist because they belief that it symbolizes the blood of Jesus. This affirms that wine performs religious and other purposes in the society.
Existence of wine industry in American is not a new phenomenon because it has existed for more than three centuries. Since its inception, more than eighty-eight states deal with production of wine; with California State accounting for more than ninety per cent of the United States wine. United States remains one of the countries with the largest and expansive wine industry in the world and it is ranked fourth position after France, Spain, and Italy. Additionally, United States is ranked sixth position of countries with the largest plantation of Vitis Vinifera grapes; covering more than 1.1 million acres. Vitis vinifera played a crucial role in the establishment of wine industry in the country. During this period, European settlers occupied Virginia and Carolinas states and allowed communities living in these regions to produce wine. However, they later discovered that wine produced from local and native grape fruits produced wine of poor quality and characterized with unfamiliar flavor. In order to resolve this shortfall, European settlers conducted extensive researches, which involved grafting and interbreeding the existing native grape thus resulting to development of vitis vinifera type (Robinson, 2006).
Long Worth is accredited for establishing the first winery industry in United States during the mid-1830s. The industry was suited in Ohio State and produced wine from Catawba grapes. However, during the 1860s, winery industries located in Ohio River Valley closed down after grape fruits were destroyed by black rot disease. This move compelled winery makers to locate in other parts of the country where they continued with the production of wine. In 19th century, most of the grape plantations in the region were also affected by pierce’s disease that originated from the West thus destabilizing the growing Wine industry. In 1920s, the federal government amended that constitution that prohibited people from manufacturing and transporting alcoholic beverages including wine. The amended allowed religious leaders to use wine for sacramental reasons only; an idea that affected American wine industry. Following this move, most of the people uprooted grape trees from their lands and replaced them with table grapes; an idea that had great impact on wine industry.
In 1950s, the federal government allowed universities and middle level colleges to conduct studies aimed at improving growing of grapes in the country. Universities offered viticulture courses that equipped students with skills and knowledge aimed at improving the wine industry. Researchers organized field trips, seminars, and vocational training so that to educate farmers and winemakers on the best practices. Financial institutions offered credit facilities and financial donation to grape farmers and wine makers; a move that increased wine production from 200 million gallons to 667 million gallons by the end of 2007 (TWMR1, 2005).
Since 2000, the total volume of wine consumed globally has increased tremendously from 3.0 million gallons to approximately 6.8 million gallons in 2007. This paradigm shift can be attributed to change in strategic priorities and marketing approaches where wine producing states prefer exporting wine as a means of expanding their market niche and increase their sales volume. As a result, new wine industries have emerged and they compete effectively with the old companies thus making the industry competitive in nature. United States remains one of the leading nations with the largest wine industry worldwide and accounts less than 4.1% of the global wine market in terms of export (Moulton & Lapsley, 2006). One factor that has contributed to this variance is the lack of effective marketing strategies coupled with low importance placed on exporting. Over the years, United States wineries have not focused on supplying wine to international market because they have concentrated in certain regions. This implies that they have failed to increase their production capacity so that to expand their market niche through exporting the surplus. Imposing foreign restrictions, high taxation, and trade barriers is another factor that has prevented American wine industry to thrive and dominate in the global market. Most of the foreign countries have enacted stringent laws, which make it difficult for American investors who have invested in wine industry to compete effectively with local wine industries. These governments impose high tax and custom duty on wine products imported from America thus discouraging the investors. However, despite the shortcomings, the industry has expanded its market space and continuous attracting investors from other sectors.
The competitive environment of the wine industry
Businesses operate in unpredictable environment that is characterized with price fluctuations, introduction of new legislations, change in consumer purchasing behavior and dynamism in demand and supply coupled with stiff competition; aspects that either influence the business positively or negatively. In such situations, it is imperative for firms to devise effective strategy that will enable them compete effectively and maintain their market space. However, the level of competition in the business arena depends on a number of factors namely; demand and supply, market niche, numbers of business in the particular line of production and capital share, to name but a few. However, economist affirms that the market characteristics in which a given business operates in remains the main contributor. Market characteristic determine the amount of output firms will produce in the market, price of goods and services, marketing strategies applied and whether new firms can either enter or leave the industry. In this scenario, wine industry operates in a pure competitive environment that conveys typical characteristics of this market. In pure competition environment, firms have no power of setting their own price because it is determined by forces of demand and supply; they have free will of entering and leaving the market and sell products that have perfect substitutes (Jansen, 2009). Firms operating under this market environment experience inelastic demand curve; an idea that enable them sale large volumes of goods at the existing market price. Profit maximization remains one of the main goals of each business and managers should conduct a market analysis aimed at understanding market dynamism before launching their products in the market.
The fact that firms in wine industry operate under pure competition market means that the entire industry face stiff competition from other alcohol producing companies. Many companies produce and manufacture alcoholic and non-alcoholic beverages and distribute these products in the market. This move has negative impact in the wine industry because it consumers tend to prefer certain wine brands to the other. For instance, California states is widely known for producing table wine brand that is preferred by most consumers. Others states have embarked on improving their products so that to meet the needs, tastes and preferences of their consumers (Murray, en tal 2000). Pepsi, Coca Cola, and Starbucks are some of the non-alcoholic producing companies, which compete with wine industry. However, one thing that we need to note is the fact that they did not compete directly with firms in the wine industry, but rather indirectly. Both alcoholic and non-alcoholic producing companies compete in terms of distribution channels where they both depend on restaurants, hotels, and motels to distribute their products.
Wine industry competes with its arch rivalries in terms of market space and size. The industry has segmented its market niche so that to capture certain groups of people in the society. Normally, the law prohibits alcohol producing, transporting, and distributing companies not to sale alcohol to children below 18 years. This implies that non-alcoholic companies cover a large market niche because they sale their products to all people in the society.
Wine industry use market strategies that aim at increasing revenue of the business and lower the operation cost. Firms in wine industry organize advertisements, sales promotions, and exhibitions shows as a way of attracting consumers, winning consumers trust and loyalty, and maintaining the firm’s image and identify in the public. Over the years, the industry has employed branding, size and market segmentation as its competitive advantages aimed at outdoing its competitors. Firms in wine industry produce wine of different quantities so that to expand the market space. However, most of its competitors do not repackage their products in small quantities because they target consumers with high social-economic status in the society. Having a strong brand name has enabled the wine industry evolve and develop over the years. This move has enabled consumers to purchase and use products associated with the brand name thus increasing the company’s sales volume and market space. The industry has enhanced its marketing strategy by forming alliances and collaborating with other existing companies thus reducing operation costs and improving efficiency(Murray, en tal 2000). The industry has established effective distribution channels that ensure constant supply of wine products in the market.
Competitive analysis (barriers)
Wine industry contributes more than 15% of the national gross domestic product and employees thousands of young people annually. This is a clear indication that wine industry is one of the main sectors that help in national, regional, and globally economic development. Under pure competitive market, demand and supply forces determine price of goods and services and allow new businesses to either enter or leave the industry. However, investors wishing to join this industry should fulfill certain requirements required by the law. These prerequisite conditions act as barriers and they include:
Large capital share: Businesses operating in wine industry require large capital share so that to compete effectively in the global market. The investors require large capital share so that to purchase machines, equipments, hire human resource, purchase inputs from suppliers, and meet the daily operation costs of the firm. This is a clear indication that only firms with large capital share can survive in the market and enjoy economies of scale. This does not mean that small-scale investors do not join the industry, but they later leave the industry because of incurring huge loses.
Legal provisions: The federal government working with state governments has the obligation of formulating and enacting laws that foster for healthy competition in the business arena. For many years, the government has regulated the number of businesses in a given industry through licensing. Anyone who fails to follow all the registration procedures is denied a license. In certain instances, businesses contravene laws of the land by indulging in dubious and unethical business deals. In such situations, the government either revokes or reposes the license thus limiting the number of firms in that line of production. The laws require that Alcohol, Tobacco, and Firearm division (ATFD) should license firms transporting, distributing and manufacturing alcohol beverages. The government prevents new businesses from entering a given industry through such legislations and legal practices. New businesses are charged high tax than their counterparts so that to prevent other firms from entering that line of production. The same concept is applicable in wine industry until today.