AWRI webinar: Riverland revitalisation
Date(s) - 20 Nov 2014
11:30 AM - 12:30 PM
The Australian Wine Research Institute
Email: [email protected]
“The customer is getting great value for money” was a statement made by prominent wine journalist Huon Hooke when he last visited the Riverland. This statement suggests that the perceived quality of wine made by many Riverland winemakers exceeded the price. Good news for the customer but maybe not all that good for the winemakers and growers!
The market today has powerful customers with clout. This clout has been used to erode winemaker and grower profitability. Strong competition has also seen customer expectations lift without gains returning to those growing and making wine. It seems all of the value invested into the production end of winemaking is being captured by the customer.
Why has this happened? It is easy to say that the imbalance in supply and demand has left many Riverland growers and winemakers with price as the only option to compete in a super-aggressive market. But it is more complex that that! Riverland grapegrowers grow grapes that are easily substituted. A grower’s offering can be substituted from other winegrowing regions in Australia and sometimes overseas. Substitutes can also come in the form of non-wine beverages. Switching costs are also low, meaning a grower has very little power to keep customers from moving to other growers (contracts once served as a strong switching cost, especially if a contract was breached). Rivalry is high! With an abundance of surplus grapes, growers will complete strongly for limited opportunities to sell their grapes. Unfortunately the only point of difference a grower has to trade to be competitive is price!
Understanding these complexities (based on Michael Porter’s Five Forces) allows wine businesses in the Riverland to find a competitive advantage that can develop into profitable operations. A competitive advantage needs to be built on value. There needs to be uniqueness about an established competitive advantage. Competing on the notions of being the best is foolhardy, but unfortunately this is what many competitive advantages are built around! Grow the best grapes, grow the cheapest grapes, have the best economies of scale by being the biggest….and so on! In the end everyone’s competitive advantage looks the same, and then competitive advantage no longer exists.
A number of Riverland wine businesses have identified unique propositions that provide an offering that the customer is willing to share the value. They have found a unique way to serve their customers profitably.
Ashley Ratcliffe (Yalumba Wines)