Written
i
C
Case

Slides IB de préparation - fev 2016_rev HC.pptx

Draft—for discussion only

Copyright © 2
2016 by The Boston Co
onsulting Group, Inc. A
All rights reserved.

P
Practice
i case0

INSTRUCTIONS (1/3)

During our recruiting process, you will experience BCG's written case study. Like our case interviews, it
is an opportunity for us to assess some of the skills you will need as a consultant, such as your ability to
structure a problem, manage your time and deliver clear and concise messages.

You will have access to a set of documents containing most of the information you need to answer a
few questions from a partner regarding a business situation. You will then have 2 hours to answer thesequestions in the form of a 3–5-slide
3 5 slide presentation on paper.
paper If you feel that some information is missing
to answer the questions, do not hesitate to draw explicit hypotheses. At the end of these 2 hours, youwill present your recommendations in 15 minutes to the interviewer that will play the role of the client
or of your project leader. Finally, the interview ends with a 15-minute Q&A session to deep-dive on
certain more personal topics about you or clarify some aspects of your presentation.

THE BOSTON CONSULTING GROUP

1INSTRUCTIONS (2/3)

DO

DON'T

Enjoy the challenge

Panic under time pressureManage your time (e.g. allocate enough time for
outputt t preparation)ti )Give in to temptation to read all the available
materialt i l

Focus your efforts/messages: does this piece of
information/analysis support my conclusion?

Postpone formulating your hypothesis until
you've collected all important information

Present conclusive answers to the questions
outlined in the case description

Get lost in analyses unrelated to your question

Produce clear and concise output (3(3–5
5 slides)Prioritize output quantity over quality
Oversimplify your messages

Deliver the most important message in the slide
title
Use text with bullets and sub-bullets wherever you
present conclusions or qualitative analyses
Use graphs/tables for quantitative analyses(unless you present 1-dimensional data)
THE BOSTON CONSULTING GROUP

2

INSTRUCTIONS (3/3)

This booklet contains an example to help you prepare for the written case. Like the real test, you should
complete it in no more than 2 hours. You can use a basic calculator but no other calculating tool (e.g.
spreadsheets). You can also use any other material you need (scratch paper, colored pencils, etc.).
During the real test, you will not be able to write on the documents.
U a landscapeUsel dformatft to
t createt your slides
lid on blank
bl k paper: dod nott over invest
it in
i aesthetic,
th ti though
th
h the
th
output must be clear and easily readable.

The practice test starts on the next page. Once you have completed it, you can check a possible answer
at the end of this booklet.

Good luck!
THE BOSTON CONSULTING GROUP

3

CHATEAU BOOMERANG CASE
JOE PARTNER
To: Château Boomerang Project TeamS bj t Growth
Subject:
GhS
Strategy
Date: 11 July 2003
Hi Team,
We have a meeting in a few days
days' time with our client
client, Château Boomerang
Boomerang, an Australian wine producer
producer. We need to start thinking
about a few of their concerns ahead of that meeting. During the meeting, you will have 15 minutes to present your conclusions about
three main questions. Please prepare a short written presentation (3 to 5 presentation slides) to support your speech. Format is not a
problem: you can use text, graphs or tables to your convenience. The issues I would like you to address are:•I believe the U.S. should be their #1 priority. Is this correct? What makes this country attractive for them?
– They currently have different options in mind in terms of priority products to enter the U.S. market with. This is a major
issue for them because product-marketing decisions require long term planning to take into account the grape-to-bottle
lead-time, so please address it as deeply and accurately as possible.

•

Which products have the highest chance of being profitable and competitive in the U.S.?

•

What are the strengths that make Australian wines competitive in the US market vs. their main competitors?

T gett you started,Tot t d I havehcollected
ll t d some ddocumentst aboutb t ththe A
Australiant li wine
i iindustry,d t theth globall b l wine
i industry,i d t some statistics
t ti tiabout selected wine producing nations, and basic wine economics. Try and make the best of what we have, being as fact-based as
possible. If you need to make some assumptions, make sure you highlight those so that we can check them thoroughly at a later stage.
Have fun.
Regards,
Joe
THE BOSTON CONSULTING GROUP

4

Extracts From Industry
Reports On The
Australian Wine Industry

THE BOSTON CONSULTING GROUP

5

THE AUSTRALIAN WINE INDUSTRY

IIn 2002,
2002 ddomestic
ti winei volumeslwere flflatt year on year ((yoy)) att 385
385m liters.
lit
BBottledttl d winei (39% off allll volume)l) was up 2
2.7%
7% anddsoftpacks (46%) grew 1.7% year on year. The domestic market is mature and competition remains fierce. While we expect a
rebound in 2003, we believe that we are unlikely to see a material lift in domestic volumes going forward.
2002 global export volumes reached 417m liters (A$2bn) and were up 23% yoy (24% by value).
value) The key drivers were the US andCanada, up 40% and 35% respectively. The UK remains Australia's largest export market (with 48% share) and grew 23% yoy in 2002
(22% by value).
The US continues to offer significant opportunity for Australia and recent AC Nielsen data confirms that growth remains robust.
Australia currently represents 7% of total US wine sales (by value), second only to Italy and is growing well ahead of all of its major
competitors.
The UK market also remains strong, with recent AC Nielsen data revealing that Australian wine remains the fastest growing importcategory, well ahead of France and Italy, its two nearest competitors.
Other European markets also offer opportunity, with Germany and Denmark flagged as two of the key destinations for increased
focus.
Retailer consolidation and increased competition is fuelling discounting in the UK. Pricing pressure has also emerged in the US,
particularly in the low-end category. While we do not expect the US pricing environment will deteriorate to anywhere near that of
the UK given the lack of retailer consolidation, recent company reports suggest that discounting has increased (albeit partly due toth generall seasonall activity
theti it over Christmas).
Ch i t)THE BOSTON CONSULTING GROUPDOMESTIC SALES OF AUSTRALIAN WINE
AUSTRALIAN PER CAPITA CONSUMPTION OF ALCOHOLIC
BEVERAGE 1980-99
Liters per capita
180

Spirits
Wine

160

Beer
140
120
100
80
60
40
20
0

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Australian consumption of alcoholic beverages has declined marginally over the past two decades
to around 117 liters per capita, solely due to lower beer consumption.

Source: "The Drink Pocket Book", NTC Publications & ABS Cat N° 4306.0.

THE BOSTON CONSULTING GROUP

7

TOTAL SHIPMENTS OF AUSTRALIAN WINE BY MARKETDESTINATION F85-F0E
DESTINATION,
F85 F0Em cases
120

Spirits
Wine

100

80

60

40

20

0

FY85 FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05E

The relative maturity of the domestic market has driven producers to pursue export market growth.
Export shipments delivered CAGR of 26% p.a. since F85. We expect export shipment growth of 18%
p.a. to F05E.
Source: ABS Cat n° 8504.0 & Smith Barney estimates

THE BOSTON CONSULTING GROUP

8QUALITY SEGMENTS IN THE WINE INDUSTRY

Icon

Ultra-premium

Super

Price range
USD50>GBP20>EUR30Indicative Brands
Penfods Grange
Henschke Hill of Grace
Jack Mann
Zileen Hardy
Petaluma

Volume share: 1%
Value share: 8%

Price range
AUD15
USD14-49.99
GBP7-19.99
EUR9-29

Indicative Brands
WolfBlass Greyy Label
Orlando St Hugo
Brokenwood
Penfolds Kalmina 28

Volume share: 5%
Value share: 24%

Price range
AUD10
USD8-13.99
GBP5-6.99
EUR6-9

Indicative Brands
Penfolds Koonunga Hill
NottageHill
Rosemount DiamondBlack Opal
Greg Norman

Volume share: 10%
Value share: 14%PriceP
i range
AUD5
USD5-7.99
GBP3-4.99
EUR3-6

IIndicative
di ti Brands
BdYellowtail
Jacob's Creek
Lindemans Bin Range
Rosemount Split label

Volume share: 34%
Value share: 28%

Price range
<USD5
<GBP3
<EUR3

Indicative Brands
Alice White
Hardy's VR
Queen Adelaide

Volume share: 50%
Value share: 27%

Premium

Basic

This pyramid looks very different when you look at value % rather then volume %.
Source: Rabobank 1999 with SB adjustments. Indicative Australian brands added for context.

THE BOSTON CONSULTING GROUP

9

EXPORTS – THE AUSTRALIAN WINE INDUSTRY GROWTH ENGINEA NUMBER OF FACTORS ARE KEY TO AUSTRALIA'S ONGOING
SUCCESS INTERNATIONALLY*
1.

Strong brands;

2.

Clarity of offer;

3
3.

Good value for money;4.

The quality and style of wines;

5.

The scale and efficiency of operators;

6.

The strenght of the industry organisations;7.

The environmentally friendly perception of Australia;

8.

The healthyy and trendyy p
perceptionpdrivingg increased p
premium wine consumption
pg
globally;y; and9.

Access to equity and debt capital;

Notes : *Sources from Orlando Wyndham presentation

THE BOSTON CONSULTING GROUP

10

GROWTH (YOY) IN AUSTRALIAN WINE EXPORT SHIPMENT
VOLUME F03 YTD
VOLUME,
Denmark
USA
CanadaGermany
World
UK
Switzerland
Hong Kong
Netherlands
New ZealandIreland
NorwayyJapan
Sweden
-20

0

20

40

60

Yoy change, F03 YTD (vs pcp)

80

100

%

Denmark has the strongest export growth (albeit off a small base). The US remains the key driverof growth and has overtaken the UK as the largest export destination by value CY02 YTD.

Source: "Wine Export Approval Reports", Australian Wine Export Council

THE BOSTON CONSULTING GROUP

11

AVERAGE PRICE PER LITER ACHIEVED, F93-F03E

m cases

Average price per liter

60

6

50

5

40

4

30

3

20

2

10

1

0

0

F93

F94

F95

F96

F97

F98

F99

F00

F01

F02

F03E

Avg export price per litre
Aust. wine export shipment (m cases)

The average price per liter has grown at a CAGR of 6.1% p.a. over the last decade. However, this has
slowed markedly over the last few years. Average price per liter grew just 0.7% in F02.

Source: "Wine Export Approval Reports", Australian Wine Export Council & Smith Barney estimates

THE BOSTON CONSULTING GROUP

12

AVERAGE EXPORT PRICE PER LITRE ACHIEVED, BY KEY MARKET(F93 F03E)(F93-F03E)
A$ per litre
7
6
5
4
3
2
1
0

F93

F94

F95

F96

F97
UK

F98

USA

F99

F00
Word

F01

F02

F03E

New-Zealand

The average price per liter has flattened due to a re-entry to lower price points in the UK and US(Yellowtail, Banrock Station, Rothbury Estate).

Source: "Wine Export Approval Reports", Australian Wine Export Council & Smith Barney estimates

THE BOSTON CONSULTING GROUP

13

1992 AUSTRALIAN WINE EXPORTS (VALUE), BY KEY MARKET

ROW
11
Japan
3

Sweden39

12

UK

Ireland 2
1
Netherlands
1Germany
Canada

7

7
NZ

17
US

The UK has always been the dominant market for Australian wine, but its significance grewthroughout the 1990s.

Source: "Wine Export Approval Reports", Australian Wine Export Council

THE BOSTON CONSULTING GROUP

14

2002 AUSTRALIAN WINE EXPORTS (VALUE), BY KEY MARKET
ROW
9

Japan
Sweden2
Ireland1
2
Netherlands
2
Germany2
Canada 6

43 UK

NZ 4

29
US

The UK market remains the largest export destination with 43% share. The US is a clear #2 andmade significant inroads at the expense of the UK.

Source: "Wine Export Approval Reports", Australian Wine Export Council

THE BOSTON CONSULTING GROUP

15

2005E AUSTRALIAN WINE EXPORTS (VALUE), BY KEY MARKET
Japan
SwedenIrelandNetherlands
11
11
Germany
3
Canada

ROW
7

7

35

UK

NZ 3

41
US

The US is expected to overtake the UK in F03E and have a dominant 41% shareof Oz exports in F05E.

Source: Smith Barney estimates

THE BOSTON CONSULTING GROUP

16

WINE PRODUCTION, EXPORTS AND CONSUMPTION (SELECTEDCOUNTRIES) 2002E
COUNTRIES),
Wine
exportst(mL)

Exports
as a proportion of
production
d ti
(%)

Wine
consumpti
tion
(mL)

Per capita
consumpti
tion
(L)

Wine
production
d ti
(mL)

Wine
productiond ti(cases)Share ofworld
production
d ti
(%)

Italy

6,163

685

20

2,308

37

3,311

54.2

France

5 742
5,742

638

18

1 781
1,781

31

3 767
3,767

58 7
58.7

Spain

3,783

420

12

1,081

29

1,592

39.5

USA

2,239

249

7

301

13

2,124

10.8

Argentina

1,380

153

96

7

1,354

38.4

Germany

845

94

3

226

27

2,013

23.9

South Africa

812

90

3

165

20

415

8.6

Australia

1,205

134

4

471

39

364

19.8

Chile

709

79

2

342

48

303

18.2

Other

8,201

911

26

1,117

14

7,233

World total

31,078

3,453

100

7,888

25

22,476Australia represents just 4% of worldwide wine production.
Australia exports more than it consumes domestically, however, the current oversupply masks it.

Source: ABS 1323.0, Dutruc-Rosset 2001, Smith Barney 2002 estimates

THE BOSTON CONSULTING GROUP

17

WINE PRODUCTION PROCESS – SUMMARY
The process of turning wine grapes (as distinct from table grapes) into wine is winemaking or oenology; viticulture refers to grape
production—supplyingp
pp y g the raw material.

GROWINGWINE MAKING
Planting
Fermentation

IrrigationgPruning

Clarification (Filtration)

Di
Diseasecontroll

AgeingHARVESTING
Manually

Mechanically

Source: Lehman Brothers Research

THE BOSTON CONSULTING GROUP

18

HARVEST SIZE, PLANTINGS AND YIELD

D t forData
f globall b l wine
i production
d ti iin relationl ti tot plantingsl ti
are shownh
iin theth ttables
bl below.
b lGlobally, the picture is reasonably stable. Chile and Australia both increased production yield per planted area. Their crude
production yields rose by 60.0% and 27.8% respectively during 1993-99.
Argentina is the only country with a sharp drop in production in relation to planted area, which reflects the drop in overall
production.
Plantings are useful as an indicator of forward production. The planted area increased by 13.7% in fiscal 2000 compared with a
24.6% increase the previous year.

THE BOSTON CONSULTING GROUP

19

WINE PRODUCTION BY COUNTRY
Countries

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

MarketShare

Cumulative
Market Share

1999
Rank

10yr
CAGR

Italy

7.696

7.597

6.101

6.033

5.487

5.979

6.869

6.230

5.925

5.620

5.854

5.056

5.419

5.400

20.9%

20.9%

1

‐1.1%

France

7.322

6.944

5.753

6.100

6.553

4.269

6.540

5.329

5.445

5.561

5.705

5.356

5.267

5.229

20.2%

41.1%

2

‐1.5%

Spain

3.587

3.828

2.267

2.896

3.866

3.134

3.403

2.549

2.257

1.964

3.170

3.608

3.032

2.520

9.7%

50.8%

3

‐1.4%

USA

1.717

1.837

1.824

1.551

1.585

1.514

1.562

1.660

1.763

1.867

1.742

2.019

1.870

1.946

7.5%

58.3%

4

+2.3.%

Argentina

1.857

2.455

2.063

2.032

1.404

1.450

1.435

1.447

1.546

1.644

1.368

1.350

1.267

1.251

4.8%

63.2%

5

‐4.7%

Germany

1.006

894

932

1.434

949

1.017

1.338

972

1.038

1.105

830

850

1.080

1.035

4.0%

67.2%

6

‐3.2%

South Africa

831

700

896

967

899

970

1.000

916

941

966

1.013

881

816

810

3.1%

70.3%

7

‐1.8%

Australia

402

400

408

458

445

400

459

462

482

503

673

617

742

799

3.1%

73.4%

8

+5.7%

Chile

330

440

423

390

398

290

317

330

311

291

337

431

548

585

2.3%

75.6%

9

+4.1%

Romania

870

870

870

870

590

481

574

410

541

672

766

669

500

499

1 9%
1.9%

77 6%
77.6%

10

‐5 4%
‐5.4%

Serbia &Montenegro

‐

‐

‐

‐

‐

‐

‐

‐

‐

280

349

403

403

464

1.8%

79.4%

11

n/a

Hungary

442

326

471

385

547

461

388

364

346

329

419

447

418

423

1.6%

81.0%

12

+0.9%

Bulgaria
g

326

359

350

289

293

255

197

201

210

220

350

330

330

385

1.5%

82.5%

13

+2.9%

Greece

478

434

435

453

353

402

405

338

361

384

411

399

383

378

1.5%

83.9%

14

‐1.8%

Portugal

806

1.112

884

789

1.137

983

741

458

592

726

953

612

362

342

1.3%

85.3%

15

‐8.0%

China/
Taiwan

‐

‐

‐

85

90

300

310

350

375

400

300

320

355

324

1.3%

86.5%

16

+14.3
%

Brazil

229

242

250

274

311

306

358

350

331

313

232

296

278

270

1.0%

87.6%

17

‐0.1%

Poland

257

261

256

256

250

250

250

250

250

250

266

260

260

254

1.0%

87.6%

18

‐0.1%

Croatia

‐

‐

‐

‐

‐

‐

‐

‐

‐

179

196

226

228

251

1.0%

89.5%

19

n/a

Austria

223

223

350

258

317

309

259

187

205

223

211

180

270

249

1 0%
1.0%

90 5%
90.5%

20

‐0
0.4%
4%

Total World

33.50032.50027.79028.51028.29025.85029.35025.93025.43925.61127.05326.14625.87825.200Source: World Drink Trends 2000

THE BOSTON CONSULTING GROUP

‐1.2%

20

WINE CONSUMPTION BY COUNTRY
Countries

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

MarketShare

Cumulative
Market Share

1999
Rank

10yr
CAGR

France

4.244

4.192

4.170

4.181

4.125

3.823

3.701

3.661

3.619

3.663

3.502

3.516

3.419

3.380

13.4%

13.4%

1

‐2.1%

Italy

3.911

3.740

3.611

3.544

3.546

3.491

3.468

3.446

3.306

3.300

3.116

3.077

2.963

2.968

11.8%

25.2%

2

‐1.8%

USA

2.214

2.198

2.078

1.976

1.940

1.768

1.803

1.703

1.741

1.778

1.909

1.978

2.008

2.089

8.3%

33.5%

3

+0.6%

Germany

1.810

2.005

2.023

2.069

2.071

1.936

1.934

1.835

1.840

1.821

1.884

1.887

1.870

1.880

7.5%

40.9%

4

‐1.0%

Argentina

1.822

1.814

1.769

1.723

1.763

1.728

1.654

1.504

1.483

1.429

1.448

1.438

1.401

1.302

5.2%

46.1%

5

‐2.8%

Spain

1.363

1.353

1.209

1.168

1.138

1.145

1.032

1.066

1.017

976

973

1.135

1.158

1.102

4.4%

50.5%

6

‐0.6%

Russia

‐

‐

‐

962

891

818

520

519

697

858

841

868

880

1.048

4.2%

54.6%

7

+0.9%

UnitedKingdom

591

629

649

668

665

667

679

710

739

750

769

844

853

863

3.4%

58.1%

8

+2.6%

Romania

639

342

646

391

603

441

565

435

427

574

588

530

567

674

2.7%

60.7%

9

+5.6%

Portugal

709

640

538

527

627

620

606

593

583

576

562

542

531

517

2.1%

62.8%

10

‐0.2%

South Africa

315

315

315

330

316

329

329

314

340

355

363

359

367

409

1.6%

64.4%

11

n/a

Greece

236

317

299

300

331

330

325

365

352

362

358

369

382

376

1.5%

65.9%

12

+2.3%

Australia

346

340

344

325

316

309

327

323

332

333

335

352

369

366

1.5%

67.4%

13

+1.2%

Japan

86

99

118

129

135

117

101

121

136

157

189

232

233

316

1.3%

68.6%

14

+9.4%

Brazil

323

206

210

256

260

265

269

273

277

280

300

303

307

312

1.2%

69.9%

15

+2.0%

Switzerland

316

324

329

329

331

320

316

319

310

307

306

308

307

312

1.2%

71.1%

16

‐0.6%

Hungary

249

231

220

237

287

299

307

324

299

272

308

294

293

301

1.2%

72.3%

17

+2.4%

Netherlands

217

214

218

221

217

231

242

232

241

256

266

273

289

294

1.2%

73.4%

18

+2.9%

Canada

258

255

266

259

248

238

235

233

232

238

246

258

268

271

1.1%

74.5%

19

n/a

Belgium

214

227

230

229

249

240

250

259

243

254

254

255

255

255

1.0%

75.5%

20

+1.1%

Total Top 37
Countries

21.68621.75821.25721.76622.03821.10220.854

20.63020.531

20.87820.77221.04521.03821.336Note : Consumption
and production totalsGROUP
do not always agree due to fluctuation in stock levels and due to the inclusion of bulk exports for other applications—fortified wines—in the output , umbers. We 21
have
THE
BOSTON CONSULTING
based market share on world production of 25.2 billion liters.
Source: World Drink Trends 2000

‐0.2%

SELECTED WINE PRODUCING COUNTRY PROFILESFRANCE
A C
Key points– Massive reduction in overall level of both wine and alcohol consumption.
– Trading up is a positive; better marketing would firm this trend.
– Exports rising, but not always a clear winner.
– Substantial opportunity for consolidation and repositioning of the industry.
Despite a dramatic fall in consumption, France remains the world's largest wine consumer. Beer and spirits have moved to withinsight of accounting for half of French alcohol consumption from just over one-third in 1980. Per capita wine consumption stands at
58 liters annually. Reduced alcohol intake can partly be explained by a trend towards the global norm. France was well ahead ofother countries in terms of total intake. In addition, there have been cultural shifts away from weekday lunchtime wine
consumption—largely in favor of mineral water.
However, there is at least trading up. In the past 20 years, the portion of AOC (Appellation d'Origine Contrôlée) wine consumed has
increased from 30% to 50%, indicating that quality concerns have been increasing year-on-year. This presents a significant
opportunity for wine companies with a commitment to marketing and an endorsement of higher-quality brands.

THE BOSTON CONSULTING GROUP

22

SELECTED WINE PRODUCING COUNTRY PROFILESFRANCEA C
ExportsE
t off F
Frenchh winesi
increasedid steadilyt dil iin th
the pastt fi
five years. Thi
This trend
t d will
ill probably
b bl continue.
ti
However,H
our experienceielsewhere in the beverage alcohol industry suggests that the French should be careful not to make two mistakes. First, a weakdomestic industry rarely translates into a sustainably strong export market. Both Australia and California support their domestic
wine industries wholeheartedly. Second, it is difficult to offset a major market that is in decline with the establishment of newmarkets. Note how Scotch whisky's failure in its largest market (the US) offset its progress in the newer markets. Furthermore, as
our other country reviews show, the export market is very competitive. And although France has a leading overall position in the UK
and in the US, Australia and new world wines have been growing at faster rates. The position with individual brands is morestriking. The market leader in the US imported sector is now Concha Y Toro, the listed Chilean company, while the leading Frenchbrand is Georges Duboeuf, the sixth largest import.
The French wine industry could benefit from adopting some of the technology that has been one of the driving platforms for the
new world wines success. Examples would be drip irrigation systems used extensively in Australia as well as the practice of usingwood
d chipshi in
i theth ffermentationt ti process tto add
dd oakk flflavors tto th
the wine,i
as opposedd tto iimpartingti ththatt flflavor throughthh agingi iin oakkbarrels, which is a technique also perfected by the Australians. In some cases, French wine producers would like to adopt thesetechnologies, however, they are prevented from doing so through stringent and often ancient regulations that prohibit suchpractices.

THE BOSTON CONSULTING GROUP

23

SELECTED WINE PRODUCING COUNTRY PROFILESUSASAKey points– Strong domestic producer with rising demand for imports.
– Growth market with substantial trading up.
– Both listed and commercially minded private wine companies.
The US wine market is interesting because it combines strong domestic production with a growing import market. Overall, the US
is a net wine importer. Moreover, per capita consumption is low. As a result, there is a significant opportunity for consumption toincrease.
US wine companies tend to commit to a higher quality profile and to building brand awareness through advertising. Whileconsumption is geographically diverse, production is concentrated in California—around 90% of US output in volume terms
according to the Wine Institute. The US is the fourth largest wine producer in the world with total production of 1.9bn liters—
equivalent to around 200m cases.
US wine consumption recovered in the mid-1990s and continues to have high potential. Per capita consumption is low for such alarge wine producing country. In 1997, the US was the number 31 in the world on this basis with a minuscule intake of 7.4 liters perannum. This is half of the UK level and a mere 10% of the levels enjoyed in Southern Europe. In the second half of the decade,volume grew at a brisk 4% compounded annual rate.

THE BOSTON CONSULTING GROUPSELECTED WINE PRODUCING COUNTRY PROFILESUSASA
IIn addition
dditi tto it
its positive
iti underlying
d l i volumelgrowth,th th
the US market
k tb
benefits
fit significantly
i ifi
tl ffrom ttrading
di up. A
According
di tto ddatatpublished by Allied Domecq, the high-premium segment (for them, >$7 per bottle) in the past four years grew at a rate of 10–14%
with the premium segment as a whole averaging 7%.
There were markedly faster rates than for the industry as a whole.
whole The shift to premium wines is positive both for the domestic
producers' profitability outlook and for exporters to the US.
The top five US wine brands enjoy a 30% share of the domestic premium market. While less concentrated in comparison with other
US alcoholic beverages, this is relatively concentrated for premium wine brands when compared with other countries, and isconsistent with a higher focus on advertising. Robert Mondavi spends 4–5% of sales on advertising, which is more than the major
Australian listed companies spend in their domestic market.
In the 1990s, Americans doubled their consumption of imported wine, which increased from 21.2m cases in 1990 to 43.8m cases in
2000. The import share rose from 9.8% to 18%. Italy and France remain the largest exporters to the US. However, Australia has been
comfortably the fastest growing. Brand building and a commitment to advertising is a critical component of success in the US wine
market as a whole. The import sector is no different.

THE BOSTON CONSULTING GROUP

25

SELECTED WINE PRODUCING COUNTRY PROFILES
USASAAustralia'sAt li ' R
Rosemountt andd Lindeman's
Li d' are bothb th among th
the ttop fi
five importedit d US winei bbrandsd despitedit theth country's
t ' overallll volume
lshare of only 14.0%. Chile, with an overall share of 13.3%, boasts the number one seller—Concha Y Toro. France's lack ofcommitment to brands is telling—only one of the top brands is French despite an overall imported share of 22.9%. Italian brands
fare much better.
Wine production in the United States has increased dramatically in the past ten years, aided in many respects by technologicalinnovations. A good example of this innovation is the drip irrigation system pioneered in California in the 70s and 80s. It is basicallya long pipe with micro jets inserted with the trellises that allow vines to grow roots deeper into the ground, ensuring higher quality
at a given yield.
yield Additionally this form of irrigation is more efficient in water and fertilizer use,
use thereby allowing more arid land
areas to be used for grape growth. The use of different soils increases the spectrum of wine characteristics from the grape allowing
greater product differentiation and is also less stressful on the land, thereby ensuring yields in the long run. EU legislation however,prohibits Spanish, Italian and French producers from irrigating their lands, thereby crippling their ability to take advantage of thisk d
keydevelopment,lt whichhi h givesitheth US andd countries
t i lik
like A
Australia
t li an advantagedt
iin wine
i production.
d ti
U.S. wine producers also benefit from a relative lack of regulations that serve to restrict their production efforts—they are free to
use whatever technologies they deem worth it to further the competitiveness of their products. Their European competitors are notso lucky
lucky.

THE BOSTON CONSULTING GROUP

26

US – SHARE OF TABLE WINE IMPORTS BY ORIGIN

Source: Impact Databank

THE BOSTON CONSULTING GROUP

OthersPortugal

Argentina

Spain

0

Germany

0

Chile

0

Australia

10

France

10

Italy

10

Others20

Argentina

20

Portugal

20

Spain

30

Germany

30

Australia

30

Chile

40

France

40

Italy

40

Others50

Argentina

50

Spain

50

Australia%

Portugal

%

Chile

%

Germany

EXPORTS BY VOLUME((2000))FranceEXPORTS BY VOLUME((1995))Italy

EXPORTS BY VOLUME((1990))27

SELECTED WINE PRODUCING COUNTRY PROFILESA S A A
AUSTRALIA
Key points– Export-driven growth—quality, increasingly marketing-driven, and low-cost base.
– Domestic market stable.
– Dominated by listed companies which look to consolidate domestically and internationally.
– Looking to add new success stories to US and UK.

Dominance by listed companies that have access to equity capital, intelligent handling of distribution, a focus on quality and an
unusually weak currency explain the success of the Australian wine industry. Domestic consumption remains steady—lifted moreby population growth than taste changes—and provides a firm financial platform for international expansion.
The Australian wine industry's growth is based on international expansion. Domestically, the industry is fairly uninteresting.
Australians drink around 20 liters of wine per year on average and have done so for the past two decades. The main barriers todomestic volume growth are relatively high taxes and Australia's maturity (in all senses) as an alcohol market. Moreover, taxes inAustralia are levied on the value of the product, which inhibits the growth of the premium segment.

THE BOSTON CONSULTING GROUPAUSTRALIAN WINE EXPORTS BY DESTINATION

Source: Wine Trade

THE BOSTON CONSULTING GROUP

Other

SwedenSwitzerland

Germany

Ireland

0

Japan

0

Canada10

New Zealand
N

10

Other

20

Sweden20

Switzerland

30

Germany

30

Ireland

40

Japan

40

Canada50

New Zealand
N

50

USA

%

UK

%

USA

EXPORTS BY VALUEUKEXPORTS BY VOLUME

29

SELECTED WINE PRODUCING COUNTRY PROFILESA S A A
AUSTRALIA
The exportt marketTh
k t isi wherehAustralianA t li wines
i
have
h
been
b
conspicuouslyil successful.
f l Not
N t onlyl has
h Australia
A t li grabbed
bb d ththe numberb ttwostatus in the UK but is now number three in the US, having dislodged Chile. In the four years to 2000, Australian wine exports to
America increased at a 30% compound rate—significantly faster than any of its main competitors. Australian exports to the US are
already as much as one third of the Italians.
Furthermore, Australian wine vintages refer to the year in which the grapes are bottled—not to when they are picked. Thus,
Australia can achieve greater consistency by blending grapes of different vintages.
As the above table shows, the UK and US absorb 65% of Australia'sAustralia s wine exports by volume. New Zealand, which relies on Australia
to satiate its thirst for quality full- bodied red wines, takes up a further 9%.
Australia's successes have so far been in English speaking markets. However, this is less important as a measure of thewinemakers' competence than the ability of Australia to sell into countries which are strong domestic producers. The US success isarguably a more positive indicator than the UK.

THE BOSTON CONSULTING GROUPSELECTED WINE PRODUCING COUNTRY PROFILESA S A A
AUSTRALIA
AustraliaAt li hash a significant
i ifi
t costt basebadvantagedtover otherth countries.
t i InI particular,
ti l whenh it competes
t iin theth US market
k t it doesdsoagainst companies whose land costs are massively higher. In terms of overall costs per case, Australian listed wine companies
average, about half their North American counterparts.
From a technological standpoint
standpoint, innovation in wine technology has helped the Australian wine industry launch itself upon theworld. An example of innovation pioneered by the Australian producers is the use of oak during the fermentation process. Aging inoak barrels gives the wine its flavor (or bouquet), with the barrel size, age (newer is better) and oak type influencing the flavors
imparted into the wine. While the use of oak barrels cannot be circumvented for the production of top-end wines, Australianwineries have adopted stainless steel vats to ferment their middle range wines in.
in By adding oak woodchips to the vats during
fermentation, Australian wine producers add the desired oak flavors and gain a significant scale advantage over producers who
adhere strictly to barrel fermentation. This practice is seriously outlawed in France, despite the significant cost advantage.

THE BOSTON CONSULTING GROUPSELECTED WINE PRODUCING COUNTRY PROFILES
ITALY
AK points
Key
i t– Fragmentation restricts profitability.
– Consumption volumes trading down but consumers trade up.
– Opportunities are in export and brand building.
building
Italy is the world's largest wine producer. Most of the country's winegrowers are part of a Cooperativa (i.e., they have co-operativeownership structures). These associations of winegrowers initially existed to optimize costs and secure distribution. At present, they
represent the biggest operators in the industry, together with some well-known families, such as Caviro, Massaro, Coltiva (10,000 ha)
and Cantine Riunite, or Zonin Family (1,500 ha) for table wine and premium wine, and Cinzano (Campari group), Gancia andMartini (Bacardi Group) for sparkling wines.
The average winery holds around 1 ha of land, although Northeastern wineries tend to be slightly bigger, around 1.26 ha, whichreflects the co-operatives
co operatives structure and the non-existence
non existence of major public companies (excluding Campari,
Campari which is mainly insparkling). Though this average seems very low, it actually hides a very wide range of winery sizes, implying that, despite of aconsiderable fragmentation, there is a much room for consolidation.

THE BOSTON CONSULTING GROUPSELECTED WINE PRODUCING COUNTRY PROFILES
ITALY
A
The largerThlwineriesi i are foundfd in
i Northern
N th
Italy,
It l with
ith ththe exceptionti off Si
Sicily.
il Th
The otherth regionsiwithith extendedt d d acreage are Pi
Piedmontdt(Barbera, Barolo and Barbaresco), with around 1.5 ha and Tuscany (Chianti) with 1.4 ha. These averages compare with the Zonin
family, holding around 1,500 ha spread across 7 prestigious wine regions, and the Coltiva co- operative, holding around 10,000 ha. In
other words, there are large discrepancies in winery sizes and this have a direct impact on the wine industry in terms of brandbuilding.
Critical size for production and marketing purposes is somewhat missing. Wine production fell by one third from 7,800m liters to
5,500m liters in the 15 years to 2000.The acreage utilization dropped by 10%. We expect this trend to continue as a result of threemain factors:– As indicated, the production network is very fragmented except for a limited number of large families. The existing
myriad of small, family-owned wineries, who are not members of co-operatives, do not hold a brand name, nor is thequality of their product good enough to ensure survival in the long run. Therefore, these smaller winegrowers might
disappear.
di– In 1997, 39% of the heads of wineries were aged 65 plus and 46% were aged 45-–64 years. The younger generation
might be expected to sell out.
– Finally, the appellations restrict the production areas and the yields per hectare. Therefore, there will be a land
constraint in terms of acreage
acreage.

THE BOSTON CONSULTING GROUPSELECTED WINE PRODUCING COUNTRY PROFILES
ITALY
A
L
Lower
production
d ti isi beingb i offset
ff t byb improvedid quality.
lit ThiThis isi mainlyi l driven
di
by
b two
t factors:
f t– As domestic consumption decreases every year, wineries look at opportunities to grow abroad. The image of Italianwine is well established. But competition is tough in major markets such as the US, the UK, Japan or Germany.
Therefore, brand building will gradually become a necessity to compete in the export market of good quality wines.
– More emphasis is attributed to good quality wines and their origin and the appellations are one of the tools used toleverage on quality and drive prices higher. Government and related agencies fully support and promote theappellation system.
Italian winemakers have growth potential both in Italy, attributable to trading up, and abroad where, despite intense competition,
the country's profile remains strong.

THE BOSTON CONSULTING GROUPITALY – WINE EXPORTS BY VOLUME AND BY VALUE

Source: Wine Trade

THE BOSTON CONSULTING GROUP

OtherNetherlands

Austria

CanadaFranceSwitzerland

Japan

0

UK

0

Other

10

Netherlands

10

Canada

20

Japan

20

Austria30

Switzerland

30

UK

40

USA

40

France%Germany%USA

EXPORTS BY VALUE

Germany

EXPORTS BY VOLUME

35

KEY WINE MAKING METRICS – JULY 2002

C
Commodity
ditPPremiumi

Super
P
Premiumi

UltraP
Premiumi

Prices for crushed anddelivered grapes (US$ / Ton)
• Australia• Chile• France• Italy• United States

$
$75
$85
$125
$95
$150

$
$400
$450
$700
$600
$500

$ ,
$1,500$2,000$5,000$3,500$3,600$ ,$2,000$4,000$12,500$7,500$5,000Cases per Tonne

85

70

63

55

Bottles per Case

12

12

12

12

Average productionAd i & bottlingb licost per bottle (US$)1

$ 8
$0.80

$
$0.90

$ 6
$1.60

$
$2.10

$1.50

$4.00

$8.00

$20.00

$0.60

$0.60

$0.60

$0.60

Average wholesale price per
bottle ((US$))1
Freight cost (US to Australia
or Australia to US) (US$/btl)

1. Average cost and price are the same for all competitors

THE BOSTON CONSULTING GROUP

36

Press Search Articles

THE BOSTON CONSULTING GROUP

37

US WILL BE A KEY MARKET(1/2)

By Lucia
i Isabelb l
2 July 2003
Herald and Weekly Times( ) 2003 H(c)Heraldld anddW
Weeklykl TiTimes Limited
Li it dThe Australian wine industry's golden future may lie with the United States.
psenior analysty Lawrie Stanford said the nation's exportpp
performance was beginninggg toAustralian Wine and Brandyy Corporation
plateau in our largest export destination, the United Kingdom. Mr Stanford said the US was the industry's biggest growth prospect.
"The US is rapidly approaching our value performance in the UK, so it seems our golden future may be with the US," he said.
"W have"Weha concentrationt ti off sales
l iin theth popularl premiumiandd ttop-end
d wines."i"
But the competition will be fierce, particularly from France, where growers are calling for authorization to blend varietal wines,
more liberal winemaking techniques, such as oak chip use, a proactive branding policy, and consumer-driven research. Mr Stanford,a key speaker at the NSW Wine Industry Association seminarseminar, said domestic wine sales were growing at 2 percent a year
year, but theexport market was where the industry's future lay. Australian exports make up just 5 percent of world volume and 7 percent interms of value.
"This means we could be trodden on q
quite easily,y, particularlypy byy France,, or there is still a lot of expansionp
we could still do,", Mr
Stanford said.
He said the industry needed to target the emerging wine consuming nations of Denmark, Netherlands, the UK, Sweden, Ireland,
Finland and Japan.

THE BOSTON CONSULTING GROUP

38

US WILL BE A KEY MARKET(2/2)

By Lucia
i Isabelb l
2 July 2003
Herald and Weekly Times"We are doing
g well in all these markets because emerging
g g wine consumers don't want to be intimidated byy wine;; theyy want to workout what they do like," Mr Stanford said.
"We label our wine in a friendly way. We ensure it is branded and consumers are not being looked down on."
Mr Stanford
M
St f d said
id theth emerging
i markets
k t representedt d diff
differentt opportunities
t iti ffor A
Australiant li wine
i producers.
dG
Germany andd JapanJ
offer niche opportunities, while the US and Canada were volume markets for good-value wine.
"We are well established in the UK and have category status. The distributors have the attitude that it's a must-have category," Mr
Stanford said.
said "WeWe are now ready to move on to regional wine (branding).
(branding) "Cowra vigneron David O'Dea said the bias towards export was strong and the domestic market should not be ignored.
Mr O'Dea said Queensland was emerging as an important market. "They want different wines to what we sell in Victoria and NSW,"
he said. "They are looking for chilled, lighter reds and more fruit-driven wines."

THE BOSTON CONSULTING GROUP

39

REGULATIONS CUT INTO OLD WORLD WINE PRODUCERSCOMPETITIVENESS(1/3)

By Paul Tranter
20 September 2002
The Times
A large part of the performance gap between the New World and Old World wine countries is explained through an examination of
the differences in the regulatory framework and the activities of institutions in each country/region. Essentially, the New World hastaken a market-driven approach to the development of the wine industry, while the Europeans have taken a more protectionist
approach facilitated through the Common Agriculture Policy (CAP).
There are some reasons surrounding this approach: -wine has a high contribution value to final agriculture output in the major
markets (5.4% in Spain, 14.3% in France and 9.8%) Additionally it is the most significant agricultural export product and the areasthat are under vine are susceptible to soil erosion if vines are removed.
Alongside the CAP, a network of Appellation Control Committees polices the production in Old World countries. In France theseAppellation Committees were first established in 1930 and are responsible for setting the minimum requirements for each wine
region The original and still existingregion.
e isting intention of these Control Committees is to protect the standard of the wine
ine produced
prod ced within
ithin
the region. Wines that pass the prescribed tests are then branded with the appellation control stamp. In reality the application ofthese regulations has led to an endorsed legacy of rigid wine techniques within the French industry denying local winemakers ofaccess to much of the innovation adopted by the less regulated New World Wine Countries.

THE BOSTON CONSULTING GROUP

40

REGULATIONS CUT INTO OLD WORLD WINE PRODUCERSCOMPETITIVENESS(2/3)

By Paul Tranter
20 September 2002
The Times
The appellation regulation is highly prescriptive, touching all parts of the wine-making process, and its application can result inseemingly perverse outcomes. For example, the alcohol content of a Sauvignon Blanc wine grown in Bordeaux is restricted to no
greater than 12.5%. However given the influence of weather, often growing conditions and limited harvesting opportunities can
combine to produce a ripe crop that, if processed naturally, would result in the wine exceeding the allowable limit of 12.5%. In the
New World the winemaker would be delighted, sensing an opportunity to produce a powerful fruity wine that could be
differentiated from other competitors or alternatively, blended with other wines to ensure product consistency. However in the Old
World of Bordeaux the winemaker is restricted to two much more ggrim alternatives, either use productionpprocessespto effectivelyy
water down the wine, or alternatively to break the law and produce a wine that doesn't conform to the regulation.
On a macro level, the appellation framework (a) underwrites production (b) restricts growth and output and (c) limits the use oftechnology. The following table in exhibit 17 highlights the differences in regulation between France and Australia across anassortment of winemaking activities. As a result, Old World producers are limited in their ability to innovate and meet changing
customer's demands. Additionally, the appellation quality control mechanisms are not end-product focused (they primarily govern
the inputs), which means that there are free-rider incentives for the Old World producers—it is not uncommon to have wide
variability within a given appellation which undermines the value of the appellation structure and prevents the establishment of
successful brands.

THE BOSTON CONSULTING GROUP

41

REGULATIONS CUT INTO OLD WORLD WINE PRODUCERSCOMPETITIVENESS(3/3)

OVERVIEW OF THE REGULATORY CONSTRAINTS IN FRANCE AND AUSTRALIA
Regulation

Land & New
supplyProduction &harvesting

Fermentation

Marketing &distribution

FranceAustralia

Geographical appellation zones

Strictly regulated

Recent formation of geographical zones e.g.
Adelaide Hills vs. Coonawarra

Grape varietal planted

Strict rules stipulating the grape varietal to beplanted within certain regions, e.g. only Merlot
and Cabernet in BordeauxCompletely unregulated. While some areas havelarger concentrations of varietals thewinemakers is free to diversity

Vine plantings

Ban on new planting until 2010. Some re-planting
rights—strictly regulated. No secondary markets
f tradedford d rights
i h

Unregulated growth allowed subject to Town
Planning

Irrigation

Widely prohibited

Modern drip irrigation practices widely adopted

Grape picking

Some areas restricted to hand picking

Unregulated. Winemaker is free to choose.

Use of oak chips as opposed tobarrels

IllegalWidely adopted as a cheaper method to
introduce oak complexity into the wine

Strength of alcohol content

Threshold levels must not be exceeded

Winemakers free to experiment and innovate

Size of area under labels

Restricted to 177 cases per acre per label.
Any excess must be sold under secondary labels

Unregulated

Grape varietal packaged & bottled

Strict rules control the grape varietals allowed tobe blended

Unregulated

Label information

Strict adherence to appellation criteria. Grapevarietal must not be advertised on front of label

Winemaker free to brand and label product inaccordance with regulargcommercial laws

Treatment of excess production

Surplus purchased by Government under the
Common Agricultural Policy

Markets adjusts prices through supply anddemandTHE BOSTON CONSULTING GROUP

42

LOOKING UP DOWN UNDER FAST-GROWING AUSTRALIA WINE
INDUSTRY SECOND-BIGGESTSECOND BIGGEST SELLER IN THE U.S.
(1/3)
BLOOMBERG NEWS – 29 April 2003
Pittsburgh Post-Gazette
Copyright (c) 2003 Bell & Howell Information and Learning Company. All rights reserved.
ADELAIDE, Australia
Adelaide is in the heart of the world's fastest-growing wine region. Australian-based companies have captured more than 10 percentof the $13.8 billion international wine trade, according to Dutch agribusiness lender Rabobank International. And the value ofAustralia's wine exports has grown an average of 33 percent a year since 1986, reaching $1.48 billion in the year ended in March,says Australian Wine and Brandy Corp
Corp., a government regulatory body.
body
Australia became the largest wine exporter to Britain last year, overtaking France. And in the United States, it's now the secondbiggest source of imports behind Italy, and its sales volume grew 67 percent last year, according to Salomon Smith Barney, now
called Citigroup Global Markets Inc. California wine sales, which have 70 percent of the U.S. market, grew by 3 percent.
"The growth of Australian wine sales in the U.S. is staggering," said Jon Fredrikson, CEO of Woodside, Calif.-based wine industry
consulting group Gomberg, Fredrikson & Associates. "The Aussies have shown the French how to write the book when it comes tomarketing."

THE BOSTON CONSULTING GROUP

43

LOOKING UP DOWN UNDER FAST-GROWING AUSTRALIA WINE
INDUSTRY SECOND-BIGGESTSECOND BIGGEST SELLER IN THE U.S.
(2/3)
BLOOMBERG NEWS – 29 April 2003
Pittsburgh Post-Gazette
Climatically perfect
The secret of Australia's success, says California wine consultant Robert Nicholson, is that its wines are simply better values thantheir
h i California
C lif i andd European rivals.
i l "They" h over deliverd li
ffor theh price,"i " said
id Nicholson,i h lprincipal
i i l off Internationalil Winei Associates,iwhich has advised on $650 million worth of wine industry mergers and acquisitions in the past 10 years. "You can get the same
quality from a $7 bottle of Australian wine as you can from a $9 or $10 Californian equivalent."
Australian winemakers and their rivals cite several reasons for that ability to deliver.
deliver Most important,important they say,
say are cost and climate.
climateAustralia, a country the size of the mainland United States with a population of just 19 million -- less than that of Texas -- hasabundant cheap land. A sweeping, sunny 1,860-mile arc of that territory, between the barren outback and the modern cities built on
the coast of southern Australia, is climatically perfect for growing grapes, says Nicholson. Australia's first white settlers, British
con icts who'dconvicts
ho'd been deported to Australia
A stralia to set up
p the colon
colony of Ne
New SoSouthth Wales aro
aroundnd S
Sydneydne CoCovee in 1788
1788, planted vines
ines soonafter their arrival.
Fifty years later, non-convict European immigrants settling outside Adelaide in the colony of South Australia began growing grapes
in the Barossa Valley and the McLaren Vale.
Vale Today,
Today South Australia is the country's
country s most important wine
wine-growing
growing area
area.
"You can buy the land and plant a vineyard in McLaren Vale for a low price per acre," says wine consultant Fredrikson. "In Sonoma,
here in California, it would cost you two or three times as much. In the Napa Valley, it would be four or five times higher."

THE BOSTON CONSULTING GROUP

44

LOOKING UP DOWN UNDER FAST-GROWING AUSTRALIA WINE
INDUSTRY SECOND-BIGGESTSECOND BIGGEST SELLER IN THE U.S.
(3/3)
BLOOMBERG NEWS – 29 April 2003
Pittsburgh Post-Gazette
Few restrictions
Millar says cost is only one Australian advantage. Another is the fact that Australia lacks the regulations that restrict so-called oldworld
ld producersdiin Europe.
Many French winemakers have to operate under the Appellation d'Origine Contrôlée system -- a set of rules that restricts them tousing only those grapes from their immediate locality and of specified varieties.
"The rules in France are much too strict," said Pernod-Ricard's Patrick Ricard. "As long as France cannot change them, it will not
be in a good position to compete against wines of the new world."
In Australia, winemakers face few such restrictions. They can use grapes from any of scores of wine-growing areas stretching fromthe Hunter Valley just inland from the Pacific Ocean north of Sydney to the Margaret River on the Indian Ocean south of Perth inWestern Australia.
France's share of the international wine trade has declined to 40 percent from 50 percent in the past 10 years, according to theFederation of French Wine and Spirits Exporters.

THE BOSTON CONSULTING GROUP

45

ANSWERS (1/2)

Overview of possible
answers

THE BOSTON CONSULTING GROUP

46

Q1 . I BELIEVE THE US SHOULD BE THEIR #1 PRIORITY.
IS THIS CORRECT? WHAT MAKES THIS COUNTRY ATTRACTIVE
FOR THEM?
To answerans er this qquestion,
estion you
o need to foc
focuss on ke
key iss
issueses to anal
analyzee the market
market, including:incl ding: what
hat is the market size
si e and its historical
growth? Is it profitable? Is there a future potential for growth?

We suggest an approach in 3 slides:– Illustration of the need for Australian wines companies to focus on exportations due to a flat domestic market– Comparison between the different potential markets (volume, growth, prices) showing US is attractive in both volume
and price– Illustration of positive market outlook: low consumption in the US and low market penetration of Australian wine
companies
It is also p
possible to illustrate the threat of competitionpin the US market ((especiallypy as US is self-sufficient in terms of
production).
Instead of the three slides version, you could also have illustrated the attractiveness of the US market on a single slide bycomparing it with other countries on key market drivers (volume, growth, prices, consumption per capita, etc.).

THE BOSTON CONSULTING GROUP

47

AUSTRALIAN WINE PRODUCERS NEED TO FOCUS ON EXPORTS
FLAT DOMESTIC MARKET WHILE EXPORTS HAD A ~25% ANNUAL GROWTH RATE,FROM 1988 TO 2001
Volume Of Australian Wine Sales By Market (m cases)
1988‐2001
CAGR

%
80

80

75

60

60

62
34

21

22

38

Export
p
Sales

+25%

Domestic Sales

+1%

40

40
2

20

38

39

40

41

42

1988-89

1997-98

1998-99

1999-00

2000-010

Source : ABS Cat No 8504.0 & Smith Barney estimates

THE BOSTON CONSULTING GROUP

48

US IS THE MOST ATTRACTIVE MARKET IN BOTH VOLUMES & PRICES
3RD LARGEST MARKET WITH ~3% GROWTH OVER THE PAST 5 YEARS AND HIGHPRICING REALIZATION
WINE CONSUMPTION PER COUNTRY(1986-1999)
Market size (mL)

<0%

A$/L

>1%

5 000

8

10 year
CAGR
6.1

4 000

3 000

2.6%
2 000

1 000

AVERAGE EXPORT PRICE IN 2002 IN US
VS. UK

France

-2.1%

Italy

-1.8%

US

+0.6%

Germany

-1%

Spain

-0.6%

UK

+2.6%

Australia01986 1988 1990 1992 1994 1996 1998 2000

6

45.2%
4.2
4

2

+1.2%

Note: mL = million liters
Source: World Drink Trends 2000 export approval reports, Australian Wine Export Council & Smith Barney
estimates

0

UK

US

PRICE LEVEL COULD EVEN INCREASE MORE IN THE U.S. GIVEN
CURRENT TRENDING-UP PHENOMENON
THE BOSTON CONSULTING GROUP

49

GROWTH POTENTIAL IN THE US GIVEN LOW CONSUMPTION PERCAPITA ESP
CAPITA,
ESP. FOR AUSTRALIA THAT CURRENTLY HAS A LOWPENETRATION RATEPER CAPITA CONSUMPTION IN THE US
WAY BELOW UK AND FRANCEAUSTRALIA
3RD
EXPORTER
IN farUS,A
Australia
li 3rdd exporter
in
i the
h US,
US
fTHE
behindb US
hi dFAR
BEHINDAND
WITH
leaders
andLEADERS
with a share
lower
thanAinSHARE
the UK
LOWER THAN IN THE UK

Per capita consumption in 2002 (L)Import shares in the U
U.S.
S in 2000 (by volume),
volume) in %
59

60

40%

40

37%

-37.8%
30%
40

23%
20%
14%

20

13%

16
10%

11

3%
0%

0

US

UK

FranceItaly

1. Hypothesis: UK per capita consumption calculated as 150% of US (was 200% in 1997 when US had 7.4L/capita consumption)
Source: Impact Databank, press

THE BOSTON CONSULTING GROUP

FranceAustralia

Chile

Germany50

Q2. WHICH PRODUCTS HAVE THE HIGHEST CHANCE OF BEING
PROFITABLE AND COMPETITIVE IN THE US?
They currently have different options in mind in terms of priority products to enter the U.S. market with.
This is a major issue for them because product marketing decisions require long term planning to take
into account the grape-to-bottle lead-time so please address it as deeply and accurately as possible.
This is a quantitative question, all the information needed being in page 18 (Key Wine Making Metrics).
The easiest way to present the results is through a table of data comparing Australian vs. US costs (US internal competitors being
the highest threat).

THE BOSTON CONSULTING GROUP

51

CHÂTEAU BOOMERANG SHOULD FOCUS ON HIGH RANGESEGMENTS AND ESPECIALLY ON SUPER PREMIUM CATEGORYSEGMENTS,
Per bottle, US$

Commodity

Premium

Super Premium

Ultra Premium

Australia

US

Australia

US

Australia

US

Australia

US

Price

1.5

1.5

4

4

8

8

20

20

Grapes

0.1

0.1

0.5

0.6

2

4.8

3

7.6

Production

0.8

0.8

0.9

0.9

1.6

1.6

2.1

2.1

Shipment

06
0.6

‐

06
0.6

‐

06
0.6

‐

06
0.6

‐

Total cost

1.5

0.9

2.0

1.5

4.2

6.4

5.7

9.7

Margin

‐

0.6

2.0

2.5

3.8

1.6

14.3

10.3

Margin (%)

‐

37%

51%

63%

48%

20%

71%

52%

Australian Wine Cost
Advantage1

1. Ratio between Australian and US total cost per bottle
Source: Key Wine Making Metrics 2002; BCG analysis

THE BOSTON CONSULTING GROUP

None

None

66%

59%

Margin also makes Ultra Premium interesting but:
• Lower cost advantage• Smallest volume• Fierce competition of France and Italy52

Q3 . WHAT ARE THE STRENGTHS THAT MAKE AUSTRALIAN
WINES COMPETITIVE IN THE US MARKET VS
VS. THEIR MAINCOMPETITORS?
You can create
Yt ttwo slides:
lid ththe fifirstt one tto li
listt whath t ththe k
key success factors
f t(KSF(KSFs)) are ini thisthi industry,i d t theth secondd one tot comparethe different countries on each of them.
The other option is to create only one slide that compares the different countries and illustrate in your oral presentation why you
chose these KSFs,
KSFs e.g.:
eg:– Legislation: drives the ability to use techniques enhancing quality, at lower cost and allowing simple branding basedon varietals– Land availability and climatic conditions: drives cost of land and cost of grapes (through yield) as well as quality– Volume of exports & consolidation: allows for economies of scale in distribution and branding among others

If you have enough time left, you can also prepare an Executive Summary to list the key messages of your presentation on a slide,but don't forget your overall presentation should not exceed 5 slides maximum.

THE BOSTON CONSULTING GROUP

53

AUSTRALIA HAS SIGNIFICANT COMPETITIVE ADVANTAGES ON KEY
SUCCESS FACTORS IN THIS INDUSTRY

Legislation

Land & climate

Export volume (mL)C
Consolidation
lid ti

Grapes costs

Australia

US

Europe1

Chile

+
+

+
−

−
−

+

471

301

5 396

342

+
+

+
−

−
−

?

?

−

1.France, Italy, Spain and Germany

AUSTRALIA ADVANTAGE IS PROBABLY SUSTAINABLE
LONG
LEAD TIME FOR LEGISLATION TO BE RELAXED)THE BOSTON(E.G.
CONSULTING
GROUP

54

ANSWERS (2/2)

Examplesp of slides
preparedpp
byy three
BCG candidates(initially hand-written)
THE BOSTON CONSULTING GROUP

55

Candidate # 1 (slide 1/3)

MARKET SHOULD BE PRIORITY #1 TO GROW SALESUS IS THE FASTEST GROWINGMARKET ABOVE TOP 3 EXPORTCOUNTRIESUKUSCANADA

43%

29%

6%

% of total sales (2003)

2003 growth (value)
~+15%

~+60%

~+30%

Expected % of sales(2005)

35%

41%

7%

Average price perliter (2003)

~4

~6

N.a.

THE BOSTON CONSULTING GROUPDOMESTIC MARKET•

Flat in 2002•

Declined over past 2 decades•

Fierce competition•

g taxesHigh

56

Candidate # 1 (slide 2/3)

CHATEAU BOOMERANG SHOULD FOCUS ON ULTRA PREMIUM WINESTO ENTER 115 MARKETSIMPLIFY P&L FOR AUSTRALIAN WINE
PROTECTION (115$)

COMMODITY PREMIUM

SUPER
PREMIUMULTRAPREMIUM•Ultra premium segment would be themost profitable one for Australianwines (~14$/bottle)

Cost of groups (1tonne)

75$

400$

1500$

2000$

•

Ultra premium segment represents
24% of US market

Crates (12 bottles /crate)

85

70

63

55

•

Premium segment has been growing
faster than market over past

Grapes cost /bottle

-0.1

-0.5

-2

-3

Other costs / bottle(0.6$ for freight)

-1.4

-1.5

-2.2

-2.7

Total cost / bottle

-1.5

-2.0

-4.2

-5.7

Selling Price(average)

1.5

4.0

8.0

20.0

Potential Margin
per bottle

0

+2.0

+3.8

+14.3

Volume Share of
US Market

27%

28%

14%

24%

THE BOSTON CONSULTING GROUP

57

Candidate # 1 (slide 3/3)

AUSTRALIA HAS STRENGTHS IN BOTH INDUSTRIALIZATION AND SALES& MARKETING PROCESS TO OUTPERFORM COMPETITION IN U.S.
SALES & MARKETING

INDUSTRIAL PROCESS•

Cost efficiency•

Clarity of offer & quality of products•

Lack of regulation••

Innovation capacity (eg. stainless steel vats with oak
woodship)Strong brands (Rosemount and Linderman already int 5 brands
top
b d iin US)•

Already 3rd supplier in US market

Expansion capacity (climate & land)•

Environmentally friendly perception of Australia•

THE BOSTON CONSULTING GROUP

58

Candidate # 2 (slide 1/3)

CHATEAU BOOMERANG SHOULD FOCUS ITS EFFORT ON EXPORTING
TO THE U.S. MARKET•

FOCUS ON
EXPORTS

Australian
i domestici market isi saturated and cannot support production
i growth– production grew by >50%1 in the 2nd half of the 90s, while consumption remained
stable (~2% growth/year)2•Australian winemakers have demonstrated their competitiveness is terms of exporting– yearly growth of >20%3 in a flat global consumption market1•

US is a big and growing market has still a lot of potential– #3 worldwide with >2bn liters in 10001 with ~20% of growth over 5 years– wine consumption per capital at ½ UK level (1997)4

US MARKETAS KEYDESTINATION•Is becoming the biggest destination of exports and more attractive than the traditional
UK market for Australian winemakers– Is to pass the UK as #1 destination between 2002 and 2005
– trading up trend leads to more profitable premium and above wines– AverageA
exports
t pricei tot US 50% hihigherh thatth t tot UK5– Less retailers concentration in the US meaning less pressure or prices

1. World Drink Trends 2000 2. Herald and Weekly times 3. Smith & Barrey 4. US market profile 5. Wine export approval reports

THE BOSTON CONSULTING GROUP

59

Candidate
Candidate# 2# 2 (slide 2/3)

SUPER PREMIUM AND ULTRA PREMIUM PRODUCTS TO BE PUTFORWARD IN PRIORITY
COMMODITYPREMIUM

SUPER
ULTRA
PREMIUM PREMIUM

Value share

27%

28%

14%

32%

A potential close to ½ of thevalue share

Growth (volume)

<4%

~7%

10-14%

10-14%

Fastest growing segments witha growth 3x times the market
average (4%)

Profitability

~2%

~50%

~50%

72%

Top segments are the mostprofitable

Competitiveness
Cost advantage

Brand
impact/marketing- - (50% higher thanUS)++ (friendly branding)

THE BOSTON CONSULTING GROUP- (25% higher
than USconcentrated)++++ (V3 )++ (friendly
branding)- (25% higher
than USconcentrated)++

COMMENT

Although profitable, fragile
position in the highly
concentratedt t d premiumisegment
Strong cost advantage on superpremium and ultra premium
combinedbi d with
ith an overallllfavorable brand position

60

Candidate # 2 (slide 3/3)

AUSTRALIAN WINES HAVE SEVERAL KEY ADVANTAGES THATALLOW THEM TO COMPETE SUCCESSFULLY IN THE U.S.

ADEQUATE
MARKETING &BRANDING•

Clarity and diversity of offer, innovation•

Strong brands supported by efficient communication•

Friendly labeling ensuring (inexperienced) consumers "are not being looked upon"

LOW
PRODUCTION
COST &PRODUCTIVITY•

Cheap and abundant laud, flexibility•

P d ti soil
Productive
il ththanksk tto ffavorable
bl climate
li t andd use off iirrigationi ti (b(bannedd iin E
Europe))•Innovation in production techniques (e.g. use of oak chips instead of barrels) & flexibility
in terms of grape selection and picking•

Perceived qualityy highergthan US competitors (10$ for a Californian wine and 7$ for an
Australian wine for comparable quality)

QUALITY &VALUE FORMONEY

THE BOSTON CONSULTING GROUP

61

Candidate # 3 (slide 1/3)

ATTRACTIVENESS OF U.S. MARKET FOR AUSTRALIAN EXPORTS IS
DRIVEN BY VOLUME POTENTIAL AND GROWTH OF PREMIUM
MARKET IS TRADING UPSIGNIFICANTLY

U.S. MARKET IS A 2ML P.A. MARKET,,
N°3 IN THE WORLD•

Growing 4% p.a. in volume since the mid 90's•

With consumption per capita still low compared to
W tWesternEuropeE(10l/(10l/year
vs. 40l/year)
40l/
)

•

Where Australian wines perform extremly well: market
share increased from 2% in 1990 to 14% in 2000 forwine import in the US•

Average export price of Australian wine is the highest in
the US– US:
US 6A$ / L– UK: 4A$ / L– NZ: 3.5A$ / L•

High premium market (bottles >7$) has grown 10–14%
p.a. over the last 4 years•

Total premium growth: 7% p.a. vs. 4% for the global
marketSource: US market report, ABS, Dutrac-Rosset 2001, Australian Wine Export Council & Smith Barney estimates

CLEAR MARKET PREMIUMIZATION & LIMITED PRESSURE ON PRICE
ON HIGH-END
62
THE BOSTON CONSULTING GROUP

62

Candidate # 3 (slide 2/3)

AUSTRALIAN WINES ALREADY HAVE A GOOD VALUE FOR MONEYIMAGE AND CAN FURTHER MOVE INTO HIGHERENDS SEGMENTSULTRA PREMIUM MARKET

SUPER PREMIUM MARKET•

Represents about 10% of current market•

Represents about 5% of current market•

Growing above 5% p.a.

•Growing above 10% p.a.

•Competition
Ci i ffrom FranceF
can beb strong but
b onlyl ifregulations are smoothened in Europe•

BuildingB
ildi strong brandb d is
i key
k in
i the
h U.S.
U S market
k anddAustralia is good at it.

Australian wines much
more competitve andprofitable

In Premium, competition from US
domestic production is fierce
US$ PER BOTTLE

COMMODITYPREMIUM

AUS

1.47

1.89

3.67

4.66

FR

1 32
1.32

1 98
1.98

6 90
6.90

14 75
14.75

US

0.95

1.39

5.13

7.00

1.5

4.0

8.0

20.0

0.03 (2%)

2.11 (53%)

4.33 (54%)

15.34 (77%)

Wine cost split

Sales pprice
Benefits for AUS wines
THE BOSTON CONSULTING GROUP

SUPER PREMIUM ULTRA PREMIUM

63

Candidate # 3 (slide 3/3)

THE KEY FACTORS ENABLING HIGH COMPETITIVENESS OF
AUSTRALIAN WINES IN THE U.S.
U S MARKET ARE REGULATION AND
LOW COST OF LANDON AN EASY LANDEASY REGULATION•

Better productivity

Good climate– All varieties can be planted– Sunny– Grapes can be watered– Moderate temperature on the south– Picking can be made by machines– No limit on production per acre••

Cheaperp transformation p
process•

Cheap land
– Vast country with low population– Land 2 to 3 times cheaperp than in California– Oak chips introduced in inox barrels– No constraints on alcohol content– Additives can be used

Source: Press releases

IF REGULATIONS REMAIN VERY STRONG IN EUROPE, AUSTRALIA IS
LIKELY TO KEEP ITS COST ADVANTAGE
64
THE BOSTON CONSULTING GROUP