Caso montgras.

INTRODUCTION

In 1992, Montgras, a Chilean wine producer located in the Colchagua Valley, has been created by two Gras brothers and Cristian Hartwig. Eight years later, due to several successful strategies, despite unsuccessful ones, Montgras is ranked among the best 20 Chilean wine exporters. Now headed by Patricio Middleton, the CEO, the company has to act in a complex context, what make choices harder regarding the short-term and long-term future strategies. For this year, Middleton as all vineyards CEOs, has to deal with overproduction; export seems to be the perfect solution but a lot of things in this case reveal that it is far more complicated that he though. Let’s see in the following paragraphs all challenges Montgras has to face, in which context, how he deals with them, and finally how he can solve them.

CONTEXT

The global wine industry is divided into two parts called the “Old World” and the “New World”. The former gathers France, Italy, Spain, Portugal and Germany and remains very focused on traditional production processes. The latter includes mainly Australia, the United-States, South Africa, Chile and Argentina and seems to converge toward exports and product innovation.

Nowadays, wine production can be listed as a luxury goods industry that is why a new consumption mode is growing: “Drink less, drink better”. This trends generated a decreasing consumption of table wine in favor of the fine wine consumption.

During the last 40 years, the wine industry has changed a lot all around the world.

First, since the 1960’s, the wine distributors have gathered significantly in most of the countries. More particularly, their number where divided by four in the United-States and the concentration was even more important in the United-Kingdom according to the Wine Institute. This trend must affect negatively MontGras because the wine producers are losing progressively their negotiation power.

Then, the industry’s stakeholders have also noticed that the exports have grown a lot from the 1990’s because wine producers had to find an alternative to the domestic overproduction. As a matter of fact, new strategies were implemented and Chilean wine has been diversified and many national wines got a “high-quality” position.

Chile could enjoy benefits from the wine industry exports boom since it became the 10th larger wine producer and the 4th wine exporter in the world during this period.

The beginning of the 21st century does not seem so positive for MontGras’ business. Indeed, the oversupply is still the trend of this industry and that may trigger a decrease of wine prices and a disappointing growth of consumption (less than 1% annually by 2006).

On a national scale, many challenges also appeared since the 1990’s. For instance, the Chilean wineries wanted to improve the image of their wine around the world. Therefore, two associations of wine producers, Chilevid and Viñas de Chile were founded in order to create synergies between the different wine producers and reach this common objective.

Last but not least, MontGras has now many competitive advantages. Indeed, it does not suffer from dependency in terms of supply (62% of its grape needs). Then, it offers wines ranked through two marketing positions: the Reserva and Varietals. Thanks to this diversified offer, it is able to plan several strategies.

This company also tries to offer finer wines: it invested about 3$ million dollars in its Niquen hill to produce a premium red wine.

Then, is currently following a strong export strategy. It is more particularly well settled in the UK. In effect, MontGras has created a long-term relationship with a particular distributor through a mutual exclusivity agreement. Then, MontGras chose to sell only its “Reserva line” in this market and is now ranked within the 10th larger wine exporters in the UK. Last, the company’s sales are mainly made during promotional campaigns (80% per year).

From now on, the company would like to enter definitively the US market but the regulations are so strict that it is a long process to export there.

This very complicated and uncontrollable environment and its recent shifts are the main origin of MontGras’s current problems as well in a long-term as in a short-term perspective.

Consequently, we will detailed all the issues and their symptoms in the following points.

PROBLEMS AND RELATED SYMPTOMS

MAIN PROBLEM (LONG TERM)

MontGras is currently facing a strong dilemma according to its strategic positioning that induces the following question:

How can MontGras reenter the US wine market after having failed twice in the past and considering the strict regulations of these foreign market?

This problem has obviously to be treated on a long-term perspective.

Entering the US market definitively would be for MontGras the opportunity to achieve its export strategy and boost its profits.

However, some difficulties could impede the entry process.

First, the company has already suffered from two failures in the past to develop its business in the US. That’s why it must be very cautious if it wants to succeed this time.

Then, the US wine market is strictly regulated: an exporter has to follow a three-tier distribution process including a state-licensed wholesaler and a state-licensed retailer. Thus, the timing of entry can be very long and the existence of so many intermediaries must affect the producer’s margins. Consequently, MontGras has to face the main disadvantages of this compulsory indirect export process.

In 2001, Middleton hired a consultant to help him in finding a good US partner. This symptom proves that MontGras does not know which entry strategy choose. In addition, the first past failure was related to a lower-price strategy and the last was a more focused on selling fine wines. This makes even more difficult the decision for Middleton because on this market, both strategies can easily fail. Thanks to this consultant, MontGras started negotiations with two American importers: World Wine Importer which can offer a lower-price position and Cabo, mainly focused on the Chilean’s quality wines. Nevertheless, the decision-making process is going to be very long because of the previous failures.

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