Alexis Solis Cancino

Global Strategy

000130502

THE THIRD WINE CAN IT SELL LIKE A SECOND?

1. Introduction
Chteau Margaux, one of most important estates in the Bordeaux
Medoc wine region (France), faces a decision of the most utmost importance
for the wine company. Up until now, the company sold two batches of wines,
a first wine whose retail price often exceeded $1000 a bottle, and a second
wine whose retail price often exceeded $200 a bottle. Since the 2009 first
two batches were amazingly good, the owner, Corinne Mentzelopoulos
wondered if the third one could be sold as a great wine by itself. But this was
not an easy accomplishment. Launching a new third wine made from the
estate's production meant a significant amount of work and innovation. They
needed to think outside the chteau box.

2. Problem Statement
Instead of selling the third wine to other wine merchants by bulk,
making the third wine one of the companys main products could mean a
greater amount of revenue and making a greater number of customers loyal
to the brand. However, it the third wine was to be a product, several
questions had to be answered such as: What should be its brand image
relative to the chteaus first and second wine? What price should the
consumer expect to pay for a bottle? How was supply going to behave
throughout the years and could it be matched with demand?
What
investments and new costs this project represented for the company? One
critical point to take into consideration was the France and the so called Old
World countries were losing wine market share to the New World countries
such as New Zealand, Argentina, Australia and South Africa. This was
concerning, since connoisseurs and sommeliers would turn to these new
products instead of the old fashioned ones.

3. Analysis
3.1 The wine market - let us talk economics.
In the year of 2013, the wine industry made around $105-110 billion in
revenues per annum with an estimated production of 30 billion bottles
worldwide. Since few entry barriers existed to get into the wine industry,
1

Alexis Solis Cancino

Global Strategy

000130502

competition was aggressive. Although almost all wine was produced in

Europe, mainly from France and Italy, this was quickly changing; the industry
was getting new players into the field such as Chile and Argentina in America
and few others in other continents. This excess in demand forced many wine
producers to lower prices or even to exit the business. In terms of demand,
the conditions were quite similar: demand was larger in Europe but was
eroding slowly, meanwhile, it was gaining momentum in other parts of the
globe, mainly in the U.S. and China.
Wine consumers could be easily identified by their various
demographics. Drinkers tend to be older and have higher income, greater
education levels and oddly enough, the great majority were female. Fine
wine consumers, which are the companys main clients, often are divided
into luxury consumers and connoisseurs. The former lacked any
knowledge of wines and their decisions were based on recommendations or
the search for a portrayal of wealth. The latter had a high amount of
knowledge and could tell a good wine from a bad wine with ease.
The industry developed an interesting phenomenon. Independent wine
tasters who made newsletters or published their reviews along with their
rating had enormous power in the industry. They could make a wine have an
enormous success with one good review or crush another with a bad one.
Thus, getting good reviews became an important matter for getting sales
going.

3.3 Differentiation is Chteau Margauxs third wine a winner?

According to the case, a great wine comes from the mix of four things: a
grand terroir (land), variety of the grapes and quality of these, a favorable
climate and high-quality work and selection on the grapes. Did this wine had
all of these? Well, coming from Chteau Margaux estate, it certainly did. So
in terms of the taste and more importantly, the experience, this wine had
no problem delivering.

4. Recommendations
So, first of all who should be the main buyers of Corinne
Mentzelopoulos astonishing third wine? I consider that Chteau Margaux
should remain true to its traditional markets and sell the third wine to its core

Alexis Solis Cancino

Global Strategy

000130502

customers. Since this is a product in the experimental phase, so to speak,

it would be better for the company to use distribution channels that it
already knows to perfection.
This leads us to the pricing of the third wine. Since Corinnes main
objective is to regain its old customers which have been out-priced, I
suggest that the price should be around $90 - $100 per bottle to distributors,
so that the final price at retail stores (wineries, etc.) would be around $130 $150 per bottle and around $160 per bottle at restaurants (taking into
account, to some extent, the margins that the case mentions: 30% for
retailers and 60% for restaurants). The managers could play around with the
pricing in order to maintain it similar to its main bechmark: Latours third
wine. This would generate excellent extra revenue to Chteau Margaux
whilst rejuvenating its old customers demand for the wine; which would be
seen as a far cheaper version of the now too expensive first and second
wines, but still an excellent and tasty one that will continue to provide a
great experience. This relates to the brand and the image that Corinne
wants to portray: a high quality wine at an affordable price. All in all, this
could most probably maintain a steady demand for the new product.
In order to start demand going, an important question is the promotion
and advertising that should be employed. The case mentions several
methods, of which, the most appropriate ones appear to be the
ambassador project, recommending it to sommeliers and advertising them
on wine books and articles (such as The Wine Spectator or The Wine
Advocate). The ambassador program seems an excellent choice to sell the
wine in China, which is a very attractive market for its growth in demand. On
the other hand, convincing sommeliers to recommend the product would be
key to getting sales going on restaurants, especially in the United States.
Lastly, wine articles seem to be influential in Europe, so getting Robert Parker
Jr. or James Molesworth to get a great review of the third batch would give
sales a great jump.
Last, but not least is the long run supply. Should this product become
successful, how should Chteau Margaux maintain a steady supply for a
(most likely) growing demand? The case mentions several methods that
range from smoothing out supply to the more radial one: buying
additional land or even an entire estate. Personally, all of these methods are
correct but involve different investment costs and thus a different timing. A
first approach could be smoothing out supply once demand is observed.
Should demand exceed current supply, the company could consider buying

Alexis Solis Cancino

Global Strategy

000130502

additional land. If this proves to be insufficient, then the final step would be
to buy an entire estate and increase supply that way.
As the owners of Chteau Margaux said:
every vintage is like the IPO of a new company We have to decide how
many share to put up and what price.

And so, with their new product they face a most similar situation: they will
have to experiment with how many shares should be sent to the market,
and at what price.