Marketing wine to the world

There’s more in that glass than meets the eye—or the palate. According to Michael Roberto, important strategic differences have bubbled up between winemakers in Europe and those in the “New World”—the U.S., Australia, South Africa, Chile, and other countries. One of his recent papers, “The Changing Structure of the Global Wine Industry,” won the Best Paper award at the 2003 European Applied Business Research Conference. Roberto recently shared his thoughts on wine for HBS Working Knowledge in an e-mail Q&A.

Manda Salls: Why did you choose to study the wine industry?

Michael Roberto: My parents are Italian immigrants, and my family back in Tuscany and the Campania region of Italy continue to make their own wine. Therefore, I’ve always had an interest in the wine-making process. A few years ago, when teaching the Strategy course in the first year of our MBA program, I had the opportunity to write a new case about Robert Mondavi. As I conducted the research for the case, I became more fascinated with the changes taking place in the industry globally, as well as the marked differences between the industry in the Old World (Europe) and the New World (U.S., Australia, South Africa, Chile, etc.).

Q: What do you see as the major differences between Old World and New World winemakers?

A: The Old World market continues to be highly fragmented. The competitive landscape is filled with many small, privately held wineries, owned and operated by families for years, even centuries. In contrast, the New World has a number of large, publicly held corporations that are beginning to play a substantial role in the marketplace. To put this in perspective, consider the fact that France has over 230,000 wineries, none of which have a significant market share, while four firms account for 75 percent of the Australian market.

Research by my colleagues Jan Rivkin and Tarun Khanna suggests that industry structure can be quite different around the world. The wine industry is a great example of this phenomenon. For instance, consider the power of buyers in the wine industry. Buyer power appears to be higher in the Old World. Consumers are more sophisticated and somewhat more price sensitive in the Old World than in the New World. More sales occur through supermarkets and other off-premise locations in Europe, which would also suggest more buyer power there. In addition, the supermarkets offer private label wines in Europe, while they generally do not in the United States. (The exception is Wal-Mart, which recently introduced a private label wine through an alliance with E&J Gallo.) The branding in the New World also creates more product differentiation, which reduces buyer power. Structural differences suggest that firms need to compete differently as they enter markets around the world. We can perform similar comparisons along other dimensions of industry structure. In each case, the New World looks different from the Old World. These structural differences suggest that firms need to compete differently as they enter markets around the world.

Q: You make the point that it is easier for most of us to understand the type of grape we like (Merlot) than a region in another country (Bordeaux). These regional naming conventions seem like another example of how Old World wines can seem inaccessible to people. How can Old World wines become accessible to inexperienced consumers?

A: Over the past decade, wineries around the world have gone to great lengths to enhance their consumer education efforts. As a result, I think that consumers in the New World are becoming much more knowledgeable about wines. At the same time, I think that New World wineries in countries such as Australia have learned to sell to consumers in the U.S. much more effectively than French vineyards, for instance, because they recognize how to market to consumers who may not be experts on wine. Italian wineries also have begun to develop effective marketing and consumer education efforts for the U.S. market. The French, in particular, have not been as effective; consequently, their export performance has lagged behind other wine-producing nations in recent years.

One final note: I think that American wineries have begun to recognize that the way that they have marketed wine has limited their ability to make wine appealing to a wider audience. As Michael Mondavi has said, “For decades, our industry sent the wrong message, that wine is for special occasions, while the breweries told people that beer is the beverage of every occasion. That’s crazy. In the old country [Italy], wine was a blue-collar beverage, not an elitist, white-collar drink.”

Q: In 2000, Foster’s of Australia bought Beringer Wine Estates of California—just one example of many consolidations in the past decade. Does the rapid consolidation of New World producers make profits at the cost of diversity? Should a beer company own a vineyard?

A: The scope economies across the beer and wine businesses appear fairly small. Certainly, Foster’s can expect some advertising and marketing economies. However, few production economies exist, as the firm produces beer through a standardized, mass production process—far different than the craft of winemaking. The firm cannot distribute beer and wine on the same trucks, as beer kegs need to be refrigerated. Brand-building activities differ as well, as creating and marketing a wine brand typically diverges from the approach used to develop a beer label. Finally, sales force synergies appear minimal, as a single sales force will find it difficult to support both the wine and beer product lines.

Having said that, the Beringer’s deal certainly provides Foster’s with greater distribution clout. Foster’s expects to use Beringer’s strong position in the U.S. to enhance the sales of its Mildara Blass wines there. Furthermore, the company hopes to use its Australian organization to drive Beringer’s sales in that country, and it expects to leverage its international operations to expand Beringer’s presence in other nations.

What troubles me most, though, is that these types of acquisitions appear to involve a great deal of cross-subsidization. Foster’s has chosen to use the cash flow from its stable, profitable beer business to fund an aggressive expansion into the premium wine business. Cross-subsidization (beer to wine in this case) only makes sense if there are sizeable scope economies. Without them, cross-subsidization does not prove optimal, since the capital markets tend to allocate resources more efficiently than corporate managers who are trying to move money from “cash cows” to “growth businesses.”

Q: It sounds like supermarkets and chain stores are starting to dominate wine distribution—Costco is one of the largest wine retailers in the U.S. Is the neighborhood wine shop going the way of the local bookstore?

A: There’s no question that a seismic shift is occurring at the retail and wholesale level. The number of alcoholic beverage wholesalers in the U.S. has decreased by 75 percent since the 1960s. At the retail level, wine sales are increasingly shifting to supermarkets, wholesale clubs, and the like. For instance, Robert Mondavi now sells 10 percent of its wine in unit terms through Costco. These changes in the retail and distribution channels present substantial challenges for wineries, of course, because these powerful players such as Costco have much more clout and bargaining power than small liquor stores. Smaller vineyards often can find it more difficult to secure shelf space, and all wineries find themselves facing pricing pressure from the retail and distribution channels. There’s no question that a seismic shift is occurring at the retail and wholesale level.

While the wineries may not like these changes, and the small retail shops may find the competition daunting, many consumers seem to be benefiting from these changes. After all, they can purchase quality wines at much lower prices, and they benefit from the convenience of being able to purchase wine at the same place that they procure other food and beverage products. So, I guess your view of these changes depends on your position in the marketplace.

Q: Consolidation is often followed by a series of spin-offs and divestitures. Do you see any evidence for this in the future of the wine industry?

A: I think there is a good chance that some of these large firms will divest underperforming wineries eventually. For starters, we know that several large firms have chosen not to participate aggressively in the acquisition spree that has taken place in the industry. They recognize that the scale and scope economies may be limited, and that the merger premiums have become quite high. Moreover, we know that some large distilled spirits companies, who entered the wine market quite aggressively, have begun to encounter problems. They may choose to refocus on their core business.

Q: What other research are you working on?

A: Well, my primary focus is not on industry dynamics. The focus of my research is organizational decision-making processes. At the moment, I’m conducting a large research project in which I’m interviewing thirty-five Harvard Business School alumni, and I’m exploring how they cope with intuitive doubts that emerge as they try to make critical, high-stakes decisions. I’m also working with my colleagues Amy Edmondson and Richard Bohmer on a paper that examines the flawed decision-making that took place during the Columbia space shuttle disaster.

Q: What is your favorite wine?

A: I love wines from Tuscany. Montalcino, Montepulciano, and Chianti wines are favorites.

© 2012 Harvard Business School
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Photo Credit: http://www.kla247.com

“The Silent Disco”

★★ Talent Africa 256 presents the 2nd annual “Silent Disco” on June 18th at Club Le Beaujolais

Date: Saturday June 18th, 2011 – 8:00pm

★ What is a Silent Disco ??

A silent disco, is a simple concept with a spectacular effect; Each person will be provided with a set of wireless headphones upon entry.

>> Two separate DJs will be spinning live and then broadcasting that mix via different dedicated FM channels.
>> YOU the party goer are able to control what you hear, by choosing which DJ you want listen to; through the flick of a switch.

This is an exclusive event and if the turnout last year was anything to go by, this year will be even better!! So purchase your tickets and watch the utterly surreal spectacle that unfolds over the course of the night =)

★ Channel A – Urban/Hip Hop/RnB/Dancehall Music
★ Channel B – House/Electro/Oldies/Pop Music
★ East Africa’s top DJs will be in the building !! It’s going down in a MAJOR WAY!!
★ DJ lineup to be released on Tues, June 7th (Gotta keep y’all in suspense

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★ Ticket Price: 25,000 UGX in advance and 30,000 UGX at the door. (Includes wireless headphone rental and complimentary CMS Beer)

★ Tickets are on sale NOW at Uganda Wines and Spirits (Garden City Location) OR call Talent Africa 256 booking’s team at: 0757 581 696 (Bulk Ticket Purchases).

Check out this video from “Silent Arena” which gives you a better idea of how a silent disco works =) Sooo MUCH FUN!!

The Grape Vine Blog

Was wondering recently, what’s up with the ‘under construction’ Hilton Hotel on Nakasero Hill, which by the way, upon completion will be the highest structure in UG!! After some digging, we managed to get some information and updates on the huge 14-acre site. So, read on about the progress of Uganda’s first, true five star hotel and potential future architectural landmark.

After having been given the green light for construction way back in 2006, the Hilton Hotel Kampala has experienced several delays for numerous reasons; cash shortages, administrative difficulties and sourcing of building materials being cited as the main concerns.

Rumored to have over 270 rooms spread out over 23 floors, as well as host of recreational amenities such as: spa’s, lifestyle bars, ballrooms, pools,  numerous gardens/parks and a shopping arcade – the hotel is highly anticipated in UG and is expected to be opened this year!! (2012)

Here are some more tidbits of information:

• There will be a wide range of high specification indoor/outdoor restaurants and bars as well as Nightclub(s).

• Health spa complete with health-juice bar offering access to: a beauty and relaxation center, fitness studios, squash courts and additional spa and pool areas.

• Guests will enter a dramatic 15 meter high curved glass lobby, set under a futuristic shell which will be bright and spacious with floating balconies.

•  Presidential Suites – offering finely appointed apartments with; panoramic views over Kampala situated in the central tower. These rooms offer private check-in, personal room staff and limousine airport pick-up.

Above, is an artists rendition of the Hilton Hotel Kampala.

Above is an updated picture of the site. For MORE pictures click here OR click here

Kampala Street Names
via: http://theugandan.info/

An informative read!!

According to Universal Primary Education text books, Sheth Allidina Visram Lalji was a prominent Asian trader who set up the first duka (shop) in Kampala. Although factually correct, the brief textbook reference denies full justice to the Asian entrepreneur who set up the first business empire in this region, earning himself the title of “the uncrowned king of East Africa”.

Allidina Visram Street was re-baptized Bokassa Street by President Idi Amin, in remembrance of the much-hyped visit to Uganda by Jean Bedel Bokassa, the self-styled emperor of the Central Republic of Africa.
Ironically Luwum, who Amin killed because he was “an enemy” to his government, replaced Bokassa, Amin’s bosom friend and political idol. The name Bokassa Street almost survived.

According to Mzee Sempewo who worked as a records clerk with KCC for many years, the initial decision was to rename Namirembe Road, leading up to the cathedral, Luwum; it made more religious sense. But some people on the road naming committee were uncomfortable with the idea, something to do with tribal sentiments. As a compromise they settled for Bokassa, which connects directly to Namirembe Road and leads to Namirembe Cathedral.

Some of the street names are linked in a very unlikely way. It would for instance take a lot of imagination to connect Haji Kasule road in Wandegeya, and Bandali Rise in Bugolobi. It would even be harder to believe one was the son of the other.

It all started with Juma Bhagat, a Pakistani trader and missionary, who came to Uganda to preach Islam, and do business. He eventually returned home to Karachi where he passed away, leaving behind his teenage son Sherali Bandali Jaffer, in the care of a bosom friend Haji Musa Kasule, who adopted him. Haji Kasule owned several commercial buildings in Wandegeya, and a fleet of buses.

Like his adopted father, Bandali Jaffer also became a prosperous businessman, setting up Fairway Hotel. He also contributed a lot to the Muslim faith in the country, especially in the area of education.
It was Bandali and the late Ramathan Gava (there is a road named after him in Buziga) who spearheaded the projects to construct Nabisunsa and Kibuli, the first Muslim secondary schools in Uganda. That was in the 1950’s.

Besides giving the country’s history, the street names also give quite an accurate picture of which people, in terms of race, occupied which part of the city.
During the colonial days, the city was basically divided into three residential areas: European, Asian, and African quarters. Then there was Mengo Municipality, which was under Buganda government.

Kololo and Nakasero made up the heart of the European quarters. Here, streets were named after members of: the British royal family, prominent colonial administrators and military officers.  That is where you find names like Prince Charles Drive, Princess Anne Drive, Lugard Road and Queen Mary’s Gardens. Most of the streets in up market Kampala were also given English names, like king George VI Street, Dewinton Road (Major Dewinton), and Colville Road (Col. Colville). The two were British army officers, who played a key role in hunting Bunyoro’s King Kabalega, who had become a thorn in the colonialists’ side.  Even where local names were retained, it was still their English version that would be used. Thus, street names like Impala (Empala), or Acacia (Gasia) were adopted.

Besides afew who lived above dukas in the city centre, the bulk of the Asian community lived in old Kampala. So, many of the streets in Old Kampala bear Asian names such as Delhi Gardens. The most outstanding one is that of Rashid Khamis, another prominent Asian trader with a lot of influence within his community during his time.

Shimoni Road got its name from the large Asian community that lived along it, who were former workers on the East African Railway (Coolies). This particular group of Indians originated from Shimoni Island, located off the East African coast, near Mombasa. Shimoni Demonstration School (which was relocated) was initially set up to specifically serve this community.

Although they were referred to as African quarters, the Naguru and Nakawa estates were actually built by the colonial government, to house low cadre civil servants. These were simply given block numbers, ranked from A to Z, like it is done in a barracks, while the estates were given English and African names.

In Mengo Municipality, the Kabaka did most of the street naming basing on a particular incident that befell him while travelling along  a particular road or street, or on the roads the had cultural significance to the kingdom.
Many of the streets were named after prominent Baganda Chiefs. Sir Apollo Kaggwa is one of them. Others were named after long-time residents (Bataka), or after prominent features that were located along them. Some of the names are real tongue twisters, especially those that were derived from Kiganda proverbs.

This pattern of street names in particular areas was over time disrupted by political and religious sentiments. Stensera Road, named after a Catholic bishop and Albert Cook (Sir) road was named after the Anglican missionary doctor who started Mengo Municipality.

The Pan-African fever that gripped the country soon after independence, and the anti-colonial sentiments that lingered on, started off the street renaming culture, which saw several streets get new names in neighborhoods where they looked misplaced.

Names of people, who were villains by colonial standards, started replacing those considered heroes, by the same standards. The likes of Dedan Kimathi, the Kenyan Mau Mau fighter, who slaughtered scores of white settlers before he was apprehended and hanged, got himself a street named after him, right next to City Hall, the city’s administrative seat.  Nehru Avenue in Nakasero sounded as misplaced as Malcolm X in Kololo.

But it is Amin who perfected the art of street naming. Sometimes he would do it out of delight, as the case was John Akii-Bua. Other times he would do it out of rage, like when he renamed Nkrumah (Salisbury) and Nasser (Rosebury) roads, after falling out with Britain over their foreign policy regarding Zimbabwe (Rhodesia).

Unknown to most Ugandans, Amin was an extremely d3mocratic man, when it came to renaming streets. He would forward a name or names of people he felt deserved to have a street named after them, to the Kampala City Council (KCC) street naming committee, with a directive that they find a suitable street or streets. He rarely specified the street or its location. That was up to the street naming committee and the technocrats to figure out.”

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