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Introduction
Demand and supply are important elements in determining the competitiveness of a business. The response to effects and changes by demand and supply determines the organizations’ competitive edge in business.
This paper will highlight the shifts in demand and supply that prevailed in the Global Wine-War between the new and the old wine case study.
Demand determinants in the Wine industry
During the middle time era, wine competition erupted between the Old (Italy, Spain, and France) and New wine producers (the United States, Australia, and Chile).
Some prevailing factors between the new and the old wine producers changed who purchased and what type of wine as desired by the consumers. The factors that affected the type of wine together with who purchased it were the following ones.
Tastes and preferences
The change of the quality and the type of wine greatly influenced the wine market for both old and new producers. From the case study, a blind-tasting activity was carried in France on wines (Bartlett, 2009).
The old producers’ wine dropped by 20% in the international consumption rates. Consumers preferred quality wine produced in the United States, hence high supply.
Due to preference and tastes in wine, there was a shift in the market demand for exports in the old producers’ wine. Therefore, the new producers’ wine was highly preferred by consumers. This aspect boosted he wine’s demand in the global market.
Technology
New world producers embraced new technology in grape growing. Drip irrigation systems were installed, thus reducing vintage variability. In addition, large vineyards used specialized equipments in grape growing that lowered the production cost. New wine producers were in a position to produce quality, cheap, and quantity wines.
In addition, the new producers had the best-preferred packaging and marketing (Bartlett, 2009). The Australians invented the “wine-in-a-box” package that became the most preferred as it saved costs and eased storage.
Additionally, the new producers replaced the cork stoppers with screw caps, which were more susceptible to spoilage, in case of defective corks
Unfortunately, the old wine producers were forbidden to use drip irrigation like in France under the AOC regulations (Bartlett, 2009). Their production was labor-intensive and more expensive as compared to the new wine producers. Therefore, the old wine producers incurred high production costs.
This factor granted the new producers competitiveness and high productivity in the wine production industry.
Cost of production
The new wine producers used highly efficient and novel innovations in their production process. The economic impact of all these innovations in the agricultural industry led to low costs of production.
According to Bartlett (2009), French costs per tonne were 74 % higher than Australian costs, while South American grape growing costs were much lower. The cost of a bottle of wine by the new producers was priced lower than that of the old producers. Consequently, the new producers’ wine was of high quality and cheap in pricing.
Therefore, the demand for the new producers’ wine was higher than that of the old producers (Bartlett, 2009).
Traditions and culture
Traditions and culture affected the demand for wine as depicted in the case study. The new producers incorporated labs for scientific analysis for better wine production. New producers produced a deep-colored and richer-tasting wine. On the contrary, the rules were different in France under the guidance of the AOC policies.
For the new producers, the innovation boosted their market demand in the industry. Unfortunately, Spain was faced with strict industry regulations and complex European Community regulations. The new producers took the advantage and came up with more innovations that out-competed the old producers.
For instance, the old producers used fragmented lands that were scarce, whereas the new producers used large estates with technology, and thus thy ended harvesting twice as their old counterparts. Subsequently, the demand for the new producers remained high and dominant in the wine industry.
Supply determinants in the wine industry
In respect to the case study on the global wine war, factors that affected supply were the following ones.
Technology
The new producers embraced high technology that boosted their quality, quantity, and efficient production. Evidently, the new producers’ wine was high in demand. On the contrary, the old producers’ wine was of low quality, and thus demand declined when the new producers’ wine gained more market acceptance.
The new producers wine kept high consistency in supply due to the good quality/price ratio, which was achieved through technology in production. Meanwhile, the French (old producers) tried to reduce the demand gap through frequent promotions, but they lacked the right knowledge and marketing skills.
Since their production cost was high, the price per bottle was higher than that of the new producers. In contrast, the new producers’ wine was of high quality and affordable, and thus it supplied high volumes to meet the demand.
Government regulations
The old producers faced a challenge arising from the government. For instance, the government set restrictions on the sugar content of the wine. In addition, the rules regarding the entire winemaking process were drafted in the AOC regulations.
The regulations hindered innovations and technology in the winemaking industry, which was embraced by the new producers to out-compete them in the production process. For the new producers, technology was a thriving tool through drip irrigation, thus making sweeter wine and fertilizer applications.
This aspect contributed to quality wine at a much lower costs that kept high demand for their wines in the market.
Production costs
With technology, the new producers incurred fewer costs in production as compared to the old producers. Moreover, the new producers’ prices were much lower with high quality wines. This aspect enabled the new producers’ wines to remain competitive and highly productive in the industry.
However, for the old producers, the production cost was relatively high, hence high prices. Unfortunately, the government forbade technology in irrigation and sugar content in winemaking, which lowered their demand and supply at the same time.
Analysis
The factors affecting demand in this case study include the consumers’ tastes and preferences, government policies, technology, the cost of production, culture, and traditions. These factors affected business entities in different dimensions. Similarly, the factors affecting supply included production costs, government policies, technology, and competition.
For any business entity to survive in the global competitive market, the management should incorporate a quick response mechanism system.
Conclusion
The wine industry has grown due to the competition that existed in its growth stages. A healthy competition contributes to high quality and affordable commodities as seen in the wine war case study. Assuming there was no competition in the wine business, the industry would not have gained popularity in the global market.
The competition in the wine industry led to many agricultural and packaging inventions, which are widely used in the contemporary times.
Reference
Bartlett, C. (2009). Global Wine War 2009: New World versus Old. Harvard Business Review. Web.
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