Sandlands Vineyards Porter’s Five Forces

To analyze the industry, the use of Porter’s five forces would be appropriate. For the threat of new entrants, it would be around Medium-High. For both segments, there is no switching cost for the consumers. If they want to try another wine, they can freely do so without having to pay specially to switch. For the value segment alone, it would be medium since there is a high amount of capital needed to buy large quantity of grapes for the production, and for the different machineries needed for the transformation. This segment is also profit-focused and the operating margins are low. But for the premium segment, the threat would be at a high level since there is a good amount of capital needed for the purchase of old-vines vineyards, but the potential of higher margin than the value segment is more appealing. Concerning the bargaining power of suppliers, it would be also classified as Medium-High. While there is a good number of suppliers for both the growing and transformation step, the long-term contract means the wineries must commit for a long period of time without switching suppliers. The enormous quantity of wineries looking to outsource a part of the process gives the power to the suppliers to establish the terms of the deals. For the bargaining power of buyers, it would be at a High level. Even if the wineries have the possibility to sell directly to consumers, the best exposure they will get is mainly from selling to distributors and retailers. This is mainly due to the control the best distributors have over the whole market. Using these will mean the wineries will have to sacrifice an important part of their margin. Wines’ threat of substitutes would be Medium for both segments. Starting with the value segment, the only substitutes would be other alcohol beverages used by the average consumer, such as beers and spirits. For the premium category, since a good portion of the wines in this segment are used for celebrating a special occasion or used as a gift, the substitutes would be other potential gifts such as food, flowers, tickets, etc. For the consumers using premium wines for personal consumption, the substitutes are the same as the value segment, which is other alcohol beverages, but the ones in the same price range as high-end wines. For the industry as a whole, the number of competitors is enormous, around 9,000 wineries, but the majority of them (80%) are really small. While the industry may not seem attractive at first due to the high entry costs plus the bargaining power of both suppliers and buyers, the competition between the wineries isn’t high at all. There is no marketing campaign to promote their wines over others, they give the choice to the consumers to decide on what to buy. There is also no problem between organizations on the legal aspect. Everything combined together, this gives an overall medium appeal of the industry.