The report’s purpose is to provide a comprehensive analysis of the Kono company’s strategic issues. The total volume sales are growing by 1% annually with a stable upward trend (Euromonitor International, 2020). It increases competitiveness within the wine market between transnational beverage producers and niche local wineries (Euromonitor International, 2020). The tendency for green-labeled products is also prioritized among customers. Due to the COVID-19 pandemic, most companies have faced changes in consumer behavior and decreased wine tourism, being the principal source of marketing.
Regarding competitors’ profile of the wine industry, the market is dominated by global companies such as Pernod Ricard Pacific Holding and Lion – Beer, Wine & Spirits. The prominent driving force is the growing interest in organic wine production (Organic Winegrowing, n.d.). Consequently, it impacts the manufacturing process; vineyards located in an ecologically clean area with soil free from chemicals are considered sustainable (Organic Winegrowing, n.d.). Another trend is the potential recovery of wine tourism after the borders open in 2021. It is advantageous as it brings more customers worldwide and increases the total sales volume.
The Kono company represents the niche wine winemakers, which is a small portion of the country’s overall production. It is a Māori iwi-owned beverage business focused on Māori heritage and following traditions (Emen, n.d.). Value chain analysis reveals the company’s activities that can be optimized, such as export and marketing. Competitive advantage analysis has proved that Kono’s core competency is the quality of production contributing to customer loyalty. According to SWOT analysis, the company’s strengths are its own production, sustainability, own vineyards, and favorable territorial location. Weaknesses are the impossibility of implementing family technologies in mass production, small sales volumes, and a narrow range of products.
Opportunities and threats are presented in the New Zealand wine industry in general. These are benefits of developing sustainable production; in this case, the opportunity for Kono is to maintain its reputation as a high-standard winemaker. Key issues are changes in customers’ behavior due to the coronavirus outbreaks and border closure that affected wine tourism.
Kono is the food and beverage organization of Wakatū Incorporation. One of the markets the company operates is alcohol drinks. The report’s purpose is to analyze the Kono company within the wine industry in New Zealand. The report consists of several parts; the first is the external review, presenting the industry and competitors profile, competitive analysis, and driving forces. The second part of the report outlines the knowledge gained through the research of the Kono case.
The strategic profile of the company examines its features, mission, values, and business strategy. It is followed by the reviews of the value chain and competitive advantage analysis. Finally, according to all information gained, Kono’s key strengths and weaknesses are summarized, combined with the opportunities and threats. It also includes key issues of the company that might be faced in the future.
The analyzed market sector is the wine industry in New Zealand. According to Euromonitor International (2020), in 2019, total volume sales increased by 1%, reaching 103 million liters. The industry is marked by intense competition within several multinational companies and local wineries producing premial beverages and focusing on organic production (Euromonitor International, 2020).
The COVID-19 pandemic has adjusted New Zealand consumer behavior; people prefer to purchase beverages and drink them at home due to lockdowns (New Zealand Winegrowers, 2020). The key customers are collectors, tourists, and experts in agricultural and wine-producing. Although COVID-19 resulted in the closure of the borders, the customer profiles have not been changed significantly due to online purchasing and international shipping.
New Zealand’s wine industry is characterized by intense market competition. The leading actors remain multinationals; nevertheless, the portion of local wine producers increases annually but remains relatively small. The renowned company is the global corporation Pernod Ricard Pacific Holding. The other player is also an international company – Lion Beer, Wine & Spirits (NZ), retaining the second rank (Euromonitor International, 2020). As Kono is popular in a specific group of customers, such companies are not considered large-scale production.
Competitive Analysis (P5F)
The impact of new companies on profits in the sector is minimal; hence, the threat of new entrants is medium. Domestic wine producers are growing, not having an established supply chain network (Euromonitor International, 2020). The power of buyers intensifies competition due to increased requirements for the quality of goods and service level (Lee-Jones, 2020). The bargaining power of suppliers is defined by a shortage of supply in wine grapes (New Zealand Winegrowers, 2020). Concerning substitutes, beer and ciders become customers’ favorable choices and the fastest-growing products within the alcohol industry (Alcoholic Drinks in New Zealand, 2020). Thus, competitive rivalry, the New Zealand market is characterized by the power of multinational winemakers and increased local actors with high product quality as a market advantage.
Driving Forces (From PEST+/PESTLE)
The demand for organic wine production is the first driving force. New Zealand is flourishing in organic and biodynamic winemaking and aims to produce all wines produced in this way by 2025 (Organic Winegrowing, n.d.). Such a trend reflects the green initiatives and society’s values on ecological preservation and a healthy lifestyle. Another trend that affects the wine industry significantly is wine tourism (Jamali et al., 2020). Activities include “cellar door visits, restaurants, winery and vineyard tours, and accommodation” (New Zealand Winegrowers, 2020, p. 8). The forecasts claim that wine tourism will be at the same level in the short term in 2022 (Impact of COVID-19, n.d.). Therefore, the trend may be advantageous for all stakeholders and adjust the wine industry, bringing more clients worldwide after opening borders.
Kono NZ LP (Kono) is an associated business of Wakatū Incorporation. It is a vertically integrated, family-owned Māori food and beverage company (Our Values, n.d.). One of its products is wine; vineyards are located mainly in the sub-regions of Marlborough (Kono Wines, n.d.). The world consumers acknowledge excellent product quality; the pricing strategy is driven by quality, technology, and the company’s mission (Kono Wines, n.d.). The popularity of New Zealand wine is primarily due to favorable soil and climatic conditions (Kono Wines, n.d.). In the Kono case, the traditional technologies of European winemakers have been improved due to green innovations. The distribution of herbicides is controlled; irrigation is monitored (Luzzani et al., 2020). Kono uses areas that have not been previously designed for vine grove (Kono Wines, n.d.). Hence, the company reflects in its wines respect for the land, nature, and tradition.
Concerning inbound logistics, the company’s vineyards are the finest quality producers in South Island in New Zealand. The quality value is added through hand-craft wine production, rare mineral-rich soils, and a coastal climate. Its vineyards are certified as Sustainable Winegrowing New Zealand, providing a competitive advantage regarding multinational wine companies (Kono Wines, n.d.). Operations are all activities aimed at converting incoming flows of resources into finished products: manufacturing, packaging, equipment maintenance, check for defects (Hanson et al., 2017).
The operation and inbound logistics are connected as the company uses its own vineyards. Therefore, these areas are interconnected and provide quality and cost-competitive superiority. Outbound logistics is defined by international partners in nineteen countries worldwide and includes cost advantages for export (Partners, n.d.). These organizations are the retail sailors of alcoholic beverages aimed at the import and supply of wine. Due to the COVID-19 crisis, the amount of online orders has increased.
Marketing and sales refer to all activities that inform buyers about the company’s offers and make it possible to purchase. Regarding small wineries, tasting room facilities are an essential part of marketing strategies (Gómez et al., 2019). Kono’s core competence is production quality referring to business-level strategy. Thus, cellar door visits draw consumers’ attention towards the wine, allowing them to taste and appreciate the quality; the process is beneficial for direct sales and provides a cost advantage (Baird et al., 2018).
Overall, Kono invests in superior quality products and wine tourism. Kono aims to maintain customer loyalty by perceiving sustainability, an essential point of competitive quality advantage (Baird et al., 2018). The company offers premium products; therefore, the price is not low and not available for middle-class customers.
Regarding support activities, infrastructure includes general management, planning, finance, accounting, quality management, and government relations. Human resource management involves the selection, training, development, and motivation of all employees of the organization (Woodfield & Husted, 2017). The commitment is a crucial aspect of the winery’s success (Our People, n.d.). However, non-family employees need to be taught the culture, behavior, and approaches, which might be faced with some disagreements or lack of interest. There is a low turnover of workers as senior managers provide a complete understanding of work culture and mission. For wine production, part of the dairy industry’s equipment and technology is used; it includes cost advantage (Luzzani et al., 2020).
Concerning sustainability, low-volume machines are adopted to decrease the volumes of water distributed in vineyards (Luzzani et al., 2020). At the same time, it increases quality advantage as Kono actively advances costly technologies: thinning, tying vines, cultivating hills (Kono Wines, n.d.). This has a positive effect on product quality and adds value in terms of cost and quality. High-quality standards are ensured by Kono’s policy on avoiding outsourcing its procurement and adopting a qualification policy.
Competitive Advantage (VRIO) Analysis
Kono’s core competence is wine production, as it is fundamental for the company to maintain the image of a family business that offers premium products. Therefore, Kono does not chase large volumes but intends to make high-quality wines; it builds customer loyalty and trust. Regarding temporal competitive advantages (TCA), marketing/sales promote wine tourism and after-sales service, mainly customer support. The company intends to reach minimum environmental pollution; exported wines are registered as passed the appropriate ecological certification. This benefits export due to increased demand for the products of the green economy.
However, this trend is inherent in most of the country’s vineyards; consequently, technologies used to decrease environmental pollution, supplier qualification policy that includes sustainability criteria are competitive parity (CP). Inbound logistics and infrastructure are also considered CP as a wine region has similar advantages for all wine producers such as grape processing equipment, storage tanks, cooling systems. The transportation and logistics infrastructure is also common for all market actors.
Strategic Issues: SW+OT
First, Kono uses its own raw materials; the harvest is gathered from the company’s vineyards. This ensures high-quality products and minimal costs for transporting initial products (Kono Wines, n.d.). Second, this is a favorable location at the top of the South Island in Awatere Valley, Marlborough, and Upper Moutere, Nelson (Kono Wines, n.d.). Third, it is an environmentally friendly product adequate to Sustainable Winegrowing New Zealand (SWNZ) (Kaitiakitanga, n.d.). Concerning weaknesses, these are the difficulty of applying family technology to mass production.
As it was mentioned in VC, due to hand-craft wine production Kono is a niche wine producer in the New Zealand alcoholic beverages market. Consequently, in a competitive market environment, it is challenging to build a strong brand that will become entrenched in the minds of consumers. The third weakness, concluding from production and marketing, is the narrow range of products; the company produces premium wine in small quantities, which is time-consuming.
Concerning opportunities, it concerns the New Zealand wine industry in general regarding VRIO analysis. First, due to the COVID-19 pandemic outbreak outcomes and subsidies from the government, the chance that in 2021, improved grapevine farming would lead to a greater overall average yield per hectare (Lee-Jones, 2020). Second, it is adherence to sustainable production; the standards cover biodiversity, air, water, soil, energy, plant protection, waste management, and social engagement (Baird et al., 2018). Compliance with criteria will help the wine industry to maintain its reputation.
Threats include the pandemic consequences; for instance, the wine industry in New Zealand intends to export products, while the buyer demand abroad is growing. Hence, the uncertainty in 2020 has affected wine consumption among the country’s residents (Lee-Jones, 2020). Consumer behavior has shifted towards purchasing beverages at supermarkets or online and off-license premises to drink at home. Another threat is the declining wine tourism business in New Zealand due to the COVID-19 pandemic outbreak.
Thus, the critical issue for the company is to maintain its competitive advantages by distributing its products in supermarkets and off-license supply channels (Lee-Jones, 2020). Due to the decline of wine tourism, it may be challenging for marketing to promote wines; therefore, it is suggested to develop advertising campaigns online and shift focus on the international market, as the popularity of New Zealand wine is growing.
|Competitor||Geographic Area||Market Share||5-year Trend||Revenue|
|Pernod Ricard Pacific Holding –||Multinational||27.7% (Euromonitor International, 2020)||Increasing share (Euromonitor International, 2020)||€8,448 million (Pernod Ricard, 2020)|
|Lion – Beer, Wine & Spirits||Australia, New Zealand||17.5% (Euromonitor International, 2020)||Increasing share (Euromonitor International, 2020)||$2,731 |
million (Lion – Beer, Wine & Spirits, 2020)
|Treasury Wine Estates||Multinational||12.3% (Euromonitor International, 2020)||Increasing share (Euromonitor International, 2020)||$2,678.2 million (Treasury Wine Estates, 2020)|
|Constellation Brands New Zealand||New Zealand||7.3% (Euromonitor International, 2020)||Increasing share (Euromonitor International, 2020)||$67 million (Constellation Brand, 2020)|
|Kono||New Zealand||0.2% (Euromonitor International, 2020)||Increasing share (Euromonitor International, 2020)||$1.80 million (Kono NZ LP, 2020)|
|Political||The New Zealand government adheres to policy protectionism in the wine industry. The New Zealand Wine Growers Association (NZWGA) promotes wine tourism internationally and domestically (New Zealand Winegrowers, 2020). Therefore, it is considered a strategic preference of the country’s authorities (Euromonitor International, 2020).|
|Restrictive measures due to the COVID-19 pandemic outbreak, the wine production was quarantined, harvesting was suspended (New Zealand Winegrowers, 2020). As a result of negotiations, the government included winemaking in the list of essential industries; however, it continues disrupting the wine industry process (Lee-Jones, 2020).|
|Economic||Due to the lockdown and economic crisis in 2020, the population’s disposable income is declining (Lee-Jones, 2020). There is still a shift to working from home to maintain appropriate coronavirus cases (Euromonitor International, 2020).|
|New Zealand’s government declined to finance local agricultural producers and regulate prices by administrative methods (New Zealand Winegrowers, 2020). It has led to the restructuring of agriculture and a significant increase in farmers’ competitiveness, and increased income (New Zealand Winegrowers, 2020).|
|Sociocultural||A positive attitude towards natural products is growing in society. Customers’ preferences have been changed due to health and wellness trends (Euromonitor International, 2020). Alcohol consumption has decreased due to Millenials’ priorities towards health and wellness (New Zealand Winegrowers, 2020). The demand for organic beverages has been increasing in the industry.|
|As the restrictive measures were taken, the mode of life has also been changed (New Zealand Winegrowers, 2020). The consumers’ preferences shift from after-work drinks and social occasions; at present, more people still maintain the demand, drinking wine at home (Euromonitor International, 2020).|
|Technological||The New Zealand government has declared its plan to invest millions in developing its agricultural sector, including creating an academy for robotics (Baird et al., 2018). The investment is part of the Agritech Industry Transformation Plan (Baird et al., 2018).|
|The development of the technologies will allow New Zealand farmers to double their production (Baird et al., 2018). If wineries have access to the latest advances, the further implementation of technologies will continue (Baird et al., 2018).|
|Ecological||The essential intentions in the wine industry are organic production and sustainability (New Zealand Winegrowers, 2020). This is achieved through organic certification of about one-tenth of winemakers in the country (Euromonitor International, 2020)|
|Climate change is now directly affecting the wine markets due to the increased frequency of weather extremes (New Zealand Winegrowers, 2020). At present, the reality cannot be ignored, as, without direct action to combat climate change, the entire wine industry will be at risk (Ministry for the Environment, 2019).|
|Global||Due to the coronavirus pandemic outbreak, there is a tendency worldwide to close some businesses, restaurants, and bars to prevent infection spread. Residents of the cities are allowed to leave their homes only in case of emergency (New Zealand Winegrowers, 2020). Thus, the cessation of bars and restaurants’ visits affected wineries negatively (New Zealand Winegrowers, 2020).|
Porters 5 Forces Analysis
|Threats of New Entrants: |
|Bargaining Power of Suppliers: ||Competitive Rivalry||Bargaining Power of Buyers |
|Threats of Substitute Products: |
|Government Subsidies due to COVID-19||+||–||–||+||CP|
|Grape Processing Facilities||+||–||–||+||CP|
|Training of New Recruits||+||–||+||+||CP|
|Dairy Industry’s Equipment and Technology||+||–||+||+||CP|
|Minimum Environmental Pollution||+||–||+||+||CP|
|Hand-craft Wine Production||+||+||+||+||SCA|
|Network of International Partners||+||–||–||+||CP|
|Cellar Door Visits||+||+||–||+||TCA|
|After Sales Service|
|own raw materials (vineyards)||impossibility of mass production||greater overall average yield per hectare in 2021||changes in consumer behavior|
|favorable location||no strong brand image in customer perception||maintaining reputation due to sustainable production||declining wine tourism|
|environmentally friendly product||the narrow range of products|
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