Global Wine War 2015: New World Versus Old a Harvard Business School Case Study

Global Wine War 2015: New World Versus Old a Harvard Business School Case Study

        The global wine market today is filled with both Old World and New World producers fighting for their share. The wine market has not always been this way. The 19th century brought many changes in the production and consumption of wine. This paper will discuss the effects of supply and demand on the ever changing global wine market.

        Beginning under the Roman Empire and into the Middle Ages wine made its way into the lives of some and became a symbol of status. During this time the owning and harvesting of a vineyard was very labor intensive and the production amount was very little. Technology, a supply determinate, very quickly found its place in the wine industry. Introduction of horses in the 19th century began to help with more efficient work increasing supply. Transporting wine in bulk was also a challenge. The wine would spoil during transport and not travel well because of the road conditions. Production of glass bottles, cork stoppers and the development of pasteurization was the beginning of the transformation to the global wine market. Additionally throughout time technology advanced even more. Controlled drip irrigation, new trellis systems, fertilizers and pruning methods helped to increase grape yield and also helped improve flavor. Computer-controlled stainless steel tanks began to be used during the fermentation process rather than traditional oak barrels. Lastly the development of the “wine-in-a-box” technology helped save on shipping costs and were proven to be more convenient for consumers. While several of these technological advances broke the Old World traditions they were a proven way to help increase supply, grow the wine industry worldwide and help decrease cost.

Government rules and regulations defined boundaries and set tight standards causing a decrease in supply and increase in factor cost. Included in the factors of production there were major differences in vineyard size. Under the Old World vineyards there was not an abundance of land and the plots would become smaller when they were broken up by the king or lost to inheritance. Land was taken in wars and sold for profit. New World producers had land readily available and it was very inexpensive. Having these larger fields and introducing technology they were able to lower production cost. New World producers, who were not under the European rules and regulations, were able to have much larger vineyards that were producing 213 hectares versus the average of 1.3 hectares in Italy and 7.4 hectares in France. This would increase supply and thus decrease cost. Another effect on supply and demand is the susceptibility of the vineyard to weather and disease. In the late 1800s when an insect devastated the French vineyards production went from 500 million liters of supply to 2 million liters.

        In the New World market bulk wine exports have substantially increased. Because of marketing strategies and the New World knowledge of what consumers and retailers are looking for allowed them the upper hand and forced Old World markets to start competing with prices. Distribution and transportation economics began to evolve as well. Trucking cost rose and container ship rates fell making exporting from Australia and the US more affordable. Australia also became a major exporter to China, shipping its wine in bulk. When wine received in China it was mixed with Chinese wine removing the brand name. This then would mean that wine would be priced at lower prices and would appeal to the consumer.