Company Background
MontGras is a Chilean-based winemaker considering re-entering the US market and has been presented with a potential deal from Tesbury, a US-based distributor. To make an informed decision, MontGras needs to thoroughly analyze the opportunities and potential pitfalls associated with the Tesbury deal and the US market. A quantitative analysis of the potential opportunities and risks related to re-entering the US market and accepting the Tesbury deal will enable MontGras to make an informed decision.
The Tesbury Deal
The quantitative analysis of the Tesbury deal suggests that the expected extra volumes could significantly benefit MontGras, as it would transform their business in the U.K. and increase their export volumes. Additionally, the promotional campaign would generate a lot of press and in-store exposure and help them become one of the best-known Chilean wines. However, this comes at the expense of undermining their positioning strategy and promoting lower price points, which could have a long-term adverse effect on the brand.
Furthermore, the U.K. distributor would still receive a 10% commission for the promotion volumes, which could limit the overall profits for MontGras (Arnold et al., 2005, p 12). Table (a) below indicates the estimated promotion value, promotion cost, and U.K. distribution commission as £55,000, £100,000, and £5,5000, respectively. This generates a predictable profit for MontGras of £1,095,000. Ultimately, the decision comes down to a trade-off between short-term gains and long-term sustainability.
Table (a): A Presentation of the Tesbury’s Cash Flow.
Cabo vs. World Wine
MontGras has a strong desire to re-enter the US market due to the growth of Chilean wines and their successful reviews by US wine journalists. MontGras has two potential importers, Cabo Imports and World Wine Importers, both of which offer different strategies for success. A quantitative analysis of both options is necessary to determine which is more financially advantageous.
Cabo Imports has proposed a plan to raise the perception of MontGras’s quality to maximize return by creating a “brand champion” who will be the face of the brand and organize tastings and promotions (Arnold et al., 2005, p 13). As Table (b) below indicates, the recommended retail prices range from $7.99 to $14.99, and forecast sales of 25,000 cases in the first year increase to 60,000 cases by year three, with an expected mix of 60% reserves and 40% varietals, plus 1,500 cases of the flagship Ninquén at a $24.99 retail price.
Table (b): A Presentation of the Cabo vs World Wine Importers Analysis.
On the other hand, World Wine Importers propose a value-for-money positioning to compete against Californian wines, recommending retail pricing at $7.99–$10.99 and forecasting volumes of 40,000 cases in the first year rising to 120,000 cases by the third year, with forecast mix of 70% varietals and 30% reserves. From the numbers, World Wine Importers is a more financially advantageous option as they are forecasting a higher volume of sales with a lower retail price. This is a more aggressive approach to capture a larger market share, which could, in turn, lead to higher profits. Cabo Imports, while offering a more creative approach, is predicting lower sales volumes with a higher retail price, which could ultimately be much less profitable. Therefore, MontGras should partner with World Wine Importers.
Recommendation
The Tesbury deal is an attractive option for MontGras to re-enter the US market, as it provides a cost structure that is likely to be lower than that of the domestic industry. By partnering with Cabo, MontGras can leverage its existing competitive advantages, such as its strong reputation for quality and established customer base. Furthermore, Cabo has the resources and infrastructure to deliver MontGras products to US customers while providing an attractive portfolio to complement MontGras’s existing offerings. Additionally, Cabo has the expertise and experience to help MontGras better understand the US market and create an effective marketing strategy.
MontGras can increase its market share in the US without sacrificing its reputation for quality or its established customer base by taking advantage of the Tesbury deal. Furthermore, the cost structure of the Tesbury deal is expected to be less than that of the local industry, allowing MontGras to compete more effectively. Additionally, partnering with Cabo will give MontGras access to the resources and infrastructure necessary to deliver its products to US customers effectively. Combining these two strategies will enable MontGras to re-enter the US market with a competitive cost structure and an approach to maximize market share.
Reference
Arnold D., Stevenson H., De Royere A., (2005). MontGras export strategy for Chile on the winery. Harvard Business School. Pg. 1-30.