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Spanish Vine Case Analysis – Part 1

Spanish Vine Case Analysis – Part 1

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Executive Summary

Spanish Vines was started by the youthful entrepreneur Josh Hackler. The company made its first sale of assorted wines into the United States market in 2009 and ever since, it has enjoyed significant growth with distribution in eight states while many more have already been identified for future expansion. A trade agreement between Colombia and the European Union (EU) eliminated tax on all European wine imports into Colombia and this was an opportunity for Spanish Vines to enter the Colombian market. The high quality of Spanish Vines wine, coupled with the high affinity for Spanish culture in Colombia, gives the brand a competitive advantage in this market. This represents an opportunity for growth and expansion of the brand. The report seeks to examine the case study of the Spanish Vines and determine if the Colombian market was the right strategy for Hackler to expand his business. The specific objectives of the report are: (i) to establish if Hackler should launch with house brands, partner brands, or both; (ii) to investigate the message and media Hackler could use to convey the Spanish Vines story; (iii) to establish success factors for export-import business venture into Latin America; and (iv) to recommend solutions to the problems linked with Spanish Vines on its quest to expand its operations. To do so, the report makes use of various marketing models, including the 4Ps, PESTEL analysis, and SWOT analysis. To enter the competitive Colombian MARKET, Spanish Vines should focus on differentiation and focus strategy, in addition to considering a joint venture as its mode of entry. Based on the research findings of the report, it emerges that seizing the opportunity to enter into the Colombian market was the right decision by Spanish Vines. This is because Colombia is stable both economically and politically, not to mention that the Colombians have a high affinity for Spanish culture and by extension, Spanish wines.

 

Chapter One: Introduction to the Case Study

The report is based on the Spanish Vines, which was initiated by youthful entrepreneur Josh Hackler. In 2009, Hackler made the first sale of Spanish wines in the United States (U.S.), and the company has been thriving ever since. The business was based on a house market strategy that has over the years proved successful, given the phenomenon growth the company is enjoying. From the case study provided, it emerges how Hackler saw an opportunity to expand his business into Colombia and supply Spanish Wine (Roth and Turpin, 2013). In 2012 Spanish Vines was in a position to secure its first distribution into eight states in the U.S and the District of Columbia. The Spanish Wine has been so popular in the United States following its success in the eight states where it is already being distributed that there are now many more states waiting for the supply of the same product. The home market strategy adopted by Spanish Vines has been very successful and has been replicated in all the foreign markets where the company now has a presence. As a result, the company has had the opportunity to continue building its brand.

In 2012, Colombia entered into a trade agreement with the European Union (EU) that among other things, proposed the elimination of the value-added tax on European wines when these were imported into Colombia (Roth and Turpin, 2013). To Hackler, this was a lifetime business opportunity for expansion and being an early mover into Colombia. The company planned on how it would execute effective entry strategies into the Colombian market. Although Chilean and Argentinean Wines are already present in the Colombian Market, they are of low cost and low quality in comparison with the Spanish Vines brand. Consequently, being in possession of a superior brand has proved to be a competitive advantage for Spanish Vines. On the other hand, Hacker’s Spanish wines are of high quality, and given the high affinity for the Spanish Culture by the Colombians, this would provide an opportunity to position the wines as high-value, and high-quality caches. However, Hackler questions the attractiveness of the Columbian Wine market and the most suitable way for Spanish Vines to target customers. The focus of this report is four-fold. First, the report seeks to explore the attractiveness of the foreign market. Secondly, the report endeavours to examine the various challenges faced by small, entrepreneurial businesses as they seek to establish their brands. Third, an attempt shall be made to determine the strengths and drawbacks of export-import business models. Finally, the report examines the message and media communications challenges experienced when launching a new brand in new markets.

 

Statement of the Problem

Since its inception, the Spanish Vines’ operations have been for the most part, successful. In addition, the company has been experiencing phenomenal growth in the various markets where it operates. For example, by the end of 2012, Spanish Vines was already selling ten different wines under six unique labels, which were all company-owned brands (Roth and Turpin, 2013). In addition, the company has sold more than 1,000 accounts in eight states in the U.S. and the District of Columbia.  Besides, Spanish Vines is already targeting eleven more states whose market it seeks to tap into, while the company has also identified thirteen other States where it would want to have a future presence. Upon achievement of these future goals, Spanish Wines will have covered a footprint composed of 94 percent of the wine-consuming population.  On the other hand, the distribution of alcoholic drinks in the U.S. is under the regulation of individual state governments, and this could be a real challenge for Spanish Vines to comply with the various unique regulations and rules of each of the states that the company has an interest in.

Moreover, Spanish Vines seeks to expand its operations, by entering into the Colombian market and go to ensure the growth of the company (Roth and Turpin, 2013). This could be necessitated by the trade agreement between the European Union and Colombia that is associated with concession in value-added tax and tax benefits. As such, Spanish Vines would be in a position to make an early entry into the Columbia market and as a result, enjoy those benefits from the trade agreements. However, small companies such as Spanish Wines face a challenge when entering new markets. This is because small companies have limited coverage in terms of knowledge about a brand by the targeted customer. Spanish Vines uses house brands over company-owned brands because it can create more value. Nonetheless, a small and new brand is not effective in nature because it is not well-known in the market.  In its efforts to enter the new market, Spanish Vines must establish the most effective market entry strategy, how to communicate and be recognized in the market, how to ensure that people are aware of their new products, and the methods to be used to advertise the products to the customers.

Research Aims and Objectives

The aim of this report is to explore the case study of the Spanish Vines and establish whether the Columbian Opportunity was the right one for Hackler to expand the business in the new market. Specifically, the purpose of the report was to focus on the problems faced by Spanish Vines and to provide solutions.  Different models have been used for the analysis and to make a conclusion on whether the decision to expand to Columbia is viable. For the marketing model, the 4Ps model which is composed of segmentation, targeting, and positioning approaches was also used. SWOT analysis, PESTEL analysis, and other strategic approaches were used such as Porter’s five forces model and competitive strategy were used to evaluate international marketing.

To realize this aim, the objectives of the study are to:

  1. Establish if Hackler should launch with house brands, partner brands, or both.
  2. Investigate the message and media Hackler could he use to convey the Spanish Vines story.
  3. Establish success factors for export-import business venture into Latin America
  4. Recommend solutions to the problems linked with Spanish Vines in its quest to expand its operations.

Structure of the Rest of the Report

Chapter two provides a case brief which gives a description of the situation, chapter three is the statement of the problems in the case, and it identifies resources/ techniques helpful for analyzing the case study, the concepts, theories, models, and research relevant to the case, proposed plan of analysis, and sources of data used.  Chapter four is the analysis of findings, while chapter five provides the proposed solution to the problem, recommendation to the organization, limitations of the study, and scope for further research.

Chapter Two: Case brief: Description of the situation    

The global vine industry in which Spanish Vines operations has reached its maturity level. For example, within the last 5 years, the entire industry growth slowed down relatively, and the number of retailers also decreased significantly.  On the other hand, large retailers in the wine industry resulted to consolidated their products, in order to remain competitive in the industry (Roth and Turpin, 2013). A technological segment of the wine industry has reached its saturation point accompanied by optimal demand for wine products. Spanish Vine plans to expand its operations in Columbia, but the issue is how to tap into the Colombian market successfully. The top management of the company plans to develop an effective strategy to be successful in the Colombian market. In the wine, spirits, and beer industry, it is hard for small wineries to secure retail distribution in major supermarkets as well as in other high-volume outlets.   Hackler (2008) stated, “We will be actively seeking distributors that can get our products onto store shelves in the states of Florida, Georgia, and New York, in particular” (p. 1).  The expansion, supported by new product offerings as well as the constantly growing online community for Spanish culture, is an opportunity for Spanish Vines to become a leading national U.S. beverage brand and ethnic food.

Spain is one of the largest as well as fast-growing wine exporters in the world. This is as a result of falling domestic consumption. Thus, Spanish Vine has the potential to export wines to the U.S. and other markets, which is an opportunity for the company. In addition, “Spanish Wines sales were growing in the U.S., reaching $ 250 million in 2011, with double-digit growth expected over the next five years” (Roth and Turpin, 2013, p. 5).

There are positives and negatives associated with Spanish Vines, and they have been described based on SWOT analysis. For example, in 2012, wines that were subjected to 20 to 25% VAT in Columbia became tax-exempted. For instance, a 2012 free trade agreement between the EU and Columbia and Peru resulted in tax exemption. This is a strength for the company because it has been provided with the opportunity to expand to new markets. Additionally, this would ensure that Spanish Vines exports its wines to the EU region. According to the European Commission release, the tax exemption would increase the predictability and stability of the trading environment (Andean Countries, 2012).  The elimination of the VAT has made the importation of EU products into Columbia more attractive economically.

Spanish Vines has a variety of wines such as the Canals Canals, Cinco Josés, Vina Broco, Encender, Amarte Mass, and Aderezo. Such a brand portfolio is a strength for the company. Moreover, Spain is popular in the production of wine and people such as those in Columbia have developed the need for Spanish Wines. The Spanish Vines is exposed to a variety of wineries in the region which are diverse in nature in terms of quality of grapes and wines.   Roth and Turpin (2013) pointed out that Spanish foods tend to be incredible, and this is an advantage to Spanish Vines. This same idea is also applicable to Spanish wines.   Thus, the Spanish Vines has gained an advantage because the consumers prefer diversity and quality wines.

The other strength of Spanish Vines is that the company does not have any inventories. For example, although Spanish Vines owns its wines, the company works with the local Spanish producers to bottle the wines. Thus, 90% of the Spanish Vines’ wines are its own brands, which gives the company control over its products (Roth and Turpin, 2013). Also, Spanish Vines have been able to manage a portfolio of brands that are of quality levels. Thus, exceptionally high quality as well as a huge diversity of wines increases the popularity of Spanish wines in both local and global markets.  This has served as an added advantage to the wine producers in Spain.

The other strength, Spanish Vines operates a “Just in time” distribution model when distributing its products to the U.S. market. This is an advantage because Just in time (JIT) when used enables a company to manage the stock and ensures that goods are supplied to the customers when they are required, instead of carrying a large inventory (Ríos-Mercado, & Ríos-Solís, 2012). This has been a cost-effective approach capable of reducing operations costs. In addition, Spanish Vines did not require warehouses for storing products it does not require. Subsequently, this resulted in a faster turnaround of stock thus preventing damage to goods and reducing waste. This also saves money because it prevents unnecessary investment in stock, and reduces the need to replace old stock.

In spite of these positive findings, Spanish Vines have been associated with some shortcomings. For example, the company has not established how to effectively communicate its brand message to the targeted Colombian customers. This is because the company does not understand the consumer attitudes and opinions towards wine consumption. The second weakness is that Spanish Vines does not have a well-established distribution network for its products outside the U.S. As such, the company requires capital to establish a distribution channel.  Thus, the top management of Spanish Vines is not able to identify the optimal distribution channel via which the company must distribute its wines effectively and efficiently. From the case study, this is a challenge because the top management of the Spanish Vines was unable to decide on whether to sell its wines via small retailers or through hyperstores. Third, Spanish lacks information related to the identification and evaluation of the current competitors in the Colombian wine market. This limits the company in terms of adopting strategies that can be used to counter competitors and gain a competitive advantage and market share. Fifth, Hackler has not been able to establish whether to use its house brands (owned brands) or partner with other brands in Colombia. As such, the Spanish Vines must make a decision on the most appropriate approach to use when entering the Colombian Market.

 

 

References

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Department for International Trade. (2015) Doing business in Colombia: Colombia trade and export guide. [Online]

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Hackler, J. (2008). Spanish Vines, Inc. Launches New Online Community Celebrating Spanish Culture. [Online]

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Ríos-Mercado, R. Z., & Ríos-Solís, Y. A. (2012). Just-in-time systems. New York, NY: Springer.

Roth, M., &Turpin, D. (2013) Spanish Vines: Colombian Market Entry. Darla Moore School of Business

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