Rivalry among competitors: Moderate
The degree of rivalry in this industry is the most obvious among all the remaining forces. Strong competition from the new world is restructuring the world’s perception of wine, especially since driving forces has made Wine in affordable prices. The mass production of this once known bourgeoisie alcoholic beverage has taken a new image on the global scale. New consumption and production trends from rivals have shifted the demand and supply curves of this industry to new levels, thus inflicting most damage to French wine.
In Europe, there are a huge number of players with no company having a significant market share. In the new world, there exist large players with significant market share. Companies have tried to differentiate their products using the variety of grape and the geographical region where the grapes are grown.
Bargaining power of suppliers: High
Grape suppliers in the French wine industry are restricted by the extent of the law. This law administers the amount, quality, and transportation method that grape suppliers are required to follow if they need to supply wineries and production facilities. This gives great power to suppliers because they realize the need for their production and can use it as leverage when negotiating grape prices. In addition, raw materials for wine production are cyclical in price, quality, and availability. There are times when high quality grapes can be bought at for low prices due to the surplus in the market, and other times grape varieties and even juice are absent. Small wineries are affected more because they lack the purchasing power to shift prices to their suiting. As a result, the force of suppliers and their bargaining power is relatively strong and cannot be infiltrated with the limited resources that are available. French wineries need to rely on positive relationships and long term contracts with suppliers and producers in order for them to level the uncertainty that accompanies this industry from droughts to other outside factors.
Bargaining power of buyers: High
Overall, buyers have an edge over French wineries due to the availability of an array of options and substitutes, like other alcoholic beverages and spirits. Buyers are trend followers and would submit to the direction the market is headed.
The basic raw material of wine industry is grapes. The quality of wine depends a lot on the quality of grapes. In Europe, the grape farmers had tried to form cooperation to get a bargaining power against the wine manufacturers.
In the new world, however, many wine producers have integrated backwards and have their own vineyards. They try to control the operations right from production to distribution thus reducing supplier’s bargaining power.
Threats of new entrants: Low
The wine business is one that requires a huge investment, a long list of requirements, stipulations, licensing, and a strong knowledge base is also necessary in order to produce high quality wine and understand the density and complications that escort wineries. Though the French market has not been greatly affected by outside competition locally, the biggest threats remain the changes in consumption trends, substitutes, and government rules and regulations that limit drinking. New entrants to the French market are limited in mobility due to the rigid rules and regulations that govern this particular industry.
The wine industry is not capital-intensive, as it does not require heavy machinery and investments. Moreover, the wine production techniques are not patented or difficult to copy. In Europe, governments have made regulations on how the production of wine should be carried out.
Lately, the new world producers are trying to increase entry barriers by operating on large volume and taking advantage of economies of scale.
Threats of substitutes: High
There has been a sharp increase in the consumption of substitutes to wine, like sodas and mineral water due to the strict enforcement of drinking and driving laws, the growing interest in health, and limitation on advertising for alcohol.
Wine has been the preferred alcoholic beverage of the European people. But with the changing taste of younger generation, wine is losing customer share to other drinks.