Case Study on "Frog's Leap Winery Competitive Strategy"

Case Study 4 pages (1178 words) Sources: 0

[EXCERPT] . . . .

Frog Leap

John Williams

Re: Strategy

John

I want to outline some of my strategy ideas for you. Frog Leap has a real opportunity to increase market share over the coming years, but we also have to address some serious problems with the company. I think addressing the debt issue starts with an evaluation of our assets and the real growth opportunities in the market.

Frog's Leap has a few strengths on which to draw upon. The company has all three of sustainable practices, green land and green winery certification. The winery has a healthy size right now, and has an experienced staff that we have retained with forward-thinking HR policies. In addition, the brand is older than many on the market, which helps us when it comes to distribution. There are weaknesses, however. We doubled our land and increased our volume by 5%. That means we have a lot of low-production land. We have a lot of debt and that is going to affect how much money we have to plow back into expansion. Our prices are pretty high, but the most credible reviewers aren't talking about us -- we probably lack buzz. Another weakness is that we really haven't modernized our marketing. We have been too hesitant in embracing the younger, wired consumer and this is allowing other wineries to reach this audience better than we are.

That said, there is a real opportunity with the younger consumer. The current 21-44 demographic is going to drive growth for the next thirty years, and really the younger end of that demographic is much larger than the front end. They have not yet established their drinking preferences, but if the success of microbrews and high-end cocktails is any indication they prefer high quality and are willing to pay for it. The problem is that our industry is intensely competitive -- there are wines as good as our available for half the price, and savvy consumers will recognize that. So our price points are a weakness, and competition is a threat. The economy is also a threat -- in a downturn people switch to Three Buck Chuck, and we see know that Whole Foods has their own version of that. The direct-to-consumer channel is a big opportunity, but the online space is cluttered and there are sometimes issues with selling across state lines. That limits us to competing in California with a few thousand other wineries.

I've identified our price points as an issue. Let's talk about that. As a vertically-integrated company, we face high fixed costs associated with our land, and do not have good control over those costs. So we have limited pricing power over inputs. We have even less bargaining power over buyers. They are educated, price sensitive, have zero switching costs and almost no brand loyalty. The threat of substitutes is very high, not just from other wines but from other drinks. Savvy younger drinkers choose between Frog's Leap, a pint of IPA or some crazy single farm mescal. The threat of new entrants is still high. There are a lot of players in the market, and just when the local production area gets tapped out, Australia, South Africa and Chile start taking our market share. The intensity of rivalry is high, because we all have high stakes and the industry has significant overcapacity. All told, this is not a favorable industry in which to operate.

Core Competencies

Frog's Leap rests a lot of its laurels on the green angle. This has saved the company a… READ MORE

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