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Bonny Doon Vineyards Case Solution
Bonny Doon Vineyard is a reputable, family-owned business in the wine industry that was founded by Randall Grahm in 1983 in California, United States of America. Over the years, the winery firm has outdone itself in terms of quality and variety and these have primarily, become some of the main reasons for its massive growth and success in the industry.
However, to continue to enjoy these economies of scale and sustain its growth in the industry, Randall must make a strategic decision. Under Bonny Doon's competencies, financial outlook, and vision and mission, the firm must choose its next best business strategy out of the three alternatives, at hand: initiating a retail outlet under its brand name, import and making further European wines through enlarging the EuroDoon, and further expanding D.E.W.N. that is, Distinctive Esoteric Wine Network (Hillman, Glasgow and Keim 2000).
Following questions are answered in this case study solution:
Current Position in the Market
Analysis of Current Expansion Options
Case Study Questions Answers
2. Industry Analysis
With over 90% of wine production coming from California, the winery is now a $33 billion industry in California. This approximately means that three out of four wine bottles being sold in the country are produced in California. This not only involves direct sales but also includes direct and indirect revenue generated from growing and harvesting the grapes, furnishing the vineyards with the necessary equipment and machinery, and distributing the final product to the said wholesalers and retailers (Dietel 2000).
Although the US wine market has grown gradually over the years, it is still relatively small when compared to the French and Italian markets and their larger market share around the world has helped them in bagging the prestige and popularity of being luxurious wine-makers. This fierce competition posed a great challenge for the US and ultimately, California wine-makers to sustain its position in the global market but California’s weather provided an added advantage to the wine producers in the region (see Appendix C). The Mediterranean-like climate of the region with warm and sunny summers and mild winters provide wineries with ripe flavours of fruits ranging from mangoes and bananas to grapes and thus, protect them from frost or decay (Benjamin and Podolny 1999).
3. Current Position in the Market
With the help of Grahm’s philosophical take on being organic and tasty simultaneously, Bonny Doon was able to attain a unique positioning in the market of being an unorthodox winery firm. The firm’s wine production was based upon the tactic of ‘ugly duckling’, which when used her, refers to producing wines from unpopular grape varietals and thus, creating different blends from it. To complement its unique production tactics, the firm used ’funny’ labelling slogans to name its wines and thus, grab the attention of its customers. It can also be rightfully deduced that the majority of the firm's success is largely associated with its uncommon selection of wine varieties and its out-of-the-ordinary label designs (Jenster, et al. 2008).
However, currently, Bonny Doon is faced with the difficulty of the reduced number of substantial vineyards thus making the firm highly dependent and simultaneously, vulnerable to growers. Considering that the company sells its wine to around 15 countries through 80 distributors and ultimately, has to source from more than 15 growers to meet this demand, it has found itself in a large distribution network that might create some hassles for it in the future (See Appendix B).
3.1. Distinctive Competencies
Unlike other conventional winery firms which generally price their wines expensively simply because wines are considered a luxurious product, Bonny Doon has done the quite opposite. The firm has priced its wines quite economically ($10 for Big House Red), making it financially possible for people from almost every class to become its customer. This is also congruent with Grahm’s mission of providing high value to its customers, rather than just following the path of other firms. It is evident from Bonny Doon’s pricing strategy that the company primarily aimed for quality benchmarks and a greater share in the market, rather than gaining pricing advantages. Unsurprisingly, the company successfully grew from 5000 cases yearly in 1981 to 200,000 cases in 1999 (Hillman, Glasgow and Keim 2000). In addition to this, Randall Grahm himself is known for his innovative abilities in not only wine production but also technological skills. His expertise in microbiology and biodiversity provides a competitive edge to Bonny Doon's unique wines. (See Appendix A and D)
3.2. Financial Stability
Over the past few quarters, Bonny Doon has witnessed a declining trend in its net profit margins, despite the increase in sales and sales volumes. This may be because of the increasing tax bracket levied by the government or increasing interest expense due to economic instability in the country. However, a steady increase in the company's cash and total assets shows a positive outlook for Bonny Doon.
4. Analysis of Current Expansion Options
Although Bonny Doon has become a well-reputed firm in the wine industry, Grahm must opt for a strategically optimal decision of diversification to save the company from saturation, which ultimately leads to a decline. Not only that, but rising competition has made it mandatory for Bonny Doon to choose a path of future growth and profit.
4.1. Expanding the EuroDoon
EuroDoon is an amalgamation of European and Bonny Doon, clearly depicting that the firm would pursue importing and making more European wines. This can happen with the help of a virtual partnership between Bonny Doon and a winery in Perugia, Italy, where production would be done in the vineyard of Italy and technological aid would be provided by Bonny Doon. Although it is a conventional strategy used before by the company, where the business model is kept intact but production facilities and techniques have been changed.
This option has its pros and cons. When analysing the former side, it is evident that since it is a tried and tested situation for Bonny Doon, the company would not have serious challenges in the whole process from production to distribution. In addition to that, since these business transactions would be done with a European wine-maker in Italy, new information and ideas would be directed towards the firm (Roach 2011). These ideas and transfer of knowledge can prove to be a significant asset in the long run for Bonny Doon.
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