Case Study: Sandlands Vineyards

BRYAN KAETZ | LXFM 776 PROFESSOR CANNTA | SU21

SANDLANDS VINEYARDS

Case Study 03

stnetnoC

05

Premium Wine Market

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Evolution of the [Premium] Wine Industry

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Competitive Advantage of Sandlands

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Factors for Sandlands Dis/Advantage

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Sustainable Advantage Reversal

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Strategy Alternatives

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Strategy Statement

PART 1 04 PART 2 11 PART 3 18

It's the dream of many entrepreneurs: Get rich, buy a vineyard, kick back on the porch and relax with a glass of wine. Keep dreaming. Wine is a tough, competitive, and expensive business that's likely harder than your current day job.

Forbes Magazine

PART 1

THE PREMIUM WINE MARKET

- A good place to invest?

- Evolution of the wine industry - Will premium wine remain attractive?

05 07 09

Is the premium wine market an attractive market, or a good place to invest?

1# noitseuQ

There are a number of significant factors to take into consideration when determining whether the premium wine market is a good place to invest. These include the different profit margins between budget and premium wines as less expensive bottles of wine sell more quickly, but the premium wines have a greater margin for the winemaker - at the expense of a reduced level of production.

ANSWER AND EXPLANATION

1# noitseuQ

The premium wine market is a good place to invest.

Due to the higher profit margin allowed the winemaker, the premium wine market Is an attractive and sensible market to Invest In. Despite more limited runs, this market attracts a higher "class" of wine drinker - that of the connoisseur, the lover, and the specialist while only alienating the generalist. This target has no problem paying for this premium experience based on enjoyment, knowledge, and escape.

How is the wine industry likely to evolve?

2# noitseuQ

Similarly to the attractiveness of the premium wine market, there are many factors relating to the evolution of the wine industry as a whole. Trends, as well as regulations, are consistently changing and evolving across all steps of the wine supply chain - including production, distribution, and retailing. More and more producers are getting Into the distribution business. The same goes for retailing, or in this case, direct-toconsumer (DTC) trends as globalization Increases thanks to the ease of online and other direct selling channels.

ANSWER AND EXPLANATION

2# noitseuQ

Distribution as a middle man on the decline.

As evidenced In the case, the need of a 3rd-party (or "middleman") distribution company is gradually decreasing. Citing the 2005 Supreme Court decision of Granholm v. Heald, wine makers are no longer chained to prohibition-era regulations designed to limit the sales of alcohol as a whole. Moving forward, direct selling and shipping to not only retailers, but also consumers themselves, will be the most significant evolution to the current system.

3# noitseuQ

Is making premium wines going to become less or more attractive in the future?

As the supply chain evolves, so too will various consumer tastes and the demand to satisfy those tastes. While lower quality, mass wines will often be preferred by the generalist customer segment as their "Everyday" go-to, premium wines will be of greater demand for the experience of a "Saturday Night" or "Special Occasion."

ANSWER AND EXPLANATION

3# noitseuQ

Premium experiences will continue to be in demand.

Not only will premium wines be in greater demand, so too will the experience and overall atmosphere of a luxury wine event. Premium wine consumers will want all of the explained benefits (including education, entertainment, aesthetics, and escape) for the price they are paying and will certainly may an even greater premium for these benefits. Wine makers will need to provide this full, immersive, and whole experience altogether, making the market ever more attractive in the future.

PART 2

SANDLANDS VINEYARDS

- Sandlands' competitive advantage in premium?

- Factors determining competitive dis/advantage - Sandlands' sustainable advantage or reversal

12 14 16

4# noitseuQ

Does Sandlands have a competitive advantage in the premium wine market?

ANSWER AND EXPLANATION

4# noitseuQ

Sandlands has a significant competitive advantage.

The most important piece of Sandlands' advantage is their ability to market their commitment to the craft of winemaking. From Passalacquas's obvious passion for the art to the excellence inherent in the vineyard's old vines, Sandlands possesses a great foundation to base their business on that sets them apart from other premium winemakers thay may have less expertise and lessspecialized vines.

5# noitseuQ

What factors, or drivers, determine Sandlands’ advantage or disadvantage?

Along with the aforementioned knowledge possessed by founder, Passalacquas, Sandlands has a few other drivers that contribute to its competitive advantage. These include the vineyard's old vines as well as the production of "grapes that have done well in California's past."

"These 50-100-year-old vineyards...are a story in themselves. You don't have to make one up."

ANSWER AND EXPLANATION

5# noitseuQ

Old vines and "forgotten classic" varietals.

Old vine grapes may (or may not, depending on the critic, but overwhelmingly do) provide a better-tasting, and at least varied level of premium wine. This gives Sandlands a differential from most other premium wines.

Finally, Passalacquas's commitment to producing heritage Californian varietals missing from the present day market.

6# noitseuQ

Does Sandlands have a sustainable advantage, or is its disadvantage reversible?

Sustainability can relate to various factors - from the production of the wine to the continued use of old vines and all the way through to the disposal of bottles and effect on the environment. In this case study, sustainability most relates to how likely Sandlands' competitive advantage will allow it to continue to succeed by providing a different experience than that of similar, premium wine makers and vineyards.

ANSWER AND EXPLANATION

6# noitseuQ

Sandlands possesses a sustainable advantage.

The use of old vines, as long as they are maintained well, limits similar competitors's ability to in fact compete. This lack of ability, in part, is attributable to the fact that there are only 6,000 acres of old vines out of the total 600,000 acres of vines in all of California - amounting to only 1% of all vineyards. By owning part of this market, It would be quite nearly impossible for some competitors to do anything similar.

PART 3

STRATEGY & ALTERNATIVES

- What are the alternatives?

- Strategy statement development - Three-fold test of efficacy

19 23 24

8# noitseuQ

Redevelop Eastside Meats into Winery

What should the Passalacquas do:

Buy Another Old Vine Vineyard

Something Else Entirely?

8# noitseuQ

Redevelop Eastside Meats into Winery

"This building fits with everything I do and believe in. It has a link to the past and is an opportunity to make wine in an underappreciated place...I already own a vineyard and have a chance to build a winery." This building would also allow both Kirschenmann Vineyard and Sandlands winery to be managed as a single winery operation.

8# noitseuQ

Buy Another Old Vine Vineyard

"On the other hand, Passalacqua and his wife could save their limited resources with the goal of buying another vineyard. Unfortunately, old vine vineyards did not come up for sale very often and when they did, they were generating more and more interest from winemakers and selling at higher and higher prices."

8# noitseuQ

SUGGESTED SOLUTION:

While saving for another old vine vineyard could be a good choice, in the end, the suggestion would be to develop the old Eastside Meats building into a total winery experience for the connoisseur market that would enjoy a robust and premium experience of this specialized offering. This suggestion is supported by the trends discussed in part one regarding paying for a true, differentiated, and luxury experience from end-to-end.

If you had to write a strategy statement for Sandlands Vineyards, what would it be?

9# noitseuQ

Purchasing the Eastside Meats building with readilyavailable funds, Passalacqua will combine both Kirschenmann Vineyards and Sandlands Winery under one roof with a tasting room experience that also has a great heritage in and of itself. Creating a space for wine tourists to come and try all offerings of both businesses to create a Sandlands-branded, curated experience.

Does it satisfy the threefold test of an effective statement?

01# noitseuQ

ATTRACTIVENESS TEST

How attractive is the new market?

COST OF ENTRY TEST

How expensive is it to enter and operate in the new market?

BETTER OFF TEST

What benefits will the new market create for the company be in a better position?

Attractiveness

Having a physical winery will attract the wine tourism market, giving Sandlands (and Kirschenmann) even

01# noitseuQ

greater presence and potential for profits.

Cost of Entry

Passalacqua and his wife already have the funds to purchase the Eastside Meats building and redevelop it into an under-one-umbrella winery and tasting room.

Profits from operations would more than cover for any and all operating costs.

Better Off

Sandlands Vineyards will certainly benefit from this new market of wine tourists by providing a physical location that will house both businesses under one roof.

Esty, B. C., & Saldutte, G. (2019). Sandlands Vineyards. Harvard Business Review.

Glunz, William. "Granholm v. Heald: The Twenty-First Amendment Takes Another Hit Where Do States Go From Here?, 40 J. Marshall L. Rev. 651." The John Marshall Law Review, vol. 40 (2), Winter 2007. https://repository.law.uic.edu/cgi/viewcontent.cgi?article=1281&context=lawreview

"Introduction to Porter’s Three Tests." Lucidity, 2021, https://getlucidity.com/strategy-resources/introduction-to-porter-s-three-tests/.

Savannah College of Art and Design. (2021). Unit 7: Wine tourism [lecture notes], www.elearning.scad.edu.

Swarbrooke, J. (2018). The meaning of luxury in hospitality, events and tourism.

Oxford, UK: Goodfellows Publishing.

Tran, Peter. "Strategy 3: Corporate Strategy, Diversification, Porter's Three Essential Tests and Synergies." LinkedIn, 27 November 2016. https://www.linkedin.com/pulse/strategy-3-corporate-diversification-porters-threeessential-tran/.

References