Inniskillin Company Breakdown

Inniskillin was formed in 1975 by Donald J.P. Ziraldo and Karl .J Kaiser in Canada. Inniskillin is known worldwide for its production of Icewine and has also earned recognition through awards like ‘Star product of the year’ award in 2004 at the Frontier Awards ceremony. After the management buyout and the merger with T.G Bright, Inniskillin changed its name to Vincor International. Inc and will be further referred as Vincor. The Icewine is an alcoholic dessert wine produced using the frozen grapes in the vineyard. The success of the Vincor can be attributed towards the success of the dessert wine. The popularity of Vincor and the Inniskillin having achieved global reorganization fell a victim for Constellation’s (the world’s largest wine company) hostile bid of $944 million in October 2005 but the bid did not go through as Vincor could not get two-third of the shareholders to support the bid. This report helps understand the factors that helped Inniskillin gain success in Canada, evaluates the global marketing strategy, examine the global market potential and finally recommends the global market Inniskillin should look at with the marketing plan that can be adopted by Inniskillin (Vincor).

Success of Inniskillin

The success of Inniskillin can be looked at by understanding the factors that led the company to achieve the status. We can use PEST analysis as shown in table 1 in to understand the environmental factors that paved the way.

Political:

Canada has strict regulation regarding the manufacturing and sales of liquor. Inniskillin became the first Ontario winery to be granted license since 1929 by the LCBO. By 1988 the Free Trade Agreement (FTA) was signed between the U.S and Canada which led to the formation of led to the formation of Vintners Quality Alliance (VQA) by Ontario and British Columbia governments to improve the standards of the wine produced. VQA helped Inniskillin to gain recognition for the quality of wine and along with Andres wines were accounting for 29% of Canadian wine consumption and over 75% of the wine production. Thus Inniskillin established itself as a premium wine producer. The prohibition for issuing license which lasted for nearly 40 years in Canada resulted in consolidation of wineries to six in 1974 from 61 during 1927. Since no new license was issued the bigger wineries bought license from the smaller one to grow in size. This also helped Inniskillin as it had to face competition from just six companies compared to what it would have faced otherwise. Taking advantage of the clause in the North American Free Trade Agreement (NAFTA) allowed Vincor to run 165 of its own shops. The “three-tier” system developed by the lawmakers made sure that the strong supplier-retailer relationship was reduced and the introduction of wholesalers implied that the smaller retailers could successfully compete in the market place and Inniskillin reached greater market space with the help of small retailers. In general, most or all of the political factors had helped Inniskillin to establish its brand in the Canadian market.

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Economical:

The making of Icewine involved a lot of process and required a lot more yield to produce a bottle of grape wine compared to that of a table wine resulting in higher cost of production was more and an increase in the profit margin. Inniskillin being present in the part of Canada where the temperatures hit rock bottom almost every winter enjoyed the presence of appropriate climatic conditions to grow grapes and allow the same to freeze naturally and Inniskillin enchased on the greater profit margin. In 1996 Vincor acquired Dumont Vins et Spritueux and Okanagan vineyards, went public and became listed in the Toronto Stock Exchange. Vincor continued the consolidation of the Canadian wine industry and with 13 acquisitions between 1986 and 2004 Vincor became largest wine group in Canada.

Social:

Growing demand for wine was closely followed by the increase in the house hold income level. This resulted in more spending power of the consumers and consumers were interested in buying expensive dessert Icewine. The domestic wine consumption in Canada was around 7.9 liters per capita per annum compared to 50 liters in countries like France, Italy, Spain and Portugal. There was a clear shift in the customer preference and the increased customer knowledge on health meant that customer wanted the consume alcohol with had less alcohol content. The move of customers towards the healthier lifestyle and the research showing wine drinking was better that other alcoholic spirits and the growing popularity of Canadian wine provided Inniskillin a greater advantage to gain the market share held by other spirits. It was clear that there was a great potential for Inniskillin to grow in Canada

Technology:

The use of technology like Brix scale to determine the quality of the product resulted in Inniskillin offering the best quality Icewine. Due to technology advancement Icewine could be produced by harvesting the grapes even before it is frozen naturally. This helped in production of higher quantity of Icewine. Many countries like Australia and New Zealand adapted this in order to increase the production. In order to differentiate the quality of wine produced with natural freezing of the grapes the VQA regulatory termed the production of Icewine with the use of naturally frozen grapes as “Authentic Icewine” and the other as “Artificial or Synthetic Icewine” helping Inniskillin to promote the product at a premium prize and differentiate from other products.

Thus with the help of the regulation, political activities, the location of the vineyard, the social aspects and the acquisitions, Inniskillin became the largest wine producer in Canada by 2004.

Marketing Strategy

Initial days

Canada’s wine industry was underdeveloped in the initial days until 1980 because of prohibition on production of spirits which resulted in larger wineries buying licenses from smaller wineries to produce wine and grow in size. Inniskillin being the first company to get license to produce wine since 1929 had established the company and became the largest wine producer by in Canada by 2004. But Vincor had no international presence till 1998 though the Icewine was liked by most of the international tourists who visited Canada.

In 1996, Roger Provost joined the newly formed International division of Vincor International Inc with the challenge of making the Canadian brand to a global brand. Canadian wine was not the first wine that came to the minds of wine drinkers and it was a challenge for Mr. Provost to make Inniskillin’s presence felt in the global market. During the process, table wine and cider were looked at the first option to go global but was later turned down since Canada was not a strong contender in the wine producing nations and exporting cider meant a very low margin for Vincor. Finally it was decided that Icewine would be the option that should be considered as it produced higher margin and had the potential to generate better profit. During the research Provost found that Inniskillin Icewine had grown popularity among the Japanese tourists and decided to target the Japanese Customer as the first International expansion strategy.

Targeting Japanese Customers

The research showed that around 35,000 Japanese tourists went through the Inniskillin’s Niagara Winery cellar store and purchased almost all the stock of Icewine. The Japanese were known as high spending customer on luxury brands in the duty free stores and were also very loyal to the Icewine produced by Inniskillin. Inniskillin had acquired a status among the Japanese tourists. In order to popularize the product among Japanese coming to Canada, Provost decided to advertise the brand in Japan but decided not sell in the Japan. He made the Icewine available only in duty free shops and that became the initial strategy for pursuing the global travel retail channel as part of their distribution network. For expansion into the Asia Pacific region, Duty free Shoppers Group (DFS) was identified as the key retailers.

Expansion using Duty Free Shoppers Group (DFS) and beyond

The DFS group was established in 1960 which sold luxury brand goods through the duty free stores. The DFS group had their major presence in Asia Pacific region with majority outlets in airports, resorts and major downtown centers. This was the best option available for Inniskillin to expand the business internationally. DFS demanded a margin of around 50% plus and hence the existing price of Icewine had to be increased in order to be more profitable for Vincor. In order to increase the price, Vincor concentrated on developing high quality Icewine (Vidal Gold Icewine) and was placed at Manufacturer’s Suggested Retail Price of US $65. Vincor spent millions of dollars on educating about the Inniskillin brand across Asia Pacific. The retailers were trained and educated on wine tasting and high performance displays were installed in major duty free shops. At high traffic outlets, dedicated personnel were recruited to add new customers.

In 1998 the first order was made by DFS for Inniskillin Icewine for their duty free shop in Singapore’s Changi international airport. DFS classified Inniskillin Icewine as entry level “select product” and expanded the presence in the airports across Guam and Hawaii. Provost made sure that the price of the product was same worldwide and even pulled the products from one of the retailers when he realized that the retailer was selling at discounted price. This was very important to make sure that the brand image is maintained. The increase in sales and profit for DFS meant that Inniskillin wine was upgraded to the status of “key item” and by 2001 it was listed as “core item”. Core item meant only one product would represent one category and DFS started to advertize the product along with Vincor resulting in sales of thousands of Inniskillin wines per year by 2005.

With the success on DFS group other duty free operators should interest in selling the Icewine. In order to expand and satisfy all the major international travel operators and not to spoil the relationship with the DFS group, Vincor created entry level and ultra premium Icewine that can be used to distribute through all the retailers and new “reserve line” Icewines for sales at DFS stores at different price bands ranging from US $40 to US $125. By 2004 Vincor produced more than a dozen different brands of Icewine and 33% of the wine produce in Canada was exported to duty free stores.

Expanding in United States

Along with expanding the market in Asia Pacific region, it was important for Vincor to penetrate other markets. In 2000 Vincor decided to enter the U.S. market as it was the largest consumer of wine in terms of volume and value. With the strict licensing policies of both the state and local, it was always difficult for Vincor to capture the market. Making name in such big market is no game and needed appropriate marketing strategy. In order to achieve the result, Provost decided to first target the higher class, trained and placed dedicated staff in those regions where premium segment wine where largely used. This helped Provost to select the best restaurants in the city to supply Inniskillin Icewine. Provost also spent a lot of time in George Riedel, an Austrian glass maker to develop custom glasses to serve the dessert Icewine.

Provost increased the marketing events and sponsored Canadian team for 2002 World Pastry Championship in Las Vegas. Subsequently the Vincor became the main spornsor for the event and the competition name was changed to Inniskillin Icewine World Pastry Championship. Thus Inniskillin received exposure from food network and then started to become accepted as prime dessert wine. The study conducted in 2000 revealed that drinking wine is good for health compared to other spirits. Being a premier segment wine, restaurants started selling wine at a premium price of around $20 to $30 per glass and started to make a lot of profit. This meant that the restaurants were growing confidence with Inniskillin Icewine. Further to the success, Vincor started to sell the Icewine at the retailers and restaurants tried inventing new ways of selling Inniskillin like Martini-skilllin. In 2003, the wine magazine – Wine Enthusiast awarded ‘New World Winery of the Year’ award to Inniskillin.

The European Market

European market had a lot of potential. Though U.S. was the biggest in terms of volume and value, over 63% of the total wine consumption by volume occurred in Europe. Europe was the biggest producers of wine with Italy, France, Portugal and Spain consuming over 50 liters of wine per capita per annum. With such a potential market it was always important for Vincor to sell Icewine in this market. But the European Union (EU) regulations meant that only 1,000 hl of sweet wine could be imported into the EU. The breakthrough came in the year 2001 when the EU market was opened for exports of Icewine. This meant that the EU also had to relax the laws for the import of sweet wine from Canada. This regulation helped Inniskillin to increase its export to Europe and helped in establishing the brand.

Inniskillin brand potential

As examined in the earlier sections, it is clear that Inniskillin has become a very popular Icewine brand and has shown the capabilities of becoming an industry leader. Becoming an Industry leader means we will have to look at the market potential of Inniskillin and we can use the SWOT analysis to see how Inniskillin can stand itself in the global market place and we also need to conduct Industry analysis as it is important to understand how the competition is influencing Inniskillin and can it stand up to its potential. Table 2 shows the SWOT analysis for Inniskillin.

SWOT analysis

It is clear from the SWOT analysis that Inniskillin has the potential of being market leader. But there are several other challenges that Vincor will have to face. Lack of product offerings and product line extension can directly result in competition with other wine and spirit producers like Constellation. Increasing the product line and production of entry level products have helped Inniskillin but will have to further diversify the rage of offerings. This would help Inniskillin to overcome the weakness and gain advantage over the competitors.

Inniskillin has a great retail presence and has grown in the past through major acquisitions. These strengths need to be capitalized to reach the goal. Inniskillin is facing treat due to the imitation products available in the markets like China. Inniskillin need to build a strong image and should educate the customers to understand the differences between actual and imitation wine. The growth of new category called Ice can also harm the company. Inniskillin should concentrate on its strength and make use of its experience in growing.

Porter’ 5 forces

Porter’s 5 forces will help us evaluate the Industry and understand the current position of Inniskillin compared with the changes and happening in the industry.

Threat of new entrants:

Inniskillin being well known for its Icewine has to be care full order not to lose the brand name for new companies as the entry barriers are less. The artificially produced Icewine and Imitation Icewine are a threat caused by new companies as well as established ones. The new companies would reduce the price in order to gain quick access to the market which may result in downward pricing in the industry there by reducing the profit margin. These instabilities may also lead to takeover bid as Vincor just experienced with Constellation.

Power of Suppliers:

Most of the wine manufacturers own the vineyard but there are still large vineyards who dominate the market. Since manufacturing wine is simple and easy and if they are not able to get the price expected there are possibilities growers may start to produce wine. Inniskillin came up with innovative way of supplying wine in custom made glasses. As the popularity grows it may become very demanding and again the suppliers may come into power.

Power of Buyers:

The “three-tier” regulation for distribution of alcohol has actually reduced the power of buyers. The introduction of this system has prevented the abuse which resulted from strong supplier and retailer relationship. Now the power has been equally distributed across different levels. But with not all nations across the globe following the same regulations it is a challenge for Inniskillin to overcome the issues and still become a global leader.

Threat of substitutes:

As explained earlier, the artificially made Icewine and the Imitation Ice wine are being sold at lower price than the premium Icewine made by Inniskillin. Any alcoholic drink can be considered as a substitute. But being advertised as dessert wine it stands apart from most of the categories. The creation of new category “Ice” can be considered as the biggest threat for Inniskillin.

Intensity of rivalry:

Inniskillin has been facing rivalry from major wine and other spirit producers. Recently there was a takeover bid offer from Constellation. These will keep coming in the way of Vincor but Vincor being experienced in acquisitions need to move ahead by acquiring other companies in order to reduce the rivalry and increase the domination in the industry.

Future Expansion

In the current economy and looking at the expansion the first two countries that comes into the mind of everyone is China and India. As stated by Rai (2003), “if you not manufacturing in China or selling in India, you are as good as finished”. Though it is difficult to produce Icewine in China and India due to the climatic condition required to allow the grapes to freeze naturally, there is no better prospect for Inniskillin to look at marketing and selling their product in India. China has been manufacturing imitation products and it would be difficult for Inniskillin to enter the market.

India being one of the fast growing countries it can be considered as the best choices for the expansion. India being the 10th largest consumer of wine in the world it is a very lucrative market and has the potential to absorb the western brands. Especially in the wine market due to the negligence and very less availability of premium brand wine it would be easier for Inniskillin to penetrate and establish their presence. The lack of knowledge on different types of wine can be of great advantage. Mohan Murjani the owner of rights for Tommy Hilfiger in India states that “Aspirationally, things changed dramatically. What we were seeing was a huge growth in terms of consumers’ assets, in terms of their incomes and in terms of their spending power through credit” (Bellman, 2007).

Hofstede’s cultural dimension as shown in figure 2 indicates that people in India would like to try and experiment with new products making it even more preferable location to expand.

Consumption of wines in India is mainly concentrated in urban centers such as Mumbai, Delhi, Bangalore, and Punjab. Andhra Pradesh, Assam, Delhi, Goa, Karnataka, Maharashtra, Punjab, Rajasthan, Tamil Nadu, Uttar Pradesh and West Bengal in India account for maximum consumption of Imported Wine & Spirits Association. At the moment, India produces only 8.35 million bottles per year (Indian Wine, 2006). For export market, the increasing popularity of Indian cuisine will be an automatic opening. With more and more professionals visiting India on regular basis, and the fact that Indian wine intake are going up every year, word is getting spread very fast creating awareness in the minds of customers. What the country needs now is quality wines being imported into the country to increase the consumption healthier wine as an alternative to other alcoholic drinks.

India is the third largest market for spirits and beer in the world, with demand estimated at a little over 400 million cases. In value terms it is estimated to be around Rs. 42,000 crore or around US$8 billion and the wine segment is estimated to be over 1.5 million and is expected to grow to around two million by 2011 (Indspirit, 2010). With such an understanding and accepting market the best expansion strategy that Inniskillin can adopt is by having a joint venture with the existing companies like United Breweries (U.B) group which currently has over 59% of the market share in India. With the kind of reach U.B has and the brand image of Inniskillin it would not be difficult for Inniskillin to make its presence felt in the Indian market. It is important to have a proper marketing plan in order to establish in the Indian market. The marketing plan for Inniskillin to establish in India is explained in section 7

Marketing Plan

The marketing mix for Inniskillin is analyzed below using Product, Promotion, Place and Price.

Product:

Inniskillin being established as one of the premium brand in Icewine category and known for its quality will be able to establish easily in India. Competitive positioning of wine has become an important strategic issue (Williams, 2001), since competition has been increasing in the last few years. As seen in section 6, Indian customers are open to try new products especially from the western countries. The dessert wine concept is new to India and standardizing the product will help for a better result. The product packaging can be standardized and Inniskillin can use the glass bottles like other premium products in India. Using the concept of custom made glass will be an added advantage.

Promotion:

Entering a new market means promoting the product is the most important aspect. In marketing wine, it is the specific benefits that must be stressed, and carefully targeted (Getz and Brown, 2006). Television advertisements for alcoholic products are illegal in India, so other means have been devised to present alcoholic beverages to the public. Many companies participate in “surrogate” advertising by which they present an advertisement that only mentions the name of the company without any direct allusion to their alcoholic beverage. It is important to make sure that the Icewine should also be promoted as a way of socializing after dinning in the restaurants. Mature consumers seem to strive for socialization when dining out (Yamanaka et al., 2003). This gives even more advantage in promoting the product to those potential customers with less knowledge of different kinds of wine. The customers who would like to socialize and showcase their status would always be influenced by brands and use premium brands for socializing. Wine complements culinary experiences (Aune, 2002) and contributes to socializing, relaxation and learning (Dodd, 1995).

Hall et al. (2000) states ”visitation to vineyards, wineries, wine festivals and wine shows for which grape wine tasting and/or experiencing the attributes of a grape wine region are the prime motivating factors for visitors”. As stated, building new experience for customers can generate interest in the customers. Most part of India is not favorable for growing grapes, and hence simulating the experience the real world of vineyard and winemaking will help establishes the brand. This would also give customers a chance to involve completely into the winemaking process there by creating awareness and liking towards Inniskillin. Celebrity contract is as important as other forms of advertising because customers in India have the tendency to follow the stars.

Place:

The distribution channel is the key and will help in availability of product. Since it is recommended to have joint venture with the U.B, it would help Inniskillin to use the same distribution channel for their brands. With majority of the wine consumption happening in just 11 states as mentioned earlier, Inniskillin can concentrate of the bigger cities like Delhi, Mumbai, Bangalore, Hyderabad, Chennai and other capitals of states for the initial test period by making the Icewine available in the top-end restaurants. Having a contract with some of these restaurants would also help. With the Indian market opened to sell alcoholic beverages in supermarkets, I would help Inniskillin to concentrate on some of the hyper markets and super centers in the major cities. In India standardizing the point of sale is very important otherwise there are chances of imitation product entering the market from China.

Price:

Pricing in India will depend on the target customer segment Vincor is looking at. Since the Icewine is a premium product and the sales would be through major restaurants and hypermarkets, Inniskillin can sell the product at a premium price. With the improving standard of living and household income Inniskillin can standardize the price to match other global destination but Vincor should first conduct appropriate research of other brands of wine being sold and appropriately look at setting the price. The taxes for alcohol is different in different states, meaning for Inniskillin to standardize the maximum retail price (MRP) after tax it should adopt and change the base price for selling it to the retailers. Selling the wine at a very high price than the competitors of selling it at a lower price than the competitors will result in loss of sale and the brand image.