eja Vineyards’ Decision to Directly Market to the Hispanic Community Analysis The Case Study, “Ceja Vineyards: Marketing to the Hispanic Wine Consumer?” by Armand Gilinksy Jr., Linda I. Nowak, Cristina Santini, and Ricardo Villarreal deSilva (2010) outlines a critical decision a small, family owned winery in California is facing. The winery, Ceja Vineyards, is located in the Carneros region and is equally owned by four Mexican born immigrants of farm workers. Amelia Moran Ceja, President, and her husband Pedro Ceja, Artistic Director, along with Pedro’s brother Armando Ceja, Winemaker and Vineyard Manager, and his wife Armando Ceja comprise the ownership team. Amelia, Pedro, and Armando grew up working in the Napa Valley vineyards, and in 1983 purchased fifteen acres in the Carneros region to begin their own vineyard.
They planted their first grapes in 1986, and had their first harvest in 1988. From 1989 to 2000 they purchased additional plots of land and planted a variety of grapes. Their wine grape growing company is named Vina del Sol. They produce enough grapes for 65,000 cases of wine per year. In 2001, the company took another large step and began producing their own wine, under the branded name Ceja Vineyards. Their wine is made using their own grapes grown by Vina del Sol. In 2002, Ceja Vineyards was named “Winery of the Year” by a panel of ninety wine writers. Now it is 2007, and their wine production has doubled almost every year to the current amount of 10,000 cases a year.
The Research paper on Case Analysis Ceja Vineyards
Ceja Vineyard, a California based producer and marketer of premium wine has seen a decent amount of growth in their business over the last three years. However the owners of Ceja vineyards, led by CEO Amelia are trying to decide whether to primarily target the Hispanic market which will cause them to completely change their marketing efforts or leave it up to the distributors and retailers to make ...
Problem Identification
The key issue in the case study is whether or not they should make a concerted effort to target Hispanics in their marketing efforts. They see the potential of marketing to Hispanics due to the influx in Hispanic population in the U.S., and the continued projected increase. Their main concerns, are that they will have to change their marketing strategies, and incur substantial promotional expenses. They also will not lower their wine prices just to market to Hispanics. Amelia wants the company to focus on direct sells to the consumer so they don’t have to depend on the current distribution system.
Analysis
To understand the present situation Ceja Vineyards is in and to best recommend a course of action, three analysis techniques were employed. These three are the SWOT Analysis, Porter’s Five Forces, and Value-Chain Analysis.
SWOT Analysis
A SWOT Analysis was applied first to the situation to assess the internal Strengths and Weaknesses, along with the external Opportunities and Threats. Ceja Vineyards has a multitude of Strengths. Their ownership knowledge is based on a lifetime of real world experience. They grew up picking grapes, and control every aspect of the company guaranteeing top quality. They have a unique history, in that they are Mexican immigrants and the company is family owned. The vineyard is in a premier location. Carneros was the first wine region based on climate rather than political boundaries. Their wine is estate grown using grapes from their wine growing company, Vina del Sol. The company is debt free from years of solid investing and planning. They implemented a wine club, to be able to sell directly to the consumer.
Ceja Vineyards is not without its weaknesses.
Their small production amount limits their marketing strategies due to not being able to compete head to head with the mega-wineries. They also have limited distribution due to their size, though the emergence of Boutique distributors and their wine club has helped. As for external factors, Ceja Vineyards looks to have a plethora of Opportunities to increase their demand. They could target the ever growing U.S. Hispanic Market. There are currently forty million Hispanics in the U.S., 20% who earn more than $100,000 per year. They are also projected to be the fastest growing population for the foreseeable future. In 2006, they had to turn people away from a wine tasting in Los Angeles because of the demand. Hosting more of these events could be beneficial. Their wine club members receive a discounted retail price, but Ceja Vineyards could introduce a “Rewards Program” for recruiting new members.
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The wine market has exploded in the 2000s, and has produced quite a few Threats for Ceja Vineyards. Competition has become fierce recently as the number of wineries grew by 26% from 2004-2007. The “three-tier system” for distribution does not favor small wineries. It places a different tax rate dependent on state, and the “Big Five” distributing companies hold 52% of the distributing market. Boutique distributors are not able to operate in all states, and are always at threat of being purchased by the major distributors. Ceja Vineyards has done well for itself so far, but there is always the threat of growing too fast, without the required demand. The SWOT analysis shows a very high amount of strengths and opportunities that would suggest an aggressive strategy if not for Ceja Vineyards personal business strategy of slow growth.
Porter’s Five Forces
Porter’s Five Forces was next used to determine the competitive environment. The Five Forces method is used to determine a company’s profit potential for a particular industry. The Threat of New Entrants – High. Despite the high start-up costs, and that vineyards and wineries are a long term investment, it has not stopped people from joining the market. In 2006-2007, 12,000 new brands were introduced to the market. The number of imports in the U.S. market has also grown. Most noticeably, imports priced above ten dollars, that would compete with Ceja Vineyards, have grown “44 percent annually from 2005-2007” (Gilinksy Jr., Nowak, Santini, and Villarreal deSilva, 2010, p. 15).
The Bargaining Power of Buyers – High. The main buyer of wines from wineries are supermarkets and warehouse stores. These location account for 80% of wine retail sales. Another factor that is increasing the bargaining power of buyers is that there are few key buyers since the, “retail sector witnessed considerable consolidation in the early 2000s, due to mergers of both supermarkets and liquor store chains” (Gilinksy Jr., et al., 2010, p. 14).
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The Bargaining Power of Suppliers – Low. Suppliers in this instance, mean small market suppliers. Gilinksy Jr. et al. (2010) states, “The top ten wine companies in the U.S. controlled 82 percent of all shipments,” so while the larger producers may have some bargaining power, it doesn’t allow any for smaller quantity producing entities.
The Threat of Substitute Products and Services – Low. Ceja Vineyards location is its greatest strength against the threat of substitute products and services. While there are other wine products, and other companies that sell even the same type of wine as Ceja Vineyards, there are only so many that can produce it using Carneros grapes. In the wine industry, the quality of your grapes are your biggest asset, and each location produces a distinct flavored grape. People who prefer Carneros grapes will only have so many options due to its limited size.
The Intensity of Rivalry among Competitors in an Industry – High. As stated previously, the wine market is growing each year, both domestically and internationally. As is the number of wine producers which is outpacing the market growth. This combination makes it harder each year to create a demand for your product with so many options available to the consumer.
Value-Chain Analysis
To understand if a company has a competitive advantage or not, a Value-Chain analysis can be performed on the company’s business model. For this report, we will only focus on the primary activities of the Value-Chain analysis
Inbound Logistics. Ceja Vineyards is classified as an estate-grown winery, because it is located in the same place the grapes are grown. The vineyard that grows the grapes, Vina del Sol, is owned by the same group so this makes this portion of inbound logistics ideal. Being located in California, also helps with the inbound logistics of bottles, corks, and bottle labels because California has the largest number of wineries per state in the United States. This is going to mean any supplies needed for wine making will be readily available.
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Operations. The four owners consist of two married couples, and each has an equally weighted vote in any decision. They are also family, and live nearby each other making communication easy, in theory. They also grew up around vineyards so all have a deep understanding of what is needed to run the business. The quality remains high because according to Pedro, “we’ve done quality control over every aspect, from growing to the cork that goes into the bottle” Gilinksy Jr. et al. (2010).
The only improvement to the operations side would be if Pedro quit his day job and focused his full attention on the winery.
Outbound Logistics. This is the area that is the main issue for the Ceja’s. The industry is set up to cater to the mass producing wineries. To mass distribute their product they would have to use the “three-tier system”, which would only pay them 50% of the retail value of their product. Other options are the boutique distributors, but they can’t distribute to the entire U.S. This is why Amelia wants to sell directly to the consumer through their wine club, and tasting room to cut out the middle man and increase their profits.
Marketing and Sales. The grape producing side of their company, Vina del Sol, is doing terrific. The demand for it is very high as it already has five companies on the waitlist to buy grapes. While, Ceja Vineyards sales have doubled each year since introducing their branded wine it is hard to judge the ceiling. This is mainly because the company has grown slowly, and been vigilant of growing too fast. The company realizes though, they have to decide on exactly how to market their product though if they want to continue increasing demand for it, and that is the issue we are trying to solve.
Alternate Solutions
The Ceja’s have multiple options they could take, and still be successful. The easiest option would be to change nothing. They have increased their revenue and profits each of the past three years according to their income statements. Also, they stated they had doubled their wine sales each year, and were ranked number 2 in Wine Business Monthly’s Hottest New Small Brands. With the growing wine market and critic accolades, they would probably continue to grow without changing anything.
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They could decide to target the entire Hispanic population, and market heavily. This mass marketing strategy would reach the most people, but would be very expensive. It would require an understanding from all the owners that it could produce significant losses during the transition period. They could look at Round Hill Vineyards & Cellars as a blueprint. They did an ethnic outreach program in 2004 to target Hispanics and Asians. Their total case sales increased 400 percent from 2005 to 2006.
Ceja Vineyards could work directly with their current Wine Club members, asking them for feedback on what made them join. Offer the members rewards for purchasing so many cases a year, or recruiting new members. Currently, half of the wine clubs 1000 members are of Hispanic descent. They could speak directly to this portion of the group to try more of a grassroots marking campaign.
Ceja Vineyards could also market to only a portion of the Hispanic community. Since they refuse to lower their prices, they could market to the nine percent of Hispanics that make up the “mostly acculturated” percent of the Latino population. Wine consultant Sandra Gonzalez stated, “these Hispanic wine consumers are 96 percent more likely to spend $20 or more a bottle than non-Hispanics.” (Gilinksy Jr., et al., 2010, p. 14).
Recommendations
Ceja Vineyards in the enviable position of being a growing company with no debt in a growing market. After analyzing Ceja Vineyards’ business model and the state of the external environment, Ceja Vineyards should market to the Hispanic population.
As of 2005, there were 12.5 million Hispanics in California alone. This is an enormous untapped market that if tapped into would allow Ceja Vineyards’ to rely less on the big distributors and more on direct to consumer sales. Ceja Vineyards’ should continue to grow their Wine Club through the use of promotions and a reward system, while also reaching out to the “mostly acculturated” percent of the Latino population. They should also look into the marketing strategies Round Hill Vineyards & Cellars employed to attract Hispanics and Asians to their brands.
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