Bonny Doon Vineyards Case Analysis

Bonny Doon Vineyards - First Written Case

COMM 491 Section 204

Saewon Kye 14680110

Matteo Cantarelli 90176141

Hosong(Phillip) Lim 45945102

Woonhyuk (Tony) Jang 14013114

All of our group member contributed to this paper equally. Our analysis in the case is exclusively on the information provided in the case. Also all the work in the case is entirely our group’s own work.

I. Key Issues

Analysis of current situation

Bonny Doon Vineyard is experiencing significant growth from 1983 and now it is an influential company in wine industry. The successful growth of Bonny Doon created long-term future goal concerns and thus, the founder, Randall Grahm and the company are evaluating three alternatives paths for another Bonny Doon’s success venture. The three considerations are to create brand expansion, join retail outlet market, and expand brand awareness through D.E.W.N network. However, such potential paths associated risks such as unexpected outcome from competition with local and foreign distributors and requirement of large capital investment.

Current strategic position

Bonny Doon’s innovative approach to wine is based on Randall Grahm’s philosophy. As four mission statements are described in the case, Bonny Doon made clear competitive advantage and strong corporate strategies that are different than other competitors. Bonny Doon’s strategy is far different than any competitors in ingredient, marketing and pricing. In order to outstand from competitors, company pursued “ugly ducking” tactics, which is making wines with unpopular grape varietals and created many new blends to attract various customers’ tastes. Although wine has a concept of luxury drink, which many competitors focus on more professionalism of design but Bonny Doon label involves jokes and funny pictures. Also, unlike competitors, Bonny Doon targets for market share and strong benchmarks of quality rather than price benchmarks. For instance, Bonny Doon’s Big House Red sold for US$10 and Premium wine for US$26 in 2000. As a result of uniqueness and outstanding strategic position, Bonny Doon has grown from 5,000 cases in a year to 200,000 cases from 1981 to 1999.  

Performance        

Review of 1999’s income statement and Balance sheet show the Bonny Doon’s success. The revenue and total assets have been increased steadily without large variance between quarters. The net profit margin was high in beginning of 1999 to mid-Jun but it was in decrease trend towards ending of 1999 to first quarter of 2000. Such occurrence is due to high capital expenditure such as renovation and facility maintenance in late months of 1999. Overall, in terms of cash and total assets, Bonny Doon is experiencing positivity and most importantly, total equity is steadily increasing status.

II. External Analysis

Late 1990s and early 2000 would be considered as the entry of mature-time for wine industry, meaning the wine industry is well established and is very firm. With that in mind, Bonny Doon has broken down the stereotypical image of wine with strong pricing strategy to target a young cultured market who is not interested in the commonly pretentious wine market. However, because of increased capital expenditures, Bonny Doon’s profitability has not been so great. Furthermore, Grahm does not wish to increase the wine prices. Not only that, since most of Bonny Doon’s grapes come from various suppliers, production capabilities and product quality is not completely controlled by Bonny Doon and unexpected events could occur to decrease the revenue..

Porter’s Five Forces

High Supplier Power: Bonny Doon has specific qualifications for its grapes. There is a difficulty in convincing vineyards to produce high quality grapes, because they would have to produce less in quantity, resulting in less profit for the vineyard.

Situational Buyer Power: Buyer of expensive wines has medium bargaining power as they are willing to pay higher prices, or whatever prices, for premium brands. On the other hand, buyer of affordable wines has strong bargaining power due to their limited budget and variety of choices available from many competitors in the industry.

High Industry Rivalry: There are few highly competitive wineries from regions such as the Napa Valley and Sonoma, offering high quality wines under premium brands. Many competitors in the industry also offer affordable wine at or below $10 per bottle (eg. Best Cellars, Wine Brats, etc.).  

Low Threat of Substitutes: Wines are mostly consumed because of its distinctive taste and flavor. Substitutes such as soft drinks and coffee, or even other alcoholic drinks, tastes different than wine. Also, per capita consumption of substitute beverages in the U.S., 54 gallon of soft drink and 30 gallon of coffee, is already high compared to 2 gallon of wine, and demand for wine is still growing.

Medium Threat of New Entry: Sizable capital investment is required to purchase a winery and vineyard. Also, some knowledge of viticulture and varietal blending is required to successfully run a winery business, and it requires establishing strong long-term relationship with suppliers and distributors.

III. Competition Analysis

Some of the competitors mentioned are Best Cellars, Wine Brats, and Robert Sinskey Vineyards of Napa Valley. Similar to Bonny Doon, they have been paying attention to Generation X in the late 1990s and early 2000; providing new ways of approaching wine and to enjoy it instead of agonize over it. For example, Best Cellars, opened by Josh Wesson, is located in New York City near a subway stop selling wines under US$10. This has made wine buying hip to a younger generation, while appealing to their consumerism savvy. Wine Brats, founded by adult children of California wine industry pioneers, sponsors “Wine Raves” tours all over the country, combining fashion shows, concerts, artists and, wine to encourage enjoying wine. Lastly, Robert Sinskey Vineyards, one of the biggest competitors in the region, came up with a very similar marketing strategy as Bonny Doon. It came up with names and labels that are sometimes funny and silly; it calls its zinfandel, “The adventures of Zinskey” and offers up the winemaker as a superhero.

IV. Resources Analysis

Strength and Distinctive Competences
One point of strength is the owner Grahm Randall and his know-how, and technological skills, immediately start to work on his first property. He developed skills which cannot be replicated by others, because he has a unique approach to wine based on having, fun with wine and also using technologies applied to the vineyards and to the process of wine. Being an expert about microbiologist and biodynamic allows making wine in a unique way that only Bonny Doon can. This allows Bonny Doon to be distinctive from other competitors and to create brand loyalty based on refined tastes and cheap prices. Grahm was also able to create strong relationships with lots of artists in order to create labels for his wines. Furthermore, the Bonny Doon has a network that allows selling wine and it's also a direct sales method of distribution.