Marketing Chateau Margaux

Letter of Transmittal

XXX
Business Analyst
ABC Consulting Services
Bordeaux, France

Feb 15, 2006

Paul Pontallier
General Manager
Chateau Margaux
Bordeaux, France

Subject: Report on marketing/operational strategies for Chateau Margaux

Dear Sir
We have enclosed our final draft of the marketing/operational analysis you requested. We have enjoyed
working with your team to identify the potential possibilities in helping Chateau Margaux gain top position
in the ever-evolving market.

In the report, we have provided not only the analysis of the market but also some ideas on how you might
move ahead. We believe you and your team are positioned to move quickly using this analysis as your
launching point.

If we can be of any further help as you move into this project, please let me know. We always enjoy
working with your group and look forward to continuing our relationship in the future.

Sincerely
xxx

Enclosure: Final Marketing/Operations Analysis report of Chateau Margaux

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Table of Contents
Letter of Transmittal ..................................................................................................................................... 1
Executive Summary:...................................................................................................................................... 3
Situation Analysis: ......................................................................................................................................... 3
Chateaux Margaux: ................................................................................................................................... 3
Distribution: .............................................................................................................................................. 3
Consumers: ............................................................................................................................................... 4
Influencers: ............................................................................................................................................... 4
Marketing:................................................................................................................................................. 4
Problem Statement: ...................................................................................................................................... 4
Options:......................................................................................................................................................... 4
Criteria: ......................................................................................................................................................... 5
Evaluation of Options: .................................................................................................................................. 5
Stay True to Tradition: .............................................................................................................................. 5
Take control of distribution: ..................................................................................................................... 5
Expand Internationally: ............................................................................................................................. 5
Recommendation:......................................................................................................................................... 6
Action Plan: ................................................................................................................................................... 6
Contingency Plan: ......................................................................................................................................... 6

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Executive Summary:
The estate Château de Margaux, located in the Bordeaux region of France is under the owned by Corinne
Mentzelopoulos. This vineyard has existed for over 75 years and been profitable for the past 30 years,
since the 1980’s.

Chateau Margaux produced an average of 150,000 bottles per year of its first wine, Château Margaux,
200,000 bottles of second wine, Pavillon Rouge and 33,000 bottles of white wine, Pavillon Blanc every
year. About 10% remaining grapes are sold in bulk to other wine merchants to be included in their generic
wine. Margaux philosophy was to rather earn less than risk the quality. Chateau Margaux brand is
performing very well, but the management is interested in finding ways if they can do any better than
they already are.

Margaux has the option of taking control of distribution, expanding internationally or simply stay true to
tradition. After analyzing the available options, we recommend Chateau Margaux remain true to
tradition.

Situation Analysis:
Chateaux Margaux a premium wine brand from the Bordeaux region of France. Brands offered by
Chateaux Margaux are Chateau Margaux, Pavillon Rouge du Chateau Margaux, and Pavillon Blanc du
Chateau Margaux. Estate is owned by Corinne Mentzelopoulos and is managed by Paul Pontallier. The
first vintage of Chateau Margaux in 1978 was seen as one of the best Bordeaux wines of the year.

Chateaux Margaux:
Chateaux Margaux was part of the French elite of wines known as first growths, first five specific wines of
Bordeaux region. Andre Mentzelopoulos has acquired it in 1977 and made a complete overhaul of
vineyards with better drainage system and new plantations. Corinne Mentzelopoulos had inherited the
property from her father Andre at the age of 27 and continued her father’s work for pride.

Mentzelopoulos family is known for transforming the estate from one of its worst to one of the best first
growths and is considered as one of the biggest achievements in the Bordeaux’s history.

At Chateau Margaux, 80 carefully chosen hectares were devoted to the production of red wines and 12
hectares to white wines. The remaining 170 hectares of the estate was taken up by the estate, forests,
and meadows for the cattle that produced natural fertilizers for the vineyards. The wine was considered
as an agricultural product, which made land and climate fundamental to the product. They believe in that
greatness of wine comes from a perfect mix of four things: a grand terroir, the right grape variety, climate,
and high-quality human work. Following their belief, their search for perfect mix has continued for
centuries at Chateau Margaux.

Distribution:
It was impossible for a customer to purchase a bottle wine directly from a top Bordeaux Chateau as
owners preferred to concentrate their wines and entrust them to specialist merchants in the city of
Bordeaux.

There were around 400 merchants who managed their market by ensuring wide distribution of small
amounts of the products. As the distribution was in small amounts, it created a scarcity in the market and

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helped in getting good prices. They felt that the first growths were magically and hence they should not
be available in the market widely. They used “en Primeur System” selling the vintages to distributors, in
several offerings called tranches. It was a beneficial system for all the participants. It also helps estate
owners in retaining their merchants.

Consumers:
The U.K market had historically driven the market for premium wines together with the Belgium, the
Netherlands, and Germany, but within past decade the US had come to account for almost half the total
demand. New Markets like Japan, China, and Russia, had become important.

In Asian markets like China, Taiwan, Or Singapore, Margaux is seen as a Status symbol by some buyers.
Asian and the Russain markets are booming while American markets have a strong demand on some
specific vintages, whereas the European are traditional customers. Even though they are tempted to raise
the price for some specific markets they still try to balance their prices and distribution over all the
markets whether booming or not. It was estimated that around 80% of great wine gets exported and
nearly 50% gets exported to the United States.

Influencers:
Historically merchants and retailers had helped customers navigate among the many choices that wine
offered but recently journalists and wine critics played a role. Parker, an American from rural Maryland
with no formal wine training, James Suckling of the Wine Spectator, Jancis Robison started playing an
important role in influencing the consumers.

Parker with his plainspoken manner, unusual memory for tastes and sensitive nose as believed by many
has single-handedly changed the history of wine. He personally sampled around 10,000 wines a year and
published his commentaries and assigned Parker Points for each wine in a bimonthly journal called “The
Wine Advocate.” Similarly, James Suckling assigned WS ratings for Wines. Prices tumbled when they got
bad ratings and rocketed when the got good ratings.

Marketing:
Marketing in the wine industry appeared to be a relatively new concept. Only the high-volume New World
wineries seemed to have systematic marketing programs and significant budgets. In the Old World
countries, marketing is left to retailers. They believed that there is nothing much that they could do, as
they have a very special product which cannot change or multiplied or presented in another package.

In many ways distribution channel it self-worked as a marketing tool. The scarcity of the product and the
few selected places where it could be obtained helped create the allure of the product.

Problem Statement:
By changing Marketing/Operations strategies can Chateau Margaux improve its potential

Options:
1. Stay True to Tradition

2. Expand Internationally

3. Take Control from Distributors

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Criteria:
1. Feasibility of the implementation

2. Sales of Wine

3. Quality of Wine

Evaluation of Options:
Stay True to Tradition:
Management can ignore plans to enter into the mass market entirely or expand the business or take
control from distributors, and instead focus on the quality aspects of their brand- exclusivity, exquisite
blends and soil composite, as well as a limited scope and accessibility. This would ensure the stability of
their price and stay as a high-end wine producer without bothering about the devaluation of quality.

Even during the days when tannic taste has become a global trend leading towards darker and heavier
wines, Americans still have a strong demand for specific vintages. In many Asian markets, Margaux is
considered as a status symbol by staying true to tradition we can serve these customers in a better way.

Take control of distribution:

The problem with this is they have invest a lot of money on marketing research, or else they will end up
setting a price without knowing demand. Whereas with the “Primeur” System, reaction of merchants
allowed the management to set a revised final price for next tranche. This is similar to the pricing followed
by World Co., Ltd. (A Japanese Clothing Company) which is acknowledged to be successful forecasting
technique and pricing strategy. During the bad years merchants will still make purchases considering their
long-term relationship with Margaux, but in direct distribution, Margaux will have to incur losses. Apart
from all these, they will have to take care of insurance, temperature control, delivery, and storage which
would distract the management from focusing on producing quality wine.

Expand Internationally:
Another option would be to purchase a Vineyard in the United States for the US market and use this as a
way to break into the US wine market; this would allow them to buy land at relatively lower costs and
learn about the mass market. If all goes well, they could then establish a mass markets in other regions.
They will have to work on providing a quality wine in their local conditions which would be challenging.

The problem with this would be enough foreign staffing, amount of resources required to research the
U.S. mass market and pay for travel to oversee the production. It also could prove to be unprofitable and
deter the family from purchasing land for further expansion of the similar market. They also find it difficult
to produce same quality wines with a different microclimate and soil conditions.

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Recommendation:
We recommend Chateau Margaux to remain true to tradition.

Action Plan:
Even though we are sticking the same plan which we were following earlier, management will have to
take extreme care about producing good Quality wine.

Contingency Plan:
If the management finds it difficult to sustain the competition by sticking true to tradition, they can
produce a third brand entirely on outsourced grapes from any region, by doing so they can cater to people
who prefer more immediate seductive New World type of wines.