Video Cases

Note: Please do not try to access these cases if you are using a connection at your home, unless you have a Broadband connection.

<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=gif:: ::/sites/dl/free/qutmrkting/89179/video.gif','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (0.0K)</a> Creston Vineyards 1 (784.0K)

VIDEO CASE 8-1 Creston Vineyards: Facing Channel Challenges

Larry Rosenbloom's customers include individuals, retail stores, restaurants, hotels, and even the White House! Because of the many types and large numbers of customers, distribution is as important as production at Creston Vineyards. As Larry explains, "We need distributors in our business . . . as most other [businesses] do, to get the product to the end user, to the consumer."

THE COMPANY In 1772 Franciscan Padres introduced wine to the La Panza Mountains of California when they founded Mission San Luis Obispo south of what is now San Francisco. The potential of the region for growing grapes remained a secret, however, until 1980 when Stephanie and Larry Rosenbloom purchased an abandoned ranch and started Creston Vineyards. Because it takes several years for vines to grow and produce grapes, Creston did not sell its first wine until 1982. Today, the 569-acre ranch has 155 acres of planted vineyards and produces more than 55,000 cases of eight varieties of wines. The production facilities include a 15,000-square-foot winery and 2,000 square feet of laboratory and office space.

Since 1982 Creston wines have won more than 500 awards in wine tasting events and competitions. In addition, the Rosenblooms are particularly proud of the fact that their wine was served at the inaugurations of Presidents Reagan, Bush, and Clinton. It was at the inaugurations that Creston conceived the concept of an "Artist Collection" of labels-painted by James Paul Brown, who also painted the presidents' portraits. The artistic labels added another dimension of distinctiveness to the Creston products. In fact, Creston's success has attracted the attention of Mondavi, Beringer, Kendall-Jackson, J. Lohr, and several other large Northern California wineries, which have purchased land and started vineyards near the Creston location.

THE INDUSTRY AND DISTRIBUTION CHANNELS The wine industry is undergoing several very interesting changes. First, sales have increased in recent years after a general decline since 1984. The decline was attributed to changing consumer demographics, shifting buying habits, and concerns about the economy. At least some of the recent interest in wine is related to the press reports suggesting the possible health benefits of red wine. A second change is the significant increase in the price of wine due to a low supply of good international wines and changing exchange rates, and an infestation of vine-eating insects (phylloxera) on over 20 percent of California's vineyards. Finally, many wine producers are trying to change the image of wine from a beverage only for special occasions and gourmet foods to a beverage for any occasion.

The industry also faces several distribution challenges. The large number of wine producers and the variety of consumers requires a sophisticated system of distribution channels. By combining different types of intermediaries, the industry is able to meet the requirements of many customers. In addition, because the sale of wine is regulated, the use of multiple distribution channels facilitates the sale of wine in many locations.

One of the most common channels of distribution involves a distributor buying wine directly from the vineyard and reselling it to retail stores and restaurants within a geographic area. Some distributors, however, may not need quantities large enough to warrant purchasing directly from the vineyard. They usually purchase several brands at the same time from a warehouse. A broker may facilitate sales by providing information to distributors, training the distributor's salesforce, and even assisting in sales calls to retailers. John Drady, 1 of 12 brokers for Creston Vineyards, explains: "It's very important that we translate our knowledge and our selling skills to the distributor's salespeople so they can, in turn, go out and [sell] more readily on their own."

Other channels are also used by Creston. In California, for example, Creston can sell directly to any customer. The vineyard also sells directly to some large retailers, such as Trader Joe's. Another channel of distribution is through wine clubs, which provide club members with information about wines and an average of six wines per year. The popularity of wine clubs has been increasing and they now account for 15 percent of Creston's sales.

THE ISSUES In an industry with thousands of products and hundreds of producers, Creston is relatively new and small. Selecting and managing its distribution channels to best meet the needs of many constituents is a key task. Providing marketing assistance, product information, and appropriate assortment, transportation, storage, and credit are just a few of the functions the warehouse, brokers, distributors, and retailers may provide as the product moves from the vineyard to the end-user.

Creston also faces a situation where new, and possibly more efficient, channels are becoming available. Direct sales, wine clubs, and online services have generated substantial sales for Creston. Other channels, or new variations of existing channels, may also be available in the future. Overall, Creston must continue to utilize distribution channels to provide value to customers ranging from large retailers, to hotels and restaurants, to individuals, to the White House!

Questions

What functions must be performed by intermediaries in the wine industry?
What intermediaries and distribution channels are currently used by Creston Vineyards?

2003 McGraw-Hill Higher Education
Any use is subject to the Terms of Use and Privacy Policy.
McGraw-Hill Higher Education is one of the many fine businesses of The McGraw-Hill Companies.