INTEROFFICE MEMORANDUM

TO: PETER MARTIN

FROM: FAHMEDA SULTANA

SUBJECT: STRATEGY TO DRIVE PROFITS

DATE: 4/22/2023

CC: LEONA TAM

The memorandum recommends Penfolds to improve the quality of low end wine, to enlighten consumers about the properties of a good wine and to acquire higher margin from export of ‘economy and mainstream wines’.

According to the statistics the highest profit about 60% comes from the cheaper wines. The wine industry is saturated with too many brands due to low entry barriers. Some of the consumers are dissatisfied with the low end wines and review them as ‘atrocious.’ The intense competition prevalent in the market will lead to loss of potential customers.

My suggestion is to observe the strategies used by the competitors. The profits are decreasing since we are using competitive pricing. Lowering the price will not make any difference if quality is not delivered. The depth of flavor, the balance and the overall taste has to be improved to sustain in the market.

The brand is already established in the market, we can use the brand to rebrand the low end wines. Mass marketing is needed since the wine market in Australia is already booming. Heavy investments in advertising will pay off once we target our customers. Penfolds is consistent with production of the expensive wines. This is a small market whereas majority of the people purchase wine that is affordable.

There is a niche segment of consumers who are capable of recognizing a tasteful wine. Hence, our motto should be to make the consumers aware of properties a good wine. Including information like geographical location of vineyard, process and the grape type will make it more attractive to the consumers.

The company is producing wines that are inconsistent in quality. The wine export in Australia increased to $2.7 billion and the consumers have a vast array of wines to choose from. Maximum profit is generated from the economy and mainstream wines and the company is unable to produce quality wines with cheaper value. If the volume is increased the production of wines will be standardized in quality.

An alternative solution could be to emphasize on the pricing strategy of premium wines. According to the wine market segmentation the price of premium wines ranges from 11-20 dollars. However, the company is hardly offering premium wines within the range of $11 to $19 (Refer to Exhibit 4).

If the consumers have more options in this segment, potential sales can be generated.

The company need to increase its exports of the low end wine and explore newer market segments to overcome its weakness (Refer to SWOT). The problem is export of the economy wines are expensive so, we have to cut down on costs. The company can decrease the cost of production of the ultra-premium wines by investing less on the packaging and labelling. It can increase the vineyards and produce larger amounts of economy and mainstream wines. The cost of production will decrease and economies of scale can be achieved. Financial performance can be improved by overcoming its weaknesses and grabbing its opportunities in the market.

Exhibit: SWOT Analysis

Strengths Weaknesses

- Long term reputation- Vast array of wines

available- High quality red wine- Outstanding ultra-

premium wine

- Low quality of cheaper wines.

Opportunities Threats

- Global expansion- Extend white wine

selection

- Intense competition- Oversupply of wine

production

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