Results from Michigan Missouri and NW New York R Brent Ross Michigan State University Fabio R Chaddad University of MissouriColumbia Miguel I Gómez Cornell University NCRCRD Webinar February 15 2012 ID: 760622
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Challenges Facing Wineries in “Undiscovered” Wine Regions: Results from Michigan, Missouri and NW New York
R. Brent Ross, Michigan State UniversityFabio R. Chaddad, University of Missouri-ColumbiaMiguel I. Gómez, Cornell UniversityNCRCRD WebinarFebruary 15, 2012
Slide2Number of Wineries in the U.S.
Source: U.S. Tax and Trade Bureau and Wine
Institute.
Slide3KEY DRIVING FORCES
Food Curiosity
Growing Interest in Wines for Non-Traditional Regions
Local Food MovementFood Tourism
OPPORTUNITIES
Vector of Regional Economic Development
Economic Clustering
Slide4Agenda
NCRCRD Project Survey Results
Collect information about wineries
Identify challenges affecting “undiscovered” wine regions
New Project
Funded by NIFA/AFRI
Research Objectives and Scope
Slide5NCRCRD ProjectObjectives and Scope
Identify the challenges faced by rural wine entrepreneurs in “undiscovered” wine regions
Firm-level vs. Industry (region)-level
Focus
on:
Economics of
W
ineries
Business
and
Marketing Management Practices
Collective Action
METHOD: exploratory comparative analysis
Literature review
Interviews
Industry Survey
Slide6New Business Ventures
Sources: U.S. Department of Agriculture, Alcohol and Tobacco Tax and Trade Bureau, Michigan Grape and Wine Industry Council, Missouri Wine and Grape Board, and New York Wine and Grape Foundation.
MichiganMissouriNew YorkNumber of Wineries (2009)10097240(up from 17 in 1995)(up from 31 in 2000)(up from 113 in 2000)Wine Volume (2009, in million gallons)1.41.128.7Number of Grape Growers7113931438Wine Grape Acreage2,1001,60011,000Wine Grape Production (in tons)5,3004,400172,000Wine Industry Economic Impact $790 million (in 2005)$1.6 billion$2.5 billion
Slide7Michigan Wine Industry
Slide8Missouri Wine Industry
Slide9NY-Penn Wine Industry
Slide10Data Collection
Joint mail survey conducted during May-June 2011.
Michigan
Missouri
New York (Lake Erie Region) and Pennsylvania
Target:
winery owner
Supported by interviews with winery owners, extension specialists, and industry experts
Slide11Overview of ResultsWinery Characteristics
State
Wineries
Respondents
Response Rate
Michigan
80
26
33%
Missouri
94
32
34%
NY/PA
70
28
40%
TOTAL
244
86
35%
Slide12VARIABLENMEANMEDIANMINMAXWinery Age (Years) ALL8511.97.00.047.0MICHIGAN2514.19.00.041.0MISSOURI3211.97.80.540.0NY-PENN289.95.02.047.0Wine Production (Cases) ALL847,749 2,000 100 200,000 MICHIGAN245,622 2,450 100 20,000 MISSOURI3212,596 1,500 100 200,000 NY-PENN284,032 2,000 100 32,000 Wine Production Growth (%, 2008-2010) ALL6838%20%-50%408%MICHIGAN2617%10%-50%300%MISSOURI2163%25%-25%408%NY-PENN2138%40%10%100%Non-Vinifera Grapes (%) ALL8664%80%0%100%MICHIGAN2638%34%0%100%MISSOURI3284%100%0%100%NY-PENN2864%80%0%100%
Slide13% Under 10 Years Old
ALL 65%
MI 55%
MO 65%
NY_PENN 80%
Slide14Slide15Slide16OverviewWine Owner/Manager Characteristics
ALL 76%
MI 87%
MO 75%
NY_PENN 69%
Slide17OverviewWine Owner/Manager Characteristics
ALL 53%
MI 50%
MO 58%
NY_PENN 49%
Slide18OverviewWine Owner/Manager Characteristics
FREQUENCYCHALLENGEALLMIMONY_PENNBusiness Opportunity (GW+diversify)9036Passion for Food/Wine/People (Wine+Other)49172111Quality of Life (2) (qual+retire+adv)38121610Hands in Dirt (2) (dirt+satisf)3213127Family (Family Business + Fun)6231Community (Tourism, EcDev)20785Other3003
Motives for Entry into Wine Industry
Slide19Challenges Faced in “Undiscovered” Wine Regions: At the WINERY
FREQUENCYCHALLENGEALLMIMONY_PENNGrape Production3213127Winemaking277128Marketing46151615Finance251087Managing the Winery247134Labor Related Issues19487Environmental Issues 0000Regulatory Issues299911Quality11353Access to Resources10154Competition6042Other5203
Slide20Challenges Faced in “Undiscovered” Wine Regions: In the INDUSTRY
FREQUENCYCHALLENGEALLMIMONY_PENNGrape Production245811Winemaking21588Marketing3812314Finance11182Managing the Winery7142Labor Related Issues251564Environmental Issues 0000Regulatory Issues25889Quality254138Access to Resources8521Competition10244Other211713
Slide21Specific ChallengesMarketing
FREQUENCYCHALLENGEALLMIMONY_PENNSetting Prices2911126Developing new wines4211Branding wine18099Identifying the appropriate promotion strategy0000Managing distribution channels45141714Dealing with competition15393Segmenting the market9135Understanding consumer needs/wants190127Other8323
Slide22AFRI/NIFA Grant AwardAward Number: 0031130Description: 2011-68006-30815 Chaddad, Fabio
Slide23Goal: To increase the success rate of start-up wineries and thereby foster the development of wine-hospitality-tourism clusters in emerging cool climate regions in three states – Michigan, Missouri and New York.
Rural Entrepreneurship in the Wine Industry:Identifying Success Factors Among Start-Up Wineries in Emerging Cool Climate Regions
Situation
Inputs
Knowledge
Outcomes
Outputs
Activities
Actions
Conditions
Increased success rate of start-up wineries in cool climate regionsDevelopment of wine-based clusters in cool climate regions
Growing number of new wineries in cool climate wine regions.Start-up wineries face a complex set of challenges to survive and grow.Start-up wineries need knowledge input and extension efforts to overcome challenges.If successful, new wineries will be the basis for regional cluster development.
Wine industry stakeholder needs & assetsResearch and extension staff with industry knowledgeThree graduate students in Agric. Econ.Network of collaborators in three statesIntegrated conceptual frameworkDatabases and expert modelersExisting wine cluster analysesAFRI Funding
Stakeholder input on conceptual framework Lit. review on procurement and distribution strategiesSurvey wineries and build panel data setEconometric analyses of data across 3 statesWorkshops with industry stakeholdersStudy tour to developed wine regionPrepare educational materials
Hypothesis: we can identify strategies for wineries to overcome survival challenges and for industry leaders to develop wine-based regional clusters in cool climate regions.
External Factors: industry conditions that affect start-up winery survival and growth; willingness of industry participants to develop and engage in collective action strategies.
Statistical analysis of survey resultsEconometric model resultsPractical knowledge for wineries and industry leadersScientific and educational publicationseXtension CoP on Cool Climate Wine RegionsStrategic outreach plan for wine cluster developmentEducational materials
Factors that affect winery survival and growthEfficient grape procurement strategiesMarketing strategies to overcome lack of legitimacyExtent and impacts of inter-firm collaborationEffective collective action strategies for cluster development
Start-up wineries will:
Adopt more efficient grape procurement strategies
Develop marketing strategies to access non-local markets
Build more relationships with other wineries and related local industries
Industry leaders will adopt collective action strategies for wine cluster development
Slide24AFRI / NIFA ProjectThe Team
Fabio
R. Chaddad (University of Missouri)Michael LeonardelliRandy WestgrenGraduate students
R. Brent Ross (Michigan State University)Paul JenkinsGraduate students
Miguel I. Gomez (Cornell University)Nelson BillsGraduate students
Slide25AFRI / NIFA ProjectConceptual Framework
Network-level Resources
Inter-winery collaborationCollaboration with related industries
Business-level ResourcesHumanFinancialOrganizationalEntrepreneurial orientation
LegitimacyRegulativeNormativeCognitiveIndustry
Individual-level ResourcesHuman capitalEducationExperienceSkills
SurvivalCross survival threshold
GrowthSalesMembers
Slide26AFRI / NIFA ProjectIntegrated Project
Research Objective 1:
Examine existing contractual mechanisms in buyer (winery) – supplier (grape) relationships and help the industry develop procurement strategies to reduce transaction costs, increase grape and wine quality, and winery performance.
Slide27Detailed ResultsProcurement Strategies
Slide28Detailed ResultsProcurement Strategies
Slide29Determinants of Vertical Integration
Vertical Integration
Transaction Attributes
Asset specificity
Uncertainty
Collaboration
To produce grapes
Relationship with grape growers
QualityGrape qualityWine quality
Winery Characteristics
Experience
Time commitment
Slide30Determinants of Vertical Integration:Logit Model Estimates
Slide31AFRI / NIFA ProjectIntegrated Project
Research Objective 2:
Identify strategies to overcome distribution challenges of start-up wineries and increase their access to non-local markets
.
*Legitimacy:
distributors and consumers.
Slide32% of WineriesCHANNELALLMICHIGANMISSOURINY_PENNAt the Winery100%100%100%100%Liquor Store41%57%45%25%Restaurant52%61%35%64%Farmers Markets10%4%0%25%Direct Shipments56%83%35%57%Through Distributors29%65%26%4%Festivals or Community Events48%35%35%71%Other13%22%16%4%
Detailed Results
Distribution Channel Strategies
Slide33Detailed ResultsDistribution Channel Strategies
Other Channels:
Wine ClubsOwn RetailCustom Wine and CoPackingDirect Retail (SM + Gift Shop)
Slide34ALLMIMONY_PENNArrangements with Bus Tour Co.36%46%16%50%Promotions for Returning Customers60%54%66%57%Customer Database86%88%78%93%Club Promotions38%54%41%21%Website100%100%100%100%Newsletter68%75%66%64%Social Media (Facebook, Twitter, Groupon, etc.)95%100%94%93%Price Discounts94%96%94%93%Other4%0%9%0%
Detailed Results
Other Marketing Strategies
Slide35Channel Choice Determinants
Distribution ChannelChoice
Horizontal Integration
Inter-winery collaboration
Vertical Integration
Share of own grape in the production
Marketing Efforts
Promotion intensity
Marketing challenges
Winery Characteristics
S
ize
Years in
business
Slide36Channel Choice Determinants:Fractional Logit Estimates
Slide37AFRI / NIFA ProjectIntegrated Project
Research Objective 3:
Examine the extent of inter-firm collaboration in emerging wine regions and develop collective action strategies to foster the development of regional clusters, including inter-winery collaboration and collaboration with supporting and related industries.
Slide38Wine Trails
N
Member of a Wine Association
Member of Chamber of Commerce
Is there a Food/Wine Trail in Your
Region?
Member of Food/Wine Trail
ALL
82
69
65
64
54
MI
22
19
18
18
16
MO
32
25
25
24
19
NY_PENN
28
25
22
22
19
Slide39Detailed ResultsCollective Action Strategies
Produce GrapesProduce WineMarket WinePromote Wine RegionShare Information and ResourcesALL4635376871MI161691921MO1711162727NY_PENN138122223
Reasons to Collaborate with Other Wineries
No InterestView Others as CompetitorsDifferent Business PhilosophyNot a PriorityLack of TrustDistanceOtherALL36351961716MI1276027MO12148595NY_PENN12145164
Challenges to Collaborate with Other Wineries
Time
5
None
5
Lack of motivation of others
2
No equal wineries in region1"Rising Tide Floats All Boats"1
Slide40AFRI / NIFA ProjectIntegrated Project
Extension Objectives:
Disseminate knowledge and research insights generated to engage winery owners and managers, wine industry leaders, wine grape producers, policy-makers and other wine industry
stakeholders.
Approaches
: Workshops with industry participants, and educational materials
.
Slide41Thank you!
AFRI/NIFA Grant AwardAward Number: 0031130Description: 2011-68006-30815 Chaddad, Fabio