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Concha y Toro case

In 2006, Concha y Toro, a global wine producer and distributor based in Chile, is struggling with a decline in operating profit (-21%) driven by lower operating margins (12.4% vs. 16.1%). Key challenges to better profitability include 1) unfavorable U.S./peso exchange rates and 2) pressure on sales prices due to a higher supply in the global wine market.

Concha y Toro is considering two strategies moving forward. The first option is to concentrate efforts in the premium and super-premium segments while slowly exiting from the low-end segment (currently 58% of Concha’s sales). The second option is to invest in operational efficiencies within the low-end supply chain and increase volume in the low-end segment.

I would recommend that Concha y Toro pursue the first strategy in targeted geographies like the United States and the United Kingdom. Concha should also explore an expansion strategy in Asia which currently represents only 5.5% of exports but is a high growth region for wine consumption.

Reasons to pursue the first strategy:

- highest growth expected in the premium and super premium segments (4.08 and 3.93) and a rising tide lifts all boats

- significant rise in new wine drinkers in the United States and the United Kingdom that have yet to develop brand/country loyalty

- There has not been significant advertising dollars spent on wine in the past signaling an area ripe for experimentation.

- Financial health: Concha y Toro is well-positioned financially to make an offensive move in the global market (169M current assets vs. 87M current liabilities) 

- From 2001 to 2005, Concha y Toro has successfully shifted product mix toward the premium and ultra-premium segment (from 29% to 43% of sales) suggesting that this is a viable strategy.

Considerations: Similar to Black and Decker, Concha y Toro should take care to segment its brands and adopt a family of brands so as to not confuse its different segments.  

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Case #1: Black and Decker Power Tools Division

Key Questions: 

Why is Makita outselling B&D 8 to 1 in an account that gives them equal shelf space? 

Why are Black and Decker’s shares of the two professional segments – Industrial and Tradesmen – so different? Wouldn’t you expect them to be similar? 

The Black and Decker brand perception faces a major challenges in the Tradesman segment which has contributed to Makita’s dominance in the segment. This is true despite B&D’s superior product quality and general brand recognition. Some of the challenges include the following:

Among the Tradesmen segment, the B&D brand is associated with consumer products and not rugged power tools. This is further reinforced by B&D’s color palette in the Tradesmen segment. Over 50% of survey respondents for example, said they were not “proud to own” a B&D power tool.

Makita has staked a perception as offering products that represent the baseline.

The Tradesmen segment primarily patronizes newly emerging retail distribution channels that B&D may not be experienced selling into and forming relationships with.

We would not necessarily expect B&D shares of the two professional segments to be similar since the distribution channels and the buyer is very different. In the Industrial segment B&D sells to commercial contractors (B2B) rather than direct to consumer (B2C). In my experience, B2B sales are more contractual and rely on relationships and reputations that have been built over decades. Given B&D’s history as a premier power tools supplier, it makes sense that B&D is strong in this segment. Selling B2C however, as B&D is doing in the Tradesman segment, relies on convincing individual buyers who are more brand conscious and can easily switch brands based on individual preference.