Final Paper - Calmante Winery
Marketing 445
May 11, 2015
Jackie Mazer
Christina McAuliffe
Elizabeth Morris
Francesco Sacchi
Executive Summary
Chile has a significant history and involvement with wine. The drink of choice for meals,
social events, as well as everyday enjoyment is wine for most Chileans. According to The Wine
Bible, the main reason wine has grown to be so popular relates to the large amount of French
immigrants who moved to Chile during the late 20th century. These new citizens shared wine
knowledge and experience with the Chilean natives. “Chile is now the fifth largest exporter of
wines in the world, and ninth largest producer” (MacNeil). Since the climate is described
between California and France, it is the best for baring grapes. Chile has been free of phylloxera,
meaning that the vines do not need to be grafted. This makes Chile ideal to for hosting wineries.
Calmante Winery located in Santiago, Chile focuses on its premium Sauvignon Blanc
wine. The Santiago population relies heavily on local goods, which is why Calmante will be
popular, despite the premium price. Our winery has the capacity to make 60,000 bottles a year
for the premium price of $15 per bottle. We pride ourselves in hardwork and determination in
order to make our winery as successful as possible.
Chile General Facts
Chile is a coastal country that is located in the southwest region of South America. The
country shares its northern border with Peru and its eastern border with Argentina and Bolivia.
Chile is geographically diverse from its furthest northern border to its furthest southern border.
In Encyclopedia of the Nation’s article, Chile, they made a comment that said, “In the North, is
the Atacama Desert, one of the driest places on Earth, while the southern tip points towards the
polar ice of Antarctica“(2015). With this being said, Chile has a wide range of climates, such as
deserts, temperate regions, lakes, beaches, glaciers and forests.
Going back in history, the CIA World Factbook states that, “ Prior to the arrival of the
Spanish in the 16th century, the Inca ruled northern Chile while the Mapuche were in control of
central and southern Chile.” Chile declared their independence in 1810, but it wasn’t until 1818
when they fully received independence. In 1883, which marked the end of the War of the Pacific,
Chile defeated Peru and Bolivia and won its present northern region. Since then, the country has
gone through many governmental changes to end up where it currently stands today as a
democratic nation.
In Chile, their official language is Spanish. This is no surprise due to their history of the
Spanish inhabiting their country for quite some time. From this, we decided to name our product
Calmante because it means calming, or soothing in Spanish. We thought this name was good for
our market because want to be able to provide our customers with a sense of calmness when they
are associating themselves with our wine.
Economic Analysis
There are many reasons why we picked Chile as our place to start a business, and one of
these reasons is the economic freedom level that the country has reached. We looked at all the
countries in the South American continent with some concerns, because we were afraid that
negative economic climates could impact our business. According to the website Heritage
(heritage), Chile enjoys the highest degree of freedom in the Latin America continent and
Caribbean countries. Freedom includes freedom in labour, freedom from corruption, and control
of government spending. This has also increased the ease of investments in the country and
property rights, vital for our business. Chile is second in the world for protecting property rights.
Chile is largest producer in the world of copper and has a really open economy towards imports.
Together with this, Chile is one of the main exporters in the world of fish, wood, minerals, fruit
and wine.
Chile is the least corrupted country of South America. Property rights and contracts are
strongly enforced, and expropriation is rare.
The top individual income tax rate is 40%, while the top corporate tax rate is 20%.
The country has GDP of 334.5 Billion dollars, with an unemployment rate of 5.9% and inflation
of 1.8%. The average income per capita is 19,067$, even though there is great disparity
regarding the distribution throughout the country (Euromonitor International).
In fact, with a population of 5,000,000 people (Morrison), in 2012 Santiago alone created half of
the GDP of the nation. Santiago is the financial centre of Chile. Also, it hosts the major mining,
engineering and energy industries in the country. According to the article of Ricardo Giensen, as
of 2011, 60% of the population lived in the Santiago area (maximum 300 km away from the
city).
All these economic indicators convinced us to concentrate our product in Chile, more
specifically in the Santiago area, where we believe it may be successful.
Market Audit and Competitive Market Analysis
1. Relevant Trends
Looking at relevant trends, there are many reasons why launching our product in Chile is a
good idea. This can be seen in terms economic, demographic, social, and cultural trends. To start
with economic trends, we analyzed several countries in South America and came to the
conclusion that Chile was the right place to enter with our wine product. What convinced us was
the fact that Chile is one of the faster growing nations within the continent of South America,
with a relatively stable government compared to many neighboring countries (BBC news, 2012).
The economy of the country grew slower than usual in 2014, only at 3.6%, but is expected
to grow at above 4% in 2015, due to an improvement in the North American and European
market. In fact, the economy of the country is still tied to the demand of copper. Even though
one third of the economy is still determined by exports of commodities, the internal market is
growing thanks to a friendly business environment (AMB country risk report, 2014).
According to the World Bank data, Chile is ranked 42 out of 189 economies for ease of
“doing business” rank. Also, Chile occupies the 74th spot in the tax rank, which means that the
total tax rate in Chile for business is 27.9% compared to the 41.3% average for OECD. The
OECD is composed of 34 members that cooperate to gain data and reviews with the common
goal of a better, fairer world (OECD, 2015). The country is also ranked 59th for ease of starting a
business and 45th for ease of registering properties (World Bank Group, 2015).
Another economic trend that has greatly contributed in our decision to enter Chile was the
risk index provided by the AMB country risk report. The valuation is based on three factors:
political, financial, and the economic system risk. Chile belongs to the low risk tier with a:
“predictable and transparent legal environment, legal system and business infrastructure;
sufficient financial system regulation; mature insurance industry framework” (AMB country risk
report, 2014).
In terms of the political factor of the risk report, it talked about how Chile has a strong
democratic system that is constantly working to give citizens better education, better healthcare
and lower crime rates. On the financial side, it said that Chile has one of the stronger financial
sectors in South America, with inflation around 3% and interest rates ranging between 3.75%
and 4.25%. Looking at their economic system, Chile has the highest GDP per capita in South
America.
Chile is the only country in South America that belongs to the low risk tier. This is good for
our company because our business plan is a long-term one; therefore, we needed a stable place to
enter where we had opportunities of growth.
Demographics also play a big role in why our product may be successful in Chile. As of
July 2014, Chile’s population was 17,363,894. Historically, Chile has been known as a country
of emigration. But, since becoming a democracy in 1990, it has grown to be more appealing to
immigrants. This change has improved the economy overall by helping it to stabilize. Even
though Chile has low fertility levels, mortality rates, and life expectancy rates (average of 78.44
years according to the CIA World Factbook), it is possible for Calmante to be successful in Chile
because of Chile’s “favorable age structure” (CIA World Factbook).
Social trends also gives a number of reasons as to why our product could be successful in
Chile. First of all, the legal drinking age is 18, and we found that the average person aged 18-25
consumes 17 wine bottles per year (Hennicke). These are the people that we are going to be
gearing our product towards. Another social trend that can be seen in Chile is that they offer 188
wineries of which 96 are aimed at tourists (Wine Tours of Chile). Theses numbers show that
most of the wineries in Chile aren’t focused on the people of Chile. This gives us the opportunity
to stand out from the other wineries, in that we will solely gear our product towards the Chileans
rather than the tourists.
There are a few cultural trends that give way as to why entering Chile could be successful
for Calmante. According to John Mariani’s article, “Love Those California Whites? Then Try
Chile’s Sauvignon Blanc”, in Chile “ The media has poured attention and praise on the country’s
reds over the last decade, and whites have gone relatively unnoticed (2011). However, we think
that our product may be successful in entering the country because there is a potential market for
the product. Sauvignon Blanc is seen to be among the best white wine values produced in Chile
and is proving to be successful (Guide to Chilean Wine), which is why we are leaning towards
this type of wine for Calmante. Statistics show that Sauvignon Blanc had sales of $9,140,752 in
2011, which was an 8.6% increase from 2010 (Mariani, 2011).
Continuing with cultural trends, it is seen that the people of Chile put a large focus on their
local businesses. “Chileans show strong feelings favoring domestic production, and fear that
imports can hurt jobs in the country” (Rojas-Mendez, et al). Considering their culture, they are
ethnocentric, being that Chileans are more willing to purchase wine from their own country
instead of imported wines. They believe that buying local products will help domestic
employment, ergo they prefer domestic products. From this, Chileans are willing to pay more for
domestic products to secure domestic employment in the country. Since our winery will be
located in Casablanca, which is one of the best areas for a vineyard to be located, this is good for
our company. The reason being is that it is located about an hour from Chile’s capital of
Santiago, which is where our target market will be. Overall, our location will allow easy access
for the citizens of Santiago, as well as other areas, to domestically purchase wine.
2. SWOT Analysis
The main strength of Calmante Winery is location. The winery can be found in the
valleys of Casablanca, Chile. It is roughly an hour drive from our target market, who live in
Santiago. This means that our potential consumers are able to easily access our winery, while
being able to get a view of the beautiful scenery that Chile has to offer. Another strength is that
the wine sold at Calmante is strictly sold at this winery. This is a strength because it drives
consumers to the winery to buy and try the wine, whereas every other company sells their wines
in stores, or exports their wines to other countries. With this being said, our company is
completely focused on selling to the people of Chile. Most wineries in Chile are aimed at
attracting tourists, so we have the upperhand when it comes to attracting local Chileans.
Calmante’s major weakness is the price per bottle. The wine is sold at a premium price of
$15. Competitors on the other hand, sell mainly $2 to $6 per bottle. Another weakness is price
oriented, as well. That weakness is lack of profit. Calmante will not be profitable for
approximately three years. The first two years will be spent paying off equipment costs.
An opportunity for Calmante is the desired market. The projection rate is exactly 3,529
people because the winery can produce 60,000 bottles a year. This is a major opportunity
because it gives the company a chance to reach out specifically to every customer. A more
personal connection is more likely to be achieved since it is such a small market. Extending from
this opportunity, is that if we can successfully make a profit in 3 years, and save money moving
forward, then we could eventually have to money to produce more bottles per year, and advertise
towards a wider market in Chile.
The small market we currently have is both an opportunity and a threat. Since there is
such a small production capacity, prices are higher than competitors. This could cause some of
our target market to not want to purchase our product. Another threat we have to take into
consideration is the weather. Weather is a large threat because a bad season could potentially
ruin our grapes, which would ultimately destroy our wine.
3. Target Market
In terms of demographics, the age range we that we chose is between 18 and 25 years old.
We chose this age group for various reasons. First of all, it is important to note that Chileans in
this age group like to drink. A statistic shows that on average, they consume 17 bottles of wine
per year (Hennicke). This is good for our company, because we are a wine company, and we
want to attract these consumers to buy our product.
Another reason we chose this group as our focus is because 18 is the legal drinking age,
and if we can attract these citizens at a young age, they may eventually become loyal customers
of Calmante, and continue to buy the product year after year. In fact, according to an article
written by Jeremy Hobson on the website “Marketplace” (2012), the key is to attract people to a
product at a young age because they could potentially stay with that brand forever. This is
exactly what Calmante wants to do; which is, attracting the young generation in order to create a
relationship that we plan to cultivate for the years to come. Additionally, it is good to attract
people at a young age because they could then become free advertising for Calmante and spread
the word about the brand.
In terms of gender, we are aiming our product more towards males. In an article written by
Cella Scruby, in The Santiago Times, she said, “As of 2014, Chilean men consume close to 14
liters of alcohol annually, while women drink about 5.5 liters annually” (2014). Looking at these
numbers, we are going to target males more so than females, since the former drink more.
To go more in- depth with our target market, we are going to aim our product towards
college students, college graduates, and young professionals. These are the consumers that are
going to be the middle class to upper-middle class, and who are mostly found in the northern
boroughs of Santiago (Chilean Culture). They have enough money to purchase our premium
product, which is one of the main reasons as to why we will be focusing our marketing campaign
towards these consumers.
In determining the size of our target market, we found that we will have 2,460,015
potential consumers, which is 14.17% percent of Chile’s total population. To come up with this
number, it is important to note that Chile’s total population is 17,363,894, and that people in
Chile who are of ages 15-24 take up 16.3% of Chile’s population, and people ages 25-54 take up
43.2% of Chile’s population. We took these numbers into consideration when making our
calculations to determine our potential target market size.
The first step we did was to multiply the total population by the percentage breakdown of
each of the age groups ( 17,363,894 * .163= 2,830,314) and ( 17,363,894 *.432= 7,501,202).
We then took these numbers and divided them by the age difference that each age group takes
into consideration. For instance, the age difference between 15-24 is 9; therefore, (2,830,314/ 9=
314,479) and the difference between 25-54 is 29, so we have (7,501,202/29=258,662). Since our
target market only consists of 18-25 year olds, we took 7 years from the 15-24 age group, which
is 18-24, and we then took 1 year from the the 25-54 age group, which is just 25. From this, we
then found our total target market breakdown for each of the age groups ( 314,479 *7=
2,201,353) and (258,662* 1= 258,662). Next, we added both of our age groups together to see
how many potential consumers the target market consists of ( 2,201,353 + 258,662= 2,460,015
people). If we take 2,460,015/ 17,363,894 we get the percentage of our target market which is
14.17%.
Since our target market is 14.17% of the total population of Chile, we don’t have a
particular reason to believe the age distribution in the city of Santiago, where our target market
is, to be any different than that for the country as a whole. Because this is the case, we applied
the 14.17% to the city population to found out how many Santiago residents fell within this age
range.
4. The Product
Consumer needs it addresses
Chileans drink of choice throughout the country is soft drinks, especially nuclear-red Blitz
and lemon yellow Pap. However, beer, wine and liquor are also extremely well liked throughout
the population. Over the years red wine has been very popular with the wine drinkers, however,
white wine is currently becoming extremely popular in Chile which is why we felt we had the
opportunity to fulfill Chileans needs for a good quality white wine specifically Sauvignon Blanc.
Features and benefits
One benefit for our company is that Chile has safe vineyards. Total Wine’s website states,
“Chilean vineyards can be planted with original rootstock rather than having to latch onto vines
that are phylloxera resistant” (Guide to Chilean Wine). Phylloxera has never attacked Chile’s
vineyards, which is good because phylloxera is microscopic parasites that live on and eat roots of
grapes (What is Grape Phylloxera).
It is also important to note that most of Chile’s vineyards are in the central section of the
country, meaning that most of the areas are dry during harvest (Guide to Chilean Wine). In terms
of irrigation, the vineyards receive water from the melting snow of the Andes. Vineyards are
mostly located in Casablanca Valley, Santiago, Valparaiso, and Colchagua Valley, according to
Wine Enthusiast’s Top 10 Wine Travel Destinations in 2012.
Also, there are many flavors that Sauvignon Blanc has to offer (Guide to Sauvignon
Blanc), which we will take into consideration when coming out with our first Calmante item.
The fact that there are many varieties of Sauvignon Blanc could lead to many opportunities for
Calmante, which could eventually attract a numerous and diverse customer base.
Competition:
Shown in the chart above, the competition charges anywhere from $2 to 6 per bottle of
wine. We gathered this information from alibaba.com. This research shows that these brands of
white wines serve as a competition to our brand due to the fact that they are selling in the same
location that we are looking to sell, the Central Valley. However, white wine isn’t our only
competition, beer is also a potential factor to consider.
Beer can be seen as a competitor because it is well-liked in Chile. One beer that is big in
Chile is Cervecera CCU Chile Limitada (Santiago Times). CCU is the largest beer company in
Chile, and is in control of 82 percent of the national beer market (Santiago Times). One of
CCU’s most popular beers is Cristal. Cristal is sold in stores for about $3 a pack (6 bottles),
which makes each bottle worth 50 cents (Cristal). This will be one of our bigger competitors
because CCU can sell their product for a lower price, and it’s one of the most popular beer
brands in Chile. We have to be able to compete with their low price and popularity within Chile.
Price: considerations and comparison to competition
Distribution
Our business is located in Santiago, Chile. Our plan is to grow the grapes in our Vineyard
and produce the wine on site. We will bottle the wine into 1 liter sized bottles. Since our target
market is focused towards the locals of Santiago, we felt that it would be best for our consumers
to be able to buy our product at our vineyard. We want it to be convenient for our consumers to
buy our wine and to get the full experience. Our vineyard will have a shop on the property solely
to sell our wine to the locals of Santiago. Buyers will be able to walk around our vineyard to see
how we grow our grapes and have the feeling that they are buying high quality wine.
Possible promotion
Our promotion strategy will be concentrated in the urban area of Santiago. One of our
main strategies will be using social media to get people familiar with our company.The first
campaign will be the “Calmante challenge”, where someone has to drink a bottle of our wine,
post a video or picture on social media, and nominate two other friends that will do the same
thing. This campaign will be held to support and grow our Calmante winery, and we count on the
young people to help us accomplish this task.
At the same time, we want to get young people to drive to our winery and test out the
wine. Since we want to get as many people as possible, we will hold a promotion for 3 months
where the tasting will be held in our facility and will be completely free. There is going to be live
music everyday with local young artists. It is crucial for us to not only deliver a great tasting
product, but also create a long-term relationship with the young generation. We want to combine
the testing experience typical of wineries with the energy of festivals, where mostly beer is
consumed. After the 3 months are up, these events are still something that we want to do over
time in order to attract people, and keep the energy that youngsters desire to have. This means
that we will do them during holidays and at the change of seasons to keep our target market
excited about our product. We also plan on sponsoring local events where we believe young
people participate.
Revenue and Profit Projections
The realistic market penetration rate discovered for white wine consumption in Santiago
for our target market of men and women ages 18-25 is .49%. The calculation for this number
comes from the research for yearly alcohol consumption in Chile, specifically Santiago. The
average person aged 18 to 25 consumes 17 bottles per year (Hennicke). The production capacity
per year for Calmante Winery is 60,000 bottles. Out of the target market of 708,500 people
(which is 14.17% of Santiago’s population of 5 million (Morison)) we chose to specifically go
after 3,529 people because of our production capabilities.
In order to calculate the expected revenue, we added variable costs ($453,507.36) by
fixed costs ($161,572.32) and divided that number ($615,079.68) by 60,000 (bottle capacity) and
came up with $10.25 per bottle.
The expected profit is $285,000 per year. The capacity of 60,000 bottles multiplied by the
profit ($4.75) amounts to the expected profit. The time frame of the profit projections is three
years. Two out of the three years will be spent to recuperate from equipment costs, $749,012.34.
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