Marketing Château Margaux
Submitted to: -
Submitted by: -
Prof. Niva Bhandari
Aditya Bhageria (2018PGP006)
Pulkit Jain (2018PGP040)
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Letter of Transmittal
From
Mayer and Co. Consultation,
Marseille, France
January, 2006
To
Ms. Corinne Mentzelopoulos
Chateau Margaux,
Bordeaux, France
Subject: Report regarding future course of action for Chateau Margaux
Dear Ma’am,
We have analysed the current situation and growth prospects of all the main stakeholders at
Chateau Margaux. After taking into consideration all the decision criteria’s and evaluating
the available options, it is recommended that Chateau Margaux should purchase more
premium quality grapes by outsourcing through other reputed Bordeaux vineyards and should
also capture the value proposition of the 10% grapes that they sell anonymously by asking for
royalty up to 3-5%.
Please find enclosed our detailed report. Let us know if you have any further queries.
Thanks & Regards
Aditya Bhageria
Pulkit Jain
Enclosure: Report
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Executive Summary
Chateau Margaux has been through various events since Andre Mentzelopoulos bought it in
1977.The primary concern in the present is whether Chateau Margaux will be competitive in
the future given the rising competition from the New World producers and increase in
demand for wine around the world. Currently, there are various options available with which
the company can go forward. One is to stick with the current traditional way of production
and take control of distribution channels while the other option is to expand the business to
reach to a wider range of people by launching third wine. In this report, we have examined
the history of the company and the values associated of the company with the
Mentzelopoulos family while taking other decision criteria to reach to a decision while
keeping the focus on the brand image of Chateau Margaux.
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Table of contents
Contents
Page No.
Letter of Transmittal
2
Executive Summary
3
Situation Analysis
5,6
Problem Statement
6
Decision Criteria
6
Generation of Alternatives
7
Evaluation of Alternatives
7-8
Recommendations
9
Action Plan
9
Contingency Plan
9
Exhibits
10
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Situation Analysis
Chateau Margaux is part of the French elite of wines called first growths in Bordeaux region
of France. Wine had been grown in this region since sixth century. Bordeaux was the largest
wine making region in France. The classification of wines in this region came in 1855 when
European Napoleon III introduced a system to classify wines according to estate’s price, its
condition, and its overall reputation. It was called Bordeaux Wine Official Classification of
1855 where wines were grouped into 5 categories, from first growth to fifth growth.
The Mentzelopoulos family acquired Chateau Margaux in 1997 when Andre Mentzelopoulos
bought it for 12 million Euros. It was he who changed the vineyards with better drainage and
new plantings along with reintroducing Chateau’s second wine, Pavillon Rouge.
Unfortunately, he could not see the full transformation of the chateau as he died suddenly in
1980.As a result, Andre’s daughter, Corinne inherited the estate at the age of 27. She knew
the legacy of the estate and knew she had to maintain the standard of the estate. She hired
Paul Pontallier, a 27-year-old doctor of enology in 1983 as a successor to the retiring general
manager, Philippe Barre.
At Chateau Margaux, 80 hectares were devoted to vines for production of red wines and 12
hectares for white wine. Remaining portion of the estate consisted of forests and meadows for
the cattle that produced natural fertilizers. It produced an average of 150,000 bottles per year
of its first wine, Chateau Margaux. Grapes that were discarded were used in producing
second wine, Pavillon Rouge du Chateau Margaux averaging 200,000 bottles per year. Also,
it produced 33,000 bottles per year of its white wine Pavillon Blanc du Chateau Margaux.
Remaining 10 % of the grapes were sold in bulk to wine merchants on the condition that their
source would not be revealed. Here, it was believed that there is a mix of four things for a
wine to be great: a grand terroir, the right grape variety, climate and human work. Chateau
Margaux had great terroir and thus great first wine. It employed 70 people in production
along with 4 in administrative functions.
Once a dominant player in international market, it along with French wine industry was
facing stiff competition from the New World Producers. New world producers included
California, Australia, South Africa and New Zealand. Most of them had bigger vineyards,
larger marketing budget, lower costs along with modern production techniques. Their low
cost along with accessible flavours made them very popular among consumers. As a result,
France’s share of US imported wine market fell from 26 % in 1994 to 14 % in 2004. In
domestic market, the competitors were Latour, Lafite- Rothschild, Mouton-Rothschild and
Haut Brion. Haut Brion recently launched a branded wine called Clarendelle to compete in
the premium brand category. Baron Philippe de Rothschild operated three wines- first growth
Chateau Mouton Rothschild, and blended wines like Mouton Cadet for the mass market.
Chateau Margaux followed the en primeur system for distribution of their first growths. Only
5 % to 15 % of their wines were sold after bottling. Rest majority was sold while still in the
barrel, in an en primeur. The en primeur sales took place in offerings called tranches. There
was a strong relationship between the owners and the merchants and thus this system of
distribution worked. Even in bad years, they did buy the tranches to be in good books so that
they could buy again the next year. There were around 400 merchants in Bordeaux region.
The merchants would then allocate the en primeur wine to the buyers which were importers,
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wholesalers and large retailers. Prices varied even more deep into the distribution channel.
Prices usually climbed about 60 % between the first tranche offered en primeur and the
bottles sold in the market two years later.
UK, Belgium, Netherlands and Germany drove the market for premium wines. Newer market
includes US, Japan, China and Russia with US accounting for half of the total demand.
Chateau Margaux was careful and tried to keep a balanced distribution. Unlike the British
market, the newer market like in the Asian market, it was seen as a status symbol. Though the
new markets were booming, they still needed the traditional European customers because
though they didn’t have proper knowledge of its customer base, they estimated that about 80
% of their customers were connoisseurs There was a growing trend towards heavier, darker
wines. But Chateau Margaux didn’t want to lose its soul, that is, balanced elegant wines.
They had a certain style and balance and they didn’t want to alter that a lot. They still
believed that their wines were the ones which were meant for long consumption rather than
the powerful ones which were generally consumed in less quantity. They firmly believed that
as long as drinking long is part of the European culture, people will value their wine.
Along with merchants and retailers, journalists and wine critics were major influencers for
customers to choose their wine. Parker, an American critic was becoming really popular with
his Parker points rating system for wines in which he assigned a single number between 50
and 100. Another famous wine journalist was James Suckling of Wine Spectator. While
Parker wrote for connoisseurs, he wrote for younger audience. Parker supported Bordeaux
wine while Suckling didn’t.
While the New World wineries had systematic marketing strategies and budgets, in case of
Chateau Margaux, it was mostly left to retailers. They believed that that it may not be wise to
have a marketing team as they didn’t feel the need to push their products. The scarcity of
their product itself worked as a marketing tool.
Problem Statement:
The growing competition from new world wine companies is creating a stiff competition to
traditionally operating Chateau Margaux and they have to come up with new strategies to
maintain dominant position in market as the premium brand as well as pursue sustainability
in profit growths.
Decision criteria:
The following decision criteria needs to be considered for evaluation of options:



Chateau Margaux estate’s reputation and decades long legacy along with Corinne
Mentzelopoulos’ primary objective of protection of the brand and her commitment
towards taking her father’s vision of producing the finest wine
Estate’s relations with local merchants, wholesalers and large retailors
The 1885 classification system for prices of wines
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
To ensure self-sustainability in terms of profits as against growing competition from
new world wine producers
Generation of alternatives:
The following options are available in front of Corinne Mentzelopoulos:
1. To expand the product line by start producing a lower priced third wine
2. To start distribution of wines by self, without depending on merchants, or négociants,
by creating maintaining, packaging, marketing and sales capability for 150,000 bottles
3. To continue with current proceedings and instead of selling out 10% of the premium
grapes anonymously, they can capture the value proposition of those grapes through
demanding royalty
4. To increase wine production, they can outsource premium quality grapes from other
reputed vineyards of Bordeaux region
Evaluation of alternatives:
The evaluation of alternatives is done keeping in mind the impact of all the decision criteria:
1. To expand the product line by start producing a lower priced third
wine
Starting a new line of product in the lower priced third wine will increase the customer base
where currently the existing products are beyond the affordability of many desired customers.
They can shift their production of 100,000 bottles of second wine (Pavilion Rouge du
Chateau Margaux) to the third wine and may price it around €20-25 for first tranche.
This would decrease their revenue by around $4,000,000 for initial years, but with large
customer base in future, they can increase their production and hence will gain large profits.
(see Exhibit 1)
Since it will be contradictory to Chateau Margaux’s current proceedings and also can hurt
their current image as the premium quality wine producers.
Also, there may be some reluctance from merchants who used to make huge profits arising
out of heavy margins and may not be willing to support the decision.
2. To start distribution of wines by self without giving it to merchants,
or négociants by creating marketing and sales capability for 150,000
bottles
Creating marketing and sales capability for 150,000 bottles may result in huge increase in
revenues because right now, of the average €290-325 per bottle, the price set by Corinne
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Mentzelopoulos is only €180 per bottle, hence the margins can result into huge revenues up
to €18,000,000 (add: bottling, transportation and storage cost) (less: Maintenance to tranche).
(See Exhibit 2)
The major problem that is going to occur with this alternative is that this move will result to
be a very disruptive one because in current proceeding, all the distribution was done by
merchants and negotiators only. This move will cannibalize their relations with merchants
and as some of the pricing effect was due to the merchant’s efforts of tasting be journalists
and wine tasting experts, and revenues will not be up to the extent as expected.
Corinne Mentzelopoulos herself stated that all the work including storage, transportation,
temperature control, customer relations, delivery everywhere in the world. There are neither
the skills nor means to do it by themselves. In order to take care of all these activities, a
separate marketing, supply and distribution framework will be required for Chateau Margaux
which will result in additional expense and costs and thus result in further lowering of profits.
Also, the prising structure will be needed to be updated. But since currently, all other
vineyards are following the 1855 model, if they reject any new model, then there will be
problems for Chateau Margaux and their reputation will get affected.
3. To continue with current proceedings and instead of selling out 10%
of the premium grapes to anonymous buyers, they can capture the
value proposition of those grapes through demanding royalty
The whole idea of selling out 10% of premium grapes to anonymous buyers is to have the
essence of terroir of Chateau Margaux in every type of premium vines. While the other
sellers get benefitted by promoting their vines having premium taste, Chateau Margaux do
not actually get any fame as there is condition of mentioning the source of those grapes.
The reason for this culture is the decade long tradition that they are following.
Instead, Chateau Margaux can continue selling those 10% grapes of other vineyards and in
return, may ask for royalty up to 3-5% on the selling prices.
This may result in additional profits of more than €25,000 (plus: the mouth publicity of
Chateau Margaux’s original products). (see Exhibit 3)
But this alternative contains the risk of changing the value proposition of Chateau Margaux
as people may perceive that they are tying up with other brands and the sales of our
collaborators would rise while our sales will be adversely get affected due to higher prices of
our products.
4. To increase wine production, they can outsource premium quality
grapes from other reputed vineyards of Bordeaux region
Outsourcing premium quality grapes from other reputed Bordeaux vineyards will help in
increasing sales of Chateau Margaux. Margins to the distributors may be reduced and this
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will result in decrease of retail prices which eventually lead to wider customer base and hence
increase in revenues through existing products.
Through this, Chateau Margaux can continue with their existing distribution cycle ensuring
higher incomes to distributors and merchants as well.
Still the competition will be stiff from new world wine producers and there would be need of
rigorous marketing by merchants and negotiators.
Recommendations:
It is recommended that Corinne Mentzelopoulos should purchase more premium quality
grapes by outsourcing through other reputed Bordeaux vineyards and should also capture the
value proposition of the 10% grapes that they sell anonymously by asking for royalty up to 35%.
Action Plan:







Establish connections with other vineyards of Bordeaux region
Increase production capacity with separate department and production line for wine to
be produced from outsourced grapes
Hire more people for production work and create a separate team for production of
wine from outsourced grapes
Establish networks with merchants to sell the trachea of new wine and sell them to
lower prices
Connect with wine expects and reviewers to gain knowledge about how to improve
current taste or appearances
Continue to sell 10% of the premium grapes to other producers but demand
mentioning of their name by those vineyards and 3-5% royalty should be charged
Promote and ensure increase in exports of the Chateau Margaux in United states,
Russia and Asian countries
Contingency Plan:
In case of failure of the above recommended action plan, it is recommended that Corinne
Mentzelopoulos should go with the plan of expanding the product line by start producing a
lower priced third wine. This may be through existing grape production or through
outsourcing of moderate quality of grapes.
If any of the above recommendations are followed, the task of getting into self-distribution
and marketing will be eliminated.
In addition, in case of contingency plan, the earlier losses will serve as the base for increase
in market capture as well as ensure higher future revenues.
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Exhibits:
 Exhibit 1:
Current production: First wine: 150,000 bottles, Second wine: 200,000 bottles
Recommended production: First wine: 150,000 bottles; Second wine: 100,000 bottles;
Third wine: 100,000 bottles
Current prices for second wine: €60
Assuming new prices to be €20-25:
Change in revenues= 100,000(60-20)
Change in revenues= €4,000,000
 Exhibit 2:
Number of first wine bottles: 150,000 bottles
Average retail price of first wine bottles: €290-325
Average price of first wine bottles by Chateau Margaux: €180
Increase in revenues= 150,000(300-180)
Increase in revenues= €180,000,000
 Exhibit 3:
Current total production: 383,000 bottles
Expected production with 10% of grapes: 425,555 bottles
Assuming a 3% royalty and price of €20
Increase in profits= (425,555-383,000) *0.03 *20
Increase in profits= €25,533
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