A wine industry analysis is a critical evaluation of the various factors inherent in the wine industry with a particular emphasis on its application to a new entrant or an established company that simply wishes to update its market strategy. The evaluation of any industry, including the wine industry, can be done by using the five forces that have been identified by Michael Porter. These forces include an assessment of the bargaining power of both the suppliers and the buyers, the ease of entry, competition, and the threat of substitutes.
A study of the bargaining power of suppliers in relation to the wine industry is a part of wine industry analysis that evaluates the type of power the suppliers of raw materials and other necessary inputs have in the industry. The raw materials that are necessary for wine production include items like grapes, while other inputs include bottles and labor. Total cost of raw materials and labor can make a huge difference in the final profit that the wine company will make. As such, it is necessary to find out if the suppliers of the necessary input are many or if there is a monopoly. If there are many suppliers, this might increase the bargaining power of the wine company, and it will provide more choices.
Another component of a wine industry analysis is the bargaining power of the customers or the buyers in relation to that of the producers. Such customers may be in the form of distributors or wholesale buyers, meaning that they may be the largest purchasers of the final product. The fact that they are the major customers of the wine company may give them more clout or bargaining power, which may affect the profit margin of the wine producer. Having a few major buyers usually puts a wine maker in a position of disadvantage by reducing the ability of the company to bargain effectively out of fear of losing the customer.
Ease of entry is a part of wine industry analysis that involves the study of how easy it is for new entrants to penetrate the wine industry. The more competition in an industry, the harder it will be for any one company to stand out. This is especially worse if the market is significantly overcrowded, because each company has to work extra hard to capture a share of the market. Sometimes the profits are not as much as what one company would obtain if the market were less crowded. The threat of substitutes means an assessment of other products that the customers might be tempted to buy instead.