Champagne Cattier: Diversification Challenge and Strategic Analysis

This case study analyzes the strategic challenges faced by Champagne Cattier, a French wine producer, following its diversification strategy in 2017. The report examines the macro-environment of the champagne industry using PESTLE analysis and Porter's Five Forces, while also critically evaluating the limitations of these frameworks. The analysis highlights the issues related to increased competition, reduced demand in EU markets, trade relation risks, and the need to maintain a competitive edge. The study also discusses the impact of political, economic, social, technological, legal, and environmental factors on the industry's attractiveness. The case study further explores the competitive landscape, including competitive rivalry, threats of new entrants, substitutes, and the bargaining power of suppliers and customers. The potential impacts of globalization, industry dynamics, and risks on the future of the champagne industry are also discussed.

Case study analysis: Champagne cattier
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Executive summary
The report incorporates case study analysis for the organization Cattier family that is a French
wine producer. The organization has come across tremendous challenges after the
implementation of the diversification strategies in 2017. The report analyses the macro
environment of the champagne industry with the help of PESTLE analysis and Porter’s five
forces. The report also criticizes the application of these frameworks in the case study analysis
by highlighting their limitations.
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Table of Contents
Introduction......................................................................................................................................4
Task one...........................................................................................................................................4
The strategic issues facing Champagne Cattier...............................................................................4
The effect of macro-environmental factors on the shape and attractiveness of the champagne
industry............................................................................................................................................5
Analysis of the current competition and structure of the champagne industry...............................7
The potential impact of ‘pressures’ on the future attractiveness of the champagne industry..........9
Task two.........................................................................................................................................11
Reasons behind the choice of frameworks....................................................................................11
Limitation of frameworks..............................................................................................................12
Conclusion.....................................................................................................................................14
References......................................................................................................................................15
Appendices....................................................................................................................................18
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Introduction
Diversification of the services, in any business, is essential for its proper establishment within the
global market scenario, owing to the change in the choice of the customers through the years.
The provided case study is the Champagne Cattier’s diversification challenge that is a
Champagne house owned by a family in France. The case study represents a parallel empirical
experience that enables to gain knowledge about the strategic issues in the world of business.
The case study depicts the central issue that is being faced by the organization. The aim of the
present study is to identify those issues and understand the impact of the external environmental
factors that shape the industry. The report also analyses the current structure of the market and
the competitiveness of the company.
Task one
The strategic issues facing Champagne Cattier
The family of Champagne Cattier is popular in France for 250 years1. The organization initially
was a renowned grape grower but they had shifted toward the production of champagne later.
The organization, in 2017 engaged with the strategy of diversification for running the business in
the global market by selling the products to Japan, the USA, and the UK. A broad array of the
product lines was also chosen and developed to attain success in the diversification strategy.
Apart from that, the family had also made a partnership with different distributors, fashion
houses and bistros. However, the family has faced a multitude of issues in the year. The primary
cause for the issue was the increased competition in France, which is the home market of the
family. The demand and consumption of sparkling wine also reduced in the EU markets.
The organization had chosen to diversify its products to the international market but there was
less attention given to the home market. Risks were also developed from the rising issues in the
trade relations with the countries that had been chosen by Cattier for selling the products.
Additionally, the harvest condition of grapes that is the most essential raw material for
champagne became uncertain2. Another fact that has also contributed to the issue is that though
1 Cattier.com. (2017). Champagne Cattier. Available at: https://www.cattier.com/ [Accessed 14
Jun. 2019].
2 Spielmann, N. and Williams, C. (2018) ‘Champagne Cattier: The Diversification Challenge’,
Harvard Business Review [Online]. Available at hbr.org/product/champagne-cattier-the-
diversification-challenge/W18589-HCB-ENG (Accessed 16th January 2019).
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the family offers its customers well made fruity, opulent and ample champagnes, they were not
so special that they can attract new potential customers. In the market of the USA and the UK,
the rise of alternatives was continuously growing and thus for sustaining in the market it was
mandatory to cut the price. For getting success over the diversification strategy of Champagne,
the economic condition of the destination countries is essential to be monitored3. The
consumption rate of champagne is highly regulated by the economic status of the respective
countries. In the home market, France, the profitability was greatly reduced because of its weak
economic condition.
The effect of macro-environmental factors on the shape and attractiveness of the
champagne industry
The effect of the external or the macro environmental factors on the champagne industry can be
assessed with the help of PESTLE analysis. The different factors that affect the profitability of
the Cattier and the other organizations in the champagne industry are described below:
Political factors: The political instability is the potential in developing greater turbulence in the
functioning and profitability of organizations in any industry. The disturbed political condition of
European countries is because of the decision of the UK to leave the European Union territory.
The referendum was announced in June 20164. The situation has changed the trade relations as
well as the trade policies with the UK and developed a tread barrier between the European
countries and the UK. The enhancement of the export rates to the UK is the biggest change that
is a challenge for Cattier. This happened because of the drop in the rate of UK currency against
the Euro. Due to the propaganda, the trade terms had also become uncertain and the expected rise
of trade tariffs also has become a threat for champagne exporters like cattier. There is a drastic
change in the US market also because of the protectionism of Donald Trump and the political
issues can greatly influence the champagne industry. The increasing protectionism and
nationalism have developed a sense of uncertainty regarding the future of champagne in the USA
and the UK.
3 Gilinsky Jr, A., Newton, S.K. and Vega, R.F., 2016. Sustainability in the global wine industry:
Concepts and cases. Agriculture and agricultural science procedia, 8, pp.37-49.
4 Basire, Y., Jean-Christophe, R., Kiesel Le Cosquer, G., Favreau, A. and Edouard, T., 2017. The
Impact of Brexit on the Unitary Rights of the European Union. Centre for International
Intellectual Property Studies (CEIPI) Research Paper, (2017-18).
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Economic factors: France that is the home market of Cattier, is extremely weak economically
and this has greatly influenced the consumption of champagne5. As per the case, the wine
consumption per capita was recorded to be 42.1L in 2014 that was 54.8L in the year 2003. In
France, the overall sales in 2015 were reduced by 8%. The average monthly income of people in
2015 was €1538 and the income has thus decreased which had resulted in the enhanced demand
for goods at low cost6. The increasing rate of unemployment also contributed to the decreasing
demand for champagne. The situation thus forced the champagne producers to choose the
international markets such as the US and the UK for selling products.
Social factors: The growing social trend to consume champagne and wine as off-trade has
impacted the industry by decreasing their profitability. The reason behind the choosing of such a
trend is the enhancement of the price by the restaurants7. Thus the French wine consumers
started to buy wine from the grocery stores and consume it in the comfort of their home with
entertainment. However, the trend has also been proven to be useful for the champagne industry
as they can capture most of the customers with the provision of such facilities. There is also a
great change experienced in the luxury market of wine as consumption of luxury products has
become a growing trend.
Technological factors: Production of sparkling wines is dependent on technology. Several steps
produce the champagne. The fermentation and blending of different types of champagnes are
also different and need to implement technological equipment. Technological advancements
have made the process of harvesting of grapes and production of wine easier in recent years.
Cattier has utilized technological advancement by promoting wines through social media sites
like LinkedIn, Twitter, Facebook, and Instagram. The company has also developed its own
website for reaching more customers and shares their own stories with the customers. An online
boutique is also maintained that gives special offers to the customers.
5 Rokka, J., 2017. Champagne: marketplace icon. Consumption Markets & Culture, 20(3),
pp.275-283.
6 Velikova, N., Charters, S., Fountain, J., Ritchie, C., Fish, N. and Dodd, T., 2016. Status or fun?
A cross-cultural examination of young consumers’ responses to images of champagne and
sparkling wine. British Food Journal, 118(8), pp.1960-1975.
7 Pottier, C., 2018. The location of high technology industries in France. In The Development of
High Technology Industries(pp. 192-222). Routledge.
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Legal factors: Certain law and legislation in the country where the company operates is the
regulator of the company functions and activities. Law regarding employment, safety, equality,
and health are the major laws that impact over the champagne industry. In France, a legislation
strictly controls the consumption of alcohol and thus affects the sales of the wine producing
companies8.
Environmental factors: The production of sparkling wine is dependent on the condition of the
weather and harsh weather conditions can negatively impact wine production. The Champagne
region is ideal for the production of the wine. The quality of the soil, humidity, sunshine,
precipitation amount, temperature is the factors that contribute to the harvest of grapes and thus
directly affect the wine production. The topography of the region of the grape harvest is also
another biggest factor as drainage of the water and regulation of the sunshine is controlled by the
topography. Environmental pollution and environmental disasters can impact grape production
also.
Analysis of the current competition and structure of the champagne industry
In order to analyze the structure and competitiveness of the champagne industry, the tool of
Porter's five forces can be utilized. The tool is very effective to provide any organization
information regarding the competitors. The champagne industry is highly structured. The
profitability of organizations in the champagne industry depends on different forces that are
described below:
Competitive rivalry: Various sparkling wine producers populate France, the home market of
champagne and a fierce rivalry has grown up among the wine producers for gaining the
maximum share of the market. In the Champagne region, there are a huge number of grape
growers, champagne houses and co-operators. In the global market of champagne also Cattier
faces great competition from different strong competitor organizations like Lanson, Pernod-
Ricard, LVMH, Nicolas Feuillate, and Vranken-Pommery9. These competitors have captured
8 Navarro, A., Puig, R., Kılıç, E., Penavayre, S. and Fullana-i-Palmer, P., 2017. Eco-innovation
and benchmarking of carbon footprint data for vineyards and wineries in Spain and France.
Journal of cleaner production, 142, pp.1661-1671.
9 Leszczyńska, D., 2016. A cluster and its trajectory: evidence from the history of the French
Champagne production cluster. Labor History, 57(2), pp.258-276.
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about 40% of the sales volume of the world. Thus the competitive rivalry in the industry is very
high.
Threats of new entrants: Threat of new entrant in the champagne industry is very low. This is
due to the high competition in the market and the decreasing consumption of champagne. The
enhanced rate of tax and export rates also reduces the chance of new organizations to enter in
this industry10. Some other barriers prevent the entry of new organizations in the champagne
industry. Economies barriers are the high rate of tax and limited funding resources. The
differentiation strategy of Cattier Champagne also lowers the threat of new entrants to some
extent. Government policies regarding alcohol consumption also develop barriers for new
organizations.
Threats of substitute: Threat of substitute in the champagne industry is very high because of the
presence of non-champagne sparkling wines like Prosecco, Cava and Sparkling wines from
Australia, the USA, and New Zealand. The market of champagne is dominated by this trend and
the promotional strategy of the champagne producers to sell products by giving discounts has
also been diminished11. The regional sparkling wines of France like the Cremant, Blanquette de
Limoux, la Clairette de Die and Vouvray are also outnumbering the champagne form the market.
These substitute drinks account for about 65% of the wine market in France.
Bargaining power of suppliers: The bargaining power of the suppliers seems to be medium to
high in the champagne market. The suppliers are mainly the growers of the grapes. A grower can
choose various options. A grower may produce wine and sell it to the customers directly. If the
houses do not pay adequately the growers may choose another house as there are so many houses
in the industry. Growers have the ultimate control over the supply of the grapes and they monitor
the quality of the grapes. However, the number of growers in France is more than 15000, which
lowers the bargaining power to some extent.
Bargaining power of customers: The market of champagne is populated by many powerful
competitors that depict that the bargaining power of the customers is high12. However, the more
10 Balogh, J.M. and Jámbor, A., 2017. The global competitiveness of European wine producers.
British Food Journal, 119(9), pp.2076-2088.
11 Pomarici, E., 2016. Recent trends in the international wine market and arising research
questions.
12 Anderson, K. and Wittwer, G., 2017. UK and global wine markets by 2025, and implications
of Brexit. Journal of Wine Economics, 12(3), pp.221-251.
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diverse the product line is the more is the chance to retain its customers for a longer period of
time13.
Thus, the situation is not much favorable for the organization Cattier champagne as there are
noteworthy threats including threats of substitute products, strong and powerful customers,
suppliers and competitors.
The potential impact of ‘pressures’ on the future attractiveness of the champagne industry
There are mainly four forces that influence the attractiveness of the champagne industry, which
are Globalization, dynamics of the industry, and risk. There are numerous changes in the
dynamics of the champagne industry. It has been observed from the case that the Cattier family
has taken up the diversification strategy in the year 2017 and with this strategy the family has
developed a range of new product lines that are effective in targeting a different class of people.
Apart from that, they have also developed a luxury champagne range for elite class people14.
These strategies have been taken up because of the changes in the industry from the rising
competition in the market. It has also resulted in the expansion and export of champagne to the
global market. Potential new entrants have also entered the market and have become successful
in capturing the market. This pressure has impacted on the attractiveness of the industry as
companies have adopted strategies to make their products unique, innovated new product lines,
and changed the designs of the bottles that are also attractive.
Advancement of technology and improve trade relations are the factors that have to smoothen the
path of globalization and it has, in turn, become a driving force for the organizations in the
champagne industry. Globalization is the main reason behind the choice of diversification
strategy taken up by the champagne houses like the Cattier family15. As numerous champagne
producers have greatly occupied the home market of Champagne, producers are choosing to
13 Fertő, I. and Balogh, J.M., 2016. Are the major European wine exporters able to price
discriminate across their EU extra wine export destinations? (No. MT-DP-2016/24). IEHAS
Discussion Papers.
14 Cowan, K. and Spielmann, N., 2017. The influence of rituals on luxury product consumption:
implications for brands. Journal of Brand Management, 24(5), pp.391-404.
15 Galati, A., Tinervia, S., Crescimanno, M. and Spezia, F., 2017. Changes in the international
wine market competitiveness. International Journal of Globalisation and Small Business, 9(4),
pp.277-293.
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pursue global marketing strategy for ensuring their sustenance and gaining increased profit level
in the potential markets like USA, UK, China, and Japan16. As the consumption and sales volume
of champagne has negatively impacted the home market France, producers are more
concentrating on the international strategy and for this also they are modifying their product lines
as per the economic condition and the demands of the people of the destination country. This
also contributes to the attractiveness of the champagne industry.
The champagne industry faces great risk while exporting in the two countries that are the UK and
the USA. The political instability of the UK may also increase after the separation of the country
form the EU territory17. The trade relation of France with the UK is thus questionable. It is
expected that a high amount has to be paid for exporting to the UK. Along with the trade
barriers, several legal and ethical issues may also arrive in the future that can impact negatively
on the champagne industry. The nationalism and protectionism of the USA also question the
future activity of the industry.
16 Harding, G., 2016. ‘Competition is useless’: how Gilbey's retail and marketing innovation
dominated the British wine and spirits market, 1857–1922. History of Retailing and
Consumption, 2(1), pp.44-67.
17 Ody-Brasier, A. and Fernandez-Mateo, I., 2017. When Being in the Minority Pays Off:
Relationships among Sellers and Price Setting in the Champagne Industry. American
Sociological Review, 82(1), pp.147-178.
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Task two
Reasons behind the choice of frameworks
For the completion of the first task two frameworks from the module have been chosen that are
the PESTLE analysis and the Porters five forces. These two frameworks enable organizations to
analyze the current situation of the external environment. However, some other frameworks are
also used for the analysis of the macro environment of a business or an industry such as the
VRIO analysis. Among all the frameworks, the two have been chosen because of many reasons:
PESTLE analysis: PESTLE analysis has been the major and mostly utilized tool for analyzing
the macro environmental factors for business organizations for many years. The tool originated
from the traditional STEP model that was developed by Fahey and Narayanan in the year 198618.
The STEP framework consisted of four factors that were the Sociological, technological,
economic and political. The model is extended later to develop the PESTLE tool. The main
reason behind choosing this model is that it had helped to understand the political and economic
factors that critically influence the functioning of the industry. Champagne is a product that is
generally dependent on the economic condition of a nation and the framework helps to analyze
the economic factors.
There are increasing political issues in the target market of the Champagne Cattier and thus if the
political factors are not analyzed the analysis of the case would be incomplete19. With the
improvements in the technology and revolution in the industrialization, the trend of globalization
has become has enhanced greatly20. Thus, it is necessary to use the PESTLE analysis for
understanding the impact of the technological factors on the industry. Customers are the biggest
asset for champagne producers and the behavior and preferences of the consumers are changed
frequently with variations in sociological trends, culture, values, and ethics. In different locations
and countries, the sociological trends are varying which mandates the analysis of sociological
18 Rastogi, N.I.T.A.N.K. and Trivedi, M.K., 2016. PESTLE technique–a tool to identify external
risks in construction projects. International Research Journal of Engineering and Technology
(IRJET), 3(1), pp.384-388.
19 Bondarenko, S.A. and Nizyayeva, V.R., 2017. Export and import activity of the wine industry:
tendencies, current risks.
20 Aithal, P.S., 2017. ABCD Analysis as Research Methodology in Company Case Studies.
International Journal of Management, Technology, and Social Sciences (IJMTS), 2(2), pp.40-54.
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factors in the case of Champagne Cattier. Apart from that the framework also helped to assess
the impact of the legal and environmental factors.
Porter’s Five forces: this framework is relatively simpler than other frameworks and it was
developed by Michael Porter in 1979. The framework helps in the evaluation of the structure of
the industry and the competitive power of the organizations. The concept of this framework is
the presence of the five forces that directly or indirectly determines the intensity of
competitiveness and the attractively of the industry21. The framework is efficient in the
identification of the position of power in the business environment. As the aim of this study is to
direct the Cattier family to make strategic decisions by guiding them with the analysis of their
current market situation and competitiveness, Porter's five forces have helped to point out if the
new product lines are really profitable for the company or not. By identifying the distribution of
power, the organization can make changes in its existing strategies. The strength of this
framework is that it provides the knowledge of the power of the customers as well as the
suppliers and depicts what are the chances of retention of the potential customers22. The biggest
threat for the organization is the threat of substitute products which is analyzed in the task one
with this framework.
Limitation of frameworks
PESTLE Analysis
 One of the major limitations of the PESTLE analysis is that the external factors that are
analyzed with the help of this tool can change tremendously within a shorter interval of time.
The political, environmental factors can change in a short time and within a single day. Thus
it would be difficult for the company to utilize the old data generated through the analysis.
 In PESTLE analysis a simple list of the external environmental factors is developed that
affects the functioning of the organization. Hence, a critical analysis of the factors is needed
21 Kabue, L.W. and Kilika, J.M., 2016. Firm resources, core competencies and sustainable
competitive advantage: An integrative theoretical framework. Journal of management and
strategy, 7(1), pp.98-108.
22 Coelho, A.M. and Girón, V.M.C., 2017. An Exploration of Strategic Issues Impacting Wine
Co-operatives in the European Wine Industry. Red Internacional de Investigadores en
Competitividad, 5(1).
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