Our discussion in class about Southern and some of the discussion in WineDirect case reminded me of a concept we talked about in Strategy - Christensen's theory of disruptive innovation. The idea is that established firms become focused on one segment of the market they find most profitable - perhaps because of margins, size, or growth. This leaves a portion of the market underserved and eventually a new technology or innovation enters to serve the lower margin end of the market, moves into the higher margin segments, then squeezes the incumbent into smaller markets.
I was reminded of this because Southern clearly seems to be the incumbent, and smaller vineyards the underserved segment of the market. So will e-commerce and DTC be the innovation that will disrupt Southern? The case talks about the increase in boutique wholesalers, started specifically to cater to small to mid-size vineyards, so there are already seems to be a variety of companies trying to fill the gap.
The sole focus on large wine companies seems an oversight on the part of Southern and other large distributors. Even though new distribution avenues are popping up, the most scaleable way for small vineyards to get into retailers seems to be the large distributors - by underserving this market, distributors are leaving money on the table. That combined with the fact that Millenials are trending towards more 'unique' wines instead of what you traditionally find in the aisles of a chain store, indicates a near-sightedness.
Southern seems to be entrenched in our regulatory system of wine production and sales, but without a change in strategy, I'm curious how they'll fare shifting demand and alternative distribution channels in the long run.
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