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FOR THE CASE DIAMOND ESTATE WINES & SPIRITS, INC.: GROWTH CHALLENGES IN A FRAGMENTED INDUSTRY1 Current and Generic Strategy Identify the Mission of the company.

FOR THE CASE DIAMOND ESTATE WINES & SPIRITS, INC.: GROWTH CHALLENGES IN A FRAGMENTED INDUSTRY1

Current and Generic Strategy

Identify the Mission of the company. Is the firm pursuing a cost or differentiation strategy? Explain, what factors enables it to achieve a low cost or product differentiation strategy. How well is the company's present strategy working, based on the data in the case?

Strategic Issue

Identify one strategic issue you think merits front-burner managerial attention.

The issue should be framed as a question (How to...? What to doabout ...? and Whether to ...?). Identify one strategic issue only. While there may be more issues that deserve managerial attention, the focus of your report will be based on supporting only the one issue you identified. Make sure your issue is not too general; for example, to improve profits is a generalized statement. The issue you identify must be actionable. Provide a minimum of 5 supporting and relevant observations based on various conclusions up to now from the External and Internal Analysis. Do not include any observations not discussed and analyzed previously (issues out of nowhere = 0). You should be able to identify all the relevant facts from your Appendix that led you to conclude that the issue you identified deserves managerial attention. Every fact that you think supports your main issue should be identified as they will ultimately become an outline for the analysis section of your report, referencing each of the facts identified

CASE :

In 2019, 15 years after it entered the Canadian wine industry, Diamond Estate Wines & Spirits Inc. (Diamond) was poised for growth. In a fragmented industry with local, national, and international competition from well-established and new players, Diamond had a position in many industry subsegments. Selecting a path to achieve its growth objective presented a formidable challenge for this small Ontario business.

THE WINE INDUSTRY

Wine was an interesting product: it was a beverage, but also a social occasion. It could also be given as a gift

and had cultural and aspirational connections. Although there may have been healthy benefits associated with

wine, alcohol abuse was clearly linked to serious threats to human health and safety. Despite an ancient

history, the wine industry, both worldwide and in Canada, was projected to continue modest growth over the

next few years. Some jurisdictions, such as France, Italy, and Quebec, reflected mature wine-consuming

Worldwide, 28.4 billion litres of wine were produced in 2015, with Italy and France contributing 17 per cent each, followed by Spain (13 per cent), the United States (10 per cent), Chile (4.5 per cent), and

markets. Other markets demonstrated growth, such as China, the United Kingdom, and Ontario.

Australia (4.2 per cent).

Wine that was 100 percent Canadian only constituted 0.3 per cent of the world's

supply, ranking Canada 35th on the list of wine exporters; 62 per cent of Canadian exports by value was

ice wine. In 2015, Canada was the 11th-largest consumer of wine in the world, consuming 522 million

litres. The United States was the largest consumer of the fermented grape, followed by France and Italy;

however, per capita wine consumption was somewhat different, with 15 European countries ranking higher

than the United States. Like Canada, the US market had recently seen annual growth in sales in the 5-6

The gap between the consumption and production of wine in Canada was filled by imported wines (see Exhibit

1). The market share held by Canadian wines was the result of a hard-won evolution. Shifts in consumer

preferences, grape growing, and legislation allowed Canadian products to wrestle 30 per cent market share

per cent range.

with imports remained intense. The amount of wine imported into Canada from Italy and France was relatively

from imports.

While the quality and breadth of wines produced in Canada continued to grow, competition

Authorized for use only in the course BUS800 - Strategic Management (20804) at Ryerson University taught by Various Instructors from Sep 08, 2020 to Dec 31, 2020. Use outside these parameters is a copyright violation.

Page 2 9B19M139

stable, whereas there was an increasing volume of Australian and Chilean wine (see Exhibit 1).

Wine production in Canada consisted primarily of bottling and blending. In 2013, only 30 per cent of wine

13 14per bottle of tax revenue (half provincial and half federal).

offered by Canadian manufacturers was from 100 per cent Canadian grapes.

wine consumed by Canadians, 20 per cent was made from 100 per cent Canadian grapes.

number of wineries in Canada increased 8 per cent annually between 2011 and 2015. Many of the 600 Canadian wineries were family run, with just a few acres, but were more likely than larger wineries to create 100 per cent Canadian wines. The industry made important contributions to the economy through wine-

related tourism and the average CA$4.58

In Ontario and Canada, a significant shift had occurred in wine purchases over the past few years. Overall, Canadians purchased $22.1 billion dollars of alcoholic beverages in 2016, of which, 41.5 per cent was beer

As the legalization of recreational cannabis unfolded in Canada, industry observers heatedly debated the impact on various segments of the alcoholic beverages industry. Cannabis might fulfil certain entertainment and social needs in the same way as alcoholic beverages, and it could hold advantages in health benefits, either through direct means (e.g., fewer calories, no hangover) or long-term effects (which were not as well known for cannabis). Would there be a selective impact on one category of beveragewine, beer, or spiritsor on certain market subsegments?

Wine Product and Production

The main wine product categories were red, white, ros, and sparkling wines. In 2016, wine sales in Canada

and 31.6 per cent was wine.

per cent of sales and wine only 27 per cent. In a Liquor Control Board of Ontario (LCBO) survey, whenasked why they had switched from beer to wine, customers cited a desire for a healthier lifestyle and wine's possible health benefits; however, the availability of moderately priced and easy to drink wines was also recognized as a factor (see Exhibit 2).

Foch, while the remainder were varietals.

All wine grapes were one species, with 10,000 different strains.18

This sharply contrasted with the previous decade, when beer made up 46.7

were split 54.5 per cent red, 32 per cent white, and 5.2 per cent sparkling wine.

by the type of grape used to make the wine, the region where the grapes were grown, the winery, and the label or product line. Wines were either made exclusively from one type of grape or were blended. Of the three value categoriesvin ordinaire (also called "table wine"), mid-value wines, and premium winestable wine tended to be blended, while premium wines were varietals with specific appellations from award- winning wineries. Old world or new world wines referred respectively to grapes grown in centuries-oldEuropean vineyards or to those produced in "newly" settled countries in the Americas as well as Australia.In Canada, the vines had to survive the harsh winter conditions, and so hybrids were growncrosses of the local grape stock with European varietals such as Chardonnay and Cabernet Sauvignon. One-third ofOntario's 15,000 acres of vineyards grew hybrids such as Vidal, Seyval Blanc, Baco Noir, and Marechal

Other species were used for non-alcoholic juices or eaten as fruit.

The most popular wine types as described by wine connoisseurs were, in the category of reds, Cabernet Sauvignon, Merlot, Pinot Noir, and Shiraz; in the category of whites, they were Chardonnay, Sauvignon

Grenache, Sauvignon Blanc, and Pinot Noir dominated.

Blanc, Riesling, and Pinot Grigio.

By area planted, Cabernet Sauvignon, Chardonnay, Merlot, Shiraz,20

Wines from different wineries made with the same type of grape shared some characteristics, but not all. For example, Pinot Noir red wines were lighter than Merlot or the Cabernet Sauvignon that might accompany a meal, while Shiraz were considered easy-drinking wines. Sauvignon Blanc was a dry white

Similarly, of the Canadian

However, the

Wines were characterized

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wine, more so than Chardonnay or a sweet Riesling. Differences resulted from grapes that differed in sugar content, influencing the sweetness of the wine and the alcohol content; tannin levels affected flavour,

Grapes were the single most important contributor to wine quality. Determinants of grape quality included

the orchard, weather, and discretionary features imparted by the knowledge and experience of the head

grower. Generally, hand-picking was more expensive than mechanical harvesting but provided a better raw

material for winemaking. Cold-climate growing areas tended to have variable yields, and harsh weather

could completely wipe out a vineyard. Wineries might grow all of their own grapes, or they might buy from

grape producers. Depending on whether the wine was blended or varietal, the price varied by a factor of

four. In 2017, hybrid grapes cost about $1,000 per ton in Canada, and the most desirable Shiraz cost over

Ice wine could only be produced in climates that were warm enough to grow grapes in the summer but cold enough to freeze them in late falla critical step that could not be imitated by technology (yet). Only Canada and certain Scandinavian countries produced this sweet wine that was often consumed with, or as, dessertlike a liqueur would be. It was said that ice wine had provided Canada with credibility in the

Wine quality could be associated with an appellationthat is, a name or description, legally defined and protected, that ensured certain aspects of the wine. In Canada, Vintners Quality Alliance (VQA) imposed criteria on where the grapes were grown; ensured that the wine was made with 100 per cent fresh grapes of verified quality (by sugar content), without the addition of water; and certified correct labelling and that the wine had been evaluated by an expert panel for quality. The designation was important to wine lovers,

acidity, colour, and astringency.

single-grape products, and premium products with added taste complexity.

$2,000 per ton.

Blending of wines allowed the winery to create products that were more attractive than23

international wine industry.

The winemaking process had been much the same for centuries, consisting of pressing the selected grapes,

reflecting place while also promising quality and authenticity.

to improve the quality and efficiency of grape-growing and winemaking. Good manufacturing practices

fermentation, processing, and aging.

However, data analysis approaches were being broadly introduced27

were observed to ensure physical, chemical, and biological safety for the product as well as the workers.

Starting a winery was a significant investment. InSmall Winery Investment and Operating Costs, Le Ann

A. Fickle and colleagues suggested that a modest operation of 5,000 cases per year required close to US$1

million in grape-growing and winemaking equipment, land, bottling supplies, and labour.

Agricultural

land was sold at a premium in designated viticultural areas. Wooden barrels for aging winecooperage

could be 9 to 22 per cent of the initial investment. Economies of scale in wineries were realized in marketing

and administration costs.

With the global nature of wine sales, sales restrictions imposed by

In Ontario and in Canada as a whole, operating a winery was heavily regulated.

grapes required a permit, issued by the Ontario Farm Products Marketing Commission. Wine sales, including pricing, were regulated by the LCBOeven for sales conducted outside their stores. In addition to sales and excise taxes, labelling, product size, and product content were regulated by bodies such as the Alcohol and Gaming Commission of Ontario and VQA Ontario. Headlines highlighted the challenges with the interprovincial trade of alcoholic beverages, which became particularly vexing as online shopping grew

31 32

into an interesting channel for wine. local governments were contentious.

Even processing wine

Page 4 9B19M139

Wine sales in Ontario grocery stores favoured locally produced wines, but this channel was only available

of total wine sales and were growing at 15.5 per cent year over year.

Wine Consumers and Consumption

Wine buyers selected their wine on the basis of familiarity with the wine or country of origin, were influenced by price and feature tags that described similarities to other wines, selected new wines they had read about or been recommended by friends, were attracted to the label design, and, if they had tasted the

at a quarter of the planned locations in 2018.

Quebec model, with wine and beer available in corner stores.

their own online channel. In a 2017 US study, direct-to-consumer (D2C) sales made up about 4.0 per cent

wine, were influenced by the aroma, structure, taste, and depth.

When selecting between red varietals,

It was possible that retail in Ontario would move to the

price, reputation, taste, food pairing, alcohol content, sweetness, and new or old world influence were

attributes of wine were price, region of origin, grape variety, and brand. Notably, brand loyalty and price

factors.

Price, brand, and region of origin were associated with trust in consumers, but overall, the key

sample of Canadians) were either confused by the choices or felt intimidated when buying wine, while only

High-frequency wine consumers (greater than one instance per week) drove growth in the US market,consuming 81 per cent of the country's wine. Splitting this group into high, medium, or low spenders for abottle of wine, the high spenders were the most involved with wine, enjoyed wine tourism, and were more likely to buy directly from the winery or online. The low spenders were more likely to buy their wine at the grocery store and use apps for coupons. The average age of the high and medium spenders was significantly

promotions were not a strong influence on buyers.

7 per cent found buying wine easy. followed the holiday season.

39 40

Quite a few wine buyers (18 per cent of a representative Sales of wine peaked in December and were lowest in the months that

In 2016, wine consumption in the United States roughly paralleled population demographics, with baby-

younger than that of the low spenders.

echoed in Canada, where the LCBO divided their customers as 33 per cent baby boomers, 36 per cent

boomers consuming 34 per cent, millennials 36 per cent, and Generation X-ers 18 per cent.

millennials, and 18 per cent Generation X-ers.In the younger generations, wine was more likely to be

consumers tended to prefer fruitier blends, such as red wine blends, sparkling and sweeter white wines, and

consumed socially than with a meal, as it was by older generations.

Younger or inexperienced wine

those with sustainable business practices.

This group was also more likely to purchase different brands;

they sought variety. Expert consumers valued region of origin more than inexperienced wine consumers.

Knowledge was important for these expert consumers. Many apps tracked consumption and enabled wine

knowledge sharing.

A small study of Chinese wine consumers indicated that wine was valued as a status symbol.

Three

clusters of consumers with varying characteristics were identified: those with little wine experience

favoured famous wine-growing regions, such as the French Bordeaux; traditional consumers sought an

alcoholic beverage; and those looking for a quality wine product based their buying decision on the taste of

In a comparison of wine drinkers from European producer countries (the mature markets of France, Spain, and Italy) and those from growth markets (the United Kingdom and Germany), it was found that wine

the wine.

to have a higher income, be married, and drink beer than the wine drinkers in the mature markets were.

consumers in the growth markets resembled American consumers.

These wine drinkers were more likely

Most wineries sold their product through35

This trend was

Page 5 9B19M139

This suggested a similarity to Canadian wine consumers, who were switching to wine from beer, as it was

than that of a bottle purchased in a traditional retail setting, suggesting that the wine aficionados favoured

15 per cent of total wine sales, but this did not present a growth channel for the product.

Many wineries began selling through an on-site store before battling the complexities and competition of distribution through powerful retailers such as the LCBO. In fact, it may have been close to impossible for small wineries to meet volume requirements for the LCBO. Under the North America Free TradeAgreement, only the winery's own products could be sold in thesewinery stores. However, the LCBO had several programs, such as monthly features, and Wines to Watch, to support Ontario wineries. Price discounting by the LCBO could have a significant impact on sales. The winery store channel was more popular with those who were knowledgeable about wine, as it satisfied the need to find something different and more authentic or to make a connection with the winemaker. Most visitors were local (83 per cent of

consumers. Newness could come from label, country of origin, or grape blend. Some predicted that larger

perceived to be healthier. Food matching was important in the mature European markets.

The average price for a bottle of wine purchased through the D2C channel was about 50 per cent higher

the D2C channel.

States, retail outlets for wine were more diverse than in Canada; for example, 10 per cent of wine sales were through Costco stores). Cabernet Sauvignon and Baco Noir were the most popular wines purchased online. Interestingly, users of the D2C channel in the United States tended to be from states with many wineries. Wine was also purchased at bars and restaurants, where recommendations from waiters along with the grape variety were key factors in the purchase decision. In Canada, wine sales in restaurants were between 10 to

While there were many similarities in the Canadian and US markets, in the United

tourists who visited Ontario wineries were from Ontario), rather than from outside the province or country.Many industry participants recognized the "anything new" category as popular, particularly with millennial

for "natural wine," or that createdin a non-factory environment, such as pressed the old-fashioned way

bottle sizes, or alternative packaging such as boxes and bags, would sway buyers.

There was even a niche

Ontario, Baco Noir was the fastest-growing varietal in 2016. In2016 in the United States, Prosecco, ros,

by foot.

In grape varieties, ros wine sales were growing in both Canada and the United States,

while in

56red blends, and Sauvignon Blanc were labelled the "in" wines.

(Treasury Wine Estates [Treasury]). Sparkling wines were predicted to remain popular worldwide.Another trend observed in both countries was the premiumization of wine purchases. In the United States,

were Bodacious Smooth White (Arterra Wines Canada [Arterra]) and 19 Crimes Cabernet Sauvignon

59An LCBO report for 2017 also indicated that sales of wines in the $15-$20 price category were the fastest-

higher-priced wine sales grew at 14 per cent, while lower-priced bottles fell 1 per cent in the same period.

closely watching for an impact of the craft beer industry on wine sales.

DIAMOND ESTATE WINES & SPIRITS

History and Structure

Diamond, located in the Niagara Peninsula of Ontario, the viticultural region that produced the majority of the wine grapes in the province, was founded in 2001. This was an early growth stage in the Ontario wine industry. The modern era of the industry started in 1974, with the first new winery in 50 years. The VQA

growing, at 15.4 per cent from the previous year.

ethical approach to marketing than encouraging wine drinkers to consume more. Industry observers were

was created in 1988. Laws on appellation and production standards came in 1999.

The LCBO's "favourite" wines from 2016

This was a "trading up" phenomena, considered a more

Page 6 9B19M139

The company had two business units: the Diamond winery that grew grapes and made and sold wine; and an agency business that operated as Trajectory Beverage Partners (formerly Kirkwood Diamond Canada; Trajectory), which sold and distributed wines, beer, and spirits produced by other organizations, along with Diamond wines (see Exhibit 3).

With complementary knowledge in agency operations and the Ontario wine industry, Diamond's founderswere convinced that they could create-agreat business in Ontario's emerging wineindustry, so they

with the Kirkwood Group, which later became wholly owned by Diamond, scaled the agency business.

Diamond had been labelled an "industry consolidator."65The company had also grown organically, adding wine labels, wholly owned retail channels, and production capacity. For example, collaboration with, and investment by, Dan Aykroyd began in 2006 and led to the production of a number of successful VQA wines. Most recently, the company acquired a small winery in British Columbia, which could mark the

Diamond had a track record of raising capital to support corporate acquisitions and organic growth. Along with private investments from collaborators, equity in the amounts of $3.2 million and $8.8 million were raised in

purchased two small wineries, Lakeview Cellars and Birchwood Estates.

merged with Niagara Cellars and founded its agency business. In 2007, two additional wine agencies were acquired, expanding the product portfolio and geographic reach. In 2008, the 20 Bees and De Sousa wineries were added to Diamond's portfolio, increasing the firm's acreage and proprietary wine labels.Between then and a reverse takeover on the TSX Venture Exchange in 2013, wine production facilities were consolidated, including divestitures of EastDell, Lakeview Cellars, and Birchwood Estates wineries. In 2014, the De Sousa Estates winery was partially sold, and the proceeds were redirected to other aspectsthe company's operations, although Diamond maintained operations at the De Sousa location. A merger

beginningof the company's transition from a regional focus to a national one.

2015 and 2018, respectively,

People

67 68and a significant credit facility of $13 million was established in 2013.

J. Murray Souter had been chief executive officer of Diamond since the company became public in 2013. Souter brought extensive knowledge and experience in Canadian retailing to the business. A recent addition to the company was the chief financial officer Paul Dowdall, a seasoned executive with recent experience in the beverage industry. Tom Green, vice-president of Winemaking and Winery Operations, had a degree in viticulture from Brock University and had been with Diamond since 2003. Scott McGregor, winemaker, had studied at Niagara College and had 20 years of experience in various wineries in Ontario. The assistant winemaker, Jessica Wallace, was also from the Niagara region and had earned a certificate from the Cool Climate Oenology and Viticulture Institute at Brock University. In total, Diamond employed approximately 100 people, over one-half of whom were engaged in selling and marketing, one-quarter in manufacturing,

Diamond had two wineries in the Niagara region, with a total of 34 acres, and had recently acquired the British Columbia winery. The year of 2017 was a record grape harvest, while poor harvests in 2014 and 2015 required the streamlining of operations to maintain financial health. In 2015, 97 tons of grapes were

and the remainder in administration.

Wine Production

harvested; in 2016, 114 tons; and in 2017, 155 tonsall from the same land.

After a recent expansion,

Diamond had the capacity for approximately 6 million litres of wine production. Cooperage was at 1.6

million litres but not fully utilized. Interestingly, only one Canadian supplier of glass bottles served

Diamond's bottling needs.

A few years later, the company

Page 7 9B19M139 Product Portfolio

Diamond was the third-largest producer of VQA wines in Ontario;72as such, six of its labels had VQA products under them (see Exhibit 4). The company also offered blended wines. Many of Diamond's labels,both varietals and blends, had won awards at the Ontario Wine Awards, All Canadian Wine Championships,

including a red wine and a white wine under the award-winning Hat Trick label. Fifty cents from the sale

of each of these bottles had gone to charity.

With the portfolio of Diamond's agency business, Trajectory, the company had over 120 brands. The

Trajectory business unit played a major role in maintaining the key LCBO channela crucial asset that not many small wineries possessed. Products from Germany, France, Argentina, New Zealand, the United States, Nicaragua, and Canada included notable names: Gato Negro and Blue Nun wine, Hardy Cognac,

Under the Lakeview Wine Co. brand, Diamond operated three of its own retail outlets as well as an online store. Although on-site sales offered limited brands, the margins were attractive in that the LCBO markup

All three of Diamond's stores were based in Ontario:its main facility was in Niagara-on-the-Lake, and it also had one store in Beamsville, at De Sousa Wine Cellars, and one in Scarborough. Each facility offered wine tasting, and those who worked at the wineries were part of winery tours. Tours were booked through a variety of independent tour organizers and were packaged with other activities or with tours of other wineries. Diamond offered snacks and picnic areas at their wineries and hosted special events, such as axe

The online wine store sold all of Diamond's winery brands, with an associated delivery fee of a few dollarsper bottle. The site was well laid out and easy to navigate, with menus offering a number of ways to select winesby label, grape, top sellers, and personality, or as gift packs. Delivery required a signature from a

Additional retail channels included provincial liquor stores and grocery stores, licensed establishments, and third-party distributors in international markets.

Strategy

Diamond's vision was to build enduring and high-quality alcoholic beverage brands that celebrated life and

compound annual growth rate of 8.3 per cent between 2009 and 2015.

constituted 26 per cent of domestic wine sales and 11 per cent of all wine sales in Ontario. Grocery stores, which now carried alcoholic beverages, were an attractive channel, and Diamond worked to ensure its products were available in as many stores as possible. Trajectory, which contributed half ofDiamond'srevenue and profits, was viewed as a source of consistent cash flow and as complementary to the winery

and the National Wine Awards of Canada.

Other products had come and gone from the Diamond portfolio,74

Hpnotiq liqueur, and Waterloo beers.

Distribution Channels

did not have to be paid, even though the selling price was set by the LCBO.

throwing and jewellery making, often with associated fundraising components.

person who could prove they were of legal drinking age.

Its goal was to become one of the top three Canadian wine citing the sobering statistic that most wine-producing areas consumed significantly more locally grown wine than did Ontarians. However, sales of VQA wines in Ontario increased with a

achievement in a socially responsible way.

producers,

In 2015, VQA wine purchases

Page 8 9B19M139

business. This unit aimed to develop long-lasting relationships with suppliers, targeting producers that were

Diamond's ownersalso saw growth opportunities in international markets and believed they could leverage

CANADIAN COMPETITORS IN WINE SALES

The top Canadian brands in 2011 did not necessarily come from companies with the top market share. Constellation Brands Inc. (Constellation), which sold the Canadian arm of its wine business (now Arterra) to private investors in 2017, dominated the market with 15.7 per cent market share, followed by Andrew Peller Limited (Andrew Peller; 11.9 per cent), Treasury (4.2 per cent), Accolade Wines (3.9 per cent), and E & J Gallo Winery (Gallo; 3.5 per cent). The top five wine brands in 2011 were Jackson-Triggs (Constellation/Arterra), Fuzion (an independent Argentinian winery), Domaine d'Or (Andrew Peller),

not well represented in Canada.

directed toward winemaking, sales, and office infrastructure (see Exhibits 5 and 6).

some of their underutilized infrastructure.

The company's financial reports stated that investment was

Top competitors in the VQA Ontario category came from Arterra, Andrew Peller, and Henry of Pelham

Yellow Tail (an Australian family winery), and Inniskillin (Arterra) (see Exhibits 7 and 8).

Constellation/Arterra had a 21 per cent share in Canada and a 36 per cent share in English-speaking Canada;

Estate Winery.

and Gallo was the third-largest seller in English-speaking Canada, followed by Treasury.

In 2017, Andrew Peller's market share in English-speaking Canada was 14.6 per cent;86

Andrew Peller Limited

Andrew Peller was also located in the Niagara district in Ontario, and itsmission was to "pour extraordinary into everyday life"87by delivering high-quality alcoholic beverages at the best possible value. The company had over 360 acres of vineyard in Ontario and, after recent acquisitions, almost 600 acres in BritishColumbia. The company's bestsellers were Peller Estates, Copper Moon, Trius Winery, and XOXO Wines. Its products were divided into value, ($8 [blends] to $12 [varietal] per bottle), entry-level VQA ($12-15 per bottle), premium VQA ($12-25 per bottle), and super premium VQA ($25 and up per bottle). Recent initiatives included introducing the Wayne Gretzky Estates brand of spirits as well as differentiated packaging, such as boxes of wine, a bag of wine in a box, and Tetra Paks. In annual reports, Andrew Peller

This company marketed and distributed spirits and imported wines in Canada. It sold 21 per cent of the

This Chilean winery sold 5.1 per cent of its product in Canada. In 2018, sales in Canada decreased 5.5 per

Located in California, this winery was of a similar size and in a similar development stage as Diamond'swinery business. Its D2C sales were only 27 per cent of revenue, but gross profit on this segment was 64

identified young consumers and older buyers seeking health benefits as growth markets.

Corby Spirit and Wine Limited

spirits purchased in Canada. In 2016-2017, itshipped just over 1 million cases of Jacob's Creek wines.

Concho y Toro

cent, although volume of sales decreased 9.2 per cent in the same period.

Truett-Hurst Inc.

Page 9 9B19M139

per cent, compared to 24 per cent of their wholesale channel. The company had started selling its products

Treasury Wine Estates

This Australian winery, established in 1843, was one of the largest wine companies in the world, with vineyards in New Zealand, California, Italy, and Australia. Recent financial reports described a revamped approach to distribution in the United States, whereby the company was looking to shorten the value chain and achieve more direct sales and distribution agreements. This may have been a response to consolidationin the distribution industry. Their 19 Crimes label was a 2018 darling; after being named "Wine Brand of the Year" by MarketWatch, the label had a 50 per cent increase in shipments to Canada and a 131 per centsales increase in the United States. Other strategic directions for the future included marketing improvements and building relationships with customers. To this end, Treasury had introduced augmented

In 2017, Constellation sold its Canadian operations to private investors, which resulted in Arterra. Arterra claimed eight of the top 20 brands in Canada, including Jackson-Triggs and Inniskillin, with the top ice wine. It stated that it was"Canada's leading producer and marketer of award-winning, globally recognizedCanadian and imported wines." Arterra operated Wine Rack, a segregated wine store within grocery stores,and also sold home winemaking kits. It had 2,000 employees, three commercial wineries, five estate

Although no longer a competitor in the Canadian wine industry, the company's strategic direction wasinstructive. Constellation was following a strategy of premiumization by providing more valuable products

in Canada.

reality labels, where the picture on the wine label linked to a historical story.

Arterra Wines Canada

wineries, and 1,700 acres across Canada's wine-growing regions.

Constellation

to their US customers. Constellation had also recently acquired a cannabis operation.

THE PATH AHEAD

Diamond's goal was to become one of Canada's top wine companies.

this could mean a number of things, applying to wine quality or quantity, or both. To achieve the goal, broader distribution was likely required, which could be at a local, regional, or international level. Which metrics would be applied to demonstrate dominancesales, awards, acreage, number of labels, number of wines? A small player in a fragmented industry, Diamond had a broad portfolio of assets spanning most of the value chain and had demonstrated a spectrum of important capabilities in a complex industry. It seemed a company bursting at the seams, ready to sprout new facets, but in which direction?