Armand Gilinsky, Jr., Sonoma State University
Richard L. McCline, San Francisco State University
 

Abstract

The wine industry has provided the backbone for job creation and growth in California’s North Coast economy, yet relatively little is known about the strategies and leadership of individual businesses in this regionally important industry. In this exploratory study, we use a series of in-depth interviews with 12 wine industry chief executives to explore how they respond to the strategic challenges faced by the industry. On a preliminary basis, we find that the firms are moving from predominantly entrepreneurial to predominantly managerial in response to environmental changes. This sets the stage for future empirical studies into the competitive strategies and leadership profiles of a larger cross-section of wine businesses in the North Coast and around the world.

1. Introduction

 Today there more than 400 wineries and more than 75,000 acres of vineyards in Northern California, comprising Sonoma, Napa, Mendocino, and Lake counties (Tesconi, 1998). In recent years, however, the dynamic state of the Northern California wine industry has abated and the industry has undergone dramatic changes, a result of the continuing decline of U.S. wine consumption, consumers’ trading-up to premium-priced wines, and consolidation among key players, while at the same time world wine consumption has reversed its downward trend (Appel, 1999). In 1996, U.S. wine production totaled 417.6 million gallons and retail sales hit $16.1 billion, up $6 billion from 1991 (Shapiro, 1998). There are 17 million people in the US who drink alcohol on a regular basis, of which 80% drink wine. Yet half the wine sold is being consumed by people age 50 and older. In spite of declining wine consumption, U.S. wine sales remain strong, fueled by a vibrant economy and positive news about the health benefits of moderate wine consumption.

By all accounts, the wine industry will be changing drastically over the next 10–25 years. It is believed that by 2008, many elements will combine to change the Northern California wine industry landscape (The U.S. Wine Market, 1997). One of the most significant will be meeting the increasing fixed costs associated with an historically capital-intensive industry and concomitantly increasing consolidation to achieve economies of scale and global scope via acquisition and merger of wineries (Deloitte & Touche, 1996; Golden State Vintners, 1998). These projections appear to be well-known within the industry and may provide an opportunity to assess intended behavior as an extension of historical venture strategy.

At the same time, the Northern California wine industry faces a number of major external issues that impact its long-term growth. Anti-alcohol groups continue to advocate stringent labeling requirements along with other publicity regarding the effects of alcohol on health and public safety that is believed to have a negative impact on wine sales and consumption (The Wine Institute, 1998). The industry continues to be subject to extensive regulation by the Federal Bureau of Alcohol, Tobacco and Firearms, various foreign agencies and state liquor and local authorities. These regulations and laws dictate such matters as licensing requirements, trade and pricing practices, distribution channels, labeling and advertising restrictions and relations with wholesalers and retailers.  Additionally, expansion of wineries’ existing facilities and development of new vineyards and wineries are limited by zoning ordinances, environmental impact restrictions and truth in labeling requirements (Nalley, 1998; Appel, 1998).

         The markets in which wine businesses operate have become highly competitive, dominated by companies with substantial financial, production, personnel and other resources (Golden State Vintners, 1998). Large-scale, fully integrated competitors today include E & J Gallo, Canadigua, Bronco, and Delicato Winery, as a well as a number of publicly-traded companies such as Beringer/Wine World, Chalone, Golden State Vintners, Ravenswood, and Robert Mondavi. Below these ‘top tier’ producers, the industry remains highly fragmented, with approximately 800 smaller commercial wineries that produce and market California wine, of which about half are located in the North Coast, as well as another thousand wineries throughout the U.S (Long, 1998). Numerous wine producers in Europe, South America, South Africa and Australia also compete with domestic wineries by exporting their wine, either in bulk or in bottles, into the U.S.

 1.1  Exploratory framework

 We are interested in knowing to what extent the industry is undergoing evolution from entrepreneurially-led to professionally-led. We examined this topic from the perspective of the top executives of leading firms in Sonoma and Napa counties. Who are the leaders and what challenges do these leaders face? How does one become a recognized leader in the industry? We began with the assumption that wine industry leaders would have distinguishable differences in their understanding as to the nature of industry-wide and company-level challenges, depending upon the perspective shaped by their company’s size and financial position relative to others in the industry.

Another intent of this exploratory research was to correct what the literature on strategic management confirms: a dearth of available empirical data on wine businesses. One can reasonably assume that, due to the historical fact that wine businesses in Northern California have been predominantly privately-held and family-run, firms and individuals have in the past been reluctant to participate in research studies that could reveal proprietary information. Thus, this work represents an important first step in understanding the leaders and their strategies.

2. Literature Review

 Central to this study is the question of under what conditions do small businesses tranform themselves into entrepreneurial growth businesses (Birley & Westhead, 1990). We now turn to two perspectives taken from the literature on entrepreneurship and strategy for insight: 1) opportunity scoping and 2) strategic assessment.  These perspectives offer academics and practitioners alike some important insights that need to precede implementation of strategic planning decisions.

 2.1 Opportunity scoping.
 Entrepreneurship theory suggests that a preoccupation with growth is the distinguishing feature that sets entrepreneurial businesses apart from other small firms (Penrose, 1959; Baumol, 1967; Carland et. al., 1984; Dollinger, 1999). Other researchers have suggested that the major characteristic of entrepreneurship is the creation of organizations (Gartner, 1985), pursuit of opportunity without regard to resources currently controlled (Stevenson et. al., 1989), and the discovery and potential exploitation of profitable opportunities for creation of both private and social wealth (Venkataraman, 1997).

While normally one thinks of entrepreneurial strategy in the context of emerging or growth stages in the industry life cycle (since these phases are where the most highly publicized start-ups occur), entry can take place in the mature phase of the life cycle as well (Covin & Slevin, 1990). Maturing industries are characterized by slowing growth, diminishing innovation, more product and process improvements, more sophisticated customers, and increasing concentration of producers (Porter, 1980; Baden-Fuller & Stopford, 1992). In a maturing industry, growth niches for firms that are successful in differentiating a commodity product or support service still exist. Famous examples of this strategy in U.S. consumer products industries include Perdue Chicken and Orville Redenbacher Popcorn. These firms succeeded in branding commodity products and achieving leading positions in their respective markets. They hold differentiated positions, and both enjoy the higher margins derived from the premium prices that they are able to charge (Miller, 1998: 230).

 The same holds true for the wine industry. As Allan Hemphill of Associated Vintage Group, a wine business support organization that specializes in custom crushing of grapes for other wineries, told us: “Grapes have become a commodity—to be identified with the ground is no longer important. With so many competing uses of capital, many wineries have begun outsourcing as a conscious strategy…the future of the industry will be dominated by those who think differently. Those products that will succeed are those that taste good and are priced right.” Differentiation of a commodity product is precisely a smaller winery’s major opportunity—and problem, as larger competitors recognize the greater value to be captured from branding different types of wine and decide to enter premium-priced segments of the industry.

 2.2  Strategic assessment

 Much of the research into the formulation and practice of strategic management is at the level of the firm, that is, concerned with the relative performance of rival firms and the sustainability of these differences over time (Porter, 1985). Research has shown that industries vary greatly in the similarity of their firms in terms of strategies pursued. Some industries, such as the forest products and agricultural commodity producing industries, are very homogeneous in terms of marketing efforts, R&D expenses, or capital intensity (as measured by the ratio of assets to sales); others tend to be very heterogeneous, comprising multiple strategic groups, such as insurance, pharmaceuticals, and automobile parts (Miles et. al., 1993; Miller, 1998: pp. 93-94). Differences in performance can also be explained by the ability to adapt to or lead change amidst uncontrollable external forces, for example: social/demographic, economic, political/regulatory, industry/ competition, and technology (Miller, 1998: p. 89).

3. Methodology

The research involved three phases: 1) creation of a database of recognized leaders in the Northern California wine industry and confirmation of this database by industry insiders, 2) travel to conduct field interviews running 45 minutes to an hour with each leader, and 3) preparation of transcripts from the interviews and content analysis of these responses to uncover points of commonality and significant divergence.

3.1  The Sample

 A database of some 50 Northern California wineries representing Napa and Sonoma counties was drawn from the 1998 annual survey of wineries by Wines & Vines. A sub-sample of 12 wineries, half from Sonoma and half from Napa, was then constructed. See Table 1 for a list of participating wine leaders.

TABLE 1—Wine Industry Leaders Survey: List of Interviewees
 

Contact Name Ownership	Brands	# of Cases	Price Category
Jack Cakebread Board Chairman, CEO Rutherford, Napa County Ownership: Private/Jack & Dolores Cakebread	Cakebread Cellars	65,000	$14-$70
Patrick CampbellOwner Laurel Glen Vineyards Santa Rosa, Sonoma County Ownership: Private	Laurel Glen Laurel Glen Counterpoint Terra Rosa Reds Quintana	60,000	$35 $20 $10 $7 $15
Thomas G. Eddy, Owner Thomas G. Eddy & Assoc. Napa  Ownership: Private	Tom Eddy Napa Valley	468	$60
Gary Heck Owner, Bd. Ch., Pres. F. Korbel & Bros. Guerneville, Sonoma County Ownership: Private/Heck Family	Korbel Armstrong Ridge Kenwood Valley of the Moon(Glen Ellen)	225,000 20,000	$7-$22 $8-$65 $20-$25
Judith L. Jordan Managing Partner J Wine Company Healdsburg, Sonoma County Ownership: Private/Jordan Family	"J" Methode Champenoise “J” Pinot Noir	N/A	$20 $24
Walt Klenz President, CEO Beringer Wine Estates Napa, Napa County Ownership: Public	Beringer (Napa) Napa Ridge Meridian (Paso Robles) Chateau Souverain Chateau St. Jean (Sonoma) Maison Deutz	N/A	N/A
Zelma Long Exec. VP, Chandon Est., Bus. Dev. Simi Winery Healdsburg, Sonoma County Ownership: Louis Vuitton Moet Hennessy	Simi	180,000	$10-$43
Peter Mondavi, Jr. VP Marketing, Sales & Finance Charles Krug, Peter Mondavi  St. Helena, Napa County Ownership: Private/Family	Charles Krug CK Mondavi	60,000 600,000	$11-$50 $5-$9
Jon Moramarco President, CEO Clos du Bois Winery Healdsburg, Sonoma County Ownership: Allied Domecq	Clos du Bois (Healdsburg) Callaway V & W (Temecula) William Hill Winery(Napa) Atlas Peak Vyds.(Napa)	750,000 225,00 100,000 30,000	$7-$50
Harry Parsley President, CEO Buena Vista Winery Sonoma, Sonoma County Ownership:  Private/A. Racke GMBH & Co.	Buena Vista Carneros Buena Vista Calif. Haywood Estate Haywood VS Robert Stemmler	120,000 90,000 2,400 240,000 4,800	$10-$15 $5-$8 $18-$28 $7 $20
Michaela Rodena Vice President, CEO St. Supery Vineyards Rutherford, Napa County Ownership: Private/Skalli	Family St. Supery Bonverre Mount Maroma (Kosher)	100,000	<$10
Phil Woodward Chairman of the Board Chalone Wine Group Napa, Napa County Ownership: Public	Acacia (Carneros, Napa) Canoe Ridge Vineyard Carmenet (Sonoma Valley) Chalone Vineyard Edna Valley Echelon Ch. Duhart-Milon (Pauillac)	N/A	$20 $14-20 $14-20 $20 $14-20 $14-20 > $20

Source: Sonoma State University, Wine Business Education Program

3.2  Survey Method

 Interviews were conducted over a period of three weeks in September-October, 1998. The format for the interviews was semi-structured, using the questions which were sent via fax to each leader in advance of the meetings. Key questions posed to the participants included:
1) What do you see as the critical business challenges facing your industry today?
2) What do you see as the critical business challenges facing your company today?
3) How do you (or did you) plan to manage or overcome these challenges?
4) How does a person come to be recognized as a leader in this industry?
5) Which skills will leaders of wine businesses need to develop in order to compete successfully in the 21st century?
 Notes were taken at each meeting and transcribed. Two meetings were canceled, but the leader returned her/his responses via fax. Background data on each company and leader were compiled from published sources and later compared with public relations materials supplied by each company to assist in verifying the responses.

4. Findings

 Our findings were gleaned from interview transcripts and verified by interviews with leaders of wine business support firms and searches of secondary sources such as trade publications. . Individual respondents’ views on the strategic challenges and how they were overcome are shown in Table 2, and the leadership issues and qualities sought in leaders are shown in Table 3.
 
TABLE 2—Wine Industry Leaders Survey: Strategic Challenges

Respondent	Q.1— Challenges facing industry today?	Q.2— Challenges facing company today?	Q.3— How were challenges overcome?
Jack Cakebread	The economy.	Meet demand/maintain quality.	Hired outside professionals.
Patrick Campbell	Large startup capital.	Maintain price/quality.	Solid marketing plan.
Tom Eddy	Government regulation.	Grow and maintain profits.	10-year forecasting model.
Gary Heck	Excise taxes.	Death tax issues.	New product development.
Judith Jordan	Wholesaler consolidation.	Wholesaler consolidation	Growth of still wine sales.
Walt Klenz	Consumer demand.	Educate shareholders.	Scale economics.
Zelma Long	Business professionalism.	Distribution system.	On-going process.
Peter Mondavi, Jr.	Balance supply/demand.	Distributor attention.	Build strong brand equity.
Jon Moramarco	Cyclical industry.	Mature industry.	Develop 25-year vision.
Harry Parsley	Expand consumer base.	Consumer brand loyalties.	Redesigned company.
Michaela Rodena	Expand Consumer base	Agriculture issues	Low-price position.
Phil Woodward	Expand consumer base.	Maintain 25%+ growth.	Public equity ownership.

 TABLE 3—Wine Industry Leaders Survey: Leadership Qualities
 
 

Respondent	Q.4— Becoming a recognized leader?	Q.5— Skills leaders need in the 21st century?
Jack Cakebread	No Response	Financial Skills
Patrick Campbell	Active in industry political issues.	Understand marketplace.
Tom Eddy	Peer Group Recognition	Benchmark successful practices
Gary Heck	Share technical knowledge.	Understand industry differences.
Judith Jordan	Build/maintain profitable company.	Financial sophistication.
Walt Klenz	No response.	No response.
Zelma Long	Reputation in industry.	Understand agricultural cycles.
Peter Mondavi, Jr.	No response.	Business education/industry experience.
Jon Moramarco	Active in various levels of industry.	Cross section of skills: agricultural
Harry Parsley	No response.	People Skills
Michaela Rodena	Women for Wine Sense founder	Analytical & communication skills

 4.2  Anecdotal responses from the interviews

 Excerpts from the interview transcripts (which run over 100 pages) can be illustrative. When asked about the qualities leaders of the wine industry will need in the 21st century, both Harry Parsley of Buena Vista Winery and Jack Cakebread of Cakebread Cellars talked about long-term vision. Gary Heck of F. Korbel & Bros., the nation’s leading producer of sparkling wine, underlined the importance of being willing to develop and share best practices. In the words of Patrick Campbell of Laurel Glen Winery, a leader must be a generalist: “It’s the perfect job for a renaissance person…for the amateur who knows a little about a lot.”  Tom Eddy of Thomas G. Eddy and Associates echoed Campbell’s view:

 * Each management group must look to parallel industries to examine reasons for success.
 * Leaders need to develop long-term financial and marketing planning tools (surprisingly this is not being done).
 * Stay tuned with cutting edge technology.
 * Understand viticulture as a "key" component in marketing.
 * Winery principals that are production oriented need to "learn" how to develop promotional skills.

  Jon Moramarco of The Wine Alliance (now Allied Domecq USA) noted that now was the best time in history to be in the wine industry, but that the future would require leaders with good “people” skills. Peter J. Mondavi, Jr. of Charles Krug emphasized critical thinking and analytical skills. Phil Woodward of Chalone, a publicly-held winery, stressed the importance of clout: reaching critical mass in terms of company size and political savvy.  The leader of another publicly-held winery, Walt Klenz of Beringer Wine Estates (Wine World), offered some cautionary notes regarding the wide-ranging effects of being publicly-held on the culture of his company, one that has grown primarily by acquisition: “Whether acquiring from a family or closely held company, there are economic and non-economic factors from a seller’s point of view—politics. Cultural assimilation can be very difficult. You have to consider how to deal with the individual identity and while having them become part of the group.”

  We found there to be no major differences in the responses to questions about leadership skills by gender. This may be due to the fact that the three women leaders who agreed to participate had had business or graduate school education and long histories in the wine business.  Michaela Rodena of St. Supery discussed the importance of credibility and integrity in determining one’s capacity to lead. According to Zelma Long, VP of Business Development at Simi Winery, leadership recognition is contingent upon values and attitudes towards developing a global context. Judy Jordan of J Wine Co., a boutique producer of sparkling wine, summarized many of the major themes:

 Our industry is becoming more and more financially sophisticated (more public companies, fewer family and hobby wineries). We will all need to be more and more financially astute. There are many ways to become recognized as a leader:
 • building and maintaining a profitable company
 • becoming involved in industry political committees and initiatives
 • taking a chance and doing something new that sets an exciting and successful example to other colleagues
 • working with integrity while respecting other leaders’ points of view and position in the wine business

  Wine industry leaders generally showed a fundamental respect and appreciation for one another—contrary to the anecdotes often cited in the popular press. Furthermore, the amount of trust and openness in the relationships serves as a foundation for the evolution of the industry to unify strategic intent, except in those instances (such as product differentiation and positioning) where secrecy and rivalry are critical for survival.

 4.3  Discussion

 The personal interviews that were conducted, along with the results from the pilot-group surveys, offered a number of insights into: 1) the strategic challenges, 2) how these challenges were overcome, and 3) leadership recognition.  The most important are discussed below;. The literature on strategic management considers the environment as being a critical determinant of venture success as industries evolve (Stinchcombe, 1965; Aldrich, 1979; Boeker, 1988; Carroll & Hannan, 1989; Schaefer, 1990). Entrepreneurs have a responsibility to scan their respective environments and select issues that are of strategic importance to the performance of their enterprises as well as their industries (Aguilar, 1967; Dutton & Duncan, 1987). Academicians and practitioners alike have noted a paradoxical relationship between industry change and management preparation for change. On the one hand, entrepreneurs who anticipate major changes in the internal and external environments may take steps to prepare for these changes and consequently experience fewer crises over time (Dollinger, 1999: pp. 55-57). In contrast, the less vulnerable an organization thinks it is, the fewer changes it prepares for; as a result, the more vulnerable it becomes. That is, firms that have had elaborate “environmental scanning” structures in place for many years have tended to reduce their overall exposure to crises (Birley & Westhead, 1990; Covin & Slevin, 1990). Alternatively, when cost-effectiveness and maintenance of coalitions, particularly among family or founding team members who are still owners/ managers of the business, are key objectives, other responses to change may emerge (Dollinger, 1999: pp. 55-57). These include: contracting out those services rather than relying on internal capabilities, contracting with special intermediaries, or relying on networks such as trade associations to respond to change and to suggest tried and tested implementations of industry best practices (Miller, 1998: p. 90). The latter alternative may be desirable if concerns related to the changes occur infrequently and firm and industry perspectives on the issues involved tend to converge (Aldrich, 1979).

  Two important trends in the Northern California wine industry emerged: 1) a tendency toward consolidation and asset concentration among some industry participants; and 2) the emergence of niche players with specific product/customer targets (Golden State Vintners, 1998; Shapiro, 1998, Tesconi, 1998). Prior researchers in the fields of strategy and entrepreneurship have suggested that one outcome of a maturing industry is asset concentration and pursuit of economies of scale. Others have considered innovation and focus strategies as keys to success (Miles et. al., 1993; Porter, 1980, 1985, 1996). Those top management teams that tend to act proactively toward environmental change and have a propensity to assume risks are thought to be more entrepreneurially-oriented than those that do not (Covin & Slevin, 1991). There are clear indications that the industry is evolving from entrepreneurially-led to professionally-managed. There is considerable unity among respondents that the major strategic challenges include: 1) educating consumers and government regulators; 2) coping with a ‘three-tier’ distribution system; 3) planning for changing business cycles, leadership succession, human resource needs; 4) competition for global sources of supply and access to markets; and 5) access to long-term capital (see Table 4 for a summary of the key findings).

Table 4—Summary of Strategic Challenges Identified by Wine Industry Leaders
 
 
 

Strategic issue	Consensus areas of concern	Competitive strategies
Competition and markets	Cyclical effects; elastic vs. inelastic demand; price points to meet those challenges; consolidation due to market maturation; effort & political capital expended in developing new markets or product line extensions	Develop innovative marketing programs; new ways to educate consumer, understanding consumer trends & preferences, build brand equity; re- position brands, global marketing
Expanding the consumer base	How to reach the infrequent wine drinkers; consumer education; where education should be focused (distributor, retailer, consumer); global competition	Promote branding, globalization of sourcing, selling to Pacific Rim countries; use Internet as advertising/sales medium
Product differentiation	Increasing industry segmentation; differentiation, positioning & protection of that position; managing value & quality while improving economies of scale; pricing & labeling as sources of differentiation; cultivating mass market retailers; retail promotion & display	Re-design, redefine company; develop long-term forecasting models; sales force training
Management talent	People skills; moving the workforce in same direction; business definition; building company culture	Seek professional management team from outside the industry
Uncertainties in grape supply	Maintaining product availability, quality, & consistency; systematic vs. unsystematic risks; disease & pest management; research; farming & sustainable development; resource conservation; changing varietal popularity; role of imports	Spend $ on product & process R&D; use forecasting tools to determine future varietal grape plantings; develop new grapes supply sources; build long-term supplier relationships; subcontract crushing & storage
Managing distribution channels	Increasing access to consolidating channels by small vs. large wineries; : complexities of reaching the end-user within the three-tier system; effect of proposed legislation allowing wineries to sell direct to consumers	Work closely with distributors to ensure brand receives attention; develop industry-wide campaign; use Internet as direct sales medium
Long-term sources of capital	Capitalization required; time horizons; access to capital; inventory management; public ownership & stock price appreciation; variety of ownership & governance structures	Develop outside Board of Directors with financial savvy & outside industry experience; hire more MBAs
Regulatory constraints	Limitations associated with the regulatory constraints of moving products within 37 states (California included) without a distributor	Build networks & trade associations; support industry attempts to increase consumer demand, promote Wine Market Council’s “25 year vision”

    Contrary to our expectations, we found that while firm size has no significant impact on the recognition of critical issues and leadership skills, either on the industry or the company level, the leader’s personal background apparently did have an impact. Levels of educational attainment and/or prior experience in other industries were among the variables that contributed to greater understanding of strategic issues, although these would need to be tested in a future study (see Table 5).
 
Table 5— Leadership Recognition Factors and Skill Sets
 
 

Leadership recognition factors	Leadership skill sets
Active in industry political issues	Well-rounded education & analytical skills
Active in industry trade associations	Ability & willingness to understand agricultural & business cycles
Aligned with companies that have grown large & successful	Building and planning — emphasis in finance, marketing, and human resources
Work for the industry as a whole & not just to serve own interests	Awareness of the industry as well as its networks & associations
Share best practices with the rest of the industry	People, communication, motivational skills
Achieved recognition for individual accomplishments	Goal/direction oriented, with experience outside the industry

 We wish to make note of the fact that most respondents, regardless of the size, legal structure, or ownership of their firms, thought it was important to recruit and utilize the talents of a Boards of Trustees. For those firms that were corporations, Boards represented a diversity of constituents, comprising a mixture of outside versus inside members, as well as a mixture of family and non-family members. They were actively involved in monitoring a firm’s historical performance and were heavily involved in the planning function.
  We also observed increasingly significant ownership interests in these firms by top management executives, although increasing the levels of ownership interest for managers, winemakers, and eventually lower-level employees could further enable these businesses to attract and retain first-class talent—particularly people with international experience—in building their management teams for the future.

 4.4  Limitations

 In addition to the problems inherent with drawing conclusions from anecdotal information provided by small convenience samples in exploratory surveys, it should also be noted that many of the leaders in the sample were members of the Wine Marketing Council which had, just prior to our interviews, conducted a facilitated 25-year planning session to identify issues and formulate a promotional strategy to assure the future of the industry. Perhaps for this reason and others, there was unexpected unanimity on the short and longer-term challenges facing the industry. Also unexpected was the convergence of industry and company-level issues. We do not know to what extent these results are generalizable or representative of all leaders in the industry.  Presumably, different results could be obtained if the same questions were asked of a larger sample of industry leaders, or of winemakers and other personnel at different levels of the organizations.

5. Conclusions

In this paper, we presented a unique exploratory investigation of an industry in which independent small businesses are increasingly being pushed by competitive forces. Leaders of Northern California wine businesses indicated a need to improve their businesses in an increasingly dynamic and complex industry environment. Two important trends emerged: 1) a tendency toward consolidation and asset concentration among some industry participants; and 2) the emergence of niche players with specific product and customer targets.

 These forces are pushing the industry from the old model of independent, self-focused, and self-sufficient entrepreneurship to an emerging model based upon active networking, consensus-building and a heightened awareness of the need for making strategic alliances. Included among the major challenges investigated here are factors related to: 1) aging of the primary market and decreasing consumption; 2) attracting new consumers and coping with government regulators; 3) responding to the underlying intensive capital needs of the industry including the inefficiencies related to an entrenched ‘three-tier’ distribution system; 4) planning for changing business cycles; and, 5) increasing competition related to globalization of the marketplace. It is expected that the interview data presented above will provide transferable insights into strategy-making as an industry moves from predominantly entrepreneurial to predominantly managerial, or, perhaps highlight elements of an emerging form of entrepreneurship that emphasizes selective strategic collaboration as an approach to growing ventures in the face of significant environmental changes.

5.1  Future research

 While prior researchers in the fields of strategy and entrepreneurship have suggested that one outcome of a maturing industry is asset concentration and pursuit of economies of scale; others have considered innovation and focus strategies as keys to success (Miles et. al., 1993; Porter, 1980, 1985, 1996). Those leaders/entrepreneurs that tend to act proactively toward environmental change and have a propensity to assume risks are thought to be more entrepreneurially-oriented than those that do not (Covin & Slevin, 1991). How is it that some leaders appear to prefer strategies of consolidation and standardization while others in the same industry, faced with similar conditions, seem to prefer innovation and focus? Three testable propositions from these prior studies and the pilot wine industry survey appear below:

Proposition I:  Wine industry leaders respond differently to signs of industry change.
Proposition II:  Certain leadership styles tend to influence organizational fit with a changing environment.
Proposition III:  “Goodness of fit” between leadership style and the environment results in higher firm performance (outcomes).

Follow-on empirical survey research is currently underway that builds upon an emerging body of entrepreneurship literature that has established “environmental fit” as a reasonable approach to predicting venture behavior in a specific industry context (Covin & Slevin, 1989; Naman & Slevin, 1993). We hope that this next phase of research will provide wine business leaders, entrepreneurs and others with a practical basis—beyond mere anecdotal support—for comparing themselves with other wine producers across the U.S. and around the world, as well as with other entrepreneurial firms and industries. The collection of quantifiable information via survey could prove invaluable in supplementing the qualitative data contained in this preliminary research effort. Of particular importance will be to determine the extent to which the above-mentioned marketing, financial and governance strategies impact the performance of wine businesses over time. We hope to verify to what extent the background and skills of today’s industry—the “people package”—can be expected to play an important role in determining what are the competitive strategies of the most successful wine businesses as well as what will be the expected qualities of the wine industry leaders of the future.

6. References

Aguilar, F. J. (1967). Scanning the business environment. New York: Macmillan.
Aldrich, H. (1979). Organizations and environments. Englewood Cliffs, New Jersey: Prentice
        Hall.
Appel, T. (1998). Feeling the squeeze. Santa Rosa Press Democrat, August 23.
Appel, T. (1999). California wine business posts record year. Santa Rosa Press Democrat, January 21.
Baden-Fuller, C. & Stopford, J. (1992). Rejuvenating the Mature Business. London: Routledge).
Birley, S. & Westhead, P. (1990). Growth and performance contrasts between ‘types’ of small firms. Strategic Management Journal. 11: 535-557
Baumol, W. (1967). Business behavior: value and growth. New York: Harcourt Brace.
Boeker, W. 1988. Strategic change: the effects of founding and history. Academy of Management
Carland, J., Hoy, F., Boulton, W. & Carland, J. (1984). Differentiating entrepreneurs from small business owners: a conceptualization. Academy of Management Review. 9: 354-359.
Carroll, G. & Hannan, M. (1989). Density delay in the evolution of organizational populations:
 a model and five empirical tests. Administrative Science Quarterly, 27: 169-98.
Covin, J.G. & Slevin, D.P. (1990). New venture strategic posture, structure, and performance: An industry life cycle analysis. Journal of Business Venturing, 5: 123-135.
Covin, J. G., & Slevin, D.P. (1991). A conceptual model of entrepreneurship as firm behavior. Entrepreneurship: Theory and Practice, 7-25.
Deloitte & Touche LLP. (1996). Winning Strategies in the Wine Industry: Benchmarking for success.
Dollinger, M.J. (1999). Entrepreneurship: Strategies and Resources, second edition. Saddle River, NJ: Prentice-Hall, 5.
Dutton, J. & Duncan, R. (1987). The creation of momentum for change through the process of
        strategic issue diagnosis. Academy of Management Journal, 34: 517-554.
Gartner, W.B. (1985). A conceptual framework for describing the phenomenon of new venture creation, Academy of Management Review. 10: 696-706.
Golden State Vintners (1998), Initial Public Offering Prospectus.
Long, W.R. (1998). Now it’s grapevines climbing the Rockies.  New York Times, August 15.
Naman, J. L., & Slevin, D. P. (1993). Entrepreneurship and the concept of fit: A model and empirical tests. Strategic Management Journal, 14, 137-153.
Miles, R., Snow C. & Sharfman, L. (1993). Industry variety and firm performance. Strategic Management Journal. Strategic Management Journal, 14, 1-21.
Miller, A. (1998). Strategic Management, third edition. Burr Ridge, IL: Irwin/McGraw-Hill, 228-230.
Nalley, R. (1988). Grape Expectations: Dreaming of owning your own winery? Read this first. Departures.
Penrose, E. (1959). The Theory of the Growth of the Firm. New York: Wiley.
Porter, M. (1980). Competitive strategy. New York, Free Press.
Porter, M.E. (1985). Competitive Advantage: Creating and sustaining superior performance. New York: Free Press.
Porter, M. (1996). What is strategy? Harvard Business Review, Nov-Dec.
Schaefer, D. S. (1990). Level of entrepreneurship and scanning source usage in very small businesses. Entrepreneurship: Theory and Practice, Winter, 19-32.
Stevenson, H., Roberts, M., & Grousbeck, H. (1989). New Business Ventures and the Entrepreneur. Homewood, IL: Irwin.
Shapiro, L. (1998). A glass half empty. Newsweek, October 5, pp. 74-76.
Tesconi, T. (1998). Vineyards face half-baked harvest. Santa Rosa Press-Democrat, September 6, p. A17.
The U.S. Wine Market, 1997 Edition. Impact Databank Review and Forecast, A Publication of M. Shanken Communications, Inc., New York, NY 10016.
The Wine Institute, http://www.wineinstitute.org
Venkataraman, S. (1997). The distinctive domain of entrepreneurship research. Advances in Entrepreneurship, Firm Emergence, and Growth, 3: 119-138.
Walker, Larry. 54th Annual Statistical Issue, Wines & Vines Volume 78, Number 7, July 1997, The Hiaring Co.

About the authors:
Dr. Armand Gilinsky is Associate Professor of Business and Director of the Small Business Institute at Sonoma State University.
Dr. Richard L. McCline is Assistant Professor of Business and Co-Director of the Center for Enterprise at San Francisco State University.

Contact person:
Armand Gilinsky, Jr.
School of Business and Economics
 Sonoma State University
1801 E. Cotati Avenue
Rohnert Park CA  94928-3609  USA
(707) 664-2709/664-4009 (fax)
e-mail: Armand.Gilinsky@sonoma.edu

Back to top