Case Study: Vina San Pedro

Case Study #2

Vina San Pedro

Business Policy

Instructor:

Ismatilla Mardanov

David M. Whitfield

April 15, 2002

Case Study: Vina San Pedro

Background:

Vina San Pedro (VSP) was the third largest winery in Chile, with 1998 sales of 37 billion Chilean pesos (CP). Bonifacio Correa had planted the original vines with French stock in 1865 on the farm in Molina that the family had owned since 1701. For years, VSP wines enjoyed a reputation of being one of the finest in the country, and the vineyard remained in the Correa family until 1941. New owners expanded the vineyard so that by 1994, 1,150 hectares were in production, making it the largest single-site vineyard in the country. It was, however, barely profitable and survived primarily by producing inexpensive wine for the domestic market.

I. The problems that seemed to be experienced by Vina San Pedro were huge costs that seemed to increase year by year, effectively neutralizing revenues. Part of the problem seemed to stem from excessive marketing expenses, overall operating expenses, and high costs of goods sold. During the first few years of CCU control, management focused on reducing costs, increasing distribution, and increasing the quality of VSP wines. One of the symptoms from that seemed to be that there wasn't enough revenue coming in to cover the costs of operations.

II. An alternative solution would be to reduce expenses, notably costs of sales and all operating costs. One would have to be careful, in that reducing marketing expenses might inadvertently reduce sales, therefore reducing revenue. Overall the problem seems to stem from out of control costs. How such a plan would be implemented would be one, to find a way to speed up the loan repayment process, thereby saving on interest payments. Control of costs has to be increased, for if the current trend continues, costs will rise more quickly than revenue will, creating a very dangerous situation.

III. Why would these solutions work? If marketing monies were spent more frugally and more efficiently, it would possibly result in an increase in revenue, as well as a reduction in marketing costs. Inefficient use of marketing tactics can cause a company to go after a customer in such a way that the company spends more to get the customer than the customer is expected to spend on that very same company. In this cause, revenues could skyrocket, but would always be cancelled by out of control or excessive costs.

The only ethical concerns in this case could be that fact that CDNow has been an exclusive provider in some aspects of music content to websites. This would mean that consumers wouldn't have much of a choice when it comes to purchasing music online, therefore giving CDNow more leverage than the customer, possibly allowing CDNow to charge excessive prices or pursue