Internet business success stories are heard less often amid the clamor arising from innumerable failures, hence the experience of those who took risks and succeeded in pulling off the challenge comes at a premium. With the European wine market larger than the book or music industries and worth an estimated $60 billion in sales, there were rich pickings to be had in the grape market and the development of the internet online wine business spawned a huge number of new entrants.
So what made the difference between success and failure, and how did ChateauOnline manage to raise a glass to its success?
This case, written by Mitti Snall, MBA, with Professor David Midgley of INSEAD and Professor Timothy Devinney of the Australian Graduate School of Management, recounts how ChateauOnline and its core team of young, experienced international managers with backgrounds in business development, wine and gastronomy, took an innovative vision, got in early and became one of Europe’s leading online wine merchants. It offered 1,400 to 1,700 wines from over 25 countries, all with online tasting notes and photos.
By early 2001 the company’s site was attracting some 750,000 visits per month including 250,000 to 400,000 visitors in France, and had a core customer base of 110,000 Wine Club newsletter subscribers in Europe. Public recognition had come from IBM – the site featured as its year 2000 e-business advertising campaign – and Forrester Research had ranked it among the top 10 e-commerce sites in Europe in 1999 and 2000. ChateauOnline also held the e-commerce Grande Trophée for the best French site. But could it manage to grow the business beyond the first fruits of success? Was ChateauOnline really developing its wine e-tailing model into a sustainable and profitable business?
As the case outlines, despite raising customer interest, the battle for the young team was far from over. Consumer demand for Internet purchasing did not pick up as expected and industry forecasters revised their estimates sharply downward. Less than 20% of prime European Internet-using, wine-loving customers had ever visited a wine site, and just 7% had purchased wine online - none from ChateauOnline. More ominously, global retailers like Carrefour were beginning to dip their toes into the online market. Rather than diminishing, ChateauOnline’s problems were beginning to multiply. How could the company turn the situation around? Would European customers buy sufficient amounts of wine online? Would revenues be sufficient to generate profits? And would investors finance its expansion and operations until it reached profitability?
The case examines in detail how ChateauOnline succeeded in turning its wine e-tailing model into a viable, sustainable and profitable business and overcame challenges related to the very viability of its business model. The case and its accompanying teaching note are particularly appropriate for an audience of MBAs, entrepreneurs and managers.