LVMH is a luxury brands company that controls many of the top champagne brands a
ID: 461123 • Letter: L
Question
LVMH is a luxury brands company that controls many of the top champagne brands and dominates the $5.4 billion global champagne market. LVMH has gotten to this position by actively cultivating the independent growers who raise most of the grapes. Hundreds of small independent farmers in France's Champagne region own 90% of the vineyards that are the only source of the limited supply of authentic Champagne grapes -- and LVMH is the biggest buyer of their grapes. In exchange for long-term contracts and moderate prices, LVMH provides free technical services such as determining the presence of mildew and parasites and identifying which grapes are maturing the fastest. LVMH also provides field services like grape picking at cost. Recently, there has been rising global demand for champagne. Use Porter’s conditions of supplier power and buyer power in the 5 forces framework to answer the following questions:
1. What are the sources of LVMH’s power in their relationship with grape farmers?
2. What are the sources of the grape farmers’ power in their relationship with LVMH?
3. Who has more power when the demand for champagne is strong – the grape farmers or LVMH?
Explanation / Answer
1. The sources of LVMH's power in their relationship is they are providing free technical expertise to small farmers. They also providing field services like grape picking at small cost. The long term contracts with suppliers is helping to operate the WIP inventory in reduced costs.LVMH has largest market share is the largest buyer.
2. The sources of the grape farmers power in their relationship with LVMH is that they dont have exclusive contracts with LVMH. They can switch to different buyer though they may lose the biggest buyer and hence has lesser power than LVMH
3.When the demand is higher, then the source of power switches to farmers from LVMH. As demand is high, rest of the buyers can absorb all the production and hence LVMH cannot dictate the grape cultivators
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