SIES School of Business Studies

Assignment Entitled
Location Dilemma of Mr Zen
Submitted by

Ansh Dengre – 67

Kartik Singh –81

Kevin Joseph –79

Maitreya Jamkhedkar – 114

Sachin Karambe – 96

Shreya Kolluru – 118

Tejas Mohadikar – 110

Yashwant Sharma – 113

Submitted in fulfilment of
Operations Management
Introduction:
The following case study is about Mr. Zen who has returned from UK after
working as an operation for 2 years. He had completed his bachelors in
economics followed by a masters in engineering from renowned University in
the UK. After working for a couple of years in the UK he had decided to quit
his job and return to India to pursue his childhood dream of operating a
vineyard. After returning to India to understand the practices and working of the
industry he visited several vineyards. He also conducted several extensive
market research and analysis to understand the consumer market and demand of
the industry. He found out that India had a huge untapped market and a huge
potential for alcoholic beverages since only 485 million people out of 1 billion
were of legal drinking age and this number would only go up as the number of
people would come into adulthood. After conducting the research, he also came
down to two locations for his vineyard i.e., Pune and Nashik. There were
several factors to be considered while choosing between these two locations and
therefore he had to make a tough call by taking everything into consideration.

Problem Statement:
As mentioned before after doing extensive research on the industry Mr. Zen had
shortlisted 2 locations for his vineyard i.e., Pune and Nashik. These two cities
are the best possible location as these two cities is closest to the financial capital
of the country and already have a booming vineyard hub. He had to take into
consideration the fixed cost and the variable cost while making the decision.
Plant and farming land represented majority of the fixed cost followed by things
like cellar equipment’s, material handling and refrigerator system. Whereas
variable cost involved things like labor, militance, marketing, packaging, etc.
After taking all this factors into consideration he had to make a call on his
location.
Factor Rating Analysis
Sr. Factors Factor Nashik Pune Factor Factor
no Rating Rating for Rating for
Nashik Pune
1 Labour and wages 6 8 5 48 30
2 Proximity to customers 5 6 8 30 40
3 Availability and cost of the Land 7 9 6 63 42
4 Adequacy of water 8 9 7 72 56
5 Receptivity of community, 5 7 7 35 35
6 Quality of Soil for vineyard 9 9 8 81 72
7 Access to rail and air 5 6 9 30 45
transportation
8 Suitability of climate 10 10 9 100 90
9 Availability of power 7 7 9 49 63
10 Tax Advantage 3 2 2 6 6
Total 514 479

Looking into the major factors which help a business bloom;

1. Labour wages
2. Availability and cost of the land
3. Water supply
4. Soil quality for the vineyard
5. Climatic conditions
From the above analysis it is evident that all these factors are in favour for
Nashik. Availability of power can be a cause of concern but that can be solved
with various solutions like installing generators as a power back up. Nashik and
Pune both are located closer to India’s commercial hub and hence Mr. Zen can
settle with Nashik, even though its factor rating is less as compared to that of
Pune, but looking at the overall situation it will be a good payoff indeed.
Hence from the above analysis, Nashik seems like a feasible location for Mr.
Zen to set up his venture rather than Pune.
Nashik Pune
Fixed cost 200000000 Fixed cost 190000000
Variable cost 30 Variable cost 40
Cost/pc 400 Cost/pc 350
X(Break even Units) X(Break even Units)

190000000 +40X
200000000 +30X = 400X =350X
X 540541 612903

BREAK EVEN ANALYSIS

Hence from the break even analysis we can conclude that reaching a break even
in Nashik is easier to achieve when we compare that to Pune. Thus Mr. Zen has
more feasible options in Nashik to set up a Vineyard and Winery for his
business purpose.

Porter’s Diamond Model

The Porter Diamond, properly referred to as the Porter Diamond Theory of
National Advantage, is a model that is designed to help understand
the competitive advantage that nations or groups possess due to certain factors
available to them, and to explain how governments can act as catalysts to
improve a country's position in a globally competitive economic environment.
How the Porter Diamond Works

The Porter Diamond is visually represented by a diagram that resembles the

four points of a diamond. The four points represent four interrelated
determinants that Porter theorizes as the deciding factors of national
comparative economic advantage. These four factors are firm strategy, structure
and rivalry; related supporting industries; demand conditions; and factor
conditions. These can in some ways also be thought of as analogous to the
eponymous forces of Porter's Five Forces model of business strategy.

Firm strategy, structure, and rivalry refer to the basic fact that competition leads
to businesses finding ways to increase production and to the development of
technological innovations. The concentration of market power, degree of
competition, and ability of rival firms to enter a nation's market are influential
here. This point is related to the forces of competitors and barriers to new
market entrants in the Five Forces model.
Factor Conditions
• Labour wages in Nashik is more feasible as compred to pune.

• Availability and proximity of land is lower in Nashik.

• The availibility of water, topography and climate of Nashik is ideal for

the cultivation of grapes and other berries used for vinification.

• Nashik is preferable over Pune owing to its lower labour costs, thereby
reducing variable costs.

• Mr. Zen has conducted an extensive research on all the necessary aspects
such as markets, topography, demand, growth propensity, etc to study the
intricacies involved in wine making and thus to zero down onto the
perfect location for his winery and vineyard

• This is why Mr. Zen should consider a setting up his venture in Nashik
rather than Pune.

Demand analysis
Indian Wine Market
India has a huge chunk of consumers that fall under the legal drinking age,
estimating to a hefty number of 485 million, which has a lower cut off of
18years to 25 years varying across states.
According to the data given by Wineintelligence.com, most of the wine
consumption, takes place in the urban centres of India.

City Wine Consumption in India

Mumbai 32%
Delhi 25%
Bangalore 20%
Pune 5%
Hyderabad 3%
Consumers prefer red wine, fortified wine, white wines and sparkling wines, in
that order. The Indian wine market also has many advantages over the foreign
wine market, such as:
• Local wines rule the Indian wine market due their lower price, easy and
higher availability.
• Imported wines face an import tariff of 100%, Customs Duty +Education
cess @3%which severely limits the availability of foreign wines in the
market.
• In India, international wines are viewed a more expensive and superior to
domestic wines but are limited to select occasions or gifting.

Wine Tourism as a Strength

Wine tourism is one of the most promising travel themes in India these days.
The slow and steady growth of awareness amongst operators, agents and even
the tourists has given a chance to improve the concept of wine tourism which is
in nascent stage in India. There are number of service providers who conduct
Wine tours all over the region. However, it is more concentrated in around the
Maharashtra region.

Considering all the data and insights, one may find it reasonably suitable to set
up a vinery in India which has highly favouring conditions for the Indian wine
market. The market environment does not only holds opportunities for
manufacturing and selling of wine, but also for investing and brand building, to
attract wine tourism that is increasingly becoming popular in India.

Chance Conditions
• Sales may be affected due to unforeseen political instability
• Natural disasters like earthquakes, floods and other chance occurrences
may cause a hindrance
• Government policies and bans may affect sales and production
FIRM STRATERGY AND RIVALRY:
▪ As Mr. Zen had decided to target Indian market for manufacturing and
selling of wines, the target customer would be of 18 and above as per the
legal age.
▪ With the above data collection will be helpful for him in investment
decision over Nashik or Pune.
▪ India consumer looks for value for money & taste over brands and highly
priced wines and drinks.
▪ So, Wine prices in India are lower as compare to foreign wines, the
preference os concentrated towards red wines then fortified, white and
sparkling wines.

Relatable and Supporting factors:

▪ Availability of Raw material with reasonable rates and lower labour cost
comparatively.
▪ Close to commercial hub, with largest consumer of wine in the country.
▪ Also have easy access to the supply chain and transportation.

CONCLUSION

• After doing extensive market research to decide the ideal location for his
winery and vineyard in India, Mr Zen zeroed in on Pune and Nashik, as
these two cities have the more suitable climate for wine production and
also due to its proximity to the commercial hub.
• He still had to select one optimum location from Pune and Nashik for his
Winery and Vineyard, he decided to use factor rating method and break-
even analysis to select the more ideal location between the two. He made
a list of various factors important for the location of the plant.
• After doing the factor rating analysis Nashik clearly came up as a more
ideal and feasible location. Nashik scored better than Pune in almost
every important factor except the availability of power which can be
solved later by installing generators.
• From the break-even analysis, Nashik again seemed like a more feasible
option as the total cost of operations if Mr. Zen decides to set up a winery
in Nashik was far less than that of Pune.
• After doing the analysis Porter’s Diamond Model to understand the
competitive advantage of facility location, we concluded that Nashik has
a slight advantage over Pune.
• So we conclude that after considering the above factors such as break
even analysis, factor rating and porter's diamond model we can conclude
that Nashik is the most suitable place in India for setting up a winery and
vineyard.