The wine industry's journey towards integration continues apace, even while some of its larger constituents face shrinking profits. Parts of the industry have been swept by consolidation, but it will take time to change an industry still composed largely of privately owned family firms. In the meantime, the industry's newly emerged giants must focus on retaining brand equity.

The purchase of BRL Hardy by US group Constellation Brands at a price of US$1.1 billion is the latest in a series of takeovers. The move will create the world's largest wine company - sales are expected to reach 77 million cases a year. The avowed goal of the new company is certainly ambitious - it aims to be to wine what Nestle is to food or Coca-Cola is to soft drinks.

The wine industry can still only be described as fragmented - the vast majority of wine companies, especially in the Old World, are small, privately owned affairs; bigger, public organizations such as Constellation are a much more recent phenomenon and are most common in the New World.

New World winemakers have taken a quite different approach to both making and marketing their wine. Their focus has been on creating brands, not only through traditional brand building strategies but also by reducing the difference between vintages. They have promoted grape types rather than the local characteristics and production styles that can produce very different results from the same grape.

Consumers have responded well, grateful for the clarity New World brands offer among an often bewildering array of wines from different vintages and terroirs. However, it may be that there will be a backlash against a feeling of over simplicity. Chardonnay, for example, is suffering the effects of over exposure (including giving its name to a character in a UK soap opera) and has lost some of its value in the eyes of consumers.

The process of consolidation will certainly continue in the wine industry, driven by the pursuit of efficiency savings and greater brand identity - demand from both the industry itself, and its retailers, is too great. But in doing so, wine companies will find it important to maintain the brand equity that is their greatest strength.

Related Research: Datamonitor, "Staying In" (DMCM0133)