1. Factors affecting price - Supply and demand Flashcards
What two reasons have increased consumption trends in the US in the last 20-30 years.
The increased globalisation of food and drink making import/export easier and increased domestic production.
Why has consumption increased in China?
A growing middle class aspiring to drinking imported wine.
What is the pattern of German wine consumption?
Has remained steady between 2003-present.
At what rate is wine being produced compared with consumption?
Consumption is c.16 million hectolitres lower than supply.
What are two reasons why wine consumption is decreasing in traditional wine drinking countries?
1) Health-related government campaigns such as Loi Evin in France.
2) Lunchtime drinking is increasingly becoming forbidden or unacceptable.
With a reduction in availability of cheap wine, what might consumers do?
Find alternative inexpensive drinks or non-alcoholic beverages.
What is a ‘price-sensitive’ market and give an example?
A market in which the majority of consumers are willing to pay the the minimum amount for their chosen style. Germany and the UK.
Fierce competition in price-sensitive markets results in what?
Lower prices for consumers but potentially fewer choices as some producers may not choose to sell to these markets.
How might a brand in a price-sensitive market encourage consumers to continue buying their product following price rises?
By building up ‘brand loyalty’ as part of their marketing campaign.
What styles of wine were once popular but have fallen from fashion?
Fortified wines and medium-sweet inexpensive German wines.
How has Prosecco DOC accommodated a growing demand for Prosecco wine?
By expanding the area covered by the Prosecco DOC.
What consumer trends are typical in an economic downturn?
Consumers trade down to less expensive wine or alternative alcoholic drinks such as beer or cider.
When an exporting country’s currency gains value what options does a producer in that country have?
Keep their price stable and risk being seen as expensive therefore risk losing sales OR reduce their price and so return lower profit margins.
What other impact does a weak currency have to a producer?
Costs them more to import equipment and supplies such as oak barrels, corks, yeast.
What four ways might supply be limited at government level?
1) State-owned monopolies in Sweden, Norway, Canada.
2) USA’s three-tier system.
3) Minimum drinking age.
4) Restricted hours of sale.
What four ways might supply be limited at government level?
1) State-owned monopolies in Sweden, Norway, Canada.
2) USA’s three-tier system.
3) Minimum drinking age.
4) Restricted hours of sale.
What is the name of the French government policy restricting alcohol advertising?
Loi Evin (1991).
What is Scotland’s minimum unit pricing?
GBP 0.50 per unit of alcohol.
What is the BAC limit in Norway, Sweden?
20mg/100ml.
What style of wine saw a decline in sales following an excise duty increase in ROI?
Sparkling wine.
What are the two purposes of trade tariffs.
1) To generate revenue
2) A form of protectionism policy intended to encourage domestic sales over imported goods.
How might trade wars impact consumer sentiment?
Negatively to the point where consumers avoid products from previously restricted countries out of principle.
What result did the Argentine government’s trade restrictions have on Argentine wine in early 2010s?
Restricted importation of winery equipment and so increased production costs.
What impact did China’s 2012 Anti-Extravagance policy have?
Reduced demand and sales of Bordeaux Premier Cru and Burgundy Grand Cru.
What impact might the creation of a new GI have on producers in that area?
Greater recognition and demand allowing the producers to increase their prices.
What impact does the migration of younger generations to urban areas from rural areas have?
Reduces the workforce available and can result in the abandonment of family-run estates with no-one to take over.
What allowance have EU member states had since 2016?
Ability to expand area under vine by planting up to 1% of the current area under vine.
What might a grape grower do to combat low financial returns on grapes?
Vine pull and replant with a higher value product such as apples in Elgin, SA.
What pattern can be seen in the area under vine globally between 2003 and 2019?
A decline.
What two reasons explain why Spain’s production levels have increased despite a reduction in land under vine?
1) A relaxation of irrigation laws allows areas not previously planted to grow vines.
2) Higher density plantings along with more modern winegrowing techniques.
Why does inclement weather in Europe impact global wine supply?
Most of the world’s vineyards are planted here and vintage variation is more keenly felt in ‘classic’ regions.
What (8) climatic factors in the vineyard might contribute to lower yields?
Smoke taint, fire, untimely rainfall, heatwaves, hail, pests, spring frosts, drought.
What techniques (3) are within the control of a viticulturist to combat undersupply - before planting and during the growing season?
1) Site selection - choosing a warmer or moderate site with better sunlight and water access.
2) Selecting high-yielding clones i.e. Pinot Noir 521.
3) Ensuring the canopy is managed to allow for air, sun and chemical penetration aiding ripening and staving off disease pressure.
What is the major natural factor contributing to undersupply on a global scale?
Climate change - drought and excess heat.
Name two aims of the European PDO system.
1) To define the style of wine produced in a particular area.
2) To bring supply and demand into line to reduce risk of downward price pressure as that style of wine can be produced only within the delineated area.
What impact do PDO restrictions have on production levels?
Reduces risk of market oversaturation and a reduction in price.
What risk does expanding the permitted production area of a GI have?
Expanding the area under vine into less suitable sites and potentially diluting the quality.
What impact might selling a wine below its usual price have?
Can devalue the brand image and create lasting brand damage.
What options (3) does a producer have if they have an over-supply of unsold wine?
1) Reduce sell price or sell at a loss.
2) Bottle under a different/private label for sale to a deep discounter, private label or bar.
3) Seek new sales markets.
What disadvantage is there to seeking a new sales market for unsold wine.
It can take time to establish relationships and thus get the wine to market.
Name two risks to a winemaker in the event of undersupply.
1) Strained relationships with retailers.
2) The retailer may impose a financial penalty or cancel their contract with the producer.
Give two options a producer has if there is an excess demand for their product compared with supply.
1) Sell their wine at a higher price point.
2) Sell wine on allocation.
How might under-supply be ‘fashioned’? Given two examples.
1) May suppress the market availability of its Grand Vin by putting ⅔ of its fruit into Pavillon Rouge where it would otherwise be suitable for the Grand Vin, which controls the volume of Grand Vin in the marketplace thus giving the appearance of low quantities and high demand.
2) Blocage in Champagne - where the house reserves juice in bountiful vintages for vinification and blending into production during leaner years.
What is a Veblen Good?
A good for which demand increases as the price increases. Typically high-quality and exclusive i.e. Grand Cru Burgundy.
What are two examples of modern winemaking techniques that a winemaker might employ to increase yield from harvested fruit?
1) Pea and potato proteins for more efficient fining.
2) Rotary drum vacuum filters to separate more juice from lees
What do changes in temperature through climate change mean in relation to certain persts?
Changes in temperature mean that certain pests can survive further towards wine growing regions where it would have previously been too cold i.e. Pierce’s Disease being spread by an overwintering sharpshooter in California where it is becoming less cold.
