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WSET D2 Wine Business > 2 > Flashcards

2 Flashcards

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1
Q

Challenges of Oversupply and Undersupply

-What challenges is there on Oversupply?

A

The level of ___ has been reduced in recent years due to consumption in US and China

  • excess produce causes prices to fall b/x consumer find cheaper alts. -producers look for new markets
  • draw back is that it might take time to develop
  • produces may choose to package in different label & offer it in supermarkets or deeper discounts
  • risk of devaluing the brand image
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2
Q

Challenges of Oversupply and Undersupply

-What challenges if there is an Undersupply on winery side

A
  • it may happen as it did in 2017 issued which produces a _____ year
  • problem of disappointing clients,
  • business strains, financial penalty from retailer or cancelation
  • eg. Bordeaux Premier Cru Classe
  • most cases producers prefer to issue allocations
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3
Q

Challenges of Oversupply and Undersupply

-What challenges if there is an Undersupply on retailer side

A
  • Retail shops customer may choose origin is not important
  • most industries would result with an increase in price
  • price sensitive markets especially true
  • larger producers that experience an ____ in one price point are able to offer an alternative from within their portfolio
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4
Q

Factors influencing Supply of wine

-What is considerend in the cost of grape growing?

A

Cost of _____ are broken into two categories

-initial costs of establishing the vineyard

-Ongoing costs of managing it and producing the grapes

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5
Q

Factors influencing Supply of wine -grape growing costs

-An inital cost is purchasing the land. What factors go into the value of the land?

A
  • can reflect potential to produce high quality
  • named appellation
  • how specific / level the appellation?

-scarcity of land

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6
Q

Factors influencing Supply of wine -grape growing costs

-Beyond purchasing the land, what are other initial costs of establishing the vineyard?

A

S C A B S W I M P

  • Survey -Stakes/ trellising
  • Clear -Weather hazzards
  • Access roads -Irrigaion / drainiage
  • Buying plants -Machinery / equipment
  • (Purchase land) -pest protection
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7
Q

Capital costs- funds to establish a vineyard may come from where?

A
  • can be from personal wealth
  • can be in the form of loans w/ investors

Which may want some form of managing involvement / profits

-some countries offer tax incentive or lump sum contributions

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8
Q

Factors influencing Supply of wine -grape growing costs

-ongoing costs of managing the vineyard and producing grapes that may start as soon as the vines are planted & before productivity?

A

T I M E M e L d -Treatments: Conventional: herbicide, fungicide, insecticides Organic/ biodynamic; may use Sulphur powder or Bordeaux mix

-Irrigation if needed -Materials: vines & trellising

-Electricity- irrigation systems, bird scares, frost protect, equip

-Machinery / equipment fuel & maintenance

-Labor costs - seasonal, annual skilled

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9
Q

Factors influencing Supply of wine -grape growing costs

  • ongoing costs of managing the vineyard and producing grapes
  • What are labor costs factors to consider?
A

range due to a variety of factors:

-topography (hand/ machine pick). steep hills=hand pick= more cost over machine pick

  • organic/ biodynamic more $ than conventionally farmed
  • may be cheap at harvest time unless scarcity of harvesters exists

Unskilled picker & Skilled annual

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10
Q

Factors influencing Supply of wine -winemaking costs

A

I P M P

-Initial costs of establishing the winery

-producing wine

-maturing wine

-packaging wine

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11
Q

Factors influencing Supply of wine- wine making costs:
-winery establishment costs include?

A

-purchase land to build the ____

-fitting with equipment

Presses, tanks, pipes, pumps, refrigeration, bottling line

Funds can come from owner, bank, or investors

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12
Q

Factors influencing Supply of wine- wine making costs:

-producing the wine costs include?

A

L e M M F E W *Labor- FT & harvest labor *Machinery & equip-fuel, mainten

*Materials- sugar for enrichment, de-acidification agents, yeasts, carbon dioxide, inert gasses, fining and filtering agents

*Fruit-buying vary w/ quality & vintage. Blend cheaper varieties

*Electricity- frige, ventilation, presses, pumps, lighting

*Water- uses large volumes of water for cleaning, invest in water treatment plants

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13
Q

Factors influencing Supply of wine- wine making costs:

-maturing the wine

A

Costs include building a storage space

  • new oak barrels from top barrel producers can be expensive -cheaper 2nd hand, give less flavor & characteristics
  • use oak chips or staves
  • employ labor to monitor

-long term investment- the cost of _______ is the loss of cashflow -money tied up

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14
Q

Factors influencing Supply of wine- wine making costs:

-packaging wine

A

Buy materials: bottles, closures, labels, cartons, pallets

-bottling line

May choose to hire a bottling line and the labor to operate it

-or send to another estate and rent equipment

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15
Q

Factors influencing Supply of wine

-transportation costs

A

Bottle moved by air, road, rail or sea

Bulk moved by ship

-insurance

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16
Q

Factors influencing Supply of wine -transportation costs

-bottle transportation costs?

A

The job of a freight forwarders - may charge more than multinational logistics but have more expertise on moving fragile bottles

Considerations include:

**Breakage, spoilage due to heat, direct sunlight, excessive vibrations

**Need temp controlled shipping containers.

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17
Q

Factors influencing Supply of wine -transportation costs

  • What are the ways to get wine bottles around the world?
A

AIR

ROAD

RAIL

SEA

18
Q

Factors influencing Supply of wine -transportation costs

-considerations to moving wine by AIR

A
  • dependent on weight
  • Method only used in special circumstances

competitions, samples for trade/ consumer fair, very high value

-Beaujolais Nouveau

19
Q

Factors influencing Supply of wine -transportation costs

-considerations to moving wine by ROAD

A

most travel short distances good, long distances expensive

Especially if crossing water can increase costs

Consider the cost may outweigh the quickness

20
Q

Factors influencing Supply of wine -transportation costs

-considerations to moving wine by RAIL

A

cost vary due to length of journey –

minimalized if utilize containerization

-cost reduced if container can be lifted off train and put on truck

21
Q

Factors influencing Supply of wine -transportation costs

-considerations to moving wine by SEA

A

cheapest method for long distances.

Use Containerization essential.

Downside is slow

22
Q

Factors influencing Supply of wine -transportation costs

-bulk transportation

A

Wine was often shipped around the world in barrels

  • 2016 58% German, 35% UK, 24% US imports
  • plastic flexitanks w/in a standard steel shipping container

-non-flexible ISO tanks

-at first favored for cheaper wines (35% world’s volume=8% world value

23
Q

Factors influencing Supply of wine -transportation costs

-bulk transportation advantages

A

-lighter than bottles and more volume of liters / space

-Reduce fuel = more eviro friendly

More efficient = a shopping container can hold 9,0000-10,000 L wine bottled

Flexitanks =24,000L of wine in bulk

ISO=26,000 L of wine in bulk

24
Q

Factors influencing Supply of wine -transportation costs

-bulk transportation disadvantages

A
  • only suitable for moving large volumes of same wine
  • attractive for supermarkets, not so for smaller production

If a single consignment is less than 15,000 case there is no cost advantage

25
Q

Factors influencing Supply of wine -transportation costs

-insurance

A

The party taking out the ____ should be the one which assumes the risk for loss or damage

  • Normally the sender of goods
  • winery will be responsible for ensuring wine makes it to distributor

-distributor takes responsibility to ensure wine makes it to retailers

26
Q

Factors influencing Supply of wine

-importation costs

A

-customs duties & taxes

-labeling laws

27
Q

Factors influencing Supply of wine

-importation costs -what are labeling laws to consider?

A

The importing company will need to comply

  • EU – the ABV must show the nearest whole or half unit
  • US- the ABV permits a 1.5% variance

–US wine will have to be relabeled when going into the EU market.

-US requires a health warning on labels

28
Q

Factors influencing Supply of wine

-importation costs- advantages for a producer to use a distributor?

A

-reduce producer’s learning curve for requirements into a market

-producer to take advantage of distributor’s market knowledge and established clients

29
Q

Factors influencing Supply of wine

-importation costs- distributor fees?

A

-margin fee usually a percentage (profit / revenue) X100 =%

-varies from country to country 5-25%

-hospitality sector tend to have higher margins

-charge for warehousing costs

-logistics of delivery

30
Q

Factors influencing Supply of wine

-sales costs

A

P L E a S e D M

Property costs for on/ off prem

Labor Delivery

Equipment & material Margin

Storage

31
Q

Factors influencing Supply of wine

-sales costs - what are property costs for retailer on premises / off premises

A

Buying property- capital costs, funded through loan / mortgage/ lease

-restaurants tend to be in prime location which are most expensive to buy / lease

  • decorating / furnishing to suit image
  • running costs, maintenance, security, water, energy, insurance

-online retails ___ can be less expensive away from city centers

32
Q

Factors influencing Supply of wine

-sales costs - labor

A

-training staff is a business cost

-Cost according to type of outlet -Some must be paid minimum wage or level of skill & expertise

-supermarket – low skilled staff

-Wine retailer -highly knowledgeable staff who can engage w/ customers and advise them

-bars & restaurants labor costs also include wait staff & cleaning staff -wine person wage at restaurant depends on elegance of restaurant

33
Q

Factors influencing Supply of wine

-sales cost -Equipment & material

A

Will differ depending on restaurant or retail

Retail: till system, fridge, shelving, display cabinets, Material to enhance displays and cleaning equipment

Restaurant: kitchen/ bar equipment, tableware, glasses

Oxidizing prevention, food service

34
Q

Factors influencing Supply of wine

-sale cost -Storage

A

On premise: wine fridges, storage on prem

  • sometimes lack of storage on prem causes external storage requirements which is additional costs
  • larger chains will have centralized warehouse
35
Q

Factors influencing Supply of wine

-sales cost -Delivery

A

____ to consumer is the most expensive element of the supply chain

  • fragile bottles / ricks of breakage/ spoilage in transit
  • end consumer will be expected to pay for delivery

Retailer often charge fixed fees knowing that some cases will cost more than others.

36
Q

Factors influencing Supply of wine

-sales cost - margin

A

To be financially viable need to make a profit

Retail= 30-50%

Bars & restaurants more like 66.6% Eg. 3x what paid

  • Profits are usually higher on wines available by the glass -Once opened risk of spoilage before the bottle has been emptied
  • some allow customers to bring own ‘corkage’ fee
37
Q

Factors influencing Supply of wine

-marketing costs

A

-labor

-design and production of the bottles and labels

-marketing campaign

38
Q

Factors influencing Supply of wine

-marketing costs - labor

A

-team either in house or external company

-Industry association - eg. Consorzio in Italy or VDP in Germany

-Generic trade body- eg wines of Australia

-Organization is to market members’ wine collectively

-Funded by levy paid by members, usually on the value of sales

39
Q

Factors influencing Supply of wine

-marketing costs- Designing & production of bottles and labels

A
  • many small producers can be successful with little budget
  • larger producers/ brands can run expensive marketing campaigns which may add to the prices
40
Q

Factors influencing Supply of wine

-marketing costs- Marketing campaign

A

-ad or promote material

-Send sample bottles to tastings/ competitions

-price promotions (important in larger retailers)

WSET D2 Wine Business (12 decks)

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