3. Types of Business Engaged in Production

Question 1

What is an “estate” producer?

Answer 1

Produces wine from their own wholly-owned or leased vineyards

Question 2

What are 4 advantages of being an estate producer?

Answer 2

1. Retail control over style and quality at every stage
2. All production profit goes to the estate
3. Marketing benefit of “estate bottled,” or specifying an area of the vineyard; good for story-telling
4. More financially viable for larger estates when costs are spread

Question 3

What are 4 disadvantages of being an estate producer?

Answer 3

1. Cost of managing vineyard(s), equipment, and running winery
2. Hiring equipment might be necessary for some, which eats profit
3. Risk of poor vintage and crop loss
4. Less viable for small estates

Question 4

What is a grower?

Answer 4

Do not produce wine, but grow fruit and sell to winemaker or merchant

Question 5

What are 9 common types of businesses engaged in wine production?

Answer 5

1. Estates
2. Growers
3. Grower-producers
4. Merchants
5. Grower-merchants
6. Co-operatives
7. Custom crush facilities
8. Virtual winemakers/wineries
9. Conglomerates

Question 6

What are 5 advantages of being a grower?

Answer 6

1. Good for those who cannot afford or justify winery equipment or marketing costs
2. Cash flow is generated sooner, at harvest
3. Allows focus on quality (ie. Andy Beckstoffer in Napa)
4. Single or multi-vintage contracts with buyers allows certainty to grower
5. The spot market may offer higher prices in years with shortages

Question 7

What are 3 disadvantages of being a grower?

Answer 7

1. Risk of vintage variation and crop loss
2. Prices may drop when there is a supply surplus (spot market)
3. If fruit does not meet criteria under a contract (ie. min potential alc.), it might be rejected or price may be renegotiated

Question 8

What is a grower-producer? Where is it common?

Answer 8

Grows fruit, makes wine, then sells it to a merchant to mature and bottle. (Common in Burgundy)

Question 9

What is the advantage for a grower-producer?

Answer 9

`Do not incur cost of maturation (barrels/storage) or marketing/sales

Question 10

What are 2 disadvantage for a grower-producer?

Answer 10

1. Loss of control over final style. Wine may be blended with other producers’ wine.
2. Earn a smaller profit than selling a finished wine

Question 11

What is a merchant/négociant, in the traditional and in the modern sense?

Answer 11

Traditionally bought unfinished, matured it and sold it under their name, often blending with other producers.

Now, many produce their own wine from grapes or juice, and provide consultation/support to growers/suppliers

Question 12

What are the 5 advantages for a merchant?

Answer 12

1. Do not have expense of buying or managing vineyards
2. Technical support provided to suppliers can improve quality and assurance
3. Allows some flexibility/protection in bad vintages
4. Long-term contracts with growers can protect against price fluctuation
5. They can scale and provide private labels to volume retailers

Question 13

What are the 3 disadvantages for a merchant?

Answer 13

1. Can have little or no control over growing or winemaking, style, quality, esp if little involvement
2. In poor vintages, the spot marketing may be needed and expensive
3. In some regions fruit is exceptionally expensive

Question 14

What is a micro-négociant?

Answer 14

They specialize in small production wines, usually from individual vineyards that command premium prices

Question 15

What is en primeur, what is it associated with, and what is the benefit?

Answer 15

AKA Wine futures. Purchasers buy wine while in barrel, and receive it when bottled typically a few years later.

Often associated with merchants, whose role is more as a wholesaler; and investment wines, that have a longer maturation.

Benefit to the purchaser might be lower prices and first or exclusive access.

Question 16

What is a grower-merchant?

Answer 16

They own and produce from their own vineyards, as well as buy-in fruit, juice or wine.

The bought fruit/juice/wine is typically for inexpensive or mid-priced wines, while estate fruit is for premium wines.

Question 17

What are 2 examples of grower-merchants?

Answer 17

1. E. Guigal - produces single vineyard wines from Côte-Rôtie, Crozes-Hermitage, Gigondas; and generic CDR wines from bought fruit
2. Domaine Dujac (estate fruit) / Dujac Père et Fils (bought fruit)

Question 18

What is a co-operative by definition, and in the traditional and modern sense?

Answer 18

Owned by a group of growers, and collectively produce and sell wines made by their members’ fruit. Range from small facilities representing a village to some of the largest global companies

Traditionally make wine, and wait for someone to come buy it. All profits maybe shared equally.

Modern co-ops are quality focused, and reinvest some profits into R&D, technology, and marketing. May pay members based on fruit quality.

Question 19

What are 5 advantages for a co-operative?

Answer 19

1. Pooling of resources; able to afford expensive winemaking equipment and expertise
2. Potential funding of expert viticultural, winemaking, marketing, packaging and sales services/consultation
3. Efficient and effective marketing (ie. Plaimont in SW France)
4. Option to make own-label wines (ie. La Chablisienne)
5. Larger coops benefit from economies of scale

Question 20

What are 3 disadvantages for a co-operative?

Answer 20

1. Democratic process means change can be slow or unattainable
2. Some producers may be unhappy with decisions
3. Co-ops that don’t re-invest in quality or marketing may struggle to be competitive

Question 21

What is a custom crush facility, and where is it common?

Answer 21

A facility owned by a company that provide winemaking service; a grower pays each time they require service, and finished wine is returned to the grower to market and sell the wine.

Suited to super premium, small batch or inexpensive and large production wines.

Common in California and North America.

Question 22

What are 4 advantages of a custom crush facility?

Answer 22

1. Growers do not need winemaking equipment, and can focus on quality growing and marketing
2. The CC facility can change and make decisions easily (unlike a co-op)
3. Growers an benefit from winemaking expertise
4. Suited to regions with many small volume/new-to-region producers

Question 23

What is the main disadvantage of a custom crush facility?

Answer 23

Control of final wine style is up to a third-party. Relationship is therefore very important.

Question 24

What is a virtual winemaker/virtual winery?

Answer 24

A term used mainly in N America for a winemaker who buys in grapes or juice and rents facilities or employs a crush facility.
This can be an individual producing small premium batches; or organizations making large volume brands

Question 25

What is a conglomerate?

Answer 25

Large companies that often own many small businesses across the supply chain, like producers and distributors (ie. E&J Gallo). They might have regional offices in significant markets.

Question 26

What are the 3 advantages for a conglomerate?

Answer 26

1. Greater control at all stages of route to market
2. Do not nee to pay as many intermediaries
3. Significant buying power for things like fruit, and negotiating with retailers

Question 27

Name 2 example of a non-wine industry company buying into the sector

Answer 27

Luxury brand: Moet Hennessy-Louis Vuitton (owns Moet, Veuve, Krug and Cloudy Bay)

Insurance company: AXA owns several Bordeaux and Burgundy estates, and Quinta do Noval Port House