3. Types of business engaged in the production of wine

Question 1

Name five advantages to the estate of estate-bottled wine.

Answer 1

1) They have full control over the style of the wine produced.
2) They have full control over quality control at each stage of production.
3) No outsourced cost means greater profit margins.
4) It might indicate authenticity to the consumer.
5) The estate knows which vineyards contribute to each wine and so have greater knowledge and control over the story for marketing purposes.

Question 2

Name two disadvantages to an estate of estate produced/bottled wines.

Answer 2

1) The cost of managing the vineyard and equipping the winery.
2) Poor vintages may reduce yields and volume of wine necessitating a loss and/or increased prices.

Question 3

Why are larger estates more viable than smaller ones?

Answer 3

Economies of scale - greater volumes can be made because the same equipment can be re-used to produce different wines.

Question 4

What are the two main options available to growers for selling their wine?

Answer 4

1) Contract.
2) Spot.

Question 5

What is the spot market?

Answer 5

When fruit is bought and sold following harvest without a contract.

Question 6

Why is growing but not winemaking attractive to small vineyards?

Answer 6

They may not be able to justify the costs of expensive winery equipment purchase or hire.

Question 7

Why are growers at a particular disadvantage from vintage variation?

Answer 7

If their fruit is impacted negatively by the conditions of the vintage it may reduce the price they can sell it for.

Question 8

What is the advantage of selling fruit rather than wine to a small grower?

Answer 8

Quicker revenue as it’s at the sale of the fruit rather than the sale of wine.

Question 9

What is an advantage of selling wine on the spot market?

Answer 9

When there is a shortage of grapes the grower can command a higher price.

Question 10

What is a disadvantage of selling wine on the spot market?

Answer 10

When there is a excess of fruit the grower may have to sell for a lower price due to higher competition.

Question 11

What is a grower-producer?

Answer 11

Growers who produce wine and sell it to a merchant for bottling, maturation.

Question 12

What is an advantage of selling wine as a grower-producer?

Answer 12

They do not incur the costs of maturation or marketing.

Question 13

Where is the grower-producer model common?

Answer 13

Burgundy.

Question 14

What are two disadvantages to the grower-producer?

Answer 14

1) They receive smaller profits than if they sold the finished wine.
2) They lose control of the finished wine with respect to maturation type and length.

Question 15

What is a merchant?

Answer 15

Aka negociant who buys immature wine to mature and sell under their name.

Question 16

Name two advantages to merchants.

Answer 16

1) They incur no expense of vineyard purchase or management.
2) They have flexibility of sources in bad vintages.

Question 17

Name two disadvantages to merchants.

Answer 17

1) They may have little control over the grape growing or winemaking.
2) They may have to pay higher prices on the spot market in the event their contract fruit is of poor quality or insufficient quantities.

Question 18

Where (2) have grape prices risen most steeply in recent years?

Answer 18

1) Burgundy
2) Napa

Question 19

Where are micro-negociants most prevalent?

Answer 19

Burgundy

Question 20

To protect against price fluctuations, a merchant might what?

Answer 20

Enter into a contract with the grower-producer where the price for wine is agreed in advance.

Question 21

Some larger merchants might what?

Answer 21

Produce and sell large quantities to supers as own label wine.

Question 22

When did modern en primeur system become commonplace and why?

Answer 22

Post-WWII Bordeaux to help free up cash-flow on wines undergoing long maturation.

Question 23

What are the (3) advantages to consumers of buying wine en primeur?

Answer 23

1) It may be their only opportunity to buy these wines.
2) It may be at a lower price than when sold on the general market.
3) The price/value of the wine may increase over time.

Question 24

What are the (2) advantages to chateaux of selling wine en primeur?

Answer 24

1) Generate cash flow earlier.
2) EP sell price covers all costs up to and including bottling.

Question 25

What is a grower-merchant?

Answer 25

Someone that makes wine from fruit grown and bought.

Question 26

What is an advantage to a grower-produce of buying in fruit from other sources?

Answer 26

It allows them to achieve multiple wines at multiple price points often with multiple sales outlets.

Question 27

Name a famous grower-merchant and the wines they produce.

Answer 27

1) E. Guigal, Rhone Valley. 2) Cotes du Rhone, Crozes-Hermitage, Gigondas, Cote Rotie.

Question 28

What is a co-operative?

Answer 28

A collective of growers that produces and sells its wine together.

Question 29

What are the advantages (3) of co-operative production?

Answer 29

1) Finances are pooled to afford expensive equipment and resources. 2) Larger co-operatives can reduce costs by buying materials in bulk. 3) Collective marketing and sales may be more efficient.

Question 30

What is a key disadvantage to co-operative structures?

Answer 30

Management must seek member approval before decisions are made, which can slow down the process and/or not be to the liking of some members.

Question 31

What is a custom crush facility?

Answer 31

A co-operative model variant often found in North America where growers pay for use of the facilities each time they use them.

Question 32

What are two advantages of a custom crush facility for growers?

Answer 32

1) Do not need to invest in expensive equipment. 2) Benefit from expert winemaking.

Question 33

What disadvantage is there to the grower in using a custom crush facility?

Answer 33

Winemaking responsibility is handed over to a third party so unless specifications and relationships are understood the resulting wine may be different to the original vision.

Question 34

What is a virtual winemaker?

Answer 34

Virtual winemaker buy grapes, hire equipment or experts as they do not own land or winemaking facilities.

Question 35

What are the advantages to virtual wineries?

Answer 35

No costs associated with purchasing and owning land or winemaking facilities.

Question 36

What is a conglomerate?

Answer 36

A large often multi-national business that owns smaller businesses across various stages of the supply chain including estate wineries, merchants, distribution.

Question 37

What does a conglomerates’ size mean they have the power to do?

Answer 37

Strike a hard bargain when buying grapes, juice and wine, or selling to retailers.

Question 38

What are three advantages to conglomerates?

Answer 38

1) Their ownership over multiple stages of the supply chain means they have greater control and reduced intermediary cost at all stages along the route to market. 2) Regional offices in markets important to them. 3) Negotiation and purchasing power.

Question 39

What is the main advantage to a small grower of selling by contract as opposed to the spot market?

Answer 39

It gives the grower certainty of sale

Question 40

What are two advantages for a grower-producer in using custom crush facilities instead of entering into a co-op?

Answer 40

1) The company can make quick decisions. 2) The grower can market and sell their wine as they wish without the need to consult members as in the case of a co-op.