3. Types of business engaged in the production of wine Flashcards
Name five advantages to the estate of estate-bottled wine.
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.
Name two disadvantages to an estate of estate produced/bottled wines.
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.
Why are larger estates more viable than smaller ones?
Economies of scale - greater volumes can be made because the same equipment can be re-used to produce different wines.
What are the two main options available to growers for selling their wine?
1) Contract.
2) Spot.
What is the spot market?
When fruit is bought and sold following harvest without a contract.
Why is growing but not winemaking attractive to small vineyards?
They may not be able to justify the costs of expensive winery equipment purchase or hire.
Why are growers at a particular disadvantage from vintage variation?
If their fruit is impacted negatively by the conditions of the vintage it may reduce the price they can sell it for.
What is the advantage of selling fruit rather than wine to a small grower?
Quicker revenue as it’s at the sale of the fruit rather than the sale of wine.
What is an advantage of selling wine on the spot market?
When there is a shortage of grapes the grower can command a higher price.
What is a disadvantage of selling wine on the spot market?
When there is a excess of fruit the grower may have to sell for a lower price due to higher competition.
What is a grower-producer?
Growers who produce wine and sell it to a merchant for bottling, maturation.
What is an advantage of selling wine as a grower-producer?
They do not incur the costs of maturation or marketing.
Where is the grower-producer model common?
Burgundy.
What are two disadvantages to the grower-producer?
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.
What is a merchant?
Aka negociant who buys immature wine to mature and sell under their name.
Name two advantages to merchants.
1) They incur no expense of vineyard purchase or management.
2) They have flexibility of sources in bad vintages.
Name two disadvantages to merchants.
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.
Where (2) have grape prices risen most steeply in recent years?
1) Burgundy
2) Napa
Where are micro-negociants most prevalent?
Burgundy
To protect against price fluctuations, a merchant might what?
Enter into a contract with the grower-producer where the price for wine is agreed in advance.
Some larger merchants might what?
Produce and sell large quantities to supers as own label wine.
When did modern en primeur system become commonplace and why?
Post-WWII Bordeaux to help free up cash-flow on wines undergoing long maturation.
What are the (3) advantages to consumers of buying wine en primeur?
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.
What are the (2) advantages to chateaux of selling wine en primeur?
1) Generate cash flow earlier.
2) EP sell price covers all costs up to and including bottling.
What is a grower-merchant?
Someone that makes wine from fruit grown and bought.
What is an advantage to a grower-produce of buying in fruit from other sources?
It allows them to achieve multiple wines at multiple price points often with multiple sales outlets.
Name a famous grower-merchant and the wines they produce.
1) E. Guigal, Rhone Valley.
2) Cotes du Rhone, Crozes-Hermitage, Gigondas, Cote Rotie.
What is a co-operative?
A collective of growers that produces and sells its wine together.
What are the advantages (3) of co-operative production?
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.
What is a key disadvantage to co-operative structures?
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.
What is a custom crush facility?
A co-operative model variant often found in North America where growers pay for use of the facilities each time they use them.
What are two advantages of a custom crush facility for growers?
1) Do not need to invest in expensive equipment.
2) Benefit from expert winemaking.
What disadvantage is there to the grower in using a custom crush facility?
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.
What is a virtual winemaker?
Virtual winemaker buy grapes, hire equipment or experts as they do not own land or winemaking facilities.
What are the advantages to virtual wineries?
No costs associated with purchasing and owning land or winemaking facilities.
What is a conglomerate?
A large often multi-national business that owns smaller businesses across various stages of the supply chain including estate wineries, merchants, distribution.
What does a conglomerates’ size mean they have the power to do?
Strike a hard bargain when buying grapes, juice and wine, or selling to retailers.
What are three advantages to conglomerates?
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.
What is the main advantage to a small grower of selling by contract as opposed to the spot market?
It gives the grower certainty of sale
What are two advantages for a grower-producer in using custom crush facilities instead of entering into a co-op?
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.
