3. Types of Production Businesses Flashcards
Define an Estate Producer:
A producer who makes wines exclusively from their own vineyards.
What are the Advantages of Estate Producers :
Advantages of Estate Producers :
- Total control over the style of finished wine : Entire process controlled by estate, greatest level of quality control.
- Bigger profits : as there are no intermediaries
- Easier marketing : ‘authenticity’, knowledge of practices, grapes, vineyards. Telling the ‘story’ of the wine = important marketing tool.
- Larger estates tend to be more financially viable : economies of scale in various depts (production, admin, compliance, marketing), e.g. large volumes of wine can be made cheaply by re-using same equipment to produce different wines.
What are the Disadvantages of Estate Producers :
Disadvantages of Estate Producers :
- Complexity of managing the whole process : Grape Growing, Winemaking, Maturation, Transportation, Sales, Marketing.
- Very high initial investments : not all estates can afford to buy equipment that is only used once a year so it is hired out (which also eats into profits).
- Vintage variation risk : if difficult vintage, e.g. frost/hail, leads to drop in yield, wine may need to be sold at higher price to make profit. Customers may be unwilling to pay, and production costs may not be recovered.
Define Growers:
Growers / Farmers that choose not to produce wine, instead focusing solely on grape growing and selling to winemakers/merchants.
What are the Advantages of Growers :
Why is it attractive to small vineyards ?
Advantages of Growers :
- Generates better cash-flow because payment is due when the grapes are sold rather than when the wine is made or sold.
- Growers can focus all their efforts on producing the best possible grapes and this approach can be the source of some very high-quality fruit.
Attractive to owners of small vineyards who cannot justify the cost of buying or hiring expensive winery equipment and do not want to have to market and sell their wine.
What are the Disadvantages for Growers :
Disadvantages for Growers :
- Vintage variation risk : very vulnerable to vintage variations and fluctuations of supply/demand.
-
Bad Year :
- Less fruit to sell but shortage can raise price of healthy fruit
- Worst case = no fruit.
- Surplus Crop : Too much supply/competition, prices will have to be lowered to compete.
What are the 2 main selling options for Growers, and their PROS/CONS ?
Enter into a contract with a particular producer or merchant : The contract may be for one vintage only or for multiple vintages (sometimes they can be for many years).
Advantages :
- Financial security : certainty to sell the grapes at a given price (although bad grapes may b rejected or sold for lwoer price)
- Long-term contract lead to a strong working relationship between the parties where they may actively work together to produce the best quality fruit
Disadvantages :
- If there is a shortage of grapes, the spot price is likely to be more than the contract price.
Sell the grapes on the spot market : This is where grapes that are not subject to contract are bought and sold following harvest. Higher risl but potentially higher reward.
- If there is a shortage of grapes, spot sellers can achieve higher price than if they had a contract.
- If there is a glut of grapes, the spot price is likely to be less than the contract price.
Define a Grower-Producer:
Where is this approach still popular today?
A grower who produces wine from their own grapes, then sells it to a merchant to mature and bottle.
Still common in Burgundy.
What are the Advantages of Grower-Producers?
Advantages of Grower-Producers :
- No maturation and sales/marketing costs
- Better cash flow as the wine is sold straight after being made.
- Focus can be on grape growing and wine-making, leaving marketing and sales to more experienced merchants.
What are the Disadvantages of Grower-Producers :
Disadvantages of Grower-Producers :
- Loss of control over style of finished wine, merchant may blend wines with that of other producers.
- Smaller profits than if they were to sell own finished wine.
Define a Merchant (négociant) :
Merchants before :
- Buy immature wine, mature it and sell it under the merchant’s name.
- In many cases, they would blend the wines of different producers prior to bottling. The chief risk to merchants was that they had little control over the grape growing or winemaking process.
Merchants nowadays :
- Produce their own wine from grapes or juice
- Provide technical support to their suppliers to ensure that the grapes, juice or wine they buy are of the required quality.
What are the Advantages of Merchants :
Advantages of Merchants :
- No expense of buying/managing vineyards, particularly beneficial in premium regions e.g. Burgundy, Champagne, where land is seldom sold, and very $$$.
- If buying the wine, no expense of winemaking
- Smaller vintage variation risk : Can mitigate this risk by buying grapes/wine from different growers/producers on different locations.
- Long-term contracts with suppliers can protect against price fluctuations.
What are the Disadvantages of Merchants?
Disadvantages of Merchants :
- Smaller margin as grapes can be expensive to buy
- Grape prices can rise substantially in poor vintages, forcing merchants to pay higher prices.
- In regions such as Burgundy or Napa Valley where grape prices have risen considerably in recent years, it has generally become much more expensive for merchants to purchase grapes. To protect against price fluctuations, however, most merchants now have long-term contracts with their suppliers, to whom they often provide technical support and advice.
What are ‘micro-négociants’ ?
Micro-négociants :
- Found in Burgungy, in particular.
- Merchants that arose due to v. high land prices, specializing in small-production wines, usually from single-vineyard sites, that can achieve super-premium prices.
- Work closely with specific growers to obtain the best quality fruit.
Define a Grower-Merchant.
Who is a famous example in the Rhône Valley ?
What is the main advantage to a model such as this?
Grower-Merchant :
- Producers that make wine from their own vineyards (usually premium), as well as produce wines from bought-in grapes (more accessible price-points).
Example in the Rhône Valley : E. Guigal
- Produces some wines from estate vineyards, e.g. extremely $$$ single vineyard wines from Côte-Rôtie.
- Produces other wines from e.g. Crozes-Hermitage, Gigondas, Cotes-du-Rhone from bought-in grapes.
Advantages :
- This allows the producer to make wines which will be sold at different price points, at a range of different outlets.
