4. Getting Wine to Point of Sale Flashcards
Generally, wine sales are split into which 2 categories?
Retail -off premises – US
-off trade – UK
Hospitality -on Premises - US
- on trade - UK
- HoReCa = HOtels, REstaurants, and CAfes/CAtering
In a ‘Free Market’, what measures do gov’ts put in place to control sale/distribution of alcohol and why (4)?
Markets are rarely truly ‘free’:
- controls on sale & distribution for purpose of tax raising (very lucrative).
- controls to minimize harmful effect of abuse
- limit hours can be sold/ min drinking age
What are the key ADVANTAGES of Selling Directly to Retailers (4)?
- no intermediary costs to pay = beneficial for both producer and consumer.
- producers are free to decide who stocks their wine = better control of brand image/marketing.
- admin burden is light if only selling to a small number of companies, e.g. only supermarkets.
- trade fairs/tastings gives producers excellent opportunity to meet many potential clients at once.
What are the key DISADVANTAGES of Selling Directly to Retailers (5)?
- larger supermarkets/chains have greater bargaining power over small producers, may dictate how wines are promoted/priced.
- increased admin burden for producer (collection, transportation, delivery); detracts from time that could be spent in vineyard or winery focusing on product.
- exporting wine = additional tasks of packaging, labeling, duties/taxes.
- producer may need to take on full financial risk of wine being damaged during transportation.
- takes time to build up relationships with retailers and fully understand market = numerous time-consuming + costly visits to market.
Explain the role of a Distributor (2):
AKA (3):
A distributor buys wine from a range of producers and sells it to a range of retailers, including HoReCa.
May/may not hold exclusive rights to import/distribute certain products in their market.
aka Importers / Wholesalers / Agents.
Key ADVANTAGES of using a Distributor (7):
PC-BREAK
- ditributors have Knowledge of market, inc. key players, consumer prefs, current trends.
- ability to introduce producer to Contacts, saving the producer time/money.
- awareness of retailers’ requirements/Prefs, = more targeted, effective approach.
- helps with Admin side: contacting logistics co. for collection/transportation/delivery of wine, assumes risk for damaged wine, skilled staff.
- greater Resources for promotion/marketing, saving the producer time.
- larger portfolio = greater Exposure of wine, e.g. portfolio tastings.
- wine Buyers often prefer buying through distributors vs producers = ability to buy many different wines from 1 source.
Key DISADVANTAGES of using a Distributor (4):
- perks come with a price: fee is charged to reach margin = reduced profits for producer; hospitality sales margins usually higher than retail sales.
- producers may lose control over marketing of wine, distributor’s strategy may not reflect desired brand image = requires clear understanding for both parties.
- possibility of getting lost within larger portfolio, cannot get undivided attention.
- producer may be dropped if sales are not sufficient.
Why is it vital for producers to spend time finding the right Distributor (3)?
What can help producers with this process?
- Size matters; larger distributors prefer larger producers, smaller producers may specialize in particular wines, can be beneficial for smaller producers.
- may be necessary to find multiple distributors if producer has a range of wines, depending on what the distributor specializes in.
- though this process is costly, appointing the wrong producer can be more problematic in the long run.
HELP: attending trade tastings, getting recommendations from other wineries.
In which market are Joint Ventures particularly important?
What’s the point?
What is necessary for success?
What common form do these take?
- particularly important in price sensitive markets, e.g. UK, for companies trying to looking to save costs.
- are established at different stages of the supply chain which give greater control & profitability – intermediary costs avoided
- for success- companies need to be of comparable size
Increasingly common JVs = producer & distributor or large retailers to create a new wine brand.
2 e.g’s of prominent Joint Ventures:
e. g. Metzendorff; UK distributor, joint venture of Champagne Bollinger/Fladgate Partnership. Not direct competitors, other companies in portfolio don’t overlap.
e. g. “Viñalba”; new wine brand created through JV of Buckingham Schenk (UK distributor) and Hervé and Diane Joyaux Fabre.
What is the difference between a Merger and an Acquisition?
Merger: 2 businesses form a (theoretically) equal partnership to create a new business with greater resources/capabilities than individual businesses had.
Acquisition: aka ‘Takeover’, when one company (usually much larger) buys another company, which then becomes a subsidiary of that company.
Key benefits of Acquisitions (3):
- reduced costs = lower prices due to economies of scale, simplification of supply chain.
- method of growing business in order to compete in more sectors of chosen markets.
- for smaller producers being bought = increased investment, large distribution network, new routes to market.
2 e.g’s of wine congomerates getting bigger via Acquisitions:
e.g. of distribution company consolidation:
e. g. E&J Gallo purchasing number of smaller producers.
e. g. Jackson Family Wines
e. g. Conviviality w/ Matthew Clark/Bibendum/PLB in UK.
e.g. of how Acquisitions do not always work out well:
What happened (3)?
Conviviality in UK.
2016: Conviviality (major UK distributor+several retail chains) acquired Bibendum PLB = UK’s largest wine distributor.
2018: Company was in serious financial difficulty, put into administration.
Various subsidiaries were sold off to new owners C&C Group and Bestway to allow them to continue trading.
e.g. of company OUTSIDE the wine trade acquiring wine brands:
What was a key benefit of this acquisition (2)?
2018: Carlryle Group (US Private Equity Firm) purchased Accolade WInes.
Acquisition occured during trade war btw/US and China = tariffs placed on US wines entering China.
However, Australian wines = large part of Accolade brand, benefits of free-trade agreement.
