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.
Define the role of a Broker:
What is the key difference between a Broker and a Distributor?
A Broker is an independent intermediary that “makes deals happen” without entering into any deals themselves.
Distributor is paid by producer to sell wine on its behalf; brokers represent neither party and make commision (usually 2% but can be 1-5%) based on contract price.
What are the key ADVANTAGES of using a Broker (3):
- since brokers have low overhead costs (small office, laptop), they charge smaller fees than distributors (~2% of contract price vs 5-25% of distributor).
- intimate knowledge of particular, specialized market e.g. bulk or small-production wines.
- brokers can bring together buyer (e.g. supermarket) and producer (e.g. grower) = saved time and effort. Brokers know what each party is seeking, therefore streamlining the process.
Explain the special status of Brokers in Bordeaux (4):
aka ‘Courtiers’
have legal status, act as intermediaries btw/chateaux and negociants.
responsibility of ensuring that correct vat(s) of wine are delivered.
Also play a key role in fine wine trade, facilitating deals between buyers and sellers of rare wines.
What are the 4 main options for Producers Selling Directly to Consumers?
What is the main PRO/CON of this?
Cellar Door Sales
Events
Wine Clubs
Online
PRO- allows producer to take full profit from sale & retain control on marketing
CON- additional admin costs, logistical & staffing costs must be considered.
Describe Cellar Door Sales:
What types of customers (2) patronize this, and what are the attractions (2)?
could literally be visitors picking up wine from the ‘cellar door’, or much more grandiose operation involving attractive facilities and tour guides of the vineyard/winery.
CUSTOMERS: could be locals coming specifically to pick up wine.
could be wine tourists visiting the region.
ATTRACTIONS: experience of seeing ‘behind the scenes’ / wine tasting before purchasing / tasting of exclusive/reserve wines and pairings.
For foreign tourists, e.g. visitors from Germany to Alsace, wines may be much cheaper, or unavailable in home country.
Key ADVANTAGES of Cellar Door Sales (5):
- larger profits (no 3rd party distributor/importer)
- direct engagement with consumers = allowing guests to taste wines first has shown to increase sales.
- builds brand awareness and loyalty = especially important for new wineries.
- increases ‘word of mouth’ marketing; customers who have visited wineries make personal connections, are more likely to buy wine/recommend to friends in the future.
- excellent opportunity to test new products, get feedback w/out expensive market research.
Key DISADVANTAGES of Cellar Door Sales (3):
What are some strategies used by producers to off-set these disadvantages (2)?
- requires having suitable location.
- requires additional staff to run the joint.
- takes focus away from other routes to market.
STRATEGIES: set up ‘cellar door’ in nearby town, away from estate, e.g. in Sonoma and Napa.
- to save $$$ and increase access, set up ‘cellar door’ in nearest largest city, e.g. common for wineries in Columbia Valley, WA to set up cellar doors in Seattle.
At what types of events can producers sell directly to consumers?
PROS (1) / CONS (2)?
Tasting fairs, wine/food festivals, either held by/in certain regions, e.g. Lodi in CA or Denbies Wine Estate in the UK.
PRO: - attracts a large no. of visitors due to being held in larger towns/cities w/other attractions, e.g. live music, so more attractive for visitors.
CON: - costs producer to exhibit wines; travel, additional staff.
- competing with other producers for visitors’ attention.
Define Wine Clubs:
What are other benefits for members?
Club in which members pay a small annual fee for the opportunity to purchase wine at reduced prices for delivery.
Other benefits: access to exclusive wines, free tours, invitations to exclusive tastings + easier access.
What are the different forms taken by Wine Clubs (3)?
- more popular in New World wine-producing countries, e.g. USA/Australia.
- can be operated by all types of estates.
- in the case of v. presitigous wineries, e.g. Screaming Eagle, wine club may be only way to purchase wines, w/very long waiting lists.
PROS (2)/ CONS (3) of Wine Clubs:
PROS: - v. useful for marketing purposes; contact with customers via newsletters, websites, blogs, developing ‘word of mouth’ marketing.
- can give members a feeling of exclusivity (important for cult wines, e.g. Screaming Eagle).
CONS: - additional work; composition of newsletters, sending out offers every 3/6/12 months.
- logistics of shipping wine, assuming risk of damage/loss means paying for a reliable freight forwarder is essential.
- bureaucracy of legislation, e.g. 3-tier system in USA, can be onerous to navigate; not all states permit.
Key ADVANTAGES of Producer Online Retail (2):
- value of online retail growing consistently, gives many consumers ability to order wine from comfort of own home.
- no intermediary costs, so cheaper for consumer and more profit for producer.
Key DISADVANTAGES of Producer Online Retail (2):
- added costs of delivery (which may be paid for by retailer or consumer).
- success relies heavily on reliable, easy-to-use and up-to-date website. Though there are packages available for basic sites, producers may want to invest in custom designs to stand out from the crowd and create better branding.
