4. Getting Wine to Point of Sale

Question 1

Generally, wine sales are split into which 2 categories?

Answer 1

Retail

• Off premises – US
• Off trade – UK

Hospitality :

• On Premises - US
• On trade - UK
• HoReCa = HOtels, REstaurants, and CAfes/CAtering

Question 2

What are the Advantages of Selling Directly to Retailers?

Answer 2

Advantages of Selling Directly to Retailers :

• Bigger profits : No intermediary costs to pay. Beneficial for both producer and consumer.
• Control over marketing : Producers are free to decide who stocks their wine
• Admin burden is light if only selling to a small number of companies, e.g. only supermarkets.
• Trade fairs/tastings give producers excellent opportunity to meet many potential clients at once.

Question 3

What are the Disadvantages of Selling Directly to Retailers ​?

Answer 3

Disadvantages of Selling Directly to Retailers (MIRIAL):

• Marketing : Can be costly (time and skilled labour)
• Information : Own market research has to be done
• Retailers Contacts : Difficutly to engage many retailers, especially big ones
• Import/Export :
  
  • Language barrier can be an issue
  • Legal compliance issues for imported wine (duty payments and labeling requirements)
• Administrative : Administrative burden (logistics, marketing, contracts …)
• Logistics : Collection, transportation and delivery of the wine.
  
  • May have to take on the full financial risk of wine being lost or damaged in transit.
  • This risk may be reduced by using a freight forwarder.

Question 4

Explain the role of a Distributor :

Answer 4

Distributor (aka Importers / Wholesalers / Agents) :

• 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.

Question 5

What are the Advantages of using a Distributor :

Answer 5

Advantages of using a Distributor : (MIRIAL)

• Marketing : Distributors will also have greater resources to promote a wine than the producer and usually take over the marketing
• Information : Knowledge of the market (key players, consumer preferences, current trends, retailers’ requirements and preferences)
• Retailers Contacts :
  
  • Distributors organise portfolio tastings attended by a wide range of potential customers.
  • Retailers prefer to do business with one point of contact than many separate producers.
• Import/Export :
  
  • Local distributors are helpful where there is a language barrier.
  • Help with legal compliance issues for imported wine (duty payments and labeling requirements)
• Administrative : Deal with all the admnistrative burden (marketing, contracts …)
• Logistics: transporation and delivery of the wine

Question 6

What are the Disadvantages of using a Distributor :

Answer 6

Disadvantages of using a Distributor :

• Costs : The distributor will charge a fee to achieve its desired margin, which will reduce the producer’s profits.
• Marketing : Producers can lose control over how their wine is marketed and where it eventually ends up on sale. The strategy chosen by the distributor may not therefore reflect the producers’ brand image and it is therefore vital that both parties agree a clear marketing and sales plan from the outset and keep it under regular review.
• Competition :
  
  • Distributors cannot give undivided attention to any producer
  • Overall marketing strategy may not be the ideal one for an individual wine.
  • May drop those which are not selling in sufficient quantities.
  • May add new producers to their book that are direct competitors

Question 7

Explain how a producer will choose the right Distributor :

Answer 7

The right distributor :

• Size matters :
  
  • larger distributors prefer larger producers
  • smaller distributors 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 distributor can be more problematic in the long run.
• Get information by attending trade tastings, getting recommendations from other wineries.

Question 8

In which market are Joint Ventures particularly important?

What’s the point?

What is necessary for success?

What common form do these take?

Answer 8

Joint Ventures :

• Important in Price sensitive markets, e.g. UK, for companies trying 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.

Question 9

2 examples of prominent Joint Ventures:

Answer 9

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.

Question 10

What is the difference between a Merger and an Acquisition?

Answer 10

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.

Question 11

What are the benefits of Acquisitions :

Answer 11

Benefits of Acquisitions :

• 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.

Question 12

2 examples of wine congomerates getting bigger via Acquisitions:

1 example of distribution company consolidation:

Answer 12

Wine conglomerates getting bigger via acquisitions:

• E&J Gallo purchasing number of smaller producers.
• Jackson Family Wines

Distribution company consolidation:

• Conviviality w/ Matthew Clark/Bibendum/PLB in UK.

Question 13

Example of how Acquisitions do not always work out well:

What happened (3)?

Answer 13

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.

Question 14

Example of company OUTSIDE the wine trade acquiring wine brands:

What was a key benefit of this acquisition (2)?

Answer 14

2018: Carlryle Group (US Private Equity Firm) purchased Accolade WInes.

Acquisition occured during trade war between US and China = tariffs placed on US wines entering China.

However, Australian wines = large part of Accolade brand, benefit from free-trade agreement.

Question 15

Define the role of a Broker:

What is the key difference between a Broker and a Distributor?

Answer 15

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.

Question 16

What are the Advantages of using a Broker :

Answer 16

Advantages of using a Broker :

• Smaller fees :
  
  • 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.
• Contacts :
  
  • 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.

Question 17

Explain the special status of Brokers in Bordeaux (4):

Answer 17

Brokers (aka ‘Courtiers’):

• have legal status, act as intermediaries between 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.

Question 18

What are the 4 main options for Producers Selling Directly to Consumers?

Answer 18

Options for Producers Selling Directly to Consumers

• Cellar Door
• Events
• Wine Clubs
• Online

Question 19

Describe Cellar Door Sales:

What types of customers ?

Answer 19

Cellar doors :

• Facilities on the estate or at the winery to sell wine to visitors.
• Customers could be locals coming specifically to pick up wine or wine tourists visiting the region.

Question 20

What are the Advantages of Cellar Door Sales :

Answer 20

Advantages of Cellar Door Sales :

• Larger profits (no intermediaries)
• 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 without expensive market research.

Question 21

What are the Disadvantages of Cellar Door Sales :

What are some strategies used by producers to off-set these disadvantages (2)?

Answer 21

Disadvantages of Cellar Door Sales :

• Requires having suitable location.
• Requires additional staff
• Takes focus away from other routes to market.

Strategies :

• Set up ‘cellar door’ in nearby town or nearest largest city to increase access

Question 22

At what types of events can producers sell directly to consumers?

PROS (1) / CONS (2)?

Answer 22

Tasting fairs or wine and food festivals

Pros :

• Attracts a large number of visitors due to being held in larger towns / cities with other attractions, e.g. live music, so more attractive for visitors.

Cons :

• Costs for producer to exhibit wines; travel, additional staff.
• Competing with other producers for visitors’ attention.

Question 23

Define Wine Clubs:

What are other benefits for members?

Answer 23

• 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

Question 24

What are the Pros/Cons of Wine Clubs:

Answer 24

Pros :

• Useful for marketing : 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 interesting content.
• Logistics of shipping wine, to avoid 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 wine clubs

Question 25

What are the Advantages of Online Retail :

Answer 25

Advantages of Producer Online Retail :

• Higher profit : No intermediary costs, so cheaper for consumer and more profit for producer.
• Marketing : ability to write lots of information about the wine, the producer, etc…
• Gives consumers the ability to order wine from comfort of own home.
• Take advantage of the growing market for online sales

Question 26

What are the Disadvantages of Producer Online Retail :

Answer 26

Disadvantages of Producer Online Retail :

• Added costs of delivery (which may be paid for by retailer or consumer).
• Website must be reliable, easy-to-use and up-to-date. 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.