Businesses Engaged in Production of Wine Flashcards
Types of Businesses Engaged in Wine Production
Estates Growers Grower-Producers Merchants Grower-merchants Co-operatives Custom Crush Facilities Virtual Wineries Conglomerates
Estates
Grow their own grapes and produce their own wine
Pros:
Keep all the profits (and even more if they sell direct to retail)
Maintains full control from grape growing to bottling - knows exactly what style the wine is going to be at
Can tell their story - huge marketing plus
Attractive to wine enthusiasts who want to see where the wine they love is made, what exact plots grapes for a certain label came from, etc
-large estates can benefit from economies of scale - production, admin, marketing, etc (the same equipments are also used more to produce more wine)
Cons:
Huge overhead
“No expense spared” mentality
Tie up in cashflow
Need to spend a lot of money making their estate presentable and luxurious to meet the image they are promoting their wines at
Huge amount of land necessary - from grape growing to storage
Huge capital costs upfront. Can rent equipment but then run into problem of high demand - can lead to having a bunch of investors if they don’t have enough of their own money or loans and then may have to listen to what investors want the winery to make
-in difficult vintages, you dont have the crops and consumers are not understanding to pay more for the wine to cover lost supply. Can cause strained relationships with importers/distributors
Growers
Only grow grapes
Pro:
Easier cashflow - buyers pay when the grapes are delivered. Dont have to wait for the wine to be released
Lower overhead - dont need to manage an entire winery as well
Can focus on only growing grapes and specializing it - super profitable if you own a well knwon piece of land (ie Beckstoffer vyds)
Climate change can work for your favor
Great for small growers that dont have the financial means to also own a winery and market their wine
Con:
Profits highly dependent on climate conditions - in bad vintages, you may lose all your crops. In good vintages, there may be a surplus of grapes
Varietals go in and out of style - what you are growing may be super popular and then not (ie Merlot bc of the movie sideways)
Climate change can work against your favor
Gov’t legislation cna work against your favor ie not allowing irrigation even during hard vintages
Sell on contract or on the spot market
Contract - stable
Spot market - high risk, possible high reward
Grower-Producers
Grow their own grapes
Producer their own wine but then sell it to a merchant to mature and bottle
Pro:
- no marketing cost, don’t need to worry about getting the wine to market and figuring out those logistics, working thru different country/state regulations
- better cash flow - wine is not tied up in maturation time
Con:
- slightly less profit
- lose control of final product - merchant can blend differnet producers’ wines, age in different vessels for different amounts of time
Merchants
AKA Negociant
- Buy immature wine then sell it (can also blend the wines)
- Buy grapes/juice and make their own wine (like negociants in Burgundy)
- En Primeur sales (Bordeaux)
Pro:
Can buy via contract or on the spot market
Lots of options when it comes to grape source
Not limited by the vineyards in their vicinity - ie Jadot makes all types of Burgundies
No overhead from grape growing or wine making or for owning the vineyard/winery - very expensive in regions like Burgundy
Less personnel needed to hire
Can focus on the marketing and branding - means they can also demand higher prices if they want to go for a higher-end image
Can make large quantities and private label for retailers
Con:
May have to buy on the spot market when vintage is bad and pay higher prices
Have little control over how the grapes are grown and wine is made
The price of grapes has risen significantly in popular places like Burgundy and Napa
Grower-Merchants
make wine from their own fruit and purchased fruit
Pro:
Have a huge array of wines in all different pricepoints
Can take advantage of ladder branding and most people don’t even know their accessible wines are bought fruit
Can expand their outreach ie Guigal in Southern Rhone
Same as grower/merchant
Cons:
Same as grower/merchant
Co-ops
Group of growers that produce and sell their own wine
Pro:
Can pool resources and become competitive and hire experts in wine making, marketing, etc
Can make a bunch of differnet wines
More protection from winegrowing risks like hail and other bad climate conditions
Everyone gets paid - whereas if they stayed individual farmers, that might not be the case
Can reach economies of scale
Con:
Democratic process that takes more time and doesnt always work out the way everyone wants it to
Custom Crush Facilities
Makes wines for growers who do not have their own winemaking equipment
Pro:
No winery overhead
Dont need to hire experts to manage your winery
Con:
Less control over the winemaking - need to be in constant communication with the winemaker
If its far away from the vyd, transportation will be costly
Virtual Wineries
Buy grapes & rent facilities in a winery or use a custom crush facility
Same as crust facility and merchants
Conglomerates
Own many small businesses
Horizontal growth - have their own distribution company, bottle making company - can cut out middleman
Lots of diverisity in product line
Economies of scale - have huge negotiating power
usually have more than just wine in their book so they can sell wine to places that are generally less wine savvy
More pooled resources as small companies get bought out
Con:
Might lose the story of each winery thats under the conglomerate
