Ch 1 - Factors That Affect The Price Of Wine

Question 1

What broad supply and demand factors that influence the price of wine

Answer 1

Social, economic

Question 2

What are examples of social factors influencing the price of wine?

Answer 2

Consumption habits
Consumer preferences
Reputation
Spending patterns

Question 3

What are the economic factors that influence wine price?

Answer 3

Strength of economy
Currency fluctuations
Market changes

Question 4

How do laws and politics influence the price of wine?

Answer 4

Laws prohibiting/limiting sale of alcohol
Govnt policies to reduce alcohol
Taxation
International trade
Wine specific laws

Question 5

What factors can influences the volume of wine produced?

Answer 5

Area under vine
Vine pull schemes
EU planting restrictions
Vineyard conversion to other uses
Abandonment of rural areas
Human factors
Natural factors
Legislation

Question 6

What is the effect of over-supply of wine?

Answer 6

It is harder to sell stock, and producers may be forced to drop prices to sell excess, sometimes at a loss.

Some producers find new outlets for their wine by developing contracts, bottling under different labels, or offering at a different outlet.

Question 7

what are the capital and ongoing costs of a vineyard?

Answer 7

capital:
cost of land, land preparation, irrigation/water management, roads and paths, rootstock, trellising, machinery, weather and pest protection

Ongoing:
labour, supplies, water, electricity, insurance, depreciation, chemicals and fuel

Question 8

What are the capital and ongoing costs of operating a winery?

Answer 8

capital:
land acquisition, building, supplies (tanks, presses etc.), agents (deacidifiers, sulphur etc.), maturation vessels, bottling line

ongoing:
labour, agents, supplies, water and electricity, insurance and depreciation, maturation, packaging

Question 9

what are the main transportation avenues?

Answer 9

Air, Road, Rail, Sea

Question 10

for a short travel between major cities, what method of transport is best?

Answer 10

Road- it takes wine directly to point of delivery. It also quickly moves goods through ports if vehicles can load onto ferries

Question 11

When is air transport most likely to be used? why?

Answer 11

only for time sensitive purchases of high value eg. for a competition or a deadline-sensitive market. this is because air travel is very expensive, especially for bottles due to the weight

Question 12

How would a producer optimiser the costs of rail transport?

Answer 12

by containerization, minimizing the need for labour to move multiple palettes of bottles

Question 13

What is the cheapest method of transport?

Answer 13

deap sea

Question 14

how does deep sea transport work?

Answer 14

containerised wines are transported over long distances, though this takes a long time (AU to UK is 40 days)

Question 15

Has bulk transport been growing or shrinking as an option?

Answer 15

growing, in 2010 it was 23% of non-EU to EU transport. In 2010 it was 43%.

Question 16

what are the benefits of bulk transportation?

Answer 16

It’s more space-efficient, allowing transport of up to 26,000 litres in ISO tanks.

This reduces fuel needs relative to litres of wine making it both cheaper and more environmentally friendly

Question 17

what are the different bulk transport vessel options?

Answer 17

Flexitanks inside shipping containers - up to 24kL

ISO tanks - up to 26kL

A shipping container can hold 9-10kL of bottled wine by contrast

Question 18

What are the disadvantages of bulk transport?

Answer 18

only suitable for large volumes

Question 19

true or false: bulk transport is mostly for cheap wine

Answer 19

true. in 2019, 34% was transported by bulk but this was only 8% of total market value.

Question 20

what is an example of a situation where a PRODUCER benefitted from insurance when transporting their wines?

Answer 20

in 2013 the MOL comfort sank and two containers of St Claires wine from New Zealand were lost, destined for Sweden.

Question 21

What is an example of importation costs?

Answer 21

re-labelling wines in line with target countries laws eg. EU wines must show alcohol to nearest whole/half unit.

USA wines must display health warning

Question 22

what are the costs associated with wine sales?

Answer 22

property, labour, equipment/materials, storage, delivery, margin at POS

Question 23

what is the margin at POS for a retailer vs a Hospitality venue?

Answer 23

retail is between 30-50% profit

hospitality is closer to 66.6%

Question 24

what are the costs associated with marketing a wine?

Answer 24

labour, design and production, marketing campaign

Question 25

How does the VDP help its members with marketing?

Answer 25

they collectively market their member’s wines, cutting labour costs associated with marketing, though members still pay a levy

Question 26

what is a bonded warehouse?

Answer 26

a building in the UK where importers will store their wines, only releasing and paying duty on them when they are sold.

this helps with cashflow

Question 27

in what areas will legislation affect the price of wine?

Answer 27

taxes, duties, trade barriers, subsidies, minimum pricing, labelling laws

Question 28

how can wine industry operators mitigate the effects of currency fluctuations?

Answer 28

options
fixing price at date of order
buying currency for specific order
fixing the exchange rate through a contract
trading in stable currency eg. USD, EUR
Opening foreign currency account at local bank
Opening account in overseas bank

Question 29

what is ‘options’ when it comes to currency fluctuation strategies?

Answer 29

the buyer takes a reserve of wine at an agreed price, and may take the rest at a later date, paying the market price.

Usually only large importers do this because they have the power to make these demands

Question 30

what are the 9 businesses engaged in wine production?

Answer 30

Estates
Growers
Coops
Grower-Producers
Negociants
Conglomerates
Virtual Wineries
Grower-Merchants
Custom Crush Facilities

Question 31

What is a grower merchant? Give and example.

Answer 31

a producer who grows their own grapes but also relies on bought-in grapes.

eg. E. Guigal

Question 32

E. Guigal is an example of what business type. Where are they?

Answer 32

grower-producer

Rhone Valley

Question 33

What is a cooperative? Benefits? Weaknesses?

Answer 33

A label owned by its members.

• pools financial resources
• access to expert vini/viticultural expertise
• more efficient and effective than solo marketing
• less competition in marketplace
• democratic control means decisions sometimes take a long time
• payment by volume may result in lower quality wine (vs tiers of quality)

Question 34

What is an example of a Coop?

Answer 34

La Chablisienne in Chablis

Question 35

What is a merchant/negociant?

Answer 35

someone who buys immature wine, matures, and sells it.

• no expenses of viticulture (capital or ongoing)
• protection from bad vintages where they can source better fruit
• subject to price fluctuations (contracts vs spot market)

Question 36

what is En Primeur?

Answer 36

An annual Bordeaux event where buyers can assess and purchase wine before it is finished, sometimes years in advance.

This gives producers better cashflow and can offer more competitive prices to buyers as in theory price will increase after bottling.

Question 37

what are custom crush Facilities?

Answer 37

Mostly in the US. A facility for winemakers who don’t have their own winery and charges them to use their services. Finished wine is returned to the grower.

lets the grower focus on growing and marketing, mitigating capital and ongoing costs of winery operations.

Question 38

what is a virtual winery?

Answer 38

in the US. A name for winemakers who don’t own land for grapes or winemaking so buy in their grapes and rent out facilities (ie. custom crush) to produce it.

Question 39

what is an example of a conglomerate?

Answer 39

Treasury Wines - AU
Jackson Family Wines - US
Felton Road - NZ