Chapter 2: Factors affecting wine price - Costs thorough the supply chain

Question 1

Describe how vineyard establishment affects the price of wine

Answer 1

• Price of the land
• Scarcity of the land
• Capital costs

Question 2

What does the price of the land reflect?

Answer 2

• Potential to produce high quality fruit and the name of the appellation in which it is situated.
• Scarcity of the land - land in prestigious regions rarely goes on sale, so when it does, it will be sold to the highest bidder.

Question 3

Give some examples of capital costs.

Answer 3

• Surveying the land to check suitability and deciding which grapes are most suitable.
• Site clearance - removing rocks, vegetation
• building access roads
• buying stakes and wires for trellising
• buying and planting vines.
• draining the site if necessary
• protection against weather hazards and pests
• buying machinery

Question 4

What are the main vineyard management costs?

Answer 4

• Labor
• Machinery and equipment running costs
• Vineyard treatments
• Water
• electricity

Question 5

Describe labor as a vineyard management cost

Answer 5

• Amount of labor varies greatly according to size, topography, if it’s conventional, biodynamic, organic
• Hand harvesting requires additional labor, if there is a shortage, they will work for highest bidder
• Trained staff to operate machinery
• There is a balance between labor costs and capital costs of machinery. If labor cost is low, there is no incentive to invest in machinery and vice versa.

Question 6

Describe machinery and equipment running as a cost

Answer 6

-fuel, maintenance, vineyard materials, replacement vines, trellising

Question 7

Describe vineyard treatments as a cost.

Answer 7

• Agro-chemicals (conventional farming uses a lot)

- Organic and biodynamic still need to use small quantities of the more traditional treatments - sulfur, BDX mixture

Question 8

How could agro-chemical costs be reduced

Answer 8

-By using IPM principles, but needs access to weather station.

Question 9

Describe water as a cost

Answer 9

If a vineyard is irrigated, it may be necessary to pay authorities for rights to extract water from a river or elsewhere.
-Drought = higher water price which may make growing unprofitable.

Question 10

Describe electricity as a cost

Answer 10

Certain systems in the vineyard require electricity - irrigation systems, bird scarers, frost protection equipment.

Question 11

What are the main winemaking costs?

Answer 11

• Labor
• Machinery and equipment running costs
• Winery materials
• Bought-in fruit
• Water
• Electricity
• Maturation
• Packaging

Question 12

Describe labor as a cost

Answer 12

• skilled, full-time staff

- Casual labor around harvest

Question 13

Describe machinery and equipment as a cost

Answer 13

fuel, elec, maintenance

Question 14

Describe bought-in as a cost

Answer 14

• if a winery is buying fruit, this will be a significant cost.
• can vary significantly according to quality, varietal, vintage

Question 15

Describe water as a cost

Answer 15

• large volumes of water for cleaning

- if water is scarce, may be cost-effective to invest in water treatment plants to re-use as much as possible.

Question 16

Describe electricity as a cost

Answer 16

• refrigeration, ventilation, presses, pumps, lighting

- some estates generate their own electricity

Question 17

Describe maturation as a cost

Answer 17

-storage space, barrels, labor to monitor maturation, maturing stock takes up space

Question 18

Describe packaging as a cost

Answer 18

Bottles, corks, labels, pallets, bottling equip, renting bottling equip, labor associated

Question 19

What are the four methods of transporting wine?

Answer 19

• air
• railway
• road
• sea

Question 20

Why would wine be transported by air?

Answer 20

• usually only for special circumstances as it is VERY expensive
• Beaujolais Day for the Japanese market

Question 21

Why would wine be transported by road

Answer 21

• quickest/cheapest method of moving goods traveling a short distance through a port, but the overall cost may outweigh the benefit.
• For long distances, it is excessively expensive.

Question 22

Why would wine be transported by rail?

Answer 22

-Freight rates vary considerably, depending on the route. Could be cheaper than road, but rates vary

Question 23

Why would wine be transported by sea

Answer 23

-Usually the cheapest method, but takes a long time

Question 24

Advantages/disadvantages of bulk transportation?

Answer 24

• Advantage: Lighter and more efficient than transport in bottle, environmentally friendly, reduced amount fuel
• Disadvantage: only suitable for large volumes of the same, so not suitable for small producers

Question 25

Describe how wine is transported in bulk

Answer 25

Either in plastic flextanks (more common) within a standard steel shipping container or non-flexible ISO tanks
-increasing interest in transporting more expensive wines in bulk.

Question 26

Describe importation costs

Answer 26

• Customs duties which will be payable if wine is imported to another country
• Labeling laws that vary by country, must comply
• Distribution costs, their associated fees
• Retailers buying from distributors may also need to pay delivery costs.

Question 27

What categories of cost are incurred at the retail end of the supply chain?

Answer 27

• Property costs
• Labor
• Equipment and materials
• Storage
• Delivery
• Margin at POS

Question 28

What property costs are associated with retail and hospitality?

Answer 28

• Retail premises, especially bars and restaurants, tend to be in prime locations which are the most expensive to buy or lease.
• Furnishing costs

Question 29

Why are property costs lower for online-only retailers?

Answer 29

They only need to buy or lease warehousing space, which is often located in areas away from city centers where property prices are cheaper.

Question 30

Difference in cost between buying and leasing?

Answer 30

• Buying the property will incur significant capital costs, although the retailer may be able to fund the purchase through a property loan or mortgage.
• Taking a lease will be cheaper initially, but the retailer will have to pay rent and other expenses during the term of the lease, and when the lease comes to an end they may have to move out.

Question 31

How are labor requirements different depending on the type of retail outlet?

Answer 31

• Supermarket labor cost is relatively low as highly skilled staff are not required
• Specialist shops will employ highly knowledgeable staff
• Bars and restaurants have much higher labor costs: wait staff, kitchen staff. Wages reflect the level of knowledge and expertise.

Question 32

What’s the difference in equipment requirements between retail and bars/restaurants

Answer 32

• Retailer: till system, fridge, shelving, display cabinets

- Bar/Rest: kitchen equip, glassware, wine preservation systems, temp-controlled wine storage system

Question 33

Why do some retailers offer free delivery for orders over a certain amount?

Answer 33

it’s a way of giving the customer a discount without reducing the price of the wine.

Question 34

How do margins vary between retailers and bars/restaurants?

Answer 34

retail: margin of 30-50%

bars/rest: 66.6% or so.

Question 35

How do marketing costs add to the price of wine?

Answer 35

Labor - creation of marketing materials
Design of bottles and labels
Marketing campaigns - samples, advertising, promotional materials

all of these are reflected in the final price of wine

Question 36

How does legislation impact the cost of wine?

Answer 36

The cost of wine can be affected by various types of legislation
including taxes, duties, trade barriers, subsidies, minimum pricing and labelling laws.