Chapter One: Factors affecting wine price - supply and demand Flashcards
What 3 factors influence the demand for wine?
Social Factors
Economic Factors
Legislative and Political Factors
What happened in 2008 and how did that affect wine consumption?
Global wine consumption dropped in 2008 after the financial crisis and has never completely rebounded.
Which categories of wine are gaining popularity?
Sparkling and rose
What is happening in traditional wine-drinking countries?
Wine consumption is falling, or static. Italy has begun to rise again
Where is consumption increasing?
USA, China
What are possible reasons for falling consumption?
- Younger people drinking less wine
- Health Concerns
- Changes in lifestyle
- Reduced availability of cheap wine
Why are younger people drinking less wine?
May regard wine as old-fashioned. It’s what your parents and grandparents drink.
Turned their heads toward spirits, or other alcoholic drinks.
Spending less time in bars
How are health concerns affecting wine consumption?
Greater awareness of the negative effects of alcohol.
Health related govt campaigns/policies
How are changes in lifestyle affecting wine consumption?
Busy, modern lifestyles leave little room for longer meals where wine was traditionally drunk.
Lunchtime drinks are increasingly forbidden, and becoming socially unacceptable.
Describe how reduced availability of cheap wine is affecting wine consumption
- in traditional wine-producing countries, there were large volumes of inexpensive wines produced, sold, and consumed locally.
- Various steps have been taken to reduce over-production such as vine pull schemes, resulting in smaller volumes available.
- Instead of buying more expensive wine, consumers simply switched to other, cheaper drinks.
What consumer preferences are affecting wine consumption?
- Rose, prosecco sales have increased significantly in USA and UK.
- Demand for lower-alcohol wines (health reasons)
- Consumers turning away from fortified wines and medium-sweet wines.
How do changes in reputation affect wine consumption?
Wine critics, online influences, key opinion leaders can have an impact on desirability of brands or styles of wine.
- Movies, TV, music lyrics, celebrity lifestyle news, peer opinions/behavior
- Loss of reputation can have opposite effect on prices.
How do changes in spending patterns affect wine consumption?
- In price-sensitive markets (germany, UK) many consumers are unwilling to pay more than the lowest possible price for the style of wine they want.
- In the USA, many customers are willing to pay above minimum price in order to buy a wine they perceive to be of better quality.
- Spending patterns are likely to change.
What are the economic factors that affect demand of wine?
- Strength of the economy
- Fluctuations in currency exchange
- Changes to the market
How does the strength of the economy affect the demand for wine?
-Sales of wine will change with the level of consumer disposable income
How do changes to the market affect the demand for wine?
- New companies always enter the market and others disappear.
- If a product disappears from a particular market, supply decreases. This creates opportunities for competition.
- If supply is limited, prices may rise.
- Introduction of new lower-priced or better-value wine may cause a fall in demand for other similar products and may force producers to lower their prices to remain competitive or look for other markets.
What are the legislative and political factors affecting demand for wine?
- Laws prohibiting the sale of alcohol
- Govt policies to reduce alcohol consumption
- taxation
- International trade
- Wine laws
How do laws prohibiting the sale of alcohol affect supply?
- minimum legal drinking age
- legality of alcohol in a given country
- any such controls inevitably limit the supply of wine and usually increase the price.
How do laws prohibiting or affecting the sale of alcohol affect wine?
- Laws intended to encourage citizens to drink less
- Blood alcohol level limits
- imposition and tightening of drink-driving laws have been shown to reduce alcohol consumption.
How does taxation affect wine?
- higher taxes may reduce consumption even though taxes on alcohol are a major source of revenue.
- taxation levels may vary according to category of drink
- Govt may reduce it to make certain categories more competitive.
How does international trade affect wine?
- Trading relations between countries can fluctuate, affecting demand
- Customs duties to encourage consumption of domestic goods
- Tariffs an free-trade agreements
- Banning imports from a particular country (embargo)
How do wine laws affect wine?
- Increasing global creation of Geographical Indications (PDO, AOP, DOCG) affect supply
- Many consumers are drawn to particular GIs because of strong reputation or positive experience.
- Creation of GI may increase recognition and demand, therefore price
- Rules of GIs in Europe can restrict how much, which grapes, methods of production, maturation, etc
- Producers outside the EU are rarely subject to such limitations leaving them free to react to market changes more quickly.
What are the production factors that influence the supply of wine?
- Area under vine
- Human factors
- Natural factors
What affects the area under vine?
- Vine pull schemes
- EU restrictions on planting new vineyards
- Conversion of vineyard land to other uses
- Abandonment of rural areas