Cost behind the bottle Flashcards
What are the reasons that might increase the cost of a plot of land
1) location: if it’s in the Medoc vs AOC Bordeaux, or Cote d’Or vs AOC Burgundy, it’ll be a lot pricier as the GI commands a high price.
2) scarcity of land: in Champagne, almost all usable land is covered in vines, so new land is hard to come by. consequently the prices are high.
Once a plot has been purchased, what capital costs need to be considered (8)
1) surveying the land to check if its suitable for viticulture
2) Site clearing (vegetation, rocks etc)
3) irrigation/drainage systems
4) vines, trellising , wire, secateurs, machinery etc etc
5) infrastructure to access the vines
6) testing the land for pests
7) preventatives against pests (animal and natural)
8) breaking up a plough pan if there is one
What is the earliest possible time post purchase of the vineyard can a producer hope to see an income
AT LEAST 3 years as that’s the minimum time required for plants to start producing. But this doesn’t take into account making or maturing the wine
What are the different approaches to funding a vineyard in the early days
1) personal wealth, although this is a major cost so the level of wealth needs to be significant
2) bank loan - although the repayments need to be carefully planned into the business plan
3) an investor, although they will want a percentage of the profits and may also wish to be involved in the process
4) government subsidies in some countries
Give five examples of vineyard management costs
1) labour
2) utilities (water and electricity) - water for irrigation and cleaning
3) sprays
4) machinery maintenance (fuel etc)
5) replacement trellising / wire / netting
Give 5 examples of winemaking costs
1) labour in the winery - usually full time and skilled
2) equipment (presses, maturation vessels, fridges, cap management equipment…)
3) utilities (water and electricity)
4) Additives (yeast, SO2, meta bitartrate, tartaric acid, bentonite…)
5) Additional fruit bought in
6) maturation (time, space and equipment)
7) packaging (bottles, corks, labels, boxes…)
How do specialist wine freight forwarders compare price wise to generic companies?
They are more expensive as they have the knowledge, infrastructure and a much smaller competitive set
What are the four means of transport, and rank in order of costliness
1) air - the most expensive
2) road - usually more expensive that rail
3) rail - can be very cheap, depending on the train line
4) sea - by far the cheapest, and slowest option
When would air freighting be the best option
for special events like getting a small number of bottles for a tasting / event in another country when speed is of the essence
When would road be the best option for 100% of the travel
for short distances when other travel options would add complications. So Champagne to Paris or Brussels would be lorry.
It’s important to note that almost all wine will have the start and the end of their journey by road.
When would rail be the best option?
It depends massively on 2 things:
a) the route: on some private railways the costs can be prohibitive
b) the way its packed; if the wine is in individual pallet that need to be individually loaded and unloaded, that will increase the price. However a container loaded onto the wagon is a lot cheaper.
What are the pros and cons of sea travel for wine
pros:
- its’ the cheapest.
- it can be very reliable for temperature control if you pick a temperature regulated container.
- great for large volumes
Cons:
- terrible for the environment (unless bulk)
- slow
- not ideal for small volumes as you need to fill a container
How long on average do you need to wait for wine to arrive in the UK from Australia?
40 days
What percentage of the worlds wine was exported in bulk in 2016?
38%
What are the respective volumes for standard shipping containers ,ISO tanks and flexi tanks?
Standard shipping containers: 9,000-10,000
ISO tanks: 26,000
Flexi tanks: 24,000
What are the benefits of deep sea bulk freight?
- As you’re not shipping the glass as well, it’s lighter, and therefore requires fewer ships, and less fuel per effective bottle.
- no risk of breakages
Who would be more likely to consider bulk?
supermarket suppliers or other large volume producers. Under 15,000 L there is no financial benefit to shipping.
Is bulk just for cheap wine?
no - increasing interest in using it for better quality wines.
That said, in 2019, 34% of the worlds wine volume was shipped as bulk, which equated to 8% of value only.
Which party usually covers the insurance of shipping?
The producer, normally. If the producer uses a specialist freight company,y they might cover the cost, but it comes at a price.
Other than duties and taxes, what other importation costs need to be considered?
- labelling requirements for each market: ABV and health notifications, such as pregnancy and inclusion of sulphites
How is distributor margin usually calculated?
% of value of wines purchased over a year
% of fee/revenue (eg: if the wine costs £10, and fee is £1, it would be £1/£11*100 (%)
What are the costs at the last stage of the bottle’s journey - the B2C stage?
- Rental cost for retailer or ontrade.
- personnel
- equipment (glasses, sales equipment etc)
- storage : either on site or remote
- delivery to consumer if relevant
- margin for retailers (30-50%)
On top of production, shipping and retail, what other costs need to be factored in?
- marketing
- legislative
Duty is a legislative cost. How can this be paid?
Either on receipt of the wines or once they are released from bonded warehouses.
What is the benefit of a bonded warehouse?
It means the buyer doesn’t need to pay the duty up front, which is especially important if the wine is for the secondary market in which case the new buyer will pay to have them released.
Name some of the ways around avoiding currency fluctuation costs
Options Buying currency Trading in USD / eur Contact fixing the rate Fixing the price at the start of the year (Roederer ) Having a foreign currency account
What are options with regards to currency
Options are when a buyer agrees to that a producer sets aside a certain amount of stock which they will potentially buy at a preserved time. When the time comes, the buyer can decide whether or not to take the stock. As there is a risk for the producer, they often charge a premium.
Another way of doing this is to agree an amount of currency that will be spent, and then look at what that can buy in terms of stock.
With currency fixing, who is more at risk, and what steps do they take to mitigate this?
Producers are most at risk and they will consequently charge a premium to protect themselves.
What is a standard margin for a retailer
30-50%
In 2019 what percentage of the worlds wine was shipped as bulk?
What did that represent as value%?
34%
8%
