Cost behind the bottle

Question 1

What are the reasons that might increase the cost of a plot of land

Answer 1

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.

Question 2

Once a plot has been purchased, what capital costs need to be considered (8)

Answer 2

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

Question 3

What is the earliest possible time post purchase of the vineyard can a producer hope to see an income

Answer 3

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

Question 4

What are the different approaches to funding a vineyard in the early days

Answer 4

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

Question 5

Give five examples of vineyard management costs

Answer 5

1) labour
2) utilities (water and electricity) - water for irrigation and cleaning
3) sprays
4) machinery maintenance (fuel etc)
5) replacement trellising / wire / netting

Question 6

Give 5 examples of winemaking costs

Answer 6

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…)

Question 7

How do specialist wine freight forwarders compare price wise to generic companies?

Answer 7

They are more expensive as they have the knowledge, infrastructure and a much smaller competitive set

Question 8

What are the four means of transport, and rank in order of costliness

Answer 8

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

Question 9

When would air freighting be the best option

Answer 9

for special events like getting a small number of bottles for a tasting / event in another country when speed is of the essence

Question 10

When would road be the best option for 100% of the travel

Answer 10

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.

Question 11

When would rail be the best option?

Answer 11

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.

Question 12

What are the pros and cons of sea travel for wine

Answer 12

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

Question 13

How long on average do you need to wait for wine to arrive in the UK from Australia?

Answer 13

40 days

Question 14

What percentage of the worlds wine was exported in bulk in 2016?

Answer 14

38%

Question 15

What are the respective volumes for standard shipping containers ,ISO tanks and flexi tanks?

Answer 15

Standard shipping containers: 9,000-10,000
ISO tanks: 26,000
Flexi tanks: 24,000

Question 16

What are the benefits of deep sea bulk freight?

Answer 16

• 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

Question 17

Who would be more likely to consider bulk?

Answer 17

supermarket suppliers or other large volume producers. Under 15,000 L there is no financial benefit to shipping.

Question 18

Is bulk just for cheap wine?

Answer 18

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.

Question 19

Which party usually covers the insurance of shipping?

Answer 19

The producer, normally. If the producer uses a specialist freight company,y they might cover the cost, but it comes at a price.

Question 20

Other than duties and taxes, what other importation costs need to be considered?

Answer 20

• labelling requirements for each market: ABV and health notifications, such as pregnancy and inclusion of sulphites

Question 21

How is distributor margin usually calculated?

Answer 21

% 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 (%)

Question 22

What are the costs at the last stage of the bottle’s journey - the B2C stage?

Answer 22

• 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%)

Question 23

On top of production, shipping and retail, what other costs need to be factored in?

Answer 23

• marketing

- legislative

Question 24

Duty is a legislative cost. How can this be paid?

Answer 24

Either on receipt of the wines or once they are released from bonded warehouses.

Question 25

What is the benefit of a bonded warehouse?

Answer 25

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.

Question 26

Name some of the ways around avoiding currency fluctuation costs

Answer 26

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

Question 27

What are options with regards to currency

Answer 27

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.

Question 28

With currency fixing, who is more at risk, and what steps do they take to mitigate this?

Answer 28

Producers are most at risk and they will consequently charge a premium to protect themselves.

Question 29

What is a standard margin for a retailer

Answer 29

30-50%

Question 30

In 2019 what percentage of the worlds wine was shipped as bulk?
What did that represent as value%?

Answer 30

34%

8%