Costs through the Supply Chain

Question 1

Capital vs Operational goods

Answer 1

Capital cost - money spent in acquiring, improving, or maintaining long-term assets like land, buildings, equipment. Capital goods depreciate in value

Operational cost - money spent on day to day activities relating to producing and packaging wine. Operational costs do not depreciate in value

Question 2

Grape Growing Costs

Answer 2

Vineyard Establishment - 
Cost of land
Survey land
Clear land - remove old roots, large rocks
Buy/planting vines
Establish trellising system
Install drainage
Install sprinklers
Install netting for hail or birds
Install tall fences to keep out animals
Buy machinery and quipment- tractors, harvesting machines, sheds

These are Capital costs - cost going into the purchase, improvement, and maintenance of longterm assets

Vineyard Management - 
labor - varies based on site location, organic/biodynamic, harvest time
machinery maintenance & fuel,
supplies (gloves, shears), 
vineyard treatments
water
electricity
insurance & depreciation

These are operational costs. Daily activity costs that contribute to producing quality grapes. These costs start as soon as the vines are planted (before they’re productive)

Question 3

Winemaking Costs

Answer 3

Winery Establishment - land, building, equipment - presses, tanks, pumps, sorters, refrigerators, bottling line,

Winemaking costs - grape cost if purchasing, labor, electricity, winery materials - SO tanks, CO2 tanks, yeast, sugar, filters, fining agents, electricity, barrels, packaging - corks, bottles, labels, loss of cashflow due to wine maturation time, depreciation of machinery

Question 4

Transportation Methods

Answer 4

Air - fastest but most expensive long distance travel. Not feasible for large shipments because freight is dependent on weight (and bottles are heavy). Usually only used for special circumstances - submitting bottles for review, competition, etc
Road - generally for short distances. Gets expensive for long distances
Rail - can be convenient if winery is located near a station and the destination is as well. Can be cheaper than road if wines are containerized
Sea - cheapest long distance transport but slow

Insurance - usually the party sending the goods takes out the isnurance

Question 5

Pros & Cons of Bulk Transport

Answer 5

• much lighter
• more volume can be carried in one container
• less chance of bottle/case damage
• less chance of spoilage bc of temp flux
• more environmentally friendly
• only profitable for larger producers that have the volume
• takes away full control of the final product from the producer
• takes away jobs from the origin country/region

Question 6

Importation Costs

Answer 6

Labelling to adhere to import country's laws - ABV, health warning, label art restrictions, 
Distributor fees (optional)

Question 7

Sales Cost (retail)

Answer 7

Property -
for brick and mortar businesses: store front, building, decor, electricity, maintenance, safety measures, water, insurance, waste disposal
For online businesses: storage space in non-prime location, insurance, electricity

Labor -
The more premium the retail business, the more expensive knowledgable staff is
Bars/restaurants - need additional personal as host, wait staff, kitchen, etc

Equipment/Material - retail vs bar/restaurant
Storage Cost
Delivery Cost

Question 8

Marketing Cost

Answer 8

Labor
Design and production of bottles and labels
Marketing campaign

Question 9

Ways legislation impact wine cost

Answer 9

Taxes
Duties
Trade barriers
Subsidies
Minimum pricing 
Labelling laws

Question 10

bonded warehouse

Answer 10

In countries like the UK, you can store the wines in a bonded warehouse. The someone wants to buy it, they will take it out of the warehouse will also paying hte cost to do so + the exise dutyl

Helps with cashflow!

Question 11

Currency can fluctuate between time of ORDER and time of DELIVERY. As a buyer, should choose wisely as to when to pay

Question 12

how to mitigate the effect of currency rate fluctuations

Answer 12

1. Options - enter into a contract that buys wine at x price (usually higher than normal). At a pre-determined time, the buyer can choose to execute the option and buy at x price or forego the wine. Usually only large importers have the ability to negotiate such agreements
2. Fixing the price in the currency of the importer at the date of ordering - Shifts the currency risk to the producer. (Usually the price is in the currency of the producer.) You want the contract in your currency so you know hwo much you are paying for it and can help budget your year
3. Buying currency to cover specific orders - highly trained skills required for this so usually only done by larger companies
4. Entering a contract to fix the exchange rate - Enter into a contract with a bank to purchase a given amount of currency at an agreed exchage rate on a specified date. Importer is legally committed to purchase the currency (differnet than an option!) Helpful in budgeting
5. Trading in USD/EUR - stable currencies are easier to forecast and can rely on them not changing too much between tiem of order and delivery. Good for producers in unstable currency countries adn importers so they can budget.
6. Opening a foreign currency account in a local bank - generally only used by a producer/buyer who deals mostly in 1 foreign currency. (Makes things easier when all transactions are in a certain currency). You would open a foreign currency account in a local bank and make payments directly to the seller in the seller’s own currency
7. Opening an account in an overseas bank - same as opening a foreing currency account in a local bank plus the caution of having to understand that country’s baning regulations

Question 13

ALL parties involved in the supply chain need to add a margin to the cost of wine in order to be profitable!

Question 14

Costs in the supply chain of wine

Answer 14

Grape growing
Winemaking
Transportation
Import
Retail sales
Marketing
Legislation
Currency fluctuations