D2C03 Business Engaged In Wine Production Flashcards

LEARNING OUTCOME 2.2 Understand the types of businesses engaged in the production of wine ASSESSMENT CRITERIA 2.2.1 Evaluate the different types of businesses engaged in the production of wine.

1
Q

List major types of business engaged in the production of wine

A
Estates
Growers
Grower-producers
Merchants
Co-operatives
Custom crush facilities
Virtual winemakers/wineries
Conglomerates
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2
Q

What is an estate producer

A

Produces wines exclusively from their own vineyards (wholly owned or leased)

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3
Q

Advantages of estate producers

A

Retain control over entire process - choose final style of wine
Total profit - Estates which also market and sell their wines directly, without using intermediaries, additionally take the full profit from the sale of the wine
Marketing benefits: ‘estate-bottled’ authenticity, tell story

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4
Q

Disadvantages of estate producers

A

Cost of managing vineyard and equipping and running winery: some need to hire
Difficult vintage: reduced production, higher price which customers may not be willing to pay

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5
Q

Why are large estates financially more viable than smaller ones?

A

They can produce greater volumes of wine more cheaply because the same equipment can be re-used to produce different wines.
Also, larger vineyards are easier to mechanize – a series of smaller vineyards, especially if they are not neighbouring one another, makes mechanization difficult.

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6
Q

List some reasons why the average vineyard tend to be small in many traditional wine-producing regions

A

Historical factors: French succession laws

Geography: in hillier regions, vineyards are limited by the terrain

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7
Q

What kind of business is particularly attracted to the grower option?

A

Owner of small vineyards who cannot justify the cost of buying or hiring expensive winery equipment and do not want to have to market and sell wine

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8
Q

Advantages of grower

A

Better cash flow: payment due when grapes are sold

Focus all efforts on producing best possible grapes

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9
Q

Disadvantages for growers

A

Vintage variation
Fluctuation in supply and demand
both of which will significantly affect the price they can achieve for their grapes. In a bad year, they will have less fruit to sell – although a general shortage of grapes will push up the price of healthy fruit – or, in a worst-case scenario, nothing to sell at all. When supply exceeds demand, due to a bumper vintage or too much competition, growers will have to reduce their prices and may not be able to sell all their grapes. In either case, this will result in reduced profits or a loss.

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10
Q

Two options for growers to sell grapes? Advantages and disadvantages?

A

Enter into contract with producer or merchant: certainty, security, strong working relationship; need to meet certain standard, cannot obtain higher price when demand increases
Sell on the spot market: higher risks but greater rewards

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11
Q

What are grower-producers

A

Growers that produce wine from their grapes but sell to a merchant to mature and bottle, common in Burgundy

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12
Q

What are the advantages and disadvantages of grower-producers?

A

Adv: no cost of maturation or marketing
Dis: smaller profit; lose control over style of finished wine; may be blended with wine from other producers

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13
Q

What is a négociant?

A

Traditional: a merchant that buys immature wine, mature and sell under merchant’s own name, often blend different producers prior to bottling

To take control over the grape growing or winemaking, now there are also grower-merchants who own vineyards alongside making wines made from bought-in grapes, juice or wine.

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14
Q

Advantages of merchants

A

Adv: no cost of buying and managing vineyards, especially beneficial in Burgundy, Champagne etc; protection and flexibility in bad vintages; have quantities large enough to supply private label wines, which means another outlet

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15
Q

Disadvantages of merchants

A

Little control over grape growing or winemaking process - mitigate by offering technical support to their suppliers
Spot market price can be high - mitigate by long-term contracts with suppliers

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16
Q

Explain the rise of micro-négociant in Burgundy

A

Land is seldom sold and price is very high
Micro-négociant therefore specialise in small-production wines usually from individual vineyards that often achieve super-premium prices
Some work closely with particular growers, others buy on the spot market to be assured of best-quality fruit

17
Q

What is en primeur

A

Wine futures, a method of selling wine before it has been bottled
Purchasers buy the wine whilst it is still in barrel and it remains in the producer’s cellar until ready for bottling
Purchase receives the wine once bottled, usually a few years later

18
Q

Adv of en primeur

A

For producers: generate cash-flow earlier, get a sense of the market for setting price
For purchasers: cheaper and easier to buy wine

19
Q

What kind of wines are sold en primeur

A

Those that benefit from a period of maturation in barrel (usually 18m or more) and those prized by investors, such as Bordeaux, Burgundy, Rhône, Super Tuscans, Vintage Port

20
Q

What are co-operatives

A

Owned by a group of growers and produce and sell wines made from grapes grown by their members

21
Q

Benefit of cooperatives

A

Pool financial resources: afford more expensive winemaking equipment and expertise; access to expert viticultural and winemaking services and advice as well as marketing, packaging and sales services
Marketing collectively can be more efficient and effective, e.g., Plaimont in south-west France, Badischer Winzerkeller in southern Germany
Can make own-label wines since they can make a large volume of entry-level wine, e.g., La Chablisienne in Chablis, Mont Tauch in Fitou

22
Q

Disadvantages of co-operatives

A

Democratic control means that management must consult members before major decisions are made - slow and cumbersome decision making process, not always to the liking of individual members
Some are not quality focused if paid by weight

23
Q

Discuss the models of cooperatives

A

Pool resources
Democratic control
Plaide a share of annual profit but the method of calculating varies: traditional pay on weight (Spain and Italy) but may not be quality-focused; some pay on the quality of fruit, save profits and invest in latest technology, research and effective marketing and labeling

24
Q

What is custom crush facility

A

A variant of the co-operative model found mainly in North America, particularly California
Growers do not own facility but pay each time they require its services

25
Q

Adv and disadvantages of custom crush facilities

A

Adv:None of the downside of cooperatives
Do not need to invest in expensive equipment, can focus on grape growing and marketing
Benefit from expertise of professional winemakers
Dis: communication is vital. Otherwise grower will pay to have a wine style not wanted

26
Q

What are virtual winemakers/wineries

A

Winemakers who do not own vineyard land or winemaking facilities
Buy grapes and juice and rent facilities in another winery or employ the service of a custom crush facility

27
Q

What are conglomerates

A

Very large companies who own many smaller businesses across various stages of the supply chain, from production to distribution. Some of them have interest across all the alcoholic products

28
Q

List top 10 wine-producing companies in 2016

A
E&J Gallo, USA
Constellation Brands, USA
The Wine Group, USA
Treasury Wine Estate, Australia
Vina Concha y Toro, Chile
Castel Frères, France
Accolade Wines, Australia
Pernod Ricard, France
Grupo Penalor, Argentina
FeCoVitA, Argentina
29
Q

Major advantages of conglomerates

A

Have businesses across the supply chain
Can set up regional offices in markets important to them
Greater control at all stages of the route to market
Reduce need to pay intermediaries
Significant negotiating power, can strike hard bargain

30
Q

Examples of major companies buying into the wine sector

A

Moët Hennesy-Louis Vuitton: Moët Chandon, Veuve Clicquot, Krug, Cloudy Bay
Insurance company AXA: top estates in Bordeaux and Burgundy, Quinta do Noval