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.
List major types of business engaged in the production of wine
Estates Growers Grower-producers Merchants Co-operatives Custom crush facilities Virtual winemakers/wineries Conglomerates
What is an estate producer
Produces wines exclusively from their own vineyards (wholly owned or leased)
Advantages of estate producers
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
Disadvantages of estate producers
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
Why are large estates financially more viable than smaller ones?
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.
List some reasons why the average vineyard tend to be small in many traditional wine-producing regions
Historical factors: French succession laws
Geography: in hillier regions, vineyards are limited by the terrain
What kind of business is particularly attracted to the grower option?
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
Advantages of grower
Better cash flow: payment due when grapes are sold
Focus all efforts on producing best possible grapes
Disadvantages for growers
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.
Two options for growers to sell grapes? Advantages and disadvantages?
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
What are grower-producers
Growers that produce wine from their grapes but sell to a merchant to mature and bottle, common in Burgundy
What are the advantages and disadvantages of grower-producers?
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
What is a négociant?
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.
Advantages of merchants
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
Disadvantages of merchants
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
Explain the rise of micro-négociant in Burgundy
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
What is en primeur
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
Adv of en primeur
For producers: generate cash-flow earlier, get a sense of the market for setting price
For purchasers: cheaper and easier to buy wine
What kind of wines are sold en primeur
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
What are co-operatives
Owned by a group of growers and produce and sell wines made from grapes grown by their members
Benefit of cooperatives
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
Disadvantages of co-operatives
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
Discuss the models of cooperatives
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
What is custom crush facility
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
