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 will need to hire such equipment — especially the case for equipment required once per year e.g. bottling line
> 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.
Give two reasons why the average vineyard tends 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 these factors 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 potentially 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?
Traditionally, a négociant is a merchant that buys immature wine, which it matures and sells under its own name, often blending 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
> 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 essentially provides another route to market
Disadvantages of merchants
> Little control over grape growing or winemaking process; can mitigate by offering technical support to their suppliers.
> Spot market price can be high; can mitigate by entering long-term contracts with suppliers.
