D2C04 Options For Getting Wine To POS

Question 1

Why are markets for alcoholic beverages seldom totally free

Answer 1

Government control on sale and distribution:
for tax-raising purposes
To reduce alcohol abuse

Question 2

Define free market

Answer 2

One in which producers are relatively free to choose wether to sell directly to consumer or retailer or through an intermediary
If relationship with intermediary or retailer not working, producer can cancel contract and find another route to market

Question 3

List three types of market

Answer 3

Free market
Monopoly market
USA three tier system

Question 4

Define off-premises and on-premises sales

Answer 4

Off-premises: retail, off-trade in UK

On-premises: hospitality, on-trade in UK, HoReCa

Question 5

List different routes to market

Answer 5

Selling directly to retailers
Appoint a distributor
Establish a joint venture
Use a broker
Selling directly to consumers

Question 6

Major advantages of selling directly to retailers

Answer 6

No intermediary costa and margins, maximizing profits
Producers have final say over how wine is marketed, retain control over brand image - not possible with larger retailers or large chains of restaurants

Question 7

Major disadvantages of selling directly to retailers. How to mitigate?

Answer 7

Increased administrative burden for producers - time away from vineyards, additional staff, legal compliance in other countries - freight forwarder
financial risk of lost or damaged wine - freight forwarder
Take time to build relationship and understand market in foreign countries - trade fair and tasting in foreign countries

Question 8

List three different models for selling directly to retailers

Answer 8

In bottle
En primeur
In bulk

Question 9

What is a distributor

Answer 9

Distributor buys wine from a range of producers and sells to a range of retailers
Generally in the same country as retailers to which they sell
May or may not be the same country as producer
May or may not hold stock of products in portfolio
May or may not have exclusive rights to import / distribute certain products

Question 10

Other names for distributor

Answer 10

Importer
Agent
Wholesaler

Question 11

Major benefits of using distributor

Answer 11

Knowledge of market: key players, consumer preferences, current trends
Introducer producer to contacts
Distributors aware of different retailers’ requirements and preferences, focus on appropriate markets
Help with administrative burden
Absorb risk of lost or damaged wine
Legal compliance with foreign countries: duty, labeling
Language barrier
Increased exposure

Question 12

Disadvantages of using distributors

Answer 12

Fee - reduce profits
Distributor take over marketing - lose control over marketing and brand image
Cannot get undivided attention
May be dropped if not selling in sufficient quantities
Large distributors may prefer to deal with large producers

Question 13

Why would companies set up joint venture

Answer 13

To save costs particularly in price-sensitive markets
Greater control over different stages of the supply chain
Avoid intermediary costs

Question 14

Major requirements of joint venture

Answer 14

At different stages of the supply chain
Companies of comparable size (otherwise more of a takeover)
Contractual arrangements need to be carefully agreed and documented to ensure each party knows their responsibilities and obligations

Question 15

Give an example of joint venture

Answer 15

UK distributor Mentzendorff has major shareholders as Champagne Bollinger and Fladgatge Partnership, who are not direct competitors
UK distributor Buckingham Schenk and winemaker Herve and DIane Joyaux Fabre create Argentinian wine brand Vinalba, which is sold in multiple countries worldwide

Question 16

What is a merger

Answer 16

Two businesses join together to create a business with greater resources and capabilities that should be more competitive than the individual businesses were on their own
Should be equal partnership in theory

Question 17

What is acquisition

Answer 17

Also know as takeover
When one company buys another company, which then becomes a subsidiary of the purchasing company.
Reason: usually to acquire capabilities which the purchasing company believes it lacks, creating a more competitive business; or to save small company from going out of business

Question 18

Benefits of small company in a takeover

Answer 18

Despite loss of control, there is usually increased investment, and new routes to market because of the large distribution networks

Question 19

How does a broker differ from a distributor

Answer 19

Distributor is paid by producer to sell wine on its behalf, brokers are independent intermediaries who represent neither party.
Brokers do not enter into any deals, they merely make them happen
Low overheads - smaller fees (2% of the contract price usually)

Question 20

Benefit of using broker

Answer 20

Intimate knowledge of a particular, often specialized market
Bring together buyer and selling, saving the parties time and effort of seeking each other out
Know wines available and prices willing to sell at
Also know style and volume buyers are looking for and price they are prepared to pay

Question 21

Describe broker’s role in different contexts

Answer 21

Bordeaux: courtier, have legal status, intermediaries between chateaux and négociants
Bulk wine: ensure correct vats are delivered
Fine wine trade: facilitate deal btw those who buy and sell rare wine

Question 22

Adv and dis of selling directly to consumers

Answer 22

Full profit

Additional administrative, logistical and staffing costs

Question 23

Options for selling directly to consumers

Answer 23

Cellar door
Events
Wine clubs
Online

Question 24

Why are cellar door sales attractive to customers?

Answer 24

The experience: see where the wine is made, tasting, learn the story
Foreign tourists: wine may be unavailable or expensive in their country

Question 25

Benefits of cellar door sale to producers

Answer 25

Larger profits
Engage directly with consumers: good for marketing since there is chance to taste
Build up brand awareness and loyalty: cellar door customers more likely to buy in the future
Word-of-mouth marketing
Trial new products and get feed back - reducing market research cost

Question 26

Disadvantages of cellar door sales

Answer 26

Disrupt important work
Take up space and need to be staffed
To overcome: cellar door in nearby town

Question 27

Benefits of event sale to consumers

Answer 27

In towns and cities with other attractions
Attract larger number and wider range of people
“Destination effect” in wine regions

Question 28

Downside of event sale to customers

Answer 28

Producer need to pay to exhibit wine
Travel expenses and additional staff
Competition with other producers

Question 29

Features of wine clubs

Answer 29

Opportunity to purchase wine at reducer price for delivery
Other benefits such as access to wines not normally available to the general public, free tour, invitation to exclusive tastings
Easy access to wine they enjoy

Question 30

Benefits of wine club to producers

Answer 30

Offered as part of wine tourism, reducing the need to find other outlets
Marketing purposes: continue to stay in contact with members, word-to-mouth marketing

Question 31

Disadvantages of wine club sales

Answer 31

Additional work
Send out wine details
Process order and ship wine
Risk of lost or damaged bottle
Administrative in dealing with 3-tier system in USA

Question 32

Benefits of online sales

Answer 32

Customers have the comfort of buying at home

No intermediary costs - larger profit

Question 33

Disadvantages of online sales

Answer 33

Added cost of delivery

Set up and maintain reliable website