D2C04 Options For Getting Wine To POS

Question 1

Define a free market

give reasons why markets for alcoholic beverages are seldom totally free

What other types of markets are there

Answer 1

Free market:

• producers are relatively free to choose whether to sell directly to consumer or retailer or through an intermediary
• If relationship problematic, producer can cancel contract and find another route to market

Why are markets seldom free:

• Governments control sale and distribution
• Tax Revenue
• Policies to reduce alcohol consumption

Other types of markets

• Monopoly
• USA 3-Tier

Question 2

Define off-premises and on-premises sales

Answer 2

Off-premises: retail, off-trade in UK

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

Question 3

List different routes to market

Answer 3

Selling directly to retailers

Appoint a distributor

Establish a joint venture

Use a broker

Selling directly to consumers

Question 4

Describe the advantages and disadvantages of selling directly to retailers

Answer 4

Advantages

• No intermediary costs and margins Maximizing profits
• Producers have final say over how wine is marketed, except if..
• retain control over brand image - not possible with larger retailers or large chains of restaurants
• can sell in bottle, en primeur (cash flow), in bulk.
• can determine a variety of price points

Disadvantages

• Increased administrative burden for producers (time away from vineyard)
• additional staff
• responsible for logistics - difficult if exporting - compliance/tax, duties/knowledge of foreign languate etc
• 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
• Small producers most likely appoint distributor as above is too time consuming

Question 5

Explain why you would appoint a distributor and what advantages/disadvantages are associated with this decision.

Answer 5

• buys wine from several producers and sells to network of retailers
• Works locally in market to which he sells
• 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
• cb “Importers”, “Agents”, Wholesalers” (ea has diff meaning in diff markets)

Advantages

• Knowledge of market: key players, consumer preferences, current trends
• knowledge of retailers’ requirements - where best to market the wine
• May take over the logistics admin
• May take over financial risk of GIT esp imports
• Able to deal with compliance topics and knows the language
• Has resources to sell and market - thus prod exp is increased
• cb large - working with larger producers
• cb niche - smaller prod of special varieties / countries/ styles - good for intro of new products….

Disadvantages

• Charges a fee- reduce profits
• Lose control over marketing and brand image (mitigate with up front agreements)
• Cannot get undivided attention
• May be dropped if not selling in sufficient quantities
• Large distributors may prefer to deal with large producers

Question 6

Why would companies set up joint venture

Answer 6

• If co’s are same size = merger/joint venture
• JV’s formed between players in the supply chain - cost driven
  
  • Greater control over different stages of the supply chain
  • Avoid intermediary costs
• If one is bigger than other = takeover (Acquisition)
• Takeovers often driven by:
  
  • acquire capabilities (skills, resources, market share, prime location…)
  • creating a more competitive business;
  • save small company from going out of business
• Advantage for business being acquired:
  
  • Despite loss of control, there is usually increased investment, and new routes to market because of the large distribution networks

Question 7

Give examples of some mergers and acquisitions in the Wine industry

Answer 7

In the industry:

• Champagne Bollinger & Fladgate Partnership (Port) shareholding in Mentzendorff (UK Wine distributor). Mentzendorff’s client portfolio is carefully chosen to avoid overlaps.
• E&J Gallo purchased Jackson Family Winery to be able to compete in more sectors
• Conviviality acquired Bibendum PLB creating UK’s largest wine distributor however 2 years later, the new company had failed, went into administration, and the various subsidiaries sold off.

From outside the industry

• Private equity firm Carlisle Group bought Accolade Wines. Accolade wines can freely trade with China through their Australian business (FTA), while other US companies are subject to the impact of the US trade war with China.

Question 8

How would a producer benefit from appointing a broker as a route to market?

Answer 8

Brokers are independent intermediaries

• Represent neither party
• do not enter into any deals, they merely make them happen
• Low overheads - smaller fees (1 - 5 % of the contract price dep on country)

Benefit for Producer

• broker knowledge of market (normally specialised), who is selling what, who wants to buy what and at what price.
• Brokers have specialities - some bulk others small-production wines
• Broker brings parties together, saves time for both buyer and seller

Brokers in Bordeaux

• Known as courtiers (have legal status)
  
  • Play NB role between chateaux and negociants
  • if bulk wine - broker resp to ensure correct vats are delivered
• Also plays intermediary to facilitate deals on rare bottles of (investment) wine.

Question 9

How would a producer sell directly to consumers?

Answer 9

Cellar Door

Events

Wine Clubs

Online

Question 10

Why are cellar door sales attractive to customers?

How does the producer benefit and what advantages does this approach have?

Answer 10

These cb shop / tourist faciltiies

• “Wine Tourism” destinations for local as well as int tourists
• Primarily its about “The experience”
  
  • tours, tasting, learn the story
  • take home wine not available in home ctry

Benefit to Prod

• larger profit,
• tasting increase sales, creates brand awareness - loyalty
• word of mouth marketing
• opp for direct cons feedback, avoid exp market research

Challenges for Producers

• Staff cost, space, distraction from core function in winery
• Negatives may be avoided by opening a cellar door in nearby town - esp in USA, long distances. Columbia Valley Vineyard Cellar Door in Seattle (150km away)

Question 11

Benefits of event sale to consumers

Answer 11

e.g Tastings, Fairs, Food Festivals

• “Events Tourism” when locations can attract more people (wider range and diverse from those who would travel to winery)
• Have a “Destination” effect
• Benefits can be similar to Cellar Door - but

Challenge:

• Need to pay to exhibit,
• Staffing the stand
• Increased competition for people’s attention on the site

Question 12

Features of wine clubs

Answer 12

Offer Benefits to members for small annual fee:

• purchased at reduced price for delivery
• access to wines not yet on market or available to public
• free tours/invitations to exclusive tastings
• easy access to wines they enjoy

Popular in the new world

• Cellar door customers encouraged to sign up
• producer can sell large prop of their wine this way
• reduces need to find other outlets
• keeps producer in contact with customer
  
  • blogs
  • newsletters
  • websites
  • all above are good for marketing by wom.

Challenges

• Requires good admin
  
  • membership
  • new lsits at intervals
  • process of orders and shipping
  • risk of breakage unless FF appointed
• Not all states in USA permit direct ale to consumers
• operated by all types/siyes/prestige level wineries
  
  • e.g. Screaming Eagle - exclusive club many await to join.

Question 13

Covered in Chapter 5