D2W1 QUIZ on Factors influencing demand Flashcards
After a rapid rise before this date, consumption rates begin to fall after the global financial crisis as consumers reduced their spending on non-essential products.
2008
For more information, please see Chapter 2 of the D2 textbook.
The USA overtook France and Italy to become the country with the largest wine consumption worldwide:
2011
For more information, please see Chapter 2 of the D2 textbook.
Sales of still wines have been declining very slightly in recent years, but are due to remain stable until:
2021
For more information, please see Chapter 2 of the D2 textbook.
There are several possible reasons why consumption of wine is falling globally. Select the most prevalent ones from the options below.
Select one or more:
A. Increased awareness of health concerns.
B. Busier lifestyles.
C. Reduced availability of cheap wine.
D. Changes in climate.
E. Younger people are drinking less wine.
A. Increased awareness of health concerns. Government campaigns and policies have raised awareness of the negative aspects of drinking. Awareness has prompted reduced consumption.
B. Busier lifestyles. Lifestyles have changed, and people tend to work longer hours, leaving less time to drink wine.
C. Reduced availability of cheap wine. In many traditional wine-producing countries, there were large volumes of cheap wine available for local consumers. In those countries, various steps have been taken to reduce over-production.
E. Younger people are drinking less wine. In some countries, the younger generations are drinking less wine and turning to other alcoholic drinks.
For more information on this topic please see Chapter Factors influencing Demand for Wine in the D2 textbook.
If a producer has made too much wine, this is referred to as an oversupply. Which of the following methods might a producer choose to implement to sell more wine?
Select one or more:
A. Reduce the price of their wine
B. Sell to other markets
C. Engaging in vine pull schemes
D. Sell under another label
A. Reduce the price of their wine. Reducing the price of the wine may make the wine more attractive to consumers. However, this will mean the producer will receive less profit from sales, which may have major financial implications.
B. Sell to other markets. Although this may increase sales, selling to other markets can be costly and problematic due to legislation in different areas/countries.
D. Sell under another label. The producer may choose to make the wine seem more appealing by selling it under another label. Although some may argue this diminishes brand identity.
For more information on this topic please see Chapter Factors influencing Demand for Wine in the D2 textbook.
In general, what types of wine is there an increased demand for globally?
Select one or more:
A. Rosé
B. Lower-alcohol wines
C. Fortified wine
D. Medium-sweet wines
E. Sparkling
A. Rosé. Different styles of rosé have become extremely popular, especially in the USA
B. Lower-alcohol wines. This demand is generally in response to the aforementioned increased awareness of health concerns.
E. Sparkling. According to IWSR, sales of sparkling wine have been increasing globally, against the trend of a reduction in wine consumption. In regions like Prosecco DOC, the growing areas have been increased to keep up with demand.
Undersupply usually isn’t a global issue, and is usually isolated to particular wines. However, undersupply has consequences. Classify the consequences, depending on whether they affect large volume inexpensive varietally labelled wines, super-premium single-vineyard wines, or both:
A. Loyal customers switch brand | variety
B. Increased exclusivity
C. Price increase for the final product
D. Wine likely to be sold on allocation
E. Final quality of the product compromised
large volume inexpensive varietally labelled wines:
A. Loyal customers switch brand | variety
E. Final quality of the product compromised
super-premium single-vineyard wines:
B. Increased exclusivity
D. Wine likely to be sold on allocation
both:
C. Price increase for the final product
- What is a price-sensitive market? Give a brief description, including details on how spending habits have an impact on industry.
- Give examples of price-sensitive markets.
A price-sensitive market refers to a market were consumers are unwilling to pay more than the lowest price for a style of wine. The impact on the industry varies, some producers may choose not to sell in a market if they know their profit margins are very much reduced. Some producers may not pass on higher production costs and currency fluctuations in case they lose sales to competitors, leading to longer term issues of cash flow and sustainability for the producer.
Price-sensitive markets include Germany and the UK.
Please refer to chapter 2. Factors Influencing Demand for Wine - Supply and Demand in the D2 textbook for more information.
Which three economic reasons often dictate the demand for wine?
Select one or more:
A. Consumer preferences
B. Changes to market
C. Government policies
D. The strength of the economy
E. Fluctuations in currency exchange
B. Changes to market. The market is always fluctuating. Competitors enter the market and other brands leave it.
D. The strength of the economy. When consumers have less disposable income, demand of wines (or at least more expensive wines) may fall.
E. Fluctuations in currency exchange. Fluctuating currencies may cause countries to have to drop or increase the cost of their wines to counteract the wine’s new value. This can lead to losses in profit or consumer demand.
For more information on this topic, see 2.2. Factors influencing Demand for Wine - Economic Factors from the D2 textbook.
The European Union is a free-trade area allowing member states to import and export goods between themselves tariff-free. Which of the following non-member countries have entered into trade agreements with the EU for the purpose of tariff-free or reduced-tariff trade?
Select one or more:
A. Australia
B. South Africa
C. Chile
B. South Africa
C. Chile
For more information on this topic see 2.2 Factors influencing Demand for Wine - Economic Factors in the D2 textbook.
The Scottish Government is the first to introduce ‘minimum unit pricing’. The aim of this law is to reduce the availability of cheap alcohol. The minimum price of an alcoholic drink is 50 pence per unit. Therefore the calculation for the minimum price of alcohol is as follows:
The price per unit (£0.50) x the strength of alcohol (ABV) x the volume in litres
If a standard size bottle of wine is 14% ABV, what is the minimum price in £ (GBP) the bottle of wine could cost?
0.50 x 14 x 0.75 = 5,25 GBP
Before the introduction of this law, wine was available at a considerably lower price. Changes in legislation may affect consumer behaviour.
For more information on this topic see 2.2 Factors influencing Demand for Wine - Economic Factors in the D2 textbook.
Governments can significantly impact the supply and demand of wine in a multitude of ways. Name the five key political/legislative factors that influence the supply and demand of wine then briefly describe how they may help to lower alcohol consumption (the first has been done for you).
- Taxation - alcoholic drinks are subject to duties and taxes which increase prices. Although taxes/duties create revenue for governments, higher prices may dissuade consumers from buying wine. Excise duty can vary for different alcoholic drinks, which may reduce demand for certain drinks if it is particularly high (for example, in the Republic of Ireland, duties on sparkling wines are higher than still).
- Limiting the sale of alcohol – this can be either completely i.e. some countries have prohibited the sale of alcohol or some countries have limited the sale of alcohol. The result being, supply is limited and the prices are usually inflated. In most countries there is a minimum age for the consumption of alcohol and restrictions on the hours of the day when alcohol can be sold. This all impacts on supply and demand.
- Government policy - restricting the advertising of alcoholic drinks in some countries has made a significant impact on the consumption of alcohol e.g. France. Minimum pricing on a unit of alcohol is a way of reducing consumption of cheaper alcoholic drinks, this has been introduced in Scotland. In most countries there are strict limits on the amount of alcohol consumed before driving a motor vehicle. This impacts on supply and demand as it is not socially acceptable to drink and drive.
- International trade – trade agreements between countries change over time which can affect demand for products. Trade tariffs on imported goods are variable depending on the trade agreement between the countries. Some countries have a protectionist approach which is in place to encourage domestic sales rather than imported goods, with imported goods having much higher tariffs than domestic goods. This influences what wine is consumed in that market. Currently, there are many changes happening across the globe which are greatly affecting the supply and demand of wine, particularly in the US with the current government in favour of protectionism resulting in higher tariffs on imported wine from certain countries. This is being reciprocated by the countries that are being targeted and they are imposing higher tariffs on US made wine. Longer term this causes ill-will between countries and some consumers may continue to boycott certain countries as a matter of principle.
Wine laws – The global creation of geographical indications (GIs) can have an impact on the supply of wine and can result in price increases if demand increases. Restrictions due to GIs can be limiting in some regions like Europe as they cannot react quickly to consumer preferences and changes in market trends, unlike producers outside Europe that can adapt much quicker.
Broadly speaking, the larger the area under vine, the greater volume of wine that can be produced. As of 2016 figures, sort the countries from according to which has the largest area under vine (including vineyards not used for wine production)
- Largest area under vine: SPAIN
- Second Largest area under vine: CHINA
- Third Largest area under vine: FRANCE
- Fourth Largest area under vine: ITALY
- Fifth Largest area under vine: USA
In Europe during the 1980s, supply of wine was higher than demand. This over-production created a surplus. What is the name often attributed to this surplus?
Wine lake
That is correct! Given that European vineyard areas such as southern France, Italy and Spain were over producing, governments and then the EU paid growers in these areas to pull up poor quality vines to decrease production rates.
For more information on this topic please see 2.4. Factors influencing Supply of Wine - Production in the D2 textbook.
When we say “Generally speaking, the greater the area under vine, the greater the volume of wine that can be produced”, this is because it is not always the case. Briefly explain the predominant human factors that have meant Spain has been able to increase its wine production, despite the fact the country’s vineyard area has decreased.
Spain traditionally planted at low density but in more recent times, higher density planted has been implemented in some areas and this is coupled with the relaxation on the use of irrigation. By permitting irrigation, it allows the grower to ripen a larger crop and thus higher density is possible. Higher yields are also attributed to choosing more suitable grape varieties, clones and rootstocks to the natural environment, better choice of trellis and training and more effective pest and disease control.
For more information on this topic please see 2.4. Factors influencing Supply of Wine - Production from the D2 textbook.
