Different Options For Point of Sale

Question 1

Pros/cons for a producer choosing to sell directly to a retailer?

Answer 1

Pro:
- More control over brand image and marketing
- Higher profits, no cost of intermediaries

Con:
- Higher administrative cost (either in time away from production or $ on hiring staff)

Question 2

What are the additional costs that come with choosing to sell directly to a retailer?

Answer 2

• Arranging collection, transport and delivery
• Import taxes & duties
• Compliance with local laws
• Full financial risk of wine damages or loss up to delivery
• Building relationships in new/foreign markets

Question 3

What are some ways that producers can lower the cost of selling directly to retailers?

Answer 3

Pay extra for a competent freight forwarder
- Lowers admin costs of transport & risk of damage
- Adds additional costs for shipping

Attend trade fairs/tastings
- Builds relationships with multiple retailers at once

Sell to a small number of larger retailers
- Less admin work in developing relationships
- Move higher volume
- Less control over brand image

Sell en primeur/bulk
- Only works for high volume producers

Question 4

What is a distributor?

Answer 4

• Buys wine from a range of producers to sell to retailers
• Have established relationships in their respective local markets
• Might hold stocks of products in their portfolio
• May have exclusive rights to import/distribute in their market

Question 5

For producers, what ADVANTAGES come with appointing a distributor?

Answer 5

• Save costs in becoming familiar with local market (key players, retailer/consumer preferences, current trends)
• Lessen administrative costs because distributors will have contracts with logistics companies
• Assume risk of lost/damaged wine
• Helps with language barriers
• Greater exposure in larger portfolio

Question 6

For producers, what DISADVANTAGES come with appointing a distributor?

Answer 6

• Distributors’ and retailers’ margins add to the price
• Loss of control over how product is marketed and must outline clear marketing strategy with distributor
• Larger portfolios have less attention given to any single wine, might drop wines that don’t sell well enough
• Distributors might only work with producers of a specific size/region

Question 7

What is a joint venture?

Answer 7

It is a partnership between companies at different point in the supply chain (more of a merger than an acquisition)

Intent it to cut out intermediaries, share (and lower) costs, and give greater control over respective stages in supply chain

Question 8

Why are joint ventures an attractive opportunity?

Answer 8

They lower costs in competitive and price-sensitive markets, resulting in greater profits

Question 9

What steps are important in establishing a joint venture?

Answer 9

• The companies must be of comparable size
• The agreement must be carefully agreed and documented

Question 10

Why are joint ventures trickier to negotiate than distributor arrangements?

Answer 10

The responsibilities and obligations are greater for each party, and it is more difficult to leave the partnership once it is created

Question 11

What are two examples of joint ventures?

Answer 11

• Taylor Fladgate and Champagne Bollinger are major shareholders of Metzendorff, a distributor in the UK
• Vinalba is an Argentine label created between winemakers Herve and Joyaux Fabre and the UK retailer Buckingham Schenk (producer-retailer partnerships increasingly common)

Question 12

Why would a larger company acquire a smaller company?

Answer 12

It is to acquire capabilities that the acquiring business lacks
- Resources
- Skills
- Market Share
- Vineyard locations
- Saving the smaller company from going out of business

Question 13

What are benefits to a conglomerate acquiring more subsidiary companies?

Answer 13

• Simplifies the supply chain
• Keep prices down through economies of scale
• Can compete in more sectors of their market

Question 14

What are the pros/cons for a producer being bought out by a larger company?

Answer 14

Pro:
- More investment in the business and better access to resources
- Larger distribution networks

Con:
- Loss of control of business

Question 15

What is an example of a firm outside the beverage industry acquiring within the wine trade

Answer 15

In 2018, amidst a trade war between US and China, Carlyle Group (US equity firm) purchased Accolade (Australian-focused bev conglomerate) to profit off of free trade between China and Australia

Question 16

How is a broker different than a distributor?

Answer 16

A broker doesn’t represent either the buying or selling party (producer or distributor/retailer), they just connect the two for a fee of 1-5%

Question 17

Why is a broker an appealing option for producers?

Answer 17

It saves them the time and money looking for a suitable distributor

• Brokers have connections within specialty markets (larger or smaller boutique retailers/distributors)
• Have an understanding of volume and price each side is looking for

Question 18

What is a broker’s (courtier) role in Bordeaux

Answer 18

They act as an intermediary between chateau and negociants.

For bulk wine, brokers are liable for the delivery of the correct vats to the buyer

Question 19

What are the options for producers selling direct to consumer?

Answer 19

• Cellar Door
• Events
• Wine Club
• Online

Question 20

Why are cellar door sales attractive to consumers?

Answer 20

• A chance to see where the wine is made
• Possible tours, tastings of reserve wines, food pairings
• Cheaper prices for foreign tourists

Question 21

Why are cellar door sales attractive for producers?

Answer 21

• Larger profits on wines
• Engage directly with consumers
• Tastings are important for consumer confidence
• Builds brand loyalty
• Word of mouth marketing (reduces costs of marketing)
• Trial new products/get immediate feedback

Question 22

Why would a producer not offer cellar door sales?

Answer 22

• Not a suitable location
• Worried about time running the shop/hiring new staff

Question 23

What’s one option for a producer without a suitable location for a tasting room?

Answer 23

Open a small tasting room in the nearest town/urban area (eg. Columbia Valley producers in Seattle)

Question 24

What are the pros/cons of showing wines at an event?

Answer 24

Pro:
- Exposure to many consumers at once (some who might not be willing to travel to individual wineries)
- Can create a “destination effect”

Con:
- Pay for travel of wine and staff to run stand
- Surrounded by competition

Question 25

Why are wine clubs an attractive option for consumers?

Answer 25

• Reduced prices
• Delivery direct to home
• Access to wines not otherwise available to the public
• Other experiential perks (free tastings/tours, events)

Question 26

Pros/cons for producers running a wine club

Answer 26

Pros:
- Low cost of marketing, most club member sign-ups happen at cellar door
- Continuous engagement and opportunity to build brand loyalty
- Better for word of mouth marketing
- Builds hype for highly allocated brands that only sell through club

Cons:
- Extra labor in planning club shipments, writing newsletters, processing
- Takes on risk of damage to bottles during shipping, might have to pay additional $ for good freight forwarder
- Must navigate state-specific laws, which might prohibit DTC sales

Question 27

Why are online retail sales attractive for buyers?

Answer 27

• No need to leave home
• Might be cheaper due to lack of intermediary costs

Con: Pay for delivery

Question 28

Pro/cons for producers selling their wines through online retail

Answer 28

Pro:
- Consumer loyalty
- Higher profits

Con:
- Must maintain up-to-date website
- Might opt to pay for expert website designer
- Must figure out all logistics involved in processing/shipping