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WSET Diploma D2 > Factors Affecting the Price of a bottle of Wine > Flashcards

Factors Affecting the Price of a bottle of Wine Flashcards

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1
Q

List the several reasons that wine consumption may be falling?

A
  • Younger people drinking less wine
  • Health Concerns
  • Changes in Lifestyle
  • Reduced Availability of cheap wine
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2
Q

What social factors can affect the demand for wine?

A
  • Changes in consumption habits
  • Changing consumer preferences
  • Changes in Reputation
  • Changes in spending patterns
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3
Q

What has led to the increase of wine consumption in China?

A

China has a growing middle class and they use wine to show their improved wealth and status

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4
Q

When did the Untied States overtake Italy and France to become the largest wine consuming country?

A

2011

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5
Q

Why are some reasons younger people (drinking age to mid-thirties) are drinking less wine?

A
  • It is sometimes regarded as old fashioned (parents/grandparents drink)
  • They have turned to other alcoholic drinks
  • Younger people are going out less,
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6
Q

What are the two main lifestyle changes that has lead to a decrease in wine consumption?

A
  • Busy modern lifestyles means less time for longer meals where wine was consumed.
  • Drinking at lunch is more frowned upon/forbidden by employers
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7
Q

What is Loi Evin?

A

It is a law that was passed in 1991 in France, greatly restricting the advertisement of alcohol

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8
Q

The Scottish Government was the first to introduce what kind of pricing?

A

Minimum Unit Pricing; it was used to reduce the availability of cheap alcohol.

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9
Q

How does minimum unit pricing affect how much a bottle of wine/alcohol cost?

A

It generally raises the price of inexpensive bottles of alcohol

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10
Q

What are the different Legislative and Political Factors that can affect the price of a bottle of wine?

A
  • Laws prohibiting or Limiting the sale of Alcohol
  • Government Policies to reduce alcohol consumption
  • Taxation
  • International Trade
  • Wine Laws
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11
Q

What are two things to consider when it comes to taxation?

A
  • Higher Prices may reduce consumption of alcohol

- Taxes on alcoholic drinks are a large revenue generator for Governments

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12
Q

What does VAT stand for?

A

Value-Added Tax: This is placed on a product whenever value is added to it at each stage of the supply chain

  • Also know as a sale tax
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13
Q

What is the difference between a duty and a tax?

A
  • A tax is a financial obligation that must be paid to the government
  • A duty is a fee payable to the government on the manufacture and import/export of goods
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14
Q

How can duty levels affect the final price on a bottle of wine?

A

Different wines may have different duties. For example the duty on still wine could be $3/bottle, while sparkling wine could be $6/bottle

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15
Q

What is an advantage that wines traded within the EU have over other imported wines?

A

The EU is a free-trade area, so wines traded within the EU are tariff free, unlike wines coming in from AUS/USA

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16
Q

What is an Embargo?

A

When a country bans imports from/exports to a particular country

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17
Q

What are some example of wine laws?

A
  • Geographic Indications (GIs)
  • Protected Denominations of Origin (PDOs)
  • Protected Geographical Indications (PGIs)
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18
Q

How can a GI affect wine sales?

A

If consumers are drawn to a particular region due to reputation or past enjoyment, creating a GI will help increase the recognition and demand for wines from that region.

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19
Q

What are the different reasons that have lead to a decrease in vineyard land around the world?

A
  • Vine Pull schemes
  • EU restrictions on planting new vineyards
  • Conversion of vineyard land to other uses
  • Abandonment of rural areas
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20
Q

What was one of the main reasons behind the vine pull scheme in the 1980s, in the EU?

A

The wine production in the 1980s was much higher than the demand.

The EU and national gov. paid producers to pull up poor quality vines.

This phenomenon was also know as “Wine Lake”

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21
Q

What were the main areas in the EU where the wine pull scheme was carried out?

A
  • Southern France
  • Italy
  • Spain
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22
Q

What other countries outside of the EU have also carried out a wine pull scheme?

A
  • Australia
  • Argentina
  • New Zealand
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23
Q

Along with the wine pull scheme, what other policy was put in place in the EU to keep production levels in balance with demand?

A

The EU placed restrictions on planting new vineyards

24
Q

What is causing vines to be pulled up around the world?

aside from wine pull schemes

A

In many parts of the world, grapes are not as valuable as other crops, or the potential for real estate development

  • Elgin, SA is replacing vineyards with apple orchards (5x more return on investment)
  • Silicon Valley
25
Q

Why is the abandonment of rural areas leading to a decrease in the area under vine?

A

As the younger generation moves into the city. This is leading to a reduction in available labor as well as no one to inherit the winery.

Rural areas will also suffer from a lack of investment.

26
Q

Does the decline in vineyard area always means that there is a decline in production?

A

Not always. With the advancement of technology, as well as every changing laws, some vineyards can produce more grapes.

An example would be the relaxation of irrigation laws can take a vineyard from low production to medium or high.

27
Q

What is the main legislative influence on the supply of wine?

A

The increasing number of GIs

28
Q

Aside from being more strict than the AVA/W.O./etc… about what can be grown, what else do AOP/AOC/DOC/etc… set guidelines for?

A
  • Maximum yields
  • Wine making techniques
  • Maturation techniques
29
Q

What is one of the main aims of a GI?

A
  • To define the style of the wine being made in that region
    AND/OR
  • To bring supply and demand more in line
30
Q

What is one of the problems that can arise if a region is beginning to gain more popularity/recognition?

A

There can be pressure to expand the area of production of certain GIs, which can lower the overall quality of the region

Think Chianti DOC and Chianti Classico, or Valpolicella and Valpolicella Classico

31
Q

What is another main difference between European PDOs and AVAs?

A

PDOs have a governing body which help set, and enforce the rules

32
Q

What are some of the main challenges for producers if there is an over supply of wine?

A
  • Prices tend to fall since consumers can find cheaper alternatives
  • Producers have a hard time selling their wines and may end up sitting on excess wine
  • Producers may have to sell their extra wine at lower cost, sometimes below production cost
33
Q

What are some ways producers overcome having excess wine?

A
  • Finding new markets to break into
  • Putting the wine under a second label
  • Doing exclusives/private labels with restaurants or super markets
34
Q

What are the negatives associated with brands being sold at lower prices than usual?

A

It can hurt/damage the brands image, and devalue it over the long term

35
Q

What are some of the long term problems that producers may face if there is a shortage of their wines in the market?

A
  • Disappointing clients as well as consumers by lack of product
  • If the winery has a contract with a large retailer, their may be a fine, or even cancellation of the contract
  • Losing spots on wine list and in liquor stores
36
Q

What are some examples of where having excess product will actually lead to an increase of price?

A
  • Premier Cru Classe wines

- Grand Cru Burgundy

37
Q

What is the first stage in the supply chain when it comes to supply and demand?

A

The grape growing

38
Q

What are the two cost associated with grape growing?

A
  • The initial cost of establishing the vineyard

- The ongoing cost of managing the vineyard and growing the grapes

39
Q

What are some of the things that can influence the price of a plot of land?

A
  • Where the land is (Margaux vs Entre-Duex-Mers)
  • Lands potential to produce quality fruit
  • Scarcity of Land (Grand Cru Burgundy isn’t readily available for purchase)
40
Q

What are some other cost (outside out purchasing the land) that may be incurred if the land did not have vines already planted?

A
  • Site Clearing
  • Building access roads
  • buying and planting vines
  • buying mid-post and wire
  • Installing drainage systems if the site has poor drainage
  • Installing irrigation lines in dry areas
  • installing protective methods against weather/animal/pest
  • buying vineyard equipment and machinery
41
Q

What are capital cost?

A

Cost that are incurred when trying too establish a business

42
Q

What is one of the issues regarding capital cost when it comes to planting a vineyard?

A

They can be very high, and is not helped by the fact that it takes 3 years for a vine to come into production

43
Q

What are some ways that people go about funding these capital cost?

A
  • By having enough money to cover the capital cost
  • By taking out a loan (must be factored into long-term plan)
  • By getting investors (will expect return on investment and/or get involved with the business)
  • Some governments offer subsidies or lump-sum contributions
44
Q

What are the cost associated with maintaining a vineyard?

A
  • Labor cost
  • Machinery and equipment cost
  • Vineyard Materials
  • Vineyard Treatment
  • Water
  • Electricity
45
Q

What can affect the labor cost in the vineyard?

A
  • Vineyard topography (steep sites vs valley floor sites)
  • Organic and Biodynamic vineyard practices are much more labor intensive
  • How skilled the labor is
  • Supply and demand of labor (high demand and low availability will drive the price up)
46
Q

What are some of the capital cost of establishing a winery?

A
  • Building the winery
  • tanks
  • presses
  • pipes
  • pumps
  • chilling units
  • bottling line
47
Q

What are some other cost that come with making wine?

A
  • Labor
  • Machinery and equipment running cost
  • winery materials
  • bought-in fruit
  • water
  • electricity
  • Storing the wine during maturation
  • Buying new barrels if barrel-aging is done
  • Packaging
48
Q

What are the 4 ways that wine is shipped around the world?

A
  • Air
  • Trains
  • Road
  • Sea
49
Q

What can cause the wine to spoil during transportation?

A
  • Direct Sunlight
  • Excessive Vibrations
  • High Temperatures
50
Q

What ads to the cost of shipping wine?

A
  • How it is shipped can affect the price (shipping by air is much more expensive than shipping by land)
  • What it is shipped in (if it is shipped over land or sea the wine will need to be in special shipping containers)
  • If the wine is shipped in bottle or not
51
Q

How can shipping in bulk help lower the shipping cost?

A

The wine in a flexitank or ISO tank is lighter than wine in bottle. It is also more efficient (24,000 litres in a flexitank vs 9,000 litres in bottle)

52
Q

what are price sensitive markets?

A

these are markets where Consumers are not willing to pay more than the Lowest price possible for a style of wine

53
Q

Define premiumisation

A

Premiumisation is when consumers are increasingly willing to spend mere on a single bottle, often because they are buying less wine by volume

54
Q

How can different duty levels affect supply and demand?

A

Different categories have different duties put on them.

Still wine (€3.19/bottle) vs Sparkling wines (€6.37/bottle)

55
Q

Define what an Embargo is

A

It is a ban on imports from, or exporting to a particular country

WSET Diploma D2 (14 decks)

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