Factors that Affect the Price of a Bottle of Wine - Costs through the Supply Chain Flashcards
What are the 6 types of costs in the supply chain?
- Grape growing costs
- Winemaking costs
- Transporation costs
- Importation costs
- Sales costs
- Marketing costs
Grape growing costs
What are the two areas of cost in grape growing?
- Vineyard establishment
- Vineyard management
Grape Growing Costs: Vineyard Establishment
How much more expensive is land in:
1. Napa valley vs. Central valley?
2. Prestigious Medoc AOCs vs. generic Bordeaux AOCs?
- 10x
- 100x
Grape Growing Costs: Vineyard Establishment
Give 10 examples of capital costs that may be incurred before vineyard becomes operational
- Surveying land (e.g. may include satellite imaging, soil samples etc)
- Site clearance (vegetation, rocks etc)
- Building access roads into vineyard & between plots
- Buying and planting vines
- Buying stakes and wires
- Installing drainage channels and pipes
- Establishing irrrigaton system
- Protecting against weather hazards (e.g. windbreaks, hail mesh, frost protection)
- Protection from animal pests (e.g. fences, netting)
- Buying machinery and equipment
Grape Growing Costs: Vineyard Establishment
Name 5 things that may need to be done in dry areas to install an irrigation system
- Drilling boreholes
- Building reservoirs
- Laying pipes to bring water to vineyard
- Installing pumps to bring up underground water
- Installing a system of delivering water to the vines
Grape Growing Costs: Vineyard Establishment
Name 4 types of machinery and equipment a vineyard may need to purchase
- Tractors
- Spraying equipment
- Harvesting machines
- Garages and sheds
May choose to rent
Grape Growing Costs: Vineyard Establishment
Name 4 sources of funding for vineyard establishment
- Owner (Personal or company wealth)
- Bank loans
- Funding from investors
- Government subsidies (Tax incentives or lump sum contributions)
Grape Growing Costs: Vineyard Establishment
How long does it take (at least) between planting to production?
3 years
Grape growing costs: Vineyard Management
Name the 7 main vineyard management costs
- Labour
- Machinery and Fuel
- Supplies (trellising, pruning shears, gloves etc)
- Vineyard Treatments
- Water (possible payment to authorities)
- Electricity
- Insurance (e.g. fire / flood) and Depreciation (e.g. tractor, presses etc)
Grape growing costs: Vineyard Management
Name 3 factors in the vineyard that impact the amount of labour required
- Size
- Topography (e.g. slopes)
- Other factors (e.g. Organic / Biodynamic)
Grape growing costs: Vineyard Management
What is a key economic factor determing the choice between labour or machinery?
Cost of labour (e.g. Chile vs. Coonawarra)
Grape growing costs: Vineyard Management
How does vineyard staff resourcing vary through the year?
Harvest - cheap team of pickers (if hand-harvested)
Rest of year - small staff of more expensive skilled workers (under vineyard manager)
Grape growing costs: Vineyard Management
Even if a vineyard aims to reduce treatments, what are some costs that may be incurred?
- Building Weather station (or gaining access to one)
- Sulfur / Bordeaux mixture
Winemaking Costs
What are the two areas of cost in winemaking?
- Winery establishment
- Winemaking costs
Winemaking Costs: Winery Establishment
What are the 3 costs in winery establishment?
- Land
- Building winery
- Filling with equipment
Winemaking Costs: Winemaking Costs
Name 9 operating costs involved in making wine
- Grape growing costs / Buying fruit
- Labour (skilled full-time & casual at harvest)
- Machinery & equipment running costs
- WInery materials
- Water (water-treatment plants if scarce / expensive)
- Electricity
- Maturation
- Packaging & Bottling
- Deprecation
Winemaking Costs: Winemaking Costs
What can be the largest difference in wine-making costs between a high-volume, inexpensive wine vs. a low-volume, super expensive wine? Why?
Maturation:
1. Cost of barrels
2. Matured for longer (e.g. 18 months vs. 2-3)
3. Matured in individual barrels which take up more space (vs. in bulk)
Winemaking Costs: Winemaking Costs
What can be the largest difference in grape growing costs between a high-volume, inexpensive wine vs. a low-volume, super expensive wine? How big can the difference be? Why?
Labour Costs
20x
- More interventions in the vineyard
- More manual work
- Smaller vineyard & lower yields per unit
Winemaking Costs: Winemaking Costs
What can be the largest difference in winemaking costs between a high-volume, inexpensive wine vs. a low-volume, super expensive wine? Why?
Maturation - oak
- Expensive high-quality barrels
- Cellar overheads
Transporation Costs
What are the 4 most common ways of transporting wine in bottle?
- Air
- Road
- Rail
- Sea
Transporation Costs
in 2018, what % of world wine exports was exported in bulk? Which countries export a lot & how much?
34% volume (but only 8% by value)
Spain - 55%
SA / AU / CH - 40%+
Transporation Costs
What is the primary advantage of shipping wine in bulk?
Over 2x amount of wine in same container
Reduces fuel - cheaper and more environmentally friendly
Can also reference D1
Transporation Costs
What is the primary disadvantage of shipping wine in bulk?
Only suitable for moving large volumes of same wine (good for supermarkets and major brands)
Can also reference D1
Importation Costs
How is the margin calcualted for a distributor fee? What is the typical range of margin?
Fee (Operating costs + profit) / revenue * 100
e.g. DIstributor adds fee of $1 to wine that costs them $10 > (1/11) x 100 = 9.09%
5-25% (hospitality tends to be higher than retail due to more & specialised staff)
Importation Costs
Give an example of why a winery may employ a distributor
Labeling requirements
- EU abv. needs to be shown to half or whole unit. US = 1.5%
- US law requires a health warning
Sales costs
Name the 6 main costs of retailers (retail & hospitality)
- Property
- Labour
- Equipment and materials
- Storage
- Delivery
- Margin at the POS
Couple of pages on this in the book but all common sense
Sales cost
What is the typical margin in:
1. Specialist wine retailers
2. Bars & restaurants
- 30-50%
- 66.6% (i.e. 3x)
Marketing Costs
Name 3 marketing costs
- Labour
- Design and production of bottles and labels
- Marketing campaign
Marketing Costs
Name 3 possible sources of labour cost (ie models) for marketing
- In-house marketing
- Outsourcing to external marketing company
- Industry association (e.g. VDP in Germany or Italian Consorzio)
What are 2 ways producers can reduce the legislative costs of wine?
- Storing in bonded warehouse
- Focus on other markets (e.g. few mid-priced US wines in UK vs. Chile and SA who have FTA)
What 7 methods can be used to mitigate the effect of exchange rate fluctuations?
- Options
- Fixing price in currency of importer at date of ordering
- Buying currency to cover specific orders
- Entering a contract to fix exchange rate
- Trading in USD/EUR
- Opening a foreign currency account in local bank
- Opening an account in an overseas bank
