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WSET 4 wine business > Factors That Contribute To Price > Flashcards

Factors That Contribute To Price Flashcards

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1
Q

Challenges of oversupply

What are the challenges for producers?

A
  1. Reduced prices
  2. Reduced profits for producers.
  3. Retailer make less cash margin
  4. Unsold wine
  5. Storage space (used up by storing unsold wine).
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2
Q

What can a producer do to sell unsold wines?

A
  1. Reduce prices (not advised)
  2. Find new markets (requires time and money)
  3. Sell as a private label (supermarket or hotel)
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3
Q

What are reasons for the decrease in area under vine one EU?

A
  1. Vine pull schemes
  2. EU restrictions on planting new vineyards (PDO laws)
  3. Conversion of land to other uses I.e tourism in Madeira and Apple farming in Elgin South Africa
  4. Abandonment of rural areas (next generation didn’t want to run winery).
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4
Q

What natural factors can negatively affect yield?

A

Spring frosts (Chablis)
Hail (cote d’or)
Heatwaves (2019)
Bushfires (Napa, Sonoma, Tasmania, Yarra valley)

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5
Q

How can a producer increase yield without increasing vineyard area?

A 
Site selection 
Clonal selection 
Canopy management 
Pest/ disease control
Modern winemaking techniques
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6
Q

Why a decline in wine consumption in traditional markets. (France, Italy)?

A

Young people are drinking less wine: wine is old fashioned, prefer other drinks (gin in Spain), spend less time in bars (more time on social media)

Health concerns
Increased awareness of negative health effects (heart/ liver disease), Drink driving laws
Government legislation + policies to reduce consumption (health warnings, lock out laws)

changes in lifestyle - Day drinking is forbidden by employers. Less time for long meals

Reduced availability of cheap wine
Swapping to other cheap alcoholic options

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7
Q

Consumer preference reasons for decreased consumption?

A

Consumer preferences
Decline in popularity of fortified wines.
Increase consumption of dry sparkling wines esp. Prosecco.
Increase popularity of Rose In USA.

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8
Q

Legislative and political reasons for decreased consumption of wine?

A

Laws limiting or prohibiting consumption e.g. minimum age, times of sale.

Govt policies to reduce consumption
State owned monopolies (Canada, Sweden)
Minimum unit pricing (Scotland)
Loi Evin (France)

Taxation
Trade agreements
Laws relating to GI’s
Local laws e.g. anti gifting laws in China, minimum pricing in Scotland

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9
Q

Economic reasons for decline In consumption?

A

Strength of the economy
strong economy = more disposable income.

Changes to market

Currency fluctuation
Can significantly affect the demand for imported wines in price sensitive markets (UK and Germany)

If exporters currency increase the price or wine may increase risking sales.
If it decreases it may lower prices and boost sales.j

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10
Q

What are social factors affecting demand for wine?

A

Changes in consumption habits
China and USA are increasing consumption.
France and Italy are decreasing.

Health concerns
Changes in life style 
Reduced availability of cheap wine
Changing consumer behavior 
Changes in reputation 
Changes in spending patterns
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11
Q

How can a producer reduce the effects of foreign currency fluctuation?

A

Options

Fix the price in the currency of the importer at date of ordering.

Buying currency to cover specific orders

Enter a contract to fix the exchange rate

Trading in Euro or USD

Open a foreign currency account in a local bank

Open an account in a foreign bank

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12
Q

What are the costs associated with establishing a vineyard?

A

Cost of land - PDO land will be more expensive than IGT.
Appellation has the potential for high quality grapes.
Scarcity will push price up

Clearing land
Buying and planting vines
Vineyard infrastructure- trellising
Drainage and water systems (damns and pumps)
Weather hazard protection (nets, frost fans)
Animal/ pest protection. (Fences)
Machinery (tractors, harvesting equipment)

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13
Q

What are ongoing costs of managing a vineyard?

A 
Water 
Electricity
Fuel 
Labour costs 
Repayment of loans 
Pest/ weather hazard protection 
Vineyard treatments - Agro Chemicals 
Finning agents
Machinery
Vineyard materials
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14
Q

Costs associated with establishing a winery?

A 
Land
Architecture/ design 
Building and construction
Winemaking equipment 
Bottling line (optional if viable for size of winery)
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15
Q

Ongoing costs associated with establishing a winery?

A 
Labour
Electricity 
Water
Winemaking materials:
Sugar for enrichment
Acids for acidification. 
De-acidification agents
Yeast cultures
CO2
Fining and filtering agents
Buying in grapes
Storage and maturation costs - oak barrels, storage space, labour and maintenance.
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16
Q

What are packaging costs?

A

Bottles
Closures (cork, vinolok, screwcap)
Label design
Labour

Bottling line options
In house, rental (may have to wait for equipment) or external like VinPak in the Barossa

Cold stabilization.
Sterilization

17
Q

What are the 4 transport options?

A

Air - fast but very expensive

Road - good for short distances

Rail - cost depends on length of journey. Containers are much cheaper than individual palettes.

Sea - cheapest per mile. Containers are essential. most cost effective, but slow (Aus to UK takes 40 days) good for large shipment

18
Q

What are the bulk transport options?

A

Plastic flexi tank - 24,000lt (in the same space that would hold 10,000 bottles)

ISO tank - non flexible, holds 26,000lt (more expensive specialist equipment)

Bill transport is more efficient and environmentally friendly, no risk of bottles getting broken, take longer to heat up.

Only works for large volumes of the same wine.
Not cost effective to be for less than 15,000 cases. Not suitable for small producers

19
Q

Costs associated with imports?

A

Insurance

Taxes and duties
Sales tax
Solutions are Bonded Warehouses to help cash flow (only pay tax when taking goods out)

Importer Margin
Additional fee per bottle from the importer.

20
Q

Costs associated with sales?

A

Premises (shop or restaurant)
Rent

Labour + trainning

Marketing costs
In-house labour costs or paying a third party.
Design for packaging
Marketing campaigns

21
Q

What are challenges of undersupply

A

Disappointing distributors - strained relationships
Large retailers may cancel contracts
Price sensitivity markets may move to cheaper alternatives
Can increase prices (burgundy and Bordeaux)

22
Q

What are the 2 costs of growing grapes

A
  1. Initial capital cost of establishing vineyard (purchase, clearing, planting)
  2. Ongoing costs of maintenance and production

Grape growing is the first stage of the supply chain

23
Q

What can affect vineyard labour costs?

A

Topography - steep sites will require hand picking (Mosel)
Organic and Biodynamic- much more labour intensive, more procedures, more analysis and record keeping.
PDO regulations - Champagne and Douro port require hand picking.

Where labour costs are high (Coonawarra) investment in machines is a good option.
Where labour is cheap (Chile) there is less incentive to invest in machinery.

24
Q

Why use a wine transport specialist for exports?

Name a company

A 
Avoid 
Breakages 
Vibrations
Excess heat
Direct sunlight

JE Hillebrand

25
Q

Bulk transport statistics

A

38% of global wine in 2016
37% in 2017- but low value = 8% global value

Accounts for 58% of German imports
35% in UK
24% in USA

26
Q

What are the 6 business types involved in wine production?

A
  1. Estates - produce wines exclusively from their own vineyards. Control over all aspects of production.
  2. Growers - sell grapes to winemakers
  3. Merchants and grower merchants - buy young wines and mature it, sold under their own label.
  4. Co-operatives - owned by a group of growers and share the wine making equipment.
  5. custom crush,
  6. Virtual Wineries
  7. Conglomerates
27
Q

Name 5 Top Conglomerates

A
  1. E & J Gallo (USA) 2.7% global production
  2. Constellation Brands (USA) 1.7%
  3. The Wine Group 1.5%
  4. TWE (Aus) 1.12%
  5. Gina Concha y Toro (Chile) 1.03%
  6. Fe Co Vita (Argentina) 0.7% big cooperative
28
Q

What are the top producing countries by volume?

A 
Italy 50,000 hecto litres
France
Spain
USA
Australia
29
Q

Top wine consumption countries by volume?

A 
USA 31h/l
France 26 h/l
Italy 22 h/l
Germany 20h/l
China 16 h/l
30
Q

What factors affect the price of a bottle of wine?

A 
Cost of growing grapes
Cost of production (winemaking)
Cost of transport
Cost of marketing 
Supply and demand
31
Q

What should sell price cover?

A

Production costs
Shareholder return
Finance future investment
Leaves a profit for producer

32
Q

Currency fluctuations

What does options mean?

A

A key strategy

Taking an option (reserve) on an agreed quantity at an agreed price.

Producer puts aside the agreed quantity for the buyer.

33
Q

What are 5 options for getting wine to point of sale?

A 
Importation/ distribution/ Broker 
Retail
On premise
Direct to consumer 
Free market 
Monopoly (LCBO, Sweden)
34
Q

What options are there for direct to consumer?

A 
Cellar door
Mailing list 
Online shop
Wine club
Events

WSET 4 wine business (2 decks)

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