Factors That Contribute To Price Flashcards
Challenges of oversupply
What are the challenges for producers?
- Reduced prices
- Reduced profits for producers.
- Retailer make less cash margin
- Unsold wine
- Storage space (used up by storing unsold wine).
What can a producer do to sell unsold wines?
- Reduce prices (not advised)
- Find new markets (requires time and money)
- Sell as a private label (supermarket or hotel)
What are reasons for the decrease in area under vine one EU?
- Vine pull schemes
- EU restrictions on planting new vineyards (PDO laws)
- Conversion of land to other uses I.e tourism in Madeira and Apple farming in Elgin South Africa
- Abandonment of rural areas (next generation didn’t want to run winery).
What natural factors can negatively affect yield?
Spring frosts (Chablis)
Hail (cote d’or)
Heatwaves (2019)
Bushfires (Napa, Sonoma, Tasmania, Yarra valley)
How can a producer increase yield without increasing vineyard area?
Site selection Clonal selection Canopy management Pest/ disease control Modern winemaking techniques
Why a decline in wine consumption in traditional markets. (France, Italy)?
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
Consumer preference reasons for decreased consumption?
Consumer preferences
Decline in popularity of fortified wines.
Increase consumption of dry sparkling wines esp. Prosecco.
Increase popularity of Rose In USA.
Legislative and political reasons for decreased consumption of wine?
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
Economic reasons for decline In consumption?
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
What are social factors affecting demand for wine?
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
How can a producer reduce the effects of foreign currency fluctuation?
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
What are the costs associated with establishing a vineyard?
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)
What are ongoing costs of managing a vineyard?
Water Electricity Fuel Labour costs Repayment of loans Pest/ weather hazard protection Vineyard treatments - Agro Chemicals Finning agents Machinery Vineyard materials
Costs associated with establishing a winery?
Land Architecture/ design Building and construction Winemaking equipment Bottling line (optional if viable for size of winery)
Ongoing costs associated with establishing a winery?
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.
What are packaging costs?
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
What are the 4 transport options?
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
What are the bulk transport options?
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
Costs associated with imports?
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.
Costs associated with sales?
Premises (shop or restaurant)
Rent
Labour + trainning
Marketing costs
In-house labour costs or paying a third party.
Design for packaging
Marketing campaigns
What are challenges of undersupply
Disappointing distributors - strained relationships
Large retailers may cancel contracts
Price sensitivity markets may move to cheaper alternatives
Can increase prices (burgundy and Bordeaux)
What are the 2 costs of growing grapes
- Initial capital cost of establishing vineyard (purchase, clearing, planting)
- Ongoing costs of maintenance and production
Grape growing is the first stage of the supply chain
What can affect vineyard labour costs?
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.
Why use a wine transport specialist for exports?
Name a company
Avoid Breakages Vibrations Excess heat Direct sunlight
JE Hillebrand
Bulk transport statistics
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
What are the 6 business types involved in wine production?
- Estates - produce wines exclusively from their own vineyards. Control over all aspects of production.
- Growers - sell grapes to winemakers
- Merchants and grower merchants - buy young wines and mature it, sold under their own label.
- Co-operatives - owned by a group of growers and share the wine making equipment.
- custom crush,
- Virtual Wineries
- Conglomerates
Name 5 Top Conglomerates
- E & J Gallo (USA) 2.7% global production
- Constellation Brands (USA) 1.7%
- The Wine Group 1.5%
- TWE (Aus) 1.12%
- Gina Concha y Toro (Chile) 1.03%
- Fe Co Vita (Argentina) 0.7% big cooperative
What are the top producing countries by volume?
Italy 50,000 hecto litres France Spain USA Australia
Top wine consumption countries by volume?
USA 31h/l France 26 h/l Italy 22 h/l Germany 20h/l China 16 h/l
What factors affect the price of a bottle of wine?
Cost of growing grapes Cost of production (winemaking) Cost of transport Cost of marketing Supply and demand
What should sell price cover?
Production costs
Shareholder return
Finance future investment
Leaves a profit for producer
Currency fluctuations
What does options mean?
A key strategy
Taking an option (reserve) on an agreed quantity at an agreed price.
Producer puts aside the agreed quantity for the buyer.
What are 5 options for getting wine to point of sale?
Importation/ distribution/ Broker Retail On premise Direct to consumer Free market Monopoly (LCBO, Sweden)
What options are there for direct to consumer?
Cellar door Mailing list Online shop Wine club Events
