Factors That Contribute To Price Of Wine Flashcards
What are the issues for a producer of
oversupply of wine?
reduced prices
unsold wines
storage space
What could a producer do to sell more wine?
reduce prices
sell to another market
sell under another label
If there is a long-term oversupply of wine, what business alternatives do the vineyard owners have?
conversion of land to other uses or more positive agriculture
tourism
What legislation has been put in place to reduce the oversupply?
EU restrictions on plantings
restrictions on irrigation
Consequences of undersupply
- increased prices
- strained relationship with customer (wholesale/retail)
- potential financial penalty (from wholesaler/retailer)
Consequences of undersupply for producers of large-volume,
inexpensive, varietally labelled wine
• price of the final product increases
• loyal customers may move to another brand/variety/beverage
• final quality of the product may be compromised in order to meet volume
demands
Consequences of undersupply for producers of
super-premium, single-vineyard wine
- increased price of the final product
- wine is more likely to be sold on allocation
- increased exclusivity
What are the reasons for a decrease in
area under vine in the EU?
- vine pull schemes
- EU restrictions on planting new vineyards
- conversion of land to other uses
- abandonment of rural areas
What are the reasons for the increase in
area under vine in China?
Table grapes
What natural factors can negatively affect
yield across a vintage?
- spring frosts
- hail
- heatwaves
- fires (short- and long-term impact)
What long-term natural factors can
cause an undersupply?
• drought
south Africa and california
How can a producer increase yield without increasing
vineyard area?
- site selection
- clonal selection
- canopy management
- pest/disease control
- modern winemaking techniques
Why is wine consumption declining in Traditional wine-consuming countries
Younger people are drinking less wine
regard wine as old-fashioned
other drinks available e.g. gin, beer, non-alcoholic drinks
spend less time socialising in bars
Health concerns
increasing awareness of negative health effects of alcohol
government campaigns or policies
drink drive laws
Changes in lifestyle
less time for longer meals at which wine was traditionally drunk
daytime drinking often forbidden by employers
Reduced availability of cheap wine:
steps to reduce over-production
switching to cheaper alcoholic drinks
Area under Vine: top 5 countries
Spain China France Italy Usa
Top Wine Producing Countries
Italy France Spain Usa Argentina
Top Wine Consuming Countries
Usa France Italy Germany China
Other reasons for wine consumption decline
Consumer preferences
* decline in consumption of fortified wines
* increase in consumption of sparkling wines
Economic
Legislative and political
* laws limiting or prohibiting consumption
* government policies to reduce consumption
* taxation
* trade agreements
* local laws e.g. anti-gifting laws in China, minimum pricing in Scotland
* laws relating to GIs
Fluctuations in currency
Methods a producer may use to reduce the effect of currency fluctuations
- options
- fixing the price in the currency of the importer at the date of ordering
- buying currency to cover specific orders
- entering a contract to fix the exchange rate
- trading in USD/EUR
- opening a foreign currency account in a local bank
- opening an account in an overseas bank
What are the costs associated
with establishing a vineyard?
cost of land
* status of wines from the area
* appellation
* potential for high-quality fruit
* scarcity
* established vineyard area or new land?
* consultants’ fees, labour and specialist labour, construction fees
* surveying land and understanding which grapes are suitable
* clearing the site and access roads
* buying and planting vines
* materials for vineyard (trellising, wires) and storage
* drainage and water systems (reservoirs, pumps, irrigation)
* weather hazards (nets, windbreaks, frost prevention)
* animal pests (fences, netting)
* machinery (tractors, harvesting, spraying)
Identify growing environments and grape-growing practices that would require labour?
- topography
- organic/biodynamic production, integrated pest management
- hand harvesting
- machinery
- vineyard materials
- vineyard treatments
- access to weather station information
water (AUD 3,000 per megalitre) - electricity
1. * irrigation
2. * bird scarers
3. * frost protection - fuel
What are the costs are associated with establishing a winery?
land
building design/construction
winemaking
equipment
bottling line
(optional)
Ongoing costs associated with
establishing a winery
Other costs
* labour
* electricity
* water
* wine making materials
What materials would be required?
* sugar for enrichment
* de-acidification agents/acid for acidification
* cultured yeast
* carbon dioxide or other inert gasses
* fining and filtering agents
* buying in grapes
* storage and maturation costs
* space
* barrels
* labour for maintenance
What are the packaging costs?
- bottles, closures, labels, cartons, pallets, plastic wrapping
- design of labels
- labour
Bottling line options
- in-house bottling
- rental or mobile bottling line
- external bottling
What is the capacity of each of the following bulk containers?
* Flexitank
* ISO tank
* container filled with bottles
*
24,000 liters
26,000 liters
9-10,000 liters
Importer margin
additional fee per bottle from the importer e.g. EUR 1 on every EUR 10 bottle of wine raises cost to EUR 11 = 9.09% margin (range from 5–25% common)
What are the three sales costs common to both retail and bar/restaurant sales?
premises
labour
training
Marketing costs
labour (in-house vs third party)
design of packaging
marketing campaign
Supply Chain
network of organisations and activities involved from the creation of a product to its distribution and final sale to the consumer
Grape growing costs: Vineyard Management
Labour
Machinery Fuel
Supplies
vineyard treatments
water
electricity
insurance
Depreciation
Winemaking Costs
grape growing/ purchasing
labour
machinery and equipment running costs
water
electricity
maturation
packaging
depreciation
economies of scale
initial investmet is spread across a very large production
Methods to mitigate effects of exchange rate fluctuations
Options
Fixing the price in the importer’s currency at date of ordering
buying currency to cover orders
entering into a contract to fix the exchange rate
trading USD/Eur
Opening a foreign currency account at a local bank
opening an account in an overseas bank
