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factors that affect the price of a bottle of wine- supply and demand > Factors that Influence the Demand for Wine > Flashcards

Factors that Influence the Demand for Wine Flashcards

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1
Q

Define supply

A

The amount of a good or service available for sale

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2
Q

Define demand

A

Willingness of consumers/business to buy a good or service

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3
Q

Give 2 examples how weather influenced supply and demand

A
  1. 2013- Castilla la Mancha- high spring and summer rainfall= increased vol of wine to 45.3 million hectoliters
  2. 2017- Europe- spring frosts = lowest produced vol of production for 50 years
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4
Q

What happens when supply exceeds demand?

A

-prices decrease
-greater choice of cheaper alternatives
-producers may need to lower their prices to remain competitive (reduces profits)

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5
Q

What happens when demand exceeds supply?

A

-prices increase
-consumers may be willing to pay higher prices for some wines (if perceive no alternative available)
-others won’t be willing to pay more- may switch to other wine/diff category altogether)

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6
Q

What is demand for wine in general affected by?

A

Social, economic, legislative and political factors

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7
Q

What happened to global wine consumption in first parts of the 2000s?

A

Increased rapidly

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8
Q

What happened to wine consumption in 2008?

A

Decreased- financial crash

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9
Q

What has happened to rose and sparkling consumption in the last decade?

A

Increased significantly
- eg sparkling increased by 3% annually between 2002 and 2018

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10
Q

What were the top 5 countries for wine consumption 2003-2019?

A

USA
France
Italy
Germany
China

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11
Q

What type of countries are decreasing their wine consumotion?

A

Traditional WM countries

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12
Q

What type of countries are increasing their wine consumption?

A

Where drinking not been major part of their culture

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13
Q

Why has the USA become the largest country for wine consumption?

A

-increasing globalisation of food and drinks industry
-growth of multi national corporations increased ability to export products across national boarders
-consumers more able and willing to embrace new tasks
-increases and improvements in wine production in domestic market

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14
Q

Why has consumption in China increased over the last 20 years?

A

-growing middle class- show improved wealth and status with wine
-has domestic production, but many aspire to drink imported wine
-first, French, now Australia and Chile-benefit from bilateral trade agreement

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15
Q

What are the 4 reasons why wine consumption is falling

A
  1. Younger people drinking less wine
  2. Health concerns
  3. Changes in Lifestyle
  4. Reduced availability of cheap wine
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16
Q

Why are younger people drinking less wine?

A

-‘old fashioned’
-turned to other drinks, eg gin in Spain
-UK- younger people spending less time in bars, preferring to contact their friends through social media

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17
Q

What significantly impacts health concerns with consumers?

A

Government campaigns/policies
eg . Loi Evan in France= signif drop in consumption there

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18
Q

What are the changes in lifestyle causing a decrease in wine consumption?

A

-busy, modern lifestyles= less time for longer meals with wine
-tradition of drinking wine at lunch, alcohol during day= forbidden by employers/not socially acceptable

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19
Q

Why is there reduced availability of cheap wine?

A

-steps taken to reduce over production (vine pull schemes)
-instead of consumers buying more expensive wine, some switched to other cheaper drinks

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20
Q

Give a couple of examples of how consumer preferences have changed over time

A

-rose v popular in USA
-prosecco v popular in USA and UK

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21
Q

What happens if supply doesn’t increase to reach demand?

A

-Prices will rise
-However increase in area covered by Prosecco DOC= increased supply and limited price rises

22
Q

Due to health issues, what is there more of a demand of?

A

-lower alcohol wines
-staying away from fortified wines
-also staying away from medium-sweet German wines

23
Q

What do changes in reputation do for producers?

A

-good reviews eg Wine Spectator USA/Jancis Robinson= valuable for producers, encourage them to increase their prices for subsequent vintages
-presence of wine in popular culture- eg films, tV, music lyrics etc- invaluable
-loss of reputation can have opposite effect- though takes several years to have an impact on price

24
Q

What are the categories social factors that affect demand for wine?

A

-Changes in consumption habits
-Changing consumer preferences
-Changes in reputation
-Changes in spending patterns

25
Q

What are 2 examples of price sensitive markets and what are they unwilling to pay?
Examples of other markets?

A

-UK and Germany
-Unwilling to pay more than lowest price possible
-USA- other markets, willing to pay above min to buy wine they perceive to be of better quality than cheaper options

26
Q

What type of market has fierce competition?

A

Price sensitive markets

27
Q

Why do price sensitive markets have fierce competiton?

A

-producers competing within reduced price range
=lower prices for consumers
=but unprofitable for some producers

28
Q

In price sensitive markets, what are producers reluctant to do?

A

-pass on increases of production costs to consumers for fear of losing sales to competitors
-some producers hope to avoid that by building up brand loyalty

29
Q

In terms of spending, what trend is in the USA?

A

-Premiumisation
-Even in price sensitive markets such as UK- means willing to pay more for individual bottles of wine instead of volume

30
Q

What are the economic factors that influence demand for wine?

A
  1. Strength of the economy
  2. Fluctuation in currency exchange
  3. Changes to the market
31
Q

What happens when disposable income falls and give an example

A

People buy cheaper wines/switch to other less expensive alcoholic drinks (beer/cider)
- eg 2008 recession- champagne demand shrank, other sparkling grew

32
Q

What happens when an increase in disposable income and give an example

A

-willing to buy more expensive wine
-eg China- BDX and burg

33
Q

If a wine exporting country’s currency gains value compared to importing country the producer can either…

A
  1. Keep prices stable, therefore risk losing sales as product represents less value for money in importing market
  2. Or decrease price of the wine and lose profit
34
Q

If a wine exporting country’s currency loses value compared to importing country the producer can either…

A
  1. Keep the price the same= boost sales as product represents better value for money in importing market
  2. Or increase price improvements for future investment
35
Q

If a product disappears from particular market, supply decreases. Which means what for who?

A

-opportunities for competitors
-=increase their sales on a v simple level
- eg if supermarket runs out of Echo falls white zin, demand may increase for Blossom Hill

36
Q

If supply is limited, it is possible to raise prices. However, an introduction of a new lower priced/better value wine could do what?

A

Cause a fall in demand for other similar products and may force producers to lower their prices to remain competitive or look at alternative markets

37
Q

Which countries tightly control sale of alcohol?

A

-Sweden, Norway, Canada (monopolies)
-USA- (3 Tier System)

38
Q

What is the campaign in France called that greatly reduced the advertising of alcohol?

A

Loi Evan- 1991
-significantly reduced wine consumption

39
Q

How has the government in Scotland reduced alcohol consumption?

A

-minimum unit pricing- reduce availability of cheap alcohol

40
Q

What have NZ and Scotland reduced the blood alcohol concentration from and to?

A

-from 80mg/100 to 50mg/100
-(tightening on DD laws reduced alcohol consumption)

41
Q

What 2 benefits does taxation have to the government?

A

-reduced alcohol consumption
-major revenue generator

42
Q

The level of duty varies between diff categories of drink= influences demand. Give an example with sparkling wine of where this has happened

A

N.Ireland- large difference between excise duty on still (3.19 euros/bottle) and sparkling (6.37 euros/bottle)= greatly reduced demand for sparkling wine

43
Q

Government somtimes reduce duty to make more competitive. Give an example of where this has happened

A

2008- HK abolished excise duty on wine altogether- aim= ‘wine trading up of Asia’.
-result= massive increase in auction sales of fine wine through HK

44
Q

Why might a country impose custom duties (trade tariffs) on imported goods?

A

-revenue generation
-protectionism policy to encourage sale of domestic rather than imported goods

45
Q

Which non member states of the EU have entered into trade agreements with the EU and what does it mean for them?

A

-South Africa and Chile
-tariff free/reduced tariff trade= competitive edge over (Australia)

46
Q

Now that the UK has left the EU, what could this mean?

A

-can negotiate free trade agreements with other countries, eg Australia= Australian wine cheaper than EU wine.
-could change buying habits of British public

47
Q

What did the government impose in Argentina in early 2010s?

A

-trade restrictions on wine, and winery equipment eg barrels, cork and yeast.
-= significantly increased wine production cost
- gov also imposed restrictions on foreign ownership of land= significantly slowing down foreign investment that had played important role in it’s rapid growth.

48
Q

What is an embargo?

A

-extreme form of protection when country bans imports from or exports to a particular country
-for political/economic reasons
-eg Russia

49
Q

How do GIs influence demand?

A

-consumers have enjoyed wine from there before
-strong reputation

50
Q

Why are PDOs limiting?

A

-In Europe- rules v strict, limiting grape varieties, methods of production, maturation periods
-outside of EU, free to react more quickly to changes in consumers preferences and maintain demand for their wine

51
Q

Give an example of a wine law that has changed suddenly and had a significant effect.

A

-China 2021- Xi Jinping- stopped ‘lavish gifting’
-anti- extravagance campaign launched= demand for those wines (Bdx Prem Cru Classe, GC Burg) dropped immediately
-although increase in sales of less expensive wines, as middle class want to enjoy wine and show status

factors that affect the price of a bottle of wine- supply and demand (3 decks)

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