First Half of D2 Wine Business (No Marketing) Flashcards
Name the social factors that affect Demand (4)
Changes in consumption
Changing consumer preferences
Changes in reputation
Changes in spending patterns
Name 4 reasons why consumption may be falling
Younger people drinking less wine
Health concerns
Changes in lifestyles (less wine during a meal)
Reduced availability of cheap wine (vine pull schemes)
Name the economic factors that affect Demand (3)
Strength of the economy
Fluctuations in currency exchange
Changes to the market
Name the legislative and political factors that affect Demand (5)
Law prohibiting or limiting sale of alcohol
Government policies to reduce alcohol consumption
Taxation
International Trade
Wine Laws
What are the main factors that affect the Demand of wine? (3)
Social factors
Economic factors
Legislative and political factors
What are the main factors that affect the Supply of wine? (2)
Production
Legislation
Name the factors that affect production
Area under vine Vine pull schemes Restrictions on planting new vineyards Abandonment of rural areas Human factors (allowing irrigation in Spain) Natural factors (vintage variation)
What are the main challenges of oversupply?
Prices fall so consumers are favoured
Producers may be required to find new routes to market
What are the main challenges of undersupply?
Loss of brand loyalty and strained relationship. Producers can lose contracts. Wine increases in premium but not at lower level.
What is the definition of supply chain?
Network of organisations and activities involved from the creation of a product through to its distribution and sale to the final consumer.
What are some costs involved with Vineyard Establishment? (7)
What are these type of costs called?
Surveying the land - satellites/soil samples Site Clearance Building access roads Buying and planting vines Installation of drainage of irrigation Protection from weather or pests Buying machinery and equipment
Capital Costs
What are some costs involved with vineyard management? (5)
Labour Machinery and running costs Vineyard treatments - agro chemicals Water Electricity
What are some winemaking costs? (8)
Labour - small number of skilled staff
Machinery and running costs
Winery materials - sugar for enrichment, deacidifying agents etc
Bought in fruit - If not growing, significant cost
Water - Cleaning
Electricity - Refrigeration, presses, pumps etc
Maturation - Price of oak, loss of cashflow
Packaging - bottles, closures, bottling line
What are the ways of transporting wine in bottle in order of most expensive to least?
Air
Road
Rail
Sea
In 2016 what percentage of the worlds wine was shipped in bulk?
38%
How is wine in bulk stored?
In plastic flexitanks within a standard steel shipping container
Non-flexible ISO tanks
What is the key advantage of transporting by bulk?
The wine is much lighter than in bottle and thus is more efficient.
Therefore there is less of a fuel requirement so is cheaper and more environmentally friendly.
What is one major disadvantage of transporting by bulk?
Only suitable for moving large volumes of the same wine
If less than 15000 bottles there is no cost advantage over transport in bottles
What are some costs involved with transportation of wines? (3)
Transportation costs - bottle or bulk/ land sea air
Insurance
Importation costs
What are some costs involved with the Sale of wine (6)
Property costs - buying or leasing, furnishing
Labour - staffing, more expensive for specialist retailer
Equipment - till system, fridges
Storage costs - wine fridges, warehouses
Delivery costs - expensive to transport, often set fees
Margin at point of sale
What are some costs involved with Marketing (3)
Labour - in house team, external company, member of industry association VDP, Consorzio
Design and production of bottles and labels
Marketing Campaigns
What is the advantage of using a bonded warehouse?
Importing companies can avoid duty and allow it to be paid by the consumer who wishes to purchase the wine. This can help cashflow.
What are the methods of mitigating the effect of exchange rate fluctuations? (7)
Options - Reserving wine
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 - Stable currencies
Opening a foreign currency account in a local bank
Opening an account in an overseas bank
Name the 8 types of business involved with the production of wine
Estates Growers Grower-Producers Merchants Co-operatives Custom Crush Facilities Virtual Winemakers/Wineries Conglomerates
Describe an Estate
An estate is a producer who produces wine entirely from their own vineyards.
What are the advantages and disadvantages of estates?
Estates keep control over the entire process
All the profit belongs to the estate
Marketing benefits - story of wine
Cost of managing the vineyard and winery
Large portion of risk if there is a bad vintage or disaster
Larger estates are more viable than smaller due to economies of scale.
What are the advantages and disadvantages of growers?
Can concentrate entirely on producing the best quality fruit
There is better cash flow as payment is due when grapes are sold.
At risk from vintage variation
At risk from supply and demand fluctuations
What options does a grower have to sell their grapes? What are the adv and dis of both.
Enter into a contract with producer
ADV:This gives certainty of given price and gives security which leads to strong working relationships
DIS: Many contracts specify the grapes must be at a certain quality or risk being rejected or a lower price paid.
Sell to the spot market
Can offer higher risks but also greater rewards. Spot sellers can achieve a better price if there is a shortage of a particular grape or lower if there is an abundance
Define a Grower-Producer, where are these common?
A grower-producer will produce their own wine but will then sell it to a merchant to mature and bottle.
Burgundy
What are the advantages of being a grower-producer
Do not incur the costs of maturation or marketing
What are the disadvantages of being a grower-producer
The grower loses control over the final style of the wine and how it is marketed.
They will receive a smaller profit than if they were to sell the wine.
Name a prestigious grower in Napa Valley, what do they grow?
Andy Beckstoffer (Beckstoffer vineyards) Cabernet Sauvignon on prime sites
Describe a Merchant
A body that buys immature wine, matures it and then sells it under their own label. (Negociant)
What is the chief risk to merchants and how have the overcome this?
They have little control over grape growing or winemaking processes. Many now produce their own wine and provide technical support to their suppliers to ensure quality
What are the advantages to being a merchant?
They do not have the expense of owning or maintaining vineyards, very beneficial in Burgundy or Champagne where land price is high.
There is flexibility within bad vintages to buy from different growers or even turn to the spot market.
Define a grower merchant and name 2 famous examples
A grower-merchant is a body that produces wine from their own vineyards and also buys in grapes
E.Guigal - Rhone
Domain Dujac - Burgundy
Define En Primeur
En Primeur is a method of selling wine before it has been bottled. Purchasers buy the wine when it remains in barrel and only receives it once it has been bottled. It has been long associated with merchants who would buy wine in advance and bottle it themselves.
What is the attraction of En Primeur for producers in Bordeaux?
It allows for better cash flow than if they waited to sell in bottle as the wines take a long time to mature.