Quiz - Factors that Affect the Price of a Bottle of Wine Flashcards
What were the two most important global wine trends in the 2000s?
2008:
After a rapid rise before this date, consumption rates begin to fall after the global financial crisis as consumers reduced their spending on non-essential products
2011:
The USA overtook France and Italy to become the country with the largest wine consumption worldwide.
There are several possible reasons why consumption of wine is falling globally. What are the most prevalent ones?
1. Busier lifestyles
Lifestyles have changed, and people tend to work longer hours, leaving less time to drink wine.
2. Younger people are drinking less wine.
In some countries, the younger generations are drinking less wine and turning to other alcoholic drinks.
3. Reduced availability of cheap wine.
In many traditional wine-producing countries, there were large volumes of cheap wine available for local consumers. In those countries, various steps have been taken to reduce over-production.
4. Increased awareness of health concerns.
Government campaigns and policies have raised awareness of the negative aspects of drinking. Awareness has prompted reduced consumption.
If a producer has made too much wine, this is referred to as an oversupply. Which methods might a producer choose to implement to sell more wine?
1. Sell to other markets
Although this may increase sales, selling to other markets can be costly and problematic due to legislation in different areas/countries.
2. Reduce the price of their wine
Reducing the price of the wine may make the wine more attractive to consumers. However, this will mean the producer will receive less profit from sales, which may have major financial implications.
3. Sell under another label
The producer may choose to make the wine seem more appealing by selling it under another label. Although some may argue this diminishes brand identity.
In general, what types of wine is there an increased demand for globally?
- Lower-alcohol wines
- Rosé
- Sparkling wines
Undersupply usually isn’t a global issue and is usually isolated to particular wines. However, undersupply has consequences. What are the consequences of undersupply for large volume inexpensive varietally labelled wines and for super-premium single-vineyard wines, or both.
Large volume wines:
* Final quality of the product compromised
* Customers switch brand/variety
Super premium wines:
* Increased exclusivity
* Wine likely to be sold on allocation
Both:
Price increase for the final product
What is a price-sensitive market?
Give a brief description, including details on how spending habits have an impact on industry.
Give examples of price-sensitive markets.
- A price-sensitive market refers to a market where consumers are unwilling to pay more than the lowest price for a style of wine.
- The impact on the industry varies, some producers may choose not to sell in a market if they know their profit margins are very much reduced.
- Some producers may not pass on higher production costs and currency fluctuations in case they lose sales to competitors, leading to longer term issues of cash flow and sustainability for the producer.
- Price-sensitive markets include Germany and the UK.
Which three economic reasons often dictate the demand for wine?
- The strength of the economy
When consumers have less disposable income, demand of wines (or at least more expensive wines) may fall. - Fluctuations in currency exchange
Fluctuating currencies may cause countries to have to drop or increase the prices of their wines to counteract the wine’s new value. This can lead to rises or decreases in profit or consumer demand. - Changing markets
The market is always fluctuating. Competitors enter or leave the market.
The European Union is a free-trade area allowing member states to import and export goods between themselves tariff-free.
Which important wine-exporting countries have entered into trade agreements with the EU for the purpose of tariff-free trade?
Chile & South Africa
not Australia!
The Scottish Government is the first to introduce ‘minimum unit pricing’. The aim of this law is to reduce the availability of cheap alcohol.
The minimum price of an alcoholic drink is 50 pence per unit. Therefore the calculation for the minimum price of alcohol is as follows:
The price per unit (£0.50) x the strength of alcohol (ABV) x the volume in litres
If a standard size bottle of wine is 14% ABV, what is the minimum price in £ (GBP) the bottle of wine could cost?
£ 5.25
Governments can significantly impact the supply and demand of wine in a multitude of ways.
Name the four key political/legislative factors that influence the supply and demand of wine, then briefly describe how they may help to lower alcohol consumption.
-
Prohibiting or Limiting the sale of alcohol –
this can be either completely i.e. some countries have prohibited or limited the sale of alcohol. The result being, supply is limited and the prices are usually inflated. In most countries there is a minimum age for the consumption of alcohol and restrictions on the hours of the day when alcohol can be sold. This all impacts on supply and demand. -
Government policy
restricting the advertising of alcoholic drinks in some countries has made a significant impact on the consumption of alcohol e.g. France. Minimum pricing on a unit of alcohol is a way of reducing consumption of cheaper alcoholic drinks, this has been introduced in Scotland. In most countries there are strict limits on the amount of alcohol consumed before driving a motor vehicle. This impacts on supply and demand as it is not socially acceptable to drink and drive. -
International trade –
trade agreements between countries change over time which can affect demand for products. Trade tariffs on imported goods are variable depending on the trade agreement between the countries. Some countries have a protectionist approach which is in place to encourage domestic sales rather than imported goods, with imported goods having much higher tariffs than domestic goods. This influences what wine is consumed in that market. Currently, there are many changes happening across the globe which are greatly affecting the supply and demand of wine, particularly in the US with the current government in favour of protectionism resulting in higher tariffs on imported wine from certain countries. This is being reciprocated by the countries that are being targeted and they are imposing higher tariffs on US made wine. Longer term this causes ill-will between countries and some consumers may continue to boycott certain countries as a matter of principle. -
Wine laws –
The global creation of geographical indications (GIs) can have an impact on the supply of wine and can result in price increases if demand increases. Restrictions due to GIs can be limiting in some regions like Europe as they cannot react quickly to consumer preferences and changes in market trends, unlike producers outside Europe that can adapt much quicker.
As of 2019 figures, Name the top 5 countries with the largest area under vine (including vineyards not used for wine production) in descending order.
Spain
China
France
Italy
USA
In Europe during the 1980s, supply of wine was higher than demand. This over-production created a surplus.
What is the name often attributed to this surplus?
Wine lake
When we say “Generally speaking, the greater the area under vine, the greater the volume of wine that can be produced”, this is because it is not always the case. Briefly explain the predominant human factors that have meant Spain has been able to increase its wine production, despite the fact the country’s vineyard area has decreased in recent years.
- Spain traditionally planted at low density but in more recent times, higher density planted has been implemented in some areas and this is coupled with the relaxation on the use of irrigation. By permitting irrigation, it allows the grower to ripen a larger crop and thus higher density is possible.
- Higher yields are also attributed to choosing more suitable grape varieties, clones and rootstocks to the natural environment, better choice of trellis and training and more effective pest and disease control.
What effects can legislative actions regarding PDOs and PGIs in Europe have on wine supply or production?
Established GIs are extended and new vineyards are planted within the new boundaries:
Less suitable sites may be included and quality could be diminished.
AOPs/DOC(G)s dictate what grapes can be grown in a specific area, the maximum yields and what winemaking and maturation techniques may be used:
Can limit the volume of wine produced.
Governing bodies for PDOs limit the amount of wine which may be released in any one year:
Combat over/under supply of a particular wine.
True or false: margins in the retail sector tend to be higher than those in the hospitality sector.
False
