Quiz - Getting Wine to the Point of Sale Flashcards

1
Q

Wine sales are usually split into two broad categories: retail and hospitality.

For the hospitality sector, the abbreviation HoReCa is often used. What does this abbreviation stand for?

A

Ho = Hotels

Re = Restaurants

Ca = Cafès/Catering

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2
Q

There are pros of selling wines at different points of sale. Imagine you’re a producer, what are the pros associated with different routes to market?

A

Appointing a Distributor
* Producers access knowledge of that market, including key players, consumer preferences and current trends

Selling Directly to Retailers
* Producer and retailer do not have to pay any intermediary’s costs and margins, maximizing their profits
* Producer is free to decide which retailers stock their wines

Selling Directly to Consumers
* Producers can engage directly with the consumers of their wine -
* Producers get full profits from sales and can control marketing

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3
Q

There are cons of selling wines at different points of sale. Imagine you’re a producer, what are the cons associated with different routes to market.

A

Appointing a Distributor
* Undivided attention will not be paid to any one producer and the overall marketing strategy may not be the ideal one for an individual wine.

Selling Directly to Retailers
* Increased administrative burden e.g. arranging collection, transportation and delivery of the wine to the retailer.

Selling Directly to Consumers
* Encouraging tourism to the producer’s site can disrupt important work in the vineyard and winery

Establishing a Joint Venture
* Producers can lose control over their business if the other one is bigger/more powerful

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4
Q

Briefly outline the benefits and problems a producer may encounter if they try and sell their wine directly to a retailer in a foreign market.

A

Advantages
* There’s the option to sell the wines en primeur, which can create a steady cash flow.
* Introducing the wines to new markets can create increased sales/interest in the producer’s wine.
* Having their wine available in different markets spreads the risk if one market is to fail (if wines are only sold in one territory this could be a problem).
* The producer does not have to pay any intermediary’s costs and margins,
* Potentially maximising their profits.
* Producers are free to decide which retailers stock their wines.

Disadvantages
* Paying import duties and taxes will be the responsibility of the producer - which takes time and resource.
* The producer is responsible for making sure packaging and labeling comply with the relevant laws in the country where the wine is to be sold - which again takes time and resources, as well as costs associated with potentially producing different labels.
* It takes time and effort to build relationships in other markets with retailers on an individual basis.
* There is also a significant cost associated with visiting different regions, either to visit retailers or for trade fairs.
* The producer will need to be aware of local legislation, customs and consumer preferences.
* The producer may be responsible for any wine that is lost or damaged in transit (although the cost of this can be alleviated).

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5
Q

Briefly outline how, by employing a distributor, it might help a producer alleviate some of their administrative tasks.

A
  • A distributor will take on the burden of approaching multiple retailers and the administrative work that this involves.
  • The distributor will be available to attend trade fairs in the market they are based and to organize their own trade fair to represent the producers and their wines.
  • Local knowledge of a market that a producer from another country is hoping to gain a presence in, is a distinct advantage.
  • Local knowledge of the market means more contacts and targeting retailers that would suit the wine they are representing.
  • The logistics of transport is generally managed by the distributor which reduces the administrative burden on the producer and they absorb any damage to goods.
  • Have knowledge of labeling requirements and taxes to advise the producer.
  • The language barrier becomes less of an issue.
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6
Q

How does a broker differ from a wholesaler?

A
  • Whereas a wholesaler is paid by the producer to sell wine on its behalf, brokers are independent intermediaries who represent neither party.
  • Brokers do not enter into any deals; they merely make them happen. As they have very low overheads, they charge smaller fees than wholesalers (usually 2 per cent of the contract price, but it can range from 1 to 5 per cent in different parts of the world).
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7
Q

Name some major supermarkets with substantial wine sales including the countries where they are most closely associated.

A

Walmart – USA

Woolworths - South Africa

Carrefour – France

Tesco – UK

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8
Q

What is the correct definition of a private label wine?

A

Wines bottled under a label/brand exclusive to the retailer.

These wines need to be available in large volumes and therefore usually come from larger producers.

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9
Q

True or false: Well-known brands try and promote loyalty to particular supermarkets.

A

False

Well-known brands will be sold in many different supermarkets. Therefore, loyalty to the brand, not the supermarket is promoted. Consumers will have the options to compare and contrast the prices of their chosen wine/s at different retailers.

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10
Q

True or false: There is often an excess of supply over demand for supermarkets (more choices of wines available than they require).

A

True

Although supermarkets give the opportunity for good exposure of a wine, supermarket wine buyers have enormous negotiating power, especially when it comes to price. This means producers may not receive much money for their wines.

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11
Q

True or false: Supermarkets are usually responsible for marketing producers’ wines and covering the cost of price promotions.

A

False

This is a risk to producers as they can incur substantial costs when selling their wines through supermarkets. Margins can be very tight.

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12
Q

Identify differences between supermarkets and deep discounters. Think about how their business models differ.

A

Differences:
* Deep discounters sell at lower prices.
* Deep discounters rarely stock major brands (due to costs associated with marketing) and often don’t have more than one option from a brand.
* Often deep discounters will buy up the stock of wine from a producer. This means the offerings in the stores will be constantly changing.
* Premium lines are only really introduced around holidays, etc.
* Deep discounter retail outlets tend to be more sparse, with products being displayed in pallets rather than shelves. This saves costs from overheads.
* Deep discounters rarely have price promotions, as prices are already low.
* Although supermarkets and deep discounters have low prices, supermarkets rely on profit margins whereas deep discounters rely on volume of sales.

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13
Q

Compare convenience stores and supermarkets.

A
  • Convenience stores tend to be more expensive than supermarkets.
  • Overheads like rent are often higher for convenience stores as they’re often located inside town/city centres, whereas supermarkets tend to be in less expensive areas.
  • Convenience stores are often independently owned, whereas supermarkets are often part of chains.
  • Convenience stores often stock similar brands to their nearby local supermarket.
  • Local consumer tastes have a large influence on what’s stocked in convenience stores.
  • It is fairly rare for convenience stores to have their own brand of wine.
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14
Q

Identify the pros and cons of selling through a specialist wine retailer for a producer.

A

Pros:
* Smaller brands will likely get better exposure as specialists tend to focus on interesting grape varieties/producers/regions rather than big brands.
* Specialists often cater for consumers that are more interested in what they’re buying, and are willing to pay more for wine. This means they are likely to get a better margin.
* Producer’s wines will often be ‘hand sold’ by knowledgeable staff, which helps create brand loyalty.
* There’s the option for producers to showcase their wines at events etc. held by the specialist.

Cons:
* Producers will probably have to employ and pay a distributor to sell their wine to specialists as there are many outlets to target. Trying to do business on an individual basis with all of them would be very time consuming.
* Major producers may not be appropriate for specialist retailers, partially as they don’t require the quantities that supermarkets/discounters do, and specialists don’t have the buying power.

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15
Q

Give two supporting example points for each of the following topics.

  • How do hybrids differ from specialist retailers?
  • Why might a retailer choose to follow the hybrid model?
  • What are the downsides of the hybrid model?
A
  • How do hybrids differ from specialist retailers?
    o They often have a bar area in the shop where customers can drink the wines on sale at a slightly higher price.
    o They usually also sell food (often cheese or tapas).
  • Why might a retailer choose to follow the hybrid model?
    o Consumers can try the wines before they buy them, which gives the opportunity for upselling and encouraging consumers to try different wines.
    o Consumers can be encouraged to buy bottles of wines after trying them by the glass. This is a good way of getting customers interested in different regions/grape varieties/producers.
  • What are the downsides of the hybrid model?
    o Stores that allow consumers to drink alcohol and eat food on the premises are often subject to more strict legislation and legal practices.
    o The stores will usually have to stay open later to cater to consumers wanting to eat and drink outside normal working hours.
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16
Q

What are the main problems facing online wine retailers?

A
  • The online retailer needs specialist wine knowledge, but doesn’t have the face to face interaction with consumers. Therefore, it can be difficult to give advice on consumer preferences.
  • Delivery can be expensive as wine is a heavy and bulky product. Consumers aren’t always happy for the cost of delivery to be passed on to them. Consumers also expect delivery to be fast and convenient, which can be a challenge.
  • Online retailers usually have to retain the risk of wine being lost or damaged in transit.
  • Websites must be well-designed, clearly laid out, functional and easy to use. This comes with significant design and development costs, as well as the cost of technical support and hosting.
  • Content online can quickly go out of date, so keeping the content interesting, correct and relevant is a significant task.
17
Q

True or false: the concept of ‘duty free’ has become more important over the last few years.

A

False

More recently, with the introduction of free-trade zones such as the EU, ‘duty free’ has become less important and customers in these stores are now looking for high-quality and high-priced goods which they cannot find in their home market.

18
Q

True or false: Sales through global travel retail stores usually make higher profit margins for suppliers than other routes.

A

False

The cost of retail space is high and retailers pass a percentage of that cost on to their suppliers, resulting in lower profit margins compared to other routes to market.

19
Q

True or false: Sales of high-quality and high-priced goods, including super-premium wines, are on the rise in global retail stores.

A

True

Wine retailers have seen the advantages of global travel retail for selling a range of wines.

20
Q

What factors might a potential investor consider when looking to invest in a ‘fine’ or investment-grade wine?

A
  • Prestige – certain regions carry prestige like Bordeaux, Burgundy and Napa Valley for example.
  • Vintage – vintage hype can spike a huge interest in wines and increase their appeal to investors.
  • Brand popularity – Châteaux like Château Margaux or Lafite Rothschild or Screaming Eagle have cult following and very sought after investment wines as a result.
  • Potential to age – the wines might increase in value with bottle age and increased rarity.
  • Rarity – wine made from smaller vineyard sites/domaines of certain producers can be of considerable interest for investment.
21
Q

Describe specialist wine bars

A
  • Specialist wine bars are usually independently owned, or part of a small chain.
  • Some of these bars mirror the hybrid model, and sell wine for consumption on and off site as well as food.
  • Specialist bars tend to source wines from smaller producers and from less well-known regions.
  • Some larger specialists have their own label wines, but this is rare.
22
Q

Name some characteristics of different restaurant types:

A

Non-destination restaurants:
* Wines tend to be from major brands and well-known producers, and tend to be inexpensive or mid-priced
* Often part of large chains of restaurants

Casual dining restaurants
* Usually independently owned or part of a small chain of restaurants
* Offers high quality food but not at premium prices
* Wines tend to be mid-priced to premium and are chosen to complement the menu
* Staff will be sufficiently trained to advise customers on pleasant wine pairings and the menu might suggest good options

Both non-destination and casual restaurants
* The meal is often not the main focus of the restaurant outing

Fine dining restaurants
* These restaurants often use brokers to source rare wines
* Food and wine pairings are very important in these restaurants, and a highly trained sommelier will make recommendations
* Restaurants often offer ‘tasting menus’ that pair food and wine
* Super premium wines are often offered
* The food is the main reason people visit these kinds of restaurants

23
Q

In which country would you find the Systembolaget?

A

In Sweden

24
Q

Explain why some countries choose to have government-run monopolies for alcohol sales and distribution. What are the benefits to the governments in monopoly markets?

A
  • The concept behind monopoly markets is to limit alcohol consumption.
  • High prices, taxes, and a lack of competition between stores (as prices are standardized, meaning consumers can’t compare and contract prices) is intended to make buying alcohol seem less attractive.
  • Reduced availability of alcohol (e.g. through reduced opening hours) is also thought to limit purchases (compared to a free market).
  • High taxation means governments can make substantial profits off alcohol.
  • It’s in governments’ interests to limit alcohol consumption for public health reasons.
  • By personally selecting the wines sold within the country the government can ensure they are of good quality. Individual products are not promoted though, and customers are advised on what suits their needs.
25
Q

What was the name of the act in place between 1919 and 1933 in the USA that prohibited the sale and consumption of wine?

A

Volstead Act

26
Q

What are the three ‘tiers’ of the USA Three Tier System?

A
  • Supplier
  • Distributor (including wholesalers, brokers)
  • Off Premises Retailer (e.g. supermarkets, wine specialists) or On Premises Retailer (e.g. bars, restaurants)
27
Q

What are the roles of each of the tiers in the Three Tier System?

A
  • Supplier: The first tier in the system where alcohol starts on the path to the consumer. They can produce and import but not be a wholesaler e.g. E&J Gallo.
  • Distributor (including wholesalers, brokers): The second tier of the system and all alcohol passes via a distributor before reaching the consumer in the third tier. Distributors can import also but not produce e.g. Republic National Distribution Company (RNDC). They specialize in logistical efficiency and some of the largest distributors sell to many states, provide a trained sales force and marketing material for a producer.
  • Off Premises Retailer or On Premises Retailer: The third tier is the point of sale, i.e. when alcohol reaches the market place and the consumer can buy it.
28
Q

Briefly detail how the Three Tier System may be a hindrance to a small producer.

A
  • The number of wineries looking to get their products to the point of sale has increased, whereas the number of distributors has decreased. This means it may be hard for a small or relatively unknown producer to get their wines noticed, particularly when distributors hold large portfolios of wines.
  • If a distributor does pick up a small winery’s products, it’s not likely to get as much attention as those from larger producers.
  • A small winery may lose control over the way their wines are being marketed entirely as this is the responsibility of the distributor.
  • Given that conglomerates are on the rise (and often have a vast array of wines to offer), smaller wineries may not look as appealing to a distributor, partly because dealing with them is extra administration.
  • Small producers can choose to work with smaller distributors, but then there’s the risk that the distributor can only distribute in a few states. This means the profile of the producer’s wine can’t reach many markets.
  • As many distributors are very powerful, it can be hard for small producers to break contracts with them, even if they are feeling underrepresented.