Quiz - Wine Businesses Flashcards
What are the different types of businesses engaged in the production and selling of wine.
Growers
Only concentrate on growing grapes to be sold on to winemakers or merchants.
Grower-producers
Grow their own grapes and make the wine, but pass the wine on to merchants to mature and bottle.
Co-operatives
Owned by a group of growers and produce and sell wines made from grapes grown by their members.
Custom crush facility
Sites where growers do not own the facility but pay each time they require a winemaking facility.
Virtual winemakers
This is a term used, mainly in North America, for winemakers who do not own vineyard land or winemaking facilities. Often buy in grapes or juice and may rent facilities in another winery.
Conglomerates
Large companies, which have interests in different kinds of alcoholic beverages. Often own many smaller businesses through the supply chain.
Merchants
Traditionally buy immature wine, mature it and sell it under their own name. Sometimes blend the wines of different producers before bottling.
Estates
Makes wine from their own vineyards. The entire production process (grape growing to bottling) takes place on site.
An estate producer produces wine from his own vineyards (vineyards that are wholly owned or leased).
What are the advantages and disadvantages of Estate run wine production?
Advantages:
* Retain control from vineyard to bottle
* Can choose the style of wine made
* Ensure quality assurance and quality control
* Profit belongs to the estate
* Can have control over marketing potentially reducing the intermediaries
* Consumer can look for authenticity relating to the ‘story’ of a wine
Disadvantages:
* High capital cost
* Small estate producers have potential high percentage crop loss due to vintage variation which impacts on cash-flow
* Economies of scale disadvantageous to small producers.
Estates keep the entire process of producing wine on-site, from grape growing to bottling.
What are the most important associated risks?
- Estates have their own wineries, so the cost of running the winery can be high.
- Sometimes this means the estate must use hired equipment ; this is often the case for machinery required once a year like bottling lines.
- Large estates are often more financially stable than smaller ones since any purchased equipment can be reused to make a range of wines, and greater volumes of these wines can be produced.
True or False: Growers receive payment when the wine produced is sold.
False
Growers receive payment when their grapes are sold. This creates a better cash-flow situation as they don’t have to wait for wines to be produced, matured and then sold.
What risks do growers have to be particularly aware of?
Vintage variation –
In high yielding years, growers may not be able to demand their usual prices for their grapes due to oversupply and in some instances not sell all their grapes. In poor vintages, the quality of the grapes may be compromised and growers will not be able to get the usual price for their grapes.
Reduction in demand for particular wines –
If demand for the wines their grapes are used to produce falls, then their grapes may not be required.
Increase in supply of a particular wine –
Growers may find it hard to sell their grapes if a particular type of wine has been over-produced.
Identify the two options that are available to growers when it comes to selling their grapes.
Then, briefly describe the advantages and disadvantages of each option.
Option 1: Entering into a contract with a producer/merchant
Advantages:
* The grower gets some certainty that they will be able to sell their grapes at a given price, which is particularly advantageous for long-term contracts as cash flow is guaranteed.
* Long-term contracts foster strong working relationship between the parties and producers/merchants may actively work with the grower to produce the best quality fruit.
Disadvantages:
* If the grapes provided by the grower do not meet the required quality standard or specifications (e.g. minimum potential alcohol) they can be rejected or a lower price will be payable.
* Contracts can be terminated without notice.
Option 2: Selling grapes on the spot market
Advantages
* If there is a shortage of grapes from a particular harvest, spot sellers could achieve a higher price for their grapes than they could if under a contract.
* There’s the opportunity to make more money if the market works in a grower’s favor.
Disadvantages:
* If there is a glut of grapes, the spot price is likely to be less than the contract price.
* Cash flow is not guaranteed.
What are the main advantages for grower-producers?
- They do not incur the costs of maturation.
- They do not need to be responsible for the marketing of the product.
In the past, what has been a significant risk to merchants?
- Lack of control over the grape growing or winemaking process.
- Nowadays, to resolve this issue, many merchants produce their own wine from grapes or juice and provide technical support to their suppliers to ensure that the grapes, juice or wine they buy are of the required quality.
What circumstances have led to the rise of micro-négociants in some regions, and what is their role?
- In some regions (particularly in France i.e. Burgundy and Champagne), land is very expensive and rarely available for purchase.
- As a result, micro-négociants have been on the rise and they specialize in small production wines and often from only one vineyard or domain.
- To be a micro-négociant is a good option for a producer that wants to expand their portfolio of wines without the added cost of buying the land.
Merchants can be in a precarious position as their business depends on good quality grapes at affordable prices. Identify three ways merchants may choose to try and protect themselves from price fluctuations and vintage variation.
- Buying grapes on the spot market from multiple growers and producers when vintages are poor, although this may incur high prices.
- Create long-term contracts with suppliers to protect themselves against fluctuations in cost. In these circumstances, the merchants can also provide technical support to the suppliers to ensure a higher quality product.
- Own their own vineyards so wines can be produced at all desired price-points. They may choose to only produce premium wines made from the grapes from their vineyards and buy in grapes or wine from other suppliers to sell at lower price points.
What is the French term used to define the method of selling wine before it has been bottled?
en primeur
When a purchaser (often merchants) buys wine en primeur, the wine is still in barrel and it remains in the producer’s cellar until it is ready for bottling.
Buying wines en primeur holds both advantages and disadvantages for the purchaser. What are the advantages and disadvantages of buying wines via this method.
Advantages:
1. Cheaper to buy
2. easier to buy; the price of wine normally increases when it comes to maturation and ready for sale;
3. guarantee of having stock for sale as these wines are limited in quantity.
Disadvantages:
1. Have to pay for a product before they receive it (insolvency risk if no reservation of title)
2. demand for that wine is not guaranteed when it becomes available for sale, therefore the price might decrease from the en primeur price.
There are similarities and differences between the ways co-operatives are run. Which characteristics apply to all co-operatives and which only to some?
Characteristics of all co-operatives:
* Co-operatives are owned by their members
* Democratically controlled and management must consult members before major decisions are made
Characteristics of some, but not all co-operatives:
* Primary focus is the quality of the wines
* Members are always paid a share of the co-operative’s annual profit
* Pay on the weight of the wine, sometimes als on quality of the grapes
* Use profits to invest in technology, research and effective marketing and labelling, as well as paying their members
Custom crush facilities are usually found in North America.
What other business type are they a variant on though?
Co-operatives –
The difference between custom crush facilities and co-operatives is that growers do not own the custom crush facility, but rather pay each time they require its services.
Name the largest global wine-based conglomerate.
E & J Gallo
