Supply Chain

Question 1

Define:

‘Route to market’ or ‘Supply chain’.

Answer 1

How bottles of wine get from producer to consumer.

Question 2

List the eight types of businesses that engage in the production of wine.

Answer 2

1. Co-operatives;
2. Conglomerates.
3. Custom crush facilities;
4. Estates;
5. Growers;
6. Grower-producers;
7. Merchants;
8. Virtual winemakers or wineries (mainly used in North America).

Question 3

What is an estate producer?

Answer 3

A producer that produces wine exclusively from their own vineyards, which are either wholly owned or leased (or both).

Question 4

What are three advantages to estate production?

Answer 4

1. The producer retains control over the entire process of growing to picking to making the wine;
2. All of the profit from production belongs to the estate;
3. If they do all the marketing and selling themselves, they take full profit.

Question 5

What are three disadvantages to estate production?

Answer 5

1. Cost of managing the vineyard;
2. Cost of equipping and running the winery;
3. If a difficult vintage, the estate may need to sell the wine at a higher price which consumers may not be willing to pay (and costs might not even be covered with the price hike!).

Question 6

What is a key advantage to being a grower (and not make your own wine)?

Answer 6

Payment is due when the grapes are sold rather than when the wine is made or sold.

Question 7

What two things can significantly affect the price for a grower’s grapes?

Answer 7

1. Vintage variation;
2. Swings in supply and demand.

Question 8

What are the two options growers have for selling their grapes?

Answer 8

1. Contracts, either short or long term;
2. The ‘spot market’, which is grapes that are not in contract are bought and sold following harvest.

Question 9

What is a grower-producer?

Answer 9

A grower that produces unfinished wine and sells it to a merchant (négociant) to mature and bottle.

Question 10

What is the main advantage of being a grower-producer?

Answer 10

They do not incur the costs of maturation (e.g. barrels and cellar space) or of marketing the wine.

Question 11

Name three disadvantages of being a grower-producer.

Answer 11

• Earn lesser profit than if they were to sell the finished wine themselves;
• Lose control over the style of the finished wine because it is the merchant (négociant) that chooses the length and type of maturation;
• Merchants often blend together wine from different producers, so the grower-producer’s individuality may be lost.

Question 12

What is the classic function of the merchant (négociant)?

Answer 12

To buy unfinished wine from grower-producers, mature it, and sell it under their name. Often they blend wines of different grower-producers prior to bottling.

Question 13

Traditionally, what was the biggest risk merchants faced?

How has that changed in recent generations?

Answer 13

They had little control over the grape growing or winemaking process.

Many now provide vineyard or winery support and advice to their grower-producers to ensure that the grapes, juice or wine they buy are the quality they want.

Question 14

Name two advantages of being a merchant (négociant).

Answer 14

1. No expense of buying and managing vineyards;
2. Buying from various grower-producers gives some protection and flexibility in bad vintages.

Question 15

1. What is a grower-merchant?
2. Give an example of a famous grower-merchant in the Rhône Valley.

Answer 15

1. A négociant who owns vineyards and produces wine from those vineyards in addition to wines they make from grapes, juice, or unfinished wine which they buy from grower-producers.
2. E. Guigal is an example of a grower-merchant.

Question 16

What is a way to differentiate between a house’s estate label and their négotiant label?

Answer 16

Their estate fruit will say “Domaine” while their négotiant label may say “Maison” or “Père et Fils.” It’s common to see this in Burgundy.

Some houses don’t differentiate, such as E. Guigal.

Question 17

What are wine futures, or en primeur?

Answer 17

Wine that has been sold before it has been bottled.

Question 18

What is a key benefit of selling wine en primeur?

Answer 18

The house can generate cash flow now, covering all the future production costs up to and including bottling.

Question 19

Define:

Co-op

(Co-operative)

Answer 19

A group of wine growers that produce and sell wines made solely from grapes grown by their members.

Co-ops are owned by their members.

Question 20

Name two major benefits for co-op members.

Answer 20

• Financial resources are pooled, which means they can buy more expensive winemaking equipment than they could afford if they were working individually;
• Members access things they could not afford if they were working on their own, such as:
  
  • expert viticultural and winemaking advice + services;
  • marketing, packaging and sales services.

Question 21

What are two downsides to co-ops?

Answer 21

• Decision making process can be slow because management must consult members before any major decisions are made;
• Members don’t always see their full profit as the co-op will instead invest in the latest technology, research and effective marketing and labelling.

Question 22

What is a custom-crush facility and where are they generally found?

Answer 22

Generally found in California, they’re like the co-op model but the growers do not own the facility; rather, they pay each time they require the facility’s services.

Question 23

1. Why were custom-crush facilities originally introduced?
2. How do they work?

Answer 23

1. To make wine for growers who do not have their own winemaking equipment.
2. The facility is owned by a company which charges growers who want to use their services and equipment. The facility makes the wine, and the finished wine is returned to the grower who can then market it in whatever way they like and take the sales profit.

Question 24

What are two advantages of using a custom-crush facility for a grower?

Answer 24

1. The grower doesn’t have to invest in expensive winemaking equipment;
2. They get the expertise of professional winemakers who can make the wine exactly the way in which the grower wants.

Question 25

What are virtual winemakers?

Answer 25

Winemakers who do not own vineyard land or winemaking facilities, buy grapes or juice, and either rent facilities in another winery or use a custom crush facility.

Question 26

What is a virtual winery?

Answer 26

A brand of wine that is made of sourced fruit or juice from a large number of suppliers.

Question 27

What is a conglomerate?

Answer 27

A very large company that may work just with wine or it may work with a variety of alcoholic products, such as spirits and liqueurs.

They usually own several smaller businesses across the stages of the supply chain, from production to distribution.

This gives them:

• greater control at all stages of the supply chain, reducing the need to pay intermediaries;
• significant negotiating power when buying grapes, juice and wine from suppliers and when selling to retailers.

Question 28

Name a North American and an Australian conglomerate.

Answer 28

• E & J Gallo, USA
• Treasury Wine Estate, Australia