Types of Business Engaged in the Production of Wine

Question 1

Name the 9 types of businesses engaged in the production of wine

Answer 1

1. Estates
2. Growers
3. Grower-producers
4. Merchants
5. Grower-merchants
6. Co-operatives
7. Custom Crush Facilities
8. Virtual winemakers / wineries
9. Conglomerates

Question 2

What are the 3 main advantages of estates?

Answer 2

1. Control over entire process
2. All profit belongs to estate
3. Marketing story

Question 3

What are the 3 main disadvantages of estates?

Answer 3

1. Cost of managing the vineyard
2. Cost of equipping and running the winery
3. Difficult vintages

Question 4

What are the main advantages of growers?

Answer 4

1. Don’t need to buy / hire vineyard equipment
2. Don’t have to market / sell their wine
3. Better cash-flow (get paid when grapes sold not wine)
4. Can focus all attention on grapes

Question 5

What is the main disadvantage of growers?

Answer 5

Vintage variation & fluctuations in supply and demand

Bad year - less (or no!) fruit to sell. Bumper year - reduced prices

Question 6

What are the 2 options growers have to sell their grapes?

Answer 6

1. Contract with producer or merchant (single-year or multi-year)
2. Spot market

Question 7

Growers

What are the 2 advantages of growers entering into a contract?

Answer 7

1. Certainty they can sell (although may be a quality spec)
2. Producers / Merchants may provide support (particualrly if longer term contract)

Question 8

Growers

What is the key feature of growers selling grapes on the spot market?

Answer 8

Higher risk / reward

If shortage of grapes, can command higher price. Opposite if glut of price.

Question 9

Describe grower-producers. What is the advantage and 2 disadvantages?

Answer 9

Produce the wine but sell to merchant to mature and bottle

Advantage:
1. Do not incur costs of maturation or marketing

Disadvantages:
1. Lose control over finished wine (may even be blended)
2. Smaller profit

Question 10

Merchants

How has the role of merchant changed from past to present? Why?

Answer 10

Past: Buy immature wine, mature, sell it under their name

> > Little control&raquo_space;

Present: More likely to produce own wine from grapes / juice and provide technical support to growers to ensure desired quality

Question 11

Name 2 advantages of merchants

Answer 11

1. No expense of buying / managing vineyards (particularly beneficial in Champagne / Burgundy
2. Protection and flexbility from bad vintages

Question 12

What are the 2 main pricing disadvantages of merchants? How do they counteract this?

Answer 12

1. May be forced to buy from the spot market and pay higher prices
2. Prices have risen generally in some regions such as Burgundy / Napa

Long-term contracts with suppliers

Question 13

What is the main difference between merchants in Burgundy and Bordeaux?

Answer 13

Negociants in Burgundy much more involed on production of wine vs. Bordeaux who tend to deal with wine already made wine

Question 14

What are the advantages of co-operatives?

Answer 14

1. Pooling of financial resources (for equipment, expertise etc)
2. Members may get access to expert viticultural, winemaking, marketing, packaging, sales services
3. Marketing collectively can be more efficient (e.g. to create a wine brand or own label wine)

Question 15

What are the disadvantages of co-operatives?

Answer 15

1. Slow, cumbersome decision making
2. Decisions may not be to the liking of everyone

Question 16

Describe 2 models for how members are paid in co-operatives?

Answer 16

1. Volume - More traditional co-ops
2. Quality of fruit - Don’t pay all profits back to members prefering to invest back into wine-producing

Question 17

What are the advantages of custom crush facilities?

Answer 17

1. Don’t need to invest in expensive equipment
2. Can focus attention on growing and marketing
3. Benefit from expertise of professional winemakers (but important they have good working relationship to get style of wine they want)

Question 18

Where are custom crush facilities most commonly found?

Answer 18

WIne regions with a small number of small-volume wine producers (many of whom new to wine production)

Particuarly in NA

Question 19

Describe virtual winemakers / wineries

Answer 19

Winemakers who do not own vineyard or winemaking facilities

Question 20

What are the advantages of conglomerates?

Answer 20

1. Own various small businesses across the supply chain
2. Can afford to set up regional offices in markets that are important to them
3. Greater control at all stages of the route to market
4. Reduces need to pay intermediaries
5. Negotiating power