Types Of Businesses In Wine Production

Question 1

What are the advantages of producing estate wines?

Answer 1

• Quality control throughout the entire grape growing and winemaking process
• The estate retains all of the profits
• Potential to market and sell direct to consumer, with higher profits
• “Authenticity”

Question 2

What are the disadvantages of producing estate wines?

Answer 2

• Higher capital and operational costs
• Much more sensitive to vintage variation and price increases

Question 3

Why are larger estates generally more viable than smaller ones?

Answer 3

They benefit from economies of scale (eg. the same expensive equipment producing more wine lowers the cost of the bottle)

Question 4

What are pros/cons of being a grape grower

Answer 4

Pros:
- Grape growers don’t have any of the costs associated with producing and marketing/selling wine
- Quicker cashflow (not waiting for wine to mature)
- Can focus all their energy on grape growing

Cons:
- Greatly at risk of vintage variation and changes in Supply and Demand

Question 5

What are the pros/cons of a grower entering long term contract with a producer/merchant

Answer 5

Pro:
- Greater certainty that they’ll sell the grapes
- Forms good relations w/ producer and results in better quality fruit for the wine brand

Cons:
- If quality standards are not met (due to vintage), the producer might refuse or pay a lower price

Question 6

What does it mean to sell “on the spot market”?

Answer 6

A grower will sell their grapes following the harvest without any predetermined buyers.

This can lead to higher prices in poor years, and lower prices/unable to sell stock in high-yield years.

Question 7

How is a grower-producer different than an estate producer?

Answer 7

An estate producer has full control throughout the process of grape growing to selling finished wine

A grower producer will grow the grapes and ferment the juice, and then sell the wine to negociants who mature and bottle the wine under their label

Question 8

What are the pros/cons of being a grower producer?

Answer 8

Pro:
- Lower costs of maturation and marketing
- Quicker cash flow

Con:
- Lower profits

Question 9

How has the role of a négociant changed slightly? Why?

Answer 9

They now usually:
- Make their own wine from grapes or juice rather than just buying immature wine
- Provide technical support to their suppliers

This gives them more control over quality and consistency

Question 10

What are the benefits of being a négociant?

Answer 10

They do not incur any of the capital or operational costs associated with managing a vineyard

Question 11

What is a micro-négociant?

Answer 11

• Specializes in small production wines
• Potential for super-premium prices
• Work closely with growers

Question 12

How do négociants protect themselves in bad vintages?

Answer 12

• They have some flexibility in who they buy from
• They can buy from on the spot market (at higher prices)
• Long-term contracts with suppliers to prevent price fluctuations

Question 13

What is En primeur?

Answer 13

The sale of wine before it is done maturing. Traditionally done by merchants wanting to mature and bottle wines themselves.

Question 14

What region is En Primeur mostly associated with? Why did it become a popular choice for producers there?

Answer 14

Bordeaux

Post WWII, most chateau were strapped for cash. En Primeur freed up cash flow (considering the long maturation of wine for premium producers). Merchants here act as more of a wholesaler.

Question 15

Why is En Primeur attractive for buyers?

Answer 15

Price & Availability

• Lower prices before the wine has been matured and bottled (generally)
• Wines sold en primeur are typically made in limited quantities, meaning it might be the only opportunity to buy them

Question 16

Where are some regions you might see en primeur sales?

Answer 16

Bordeaux, Burgundy, Rhone, Tuscany, Vintage Port

Anything where wine is generally aged 18+ months before release or is heavily sought by investors

Question 17

What is a grower-merchant?

Answer 17

A merchant who owns the vineyards they make premium wine from, and buys the rest

Question 18

Why would a merchant want to own premium vineyards?

Answer 18

It allows them to sell wines at a wider range of prices

Question 19

What are two examples of how grower-merchants distinguish estate fruit from bought fruit?

Answer 19

E. Guigal
- They don’t

Dujac
- Domaine Dujac for estate fruit
- Dujac Pere et Fils (second label) for bought grapes

Question 20

What is the purpose of a co-operative?

Answer 20

• Gives smaller growers access to winemaking equipment, expertise in winemaking/viticulture, packaging, marketing and sales they couldn’t fund themselves

Question 21

What are the benefits of making wine as a co-op?

Answer 21

• Can be advantageous for marketing
• Potentially make large volumes of wine
• Option to create a label and sell its own wines

Question 22

What is one major drawback for individual growers within co-ops?

Answer 22

• Co-ops are based on democratic control, and decision making can be slow
• Individual growers might not agree with decision of management

Question 23

How are growers traditionally paid within co-ops?

Answer 23

Share of profits, based on contributions of volume. Important for small growers with limited resources.

In this scenario, the co-op’s focus is making the wine, not so much on marketing/selling. Quality can vary.

Question 24

How are many co-operatives starting to shift their pay structure?

Answer 24

• Not all profits go back to members, partially reinvested to winemaking/marketing
• Payouts based on quality of the fruit, generally resulting in wines of high quality for a good value

Question 25

How big is a typical co-op?

Answer 25

Size varies between representing local villages to growers on a national scale

Economies of scale help them compete, so some co-ops have become huge

Question 26

How does a custom crush facility differ from a co-op?

Answer 26

• A custom crush is independently owned, and growers pay per use
• Make wines ranging from high-volume, inexpensive to small, ultra premium
• Custom crushes do not market or sell wines

Question 27

What are the pros/cons for growers using a custom crush facility

Answer 27

Pro:
- Access to winemaking expertise and (hopefully) premium winemaking equipment
- Successful in regions specializing in small-production, premium wines

Con:
- Need to have a good relationship with winemaker to ensure wine is made in the style desired
- Need funds to market/sell wine

Question 27

What is a virtual winemaker?

Answer 27

A winemaker that does not own land or winemaking facilities
- Purchases grapes, custom crush

Question 28

How are conglomerates structured?

Answer 28

It is a parent company of many smaller businesses, generally across the supply chain.

The goal is to have quality control throughout the supply chain while limiting intermediaries

Question 29

What is an increasing trend in conglomerates’ relationship with the wine industry?

Answer 29

Conglomerates from outside the wine sector are starting to buy into luxury estates (LVMH, AXA)