Types Of Businesses In Wine Production Flashcards
What are the advantages of producing estate wines?
- 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”
What are the disadvantages of producing estate wines?
- Higher capital and operational costs
- Much more sensitive to vintage variation and price increases
Why are larger estates generally more viable than smaller ones?
They benefit from economies of scale (eg. the same expensive equipment producing more wine lowers the cost of the bottle)
What are pros/cons of being a grape grower
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
What are the pros/cons of a grower entering long term contract with a producer/merchant
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
What does it mean to sell “on the spot market”?
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.
How is a grower-producer different than an estate producer?
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
What are the pros/cons of being a grower producer?
Pro:
- Lower costs of maturation and marketing
- Quicker cash flow
Con:
- Lower profits
How has the role of a négociant changed slightly? Why?
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
What are the benefits of being a négociant?
They do not incur any of the capital or operational costs associated with managing a vineyard
What is a micro-négociant?
- Specializes in small production wines
- Potential for super-premium prices
- Work closely with growers
How do négociants protect themselves in bad vintages?
- 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
What is En primeur?
The sale of wine before it is done maturing. Traditionally done by merchants wanting to mature and bottle wines themselves.
What region is En Primeur mostly associated with? Why did it become a popular choice for producers there?
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.
Why is En Primeur attractive for buyers?
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
Where are some regions you might see en primeur sales?
Bordeaux, Burgundy, Rhone, Tuscany, Vintage Port
Anything where wine is generally aged 18+ months before release or is heavily sought by investors
What is a grower-merchant?
A merchant who owns the vineyards they make premium wine from, and buys the rest
Why would a merchant want to own premium vineyards?
It allows them to sell wines at a wider range of prices
What are two examples of how grower-merchants distinguish estate fruit from bought fruit?
E. Guigal
- They don’t
Dujac
- Domaine Dujac for estate fruit
- Dujac Pere et Fils (second label) for bought grapes
What is the purpose of a co-operative?
- Gives smaller growers access to winemaking equipment, expertise in winemaking/viticulture, packaging, marketing and sales they couldn’t fund themselves
What are the benefits of making wine as a co-op?
- Can be advantageous for marketing
- Potentially make large volumes of wine
- Option to create a label and sell its own wines
What is one major drawback for individual growers within co-ops?
- Co-ops are based on democratic control, and decision making can be slow
- Individual growers might not agree with decision of management
How are growers traditionally paid within co-ops?
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.
How are many co-operatives starting to shift their pay structure?
- 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
How big is a typical co-op?
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
How does a custom crush facility differ from a co-op?
- 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
What are the pros/cons for growers using a custom crush facility
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
What is a virtual winemaker?
A winemaker that does not own land or winemaking facilities
- Purchases grapes, custom crush
How are conglomerates structured?
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
What is an increasing trend in conglomerates’ relationship with the wine industry?
Conglomerates from outside the wine sector are starting to buy into luxury estates (LVMH, AXA)
