Wine Business Flashcards
What are the 4 factors that affect supply of wine?
- Production
- Human Factors
- Natural Factors
- Legislation
Why will production affect supply, and give an example?
The amount of wine produced will have a strong impact on the level of supply.
E.g. Globally, 90% of vineyards are used for wine production.
Give an example of a human factor that has affected supply.
In Spain, there has been the relaxation of laws banning irrigation and the increased use of more modern high density planting = INCREASED PRODUCTION
Give an example of a natural factor that affects supply.
Variation in weather conditions from year-to-year.
E.g. in 2017, spring frosts, hailstorms and severe heatwaves devastated Europe. There was a 14% fall in production compared to 2016.
Give another example of a natural factor that affects supply.
Climate change - e.g. serious droughts in South Africa.
Give an example of a legislative factor that affects supply.
Increasing the number of GI’s (Geographical Indications) around the world - brings supply & demand more in line.
Give an example of a legislative factor that has increased supply.
Prosecco DOC - demand is rising, so there is pressure to extend the permitted production area = greater supply, but dilution in overall quality.
Give an example of a legislative body that has affected supply.
The Comite Champagne.
What are 4 factors that have REDUCED supply?
- Vine Pull schemes
- EU restrictions on planting new vineyards
- Conversion of land to other uses
- Abandonment of rural areas
Why was the ‘Vine Pull scheme’ initiated?
Because in the mid-1980s, EU production was greater than demand. The surplus was called the ‘wine lake’.
Describe the ‘Vine Pull scheme’.
The national governments and EU paid growers to pull up poor quality vines in Southern France, Italy & Spain.
Why is vineyard land converted to other uses?
Because grapes for wine are a low value agricultural crop.
Give an example of where vineyard land has been converted to other uses.
Elgin in South Africa - removing vineyards and replacing with apples = greater financial return.
Why are rural areas being abandoned?
Because there is a trend for younger people to leave rural areas and go to live and work in urban areas = reduction of available workforce.
What 3 factors affect demand of wine?
- Social
- Economic
- Legislative & Political
Over the course of the 2000’s, what has happened to global wine consumption?
Increased rapidly in the first part of the 2000s, and fell back after the global financial crisis of 2008.
Where is demand for wine decreasing?
Traditional wine-drinking countries (e.g. France, Italy) - static or falling.
Where is demand for wine increasing?
China - over the last 2 decades amongst the growing middle-class group.
What are 3 examples of economic factors that influence the demand for wine?
- Strength of the economy.
- Fluctuations in currency exchange.
- Changes to the market.
What happens to the demand for wine when disposable income falls?
Wine consumers trade down to cheaper wines, or switch to less expensive drinks, e.g. beer.
What is the downside to a weak currency?
It costs producers more to import equipment & supplies (e.g. barrels, corks)
Give an example of a change to the market which might influence demand for wine.
If a supermarket has run out of Echo Falls White Zinfandel, demand for Blossom Hill White Zinfandel might increase.
What are 4 examples of legislative & political factors that influence the demand for wine?
- Laws prohibiting or limiting the sale of alcohol.
- Government policies to reduce alcohol consumption.
- Taxation
- Wine Laws
Give an example of a law prohibiting or limiting the sale of alcohol.
State-owned monopolies, e.g. Sweden.
Give an example of a government policy to reduce alcohol consumption.
Scotland’s ‘Minimum Unit Pricing’ to reduce availability of cheap alcohol.
What is the catch-22 of taxation on alcohol?
It reduces consumption due to higher prices BUT alcohol is a major revenue generator for many governments.
Where in the world has a wine law seen the decrease in demand?
In China - their ‘lavish gifting’ was stopped by Xi Jinping in 2012. Demand for ‘Bordeaux Premier Cru Classe’ and ‘Grand Cru Burgundy’ dropped almost immediately.
What are 4 reasons why wine consumption is falling in certain areas?
- Younger people drinking less wine
- Health concerns
- Changes in lifestyle.
- Reduced availability of cheap wine.
What are 3 reasons why demand for wine has increased?
- Changing consumer preferences (rise in rose & prosecco)
- Changes in reputation (awards, good reviews from leading critics)
- Changes in spending pattern
Define ‘Excise Duty’.
An indirect tax designed to discourage the purchase of particular goods.
Which country’s excise duty has greatly reduced demand for sparkling wine and why?
Republic of Ireland - excise duty on still = 3.19 euros a bottle, excise duty on sparkling = 6.37 euros a bottle.
Which country has abolished excise duty on wine altogether?
Hong Kong in 2008.
What is ‘customs duty’?
Duty on imported goods - generate revenue & encourage sale of domestic rather than imported goods.
Describe the EU free-trade area.
Member states can import & export goods between themselves tariff-free.
Define ‘Embargo’.
A country bans imports from or exports to a particular country.
Define ‘Supply Chain’.
The network of organisations and activities involved from the creation of a product through to its distribution and sale to the final consumer.
What are grape growing costs?
The initial costs of establishing the vineyard, and the ongoing costs of managing it.
What are 11 points of vineyard establishment?
- Buying or renting land
- Surveying the land
- Site clearance
- Building access roads
- Buying & planting vines
- Buying stakes & wires
- Installation of deep drainage channels & pipework
- Irrigation system
- Protection against weather hazards
- Protection from animal pests
- Buying machinery and equipment.
Define ‘Capital Costs’.
The costs incurred in establishing a business.
How can capital costs be funded?
Loans, investors, governments offering subsidies to prospective producers to help with capital costs.
What are 5 costs of vineyard management?
- Labour
- Machinery and equipment
- Vineyard treatments
- Water
- Electricity
What are the 4 stages of winemaking costs?
- Winery establishment
- General winemaking
- Maturation
- Packaging
What are 3 costs involved in winery establishment?
- Land
- Building the winery
- Fitting it out with equipment
What are 6 costs involved in general winemaking?
- Labour
- Machinery & equipment running
- Winery materials
- Bought-in fruit
- Water
- Electricity
What are 4 costs involved in maturation?
- Storage space
- Vessels
- Labour
- Loss of cashflow
What are 2 costs involved in packaging?
- Materials
2. Bottling line
Give an example of a wine that has considerable costs in maturation?
Brunello di Montalcino (only be released the January five years after harvest).
