D2C03 Business Engaged In Wine Production Flashcards

LEARNING OUTCOME 2.2 Understand the types of businesses engaged in the production of wine ASSESSMENT CRITERIA 2.2.1 Evaluate the different types of businesses engaged in the production of wine.

1
Q

List major types of business engaged in the production of wine

A
  • Estates
  • Growers
  • Grower-producers
  • Merchants
  • Co-operatives
  • Custom crush facilities
  • Virtual winemakers/wineries
  • Conglomerates
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2
Q

What is an estate producer; list the advantages and disadvantages of an estate producer

A

Produces wines exclusively from own vineyards (wholly owned or leased)

Advantages:

  • Retains control over entire process - choose final style of wine
  • No intermediaries direct market & sale,
  • Retain 100% profit
  • Marketing benefits: ‘estate-bottled’ authenticity, tell story, presitge of “single vineyard”

Disadvantages

  • Takes 100% of costs also - drives own/lease decisions
  • Takes 100% of risk.
    • Difficult vintage= reduced production, higher price which customers may not be willing to pay
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3
Q

Why are large estates financially more viable than smaller ones?

A
  • Volumes deliver economies of scale in production and ROI is quicker.
  • Same equipment cb used across different varieties
  • Many larger vineyards are by design easier to mechanize
  • Smaller vineyards cb mechanised if they lie adjacent, otherwise costly if at all possible.
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4
Q

List some reasons why the average vineyard tend to be small in many traditional wine-producing regions

A

Historical factors: French succession laws

Geography: in hillier regions, vineyards are limited by the terrain

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5
Q

Describe the role of growers and list advantages and disadvantages of this option

A
  • Own small vineyards
  • cannot justify the cost of buying/iring expensive winery equipment
  • do not want to have to market and sell wine

Advantages

  • Cash flow smooth - payment due when grapes are sold
  • Single Focus: produce best possible grapes

Disadvantages

  • Vintage variation price impact (higher if fruit is in demand, but pot very low if excess fruit from good season, and potentially cannot sell all)
  • Fluctuation in supply and demand
  • Price impact In either case, this will result in reduced profits or a loss.
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6
Q

Two options for growers to sell grapes? Advantages and disadvantages?

A

Enter into contract with producer or merchant:

  • certainty, security, strong working relationship;
  • need to meet certain standard,
  • cannot obtain higher price when demand increases

Sell on the spot market

  • higher risks but greater rewards
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7
Q

What are grower-producers; what are the advantages and disadvantages of this option

A

Growers that produce wine, sell to a merchant to mature and bottle

  • common in Burgundy.

Adv:

  • no cost of maturation or marketing

Dis:

  • smaller profit;
  • lose control over style of finished wine; may be blended with wine from other producers
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8
Q

Describe the role of the Merchant in Wine Industry, listing adv and disadv.

A
  • Traditionally called a “Negociant” a merchant that buys immature wine, matures and sells under own name
  • often blends from different prod prior to bottling
  • Some are also grower-merchants own vineyards & control the growing/winemaking as well
  • may provide technical advice to other growers to obtain required quality of grapes/juice/wine for their end product

Advantages

  • cost of buying, managing vineyards, avoided (beneficial in Burgundy, Champagne - vy not avail anyway)
  • particularly in Burgundy - small size vy gave rise to “micro-negociant” who works with the smaller producers ultimately to prod top Q wines selling at super-prem prices
  • protection and flexibility in bad vintages
  • some have have suff qty to supply private label wines to supermarkets/ddiscounters, another route to mkt
  • has the flexibility to leverage the AOC of the produced wine where it is advantageous, or to label under own name.

Disadvantages

  • Little control - growing or winemaking process - mitigate by offering technical support to their suppliers
  • Spot market price can be high - mitigate by long-term contracts with suppliers
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9
Q

Explain the rise of micro-négociant in Burgundy

A

Land is seldom sold and price is very high Micro-négociant therefore specialise in small-production wines usually from individual vineyards that often achieve super-premium prices Some work closely with particular growers, others buy on the spot market to be assured of best-quality fruit

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10
Q

What is en primeur

A

Also called “Wine futures”

  • method of selling wine before it has been bottled
  • Purchasers buy the wine whilst it is still in barrel
  • Wine remains in the producer’s cellar until ready for bottling
  • Purchaser receives the wine once bottled, usually a few years later
  • Suits wines that benefit from a period of maturation in barrel (usually 18m or more) and those prized by investors, such as Bordeaux, Burgundy, Rhône, Super Tuscans, Vintage Port

Advantages:

For producers: generate cash-flow earlier, get a sense of the market for setting price

For purchasers: cheaper and easier to buy wine

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11
Q

What are co-operatives List the advantages and Disadvantages of this model

A

Owned by a group of growers, produce, sell wines from members’ grapes

Advantages /Benefits

  • Pool financial resources gives access to:
    • expensive winemaking equipment and expertise;
    • expert viticultural and winemaking services, advice
    • marketing, packaging and sales services
  • Marketing collectively can be more efficient and effective, e.g., Plaimont in south-west France, Badischer Winzerkeller in southern Germany
  • Can make own-label wines since they can make a large volume of entry-level wine, e.g., La Chablisienne in Chablis, Mont Tauch in Fitou
  • More modern co-ops are dynamic, excellent at marketing, operate at a profit which partially is invested in latest tech, mktg, labelling

Disadvantages

  • Democratic control ~ slow decision making
  • More traditional might be not quality focused if paid by weight
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12
Q

What is custom crush facility

A

A variant of the co-operative model found mainly in North America, particularly California

  • Growers do not own facility but pay each time they require its services

Adv:

  • None of the downside of cooperatives
  • Do not need to invest in expensive equipment, can focus on grape growing and marketing
  • Benefit from expertise of professional winemakers

Dis:

  • communication is vital. Otherwise grower will pay to have a wine style not wanted
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13
Q

What are virtual winemakers/wineries

A
  • Found mostly in North America
  • Winemakers who do not own vineyard land or winemaking facilities
  • Buy grapes and juice and rent facilities in another winery or employ the service of a custom crush facility
  • Produce wines at both premium and inexpensive price points.
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14
Q

What are conglomerates - what are the advantages of their business model

A

Very large companies who own many smaller businesses across various stages of the supply chain

  • from production to distribution.
  • Some of them have interest across all the alcoholic products

Advantages

  • Have businesses across the supply chain
  • Can set up regional offices in markets important to them
  • Greater control at all stages of the route to market
  • Reduce need to pay intermediaries
  • Significant negotiating power, can strike hard bargain
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15
Q

List top 10 wine-producing companies in 2016

A
  • E&J Gallo, USA
  • Constellation Brands, USA
  • The Wine Group, USA
  • Treasury Wine Estate, Australia
  • Vina Concha y Toro, Chile
  • Castel Frères, France
  • Accolade Wines, Australia
  • Pernod Ricard, France
  • Grupo Penalor, Argentina
  • FeCoVitA, Argentina
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16
Q

Examples of major companies buying into the wine sector

A

Moët Hennesy-Louis Vuitton own brands

Moët Chandon, Veuve Clicquot, Krug, Cloudy Bay

Insurance company AXA:

top estates in Bordeaux and Burgundy, Quinta do Noval (Port)