1: Factors That Affect Price: Supply & Demand Flashcards
(28 cards)
What 4 social factors affect demand?
1) Consumption habits
2) Consumer preferences
3) Changes in reputation
4) Spending patterns
Name 3 examples of global consumption habits impacting demand.
- Consumption increased rapidly in 2000s and fell after 2008 crisis
- Rosé and Sparkling categories have increased significantly over last decade (sparkling @ 3% annually 2002-2018)
- Consumption is falling/static in traditional wine drinking countries; Increasing in new consuming countries
What 4 main social reasons are there for consumption to fall?
1) Younger people drinking less wine
2) Health concerns
3) Changes in lifestyle
4) Reduced availability of cheap wine
What are 4 international changing consumer preferences?
1) Increase in Rosé popularity (USA)
2) Increase in Prosecco popularity (USA & UK)
3) Lower-alcohol gaining popularity; Fortified (15-22%) declining
4) Medium-sweet German wine declining
What can cause changes in wine’s reputation? (4)
1) Reviews & scores by publications and critics
2) Influencers/Key Opinion Leaders
3) Pop culture presence (TV, music, lifestyle news)
4) Peer opinions
What are the identifiers of a price sensitive market?
Consumers are unwilling to pay more than the lowest possible price for a given style (ie. UK & Germany)
What are the implications & best approach for producers in price sensitive markets?
- Fierce competition & small margins, limiting producers.
- Producers attempt to combat sensitivity with brand loyalty
What is premiumization?
An increased willingness to pay more for individual bottles, because they’re buying less volume.
Name 3 economic factors that affect demand.
1) Strength of economy
2) Currency exchange fluctuations
3) Changes to the market
What happens if a producer’s currency gains value vs the importing country’s currency? Loses value?
- Gains value: the importer’s price/retail price could rise; or remain flat with a profit loss for producers
- Loses value: importer’s price/retail price could fall, increasing competitiveness; or remain flat and producer earns more profit
Name 5 legislative & political factors that impact demand.
1) Laws that prohibit or limit the sale of alcohol
2) Government policies to reduce consumption
3) Taxation
4) International trade (customs duties/trade tariffs)
5) Wine Laws (GI’s, PDOs, PGIs)
Give 4 examples of laws that prohibit or limit the sale of alcohol.
1) State-owned monopolies (Sweden, Norway, Canada)
2) USA’s 3-tier System
3) Age restrictions
4) Hours restrictions
Give 3 examples of government policies that aim to reduce alcohol consumption.
1) Loi Évin in France (restricts ads)
2) Minimum Pricing in Scotland (0.50 GBP per unit of 4.50 GBP/bottle)
3) Blood Alcohol Concentration (BAC) (50mg/100ml Scotland & NZ; 20mg/100ml Sweden & Norway)
What are 2 forms of taxation? An example of each?
- Sales Tax, added at POS).
ie. VAT in EU - Excise Duty/Tax, payable at point of manufacture. Can vary by category.
ie. EU 3.19 /bottle for still; 6.37/bottle sparkling in Ireland
What are the EU’s current trade agreements? The UK? Argentina? US/China? Russia?
EU - free trade among members. Chile & South Africa have free or reduced trade rates. Australia has higher tariffs.
UK - left EU and may negotiate free trade agreements with countries, ie. Argentina
Argentina - imposed restrictions on imports, including wine equipment; limits foreign land ownership
US/China - trade war. China applies higher tariffs on US wines
Russia - limited imports, some embargoes
How can a trade war affect demand?
Consumers may boycott certain products as a result.
What is the advantage and disadvantage of wine laws in generating demand?
Advantage: can increase reputation/recognition and hence demand in consumers. Prices can increase.
Disadvantage: PDO rules can be strict, now always allowing producers to adapt to consumer preferences.
An example of a wine law in a country that changed and impacted demand.
“Lavish gifting” banned for businesses in China in 2012, reducing demand for Bordeaux Premier Cru Classe & Grand Cru Burgundy
2 major tenets affecting supply? 3 main factors affecting production, and therefore supply?
- PRODUCTION & LEGISLATION
- 1. Area under vine, 2. Human factors, 3. Natural factors
3 major factors impacting Area Under Vine
- Vine Pull Schemes (several hundred hectares since mid 1980s)
- EU Restrictions on new plantings (allowed growth of up to 1% of area already planted per year per state)
- Urbanization/Abandonment of Rural Areas
What human factors have contributed to an increase in production/supply?
- Relaxation of irrigation laws
- More modern, high density plantings
- Modern viticulture and winemaking techniques that increase quality & production (ie. site selection, clone selection, canopy mgmt, pest & disease control)
What natural factors have contributed to a change in production/supply?
- Weather/vintage variation (EU in particular - 14% decrease in 2017 due to hail/heat waves)
- Climate change (droughts, irrigation shortages [Chile])
What is the main legislation-related influence on supply? How might this impact supply?
- Increasing no. of GIs, esp in EU
- GIs may limit varieties, yields, viticulture & winemaking techniques
- GIs aim to bring supply and demand in line and reduce downward price pressure
- GIs may expand their area if demand permits (ie. Prosecco DOC). Quality may suffer.
- GIs may limit the amount of wine that can be released per year (ie. Comité Champagne or Sherry Consejo Regulador)
Consequences of over-supply?
- Downward price pressure
- Wine may sell below cost
- Wine may go unsold
- Sell cheaper private labels to retailers
- Brands may devalue
