P3 Flashcards
FINE WINE
A fine wine is one that usually comes from a classic region of production and is made by a top producer from that region. It is usually among the best examples of type, is made usually in limited quantities, is usually capable of extended ageing, and is expensive on release and builds value on the secondary market.
Wine Consumers
Anyone who buys or consumes wine. Many different kinds of consumers, with different levels of wine knowledge. The majority of consumers are low-involvement consumers, whose knowledge of wine and the wine industry is low and who are actively not interested in acquiring further knowledge (Limited Consumer Knowledge = LCK). At the other extreme are consumers with greater knowledge (Greater Consumer Knowledge – GCK) who are more diversified in their consumption and .
NEXT GENERATION CONSUMER
The next generation of consumers are those not consuming wine now; this includes younger consumers (“Gen Z” - less than 25 years’ old), but also consumers of all ages in emerging or unestablished markets, as well as consumers in mature markets who are not currently drinking wine.
WINE INDUSTRY
Refers to all businesses involved in the production, distribution, and selling of wine, as well as to organisations or individuals communicating about wine or supplying components to wineries (labs, bottling manufacturers, etc)
WINE QUALITY
Wine quality can be measured by elements like concentration of fruit, the balance of that fruit with structural components, complexity and length of finish, as well as being fault free. A wine that is of ‘better quality’, is one that has a greater degree of these elements than most, and it will usually have a high degree of typicity.
GLOBAL WINE MARKET
Consists of all sales and purchases of wine made around the world, whether these trades are made within the wine trade or to an end consumer. Estimated as 260 MHL in 2020 (US$417B in 2020)
Small Wine Estate
Wine producer growing and making its wine (as opposed to purchasing fruit). “Small” will be relative to the region, but generally <10,000 cases; in some areas, <5,000 cases
Intermediaries
Layers between the producer and consumer, including brokers, importers,distributors, negociants, retail / restaurants. Can add both cost and value through selection/expertise. In many markets, intermediaries are mandated by law (ie US - three tier system, Swediesh systembolaget) that create either monopoly or business advantages for the tier. In others, tradition reinforces their role (ie courtiers in Bordeaux)
Producer
Business that is creating the wine product. Ranges from domaine grower/producers to v. large scale winemakers such as Accolade or Gallo.
On Trade
Wine selling location where the wine is consumed at the premise. Ranges from self-serve enomatic machines in grocery to high end Michelin restaurants with trained staff.
Off Trade
Wine selling location where the wine is taken away and consumed offsite. Ranges from grocery to specialists.
Global Supply and Demand
According to OIV data, was last in balance in 2017, with the exceptionally low production match demand. 2018 was the most recent high volume vintage with droughts, fires, and frost affecting yields in 2019 and 2020 bringing production almost to balance. 2020 consumption dropped as a result of lock downs and significant demand disruptions
Supply / Demand imbalance
Mismatch between supply and deman that creates price inflation or depreciation. Will have regionally specific inbalances or grape variety imbalances as the result of the very long time between planting and production (ie Syrah in California, Chardonnay in Australia)
Consolidation
The combining of single entities into a more effective or coherent whole. Process in which larger (usually) companies purchase smaller competitors OR purchase for vertical integration. Goal is to increase market share or create/increase competitive advantage. Happening in every tier of the industry. Generally the most consolidated tiers are those with the highest barriers to entry (ie glass manufacturers). Regulation may limit consolidation (ie retail tier in CO or MA in the US) or encourage monopoly conditions (ie Systembolaget)
Brand Manager
Role at a supplier or importer responsible for both short term sales/marketing planning as well as long term brand positioning/brand standards. Generally helps manage: distribution strategy, allocation of resources for sales/marketing programs and execution of marketing (social media, advertising, PR), supplier relationships, 5 and 10 year production targets, performance analysis. This role at a distributor is responsible for executing the market execution of national or global strategy for their portfolio of brands.
Brand Performance
Performance of a brand vs. set targets, usually based on the identified KPI’s
Key Statistics
KPI’s (Key Performance Indicator): Stage of brand development (ie mature vs. launching) will determine what KPI’s are prioritized. Often includes: Cases, Growth %, Revenue/Case, Profitability, Points of Distribution (PODS), On/Off channel split (Quality of distribution), Turn / Velocity (cases/account), Inventory levels (MOH), Performance vs. targets
Consumer
Purchaser of wine. Often segmented by demographic (age/generation, HHI (wealth), region, education levels) or psychographic (relationship to product, ie engaged vs. casual)
Greatest ROI
ROI = return on investment. Measurement used for evaluating the success of sales/marketing programs. Notoriously low/challenging to achieve in the production side of the industry. ROE = return on ego a motivator for a lot of wealthy entrants to the industry. As private equity $$ moves into regions (ie Napa, Sonoma, Oregon to a lesser extent), ROI becomes a key metric. For long term investors, focus more on other measures. Other aspects of the industry will have better opportunities for ROI
Export Director
Position at a producer responsible for global sales strategy and importer relations. Will set and/or monitor the global pricing standards and work with the importer for channel and distribution strategy as well as annual sales targets. Will monitor inventory and assist with market work.
Established Wine Company
A wine company that has already achieved profitability and built brand awareness. Will be focused on customer acquisition and retention as well as ongoing increase in revenue and profitability
Market Potential
The upper limits of the market for a specific product at a certain time.
Risks
External threats that may make business more challenging. Usually macro impacts such as weather/climate change or economic / political turmoil, regulatory changes.
Commercial standpoint / Short term success
Tied to revenue and profitability. For a Bordeaux Chateau focused just on commerial success, might release all or most wine to market, agressively raise price in top vintages, and cut costs where possible
Brand building standpoint / Long term success
Tied to awareness and brand positioning. For a Bordeaux Chateau focused on long term success, might choose to keep inventory back for later release, moderate price increases to ensure a more even increase and spend money for activities like visiting top markets for trade work.
Profitable
Business that is able to reliably have a profit after all expenses/debt servicing is complete.
Wine industry supply chain
Sequential process of production and distribution of an item
Fragmentation
Breaking into various parts. Opposite of consolidation
Virtual Winery
A label that has no branded winery or physical vineyards - low capital requirements usually with more focus put towards brand development, sales & marketing.
Strong wine brand
A brand with strong consumer recognition, high turn, increasing sales/velocity/price and with demand ahead of supply.
Wine labels
Means any descriptive matter, written, printed, marked, embossed or impressed on, or attached to the packaging, that gives information to consumer about product.
Trend
A general direction through time. Can be short or long term
Price promotion
Limited time price discount with the goal of driving increased sales volume. Very important tactic in grocery store distribution (55% of wine sales at Waitrose are on promotion), but also important in burgeoning online sales channel. Will often be promoted against a “false frontline” (a falsely high SRP cross through to show a large discount). Various types of promotions include: BOGO (buy one, get one - Publix grocery stores in FL; Nickel Sale at BevMo), linked promos (ie buy XYZ Zinfandel, get $5 off steak). With grocery loyalty programs, have ability to target promotions via companies like Catalina (ie if someone buys Cavit, feed them a coupon for Santa Margherita). Regulations manage what type of promotions are allowed, usually connected to health concerns. In UK, unit minimum pricing helps set price controls. In other markets, BOGO’s or happy hour pricing are illegal. In some markets, mandatory minimum mark-ups control pricing (ie in Ohio, have a mandatory 33% mark-up) while in others, selling below cost (only done with big brands as loss leaders) is allowed. in online, most promotions are tied to volume purchase or free shipping. Sainsbury’s does 50% off during key periods (ie half price Champagne at the holidays) In online channels, some sophisticated dynamic pricing models that adjusts promotions offered and pricing based on data about the person shopping.
Own labels / Private Labels
Products manufactured by one company for sale undet another companies brand. “Own Label” specifically carries the brand of the retailer that is carrying it (ie Kirkland, Tescoe, etc.). Private Label is 24.2% of UK Grocery - HUGE part of the market. Covers the spectrum from lowest price to top tier (ie Chave Hermitage for The Wine Society). Marks & Spencer is almost entirely Private Label.
Exclusive labels
Control brands: Owned by the supplier, but exclusively carried by one retailer.
Large retailer / chain retailer
Multi-unit retailer, usually located in multiple markets. Often able to negotiate discounted purchasing through volume commitments and work at lower margins (ranging from 12% at Costco, 18% at Trader Joes, 28% at Harris Teeter) that allows them to have lower prices vs independent wine shops (generally 33% margin). Suppliers often make HQ calls rather than sell through distributors (even though the actual sales happens through the distributors) and work to offer price and supply consistency across the markets. Large suppliers work to have very close relationships - ie Gallo is a wine “category captain” for Kroger, the largest wine purchaser in the US (though Costco also says they are largest) which means they set the shelf matrix and are able to put their own products in better placements.
