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WSET Diploma > First Half of D2 Wine Business (No Marketing) > Flashcards

First Half of D2 Wine Business (No Marketing) Flashcards

1
Q

Name the social factors that affect Demand (4)

A

Changes in consumption
Changing consumer preferences
Changes in reputation
Changes in spending patterns

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2
Q

Name 4 reasons why consumption may be falling

A

Younger people drinking less wine
Health concerns
Changes in lifestyles (less wine during a meal)
Reduced availability of cheap wine (vine pull schemes)

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3
Q

Name the economic factors that affect Demand (3)

A

Strength of the economy
Fluctuations in currency exchange
Changes to the market

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4
Q

Name the legislative and political factors that affect Demand (5)

A

Law prohibiting or limiting sale of alcohol
Government policies to reduce alcohol consumption
Taxation
International Trade
Wine Laws

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5
Q

What are the main factors that affect the Demand of wine? (3)

A

Social factors
Economic factors
Legislative and political factors

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6
Q

What are the main factors that affect the Supply of wine? (2)

A

Production

Legislation

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7
Q

Name the factors that affect production

A 
Area under vine
Vine pull schemes
Restrictions on planting new vineyards
Abandonment of rural areas
Human factors (allowing irrigation in Spain)
Natural factors (vintage variation)
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8
Q

What are the main challenges of oversupply?

A

Prices fall so consumers are favoured

Producers may be required to find new routes to market

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9
Q

What are the main challenges of undersupply?

A

Loss of brand loyalty and strained relationship. Producers can lose contracts. Wine increases in premium but not at lower level.

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10
Q

What is the definition of supply chain?

A

Network of organisations and activities involved from the creation of a product through to its distribution and sale to the final consumer.

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11
Q

What are some costs involved with Vineyard Establishment? (7)
What are these type of costs called?

A 
Surveying the land - satellites/soil samples
Site Clearance
Building access roads
Buying and planting vines
Installation of drainage of irrigation
Protection from weather or pests
Buying machinery and equipment

Capital Costs

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12
Q

What are some costs involved with vineyard management? (5)

A 
Labour 
Machinery and running costs
Vineyard treatments - agro chemicals
Water 
Electricity
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13
Q

What are some winemaking costs? (8)

A

Labour - small number of skilled staff
Machinery and running costs
Winery materials - sugar for enrichment, deacidifying agents etc
Bought in fruit - If not growing, significant cost
Water - Cleaning
Electricity - Refrigeration, presses, pumps etc
Maturation - Price of oak, loss of cashflow
Packaging - bottles, closures, bottling line

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14
Q

What are the ways of transporting wine in bottle in order of most expensive to least?

A

Air
Road
Rail
Sea

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15
Q

In 2016 what percentage of the worlds wine was shipped in bulk?

A

38%

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16
Q

How is wine in bulk stored?

A

In plastic flexitanks within a standard steel shipping container
Non-flexible ISO tanks

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17
Q

What is the key advantage of transporting by bulk?

A

The wine is much lighter than in bottle and thus is more efficient.
Therefore there is less of a fuel requirement so is cheaper and more environmentally friendly.

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18
Q

What is one major disadvantage of transporting by bulk?

A

Only suitable for moving large volumes of the same wine

If less than 15000 bottles there is no cost advantage over transport in bottles

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19
Q

What are some costs involved with transportation of wines? (3)

A

Transportation costs - bottle or bulk/ land sea air
Insurance
Importation costs

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20
Q

What are some costs involved with the Sale of wine (6)

A

Property costs - buying or leasing, furnishing
Labour - staffing, more expensive for specialist retailer
Equipment - till system, fridges
Storage costs - wine fridges, warehouses
Delivery costs - expensive to transport, often set fees
Margin at point of sale

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21
Q

What are some costs involved with Marketing (3)

A

Labour - in house team, external company, member of industry association VDP, Consorzio
Design and production of bottles and labels
Marketing Campaigns

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22
Q

What is the advantage of using a bonded warehouse?

A

Importing companies can avoid duty and allow it to be paid by the consumer who wishes to purchase the wine. This can help cashflow.

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23
Q

What are the methods of mitigating the effect of exchange rate fluctuations? (7)

A

Options - Reserving wine
Fixing the price in the currency of the importer at the date of ordering
Buying currency to cover specific orders
Entering a contract to fix the exchange rate
Trading in USD/EUR - Stable currencies
Opening a foreign currency account in a local bank
Opening an account in an overseas bank

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24
Q

Name the 8 types of business involved with the production of wine

A 
Estates
Growers
Grower-Producers
Merchants
Co-operatives
Custom Crush Facilities
Virtual Winemakers/Wineries
Conglomerates
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25
Q

Describe an Estate

A

An estate is a producer who produces wine entirely from their own vineyards.

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26
Q

What are the advantages and disadvantages of estates?

A

Estates keep control over the entire process
All the profit belongs to the estate
Marketing benefits - story of wine

Cost of managing the vineyard and winery
Large portion of risk if there is a bad vintage or disaster
Larger estates are more viable than smaller due to economies of scale.

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27
Q

What are the advantages and disadvantages of growers?

A

Can concentrate entirely on producing the best quality fruit
There is better cash flow as payment is due when grapes are sold.

At risk from vintage variation
At risk from supply and demand fluctuations

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28
Q

What options does a grower have to sell their grapes? What are the adv and dis of both.

A

Enter into a contract with producer
ADV:This gives certainty of given price and gives security which leads to strong working relationships
DIS: Many contracts specify the grapes must be at a certain quality or risk being rejected or a lower price paid.

Sell to the spot market
Can offer higher risks but also greater rewards. Spot sellers can achieve a better price if there is a shortage of a particular grape or lower if there is an abundance

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29
Q

Define a Grower-Producer, where are these common?

A

A grower-producer will produce their own wine but will then sell it to a merchant to mature and bottle.

Burgundy

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30
Q

What are the advantages of being a grower-producer

A

Do not incur the costs of maturation or marketing

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31
Q

What are the disadvantages of being a grower-producer

A

The grower loses control over the final style of the wine and how it is marketed.
They will receive a smaller profit than if they were to sell the wine.

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32
Q

Name a prestigious grower in Napa Valley, what do they grow?

A 
Andy Beckstoffer (Beckstoffer vineyards) 
Cabernet Sauvignon on prime sites
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33
Q

Describe a Merchant

A

A body that buys immature wine, matures it and then sells it under their own label. (Negociant)

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34
Q

What is the chief risk to merchants and how have the overcome this?

A

They have little control over grape growing or winemaking processes. Many now produce their own wine and provide technical support to their suppliers to ensure quality

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35
Q

What are the advantages to being a merchant?

A

They do not have the expense of owning or maintaining vineyards, very beneficial in Burgundy or Champagne where land price is high.
There is flexibility within bad vintages to buy from different growers or even turn to the spot market.

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36
Q

Define a grower merchant and name 2 famous examples

A

A grower-merchant is a body that produces wine from their own vineyards and also buys in grapes

E.Guigal - Rhone
Domain Dujac - Burgundy

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37
Q

Define En Primeur

A

En Primeur is a method of selling wine before it has been bottled. Purchasers buy the wine when it remains in barrel and only receives it once it has been bottled. It has been long associated with merchants who would buy wine in advance and bottle it themselves.

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38
Q

What is the attraction of En Primeur for producers in Bordeaux?

A

It allows for better cash flow than if they waited to sell in bottle as the wines take a long time to mature.

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39
Q

What is the attraction of En Primeur for purchasers?

A

It should be easier and cheaper to buy the wine at this stage and in theory the price of the wine should go up (not always the case)
This may be the only way to buy certain wines that are produced in limited quantities.

40
Q

What areas around the world have created an En Primeur system similar to Bordeaux?

A

Burgundy
Super Tuscans
Rhone
Vintage Port

41
Q

Define a Co-operative

A

A Co-operative is a body that owned buy a group of growers that produces and sells wine from grapes grown from its members.

42
Q

What are the advantages to a co-operative?

A

Finances can be pooled together
Access to expert viticultural advice provided
Access to marketing, packaging and sales services

43
Q

What do all co-operatives has in common in terms of management? What are the disadvantages?

A

Democratic control
Decision making processes can be slow and cumbersome as members must be consulted before major decisions can be made. Decisions may not also be to the liking of individual members.

44
Q

Name a quality focused co-operative

A

La Chablisienne - Chablis

45
Q

What are two main types of coop?

A

Volume focused - Purely just make the wine and pay on volume with profits going to the members
Quality focused - Pay on quality of fruit and invest some of the profits in latest technology, research and marketing

46
Q

Define Custom Crush

A

Custom Crush is a variant of the co-operative mostly found in North America.

47
Q

What is the main difference between custom crush and coops?

A

In custom crush the growers do not own the facility but rather pay each time for its services.
There is none of the downsides that are associated with coops
The finished wine is returned to the grower who can market it as they like and take the sales profit.

48
Q

What are the advantages of custom crush?

A

No need to invest in expensive equipment
Can focus on grape growing and marketing
Benefit from expertise of professional winemakers

49
Q

What are the disadvantages of custom crush?

A

The grower is handing over their wine to a third party so it is important that they have a good working relationship so that the needs are clearly understood.

50
Q

Define a Conglomerate

A

A conglomerate is essentially a very large company

51
Q

Name the largest conglomerate and what brands they own

A

E & J Gallo

Gallo family vineyards, Barefoot and Carlo Rossi

52
Q

What is the main difference between the wine industry and the spirit industry?

A

The wine industry is heavily split with many many companies owning a small share of the total production and sales while the spirit industry has a few large players.

53
Q

What are the advantages of being a conglomerate?

A

They often own smaller businesses across the various stages of supply chain.
They can afford to set up regional offices in markets that are important to them
Their size and influence give them the ability to drive a hard bargain when buying grapes/wine or selling to retailers

54
Q

Name a luxury brand conglomerate that has bought into the wine industry.

A

LVMH.

55
Q

What are the different ways of getting wine to the point of sale?

A 
Selling to retailers
Appointing a distributor
Establishing a joint venture
Use a broker
Selling directly to consumers
56
Q

What are the advantages and disadvantages of selling directly to retailers?

A

There is no intermediary costs and profits are better for both parties
Producers can choose what retailers to sell to so having control over marketing (not possible with large supermarkets)

There is an administrative burden for producers: time/staff/collection/delivery/duties/financial risk
Understanding a foreign market

57
Q

Define a distributor

A

A distributor will buy wine from multiple producers and sell it to a range of retail and the on trade

58
Q

What are the advantages of a distributor?

A

A distributor will have knowledge of the market they are in.
They will be able to market the wine to the appropriate markets.
They will help with administrative burden and will usually absorb risk of transit
They are helpful when there is a language barrier
They will have experience dealing with duties.
They have greater resources to promote a wine or producer.
Being part of a large portfolio that has premium names can increase exposure.

59
Q

What are the disadvantages of a distributor

A

There is a cost and will reduce the producers profit
The marketing strategy of the distributor may not reflect the producers brand image if not selected carefully.
The producer become one of many clients
Large distributors may only work with large producers
Taking the time to find the right distributor takes time.

60
Q

What is a joint venture?

A

A joint venture is a company that is set up by multiple companies at different points along the supply chain or multiple companies that do not directly compete to pool resources and have greater control over their route to market.

61
Q

Name a UK joint venture

A

Mentzendorff - Bollinger & Fladgate Partnership (Port)

62
Q

What is important for the success of a joint venture?

A

The companies must be of comparable size
Contractual agreements must be carefully drafted outlining responsibility and obligations
If the joint venture does not work this makes it harder to leave than if they had appointed a distributor.

63
Q

What is a broker?

A

A broker is some areas is just a distributor but in a true sense a brokers are independent intermediates that represent neither party and merely make deals happen.

64
Q

What are the advantages of a broker?

A

They have little overheads so they charge smaller fees than a distributor.
They have intimate knowledge of a specific market
Saves the parties time by bringing buyer and sellers together.

65
Q

What is the name for brokers in Bordeaux?

A

Courtiers

66
Q

What are the four main options of selling directly to consumers?

A

Cellar door
Events
Wine clubs
Online

67
Q

What are the advantages of cellar door?

A

Story of wine
Tasting opportunities
Opportunities for wine tourism income (tours)
Larger profits
Builds brand awareness and allows for word of mouth marketing

68
Q

What are the challenges of cellar door?

A

Hiring trained staff
Possibly unfit location
Takes away from time in vineyard or concentrating on other routes to market.

69
Q

What are the advantages of events?

A

Attracts a larger number and wider range of people
Tasting opportunities
Word of mouth marketing

70
Q

What are the disadvantages of events

A

Fee to exhibit wine
Travel expenses and staff to run the stand
Competing with other producers

71
Q

What is a wine club?

A

A wine club is a club in which members are offered the opportunity to purchase wine at reduced prices.

72
Q

What are the benefits for the consumer of a wine club?

A

Access to wines not usually available
Free tours and invitations to events
Easy access to the wines that they enjoy

73
Q

What are the advantages of running a wine club for a producer?

A

It can be an easy way to sell a lot of the wine

Useful for marketing purposes

74
Q

What are the challenges of running a wine club as a producer?

A

Newsletters
Details about wines
Extra staff for a processing of orders
Liability of broken wine in transit

75
Q

Name a prestigious producer who uses a wine club in Napa Valley.

A

Screaming Eagle

76
Q

What are the challenges of doing online sales?

A

Delivery considerations

Website design and a few staff to run and process

77
Q

What are the 8 different types of Retailers?

A 
Supermarkets
Deep Discounters
Convenience Retailers
Specialist Wine Retailers
Hybrids
Online Retailers
Global Travel Retail
Wine Investment Companies
78
Q

What are the 2 different types of bar for wine sales?

A

Specialist wine bars

General Bars

79
Q

What are the 3 different types of restaurants?

A

Non-destination Restaurants
Casual Dining
Fine Dining

80
Q

What countries operate a monopoly system?

A

Sweden and Canada

81
Q

What is the government monopoly store called?

A

Systembolaget

82
Q

What is the aim of a monopoly system?

A

To limit alcohol consumption

83
Q

Describe the process of systembolaget choosing a new wine

A
  1. Issue tender request
  2. Wines are submitted
  3. Tasted Blind
  4. Chemically assessed to assure same sample if chosen
  5. Market

Lengthy process.

84
Q

What is the advantage for a small producer trying to enter a monopoly market?

A

It gives the same route to market as a large producer so is fair
Large contracts if won

85
Q

Why was the three tier system in USA established?

A

Between 1919 and 1933 the Volstead Act prohibited the production, sale and consumption of alcohol. The three tier system was introduced on repeal to prevent the saloon days from returning.

86
Q

What is the main aim of the three tier system?

A

To prevent direct sales from producer to retailers to prevent monopolies.

87
Q

What are the three tiers in the three tier system?

A

Suppliers
Distributor
Retailers

88
Q

What does the three tier system prohibit?

A

Cross ownership between most retailers and the upper two tiers.

89
Q

What are the 3 categories that a state can fall under?

A

Control
Open
Franchise

90
Q

How many control states are there in the US

A

17

91
Q

What are 2 examples of a control state

A

Idaho has a monopoly on off-premise sales of over 16% abv

Michigan has a monopoly only on wholesale sales of spirits.

92
Q

What is a franchise state?

A

A franchise state is one where there is strong laws to restrict the freedom of suppliers to change distributors- often a lifetime appointment.

93
Q

What are the laws in Connecticut?

A

Franchise Law
Restricts number of off-premise licenses to population
Prohibits quantity discounts by distributors
Minimum bottle pricing
Until recently no sale of alcohol on Sundays

94
Q

Briefly describe consolidation within the three tier system

A

Distributor numbers are falling
US Winery numbers are rising

Creating a bottleneck and is a disadvantage for smaller producers who can find themselves lost in a portfolio

95
Q

What has consolidation in the three tier system encouraged?

A

Direct to consumer sales

Comes with logistical, financial burden and need to comply with state laws.

WSET Diploma (13 decks)

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