D2: Types of business engaged in the production of wine (2)

Question 1

An estate producer produces wine exclusively from their own vineyards (vineyards that are wholly owned or leased) on of the key advantages to estate production is :

Answer 1

1)the estate retains control over the entire process, from growing the grapes to producing and bottling the wine

– they can therefore choose the style of wine made and ensure quality control at every stages

2) all of the profit from the production of wine belongs to the estate

Question 2

There are also marketing benefits for estate wines

Answer 2

consumers looking for authenticity are often drawn to wines that are estate bottled (although the terms used for this vary from country to country and are not always legally controlled)

– this enables them to tell the ‘story’ of the wine

Question 3

The main disadvantage of estate producers is the cost of managing the vineyards

Answer 3

some estates simply cannot afford all the equipment they require and so may need to hire it

– also if frost or damage, crop and production decrease which can lead to selling the wine at higher prices than the consumers are willing to pay

Question 4

Some growers choose not to produce their own wine, concentrating solely on growing grapes which they then sell to a winemaker or merchant

Answer 4

okido

Question 5

why ?

Answer 5

• attractive to owners of small vineyards who cannot justify the cost of buying or hiring expensive winery equipment and do not want to have to market and sell their wine

– generates better cash flow because payment is due when the grapes are sold rather than when the wine is made or sold

Question 6

Growers can focus all their efforts on producing the best possible grapes and this approach can be the source of some very high quality fruit which is prized by winemakers

Answer 6

A number of growers ave made a very succesful business fro growing popular grape varieties in prestigious wine regions
* eg: Andy Beckstoffer and Beckstoffer vineyards who grow cabarnet sauvignon on premium sites in Napa Valley and elsewhere in california

Question 7

Vintage variations are a risk as grower:

Answer 7

1) risk of nothing to sell

2) exceed of grapes

Question 8

Contracts with producers:

Answer 8

1) gives the grower certainty of selling its grapes at a given price
2) the contract can include rules about the condition of the grapes or no deal or cheaper grapes
3) contract can be for one vintage or more

Question 9

However its not unheard that even with longer contracts the producer or merchants simple terminates the contract and buy grapes elsewhere.

Answer 9

At the other side can long contracts lead to a strong working relationship between the parties and producers or merchants may actively work with growers to produce the best quality fruit.

Question 10

The other option open to growers is to sell the grapes on the spot market.

Answer 10

This approach can offer higher risks but also greater rewards
– if excellent harvest: grapes can be worth more than contract

– bad harvest: grapes can be sold at prices below the contract offer

Question 11

Growers- producers:

Answer 11

1) Some growers also produce wine from their grapes

2) then sell it to a merchant to mature and bottle
- - this approach is still fairly common in Burgundy today

3) the advantage to the grower producer: they do not need to incur the cost of maturation (barrels, cellar space) or marketing the wine
- - their hapy if merchants do this part

4) disadvantage: smaller profit, loose control over the style of the finished wine

— merchants also often blend together wine from different producers

Question 12

Traditional role of merchant (french négociant) was to buy immature wine, mature it and sell it under the merchant’s name.

Answer 12

In many cases they would blend the wines of different producers, prior to bottling

Question 13

The chief risk to merchants:

Answer 13

1) little control over the grape growing of winemaking process
2) for this reason, many now produce their own wine from grapes or juice and provide technical support to their suppliers to ensure that the grapes, juice and wine they buy are of the required quality

Question 14

key advantage merchant:

Answer 14

1) they may employ viticulturalists to advise their suppliers
2) they do not have the expense (kosten) of buying and managing vineyards

3) benefical in burgundy, vineyards are expensive and seldom sold
- – micro négociants: specialise in small production wines, usual from individual vineyards, that often achieve super- premium prices

4) some work closely with particular growers, others wait to buy grapes on the spot market each year to be assured of the best quality fruit

Question 15

The fact that merchant can buy from different growers or producers provides some protection and flexibility in bad vitages

Answer 15

However in such circumstances, they may be forced to turn to the spot market to source grapes and pay higher prices

Question 16

In burgundy and napa it is very expensive for merchants to buy grapes,

Answer 16

therefore long term contracts are set up to be sure of grape source

Question 17

Guigal: grower merchant:

Answer 17

• produce grapes, make wines, but also wines from bought in grapes.
• • this allows merchants to produce a range of wines at all price points, which they can sell to a range of outlets

Guigal:

• produces one of the Rhône’s most expensive wines, such as their single-vineyard wines from the côte Rotie
• – but also produces wines from Crozes Hermitage and Gigondas and generiq côtes du Rhône from bought in grapes

Question 18

Domaine Dujac:

Answer 18

1) produces wines from their own grapes

2) produces wines from bought in grapes with the label Dujac Père et Fils

Question 19

Some merchants produce large quantities of wine and can therefore supply private label wines for supermarkets (deep discounters and bars/ restaurants)

Answer 19

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Question 20

Négociants (merchants) in Burgundy are much more involved in the production of wine than their counterparts in Bordeaux, who tend to deal more in wine that has already been made (whether in bulk or already bottled.

Answer 20

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Question 21

En Primeur:

Answer 21

1) selling wine before it has been bottled
2) Purchasers bu the wine whilst it is still in barrel and it remains in the producer cellar until it is ready for bottling
- - only receiving wine when it is bottled

3) this was fo rcash flow, otherwise too big sum of money was tied up in the cellar
- - especially for Bordeaux

Question 22

Why en Primeur for purchaser:

Answer 22

1) The attraction of en primeur is that it should be cheaper or easier to buy the wine at this stage
- - in theorie the wine will go up in price once he is matured and bottled

2) Prices can also go down or up this is not guaranteed
3) if the wine is in limited quantities, this can be the only chance to buy

Bordeaux encouraged other regions to create their own system wines sold and the wines that are sold with this system tend to be the ones that are barrel aged for 18 months or more (supertuscans, vintage ports

Question 23

Co operatives are owned by a group of growers and produce and sell wines made from grapes grown by their members.

Answer 23

The benefit for the members is that they can pool their financial resources, meaning they can afford more expensive winemaking equipment
– and expertise that they could not afford if they were working individually.

**Many Co operatives also give their members access to expert viticultural and winemaking services and advise as well as marketing, packaging and sales services

Question 24

As co operatives can make large volumes of entry- level wine, another option is to make own label wines.

Answer 24

examples include la chablisienne in Chablis and Mont Tauch in Fitou

Question 25

Co- Operatives are owned by their members.

Answer 25

They have different management structures but all will adhere to the principle of democratic control: * management must consult members before major decisions are made (that's the reason why making decisions can be slow)

Question 26

how are members paid ?

Answer 26

1) can be paid a share of the annual profit 2) they can wait for someone who comes to buy the grapes, so they can calculate that on weight - - can be benefical for small wineries, but some are not quality-focussed and may struggle to survive 3) now many co operatives are quality- focused * they do not pay all their profits back to members -- instead they invest in the latest technology, research and effective marketing and labelling (these are some of the most dynamic wine-producing businesses, producing very good quality wine which can be excellent value)

Question 27

Custom Crush Facilities:

Answer 27

1) these are variant on co operative model found mainly in North America (particularly in California) * difference is that growers do not own the facility but rather pay each time they require its services 2) depending on their size, custom crush facilities make anything from super-premium, small batc wines to inexpensive large production wines 3) the finished wine is returned to the grower who can then market it however they like and take the sale profit

Question 28

what is the advantage of the grower if they use custom crush facilities:

Answer 28

1) they do not need to invest in expensive equipment and can focus their attention on grape growing and marketing. also can benefit from the expertise of a professional winemaker 2) also trust is needed and a good relationship

Question 29

Virtual winemakers:

Answer 29

1) mainly in north america 2) is for wiemakers who do not own vineyard land or winemaking facilities. - - they vary in scale from small batches of super premium to organisations which create a brand of wine, sourcing fruit or juice from a large number of sources 3) Buy in grapes or juice and may rent facilities in another winery or employ the services of a custom crush facility

Question 30

Whilst the spirit and beer industries are dominated by a small number of major companies, the wine industry is mainly made up of much smaller businesses.

Answer 30

Nevertheless, there are still some very large companies (conglomerates), some of which have interests across all alcoholic products, not just wine

Question 31

according to euromonitor, the top 10 wine-producing companies in 2016 were:

Answer 31

1) E&J Gallo USA (2.7% of world production) 2) Constellation brands, USA (1.7% of world production) 3) The Wine Group: 1.5% 4) Treasure Wine Estate, Australia: 1.12% 5) Viña Concha y Toro, Chile 1.03% 6) Castel Frères, France 1.02% 7) Accolade Wines, Australia 0.97% 8) Pernod Ricard, France 0,97% 9) Grupo Peñaflor, Argentina 0,90% 10) FeCoVitA, Argentina 0,7%

Question 32

These companies own some of the largest wine brands in the wordl: eg:

Answer 32

1) Concha y Toro owns Casillero del Diablo, Con Sur and a number of other Chilean brands as well as Trivento in Argentina - - These brands cover the full range of price points, meaning concha y toro have access to a wide variety of outlets and potential customers

Question 33

Conglomerates often own many smaller businesses across the various stages of the supply chain, from production (eg estate wineries, merchants) to distribution (distributors)

Answer 33

They can also afford to set up regional offices in markets that are important to them to market and sell their wines in that country or region. * all of this gives the conglomerates greater control at all stages of the route to market and reduces the need of intermediaries (tussenpersonen) ** their size and influence also mean that they have significant negotiating power and can strika a hard bargain (koopje) when buying grapes, juice and wine from suppliers and when selling to retailers

Question 34

There is an increasing trend for major companies from outside the wine indurty to buy into the sector. A number of prestigious wine brands have been bought by companies specialising in luxury goods eg:

Answer 34

1) Moët Hennesy-Louis Vuitton who's wine brands includes: - Moët & Chandon - Krug - Veuve Clicquot - Cloudy Bay 2) Also insurance companies like AXA: - have a number of top estates in Bordeaux and Burgundy - Port house Quinta do Noval