D2 Wine business - 2020 Flashcards
(127 cards)
1
Q
What are costs that contribute to the price at which producers and retailers would like to sell the wine?
A
Costs of
- growing the grape
- producing the wine
- getting it to the end consumer
2
Q
How is the price of the wine determined?
A
By the concept of supply and demand.
3
Q
What happens when supply of the wine exceeds demand?
A
Prices tend to fall as consumers have a greater choice of cheaper alternatives. Producers may therefore need to lower their prices (so reducing their profits) to remain competitive. However, a fall in prices may lead to increased demand which may benefit producers in the long run.
4
Q
What happens when demand of the wine exceeds supply?
A
Prices are likely to increase. While consumers may be willing to pay higher prices for some wines (generally if they perceive that there are no alternatives available), for other wines consumers may not be willing to pay more and may simply switch to another wine or a different alcoholic drink altogether
5
Q
What factors influence the demand for wine in general or demand for wine of a particular country, region, grape variety, style of price?
A
A variety of social, economic. legislative and political factors. These are alle connected and cannot be considered in isolation.
6
Q
What are social factors that influence the demand for wine?
A
- changes in consumption habits
- changes in consumer preferences
- changes in spending patterns
7
Q
What is the IWSR?
A
International Wines and Spirits Record
8
Q
What can you tell me about changes in consumer habits when talking about social factors?
A
In general, wine consumption has been falling in traditional wine-drinking countries and rising in others.
In the USA the consumption is rising due to increasing globalisation of the foods and drinks industry as well as both increases and improvements in wine production in the domestic market.
In China it is a sign of wealth to move from local products to wine.
9
Q
What are reasons where wine consumption is falling?
A
- younger people drink less wine
- health concerns (e.g. Loi Evin in France)
- changes in lifestyle
- reduced availability of cheap wine
10
Q
What can you tell me about changes in consumer preferences when talking about social factors?
A
- Rose has become popular
- Sparkling wine has become popular
- There is a demand for lower-alcohol wines
- There is less demand for fortified wines
- There is less demand for medium-sweet German wines
11
Q
What can you tell me about changes in reputation when talking about social factors?
A
If a Key Opinion Leader has a good review of the product, this is very valuable for the producer and can encourage them to increase their prices.
A bad review has, if any, little impact on the price of the wine and this will take years.
12
Q
What can you tell me about changes in spending patterns when talking about social factors?
A
In some markets, such as in Germany and UK, consumers are unwilling to pay more than the lowest price possible (Price Sensitive Market). In the USA many consumers are willing to pay above the minimum price in order to buy a wine which they perceive to be of better quality.
Competition is fierce in price sensitive markets so many producers try to build up ‘brand loyalty’ so they can up their prices.
Spending patterns are slow to change. Premiumisation has been a trend, this means that consumers are willing to pay more for individual bottles of wine, often because they are buying less wine by volume
13
Q
What are economic factors that influence the demand for wine?
A
- strength of the economy
- fluctuations in currency exchange
- changes to the market
14
Q
What can you tell me about the strength of the economy when talking about economic factors?
A
Sales of wine will change with the level of consumer disposable income.
15
Q
What can you tell me about fluctuations in currency exchange when talking about economic factors?
A
Changes in exchange rates have a significant effect, especially in price sensitive markets.
If a wine-exporting country’s currency gains value compared to that of the importing country, a producer has two options: increase the price of the wine and therefore risk losing sales to another country’s wines or keep the price stable and lose profit.
In contrast, if the exporting country’s currency loses value against that of an importing country, a wine exporter can either lower the price of the wine, which should boost sales, or keep it stable and improve profits for future investment
16
Q
What can you tell me about changes to the market when talking about economic factors?
A
Markets are changing and when companies or products disappear, the supply decreases, creating opportunities for the competition. If supply is limited, it may also be possible to raise prices. However, the introduction of new lower-priced or better-value wine may cause a fall in demand for other similar products and may force producers to lower their prices to remain competitive or look to alternative markets
17
Q
What are legislative and political factors that influence the demand for wine?
A
- Laws prohibiting or limiting the sale of alcohol
- Government policies to reduce alcohol consumption
- Taxation
- International trade
- Wine laws
18
Q
What can you tell me about laws prohibiting or limiting the sale of alcohol when talking about legislative and political factors?
A
For example state-owned monopolies or the USA’s three-tier system. Any such controls inevitably limit the supply of wine and usually increase prices. Other examples are minimal drinking age, or limiting the sale of alcohol to particular hours of the day
19
Q
What can you tell me about government policies to reduce alcohol consumption when talking about legislative and political factors?
A
For example, Loi Evin in France. Introduced in 1991, had greatly restricted the advertising of alcoholic drinks and is considered a significant factor in the reduction in wine consumption in France. As a result, France is not considered a market with growth potential.
The Scottish Government is the first to introduce ‘minimum unit pricing’. The minimum price of an alcoholic drink will be GBP 0,50 per unit.
Most countries impose a limit on the amount of alcohol that can be consumed before driving: Blood Alcohol Concentration limit. The imposition an tightening of drink-driving laws have been shown to reduce alcohol consumption
20
Q
What can you tell me about taxation when talking about legislative and political factors?
A
Sales tax (or VAT) applies to alcoholic drinks in the same way as other products, this is paid at the point of sale. Many countries also impose specific excise duties or taxes on alcohol, which are payable at the point of manufacture. Because level of duty usually varies between different categories of drink, it can influence demand. For example, the large difference between the excise duty on still (3,20/bottle) and sparkling wine (6,37/bottle) has greatly reduced the demand for sparkling wine. In Hongkong the excise duty has been abolished with the aim to become the 'wine trading hub' of East Asia.
21
Q
What can you tell me about International Trade when talking about legislative and political factors?
A
The value of wine exports has more than doubled during the last fifteen years. Trading relations can fluctuate over time. Many countries impose customs duties (trade tariffs). In the EU, member states can import and export products between themselves tariff-free. Tariffs can be reduced by trade agreements (South Africa and Chile - EU).
A country can also ban imports from or exports to a particular country (embargo). E.g. Russian wine imports have fallen considerably due to various trade embargos imposed for political reasons on Russia and by Russia.
22
Q
What can you tell me about wine laws when talking about legislative and political factors?
A
PDO and PGI can have a significant impact on the level of supply of wine.
The creation of a GI can increase recognition and demand for wines from that region and allow producers to increase the price of their wines.
In Europe, PDO rules can be very strict, limiting producers to certain grape varieties, methods of production, maturation periods and so on, whereas producers outside the EU are rarely subject to such limitations.
In China (2012) the government wanted to stop lavish gifting, the tradition of showing respect to business colleagues, customers or suppliers by giving gifts - the more expensive the better. Often these gifts were super-premium prices wines. Demand for those wines dropped almost immediately
23
Q
What are production factors that influence the supply of wine
A
- area under vine
- human factors
- natural factors
24
Q
What can you tell me about area under vine when talking about production factors?
A
Area under vine is the size of the vineyard planting. The greater the area under vine, the greater the volume of wine that can be produced. It has fallen in Europe in the 21st century.
There has been growth outside Europe and this is largely due to the establishment of new vineyard ares, particularly in China which now has the second largest area under vine in the world.
25
What are factors that influence the area under vine?
- Vine pull schemes (mid 1980) EU wine productions was greater than demand creating the 'wine lake'. Growers were paid to pull up poor quality vines
- EU restrictions on planting new vineyards. to reduce wine productions there was also a limit on planting new vineyards.
- Conversion of vineyard land to other uses. Wine grapes are a low value agricultural crop and growers may want to switch to higher value products
- Abandonment of rural areas. Rural economies are suffering from a lack of labour and investment and it is sadly not uncommon to see abandoned vineyards, even in prestigious wine regions
26
What can you tell me about human factors when talking about production factors?
The relaxation of laws banning irrigation of vineyards in Spain, which means that areas that were previously not able to support vines are now viable, and the increased use of more modern higher density planting have increased production in certain areas, which has offset the reduction in the area under vine.
Modern techniques, such as better site selection, clonal selection, improved canopy management and pest and disease control. have mad it possible to produce a greater amount of healthy grapes
27
What can you tell me about natural factors when talking about production factors?
Variation in weather conditions from year to year can also have a significant impact on the volume of wine produced. In Europe is weather variation very visible in vintage variation. Longer-term climate change is also threatening wine production, such as serious droughts in South Africa and California.
28
What are legislative factors that influence the supply of wine?
The main legislative influence on the supply of wine is the increasing number of GIs. Outside the EU there are systems such as American Viticultural Areas, Wines of Origin in South Africa and Geographical indications of Australia, these have none of the strict rules found in the PDO system of Europe.
One aim of GIs, especially in Europe, is to define the style of wine produced in a particular region. Another aim is to bring supply and demand more into line and so reduce the risk of downward price pressure.
In Europe PDOs have a governing body which helps set and enforce the rules. In the 1970s the French introduced the vin de pays system, which formed the basis of the European PGI system to offer greater freedom.
29
What are challenges is there is an oversupply of wine?
Global wine production has consistently exceeded global wine consumption. Prices tend to fall as consumers can easily find a cheaper alternative. Producers may end up with unsold wine in tank. However, they can also try to find new markets and outlets for their wine.
Also, an option is to bottle the wine under a different label and offer it to a supermarket, deep discounter, bar or restaurant as a private label wine.
I f a producer is forced to sell their wine at a lower than usual price, or if a retailer orders too much wine and the has to lower the price to sell it, this can devalue the 'brand image' of the wine and create lasting damage to the brand
30
What are challenges if there is an undersupply of wine?
A global lack of supply of wine is unusual although it an happen: for example, following the bad harvests across Europe in 2017. However, undersupply is more common in the case of particular wines.
If a producer is not having enough wine to sell, disappointing clients and leading to strained business relationships. If the producer has a contract with a large retailer, they may impose a financial penalty or cancel the contract if the required volume of wine is not available.
An excess of demand over supply would result in an increased price for the product.
31
What are different grape growing costs through the supply chain?
- Vineyard establishment
| - Vineyard management
32
What can you tell me about vineyard establishment when it comes to grape growing costs through the supply chain?
First of all, the land has to be bought. The prices reflect te land's potential to produce high-quality fruit and the name of the appellation within which the vineyard is situated. Scarcity of land increases the price. Other costs are for:
- surveying the land
- site clearance
- building access roads
- buying and planting vines
- buying stakes and wires
- installation of deep drainage channels and pipework
- establishing irrigation system
- protections against weather hazards
- protection from animal pests
- buying machinery and equipment
These costs are capital costs. These are high plus the vines take three years to production. To find a way to fund these capital costs, loans are an option (interest and capital repayment) or funding from investors (return on investment and share on profits).
Another option, if available, are subsidies in the form of tax incentives or lump-sum contributions
33
What can you tell me about vineyard management when it comes to grape growing costs through the supply chain?
Costs involved in running the vineyard are:
- Labour. With a balance found in the cost of labour and the capital costs of machinery
- Machinery and equipment running costs
- Vineyard materials
- Vineyard treatment
- Water
- Electricity
34
What are different winemaking costs through the supply chain?
- Winery establishment
- Winemaking costs
- Maturation
- Packaging
35
What can you tell me about winery establishment when it comes to winemaking costs through the supply chain?
Winery establishment is a capital cost. Costs are mainly in the equipment and building the winery
36
What can you tell me about winemaking costs when it comes to winemaking costs through the supply chain?
Winemaking costs are ongoing costs, they include:
- labour
- machinery and equipment running costs
- winery materials
- bought-in fruit
- water
- electricity
37
What can you tell me about maturation when it comes to winemaking costs through the supply chain?
The winery needs storage place for maturation. Also new oak barrels can be very expensive and add to the production costs. There is skilled labour needed to monitor the maturation.
There is the loss of cashflow by storing the wine for maturation.
38
What can you tell me about packaging when it comes to winemaking costs through the supply chain?
Bottles, closures, labels (plus design), cartons and pallets. Also a bottling line will be required, this can either be bought or rented (with the labour to operate it)
39
What are different transportation costs through the supply chain?
There are different costs involved in tranportation of wine:
- transportation of wine in bottle
- bulk transportation
- insurance
40
What can you tell me about transportation of wine in bottle when it comes to transportation costs through the supply chain?
Transportation of wine in bottle is the most common way. It is carried out by freight forwarders, most of them specialise in the transportation of wine. The specialist freight forwarder takes steps to limit the risk of loss or damage, such as using highly-specialised temperature-controlled shipping containers.
Four ways of transportation, most to least expensive:
- Air
- Road
- Rail (containerization)
- Sea (containerization) (slow)
41
What can you tell me about bulk transportation when it comes to transportation costs through the supply chain?
Bulk wine is either transported in plastic flexitanks or non-flexible ISO tanks.
One key advantage of bulk transportation is that the wine in tank is much lighter than in bottle, much more efficient en thus cheaper. Disadvantage is it is only suitable for moving large volumes of the same wine. If a single consignment is less than 15000 cases there is no cost advantage of transporting in bottle.
42
What can you tell me about insurance when it comes to transportation costs through the supply chain?
Insurance is needed during the journey. The party taking out the insurance should be the one which assumes the risk for loss or damage. Using a specialist freight forwarder should reduce the risk and many offer insurance as part of their service.
43
What are importation costs through the supply chain?
Other than customs duties and taxes, different countries also have different labelling laws. Like the exact abv or a health warning.
Distributors are employed to learn about different requirements and comply with them, to deal with foreign markets. They charge a fee, the margin. The margin is usually quoted as a percentage and is calculated as the profit divided by the revenue. Margins range from 5-25 percent. Distributors selling to hospitality are more expensive than those who are specialised in the retail sector.
44
What are sales costs through the supply chain?
- Property costs
- Labour
- Equipment and materials
- Storage costs
- Delivery costs
- Margin at the point of sale
45
What can you tell me about property costs when it comes to sales costs through the supply chain?
For both retail and hospitality the property costs are high. Either in capital investment and maintenance or in a lease with rent (and a possibility that the lease will end). Retail premises are often located in prime locations, and thus more expensive.
For online retailers, property costs will be lower as they only need to buy or lease warehouse space.
46
What can you tell me about labour when it comes to sales costs through the supply chain?
Labour costs vary according to the type of retail outlet. Supermarket labour is cheap, specialist wine retailers will employ highly knowledgeable staff and these people are more expensive.
Non-destination restaurants do not need to employ wine specialists, where as in fine dining there is even a head sommelier.
47
What can you tell me about equipment and materials when it comes to sales costs through the supply chain?
The requirements vary considerably between different types of retail outlet. Between a shop and a restaurant.
48
What can you tell me about storage costs when it comes to sales costs through the supply chain?
Either on the retail premises in expensive wine fridges or in the costs/lease of a warehouse plus the travel
49
What can you tell me about delivery costs when it comes to sales costs through the supply chain?
Delivery to the end consumer is one of the most expensive elements of the supply chain. Wine is heavy, fragile and there is a risk that bottles are broken
50
What can you tell me about margin at the point of sale when it comes to sales costs through the supply chain?
Retailers needs to make a profit, the amount of margin varies. Specialist wine retailers usually look for a margin of 30-50%. In many bars and restaurants, the margin can even be 66,6%
51
What are marketing costs through the supply chain?
- labour (either in-house, external marketing company or via industry association)
- design and production of bottles and labels
- marketing campaign
52
What is the impact of legislation on the cost of wine?
Taxes, duties, trade barriers, subsidies, minimum pricing and labelling laws. There are several ways in which a producer can delay to pay those costs or go around them.
Bonded warehouses: distributors hold stock and duties are paid when consumer wants to buy the wine (he then also pays the duties).
If import duty is too high the producer can decide not to sell the wine in that country
53
What is the impact of fluctuations in currency on the cost of wine?
Options to mitigate the effect of exchange rate fluctuations:
- Options: to take an option on a certain amount of wine at a certain price.
- Fixing the price in the currency of the importer at the day of ordering
- buying currency to cover specific orders
- entering a contract to fix the exchange rate
- trading is USD/EUR
- opening a foreign currency account in a local bank
- opening an account in an overseas bank
54
What types of business are engaged in the production of wine?
- estates
- growers
- grower-producers
- merchants
- co-operatives
- customs crush facilities
- virtual winemakers/wineries
- conglomerates
55
What are the characteristics of an estate in the production of wine?
An estate producer produces wine exclusively from their own vineyards, one of the key advantages is that the estate retains control over the entire process. And all the profit belongs to the estate.
Marketing benefits are: authenticity, story of the wine.
A disadvantage is the cost of managing the vineyard and equipping and running the winery. And when there is a difficult vintage, it may only be possible to produce a small volume of wine.
Larger estate tend to be more financially viable than smaller ones because of larger production of wines and larger vineyards are easier to mechanize.
56
What are the characteristics of growers in the production of wine?
Growers concentrate solely on growing grapes which they sell to a winemaker or merchant. This is particularly attractive to owners of small vineyards. It generates better cashflow because payment is due when the grapes are sold.
Growers are at risk when there is a difficult vintage and from fluctuations in supply and demand.
They have 2 options for selling grapes:
1. Enter into a contract with a particular producer. It gives the grower certainty although the grapes need to be of specific quality. Contracts also can be broken
2. Sell grapes on the spot market, higher risks and greater rewards.
57
What are the characteristics of grower-producers in the production of wine?
A grower-producer also makes the wine, but sells it to a merchant to mature and bottle. This approach is still common in Burgundy. The advantage is that the grower-producer does not need to incur the costs of maturation or of marketing the wine.
The disadvantage is that the grower-producer makes a smaller profit, than if they were to sell the finished wine. The also lose control over the style of the finished wine.
58
What are the characteristics of merchants in the production of wine?
Négociant: buy immature wine, mature it and sell it under the merchants name.
The chief risk is that they do not have control over the grape growing or winemaking process.
The key advantage is that they do not have the expense of buying and managing a vineyard. In Burgundy this has led to micro-négociants who specialise in small-production wines.
The fact they can buy from different growers in difficult vintages gives them flexibility. There are also grower-merchants who own the vineyards for the premium wine and act as a merchant for the inexpensive or mid-priced wines.
Some merchants differentiate between their wines or supply a private label to supermarkets etc.
In Burgundy merchants are much more involved than in Bordeaux.
59
What are the characteristics of co-operatives in the production of wine?
Co-operatives are owned by a group of growers and produce and sell wines made from grapes grown by their member. The benefit is that they can pool their financial resources, and thus afford more expensive winemaking equipment and expertise that they could not afford if they were working individually. It includes often access to expert viticultural and winemaking services, marketing, packaging and sales services. They can also make large volumes of entry-level wines.
All co-operatives will adhere to the principle of democratic control: management must consult member before major decisions are made. Therefore, the decision making process can be slow.
Traditionally, pay is on weight. Nowadays pay can be a share of annual profit or based on the quality of the fruit.
60
What are the characteristics of custom crush facilities in the production of wine?
This is a variant of the co-operative model found mainly in North America (California). Growers do not own the facility, but rather pay each time they require its services. Depending on their size, custom crush facilities make anything from super-premium, small-batch wines to inexpensive, large-production wines.
The advantage to the grower is that they do not need to invest in expensive equipment and can focus their attention on grape growing and marketing and can benefit from the expertise of the professional winemakers.
It is vital that both grower an CCF have a good working relationship so that the growers' requirements are clearly understood and met by the facility's winemaker.
61
What are the characteristics of virtual winemakers/wineries in the production of wine?
This is a term used, mainly in North America, for winemakers who do not own vineyard land or winemaking facilities. They vary in scale from individual virtual winemakers who produce small batches of super-premium, high-quality wines to organisations which create a brand of wine. They alle buy in grapes or juice and may rent facilities in another winery or employ the services of a custom crush facility.
62
What are the characteristics of conglomerates in the production of wine?
A conglomerate is a very large company.
1. E&J Gallo USA
2. Constellation Brands, USA
3. The Wine Group, USA
4. Treasury Wine Estate, Australia
5. Viña Concha y Toro, Chile
6. Castel Frères, France
7. Accolade Wines, Australia
8. Pernod Ricard, France
9. Grupo Peñaflor, Argentina
10. FeCoVitA, Argentina
Conglomerates often own many smaller businesses across the various stages of the supply chain, from production to distribution. They often have regional offices and this gives the conglomerates greater control at all stages of the route to market. They have large negotiating power.
There is an increasing trend for major companies from outside the wine industry to buy into the sector. E.g. Moët Hennesy with Louis Vuitton (Moët&Chandon, Veuve Clicquot, Krug, Cloudy Bay). Insurance company AXA owns a number of top estates in Bordeaux and Burgundy, as well as the port house Quinta do Noval.
63
What is 'en primeur'?
En primeur or wine futures is a method of selling wine before it has been bottled. It is closely associated with Bordeaux. The long maturation time required for top wines meant that the chateaux have large sums of money tied up in their cellars. The en primeur price covers all the production costs up to and including bottling.
For purchasers, the attraction of en primeur is that is should be cheaper or easier to buy the wine at this stage. In theory, the price of the wine will go up once the wine has been matured and bottled. En primeur trade has become an important part of the growing fine wine trade. En primeur is also applicable to Burgundy, Rhone, Super Tuscans and Vintage Port
64
What is the definition of a free market where wine can be sold?
A free market is one in which producers are relatively free to choose whether to sell directly to a consumer or retailer or through an intermediary.
Two other types of markets are the monopoly market and USA's three tier system
65
How are wine sales usually split in categories?
retail and hospitality
off-premises and on-premises sale (USA)
off-trade and on-trade (UK)
66
What are different options for getting the wine to the point of sale?
- selling directly to retailers
- appoint a distributor
- establish a joint venture
- use a broker
- selling directly to consumers
67
What are the characteristics of selling directly to retailers when talking about getting the wine to the point of sale?
The main advantage is that producers do not have to pay any intermediary costs and margins, and thus maximising their profits.
The main disadvantage is the increased administrative burden, including arranging collection, transportation and delivery of wine. Also that import duties and taxed are paid and if applicable, that packaging and labelling comply with relevant laws.
In transport is a financial risk when wine is lost or damaged.
The producer needs to build up relationships with retailers to understand market, consumer preferences and legislation.
If a producers only wants to sell to a small number of companies, the administrative burden may not be too great
68
What are the characteristics of appointing a distributor when talking about getting the wine to the point of sale?
A distributor buys wine from a range of producers and sells it to a range of retailers. Other terms are importer, agent and wholesaler.
For producers looking to enter a new market, they can take advantage of a distributor's knowledge of that market, including key players, consumer preferences and current trends. The distributor will also be aware of different retailer's requirements an preferences, meaning they can focus on the most appropriate targets for a particular wine. They can help producers with the administrative burden and transportation of wine. All this comes with a price.
Disadvantages are that producers can lose controle over how their wine is marketed. Distributors cannot give undivided attention to any one producer and the overall marketing strategy may not be the ideal one for the individual wine.
69
What are the characteristics of establishing a joint venture when talking about getting the wine to the point of sale?
Joint ventures at different stages in the supply chain give the parties greater control over those different stages and greater profitability as costs are shared and intermediary costs avoided.
For it to be successful, companies need to be of comparable size, the arrangements need to be carefully agreed.
Another type of joint ventures is producers joining forces to create new wine brands. E.g. UK distributor Buckingham Schenk and winemakers Hervé and Diane Joyaux Fabre created Argentinian wine brand Viñalba.
70
What is the difference between a merger and an acquisition?
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A merger occurs when two businesses join together to create a business with greater resources and capabilities that should be more competitive than the individual businesses were on their own.
An acquisition (takeover) occurs when one company (usually much larger) buys another company (usually smaller) which then becomes a subsidiary of the purchasing company. The reason is to acquire capabilities which the purchasing company believes it lacks, creating a more competitive business.
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71
What are the characteristics of using a broker when talking about getting the wine to the point of sale?
The term broker is used in different contexts. It can simply be a distributor. However, brokers are independent intermediaries who represent neither party (producer or buyer). Brokers make deals happen at lower costs because of low overhead, usually they charge a small fee of 2% of the contract price.
The benefit of using a broker is they have intimate knowledge of a particular often specialised market.
In Bordeaux, brokers (courtiers) have legal status and play an important role, acting as intermediaries between the chateaux and nègociants. Brokers play a key role in the fine wine trade.
72
What are the characteristics of selling directly to consumers when talking about getting the wine to the point of sale?
Selling directly to consumers allows producers to take the full profit from the sale of the wine and also retain control of how the wine is marketed. Potential benefit has to be offset against the additional administrative, logistical and staffing costs the producer will incur.
1. Cellar door sales
2. Eventes
3. Wine clubs
4. Online
73
What can you tell me about cellar door sales when selling directly to consumers?
It is a facility on the estate or at the winery to sell wine to visitors. Many producers have invested min attractive shops and other wine tourism facilities.
Customers range from locals to tourists. Producer can organise tours for small groups, a tasting of exclusive cellar door or reserve wines and sometimes food and wine pairing.
Benefits are
- engaging with consumers through tasting room
- engaging in wine marketing
- build up brand awareness and loyalty: word-to-mouth marketing
Disadvantage is that is can disrupt important work in the vineyard and winery. It can take up space and needs to be staffed.
74
What can you tell me about events when selling directly to consumers?
Events such as tasting fairs or wine and food festivals. Advantage is that such events attract a lot of people. Disadvantage is that the producer will have to pay to exhibit their wine, incur travel expenses and may have to employ additional staff to run the stand.
75
What can you tell me about wine clubs when selling directly to consumers?
Wine clubs offer members the opportunity to purchase wine at reduced prices (for an annual fee).
Wine clubs are popular in many new world wine producing countries. They are useful for marketing purposes. It does, however, involve additional work (newsletters, process orders, ship wine and a reliable freight forwarder). In the USA due to the three tier system, selling directly to consumers can be very onerous.
76
What can you tell me about online wine sale when selling directly to consumers?
The value of online wine sales has increased greatly in recent years as many consumers have welcomed the opportunity to buy wine from the comfort of their own home. The main additional work is to set up a reliable website and maintain it.
77
In what kind of retail premises is the end consumer reached?
In UK retail sales account for around 80% of wine sales by volume.
1. Supermarkets
2. Deep discounters
3. Convenience retailers
4. Specialist wine retailers
5. Hybrids
6. Online retailing
7. Global travel retail
8. Wine investment companies
78
What are the characteristics of a supermarket as a way to reach the end consumer?
Supermarkets are the most important retail outlets for groceries etc. (Wal-Mart, Woolworths, Carrefour, Tesco)
Supermarkets generally stock wines from well-known and popular regions and/or grape varieties. Wines that appeal to a wide range of consumers, many of whom have little wine knowledge (Jacob's creek, Barefoot, Oyster Bay). In wine-producing countries, the range will often be dominated by local wines.
Supermarkets have private label wines, exclusive to that supermarket.
79
What are the characteristics of a private label wine?
A private label wine is a wine exclusive for a supermarket. These labels can promote customer loyalty. Private labels come from large producers, so no intermediaries are needed. The supermarket can employ winemakers who can supervise production and ensure quality control.
For the producer there are a number of risks. Supermarkets need to ensure that they offer a sufficiently varied product range. Therefore, because of excess of supply over demand, supermarket wine buyers have enormous negotiating power, mainly over price.
Producers are usually expected to pay substantial fees to have their wine stocked by the supermarket and for any additional promotion such as desirable product placement in store or coverage in the supermarkets magazine. For price promotions producers are expected to pay for any reduction in profits due to the reduced retail price.
80
What are the characteristics of a deep discounter as a way to reach the end consumer?
Examples are Aldi, Lidl, Netto and Trader Joe's (subjected to the three tier system). Deep discounters' business model is to offer permanently low prices.
- lower profit margin, relying on volume of sales
- shops are basic, away from prime locations
- product range is limited, most products are private label
- shops rarely stock major brands
- deep discounters buy directly from producers
Sometimes deep discounters buy a small amount of a more expensive wine
81
What are the characteristics of a convenient retailer as a way to reach the end consumer?
Convenient stores are found closer to where people live and are open for longer. They can be independently owned or part as a franchise (Spar). They stock brands popular with the local customers. Thus, the range of wine is usually similar, but smaller than those of supermarkets and be dominated by major brands.
Convenience stores tend to be more expensive than supermarkets, because of premises are smaller, more staff, franchise costs
82
What are the characteristics of a specialised wine retailer as a way to reach the end consumer?
These retailers specialise in wine, sometimes combined with premium spirits and beers. Whilst there are some larger chains (Oddbins/O'Briens), most are independently owned or part of a small chain. Some specialise in particular styles of wine (Les Caves de Pyrène/La Cave des Papilles) or in premium/superpremium wines (Berry Bros&Rudd/Hedonism/Millesima). The latter retailers often engage in en primeur.
Because of less purchasing power than larger retailers, they tend to focus on wines from smaller producers, including those from less well-known wine regions and less common grape varieties. This makes them very attractive for such producers. Another advantage for producers is the slightly higher price of wine sold at specialist retailers. Because of the high-involvement consumer. For producers, this means better margin selling.
High-involvement consumers mean well-trained staff and special events such as tastings and running wine education classes
83
What are the characteristics of a hybrid as a way to reach the end consumer?
A hybrid is a specialised wine retailer that has a bar area where customers can drink wine they buy in the shop. They usually sell food, mainly cheese and delicatessen items. Benefit is that consumers can try wines before they decide to buy.
Downside for the retailer is that he needs to stay open later into the evening and require additional staff to serve customers. There is also additional bureaucracy involved in opening premises in which people eat and drink than there is for a simple shop
84
What are the characteristics of online retailing as a way to reach the end consumer?
Online retailing is growing. Many retailers offer online retailing in parallel with sales through their stores.
There are also a growing number of online-only ore predominantly online retailers (Wine Society, Laithwaite's, Wine9.com, Pinjiu.com).
The advantage for online-only retailers is that there is no need for expensive retail stores. Stock has to be stored in warehouses, but these are located in areas where the price is not high.
There is some staff needed for customer queries, taking orders and dispatch orders.
A significant disadvantage is the expense of delivery.
Most important is the easy to use and reliable website.
85
What are the characteristics of global travel retail as a way to reach the end consumer?
global travel retail happens where customers are travelling between countries. At airports the benefit is that customers have time between check-in and boarding. Another option is to have a shop in the arrivals area.
Duty free is not applicable anymore because of free trade zones.
Selling through global travel retail is expensive. Cost of retail space is high and retailers past a percentage of that cost on to their suppliers resulting in lower profit margins.
86
What are the characteristics of wine investment companies as a way to reach the end consumer?
Investment-grade wines are the most sought-after and expensive wines in the world. Some specialist wine retailers (Farr Vintners, Fine and Rare, Berry Bros & Rudd) are allowed a small allocation of some of these wines each year, which they either buy directly from the producer or via a merchant. There are also companies which only deal in investment-grade wine, such as Amphora Portfolio Management and Cult Wines.
Wine investment companies can be like a retailer, trading exchanger, wine portfolio managers, wine investment funds, auctions houses (can be subject to fraud)
87
In what kind of hospitality premises is the end consumer reached?
The average price of a bottle of wine sold in the hospitality sector is often considerably higher than in the retail sector. In UK, whereas hospitality sales account for only 20% of wine sales by volume, they represent nearly 40% of wine sales by value.
1. Bars
2. Restaurants
88
What are characteristics of bars as a way to reach the end consumer?
Specialised wine bars: Very similar to specialised wine retailers with well trained staff.
General bars: less of a wine focus, range is limited.
89
What are the characteristics of restaurants as a way to reach the end consumer?
1. Non-destination restaurants: Often part of chains, limited range of wines, tend to appeal to a wide range of consumers, inexpensive to mid-priced.
2. Casual dining: can be used in variety of situations, often very high quality of food and wine but without the formality of fine dining. The wines are often mid-priced to premium priced. Staff is trained sufficiently
3. Fine dining: destination restaurant where the experience and the meal are the reasons for the visit. Often a Michelin star. Well-trained staff with a sommelier. The wines in this restaurants are often super-premium wines available in very limited quantities. These restaurants often use brokers to seek out hard-to-find wines
90
What are the characteristics of a monopoly market?
In, particularly Scandinavian, countries, there is a government-run monopoly for the retail sale of alcoholic drinks. Bars and restaurants can buy from the monopoly or from specialist independent distributors with high levels of tax on alcoholic drinks.
The aim of the retail monopolies is to limit alcohol consumption. This is achieved primarily through high pricing. By removing the incentive in a free market for stores to compete with each other, these monopolies encourage the sale of alcoholic beverages at responsible prices.
For producers it is much harder to enter the retail sector in one of these markets and there is a considerable amount of bureaucracy to deal with.
In Canada in all but one provinces and territories, retail sales of alcoholic beverages is controlled by the Liquor Control Board of Ontario.
91
What are the characteristics of the USA's Three Tier System?
In 1933 the TT-system was introduced upon the repeal of prohibition with the aim of preventing a return to the pre-prohibition saloon days of gambling, prostitution, crime and drunkeness.
The three tiers are:
1. Producer/Importer
2. Distributor (including wholesalers, brokers)
3. Off premises retailer (eg supermarkets, wine specialists) or On premises retailer (bars, restaurants)
These laws generally limit or completely prohibit cross ownership between most retailers and the upper two tiers. Because of federal government rules, control of alcohol sales is ceded to the individual states. Each one can have different laws which are very complicated. Companies thus have compliance officiers.
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What are strengths and weaknesses of the three tier system?
The distributors specialise in logistical efficiency and the largest of them service huge areas of the country. They also provide a trained sales force and marketing materials and, in these ways, can potentially provide a producer with exposure that would be extremely costly to gain otherwise.
Consolidation is challenging. In the last two decades the number of distributors has decreased by approximately two thirds (3000-1200) while the number of US wineries seeking entry to the market has increased by a factor of five (2000-9500). This bottleneck works to the disadvantage of smaller producers. Many large companies involved in wine production became bigger through the acquisition of smaller wineries.
Consolidation has stimulated activity in the direct-to-consumer category and gradually, state by state, restrictions are being loosened.
93
What is marketing?
Marketing is a hard term to define. Chartered Institute of Marketing (CIM) says marketing is: the management process which is responsible for identifying, anticipating and satisfying consumer requirements profitably.
Identifying the target consumer and understanding their needs and wants is fundamental to successful marketing. The ultimate aim of marketing is to create profits, whether this is through volume of sales and/or value of sales
94
What are the key stages of a clear marketing strategy?
1. Identifying the product/brand to be marketed
2. Analysing the current market
3. Identifying the target market
4. Setting the objectives of the marketing strategy
5. Devising the marketing strategy (marketing mix)
6. Implementing and monitoring the marketing strategy
95
What can you tell me about identifying the product/brand to be marketed?
All products have a 'life cycle'. Sales of most new products start slowly but, if the product establishes itself in the market, will then start to grow quickly as more and more people buy the product. Eventually sales will stabilise as there are fewer people left who have not yet bought it or if competition increased and, finally, sales will begin to decline.
1. Introduction: Strategy should focus on getting the product into the market and gaining recognition and reputation
2. Growth: Product should be increasingly widely distributed and aimed at a broader target market
3. Maturity/Stabilisation: Strategy should highlight the differences between the product and the other competing products
4. Decline: Companies may take steps to extend the life cycle.
96
What are important elements in creating a positive brand?
1. Substance
2. Consumer trust
3. Consumer engagement
4. Brand story
5. Price Premium
6. Longevity
7. Strong brand name
97
What is the definition of brand?
By the CIM it is dined as 'the set of physical attributes of a product of a service together with the beliefs and expectations surrounding it- a unique combination which the name of logo of the product or service should evoke in the mind of the audience'.
98
In positive branding, what does substance?
Substance is when a successful brands consistently deliver the same level of quality and style
99
In positive branding, what does consumer trust?
As a result of substance (consistency), consumers come to trust a brand always to give them what they want. Many low-involvement consumers will therefore regularly buy their favourite brand of wine
100
In positive branding, what does consumer engagement?
The consumer should have a relationship with the brand and will ask for it by name.
101
In positive branding, what does the brand story?
It creates an emotional attachment between consumer and the brand by answering:
- What is the producer's history?
- Where are the grapes grown?
- How is the wine made?
- Is there a story behind the name of the wine, label or bottle design?
It creates a sense of authenticity
102
In positive branding, what does price premium?
Many consumers view higher prices as a guarantee of quality
103
In positive branding, what does longevity?
Many brands have been in existence for a long time. Particularly true for champagne brands.
104
In positive branding, what does a strong brand name?
A correct brand name considers translation of the name in other languages. Many brand names contain references to geographical features or the name of the company founder.
It is important to protect the brand name by trademark registration.
Value of the brand tends to be termed as brand equity. It includes components as brand awareness, brand image and others.
105
What are different aspects of branding or types of brands?
1. Brand position
2. Private label
3. Ladder brand
4. Soft brand
5. Luxury brand
106
What are the characteristics of brand position?
Brand position is where a brand 'sits' within a market and the cues used to indicate that position.
Categorisation can be done by
- value
- standard
- premium
- super-premium
A brand's position is usually set at launch. It is rare to raise a brand's position. Example is Symington Family Estates, they raised the market position of their Cockburn's Port
107
What are the characteristics of a private label?
Private labels are only available in the supermarkets or deep discounters that have created them.
108
What are the characteristics of ladder brand?
These are intended to give consumers easy-to-understand rungs to help them trade up to a higher priced and better quality expression of the brand.
Usually three rungs:
1. accessible (least expensive, with the greatest distribution, mostly bought)
2. stretch (affordable but only for special occasions)
3. aspiration (most prestigious expression of the brand)
Ladder brands tend to work less well with wines bought by low-involvement consumers. As a result, there is no identity give by the aspiration wine to the rest of the ladder.
109
What are the characteristics of a soft brand?
Soft brand is used to describe a cue used by a consumer when choosing to buy one product in preference to another. The concept is controversial.
Even the smallest producers can profit from the well-known AOC, GI or AVA's to market their wines.
110
What are the characteristics of a luxury brand?
There is no agreed definition of what makes a luxury brand. Often these wines are super-premium priced.
Luxury brands promote the idea that they are scarce even if this is not the case. This perceived scarcity is one reason why luxury brands can usually charge a large premium.
111
What can you tell about how to analyse the current market
It is to identify and analyse the factors (both internal and external) which affect the product, the company and the market in which it operates. It can be done through a SWOT-analysis.
- Strengths
- Weaknesses
- Opportunities
- Threats
In simple terms, strengths and weaknesses are those of the particular product or company, whereas opportunities and threats are external factors which affect the market as a whole.
112
How are target consumers identified?
Often through segmentation, this is based on four sets of variables:
1. geographic
2. demographic (age, gender etc.)
3. psycho-graphic (lifestyle, personality, values and beliefs, interests)
4. behavioural (variables based on consumers; observable behaviour)
People who share psychological or behavioural characteristics are more likely to behave in a similar way than those who live in the same area or are in the same age group.
In segmentation, each country is different. Most universal segmentation is between high- and low-involvement consumers. High-involvement consumers have a deep interest in the wine they drink, are keen to try new products and tend to spend more on wine.
113
How did Hall in 1996 tried to split wine consumers into segments?
1. Wine lovers
2. Wine interested
3. Wine curious
114
What is the segmentation model of Wine Intelligence?
The model is known as Portraits
1. Experienced explorers
2. Millennial treaters
3. Premium Brand Suburbans
4. Bargain Hunters
5. Senior Sippers
6. Kitchen Casuals
115
What is market research and what are its characteristics?
Market research is the gathering and analysis of data about a particular market segment in order to understand what that segment wants or needs.
Market research takes time and effort to arrange and some methods can be relatively expensive.
- what information is needed?
- from whom is that information gathered?
- how will the research be carried out?
Then, the consumer behaviour can be observed.
116
What areas should the objectives of the marketing strategy cover?
1. What type of marketing strategy does the company want to pursue?
- Undifferentiated or mass
- Niche
- Multiple
2. What are the aims of the marketing strategy?
3. How will the success of the strategy be measured?
4. Within what time period should the objectives be achieved?
Also, the budget should be set by reference to the profits which the marketing campaign is expected to produce.
117
With which common factors is the marketing strategy devised?
5 P's:
1. Product
2. Price
3. People
4. Place
5. Promotion
118
What can you tell about the factor Product in the marketing strategy?
Marketing should communicate the characteristics of the product that will appeal to target consumers and how it will satisfy their needs and wants. The marketing should also describe the experience that the product wille deliver to the consumer as this is seen as an increasingly important part of marketing.
119
What can you tell about the factor Price in the marketing strategy?
Price is the amount which a consumer pays for a product. This is not just the price of a product on the shelf; it includes any additional costs such as delivery as well as discounts. It also includes the cost (in time or effort) which the consumer is willing to go to in order to buy the product.
Pricing strategy should strike a balance between the producer's desire to make a reasonable profit and the price that sufficient numbers of consumers are willing to pay. There are many pricing strategies.
- Penetration strategy: price of a product is set relatively low to undercut the competition and rapidly reach a wider section of the market. It is very hard to raise the price afterwards
People get more pleasure from a wine they think is expensive than from the same wine if they think it is cheap.
120
What can you tell about the factor People in the marketing strategy?
Some marketeers will use 'people' to mean the attitudes and behaviours of the target consumer. Other aspects of the marketing mix will need to be tailored accordingly.
In other models, 'people' refers to the relationship between the company, its staff, its partners, and its customers, and includes aspects such as employee attitudes and skills and customer service. The attitude and behaviour of the target consumers may be considered separately, usually initially as this factor impacts all other aspects of the marketing mix.
121
What can you tell about the factor Place in the marketing strategy?
Place relates to where the product is sold. This element involves identifying the most effective distribution channels. Additionally, consumer tastes vary from country to country and it may be necessary to produce wines with different aroma/flavour profiles.
Focus can also be on more or less mature markets. Mature and established markets show the greatest amount of saturation and least growth, but have the advantage not only of reliable trade structures and routes to market, but also an established wine culture.
122
Wat is the model of wine market maturity, suggested by Wine Intelligence?
1. Mature market - Germany/France/Switzerland/UK
2. Established market - Australia/Netherlands/Ireland/Japan
3. Growth markets - USA/Canada/Italy/Poland
4. Emerging markets - China/Russia/Brazil/Taiwan
5. New emerging markets - Malaysia/Philippines/Vietnam/Thailand
123
What can you tell about the factor Promotion in the marketing strategy?
The marketing campaign should consist of a variety of elements to connect with as many members of the segment as possible.
Promotional activities can be divided into those which take place at the point of sale and those which happen elsewhere.
124
What kind of promotional activities are there at the point of sale?
- price promotions: aim is to increase sales of existing products, gain volume sales for new products or attract new customers. There is a risk that it will not build consumer loyalty and damage the image of the product. Multi-buys and volume discount do not have this risk, but are banned in some countries.
- free merchandise: rarely seen as valuable.
- limited edition packaging/presentation
- competitions: this also a opportunity to collect consumers' contact details which they can use for further promotions
- consumer tastings: this can increase sales
- staff training and incentives: educating staff about how a wine is made and allowing them to taste it helps them promote the product with more confidence and enthusiasm
125
What kind of promotional activities are there away from the point of sale?
- advertising: Television/cinema; radio; press advertising; online; billboards. It needs to conform to the requirements of the country in which it is used
- sponsorship: also subject to legal restrictions
- websites
- social media: important to choose the most appropriate social media channels to communicate with its target market.
- smartphone apps
- wine tourism
- events and festivals
- reviews and awards
- public relations: advertising is not the same as PR: advertising seeks to draw attention to and promote a specific product or range of products whereas the aim of PR is to give the business the most favourable image possible in the mind of consumers through representation, press releases, newsletters, social media or a brand ambassador.
126
What can you tell about implementing and monitoring the marketing strategy?
Marketing is a dynamic process and the strategy needs to be kept under constant review to check that it is working as intended.
Measure the succes of a marketing strategy: looking at sales figures, profits or the number of hits on a website. Also it is important to research (marketing research) how consumers react to the strategy, by asking them.
127
What are different marketing options?
- employ an in-house marketing team who will help create and drive the marketing strategy
- outsource some or all of the marketing function to a PR company or advertising agency.
In some parts of the world wine producers can become members of an industry association (consorzio in Italy, VDP in Germany), a generic trade body (Wines of Australia, Wines of South-Africa) or an informal trade group (Vignadores de Carignan in Chile). One of the main aims of all of these organisations is to help promote their members' products.
