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WSET 4 Diploma > D2 Wine Business WSET > Flashcards

D2 Wine Business WSET Flashcards

1
Q

What factors that are influence the price of a bottle of wine?

A
  1. Cost of growing grapes
  2. producing the wine
  3. getting it to the end to consumer
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2
Q

What is supply and demand?

A

Supply - is amount of good or service (wine) available for sale
Demand - willingness of consumer to buy a (wine) good or service

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3
Q

Demand for wine affected by?

A
  • social
  • economic
  • legislative
  • political factors
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4
Q

What is disposable income?

A

amount of money a person has after paying tax

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5
Q

Loi Evin is what?

A

France 1991 introduced law that prohibit advertising of alcoholic drinks

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6
Q

Supply of wine affected by?

A
  • production
  • legislation
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7
Q

Prices that affect the price of a bottle of wine - costs through the supply chain? (8)

A
  1. Grape growing costs
  2. Winemaking costs
  3. Transportation costs
  4. Importation costs
  5. Sales costs
  6. Marketing costs
  7. The impact of legislation on the cost of wine
  8. The impact of fluctuations in currency on the cost of wine
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8
Q

What is supply chain?

A

Supply chain is 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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9
Q

First stage of supply chain?

A

grape growing

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10
Q

Cost of growing the grapes can be broken down to?

A

Capital cost
Operating cost

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11
Q

What is capital cost?

A

money spent in acquiring, improving or maintaining long-term assets such as land, buildings and equipment.

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12
Q

What is operating cost ?

A

day-to-day costs relating to producing and packaging wine.

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13
Q

What is depreciation?

A

the reduction of value of assets over time based on their useful life

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14
Q

Grape growing cost affect the price of a bottle?
How?

A
  1. Vineyard establishment
    Capital costs, inculde:
    1.1. surveying the land
    1.2. Site clearance (removing vegetation, large rocks)
    1.3. building access roads
    1.4. buying and planting vines
    1.5. buying stakes and wires for trellising
    1.6. if site badly draining - installation of draiange system
    1.7. In dry areas - establishing irrigation
    1.8. Protection against weather hazards (windbreaks, frost)
    1.9. Protection against animal pests (fences, netting)
    1.10. Buying machinery and equipment
  2. Vineyard management
    Costs are:
    2.1. Labour
    2.2. Machinery and fuel
    2.3. Supplies (materials for trellising, pruning)
    2.4. Vineyard treatments
    2.5. water
    2.6. Electricity
    2.7. Insurance and depreciation
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15
Q

Winemaking cost affect the price of a bottle of wine?

A

This also can be broken in capital cost and operating costs.
1. Winery establishment
2. Winemaking cost

1.1. Land
1.2 Building the winery
1.3. Fitting it with equipment (press, tanks, pipes, pumps, refrigeration, maturation vessels, bottling line)

2.1. Grape growing cost (see above)
2.2. Labour
2.3. Machinery and equipment running cost (fuel, electricity, amintenance)
2.4. winery materials - sugar for enrichment, cultured yeast, acid for acidification etc)
2.5. water (for cleaning)
2.6. Electricity (refrigeration, ventilation etc)
2.7 Maturation (storage space, vessels, labour, lost of cashflow)
2.8. Packaging (own bottling line, bottles, closures, lavels, cartons, pallets, labout, etc)
2.9. Depreciation - company may budget for the replacement costs of equipment

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16
Q

Transportation cost?

A
  1. Transportation in the bottle
  2. Bulk transportation
  3. Insurance
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17
Q

Importation cost?

A

Labelling law in different countries (alcohol level, health warning etc)
or producer can employ distributor (make it easier for him) to deal with foreign market

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18
Q

Sales cost?

A
  1. Property cost (rent or buy retail shop, bar or restaurant)
  2. Labour
  3. Equipment & materials
  4. Storage cost
  5. Delivery cost
  6. margin at the point of sale
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19
Q

Marketing cost?

A
  1. Labour
  2. Design and production of bottles and labels
  3. Marketing campaign
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20
Q

How to mitigate the currency effect?

A
  1. Options
  2. Fixing the price in the currency of the importer at the date of ordering
  3. Buying currency to cover specific orders
  4. Entering a contract to fix the exchange rate
  5. Trading in USD/EUR
  6. Opening a foreign currency account in a local bank
  7. Opening account in overseas bank
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21
Q

What are plus and minus of ladder brand?

A

plus - ladder brand intended to give consumers easy-to-understand ‘rungs’ to help them trade up to a higher-priced and better-quality expression of the brand. The whole range benefits from the identity of the most prestigious expression of the brand.

minus - it work less well with by low-involvement consumers. This is because, only few people will know about most prestigious wine. In the worst case situation, the image of the entire ladder is based on the accessible wine (and aspiration wine will be look like an overpriced).

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22
Q

Plus and minus of soft brand?

A

In the wine industry this could be a country (Australia), region (Rioja), GI (Pouilly Fume), grape name (Merlot) or even style of wine (oaked chardonnay).

Plus - many GI is being created largely for marketing purposes (AVA in USA). Like Pouilly Fume - small producers can not have brand name to be well-known so they can use “Pouilly Fume” name (can benefit from Pouilly Fume reputation).

Minus - some marketing professionals dont consider them as brand.

23
Q

How to describe brand type (or aspects of branding) in wine industry?

A
  1. Brand position (price point)
  2. Private label (supermarkets or restaurants, ex. Marks and Spencer)
  3. Ladder brand (accessible, stretch, aspiration)
  4. Soft brand (GI, region, grape, wine style)
  5. Luxury brand (super-premium)
24
Q

Wine intelligence US portraits 2018 (6)?

A
  1. Engaged explorers
  2. Premium brand suburbans
  3. Contented treaters
  4. Social newbies
  5. Senior bargain hunters
  6. Kitchen casuals
25
Q

Engaged explorers

A

younger drinkers, part of their lifestyle and social life, shops wineries

26
Q

Premium brand suburbans

A

very knowledgable, often bulk to get value

27
Q

Contented treaters

A

infrequent but high spending drinkers, liquor store or wine shops

28
Q

Social newbies

A

newest segment, social, so many wine buying channels)

29
Q

Senior Bargain Hunter

A

very rare segment, supermarket, value driven, not good knowledge

30
Q

Kitchen casuals

A

very rare drinking, dont understand much about wine, price-conscious, supermarket.

31
Q

Impact of legislation costs various types tax, duties, trade barriers, subsidies, minimum pricing, labelling laws?

A

Some countries have “bonded warehouse” - they only release wine only when it sold, and pay duty - cashflow situation.
Some countries have trade agreement - better pricing, example Chile and South Africa with EU.
So meaning that USA wine can not compete with Chile and SA for price, so better not to list in the EU market.

32
Q

Estate advantages and disadvantages?

A

Estate producers - produces wine exclusively from their own vineyards.
Adv:
1. Maintain control over entire process
2. profit from production belongs to estate
3. marketing benefit (estate bottled etc)
Disadvantages:
1. cost of managing the vineyard, winery
2. Difficult vintage (small volume of wine)

33
Q

Growers advantages and disadvantages?

A

Grower - sell their grapes to winemaker or merchant.
Advantages:
1. no need to buy expensive winery equipment
2. no need to marketing and sell their wine
3. better cash flow - sell grape and get cash
Disadvantages:
1. Risk from vintage variation
2. fluctuations in supply and demand
Both significantly affect the price

34
Q

Grower-producer advantages and disadvantages?

A

grower-producer can also produce his wine and sell to merchant to mature and bottle. (more common in Burgundy)
Adv:
1. no need incur cost of maturation
2. no need marketing wine
Disadvantages:
1. smaller profit if he sell finished wine
2. no control over finished wine (merchant can blend)

35
Q

Merchants advantages and disadvantages?

A

Merchant in France is negociant, person who buy the grapes and immature wine, mature it and sell it under the merchant’s name.
Advantages:
1. They do not have to buy vineyards and managing vineyards (particularly beneficial in Burgundy, Champagne where vineyard is seldom sold and price is very high)
2. They buy from grapes from different growers and producers - protection in bad vintages
3. In Burgundy and Napa grapes price is higher, to protect from that they can have long term contract with growers
Disadvantages:
1. Little control over grape growing or winemaking process
(for this reason now they buy grapes and make their own wine)
Burgundy negociant is more buy grape and make wine, while Bordeaux - negoc - is more like a wholesaler (sale for purpose to resale)-buying a chateau stock and selling and distributing that to range of distributors and retailers.

36
Q

En primeur describe?

A

En primeur is a method of selling wine before it has been bottled

37
Q

Grower-merchants advantages and disadvantages?

A

These are own vineyard and buy grapes (or juice) and make wine also.
Owned vineyards - used for premium wines, while other grapes - inexpensive or mid-price wines. (Guigal)

38
Q

Co-operatives advantages and disadvantages?

A

Co-operatives is a group of growers (members) produce and sell wines made from their members.
Advantages:
1. They can combine their financial resources (can afford more expensive winemaking equipment for example)
2. Better marketing (rather then done by single)
Disadvantages:
- many growers, hard to manage all and make them all happy

39
Q

Custom crush facilities advantages and disadvantages?

A

Very common in California.
Facility (like a winery with winemaker and winemaking equipment) will charge growers for making their wines.
Advantages:
1. Grower dont have to invest in expesive equipment and just focus on growing grapes
2. benefit from expertise of the professional winemaker
Disadvantages:
1. production of wine is handling by 3rd party
2. need to have good relationship so can understand which style of wine grower want.

40
Q

Virtual winemaker and wineries advantages and disadvantages?

A

Also popular in north america
They buy grapes
use custom crush facility
and sell wines - super premium or large volume brands

41
Q

Conglomerates advantages and disadvantages?

A

Very large companies, mainly made with many small businesses across various stages (wineries, distribution companies, retail outlets, beer, spirits, food, hospitality etc)
Ex. LVMH
AXA
E&J Gallo

42
Q

Different options for getting the wine to the point of sale?

A
  1. Direct to retailers
  2. Appoint a distributor
  3. establish joint venture
  4. Use a broker
  5. selling directly to consumers (cellar door sales, events, wine clubs, online)
43
Q

Other types of market (beside free market) 2 most significant markets?

A

Monopoly markets and American Three-tier system

44
Q

What is monopoly market?

A

In some countries (Scandinavia and Canada) - theres government run monopoly for the retail sale of alcoholic drinks.
Sweden - government owned Systembolaget - only retail outlet to sell alcohol. (bar and restaurant can buy from monopoly).

Aim - limit alcohol consumption.

45
Q

What is Three-tier system?

A
  1. Supplier
  2. Distributor
  3. Retailer
    Is a strict and complex legislation , implemented state by state level, regarding the distribution and sale of alcoholic beverages.

+ to avoid producer monopolies (and increase price)
+ regulation and collection of taxes
+ tax revenue
+ paper work

  • some states minimum bottle pricing
  • hire distributor
  • if dont like dirtibutor then can not change
  • small producers may get lost in big company
46
Q

Marketing definition?

A

Marketing is managing process which is responsible for identifying, anticipating and satisfying consumer requirements profitably.

47
Q

How to create marketing strategy? Marketing process:

A

It consist 5 key stages:
1. identify the brand/product to be marketed
2. Identify the target market
3. Set the objective
4. Create the marketing strategy
5. implement and monitor marketing strategy

48
Q

use SWOT to analyse a marketing objective?

A

SWOT helps to organisation in following ways:
1. Assessing “Strategic fit” - evaluates organisation’s strength and opportunities to achieve the objective.
2. Identifying improvement - if there’s a gaps in the achieving objective and current situation, what changes organisation can make in order to achieve a better “strategic fit”. This can be investment in resources (vineyards, production equipment, labour) and capabilities (such as expertise to make a specified style of wine, create attractive packaging or lobby government).
3. Managing risks - it helps to identify threats and develop strategies to manage them. Avoid risk, reduce or transfer the risks - purchase insurance or accept risk and budget for its possible impact.

SWOT can identify which objective can be not easily and realistically achievable and maybe consider a different objective.

49
Q

What is SWOT?

A

this is an instrument that can be used to identify and measure the strength, weakness, opportunity and threat for business (or project, marketing objective) or any situation require decision making.
SWOT identify factors that are related to achieving objective and divide them in 2 ways:
1. helpful or unhelpful
2. Internal (organisation resource or capability) or external (political, economical, sociological etc)

50
Q

How to set objective (after or before SWOT)?

A

The exact origin of the objective does not matter, because SWOT analysis will sort out the realistic from unrealistic ones. It could be:
1. Someone intuition
2. Someone business dream
3. Market analyses (market gaps that need to fill)

Market analyses - identify “the consumer demand” - using value-curve analysis. The result can show - where is “under-supply” or “gaps” in the market. Then organisation can consider to develop products to fill these gaps (ex. premium price red wine with off-dry and simple fruit flavour) - value -curve analysis can confirm this or not. If confirmed - next step is seeking the success with such porduct.

51
Q

Strength and weaknesses?

A

In order to achieve the objective company has tool and resources. What he need? how he can get objective faster, cheaper and better than others?

Resources are (this what company has access) - use them as tool:
1. established reputation in market
2. supply chain relationships
3. Vineyards locations (that favour a particular style of wine)
4. Wine production facilities.
5. Access to support industries (logistics, bottling, labelling, training staff, research, lab analysis)
5. Strong financial wealth to enable investments
6. Internal expertise and experience,the ability to make best use of these

Capability - is something the company can do:
1. Build strong brand (or grow existing obe)
2. Adjust production, or modify production based on consumer demand
3. experiment and develop new products
4. Lobby local, global political organisations (subsides, favourable regulations, government promo)

52
Q

Opportunities and threads? (external)

A

If need good SWOT analysis for external environment, need to be:
1. Make sure factors - real and honestly described
2. Everything most important to consider
3. Make sure that all factors relevant to objective

To get comprehensive information need some research :
a helpful tool that helps to check all (and not forget anything) is PESTEL (political, economic, sociological, technological, environmental, legal).
Political :
1. regulations impact (tax, prohibition, consumption, subsidy etc)
Economic :
1. Currency effects
2. Exchange instability
3. Recession impact (when economy of country not doing well)
Social (including cultural and demographic factors):
1. Generational shifts
2. Cultural attitudes
3. Labor trends
4. Attitudes to global trade (synthetic, artificial VS natural)
Technological:
1. Innovation benefits
2. Standardization risks
Environmental:
1. Climate impact
2. Land use
3. Environmental logistics
Legal and regulatory:
1. Regulation impact (production and trade regulations)
2. Compliance advantage (regulate difficult, but can used to and make as an advatage)
3. Production constraints

53
Q

Set the objective, done with SWOT analyses , so we have now?

A
  1. How achievable the objective now? (should it be pursued or not)
  2. if its to be pursued, what further investments will maximise the chance of success?
    Also can see the external environment possibilities:
  3. help (which opportunity can use the company)
  4. Hinder (what is threat for success and what company can do)
    These are guidelines to achieve the business objective.
54
Q
A

WSET 4 Diploma (2 decks)

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