Supply and demand Flashcards

Question

What is the most obvious problem of having UNDERSUPPLY of wine?

Answer 1

Not having enough wine to sell, disappointing clients and consumers. Can lead to strained business relationships. Retailer may choose to impose financial penalty or cancel contract with producer if required volume is not available. They may also seek out cheaper alternatives if undersupply leads to increased prices, especially in Price-Sensitive Markets.

Answer 2

- Europe is particularly vulnerable to vintage ariation - The EU contains over half of the world's vineyards, so bad vintages have a major impact. -e.g. 2017 saw severe frosts, hailsorms and heat waves across Europe, which lowered their wine production by 14 %

Answer 3

- Unclear yet whether the UK will still benefit from free-trade agreements from the EU. - If not, UK could negotiate its own free-trade arrangements with any country it wants, e. g. Australia, which could make Australian wines cheaper than EU wines. - Given that the UK is generally a price-sensitive market, this could greatly alter wine-buying habits of the British public

Answer 4

Reputation (region, produces, individual wine or grape) can fluctuate, leading to rises and falls of demand. - Rewievs from reputable publications/critics (e.g. Jancis Robinson in the UK, Wine Spectator in the USA) can encourage producers to raise their prices in subsequent vintages. - Online inluencers / Key opinon leads (KOLs) can impact the desiderability of specific wines/producers. - Presence/exposure in pop culture, e. g. films, TV, music lyrics, celebrity endorsements, can increase exposure and popularity.

Answer 5

A market in which many consumers are unwilling to spend more than the lowest price possible for a certain product, regardless of affluence, e.g. Germany and the UK.

Answer 6

The increasing number of GIs around the world. GIs limit the amount of wine produced by defining the geographical areas in which grapes can be grown, as well as the maximum yield (in Europe)

Answer 7

The rise of 'premiumization' the willingness to spend more on individual bottles of wine because fewer bottles are being purchased. Price-sensitive markets (Germany, UK): - Most consumers are unwilling to pay more than the lowest price possible for the desired style of wine. - Fierce competition = lower prices for consumers, but fewer options as selling wine at this pricepoint would be unprofitable for many producers. - Producers hope to build up 'brand loyalty' over time as part of marketing campaigns, thereby avoiding the problem of passing on production costs to the consumer. Non price-sensitive markets ( France, USA) - Consumers are more willing to pay above the minimal price for a wine they perceive to higher in quality than the cheapest option.

Answer 8

Total area under vine has dropped significantlyu from ~7.8 milion hectares in 2003 to ~7.4 milon hectares in 2019, whereas world wine production remained stable. Factors causing this trend: - Vine pull schemes - EU restrictions on planting new vineyards - Conversion of vineyard land to other uses - Abandonment of rural areas

Answer 9

Sales of wine will change with the level of consumer disposable income (i.e. the amount of monay a person has after paying taxes) Sales will: Decrease: When DI falls, as in a recession, wine consumers are likely to trade down to cheaper wines or switch to other, less expensive alcoholic drinks (e.g. beer or cider). For exaple, during the recession following the 2008 financial crash, demand for Champagne shrank whilst that for other, cheaper sparkling wines grew. Increase: When an economy is growing, such as has been seen in China, disposable income icreases and consumers are often willing to buy more expensive wine. As explained above, the emerging middle-class in has driven the increase in wine sales and demand for aspirational wines, such as those from Bordeaux and Burgundy, has increased.

Answer 10

By mid '80s, EU wine production was much greater than demand, became known as the 'wine lake'. National goverments and EU itself paid growers to pull up poor quality vines, especially in S. France, Italy and Spain. Several hundred thousand acres of European vines were pulled up. This concept has also been used in Australia, NZ and Argentina

Answer 11

Global wine consumption: - Steady increase in wine consumption from2005-2008, mainly due to increased consumption in USA and China. - Sharp decline in 2008 (global economic crisis) due to less spending on non-essentials. - Gradual increase as economy revovered from 2010-12. - Decline in 2013-14 due to less wine consumption in EU, particularly France and Italy. - Consumption gradually rising from 2015-present, starting to plateau; US consumption rising, China beginning to decline slightly (end of rapid growth).

Answer 12

-Wine Laws -International Trade -Laws Prohibiting or limiting the sale of alcohol -Taxation -Goverment Policies to reduce alcohol consumption

Answer 13

Quite rarely, though it can happend e.g. in 2017 (bad harvests across EU) More common to see an undersupply of PARTICULAR wines.

Answer 14

Inside the EU: - AOPs/DOC(G)s of France / Italy define much more than just the geographic areas of the GIs. They are very restrictive in terms of which varieties may be grown, yield levels, winemaking and maturation techniques, all leadin to a reduction in the volume of production Outside the EU - GI's simply define geographical areas and lack restrictions found within EU's PDO system e.g. AVA's in the USA, Wines of Origin in S. Africa or GIs of Australia

Answer 15

1. To define the style of wine produced in a particular region (especially in the EU). 2. To bring supply and demand more in line and reduce the risk of wonward price pressure.

Answer 16

The sale of Alcohol Can be: -Prohibitited: In a number of countries such as Indonesia and Iran -Tightly-controlled: for example through state-owned monopolies in countries such as Sweden, Norway and Canada, or, in the USA, the three-tier system. Any such controls inevitably limit the supply of wine and usually increase prices - Freely available: there is usually a minimum legal drinking age and sales of alcohol are generally limited to particular hours of the day.

Answer 17

1. Spain 2.China 3. France 4. Italy 5. USA Statistics regarding land under vine include not only grape plantings intended for wine production, but also table grapes. e.g. the majority of China's vineyards are intended for table grape production ( 2nd in land under vine) while its wine production is comparatively small (7th-10th worldwine, varying from year to year).

Answer 18

In 2012, China's new president XI JInping moved to stop 'lavish gifting, the custom of showing respect to business colleagues/ customrs/ suppliers by giving gifts paid for goverment's money. Traditionally, the more expensive the gift, the better, with super-premium wines e.g. First-Growth Bordeaux and Grand Cru Burgundy wines being the norm This 'Anti-Extravagance' campaign sought to prohibt the gifting to/from goverment oficials of luxury wines/spirits.

Answer 19

- Vine pull chemes + restrictions on new plantings, part of broader policy to limit wine production. - Since 2016 rules have been slightly relaxed allowing up to 1% annual growth of vineyard area already planted - Plantings in France/Italy have already begun to rise again.

Answer 20

Large companies have a wide range of wines at different price points, of different styles and regions of origin. - e.g. if there is an undersupply of a specific wine in the portfolio an alternative may be selected - they are also able to sell to many different markets, meaning that if undersupply causes the price of a wine to rise and sales to drop, they may shift their focus to less price-sensitie markets instead. e.g. Treasury Wine Estates,E&J Gallo, Accolade Wines

Answer 21

In many areas, wine grapes are of lower agriculture value than other crops,causisign farmes to switch for better profitability: -Elgin, S. Africa: Grapes to Apples -Madeira: Grapes to property development for tourists -Santa Clara Valley (Silicon Valley): Grapes to business development USA: Grapes to pistachios and almonds.

Answer 22

- Custom duties are applied to imported goods as a source of revenue for the govrments, but sometimes as a form of protectionism, to encourage the consumption of local products. - EU member enjoy tarrif-free trading between member states, meaning that products can be affordable even if imported from another country in the EU - Tariffs are still applied to products imported from most (e. g. Australia) But not all (e.g South Africa/Chile), non-member states. This means that, within the EU wines from S Africa and Chile enjoy a competetive edge price-wise over those from Australia.

Answer 23

Social factors Economic Factor Legislative and Political Factors

Answer 24

Global wine exports have more than doubled since 2003, froum around 15 billions euro to over 30 billions euro, despite minor dips here and there, e.g. 2008 global reccession.

Answer 25

If demand exceeds supply => Prices likely to rise - Some Consumers will be willing to pay more for certain wines ( if thought that no alternatives are available) - Others will be inwilling, seeking out cheaper options. If suppluy exceeds demand => Prices likely to fall. - Producers may jabe to lowe proces in order to remain competitive. - Consumers then have greater choice of cheap wines.

Answer 26

- Trend of younger people leaving rural areas to live/work in urban areas. - Reduces woorkforce and leaves family rural estates with no one to take over - Rural economies suffering from lack of labor and investement, difficult to work vineyards are being abandoned, evein in prestious GIs

Answer 27

-When Products disapear from the market, this creates oportunities for competition e.g. if supply of Brand A Zinfandel decreases, demand for Brand B may increase. -Limited quantities also create the opportunity to raise prices (real/perceived scarcity). -Introduction of a new, lower-priced or better value wine may eat into demand for other similar wines, causing producers to lower prices or search for alternative markets.

Answer 28

Rose and sparkling wine consumption has increased significantly e.g. sparkling wine consumption has increased annualy by an average of 3% between 2002-2018

Answer 29

Growing middle class, desire to show wealth and status by shifting from local drinks to wine Desire to Consume imported wines (at first, primarily French, but more recently Australian and Chilean wines: less expensive due to bilateral trade agreement).

Supply and demand Flashcards

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