Wset Advanced: Section 1/7 Factors That Affect The Price Of Wine

Front 1

Production Cost

Back 1

Business Models for Wine Production
Cost of The Grapes
Winemaking Cost

Front 2

Business Models for Wine Production

Back 2

Not all wine is made by grape grower directly.
Co-operative- Institution that is owned by a number of members. It enable winemaking facilities, marketing and selling cost to be shared.
Cooperative label or return wine for own label.
Merchant- buys grape and/or finished wine from growers and/or co-operatives.
Estate (domain)- produce wine only from own vineyards.
Merchant and Co-operative advantage from Estate: supply larger quantities, sharing cost affect to wines have lower price from same region, smaller labour cost, larger options for blending, bigger team of viticulturists and winemakers, style are more predictable.
Estate because of smaller production need more care in each stage of making wine, in most regions estates make the best wines.

Front 3

Cost of Grapes

Back 3

Cost that affect a raw grape material include:
Labour demands of vineyard- isolated, steep, small, hand tended plots, vast mechanized plots.
The cost and availability of labour and equipment- like hand picked or mechanical harvesters.
Economic of scale- are the cost advantages that enterprises obtain due to size. Cost per unit of output generally decreasing as fixed costs are spread out over more units.
Degree of selection of the grape material- green harvest, triage at harvest, discarded material means also low wine.
Yields- Spread fixed costs to yields, lower yields result in a higher quality and higher prices.
Supply and Demand- some varieties and regions can command higher price because they are particular demand and limited supply. Overproduction lead to low prices and can't cover production cost.
Cost of land- Grape from high priced land results with high price to return the investments, also where high price demand for a wine, therefore grape and land prices go upwards (Champagne, Cot d'Or, Napa Valley). Land for other kind of use can raise land price, as Aladaide suburbs.

Front 4

Winemaking Cost

Back 4

Equipment- press, fermentation, storage vessels . . .
Barrels- new, maintenance
Agening- storage large amount of wine

Front 5

Packaging and Transport

Back 5

Label design, glass bottle, ( transport by weight wine -glass) gold foil, sticker label, printed capsule, cork, retail-ready package ... all of that can add to cost.
Bottling in a country of consumption save costs (some wines by law must bottled in region of production)
Distance is a factor- long distance is cheaper. flexi-container is cheaper but have some Quality Assurance (QA) problems.

Front 6

Sales and Distributor Margins

Back 6

Agent/distributor
Subsidiary offices
Direct Sales
in US producers and importers can not sale directly to retail.

Front 7

Retail Costs, Labour and Overheads

Back 7

Retail controlled by state monopoly usually resulting by transferring cost or cost savings to consumers because of strong negotiable position on retail monopoly.
Small retailers can group in cluster to improve their negotiation position, they can outsourcing for importers or distributors.
Just-In-Time sales, demand extra costs for full range, storage facilities with , humidity, constant temperature, racks ...

Front 8

Taxes and Levies

Back 8

Taxes- government determine excises per volume, domestic or imported...
Levies-interprofessional organisations that look after interest of people involved in wine production (CIVIC, CR, AWBC) or group of passioned producers determine some regulative as:production techniques, where vine can be planted, tasting and approving to use region's name, mediating growers winemakers, funding research for quality, quantity and profitability improvements. researching and limiting geographical identifications, lobbying governments ... All these activities are founded from levies collected from members.

Front 9

Branding and Marketing
Defining Branding

Back 9

One way to define a brand is to think of as something that gives a consumer guarantee of quality and/or style. The consumers i prepared to pay "little extra" for that. In order to reinsurance exist the brand consumer need to be familiar with brand and expectations it creates.
Media promotion to encouraging consumer to taste on promotion price.

Front 10

Brand VS Commodities

Back 10

Irrespective of the production cost the price that wine ultimately sells for is the price that market will support. Usually new producers or importers have large supply and they undercut prices to the level closely to the production cost. The commodity price set by the cheaper supplier, This is not work with the wine from two reasons. First, wines are persuasively branded and second the regions and producers that have managed maintain the price high use: nature, legislation and business strategy to limit production on line with demand (in some cases production is deliberately restricted to avoid collapse in prices. If world demands are higher than production possibility of a region that pressure price upward.

Front 11

Marketing and Promoting Brands

Back 11

cost is attached in all marketing function and brand must be carefully weight up to return the investments. In some country TV and magazine marketing is forbidden. More cheaper is advertising the consumer through sponsorship tastings, journalist visits. Important for small volume fine wines. Work of wine critic (Bordeaux). Review via Internet platforms. Techniques similar to collectors of fine art (ensure return of investments)

Front 12

Price Brands

Back 12

Relative price will follow movements of actual price with the market except:
In wine production countries
In markets with very high taxes
divide market on four category
inexpensive wines: cheapest wine and large quantity brand wine (Bordeaux AC, Valpolicella DOC
mid-priced wines: brand wines of old world and large quantity varietal labeling New World wines.
High-priced and Premium wines: Premium New World wines and best wines from old world.