Chapter 0: Introduction

Question 1

Business Definition

Answer 1

Any activity or enterprise entered into for profit, then wine business is the activity of making and selling wine for profit.

Question 2

Profit

Answer 2

Profit is the amount of money or surplus remaining after total costs are deducted from total income, also called revenue. Loss is where costs are greater than total income.

Question 3

Calculating Profit

Answer 3

The profit a company makes is calculated by deducting its costs from its sales. The costs include:
* the total costs of production, sales and marketing, transport and any taxes and duties payable;
* the costs of any promotions or of any incentives given to sell the wine.

Question 4

Profit Margin

Answer 4

The profit margin is the percentage of sales that has turned into profit.

Question 5

What is supply and demand

Answer 5

• Supply is the amount of a good or a service available for sale.
• Demand is the willingness of consumers or businesses to buy a good or a service.
• In this context, supply and demand is the amount of wine that is available to buy compared to the amount that people or businesses want to buy.

Question 6

Perfect world supply and demand

Answer 6

In a perfect world, supply and demand for wine would be in balance. Producers would be able to sell all the wine they make at a price that covers the cost of production, pays a dividend to any shareholders (or other sources of finance), finances future investment and still leaves a profit for the producer. In turn, consumers would be able to buy all the wine they want, of a style they enjoy and at a price they are willing to pay.

Question 7

Supply exceeds demand

Answer 7

when supply of a particular product exceeds demand, prices tend to fall because consumers have a greater choice of cheaper alternatives. Producers may therefore need to lower their prices (so reducing their profits) to remain competitive.

Question 8

Demand exceeds supply

Answer 8

Conversely, when demand exceeds supply, 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 drink category altogether.

Question 9

Making payments with exchange rates

Answer 9

Fixing price on order vs delivery. The exchange rate can change within this time.

Question 10

Supply Chain

Answer 10

The supply chain is the network of organisations and activities involved from the creation of a product through to its distribution and sale to the final consumer.

Question 11

Perfect world supply chain

Answer 11

In an ideal world, a wine would sell for a retail price that covers the costs of all stages of the supply chain, from the vineyard to the retailer, and earn all the businesses involved a reasonable profit.

Question 12

High-volume, inexpensive branded Chardonnay
choice of retailer

Answer 12

Supermarket or convenience shop, as a large volume is available at a low price. The appeal of the product is to a large number of low-involvement and price-conscious consumers. In addition, supermarkets offer the convenience of buying wine at the same time as food or other goods, and the wine will be transported from shop to home by the customer.

A branded product is unlikely to be sold in deep discounters as they will have their own private labels. Well-known brands also are not typically sold in casual dining restaurants as the difference in price compared to retail is obvious.

Question 13

Low-volume super-premium Cabernet Sauvignon choice of retailer

Answer 13

Specialist retailer and fine dining restaurants, due to
the small volume available and the high price point. The appeal is to high-involvement consumers who would seek out specialist wine retailers for their product range.

Question 14

High-volume, inexpensive branded Chardonnay: direct to retailer options in a free market

Answer 14

• As a high-volume, inexpensive product, the wine is likely to be sold directly to the retailer. In this case, as a branded wine,
  it is most likely to be to supermarkets or chain of convenience shops.
• An alternative would be make use of
  an agent, distributor or broker who understands the target market. This allows the production company to focus on production. A joint venture with a distributor is also possible as they will understand the target market.
• However, any option that adds an intermediary (agent, distributor, joint venture, broker) will add cost to the product that needs to be offered at the lowest price.

Question 15

Low-volume, super-premium Cabernet Sauvignon: direct to retailer options in a free market

Answer 15

• As a low-volume, super-premium product, the wine is unlikely to be sold directly to the retailer as it may be inefficient to deal directly with many specialist wine shops and fine dining restaurants.
• It is more likely that an agent, distributor or broker will be used as they know the target market and can offer the wine to many, small appropriate outlets. This enables the production company to focus on production. The additional cost can be absorbed due to the high price of the product.
• It is unlikely that a joint venture will be created as the volume of available wine is too small.

Question 16

High-volume, inexpensive branded Chardonnay: direct to consumer options in a free market

Answer 16

• Selling via the cellar door or a wine club is an unlikely option for an inexpensive, high-volume wine as many consumers of this wine are likely to be low-involvement and therefore unlikely to travel to
  cellar door or subscribe to a wine club.
• Similarly, it is unlikely that the wine will be sold via consumer events such as farmers’ markets or food and wine fairs. Given the high volumes and low price per unit, the producer is unlikely to dedicate staff to selling individual bottles through these types of event.
• The volume of the wine is too great to distribute from the company’s own online shop due to the cost of logistics (warehousing and delivery to individual customers).

Question 17

Low-volume, super-premium Cabernet Sauvignon: direct to consumer options in a free market

Answer 17

• Selling via a cellar door is a likely option as the producer may want to offer customers a high-quality experience to build up loyalty to the brand.
• In addition, with only a small amount of wine available, a wine club can be used to build loyalty to the brand and to make exclusive offers to a limited client base.
• It is unlikely that the wine will be sold via consumer events as most consumers are unlikely to spend a large amount
  of money on an impulse purchase. Similarly, with only a small amount of wine to be sold, there is not sufficient volumes
  to offer it to the general public via a website.

Question 18

Goals for promotions at point of sale for high-volume inexpensive branded Chardonnay

Answer 18

The high volume and low price of the Chardonnay means that it needs to be bought by high numbers of consumers. The aim is therefore to raise awareness of the brand with a large number of people (many of which will be low-involvement consumers) and give this brand an advantage against its immediate competitors.

Question 19

Goals for promotions at point of sale for low-volume, premium Cabernet

Answer 19

the low- volume and the super-premium price means that the product is aimed at a small number of wealthy and/or high-involvement consumers, those who see the wine as a highly desirable experience, an investment and/or as a status symbol.

Question 20

Promotion options at point of sale High-volume, inexpensive branded Chardonnay

Answer 20

• Price Promotions - Likely – Price promotion for a limited period can make the product more competitive and attract new customers, with the aim of turning them into regular customers. Given the large volumes to sell, attracting large numbers of customers to buy the wine is beneficial.
• Competitions - Possible - Competitions can be a useful tool
  to deepen engagement with the product and to collect contact details of consumers for further promotional initiatives. The inexpensive price of the wine means that consumers may be persuaded to buy the wine for a chance of winning the competition.
• Limited edition packaging - Possible in retail – Limited edition packaging can be linked to major events in the calendar (e.g. Christmas) or to events that the company is sponsoring. If consumers enjoy these events, the limited-edition packaging could give a competitive advantage over similarly-priced products, at least in the short term.
• Consumer tasting at retailers - Unlikely – As the product is mostly sold in supermarkets and non-destination restaurants, both the settings and the lack of wine-trained staff make this unlikely.
• Staff Incentives - Possible in Hospitality – If the wine is sold mainly via supermarkets, staff incentives are an unlikely option because there is no personal contact between sales staff and customers.
  However, staff incentives can be used in the hospitably sector; for example, to reward the staff member who has sold the most of the promoted brand.
• Staff Training - Possible in Hospitality – In hospitality, staff can be given background information about the wine in order to promote it with customers. This training is unlikely to take place in supermarkets where there is no contact between the sales staff and customers.

Question 21

Promotion options at point of sale Low-volume, super- premium Cabernet Sauvignon

Answer 21

• Price Promotions - Unlikely – Price promotion can devalue the customers’ perceptions of the brand, which would be detrimental to its luxury image. The small amount of wine made also rules out price promotion.
• Competitions - Unlikely – The high price of the wine means that people are unlikely to buy it for the chance of winning the competition.
• Limited edition packaging - Possible in retail – The product can be presented in exclusive, elaborately-designed packaging, contributing to the luxury brand image. Limited editions may also have investment potential.
• Consumer tasting at retailers - Unlikely – The small amount of wine available makes this unlikely. The company
  is more likely to rely on fine wine retailers offering tastings for which customers will pay, offsetting the cost of the tasting.
• Staff Incentives - Unlikely – The volume of wine is very limited and is likely to be spread across many specialist outlets, meaning that there is very limited possibility to sell more wine.
• Staff Training - Likely – Staff in retail and hospitality need to be informed about the product in order to be able to speak about it knowledgeably.

Question 22

Promotion options away from point of sale High-volume, inexpensive branded Chardonnay

Answer 22

• Advertising – Likely option – Adverts in the non-specialised press and in the media in general may be used as these will be seen by a large number of consumers with the aim of increasing brand awareness.
• Digital Advertising – Likely option – The brand can be promoted by adverts on social media as they will be seen by large numbers of consumers.
• Social Media – Likely option – The brand can be promoted
  at reasonable cost through the winery’s or brand’s own social media accounts to the appropriate demographic groups.
• Websites – Likely option – The brand can be promoted at reasonable cost by a website targeted at likely customers.
• Public Relations - possible – PR can be used to raise brand awareness long-term and, in the short term, to let consumers know where the brand can be purchased. For example, if a wine is highlighted in a national paper’s wine column, this could drive consumers to the retailer highlighted. PR can build brand loyalty and increase sales.
• Sponsorship – possible – Sponsoring events can build brand awareness with a large audience, especially if the event is televised and the branding is clear to see.
• Events & Festivals – possible – The brand can be promoted
  via events and festivals to the appropriate demographic groups. This provides the best consumer sampling opportunity.
  Branded free merchandise distributed at events can increase brand awareness both at and after the event.
• Reveiws & Awards – possible – A medal from a wine-judging competition could be an advantage in making the brand stand out from similar wines, especially for lower-involvement consumers.
  Reviews and awards are also important to influence the buyers who makes decisions for retail and hospitality businesses.
• Wine Tourism – unlikely – Low-involvement consumers are unlikely to be looking for a wine tourism opportunity.

Question 23

Promotion options away from point of sale Low-volume, super- premium Cabernet Sauvignon

Answer 23

• Advertising – Possible – The wine will be more expensive than most consumers are willing to pay, therefore advertising through non-specialised media is unlikely to be effective. However, specialist wine publications that are aimed at high-involvement consumers who are prepared to pay the high price of the wine may be suitable.
• Digital Advertising – unlikely – General social media platforms do not target the small number of potential purchasers of this super-premium product.
• Social Media – unlikely – The number of potential customers is limited and so it would be difficult to reach them efficiently by social media.
• Websites – likely – The brand can be promoted at reasonable cost by a website targeted at likely customers.
• Public Relations - unlikely– The volume of wine produced is not sufficient for general brand-building activity. However, PR targeted at top wine journalists and influencers could be valuable.
• Sponsorship – unlikely – The company is unlikely to be big enough to have the budget for this, nor does it have the volume of production to meet the demand it could create.
• Events & Festivals – unlikely – The wine lacks the volume to promote via large scale events, though small, very prestigious events could be possible.
  Branded free merchandise is also a possibility at small, prestigious events. The merchandise can increase brand awareness both at and after the event.
• Reveiws & Awards – possible – Samples can be sent to prestigious wine-judging competitions with a view to gaining recognition, especially if the place of origin is not well known or does not have a reputation for high quality wine. High-involvement consumers and buyers may be influenced by gold medals, trophies and high scores from respected critics. High scores from the most respected critics may also increase investment potential.
• Wine Tourism – possible – High-involvement consumers might be interested in visiting the winery. The feasibility of this would be determined by the volume of wine available and whether the company wishes to invest in this option.