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Section V: The Business of Wine Chapter 17: The Marketing and Distribution of Wine History of the Wine Business Wine has been made in America going back to the nineteenth century. During this time, Europe produced superb wines due to advances in chemistry and microbiology. France established its wine classification system. Wine industry expanded; transportation methods improved Phylloxera struck in the mid-1800s. Prohibition was another serious setback in 1919. Prohibition was eliminated in 1933. State Laws on Selling and Transporting Wine Control states • The state is the sole distributor of alcohol Open states • Free enterprise; private companies operate at each level • Three-tiered system of distribution: producer to distributor to retailer/restaurant • On or off-premise licenses Partial control states Wholesale Sales Strategies Sales reps regularly visit their accounts to keep customers abreast of what is developing. Offer buyers a chance to taste current offerings Offer periodic discounts for certain wines • A post off is a discount applied to a specific wine for a specific period of time. Provide additional opportunities for wine tasting such as Trade tastings. Profitability in the Wine Industry There are several basic formulas that show whether a pricing decision will be effective. • Freight on Board price • Laid-in-Cost • Wholesale Price and Margin on Sell Strategic Marketing Cost Leadership: The firm will deliver the same benefits as competitors but at a lower price Differentiation advantage: A firm delivers benefits that exceed those of competing products Focus Strategy: this is the most intense strategy, and addresses a specific segment of the market. Strategic Marketing in the Wine Industry Small boutique wineries depend on producing wines that are superior in quality to wines produced by competing wineries in the same, or a close, region. Such wines are unique in the level of their quality, their limited numbers and their regional identity. They have a distinct inherent differentiating advantage. Wines of this level of quality often have a demand that exceeds their supply, and therefore are expensive. Branding and the Wine Industry The majority of wines sold in the United States are brands that are able to deliver the same benefits as those of competing products but at a lower price. Brands employ the first marketing strategy known as cost leadership. Brand wines are often defined by the price at which they are sold. The wine industry has become dependent upon branding. Branding and the Wine Industry (cont.) Brands now control the US wine market. Branding helps differentiate a product from the competition by clearly defining its differentiating characteristic. Marketing team must convey a consistent message through all aspects of communication and promotion. In order to be successful today, all marketers must incorporate the Internet into brand promotion and sales efforts. Alternative Methods of Selling Wine Wine should not be shipped by ship, truck or plane during the summer or the depths of winter cold. Prior to the arrival of the newest vintage, many retailers seek to move the remains of the previous vintage to make room for the new wines There may actually be special discounts to the consumer. Buying Futures Buying futures means that the wine is purchased before it is actually released to the market. Ensure collectors have access to the wines Wine is purchased and paid for before the buyer can possess it. Helps the winery: • Buyer pays up front, thus supporting the winery • Ensures the wine gets sold Buying From Auctions and Private Cellars The primary way for restaurants to acquire older wines is to purchase them at public auction. Bidding is highly competitive. Auctions offer access to rare caches of wine.