Wine Industry Value Chain

Aug 09, 2010 3 Comments by

Hello everybody,

I am still in Paris but decided to write a post about wine business in general. Yes, actually, it occurred to me that we have not dealt with the basic structure of the market. So I m gonna explain who are the actors.

The first step is to grow grape. For this you need land and patience. Not only because you can only harvest once a year but also because between the moment you plant a grape and the moment you can transform it into a good quality wine, it can take more than ten years… or it might never happen. Quality of soil and climate play a decisive role. This is basic but you can’t grow wine everywhere on the planet.

In the northern hemisphere, harvesting season is around September whereas in the southern hemisphere it is more between February and April . Yes guys christmas time in Australia is more about gathering with friends around a bbq rather than snowmen.

Once you, the farmer, have harvested, you have two choices. Either you sell your grapes to the local winemaker or you make the wine by yourself.  While the largest estates make their own wine, small growers form cooperatives, hoping to gain more control and to participates in wine making’s downstream profit.

The third step is to distribute wine. Once again, largest estates may distribute wine by themselves. Actually, large wine companies control the full value chain, extracting margins at every level and retaining bargaining power. Nevertheless, distribution is a very different job, even more if you happen to be willing to enter a market like China. You have to establish offices all over China if you want to promote your wine. That is why distribution is often an activity handled by specialized companies such as ASC in China. These companies focus on distribution and can promote not one but numerous wineries. They therefore benefit from economies of scale.

Distribution companies’ customers are either restaurants, wine bars, supermarkets or specialty shops which will make the product available for the final consumer. Distribution companies can be tempted to go up the value chain and to distribute their own label. This is the case with French Paradox in China or Camons from 9519 wine shops.

See you soon in China !

Ari for Zhongguo Wine

News, Wine Distribution in China

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3 Responses to “Wine Industry Value Chain”

  1. Importing Wine in China: An Oligopoly ? says:

    […] internationally recognized brands of wines. In both cases, early movers importers control the wine industry value chain. They have the possibility to develop their own brand because they control distribution channels. […]

  2. Making Wine for the Chinese Market says:

    […] through their own restaurants, golf resorts and wine bars. A&A and Longhai have chosen to go up the wine industry value chain and this works. They don’t need a big brand because they can sell almost the entire production […]

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