Bain Case: Old Winery

Information that can be provided upon request:

• One hectare corresponds to the area 100 x 100 m².
• 1 kg of grapes yields usually between 0.4 and 0.8 l of wine. For a small and semi-professional winery, such as yours, yields are rather below average.
• 1-meter of vine provides about 3 kg of grapes for wine production

The interviewee should estimate the number of wine bottles at 0.75 l which can be produced each year from the winery’s grapes. A creative approach and a logical calculation are more relevant here than obtaining the exact numbers.

The interviewee should conclude that the next step is to determine the cost per bottle. Based on these costs, a price per bottle should then be estimated to ensure the winery operates at a break-even level.

The interviewee should estimate the price per bottle required to cover the costs of operating the winery. These costs should include necessary investments as well as the annually recurring costs. First, all relevant necessary investments should be stated in a structured way and their inclusion in the price of the bottle explained. Second, the annually recurring costs should be presented in a structured way. Estimating the individual cost buckets is not necessary. Finally, the interviewee should classify the price per bottle compared to the market prices and identify measures to increase the profitability of the winery.

Necessary Investments – no calculation required:

• Technical upgrade for cultivation and harvesting
• Additional wooden barrels to increase capacity
• Technical upgrade for in-house vinification and bottling process
• Improved design and appearance of the winery for sale (e.g. building, office, tasting room)

Inclusion in the price per bottle – no calculation required:

• Depreciation over several years, depending on the invested item
• Expenditure in credit or cash

Other annual costs – no calculation required:

• Fixed costs
  • Insurance
  • Property tax
  • Maintenance
  • …
• Variable costs
  • Labor costs
  • Packaging materials
  • Wooden barrels
  • Taxes
  • Marketing
  • …

Assessment of the price of 9.80 € per bottle:

• Dependent on customer segment
• Relatively high for supermarket wine

Possible measures to increase profitability:

• Increase Production Volume: Smaller lever due to high variable costs
  • Increase Yield: Reduces the quality of the wine
  • Purchase of Grapes: Ensuring quality is necessary
  • Purchase of Vineyards: Availability, costs, and logistics need to be considered
  • Purchase of Usable Open Land: New cultivation is expensive and time-consuming (years)
  • Increased Use of Fertilizer: Trend is rather towards organic and sustainable cultivation
• Reduce Cost per Bottle: Discussion based on the bar chart
  • Investments and Fixed Costs: Lower driver at €2.50 per bottle
  • Rent Equipment or Share in a Winemakers' Cooperative
  • Variable Costs as Key Driver, especially labor costs and packaging
  • Cheaper Harvest Workers from Low-Wage Countries
  • Cheaper Packaging Material
  • Process Optimization
• Increase Price per Bottle:
  • Price point is relatively high for a rather unknown wine, as grapes are currently mostly sold directly
  • Requires targeting a customer group willing to pay over €10 per bottle for a new wine brand
  • Potential Customer Segment: "Generation Y"

The interviewee should develop key elements and concepts for an image and marketing strategy to address “Generation Y“ customers, being the most willing to pay more than 10 € for a bottle of wine. The customer needs of the segment should be understood first, before developing a strategy. Primarily required here are business judgment and creativity.

Needs/ characteristics of the customer segment:

• Authenticity/ Individuality
• Quality conscious
• Sustainability/ organic food certification
• Appealing design
• Direct approach over new media and social networks
• Customer experience/ involvement in the production process
• …

Possible elements of an image and marketing strategy:

• The highlight of the long and personal history of the winery
  • Documentation of the winery back to the 16th century
  • The traditional winery, family-owned for five generations
• Physical/optical improvement of the “Old Winery”
  • The winery should be perceived as a dynamic and modern company with tradition
  • Appearance improvements of the winery buildings (see Business Case)
• Organic food certification
  • An "organic" certification could be useful
• Focus on quality/ appearance of the wines
  • Production of quality wine
  • New, modern labels/ bottles for the wines, possibly also individualized labels for smaller series upon customer request
• Use of new/ social media channels
  • Activities in blogs and networks to present the winery online
  • Sale and marketing through existing wine-Apps or by developing an own App
  • Win over influencers or bloggers as brand ambassadors
  • Establish direct contact with end-customers
  • Use online channels for sales and distribution, possibly through partnerships
• Organization of local events at the winery
  • Experience the history and the production process
  • Direct sale at the winery