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.

Calculation of the annual number of wine bottles from the “Old winery”:

Information that can be provided upon request:

• Simple and rather old equipment for cultivation, harvesting, vinification, and bottling is available.
• The capacity of the available barrels suffices only for the currently produced amount of wine
• Currently, no direct retail sale at the winery occurs

Information that can be provided upon request:

• For simplification, we do not consider any interest payments, as the money can be borrowed from your uncle. He wishes a steady repayment of the money over the next 15 years –meaning a depreciation over 15 years.

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

Discussion on the various measures to increase profitability: The interviewee should first state the three key drivers volume, costs, and price. Alternatively, the interviewee could state volume and margin as the two key drivers, yet margin should be further broken down into price minus costs. For each driver, illustrative actions and the relevance of the driver should be discussed.

• Increase production volume: Limited potential is given high variable costs
  • Increase yield: Wine quality suffers
  • Buy additional grapes: Quality control necessary
  • Buy additional vines: Availability, costs, logistics to be assessed
  • Buy additional usable land: Expensive and time-intensive (Years)
  • Increase use of fertilizers: Current trend more towards organic and sustainable farming
• Decrease costs per bottle: Discussion along with the bar charts
  • Investment and fixed costs with 2.50 € per bottle, not the key driver
    • Leasing/renting equipment or sharing it with other wineries
  • Variable costs key drivers, particularly labor costs and packaging materials
    • Less expensive harvesters from low-wage countries
    • Cheaper packaging materials
    • Process optimization
• Increase price per bottle:
  • Price point relatively high for little known wine, as most of the grapes, are sold directly
  • Necessary to address the customer segment who is willing to pay a price of over 10 € per bottle for a new wine brand
  • Potential customer segment: Late 20s / early 30s (“Generation Y”)

Information that can be provided, although the interviewee is likely to be a “Generation Y” individual and should be able to assess people from his or her age group:

• “Generation Y” is the first „Digital Natives“ generation, i.e. population raised with the Internet
• “Generation Y” is less price-sensitive and more quality-focused
• “Generation Y” values the origin/ story of the product
• Sustainability plays an important role for the “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