A single bottle of wine is sold at a retail price that covers the costs of all stages of the supply chain.

Along with viticulture and winemaking, it is important to choose what options are available at all stages of the supply chain.

The costs of viticulture and winemaking are very important because of their high weight. Viticulture costs account for around 70% of the total cost, while winemaking costs account for 15-25%.

This ratio is the same for many wines.

• Inexpensive and Premium wines.
• Growing grapes on your own farm, and buying grapes.

1. Grape Growing

The cost of viticulture is largely divided between the establishment and operation of the Vineyard.

1. Vineyard Establishment

To establish a vineyard, land must be purchased and vineyards must be developed.

1. Buying or Renting the Land

The first costs are related to the purchase or lease of vineyard land, and the price of land varies greatly depending on a combination of factors.

• The environment of the land for growing high quality grapes
• Appellation Names
  • In California, the price of land in the Napa Valley is about 10 times that of the Central Valley.
  • In Bordeaux, the price of land in the exclusive Médoc region can be more than 100 times the price of a typical AOC Bordeaux.
• Scarcity of Land
  • Prime land in Champagne rarely comes on the market, and when it does, it is at a very high price.

2. Preparing the Vineyard

A lot of preparation is required before a vineyard operation can be started, and the costs can be high.

In addition, vines require a large amount of capital because it takes at least three years from planting to harvesting grapes that can be used for wine production.

• Surveying to determine if the land is suitable for viticulture and for which grape varieties (e.g. taking soil samples)
• Land preparation
• Divide the vineyard into plots and create access roads
• Installation of trellises
• Construction of irrigation systems in dry areas
• Protection from weather hazards (windbreaks, frost protection, etc.)
• Purchase of machinery, equipment, etc. and construction of a garage to store them

2. Vineyard Management

Once a vineyard is established, there are operating costs involved in growing grapes of the desired quantity and quality.

1. Labor
   • There is a balance between the cost of labor and the cost of purchasing machinery.
     • When the cost of labor is low (as in Chile), there is less incentive to invest in capital-intensive equipment.
     • When labor costs are high (as in Coonawarra), the incentive to invest in machinery becomes more favorable.
2. Materials
   • Materials needed to repair trellises and consumables such as gloves, pruners, etc.
3. Treatment in the vineyard
   • Fertilizers and pesticides (herbicides, fungicides, insecticides, etc.)
     → Integrated pest management can reduce usage fees
4. Water
   • Cost of rights to draw water or purchase water if irrigation is required
5. Electricity
   • Cost of electricity needed for irrigation systems, frost protection equipment, etc.
6. Insurance and depreciation
   • Insurance against natural disasters
   • Depreciation costs for equipment and machinery established or added to the vineyard

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2. Winemaking

As with vineyards, winemaking requires capital costs to establish a winery, as well as operating costs.

1. Winery Establishment

1. Cost of land to build a winery
2. Cost of building the winery
3. Cost of purchasing equipment, machinery, and production lines for brewing (presses, tanks, pipes, pumps, refrigeration equipment, aging containers, bottling lines, etc.)

2. Winemaking Costs

1. Cost of purchasing grapes (if you do not own a vineyard)
2. Labor
   • (Unlike vineyards) often employ a small number of skilled staff on a full-time basis
   • Temporary labor may be hired for unloading grapes and moving equipment during harvest.
3. Winery Materials
4. Running costs for Machinery and Equipment
   • Fuel, electricity, maintenance costs, etc.
5. Water
   • Large amounts of water are used for cleaning (in areas where water is expensive, some wineries invest in water treatment facilities)
6. Electricity
   • Large costs for refrigeration and ventilation, as well as electricity for presses, pumps, lighting, etc. (Some wineries have installed solar panels to reduce costs)
7. Maturation
   • Storage space is required for aging at the winery
   • New oak barrels are very expensive (old barrels provide little or no oak-derived aroma, oak chips are cheaper but increase costs)
8. Packaging
   • Bottles, closures, labels, cartons, pallets, and other materials are needed. (Unusual shaped bottles/labels will increase costs.)
   • Bottling line equipment or other winery equipment usage fees
   • Label design fees
9. Depreciation
   • Depreciation of equipment and machinery used in the winery.

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3. Transportation

There are two main methods of transporting wine.

Transport method	Feautures	Loading capacity in shipping containers
Transportation of bottled wine	・This is a common method of transportation, and is often used by companies that specialize in wine transportation. ・The price is higher, but the quality of the wine is maintained through the use of temperature-controlled shipping containers.	9,000〜10,000L
Bulk transportation	・A method of transporting wine in tanks or barrels that is inexpensive and environmentally friendly. ・It is a cheap and environmentally friendly method of transport. ・There are cost advantages when selling more than 15,000 cases of the same wine. ・As of 2019, it accounts for 34% of the world’s wine, but only 8% in value terms.	25,000L

1. Transportation of Wine in Bottle

There are four transportation methods, which are used in different ways for different routes.

Transport method	Features	Use application
Air	Very high transportation costs (as wine is very heavy for its size and value)	・When sending to a competition ・When sending very expensive wines ・When the deadline is important (Beaujolais Nouveau market in Japan)
Road	In most cases, the first and last step is road transportation. It can be carried directly to the delivery destination and is suitable for short distance transportation.	・Short-distance transportation ・Efficient when trucks can get on and off the ferry directly, such as in strait hauling
Rail	Containerization may reduce transportation costs. (Transposition of pallets is costly.)	・Mass transit between continents
Sea	The most common and inexpensive way to transport goods over long distances. The disadvantage is that it takes a long time to transport.	・Long-distance transportation across continents

2. Bulk Transportation

• Bulk wine transport methods
  1. Plastic flexitanks typically installed inside standard shipping containers (up to 24,000L)
  2. ISO tanks installed (up to 26,000 liters)
• Volume of bulk wine transported
  • 2001：23% → 2010：43% → 2019：34%
  • Spain, USA, South Africa, Australia and Chile account for more than 40% of exports (55% for Spain)

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4. Importation

When selling wine in other countries, there is generally a customs duty and a margin for the distributor. While there is an option of not using a distributor, many producers use a distributor because of the need to understand the laws of the destination country and deal with labeling and other issues.

• Import Duties
• Margins to Distributors
  • Compliance with laws of the exporting country
    • Labeling of alcohol content (USA allows for a 1.5% margin of error, but the EU requires labeling of the closest alcohol content)
    • Labeling of health warnings (required in the USA, but not in EU)

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5. Sales

• Property Costs
  • Both retail and hospitality businesses require a building to operate in, which generally tends to be expensive
  • Online-only retailers are able to keep costs down because warehouse space is less expensive
• Labour
  • The skills and expertise of the staff required vary greatly by business type
    • Supermarkets: No need for highly specialized staff
    • Specialist Wine Retailers: need to have knowledge of wine and be able to give advice to customers.
    • Restaurants: Particularly in upscale restaurants, a high level of wine knowledge is required, as well as the ability to select wines for the list and provide detailed advice to customers.
• Equipment and Materials
  • Retailers: accounting systems, refrigerators, display shelves, cleaning equipment, etc.
  • Hospitality: In addition to the above, cooking equipment, tableware and glasses, expensive wine storage systems, etc.
• Storage Costs (Where to store wine)
• Delivery Costs
• Margin at the point of Sale
  • Retailers : 30〜50%
  • Hospitality : 50〜67% (a glass of wine is even more expensive because of the risks involved.)

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6. Marketing

詳細は D2-6. マーケティング を参照

• Labour
  • Large producers: In-house marketing team
  • Small to medium producers: external marketing firm or industry association
• Design and production of bottles and labels
• Marketing campaign

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7. Fluctuations in Currency

The impact of currency fluctuations on the price of wine is significant, and there are several ways to mitigate it.

How to reduce currency risk	Trading Methods	Features
Option	Agree on the price and quantity of wine to be purchased in advance, and determine if the importer will purchase the wine at the agreed upon time.	・Producers may be able to set higher prices while risking unsold wine ・Importers can postpone their decisions.
Price fixed in importer’s currency at time of order	Set the price in the importer’s currency (usually the price is fixed in the producer’s currency)	・Producers are exposed to foreign exchange risk (producers do not know the price until they sell) ・Importers may be charged a premium by producers.
Currency hedging	Buy and hold currency in advance to be able to respond to orders from specific countries.	Importers are required to have the skills to manage currencies (and are therefore generally limited to large companies)
Trading in major currencies	Trade in the stable US dollar and euro, not in the currencies of unstable countries.	Attractive to both producers and importers (more stable exchange rates, fewer currency conversions)
Transactions in local accounts and local currencies	Open a bank account in the country where the transaction will take place and trade directly in that country’s currency.	Holding a large amount of funds in foreign currency may prevent effective use of funds.