In 2024 I wrote this summary for the D2 book (Wine Business) to the WSET level 4 Diploma Course and scored a pass. I hope you will enjoy the benefits and wish you good luck with your exams to the level 4 Diploma.
I am a Dutch wine teacher, music teacher and conductor. In 2020 I graduated WSET3. In 2021 I aced
all 4 exams (3 theory modules and 1 tasting module) at the Dutch Wine Academy in 1 day, becoming
“Registervinoloog van de Wijnacademie”. In 2023 I started studying for the WSET4 Diploma. I hope
this summary will help you ace your D2 exam.
In the last few years I gathered many digital maps. Please check www.wijnlerendrinken.nl for more
information on how to take advantage on them on a small cost.
Please use a licensed purchased copy of this summary only, since I put a lot of time and effort in
writing it. Diploma Course will cost you around Euro 10.000,00. Please don’t economize for the last
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summaries to your advantage, and keep them updated.
Cheers and thanks, Iwan.
2
,Introduction
Net profit (revenue, bottom line): total income (sales) minus total costs.
Loss: costs are greater than total income.
Costs: production, sales, marketing, transport, taxes, duties, promotions, incentives (beloningen)
given to sell the wine.
Profit margin: percentage of sales that has turned into profit.
Statistics need to be treated as indicating trends rather than being absolutely correct. In the
examination, you will not be expected to quote any actual statistics but you should be able to discuss
any trends that they show.
In this guide, two wines will be used to illustrate differences in production and supply chain: high-
volume inexpensive branded Chardonnay, and low-volume super-premium Cabernet Sauvignon. The
options for these two wines illustrate the most likely choices to be made, and are intended to
illustrate the business principles in this study guide (they are not the only possible options). In the
examination, it is more important that you show an understanding of the principles by giving clear,
logical arguments than that you remember the exact content of these tables.
Abv: alcohol by volume
AOC: Appellation d’origine contrôlée
AVA: American Viticultural Area
BAC: blood alcohol concentration
BOGOF: buy one, get one free
CIM: Chartered Institute of Marketing
DOC: Denominazione di Origine Controllata
DOCG: Denominazione di Origine Controllata e Garantita
EU: European Union
GI: Geographical Indication
HoReCa: HOtel, REstaurant and CAfé/Catering
OIV: International Organisation of Vine and Wine
LCBO: Liquor Control Board of Ontario
M&A: mergers and acquisitions
NV: non-vintage
PDO: Protected Denomination of Origin
PESTEL: political, economic, sociological, technological, environmental, legal
PGI: Protected Geographical Indication
PR: public relations
SWOT: strengths, weaknesses, opportunities, threats
VAT: Value Added Tax (European)
VDP: Verband Deutscher Prädikatsweingüter
3
,1: Factors that Affect the Price of a Bottle
of Wine – Supply and Demand
2023: historical low wine production.
General decline in consumption, but not in every market.
Structural over-production, because a vineyard produces every year, also when stock is still full.
4
,5
,6
,Costs of growing grapes, producing wine, getting it to end consumer, concept of supply/demand
(seldom in balance). Production levels subject to factors such as weather. When supply exceeds
demand, prices fall (consumers have a greater choice of cheaper alternatives). When demand
exceeds supply, prices increase. Demand is affected by social, economic, legislative and political
factors.
Entry level wine sold in bulk, starting EUR 0,40 per litre (2023) or Spanish wines.
A price-sensitive market refers to a market where consumers are unwilling to pay more than the
lowest price for a style of wine. The impact on the industry varies, some producers may choose not to
sell in a market if they know their profit margins are very much reduced. Some producers may not
pass on higher production costs and currency fluctuations in case they lose sales to competitors,
leading to longer term issues of cash flow and sustainability for the producer.
Price-sensitive markets include Germany and the UK.
1.1. Factors that Influence the Demand for Wine
SOCIAL FACTORS
Changes in Consumption Habits
Global wine consumption fluctuates. Change has varied between markets: going up in USA (largest
consumer since 2011, taking over from France and Italy) and China (growing middle class), static in
Germany, going down in France and Italy (last few years Italy rises a bit again).
Where wine consumption is falling, there are several possible reasons:
• Younger people drinking less wine (other alcoholic drinks, less time in bars, old-fashioned
image)
• Health concerns (negative health effects of alcohol, government campaigns like Loi Evin)
• Changes in lifestyle (less long meals, less drinking at lunch)
• Reduced availability of cheap wine (less over-production, switch to other, cheaper alcoholic
or non-alcoholic drinks)
Changing Consumer Preferences
7
, More sparkling, more rosé (USA), more white, more organic, more natural, more high-end, more
low/no-alcohol wine, less fortified, less medium-sweet German wines (Liebfraumilch, Blue Nunn),
less red.
Changes in Reputation
Reputation, reviews, influencers, key opinion leaders (KOL’s), media, peers.
Changes in Spending Patterns
Producers building up ‘brand loyalty’ (part of marketing campaign) in ‘price-sensitive markets’ with
fierce competition, like Germany, UK, Netherlands. Trend for ‘premiumisation’ in USA: less but
better. Slow process.
ECONOMIC FACTORS
Strength of the Economy
Cheaper wines or switch to less expensive drinks (beer, cider) in recession or inflation. Emerging
middle-class China increases wine sales.
Fluctuations in Currency Exchange
Affect demand for imported wines, particularly in price-sensitive markets. Recent boom Argentinian
wines due to weak peso: wines very competitively priced on global market. However, it costs
producers more to import equipment and supplies, such as barrels, corks and yeast.
Changes to the Market
Companies and products enter or disappear. Limited supply may raise prices. New lower-priced or
better-value wine may reduce demand for other similar products, lowering prices.
LEGISLATIVE AND POLITICAL FACTORS
Laws Prohibiting or Limiting the Sale of Alcohol
Legal drinking age, limited sales hours, state-owned monopolies (Sweden, Norway, Canada), three-
tier system (USA) increase prices. Some countries prohibit selling any alcohol.
This can be either completely i.e. some countries have prohibited the sale of alcohol or some countries
have limited the sale of alcohol. The result being, supply is limited and the prices are usually inflated.
In most countries there is a minimum age for the consumption of alcohol and restrictions on the hours
of the day when alcohol can be sold. This all impacts on supply and demand.
Government Policies to Reduce Alcohol Consumption
Laws to encourage citizens to drink less (to reduce illness, injuries and criminal behaviour). France:
Loi Evin (1991) restricted advertising. Scotland: ‘minimum unit pricing’ (GBP 0.50 per unit): bottle (9
units in UK) costs at least GBP 4.50. Alcohol limit for drivers (Blood Alcohol Concentration BAC) tends
to move down to reduce drink-driving.
Restricting the advertising of alcoholic drinks in some countries has made a significant impact on the
consumption of alcohol e.g. France. Minimum pricing on a unit of alcohol is a way of reducing
consumption of cheaper alcoholic drinks, this has been introduced in Scotland. In most countries there
are strict limits on the amount of alcohol consumed before driving a motor vehicle. This impacts on
supply and demand as it is not socially acceptable to drink and drive.
Taxation
Tax and duty besides sales tax (BTW, VAT). Level of duty varies between different categories of drink,
can influence demand. Higher prices may reduce consumption, but tax and duty on alcohol is a major
revenue generator for governments. Ireland: large difference between the excise duty on still (EUR
3.19/bottle) and sparkling wines (EUR 6.37/bottle), greatly reduced demand for sparkling wine. Hong
Kong (2008) abolished excise duty on wine altogether, to become ‘wine trading hub’ of East Asia:
massive increase. Luxemburg also has no duty. High duties in UK, Norway, Sweden.
Alcoholic drinks are subject to duties and taxes which increase prices. Although taxes/duties create
revenue for governments, higher prices may dissuade consumers from buying wine. Excise duty can
vary for different alcoholic drinks, which may reduce demand for certain drinks if it is particularly high
(for example, in the Republic of Ireland, duties on sparkling wines are higher than still).
International Trade
8
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