Florida International University

Professional MBA Downtown Program | Spring 2018 | Cohort 14

Supply Chain in the Wine Industry

By:

Bettina Camila Cristo

Marlen Perez-Batista

Alexander Sucasaca

Brett Pencar

Victor Lolas

Ivan Contreras

MAN 6501| Operations Management

Professor Sushil Gupta

March 4, 2018
 Table of Figures
Figure 1. Wine Production Trends...................................................................................................7
Figure 2. 2013 Annual US Wine Production by State.....................................................................8
Figure 3. André California Champagne.........................................................................................10
Figure 4. Carlo Rossi Sangria........................................................................................................11
Figure 5. Production Required Quantities.....................................................................................12
Figure 6. Wine Harvest Season Calendar......................................................................................13
Figure 7. 2016 Top Importing Countries.......................................................................................16
Figure 8. 2016 Top Exporting Countries.......................................................................................17
Figure 9. The World's Biggest Wine Drinkers...............................................................................19
Figure 10. Global Wine Consumption: Top 10 Markets................................................................20
Figure 11. US Wine Off-Premise Sales.........................................................................................22
Figure 12. How Business Intelligence can improve the wine supply chain..................................31

Abstract

The purpose of this research is to understand how the supply chain in the wine industry is

structured. A defined process that starts when you plant dormant, bare root grape vines and

begins the conversion into wine. The ability to take advantage of technology and make a

combination of diverse techniques is what makes different types of wine unique. Different kind

of regulations might become a challenge when it comes to distributing the wine either regionally

or worldwide.

This research provides a deeper view of the intricacies of the manufacturing process as

we well as the distribution of the finished products. As supply chain is one of the major features

of any economic segment from manufacturing to distribution to retail, we will look at the wine

supply chain from a holistic perspective and will provide interesting insights with a small

business example. As the wine industry is heavily regulated, this document will touch some of

these aspects in detail.

Areas of concern include finding the balance between supply and demand, overcoming

the restrictions set by rules, regulations and securities, and navigating the unique processes that

are distinct to high value versus lower value wine products.

In terms of areas of opportunity, the wine supply chain can be improved by shipping wine

in bulk before bottling in glass, collaboration between competitors such as the consideration of
load sharing and implementing business intelligence tools. Another key aspect included in the

research is the environmental and tax incentives surrounding the industry. Lastly, we will talk

about different initiatives within the wine supply chain that can shape the future of wine

worldwide.

Key Words: Wine, Supply Chain, Regulations, Initiatives, Logistics, Distribution

Introduction

In his 1866 book, The Cultivation of The Native Grape, and Manufacture of American

Wines, winemaker George Husmann states “I firmly believe that this continent is destined to be
the greatest wine-producing country in the world; and that the time is not far distant when wine,

the most wholesome and purest of all stimulating drinks, will be within the reach of the common

laborer.” The U.S is the fourth largest wine producing country in the world, while Italy, Spain,

and France are the leading countries in producing wine.

During 2016, U.S exports reached a new record of $1.62 billion in revenues from wine

production. The U.S is the fourth largest wine producing country in the world. While Italy, Spain,

and France are the leading countries in producing wine. These countries produced 17.43%,

13.10%, 16.73% respectively of world total wine production during the year 2015. California is

the largest producer of wine in the United States. During the year 2016, The State of California

produced 85 percent (680,272,512 gallons) of total U.S. wine production (806,447,891gallons).

It produces two more times than the entire country of Australia.

When we think of wine, then the first thing to come to our mind is California, but it was

actually the state of Ohio that had the first commercially successful winery in the U.S during the

1830s. It was Nicholas Longworth, who thanks to his innovation, made sparkling wine from

Catawba grapes.

Right after wineries in the U.S were recovering from the effects of the Civil War, they

had to face another challenge: prohibition.

After the passing of the Eighteenth Amendment to the United States Constitution in 1920,
the wine trade was absolutely ruined. This Amendment forbade the production, transport, and

commercialization of alcohol. After overcoming this challenge, the wine industry began to grow.

Actually, in a Paris tasting of 1976, a California Chardonnay and a Cabernet Sauvignon beat out

French wines. This gave the U.S wine industry a higher status and of course a better reputation

all over the world.

Nowadays, the U.S Wine Industry faces growing challenges due to national and

international trading. Domestic regulations make it a challenge when it comes to expansion, but

we can also say that the future of wine in the United States looks bright. An increased interest in
the industry has led to higher investments and innovation taking advantage of technology and

making processes more efficient. Technology has eased the wine making process and the existing

formation route could not happen without it. Wine processes will adjust and integrate new

techniques to take advantage of development in technology. There is no doubt that the Wine

Industry will continue to prosper and grow.

Worldwide Industry and Production

Total worldwide production reached 246.7 million hectoliters in 2017, for which 90%

accounts for the top 15 producers, where the United States stood in fourth place. During the last

years, a dramatic drop in production was experienced due to weather conditions. The reduction

was recorded throughout the European Union. Although worldwide production had decreased,

non-European countries production continue to grow its wine production level every year, as

shown in Figure 1. United States production continues to grow mainly due to an increased

interest from the general population in consuming wine.

Figure 1. Wine Production Trends

The state of California dominates the US wine industry, which accounts for almost all

table grapes and raisins, and roughly 89% of the nation's wine production (Figure 2). Among the
many studies that exist to analyze the impact of wine industry and its production, The Impact of

Wine, Grapes and Grape Products on the American Economy: Family Businesses Building Value

measured the full economic impact of wine production in the US. This study confirms that wine

production is a “true economic catalyst with tremendous potential growth for all 50 states”. Wine

production has a great impact as a major employment driver. It contributes to generating tourism,

due to the increasing interest in wine culture, which brings about a positive economic

progression effect around the industry. Additionally, The Congressional Wine Caucus, a cross-

party bilateral association of U.S. Representatives and senators with an interest in the grape and
wine industry, agrees and supports the rapid growth of the industry. They believe that all

economic benefits can be maximized by policymaking through supporting legislation that

enhance the wine and grape-product industry.

Figure 2. 2013 Annual US Wine Production by State

Largest Wine Producer in the United States

E&J Gallo Winery is the largest wine producer in the United States accounting for over

25% of all sales in the country and is the largest exporter of California wines. It was founded on

September 22, 1933, in Modesto, California by two Italian-descent brothers, Julio and Ernest

Gallo, after the end of the Prohibition era. When they entered the California market, they faced

fierce competition with other 800 well-established and better-financed companies. Their initial

investment was around $100,000 (adjusted to today’s inflation), most of it was borrowed from

close relatives. They learned the trade of commercial winemaking by reading old pamphlets that

were published by a local university.

On their first year of operation, they produced close to 178 thousand gallons of wine. The

following year, they increased their production to 440 thousand gallons. In the 1940’s, the

company acquired the Valley Agricultural Company, moved its operations to Modesto and
registered the Gallo trademark in most states. In 1958, they established the Gallo Glass

Company, which currently operates as their largest glass plant. In the 1960s, the company earned

praise as the largest winery in the country based on sales volume and it also introduced its first

sparkling wines, among them, André, which later became the largest selling sparkling wine brand

in the United States. (Figure 3)

Another significant milestone during this decade was the creation of long-term grower

contracts, which assured financial stability for those suppliers. In the 70s, the company made

important strategic acquisitions and introduced new brands, such as Carlo Rossi. (See Figure 4)
International expansion started in the 1980s when the company opened their office in

London. The 1990s was a decade filled with brand and product introductions such as the Gallo

Estate Wines, their first offer in the super-premium category, and Gallo of Sonoma, Ecco

Domani. In the 21st century, more strategic acquisitions occurred such as the Bridlewood Estate

Winery and received multiple accolades, including the title of “Best American Wine Producer” in

the International Wine and Spirits competition.

Figure 3. André California Champagne

According to the company website, E&J Gallo Winery works with more than 3,000

suppliers whose products and services range from branded wine imports, bulk wine, contract

manufacturing, packaging, corporate services, technology support, travel and raw materials.

From the distribution perspective, in addition to the brands from the Gallo Family

Vineyards product line, the company produces, markets and distributes more than 60 other

labels.

The company was key in the development and implementation of Sustainable Wine

Growing Practices, in collaboration with reputable institutions such as the Wine Institute and the

California Association of Winegrape Growers. The code was developed to encourage

environmentally sound, socially equitable and economically feasible sustainable practices;

covering almost every aspect of the business, from viticulture to winemaking and acquiring

productive associations with the local communities and neighbors.

Figure 4. Carlo Rossi Sangria

Wine Manufacturing
California is the leader in grape and wine production in the United States. In general, the

wine manufacturing process consists of the following: growing, harvesting, crushing and

pressing, fermenting, maturation, and bottling.

Each of these processes when broken down are a calculated and measured science. The

first step in producing wine is growing the grape. This process is so important that there is a

specific title for the science in each process known as viticulture. Viticulture is the science,

production, and study of grapes. The series of events when a grape is grown until harvest such

as temperature, soil types, age, and humidity, all have an impact on the taste and quality of the

grapes resulting in different qualities and tastes of the wine produced. This is done on a very

large scale; Figure 5 depicts the amount grapes needed for production:

How Many …? Bottle Pound Ton

Grapes per … 500 – 180 – 275 360 – 550 K

750

Cluster per… 2 – 25 1–9 2 – 18 K

… per Bottle n/a ±2.75 1/720

… per Acre 3 – 18 K 4 – 24 K 2 – 12
Figure 5. Production Required Quantities
 Harvesting season is one of the busiest seasons of year for wine manufacturers. It is said

that the best wine growers can walk down a row of grapes and tell by taste when they are ripe by

sweetness and color. The Northern Hemisphere harvest season is between August and October

and the Southern hemisphere is between February and April. Figure 6 shows the different month

versus the types of grapes that make certain wines and when they are ready to harvest:

Figure 6. Wine Harvest Season Calendar

After the grapes have been harvested, they will be crushed. Today, we use a variety of

industrial machines that crush and destem the grapes. The time-long tradition of stepping on the

grapes is no longer a practical, effective, or considered sanitary.

Fermentation is the metabolic process of yeast converting sugar from the grapes into

alcohol. This point in the process of wine manufacturing is when the manufacturer can decide to

make red or white wine. White wine is made by only pressing out the juice from the grapes.

Red wine is made by the fermentation of the grape juice, which contains the different parts of

grape including the skin, pieces of the grape, and may even contain their skin. The fermentation

process can take between 10 days to several months depending on the desired flavor and dryness.

After the fermentation process is completed, both wines remove the solids.

Maturation of the wine is an important component of wine production. This is where the

taste of the wine is really formed. There are three alternatives:

• Oak Barrels: This option is typically expensive to buy and derives the oak flavors that are

popular in the wine community.

• Flexcube: This is an Australian invention made of oxygen permeable plastic container that

allows oxygen in. If desired oak can be added to the wine in order to give the oak flavoring.
 • Steel Container: Using a steel container is the most cost-effective option. To give the wine

the same oak taste micro oxygen is added in order to give the oak tones of most oak aged wines.

The length of maturation will depend on the type of wine. Lighter wines will take less

time while a cabernet will take up to 18 months.

Finally, the wine has been produced and matured to the right age. Now the manufacturer

needs to decide whether they would like to use a screw cap or cork. Each decision comes with

pros and cons:

Corks

Pros Cons

A Natural Renewable Resource Expensive (2-3x)

Historically Preferred 1-3% Affected by TCA ‘Cork’ Taint

Long-term Aging Proven Limited Natural Resource

Variable Quality

Natural Corks Breathe at Variable Rates

Cork Alternatives

Pros Cons

More Affordable Option Some cork alternatives do not breathe

No TCA ‘Cork’ Taint Mostly made from non-renewable resources

Long-term aging studies have shown positive Recyclable but not biodegradable

results

More Affordable Option Variable Manufacturing Quality

Screwcaps are easy to open Associated with ‘cheap’ wine

 Distribution and Consumption

Once the grape has been processed, fermented, tested for quality assurance and bottled,

it’s now time for it to hit the consumer market. Normally, the bottled wine goes to a distributor,

who is in charge of delivering the product to different retailers based on their different levels of

demand. The logistics and shipping portion of the wine supply chain is a key factor given the

high need for variety in wine retailers. Most experts call this “The Globalization of Wine”, which

refers to the different types of wines from different countries that customers are able to find
consolidated at a single location. This need for variety makes wineries, distributors and retailers

rely heavily on a dynamic and fluid export and import market. According to 2016 data, the US is

the biggest importer of wine in the world with $5.8 billion or 17.6% of the market share. This

speaks volumes of the growth in wine globalization given the fact that 60% of the US wine

revenue comes from domestic wine, especially from California.

Figure 7. 2016 Top Importing Countries

The numbers for the US wine market are looking very positive, 2016 being the 24th

consecutive year where this industry saw growth. If we look at distributors in America, the

biggest distributor of wine is Southern Wine & Spirits of America, Inc., operating in 35 states

and shipping to every state that permits it. Glazers is also a big player in the wine distribution

industry, with presence in 14 states. If we look at exports however, France’s dominance has been

steady with almost 30% of the market share, followed by Italy with 19% or $6.2 billion.

Figure 8. 2016 Top Exporting Countries

The boom of wine shipments by sea, land or air in the recent years has also had an impact

on big shipping companies like FedEx and UPS, who have experienced a spike in wine case

shipments of up to 150% in the last 6 years, driven by the rise of other distribution channels as

well, which we will analyze next.

 The distributor-to-retail-to-consumer supply chain model continues to be the most

common across the world and in the U.S. It is a simple model that’s applicable to most products,

where the consumer physically visits the retailer in order to acquire a desired product that was

delivered to the store by a distributor. However, in recent years, the wine industry has estimated a

substantial progress in other channels of distribution to the end-consumer. As companies strive to

maximize revenue, some players of the supply chain process have begun to fade away due to the

propensity of big wineries to be a “one-stop shop”, meaning they can handle the agricultural

process, the wine production, the bottling and the distribution. This channel of distribution to end
consumer is called Direct-to-Consumer and has experienced an exponential growth in the past 5-

10 years. Another distribution channel that has started to take over the wine industry, and most

industries across the globe is the online channel. Most big retailers now have a web page or an

app in order to sell their products. Wineries have also started to do this, meaning that the online

channel has gained some share in the direct-to-consumer area as well as the retailer’s space.

In order to understand consumer distribution, we must understand the consumer’s

demand. Wine consumer distribution and retail as most consumer product industries, operates

based on the different levels of demand. These levels of demand can be analyzed per country,

region, per household or per capita. Analyzing the different levels of demand across the globe

will help us understand the supply chain more and also get a grasp of where the focus of most

large wine companies is and should be. Wine demand or wine consumption can be measured in

different ways. If we look at per capita demand, the biggest consumers in the world will surprise

you. Number one on the list according to 2015 data (last year with comprehensive statistics) is

Vatican City, with 56.2 liters per capita, followed by Andorra that consumes 46.2, a total of

3,963,000 liters spread between less than 70,000 citizens (according to UN data). Croatia,

Slovenia and France (all of them with over 40 Liters per capita per year or 70 bottles per person

per year) complete the top five, as shown in Figure 9.

 Figure 9. The World's Biggest Wine Drinkers

If we look at wine demand by volume, the US dominates the market with 3,21 billion L

per year which equates to 13% of global market share and also makes it the most attractive

market for wines in the world. The state that consumes the most wine per person is DC, with

25.7 liters per person, followed by New Hampshire and Vermont and with California as the

number 1 consumer in volume. France, Italy and Germany complete the top 4 country list, which

have a considerable difference with the rest of the countries volume-wise. Figure 10 shows the
complete Top 10 list:

Figure 10. Global Wine Consumption: Top 10 Markets

We can see the differences in Per Capita and Volume demand in the two charts in this

section. By taking a look at seasonal demand, we can also identify patterns that are very useful

for production planning and distribution to retailers. In that aspect, wine sees a sharp increase in

the last months of the year, pushed by Thanksgiving and Christmas holidays. At the same time

that wine increases, there is also a sharp decrease of beer consumption, which shows that these

products become mutually exclusive in that time of the year. By analyzing all this data, wine

retailers and wineries are able to plan and forecast the supplies needed in order to meet their

customers’ demand.

Wine retail remains as one of the world’s biggest monopolies if you look at it by country

or region. Surprisingly, some of the world’s largest retailers are actually government controlled

and enjoy very little competition due to regulation. For example, the LBCO (Liquor Control

Board of Ontario) is one of the largest importers of wine in the world as well as one of the largest

sellers. Systembolaget, a government owned liquor store in Sweden is also one of the 5 largest
retailers and importers of wine. The 2 largest wine retailers in the world however, are privately

owned. The number one in the world is Tesco, the British equivalent of Costco. They sell over $4

billion worth of wine every year across Europe. Tesco’s dominance in the wine market comes

thanks to their ability to ship and deliver wine all across Europe with no problem and in a timely

manner, as well a variety of options offered for customers both in-store, online and through their

mobile ordering app. This dominance in wine retail also situates Tesco as the large wine importer

and buyer in the world, playing a key role in the globalization of wine by offering wine from

different countries like France, Italy, Chile, Argentina, New Zealand, etc. Actually, Tesco’s wine
director, Dan Jago, together with Costco’s Annette Alvarez-Peter’s are considered 2 of the most

influential and powerful people in the wine industry. Costco is the second largest wine retailer in

the world, and it could easily be number one if it wasn’t for the amount of federal and state

regulation regarding interstate wine shipments and sales. The way Costco positioned itself as the

#1 wine retailer in America and one of the largest in the world was in part because of their selling

strategy. Costco focused on only 100-200 different wines, while most supermarkets and stores

offer thousands of different wines. This made the selection process easier while at the same time

offering a wide and constantly changing range of quality wines. Another key success factor for

Costco was its signature label Kirkland, which uses high quality wines from wineries all across

the country and offers it at an affordable cost.

But how exactly do customers like to purchase wine around the world? What are their

preferences and preferred methods? Given the fact that around 25,000 billion liters of wine are

purchased every year around the world, companies want to tailor their customer’s needs and

analyze their purchasing trends and patterns in order to gain market share in this massive

industry. In-person retail or common brick-and-mortar stores remain as the leading sales channel

in the wine industry. This is also called off-premise sales, referring to supermarket’s and grocery

stores. In the United States, off-premise sales account for more than half of the revenues. This

channel represents 66% of wine revenues in the country, which, excluding imports, represents
almost $40 billion, the breakdown of these sales can be seen in Figure 11:

Figure 11. US Wine Off-Premise Sales

Off-premise sales totaled $25.2 billion in 2015 while on-premise (restaurants, bars, etc.)

represented $13 billion and had a rather flat growth in the past years. Wine sales in general are

being pushed by an increase in the demand of $12-$25 wine bottles as well as high-end luxury

bottles. However, there are two other channels that are taking over, and accelerating the
globalization of wine even more. These are the Direct-to-consumer (DTC) channel and the

Online Channel. Both really go hand-in hand, DTC being pushed even further by online sales. In

the US, due to regulation, wine shipments across certain states like Pennsylvania for example

were not permitted. This has started to change, boosting the DTC and online components of Off-

Premise sales even higher. In 2017, nearly 4% of wine sales in the US were not done by

traditional retail or wholesaling companies, but by DTC sales. This represents an 18% increase

from 2015. Once more regulation disappears and with the growth of massive online retailers like

Amazon, we should see an even more exponential growth of online sales and especially the DTC

channel, where wineries can send their wines directly to the end-consumer.

Supply Chain: From High-Level to A Small Business Example

A supply chain is one of the major features of any economic segment from manufacturing

to distribution to retail. The product’s life cycle is an important consideration as it moves along

the supply chain. According to Jesus Galindo De La Torre, BTV Operational Excellence

Director, the supply chain of wine has always been considered to be one of the most intricate.

Consumers are persistently demanding superior quality products at lower prices, along

with better overall customer support. On the other hand, organizations are struggling with shorter
product life cycles, lower profit margins, and competition due the rapid growth of the demand of

the product worldwide. Supply chain management and strategy is becoming a major element for

resource development, overall user experience enrichment and to attain a competitive approach

in order to gain sustainable growth ratios.

When looking at the overall wine supply chain, grape production is the first stage and

consists of agricultural operations followed by wine production, where the grape is transformed

into wine. The grape first becomes fruit juice to later become wine through the fermentation

process. During this stage, right before wine gets stored in order to be aged, racking, fining,
filtration, and refrigeration comprise to become the clarification process. Packaging and

distribution get positioned as the third and fourth stage, right before the “end of life” of the cycle.

During this last stage, the chosen approach of waste management can have a great impact on the

environment, which depends on the actions for usage of the bottles and waste of packaging

(cardboard boxes, corks, etc.)

Major manufactures follow a very similar cycle, as the one previously mentioned.

Smaller manufactures, on the other hand, have to come up with a different cycle to still be

profitable and to achieve low manufacturing cost. Road Trip Wine comes from a small producer

in the Oakville District of Napa Valley and has a very distinct supply chain process, as their main

goal is not to be 100% profitable but to cover the majority of its production cost. Road Trip

Cabernet Sauvignon started as a hobby between two longtime friends, Michael Zuccato and J.

Larum, with the spirit of adventure for the road life. The life cycle of their product starts with the

sourcing of the grapes from a variety of farmers depending on quality first, then price. Unlike

others, they don't use a winery for this step, as they buy from the grower direct. After the farm

selection is completed, purchase of a certain tonnage of fruits is made, followed by the

overseeing of the harvest to begin the wine making process. Along the way, some of the juice is

sold to other wine makers to cover some of the cost. The wine making process is comprised of

destemming, pressing, and fermentation. Their cabernet is cellared for 18 months in French oak

barrels, for which storage and bottling of the wine takes place at Failla Winery, which serves a
space supplier. For the bottling process, a few different manufactures come into place. The full

service of the bottling process gets done by Top It Off Bottling Company. In order for them to

provide a full service, they need the materials to complete the process. For the materials, Road

Trip producers use different suppliers:

• Ramondin does the foil around the top of the bottle and corks

• MCC Global Label Solutions does the labels

• Tricorbraun: Bottle supplier

The finished product is sold to local restaurants private collectors, businesses and is gifted to
close friends.

Regulations

The California wine industry is heavily regulated, taxed, and can be difficult to navigate

depending on the company’s choice about getting their product to the consumer. The purpose of

wine law and regulation includes stopping or deterring wine fraud, by means of protected

designations of origin, labelling practices, and classification of wine. Regulating also allows

additives and procedures in winemaking and viticulture. Wine is regulated by regional, state, and

local laws.

A variety of wineries in Northern California in Napa Valley are not only exporting their

wine but also have in house wineries to sample and purchase the freshest wine. In order for any

company in California to sell wine, they would need to purchase a beer and wine license.

Typically, the cost of a beer and wine license in the state of California will range from $3,000 -

$5,000.

If a business is able to apply for a beer and wine license and that location is not currently

licensed, they need to complete multiple steps before their application is processed:

• A Notice of Intent to Sell Alcoholic Beverages must be mailed to all residential addresses

within 500 feet.

• A poster announcing the intention to sell alcohol on the premises must be posted near the
 entrance of the establishment for thirty days.

• The applicant must publish notice of its intent to sell alcohol at the location in the local

newspaper. The local licensing office will also notify local law enforcement, city and

county planning boards, as well as the county board of supervisors or city council where

the business is located, of the application.

Anyone, not just the residents who receive a notice in the mail or public officials, can

lodge a written protest to the application with the licensing board. A representative from the

licensing agency will investigate the applicant and any protests received in determining whether
or not to issue the new license.

Areas of Concern

The Balance of Supply and Demand

One of the main areas of concern of the wine supply chain involves balancing fluctuating

consumer demands with supply. Suppliers constantly struggle to stay ahead of rapidly changing

market trends that are easily influenced by pop culture, fashion and celebrities, by ordering

sufficient supply but without storing too much inventory. One of the issues with this balance is

the lag period between ordering and receiving supplies. Just as a supplier may receive enough of

a certain in-demand wine, consumers may have moved on to the next fad as consumer

preferences change from year to year. For example, an order from an Argentinian winery could

take 60 days to be delivered to the United States. Careful analysis of supply and demand is

crucial for forecasting to maintain sufficient but not too much inventory.

Rules, regulations and security

Since many wines come from abroad, rules, regulations and securities pose another

challenge to receiving supply. U.S. Customs Border Protection Importer Security filings, weight
restrictions of containers, and changing regulations such as the government wanting to know the

contents of containers at the port of origin requires flexibility and preparation. In addition, many

carriers have cut services, offering less direct services and instead transferring containers to

intermediate ports. Each wine-growing region faces unique logistics complications, for instance,

in New Zealand, vineyards are distant from major ports. In this case, “Some suppliers have

compensated by loading the wine into bulk tanks and sending them to bottling plants closer to

the ports.” It is pertinent for all members of the wine supply chain to maintain updated

knowledge of changing regulations or possibilities of finding alternative routes to receive or

deliver shipments.

Fine Wine Supply Chain is different

Another complexity in the wine supply chain is that the process is completely different for fine

wines as you can’t treat a $500 fine wine bottle the same as a $14 bottle. Lower priced wine

bottles are often moved from a vineyard to a consumer’s glass within a year and they “travel in a

straight line from producer to distributor to retailer.” The high-end wine process, on the other

hand, is a lot slower as some wines are not ready for consumption between 10 and 50 years.

These wines usually travel globally and repeatedly which leads to another concern of wine fraud

and trusting a product’s value after it has moved from place to place. According to Inbound

Logistics, “Long trips also tie up capital because buyers generally pay on delivery. A pallet of

Chateau Lafite Rothschild, for example, might be worth $25,000 to $500,000. “You don't want

that pallet waiting for trucks to arrive and taking two weeks or one month to be transferred from

one warehouse to another.”

Supply Chain Improvements Opportunities

Shipping in bulk, not glass

One area of improvement for the wine supply chain is to “ship liquids in bulk, then bottle

at the destination”. The fragility and heaviness of glass is particularly concerning during the
shipping process and leads to higher shipping costs. For that reason, shipping liquids in bulk can

“drastically reduce shipment costs, improve shelf life, and eliminate loss due to glass damage in

transit.” Research suggests that bulk shipments of wine can improve temperature stability of

wine because larger volumes of liquids have higher thermal inertia than small volumes. Bulked

shipments of wine provide the opportunity to bottle, package, store and deliver bottles all in one

location which reduces costs and optimizes the supply chain cycle.

The possibility of load sharing

In efforts to keep up with modern technology, one area that is relatively untapped in the

wine logistics process is the possibility of considering load (ride) sharing. There is hardly any

collaboration between wine competitors but if there was, trucks that are half empty traveling

from the same region to the same wholesale distribution center could take advantage of empty

space, reduce both their shipping costs, maximize efficiency by uniting loads. Some mid-sized

companies who have tried this small improvement have been able to reduce their truckload

shipment costs by 25%. Load sharing can be particularly helpful to meet demand when it is

especially high and unexpected.

Using business intelligence

Business intelligence is yet another way to incorporate innovation into an antiquated

supply chain process. Business intelligence provides a way to quicker, more accurate, and on

demand look into current inventories. As one shipper states, “‘I need a vertical analysis —what's

in Colorado, for example, by item,’ she says. ‘But I also need a horizontal analysis, looking at

what is happening with each of my items across the board.’”

There has been a 43% increase in wineries in the United States over the last ten years. In

order to stay competitive within the market, business intelligence can offer wine companies ways

to expand distribution and maximize sales. Having a clearer vision of how your product is
distributed can prevent shortages and overstock of products. Some distributors still are using pen

and paper and don’t know where or how much inventory is available.The figure below is an

example of how business intelligence reports have provided aid to a global wine company.

Figure 12. How Business Intelligence Can Improve the Wine Supply Chain

Wine Industry Incentives

When it comes to incentives for the wine industry, the most important and with the
highest impact are the environmental incentives programs. They have allowed the industry to

become more sustainable and improve conservation efforts nationwide while at the same time

providing companies with financial assistance to improve their natural resource conservation

efforts. One of these programs is the Environmental Quality Incentives Program, or EQIP, which

is a program from the USDA’s Natural Resources Conservation Service. According to the

program’s website, “ EQIP helps agricultural producers confront weather, pest, and lack of time

to markets challenges – all while conserving natural resources like soil, water, and air.” Among

other initiatives, the program offers the Air Quality Initiative, On-Farm Energy Initiatives and the

Landscape Initiatives that are designed to incentivize producers to boost up conservation efforts.

Another important incentive is highlighted by taxpointadvisors.com and suggests that

companies within the wine industry do not take advantage of is the Research and Development

(R&D) Tax Credit. These businesses fail to realize that new technology implementation and

improvements in their cultivation and fermentation methods qualify under this type of incentive.

As described in the website, “R&D Tax Credits allow businesses to apply for a dollar for dollar

reduction of tax for qualified research and development expenditures”. This credit provides a

very significant financial advantage and is open to companies of all sizes. In addition, most states

now offer state-specific tax credits for R&D efforts.

 Supply Chain Initiatives

The National Grape and Wine Initiative is an alliance of American grape growers

wineries, representatives, and processors that seeks to maximize the output, sustainability and

competiveness of U.S grape industries. Their Research Members, who represent the industry and

academia, control research priorities and create project teams to address them. Genetics and

Grapevine Improvement, and Natural Resources and Environment, are some of the Research

Themes that NGWI is currently working on.

As stated before, the supply chain management (SCM) consists of many channels and its
main purpose is to maximize the flow of goods and services from the point of origin to the point

of consumption. The main problem the supply chain in the wine industry faces is the lack of

logistics coordination within its own members.

Tommelein, Walsh, and Hershauer (2003) noted that “while SCM may be practiced on a

single project, its greatest benefits come when it (a) is practiced across all projects in a company,

(b) involves multiple companies, and (c) is applied consistently over time. In today’s

marketplace, companies no longer compete one-on-one; their supply chains do.”

The wine supply chain is known for having distant distributors and clients who are

becoming stricter every day. Since wine belongs to the agriculture sector, its production consists

of a very rigorous elaboration that is seasonal even though it is consumed all year long. Its

supply chain includes two important aspects: production and manufacturing. These are different

depending on the type of wine and destination. In the case of wine exports, logistics is handled

by the quantity of products entering the market according to a forecast previously made by the

importer.

When there is already a real demand for imported wine, the supply of the product is

handled with a "pull" mechanism. An important factor is that the planning of available inventory

is complicated due to different factors within the logistics chain, such as long import or export

times in the destination markets, uncertainty in the harvest and low visibility on future demand,

which leads to a high risk of stock-outs or on the contrary excess inventory.

 The dynamic simulation modeling is a beneficial and effective technological tool for

those with the responsibility of making decisions in top management because it provides diverse

solution alternatives to problems. Some of these challenges are acknowledged in a changing and

highly competitive environment as organizations usually carry out their strategies with short-

term action plans. Some of these businesses are not prepared because they traditionally know

that the future is "uncertain". When unexpected problems occur, they are taken intuitively,

putting the company’s performance at risk.

For the reason stated above, it is recommended the use of a model under dynamic
simulation that responds to the necessity to generate solutions for organizations who live in

changing environments.

Conclusion

Globalization plays a large role in the wine supply chain as consumers and manufacturers

are often countries apart with many regulations, restrictions and securities between them. When

wine products travel such long distances and for long periods, unique challenges present

themselves such as the possibility of wine fraud, since a consumer cannot be sure of the routes

their products have traveled. This is especially true for products of particularly high value that

claim to be aged for many years.

As the wine industry becomes increasingly competitive due to its tremendous growth in

the past decade, taking advantage of modern technology is increasingly important to keep wine

competitive in the alcohol industry. This includes making use of business intelligence,

automation in the supply chain process, establishing ways to reach consumers directly through

mobile and efficient services, and better cooperation between members of the supply chain.

The overall supply chain of wine, is well thought out of being one of the most complex.

Although most manufacturers follow a very similar process, a few different details will vary
among producers. The main factor for this variation, and purpose of having a supply chain, is due

the different necessities that each producer has to maintain cost at lower level. In other words, a

well-managed supply chain will boost customer services, reduce operation cost, improve

financial position.

As an industry that continues to transform and reach new markets, it’s important for

companies to leverage new technologies, take advantage of incentives and streamline their

supply chain to remain competitive.