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Bain Case: Old Winery

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Difficulty: Intermediate

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Case Prompt:

You have inherited the “Old Winery” from your grandfather, a winery that has been family-owned for five generations and can be dated back to the 16th century.

Half of the eleven hectares are used to grow white grapes, the other half to grow red grapes. They are grown in a conventional way, i.e. they are not organically farmed and certified. The vine stocks are in a good condition regarding age and care. Overall, the only ¼ of the harvest is made into wine by the winery itself; the rest is sold.

Your grandfather never wanted to change the image of the winery and left the managerial and administrative task to a young and energetic wine-maker. Due to the not so well-known brand, the demand for the “Old Winery” wine is currently rather low.

You do not intent to run the winery operatively, given your limited knowledge of winemaking, but find the idea of owning a winery exciting.

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1. Estimation of the Yield

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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.

Note for Interviewer

The images should be used to estimate the yield quantity. In the first step, explain how the grape quantity for the winery can be calculated based on the images. Emphasize that this is not about specific numbers but about the structure.

Now, inform the interviewee that the winery has approximately 15,000 kg of grapes per hectare of vines.

The calculation of grapes per hectare of vines is only relevant for the interviewer to understand the structure. The 15,000 kg does not need to be calculated.

Grapes per hectare of vine

Vines per area: approx. 2 m vines per 2 x 2 m² = 4 m² (left image)
Quantity of grapes per vine length: approx. 3 kg of grapes per m vine (right image)
Quantity of grapes per area: 2/4 m/m² x 3 kg/m = 1.5 kg/m²
Converted to one hectare (1 ha = 100 x 100 m² = 10,000 m²):
1.5 kg/m² x 10,000 m²/ha = 15,000 kg/ha

Wine per hectare of vines

Wine yield from grapes: approx. 0.5 l wine per 1 kg grapes
Wine per hectare: 0.5 l/kg x 15,000 kg/ha = 7,500 l/ha = 75 hl/ha

Wine bottles from 11 hectares of the winery

Possible wine production: 7,500 l/ha x 11 ha = 82,500 l
Possible wine bottling: 82,500 l / 0.75 l/bottle = 110,000 bottles

2. Business Case for the Old Winery - Step 1

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2. Business Case for the Old Winery - Step 2

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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
- …

Cost calculation per bottle

Investments to be written-off over the next 15 years: 1,200,000 € / 15 a = 80,000 €/a
Fixed costs and depreciation per year: 190,000 €/a + 80,000 €/a = 270,000 €/a
Fixed costs and depreciation per bottle: 270,000 €/a / 110,000 bottles/a = 2.50 €/bottle
Variable costs, fixed costs and depreciation per bottle:
7.30 €/bottle + 2.50 €/bottle = 9.80 €/bottle

Assessment of the price of 9.80 € per bottle:

Dependent on customer segment
Relatively high for supermarket wine

Note for Interviewer

Measures to increase profitability should be suggested and discussed critically.

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"

Note for Interviewer

After possible measures have been mentioned, explain that a previous analysis showed that "Generation Y" could be an interesting target group.

3. Elements of an Image and Marketing Strategy

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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
…

Note for Interviewer

It is sufficient if 3-4 of the elements listed below are mentioned. The listed measures are potential solutions; it is not expected that all elements will be mentioned.

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

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Question about

Estimation from image

on Aug 05, 2019

Global

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Bain Case: Old Winery i

Case Prompt:

1. Estimation of the Yield

2. Business Case for the Old Winery - Step 1

2. Business Case for the Old Winery - Step 2

3. Elements of an Image and Marketing Strategy

Bain Case: Old Winery