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Bain Case: Old Winery

Topic Difficulty Style
Growth strategy Intermediate Real Case, Candidate-led
Market analysis (usual style)
Market sizing
Mergers & Acquisition

You have inherited the “Old Winery” from your grandfather, a winery which
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 the conventional way, i.e. they are
not organically farmed and certified. The vine stocks are in a good condition
regarding age and care. Overall, 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 wine making, but find the idea of owning a winery exciting. Your plan is to
give the winery some fresh impetus.

Transaction ID: 80803 ([email protected])

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Comments

The case is divided into three main tasks. The aim of the first is to estimate
the yield of the winery in order to gain a first understanding of the
specificities of the wine making process. For the second task the interviewee
will quantify the costs of running the winery based on a business case and
compare these to the market. Measures to increase the profitability should be
discussed. The third task consists of developing an image and marketing
strategy, to sell a higher priced wine to “Generation Y” customers, i.e.
persons in their late 20s or early 30s.

Short Solution

The winery produces grapes for approximately 82,500 l of wine, which

corresponds to 110,000 bottles at 0.75 l.
Investments are necessary mainly for new wooden barrels, technical
upgrades and for an improved design and appearance of the
winery.
The cost per bottle is around 9.80 €, of which 7.30 € are variable
costs. The two single most important cost factors are labor and
packaging materials, which already account for about 50% of total
costs.
Variable costs could be reduced to increase profitability, yet not
sufficiently if prevailing supermarket prices were to be matched. For this
reason, a quality-focused customer segment such as the “Generation
Y” should be targeted.
The “Generation Y” attaches much importance to being addressed
individually via new media, to an authentic presentation of the
company, to an appealing product packaging and to sustainable
production.

Transaction ID: 80803 ([email protected])

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 Paragraphs highlighted in green indicate diagrams or tables that can be
shared in the “Case exhibits” section.

Paragraphs highlighted in blue can be verbally communicated to the

interviewee.

Paragraphs highlighted in orange indicate hints for you how to guide the
interviewee through the case.

1. Estimation of the yield

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 is more relevant here than obtaining the
exact numbers.

Share the following pictures with the interviewee.

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

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)

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 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

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

2. Business Case for the Old Winery

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 of 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.

To structure the analysis and discussion, the interviewee could use the
following value chain:

1) Identify and present the necessary cost in a structured way

- investments
- recurring

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 Share the graphic with the interviewee.

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)

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

Inclusion in the price per bottle – no calculation required:

Depreciation over several years, depending on invested item

Expenditure in credit or cash

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.

Other annual costs – no calculation required:

Fixed costs
Insurance
Property tax
Maintenance
…
Variable costs
Labor costs

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2) Calc based on these numbers

Packaging materials
Wooden barrels
Taxes
Marketing
…

Share the following chart with the interviewee.

Business Case for the 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

Interesting, but not essential information at the end of the task:

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 The average price in Germany per 0.75 l bottle of wine across all
customer segments is below 3 €.

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 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 the bar charts
Investment and fixed costs with 2.50 € per bottle not key driver
Leasing/renting equipment or sharing it with other wineries
Variable costs key driver, 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 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”)

3. Elements of an image and marketing strategy

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. Customer needs of the

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segment should be understood first, before developing a strategy. Primarily
required here are business judgement 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
…

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 origin/ story of the product
Sustainability plays an important role for the “Generation Y”.

Possible elements of an image and marketing strategy:

Highlight of the long and personal history of the winery

Documentation of the winery back to the 16th century
Traditional winery, family-owned for five generations
Physical / optical improvement of the “Old Winery”
Winery should be perceived as 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

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 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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Transaction ID: 80803 ([email protected])

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