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Projeto IMW – FYA: Is the Wine Trade a Wise Investment?

O FYA é uma espécie de avaliação de andamento dos estudantes de primeira viagem no Instituto dos Masters of Wine, uma versão muito reduzida e simplificada dos exames finais: são feitas uma prova teórica (em duas horas) e uma única prova de degustação (em pouco mais que isso).

A prova teórica consiste em duas partes: a primeira contém uma questão compulsória para todos, historicamente proveniente de uma prova passada de “Negócios do Vinho” (vide o Syllabus); a segunda parte dá duas opções, em geral referentes à produção do vinho, para que os candidatos escolham a que preferirem.

No meu caso, houve uma surpresa – a questão compulsória tinha sido selecionada de um exame de “Questões Contemporâneas”, que embora tenha muito em comum com o de Business, é claramente diferente (e surpreende àqueles que, como eu, deram uma geral em provas antigas antes do FYA…).

A seguir, meu ensaio sobre a questão apresentada. Ele foi feito em uma hora, em inglês, utilizando a versão simplificada do Word que nos disponibilizam para o exame, sem possibilidade de consulta. Na prática, não há tempo para consultas, nem para muita reflexão: é decidir o caminho a tomar e os pontos a serem tocados durante uns cinco minutos e então escrever e escrever. Boa leitura!

Is the Wine Trade a Wise Investment?

It is often said, within the wine industry, that “to make a small fortune in the business of wine one needs to start with a large one”. However, whether or not to invest money in this trade is a matter of ample analysis, as the “wine trade” is a very generic term which can cover many different areas of knowledge and practice, as well as different levels of investment, both time and money-wise. It can cover anything from making wine to just bottling it, as well as supplying the producers with goods or services; it can range from importing to distributing or retailing, as well as offering various consultancies to those who perform those roles; it can also relate to educating/instructing the trade itself or the public or investing in one of the many media channels as a communicator or a critic; it may even be as a consumer or an investment fund, buying wine as a trading commodity. To decide on how wise an investment it is, it is also necessary to have very clear knowledge of the intentions of the investor: how quickly he needs to have a return on his investment, as well as how much money and effort he is willing to put into it. It also requires an awareness of the demands and opportunities in different markets, as one investment can be very wise and successful in one region or country and the same venture can be destined for failure in another.

In this essay, we’ll focus on the opportunities and threats of investing in the trade as a wine importer, as importing wine can easily be seen as a way to make good profit in the wine trade. We’ll compare two different markets and sizes of operations in order to give a more global perspective of the options.

If planning to invest in an established market like the United Kingdom or the United States, an importer is likely to enjoy a general awareness about the product, some knowledge about the different styles, origins and quality hierarchy, as well as an established demand. On the other hand, there is also an established competition, with many importers already working on the market, and investing in a new operation will require enough money and time to gain space and public awareness within that market. In a developing market like the Indian or the Brazilian one, the general public may have too little a wine culture to recognise the value of some products or services, and an large part of the population may simply be uncapable of spending money on wine on a regular basis (or at all) to make it worth the investment on a short or medium-term basis, while many opportunities might arise as the general awareness about wine grows along with the population’s buying power, as it has been happening in those countries.

For larger companies, like the multi-national, vertically integrated LVMH group, investing as early as possible in a developing market is a must – they can assure market share by establishing brand image and  product placement earlier than the future competition, as well as being one of the first to sell to the consumers that would already be interested. A big company has the capital and the means to create a strucute where there might be none, as well as to wait for the investment to pay back, as they would normally have other sources of income, either by selling on other markets or selling different products. They are also more flexible with their margins and are capable of reducing costs on economy of scale and would be able to offer products with an attractive price. On the other hand, they can spend their budgets on established markets, where they have an established demand, and work on carving their ways between the competition by doing promotion and reinforcing their branding.

A small company would need to better balance its return on investment, as it will probably depend on its sales to survive. Money spent would need to result in sales and income in a shorter time, also because most of the products are bought and paid in advance. Money spent on taxes can be a challenge to small operations everywhere, but especially in developing markets, like Brazil, which requires the taxes – which are generally as high as 100% of the cost-and-freight of the product. An established market may offer some benefits towards the taxation of the imported products, since it could be allowed to pay taxes only when delivering the product to the consumer, as it happens in the United Kingdom with bonded goods.

In any case, an investor must bear in mind that wine has a limited life-time. Although many high-quality wines may have a lifespan of a few decades or more, most of the wine produced and consumed in the world was made to be drunk in the same year or in just a few, limiting the time available to the investor to sell the product and make a profit out of it. A large-scale company may have an edge in being able to operate in different markets, re-directing the flow of products according to its needs and to the market response, as well as often being vertically integrated (as LVMH in our example) and being able to source their products from within the company itself. Smaller operations will have to deal with the markets they choose and would have paid for the goods from the beginning, as mentioned before.

It is paramount, then, for any individual or company willing to invest in the wine trade to consider the many possibilities, its threats and opportunities when deciding wether it is wise or not to make the investment. In the case of investing in importing wine, it may be wise if the requirements and the opportunities in a particular market are in balance and in accordance with the means of the investor. One would have to account for the demand, the potential of consumption in the future, the presence and means of the competition, the costs of the goods and transporting them to the target market, the legal costs and requirements, the ways of access to the public and even the limited lifespan of the product itself. It may be a wise investment, but it is certainly one that requires a lot of knowledge, patience and capital.

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