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À Votre Santé: Product Costing and Decision Analysis in the Wine Industry Priscilla S. Wisner University of Tennessee

BACKGROUND
The Aproveche family owns and operates a small independent winery located in the Napa Valley California American Viticultural Area (AVA).1 À Votre Santé (AVS), which means “to your health” in French, enjoys a reputation for producing small amounts of quality wines. AVS was started by Jerome Aproveche in 2005 as an extension of the family’s grapegrowing operations and as a means to involve his children in the wine business. This path is not an unusual one in Napa Valley, where there are more than 600 grape growers and over 500 wine producers and blenders, many of which are small family-owned operations. In the Napa Valley region, over 9 million cases of wine are typically produced and sold annually. With its operation of about 4,000 cases produced each year, AVS is considered to be a small winery. AVS is managed by Kay Aproveche, the founder’s daughter. AVS buys two types of wine grapes from the family’s grapegrowing operations – a Chardonnay and a generic white grape. AVS is responsible for harvesting and processing the grapes into three types of wine that have been made by AVS since its founding – a Chardonnay-Estate, a Chardonnay, and a Blanc de Blanc. AVS wines are bought by local restaurants to serve to their customers; every year AVS has sold all the wine that it has produced. In 2010, AVS earned an 11.1% profit margin on sales 1

of $848,000 (see Exhibit 1). Kay was concerned that the 2010 profit margin had declined from the 2009 profit margin of 14%, despite a small increase in sales volume.

WINEMAKING PROCESS
The process of winemaking is fairly simple, yet requires much attention to process details. Harvest takes place in the late summer and early fall months; typically, the time elapsed from harvest to final sale is about 11 months. After harvest, the grapes are brought to the winery for washing and crushing. The crushing process separates the juice from the pulp, skin, and stems. The juice is used to make the wine; the pulp, skin, and stems are recycled back onto the fields whenever possible or disposed of. The amount of grapes available for harvest and the amount of juice generated from the grapes is dependent each year on a number of climatic and growing factors such as temperature, length of growing season, rootstock, and fertilizers used. Once the juice is extracted, it moves into the fermenting process. The Chardonnay wine grape is fermented using oak barrels; the oak in the barrels gives flavor to the Chardonnay wine. The generic white grape juices are fermented in a steel holding tank rather than in barrels. All fermenting takes place in a temperature-controlled environment; however, each fermenting method results in some wine loss through evaporation.

AVAs are wine grape-growing areas established by the Department of the Treasury’s Alcohol and Tobacco Tax Trade Bureau. AVAs are established to help vintners better describe the origin of their wines. There are currently about 200 AVAs in the United States; the Napa Valley AVA consists of 15 AVAs, each determined by geographical boundaries. IM A ED U C ATIO NA L C A S E JOURNAL

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VOL. 4, N O. 2, ART. 1, JUN E 2011

PRODUCT INFORMATION
Data related to the three AVS wines is as follows:


Chardonnay-Estate contains only Chardonnay grapes that are grown for AVS at the family vineyards. The 2010 sales projection for Chardonnay-Estate wine was estimated to be 24,000 bottles at an average sales price of $22 per bottle. Regular Chardonnay is blended by combining the Chardonnay wine left over after bottling the ChardonnayEstate with the fermented generic wine; the blend mixture is two parts Chardonnay grapes and one part generic grapes. The average sales price is $16/bottle. Blanc de Blanc wine is made from all remaining generic white grapes. The average sales price is $11/bottle.

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