Delamere Vineyard struggles to generate a consistent net income during the company’s quest for quality wine. Richard Richardson, owner, manager, and winemaker is concerned about the long term future of Delamere Vineyard.
Develop the highest quality of Wine
Richardson has been known for developing great wine and is constantly looking for ways to improve the overall quality. In 1994, customers even stated that his Reserve Pinot Noir was amazing and far superior to their competition. Richardson currently believes in three potential improvements exist and I have outlined his potential projects (highlight below).
Option 1: Prevent Excessive Oxidation (Determine optimum SO2, level)
a.)Potential Benefit: Prevent oxidation; improve the consistency and “fruitiness”
b.)Risk: Decrease complexity
c.) Capital Expenditure: Zero dollars
d.)Production: 10%-30% scrap
This option would allow Richardson to produce a consistent wine on a year to year basis. Wine that uses SO2 will still command a high price and sell very well on the market. Less risk can be associated with this method as well. On the downside, by producing wine using SO2 you tend to reduce the individual character of the wine. Initially Richardson will risk the chance of losing some of his harvests; given Richardson previous chemistry back ground, he should be able to develop a formula faster than others. Option 2: Deepen Red Wine Color (Implement Rotofermenter)
a.)Potential Benefit: Improve customer reception; 10% price increase
b.)Risk: Altered taste
c.) Capital Expenditure: Rotofermenter $30,000
Richardson has stated that customer’s traveling to his region and surrounding markets prefer wine with darker color. By using the rotofermenter, Richardson will be able to create a darker wine, which he believes will increase his retail by up to 10%. Based on Richardson’s revenue from 1997 this method would generate an additional $24,391.80 in sales. This option does raise the risk of potential oxidation, which in the past has plagued Richardson. The rotofermenter also has a chance of altering the taste the wine. The cost for introducing the rotofermenter is $30,000. Option 3: Optimum Fermentation Mix (Whole bunch; Destem: Full Crush) a.)Potential Benefit: Greater complexity, “character”
b.)Risk: Customers may reject
c.) Capital Expenditure: New fermentation tank
This method has the potential to produce amazing wine that could sell at a much higher retail. The final product will not be similar to Richardson’s competition base and could potentially give him the edge in pinot noir sales; adding complexity to ever bottle. However, the taste and quality will vary from barrel to barrel. Lots of risks are associated with this process. This method would require that the grapes are handpicked and also smashed by feet which would increase labor costs. Consistency would be the largest problem and could potentially lead to decreased customer satisfaction. Close to 88% of Delamere’s customer base tends to purchase’s wine based on consistency and price, rather than the complexity and character. Delamere's current customer base is comprised of 58% cellar door purchases, 37% wholesale purchases and 4% to Mail order purchases. The chart below outlines the percentages of business for Delamere Vineyard.
Delamere Vineyard % of sales 1997
Dollars$179,424.00$32,671.00$31,823.00$36,118.00$280,036.00 Avg. $ per bottle12.7516.85810.2
Bottles Sold 1407219393978354123530
% of Business64.07%11.67%11.36%12.90%
Delamere Vineyard does have small percentage of his customer’s that prefer the complexity and unusual character of Richardson’s Reserve label. However, this particular customer accounts for merely 12% of their total wine business.
During Richardson’s 12...