Executive Summary—An eccentric pioneer in winemaking, Richard Richardson, owner of Delamere Vineyard, wants to improve his final product however he is uncertain on how to proceed. He has narrowed down his options to three projects, but can only pursue one project at a time. Root Cause(s) — Delamere Vineyard has two main root causes. The first is the quality of the Pinot Noir wine. The second is creating a sustainable cash flow.
While Mr. Richardson has full confidence that he will solve both problems, his emotional attachment to the operation clouds his judgment on the best way to how to improve his wine quality and attract more customers to his vineyard. This paper’s goal is to weigh the advantages and disadvantages of each proposed project and provide Mr. Richardson with enough data to make a sound decision on how to proceed. Both of the above mentioned issues will be addressed during the analysis of the proposed projects. Analysis—Delamere Vineyard is a small boutique vineyard on the island of Tasmania.
It caters to Australians with limited selections of Pinot Noir and Chardonnay. Mr. Richardson has built the vineyard into a business that can support his family; however he recognizes that within the five stages of creating wine there is room for improvement. The two areas he must focus on are fermentation and maturation the processes. The three projects under consideration will analyze these two stages. The first project will evaluate maturation. Mr. Richardson allows oxygen to develop naturally in each of his barrels and does not minimize it. He believes it adds to the personality and character of the wine.
Oxygen is often seen as the enemy of the winemaker as it single handedly ruins a crop. Mr. Richardson had already experienced this disaster more than once and is awkwardly familiar with its dire consequences. As the Pinot Noir accounts for 85% of his sales, the loss of a crop due to oxidation is catastrophic. So the first project under consideration is to identify an effective measure to limit oxidation of the wine while it matures in the oak barrels. Introducing oxygen to the oak barrels while the wine is maturing is a risky process. Until recently Mr. Richardson used the sulfur dioxide (SO2) method on a limited basis to eliminate oxidation.
He believes the oxidation that occurs naturally adds personality to his wine. A recent wine judge and some customers’ comments seem to suggest otherwise. Mr. Richardson has three options to consider should he choose to change the maturation process of his wines. He can continue with his present solution and change nothing. This solution will not add to the quality to the wine, nor will it attract new customers. Because of these two outcomes, it will not be considered for further analysis. The second option is to increase the SO2 in each barrel to better control the process and produce a more appealing wine.
The third option will consider a series of trials to discover the exact amount of SO2 to add so that his wine maintained the desired personality but reduced the “prematurely aged” taste that had lost awards and customers. Options two and three can produce results to aid in the root causes of quality and cash flow so both of these options will be compared to determine the best recommended path to take. The second project is to deepen the color of the Pinot Noir wine as his main customers in Australia have stated they prefer the darker red color and see that as a sign of a high quality wine. Mr.
Richardson has stated that he is not interested in darkening the color of his wine, even if it would attract new customers. His concern is that the fermenter that would be required to darken the color will give his wine a “hollow” flavor even thou they are used at other wineries with excellent results in improving not only color, but flavors as well. However; he also realizes that a fermenter will allow him to produce more volume than he has the capacity for currently. Purchasing the rotofermenter will help to solve both of the root causes so it’s possible purchase will be described below.
The final project under consideration is the use of de-stemmed grapes or whole bunch in his fermentation process with a possible move to full whole bunch. This project was not proposed as a solution to a known problem, but as a quality improvement project to further Richards’ never-ending quest for quality improvements. This project holds the greatest risk for Richard as a small misstep in the process could cause the ruin of a large part of the vintage for that year. Richard has stated several times that he is a risk taker and is very motivated to provide for his family while increasing the quality of his wine.
The charts below will compare some of his decisions for this final project to determine if it’s feasible at this time to move forward. Data for project #1—I have created a decision tree for the oxidation project under consideration to explain the paths that can be taken by Mr. Richardson. Adding increased levels of SO2 by vineyards in France have proven wildly successful. The probability of it being used successfully at Delamere is very high. The drawing above explains the decision making options (A and B). Both options have to decide whether to replace the 43 older barrels at $600. 0 each to show consistent results or leave the mix as is and take the chance that the wine will improve. If you follow path A to increase SO2 levels to that of industry standard and replace the older barrels you will increase the quality of your wine and increase sales to offset the cost of acquiring the barrels. This option will produce little waste, therefore nearly gaining your return on investment for the barrels within the first crop if he increases the selling price 10% and sales do not increase. This would create $265,853 in total value of the Pinot Noir of same sales.
If sales increase as a result of the better quality only an additional 290 bottles would need to be sold at the average bottle price of $13. 30 for a break even on return on investment. If Mr. Richardson decides not to pursue the purchase of new oak barrels but does decide to add the recommended SO2 levels, he would produce 10-30% waste from the inconsistencies in the maturation process, but should be able to offset that loss over the next two crops by the 10% increase in bottle prices of the higher quality wine.
Option B is to embrace the scientist in himself and start experimentations with the SO2 levels. If he should choose not to pursue new barrels, his results will be skewed even further as the 40/60 mix of new and old barrels will yield inconsistent results. That path will result in more waste. If he decides to purchase the new barrels to replace the 43 older ones currently in circulation, his experiments will yield results consistent from one barrel to another if all are tested at the same levels.
If he chooses to segment different numbers of barrels with differing levels of SO2, at least he will know the resulting product is differing because of the SO2 levels and not the oak barrels. Data for project #2— The next project under consideration is to change the fermentation process of the Pinot Noir. Purchasing a new rotofermenter will cost $30,000. This type of fermenter will change the way the wine is processed as the vat is no longer open. However it will produce a deeper color and a fruiter taste in a more consistent fashion than his current open vat fermentation process.
If Mr. Richardson should decide to purchase a rotofermenter, he will expect to lose at least 10% of his crop during his trials to find the correct process to maintain his character in the wine. A price increase of 10% may help offset the loss, but the initial cost of the rotofermentator could only be made up if sales increase and/or the number of grapes grown were increased. The rotofermenter would allow larger crops to be processed per season, so the return on investment for the rotofermenter would be several seasons down the line as new grapes were grown, processed and sold.
Data for project #3— The last project for consideration is the best mix of whole bunch, full whole bunch or de-stemmed grapes to use during the fermentation process. The chart below compares all options in four different categories . Mr. Richardson currently did not view his current fermentation process as inept; however, he wants to improve the quality of the wine. In order to accomplish this he needs to experiment with different scenarios to try and improve his wine. Fermentation type De-stemmed Vat type Cost Risk Least Pigeage type Machine Open or Closed Cheapest High Open High
Whole Bunches Open Full Whole Bunch Machine Human Foot Highest High Delamere currently uses an open stainless steel vat for fermentation and uses mechanical crushers. Mr. Richardson has expressed a desire to move to full whole bunch fermentation; however the data above shows that the high risk and high cost would only be worth it if the customers respond favorably. The article suggests that this would not as full whole bunch fermentation, while more complex, is not clear and sparkling as customers would enjoy. Therefore, sales may not improve for the new wine.
The added risk of the wine accruing a harsh taste is high, and waste could be as high as 40%. Based on this, there is no proof that purchasing the $10,000 stainless steel tank would be able to achieve any return on investment. Recommendations—Mr. Richardson has built his business from the ground up and has a personal stake in each crop. His background in agricultural chemistry is a natural fit for his chosen lifestyle. That being said, his flair for experimentation has cost him entire crops in the past and his financial well being has suffered for it.
The aim of this paper is to allow him some freedom to experiment while ensuring that his cash flow and wine quality improves. Now that we have broken down each project under consideration for Mr. Richardson, the recommendations are as follows: Project #1, Oxidation: Mr. Richardson should pursue this project, the risk is low and the quality of the wine will improve. The safest route for him is to purchase the new barrels and use the recommended amount of SO2 for the maturation process while the wine resides in the oak barrels.
The data suggests he will both increase the quality of the wine as well as increase cash flow from additional sales of the improved product. If he should choose to experiment in the SO2 level without new barrels his waste will be great, thus his cash flow will suffer. The product that will be successful from the experiments will sell at an increased rate, but not enough can be sold to break even the first season. The break even point could only be reached after two to three seasons of a successful crop. Project #2, Color variation: Mr.
Richardson has expressed that he did not care to deepen the color of his wine, however his customers were accustomed to darker red wines and his sales could be suffering because of his wines current light color. In order to correct the color he will need to purchase a rotofermenter and change the way his wine ferments. This option allows for more production so Mr. Richardson should take advantage of this and plant an additional five acres of land he currently owns, but does not plant crops on. The yield per acre of 3. 36 should produce up to 24,200 additional bottles of increased quality wine.
The additional production will complete the return on investment of the rotofermenter; it will also increase cash flow for the vineyard for all subsequent seasons. Project #3, Fermentation options: Mr. Richardson would like to explore full whole bunch fermentation. While his scientist spirit is willing to take the risk, his cash flow cannot substantiate it. A 40% crop loss in combination with a $10,000 investment means that this project is not financially advisable for Delemere Vineyards at this time. Another factor to consider is that if Mr. Richardson does go orward with project #2, and purchases the rotofermenter, full whole bunch fermentation is no longer an option as the closed fermenter cannot process whole bunch grapes. Action Plan— The first project I would recommend Mr. Richardson undertakes is the oxidation project. He currently processes his Pinot Noir in 28 new barrels and 43 old. I recommend that he purchase new barrels to replace the 43 old barrels so that if he decides to use the industry standard SO2 levels or experiment on his own, he will at least be able to achieve consistent results from barrel to barrel.
He can start this project with the current harvest that is about to begin in a few weeks. The second project under consideration is the color variation option. Although Mr. Richardson is not interested in changing the color of his wine and only wants to attract new customers. I believe this is worth pursuing as it will definitely increase his sales, not only through the darkened color but from the added flavors the rotofermenter can provide. However, because of the purchase of the barrels to begin project one; Mr.
Richardson should plant his additional five acres now so that they are ready to harvest next season. At that time he should invest in the rotofermenter so that he can change the fermentation process to add color and flavors as well as process the additional five acres of grapes to help offset the cost of the rotofermenter. The additional five acres will also help offset the waste produced by the trials during the first year with the fermenter. The third project under consideration is that of fermentation options.
As mentioned earlier I do not recommend this project because of high probability of crop loss which will produce negative cash flow. As this is a small operation, negative cash flow will greatly affect Mr. Richardson and his family. That being said, Mr. Richardson’s experimental nature should be able to be satisfied by tinkering with the mix used in the new rotofermenter. He has expressed the desire to experiment with de-stemming and the purchase of the rotofermenter will not impede in that desire. In addition, the additional five acres planted for project two can be used for the experimental crop if he desires.
It will delay the return on investment for project two; however, if successful in his tinkering, he could come across a combination to be used for next season and reap all rewards for both projects. In conclusion, Delamere Vineyards has several low cost options to improve both its quality and its cash flow. However; with a small investment each season for the next two seasons he will able to substantially increase the quality of the Pinot Noir. This quality improvement will produce new customers and aid in improving cash flow for Mr. Richardson and his family.
