Chalice Wines Case Essay

The Chalice Wine Group (CWG) is a wine producer has a prestigious reputation for producing consistently elegant wines. The CWG owns two vineyards (Chalice and bighorn sheep) and half of a third (Delta), and also owns three wineries (Chalice, cimarron, and Alicia) and half of a fourth (Opera V completelyey). Chalice vintner is the flagship of the four wineries, and founded in 1969.In June 1993, Chalice was the all publicly-held company in the United States whose principal business is the production and sale of premium wines. The four calcium wineries argon located in different place. Each of them has their own president, typically the winemaker, and separate expediency center separately.The Chalice Wine Group has long history with a prestigious reputation for producing great wine. From the information that from the article, I calculated the price that the retailer will sell to the end consumer is $141.88, which means their target customers are the people who has around purchasing power. So, the CWG is a strong competitor in the mid-high end wine market. Because as we read from the article, CWG keeps lose money from 1992, but the opposite market competitor named Lyford wine maker has good profit margin, and ROA ratio.According to the financial report of CWG, at 1992 and 1993, the group had a net loss of $741,000 and $700,000 separately. In revisal to find out why the company is losing money, and where did this money lost, and how can the other similar industry companies make money, I will trace the paths followed by the 1991 bighorn sheep Meritage White from the vinery, winery, distributer to retailor to analysis the numbers in this value chain and find out the reason why the company lost their money.The VineyardIn order to produce the Cimarron Meritage White, the Cimarron winery need to buy two kinds of grapes for positive 89.17 tonnages at $812.36/ton. Because these two kinds of grapes are grown outside of the Cimarron Vineyard, so they need to pay the hauling cost for $1,463. And the total cost for the grape per case is $13.26.Assuming the Cimarron winery will buy a 30 acrevineyard in Sonoma County where can grow the required quality grapes to produce Cimarron Meritage White, the price for the land is $525,000, and once the vineyard matured, normally needs more than 5 years, the operating cost will be $9.59/case, and the selling price will be $12.99/case. And the assets allocated into the case is $94.71/case.Based on the data, I got the some numbers in the Vineyard step. The profit margin in this process is 26.17%, the Assets turnover ratio is 13.7%, and the ROA is 3.59%. The profit is O.K., and the Assets turnover ratio is too low, and the ROA even lower. So I do not recommend the Cimarron Winery to tog new land. In addition, this data is not including the other costs such as price of the land, clear and replanted fee for phylloxeral which 30-acre land has, and the operating costs that happens before the vineyard mature. If we include those costs into calculation, the ratios will be lower.The WineryIn the Winery process, the price is $76/case for sell, the carried cost is $25.73, the SG&A expenses is $19.31/case, and the assets allocate cost is $263. So, we got some numbers of the profit is $3.98/case, which is very low, the profit margin is 5.24%, the assets turnover ratio is 29.23%, and the ROA is 1.53%. From these numbers and ratios, I knew that even though for every $1 assets investment, the company generates $0.29 revenue and completely $0.0153 profit.In other words, in this process, the CWG is not utilizing their assets well, or they invest frequently more in the assets than necessary, or the cost control is poor. When analysis wines carry cost, we see the winemaking cost is 40% of the total carry costs, and this is cost too much. The profit margin tells us that for every $1 sale, the company only gets profit at $0.054. So CWG can every reduce its costs, or increase its selling prices.All the numbers shows us that in this Winery process, the performance is poor. The Cimarron spends too much in its assets investment. Because the overall utilization of the depreciable assets less than 10% annual capacity, the CWG can learn from the Lyford winery to lease the equipment and spacesto reduce its assets usage costs.The distributorIn this process, the sale cost is $79.81/case, the operating cost is $15.08, and the assets cost is $41.06/case. In order to achieve a gross margin of 25%, the distributor has a 1/3 mark-up over cost, and the final price is $106.41/case. In this process, the distributor got the profit margin at 10.83%. And for every $1 assets investment, the company gets $2.59 revenue, but only $0.28 profit. The problem here is still the sale cost control. Its looks like the distributor has great sales revenue, but the actual profit is very low. The loss is a big number of sale costs.The RetailThe retailer marks up the wine to achieve a 25% gross margin at the proces s too, and make the price of the wine is $141.88/case. The cost of sales is $106.41/case, the operating cost is $5.82/case, and the assets cost is $48.68/case. So, we get the profit margin ratio at 4.1%, which is the last ration among four process, the assets turnover ratio is $291.45%, and the ROA is 11.9%. The issue in this process is even worse than the distributor process. The assets turnover ratio looks great at 2.9145, however, the ROA only at 0.119. The cost of wine, which is $106.41, is playing a big role in this process, so the profit will not be very high.The LyfordCollecting all the information in the case, I got the numbers of the Lyfords are the revenue is $45/case, the costs of sales is $25.41, the marketing expenses and the leasing space and equipment fee is $6.09, and the assets cost is $13.50/case. And the profit margin ratio is 30%, the assets turnover ratio is 333.33%, and the ROA is 100%.For every $1 invest in assets, the Lyford get $1 profit , and the cost in a ssets only 30% of the sales, because the Lyford leased all of its equipment and spaces, and purchased the go of bring the wine from the bulk wine market to the distribution from wineries with surplus capacity, which they will charge for less, or from the custom winemaking operations. In other words, the Lyford winery will not spend large resources into some depreciable assets that idling mostof the year. And the Lyford may more supple plan to bring the product from the bulk to the distributor, which also means they spend much less than Cimarron do.All above all, comparing the ratios among the 4 processes of the Cimarron Meritage White and the Lyford winery, I recommend the Cimarron that 1) skip the distributor process. So there will not be two times 1/3 mark-up over cost, then the final price of the Cimarron Meritage White will be lower and some potential customers might be turn to CWG, and the sales will increase 2) rent the assets to other wineries when the equipment or spaces s et aside for nothing to do 3) stop invest in assets/land 4) learn from the Lyford.Outsourcing the services that required brining the wine to the distributor. The last, even though the Lyfords financial number looks great in this industry, but they still need to be careful just about their risk-cost, because all the assets are rented, and the process that bringing the wine to the final customers are more like depending on the others, so if there is really something happens, such as the leaser stop their lease unexpected, or no more wineries with surplus capacity available, the Lyford might have some problem at some extent.