To: Mr. William Jaeger
From: Consulting Group
Date: January 19, 2013
Subject: Options and Best Practices for Winery
From my research, word of mouth and your product itself, I am aware that Freemark Abbey Winery’s reputation is one of its greatest strengths. However, I understand that the weather plays as both a threat and opportunity for the wine industry as a whole. There are reports of a rainstorm in route to Napa Valley with a 50% chance of striking your winery; this is why you have reached out to my firm, Consulting Group. We have carefully analyzed all options and are ready to offer our recommendation.
Freemark Abbey Winery is known ...view middle of the document...
The first option, to wait, is represented in a probability chart in figure 2 of the appendix. If the rainstorm hits Freemark Abbey’s Winery, one of the two alternatives will occur:
1. Botrytis Mold will form on the grapes with 40% chance of creating a complex but “extraordinary” taste for a premium wine, or
2. A high chance of 60% that Mold will not form from the rainstorm at all.
If your firm places confidence in the rainstorm report of 50% chance of a rainstorm, the winery is accessible to capitalize on one of its external opportunities, weather. The alternative options of this decision are extreme; the winery could end with profits totaling $67,200 favorably or $26,880 unfavorable if the Botrytis mold forms.
If the rain does not present itself the winery finds three different options they will have no control over: the grapes will either produce 25% sugar, or 20% sugar, or .7% acidity. One of the three options could be detrimental for revenues with a scale of $30,000 favorable profits to $6,000 if faced with unfavorable conditions dropping below 0.7% acidity in the grapes.
Consulting Group recommends that the Freemark Abbey Winery waits for the rainstorm and harvests the grapes later. The weather is offering an opportunity to reap the rare benefits of botrytis mold with the greatest profits available (shown in figure 4.1). The option to harvest now yields a guaranteed profit of $34,200, however if you harvest now you remove the winery from the possibility of producing a premium wine from the start, possibly upsetting your reputation as a premium wine maker. Letting nature take its course and wait is our recommendation that could potentially offer you $33,000 more in profits than harvesting immediately. I hope our analysis of your situation has helped. Feel free to contact us with any follow up...