Hostname: page-component-586b7cd67f-tf8b9 Total loading time: 0 Render date: 2024-11-23T23:43:12.389Z Has data issue: false hasContentIssue false
  • English
  • Français

Organizational Structure and Operation of the Illinois Wine Industry

Published online by Cambridge University Press:  15 September 2016

Jason R. V. Franken  and
Kevin J. Bacon
Jason R. V. Franken*
Affiliation:
School of Agriculture at Western Illinois University
Kevin J. Bacon
Affiliation:
School of Agriculture at Western Illinois University
*
Correspondence: Jason Franken ▪ School of Agriculture ▪ Knoblauch Hall 313 ▪ 1 University Circle ▪ Macomb, IL 61455 ▪ Phone 309.298.1179 ▪ Email [email protected].
Get access

Abstract

This study examines vertical coordination in the wine industry emerging in Illinois. We find that quality matters as temporal issues related to grape perishability increase the probability of written contracts being used to procure grapes. Holdup concerns related to sourcing adequate quality grapes and at-risk investments in grape storage and winemaking equipment lead to vertical integration. In general, larger wineries must obtain some grapes from outside vineyards and sell wine predominantly through tasting rooms and distributors. Smaller wineries rely more on direct sales to retailers, festivals, and farmers' markets. Marketing outlet selection also reflects the types of wine produced.

Keywords

contractgrapesvertical integrationwine
Type
Selected Papers
Information
Agricultural and Resource Economics Review , Volume 43 , Issue 1 , April 2014 , pp. 104 - 124
Copyright
Copyright © 2014 Northeastern Agricultural and Resource Economics Association 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Ashenfelter, O. 2007. “Predicting the Quality and Prices of Bordeaux Wines.” Working Paper 4, American Association of Wine Economists, New York, NY.Google Scholar
Bollen, K.A. 1989. Structural Equations with Latent Variables. New York, NY: John Wiley.Google Scholar
Brown, M.S. 1975. “Wine from Frozen Grapes.” American Journal of Enology and Viticulture 26(2): 103–104.Google Scholar
Budaev, S.V. 2010. “Using Principal Components and Factor Analysis in Animal Behavior Research: Caveats and Guidelines.” Ethology 116(5): 472–480.Google Scholar
Castriota, S., and Delmastro, M. 2009. “The Economics of Collective Reputation: Minimum Quality Standards, Vertical Differentiation, and Optimal Group Size.” Working Paper 50, American Association of Wine Economists, New York, NY.Google Scholar
Couderc, J-P., and Marchini, A. 2011. “Governance, Commercial Strategies, and Performances of Wine Cooperatives.” International Journal of Wine Business Research 23(3): 235–257.Google Scholar
Coughlan, A., Anderson, E., Stern, L.W., and El-Ansary, A. 2006. Marketing Channels (7th edition). Upper Saddle River, NJ: Prentice Hall. Google Scholar
Crompton, J.L. 2006. “Economic Impact Studies: Instruments for Political Shenanigans?” Journal of Travel Research 45(1): 67–82.CrossRefGoogle Scholar
Cronbach, L.J. 1951. “Coefficient Alpha and the Internal Structure of Tests.” Psychometrika 16(3): 297–334.Google Scholar
del Álamo, M., Nevares, I., Gallego, L., Martin, C., and Merino, S. 2008. “Aging Markers from Bottled Red Wine Aged with Chips, Staves, and Barrels.” Analytica Chimica Acta 621(1): 86–99.Google Scholar
Dodd, T.H. 1999. “Attracting Repeat Customers to Wineries.” International Journal of Wine Marketing 11(2): 18–28.Google Scholar
Dodd, T.H. 1995. “Opportunities and Pitfalls of Tourism in a Developing Wine Industry.” International Journal of Wine Marketing 7(1): 5.Google Scholar
Dubois, P., and Nauges, C. 2007. “Identifying the Effect of Unobserved Quality and Expert Reviews in the Pricing of Experience Goods: Empirical Application on Bordeaux Wine.” Working Paper 10, American Association of Wine Economists, New York, NY.Google Scholar
Dziuban, C.D., and Shirkey, E.C. 1974. “When Is a Correlation Matrix Appropriate for Factor Analysis? Some Decision Rules.” Psychological Bulletin 81(6): 358–361.Google Scholar
Fernández-Olmos, M., Rosell-Martínez, J., and Espitia-Escuer, M.A. 2008. “Quality and Governance Mode Choice: A Transaction Cost Approach to the Wine Industry.” Selected paper presented at the European Association of Agricultural Economists International Congress, Ghent, Belgium.Google Scholar
Fernández-Olmos, M., Rosell-Martínez, J., and Espitia-Escuer, M.A. 2009. “Vertical Integration in the Wine Industry: A Transaction Costs Analysis on the Rioja DOCa.” Agribusiness 25(2): 231–250.CrossRefGoogle Scholar
Franken, J. 2014. “Coordination of the California Wine-Grape Supply Chain.” Journal of Wine Economics (forthcoming).Google Scholar
Franken, J.R.V., Pennings, J.M.E., and Garcia, P. 2009. “Do Transaction Costs and Risk Preferences Influence Marketing Arrangements in the Illinois Hog Industry?” Journal of Agricultural and Resource Economics 34(2): 297–315.Google Scholar
Fraser, I. 2005. “Microeconometric Analysis of Wine Grape Supply Contracts in Australia.” Australian Journal of Agricultural and Resource Economics 49(1): 23–46.Google Scholar
Gaya, M., Apetreib, C., Nevaresc, I., del Alamod, M., Zurroe, J., Prietof, N., De Sajaf, J.A., and Rodríguez-Méndeza, M.L. 2010. “Application of an Electronic Tongue to Study the Effect of the use of Pieces of Wood and Micro-Oxygenation in the Aging of Red Wine.” Electrochimica Acta 55(22): 6782–6788.Google Scholar
Geisler, M., and Tordsen, C. 2013. “Wine Industry Profile.” Agricultural Marketing Resource Center, Ames, IA. Available at www.agmrc.org/commodities_products/fruits/wine/wine-industry-profile (accessed September 2013).Google Scholar
Goodhue, R.E., Heien, D.M., Lee, H., and Sumner, D.A. 2003. “Contracts and Quality in the California Winegrape Industry.” Review of Industrial Organization 23(3): 267–282.Google Scholar
Grossman, S., and Hart, O. 1986. “The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration.” Journal of Political Economy 94(4): 691–719.Google Scholar
Guibert, N. 2006. “Network Governance in Marketing Channels: An Application to the French Rhone Valley AOC Wine Industry. British Food Journal 108(4): 256–272.Google Scholar
Hair, J.F., Anderson, R.E., Tanham, R.L., and Black, W.C. 1995. Multivariate Data Analysis. Englewood Cliffs, NJ: Prentice Hall, Inc.Google Scholar
Hennessy, D.A., and Lawrence, J.D. 1999. “Contractual Relations, Control, and Quality in the Hog Sector.” Review of Agricultural Economics 21(1): 52–67.Google Scholar
Illinois Grape Growers and Vintners Association. 2011. The Illinois Wineries Guide. Available at www.illinoiswine.com/index.html (accessed August 2011).Google Scholar
Joskow, P.L. 1987. “Contract Duration and Relationship-specific Investments: Empirical Evidence from Coal Markets.” American Economic Review 77(1): 168–185.Google Scholar
Kolyesnikova, N. 2007. “Marketing Strategies for Small Wineries.” Presentation at the annual conference of the Texas Wine and Grape Growers Association, Houston, TX.Google Scholar
Landon, S., and Smith, C. 1998. “Quality Expectations, Reputation, and Price.” Southern Economic Journal 64(3): 628–647.Google Scholar
Mahoney, J.T. 1992. “The Choice of Organizational Form: Vertical Financial Ownership versus Other Methods of Vertical Integration.” Strategic Management Journal 13(8): 559–584.CrossRefGoogle Scholar
Mahoney, J.T. 2005. Economic Foundations of Strategy. Thousand Oaks, CA: Sage Publications.Google Scholar
Martinez, S.W. 2002. “Vertical Coordination of Marketing Systems: Lessons from the Poultry, Egg, and Pork Industries.” Agricultural Economics Report 807, Economic Research Service, USDA, Washington, DC. Available at www.ers.usda.gov (accessed August 2007).Google Scholar
Mason, C.H., and Perreault, W.D. Jr. 1991. “Collinearity, Power, and Interpretation of Multiple Regression Analysis.” Journal of Marketing Research 28(3): 268–280.Google Scholar
MFK Research, LLC. 2007. The Economic Impact of Wine and Winegrapes on the State of Illinois 2007. Study commissioned by the Illinois Grape Growers and Vintners Association. Available at www.illinoiswine.com/resources.html (accessed November 2012).Google Scholar
Ṕerez-Magariño, S., Ortega-Heras, M., and González-Sanjosé, M.L. 2011. “Wine Consumption Habits and Consumer Preferences between Wines Aged in Barrels or with Chips.” Journal of the Science of Food and Agriculture 91(5): 943–949.Google Scholar
Rickard, B.J. 2012. “The Economics of Introducing Wine into Grocery Stores.” Contemporary Economic Policy 30(3): 382–398.Google Scholar
Shoemaker, B., Campbell, G., and Bartanen, C. 2006. “The Illinois Grape and Wine Industry: Its Current Size, 2006 Production, and Growth.” Available at www.illinoiswine.org/pdf/industry-report07.pdf (accessed November 2012).Google Scholar
Southern Illinois University. 2008. “Starting a Winery in Illinois: Profile and Business Plan Workbook.” Available at www.illinoiswine.com/pdf/Winery_Start_Up_Profile_2008.pdf (accessed September 2013).Google Scholar
Spanjer, A.R. 2009. “Regulatory Intervention on the Dynamic European Gas Market—Neoclassical Economics or Transaction Cost Economics?” Energy Policy 37(8): 3250–3258.Google Scholar
State of Illinois Liquor Control Commission. 2013. “State of Illinois Liquor Control Commission” web page. Available at www.state.il.us/lcc/default.htm (accessed September 2013).Google Scholar
Streiner, D.L., and Norman, G.R. 1995. Health Measurement Scales: A Practical Guide to Their Development and Use. New York, NY: Oxford University Press.Google Scholar
Sun, L., Gómez, M. I., Chaddad, F.R., and Ross, R.B. 2014. “Distribution Channel Choices of Wineries in Emerging Cool Climate Regions.” Agricultural and Resource Economics Review 43(1): in press.Google Scholar
Thompson, B. 2004. Exploratory and Confirmatory Factor Analysis: Understanding Concepts and Applications. Washington, DC: American Psychological Association.Google Scholar
U.S. Department of the Treasury, Alcohol and Tobacco Tax and Trade Bureau. 2013. “Statistical Report: Wine, January 2012 – December 2012.” Available at www.ttb.gov/statistics/2012/2012wine-final.pdf (accessed September 2013).Google Scholar
Ward, D., Runyen, S., and Kuykendall, B. 2012. “The Illinois Grape and Wine Industry: Its Current Size, 2011 Production, and Growth.” NASS, USDA, Springfield, IL. Available at www.nass.usda.gov/Statistics_by_State/Illinois/Publications/Special_Surveys/12Grape_Wine_Final_Publication.pdf (accessed March 2013).Google Scholar
Williamson, O.E. 1975. Markets and Hierarchies: Analysis and Antitrust Implications. New York, NY: The Free Press.Google Scholar
Williamson, O.E. 1979. “Transaction-Cost Economics: The Governance of Contractual Relations.” Journal of Law and Economics 22(2): 233–262.Google Scholar
Woods, T., Schieffer, J., and Saghaian, S. 2011. “Winery Integration Strategies in the Mid-South and Mid-Atlantic States .“ Journal of Agribusiness 29(1): 83–95.Google Scholar
Zahavi, T., Cohen, L., Weiss, B., Schena, L., Daus, A., Kaplunov, T., Zutkhi, J., Ben-Arie, R., and Droby, S. 2000. “Biological Control of Botrytis, Aspergillus, and Rhizopus Rots on Table and Wine Grapes in Israel.” Postharvest Biology and Technology 20(2): 115–124.Google Scholar