Center For Supply Networks and Analytics

Hakan Hekimoglu



“Wine Analytics: Fine Wine Pricing and Selection Under Weather and Market Uncertainty”

Abstract: This talk will highlight how distributors in all supply networks face significant uncertainties with decisions related to product quantities, options, and pricing. Specifically, it examines a study on wine distributor’s decisions in selecting between bottled wine and wine futures.
 
At the beginning of every summer, a fine wine distributor has to choose between purchasing bottled wine made from the harvest collected two years ago and wine futures of product still aging in the barrel from the harvest of the previous year. At the end of the summer, after realizing weather and market fluctuations, the distributor can adjust their allocation by trading futures and bottles.
 
The study developed a mathematical model and advanced analytics that can determine the optimal selection of bottled wine and wine futures under weather and market uncertainty. It shows that a wine distributor should always invest in wine futures because it increases the expected profit despite being a riskier asset than bottled wine. The study empirically demonstrates the financial benefits from using this model for a large distributor. The average profit improvement in this numerical analysis is significant, exceeding 21 percent, and its value becomes higher for the risk-averse distributors. The analysis provides insights into how to improve product selection in order to make financially healthier allocations.