FREEMARK ABBEY WINERY CASE

Profesor William Krasker prepared this case as the basis for class discussion rather than to illustrate either effective or
ineffective handling of an administrative situation.

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 Freemark Abbey Winery (1)
In September 1976 William Jaeger, a member
The Winery
of the partnership that owned Freemark
Abbey Winery, had to make a decision: should
he harvest the Riesling grapes immediately, or
leave them on the vines despite the
approaching storm? A storm just before the
harvest is usually detrimental, often ruining
the crop. A warm, light rain, however, will
sometimes cause a beneficial mold, botrytis
cinerea, to form on the grape skins. The result
is a luscious, complex sweet wine, highly
valued by connoisseurs.
Freemark Abbey was located in St. Helena,
California, in the northern Napa Valley. The
winery produced only premium wines from
the best grape varieties. Of the 25,000 cases of
wine bottled each year (about the same as
Chateau Lafite-Rothschild), most were
Cabernet Sauvignon and Chardonnay. About
1,000 cases of Riesling and 500 cases of Petite
Syrah were also bottled. (A case contains 12
bottles of wine.)
Botrytis cinerea on Riesling grapes
 Freemark Abbey Winery (2)
The Napa Valley extends for 30 miles, from Wine is produced when the fruit sugar, which is
Calistoga in the north to Napa in the south. naturally present in the juice of grapes, is
The average temperature decreases as one converted by yeast, through fermentation, into
moves south, closer to San Francisco Bay and approximately equal molecular quantities of
the cold ocean waters. Freemark Abbey's alcohol and carbon dioxide. Sparkling wines
grapes came from an ideal climate in the excepted, the carbon dioxide is allowed to
central and southern parts of the valley. bubble up and dissipate. The wine then ages in
barrels for one or more years until it is ready for
Winemaking bottling.
By various decisions during vinification-for
example, the type of wooden barrel used for
aging - the winemaker influences the style of
wine produced. The style adopted by a particular
winery depends mainly on the owners'
preferences, though it is influenced by marketing
considerations. Usually, as the grapes ripen, the
sugar levels increase and the acidity levels
decrease. The winemaker tries to harvest the
grapes when they have achieved the proper
balance of sugar and acidity for the style of wine
sought. The ripening process is variable, however,
and if the weather is not favorable, the proper
balance might never occur.
Grape juice fermentation
 Freemark Abbey Winery (3)
Several different styles of Riesling (more
accurately, Johannisberg Riesling) are on the
market. If the grapes are harvested at 20% sugar,
the wine is fermented "dry" (all the sugar is
converted to alcohol and carbon dioxide) or
"near dry." The resulting wine, at about 10%
alcohol, is light bodied. If the grapes are
harvested at 25% sugar, the winemaker can
produce a wine with the same 10% alcohol but
with 5% residual sugar; this wine is sweet and
relatively full bodied.

A third and rare style results when almost-ripe Botrytis attack ripen Riesling
Riesling grapes are attacked by the botrytis mold.
The skins of the grapes become porous, allowing Jaeger's Decision Problem
water to evaporate while the sugar remains.
Thus, the sugar concentration increases greatly, From the weather reports, Jaeger concluded
sometimes to 35% or more. The resulting wine, that there was a fifty-fifty chance that the
with about 11% alcohol and 13% residual sugar, rainstorm would hit the Napa Valley. Since the
has extraordinary concentration, and the botrytis storm had originated over the warm waters off
itself adds to the wine's complexity. Freemark Mexico, he thought there was a 40% chance
Abbey had already produced a botrytised Riesling that, if the storm did strike, it would lead to
from its 1973 vintage. the development of the botrytis mold.
 Freemark Abbey Winery (4)
If the botrytis did not form, however, the resulting in a wine selling for around $3.50
rainwater, which would be absorbed into the wholesale. Even with less favorable weather,
grapes through the roots of the vines, would the sugar levels would probably top 20%,
merely swell the berries by 5-10%, decreasing yielding a lighter wine selling at around $3.00.
their concentration. This would yield a thin Jaeger thought these possibilities were equally
wine that would sell wholesale for only about likely. In the past, sugar levels occasionally
$2.00 per bottle, about $0.85 less than Jaeger failed to rise above 19%. Moreover, while
could obtain by harvesting the not quite-ripe waiting for sugar levels to rise, the acidity
grapes immediately and eliminating the risk. levels must also be monitored. When the
Freemark Abbey always had the option of not acidity drops below about 0.7%, the grapes
bottling a wine that was not up to standards. It must be harvested whatever the sugar level. If
could sell the wine in bulk, or it could sell the this happened, the wine would be priced at
grapes directly. These options would bring only about $2.50. Jaeger felt that this event
only half as much revenue, but would at least had only about 20% probability.
avoid damaging the winery's reputation, which The wholesale price for a botrytised Riesling
would be risked by bottling an inferior would be about $8.00 per bottle.
product. Unfortunately, the same process that resulted
If Jaeger decided not to harvest the grapes in increased sugar concentration also caused a
immediately in anticipation of the storm, and 30% reduction in the total juice. The higher
the storm did not strike, Jaeger would price was therefore partly offset by a
probably leave the grapes to ripen more fully. reduction in quantity.
With luck, the grapes would reach 25% sugar,
 Freemark Abbey Winery (5)
Although fewer bottles would be produced,
there would be essentially no savings in
vinification costs. The costs to the winery were Variable Value
about the same for each of the possible styles Riesling Cases Produced 1000
of wine and were small relative to the Bottle Produced (@12 bottle per case) 12000
wholesale price. Price per bottle for not quite ripe grape 2.85
Price per bottle if botrytis didnt form 2
Assignment
Price sell in bulk 1
1. Taking account of all various possibilities Price sell the grape 1
what should Mr. Jaeger do? Price 25% sugar wine 3.5
Price 20% sugar wine 3
Price low acid wine 2.5
Price botrytised riesling 8
addition in volume if the berries swell 0.07
reduction in volume of botrytised
riesling 0.3
 Using Tree Plan
Freemark Abbey Winery
Decision Tree

The best decision for Jeager is not to

harvest the riesling, if the storm hit but
no botrytis form then sell the wine in
bottle. If the storm doesn’t happened
then wait for the sugar
Sensitivity Analysis: Freemark Abbey Winery Tornado
SensIt 1.45 Academic Version

Price botrytised riesling 38400 41088

Price 25% sugar wine 38904 40584

Price per bottle if botrytis didnt form 38973.6 40514.4

Price 20% sugar wine 39024 40464

Price low acid wine 39444 40044

reduction in volume if the berries swell 39600 39960

Price per bottle for not quite ripe grape 39744

39954

Price sell in bulk 39744

Price sell the grape 39744

37500 38000 38500 39000 39500 40000 40500 41000 41500 42000

EMV
 Freemark Abbey Winery Spider
SensIt 1.45 Academic Version

42000

41500

41000

40500

Price botrytised riesling

Price 25% sugar wine
40000 Price per bottle if botrytis didnt form
Price 20% sugar wine
EMV

Price low acid wine

39500 reduction in volume if the berries swell
Price per bottle for not quite ripe grape
Price sell in bulk
Price sell the grape
39000

38500

38000

37500
60.0% 70.0% 80.0% 90.0% 100.0% 110.0% 120.0% 130.0% 140.0% 150.0% 160.0%

Input Value as % of Base Case

Freemark Abbey Winery Expected Monetary Value
Distribution
RiskSim 2.43 Trial for Evaluation - Histogram

EMV
100

90

80

70

60
Frequency

50

40

30

20

10

0
30000 35000 40000 45000 50000 55000 60000 65000 70000
 RiskSim 2.43 Trial for Evaluation - Cumulative Chart
1.0

0.9

0.8

0.7
Cumulative Probability

0.6

0.5

0.4

0.3

0.2

0.1

0.0
30000 35000 40000 45000 50000 55000 60000 65000 70000

EMV
Thank You
Freemark Abbey Winery Testing The Robustness of the
Decision
RiskSim Histogram, 03-Oct-12, 01:03 PM
500

450

400

350

300
Frequency

250

200

150

100

50

0
1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 2

EMV, Upper Limit of Interval