13,000 billion is what artificial intelligence could add to global GDP by 2030, according to McKinsey Global Institute’s 2018 study. It found that these technologies could increase the economic value created by all countries in the world by 1.2 percent per year. We are entering a very complex economy where value can quickly migrate, which can disrupt wine players.
This first article explains the major economic and societal challenges of artificial intelligence (AI) in the wine industry. We will then focus on the likely impact of AI on value transformation, more commonly known as disruption. David will then examine the contributions of AI on professional pricing in wine distribution. Finally, we will reflect on the impacts of wine price personalization for consumers at the dawn of AI-managed dynamic pricing.
AI will Change Wine Distribution Channels
We have moved to a globalized digital economy characterized by exponential technologies. The development of artificial intelligence (AI) will greatly reinforce the effects of platformization and value capture. This digitalization of the economy is dominated by American giants GAFAM (Google, Apple, Facebook, Amazon, Microsoft) and Chinese BATX (Baidu, Alibaba, Tencent, Xiaomi).
Since the disappearance of Neanderthal, Man had the monopoly of conceptual intelligence. The term ‘intelligence’ describes the cognitive function of humans which consists in being aware of situations. The term ‘artificial’ refers to machines. In everyday language, the term artificial intelligence (AI) is used when a machine imitates the cognitive functions of humans. Compared to programmed intelligence, artificial intelligence is able to create its own algorithms through the process of machine learning.
Most observers agree that artificial intelligence is the lever of the 3rd transformation of economic history after that of industry in the 19th century and that of computing in the 20th century. The economy we are entering is a very complex one where value can quickly migrate. The use of artificial intelligence will significantly modify distribution channels, towards shorter chains.
Disintermediation, a well-known practice in wine distribution
Giant companies like Britain’s Tesco often source bulk wine directly from around the world, bottle it in their factories under their own label and sell it under their own brand. This streamlined process shortens the chain and reduces costs.
Most U.S. wines go through the three-tiered distribution system with its integrated middleman structure. Bronco Wine, which produces Two Buck Chuck and Trader Joe’s, took advantage of a provision in California regulations that allows companies to ship directly to the retailer, removing a link and making it possible to profitably sell a two-dollar wine.
Disintermediation also works for mid-sized companies, such as England’s Naked Wines, which uses a model of crowdfunding and direct sales.
In Australia, ReWine offers a selection of wines that they buy in bulk from Australian producers. They sell them directly to consumers in bottle format.
Covid-19 has spurred the expansion of the online bulk buying model in China. Bulk buying reduces costs for individuals and is therefore particularly popular in China’s Tier-2 and Tier-3 cities.
This technology will profoundly change our work
Like other innovations of the digital age, AI is bringing radical changes to economic sectors. This technological acceleration is now translating into value absorption. Many players are promising that this technology will profoundly transform our work.
In the next article, David will examine the importance of data to fuel artificial intelligence.
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