Blockchain in the Wine and Spirits Industry

By digitizing the wine production process and writing the necessary data to the blockchain, users and appraisers will be able to get comprehensive information about each bottle.

TRANSPARENCY Chapter 2 — Part 4 #Blockchain #Wine

In this serie of articles, I have been trying to understand the implications of topics related to Traceability (chapter 1), Transparency (chapter 2), and Decentralization (chapter 3).
In Chapter 1 Traceability, I have been analyzing the relationship between wine producers and consumers. I have been considering the effects that Transparency could have on the wine supply chain. Here is the third article of chapter 2. In the 3rd Chapter, I will consider whether Decentralization could be the future for the wine business industry.

I had the pleasure of interviewing 40 leading players in the wine and the tech industries to write this article. For this chapter, I have discussed with (sorted by alphabetical order):
• Sylvie Busca Associate Founder at Wine in Block
• Laurent David President at La WineTech
• Benjamin Faraggi Founder & CEO at Kagesecur
• Antoine Gimbert Export Director at Domaines Delon
• Matthieu Hug Founder & CEO at Tilkal
• Nicolas Mendiharat Founder & CEO at WineChain
• Tom Morris Business Development Manager at VeChain
• Oliver Oram Founder & CEO at Chainvine
• Sebastian Schier Managing Director at vinID
• Dorian Wansek Chief of Staff to the CEO at Arianee

3. How to Use a Blockchain for Wine Industry?

3.1. Why embed blockchain?

Blockchain is only a technology, it is not a business solution. The objective is not to use blockchain for the sake of using blockchain. The objective is to provide tools that enable the organization of traceability and transparency in multi-actor contexts. It turns out that to do that in a multi-actor environment, in fact centralizing data capture poses a lot of problems.

So there are two fundamental reasons for using blockchain today:

1. Deployability – if there’s no decentralized data capture technology like blockchain, then there’s going to be a significant deployment problem. Everything is going to be centralized: complexity, effort and potentially cost and risk. Also, there will be interdependence between information systems.
   What blockchain does is to take this deployment problem and break it down into many small pieces with all the players involved, each of whom is very easy to manage. Each actor will manage his deployment at home. You have to imagine that it’s like having a plug that allows them to connect to a network. I have this plug, I connect and I interact to put information when I want, and take information when I want. We make sure that finally there is no interdependence and that everyone remains autonomous in their systems.

2. Auditability – by virtue of the way this technology works, when an actor puts information into the system, we are able at any time to say who provided what, to trace the audit trail and to ensure that the information that was provided has not been altered. It allows everyone to be in control of their data, and incidentally to choose with whom they want to share it.
   But it also allows to make people responsible. Everyone talks about what they are doing in the chain and it actually creates a common base where everyone is responsible for their part.

From traceability to blockchain: it is for this set of reasons that we are implementing this blockchain technology in this context of building traceability and transparency.

Blockchain: moving from promise-based marketing to proof-based marketing

USE CASE 14 — Tilkal end-to-end traceability blockchain for supply chains
Beyond securing and uniquely identifying their products (serialization and aggregation), Danone wanted to work in 2018 on traceability issues in the factories but also in the supply chain network.
Danone wanted to connect 120 warehouses of their distributors in China. The particularity of the Chinese ecosystem is mainly due to the language, the heterogeneity of the information systems on site (ERP) when they exist, but also to the availability of systems (the Chinese greatwall). Danone wanted to explore and test the added value that blockchain could bring them. Danone called on Tilkal for their traceability solution with blockchain. After creating a Proof of Concept (POC)* in 2018, Danone and Tilkal set up a Minimum Viable Product (MVP) the following year, before launching a solution in 2020.
Tilkal has proposed 3 blocks:
- Capture information in a decentralized and multi-actor way (API, mobile application, csv files...) ;
- Translate it into a common language (EPCIS) to reconstruct the life cycle of what happens in the value chain. From this comes statistical calculation, analysis, alerts and learning algorithms to handle different use cases;
- exploiting the data with two components: one component for the manufacturer to visualize and interact with all the information, and a second component for consumers to provide traceability and transparency on the products (B2C).
Today, Danone is able to say that blockchain has enabled them to guarantee and control the information provided by their partners' network, and to deploy it quickly in order to minimize the impact on Danone's and their partners' application maps and landscapes.

*A proof of concept (POC) is a demonstration of a product in which work is focused on determining whether an idea can be turned into a reality.

Hints on how to set up a blockchain

• Have a strong sponsorship in the company to enable such an initiative to be launched. It is necessary to set up several favourable events within the different departments to go in the same direction: either on the internet or with the distributors (mobilize them with incentives for example, be able to get them on board the initiative).
• Stay focused on the initial objectives because there are many risks of losing focus. It could be technological innovations that come along and that could actually challenge the initial choices a little bit. It could be what the competitors are doing, and of course we have to look at what is happening elsewhere…
• Remain very agile because there are many elements that arrive every day, every week, and which effectively require adjustments to the directions that were considered – this may be regulatory contexts or elements that were unknown at the beginning of the project.
• Mobilization with their partners: why would distributors participate in this type of initiative? And why would they provide information? There are discussions to be had with them to reassure them about what will be done with the information. The real decentralization of the network, where everyone participates and is ultimately a stakeholder, is an element of reassurance.
  The MVP allows us to work with a few actors in the chain who share a desire and common values (traceability, transparency). This allows us to implement something quickly on a real scale, based on real data. On the basis of this, we can go out and find other partners, because those we have brought on board in this first MVP become our ambassadors: this allows us to bring on board the next ones, to bring on board the smallest ones, and to launch ourselves on a path of traceability.
• Collaboration: whether they are technical, whether they are at the local level, especially in the supply chain, but obviously it is also internal collaboration, whether it is between the marketing and operations teams, whether it is between countries, and obviously between business and IT, or with your own technical partners. It is therefore necessary to have dedicated teams.

3.2. How the blockchain can be integrated into the wine sales chain ?

Wine production can be divided into eight elements, depending on who is the main subject at one time or another in the product life cycle.

By digitizing the wine production process and writing the necessary data to the blockchain, users and appraisers will be able to get comprehensive information about each bottle. If you enter a rating system and the ability to leave reviews, this will help with the evaluation of taste, not only the variety as a whole, but also each individual batch.

How and when the data will be collected, who is responsible for this and how the commodity, documentary and financial transactions will take place?

Winegrowers – cultivation and harvest of grapes

Integration of the blockchain at this stage means the following actions:

• A network of sensors is being created that automatically collects data on weather, soil conditions and other parameters that affect the quality of the grapes in a particular season (production cycle).
• The winegrower enters the system with data about himself and the land plot (location, height, type of soil), type and number of vines, their origin, irrigation and processing. Here it is important to consider everything: from what fertilizers were used to how and when the vine was cut.
• When harvesting, data about the date of harvest, how the grapes are delivered to the winery, etc. are entered into the system.
• After harvesting and squeezing the juice, the information about the date of this procedure, the equipment used, etc. is entered into the system.

This information is important because it affects the taste of the drink, environmental friendliness and ultimately the cost of wine. Having collected a large array of such information, you can also use data science to understand how to grow grapes.

Winemakers – involved in the production of wine

To ensure traceability, such entities must add to the blockchain:

• Data on suppliers, grape variety; date of receipt of raw materials; description of the state and quality of the obtained raw materials; data on the conditions of its delivery.
• Records of internal procedures, such as decantation, fermentation and preservation, as well as aeration in the production of rose wine.
• Information on temperature, chemical content and additives.
• Data on storage conditions and production spill.
• Information about yeast and its use.

There is no need to make a detailed description of the wine production process in the system, as this may violate a commercial secret – the producers of elite wines keep some elements of production in secret.

Wholesale Distributors – mixing and sending the finished product to a transit cellar or packer

Wholesale distributors contribute to blockchain:

• Date of obtaining, data on the conditions of transportation and storage.
• Information on processing, sampling, analysis of bulk wine and the date of dispatch.
• If the blending process is performed, this is also recorded in the blockchain.

Transit Cellars – receiving, storing, shipping, processing, sampling and analyzing bulk wine

The data to be entered into the blockchain at this stage is identical to that described in the previous section.

Fillers / Packers – get the wine from the wholesale distributor or transit cellar and pour it into barrels, kegs, bottles or bags

For the correct use of the blockchain, it is important to ensure the consistency of such labeling between different market participants. This refers to two types of data:

• Directly about the product and production: reception, storage, processing, sampling, analysis, filling, packaging and shipping of finished products.
• Information about counterfeit protection: paper types, laser embossing, hot and cold foil embossing, heat-sensitive paints, holograms, hot stamping and other.

Data about protection means is important, since consumers should also have access to the blockchain (using the application and a QR code). It is best to use the system of unique one-time digital identification certificates in the form of QR codes, which are assigned to each individual bottle, package or barrel of wine. Such codes will be part of the labeling of finished products, and they can be used to verify the authenticity of the goods.

Distributors – storage and shipment of wines to points of sales

The wine is usually repackaged and remarked in large batches. What needs to be reflected in the blockchain:

• Reception date, storage conditions and date of shipment.
• Repackaging and remarking information.
• Information about the destination of the goods.

Wholesalers – send boxes and pallets with wine to retail stores

At this stage, the blockchain receives information on the obtaining, storage and delivery of goods, most of which is collected automatically using sensors and RFID tags. These devices monitor temperature, movement speed, shaking, and other data that may affect product quality. Data about the conditions of storage and transportation is important. Neither the ordinary buyer nor the expert will be able to understand what wine is spoiled until the bottle is opened.

Retailers – sell wines to final consumers

Retail is responsible for displaying in the network information about goods received, their storage and sale.

Let’s suppose you want to evaluate two bottles of Mouton-Rothschild of 2000, the origin of which is reflected in the blockchain. Both tags were created in the same vineyard in one year, but one bottle was sold to a well-known collector, and the second to an unknown participant.
In this case, we may see the transportation and storage of wine with the utmost responsibility for a well-know collector. The conditions of transportation and storage in the second case are unknown to him. Consequently, the first bottle has a better chance of preserving its taste, which means its price is higher.

You have the same two bottles of Mouton-Rothschild of 2000, but without recording the history of the origin in the blockchain network. In this case, an appraiser examines both bottles, asks about the origin and storage conditions of each of them, conducts an investigation (checks the information received) and assesses the authenticity and cost of wine.
If during the investigation it is decided that this is not a fake, the appraiser creates two entries in the blockchain and hangs identification tags on the bottles. Then you go to auction or directly sell wine.

It will not give 100% guarantees of authenticity of origin. Blockchain and smart contracts will make the market much more transparent and safer.

USE CASE 15 — Chainvine: Proof of Concept* to reduce friction in international trade
To determine how Blockchain and Internet of Things (IOT) technology can be used to reduce the friction in international trade by simplifying the importation process and ensuring fiscal and regulatory compliance. A Pilot Eco System of Trust project has been formally running since March 2019 between the Australian Export authorities - Wine Australia and the Association/trade body representing the Wine and Spirits trade in the UK.

Benefits:
• Reduction of data duplication and manual data entry
• Reduction of errors and the administrative overhead
• Reduced the cost of document transportation/courier
• Ensures fiscal and regulatory compliance
• Improved trust across all parties.
The potential value and benefits generated from the implementation have been reviewed with wine producers, importers, freight forwarders, UK Government departments HMRC/FSA.

*A proof of concept (POC) is a demonstration of a product in which work is focused on determining whether an idea can be turned into a reality.

3.3. Blockchain – Optimizing Supply Chain in Alcohol Products Industry

Blockchain is a revolutionary technology that can reduce the cost of money transactions, optimize supply chains, improve buyer-customer interaction, automate business processes, document management and much more.

Business goals and objectives of supply chains in alcohol industry are the same as in other producers and distributors – to provide maximum level of service at minimum costs. But the business itself is specific – there are many specific conditions, affecting the quality and cost of the end product:

• Strict control – To protect against counterfeit and counterfeit alcohol and is subject to labeling, control and regulation by a distribution system. Each bottle/package is subject to strict accounting and control of the movement of alcohol from producer to consumer – this is a requirement of all countries. Which creates additional logistical difficulties and leads to increased costs compared to other categories of FMCG-segment.
• Seasonality of sales – In November and December (the period of New Year and Christmas holidays) the volume of sales of alcoholic beverages is almost comparable to the volume generated in the other ten months, which often creates logistical chaos: delays in delivery and increased costs.
• Difficulties with paperwork – Strict controls on alcohol production and sales make it difficult to maintain paperwork, forcing companies to spend more resources and money on accounting.

Blockchain-based logistics platforms can address supply chain inefficiencies, quality and certification, and counterfeit products. With a decentralized framework, immutable data and public transactions, it is possible to create a network that aggregates all data about the movement of goods from producers to customers and makes it available to all participants in the supply chain. And the data provided can be segregated depending on the platform participant. For example, producers and retailers would have access to all data, while buyers would only have access to data about the producer, storage conditions and raw materials.

Chinese technology giant Tencent has begun partnering with wine producer Changyu Pioneer Wine to apply blockchain to the wine supply chain. The network gives each bottle a unique certificate spelled out on blockchain, which customers can use to verify the authenticity of the product by scanning the QR code on the bottle.

Chinese Internet giant Sina, known for its Twitter-like microblogging app, has partnered with Baijiu producer Wuliangye Yibin to create a tracking platform for baijiu.

USE CASE 16 — Kagesecur: its goal is to be the largest private blockchain in France 
Founded by 2 professional groups (bailiffs and lawyers), Kagesecur is a blockchain open to companies that wish to deploy their use cases and have their node as a member of this blockchain. The private blockchain allows to automate a large number of associated tasks, such as for example the aggregation and dunning for unpaid invoices for bailiffs or the automation of shareholder movements for lawyers via smart contracts. This blockchain is open to any company profile, from the legal world to industrial companies developing their applications.

Kagesecur can be used as Blockchain as a Service (BaaS). Companies can exploit the blockchain without having to develop or manage their own infrasctrutures. Easyspuro is a framework for deploying applications based on blockchain technology. The EasySpuro framework offers a complete solution to developers, with a plug-and-play system to manage the design, development and publication of applications on a single platform. The platform allows to host, store and decentralize the computation of each application. Each dApp relies on its own consensus mechanism and APIs.

3.4. Blockchain: Customer Service strategies

Traditional loyalty programs create problems for both companies and customers. Companies are usually heavily concerned with personalization, increasing conversion rates and also channel uniformity. On the customer side, there are problems with restrictions and rules, reward options and the most common problem is the loss of all accumulated bonus points after some period of time. Because of this, few people use loyalty programs, despite all the benefits they offer consumers.

The blockchain platform can be integrated with a loyalty management system to automate business processes, ensure secure and automatically matched transactions, increase business efficiency and improve the member experience. Which would reduce the cost of the loyalty program and also reduce fraud in this area.

There are a number of startups like Gift Jeenie, Qiibee and Loyela that are implementing blockchain-based loyalty programs. But overall, this type of program is still in its infancy and the alcohol industry is no exception.

3.5. Excise Fee – Blockchain solution

Excise taxes are indirect taxes on the sale or usage of certain products such as alcohol, tobacco and energy resources. The process of controlling and collecting excise taxes is a complicated procedure with rather weak protections against fraud and evasion. The entire point is, such protection is a simple check of a stamped paper and a hologram. Both are quite easy to forge which fraudsters around the world take advantage of.
If the supply chain of alcoholic beverages is written on a blockchain, excise tax payment can be reduced to a simple smart contract that automates this process and makes verification into a very simple procedure.

This was the fourth article of Chapter 2 — Transparency. In the next post, I will analyze the blockchain partners for the wine business industry.