NoBullGrape

Countries that export have little negotiating leverage

On rereading my last post, I was struck at the disparity of wine trade around the world.  Australia exports $3 billion in wine to the EU.  The EU exported $2.3 billion to the US in 2004.  The US shipped only $736 million to the EU (its largest non-North American export market).  Can these numbers be right?

When one looks at the trade agreements (EU-Australia and US-EU) it is pretty clear that the country that exports the most gives up the most at the negotiating table as their politicians can't afford any strategies that could hinder trade in any way as it would hurt their own businesses and farmers most.  Australia gives into EU demands, yet the EU gives into US demands as neither Australia nor the EU want anything to interrupt their very lucrative wine export businesses.

US vs Australia: Opposing industry views on gaining access to EU market

As we have discussed before, the EU has signed (or is signing) wine agreements with both Australia and the US.  Yet the differences in the agreements tell a lot about the different industry perspectives in these two "New World" countries.

When Australia signs an agreement that ends the use of terms such as "Champagne" on the label they say (quoted from ABC Rural):

Steven Strachan, from the Winemakers Federation of Australia, says the agreement should lead to more Australian exports to Europe.

"We get certain outcomes in their marketplace which make our ability to sell wine into Europe a whole lot better and from our industry's perspective of course it is a very strong positive thing," he said.

"We already sell $3 billion of exports we've got aspirations to do more of course and deals like this make it easier."

While the US industry ends the use of these names in the future while allowing the Korbel's and André's of the world to continue this practice saying:

(paraphrase) We must protect the rights of those who have used these names for many years and this agreement allows us to do this while still expanding access to the all important EU market. 

Sounds like the Australian ($3 billion in exports to the EU) industry is more interested in actually getting their wines into the market while the US industry wants to protect these names even though no European consumer would purchase anything that was labeled "California Port."  Don't think this is the primary reason for only $489 million in US wine is sold in the EU, but it can't be a factor that will help break down that barrier. 

Best sentence about the 1976 Paris tasting

With the release of a book on the "Judgment of Paris"  (you know the tasting where the California wines shocked the world and the French judges by outshining many of the most famous houses in France in a blind tasting) there has been a lot of discussion about this momentous occasion. And it was momentous as it gave American  wine real standing in the world and heralded the changes in the wine world that would take place in the 30 years that followed the famous event. 

However, many use this moment to speak for all French wines and all US wines.  That is where it gets a little dangerous and why I like the following sentence from Eric Asimov's column in the NYT today about a little French and US wine blind tasting he participated in this year.

As much fun as the tasting was, framing it as a competition makes it easy to lose sight of the fact that most of these wines - regardless of how they finished - were superb and thoroughly absorbing.

Nice to hear and be reminded that there are a lot of good wines out there to be tried and enjoying each and every one for its unique nature makes life all that more fun.

Happy Thanksgiving!

Couldn't have said it anywhere near as well

Guest columnist Richard Olsen-Harbich of Long Island's North Fork winery Raphael has a great piece on the importance of location -- everywhere around the world -- at the always interesting Lenndevours.

As he says:

Remember a merlot grape -- the same merlot grape -- grown in upstate New York or Sonoma or Bordeaux will not taste the same even if we used exactly the same processing techniques. It's the terroir stupid!
In our arrogance, we sometimes forget how little influence we have over the natural world. I want to know what goes into my wine if that’s not too much trouble. (And please don’t bother to tell me its organic -- that’s a topic for another post.) But when I’m enjoying wine from another region, I want to imagine what that part of the world smells like, tastes like and what the people drink. Maybe its because I can’t afford to travel there myself so enjoying the wine is the next best thing to being there.

As you think about going to pick up your turkey, take a read here.

Governor goes to bat for Napa and place names

So the Governor of California is in China and -- apparently -- is demanding that the Chinese stop misusing the name "Napa" on wine produced in China.  You go Terminator!

The contrast between the importance placed on protecting place names from the Governor of the largest wine producing state (and the clear position that the Napa Vintners are taking in this piece) and the stance taken by the US government in the recently initialed Wine Accords is quite stark.  Read more from Tuesday's San Francisco Examiner. 

        

Governor working to keep Napa wine designation pure By Albert C. Pacciorini Staff Writer Working to keep wines labeled “Napa” made only with grapes from Napa is on Gov. Arnold Schwarzenegger’s list of things to do as he begins a six-day mission in China. The focus of Schwarzenegger’s trip is to promote California products and encourage Chinese officials to crack down on the piracy of copyrighted music, movies and software. He’s also promised to ask about three Chinese companies that may be selling “pirated” wine. California law requires wines with “Napa” on the label be made with Napa grapes. It isn’t just Napa fighting to protect its reputation. The Champagne region of France, Sherry in Spain, Porto in Portugal and the states of Oregon and Washington all have a similar problem. All are working together for a “commitment to the importance of place and place names to wine growing,” said Linda Reiff, executive director of the Napa Valley Vintners trade group. Reiff spoke Monday morning at the beginning of a four-day annual meeting of the Great Wine Capitals Global Network trade group at the Metreon in San Francisco. Tuesday and Wednesday the meeting will move to St. Helena. The network includes Melbourne, Australia; Bordeaux, France; Porto, Portugal; Cape Town, South Africa; Bilbao-Rioja, Spain; Florence, Italy; and Mendoza, Argentina; and works to promote international winery tourism. Reiff gave an outline of the Napa Valley wine industry, followed by representatives of the other international regions, who discussed their locations. At a time with so much friction over differences, wine can provide a chance for people to come together, said event emcee Barry Martin. Napa got its own legal agricultural area in 1981, Reiff said. Today there are 14 subappellations. The Napa vintners, just like their colleagues in Champagne or Sherry, are working hard to protect the use of their regional names, which each feels imparts a level of quality and significance, from wineries in other locals. The trade name Napa is being used illegally in 10 countries, she said, urging those in the industry to join many regions that have signed a joint declaration promoting the importance of place to wine.

Wine stores

Great follow up to Eric Asimov's column at Dr. Vino. Highlights lots of good retailers who fit the model that Asimov talked about yet who are located throughout the country.

New wine stores reflect the changing wine business and wine consumer

Eric Asimov has a great column in today's NYT about the variety of new wine stores in New York.  Reason I like it: It tells New Yorkers about all sorts of new wine stores to try, but also puts this change in a larger context useful to the rest of the world.
In particular, the following two graphs provide some real insight:

Twenty years ago, the wine business was controlled by big liquor wholesalers who, for the most part, treated wine as an afterthought. They supplied the neighborhood retailers - liquor stores, of course - with a narrow range of brand names. A handful of old-line wine merchants like Sherry-Lehmann, Acker Merrall & Condit and Morrell sold famous-name bottles to what was once known as the carriage trade. Beyond that, wine lovers could travel to a few discount stores or quirky places like Garnet Wines and Liquors on the East Side, Crossroads on West 14th Street or Mount Carmel Wine and Spirits in the Bronx.

Lurking underneath, though, was a nascent desire for the sort of small-estate-produced wines that people were beginning to read about in The Wine Advocate and Wine Spectator. Importers like Michael Skurnik, Kermit Lynch, Robert Chadderdon and Neal Rosenthal began to passionately market the sorts of wines that the big wholesalers were largely ignoring. Their success inspired others, like Douglas Polaner, Louis/Dressner, Peter Weygandt, Terry Theise and Eric Solomon, wine lovers themselves who scoured the countryside in France, Italy, Germany and Spain, searching for small, artisanal producers whose hand-crafted wines demanded attention. Simultaneously, the American wine industry took off in California, Oregon and Washington, with hundreds of small producers establishing themselves as world-class winemakers.

"They took advantage of the fact that the guys in the marketplace were asleep at the wheel," said David Bowler, a longtime wine salesman who began his own importing business about two years ago.

New stores with distinct personalities began to open, like the Burgundy Wine Company in 1989 and Nancy's Wines for Food in 1992, places where the staff members were not merely salesclerks but educators infatuated with the wines. Italian Wine Merchants on East 16th Street, which opened in 1999, was the first shop in Manhattan to place Italian wines on the elegant pedestal previously reserved for French wines, while Best Cellars tried to eliminate the intimidation by selling wine as inexpensive and fun.

In the larger context, stores with real customer service and carefully cultivated lists are both creating and serving a better educated wine consumer.  This does not mean a wealthier consumer (though in many cases this may be true) but a customer who appreciates learning a bit more about their wine, is willing to try something different, etc.  This is another sign of the 50-50 split that we discussed yesterday. In addition, the change in the marketplace Asimov describes is brought on by the weakening power of the wine distributors.  Now, don't go too far with this as they remain all powerful, yet as Fermentations has shown with his continuing discussion of the Michigan shipping issues and the overall coverage of the Direct Shipping ruling, there are numerous forces out there changing the way that consumers get their wine and room for merchants and restaurants to stock a wider variety of wines than ever before. 

In the end, all of these changes empower the growing US consumer market to try new wines, learn about new winegrowing locations and have a bit more power over their decisionmaking.  That said, the "other" 50% of the market that Constellation identifies may be a much harder group to make inroads with as the Darth Vader like grip that the Gallo's, Constellations and the distributors like Southern have on the wider market (and their ability to use their size to keep margins low) make this a hard group to target... and is why smaller wine growers who do not make it into the boutique shops highlighted in Asimov's story (such as many of the lower-end barely AOC French winemakers discussed yesterday) are in for a tough fight.

EU wine production and the AOC system

The calls from Europe about the demise of their wine industry are getting louder and louder.
Today's Beverage News does a nice job of pulling together different strands of the story including some interesting information on the decline in AOC labeled wines (saying that they are virtually the same average price as table wines).  Some are using these arguments to say that this is the end of appellations and that everyone should merely bottle their wine with an animal (ala Yellowtail) and varietal.  While I think such talk is ludicrous, I'm wondering whether we have come to a moment in the industry where there is a major split by price as to how one markets your wine.

Clearly the Champagne's, Napa's, MacLaren Vale's of the world will continue to produce great wine that demands a higher price.  At the same time, Constellation and others will get the majority of their income from the lower end wines that they market by varietal and at specific segments of the market. In fact, Constellations basically announced this in their most recent poll of US consumers (see box).

If this graph is correct, 32% of the wine produces over 54% of the profits. 

So, whether you are the Napa winemaker or the CEO of a large Central Valley based wine company, you both have a way to make money. 

The problem the French and others are facing is that lower end AOC wines either don't have the quality or the consumer understanding to get the higher prices.  This is the same problem that many new regions have. 

So what is one to do?  Stop complaining about the consumer and price your wine more appropriately!  If the location warrants the price, it will get it.  If it doesn't you may have to lower prices...delist AOCs, etc.  However claims that the entire AOC system is to be thrown out is exactly the wrong thing to do.  Make it so that the best locations deserve to get the best prices.  And understand where you are in the 50-50 split.

This reality has another benefit.  While the lower quarter of the market (according to the graph above) are unlikely to move up market, others are.  This means that the companies that target this 2nd and 3rd tier of consumers  (and note that the poll only required those polled to buy 1 bottle of $5 or more wine a month so this could still be a lower spending demographic) could make strong inroads into a demographic that is likely to move towards higher priced wines if they start understanding the benefits of these.  Therefore, the middle 30% of consumers are great places for little companies to target and for bigger companies to seek to drive customers over time.