This is the fourth in a series of articles on Tight, Fat and Uncorked, the three trends I see shaping the wine industry. This week’s topic is how wine is becoming increasing “uncorked” and what this implies.
If you take the “uncorked” metaphor and add it to the “box wine” reference in the title, you might reasonably assume that I’m going to talk about alternative wine packaging — boxes, bags, 1-liter tetrapak containers and so on. That would sure make sense.
But you’re wrong. The box I’m talking about is big [really big] as in 20 foot ocean shipping containers holding maybe 25,000 liters of bulk wine in a “flexitank” bag.
Welcome to the New World of international wine trade — the ultimate ‘uncorked’ experience!
The Incredible Bulk
I’ve known about Big Box wine for a while — my 2009 post on “Wine’s Future: It’s in the Bag [in the Box]“ is one of the most-read articles in Wine Economist history. But I didn’t realize how big the big box wine trade had become until I received a Rabobank report titled “The Incredible Bulk: The Rise in Global Bulk Wine Trade” earlier this year.
Rabobank’s report focuses on New World wine trade since 2001 and the change in the composition of wine shipments (in terms of bottled versus bulk) is dramatic. Bulk wine (the big box stuff) accounted for about 22% of New World wine exports in 2001 (the remaining 78% was shipped in bottle). By 2010 the bulk share increased to over 40% while the bottle share fell to less than 60%. That’s a near doubling of the bulk wine share of New World wine trade in less than a decade, an amazing shift that is all but invisible to consumers.
Big Green Wine
What drives the shift from bottle to bulk in New World wine trade? The short answer is Big Green, but green in two ways. Green, first, in the environmental sense. Bottled wine is both heavier and bulkier than bulk wine (glass accounts for more than 40% of a standard bottle’s total filled weight). All else being equal (a big assumption in wine economics) shipping wine in bulk and bottling closer to the final consumer should lower the wine’s carbon footprint.
Tesco, the world’s largest wine retailer, is reported to be particularly aggressive on this front with bulk wine imports being bottled in screw cap-topped lightweight glass for its high volume private label brands. (Click here to read about their very green “furnace glass” wine bottles!)
Cost is another green (as in greenback) factor and there are savings here as well. Rabobank estimates that bulk shipping yields an average cost savings of $2.25 per standard 9-liter case (they estimate total annual savings of $142,300,000 in 2010 compared with the 2001 level of bulk shipments). This is a very substantial saving for commodity wines of the type that often appear in private label brand portfolios.
The movement towards increased bulk wine exports started in the Age of Abundance, when surplus wine flooded the markets and it was important to move it as cheaply and efficiently as possible. Those days are now in the past; rising costs and tight margins are likely to make that $2.25 per case saving even more attractive to producers now, especially as they scour the world for supplies of wine (did someone say “Moscato?”) to supplement scarce domestic juice.
Subtracting Value Added
For vertically integrated international wine producers, the decision to ship in bulk and bottle in the domestic market is mainly about these cost savings. They pay less to ship the wine and pay lower import excise, too, since the wine enters the country at the lower bulk value rather than a higher bottled value.
But more is at stake, as the Rabobank report notes, for wine makers who sell to third party importers. In this case bulk shipping results in a new division of value added in the supply chain, with less in the producing country and more further down the line. The impact is thus complicated: bulk wine shipment subtracts some value added in the producing country, although the lower overall cost encourages exports.
There are also relative price effects to consider. Bulk shipping increases the relative price of traditional bottled wine imports relative to bulk products, a difference that may be magnified as wholesale costs differentials are passed along through the supply chain.
Economic Impact: The Box
The standard 20-foot shipping container (a.k.a. “The Box”) revolutionized international trade when it became widely adopted. It changed everything (OK, maybe not everything) because it was so much more secure and efficient than the previuosly standard “break bulk” shipping system. One of the things it changed was the scale of international transactions because the greatest economies were realized by those who could reliably fill ocean containers.
I don’t think the rise of “uncorked” big box bulk wine shipments is going to change everything in the same way the ocean container did, but I do think the effects will be significant. I’ll talk about this more in my next post where I consider how the world of tight, fat and uncoked wine is likely to unfold.