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.
Thanks for the illustration and explanation. As you know, I have been curious about the 25,000 liter bladder since I first read Wine Wars. Now I wonder, where does the bottling take place? How close to a port city? Do you know which US port receives the most bulk wine shipments? Does Europe or Australia ship more wine in bulk?
Thanks for this, Richard. The Rabobank report focuses on New World bulk wine shipments but I am sure that there is plenty of European trade, too. I think Germany imports inexpensive bulk wine and Spain probably is an exporter. But I don’t have any data specific to big box wines. Certainly the New World quantities are both large and growing.
I’ve read that Tesco has a bottling plant in England that is organized so that ocean shipping containers can be off-loaded onto to canal barges that take the wine to the bottling plants — thereby further reducing the carbon footprint.
Sorry I don’t have more detailed answers. Keep the questions coming.
Terrific post Mike. Besides the obviously economic impacts of the international bulk wine trade, we must not forget of how all of this affects the wine consumer/lover. In some countries, the US to name one, the wine laws in place for wine does not necessarily guarantee “origin” of wine being bottled. So many consumers who drink up their “California” moscato have no idea that that the majority of that wine is coming from Italy and not California as stated on the label. There are cost savings to shipping in bulk on both the part of the shipper and the importer, but at what cost? As you said, the added value of wine diminishes if the wine is bottled away from the place of origin, and even worse, when it is blended with other wines before being bottled in the imported country.
Allison, can you please explain your comment regarding “guaranteed origin”, because the USA wine labelling laws are pretty specific about the what and where that goes on a wine label. You cannot ist a variety without an appellation and you cannot list an appellation without 75% of the grapes being from that appellation. Country of origin is also required if not from the USA. Customs bureau is very alert to these things.
Hi John. I appreciate what the regulations are, however I have a number of contacts in the bulk wine industry that would say with certainty that what actually happens is something completely different.
Allison, any wine labeled California Moscato has to come from California or the penalty is jail time. The only way to include foreign wine in a blend of California wine is to not disclose any origin whatsoever on the label. With that, it is caveat emptor.
Hi Steve. I cannot say for certain as I haven’t seen the statistics, but I’m sure the quantity of total litres of “California Moscato” sold in bottle form in the US in 2011 far exceeded the number of Litres produced in the US. Again, I have not seen statistics, I am going on practical knowledge of the industry.
Ah, the important distinction here is that “Moscato” is a fanciful name and while there is most often some or a majority of Muscat grapes in the wine it does not have to be the 75% required for varietal labeling. I work at a large custom bottling facility and we bottle a lot of “Moscato” we do not under any circumstances violate labeling regulations nor do I know anyone that would.
That is absolutely insane…if Moscato is a fanciful name, then what is Pinot Grigio or Pinot Nero. Moscato is not a style of wine it is the Italian name for Muscat. If the TTB does not have any linguists on staff and the commercial entities in the wine industry are taking advantage of this oversight, then bad on them and bad on the TTB.
Once I drill down on this ‘ruling’ I will be using that information in some inventive (hopefully profitable) way.
@noblewines Check the list of TTB approved varietals. http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=05e8a7d14c53851ac9313b415c551456&rgn=div8&view=text&node=27:1.0.1.1.2.10.25.1&idno=27
Pinot Grigio is an approved name as is Pinot Noir(nero) There is a Moscato Greco which is actually Malvasia Bianca and there are the various Muscats but there is no Moscato by itself, so… And Yes, there is not much that is sane regarding the TTB so no surprise there. The fact is, we know these varieties as Muscat Canelli, Muscat of Alexandria etc. There is no “bad” on those of us in the industry or on the TTB because we are not doing it the way you think it should be done.
This was sent to me by Jennifer Berry of the Regulations & Rulings Division
Alcohol & Tobacco Tax & Trade Bureau (TTB): 27 CFR 4.28(c)
Here is the link: http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=fd272e5b0c018b83c0bc788375cc34be&rgn=div8&view=text&node=27:1.0.1.1.2.3.25.9&idno=27
I have been dreaming of getting a tanker of this to my friend with a crushpad and put the wine in smaller bags that I then put into a small barrel that sits on the corner of every bar for by the glass. I hope to have the opportunity to make it real someday.
Mike, great series of articles. But be aware that bulk wine shipping is by no means a new thing; back in the 90s we were working on bulk shipping projects that moved NZ wine to Finland and Argentinian wine to California. The recent glut has boosted this trade hugely, but the rapid re-balancing in global wine inventories and supply will put the brakes on big time.
Chain retail and the public have benefited from this surplus sell-down, but the times they are a changing. Wineries won’t have the spare volume to sell it cheaply and in such large amounts for much longer. Expect to see less bulk volume shipped and super value price offers becoming fewer over the next 12-18 months. It’ll take a big investment in vineyard plantings and a slow down in global consumption growth for supply to get back to the surplus peaks we’ve seen in recent years. Neither of those two things is likely, given the GFC and the continuing rise in demand from China for red and now white wines.
This also happens to be how John D. Rockefeller transformed the oil industry; by rationalizing its shipping. He built his near monopoly in the 19th century thanks to his understanding of how railroads changed the economics of getting crude petroleum out of the ground in Pennsylvania to refinery to wholesalers and eventually to customers.
In so doing he cut the cost of kerosene (then the major petroleum product–for lighting–gasoline was a waste product) by 80% for consumers. His partner in that venture, Henry Flagler later used this knowledge to transform the state of Florida from a swamp with very little in the way of civilized comforts to something like the modern state we know today. Miami was a river until Flagler came along.
I agree with some of the postings here but don’t have a comment for some others. Here is what I do know.
27 CFR 4.28 Type designations of varietal significance.
(c) Muscat or Muscato. An American wine which derives at least 75% of its volume from any Muscat grape source.
Case and point: “Symphony” a Dr Olmo hybrid of Muscat of Alexandria and Grenache Gris. Symphony would not be reported under grape report information except as Symphony. Since there are so many subsets of Muscat one must consider all Muscat varieties before inferring volume discrepancies and the interpretation of the CFR wording is even more vague.
Another point that has been brought to my attention is that label approval at TTB can be varied depending on the agent that processes the COLA.
On another point export of bulk will continue and I predict will even grow. My official title is Export Winemaker at a large facility in California. Our program has grown or maintained volume for the last 7 vintages. Where some markets have dropped off others have grown. Some of our steady customers have sucked up the price increases as they have come. Right now wine and grape prices are 30-40% more than in 2010 and there is no immediate remedy. Until the banks loosen the purse strings and vineyards come on line we will be in this growers market.
The best of both worlds would be large wineries that are also large vineyard holders. They are set to make a killing for at least the next 4-5 years.