Note: This is the first part of the talk I gave last week in Paarl, South Africa. at the Nederburg Auction, which is arguably the Southern Hemisphere’s most prestigious wine auction gathering.  Come back for the second half of the talk in my next post. The talk as delivered was different (more topical and funnier as anyone who has heard me speak might guess) than this written version, but the main points were the same.

Good morning. I’d like to thank the Nederburg Auction for giving me the opportunity to speak to you today and Wines of South Africa for inviting me to attend Cape Wine 2012. Thanks to all of you for coming today to support the Nederburg Auction and the cause of South African wine.

At this point in the talk I paused to make a prediction, since economists are known to be oracles. My prediction: Australia 18, South Africa 21. That was my predicted score for the rugby match that was to be played later that day. I have never heard an economist’s prediction so warmly received!  It turns out that I was half right, but in the way that will not disqualify me from a return visit. The actual score: South Africa 31, Australia 8.

I’m here to talk about how South Africa can win the Wine Wars, so I guess I need to explain what the Wine Wars are and how South Africa fits into the action. Wine Wars is the title of my 2011 book. The title is short and punchy but the real business of the book is described by the long subtitle, The Curse of the Blue Nun, the Miracle of Two Buck Chuck and the Revenge of the Terroirists, which outlines the three elements of the book’s argument. Let’s take them one by one and then think about how they apply to South Africa.

A Tale of Curses, Miracles and Revenge

The first argument, “The Curse of the Blue Nun,” is about the risks and opportunities of globalization. Blue Nun was arguably the world’s first mass market wine brand. Although most people in the U.S. remember Blue Nun as that reliable but so-so German wine that they drank in the 1970s and 1980s (along with Portugal’s Mateus Rosé and Italy’s Riunite Lambrusco), the fact is that it initially gained international attention because of the extraordinary quality of the 1921 vintage. For a time it was the best selling imported wine in the U.S. and distributed around the world.

Globalization powered the rise of the Blue Nun brand and globalization nearly destroyed it. The pressure to fill the vast global pipeline forced the original owners of the Blue Nun brand to sacrifice quality to gain quantity. Blue Nun lost its distinctive character and became just another brand, albeit a potent one that continued to sell on that basis even as quality declined. (Blue Nun is back today, as I explain in Wine Wars, with new owners and a new global strategy).

People think that the “Miracle of Two Buck Chuck” is that anyone can make and sell a wine for as little as $2 per bottle, as Fred Franzia’s Bronco Wine Company does with Charles Shaw wine, which is sold exclusively at Trader Joe’s stores in the United States. But that’s no miracle at all. The Aldi stores in Germany actually sell the equivalent of One Buck Chuck –simple red and white wine blends that sell for about €1 per liter (roughly one USD per standard 750 ml bottle equivalent). The miracle isn’t that they can sell an inexpensive wine like Two Buck Chuck, the miracle is that anyone would buy it!

Globalization has flooded U.S. supermarkets (and drug stores and even petrol stations) with an embarrassment of riches when it comes to wine.  The sheer number of wines for sale is sometimes overwhelming and the many different brands, varieties and regions makes the problem even worse. You need to master a secret code (I call it the Da Vino Code in Wine Wars) to make any sense of the situation. The fact that wine prices vary so much from bottom shelf to top compounds the confusion.

No wonder so many U.S. consumers purchase no wine at all. They are afraid to stoop down to buy cheap wine because they fear it will be disgusting. They are afraid to reach up to buy expensive wine because they worry it won’t be worth it. The Miracle of Two Buck Chuck is that Trader Joe’s have given buyers the confidence they previously lacked to purchase wine. Their house brand wine strategy effectively expands the reputation of the retailer to the wine. And it works.

Brands are powerful weapons in The Confidence Game that is the U.S. wine market today, but there’s a problem that I call Einstein’s Law. Albert Einstein said that everything should be as simple as possible – but no simpler. By this he meant that, while simplicity is useful, there comes a point where it becomes over-simplifying and essential qualities are lost. Brands simplify in order to sell, but they can go too far. When wine becomes a choice between Bud Red and Bud White and the diversity and distinctiveness of wine is lost, we will have crossed the line.

What is to prevent this? Well, in Wine Wars I argue that “The Revenge of the Terroirists” will save the day. Terroirists worship (or at least honor) the idea of terroir – a  sense of “somewhereness”  (to use a term coined by Matt Kramer) that is so important to us in today’s everywhere, anywhere, nowhere world. Wine, better than almost anything else, connects us to a particular time and place and is thus a fitting focus of terroirist zeal.  Globalization has created the battlefield; the Wine Wars pit the forces that seek to over-simply wine against the terroirists who strive to preserve its soul.

South Africa and the Wine Wars

Can South Africa win its Wine War in the United States market? Yes – anyone who has tasted the wonderful wines being showcased at the Nederburg Auction will have no doubt about the final answer. But it won’t be easy. The U.S. market is crowded, intensely competitive and structurally difficult penetrate. It will take “boots on the ground,” sustained commitment, well-conceived strategy, opportunistic tactics and a little bit of luck. If that sounds like the description of a military battle plan, you are starting to understand the Wine Wars. Let me analyze the battlefield terrain in terms of the three big forces I talk about in my book.

First is globalization – the Curse of the Blue Nun. South Africa has long experience dealing with globalization’s two faces. These days for example, the global markets promise to connect Cape wine producers with new consumer markets around the world – a real plus. At the same time, however, the changing logic of the international wine trade has shifted momentum from bottled wine exports to bulk wine sales. New markets create jobs and income, but the trend towards bulk wine exports shifts the terms of trade in the opposite direction. That’s how globalization rolls.

At the other extreme we have the Revenge of the Terroirists. South African winemakers are terroirists – how could they not be with such wonderful terroir all around them — and, although most consumers in the United States don’t yet understand the complexity of South Africa’s terroir, the fact of the diverse Cape wine terroir is terribly useful. More to follow on this point.

So this brings us to brands and reputation — the Miracle of Two Buck Chuck. What does Brand South Africa look like in the United States? Here are impressions I have gathered in confidential communications with U.S. wine professionals from all the supply chain links and my own personal observations.

My industry informants tell me that when winery or distributor representatives are present to provide samples and information, South African wines fly out the door, but they need that personal connection. The key, one successful distributor of South African wines told me, is for the wines to stand on their own – sparkling against sparkling, Cabernet against Cabernet and so on. Then their quality and value carry the day. Emphasize the “made in South Africa” element, he told me, and interest wanes.  Why?

To be continued …