Get Ready for the Wine Industry Financial Symposium

Sue and I have just returned from a week in Northern Italy as guests of the Valpolicella Consorzio (look for a series of industry reports on Valpolicella and Prosecco in the coming weeks) and now we are getting ready to head to Napa, California for the Wine Industry Financial Symposium that will be held there on September 22 and 23.

The theme of the symposium is “Let the Good Times Roll,” which will strike some as a bit off-key since the California headlines this year have been dominated by bad news — first drought and then the recent Napa earthquake. The program (see below) doesn’t sidestep the challenges, but seeks to put them into the context of a rising tide in the U.S. market. It should be an interesting couple of days!

Monday’s program features workshops that focus on specific issues of interest to wine industry professionals including the Hispanic wine market in the U.S., the rise of craft beer, the emerging talent gap in the wine industry, tax issues and vineyard finance.  Lots of interesting topics and great speakers — something for everyone.

The Tuesday morning program accentuates the positive, beginning with David Freed’s industry overview and ending just before lunch with Carolyn Wente and the celebration of 130 years of Wente Vineyards. In between Dr. Robert Smiley will present the results of his annual survey of wine industry CEOs and John Ciatti will report on U.S. and global harvest trends.

I will talk about “Lessons from the Global Wine Wars,” with an overview of important global market trends, focusing on two that I think are particularly relevant for the U.S. industry today: the “premiumization” of the wine market and the surge in “disintermediation” in the wine industry.

Tuesday afternoon features sessions on social media marketing, “next generation” consumers and wine distribution. Looking forward to hearing the speakers and seeing everyone in Napa next week. Here’s the complete program. Cheers!

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Wine Industry Financial Symposium

Monday Workshops – September 22, 2014

Session I: 1:30 p.m. – 3:00 p.m. – Choose One

1. NEW DIRECT TO CONSUMER TRENDS
Examine new ways to relate to consumers through the direct to consumer channel. Speaker-moderator Craig Root will present several new tips designed to enhance your operation. Featured speaker Norman Stolzoff, President of Ethnographic Insight, will offer a detailed look at ethnographic research. This important field uses anthropological insights to solve real-world problems. Ethnography helps better serve customers, leading to profitable results.
Craig Root, Visitor Management Resources
Norman Stolzoff, PhD, President, Ethnographic Insight Inc.

2. TRANSACTIONS: WHO ARE THE BUYERS AND WHO ARE THE SELLERS?
John Mackie,
Partner, Carle, Mackie, Power & Ross, LLP, Moderator
Tony Correia, Owner, The Correia Company
Matt Franklin, Principal, Zepponi & Company
Josh Grace, Managing Director, International Wine Associates

3. THE HISPANIC WINE CONSUMER
What does it mean to the wine industry and what do we do to make wine the beverage of choice?
Steve Rannekleiv, Executive Director, Research, Rabobank International
Natalia Velikova, PhD., Texas Tech University

4. THE EMERGING TALENT GAP POSES RISKS FOR THE WINE INDUSTRY
Ray Johnson, Director of Wine Business Institute, Sonoma State University
Carol O’Hara, Partner, Burr, Pilger & Mayer, Moderator
Tom O’Brien, Director of Human Resources, Trinchero Family Estates
Larry Smith, Senior Vice President, Human Resources, Jackson Family Wines
Dawn Wofford, Managing Partner, Benchmark Consulting

Session II: 3:30 p.m. – 5:00 p.m. – Choose One

5. EQUITY AND DEBT MARKETS: CURRENT TRENDS AND FUTURE OUTLOOK
David Freed, Chairman, The Silverado Group
William Beyer, Principal, Prudential Agricultural Investments
Hal Forcey
, American AgAppraisal
Perry F. Deluca, Senior Vice President, Wine Industry Team Leader, Wells Fargo Bank

6. WHO IS THE COMPETITION? WILL CRAFT BEER AND CRAFT SPIRITS HURT WINE SALES, OR SHOULD YOU JUST JOIN THEM?
Bill Leigon, President, Jamieson Ranch Vineyards
Mark Crisler, CS, Founder & Chief Everything Officer, Trellis Wine Group
Jesus Ceja, Ceja Winery / Carneros Brewing Company

7. USE PERMITS: CURRENT ISSUES AND FUTURE TRENDS
Phillip Kalsched, Partner, Carle, Mackie, Power, Ross, LLP, Moderator
Dean Parsons, Project Review Manager, Sonoma County Permit & Resource Management Department
Jeff Redding, Principal, Land Use Environmental Planning Service
Beth Painter, Principal, Balance Planning

8. COMMON TAX ISSUES FOR VINEYARDS AND WINERIES
Federal Income Tax Updates, State Income Tax Updates, Sales Tax Updates and Estate Tax/Valuations
David Pardes, Tax Director, PricewaterhouseCoopers
George Famalett, Tax Partner, PricewaterhouseCoopers
Joan Armenta Roberts, Managing Director, PricewaterhouseCoopers
Eric W. Nath, ASA, Principal, Eric Nath & Associates
Thomas Garigliano, Tax Partner, Burr, Pilger & Mayer


Tuesday General Session – September 23, 2014
7:45 – 8:15 a.m.
COFFEE & REGISTRATION

8:15 – 8:20 a.m.
WELCOME & INTRODUCTIONS
Lisa Adams Walter, Director of Programs, Wine Industry Symposium Group

8:20 – 8:30 a.m.
WINE INDUSTRY OVERVIEW
David Freed, Chairman, The Silverado Group

8:30 – 9:15 a.m.
WHAT WINE INDUSTRY LEADERS THINK IS IMPORTANT FOR THE FUTURE
Robert Smiley, PhD, Dean and Professor Emeritus, Director of Wine
Graduate School of Management, University of California, Davis

9:15 – 10:00 a.m.
LESSONS FROM THE GLOBAL WINE WARS
Mike Veseth, Editor, The Wine Economist Blog

10:00 – 10:30 a.m.
GET – ACQUAINTED BREAK

10:30 – 11:15 a.m.
THE CALIFORNIA AND GLOBAL HARVEST UPDATE
John Ciatti, Broker, Ciatti Company LLC

11:15 a.m. – 12:00 noon
WENTE VINEYARDS CELEBRATES 130 YEARS
Carolyn Wente, CEO, Wente Vineyards

12:00 – 1:15 p.m.
NETWORKING LUNCHEON

1:15 – 2:15 p.m.
HOW SKILLFUL USAGE OF DIGITAL MARKETING AND SOCIAL MEDIA
NEED TO BE INTEGRATED IN THE BIGGER PICTURE OF BRAND BUILDING AND POSITIONING
John Gillespie, President, Wine Market Council and CEO, Wine Opinions
Karena Breslin, VP Digital Marketing, Constellation Brands
Alisa Joseph, Vice President, Business Development, The Nielsen Company
Mark Gordon, Digital Marketing Manager, Jackson Family Wines
Mike Osborn, Founder and VP Merchandising, Wine.com

2:15 – 3:00 p.m.
NEXT GENERATION WINE
Liz Thach, PhD, MW, Professor of Management and Wine Business, Sonoma State University
Judd Finkelstein, Judd’s Hill Winery
Lisa Broman Augustine, Broman Cellars
Nicole Bacigalupi Dericco, Bacigalupi Vineyards

3:00 – 4:00 p.m.
WINE AND DISTRIBUTION
Jonathan Pey, Principal, TEXTBOOK Napa Valley
Jon Moramarco, Principal, BW 166 LLC
Dan Grunbeck, EVP Corporate Business Development & Strategy, Youngs Market

4:00 – 5:00 p.m.
FINANCIAL SPONSOR FINALE
WINETASTING & RECEPTION – Hosted by WIFS Sponsors

 

Wine Snobs, Cheese Bores and the Fake Hooters Conspiracy

Recent columns by two of my favorite writers — Eric Asimov and Simon Kuper — provoke a brief rant about globalization (and its discontents).

Simon Kuper

The Global Cheese Bore Epidemic

Simon Kuper is a global citizen and so, like a fish in water, he sees globalization from an insider’s perspective. Born in the Netherlands, he lives in Paris and writes about global sport and global affairs for the British newspaper, the Financial Times.

His recent FT column on “An everyday taste of happiness” is on the surface an appreciation of good food. Paris has great food, Kuper writes, and he wonders at one point whether he would live in Paris if its food was bad? No, he’d probably stay — he loves Paris — but he had to think about it.

You can find pretty good food just about everywhere these days and globalization is partly responsible.”Globalization tends to improve cooking,” according to Kuper, and I think he is right. Immigration — global movements of people — also entails global movements of their cuisines, enriching the host country food scene. Global tourism means that millions are exposed to foreign foods and food ideas and bring them back home.

Global media plays a role, too. Julia Child and the Galloping Gourmet paved the way for what is now a global media foodie explosion. Top Chef, Master Chef. Iron Chef. Nigella Lawson, Jamie Oliver, Gordon Ramsay, Anthony Bourdain.  Good news, mainly, according to Kuper’s theory. He even admits that as much as he may not appreciate the global brand Taco Bell it is probably better than the Wonder Bread cuisine of the 1950s that it has partly replaced.

But he doesn’t forgive everything — “The ‘food renaissance’ is indeed linked to class and therefore encourages status displays: the fastest-growing demographic category from Britain to China today is ‘cheese bores.’” (!)

Could you take Kuper’s essay the replace “food” with “wine”? Almost. The parts on immigration (expanded to include flying winemakers and harvest interns) and tourism would hold true. Global media has not yet embraced wine to the same extent as food and fashion, however. But the positive general effects (and boorish negative side effects) that Kuper describes would still hold.

Asimov’s Global Glass

Eric Asimov

If Kuper sees globalization as a glass half full, Eric Asimov seems to worry that it might be half empty in his New York Times column “Europeans Stray From the Vine.” He starts with the sad news that wine drinking is in decline in France. It is way down in terms of quantity and he is concerned a bit about the quality as well. The French now drink more rosé than white wine and box wines have risen from 5% of the market to 30% despite being banned in some regions. Sacrebleu!

What are the French drinking instead of wine? Well, just about everything. Craft beer, spirits, everything else. Even when they drink wine, the French don’t limit themselves to the regional selections that might have been their only choice 50 years ago. Now they seek wines from across France and Europe and around the world. The French are becoming more like Americans!

And Americans are becoming more like the French, enjoying not only their own wines but (with Asimov’s encouragement) drinking wines from France and everywhere else. Asimov has written in the past what a joy it is to live in New York City these days with the world of choices (of wine but also food and other cultural produce) that are available there.

Globalization has costs and benefits, he concludes. “The benefit is better wine and more pleasure for all who are interested. The costs? Homogenized cultures and hyper-competition for the historic benchmark wines that put them largely in the hands of the ultra-wealthy.”

The Globalization Paradox

It is worth reading the columns by Kuper and Asimov and looking at how they intersect, agree, and sometimes disagree. I’m struck by the fact that they both find class issues to be of concern when it comes to global food and wine, for example — the curse of rich wine snobs and cheese bores. I am also interested to note the way that they both end up commenting upon an idea that I first saw in a book by Tyler Cowen called Creative Destruction. I call it the Paradox of Globalization.

Cowen’s book is all about the costs and benefits of cultural globalization and it is one of the best globalization books I know. The paradox, which you will recognize in both Kuper and Asimov essays, is that global influences enrich our lives here at home. More diverse food, wine, art, music, fashion — the list goes on and on. But, there’s a dark side, too.

The problem is that this globalization isn’t limited to your home town. Everyone — in New York, Paris, London, Mumbai — everyone wants to enjoy these global experiences. And they get them although maybe not all at once and with the rich having greater access than the poor. You get the picture.

Which creates the problem that when you travel you find that the quaint little villages (and village wines)  that you imagined would give you that authentic foreign experience have been replaced, at least in part, by the same global selection you have at home. In short, home gets better, but travel becomes something of a disappointment. That’s the Paradox of Globalization: As everyone’s home town becomes globalized, enriching our everyday lives, the world seems to become less foreign, less global, and that seems like a big loss.

Hooters in Innsbruck

A couple of my former students sent me a photo from their travels back in 2000 that captured this point precisely. It showed a quaint street in Innsbruck, Austria with one and only one visible “global” sign: a yellow banner that proclaimed the grand opening of a Hooters restaurant. Famous for hot wings and the tight t-shirts its waitresses wear, Hooters in Innsbruck might strike some people as a kind of evil American conspiracy against indigenous culture.

“What’s wrong with globalization!” was written on the back of the photo. Yikes! You can imagine how dismayed they must have been to see this unexpected (and for them unwanted) reminder of home.

[Update: a reader's comment (see below) reports that Hooters my students saw was not a real one -- some Austrians appropriated the name to set up "fake" Hooters that fooled many people.]

I admit I felt a little bit the same when I saw the big TGI Fridays restaurant near the main square in Riga, Lativia. TGI Fridays? Here? Really? But I got over it when I saw all the happy Latvians enjoying the barbecued ribs. Why shouldn’t they?

How deep does the Paradox of Globalization go? My suspicion is that the most obvious instances are surface level phenomena and that real indigenous culture is able to withstand whatever damage that Hooters or Taco Time might do. But that’s not to say that we shouldn’t be cautious.

The globalization paradox is part and parcel of the world we live in today and while it may disappoint us when we see the French losing hold of a certain idea of wine  that we associate with them, I think we can also take pleasure that Americans (and Chinese and many others) are embracing the culture of wine. And we can hope that the younger generation in France will discover their own idea of wine.

A final point to consider is this: food is far ahead of wine in terms of its global diffusion and penetration , don’t  you think? The media embrace of food might be responsible for this but there are other factors — everyone eats but only some of us (the lucky ones) drink wine.

But I think wine will catch up. Looking at the world of food today, I wonder what the world of wine will look like in 50 years?

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Thanks to Melissa and Mari for the Innsbruck Hooters discovery.

If you want to read more about this topic, my 2005 book Globaloney is a critique of globalization’s cultural impacts and the arguments we make about them. It was named a best business book of the year by Library Journal. Incredibly, someone seems to be selling a lightly used copy on Amazon for 1-cent (plus shipping). Two Buck Chuck, meet One Cent Mike.

Restaurant Australia: Re-Branding Australia (and Australian Wine)

Click on the image to see a “Restaurant Australia” video.

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I’m back from Australia, where I spoke at Savour Australia 2013 (click here to view my presentation). The purpose of Savour Australia was to re-launch Brand Australia wine on the global market by bringing together about 700 domestic and international delegates and rolling out an integrated marketing plan that combined Australian food, wine and tourism.

Savour Australia was quite an intense and impressive global gathering and I am still trying to process all my experiences both at the conference and in independent travels (scroll down to see a brief list of extreme wine moments). I’ll be analyzing what I think I’ve learned over the next several weeks.

Food Stars, Porn Stars, Rock Stars

“Restaurant Australia” is the proposed new brand and you can perhaps best appreciate how its elements connect by clicking on the image above and watching the short video that appears. The basic idea is that food and wine have become much more important tourism drivers. Nature (think Grand Canyon) and culture (think Italian Renaissance art and architecture) are still important draws, but increasingly travelers seek out fine wines, great restaurants and cult foodie experiences. Then they become brand ambassadors, spreading the word across the internet and around the world.

This sea change should not come as a surprise. As I wrote in Wine Wars, this is an effect of the growing popularity of foodie television shows and networks, like the insanely popular international Top Chef and Master Chef series and the rise of foodie celebrities such as Jamie Oliver, Nigella Lawson, Anthony Bourdain and so on. Seriously, food stars get more exposure than porn stars and are sometimes more popular than rock stars (“rock star” being the gold standard for pop culture status).

The food’s the thing, don’t you know? The Australians are smart to realize this and to try to recast their image around it.

Shrimp on the Barbie

But they don’t start the process of re-branding with a clean slate (or clean plate, I suppose). For many people here in the United States, Australian cuisine is defined by Crocodile Dundee and Outback Steakhouse. Paul Hogan, the actor who portrayed the famous Crocodile Dundee character in the films, was featured some years ago in an Australian tourist campaign that generated the memorable line “throw another shrimp on the barbie.” Australian food (and culture generally) is warm and generous, if not particularly sophisticated according to this approach. A good image then (and Australians sure are warm and generous), but not especially useful now. The game’s changed.

For better or worse, Outback Steakhouse’s popularity has reinforced this idea of Australian food culture. Outback is a meat and potatoes kind of place, although I see they now also feature grilled chicken “on the barbie.” It’s signature menu item is a “bloomin” deep fried onion appetizer. Tasty, I bet,  but not really haute cuisine.

So the Australians have their work cut out for them and the videos we saw at Savour Australia (and the great food and wine we enjoyed there) suggest that they have both great raw materials to work with and a sophisticated understanding of the story-telling necessary to make their strategy work. Click here to view videos from Savour Australia, including four stunning chef-centered  “Restaurant Australia” themed videos.

Terroirist Revenge Strategy

I’m a big fan of this approach, as I told my Adelaide audience, because it fits very well into the analysis I presented in Wine Wars. I didn’t have Australia in mind when I wrote that book, but its argument fits the great land down under very well. Australian wine has experienced the double-edged sword of globalization and the problems of over-simplified marketing messages (these are the “Curse of the Blue Nun” and the “Miracle of Two Buck Chuck” of the book’s subtitle).

Now, I think, they need to channel their inner terroirists and tell a more sophisticated story that draws upon, to use a catch phrase of the Restaurant Australia campaign, the people, places and produce of their land. (People, place and produce is not a bad definition of terroir).

Will it work? Will “Restaurant Australia” be able to launch Australian wine on a new path? Come back next week for more analysis.

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Australia 2013: Memorable Moments

Herewith a few memorable moments from our trip, some of this will be featured in future Wine Economist columns.

  • A festive wine dinner with Australia’s First Families of Wine, an association of Australian producers who are doing their level best to change the way the world sees Australian wines.
  • A fabulous tasting of Australian wines from the Yalumba Wine Museum (I guarantee you will be jealous when you hear about the wines we sampled).
  • Wine writer and broadcaster Michael Hince and his wife Amanda  invited us to a dinner in Melbourne where they showed off wines from Victoria. It was a really spectacular demonstration. Wow! You can read Michael’s account of the wines and the dinner here.
  • Great hospitality during our time in the Barossa Valley, with memorable visits to Rockford, Torbreck, Hentley Farms and Charles Melton.
  • My wine economics colleague Kym Anderson gave us a memorable tour of his Adelaide Hills region (highlights: Ashton Hills Vineyards for the Rieslings and Pinot Noir and Hahndorf  Hill Winery for Gruner Veltliner and Blaufrankisch) and sent us to Seppeltsfield winery in Barossa, where we happily immersed ourselves in Australian wine history.
  • Tasting and talking with Peter Althaus at his Domaine A winery near historic Richmond, Tasmania (and staying at Tara’s Richmond Farmstay).
  • The fabulous family-style long-table winemaker lunches at Savour Australia. Outstanding food, wine and conversation.
  • Working (not just attending) the Wednesday “Grand Tasting”. Prue and Stephen Henschke let me pour their fabulous wines (including Hill of Grace)  for about 90 minutes so that I could see the conference and the delegates from the other side of the table.  What a treat!

Decanter’s Power List 2013: Globalization and China’s Continuing Rise

He’s still #1

The July issue of Decanter (the self-proclaimed “world’s best wine magazine”) is out and with it comes the Decanter Power List 2013 – a list of the 50 most powerful people in wine this year as determined by the magazine’s editors.

The Power List, which appears every other year, is great fun, both in the way that it spurs debate (my soccer-fan friends spend hours and hours debating similar lists for their sport) and because of the glimpse it offers into the way the world wine map is changing … or not.

Small World After All

What does the 2013 list reveal? Well, the #1 most powerful man (only 15% of those on the list are women) is once again Pierre Pringuet, CEO of drinks multinational Pernod Ricard. There are bigger wine companies – Gallo (Gina Gallo is #17 on the list) and Constellation Brands (#5 Robert Sands) but it is Pernod Ricard’s global reach and decidedly global strategy that sets it apart and makes Pringuet #1. Or so I believe, because one of the messages of this Power List and the last one is that globalization is now the way of wine.

The new #2

Asia is the key to the global kingdom, or so the list seems to say. Ten of the 50 listed luminaries have a strong Asian connection, including the new #2 (up from #8 last year) Wu Fei, head of the wine and spirits division of COFCO, China’s state-owned Cereals, Oils and Foodstuffs Corporation.

COFCO makes wine (Great Wall brand), invests in wine properties (Chateau Viaud in Bordeaux with more foreign acquisitions to come) and is a key potential partner for anyone in the world who wants to sell bulk wine into the Chinese market. It will soon start bottling Australian and Chilean wines to sell under the Great Wall label, with more international expansion planned.

COFCO’s (and China’s) influence is so strong that its association with Bordeaux flying winemaker Michel Rolland seems to account for his surge in the ratings from #18 last year to #7 in 2013. The China connection also might explain Aubert de Villaine’s meteoric rise from #30 to #8.

De Villaine is co-owner of Domaine de la Romanée Conti and that alone might justify a place on the list. But 2013 has been widely seen as the year that many Chinese investors and collectors lost interest in Bordeaux and turned their attention to Burgundy. So no surprise that DRC, perhaps the most sought-after Burgundy wine, would surge in the ranking.

New Names and Faces

There is always a good deal of churn in the Power List and this year is no different. I counted 14 new names, starting with #48 Judy Leissner (CEO of Grace Vineyards, China) and ending with #11 (John D Watkins, ASC Fine Wine, China) and #12 (Yang Wenhua, C&D Wines, China).

Not every new face has a Hong Kong or China link, but many do including # 44 Li Demei (Chinese consulting winemaker), #42 Paolo Pong (Hong Kong retailer and restaurateur), #27 David Pedrol (Chinese online wine retailer) and #23 David Dearie (CEO of Treasury Wine Estates, which is noteworthy for opening a vast 6000 square meter wine gallery in Shanghai).

Other new names on the Power List are Magdalena Gerber (#33 – she is CEO of Sweden’s wine monopoly, Systembolaget) and Bob Peter (#32, head of the provincial monopoly Liquor Control Board of Ontario). Systembolaget and the LCBO are two of the world’s largest wine purchasers and retailers (along with Costco, the U.S. leader, represented by Annette Alvarez Peters at #4 and Tesco’s Dan Jago at #14). Globalization can create a huge wine pipeline and this gives power to those who can fill it (like Pernod Ricard) and those who can empty it profitable (Costco, Tesco, Systembolaget and the LCBO).

More questions than answers

The U.S. is the world’s largest wine market today and it seems a bit under-represented on the Power List with only eight names, but they are heavily concentrated in the top tier: #9 critic Robert Parker, #6 Constellation’s Robert Sands, #5 distributor Southern Wine & Spirits’ Mel Dick and Costco’s Annette Alvarez Peters at #4.

It’s interesting to ponder the Power List because it raises more questions than it answers.  Who do you think really is the most powerful wine person in the world?

Why aren’t there more women on the list, especially from Europe where Jancis Robinson and Magdalena Gerber are the only female representatives? This is a question for the industry (and not just Decanter’s editors) to ponder. Will this year’s new faces still be around in two years when the next list is released? Where will the next group of new names come from?

And, of course, when will Decanter finally include a wine economist in the power list? I guess we’ll just have to wait and see.

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Click on the links to read my analysis of previous Power List selections for  2011 and 2009.

Is This the Beginning of Juice Box Wine?

Juice Box globalization was one of three wine market scenarios that I proposed in a talk I gave in January 2013 at the Unified Wine and Grape Symposium in Sacramento (you can read a brief summary of my remarks here). I was inspired by the Minute Maid apple juice box pictured in the slide above.

You think of Minute Maid as an American brand and goodness knows that we grow lots of apples here, but in fact it has become a globally sourced product. The generic apple juice in that box could come from the U.S. or Argentina, Austria, Chile, China, Germany or Turkey (or any combination of them, I suppose). The brand is the thing here — country of origin is almost literally a footnote and apple variety is a complete non-issue.

Is juice box wine possible — wine pretty much stripped of variety and place of origin? Many heads nodded yes in the audience as I asked the question. Just a matter of time as global sourcing of wine becomes a key supply side factor and strong brand identity continues to grow in importance on the demand side. Juice box wine isn’t the only direction wine is headed, I suggested, but it is one possibility.

Barefoot Makes an Impression

And now it is here (although perhaps not for the first time). Gallo’s Barefoot brand has introduced a new red blend wine, Barefoot Impression, made from grapes grown on four continents, according to a recent report in the Modesto Bee

Impression Red Blend is the 22nd product from Barefoot, which Gallo has built into the nation’s top-selling brand. The blend includes grenache from Spain, shiraz from Australia, malbec from Argentina and tempranillo from California.

 Impression joins 14 still wines and seven sparkling wines, all made from California grapes, in the Barefoot portfolio. Barefoot winemaker Jennifer Wall describes the new wine as “a smooth red blend with dark fruit flavors, framed by notes of sweet vanilla and spice.” It has a suggested retail price of $6.99.
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Lost in Space?
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A quick trip to my local Safeway store revealed Barefoot Impression on the shelf along with other inexpensive red blends. The purple footprint was part of the typically attractive Barefoot package. But I was more interested in what the package didn’t say than what it did. No vintage year. No listing of the grape varieties used. And no listing at all of place of origin.
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Whereas the Barefoot Zinfandel I found proudly boasted Lodi as its birthplace, and “California” appeared on several varieties (the Pinot Grigio in my store was an American appellation), I could not find any geographical designation at all for the Impression. I guess it makes sense — a multi-vintage blend has no year and a multi-continental blend has no specific point of origin (although there would be nothing to stop Barefoot from providing this information if they wanted to).
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Message in the Bottle
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Will consumers care that there is no vintage year or appellation? Some might question the wine if they look for traditional year-variety-origin references. But Barefoot has created their own narrative (see video below), which is very much in the Barefoot spirit and very appealing, too, and I am sure the marketing team has discovered that at least some Barefoot drinkers respond to the progressive social message more effectively than they would to a more traditional alternative.
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Is Barefoot Impression the beginning of an important trend? Impression probably isn’t the first and certainly won’t be the last wine in this category. Watch this space for future reports.
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Sell Local, Source Global: Welcome to Bota Box Globalization

I think I’ve seen the future of  American wine — or at least one aspect of the future, since nothing in wine is simple — and I didn’t need a Time Machine, Crystal Ball or souped-up DeLorean to do it. All I had to do was walk into my neighborhood Safeway store and take a look around.

[This is the final post in a series about what I think I learned at this year's Unified Symposium regarding the future of the American wine market. Scroll down to the earlier posts if you haven't already read them.]

The buzz at the Unified Symposium this year was about America’s growing wine market and the bodacious 2012 U.S. grape harvest. Higher demand, abundant supply — happy news.  But, as I have argued over the past few weeks, the future is more complicated, full of both opportunities and challenges.

The U.S. is unlikely to be able to meet all of the rising demand profitably in the long run if current trends continue, so imports will likely fill the gap. U.S. producers should adopt a “Machiavellian” strategy to seize control of import flows, especially important at the low-price end of the spectrum, and systematically shift U.S. products into up-market categories. The changes are coming, I’ve written, so the best bet is to think ahead and be well-positioned when the future finally comes around.

Bota Box Globalization

Not everyone agrees with this vision of the future and I’ll talk about alternative views in a moment. But first I want to show you  where things seem to be headed. Here for your consideration is a version of globalization that I think points the way.  I call it Bota Box Globalization.

Bota Box is a line of  3-liter bag-in-box and 500 ml  tetrapak wines from DFV. Jon Fredrikson named DFV winery of the year for 2011 at last year’s Unified and the company has been growing by leaps and bounds — it’s easy to see why.

When I’ve thought about Bota Box in the past, I’ve associated it with good value, alternative packaging and put it squarely in the “California wine” category. Why California wine? Well, because that’s the appellation I remember seeing on the boxes and also because DFV is a major California producer, making about 6 million cases of their own wine brands last year and about another 6 million cases for other firms.

(Data from the 2013 Wine Business Monthly top 30 U.S. producer report — DFV is #8 out of 30 if we take only their own brands into account, wedged between #7 Ste Michelle Wine Estates and #9 Jackson Family Wines.)

Sell Local, Source Global

I guess Bota Box is still a “California brand” and of course an American brand, but DFV is already doing with it what I think many large volume (and some smaller ) producers will do — sell the brand locally but source the wines globally.

The wines were attractively displayed at the Safeway on Proctor Street when I visited on Saturday — appealing enough that the 3-liter Cab boxes were sold out. The wines were priced at $24.99 for the box, which is equivalent to $6.25  per 750 ml bottle, but you could bring the cost down to $19.99 by flashing your Safeway Club Card and cut another $2 off if you purchase in quantity, as you might for a party.

This is good value, but not bottom-shelf cheap. Bota Box is a leader in the “premium box wine” category that represents a big step up from brands like Franzia.

The packaging, the brand and the grape variety are the main things you notice when you survey the color-coded Bota Box shelf, but a little investigation brings the global factor into focus. The Merlot, Riesling, Shiraz were all California wines at my store, but the rest were imports from Chile (Cabernet Sauvignon), France (the RedVolution red blend), Italy (Zinfandel!), Argentina (both  Malbec and Moscato) and South Africa (Chardonnay).

South African Chardonnay in a Bota Box? Wow! I didn’t see that coming.

Poking around the web, looking at Bota Box images, it is pretty clear that the sourcing is both flexible and global. Looks like the Malbec has come from exotic Lodi, for example, and that the Shiraz, Cab and Chard were once sourced from Australia, probably back before the Aussie dollar became so ridiculously over-valued.

And the Zinfandel once came from California instead of Puglia and probably still does in some of the containers — you sometimes find the same varieties from different countries on adjacent Bota Box shelves. The 3-liter RedVolution was from France and the big box Cab from Chile at my neighborhood Safeway, for example, but the 500 ml tetrapaks of the same wines wore a California designation.

Bota Bottom Line?

Brand, package and variety are the key factors in this business model  – the particular source of the wine is a secondary characteristic for Bota Box, so long the as quality is consistent, as I assume it is.

The bottom line of my series of posts is that I see the U.S. wine market continuing to grow and imports making up a larger and larger part of it as domestic supply constraints kick in, competition increases at the lower price levels and wine export momentum is sustained. Bota Box globalization illustrates one way that smart producers will position themselves to compete in this evolving market while controlling their own destiny.

Going back to an earlier post in this series where I compared the wine market to the apple market, I think we’ll see Juice Box Globalization at the bottom shelf of the wine wall, where pressure for global integration will be very strong indeed, Granny Smith (and Bota Box) Globalization in the middle and the highly differentiated products that represent Honey Crisp Globalization at the top. It’s already happening. Are you ready? It looks like DFV is!

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What’s wrong with my analysis? Well, prediction is difficult — especially about the future — and so there is a lot of room for error. One criticism is that my analysis is fairly simplified and a much more nuanced approach is needed. Fair enough. Fortunately Jim Lapsley has already provided that in an enlightening analysis he prepared in 2010.  Click here to download the pdf – it is well worth reading if you are interested in this issue.  Jim concludes that

The U.S. wine market will look different in 2030. On the demand side, per capita consumption will increase as acculturated Hispanics adopt wine and as wine becomes a more integral part of the American culture. Increased per capita consumption combined with population growth could quite possibly increase total table wine sales to 3.60 billion liters.

California will remain the dominant producer within the United States, but it is likely to lose market to inexpensive bulk-wine imports. These wines are likely to be marketed as global brands, with the location of grape supply of little importance to consumers. This article has also discussed the supply and demand picture for higher priced wine for which location of production is a dominant marketing attribute. These wines, which are largely produced from coastal grapes, face quite different economic drivers on both the supply and demand sides of the market

Jim’s analysis is more sophisticated than what I have posted on The Wine Economist, but we see many of the same factors at work.  I see the global integration as being a more powerful factor, but maybe that’s because I’m a globalization expert and pre-disposed to see globalization wherever I look.

Another set of reader comments essentially argues that I am too influenced by recent events and conditions — the relatively weak dollar, for example, the recent surge in bulk wine trade and current supply-demand balance trends and conditions. All these factors could and probably will change. Will they change enough to alter my conclusions?

Good point. They might! But I’m not convinced they will. I guess we will have to wait and see, but in the meantime I don’t think if would be a mistake to get ready for the increasingly global future of U.S. wine if  and when it comes around.

Machiavellian Global Strategies for U.S. Wine

What’s the best strategy for the U.S. wine industry as it enters the increasingly global market environment that I’ve described in my two recent posts on Juice Box globalization and the prospect of a coming 50-50 import-domestic split?

I’ll use this post to make a few observations inspired by the buzz at this year’s Unified Symposium and then return to the topic again next week to synthesize the emails and comments I’ve received on this topic.

Whenever I think about strategy I always ask myself “What would Machiavelli say?” because the famous Florentine’s advice has held up pretty well over the years.  Since, as the sage Jon Fredrikson likes to say, “there are no one-liners in wine,” here are three elements of a Machiavelli-inspired battle plan.

“Wisdom consists of knowing how to distinguish the nature of trouble and in choosing the lesser evil.”

Machiavelli seems pre-occupied with trouble, which is both good and bad when we try to apply his insights to the changing global wine scene. The wise part of this saying is that the nature of trouble may not always be obvious and you’ve got to be careful not to jump to conclusions.

The continued growth of the imported wine category in the U.S., for example, isn’t simply a matter of lost market share, as I suggested in my last post.  The whole business of wine is changing and rising imports are only  part of an emerging syndrome that  presents both challenges (trouble for the Tuscan strategist) and also opportunities for the thoughtful entrepreneur.

“It is better to do willingly what you will otherwise be compelled to do.”

The idea of course is that if resistance really is futile, then you may be able to get better terms through cooperation. I think this rule might apply to the basic wine category in the United States, which faces double jeopardy from competition at home and abroad. Although wine imports are likely to increase in all market segments, the biggest impact may be for inexpensive “bottom shelf” wines, where the combination of bulk shipping economies and “drawback” credits are most significant.

Basic wines will also face competition on the input side. Nut crops promise higher profits than wine grapes for some farmers, especially at the low price part of the grape market. Many wine growers will need to move up-market if they want to stay in the wine grape business and this has implications for bargain basement wines. If you want to know why Two Buck Chuck has raised its price to $2.49 in its California home market, this is part of the answer.

Where will these trends lead us? Well, if I wanted to shock you I’d say that California will be forced to retreat and to concede the bottom shelf of the wine wall to imports.  Basic wines won’t come mainly from California as they have for decades, but will adopt a modified version of the “juice box globalization” mode, where branded products are sourced from all around the world as needed to minimize cost for standard quality.

This is vision of the future is actually current practice in the “premium box wine” segment, but I think it will appear in even sharper focus among in the basic wine segment.

If “retreat” is inevitable, Machiavelli suggests that U.S. producers embrace rather than resist the trend — and I think this is already under way now, too. Some wine companies are seizing the initiative to make sure that the brands that the imported wine goes into are theirs and not those owned by foreign producers and of course a retreat in the basic category is not a defeat if it can be leveraged into an advance in higher margin categories.

The transition will be difficult, but less so if U.S. producers plan for it rather than just watching it happen to them. I’m reminded of what happened in Washington State when the California Wine Bill was passed in 1969. Cheaper California wine flooded into the state, crowding out the cheapest Washington products and forcing Washington to become much more tightly focused on premium products. A tough transition in the short run, but it’s been great for Washington wine in the long run.

“It is better to be feared that to be loved.”

It’s not about love or hate, it’s about control. It is better to be feared than loved, Machiavelli said, because you can control if you are feared far better than you can control if others love you and controlling your own destiny is the key.

Hence the sentiment I heard on several occasions in Sacramento that U.S. producers need to take command of the import levers so that the bulk wine imports go into their brands rather than foreign brands. The goal is to defend hard-won territory on wine walls and distributors’ lists. Although many of the people who talked to me would rather have American wine sold in American brands, they could live with imported wine in American brands if that’s what is necessary.

Perhaps Machiavelli is a control freak and exaggerates its importance, but I think the control issue is worth considering. Certainly there is some concern among New World wine exporters about lost control of quality and reputation when wines are shipped in bulk versus packaged goods. Shipping wine in bulk to yourself in foreign markets and bottling there (to gain economies but preserve control) is a rising trend.

If you wants to see where the control trend might lead, read this article about China’s Great Wall brand wine’s global strategy in on TheDrinksBusiness.com.  Great Wall seems to be going beyond purchasing foreign wine to fill their domestic brand bottles — they are actually buying the foreign vineyards themselves and securing the production facilities!

“We will announce that Great Wall is not only China, and we will make a French Great Wall, a Chilean Great Wall and an Australian Great Wall,” he said.  …  “You will probably find these wines in the market next year… Great Wall will use global sourcing for the Chinese domestic market.”

Now that’s control! Machiavelli would be pleased!

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I’ll consider alternative viewpoints and try to sum up next time.

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