Can Portugal Win the Wine Wars?

My recent trip to Portugal was eye-opening and will be the subject of Wine Economist columns for the next few weeks. I was invited to speak at a wine industry gathering held in association with a Portuguese wine festival called Essência Do Vinho at the historic Palacio dal Bolsa in Porto.  I will paste the program at the end of this post.

The conference was organized by ACIBEV (Associação dos Comerciantes e Industriais de Bebidas Espirituosas e Vinhos or Portugal’s Association of Traders and Producers of Spirits and Wine) which is an organization intended to help Portuguese producers work together on a wide range of issues of common interest.

Can Portugal Wine the Wine Wars?

The program was called “Pode Portugal Ganhar a Guerra do Vinho?”  or “Can Portugal Win the Wine Wars.”  My job was both easy and hard, Easy because I’ve spoken many times about Wine Wars, my 2011 book on the economic forces shaping the global wine industry.  But also difficult because I didn’t know very much about the Portuguese wine business when I agreed to give the talk and so I had to kick into student exam-cram mode.

I worked very hard to learn all I could before getting on the plane, but I knew that most of my education would be on-the-spot, talking with the people there.  I also needed to consider the rest of the program, particularly the speaker who would go before me,  Susana García Dolla, Vice Secretary General of Spanish Wine Federation (FEV) and a representative of the pan-European group Wine in Moderation. (Susana gave a fantastic talk!)acibev2

So I framed my remarks carefully and tried to leverage my fresh perspective on the wines of Portugal into something of value to the audience. There were a lot of messages, as Paul Symington noted in his commentary following my remarks, and I don’t think I pushed some them far enough in some cases (as he pointedly did because of his mastery of the issues in Portugal).  I thought you might be interested in one piece of the lecture that several people said they especially appreciated.

Wine Wars: Know Which War? Which Opponent?

The wine wars that I talk about in Wine Wars are the three economic forces that I see as shaping global wine: the push forces of globalization (the Curse of the Blue Nun) and the growing power of brands (the Miracle of Two Buck Chuck) and the push-back forces that seek to preserve and protect wine’s special place in life (the Revenge of the Terroirists).

Portugal is part of that war, I told my audience. The Portuguese practically invented globalization and are famous for global wine brands (Port is a powerhouse brand, for example, and Portuguese mass market branded wines such as Lancers and Mateus are famous). I could tell the whole Wine Wars story as a Portuguese story with very little effort. But that’s not the only wine war.

I quickly sketched several other wine wars that are important to understand. If you talk about a wine war to wine producers, they naturally think of the war in terms of the battle for sales and shelf space — the war that pits one winery against another. This seems like the critical battlefield, I think, because it is the most immediate one. But you can win in that arena and still lose the bigger contest if you ignore the other wars.

The Drinks War

Wine is also fighting what you might call the beverage war or the drinks war. In part because of globalization and the rise of branded wines and in part because of other factors (changing demographics prime among them), wine is increasingly seen as part of the “drinks” category of consumer goods that includes beer, cider and spirits.  You can see this as part of the democratization of wine (which is good) or a symptom that wine is losing its special place in the marketplace (not so good).

The fact of the drinks war changes things because now the real opponents are not other wine producers, they are the makers of other alcoholic and even some non-alcoholic beverages.  Your old enemy is now your best potential ally and the strategies that might have worked in wine vs wine battles are of little use. Wine vs beer, wine vs cider, wine vs spirits — those are the fights that matter now.

The new emphasis on innovation in wine (the topic of next week’s column) is driven in part by the drinks war and the need to confront innovative new challengers with new strategies.

The War Against Wine

The war against wine is part of the rising anti-alcohol movement in Europe and elsewhere around the world. We think of wine as the drink of moderation, but alcohol is alcohol to these activists, and so they seek to tax it, regulate it, restrict it, and generally discourage its sale, marketing and consumption.

We are familiar with the war against wine in the US because we lost it so tragically in the last century. The great experiment of Prohibition pretty much destroyed the US wine industry, which has still not fully recovered.

The war against wine is perhaps the most serious battle of them all, which is why Susana’s presentation was so important. She outlined the strategies and tactics that Wine in Moderation is employing in its efforts to present the positive case for wine and to counter anti-alcohol propaganda.

Can Portugal win the wine wars? Portuguese wines are attracting a lot of positive attention these days and I think it is about time that they were recognized. But it is a tough marketplace, with competition from every corner of the wine world. Portuguese producers need to work together (which is why ACIBEV’s efforts and the Wines in Moderation project are so important) in order to complete as individual wineries more effectively.

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Special thanks to George Sandeman, Eduardo Medeiros and Ana Isabel Alves of ACIBEV for their kindness and hospitality and to my discussants Paul Symington and Francisco Sousa Ferreira for their pertinent analysis.

Here is the program for the Porto event.

Can Portugal Win the Wine Wars?

10.00: Opening by Eduardo Medeiros, Administrator and Director of Bacalhôa ACIBEV Group

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10h10: Presentation of Manuel Novaes Cabral, President of the Port Wine Institute

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10.20: “Spain – A Promotion of Moderate Consumption” - Susana García Dolla, Vice Secretary General of Spanish Wine Federation (FEV)

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11h30: “Shifting Center, Rising Tide: Portugal in the Changing Global Wine Market” SPEAKER: Mike Veseth – Editor of The Wine Economist and Professor Emeritus, University of Puget Sound

Commentators: Paul Symington – Symington Family Estates Francisco Sousa Ferreira – Wine Ventures MODERATOR: Eduardo Medeiros – Bacalhôa Group, Director of ACIBEV

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12:45: Speech by George Sandeman, Director of Sogrape and President of ACIBEV

Cracking the Chinese Wine Market

Portuguese Wines in Beijing

President Obama wants to double U.S. exports within five years. With this in mind he recently sent Commerce Secretary Gary Locke to Hong Kong to sign a Memorandum of Understanding (MOU) on Cooperation in Wine-Related Businesses. The press release says that

The United States is one of the leading wine-producing countries in the world, and American wines have been growing in stature internationally for decades as people around the world have learned what American wine producers and consumers have known for years: American wines are outstanding,” Locke said. “Working with the Hong Kong government, we want to create opportunities to heighten exposure to American wines in Hong Kong and the region. This MOU will help do just that.

“Hong Kong and the region” … I think that would be code for China. Everyone wants to crack the Chinese market, something that is easier said than done. I’ve written about this problem before (see “Wine and the China Syndrome”). Sean, one of our recent graduates, wrote his senior thesis on the challenges and opportunities of exporting Washington wine to China. Sean identified a number of significant political, economic and cultural barriers that American wine exporters must overcome. He was optimistic regarding the long term, but very cautious about short term success. (Secretary Locke, you might want to give Sean a call.)

Cracking the Chinese Market

Everyone looks hungrily at China with its growing economy and expanding consumer base. But it is hard to break in. Bulk wine imports are substantial (imported wines get blended with local products and labeled “Chinese wine”), but at unsustainably low prices. No future there.

France and Spain have had better luck. The French have been able to leverage their reputation and the prestige of their finest producers to carve out a attractive niche markets for Bordeaux and Champagne as luxury products.

The Spanish achieved success through old fashioned hard work. They have partnered with Chinese wine producers in both production and distribution. If Chinese wines are improving in quality (and I understand they are) then this is at least in part due to technical improvements facilitated by joint ventures.

Miguel Torres has been particularly active in partnerships and ventures of all sorts. You might be interested in their everwines project, which was recently launched in an attempt to develop a western style Chinese wine culture. If you check out the site be sure to click on the Online Shopping link to purchase a variety of international wines in the $20 range and also Opus One for about $550 and a first growth Bordeaux for more than $1200.

Any Port in a Storm

The U.S. is obviously not the only wine producing country with China on its mind and  I was pleased to receive an invitation from ViniPortugal to participate in their recent China seminar program and tasting of Portuguese wines. Sixteen winemakers flew from Lisbon to Beijing to present and promote their wines. A good chance to observe this Old World wine country’s China strategy in action.

Beijing is a long way to go for an afternoon tasting, so I was represented by my crack China wine research team, Matt Ferchen (Assistant Professor of International Relations at Tsinghua University) and Steve Burckhalter (who works as a translator for the Chinese public relations firm BlueFocus). Matt and Steve are former students of mine at the University of Puget Sound and keen observers of rapidly changing Chinese markets.

Matt said that he was impressed with the wines he tasted.

The first wines I tasted, and the ones I ended up liking the best, were from a cooperative called Adega Coop. De Borba.  A couple of the wineries were family owned and there was a kind of earthiness to the wines that I really enjoyed.  I was especially impressed with the Portuguese whites, which were all very crisp and I think would go very well with spicy Chinese food.

I find that most of the wines available in Beijing, both foreign and Chinese, are expensive and mediocre or cheap and bad.   Across the board the price to quality ratio was just excellent and I really hope that some of these wineries can find distributors here … [but] …there was only one of the wineries that had any presence in Beijing.

So the product is good and a good value. But that doesn’t necessarily solve the Chinese market puzzle.

Most of the representatives seemed rather disappointed that the turnout at the tasting was quite small and that many of those who were in attendance weren’t in the wine business (i.e. they didn’t see many prospects for finding distributors even if they found possible retail customers).  I was asking some of the representatives why Portugal seemed so far behind Spain in terms of entering the Chinese market, especially given what seemed to me the outstanding quality of their product.  The answer mostly just seemed to me a question of focus, that somehow the Spanish wine organization was just more aggressive about getting Spanish wines to China and advertising.

Steve also commented on quality and value — and the problem of focus and establishing reputation.

The[seminar] speaker, who I believe was a Chinese man from Macau, noted the long history of wine making in Portugal, the long time presence and popularity in Macau (“We drink this all the time in Macau”), the diversity of wines they are able to grow thanks to the wide range of different climates in Portugal, wines unique to Portugal – such as a “green wine” they grow in the North, which he reasoned would do well in China, being ‘fruity and sweet’ – and finally he also stressed that “Nearly all Portuguese wines are reasonably priced. It’s hard to find any in excess of 2000 RMB.”

He also expounded on why Chinese outside of the Southeast regions don’t care for white wines, which I found interesting. As for the growers and the distributors, there was some diversity to be found in “Brand Portugal”. Interestingly, some were insistent on showing tasters how they straddled both New and Old World wine making (actually, the speaker also touched on this, going on about a vineyard that had invited Australian winemakers to teach them in the ways of new world wine). Others, however, were insistent that they were exclusively Old World – “Portugal is Old World. How can it be New World – that’s not us.”

In response to how they were looking to position their wines, one of the winery reps said that they were looking to focus on promoting, above all, their grapes: the varieties, why they grow so well in Portugal, etc. And their other edge (which I heard from several people) is in pricing, “what you get for X RMB in a Portuguese wine is better than what you get for X RMB in a French wine.” That tended to be the dual answer whenever someone brought up how Chinese people generally went straight for French or Italian wines.

A Wineglass Half Full. Red or White?

Based on Matt and Steve’s reports you can be either an optimist or a pessimist regarding Portuguese wines in China. The upside is that there are many potential advantages, cost being one of them. It is obvious that Portuguese winemakers would like to be seen as a “value” fine wine and avoid the cheap and anonymous bulk wine trap. Good thinking.

But then there is a bit of an identity crisis. Old World or New? Well, both – a harder sell. Focus on regions or grapes (or both)? That requires a substantial sustained education program.

Even the most basic question is problematic: red or white?  Westerners know that crisp whites like Vinho Verde taste great with Asian foods – great to westerners, anyway. But, as has often been said, the first duty of wine in Asia is to be red.

I’m cautiously optimistic about Portuguese wines in China, especially if they can settle on the right focus and sustain the education/marketing efforts. But they have a long way to go.  Steve reports that “I noticed at a store (targeting Western tastes) last night the only Portuguese wines (out of hundreds and hundreds) were four Ports. Haven’t been to Carrefour in a while, but I bet it’s the same deal.”

Good luck to Portugal – and to American winemakers, too, of course.  China is a key market for the future. But scaling the Great Wall is a real challenge and many will fail in the attempt.

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