I’m back from the Unified Wine & Grape Symposium and busy trying to process all that I’ve learned while simultaneously catching up on the work that seems to have piled up while I was away. You know the feeling …
One theme of the seminars this year was the impact of globalization on the U.S. wine industry. I thought I would approach this topic in two parts. First, let me tell you a little of what I said on the Tuesday Globalization panel and then I’ll try to synthesize what learned from the discussion in a follow-up post.
Thinking Outside the [Juice] Box
My remarks were an attempt to get the audience to think about the impact of globalization in a broader context (it’s that liberal arts thing I do in my day job as a college professor). Globalization isn’t a simple thing, I told the audience, and it isn’t a one-way street, either.
Don’t think that globalization is just competition from imports from other countries (although that’s part of it, of course) or just export opportunities abroad (as important as they can be). Globalization is both of them and many more influences, too.
One way to understand wine globalization a bit better is to look at globalization in another industry and seek out parallels and note contrasts, too. The apple industry is a bit further along the globalization process than wine, so maybe it reveals something about the road ahead.
The apple market has always been segmented, for example, but globalization has magnified the category distinctions and intensified competition within them. Maybe that’s happening to wine? Here are three flavors of apple globalization that may or may not have lessons for wine business in the future.
Juice Box Globalization
Consider the common juice box. If you have children or grandchildren or pack your own lunch you probably have these things around you all the time. Who knew that they embody an extreme form of globalization?
Take a look at the list of ingredients. Water, juice concentrate, etc. — no surprises there. But look where the juice concentrate comes from: USA of course but also Argentina, Austria, Chile, China, Germany and Turkey. The apple juice concentrate that supplies the juicy fruit taste could come from any of five countries on four continents. Wow! That’s globalization for you.
The concentrate is a completely generic product (simply apple — not some particular variety of apple) traded in highly competitive global markets where cost (for standardized quality) is king and minor changes in exchange rates, transport costs and trade fees can have big effects.
As we consider the major increase in bulk wine shipments around the world — 45 percent of all New World wine exports are now big bag – big box bulk shipments — you can’t help but wonder if Juice Box globalization might be on the horizon.
Granny Smith Globalization
I’m old enough to remember when Granny Smith apples entered the U.S. market in 1971 (from New Zealand, as I recall) as a premium product. The Granny Smith was developed nearly 150 years ago by a grandmotherly Australian woman named Smith who discovered the natural cross in her garden and propagated it.
Initially, I think, the appeal of Granny Smith was that it was a premium Southern Hemisphere apple that filled a seasonal market niche in United States. Now however, Granny Smiths are grown pretty much everywhere and have lost some of their premium appeal. Highly integrated international apple companies source them from everywhere and distribute them everywhere.
Granny Smith globalization is not nearly so extreme as Juice Box globalization, but it is still quite dramatic. It reminds me of some of the bulk wine trade today, where certain varietal wine brands at certain price points are increasingly sourced from all over the world. Product differentiation in some segments is increasingly based upon brand rather than appellation or country of origin — which can change from California to Chile to Italy and beyond from year to year — just like the Granny Smiths.
The best margins in the apple business today are probably found in what I call the Honeycrisp market segment where innovative super-premium products command high prices. The Honeycrisp apple was developed by the Agricultural Experiment Station at the University of Minnesota to be an eating apple with distinctive flavor and especially texture profiles that consumers seem to love. Patented and licensed, it has been a very profitable product.
The plant patent on the Honeycrisp has apparently expired, so production is increasing and prices have fallen a bit, but the idea behind it is still strong. Plant scientists in Europe have developed new specialized patent apple products to take over where Honeycrisp left off. Sue is especially fond of Kiku and Kanzi, which I think are variations on the Fuji variety from Japan that were developed in Northern Italy and the Netherlands respectively and are grown in limited quantities here in Washington State.
Honeycrisp globalization is about product innovation and product differentiation. Follow the money: the tight margins created by Juice Box and Granny Smith globalization have nudged the Honeycrisp strategy into the spotlight.
Apples, Oranges and Wine
Is there anything to be learned about wine by thinking about apples? Or is it an “apples and oranges” thing? Well, my goal was to get people thinking and I admit that when I asked the big audience if they thought that there was something to the Juice Box (or Granny Smith or Honeycrisp) idea of wine I saw many heads nodding “yes.”
Not a surprise, of course. Apples and wine are specialized industries, but they are both businesses, too, and perhaps the similarities that people see are because of that. Maybe this little lecture has got you thinking, too. If so, come back next time when I’ll talk about some of the interesting ideas I heard from other speakers regarding globalization and U.S. wine.
Here’s a video about Kiku — about as far from a Juice Box (in terms of product differentiation) as you can get. Enjoy!
Hi Mike….Just want to say HI..nice Article about Globalization of wine…I remember when we met a few years ago, everybody was very positive on Argentina and believe that Argentina wine exports had no limit. I was cautious and believe that Argentina was reaching a ceiling, especially with the negative economic scenario of high inflation. A country cannot grow long-term with 25-30% inflation. The situation has worsen with exchange rate control. We are currently in a similar path to Venezuela. The official exchange rate is at $5 pesos and the black market hovering $8.
Argentine wine exports (bottled) has reach its limit. Over the past 3 years it has been about 20 millions cases (excluding bulk). 2012 was down 4% in volume compared with 2011 (20.04 mn cases vs 20.82). This is about 180 million liters, about 13% of Argentina production of 1.400 million liters.
In dollar terms it grew 2.5% from u$716 million in 2011 to u$ 734 million, due to an improvement in the average price per case from 34.39 to 36.64. However wineries are suffering and losing money as margins are decreasing rapidly (mainly due to inflation in dollar terms of 12-15%). Exporters receive pesos from the Central bank every time they get a payment from an importer. And they get paid at the official rate of $5 pesos vs $8. Argentina cannot continue in this path. Small wineries (of which at least 70% is production is exported) will not be able to survive under the current economic scenario. There are about 400 wineries exporting. The top 10 wineries accounts for 50% of total exports.
Bulk wine exports has increased significantly in 2012 especially to the US…the large wineries/brands are bottling in the US, which is now cheaper. Prices of supplies such as bottle, cork, etc have double or even triple in dollar terms in the past 4/5 years. The US continue to be by far the most important market for Argentina. In 2012 it accounted for $272 million (only bottled wine), equivalent to 37% of total exports, followed by Canada 83mn and Brasil 54mn, UK 47 mn, Netherlands 34mn, China 20mn and Mexico 17 mn. Top 7 countries accounted for 72% of exports
The trends for 2013 will not changed. Volume of bottled wine will decrease and bulk wine increase. Argentine wine is a commodity. 90% of the wine consume is sold under $15 (retail).
Hope you are doing well.
Bodega SUR de los Andes
Hello Mike, I hope you are doing very well!
In a couple of weeks we will start the 2013 harvest at tempus Alba and so far everything is expected to be OK!
First of all a few lines about the comment of my colleague Guillermo Banfi. He did an excellent description of the current situation of the argentine wine export business but did not go the the point you have raised about the relationship between globalization and its effect on the future of the wine exports.
Now going to the core of your article, I have to recognize the big effort you have done in order to have a better understanding of the “easy” and yet complex relationship between globalization and product differentiation.In my opinion, to produce a wine that is both different and “unique” will take two ingredients: first a perfect traceability of the product from the shelves of the retail store to the vineyard that gave rise such a wine, and second the genetic characterization ( the DNA of the grapevines) of that vineyard.
To my knowledge, to date, the only way to ensure compliance with these conditions is through a program of genetic identification of the grapevines in question and the in vitro micro propagation of the same, for a genetically homogeneous vineyard. As you can see, I do not think that globalization will adversely affect product differentiation. Quite the contrary, it will encourage differentiation as an effective way to avoid the commoditization of emblematic wines of each producing country. In the case of Argentina, we at Tempus Alba are totally committed to the future of Malbec ( you know Mike we are ) and the only way to be successful in the market with this varietal in the long run is that our wine industry as a whole be able to offer “different” Malbecs to the global market with the same genetic pattern but distinguished by each terroir.This, what may seems utopian, is becoming a reality since our selected clones are already being adopted by other colleagues, usually small and medium wineries, in different wine regions of the country as they are completely convinced as we are, that this variety is just beginning to show its great potential for outstanding quality wine making.
Those who are interested in knowing more in detail the scope of our program of clonal selection of Malbec, may contact me at my email address: firstname.lastname@example.org