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.
Honeycrisp Globalization
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.
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Here’s a video about Kiku — about as far from a Juice Box (in terms of product differentiation) as you can get. Enjoy!
