I was pleased to be interviewed the award-winning journalist Christiane Amanpour earlier this week for her “Around the World with Christiane Amanpour” report on ABC.com. The original topic was set to be last week’s French wine auction, where odd lots and “too-expensive-to-serve” bottles from the Elysee Palace cellars were sold off to pay for more modestly priced wines to serve at state events (with a bit left over to pay down the French national debt).
The auction was a success (buyers snapped up wines that became famous by the publicity surrounding the auction), but Ms. Amanpour, perhaps sensing that this had already become old news, shifted the conversation to another wine topic. Click on the image below to view the interview.
Thanks to Mary-Rose, David and of course Christiane Amanpour for their work on this interview.
Li Zhengping, Chinese Wine 3/e (translated by Shanghai Ego — really!). Cambridge University Press, 2011.
Many of my conversations with wine makers and wine sellers this year have looped back around to the question of China. China seems to be the Great Hope for people who see it as a vital future market and also a Great Mystery for those who haven’t yet figured out how to uncork it.
Great Wine Wall of China
Uncertainty is the Grape Wall of China to those who wish to penetrate its market borders. The known knowns are few and the unknown unknowns many, or so I am told. Talk about assymetric information inefficiencies! So everyone’s interested in learning more about wine in China.
Hence my interest in this slim (146 page) book from Cambridge University Press. It is part of the “Introduction to Chinese Culture” series of brief guides that includes ten published volumes (Chinese Clothing, Chinese Furniture, Chinese Music and more) with additional volumes (Chinese Gardens, Chinese Jade, Chinese Food, Chinese Tea and so on) set for publication in 2012.
The back cover description of this book reads.
This illustrated introduction to Chinese wine explores the history of wine production in China, the legends and customs that surround it and its place in China today. Traditionally, Chinese wine and spirits were made from grain, and had three important uses: to perform rituals, to dispel one’s worries and to heal. Today, wine is still believed to have a therapeutic benefit, but the Chinese beverage industry has expanded on a large scale and now includes famous brands of beer and, increasingly, vineyards producing red and white wine for global consumption. Chinese Wine is indispensable reading for both wine-lovers and all those with an interest in the transition from traditional to modern Chinese culture.
The book delivers on this promise with clear direct prose and beautiful illustrations. But it would be a mistake to read more into this description than there is.
Lost in Translation
The term “wine” can easily get lost in the translation. Wine here in the U.S. is grape wine for the most part, but wine in China is a much broader concept including fermented fruits and grains. Chinese Wine examines grain wine, beer, distilled spirits and Chinese-made grape wine. Changyu, Great Wall and Yanjing brand wines receive special attention.
Grain wine, especially rice wine, is much more important than grape wine in this narrative. Why? The author explains that “Grape wine is easier to produce than rice wine. However, as grapes are seasonal and cannot retain their freshness for long compared to grain, grape wine-making technology was not adopted extensively in China.”
Whereas grape wine is made when the grapes are harvested, rice wine (like beer) can be made year round from stored rice — a practical advantage. But grape wine was favored in times when it was necessary to conserve grain stocks.
The cultures and traditions associated with Chinese wine are superficially very different from ours. Wine is if anything much more important in China (if I have read this book correctly) than it is here, but the social rituals of wine drinking seem to be the point, not the beverage itself. Maybe this is not so different after all? Chinese Wine is making reconsider what I thought I knew about grape wine’s social function in the world of vitis vinifera.
Chinese Wine treats us to discussions of the origins of Chinese wine, the varieties of Chinese alcohol, rituals and traditions, legends (a very interesting group of tales) and finally, towards the end, a bit about imported wine and its growing popularity. Seriously, imported wine takes up just a couple of pages if you don’t count the photos, and the most important brand name mentioned is Gallo’s Carlo Rossi red (which is credited with boldly entering the Chinese market in 1992).
Is that it? Is imported wine in China just an afterthought? Probably not, although it is good to put things in perspective. I suspect that the author was chosen because of expertise in Chinese cultural history and so the book reflects this (and goes lightly on China’s recent fascinating with Bordeaux). Certainly everything I read suggest that market for grape wines in China is growing and maturing rapidly.
But it doesn’t hurt to remember that wine exports to China to do enter a sort of market tabla rasa. Just because there are few European-style wine traditions in China doesn’t mean there are no wine traditions at all. And the importance of grain wine should not be ignored.
I called this entry [Uncorked] because none of the traditional wine vessels illustrated in the book looks remotely like anything that you could stop up with a cork, highlighting the differences between Chinese and European-style wines. The urns and pots are often beautiful. A feast for the eyes!
It was fun to answer Karl’s questions. Karl’s focus is Asia, so I wasn’t surprised that he had questions about Chinese wines, the Chinese-Bordeaux wine market and even the prospects for South African wine in India and … Sub-Saharan Africa!
One question really made me think. Who “gets it” in the wine world? Here’s the question and my brief answer copied from “Horse Feathers.”
Name a few wineries that “get it” from a business standpoint.
I think Chateau Ste Michelle gets it here in Washington State. Ste Michelle Wine Estates has a “string of pearls” operating philosophy that allows each of their winery brands (including Columbia Crest, for example, and Stag’s Leap Wine Cellars) a good deal of independence while benefiting from the economies of distribution, etc. Even the large production facilities like the white wine facility in Woodinville contain mini-wineries that allow the winemakers to do small scale projects while also producing hundreds of thousands of cases of the mainline products. Chateau Ste Michelle balances the big and the small without losing their terroirist souls. Boisset and Frog’s Leap (both in California) are examples of two totally different companies that both get it. In particular, they both get the environmental problem, although they approach it in very different ways.
Reading this, you probably wonder what I mean by “getting it” and why I picked these three wineries as examples? Here’s the story.
What does it mean “to “get it?”
“Getting it” in this context means understanding the tensions that are at the core of the wine market (and that I analyze in Wine Wars). Globalization and wine market expansion generally have brought a world of wines to our doorstep. This embarrassment of riches is both blessing and curse. It’s a blessing because of the opportunity to sample wines from all around the world. It is a curse because of the difficulty of choosing. Too much choice can be intimidating, especially in the case of wine, which has so many other intimidating factors associated with it.
Anyone who can simplify the choice and gain the consumer’s trust stands to benefit in this complex market environment. Brands have therefore become increasingly important, both private brands like Mondavi and Mouton Cadet and more general types of brands like Brand Marlborough Sauvignon Blanc and Brand Argentina Malbec. Consumers understand the wines associated with these brands and so are more confident in making purchases. (Just having a strong brand is not enough, however, as the roller-coaster story of Brand Australia Shiraz demonstrates).
The risk with brands, however, is that they can sometimes go too far in their effort to simplify (the Shiraz problem). It is important that branded wines not sacrifice the qualities that make wine special. Wine that is just another packaged good has lost its “terroirist” soul — the winemakers just don’t “get it.”
The Terroirist Revenge
So Wine Wars argues that the future of wine will be determined by the battle between the market forces that will push wine into the world and the “revenge of the terroirists” that will push back. Because I am an optimist (I have “grape expectations”), I think the future is bright. But this requires that wineries “get it.” So, Karl asked me, who does?
Well, a lot of wineries get it, to be honest, but in the short time available I only mentioned three of them. Boisset gets it, for example. It’s a good example of a “global” wine business, with strong brands in both the Old World (France) and New World (California). But there is a strong terroirist element to Boisset that keeps it honest, both in terms of the desire for wine to express a sense of place and also a concern for the environment. Boisset has been especially active in packaging innovations, for example, that aim to reduce the carbon footprint of wine. That’s one way to “get it.”
Frog’s Leap gets it in a different way. It is an example of a producer that has developed a strong brand without dumbing down its wines or selling its soul. Frog’s Leap is such a strong brand in Japan, for example, that it was the featured winery in the Japanese re-make of Sideways. But Frog’s Leap proves that branding doesn’t have to sacrifice quality or reduce wines to a least-common-denominator status. Frog’s Leap stands for something, both in terms of wine and with respect to the environment (dry farming, sustainable methods). They show that it is possible to “get it” this way, too.
Chateau Ste Michelle is my third example. They are the largest wine producer in Washington State and the largest producer of Riesling wine in the world. The parent company, Ste Michelle Wine Estates, usually ranks about #7 among U.S. wine producers. The Chateau as it is known here in Washington knows about globalization (its wines can be found all around the world) and brands, too, but it hasn’t sacrificed its soul in the process. In fact, I think you could argue that it has tried to use the forces of globalization and brands very constructively — through international partnerships with Germany’s Dr. Loosen and Italy’s Antinori family, for example.
The Chateau collaborates with the Antinori on two projects: Col Solare (an ambitious winery in the Red Mountain AVA) and as partners in the Stag’s Leap Wine Cellars in Napa Valley. Working together, they leverage powerful brands and bring together international expertise, but the goal is to produce distinctly local wines.
The partnership with Germany’s Dr. Loosen has created Eroica, one of America’s most distinctive Riesling wines, and a series of Riesling Rendezvous conferences, which bring together terroirists from across the nation and around the world to share their expertise and plot strategies to promote Riesling without sacrificing quality. The Chateau really “gets it,” but in its own unique way.
The future of wine? A big question. Not everyone will “get it” but I’m betting that enough will to justify my grape expectations.
Balance is the key to great wine (and profitable wine business, too). I was reminded of this truth many times during our visit to Mendoza, where wine makers are trying to chart a course between and among several extremes:
Competitive export sales versus the challenging domestic market;
Reliable value wine sales versus potentially more profitable premium products;
Popular and successful Malbec versus TNGT — The (speculative and uncertain) Next Big Thing.
The key to long term success involves finding the right balance in this complex economic environment.
Thinking Global: Anabelle Sielecki
I want to use this post to consider three types of balance that I think are particularly interesting in Mendoza – the balance between crisis and opportunity, local and international winemaking influences and the simple tension between the old and the new. We learned about all three dimensions during our brief visit to Mendel Wines in Lujan de Cuyo.
Crisis and Opportunity
Mendel is both very old and quite new. The vineyards are old, planted in 1928. Somehow these Malbec vines survived the ups and downs of the Argentinean economy. The winery is almost as old and has a certain decaying charm. It stands in stark contrast to Salentein, O. Fournier, the Catena Zapata pyramid and the many other starkly modernist structures that have sprung up in this part of the world.
The winery project is quite new. Mendel is a partnership between Anabelle Sielecki and Roberto de la Mota and is the result of a balance between crisis and opportunity. When economic crisis struck Argentina ten years ago, opportunities were created for those with vision and entrepreneurial spirit. Anabelle and Roberto seized the moment and purchased these old vines and well-worn structures for their new super premium winery project.
That their impulse was timely and wise may not have been obvious at the time (crises are like that), but it is perfectly clear now. Wine Advocate named Mendel one of nine “Best of the Best” Argentinean wineries in a recent issue.
Old and New
The winemaking that goes on in Mendel is also a combination of old and new. The technology is modern, of course, with stainless steel and French oak very visible. The setting, however, constantly reminds you of the past and the vineyard’s and winery’s history. Walking through the winery, for example, I was struck by the big concrete (or were they adobe?) fermenting tanks – a blast from the past for sure.
No, we don’t use them to ferment the wines anymore, Cecilia Albino told us, but we put them to good use. Peek inside. Sure enough, the tanks were filled with oak barrels full of wine aging quietly in the cool environment.
[Interestingly, I saw concrete tanks again during our visit to Achaval Ferrer. Roberto Cipresso, the winemaker there, built the tanks because he uses them at his winery in Montalcino.]
Mendel also illustrates the balance between local and global that characterizes wine in Argentina, where much of the capital and many of the winemakers come from abroad. Roberto de la Mota, partner and chief winemaker at Mendel, personifies this balance. Roberto is the son of Raúl de la Mota, who is sometimes said to be Argentina’s “winemaker of the century” so important was his work in developing quality wine in this country.
Roberto naturally grew up in the wine business both here and in France, where he sought advanced training on the advice of Emile Peynaud. He was the winemaker at Terrazas, Chandon’s still wine project in Mendoza, and then at Cheval des Andes, a winery with connections to Château Cheval Blanc. I think it is fair to say that Roberto’s resume represents a balance between local and global, between deep understanding of Mendoza terroir and knowledge that perhaps only international influences can provide.
Acting Local: Roberto de la Mota
Local and Global
I asked Roberto if it was important that Mendel is an Argentinean project and not owned by a foreign multinational. Yes of course, he said, but he hesitated a bit and I think I see why. Many of the influences and markets are international, but people, vines and inspiration are purely local. Not one or another, but intertwined, balanced.
And this thirst for a complex balance defines the future. Talking with Anabelle over coffee in Buenos Aires, she was ambitious to break into new markets – Hong Kong, China, and so forth. Anabelle is an architect — another field where global and local intersect. She is married to Héctor Timmerman, Argentina’s Foreign Minister and former Ambassador to the United States, so her international interest comes naturally.
Meeting with Roberto at the winery in Mendoza, he was interested in learning even more about his vines and terroir so as to better develop their potential. And to bring more of the classic Bordeaux grape varieties (like Petit Verdot) into the mix.
Mendel has charted its balanced course quickly, purposefully and well. It is a perfect illustration of both the tensions that define wine in Argentina and the potential for success if a clear but balanced path is boldly taken.
 The other “Best of the Best” wineries in Wine Advocate issue 192 are Achaval Ferrer, Alta Vista, Catena Zapata, Viña Cobos, Colomé Reserva, Luca, Tikal and Yacochuya.
The first thing we did when Sue and I arrived in Mendoza was to walk to the offices of Área del Vino, the group that publishes Vinos y Viñas magazine, the WineSur website and provides economic and strategic analysis to the wine industry here. We met with Javier Merino, Área del Vino director, and Gonzalo Merino, director of WineSur. They got our visit off to a flying start.
Our discussion was wide ranging. Gonzalo is working on new media projects to expand the market for Argentinean wine and reach a new generation of consumers. Javier was just back from Hong Kong and China and keen to discuss the potential new markets there. Both were happy to talk about controversial questions, such will the Malbec boom be sustained and whether Torrontés really is The Next Big Thing.
Their analysis has been very useful to me as I have met with wine-makers, winery owners and managers. Based on all these discussions I have prepared this SWOT analysis, which represents my current thinking about Argentinean wine today. This is a work in progress (and necessarily very brief), so I welcome comments that correct my thinking or re-direct my analysis.
Argentina has many strengths. The most important may be that it has a “hot” brand, its signature Malbec. When wine enthusiasts think of Argentina they think of Malbec and vice versa — a strong identity that many wine regions envy.
But, as I will explain in future posts, Argentina is not just Malbec (or even just Malbec and Torrontés as some writers propose). Quality extends across a broad spectrum of wine varieties, styles and price points, which is a very good thing.
That said, the industry is very dependent upon exports of Malbec to three main markets, the United States, Brazil and Canada. There would be trouble if Malbec exports to these markets were to falter due to either a decline in demand to a shift to some other “hot” variety.
The domestic market for wine is very substantial, but it is still dominated by low-price basic wines — another weakness. The Argentinean industry would be much stronger if a larger domestic market for quality wines could be developed.
Water is also an issue here as it is in many wine regions. Not an issue today, Javier told me, but for the future. And of course the future is fast approaching.
There are a number of very serious economic threats that cloud the short term outlook. Domestic inflation is high in Argentina. The government estimate is about 10%, but I failed to find anyone who thinks that it is less than 25%. Production costs are rising rapidly– labor, grapes and other inputs are increasingly expensive. Land prices for new vineyard projects seem to be growing exponentially.
Revenues are not increasing at the same rate, with the result that margins are being squeezed. In fact, the pressure is on to cut prices in the competitive U.S. market. It is not clear how long the current combination of rising costs and falling revenues (or soft revenue growth) can be sustained.
I visited several wineries that were clearly focused on increasing efficiency in an attempt to claw back margin without sacrificing quality. But I also heard rumors of wineries that were taking the perhaps desperate move to source lower cost grapes from other regions to stay in business. The concern was that quality would suffer and The Brand undermined.
There are many opportunities and they fall into two categories: new wines and new markets. By new wines I mean a movement to expand Brand Argentina beyond value Malbec, both into the higher reaches of the wine wall and into other varietals. I’ll be writing more about this in future posts.
I’ve already written about the new markets. As I listened to Javier discuss the great potential in countries like Brazil, with large and growing populations and fast economic growth I knew just what he was talking about: The BRICs (and the New BRICs). Javier believes that the BRIC-like markets are the key to the next stage of Argentina’s export growth. Because geography still matters in both wine and economics, Brazil is a particularly attractive target, but both Hong Kong and China are high on the list.
Argentina’s China card is that its wines could fill an open market niche. Not cheap bulk wines like those from Chile and Australia. And not overpriced prestige labels like those from France. Quality Malbec from Argentina would be more affordable (and in most cases better) than the French and of course much better than the bulk wines. Distinctive, too, on several dimensions.
The new market with the greatest potential for Argentinean wines may be Argentina itself. Nearly everyone I talked with said that the best thing that could happen would be for the domestic market for quality wine to expand, making the industry less dependent on exports and less vulnerable to inflation and exchange rate changes.
Bottom Line Analysis
So what’s the bottom line? Well, of course, I believe that the long run opportunities are important, but it seems to me that the short term threats are on everyone’s mind right now, in particular, the inflation-exchange rate squeeze. If inflation continues at high rates and the U.S. dollar – peso exchange rate stays stuck at about 4 pesos per dollar, some producers here will be squeezed out of the U.S. market. Perhaps they can sell to Brazil or on the domestic market, but the prospects are not good if everyone tries to shift focus at once.
What is keeping the exchange rate stuck at an over-valued level? Politics and fear, I suppose. There’s a presidential election in the fall and everything here has taken on a political significance, so it is no wonder that holding the line on the exchange rate (and denying that an inflation problem exists) would be political, too.
And then there is the fear. Argentina has experienced inflation-devaluation vicious cycles in the past. Inflation leads to a falling currency, which adds to inflation pressures, which forces the currency down even more. Etc, etc. There’s a worry here that lowering the exchange rate would set the cycle off once again and nobody wants that.
Fear and politics are powerful forces. Argentinean wine, for all its strengths and opportunities, is caught in the squeeze.
Thanks to Javier Merino, Área del Vino director, and Gonzalo Merino, director of WineSur for meeting with us in Mendoza and to everyone who has talked with us about wine economics in Argentina during our stay here. Watch for future posts that examine particular elements of the Argentina wine story in more detail.
This is the fifth in a series of articles on wine in the BRICs – Brazil, Russia, India and China. Today I discuss the cultural contradictions of wine in China. Coming soon: wine in the New BRICs.
Wine, Fake Wine and Chinese Wine
China’s rise in the the world of wine is having many surprising effects. One of the most unexpected is this: apparently the most valuable bottle is my tiny cellar is an empty one — this jeroboam (double magnum) of 1994 Chateau Pêtrus. It is a souvenir of a particularly decadent party thrown by friends to celebrate their son’s graduation from college. Somehow I ended up with custody of the empty bottle.
Bottles like this are in high demand in China, according to recent news reports. Chinese entrepreneurs will reportedly pay up to £300 for an empty trophy wine bottle (especially Lafite), to be refilled with a lesser vintage wine and sold to gullible consumers or collectors. Provenance is important and condition matters:
“The bottles need to be in the best condition possible,” said another dealer, called Mr Ye, at a Shanghai company. “It is very important. And I only want genuine bottles, no fakes,” he added.
No fakes! I love it.
This sort of wine fraud is noteworthy just now because of all the attention that is focused on wine in China, but it there’s really nothing exceptional about this kind of scam. The story of The Billionaire’s Vinegar and its after-shocks suggest that fake wines are as common as fake Dalí prints — more common, actually, if you take Gallo’s embarrassing accidental purchase of bogus Pinot Noir into consideration.
But the story gets worse. A few weeks ago Chinese authorities raided 30 wineries in the Hebei region near Beijing (sometimes called “China’s Bordeaux)) for making chemical-laced fake wines.
CCTV’s footage showed a local sales manager admitting that some wines made in the coastal city of Qinhuangdao contained only 20 percent of fermented grape juice, with the rest being composed of sugar water mixed with chemicals, including coloring agents and flavorings.
Huang Weidong, a leading expert on the wine industry from the China Alcoholic Drinks Industry Association, said that the additives could cause headaches and irregularities in the rhythm of the heart, as well as cancer.
Solving the Puzzle
I’ve written about wine in China more than any of the other BRIC nations (follow the links in the next few paragraphs to read the posts), but fraud has only come up once before, in my report on Canadian Ice Wine. China is a major market for this glorious elixir and some reports suggest that as much as a third of the stuff sold in China is bogus.
My reports on wine in China have been quite varied, covering a number of different topics. For example, China is on the verge of becoming a dominant force in global auction market for wine. I noted the change when Hong Kong dropped their punitive tariffs in an attempt to attract the auction houses and again in my report on last year’s Bordeauxen primeur circus.
In terms of the domestic market, I examined the factors that seem to be holding Chinese wine back in terms of quality and found that the biggest problems are in the vineyards, where China’s fragmented agriculture presents a roadblock. The best wines, like Grace Vineyards, come from wineries that have found ways to solve this puzzle.
I note, for what it is worth, that President Obama made a point to serve some really excellent American wines to Chinese President Hu at the recent White House state dinner in his honor. The Quilceda Creek Cab can compete with fine French wines and I’ll bet the Poet’s Leap dessert wine was a hit, too.
The Two Faces of Chinese Wine
So what do I think about Chinese wine today? Well, I am still concerned about the quality of the grapes themselves and the supply chain that delivers them to the wineries, which I believe are the biggest roadblocks to development, not the fraud that is the focus today. But, that aside, I find myself surprisingly optimistic.
China gets a whole chapter my forthcoming book on the Wine Wars (you can now pre-order it on Amazon.com!). It starts with my first rather revolting taste of Chinese wine and ends, many pages later, with another tasting, this time of one of China’s most notable wines. Here’s an excerpt from the final draft:
Our Grace Vineyards Cabernet Franc was a solid effort, we thought, but nothing special– a bit light compared American wines of this type. Writing in The Wine Economist, I noted a distinctive “green” taste I associate with wine made from under-ripe Cab Franc grapes. A problem in the vineyard, I speculated. Maybe the climate’s just too contrary to fully ripen these grapes.
A day later one of my readers lobbed in a counterargument.[i] Maybe, he said, that green flavor is intentional. He had heard that this particular flavor is familiar to Chinese consumers and that some Chinese wineries harvest grapes a bit earlier in order to achieve it. It wasn’t a flaw in the wine, he suggested, but a feature. Something that makes it Chinese wine, not a Chinese imitation of someone else’s wine. It’s the Chinese market terroir, if you will. Maybe the thinness that the critics note is another reflection of local taste?
That got me to thinking. Maybe we were judging Chinese wines by the wrong standards. What matters most? How I feel about the wines (and how they compare to international standards) or how the Chinese consumers look at them? Interesting question. So I hit the books.
A little research turned up more evidence that the judgments of Western critics might be unfair to Chinese wines. Jeannie Cho Lee, Korea’s first Master of Wine, argues that Asian food and wine traditions prime consumers to think about wine differently and to appreciate different qualities in it.[ii] Why don’t Chinese wine drinkers appreciate that a crisp Pinot Gris pairs nicely with their cuisine? Well, Ms. Lee explains, many Asian cultures do not consume beverages (apart from savory soups) with their meals – they drink them before and after. White wines are generally chilled, of course, and most Asia drinks are warm or room temperature. And the sweetness of a Pinot Gris can seem unrefined to palates that are used to more complex sweet-sour flavor profiles.
Why such a fascination with Bordeaux? It could be the tannins, Ms. Lee argues, which are appealing to wine drinkers from cultures with a tradition of consuming very tannic teas. Even the basic flavor reference points are different, she explains. Westerners think of Pinot Noir in terms of raspberries and strawberries, for example, but the Asian descriptors would be yangmei (bayberries), dried wolfberries and dried bonito flakes! An Asian description of Sauvignon Blanc would start with pandan leaves and longan and move on to mangosteen – not a familiar flavor or aroma vocabulary for me. But I can relate a bit better to her description of Riesling: Thai white blossoms, lemongrass and green mangoes.
Hmmm. So maybe it’s time to rethink Chinese wine.
Wouldn’t it be great if the most important qualities of Chinese wines – the ones that Westerners reject — turn out to have been lost in translation and that a true indigenous Chinese wine culture evolved, one that reflects China’s history, cuisine and palate. I hope so because it would support my theory of the future of wine. Suffering just now from the excesses of globalization and Two Buck Chuck, China needs to unlock its inner terroirist soul!
This is the first of a series of articles on wine markets in the BRICs. BRICs? Is that a wine term? No, although it sounds just like brix, a measure of a grape’s sugar level. Jim O’Neil of Goldman Sachs coined the term BRIC in 2001 to refer to Brazil, Russia, India and China.
Initially many people suspected that BRIC was just a gimmick — a way to package four very dissimilar countries into an appealing acronym that would draw investor interest. If it was a strategic maneuver it was a brilliant one because of the way it captured the world’s imagination.
More than a Gimmick
“BRICs” is an attractive name for many reasons, perhaps especially because it looks and sounds like NICs — the Newly Industrialized Countries of Hong Kong, Singapore, Taiwan and South Korea that have been so successful in the global economy. There was some question initially about why these four particular countries were chosen (why Brazil and not Mexico, for example, and what about Turkey?) and what if anything they had in common, but the idea quickly caught on.
The BRICs matter because of their economic weight. They are the four largest economies outside the OECD (Organisation for Economic Co-operation and Development, the rich man’s club). They are the only developing economies with annual GDPs of over $1 trillion (Indonesia’s is only half that). With the exception of Russia, they sustained better growth than most during the great recession and, but for them, world output would have fallen by even more than it did. China also became, by a fraction, the world’s largest exporter.
In a recent Economist article (that included this provocative graph), Goldman’s O’Neil was asked to look ahead 25 years, from 2011 to 2036, and to speculate about the future.
One of the questions he raised was whether the BRICs would have greater total (but obviously not per capita) income than the G-7 countries and what that might mean if they did. A good question to discuss … over a glass of BRIC wine.
The Future of BRIC Wine?
BRIC wine? Well, yes. All the BRIC countries produce wine and all are important wine markets for the future. As these economies grow, their expanding middle classes will be increasingly attractive target markets for the world’s wine makers and their wines will begin to appear on you local shop’s shelf.
China was the 6th largest wine producer in the world in 2007 according to International Organization of Vine and Wine (OIV) statistics, with an estimated 12 million hectoliters of wine produced (for readers who still think in “English” units, a hectoliter equals 100 liters or a little more than 11 standard nine-liter cases of wine).
By comparison, #1 Italy and #2 France produced nearly 46 million hl each in 2007 followed by Spain (34 million hl), the U.S. (20 million hl) and Argentina (15 million hl). BRIC Russia was 11th in the global wine league table, with 7.3 million hl of output followed by Brazil in 15th place with 3.5 million hl.
India does not appear in the OIV wine statistics, indicating that its wine industry is quite small at present. But India definitely is on the wine map — the omnipresent Michel Rolland even has a client there (Grover Vineyards). India is already a major producer of table grapes, with 2007 production only a little less than Chile and the U.S. combined (that’s a lot of grapes), so it is not unreasonable to suppose that higher levels of wine grape production may follow. India would be on the wine BRIC list for its potential as wine import market, of course, even if it didn’t make any wine at all.
Solving the BRIC Puzzle
Some people in the wine industry dream that the BRICs will be the solution to the problem of global over-supply. OIV estimates that 266 million hl of wine was produced in 2007 but only 249 million hl consumed, a gap of 17 million hl or about 200 million cases. Yikes! Do the BRICs have the potential to soak up all that extra wine and bail out the global industry?
Dream on, say the experts consulted for a 2009 article in Meininger’s Wine Business International. “Are the BRIC countries going to solve the problems of oversupply in the world today? I don’t think so,” said Arend Heikbroek, associate director for beverages at Rabobank (and one of the sharpest wine analysts I know). “It’s a long-term shot,” he continued, ” it’s complicated, each market is completely different. You need to understand the risk, the dynamics, the traders, the distribution system and the legal system in each of these markets.”
Fair enough. Each BRIC is its own particular puzzle, I guess, and it is too soon to know how they will fit into the bigger puzzle of global wine.
The BRICs will be important to the future of global wine even if they aren’t a silver bullet solution to current problems. They are the new new world of wine and we need to figure out what we know about them– and we don’t know.
In this series I’ll examine each BRIC wine market in turn starting with Brazil by bringing together and synthesizing various published reports and then try to pull things together into a summary. I hope readers with particular expertise will leave comments to help broaden and deepen the analysis. So away we go!
This is The Wine Economist’s 200th post since it began a little more than three years ago under the name “Grape Expectations” — a good opportunity to reflect briefly on readership trends, just as I did when we passed milepost 100.
Not that kind of list!
The Wine Economist has an unusually broad readership given its focus (wine economics), content (no wine reviews, no ratings) and style (most posts are way longer than is typical for weblogs).
I never expected to get millions of visitors like Dr. Vino or Gary V. and other popular wine critic sites, so I’m surprised by how many people have found this page and come back to read and re-read.
About 200,000 visitors have clicked on these links, sometimes with surprising intensity. The Wine Economist has been ranked as high as #6 in the big “Food” category where wine blogs are filed in Technorati‘s daily ratings and as high as the top 30 in the even broader “Living” group.
The most-read articles of the last few days are always listed in the right-hand column on this page, so it is easy to see track reader behavior. I thought you might be interested in readership trends since the blog began. Here are the top ten Wine Economist articles of all time.
Matt Ferchen and Steve Burkhalter (both former students of mine now based in China) reported on Portugal’s efforts to break into the wine market there. The commentaries by Matt, Steve and KW received a lot of attention inside the wine trade, but their thoughtful, fresh approaches also drew links, re-posts and readers from the far corners of the web world.
Looking back, I think my favorite post was probably the very first one, a report on my experiences working with the all-volunteer bottling crew at Fielding Hills winery. I learned a lot that day about the real world of wine and I continue to benefit from my association with Mike and Karen Wade (and their daughter, Robin, another former student) who have taught me a lot about wine, wine making and wine markets.
Look for another report like this when The Wine Economist turns 300. Cheers!
Thanks to everyone who’s helped me in various ways with these first 200 posts. I couldn’t have done it without you! (Special thanks to Sue, my #1 research assistant!)
Sometimes the good news is that the bad news could be much worse. At least that’s how it seemed to me when the wine economists met at UC Davis last week to discuss the continuing Australian wine crisis.
Kym Anderson, a leading expert, spoke about the problems in Oz at the symposium on “Outlook and Issues for the World Wine Market” and I thought his assessment of the “challenges” Australia faces was pretty grim. Big oversupply. Falling grape prices. More and more quality grapes sold off at fire-sale prices in the bulk market (40% this year compared to 15% in the past).
The best selling white wine type in Australia isn’t from Australia any more — it’s Marlborough Sauvignon Blanc. Even the Australians are tired of “Brand Australia” Chardonnay!
Professor Anderson looked for a light at the end of the tunnel and was able to point to some potential sources of relief. Maybe water reforms could be implemented. Maybe R&D to help the industry deal with climate change would produce results. Maybe the new export strategy to promote Australia’s regional diversity and wine families would catch on. Maybe the China market will open wider and drink up the surplus.
Since the bad news was so compellingly concrete and the hopeful notes so speculative, I took the overall forecast to be very dark indeed. Imagine my surprise, then, when I attended a talk by another Australian expert the next day who described Anderson’s presentation as optimistic! When the good news is this bad, the bad news must be really bad.
Bad News, Bad News
Sure enough more bad news arrived shortly thereafter in the form of a Wine Spectator article, “Aussie Wine Company Faces Angry Creditor,” concerning the financial problems of The Grateful Palate group, which exports many hot brands to the U.S. market including the unlikely-named Luchador Shiraz shown here.
Trouble is brewing in Australia. The Grateful Palate’s Australian affiliates, which produce wine under labels such as Bitch Grenache, Evil Cabernet Sauvignon and Marquis Philips for American importer Dan Philips, are in receivership and face the danger of possible bankruptcy. Growers and other creditors for the South Australia-based affiliates of the company received notice on June 18. Many growers, already facing tough times, worry that they’ll never get paid for fruit they sold Philips.
Philips, the company’s founder and owner, confirmed that he is in negotiations with his top creditor, Dutch lender Rabobank, but declined further comment. The bank initiated the action to put Grateful Palate International Pty Ltd and several related Australian companies into receivership. The most prominent is R Wines, a partnership with winemaker Chris Ringland, but 3 Rings, a joint venture involving Philips, Ringland and grower David Hickinbotham, is also part of it.
This is bad news, of course, but bad news is no longer a surprise to those of us who are following the Australian wine scene. Perhaps it is really good news of a sort — an indication that the necessary industry shake out is gaining speed. Hard to tell good news from bad.
Darker or Brighter?
The same situation applies to the Foster’s de-merger situation. Foster’s, the Australian beer giant, bought into the wine business at the top of the market, paying an estimated $7 billion for an international portfolio of about 50 top brands including Penfolds, Wolf Blass and Beringer. The investment may be worth as little as $1.5 billion in today’s market.
Foster’s beer business is an attractive target for global giants like SABMiller, but not with the wine portfolio attached. So Foster’s announced a de-merger to allow the beer group to move ahead independently of the wine group. What will happen to the wine business? Who will buy these assets in today’s depressed environment?
When I posed this question to an Australian winemaker several weeks ago the answer came back quickly: China! Everyone in Australia is paranoid about the Chinese buying up our natural resources, and so we are convinced that they will buy up Foster’s wine business, too.
Interesting idea, I thought at the time. No multinational wine firm (Constellation Brands? Gallo?) would want to go bigger right now. But maybe a Chinese firm that wants to break into the global markets would take the bait. Might make sense. Maybe.
Sure enough, the Bright Food Group. (Mission: “To build the company into a leading enterprises group in the national food industry, with famous brands, advanced technology, strong competitive power and deep influence in the world by the end of 2015.”) recently signed a three-way memorandum of understanding with the New South Wales government and the China Development Bank to explore opportunities for the Bright Group to invest in the sugar, dairy and wine industries.
AFinancial Times article reports that the company is interested in “global top ten players in wine, sugar, food packaging, commodities and healthcare sectors.” Bright Food is currently studying both wine and beer assets in Australia, but has not decided to buy either yet according to the FT.
Many Australians no doubt consider the potential sale of yet another natural resource business to Chinese buyers bad news in terms of their economic sovereignty, but that bad news might actually be the best news they can expect given the sorry condition of the global wine market today.
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.