Category Archives: wine exports

Navigating the Headwinds for French Wine Exports to the U.S. Market

May 22, 2018 By in wine, wine exports, wine markets 1 Comment

vintageSue and I recently returned from a press tour to three French wine regions — Languedoc, Roussillon, and the Loire Valley —  that are benefiting from the current surge in demand for French wines in the U.S. market. As I noted last week, France is back on consumer radar, especially with buyers thirsty for  Rosé and sparkling wines.

A  Lighter Shade of Pale?

I think there is smooth sailing ahead for Rosé, Blanquette, and Cremant producers from these regions at least in the short run, although Elizabeth Gabay MW argued in a rather brilliant masterclass that we attended at the Chateau de Blois that some Rosé producers are sacrificing potential quality in a quest to make their wines fashionably pale, pale pink. This practice might come back to bite them in the future depending upon how the export markets develop.

The conventional wisdom is that Rosé buyers prefer pale rather than robust pink color in their Rosé wines — the lighter the better — and so producers make the near clear wines they think will sell best, even if they aren’t necessarily the best wines they could make. It is the flip side of the over-extracted red wines that so many wineries produce. I’m not sure the conventional wisdom about pale pink holds here on the Pacific Coast of North America, where California not Provence is the reference point for Rosé, but that’s another column.

Pink and sparkling wines from France are selling really well. The makers of other wines, both red and white, face some headwinds and how they navigate around or through them will determine whether they will share the market boom.

Challenging Stereotypes in Languedoc

France is an Old World wine region and this means many things, including especially that most of its regions inherit in one way to another the practices and reputations of the past. Sometimes this is beneficial, but not always. Languedoc and Roussillon have to overcome undesirable stereotypes of their wines in many markets.

The image that Languedoc conjures up for wine drinkers of a certain age is of cheap, strong, tannic red wines meant to fill jugs and bottles at low prices. Languedoc became the cheap French wine lake initially when the railroads connected the South to the industrial and population centers further north and then again when cheap wine imports from Algeria dried up after it gained independence. Quantity not quality defined Languedoc — a reputation that still haunts it.

serresNow I am not going to say that cheap wine production has disappeared, but the momentum has decidedly shifted to better wines made with more marketable grape varieties such as Grenache, Syrah, and Mourverde along with standbys like Carignan.

We enjoyed a delicious AOP Malepere red from Chateau de Serres at lunch one day in Carcassonne. It is a blend of Merlot, Cabernet Franc, and Cabernet Sauvignon that displays a Languedoc stereotype myth-busting elegance. Fantastic!

Some producers we spoke with admitted that they tried to downplay their Languedoc roots in order to sidestep the reputation problem in export markets, hoping that the wines will simply speak for themselves.  They hope, too, that younger consumers who have no memory of the old days will have an open mind to trying the wines.

Cheap and Sweet? Not Interested!

The Roussillon producers we spoke with saw old reputation as less of an issue mainly because their region is not so well-known as Languedoc. Roussillon is often lumped in with Languedoc or left out altogether. They see today’s market as an opportunity to build a strong reputation from scratch.

But that doesn’t mean that stereotypes don’t exist in Roussillon. A colleague asked where we were headed one afternoon and when told we were going to Rivesaltes he turned up his nose — “Too bad! I’am not interested in cheap sweet wines.”

romaniWhen we arrived at Domaine de Besombes we met winemakers from the region and shared a delicious Catalan barbecue lunch. And we tasted their delicious stereotype-breaking dry red and white wines, too. Sue was particular fond of the wines made by Laurent Pratx of Serre Romani. The grandson of the man who founded the local cooperative, Pratx returned to Roussillon after working in the Rhone Valley committed to taking his wines in new, independent directions.

We tasted sweet wines at the end of the meal, but these were not the cheap sweet wines of our friend’s memory. They were wonderful, especially the Domaine de Besombes 1949 shown at the top of the page, which has special meaning for us — that’s our vintage, too!

We were fortunate to be invited to a rather special banquet where all the wines were sweet and from this region. I will paste the menu with pairings below. It was a memorable experience. I think my favorite combination was the sea bass with lemon, nuts, and popcorn with the 1990 Maison Cazes Rivesaltes Ambré.

Everyone Loves the Loire

Wine producers in the Loire Valley have a different problem from those in Languedoc. Everyone loves the Loire, which is why it is a hugely popular tourist destination.  The beautiful scenery, historic chateaux, rich food, and fine wines are hard to beat.

But it is not always easy to translate the tourist impression into wine export market sales because the Loire isn’t one thing when it comes to wine, it is many, and it is easy to get lost in this complexity. The Loire is Muscadet, for example, which can be a simple delicious wine and also, as we learned a wine of great character and complexity with extended lees-aging.

The Loire is dry Rosé de Loire and also sweetish Rosé d’Anjou. It is the crisp Sauvignon Blanc from Touraine, Chenin Blanc from Vouvray, Cabernet Franc from Samur, and much more. Altogether the Loire comprises 50 appellations and demarcations, creating a jigsaw puzzle that can be difficult to navigate. Famous appellations stand out, less prominent ones that live in their shadows have trouble getting attention.

One of my favorite discoveries of this trip, for example, were the Sauvignon Blanc wines of Chenonceau, a fairly young appellation in Touraine. Chenoncau is more famous for the chateau of the same name than the wines. Too bad — because the wines can be spectacular. I suspect there is a lot more to discover here among the regions and producers who lack name recognition.

Will these headwinds hold French wine back from advancing in the hyper-competitive U.S. market? The competition is intense, so there are no guarantees, but we found many excellent wines and committed wine makers, too, so a broader French wine boom could be coming.

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Unlocking the Market Potential of Languedoc, Roussillon, & the Loire Valley

May 15, 2018 By in wine, wine exports, wine markets 2 Comments

pink1What do you think of when you think of French wine? If you are like most people, your thoughts probably stray to the iconic regions of Burgundy, Bordeaux, and Champagne. These regions and their wines are fundamental to the way we understand U.S. French wine and wine generally.

The Rhone and Alsace are probably on your radar, too, as they should be given their wonderful wines. Languedoc, Roussillon, and the Loire Valley likely show up further down the list. Important wine regions, but not quite in the same league as the others in terms of reputation and market presence.

But the wines Sue and I found during a recent press tour of these regions are so well matched to current market trends that I think this situation is going to change. No, Languedoc isn’t going to replace Bordeaux in anyone’s wine investment portfolio, but I do think these regions are positioned to gain both respect and market share, especially here in the United States. I will use the next several columns to explain how and why and also to explore some issues we discovered along the way and headwinds that could slow progress.

Growth in the overall U.S. wine market has slowed in the last year, but there are two categories that continue to boom: sparkling wines and Rosé wines. Here’s how the wines of Languedoc, Roussillon, and the Loire fit in.

Blanquette and Cremant

Sparking wine is booming in the U.S. market and while Prosecco is the driving force, wines from other regions are benefiting from the surge. Cava from Spain, for example, is getting more attention in part because of its great affordability. And French sparkling wines from places other than Champagne are in the mix.

The Languedoc’s Blanquette de Limoux is both delicious and historic — it lays claim to being the first sparkling wine made using the classic method. It was Champagne before Champagne. Some say that Dom Perignon, the famous priest given credit for inventing Champagne, actually learned the special method when he worked in Limoux.  Impossible to prove, but fascinating to consider.

The United States in Blanquette de Limoux’s most important export market, accounting for 32% of export sales. No surprise considering the sparkling wine boom and Blanquette’s excellent quality/price offer.

Seven regions of France produce sparkling wines called Cremant, including the Loire Valley and we really enjoyed these wines. One reason might be that Cremant de Loire’s menu of grape variety possibilities include Chenin Blanc, which does so well here and is so delicious in its sparkling form.

The Bubble Boom is much more than Prosecco and Champagne and Languedoc and the Loire are well-positioned to benefit from increased attention to these wines.

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Pretty in Pink

Pink seems to be the new black when it comes to wine sales. Rosè wine sales in the U.S. have increased by more than 66% in the last year according to recent Nielsen figures and the surge isn’t limited to North America. I’ve heard that French supermarkets now sell more pink wines than white wines. Incroyable!

Although many consumers think Provence when they consider French Rosè wines, we tasted delicious versions in the Languedoc and Roussillon. A quick survey of the pink wine section of our local upscale supermarket revealed a good selection of Rosè from these regions at attractive prices. Our standby Gérard Bertrand Languedoc “Cote des Roses” (made from Grenache, Cinsault, and Syrah) was abundantly available at Costco on a recent visit.

In fact Languedoc pink wine exports to the U.S. are booming, up 100% in the last year according to one authority we spoke with. Pink Power! The Paul Mas Prima Perla Crémant de Limoux Brut Rosé shown in Sue’s photo at the top of this column, which we enjoyed at a dinner at Chateau de Pennautier near Carcassone in the Languedoc region, is perhaps the perfect wine for this moment. It is pink and sparkling … and delicious!

The Loire produces fantastic Rosè wines, but it is important to pay attention to appellation. Rosè de Loire is always dry while Rosè d’Anjou is always slightly sweet. These are just two of this region’s noteworthy pink wines.

Beyond Bubble and Pink

Languedoc, Roussillon, and the Loire produce a host of different wines — the list goes far beyond the bubbles and pinks I have referenced here — but these particular wines are key as export emphasis increases to compensate for sagging French domestic wine sales. One reason these wines succeed where other wines from these regions get less attention is that the geography of the typical wine shop display wall favors these wines over the regions’ other products. Here’s why.

If you are looking for red or white wines from these regions, you will probably find them in a “France” section of the wine wall, where they are likely to be tucked away in a corner to make room for wines from better known French regions. Hard to stand out in this crowd, given the importance of reputation in the maketplace. They will be there, but not always in a featured position, and their closest competition will be other, often very different, wines of France, not wines of the same kind from other countries.

Pink and sparkling wines are different. They form their own categories and are increasingly placed altogether in one spot on the wine wall. Rosé wines from around the world sit together on one shelf and bubbles on another, fostering head-to-head comparison and competition that benefits wines from Languedoc, Roussillon, and the Loire and those consumers who are curious enough to try them.

Will success in sparkling and Rosé wines transfer over to the other fine wines that these regions produce? The positive impressions that these wines make on consumers will certainly have benefits. But there are challenges — headwinds, I like to call them — that must be overcome. That’s what I will talk about next week.

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Sue and I participated in the media programs of Terroir and Millésimes in Languedoc and in Roussillon from April 15-22 and Val de Loire Millésimes from April 22-25 as guests of the regional producer associations. Thanks very much to the Langedoc, Roussillon, and Loire groups who hosted us and to everyone we met along the way. This is the first of a series of columns examining what we learned at these events.

How Will Brexit Impact World Wine Markets? A Dismal New Forecast

May 31, 2017 By in British wine market, Economic impact, trade policy, wine, wine exports, wine markets 1 Comment

brexitMy remarks at the Unified Wine and Grape Symposium‘s “State of the Industry” session earlier this year focused on the uncertainty surrounding Brexit (Britain’s choice to exit the European Union) and the great potential it has to damage wine markets in both the UK and other countries.

I called Brexit a “known unknown” because we know (or should realize) that we really don’t know what Brexit will look like when the two-year exit process concludes or what its impact will be when the dust finally clears.

The exit negotiations will begin in earnest after the June 8 elections in the UK, which Prime Minister Theresa May and her Tory party are expected to win although perhaps not by as big a margin as originally conceived.

An Inconvenient Truth

One particular problem for the wine industry is that wine isn’t very important to the overall British economy (so don’t expect it to get much special attention in the trade negotiations), but the British market is extremely important to the global wine industry, both as a major importer and a bottling and distribution center.  The UK market is a top target for many wine exporters, including Australia, New Zealand, Chile, and even the United States.

Kym Anderson (University of Adelaide) and Glyn Wittwer (Victoria University, Melbourne) have taken a first stab at understanding what is at stake in a study that they released earlier this month titled “Will Brexit Harm UK and Global Wine Markets? (pdf). Anderson and Wittwer ran three Brexit scenarios through their econometric model of the global wine market and reported the results.  I encourage you to take the time to study their research.

Major Impact on Wine

Anderson and Wittwer’s conclusion, to cut to the chase, are that there would be substantial Brexit impact on UK wine imports:

In our ‘large’ Brexit scenario, as compared with the initial baseline scenario, the consumer price of wine in 2025 would be 22% higher in the UK in local currency terms (20% because of real depreciation of the pound, 4% because of the new tariffs on EU, Chilean and South African wines, and -2% because of slower UK income growth). The volume of UK wine consumption would be 28% lower (16% because of slower UK economic growth, 7% because of real depreciation of the pound, and 5% because of the new tariffs). Super-premium still wine sales would be the most affected, dropping by two-fifths, while sparkling and commercial wines would drop by a little less than a quarter.

The authors examine three Brexit scenarios, judging that the most likely general outcome (the “large” Brexit model) is that the UK would adopt the same tariff barriers as the EU27 in the short run and then work eventually to restore free trade arrangements with Chile and South Africa. This makes sense to me if for no other reason than that Britain lacks the time and staff necessary to negotiate Brexit and to work out its own detailed tariff regime and also to negotiate detailed free trade agreements to replace those that will be lost.

Losers and Winners?

Brexit will obviously have high costs for UK wine consumers and retailers and for the bottling and distribution industries as well. Who will suffer the most among countries that export wine to the UK?

Australia, New Zealand, and the US will have to deal with the negative income growth rate effects of Brexit and the exchange rate impacts, too, but won’t see an increase in tariff rates under the “large” Brexit scenario, since their exports to the UK are already subject to EU rates. They will gain a little form a more level playing field with respect to European wine producers in the UK market.

Chile and South Africa are more vulnerable to Brexit woes because they currently have preferential access to the EU (and thus British) market. Their wine exports to the UK will be subject to tariff at least until they can reach new free trade agreements.

European wine exports (France, Italy, Spain and others) previously had tariff-free access to the UK market and so will face new barriers to trade. But, as Anderson and Wittwer note, the likely tariff rate of 13 pence per liter is dwarfed by Britain’s domestic excise tax of nearly £3 per liter and 20% VAT.

No Rising Tide

Does anyone win in this analysis of Brexit? Well you would think that the small but growing UK wine industry would gain from the various hurdles that imported wine faces — and they will. But Brexit is also likely to make imported winemaking and vineyard equipment and supplies more expensive and restrict or increase the cost of migrant seasonal labor, so it is unclear if Brexit will be truly beneficial.

And of course the declining overall wine market is bad news — the opposite of the idea that a rising tide raises all ships, if you see what I mean.

The devil is in the details of scenario forecasts like this and we won’t really know what to expect until the May government announces its intentions (and even then we might not know because the government has developed a recent habit of reversing itself on economic policies and, of course, the final outcome depends on the EU negotiating stance, too). Until then, however, this forecast is a very good place to start your thinking.

This column is just a summary of the new research with a few thoughts of my own. I encourage you to read the Anderson-Wittwer paper and note your own thoughts and reactions in the Comments section below.

What’s the Big Deal about Supermarket Wine Sales in British Columbia?

February 21, 2017 By in Canada, globalization, wine, wine exports, wine markets 6 Comments

vqa-surrey-save-on-foodsWhat’s the big deal about British Columbia supermarket wine sales? It is a very big deal in some circles because the stakes are higher than they might seem. Here’s my analysis of the situation.

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Supermarkets are an important wine sales vector in the United Kingdom and most but not all U.S. states, so many consumers take it for granted that they can walk into their  local Safeway, Kroger-affiliate, Whole Foods or Trader Joe’s store and be greeted by a world of wine choices.

Oh, Canada!

Things are a bit different in Canada. Provincial alcoholic beverage control regimes  apply somewhat in the spirit of Sweden’s Systembolaget monopoly, which was at one time the world’s largest wine retailer — a title that I think passed to the Ontario Liquor Control Board store system before being taken up by Tesco, the British supermarket giant.

British Columbia is moving towards expanded supermarket wine sales after some preliminary trials. The process is a bit awkward because there are many stakeholders with vested interests in the old control system of wine sales. Moving to supermarket sales may increase total wine sales, but the “trade creation” will be accompanied by a certain amount of  “trade diversion” from other retailers, who are understandably unhappy. There is lots of push back as you would expect.

The political economy of B.C. supermarket wine sales is both domestic (more supermarket sales at the expense of existing wine sales license holders) and also international. Incredibly, the B.C. regulations exclude non-B.C. wines from regular supermarket shelves (imported wine may theoretically be sold in a separate and costly and somewhat inconvenient “store within a store”). This has produced an international dust up as the United States has brought charges at the World Trade Organization over the discriminatory practice, an action that the European Union and New Zealand have also supported. The list of wine exporting countries lined up against the B.C. supermarket regime continues to grow. Argentina recently joined the US in this action and Australia quickly followed suit..

The Weak and the Strong

What is the problem? Can’t British Columbia to what it wants regarding wine retail regulations? Maybe not, because Canada (along with most of the world’s nations) is a member of the World Trade Organization (WTO) and is bound by its rules.

The World Trade Organization is actually a fairly weak international institution. It has spent the last couple of decades trying and failing to reach a global agreement on trade liberalization. But the WTO (through its predecessor, the General Agreement on Tariffs and Trade or GATT) was founded on two very strong principles: Most-favored-nation (MFN) treatment and non-discrimination.

Most-favored nation treatment prohibits a country from discriminating at the border against the goods of one WTO-member trading partner relative to others in terms of tariffs and so forth. Every country gets the deal that the most-favored country gets. You cannot single out one country for better treatment or — the real fear — impose sanctions against another except in well-defined circumstances. This was one reason why China worked so hard to get into the WTO — to limit the threat of a trade war against its products.

The MFN rule has been diluted somewhat in recent years as bi-lateral and multi-lateral preferential trade agreements like NAFTA have become more important. (The rise of preferential agreements is often seen as a reaction to the inability of the WTO to produce agreements on broader, global trade regimes) These agreements allow a certain amount of systematic positive discrimination in favor of fellow trade block members. The MFN rule still controls negative “trade war” discrimination.

The second rule, the non-discrimination principle, holds that once a product enters a country, paying whatever legal tariffs are levied at the border, it cannot suffer internal discrimination because of its import status. It must be treated from a regulatory standpoint just as domestic products are treated. That’s a powerful principle.

I am an economist, not a lawyer, but it seems to be that allowing domestic B.C. wines to be sold in supermarkets while prevented equal access to legally-imported California, France, New Zealand or Australia wines would seem to be a violation of the non-discrimination principle and actionable under WTO rules.

Principle and Interest

I was aware of some discussion of possible US action through the WTO as the BC supermarket protocols were being developed, but the US threat was taken lightly by some north of the border. The BC market is relatively small (we are not talking Ontario here) and there are substantial costs to initiating a WTO action, which can take years to resolve and burn up a lot of attorney fees in the process. Not worth the trouble! So some people in BC were surprised when the US finally acted.

But I was not surprised. While BC market losses might be relatively small for international wines, they establish a precedent that could be important if the local-product-only supermarket sales idea spreads — to Ontario, for example. And there might be other discriminatory practices that apply in Canada and its provinces that need to be studied — the supermarket rule might have been the tipping point to take action.

Finally, there is a more global concern. We seem to be living through a period when protectionist rhetoric is in the air and actions that challenge or violate the rules of fair trade are seriously proposed.

In this environment, it is in the interest of global industries like wine to resist the protectionist tide wherever possible on the grounds of both principle and interest (self-interest, that is).

Second Thoughts on Wine Strategies for Georgia, the Cradle of Wine

October 25, 2016 By in emerging wine regions, wine, wine exports, wine markets 7 Comments

127895The Republic of Georgia is a wine economy in transition from its former status as a main supplier of wine to Russia and the former Soviet countries to an emerging position with sales in these markets plus Western Europe, North America and Asia.

Conventional Wisdom?

Last week’s column reported on the main sectors of the Georgian wine industry and presented a working hypothesis I developed before our recent trip there. Home production of wine for family use is very important in Georgia and crowds out the commercial product to a great extent, so the focus is on exports. But what strategic focus is best: which wines and which markets?

The traditional markets in Russia and the former Soviet nations represent the past, I hypothesized. The future? The most distinctive element of Georgian wine today are the high quality natural qvevri wines that have been much in the news recently, but is that too small a niche to support the industry? And production of these wines is very limited in any case.

So by process of elimination, I said,  Georgia needs to focus on what’s left — distinctive indigenous grape variety wines made in a clean international style that can compete in global export markets like the U.K., U.S. and Canada.

That is a conventional idea, I noted at the end of last week’s column, and I am generally suspicious of conventional wisdom. Georgia is an unconventional wine country, so I needed to learn more. I’m still trying to make up my mind, but I think my hypothesis was both right and wrong, too. Here is my report.

Orovela Saperavi: Export Onlyimage_2408901_full

If you want to see what the future of Georgian export wines in the international style might look like consider Orovela. But don’t look for these wines in Georgia — they are strictly for export and are essentially unknown in their country of origin. You can, however, find them in the United Kingdom at Waitrose stores and Whole Foods and in restaurants, too, where they are possibly the most successful Georgian wine in the market.

Current exports to the U.K., the U.S. and other markets are fairly small at 40,000 bottles, but there are plans to ramp up quickly to 200,000 bottles and then a million bottles in a few years. That’s big by Georgian standards.

The name, Orovela comes from a traditional plowing song, but the project is as contemporary as can be. Brothers Giorgi and Vasili Sulkhanishvili saw an opportunity for Georgian wine exports, began investment in 2000, and rolled out the brand in 2004. There is one red wine, a Orovela Saperavi,  and Oro chacha, which is Georgia’s signature grape spirit (think grappa). oro5-160x284

Quality was a key factor right from the start and this has paid off. Jancis Robinson declared the 2004 Orovela the best Georgian wine she ever tasted, for example. A search of the Waitrose website reveals that the Saperavi is a “buyer’s choice” selling for £16.79. Vasili told us that the wine is available in selected East Coast markets in the U.S. and sells for $30-$35 in shops and perhaps $100 in restaurants.

The packaging of both the wine and the chacha is beautiful and effective in communicating the wine’s origin and story. Orovela is a completely professional project, carefully designed and tightly focused, reflecting, I believe, the brothers’ international drinks industry experience.

Orovela isn’t the only example of an international-style wine made with Georgian grapes for export markets. We visited both Chateau Mukhrani and Telavi Wine Cellar and were impressed with the substantial investment and obvious commitment to quality.

The idea that Georgia could be successful in global markets with wines like these is certainly valid.But is it the best strategy for the industry? These markets are insanely competitive and effective product differentiation is critical. Are these wines different enough (there is little room for “me too” products) and can that difference and the quality be communicated effectively as Orovela has done?

Back to the Future?p1110808

I wasn’t prepared for what I discovered when we started tasting natural qvevri wines and meeting the winemakers. The wines varied a good deal, of course, but many of them were simply stunning and not at all the rustic products that I imagined. Wines from Gotsa Family Wines, Pheastant’s Tears, Iago’s Wine Cellar and the Alaverdi Monatstery especially stood out. The wines had real tension — they were alive in the glass. No funk, nothing mousy, just great wine. I was really impressed.

I admit that visiting the wineries and meeting the people made a difference, as it always does. I was moved by Iago Bitarishvili’s hard work and humility, for example, and excited by Beka Gotsadzes’ energy and ingenuity. The fact that these people can make natural wines like this using traditional Georgian methods is something to celebrate. The wines and the stories that come with them are the product differentiation I was looking for.

Maybe these are the wines that Georgia should highlight, I thought. Certainly they tell an authentic story of Georgia and its wines. But there are problems. The domestic market for such wine is limited, as I explained last week, and natural wines are a niche (albeit a growing one) in the global market. In any case, production of these natural qvevri wines is small and the best makers routinely sell out now. Market expp1110789ansion requires new investment and new players.

The natural qvevri wines are a great symbol for Georgia and its wines, but can they open doors for other Georgian wines? Not sure.

Past is Prologue?

My confusion reached a peak when we visited Teliani Valley winery, which is a large diversified producer. Production is about 3 million bottles divided 30% domestic, 70% exports, 30% semi-sweet wines for the traditional markets, 70% dry wines, and 90% conventional wines with 10% made in qvevri.

After a brief tour of the big factory-style facility, we were asked to choose wines to taste. Could we try three red wines, I asked? An international-style wine, a qvevri product and one of the semi-sweet wines popular in Russia and other traditional markets.

The wines were produced and the results were interesting. The oak-aged international Saperavi and the qvevri  wines were fine, but not especially memorable. No electricity here. Well made, but not distinctive.2014042019

The semi-sweet wine was different, which caught me by surprise.  100% Saperavi from the Kindzmarauli vineyard, it was fruity and, well, delicious. To paraphrase my favorite philosopher, Charles Barkley, it tasted like itself — it was good because it wasn’t trying to be something else. It was the surprise hit of the tasting. It was the wine that we would want to taste again.

Sweetish red wines enjoy a growing market in the U.S. (although their sweetness isn’t always advertised). High quality wines like this might have a bright future, not the dim past that I had imagined.

One Wine to Rule Them All?

My working hypothesis was based on the conventional idea that Georgia needed to choose a clear, simple strategy to move forward in the global markets — to decide which of its wines to take the lead.

But Georgian wine isn’t one thing, it is many things. And I think any attempt to over-simplify — to choose the one wine style to rule them all — is bound to fail.

International style, natural qvevri wines, and the semi-sweets, too. These are all Georgia wines and Georgia is all of them and more, too. My hypothesis was off base, but the journey of discovery it provoked has taught me a lot.

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Thanks to all the wine producers who met with us during our Georgia expedition and to the Georgian National Tourism Association for all their help and encouragement.

Republic of Georgia: First Impressions of a Wine Industry in Transition

October 18, 2016 By in emerging wine regions, globalization, wine, wine exports, wine markets 5 Comments

qvevri1Sue and I were fortunate to be able to extend our visit to the Republic of Georgia at the conclusion the  of United Nations World Tourism Organization’s (UNWTO) first Global Conference on Wine Tourism. The conference’s focus was on wine tourism, but we wanted to learn more about the Georgian wine industry itself.

Georgia’s DNA

As I explained in an earlier column, I came to Georgia full of questions about the wine industry here and with a preliminary hypothesis to help me shape the inquiry. Here’s what I was thinking.

Georgian wine is very old and the wine culture is strong. I have never been anywhere where wine was so central to the culture. Wine and vine were everywhere we looked. Wine grapes were a central element, for example, of a Soviet-era war memorial we saw in Sighnaghi. And grape vines are at the heart of the image of Georgia as a Christian nation. Saint Nino fashioned the first cross using her own hair to bind two lengths of grape vine. Wine is Georgia’s DNA.

A great deal of the wine that is consumed is produced by families for their own use and to give to friends and neighbors. The fact of such large family production necessarily shapes the market. Not much imported wine enters Georgia, for example. And a great deal of the commercially produced wine must be exported.

The Russia Factor

Russia was for many  years the largest export market for Georgian wine and because of this the focus was on semi-sweet red wines made in state-owned factories and often sold in bulk. Quantity was a priority over quality. But then came the Russian embargo of Georgian and Moldovan wines in 2006 and in an instant the most important market, accounting for perhaps 80 percent of sales, was gone and did not return until 2013.vino1mo

The Russian embargo was the worst thing that could have happened to the Georgian wine industry in the short term and the best thing in the long run. In retrospect it is easy to see that such complete reliance upon a single foreign market for wine sales was not a healthy situation.

The sudden loss of that market forced Georgian producers to develop new markets, improve quality to be competitive in those markets, and find strategies for product differentiation to raise margins and secure market niches.

Silk Road to China

A recent report lists Georgia’s five largest export markets as Russia, Ukraine, China, Kazakhstan and Poland although there have been substantial sales increases (albeit from a low base) to Germany, the UK, and Canada.

The recent  rise in the Chinese market has been particularly noteworthy and follows on investments in Georgia wine shops and culinary centers that were established in China. There are ambitious plans to open 100 Georgian wine houses there.

One wine executive we talked with noted a “Silk Road” connection that works in Georgia’s favor. Georgia has negotiated a preferential trade agreement with China and Chinese traders and investors who visit the country taste and enjoy the Georgian wines, learn about the country’s 8000 year wine history and its Silk Road connection. Nothing could make more sense than to buy Georgian wine with its long history and connection to China. Very smart of Georgian producers to leverage this cultural advantage!p1110666

Natural Wine Buzz

Here in the United States much of the buzz about Georgian wines concerns natural wines made using the traditional qvevri clay containers to ferment and sometimes age the wine wines. Alice Feiring is a leading advocate of these wines and her recent book For the Love of Wine gives a highly personal account of her passion for them.

No one we talked with is sure how much Georgian natural wine is made by families for their own consumption, but commercial production is relatively limited. One producer estimated total output of perhaps 120,000 bottles more or less with several wineries in the 3000 to 6000 bottle capacity range. Little of this wine is sold domestically in Georgia because of its relatively high cost and the existence of family-produced alternatives.

So the focus is clearly on export to markets where natural wines have a strong presence including Italy, France and Denmark, and developing natural wine markets such as UK, Canada and the United States.

Given all of this my working hypothesis when we left for Georgia was this. The Russian market is the past, now they need to look to the future. But which future? The natural qvevri wines are Georgia’s key to differentiation in the new markets, but high quality natural wine is too narrow a category to carry the ambitions of a great wine producing nation.

Process of Elimination

My hypothesis, based on the process of elimination, was that the way forward is for Georgia to focus on increasing the quality of their conventional wines, making them in a clean international style and differentiating by stressing a small number of exciting indigenous grape varieties (perhaps red Saperavi and white Rkatsiteli and various blends) from among the dozens of native Georgia wine grapes.

In other words, I saw Georgia in a very conventional way, much as I view Turkey or Portugal, for example. That was then. What do I think now? Come back next week to find out.

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Thanks to the Georgia National Tourism Administration for inviting us to extend our visit to Georgia and generously providing  us with help in visiitng the wine regions and meeting wine producers.

Alentejo Wine in Transition: History and Changing Times in Portugal’s “Lodi”

May 17, 2016 By in cooperatives, economic crisis, emerging wine regions, Portuguese wine, wine, wine exports 3 Comments

seloSue and I recently returned from historic Évora, Portugal where I am spoke at the 10th Alentejo Vine and Wine Symposium. We spent about a week in the Alentejo wine region and learned a lot. This is the first of a short series of columns loosely organized around the theme of the disruptive intersection of old and new which I have found in many corners of the wine world, but none more clearly than Alentejo.

Portugal’s Lodi

The map gives you an idea of Alentejo’s location. Évora is about an hour east of Lisbon and give hours south of the Douro Valley. Portuguese leaders once thought that this region would be Europe’s grainery (more Kansas than Lodi, I suppose), but the landscape we saw was more pastures dotted with cork trees and vineyards, some of which are quite large by Portuguese standards.lisboa-alentejo

I think of Alentejo as the Portugal’s Lodi for several reasons. The first is the summer heat, which reaches up to 40 or 45 degrees Centigrade (100 to 110 Fahrenheit) or even higher in July. Difficult to grow high quality wine grapes in such baking heat. But, as markets shift, both regions feel the need to increase quality and so producers are pushing hard. And both regions are implementing important sustainability initiatives that are part of their new identities.

They both produce quite a lot of wine, too. Alentejo accounts for more than 40 percent of the wine consumed in Portugal. But the market is changing and the region must adjust and evolve. The domestic market has not fully recovered from the global financial crisis and price pressure is extreme, especially in the lower price tiers. At the same time, the traditional export markets — especially former Portuguese colonies Angola (#1 on the export list) and Brazil — are struggling.

Drawing Strength from the Old and the New

Alentejo is drawing strength from its past in this transition and from new ideas and initiatives, too. The sense of history is never far below the surface here. Évora is a Unesco World Heritage site, for example, with Roman ruins around every corner. The Romans made wine in this region and the big clay pots they employed are inspiring today’s winemakers (watch for a future column on this).

Portugal was once part of the Arab world (“Portugal,” we were told, means “orange” in Arabic and this was not hard to believe with orange trees everywhere). The name Alentejo itself reflects this history. Alentejo comes from Al Entejo (just as mathematic’s algebra was originally al gebra).

Old practices and a wealth of indigenous grape varieties are more than living history — they form building blocks, but bold initiative is needed for glue. The next three columns will explore this dynamic.

First I will introduce you to Adega de Borba, a big cooperative winery that is moving decisively into the future. Then I will take you into the world of cork by visiting Amorim cork’s processing plant in Alentejo and its high tech labs and production facilities in the north. Finally, we will go back in time to the wines made in big clay pots when we meet with winemaker Domingos Soares Franco at José Maria da Fonseca‘s José de Sousa winery.

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One of the highlights of the conference was a dinner that featured a group of men who sang the famous Cante Alentejano that is unique to this region. It was a moving experience to hear the singing that turned to pure joy when we learned that the singers were winegrowers — members of the Vidigueira  cooperative. And to top it off, we were drinking their excellent wines. What an experience!

How Much Has the Strong Dollar Affected U.S. Wine Exports?

February 9, 2016 By in Economic impact, exchange rates, wine, wine exports 3 Comments

loonieLast week I wrote about the strong U.S. dollar and its impact on U.S. wine imports. My conclusion was that there was an exchange rate effect, but it was less than you might otherwise expect because of specific factors that are at work in the sparkling, bulk, and bottle wine import markets today.

This week we turn to U.S. wine exports. Econ 101 tells us that a strong currency discourages exports by increasing their cost to foreign buyers and this is an important factor. Thus, for example, we would expect U.S. wine exports to Canada to have fallen over the last year.

Loonie Times

The U.S. dollar has appreciated  dramatically against Canadian dollar (or “Loonie,” as they call it) over the past two years. After coming close to parity in 2014 the Canadian dollar nose-dived and it now takes in the neighborhood of C$1.45 to purchase one U.S. dollar.

After weathering the global financial crisis better than most countries, Canada has fallen victim to its dependence on natural resource exports, especially oil exports. As the price of oil has fallen the foreign exchange value of the Canadian dollar has plunged, which raises the cost of imports for Canadian buyers. They are feeling the pain.

How bad is it? The New York Times reported that the combination of drought in California, which raised agricultural goods prices, and the falling Loonie has resulted in  soaring imported fruit and vegetable prices. How high? Eight dollars for a head of cauliflower! Yikes!

Canada is largest single market for U.S. bottled wine exports so you would expect this situation to depress wine sales to Canada and to have a similar but perhaps smaller effect in other countries where the exchange rate shift has not been as extreme. Has it happened? Let’s look at the data.

us ExportsU.S Wine Exports by the Numbers

Here are wine export data for the first three quarters of 2015 as as provided by Wine by Numbers, a publication of the Unioni Italiani Vini (click on the chart to enlarge). These data show that U.S. wine exports actually increased in the time period covered here rather than decreasing as theory predicts. The story varies from country to country (as it did with imports), but the overall trend is to higher exports — exactly opposite of the textbook prediction. What gives?

A first answer is that perhaps it takes more time than has passed so far for the higher exchange rate value to pass through to higher import prices, higher wholesale prices, higher retail prices and then for the quantity effects (lower depletions, lower reorders etc) to funnel back. International finance theory has a whole chapter on how these lags can create distortions. There is something to this lag theory, but I think there is more going on.

A second factor, especially on higher value bottled wines, is branding strategy. Rather than raise price and lose market share, it is possible that some big players are absorbing lower margins to keep on the shelves and in the game abroad. How long can they do this? Some Argentinean wineries have been doing it for three or four years so far here in the U.S. It’s expensive, but could be worthwhile if things turnaround before too long.

A third factor, which applies especially to the bulk wine market, is that U.S. tanks are full of these wines with no indication that domestic consumer demand for them will pick up soon. Better to sell them off abroad as bulk exports than dump them out when they are too old and tired to find buyers.

A final piece of the puzzle is the duty drawback program, which I wrote about last year. This is a very peculiar U.S. government program that under some circumstances will refund import duties for a winery if it exports a similar U.S. wine abroad. Sometimes this makes it seem like exports subsidize imports and, as now, it might be true that imports provide rebated duty funds that can subsidize exports. To be honest, I am not really sure of the net effect except to say that there is an incentive for large integrated wine companies to balance imports and exports.

As we saw last week, while bulk wine imports have not surged due to the exchange rate effects, they have remained significant. This fact means that, for certain companies (especially larger wineries) importing and exporting the right wines to and from the right places, duty drawbacks can be significant.

General Conclusions

Looking back over these two columns, the first conclusion is that so far in this cycle the pure foreign exchange effects have largely been offset by specific forces in different sectors of the wine business and in different countries. Exchange rates matter, but they are just one of many forces at work. Since those forces are likely to be different in the future, it is important to be cautious in projecting these trends ahead too far.

I used to warn my students against trying to forecast foreign exchange rates. Too many variables. Too many unknowns. Exchange rates are the most difficult thing in economics to predict, I would tell them. But now I know that I was wrong. Wine trade may be more difficult because it is affected by all the forces that hit the exchange rate and a whole lot more.

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I encourage readers to drill down in the data provided here because there are a lot of individual country stories to be examined along with the big picture analysis I have provided here.

 

Valpolicella Revisited: What’s the Story?

November 4, 2014 By in Italian wine, wine exports, wine markets 3 Comments

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So, what’s the story? That’s a question that Sue and I frequently ask each other after a tasting or winery visit. We’ve learned a lot, tasted interesting wines, met fascinating people. But what’s the takeaway message?

Sometimes it’s a fairly straightforward choice but to be honest I think we live for the complicated narratives– the experiences that really make us sit down and think. What is the story!? Our recent visit to the Valpolicella region was like that. We didn’t find a story — we found a lot of them and the other members of our merry media band — Mauro Fermariello, Michelangelo Tagliente, Michelle Williams and Mads Jordansen — who shared the same experience with us, found many different stories, too, and different ways of telling them.

(Click on the names above to see our colleagues’ work. Mauro Fermariello’s video, which I have embedded above, is a particularly striking account of our journey.)

We’ve already told several of the stories we found in earlier columns and  I’m using this final post to fill in some gaps and sum up. What are the stories? Here are three of them chosen to say something about the winery business models we encountered.

The San Rustico Story

Let me start with San Rustico, a winery with a long history that it wears proudly and gracefully. As you can see in Mauro’s video, the tasting room is decorated with artifacts that give a sense of the past. Touring the cellar we were struck by the wooden grape drying racks, key to Amarone production, that spoke to us of time and tradition. Great atmosphere.

A visit to the winery is a warm and friendly experience here — very personal. Sort of like tasting wine with a family friend in a farmhouse kitchen. And while the wines honor tradition they do not seem especially  trapped in it. Wines are made in two ranges and Amarone in particular in several styles.

One wine we tasted for example was made to appeal to new world export markets, a bit sweeter and with more new oak  (60 percent of the winery’s 170,000 bottle annual product is sold outside of Italy). The premium Gaso Amarone, on the other hand, is made in the traditional style. It was delicious — our favorite glass in the line up.

The two brothers who are responsible for San Rustico (one works in the vineyard and the other in the cellar) have purposefully focused on their traditional production base, limiting output while looking outside the region for sales.

Sartori di Verona

History is also a strong theme at  Sartori di Verona, but the business strategy is much different. Andrea Sartori is the fourth generation of the Sartori family to lead the winery and he has taken it in a different direction from San Rustico. Actually (and this fits into the theme of this column), Sartori’s strategy involves moving in several directions at once.

Go big or go home is one part of the story. Seeking the resources needed to expand production, Sartori entered into an agreement with the Cantina Colognol cooperative in 2000 that gave it secure access to 6200 acres of vineyards in the Valpolicella and Soave regions. This base allowed a three-fold expansion of production necessary to fill an increasingly export-oriented pipeline. About 80 percent of production is exported today. The well-regarded Banfi firm imports Sartori into the U.S. market.

At about the same time that the volume push began a super-quality brand was also established. Sartori partnered with consulting winemaker Franco Bernabel, who began to work with both vineyards and cellar practices, raising quality and drawing out the characteristics of the different vineyard terroirs. Four years later, in 2006, the I Saltari line of super-premium wines was launched. Sartori has also expanded its reach beyond the Veneto, establishing relationships with Cerulli Spinozzi in Abruzzo and Feudo Sartanna in Sicily. There’s also a partnership with Mont’Albano, a pioneering organic estate in Friuli.

Sartori reminds me a bit of the Mondavi strategy of years past. Mondavi moved upmarket with Opus One and also mass market with the Woodbridge wines. The story did not end happily for everyone, as Mondavi went public to raise expansion capital and eventually lost control of the business (wine giant Constellation is the current owner).  The stories differ here: there’s no indication that the Sartori strategy will have anything other than a happy conclusion.

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The Cesari Story

One of our favotie stops was at Cesari. We loved the wine, the people and the story.  The fact that we like the wines is perhaps not an accident. The U.S. is a prime export market for this winery and it is not impossible that the style was evolved over the  years with American tastes in mind — rounder, fuller wines, but still striking the authentic classic notes.

The Americans in our group were all familiar with the Cesari brand so I was a little surprised when someone told me that it is not as well-known within Italy. The strong export focus makes it different even among wineries (like those above) who sell more than half their production abroad.

Cesari was founded in 1936, during a particularly turbulent period for wine in Italy and Europe. Many private firms failed and cooperatives went bankrupt. Some of the wineries that emerged (or simply survived it) were led by supremely talented entrepreneurs. This sprit in part drove Cesari to push dramatically into global export markets in the 1970s and guides them today to produce the distinctive wines that are needed to attract discerning customers.

I’ve embedded a Cesari video above to give you a sense of the winery and its vision and also to show you how effective they are in telling their own story. Story-telling is almost as important as wine-making when it comes to the business of wine today. Fascinating that the global market’s demands appear here, don’t you think. And I agree with the narrator — all kidding aside, the wines really are good.

Eight Million Stories?

Years ago there was a U.S. television series about life in New York City called “Naked City” that closed each week with the line “There are eight million stories in the Naked City — this has been one of them.” (Scroll down to see a video clip.) There may not be eight million stories in Valpolicella but there are sure a lot of them. Some, like the three above, about different business models and different historical evolutions. Others, like my earlier posts, are about wine tourism, weather problems and  the difficulties of establishing and maintaining a luxury brand for the region in an increasingly competitive marketplace.

There are very personal stories too, like two of my favorite wineries (Zyme and Secondo Marco) that exist today more or less because of family issues that caused a younger generation to start out in a different direction. Reminds me a bit of the story of Robert Mondavi and  the family disagreements that led to the founding of his eponymous Napa Valley winery.

Lots of stories and not enough time or space to tell them all. Maybe that’s what makes a wine region really great. I realize that wine marketers are attracted to the idea of a silver bullet story — a signature grape variety, an iconic brand or rock star winemaker — that can make a region’s reputation in a single stroke. There are good examples for each of these strategies, but I have my doubts about this as a general theory. Maybe real strength comes from diversity and not from a monolithic approach?

I’m glad there are millions of stories to tell and not just one because that means a world of different and distinctive wines … and job security for story-tellers like me! Thanks to everyone who made our Valpolicella visit so rewarding.

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Here is a list of the wineries we visited during our Valpolicella tour. See if you can identify each one of them in Mauro’s video. At the end of the list I have embedded a bit of the old “Naked City” television show for those of you too young to have seen the original. Cheers!

Wineries we visited in Valpolicella:

Valentina Cubi, Fumani

Scriani, Fumani

San Rustico, Valgatara

Terre di Leone, Marano di Valpolicella

Villa Cordevigo and Villabella, Cavaion Veronese

Casa Vinicola Sartori, S. Maria di Negrar

Cantina Valpolicella Negrar, Negrar

Monteci, Pescantina

Cesari, Cavaion Veronese

Zýmé, San Pietro in Cariano

Santa Sofia, Pedemonte

Secondo Marco, Fumane

Salvaterra, San Pietro in Cariano

Wine Uncorked: The Rise of Big [Really Big] Box Wine

May 7, 2012 By in Economic impact, sustainability, tight fat uncorked, wine exports, wine markets 15 Comments

This is the fourth in a series of articles on Tight, Fat and Uncorked, the three trends I see shaping the wine industry. This week’s topic is how wine is becoming increasing “uncorked” and what this implies.

If you take the “uncorked” metaphor and add it to the “box wine” reference in the title, you might reasonably assume that I’m going to talk about alternative wine packaging — boxes, bags, 1-liter tetrapak containers and so on. That would sure make sense.

But you’re wrong. The box I’m talking about is big [really big] as in 20 foot ocean shipping containers holding maybe 25,000 liters of bulk wine in a “flexitank” bag.

Welcome to the New World of international wine trade — the ultimate ‘uncorked’ experience!

The Incredible Bulk

I’ve known about Big Box wine for a while — my 2009 post on “Wine’s Future: It’s in the Bag [in the Box]” is one of the most-read articles in Wine Economist history. But I didn’t realize how big the big box wine trade had become until I received a Rabobank  report titled “The Incredible Bulk: The Rise in Global Bulk Wine Trade” earlier this year.

Rabobank’s report focuses on New World wine trade since 2001 and the change in the composition of wine shipments (in terms of bottled versus bulk) is dramatic. Bulk wine (the big box stuff) accounted for about 22% of New World wine exports in 2001 (the remaining 78% was shipped in bottle). By 2010 the bulk share increased to over 40% while the bottle share fell to less than 60%. That’s a near doubling of the bulk wine share of New World wine trade in less than a decade, an amazing shift that is all but invisible to consumers.

Big Green Wine

What drives the shift from bottle to bulk in New World wine trade? The short answer is Big Green, but green in two ways. Green, first, in the environmental sense. Bottled wine is both heavier and bulkier than bulk wine (glass accounts for more than 40% of a standard bottle’s total filled  weight). All else being equal (a big assumption in wine economics) shipping wine in bulk and bottling closer to the final consumer should lower the wine’s carbon footprint.

Tesco, the world’s largest wine retailer,  is reported to be particularly aggressive on this front with bulk wine imports being bottled in screw cap-topped lightweight glass for its high volume private label brands. (Click here to read about their very green “furnace glass” wine bottles!)

Cost is another green (as in greenback) factor and there are savings here as well. Rabobank estimates that bulk shipping yields an average cost savings of $2.25 per standard 9-liter case (they estimate total annual savings of $142,300,000 in 2010 compared with the 2001 level of bulk shipments).  This is a very substantial saving for commodity wines of the type that often appear in private label brand portfolios.

The movement towards increased bulk wine exports started in the Age of Abundance, when surplus wine flooded the markets and it was important to move it as cheaply and efficiently as possible. Those days are now in the past; rising costs and tight margins are likely to make that $2.25 per case saving even more attractive to producers now, especially as they scour the world for supplies of wine (did someone say “Moscato?”) to supplement scarce domestic juice.

Subtracting Value Added

For vertically integrated international wine producers, the decision to ship in bulk and bottle in the domestic market is mainly about these cost savings.  They pay less to ship the wine and pay lower import excise, too, since the wine enters the country at the lower bulk value rather than a higher bottled value.

But more is at stake, as the Rabobank report notes, for wine makers who sell to third party importers. In this case bulk shipping results in a new division of value added in the supply chain, with less in the producing country and more further down the line. The impact is thus complicated: bulk wine shipment subtracts some value added in the producing country, although the lower overall cost encourages exports.

There are also relative price effects to consider. Bulk shipping increases the relative price of traditional bottled wine imports relative to bulk products, a difference that may be magnified as wholesale costs differentials are passed along through the supply chain.

Economic Impact: The Box

The standard 20-foot shipping container (a.k.a. “The Box”) revolutionized international trade when it became widely adopted. It changed everything (OK, maybe not everything) because it was so much more secure and efficient than the previuosly standard “break bulk” shipping system. One of the things it changed was the scale of international transactions because the greatest economies were realized by those who could reliably fill ocean containers.

I don’t think the rise of “uncorked” big box bulk wine shipments is going to change everything in the same way the ocean container did, but I do think the effects will be significant. I’ll talk about this more in my next post where I consider how the world of tight, fat and uncoked wine is likely to unfold.