Australia
Ten years ago, the bluff and bluster of Australian wine producers – the kind that has driven their European competitors to distraction for years – was waning. Cruel forces were at play.
During the 2006 harvest wine grapes were left on the vines to die in some regions, notably those inland and dependent on an ever-diminishing water supply. A pall of hopelessness fell over the Murray Valley, where one quarter of the nation’s wine grapes were grown.
Three years into a debilitating wine glut, falling grape prices and suspended contracts with producers were driving winegrowers to the breaking point. The more financially distressed sold part of their annual water allocation to pay bills or bank loans. Some put their water rights on the market – a desperate act, leaving them with little or no water for their vineyards in the future. Could it get worse? History tells us, yes.
It got worse
A strong Australian dollar put the brakes on what had been rampaging export sales. At home, the dollar helped introduce more Australian drinkers to affordable imports from Italy, France and Spain. They were pleased to embrace new tastes.
Retail consolidation and discounting at home and abroad ate into what profits there were to be had by companies, while intense global competition sapped the will of even the most optimistic wine producer. And then drought dug deeper into the land until it ached. The skies remained dry, dams emptied, exhausted vines died, and extreme heat (notably in the bushfire year of 2009) reduced crops. Government financial assistance was the only relief that could be offered.
The last 10 years have been tough for those on the land.
Thousands of hectares of vines now are gone, hundreds of grape growers are gone, many small winemakers have closed and large winemakers have trimmed the fat. The total vineyard area has declined every year since 2006/2007, when a record high of 173,776 ha was posted. It now stands at 145,383 ha.
Upward swing
What you see today is an Australian industry on the mend. There is a sense of making up for lost time and missed opportunities. The industry’s traditional markets in Europe, now being replaced by Asia, require urgent attention.
The US remains Australia’s biggest export market (by value) with sales at A$442m ($338m) for the year ending March 2016, but the UK lost its number two position to China, with exports to that country increasing by a whopping 64% to A$397m. Hong Kong moved into fifth position, up 17% to A$129m. Hard-won free trade agreements with Japan, China and South Korea look set to give Australian wine an advantage over its competitors.
What lies ahead
Challenges wrought by climate change continue to be weighed, measured and acted upon by Australian producers. The most obvious is the enthusiastic adoption of alternative grape varieties, many from the Mediterranean basin, many unpronounceable. Nero d’Avola is one of the fastest-growing grapes, with another Italian red, Montepulciano, proving not only highly adaptable but also tasty. In white grapes, Fiano and Vermentino retain not only their acidity but also their fans, as more producers take to the styles.
Wine Australia presented a picture of hope going into the future when it released the latest data on the industry at the start of 2016. In a snapshot, this is how the Aussies are doing:
The Australian wine industry injects A$40.2bn into the national economy and employs 172,736 people; retail value is A$7.4bn; domestic sales stand at 446.5m L (and falling); imported wines stand at 89.8m L (and growing), led by New Zealand and France; wine-related tourism contributes A$9.2bn; and bottled wine exports represent A$1.7bn. At the end of a tumultuous decade, a little light breaks on the horizon for Australian winemakers.
Jeni Port
China
If we look back to 2006 and consider how mainland China’s wine market has changed, it’s first worth considering just how young that market was. By 2006, the imported wine market was barely 15 years old and Chinese wine production, though expanded in the 1980s, had not yet made the leaps in quality that some Chinese wineries have achieved of late.
In the early-to-mid-1990s, although the Chinese government was already importing wine, only David Henderson’s Montrose, Don St. Pierre Jr’s ASC Fine Wines, Robert Shen’s Aussino and Pernod Ricard China had really made in-roads in the import sector. By 2006, Montrose was not the force it once was and Torres China (established 1997) and Summergate (1999) had garnered significant market share, along with the likes of East Meets West (2003) and smaller specialist importers like Ruby Red (2006). The overall market (around 90%) was still Chinese wine, though the 10% of imports had high value versus volume; the picture now is closer to 80% versus 20%. France reigned supreme, as it still does by volume and value today, with Australia and Chile beginning to carve out niches for themselves. Fast forward to 2016 and Australia and Chile have closed the gap meaningfully on France.
The big changes
From the vantage of 2016, it’s clear that wine education has been one of the big success stories, with thousands of Chinese wine lovers and trade taking WSET qualifications. The sale of wine, meanwhile, has had its setbacks. China’s Olympic Year, 2008, did not mark a great leap forward, with imports being held up in customs and a visa clamp-down meaning that many Beijing five-star hotels experienced reduced occupancy, with the attendant poor performance in on-trade sales. A 2008 China Customs investigation into under-declaration of value for tax purposes also created a scandal amongst importers that the international wine press did not ignore.
But though sales and consumption were relatively low, imports grew: from around 16m 9-L cases (2010) to 26m (2011), only to be followed by more modest growth in 2012 (around 29m). Entering office that year, Xi Jinping’s ‘anti-extravagance’ measures limited sales of super-premium wines for gifting and banqueting, the market having also relied heavily on Mid-Autumn Festival and Chinese New Year sales (as it still does). But that environment has, along with education, created a more sustainable and realistic market, with many younger consumers, especially 25- to 35-year-old women, purchasing wine more regularly.
Allied with education has been the rise in Internet and social media communication. Weibo, launched in 2009, provided an open platform for promotion and discussion of wine. But, since 2012, WeChat, the closed platform app, has become central to how the Chinese express their love of wine, as well as allowing wine businesses to use vital public accounts.
The imported wine market has not grown as exponentially as the media hype of the last decade hoped. Official China Customs data shows that, during January-November 2015, only 39.1m bottles of imported wine reached China’s shores. But China’s urban wine drinkers are making a real difference in paving the way for a realistic and sustainable Chinese wine culture.
Professor Edward Ragg, Tsinghua University
Denmark
In 2006, Denmark’s three big multiples – Coop, Dansk Supermarked and Dagrofa – accounted for 80% of total imports and sales. Today they have increased their market share to 83%, leaving
17% to HoReCa and the independent retailers. The biggest multiple, Coop, with five nationwide chains and 1,995 outlets, has performed well and increased their market share from 40% in 2006 to almost 50% today.
As there has been no increase in wine consumption since the turn of the century, the three big multiples compete by trading up, using both wine education and price as tools, and adapting marketing strategies taken from the independent retailers: they create winemaker dinners, wine fairs and wine clubs, and offer customer guidance in their in-house ‘wine shops’ on Fridays and Saturdays.
Big changes
In 2006, France was the Danes’ preferred wine nation, with a market share of 20.8%. Today, France is struggling with a 12% share, the lowest it’s been in a decade. Australia’s share has also halved. Italian wine, on the other hand, is very popular at all price levels, which explains why Italy’s market share has topped the list for six years in a row, with 21% in 2015.
In 2006, the family-owned Chris Wine, established in 1973, was ranked the seventh-biggest wine company in Denmark; however, the second generation sold the last of the company’s activities in 2013. Globus Wine, established in 2006, then accounted for a mere 5% of the market. Today it counts for 35%, and much of the wine it sells in bag-in-box is filled in its own bottling plant.
In 2006, Danish wine imports amounted to 201m L, with bulk representing 41.4%. In 2015, total imports had declined to 176.6m L, of which 44% is bulk. Part of the explanation as to why the bulk ratio is so high is that 17% of the total import is re-exported by, for instance, the newcomer Globus Wine.
The tax-ridden Danish importers have witnessed an 87% increase in excise, from 4.61 DKK ($0.69) per 750-ml bottle in 2006 to 8.61 DKK in 2016, and more will come in 2018. Danes therefore cross the German border where VAT is less, at 19% compared to the Danish 25%. To supply the estimated 25% rise in the border trade, many of the big Danish importers have established a German sister company.
E-commerce is growing, with the multiples getting into that market, and there is a growing demand for organic wine and a strong niche for vin nature led by Scandinavia’s biggest vin nature importer, Rosforth & Rosforth, and colleagues Krone Vin and Lieu-Dit. With the success of the New Nordic Cuisine, many new restaurants have opened, reflecting a more Mediterranean lifestyle, not least driven by the Millennials, who are willing to part with money for a good meal and a good bottle of wine, sold by a thriving on-trade.
From 2006 to 2015 there was a 12% fall in total imports, with 20% less red wine and 10% more white. Sparkling wine has increased by 57% and Champagne by 77%. As it was 10 years ago, wine is trendy and prestigious, with the market highly competitive, diverse and dynamic.
Elsebeth Lohfert
France
Evolution in the French wine industry tends to come quietly. The last decade, however, has seen dramatic changes, many of which can be traced back to a report published in early 2006 by Bernard Pommel of France’s Ministry of Agriculture. French global wine exports had slipped to third place behind Spain and Italy the previous year, and in markets like the UK, France had been overtaken by Australia. Internationally, as Pommel acknowledged, consumers were opting for wines whose labels bore the name of a brand and/or grape variety rather than an appellation.
In France, not only was reference to grape varieties forbidden for most AOC wines, but producers in any region could not develop new styles or increase volumes by blending between regions as is common in the New World. Any such wine could only be sold as basic Vin de Table.
Among Pommel’s solutions, apart from allowing the use of oak chips in Vin de Pays, was a relaxation of these rules. He was not alone in his views. An EU ‘communication’ published in the same year entitled ‘Towards a sustainable European wine sector’ stated that “Independent analysis suggests that appropriate liberalisation of wine-making practices… and more consumer-oriented labelling would enable EU wine producers to expand their outlets and improve their marketing, thereby improving their competitiveness.”
In 2008, European wine legislation was duly reformed and, the following year, France saw the birth of a new designation called Vin de France as, in the words of Anivin, the organisation behind the designation, “an exciting new variety of French wines produced with the international consumers’ palate in mind.”
Originally, the concept was targeted to negociants who could, for the first time, blend premium wines from across the whole of France, create new blends, and sell vintage wines under the names of their grape variety. With the help of some dynamic marketing activities, sales of Vin de France grew quickly. By 2015, some 240m bottles were exported, or 15% of France’s shipments. Over 38m of these bottles were sold in China, proving that consumers in that country were not as obsessed with châteaux and the Bordeaux region as had been supposed.
If Vin de France provided a valuable export sales tool for producers, it also opened the door to increased sales of commercial, branded vin de cépage – varietal wines – in French supermarkets. Other beneficiaries included rosé, whose market share grew from 17% in 2002 to over 30% in 2015 – thanks in part to the arrival of previously forbidden, sweeter styles – and bag-in-box, whose share of the supermarket aisle rose over the first 15 years of the decade from 2% to 36%.
At the more premium end of the scale, there was a more unexpected outcome. Across the country, producers who were already feeling constrained by AOP rules, including ones outlawing the use of some varieties and varietal labelling, began to do their sums. A vigneron wanting to produce up to 500 hL of a southern French appellation would have to pay a cotisation – contribution – of €1,300.00 ($1,461.00), compared to a mere €100.00 for Vin de France. And they could experiment with styles such as ‘orange’ wine, which had no place in the previous system. France has yet to see Vins de France with the quality and price ambitions of Italy’s then-revolutionary Super Tuscans of the 1970s, but there is every likelihood that it will.
Robert Joseph
Germany
Germany is a wine-producing country. However, domestic production falls far short of satisfying the consumption of the German population. Moreover, the limited production means that Germany is the largest importer of wine by volume in the world. Although the US is ahead in value terms, the German market imports the largest volume, at around 16m hL. However, not everything that is imported stays in Germany. Around 3m hL is re-exported, mostly in the form of low-price wines for the European food retail sector, which are bottled by the large German bottling wineries acting as subcontractors for the companies concerned. Also contributing to this are the German-based retail groups Aldi, Lidl, Rewe and Edeka, which take their existing wine suppliers with them when they expand their business models abroad.
German wine production, taken as an average over several years, amounts to 8.7m hL. At 8.5m to 8.7m hL, 2016 will be a below-average wine year in Germany, offering wine importers more scope than in years when Germany produces a significantly larger quantity. Around 1m hL of wine are exported, with the US, UK, Benelux and the Scandinavian countries being the main export destinations. This leaves around 7.7m hL for the German market. The volume of net imports, (that is, net of re-exports), amounts to around 13m hL, meaning that about 21m hL of wine are available to German consumers.
Calculating this volume against the population of 82m people results in a per capita consumption of 24 L to 25 L. This is more wine than Spaniards, Americans or British drink, but less than the French, Italians, Belgians or Swiss.
Sparkling wines accounted for approximately 4 L of this, including some 12m bottles of Champagne. Still wine consumption, at around 20 L per capita, is made up of 40% German and 60% imported wines.
Of this, Italy, France and Spain each account for around a quarter. The remainder is made up of wines from outside Europe (South Africa, Australia, Chile and the USA/California) as well as some nearby countries such as Austria, Portugal, Macedonia, Hungary and Greece. Which of these takes the lead is decided from year to year based on how competitively priced their wines are, and the export and promotional activities undertaken by the wine country or its producers.
Trading structures
The easiest to understand is the food retail sector, which is essentially divided into two areas: the discounters Aldi Süd and Aldi Nord, Lidl, Netto, Norma and Penny on the one hand, and on the other, the supermarket trade now shared by the two major cooperatives that are managed as businesses, Rewe (Cologne) and Edeka (Hamburg). The third member of the supermarket trade is the Metro Group, which has been undergoing restructuring processes at its cash & carry stores and supermarkets for years.
Edeka, the largest food retail group in Germany, consists of seven regional companies, which have a certain amount of autonomy and maintain regional structures alongside the central procurement. The food retail sector, including both the discounters and the supermarkets, accounts for about 50% to 60% of all wine sales and a large part of the sparkling wine sales. The remaining 40% to 50% of the market is divided among wineries that sell directly, plus the restaurant trade and specialist wine retailers. Around 15% of all the wine in Germany is sold via the restaurant trade, about 10% via the specialist trade, and 15% to 20% of all wines are purchased directly from producers.
Pricing
The food retail sector, including discounters, achieved average prices of €2.97 ($3.33) per litre in 2015/2016. When buying directly from the producer, consumers pay significantly more at €6.23 per litre, and sales prices are even higher in specialist wine shops.
The German population is decreasing slightly and the age pyramid is shifting towards the older generations. However, they consume more wine than the younger generations. This effect means that the consumption of wine (excluding sparkling wines) will remain at the pleasing level of around 21 L per capita up to 2060.
Dr Hermann Pilz
Italy
Italy, France and Spain have regularly alternated in recent years as the largest wine producer in the world. In 2015, Italy took the lead again with a production volume of 49.5m hL, followed by France with 47.5m hL, and Spain with 37.2m hL. As Italian wine consumers drink considerably less than half of this production within their own country, Italy relies more than any other country on the export of its wines throughout the world. Italy has therefore been the largest wine exporter in the world for many years, exporting an average of more than 20m hL. Simple table and base wines for the production of sparkling wines and wine-based drinks form the largest category. However, far more important economically are the exports of IGT and DOC/DOCG wines.
Internationally, only a few large and well-known wine regions out of the 20 regions have a significant export role. The front runner is Veneto, which has the largest production volume of around 8m hL. Its main areas and wines include Valpolicella with Amarone, Ripasso and Valpolicella, and varietal wines such as Pinot Grigio, Chardonnay and Merlot. The top seller, Prosecco, has been on the market as DOC and DOCG qualities since 2008. Important in terms of exports are the wines from Piedmont, especially Barolo and Barbaresco, as well as Barbera varieties from the different production areas. The third large and important region is Tuscany, which features icons of the Italian wine world such as Chianti, Chianti Classico, Vino Nobile di Montepulciano and Brunello di Montalcino. The importance of exports for the various Italian wine regions is illustrated by the example of Chianti Classico. Around 20% less Chianti Classico is sold in Italy than in the US market; the US accounts for 31% of sales. Many other Italian wine categories are also in a similar situation.
The strong export orientation of the Italian wine sector and its regulatory system, which is based on origin and the production of easily recognisable brands, are the main advantages of the Italian wine industry. However, the shift towards marketing abroad requires efficient and professionally organised companies. The approximately 300,000 wine producers in Italy and around 60,000 vineyards and wineries are facing a major structural change, which not all the companies will survive. Competition is fierce and smaller companies will merge to form larger ones to enable them to continue producing and marketing wine profitably in the future.
In production, producers are orienting themselves towards what is feasible and likely to be successful. This is also reflected in the proportions of varietals and the market shares of important wines.
Prosecco and Pinot Grigio are now grown on about 50,000 ha, or about 10% of Italian vineyards. Their share of production is about 15%. The largest producer consortium in Italy, the Caviro cooperative from Emilia Romagna, has more than 40,000 ha and produces wines (Tavernello) that can be found in virtually every Italian household.
Dr Hermann Pilz
New Zealand
How many times have you heard predictions of the imminent demise of New Zealand Sauvignon Blanc in the last 10 years? Yet consumers in both the UK and the US – New Zealand’s two biggest export markets – show no sign of tiring of its idiosyncratic Sauvignon style. Between 2006 and 2016, exports have grown in value from NZ$500m ($364m) to NZ$1.6bn. Less than 10m L of wine left New Zealand ports in 2006; today, that figure stands at 213m L. And most of that is Sauvignon Blanc – around 85% compared with 72% a decade ago.
Growth and diversification
Plantings have risen from a little over 22,100 ha in 2006 to 36,100 ha this year. Inevitably, the 2006 record harvest of 185,000 tonnes has since been obliterated: 436,000 tonnes of plump fruit was picked over the 2016 vintage. And it wasn’t all Sauvignon Blanc nor Pinot Noir, which remains the most planted red variety by far. No, there was Arneis, Cabernet Franc, Chenin Blanc, Gamay, Grüner Veltliner and many others that you might not normally associate with New Zealand.
The vines that have been planted are inevitably getting older. While Bordeaux classified growths might not use vines in their first wines until they reach 20 or 25 years of age, Kiwis generally say they see ‘the change’ at 12 years. On this basis, much of New Zealand’s vineyard has reached maturity and the wines are shedding their fruity puppy fat. In collaboration with more mature winemakers and a better understanding of their vineyards, vine age has led to massive improvements in wine quality and style over the past decade.
While the winemakers are getting older, the wines are not getting older with them. New Zealand wine has grown up in the strange Sauvignon Blanc-influenced culture of releasing and drinking wines young.
It has created a race to market on the domestic front and cellar maturation does not have the respect it is afforded in Brunello di Montalcino or Rioja. As a result there’s not a great deal of library stock or availability of older vintages, but the wines can age – if only you could find them.
Patience required
After a couple of lean years in 2011 and 2012 (Central Otago excepted), New Zealand had a triple whammy of superlative vintages: 2013, 2014 and 2015, with reds that should be cellared. Kiwis were starting to sound like the Bordelais with their consecutive ‘vintage of a lifetime’ declarations (2009 and 2010).
But that’s where the similarities between Bordeaux and New Zealand end – there are no formalities in the land of the long white cloud, and despite the recognition its wines have received over the last decade, their feet (often bare) are firmly on their greywacke ground.
Rebecca Gibb MW
Poland
How much has the Polish wine market changed in a decade? Browsing the Polish WINO Magazine issues from 2006, it looks very sophisticated even from today’s perspective: Jura’s vin jaune, Loire Cabernet Franc, Brunello di Montalcino vintages, wine pairings for sweetbreads. Yet those topics were aimed at a small niche of diehard wine buffs. The wider public didn’t care about wine, focusing instead on beer (Poland ranks sixth worldwide for beer consumption) and vodka (second). Wine consumption per capita was a dismal 3 L.
In 2016 it is twice as much, with 45% of Poles now regular wine drinkers – and that has been the deepest change. In a decade of EU membership Poland’s GDP has risen by 50%, so there is more disposable income.
Two directions
At the same time, wine prices fell due to increased competition between supermarkets for the sweet spots of 14.99 PLN ($3.90) and 19.99 PLN ($5.20). The “race to the bottom” is being led by “discounters” Biedronka and Lidl. In 10 years, those two companies have snapped up 50% of the wine market. They have squeezed several competitors out of the market, including Géant, Real, MarcPol, Albert, and Bomi (Alma will soon follow). Other major multiples such as Tesco, Carrefour, and Auchan have been slow to react but are showing signs of life, fortunately. The last thing Polish consumers need is a Biedronka-Lidl duopoly.
Independents have also been hit by the supermarket revolution, especially at the lower end. The early 2000s model of distributing cheap brands to multiples has been largely rendered obsolete as supermarkets switch to own imports. Companies such as PWW (owned by CEDC) or Partner Center are hanging in, while giant Ambra has focused on cider. Expect more reshuffling to come in this market segment.
More interesting things are happening at higher price points. In fact, anything above 60 PLN ($15.70) remains immune to the vagaries of supermarket bargaining, so hundreds of indie importers compete on quality and diversity. Poland is now one of the most open-minded wine markets in Central Europe, offering anything from Uruguayan sparkling to Armenian orange wine. The market has matured and so have consumers: adoption of screwcaps has been quick, and global trends such as rosé and sparkling wine are catching up quickly. Prosecco is the craze of the moment, as are big, off-dry, fruity wines such as Primitivo and Ripasso.
Local wines
Another success story is the burgeoning Polish wine industry. A decade ago, it seemed unlikely those technically poor, acid-driven, overpriced wines would find a market. Yet they have been patriotically embraced, not unlike English or Swiss wines. The industry has now evolved beyond recognition, with dynamic zingy flavours, smart labels, and ambitious business projects.
Polish wines work well with local food. Growth of the on-trade is the third big current trend. A decade ago, the emblematic drinking situation was a table of executives enjoying a decanted Pauillac with filet mignon; now it is a group of students at a BYOB pizza shop. Poland’s food revolution has been nothing short of amazing; innovative restaurants open virtually every day, powerfully fuelling the fine wine market. Polish sommeliers have progressed by leaps and bounds, but there’s excitement also where they are absent, in the informal, pop-up, wine bar, and ethnic dining categories. With a real synergy between artisanal food producers, consumer awareness, and a vibrant urban food scene, the best is yet to come. That wine pairings for sweetbreads story might yet create quite a stir.
Wojciech Bońkowski
Russia
In the last 10 years, Russia has been through a series of wine-related ups and downs. While things were good in the early years of this century, Russia has had a number of wine market crises, including the turmoil of 2014 that redefined wine consumption and distribution.
Expanding into Crimea, famous for its winemaking traditions, pushed Russia – for both political and patriotic reasons – to produce more and better wine. A number of winery projects attracted investments from government-related business circles, bringing an influx of European knowledge to Russia. Yet while the country’s political desire is clearly to showcase the efficiency of its so-called ‘import-substitution’ policy, quality Russian wine remains scarce and the country remains dependent on buying inputs from the EU, resulting in skyrocketing prices for the few quality wines available.
Currency woes
The devaluation of the ruble in 2014 led to a virtual doubling of wine prices. The currency collapse led to a substantial drop in wine sales, with some estimates ranging from 15% to 45%, depending on the wine category. This led to a complete rebuilding of wine categories in the consumers’ minds: premium wine suddenly became super-premium, while democratically priced wines moved into the premium segment. Fine and expensive wines became a tough sell.
One of the biggest market explosions in the past decade was the bankruptcy of established wine importer and distributor Rusimport in 2015. Another long-standing company, Whitehall, was sold and its portfolio was slowly dismantled by competitors, leaving virtually no trace of the historic company. Notably, a number of vodka producers and distributors like Synergy Group and Russian Standard Group, began developing and enriching wine portfolios of imported wines.
Dealing with the government-imposed alcohol turnover control system introduced in 2006 (EGAIS) wreaked havoc and caused a loss of time and money to players in the wine market. The system, intended to reduce counterfeit alcohol turnover in the country, induced unnecessary expenses and huge time lags, causing importing and sales delays. As of 2016, the control system continues to cause headaches.
In 2006, wine import bans were widely used by Russia’s government as a political tool to pressure Georgia and Moldova. Georgian wines remained banned from the Russian market until 2013, while Moldovan wine was allowed in, but then banned again in 2013.
Wine advertising became illegal in 2013 both in online and offline media, moving the focus towards indoor advertising in chains, wine tastings and events. While discussions on social media are relatively free, they are less influential.
Bright spots
The Russian consumer has been forced to look for affordable wines and focus more on price and taste than on branding. Large chains have now substituted cheaper wines of comparable quality for brands. The number of wine bars has also grown. Wine distributors are also now part of the HoReCa game, the best example being MBG/Millennium distributor with its Bread and Wine (Khleb y Vino) venues. Successful concepts are still mostly confined to financial centres like Moscow and St Petersburg.
Anton Moiseenko
South Africa
Ten years in the life of the modern South African wine industry is an eternity. In a country where change is endemic, flux has been the norm almost from the moment of white settlement. Stratification typical of Old World societies has never had an opportunity to become properly entrenched. The 1994 democratic elections and the Mandela presidency fragmented whatever patterns had been established under the apartheid regime. Today, the new black elites have added their buying power and their political and social connections to the mix.
A complete overhaul
The Cape wine industry of today is unrecognisable compared with its 10-years-earlier incarnation. While many of the players are nominally the same, the role that they play and their relative importance to the whole has changed dramatically. Ten years ago, the KWV (once the national wine cooperative, imbued until the 1990s with statutory power to fix prices, crop sizes and even planting rights) had just converted to a trading company with massive assets and a widely recognised brand in international markets. Today it is a shadow of that entity, a shrunken skeleton of a once powerful organisation, the victim of a recent take-over by a corporate raider.
Distell, on the other hand, the biggest domestic wine and spirits player, has seen an almost four-fold increase in turnover and profits over this period. Unsurprisingly, over the same decade, Distell itself has transformed dramatically. Once a business dependent on its spirits revenues (with an 80%+ share of the country's lucrative 50m-L-a-year brandy business) it has seen a significant slide in local brandy consumption (roughly 30% over the period). This loss of a vital market has not undermined the company's stability. Firstly, it has seen impressive growth in its cider and RTD business, which now accounts for almost half its revenues. Secondly, it has grown its table wine operations. Finally, it has acquired a string of international spirits brands, most notably Bisquit Cognac and Burns Stewart Distillers.
The same 10-year period marked the emergence of two key players in the wine wholesale and distribution business, an inevitable feature of a country which has seen the number of wineries double in the last 15 years. Both Meridian and Vinimark existed in 2006, but were relatively small, niche operators, focusing, in the case of the former, primarily on the inland distribution of estate wines and, in the case of the latter, on the creation and management of bulk brands for the supermarket and multiple trade. Both are now multimillion-rand businesses and key components in the increasingly sophisticated local wine scene.
New dynamism
The wine business itself has changed – not only because of the growth in the number of wineries (many of which are boutique, rather than industrial in size) but also because a new generation of post-Isolation winemakers now dominate its profile. A review of the industry’s performance over this period tell its own story: Exports have increased by more than 50% from an already large base, while the performance of top Cape wines in international competitions shows a dramatic improvement in overall quality. Ten years ago, South African wine hardly featured in the international wine press. Today it is described by Neal Martin as the most exciting in the New World, and by Tim Atkin MW as the most dynamic wine industry in the world. What began a decade or so back as the Tri-Nations Challenge (Australia, New Zealand and South Africa; and has morphed into the Six Nations Challenge, with America, Canada and Chile added to the mix) now sees South Africa garner a sizeable chunk of the trophies – significantly more in the past few years than Australia, its former nemesis. South Africa’s wines are palpably better than they were, and the world seems to have grasped this unequivocally.
There are still problems: Wine pricing is too low; the country image still trades at a discount; farmers are generally under-recovering on their input costs; and bulk wine exports still account for too great a percentage of the total off-shore sales. But for all its problems there is an excitement and vitality to South Africa’s wine industry which would be the envy of almost every Northern Hemisphere producer.
Michael Fridjhon
Spain
Spain went through some really bad years from 2008 until... well, it’s still going on, although it’s getting better, little by little. It all started about 30 years ago, in 1986, when Spain entered the European Community. The country received large sums of money from Brussels and an economic boom began in tourism and construction, with all three pillars of money – the EU, tourism and construction – creating a multiplier effect. The wine business gained a great deal from the new wealth. All over the country, thousands of new wineries were founded. Some oenologist and wine lover dreams finally came true and they were able to enter the wine business for the first time, while traditional wine businesses founded new wineries in other regions. The whole wine industry was on its way to redefine Spanish wine: New methods, new regions, new price levels, and old and new grape varieties. Tempranillo was the superstar, while new and unknown regions such as Priorat, Ribera del Duero, Toro, Bierzo, Rueda, and Rias Baixas became famous alongside Rioja. But there was more: It became fashionable among the newly wealthy from all kinds of businesses to own a winery and produce highly rated, concentrated reds.
Beautiful brand new wineries were built, often by entrepreneurs in the construction business, who laundered their black money through winery architecture, glittering stainless steel tanks, French oak barriques and bottles created by top designers.
The crash
Unfortunately, quite a big part of the economic success was based on speculation in the house building business, where prices and profits rose to unbelievable heights. Everybody knew that one day the speculative bubble would explode, but nobody seemed to take care.
By 2006, Spanish wine exports had doubled compared to 1995, while exports of bottled DO wines had more than tripled. Thousands of new wines left the wineries, most of the premium bottlings being in a black, concentrated, oaky international style. Classical wines like elegant Gran Reservas from Rioja were totally out of fashion and ‘Vinos de Autór’ was the phrase of the day. Sommeliers helped: Gastronomy was booming, with a newly defined Spanish cuisine and with Spanish avant-garde chefs like Juan Mari Arzak and Ferran Adriá becoming the most famous in the Western world.
But suddenly, in 2008, a nightmare appeared overnight. In only a few weeks, Spain ran into its worst crisis of more than 50 years. Bankruptcies, rising unemployment and a crisis in government finances destroyed dreams of an everlasting boom. Wine and gastronomy suffered from declining consumer demand as well as from the now empty pockets of former investors.
National wine consumption, which had been going down for years, ended up at about 16 L per capita, showing that wine was no longer an everyday drink, but a luxury good. Those who didn’t want to do without wine avoided the higher prices in restaurants by buying cheaper brands in the supermarket and drinking at home. This allowed the big wineries with low-priced wines, like Félix Solís or García Carrión, to win market share. Many premium wineries also created new lines of brands that were cheaper than they had previously produced. Overall, both the general price level and per capita consumption sank, and the industry was forced to seek its fortune outside Spain. While selling the production was possible, Spain was selling at the lowest export price in the world.
More secure
Now in 2016 it looks as if the worst has passed. Tapas bars are crowded again, people are talking about prices over €5.00 ($5.62), and wineries seem to be more optimistic. And the bad years didn’t pass without evolution in the wine business. Winemakers now look to another style: Elegance is back and oak has to stay behind the fruit. To everybody’s surprise, not only is Rioja – influenced by the cool Atlantic – back, but the traditional Gran Reserva, slightly modernised, is also fashionable again. Old Garnacha vines have been rediscovered and the old variety has become a trendy winner, thanks to its creamy soft fruit and low tannins, which is a major change compared to 10 years ago.
Economists say the crisis gave Spaniards a reason to focus on efficiency, which they have done. Thus Spain has a real chance to be successful over the next 10 years.
Jürgen Mathäß
The UK
A time-travelling wine producer returning to the UK of 2006 would see a very different place than today. Almost every main street in the country had a branch of Threshers, Wine Rack, The Local or, in Scotland, Haddows. There were over 2,000 of these specialist retail shops, all of which belonged to a company called First Quench Retailing, whose turnover was over £750m ($972m). In wealthier areas, there might also have been one of the 173 branches of Oddbins, historically a regular winner of UK wine merchant of the year awards. If the producer was looking for wholesale distribution, they might have approached PLB, Bibendum and Thierry’s. For anyone targeting the off-trade, there was also the giant Matthew Clark.
Today, Threshers no longer exists, following the collapse of First Quench in 2009. There are fewer than 30 Wine Rack shops and just 37 Oddbins, since the failure of that business in 2011. Estimates vary, but there are 1,000 fewer retail wine stores in the UK than there were a decade ago. Britain’s largest chain today is Bargain Booze. It has 624 shops, none of which would hold much appeal for a wine enthusiast. Its owner, Conviviality, also owns Wine Rack. And PLB. And Bibendum. And Matthew Clark. Thierry’s no longer exists.
Tough environment
It would be easy to lay the blame for these collapses on the recession of 2007-8, but both First Quench and Oddbins were struggling before the financial storm clouds rolled across the horizon. Too many British wine buyers had switched their allegiance to the supermarkets, thanks in part to regular half-price and ‘three-for-ten-pound’ offers. Selling to these chains involved making sizable ‘marketing contributions’ as well as offering keen prices. On occasion, ‘retrospective discounts’ had to be paid if a product sold more slowly – or faster – than expected. While many Britons can no longer walk to a wine shop that’s part of a huge chain, plenty will be enjoying the enthusiasm driving the 800 or so independent merchants, many of which occupy sites where there was once a Threshers or Wine Rack.
Competition from Aldi and Lidl – discounters that were barely visible in the UK of 2006 – and the major accounting scandal that hit Tesco in 2014, have led to a change in the buying practices of the bigger retailers. It is unlikely that Majestic would repeat the request it made for suppliers to ‘voluntarily’ help to fund its staff Christmas party. Conviviality may appear to have an unbalanced influence over UK distribution since its purchase of Bibendum-PLB this year, but its management emphasises its intention to maintain a wide range of routes to market.
So what next? Excise duty has risen from £1.29 in 2006 to £2.08 per bottle of still wine in 2016, while the £2.67 duty on sparkling wine is over a pound higher than a decade ago. As Britain faces a post-Brexit existence, there are fears that further rises are likely, but that duty rates might be linked to alcohol strength – something that would have been illegal under EU law.
Robert Joseph
The USA
The US recently became the world’s largest wine market, on 34.6m hL of volume with a retail value of $55.8bn. Ten years ago that volume was 27.4m hL, worth $41.5bn. Production is up, as the count of California wineries has jumped from 2,500 to more than 4,000, with volume reaching 24.2m hL. Nationally, the number of wineries has almost doubled from the 5,424 in 2006, and production is up from 23.6m hL to 29.1m hL. California still produces about 60% of the wine consumed within the US and 90% of the country’s exports, but winegrowing is becoming significant in other states. Washington State’s seven American Viticultural Areas (AVAs) now number 14, and its 460 wineries have more than doubled to almost 1,000. Oregon’s trajectory is similar. All told, the US’s vineyard surface area of 419,000 ha makes it the sixth-largest producer in the world by land area.
The big got bigger
E&J Gallo remains the largest producer, with sales of 62m cases in 2006 and 75m cases last year. Constellation Brands (57m cases in 2006, 50m last year) and The Wine Group (42m in 2006, 57.5m last year) switched places in the second and third positions. Bronco Wine Company has held the fourth spot then and now, while Ste Michelle Wine Estates, whose 2006 production of 4.2m cases has more than doubled to last year’s 8.8m, moved from tenth place to seventh.
There are more than half a million retailers which sell wine, with off-premise volume sales rising faster than on-premise, particularly for wines priced north of $11.00. Total Wine & More, the largest independent, offers up to 8,000 different wines in their ‘superstores’, of which there are 135, compared to 45 a decade ago. Yet Costco is the country’s largest wine retailer, with annual wine sales now topping $1bn, versus $600m in 2006.
In January, Southern Wine and Spirits, the largest distributor, merged with Glazer’s, the fourth-largest distributor, forming Southern Glazer’s Wine & Spirits, which employs 20,000 people and serves 44 states, Canada and the Caribbean; its combined annual revenue is $15.5bn. At about the same time, Charmer Sunbelt and Wirtz Beverage combined to form Breakthru Beverage Group, now the second-largest distributor, with annual revenues of $6bn. Next up are Republic National and Young’s Market. These four distributors now handle 60% of wine distribution in the US. Direct-to-consumer (DtC) shipping has become a significant sales channel for domestic producers, particularly for wineries that produce fewer than 500,000 cases a year. In 2010, the value of DtC shipments totalled $1.2bn; by last year it had grown to $2bn.
Changing tastes
Significant recent trends include a growing preference for wine with lower alcohol content and higher acidity, especially in the on-trade. Wines that have seen an excellent decade include rosé, Prosecco, Moscato, Sauvignon Blanc, red blends, Pinot Noir, Cabernet Sauvignon and Pinot Grigio, while Chardonnay remains the highest-volume varietal sold in the US.
And, of course, no one had an iPhone or Android device in 2006. The iPad wasn’t introduced until 2010. Social media is now crucial for wine professionals to share information, build brands and maintain customer relationships, while consumers can consult apps like Delectable, Banquet, Vivino, Wine Searcher and CellarTracker.
The Millennials recently surpassed the Baby Boomers in total wine consumption (160m cases in 2015). Their approach to wine has been adventurous, driving imports from regions like Greece, Portugal and South Africa, and focusing domestic attention on Washington, Oregon and New York, instead of California. They are entering the prime of their earning capabilities in an improving economy, and have an abundance of wine education and advice at their fingertips. If the last decade has been phenomenal, the Millennials promise to make the next one even more interesting.
Scott Saunders
