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Wine industry: time for bad news
August 2009

Among all drinks businesses the wine industry in the past years left an impression of the one living in own closed space, being detached from market realities.

Even with the crisis arrival things didn’t significantly shake up, despite sales losses and shrinking market share, especially in the premium segment. But many voices have risen lately to admit past and present mistakes and to call the wine market players to think about the actual state of things and to respond to real, not imaginary market demands.

The piece below is not an in-depth analysis of the latest events, but rather a compilation of quotes from recent articles published in printed and electronic media, with a sober view on the problems of the wine industry.

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The Role of the Agent article (Meininger’s Wine Business International, June 2009) showcases wine agents, but there is a revealing commentary against the industry by Richard Cochrane, off-trade director at Bibendum (a note: Bibendum –is a key British wine merchant, with annual turnover of 130 million pounds and 200 staff). “At a time when the industry could have encouraged consumers to pay sensible prices, to grow and flourish, it didn’t and so there has been a lot of erosion of value and profit out of the category. Now we are facing a serious contraction of the wine category and my suspicion is that up to a third of the supply base could be at risk with whole appellations left out in the cold”.

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In the meantime the “unbreakable” pricing system on top Bordeaux whose prices have escalated to absurd since the start of the century is breaking down. The Wall Street Journal dated 14 August publishes a review “When First Growths Place Last”, with a history of recent prices and tasting of the five First Growths. Let’s leave out disputable tasting results (I, for one, disagree with the conclusions of the American tasters), but look at the history of prices.

“[First Growths of 2005 vintage] hit the market just before the entire economic system teetered last year. While these five wines — Châteaux Haut-Brion, Lafite Rothschild, Latour, Margaux and Mouton Rothschild — are always pricey, the 2005s were outrageous. We paid an average of $1,329 a bottle for them. By comparison, in the 10 previous years, including well-regarded vintages such as 2000, we had paid an average of $250 a bottle. Inevitably, the prices on the 2005s have fallen since then. Each one of the 2005 first growths is now available at reputable stores for anywhere from 20% to almost 50% less than we paid last year. For instance, we paid $1,295 for the 2005 Haut-Brion last year; we recently saw it advertised for $696”.

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Moving on from the wine trade to wine production. “Wine sector shooting itself in the foot”, shouts a headline in the New Zealand publication The National Business Review dated 29 July. In an attempt to shift large stocks of unsold wine some companies started exporting premium NZ Sauvignon Blanc in bulk. “Continuing down this path may affect the longterm future of the industry”, say economists from the NZ Ministry of Agriculture and Forestry. The marked increase in the proportion of wine exported in bulk is lowering overall demand for New Zealand’s bottled wine, states the annual ministerial report. “The present productive vineyard area of 30,000 hectares would theoretically rise to 35,000ha by 2012 — based on vines already in the ground — but “given recent deterioration in market conditions, a mothballing or removal of some plantings is likely over the next two to three years””, continues the article.

In the meantime, with falling prices wineries in Marlborough are facing bankruptcies. “The average price for Sauvignon Blanc grapes has dropped about 25 per cent, from an average of $2400 [NZ] a tonne to $1700 [NZ] a tonne this year, a price not seen since the late 1990s”, Wine Marlborough chairman Blair Gibbs states. Over 30 wineries from the leading New Zealand winemaking region are put up for sale. And while at a peak two years ago vineyards were selling for more than $250,000 [NZ] a hectare; now they were commanding about $100,000 [NZ] a hectare. This is reported in The Marlborough Express on 13 August.

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By coincidence, on the same day when an article containing self-criticism is published in New Zealand, the foremost Australian critic James Halliday presents his Australian Wine Companion 2010. On this occasion the article “Warning on wine future” appears (Herald Sun, 29 July) where threats to Australian winemaking are listed. The global recession, wine glut, exchange rate fluctuations, drought and the prospect of climate change is making the “future of the Murray Darling almost impossible to predict” (a note: Murray Darling is the second largest Australian wine region, with 23,000 hectares of vineyards and 400,000 tonnes of grapes, which make up 25% of the national wine production. The region has suffered from the lack of water lately). “Out of these and other issues, the view has emerged that the annual crush should be permanently reduced by up to 400,000 tonnes ... so 46,500 ha have to be removed”. He further states the worst case scenario: removal of 45,000 hectares from cool territories and huge damages caused by draughts in Murray Darling would result in that “all of the massive gains the industry has made since 1985 will evaporate, and — in wine terms — we would be a Third World producer”.

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And the final piece of news that solicited a big international response. Le Monde newspaper published on 11 August an open letter in which known French personalities from the wine and restaurant businesses voiced their concern over an imminent danger for French vineyards due to the climate change. Most international commentators, however, saw the problem in a different light: the French themselves pose more danger to their industry than any climatic hazards. I don’t know whether the latest Oz Clarke’s remarks on Twitter are linked to this news or not, but they very much appear to be so. “France still has an ability to make affordable crowd pleasers in a wide variety of styles than puts most other countries to shame. Yet its share of our — and everyone else’s market shrinks by the second. Sadly few of the French seem to know how to help themselves — or even to realise how dire things are. I mean, they need us — really! But is there a valiant Brit prepared to lead them out of the swamp?”

Modifying Oz’ last question — is there a valiant player(s) prepared to lead the whole wine industry out of the swamp? Can’t think of any suitable candidates yet.