Premiumization: a dead parrot? Or merely sleeping?

The American economist Paul Krugman’s comment was one of the best I’ve come across recently: “We've got a problem with terminology because we usually say either the economy is in recession or the economy is recovering. Either you're in hell or you're in heaven. And the trouble is we're actually in purgatory.” My own frustration with the binary, black-or-white way of viewing the world has developed over the last few weeks as I have tried to juggle with a number of very contradictory pieces of news. On one side of the ledger, there’s the “fact” that Germany, France and Japan are no longer in a recession and that Britain and the US are, for their part, on the road to recovery. On the other, there’s the “fact” that French and German unemployment figures are still growing. Most estimates suggest that during the course of 2009, the jobless rate in these two countries alone will have risen by over a million. People are tightening their belts across the globe. Apart from the bankers who will be celebrating a fresh crop of generous bonuses at the end of the year. In 2007, you could have paid £525 for a Just-Drinks report entitled Emerging Markets and Premiumisation to Drive Global Spirits Market. Just two years later, the analysts at Deutsche Bank are questioning whether “The era of premiumisation is over..?” and backing the drinks giant Diageo for its perceived ability to achieve “volume growth to drive earnings”.

The problem is that premiumisation is not only an ugly word; it’s also a term whose meaning depends on the person using it. For some, it applies to super-luxury products like the $10,000 Loewe Calle handbag photographed on Victoria Beckham’s arm in February when the credit crunch was arguably at its worst. Or the Armand de Brignac non-vintage Champagne that relies on its blingy packaging and link with the rapper Jay-Z to justify a price tag of $500 a time. Neither of these, interestingly, complies to the definition of “New Luxury” in from Michael J Silverstein and Neil Fiske’s excellent 2005 book Trading Up”. The focus for these authors is “products and services that possess higher levels of quality, taste and aspiration than other goods in the category but are not so expensive as to be out of reach”.

Of course, buried within this definition are several subjective issues. Who is to say whether one product is of higher quality and taste than another? What one consumer may aspire to might leave another completely cold. And how far can any consumer actually reach? Silverstein and Fiske acknowledge this last point by pointing out that “a consumer’s buying habits do not always confirm to her income level”. There may be a “disharmony of consumption” whereby she will purchase own-label dishwashing liquid but drink premium Samuel Adams beer.

A good illustration of the lack of connection between the amount of money in a consumer’s pocket and the way in which he will spend is offered in the UK by the current performance of two beverages: coffee and wine. It was recently reported that Tesco’s “Finest” wine range had been removed from some 200 of the chain’s 300 stores and its place taken by a “Value” range including Spanish Tetra Paks of wine at £3.15 per litre, a price which would allow for a wine cost of €30c per litre. Tesco's strenuously denies the first part of these reports, but most retailers acknowledge that "premium" wines are proving harder to sell. Meanwhile, however, Whitbread, the UK hotel, pub and coffee bar group which once brewed beer and retailed wine, has just announced first half figures for 2009 which revealed an 18.4% increase in sales at its Costa coffee outlets, where a cappuccino would cost around £2.00.

My own simple take on the relative success of the coffee vendors is that successful premiumisation is all to do with the way the product or service makes the consumer feel - irrespective of price. The ability to spend more than you need to on a cup of coffee, or on a pair of socks - or shoes - may actually be part of the appeal. And I doubt that this is a human emotion that is going to disappear simply because the world is going through a financial crisis.

What may well change for many people, is unconsidered spending. It’s not surprising that Nielsen and Datamonitor data show own-label purchasing as being on the rise in the US and UK. But that trend does not contradict the declaration by the up-market UK supermarket chain Waitrose that many of its consumers are returning to its aisles after an unsatisfactory flirtation with the discounters Aldi and Lidl.

The challenge confronting wine producers and marketers lies in ensuring that their product has that feel-good factor. And no brand exemplifies that better than Oyster Bay. Despite oversupply of New Zealand Sauvignon Blanc and the recession, Delegat’s its makers have just announced a 37% rise in annual revenue and 57% jump in net profits. Interestingly, Oyster Bay seems to be maintaining its premium price in the UK despite Tesco’s sale of an ocean of three-for-£10 Marlborough Sauvignon Blanc. It has also joined the ranks of the ten best-selling over $10 wines in the US, despite the general downward trend of wine prices there. The Costa and Oyster Bay factor is not easily defined - if it were, everyone would be applying it - but my guess is that it lies in maintaining quality that is at least at the higher end of its class, a premium image and a price that’s just high enough to make the buyer aware that he is treating himself without actually feeling any pain. Read more!

Feeling low, down under

A piece that appeared in Meininger's Wine Business International

Once upon a time a little bird with a broken wing became lost in the frozen tundra of Siberia. Cold and hungry, he was close to death. Just then an old peasant came along, took pity on the bird and gave him a few crusts of his bread. But how could he warm up the shivering little creature? He looked around and noticed a steaming yak pat that had just been deposited by one of his herd. After a moment’s hesitation, he picked up the bird and inserted it gently into the pat. The smell was fairly unpleasant of course but, quite soon, the poor creature stopped shivering, began to feel considerably better and fell asleep. Having accomplished this small act of charity, the peasant went on his way, the yak pat began to cool down and as it did so, it became increasingly solid. When the bird woke up, it found that it was trapped and began to call for help. Soon, a fox happened by and heard the frantic cheeps. Almost immediately the fox picked up the yak pat with his mouth and gently tapped it against a rock until it broke and allowed the bird to break free from its prison. Thank you, thank you, thank you said the bird, to which the fox replied "my pleasure" and promptly popped the little creature in his mouth and swallowed it whole. And the moral of the story is: when you’re up to your neck in dung, it isn’t always your enemies who put you there. And it isn’t always your friends you get you out.

This little story sprang to mind when I began to think about the state of the Australian wine industry and its history over the last 25 years. Back in 1985, when I first visited Australia, its wine exports were almost insignificant. In those dim distant days, British wine drinkers were used to a diet of illustrious French classics – if they could afford them – and Liebfraumilch, Muscadet, , Rioja, Chianti, Bulgarian Cabernet Sauvignon and Hungarian Bulls Blood if they couldn’t. Californian wine was a new arrival on the scene and, then as today, seemed, when viewed on the eastern banks of the Atlantic, to be a musician with a very limited repertoire. There was bargain basement wine in Paul Masson carafes and ultra-ambitious Napa efforts modelled on the best of Burgundy and Bordeaux – in style, quality and price. And not a lot in between. The international head of sales at Mondavi famously never left home without a bottle of Lafite to set against his winery’s Reserve in the smartest possible restaurant. He and his fellow Californians must have imagined that a nation whose wine drinking classes were brought up on Bordelais formality would embrace their own west coast version. But, as they gradually discovered, they could not have got it more wrong.

The British wine buyers, critics and adventurous wine drinkers of the late 1980s and the 1990s sought something very different. What they – or perhaps for the sake of honesty, I should say we - admitted to looking for was unpretentiousness, and wines that combined deliciousness with affordability. We really did not care if the Australian wines did not taste like Bordeaux or Burgundy. Indeed we revelled in their difference. And we positively loved the fact that the winemakers were blokes we could go to the pub with and drink beer and discuss cricket and rugby – subjects on which most Americans have little to offer.

The honeymoon between the Australian producers and the British market lasted for the better part of 20 years during which the Australians saw their slice of the market grow ever larger until it overtook even the previously unassailable champions, the French. But outsiders might have noticed a dangerously incompatible note. Even Australian wine drinkers with moderate incomes aspire to occasional indulgences in the priciest jewels of their country’s vineyards. Well-heeled Brits, by contrast, can never quite keep their eyes off the price tag. When Australian winemakers arrived proudly bearing bottles from the cool climate vineyards they had been encouraged to develop by UK critics, they were politely received – and told that their wines were, like those Napa reds, simply too expensive. Worse still, we proved to be fickle in our affections: we were just as happy to drink a Shiraz from Chile or South Africa. For a while, like a wife wearing ever-more revealing clothes in a desperate attempt to keep her husband’s interest, the Australians indulged in an orgy of discounting before coming to the inevitable conclusion that We-Really-Can’t-Go-On-Like-This.

But what’s the alternative? The obvious answer is the US, still the most profitable major wine market on earth. The trouble is that few Australian winemakers ever learned how to play by American rules. They hadn’t modelled their wineries or their marketing on Medoc and Pomerol chateaux. They never established a globally-acknowledged super-premium category like Italy’s raft of $100+ Barolos and Super-Tuscans and Spain’s Priorats, all of which readily found USbuyers before the crunch. There’s no Australian equivalent of the Napa Valley Auction at which Versace-clad bidders buy bottles for thousands of dollars, and the only Barossa counterparts of Napa efforts like Harlan Estate and Screaming Eagle are wines that were made specifically for the US market. And treated with derision for their pretentiousness by Australian and British critics. Most observers of the US wine scene now acknowledge that Australia occupies much the same role there as it does in the UK: as supplier of large amounts of reliable moderately priced wine. Stuff you might drink with a pizza on a Wednesday evening, but not if you want to make any kind of impression. The American fox may not be precisely devouring the little bird, but it’s not doing it much good. And who should we blame for its fate? The fox, the bird, or the well-meaning British peasant ..? Read more!

Buy the glass

For reasons that are beyond by comprehension, UK authorities are decidedly hazy about the legality of selling wine in quantities other than 125ml, 175ml and 250ml glasses. Some regions allow it; others forbid it, citing the 1988 Weights and Measures (Intoxicating Liquor) Order. So, in theory at least, British wine drinkers can't experience the delights of exploring ranges of small samples of different wines.

Despite this madness, brave places like The Sampler, Selfridges Wonder Bar and now the Kensington Wine Rooms are braving the ire of the bureaucrats by utilising clever Enomatic machines to offer 40-80 wines in measures as small as 25ml. At a time when binge drinking (quite possibly involving Chardonnay and Pinot Grigio) is an undeniable problem, what could make more sense than a setting like the Kensington Wine Rooms where customers compare small servings of Chablis and Meursault; New Zealand Sauvignon and Sancerre and enjoy them to the accompaniment of a plate of good Spanish ham and/or English cheese and/or stuffed peppers? The Sampler is set to spawn a series of new outlets and the Kensington Wine Rooms was set up by the founder of a successful set of Paris pubs called Le Frog & Rosbif, so it's reasonable to expect it to multiply as well.

According to officials last week, the law is set to be liberalised, opening the way to tasting-flights of wines in wine bars across the nation. But don't hold your breath... Read more!

Two cheers for the revolution

So, European winemakers have now - since August 1st - been freed to print on their labels the names of the grape varieties from which their wines are produced. My first curmudgeonly reaction to this particular bit of Euro wine reform was to greet it with a yawn.

Let's be clear. All that's happening is a long-overdue tidying-up of an untidy mess. Prior to the new rules, producers in some regions happily declared their varieties with impunity (think of all that Sauvignon Blanc de Bordeaux) while their neighbours down the road were banned from doing so. Worse still, winemakers who steadfastly supported the law in Europe, hypocritically ignored it completely when they came to sell their wine in countries where European laws did not apply. So American wine drinkers were offered Mouton Cadet Bordeaux Merlot, but their UK counterparts were not.

The one valuable aspect of this part of the reform is that it serves as a reminder to producers that their customers are people with whom it is sometimes worth communicating. No one is forcing anyone to change a single label. All that is happening is that a winemaker is now free to help a wine buyer make a more informed choice.

Which, now I come to think of it, is worth rather more than a yawn. Actually a small glass of Champagne (with a small label reference to the fact that it's a Blanc de Noirs, Pinot Noir perhaps), might be more appropriate. Read more!

Pornagraphic wine labels (at least that's what they think in Alabama)

Only in America...
The Alabama Alcoholic Beverage Control Board (ABC) has confirmed in a letter to restaurants and shops that Cycles Gladiator, a Californian wine from Hahn Family Wines may not legally be sold in Alabama. At least not if the bottle bears its label which depicts an 1895 French poster for the Gladiator bicycle brand. According to Bob Martin, attorney for the ABC Board, who presumably makes these kinds of statements with a straight face, the label contravened laws against the depiction of "a person posed in an immoral or sensuous manner."

The ban will not have caused much loss of sleep at Hahn Family Wines. Sales in Alabama were apparently around 500 cases per year and this figure is being easily made up - and exceeded - by Californians and others who are flocking to get their hands on bottles that are "Banned in Bama."
(For other labels that have upset the Alabama censors, and an interesting insight into Alabama official thinking. take a look at this site)

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While Alabama protects its citizens from the shocking sight of a 19th century nude, it fortunately takes a relatively liberal attitude towards gun-ownership. Anyone over 18 may buy and own a rifle, shotgun, or handgun without the need for any kind of permit or registration (the minimum age at which one can legally drink alcohol is 21, as elsewhere in the US). The only official permit that is required is for the carrying of a concealed weapon. According to an informative site, I had not previously visited called learnaboutguns.com, a recent survey reveals that two thirds of Alabama's residents own guns and half have permits to carry concealed weapons.

Learnaboutguns.com proudly states that "This is one of the highest gun ownership and concealed carry permits in the country and corresponds with a relatively low crime rate."

Hmmmm, In 2006, 412 people were apparently murdered in Alabama, compared with 759 in the UK where gun ownership is effectively outlawed. Alabama has a population of 4,627,851. The UK has nearly 15 times as many people: 60,975,000.

Alabama has 7.4 murders per 100,000 people; the 6th highest rate in the US for murder.

Alabama legislators have a fine record of drawing up unusual laws - as you can find on the Dumblaws site. Here are just a few prime examples.

• Bear wrestling matches are prohibited.
  
  
• Incestuous marriages are legal.
  
  
• It is illegal to impersonate a person of the clergy.
  
  
• You may not drive barefooted.
  
  
• It is considered an offense to open an umbrella on a street, for fear of spooking horses.
  
  
• Dominoes may not be played on Sunday.
  
  
• It is illegal to wear a fake moustache that causes laughter in church.
  
  
• Putting salt on a railroad track may be punishable by death.
  
  
• You may not have an ice cream cone in your back pocket at any time.
  
  
• It is illegal for a driver to be blindfolded while operating a vehicle.

City Laws in Alabama

• • 
    
  Anniston
• You may not wear blue jeans down Noble Street.
  
  Auburn
• Men who deflower virgins, regardless of age or marital status, may face up to five years in jail.
  
  Huntsville
• If an animal control officer is in uniform, it signifies to the public that he is an animal control officer.
  
  Lee County
• It is illegal to sell peanuts in Lee County after sundown on Wednesday.
  
  Mobile
• No person within the city may possess confetti.
  
  
• It is unlawful to wear women’s pumps with sharp, high heels.
  
  
• Montgomery
  It is considered an offense to open an umbrella on a street, for fear of spooking horses.

Read more!

US turns to wine. Or does it?

Publish Post

July brings the publication of Gallup's annual survey into American drinking habits. And as the French site Winealley.com pointed out (in French), the big question was whether hard times would turn people to drink. Or away from it - for want of dollars with which to buy the bottles. In fact, Gallup's research suggests that 64% of Americans drink alcohol at least occasionally - a figure that is in line with the 62-66% figures recorded over the last decade.

Drinkers are actually knocking back an average of 4.8 alcoholic beverages per week, slightly more than in 2008 but, again, in line with recent findings. This figure reflects the 14% of the survey participants who admitted having drunk eight drinks in the previous week, and the 65% who had limited themselves to just one.

The wine industry will rejoice in the news that their product was the favourite drink of 34% of the respondents - up from 31% in 2008 - compared with 40% who voted for spirits - down from 42% - and the 21% who chose beer - a drop from 23%. Closer analysis, however, reveals that, while wine has seen its popularity rise from 29% in 1992, it had already attained its current figure in late 1999 and in mid 2005 actually hit 39% - overtaking spirits for the one and only time in the survey's history. Read more!

Shocking wine, (Can electrical shocks cure brettanomyces?)

For those of us who are sensitive to the complex bouquet of stable floors and would rather not find it in their glass of red, brettanomyces - or brett as it more familiarly known - has competed head-to-head with cork to be seen as one of the biggest wine problems in recent years. There is plenty of controversy over why brett has become so much of a headache, but the recent trend towards producing ultra-ripe wines with higher pH levels and not filtering them before bottling almost certainly has a role to play.

According to a piece (in French) in the French site vitisphere.com, research in cellars in Burgundy, the Loire and the Rhône has found brett in 50% of pre-bottled wines; other studies have found even greater prevalance. The picture is further complicated by several factors: there is more than one strain of brett; brett can be stable or can grow and render a wine increasingly undrinkable; tasters vary in their ability to notice its presence; and finally that some professionals believe that a little brett can add welcome complexity. (This last notion which will strike many New World winemakers as heresy, would incidentally make sense to brewers of traditional Belgian ales).

In any case, for those winemakers who'd rather be rid of this hitherto untreatable ailment, there may be some good news on the horizon. Researchers at the Institut Francais de la Vigne et du Vin (IFV) in Bordeaux have found that electrical shocks may finally be the way to rid the industry of this nightmare. Between two and 50 brief, intense shocks of 1-10 micro-seconds are applied, using highly sophisticated equipment specially developed for the experiment by the French firm Thomson. It seems that the shocks work by rupturing the brettanomyces cell walls.

Read more!

Transcendental Meditation

What is a Pringle? According to Procter & Gamble, its makers, a Pringle is a kind of food, to be categorised alongside cakes and biscuits. The UK tax authorities beg to differ. They reckon that its 42% potato content makes a Pringle a potato crisp (or “chip” if you prefer), an edible savoury luxury that’s subject to the 15% Value Added Tax from which other kinds of food in the UK are exempt. Sadly for P&G, the UK Appeals Court recently agreed with the taxman, but, and this is my point, the vast majority of people who eat these distinctively shaped savoury snacks really couldn’t care less what category they fall into. They simply enjoy them – and pay a relatively high price to do so.

Pringles, like iPods, Gilette Razors, Starbucks, Nike, Campari, Krispy Kremes, Baileys Irish Cream and Coca Cola, are in the happy state of transcending their class. People buy them for what they are rather than, or certainly more than, the category into which they fall. Stated simply, the buyers would rather have them than an alternative. Few Coke fans happily accept Pepsi – and far fewer would drink any other kind of Cola. How many Campari drinkers outside Italy are even aware of the vast range of Italian bitters most of whose colours and flavours would be hard to distinguish from the global brand leader? How many Guinness drinkers would be as happy to accept an alternative dark beer?

The wine world has a few players with this kind of strength. A top-of-my-head list – excluding Champagne - would include Cloudy Bay, Penfolds Grange, Vega Sicilia, Romanée-Conti, Screaming Eagle, Mas de Daumas Gassac, anything by Gaja, Guigal’s single vineyard wines, and the top super Tuscans. But these are the exceptions to the rule. Most wine producers – unlike their counterparts in the worlds of beers and spirits – have traditionally been far keener to shelter under the umbrella of their region, style or country. Even the most illustrious Médoc chateau is a lot more bothered about being classed as a Bordeaux than Bacardi is to be seen as as a rum or Baileys as a cream liqueur.


For those lucky enough to be in a region that carries a premium, the umbrella can, of course, work well. Exploiting the fact that it is situated in Margaux or Napa can be as useful to a minor wine estate as a St Paris address might be to a modest perfumier. When Tequila is in fashion, there can be a lot to be said for a small brand hitching a free ride on a bandwagon driven by the people with the deeper pockets. But some categories rings no quality bells with the potential audience. There is little international value in being Bulgaria’s best –selling cheese? Few New Yorkers set out specifically to buy wine from Cabardes, or Castilla la Mancha.

Of course, there can be a lot to be said for pioneering and championing a category or region, as Mondavi did with the Napa Valley, Rosemount did with the Hunter Valley and Cloudy Bay did with Marlborough. If your fellow pioneers share your quality aspirations your critical mass could build an international reputation for your collective brand that few individuals could ever dream of.

But what happens when others within your region intentionally or inadvertently damage its image? Sometimes, as happened in Austria in 1984, a few cheats can temporarily bring down an entire industry. The Californian firm Bronco threatened the premium character of the Napa Valley when it marketed a cheap brand called Napa Ridge that was not made from that region’s grapes. Legal action eventually restored Napa Ridge’s authenticity, but there are plenty of Australians who fear the impact on their industry of Bronco’s imminent launch in the US of a $3 Aussie brand called Down Under to stand alongside its Californian Two Buck Chuck. The New Zealanders who sold Dan Jago of Tesco two million bottles of surplus Marlborough Sauvignon Blanc at a fire-sale price may be interested to hear what he Tesco had to say about the deal. If they cared about the long term value of their wine, Jago said, the producers should have poured every drop down the drain.

If you have already created a genuinely strong brand like Cloudy Bay, you should be able to survive some very hefty dents to your category or region. But if you haven’t, these are the times to focus your effort on building an identity sets your brand apart from its peers. Take a look at the label of a bottle of Bonterra, unarguably the world’s biggest and best organic brand. The reference to its organic credentials has shrunk over the years, for the simple reason that consumer’ unhappy experiences with organic wines has deterred many from buying them. So, Bonterra’s image is as a good, reliable wine that just happens to be organic.

Somebody once gave me a brutal but useful bit of advice: “Know where you are going. And who you are going with. And in that order”. Or to put it another way, when in doubt, emulate the Pringle. Read more!