Tuesday, May 08, 2012

Let's talk dirty... Thoughts on the real economics of wine

My most recent post bemoaning the lack of innovation among wine producers attracted a number of responses that seemed to imply that there is no real need to do anything new. Or that experimentation is intrinsically somehow undesirable. For one person, "non-traditional varieties, new barriques, cement tanks, or open ferments...are all reinventions that go in and out of fashion". Another said that he/she had "no desire to follow the current wine world's fascination with the next new shiny object...".

In other words, we are all on the right path and have no need to deviate from it... 

In the 19th century, that was precisely the attitude of the doctors at Vienna National Hospital when one of their colleagues, a Hungarian called Ignaz Philipp Semmelweis, proposed a simple way to reduce the incidence of fatal septicaemia that was killing one in eight patients in the maternity wards. Semmelweis's suggestion was that the doctors should wash their hands before examining the patients. This now-obvious notion went down very badly, because the medical establishment refused to accept that they might be responsible for spreading disease, despite Semmelweis's proof that he could almost banish infection from the wards. He lost his job, had a nervous breakdown and died in an asylum aged 47.

So what has Dr Semmelweis got to do with wine? Well, by the standards of basic economics some high profile parts of the wine industry are in pretty urgent need of innovative surgical intervention, but the wine establishment's response to lateral thinking seems to have much in common with those doctors in Vienna.

The average bulk price of AOC Bordeaux is currently just over €1 per litre. In other words, producers who tend their vineyards for 12 months in all weathers, pick the grapes and crush and ferment them in the most famous wine region in the world get just €0.75 per bottle for their troubles, or a legally-sanctioned maximum of €5,500 per hectare. (Based on regional limits of 55hl/ha). This figure has to cover all material and labour costs and, as the producers frequently point out, is entirely unsustainable.

As Bernard Magrez creator of the best-selling Malesan Bordeaux brand (which he sensibly sold to Castel) and now owner of estates such as Pape-Clement and Fombrauge explained to me recently, the economics simply don't work. These estates used, he says, to be run by a couple with the help of a son or daughter and an employee. Today, there's no money for the employee; the wife has sought at least part-time work somewhere else to bring in a little cash and the only reason the next generation is around to give any kind of hand is the high level of French unemployment. Meeting the monthly bills is a struggle; but what happens when vines have to be replanted, the press or tractor need to be replaced or a hole in the roof repaired? Bordeaux has quietly lost around 10,000 independent estates; at least another 5,000 will probably be lucky to make it to 2020.

Bordeaux is merely a high profile example. There are plenty of other areas facing similar or worse situations: just look at the low prices at which delicious wines are now being sold by distressed producers in Spain. Buying cheap European wine without considering the financial viability of the people who made it is a little different to blindly filling your basket with clothes and toys produced in Asian sweatshops. The more canny Asians can see a way out of their situation. Incomes in China have risen sufficiently in recent years for manufacturers and their clients to have to subcontract production to lower-wage countries such as Vietnam and Bangladesh. 

Owners of wine brands are now doing the same, with labels such as Lindemans, Ogio and Blossom Hill being used for wines produced in a growing number of countries. If your Cabernet or Sauvignon doesn't fit the bill in style, quality and, crucially, price terms  there's a producer somewhere else in the world who's making one that does. And the person who is going to drink the wine often really doesn't know or care where it came from.

Winegrowers in many of Europe's classic regions are in no position to subcontract. They have to produce and sell an annual crop of grapes for whatever the market will pay for it.

In Minervois, where we work with Celliers Jean d'Alibert to produce Le Grand Noir and Greener Planet, bulk prices for the regional appellation are even lower than Bordeaux. Hugh Ryman, Kevin Shaw and I didn't apply any form of alchemy when we started to produce our "shiny new objects" there. All we did was sidestep the Minervois rules and opt to make Vin de Pays (or IGP as the category is now known) by blending varieties in ways that were not traditional for the region, but tasted delicious. Kevin's labels were not traditional either, and nor was the introduction of PET bottles for the Greener Planet Sustainable wines. And least traditional of all were the prices importers in around a dozen other countries were ready to pay for the wine.


Without going into details, I'd just say that these are up to €1 more per bottle than  the producers might have expected for their Minervois. And when you consider that, over the last seven years, we've built sales up to over a million bottles per year, this adds up to rather a lot of money for the winery and the growers. The wines have also won a few awards and been listed by restaurants such as Marcus Wareing's Gilbert Scott in the new St Pancras Hotel (below). 

I love working in the Minervois. The countryside is glorious, and the growers some of the finest in the country - especially now that they are embracing sustainable and organic agriculture (more non-traditional practices we helped to introduce by creating a brand with international sales). Sadly, our efforts to introduce even a little innovation in Bordeaux were less well received.

My intention, in writing this is not to promote our wines - though I naturally wouldn't mind it if they become more widely known. What I'm saying is that my call for innovation is not an academic exercise. We've proved that it works - as have  Languedoc neighbours such as Jean-Claude Mas whose Arrogant Frog is now a major success in Australia.

Anyone who believes that trying to make wine for pennies per bottle is a desirable state for the wine industry can go on supporting the status quo - and consigning the vinous equivalent of Dr Semmelweis to the asylum. Others might become a little more broad-minded.

Some very interestingly innovative wines are coming in as entries for WINESTARS at the London International Wine Fair. If you have a wine that isn't on the UK market yet and you think it might impress the buyers from Waitrose, Britain's best wine-selling supermarket, Laithwaites, the world's biggest direct-seller or restaurateurs Mitchells & Butlers, you only have a few days to send in your free entry. 


  1. As a producer in the South of France (Saint-Chinian) I can only say you hit the nail on the head with this post. It is a region with so much potentional but needs investments and creativity.

    When young wine producers want to follow in their fathers footsteps they have to buy out their brothers and sisters and usually have to start with old equipement. To pay these debts a big part of them sells their wine in bulk for a price that makes me cry. Without realising they enter a vicious circle of downgrading the quality of their wines and vineyards which leads to an even lower price... Bankruptcy is right around the corner.

    But challenging circumstances spark creativity! A big part of the younger generation studied before they start working in the vineyards and realize they need to do it different. They believe in the big potential of the region and aim for the best quality rather than quantity. This is where (outside) investments are needed. Initiatives like winestars reward the work of these motivated winemakers on the forefront.

    To quote my teacher Pepi Schuller MW: "Terroir is not the most important factor for a wine region. A big investor that supports the research of that terroir can have a bigger influence on the quality of a region."

  2. Many thanks for the response - and for your support for WINESTARS. It's a small step - at the moment - but I'm getting more and more tired and frustrated by the people who are either doing well enough not to worry about their struggling neighbours, or are doing badly and lay the blame for all their woes at the doors of merchants, governments and media.

    Both groups tend to put spokes in the wheels of creativity

    God - or whatever power you prefer - helps those that help themselves.

    So I guess you could say that we're playing God. (I hadn't looked at it that way!)

  3. Very true Robert, the wine world in general is not prone to innovation whether for economical constraints or cultural reluctance. I'd go to the extent that 'marketing' is a dirty word in wine circles, it is generally regarded as an intent to cheat the consumer.

    This just creates opportunities for the clever trailblazers, you made your point.

  4. Never mind the lack of innovation, the negative attitude from some towards opportunity when it presents itself is fascinating! Have the importers/agents been too greedy? Have the supermarkets plus this govt's duty been the issue? I don't think it's so simple... it's almost like wineries want luck to land on their doorstep without putting in the hard work and analysis to figure out how to sell their wines... Without innovation, marketing, communication, awareness, all they have is terroir. And most would say that's enough... http://www.wine-stars.com/the-perception-of-the-uk-market/

  5. Thanks Thomas and Catherine for your contributions.

  6. Yes, just proucing grapes or cheap bulk wine will lead to bankrupcy for a small producer sooner or later. The answer is to produce quality wine and market it as such. The question is HOW to do it! Collaboration is difficult in Mediterranean countries and so is going it alone!!! Between a rock and a hard place!

  7. The issues in traditional wine growing regions are much different then that of the New world ...but the most common aspect between them is MARKETING. While somewhere I feel the wine Market is getting saturated in many developed nations leaving most of the marketings and promotions to be focused on the developing nations, the major concern lies in dumping the surplus or low quality wines in these markets even before the development of a steady and constructive wine culture...which could only benefit the producers from France, Italy or any other wine region.

  8. In the long run....

    That's my personal opinion.


  9. Good points, both Fabio and Rojita. We need to focus on a) how to add value to wine and b) how top convince consumers to pay for it. Not that simple of course, but more sensible than simply saying: "I follow an old French recipe to make wine and simply try to sell it on the basis of a traditional label, a tired story and an attractive price.