Sunday, November 09, 2014

Raise a glass to the outsiders who've shaken up the wine world

Greg Lambrecht

What does Greg Lambrecht have in common with Herbert Allen, Dennis L Burns and Elon Musk? 

He's used his experience in one industry to start a revolution in another. 

Musk, for those who haven't come across him made a fortune by co-founding PayPal before risking a lot of it on Tesla, the first serious electric automobile manufacturer. Traditional car companies had universally shown little-to-no interest in ditching fossil fuels, and had even destroyed vehicles they had built that offered proof of the electric car concept. Since the arrival of the Tesla, they are tumbling over each other to get their versions on the road. It took an outsider...

Dennis Burns' background had more to do with silicone than Silicon Valley. At the beginning of the 1990s he was making hockey helmets and sunglasses when, on a visit to a wine cellar, he noticed the synthetic bungs in some of the barrels and wondered why similar closures could not be used for wine. Supreme Corq, the business he launched in 1994 has since been supplanted by Nomacorc (for which, to declare an interest, I do some consultancy) but it is acknowledged as having been the first to open the door for synthetic closures. Herbert Allen, inventor of the Screwpull, was a drilling engineer who understood that coating the screw with Teflon would alter and improve the experience of cork removal.

The revolution Greg Lambrecht has started is with the Coravin which allows users to drink as much or as little wine as they like from a bottle without ever actually removing the cork. Ingeniously, the wine is drawn out through a fine needle which effectively replaces it with an inert gas. I haven't tried one yet, but I trust the people who have sufficiently to buy one.

The point of this post, however is not just to point out that revolutions are rarely fomented by insiders, nor to plug Mr Lambrecht's invention. It is to pick up on something he said in the keynote he gave at the Digital Wine Communicators Conference (DWCC). Understanding and satisfying a need is not enough. You have to understand the ecosystem in which the need exists

There are countless inventions and great ideas that have failed because the soil in which they were planted was insufficiently fertile. Siting them elsewhere (like screwcaps in Australia and New Zealand rather than California) or adding some fertiliser to encourage the growth (as the screwcap-loving supermarkets did by supporting those closures in the UK) may sometimes be the only solution. What doesn't work is simply expecting people whom you know ought to buy into your argument, actually to do so because it's the right thing to do.

Ironically, Lambrecht's invention does not work on synthetic closures, nor for obvious reasons is it applicable to wines sealed with screwcaps or glass Vinoloks. So, its arrival on the scene actually makes the ecosystem even harder for anyone trying to promote those reliable closures, and easier for the undeniably inconsistent natural kind.

Learning from Majestic - A request for cash

I need a new battery for my MacBook Air laptop. Please would you send me a pound* to help to pay for it. I understand that the previous basis of our relationship was that I supply you with these words for free, but this is a one-off payment. Really. Honestly. And those of you who choose not to contribute won't be treated any differently from the ones who do. Any suggestion that non-contributors will be denied access to these posts is wholly unfounded.

Of course there is no absolute parallel between the paragraph above and Majestic Wine Warehouse's 'request' for a rebate of 4p from suppliers for every bottle they supply until April next year in order to help the chain to pay for a new warehouse. You, after all, dear reader, are not my supplier. You're my - albeit non-paying - customer. You can always find another - free - source of the kind of information I offer. Or you can choose to do without it altogether. As a supplier to a major UK retailer, you have less breadth of choice. 

The Tesco saga has lifted the lid on the routine way that businesses that one might have expected to be focused on buying and selling stuff profitably have now transmogrified into a very different kind of animal. If Majestic had said that, for a mandatory extra four or even five pence per bottle they would, for example, tweet about a supplier's wine x times per day, or feature it on digital signboards in their stores, there would be less argument. Despite the unwelcome nature of any retroactive request for cash, that, after all, might serve to boost sales and awareness of the brand.

Asking for cash to pay for the warehouse, however much it might help to improve the company's logistics, is a very different matter. As is the supposedly 'voluntary' nature of the contribution. If you were wearing the shoes of a supplier looking for a long term relationship with the chain, how long would you really spend considering a refusal of the request?

*I have discovered over the years that some of what I write is taken more seriously than I intend. So please note that I am not actually asking for financial contributions. But I wasn't lying when I said that my battery was dyi

Wednesday, October 29, 2014

Why the Tesco story is part of a bigger UK retailing picture

Following today's news that the Serious Fraud Office (SFO) is moving in on the Tesco £263m auditing 'black hole', I suspect that several people I know and like will be feeling quite apprehensive at the prospect of some serious official questioning. There is something in this story - from what has emerged so far - that's rather reminiscent of the scandal that surrounded the British parliamentary expenses system a few years ago. But the numbers are, of course, bigger this time. 

In both cases, a group of people knew at least part of what was going on - and knew that others in the loop knew - but no one was talking. In the Westminster scandal, members of parliament annually pocketed thousands of pounds to cover payments for which they were absolutely not eligible. This is precisely what Tesco is accused of doing: asking suppliers for money that should only have been payable if sales of their products had been greater than they actually were. In technical terms, the accusation is that the retailer was 'bringing forward rebates': or, as an accountant might say 'claiming profits that have not yet been made'. Which sounds to me rather like the classic Israeli military term, 'pre-emptive retaliation'. 

Getting sales projections wrong is not very difficult; quite the reverse. But at Tesco, it looks as though it was happening on an industrial scale, and over several years. Profits are believed to have been overstated by £118m in the first half of 2014, by £70m in the 2013-2014 financial year and by £75m prior to that. Given the limited number of suppliers big enough to make these kinds of payments and with whom supermarkets have close relationships, it is more than likely that the retailer will have made a number of visits to the same well. (Wine-focused readers should note that as I mentioned previously, it is very likely that wine suppliers will only have been contributing in the same way - and at relatively smaller levels - as much bigger companies such as Coca Cola, Unilever and Procter & Gamble).

The SFO investigation will take a long while: the numbers are big and the stakes high. But while the wheels grind small and slow, there are bound to be increasing discussions over the nature and desirability of the 'commercial income' that lies at the heart of this saga. Some readers of own little piece may have gained the impression that I prefer the German discounter model of net sales in which the payments only ever go from retailer to supplier and not vice versa.

Far from it. In fact, I entirely understand the logic of suppliers contributing to retailers financially in the context of a strategy to build sales - and ultimately profitability - of a brand. 
The Tesco Wine Fairs are a brilliant example of how this can work at its best, with thousands of consumers being introduced to new and unfamiliar products and potentially being turned not only into customers but also unpaid brand ambassadors. Tesco's extraordinarily widely distributed wine magazine is another useful role model for others to follow. Efforts like these should be at the heart of the Joint Business Plans (JBPs) about which so much has been heard.

The JBP sounds like a very good idea. What's not to like? Well, actually, as several respondents to the piece have made clear, rather a lot. First, it naturally favours the trend towards small numbers of big retailers trading with small numbers of big suppliers. A JBP makes no sense when applied to smaller producers and importers. As Angela Mount, former wine buyer at the now-closed UK retailer Somerfield said in a recent Harpers piece, she was almost obliged to work with companies with the "most lucrative promotional strategies and marketing money". Her employers told her to "Get the brands listed who are going to give us money..."

Second, even when signed between grown ups, a JBP can be a very unequal arrangement.
In theory, the plan is supposed to represent a strategy that suits both sides of the equation.The supplier agrees a price at which they are happy to sell their wine and the retailer calculates the retail prices that give them the margins they require. If all goes well, the wine sells at the predicted rate and price and everybody is delighted. If all goes very well, the supplier will be super-delighted to share some of his extra income with the retailer who facilitated it.

Unfortunately, all does not always go well. The retailer has the power to change those retail prices as and when they please. And for whatever reason. Obviously, this might be because of the wine enjoying a slower than planned rate of sale. On the other hand, it might actually be flying off the shelves, but this very popularity might lead the retailer to want to offer it to their customers as an attractive bargain.

Obviously, reducing the price reduces the retailer margin, allowing it to reclaim its lost profit from the supplier as a rebate. These are the kinds of occasions when Mount might have had to make an uncomfortable call: "I know we did that deal but I now need another £15,000 from you."

In other words, rather like the UK being fined by the EU for having the fastest-recovering economy in Europe, wine producers can be penalised by their customers for making a product consumers enjoy drinking and believe to be good value. Suppliers can of course walk away from the table when the play gets too rough, but the world is full of wine and plenty of companies ready to adapt their modus operandi to the UK model. Like a Victorian schoolboy who keeps a book ready to stick down the back of his trousers in case of a beating from the teacher, they hold a cash reserve with which to fund retailers' unexpected calls for cash.

The point to be stressed is that nothing I have just described necessarily fits into the remit of the SFO enquiry. In other words, as long as the retailer keeps its accounts correctly, it will be breaking no rules. Whether this is all a Good Thing is a matter of opinion.

Friday, October 24, 2014

Pontet Canet or Francois Hollande? Which do you respect?

Picture from the Independent

Francois Hollande is currently le Président de la République Française. He enjoys an approval rating of 13%. His illustrious title doesn't seem to be doing him much good. People are judging him by what they see.

The 2012 vintage of Les Hauts de Pontet, Château Pontet Canet's second label has just lost its AOC/AOP status. My guess is that the wine world will take the same view as French voters: their opinion of the wine and chateau will be unaffected by its supposed official status. Sensible buyers will pick up Les Hauts de Pontet in preference to a swathe of dull, often horribly brettanomyces-tainted Bordeaux that happily flaunt an officially sanctioned Appellation on their labels.

The belated creation of the Vin de France designation - which this wine will now proudly and unworriedly carry - was against the will of almost the entire French wine establishment. It was begrudgingly allowed in order to market basic, multi-regional plonk to stupid Anglo Saxons as a competitor to commercial wines from South-East Australia.

Today, as happened in Italy with the move towards Vino da Tavola in the 1980s, the designation is increasingly being adopted by quality-conscious producers who feel stifled by the  existing system.

Down the road from Pontet Canet, Chateaux La Lagune and Palmer have both recently launched high quality and well-received transgressive Rhône-Bordeaux blends with a Vin de France status. Those wines - and the 2012 Hauts de Pontet, will probably be enjoyed and remembered long after François Hollande has been more or less forgotten.


Tesco: the giant canary in the mine

'Commercial income' like 'collateral damage' is one of those attractively anodyne expressions that hides a decidedly unpleasant reality. In the UK, even some of the most sophisticated members of the business community have only just been introduced to this term that neatly covers all the cash that retailers extract from their suppliers rather than from the more expected source: their customers. 

In the US, where accounts have to reveal the origin of how businesses make their money, the credit rating agency Fitch suggests that almost all of retailers' profits - 8% of the cost of goods - now come directly from suppliers. The UK situation may be even more dramatic. If chartered accountant Duncan Smith of Moore Stephens Food Advisory Group's comments in this BBC piece are to be believed, the big four British supermarkets make £5bn in this way every year - more than their total combined pre-tax profits.

Although the reasons for doing so just now are glaringly obvious, it is far too easy to focus all of our attention on Tesco. Yes, from what we have read, there seems to be little question that Britain's biggest chain played fast and loose with the facts of if and when supplier contributions would be made, but if we set the timings aside, Tesco was far from the only attendee at this orgy. Waitrose, every middle class Brit's favourite shop (when they aren't slumming it at Lidl), also has a price list from which suppliers can choose how to make their contributions and so, apart from the pesky German discounters, does almost everybody else. 

The commercial income Tesco will have got from its Beer, Wine & Spirits department will have been significant, but readers of this article will probably somewhat overestimate the contribution derived from wine companies to the gaping hole in the retailer's projections. To provide some context, the total value of UK retail wine sales is only around twice the £2.8bn spent on cheese in 2014. However, when it comes to providing commercial income, wine will have significantly overperformed when compared to those dairy counters. Cheese is essentially unbranded; half of what we eat is cheddar of some kind, much of it sold under the retailer's own brand and bought from a small number of suppliers. So there aren't as many arms to twist. 

Wine companies in the UK have peculiarly twistable arms, given the relative impossibility of building substantial sales for a brand without passing through the shelves of the big retail chains that control around three quarters of the market. Volumes can be moved through the German discounters, but at low margins and usually under those discounters' own labels. By contrast, the more fragmented nature of the US market - and its size - allow producers who so desire, to sidestep the biggest chains altogether. 

And this is where the most important difference between the markets comes into play. In the US, wine companies have the potential to run their own marketing campaigns and to build and sustain the value of their brands. Under the UK system, they are hit with a double whammy: almost every penny of spare cash is sucked up by retailers who then regularly reduce perceived brand value by cyclical deep discounting. (Heavy price cuts are a feature of the US market too but they are less regular and predictable; when you see a product at a low price, you are more likely to grab it now for fear of never catching that bargain again). A very few, very strong, global brands such as Hardy's and Concha y Toro can buck this trend and run effective campaigns of their own, but they are the glaring exceptions to the rule.

The days when Masters of Wine travelled the world cleverly snapping up bargains wherever they found them are long gone. Today, every sale involves negotiators and quite possibly notorious Joint Business Plans which have much in common with the old days when teachers administering beatings straightfacedly told their unfortunate victims that "This will hurt me more than it hurts you". 

This may not have made the UK a particularly pleasant environment to work in - at least for suppliers who complain about having to deal with serial unexpected requests for additional cash - but, until recently, it seemed to work pretty well for anyone holding shares in the biggest chains. (And, let's face it, there are plenty of shareholders in other sectors who lose little sleep over the contributions supplier-abuse make to their dividends).

But the climate in Britain may really be changing. There are farmer-friendly parliamentarians who had a nibble at this issue a couple of years ago and seem ready to take a much deeper bite this time, and German role models who daily demonstrate that there is another way to play the retail game. A fresh parliamentary enquiry would have no reason to limit its interest to Tesco.

Quite how easy it would be for an entire national retail system to alter its diet, however, is another question...

Thursday, October 23, 2014

In praise of hobbyhorses

"Get off your hobbyhorse..."; "Stop banging on..."; "Can't you just change the subject..." 

Pity the people who had to spend time with William Wilberforce when he was going off on yet another of his tirades about why it was wrong to turn darker-skinned people into slaves. Or Emily Pankhurst's dinner companions as she launched into one of her speeches about why women ought to be allowed to vote. Or Thomas Parker or Wally Rippel as they... 

"Thomas Who?"; "Wally What?". 

Unlike Wilberforce and Pankhurst, to be fair, Parker and Rippel didn't propose a social revolution. All they wanted to do was get people to drive environmentally-friendly electric vehicles rather than fuel-guzzling, unsustainable petrol-driven ones. Which, I guess, is also revolutionary, but in a different way. Parker, who knew enough about electric locomotion to have introduced it for London's subway system, actually built a car with a rechargeable battery in 1884. Interestingly, one of his motivations for doing so was a dislike of pollution that also drove him to invent a form of smokeless fuel.

Thomas Parker's functioning 1884 electric car

A hundred years later, a team at General Motors led by Wally Rippel followed in Parker's footsteps and built a batch of electric cars that were well received by the people who were allowed to test them, but mysteriously killed off and destroyed

Poster for Chris Paine's 2006 movie about the
sabotaging of Wally Rippel & team's
GM EV1 functioning electric car.

As director Chris Paine illustrated in his 2006 movie.

Today, thanks largely to prompting from Silicon Valley investors who were unafraid of the traditional motor industry and petroleum industries, electric cars are finally taking off, but it has taken an unconscionably long time. Maybe a little more banging-on and hobby-horse riding might have speeded things up. 

Which is why I make no apology about getting on my hobby horse and banging on about the DISGRACEFUL fact that the wine industry unashamedly continues to sell wine for hundreds of pounds/euros/dollars per bottle in packaging that is acknowledged to be unreliable. And why I'll go on questioning madness such as the logic of banning the use of grape variety labelling on French wine labels. And challenging the logic of putting cheap wine in glass bottles...

If a few more people had been ready to join Wilberforce, Pankhurst, Parker et al in questioning the status quo, change might not only have happened more rapidly, but there maybe there'd have some rather more varied conversation at their dinner parties.


PS I've noticed that readers often take some of my analogies a little more literally than they were intended, so I'd like to stress that I'm not drawing any parallels between the efforts of the motor and oil industries to strangle electric cars and behaviour within the wine industry. 

Wednesday, October 22, 2014

Sex and wine

Original image to be found here

As I write this, somewhere in the world, millions of people are having sex. Making love. Shagging. Fucking. Having intercourse. Enjoying conjugal rights. (Interesting how many different terms we have for the same activity). Some are enjoying it a lot more than others - including the people with whom they're actually doing it. There are those for whom it's a routine activity and those for whom it's really, really special. Some have been persuaded into doing it against their will. 
Some are doing it out of boredom. Some are paying for it. Possibly with money; possibly in other ways. A proportion are exploring new partners, and techniques. This may prove to have been a good idea. Or a very bad one. Some wish they were doing it differently or with someone different. Some are enjoying it so much that they don't want to stop.

As I write this, somewhere in the world, millions of people are drinking wine. Uncorking a last bottle of a case of their father's favourite claret. Opening the tap of a new bag in box. Polishing off the plonk. Relishing Rioja. Adding a splash of Sprite into the St Emilion. Some are enjoying it a lot more than others  - including the people with whom they're actually doing it. There are those for whom it's a routine activity and those for whom it's really, really special. Some have been persuaded into doing it against their will. Some are doing it out of boredom. Some are paying for it. Possibly with money; possibly in other ways. A proportion are exploring new styles. This may prove to have been a good idea. Or a very bad one.  Some wish they were drinking something different or with a different person. Some are enjoying it so much that they don't want to stop.

I'm not offering any of the above as deep insight into the human condition. Merely as a corrective to far too many of the comments I read and hear about the way people drink wine, and about the essential importance of food-and-wine-matching or education or whatever. Drinking - wine or any other beverage - is a human activity. People do it in different ways and at different times and for different reasons. Simple as that. 

Monday, October 20, 2014

Crimea and Punishment

Ok, first things first. Crimea is legally part of Ukraine and Ukraine is not part of Russia. And, speaking as someone who has both just read Sebastian Haffner's Defying Hitler, a brilliant, blood-chilling contemporary account of the apparently inexorable rise of the Nazis in the 1930s, and had a number of very worrying illiberal conversations with Russians today, I think we really do live in frightening times. 

Vladimir Putin (a popularly elected leader, one should remember, just as Adolf Hitler was a member of a democratically elected government) is a truly dangerous character, especially when confronted by a fast reducing asset in the shape of his oil reserves and - for the moment at least - potentially highly damaging sanctions. The general economic and civil rights appeal for Russia's neighbours of leaning towards Europe rather than Moscow is convincingly described in this Forbes post by Vasil Jaiani.

But... as I discovered after talking to a fair few of them, there are plenty of Crimean winemakers who can see a lot of advantages to being part of Russia today rather than a European-focused Ukraine. 

Before waxing too lyrical about the prospects being part of the EU have to offer to producers in Eastern Europe, just look at the flood of premium Bulgarian, Hungarian and Romanian imports that have (not) made their way onto UK shelves for example. Conversely read this considered Academy of Wine Business report on Romania, a 2007 EU entrant, by Cheryl Nakata and Erin Antalis of the University of Illinois at Chicago. Membership of the EU has, the authors say, "provided funds for promoting Romanian wines abroad, and introduced regulations so more of the wines are safe to consume and exportable... and [ferreted out] questionable producers or practices". But they also talk of the remaining "negative image" of Romanian wine in Western Europe, this country’s chief export market. They quote a producer saying “…Romania is selling, like I said, a bad image... We are in the bottom of the list, we are from the edge—we and Bulgaria". For Nakata and Antalis, Romania's wine industry needs to "Enter into export markets where [it] has a positive to neutral country image, and move away from countries where it has a country of origin liability, notably Western Europe".

Most wine writers happily overlook the 'bad image' described by that producer. They fly into countries like Moldova, Georgia, Turkey, and Ukraine, accept some lavish hospitality, meet some charming producers and snap a few shots of the lovely landscape, taste a range of samples, say and write a few nice things, and move on, like movie critics heading off to the next screening. A week or two after their visit and the appearance of their words, the dust settles, much of it on stacks of unsold bottles. What few of the writers trouble their little heads over is the difficulties that the producers in these places have in finding consumers outside their own markets (and often even there) who are actually going to buy their bottles and pay their bills. (Just think of all the thousands of words that were devoted to Turkey's wines a few years ago - and their relatively rare appearances on the international shelves today.)

So, whatever your feelings about the politics of the Russia/Ukraine situation (and I've laid mine out above), maybe you should try wearing the shoes of a winemaker in Crimea. The mood of the producers I met at a tasting in Abrau Durso in Anapa, Russia this weekend was very similar to the one Andrew Jefford described in his March 2014 Decanter piece after his visit to the region.

Despite the quality of many of its wines, Ukraine has actually been a very difficult place to produce and sell wine economically. One major reason for this is the requirement to pay an annual €50,000 for a wholesale licence. Another is the lack of readiness of Ukrainians (unlike Russians) to pay premium prices. Add to these, the survival of a cumbersome state-owned sector and high levels of bureaucracy and corruption and it is not hard to see why Russian-speaking Crimean winemakers might see some appeal in being part of what was already their biggest export market. 

The dice have already been further loaded by the promise of substantial investment into the industry from Russia. Roughly half of Crimean wineries are probably already owned by Russians and both that country's wine producers' association and government have now declared an ambition to move towards 80% self-sufficiency in wine production. 

Ironically this keenness to welcome Crimea (and possibly other Ukrainian vineyards) into a greater Russian industry is not entirely welcome in Russia itself. At Grand Vostock, a good French-Russian joint venture started in 2003, director Elena Denisova openly questioned why the adopted children (the Crimean winemakers) would be getting better treatment than longer-established producers in undeniably Russian regions like Krasnodar. Ms Denisova also raised the question of how much 'Ukranian' wine is actually produced from grapes grown elsewhere (an interesting subject to raise in Russia which has its own traditions of this kind).

And then there are Russia's other neighbours, some of which currently rely on Russia for their sales. Georgia, while selling more bottles to Russia than ever since the reopening by Putin of the market to their wines, is sensibly making efforts to build other export markets (efforts with which - to declare an interest, I am beginning to help). But there is no denying the challenge this represents. Georgia's task, however, looks positively tiny when compared to Moldova's. This ancient wine region has great winemaking potential but today it's impoverished and struggling. Like Georgia, it has lived through a boycott of its wines and knows that if Vlad the Imposer gets out of bed on the wrong side, that door could slam closed again. 

As Jaiani says in his Forbes piece, it may well be preferable in many ways for Moldova to achieve its aim of becoming part of Europe, but I'll bet that there are a few winemakers in that country who might well be looking at the short term prospects enjoyed by their Crimean neighbours with at least a note of envy.

Thursday, October 16, 2014

The shrinking shelf, and what Dr Who has to teach the wine world

The famous Dr Who Tardis.

Most wine producers seem to imagine that retailers' shelves and store-rooms are miraculous places that resemble the Tardis in Dr Who. For those unfamiliar with this UK cult BBC TV series, the Tardis resembles an old British police box used by the eponymous hero to travel in time and space. Seen from the outside, it scarcely takes up a square metre of space. Once inside, there is room for the doctor and his companions not only to control the sophisticated craft, but also to host a fair-sized drinks party.

As Wikipedia helpfully explains "the term "TARDIS-like" has been used to describe anything that seems to be bigger on the inside than on the outside".

Unfortunately, the Tardis remains the creation of an imaginative TV scriptwriter and designer. Space, when it comes to police boxes or book or wine shelves is strictly finite. For a retailer to add an Albanian Aligoté or Zimbabwean Zibibbo - or simply a good French or Australian red - to their range, however delicious, some other well chosen wine will usually have to go. 

To be crude about it, anyone trying to sell a wine to a customer who's already in the business of selling the stuff, is a little like a man proposing marriage to a woman wearing a wedding ring. If she's not dissatisfied with what she's already got, you'd better have something pretty impressive to offer her.

But, in the UK at least, that picture is just getting even trickier. The object of your attention may be going off men altogether... Tesco is currently reportedly delisting 150 wines from its range - and continuing to look at ways of reducing the number of suppliers with whom it deals. Morrisons, its competitor is also, equally reportedly, experimenting with a range reduction from 550 to 350 lines in some of its stores. Even these levels of shrinkage would still leave an offering that's 10 or 20 times bigger than the range at Aldi and Lidl, neither of which seem to be doing badly with their 'small but perfectly formed' selections.

Obviously, the bigger UK retailers are not the only market in the world - far from it - and thankfully new wines and producers do make their way onto shelves, across the globe all the time. (We're happily finding new niches for le Grand Noir in all sorts of unexpected places). All I'm saying is that unless you really do have something that's genuinely different and/or appreciably better and/or more attractively-priced it's getting harder to squeeze into that Tardis with every year.