I went to a very interesting talk this week at Millesima wine merchants given by Johan Bruwer, a South African wine consultant who is currently head of the Wine Business Group at Adelaide University. The event was organised by Millesima and Ertus Consulting (and in fact the whole presentation can be seen on their website http://www.ertus.com/actualites.html ) and was attended by a variety of Bordeaux chateaux owners, negociants and marketing people - I spotted both Christophe Chateau and Pascal Loridon in the audience, both of whom work in marketing Bordeaux wines at the CIVB.
I’m not sure how much of the contents of the presentation were truly ground-breaking, but it was morbidly fascinating to hear the views of this clearly very talented marketing guy telling the Bordelais where they were going wrong, and what could be done to fix it – and then judging the mood of the room as he spoke. At one particularly painful moment he said, ‘The creation of appellations is all about ego, not about what consumers need.’ Perhaps true, but heresy to the Bordelais! However, as Bruwer said afterwards, ‘My job is not to be liked; it’s to tell them what they need to hear.’ Apparently 70% of all publications in wine research and wine business are out of Australia, and it is clear that they have put time, money and expertise into learning about what makes the wine consumer tick.
As I said, the whole presentation can be seen on Ertus’ website, but I will distill a few highlights here. One of the most important things Bruwer stressed was that the traditional wine supply chain is fatally flawed, and that marketers and producers need to stop the supply-orientated, production-orientated approach that has been paramount for so long. (‘And if you don't believe me,’ he said, ‘I see tough times ahead...’). Instead he was advocating a wine value chain that was consumer-driven – an approach long used by Australia (‘Australia may have many problems in its wine industry, but this is not one of them’). A lot of the figures we had heard before, but still important to give context to the talk: in 1988, the New World had 3.3% of world wine market share. Today 30.8%. In 1988, the Old World had 94.7% share, today it has 67.3%. ‘The message today is bitter. I understand that. You know this already, but it is hard to see it in black and white’.
For me, the most important thing about the talk was not what was said, but that it happened at all. Against the backdrop of the overheated prices of the 2009 campaign, at least some people in the industry were discussing what can be done to help the smaller wines, where the vast bulk of Bordeaux production lies. As one audience member pointed out ‘Bordeaux spends half of the year - at least from March to July - on the en primeur campaign, so focusing on, and effectively marketing for, the top 300 wines of the region. But all that does is shift focus away from the rest, that get forgotten about entirely.’
Among Bruwer's key points were:
1) Bordeaux is really a highly unusual place. It has a highly regulated, very complicated system with huge price variation between top and bottom that is confusing for consumers.
2) He spelt out a few things that were obvious, but perhaps needed to be spelt out, such as how to balance supply and demand. He looked at how Europe is responding to its vine pull programme, and how France compares badly with Spain and Italy. He pointed out that to date Spain has pulled up 3.94% of its vines, France 1.13% - and Bdx is about one third of france’s total. He doesn’t think this is enough. In terms of simplifying the offer for the consumer, he saw Italy as making clear progress - 470 DOCs are due become 182 PDO and PGI - so they are taking advantage of the new European regulations. He thinks France (and Bordeaux) should do more in a similar vein.
3) He acknowledged that the New World marketing success came partly because it needed to. Australia exports 62% of its wine. Chile even more so, meaning that neither country can afford to lose market share abroad, and are therefore very hungry to do well. He used an illustration of the Australia 2025 Marketing Plan (an old example, but I again wondered if this was new to the Bordelais?). In contrast, Bordeaux sells 68% of its wine in France, and exports 32% of it (and of the exported 56% is within the EU) – but the French market is dropping, so it needs to be far more aggressive in marketing itself abroad.
4) He gave concrete examples of the dangers of being too fractured: Hawke’s Bay is cutting itself up into five sub-regions. For him, as a marketer, that ‘is suicide’. Canada, equally, has split Niagara Peninsula into 12 different appellations. ‘Suicide – until the main brand is recognised, why throw more into the mix?’ Sonoma now in 13 different appellations. And Paso Robles wanted to subdivide into 11 appellations – but its request was turned down because it would confuse American consumers.
5) He saw Italy as putting up a better fight in the US market. France had 30.7% US market share in 1997, today has 9.2%. Italy has gone from 34.1% to 23.8% - comparatively far better. Big problem in 2003 with Iraq war of course, but saw that France didn’t fight hard enough to stay in there.
6) He pointed out that Germany, Belgium, and the UK are the top three Bordeaux wine export markets. ‘Are these optimal?? They are traditional, yes, but are they optimal?? Germany prices in off trade are terribly low and difficult to make any margin with. Average price per bottle is 1.88 euros! UK we know the margins in the off-trade are very tough, and the market is supremely competitive, so it is a tough market to make money from.’
7) He didn't see China as the answer. And can China save Bordeaux? ‘China growth 97% in past year for Bdx imports. Up 99% for reds, 57% for whites. But be careful. China wants to export wines. Their production costs are lower than any other country, and they mean business. They import around 18% of their wine, France has number 1 position there right now, but don’t bargain on that always going on, because their own industry is coming on stream very fast. Probably at least 400,000 acres of vines already, and they are planting very fast. They are not like the uk and Sweden etc, they will be a major producing country also. It has grown sevenfold in 14 years (959,527hl production in 2010). Their intention is to be a world power in wine. Perhaps real potential only for high end imported wines.’ He cited the example of Australia, that has seen big leap in volume of wine exported to China, but huge drop in average price.
8) Where he identitifed the ‘weak spots’ of Bordeaux: oversupply, high production costs, fragmentation, too few brands, tourism underdeveloped, non fashionable wine styles, packaging and marketing obsessed with chateaux (‘I know that some people will be angry with me now!!’), lack of collaboration, high price gaps, merchants not geared towards international game (‘I hope I’m not offending!!! Thinks they lack market analysis required for international game), low level marketing orientation, low education and training...
9) He did at least offer a few suggestions... suggested focusing heavily on wine tourism, on getting a better understanding of margins and going in at the right price to allow for discounting (ie not to just ignore that it is now a fact of life in the industry), and to make better use of cooperatives. He belives in regionality ‘but not too much of it’. He saw the value in the bigger village appellations (margaux etc) but not the smaller ones, and felt they should join together. This, as you can imagine, caused a big stir. Someone asked how that could work when Bordeaux is all about terroir, and he said (I paraphrase but this is what he meant I am certain) ‘To most consumers, just the name Bordeaux ‘is’ terroir, and so you don’t need to over-specialise and over-complicate – you are in fact not correctly exploiting the consumers’ belief in Bordeaux terroir by overcomplicating things.’
Hmmm, overall, there was plenty there to argue about, and I think a lot of it over-simplified the problems, but then short talks have to do that, and are intended to stimulate discussion.