wine sector - global sustaining and emerging trends - cl ... 1.1a/marketlands… · :: confidential...

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Global Sustaining & Emerging Trends

25.09.2008 Wine Domain

Critical Publics | EDOAO 18 See confidentiality restrictions on title page

Market landscape The market landscape outlines developments, spotted and emerging trends

that define the current situation in the global landscape. It focuses and zooms

into specific geographical territories and individual ventures to give a narrative

whole of a snapshot of the global market place.

Global Facts Monitor Climate Impact Watch: Word’s wine production

map redrawn as global warming takes its toll 1 2 3 4 5

6 7

A combination of global warming, better irrigation techniques and the global

expansion of viticulture skills mean that the new edition of The World

Atlas of Wine, the “bible” for oenophiles, has been adapted and

expanded to include countries with little or no previous connection

to vine growing.

The map of the world’s most renowned wine-producing areas has been

officially redrawn to include countries such as China, India, Georgia,

Canada, New Mexico and Belgium. Climate and market forecasts, and

studies of grape behaviour, suggest that during the next two generations, a

short time in wine terms, vintage Kent and Chinese or Canadian Chablis could

occupy as much supermarket shelf space as Bordeaux, Rioja and Napa’s

finest.

You are going to see people introduced to wines from weird countries like

Belgium. You will see a lot more wine from Germany, which can finally ripen

its grapes... and good Canadian reds 8

In addition to creating new wine regions, the warming trend is changing

established ones. In France’s southern Languedoc, where winemaking dates

to the fifth century B.C., the government relaxed once-sacred rules

irrigating vines to allow producers to slake the vines’ thirst. In many

1 The Sunday Telegraph: China takes its place in wine world atlas – 14.10.07 2 Indo-Asian News: Climate change to affect geography of Britain's wine industry – 26.05.08 3 The Press Association: Climate Change Could Extend Wine Production Northwards – 26.05.08 4 The Associated Press: Wine-friendly zones to shift towards poles – 27.05.08 5 The Sunday Telegraph: China takes its place in wine world atlas – 14.10.07 6 Gregory Jones, Whitman College: Climate Change: Observations, Projections, and General Implications for Viticulture and Wine Production – Spring 2007 7 Hall, Michael C. and Mitchell, Richard: Wine Marketing: A Practical Guide - Oxford: Butterworth-Heinemann, 2008 8 Jancis Robinson, wine expert and co-author of the latest edition of the “World Atlas of Wine.”

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vineyard areas of inland and southern Spain, viticulture could soon be

unsustainable without irrigation, while growers in the United States are

experimenting with genetically modified heat-resistant grapes.

To keep their vines cool, Argentine producers are planting them closer

to the Andean slopes and in Patagonia. In South Africa, winemakers

have moved sauvignon blanc vines to higher altitudes and sought patches

open to cooling sea breezes. In Ay, where producers such as Moet & Chandon

and Veuve Clicquot nurture precious plots, harvesters hit the fields in late

August last year, the earliest since 1822, according to the Champagne

Growers’ Committee, which sets harvest dates.

In arid Australia, winemakers who have long depended on irrigation have

been parched by the country’s worst drought in a century. But water is a

concern to all vintners, large and small. Climate scientists say global

warming has brought heavier than usual rain to some regions, which

leads to more fungus outbreaks and attracts new pests. A recent Italian study

suggested increased intense rains are a threat to Tuscan wine quality.

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Climate changes will allow new areas, including Britain’s Yorkshire

and Lancashire, to grow vines for wines like Merlot and Cabernet

Sauvignon - currently cultivated in the south of France and Chile.

Traditionally, English wineries planted German varieties, but they are now

moving toward varieties familiar in France, such as Bacchus, chardonnay and

pinot noir.

In fact, if temperatures continue to rise, the Thames valley, parts of

Hampshire and the Severn valley in England, home to many vineyards, will be

too hot to handle wine output within the next 75 years. By 2080 cool and

intermediate grape varieties will be confined to the far north of England,

Scotland and Wales. 9 That is because by 2050 the world’s premier wine-

friendly zones could shift as much as 290 kilometres toward the

poles10. In theory, that will make northern Europe or New Zealand

more grape-friendly than Bordeaux or Australian valleys.

Almost anywhere in the world that you think doesn't make wine, does now 11

Jancis Robinson and Hugh Johnson, the two experts who wrote the sixth

edition of the atlas, said Thailand, Vietnam, Bolivia, Ecuador, Kenya, Namibia

and Sri Lanka all now produce drinkable wines. China, too, may benefit. After

a 60% expansion over five years, it now has more vineyard acreage than the

United States.

Also, milder climates are producing more consistent quality in wines,

as in the Caucasus Mountains of the former Soviet republic of Georgia. And

Russian researchers think valleys in southwest Siberia could sustain

marketable wine grapes. Robinson said these pressures may even prompt

European governments to, heretical as it may sound, expand or 9 Richard Selley of Imperial College, author 10 Gregory Jones of Southern Oregon University, climate geographer 11 Simon Farr, the deputy chairman and wine strategist of Bibendum Wine in London

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adjust the strictly controlled regions where certain wines can be

produced. French officials are already studying ways to expand “champagne

country” to keep up with growing demand, and are focusing on north-facing

land with an eye to future warming.

Concern over climate change has already led to new investment

strategies by wine companies in an effort to minimize the

environmental threat to their wine portfolio. French champagne houses

have been investigating the potential of sparkling wine in southern England,

an area with similar chalk deposits to that of the Champagne region, while

Spanish producers have also sought to diversify their vineyard holdings as a

result of environmental pressure on their existing holdings. For example, the

chief of one of Spain’s largest wine producers, the Torres company, wrote in a

2005 company memo that heat and drought and the process of climate

change required a ‘move towards the north, closer to the Pyrenees, to acquire

new land.’

Economic Impact Watch: Inflation, credit crunch

and wine duties hit the cellar 12 13 14 15

The current global financial situation has inevitably affected the

global wine market mainly due to the strong euro, short harvests in

France, northern Italy and Australia and increase in wine duties in the UK

The strong euro especially, which makes European wines more

expensive for British and American consumers, is also affecting the

lower end of the market. Particularly in the UK, the Chancellor has

exacerbated the problem by introducing a 14 pence rise in wine duty in the

country’s budget three months ago. Including Value Added Tax, the

Government now takes £1.72 (EURO 2.2) in tax on every bottle of wine. That

means that in Britain alone the cost of a bottle of wine is expected to

increase by 10%.16 17

Over the course of the year, we will see prices rising by around 10% unless

we see the pound strengthening again but I’m not forecasting that 18

12 The Times: Inflation seeps into cellar as Majestic says price of wine will have to go up – 17.06.08 13 The Daily Express: Majestic's wine warning – 17.06.08 14 The Wall Street Journal: Wine Tastings: Inflation Hits the Bottle – 01.08.08 15 The Daily Telegraph: Drinkers face 10pc rise in price of wine – 28.01.08 16 According to Steve Lewis, Majestic Wine COO 17 The Daily Express: Majestic's wine warning – 17.06.08 18 Tim How, Majestic Wine’s CEO

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This is also reflected in the retailers’ growth which according to financial

analysts is fundamentally based primarily through price rises rather than any

volume growth.19

Sales of cheap French wines are falling sharply worldwide as cash-

strapped British and American consumers feel the pinch of the credit

crunch. 20 Producers of cheap French wines exported less wine in the first

half of this year compared to the same period in 2007. Export volumes fell by

8.7% in the six months to June as consumers say no to the much loved

dinner time glass of red 21.

However, the value of French wine sent overseas increased by 8.2% showing

that consumer demand for French wine is now focused towards the

higher end of the market as lower-quality European wines struggle to

compete against exports from Australia, New Zealand, Chile and the United

States. Continuing to sell well is the popular Bordeaux of 2005 while the

biggest wines to suffer were France's vins de table and vins de pays, and

bottles from the famous Champagne region which endured a drop in volume

of 4.2%.

In Australia, wine exports have slumped 11%, with the industry taking a hit

from the drought and the high Australian dollar22. The dollar’s influence on

exports to the United States has noticeably affected sales. Wine exports

19 According to Sanjay Vidyarthi, retail analyst for Dresdner Kleinwort 20 The Daily Telegraph: French wine sales plummet in credit crunch – 28.08.08 21 French Export Development Agency: Relevant report 22 Australian Wine and Brandy Corporation

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declined 12% to 702 million litres and value fell 11% to EURO 1.5 billion – the

first time either had shrunk since 1995. The average price increased by 1% to

EURO 2.1 a litre, its first growth in seven years. The growth of Australia’s

wine exports has slowed to the lowest level in nine years.

Counter-trend: Some New World wines may get a boost

Such developments may prompt consumers to further opt for wine

from New Zealand or Chile, since harvest was very good there this year

and thus avoiding some of the price rise.

In the US, for example, the weak dollar continues to pressure imported wine

pricing and sales. Italian, Australian and French imports are declining, but

Chilean, Spanish, New Zealand, Argentinean and South African imports have

seen increased sales.

Wine Export Watch: Italy overtakes France and

Spain is also en route 23 24 25 26 27 28

Italy moved into first place, fractionally, a few thousand hectoliters,

ahead of France, the traditional leader. While Spain has adapted to the

new trends, France now looks set to fall behind 29

Screw tops, boxed wines, colourful easy-to-understand labels and

sophisticated marketing, innovations pioneered by countries like Australia and

South Africa have helped global competitors elbow in on France’s market

share.

23 Wines & Vines: World Wine Trade Continues To Grow – 12.09.06 24 The Associated Press: France risks losing wine production crown to Spain – 09.07.08 25 Reuters: Italy heads for bigger wine harvest - farmers – 22.07.08 26 The Wall Street Journal: Raiders of the lost vine revive long-forgotten grapes – 04.07.08 27 Dow Jones: France set to cede top spot in world wine production to Spain by 2015 – 09.07.08 28 The Associated Press: France risks losing wine production crown to Spain – 09.07.08 29 Credoc: Study by the research group, for the Vignerons Independants Winemakers Association.

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Italy’s wine harvest should rise 10% this year as Europe’s second largest

producer rebounds from the smallest crop in 30 years. Under the current

trend France will fall behind Spain in 2015 as wine production drops to

43.9 million hectolitres from the 2000-2004 annual average of 52.8 million

hectolitres

In value, France earned twice as much as Italy, but its high, often

uncompetitive prices caused French exports to drop 9%. Along with

Argentina, which had tight inventory problems after a record export year in

2003, France was the only major country to show a decline. Nearly all the

others, including the United States, showed substantial gains.

China and India are also developing their own wine industries, but rising

demand from local consumers means either country is expected to become a

big exporter soon. Production in Brazil is also increasing and the country could

soon become a wine force to be reckoned with.

The true wines of the new world are the wines of China or India30

Wine Import Watch: Germany and the UK remain

the world’s top wine importers whereas China

reigns over wine volume import

Together, Germany and the UK account for more than one-third of

all world imports

On the import side, the two leaders were separated by only a few thousand

hectoliters, after big gains by the United Kingdom. Germany’s cool climate

severely limits red wine production, and hardly any grapes grow in the rainy

UK. Germany is a vital import market for wine with Italy, France and

30 Robert Beynat, director of Vinexpo Asia.

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Spain as the top three suppliers to Germany accounting for

approximately 80% of the market share of wine imports. Australia continues

its inexorable rise as the UK's leading supplier, having overtaken France in

2005 to reach a market share of 23% in 2007. Overall, the New World

countries have more than 50% of the UK market, from a minor position 20

years ago.

Mainland China will be the key driving force for Asia’s growth as it is the

biggest importer in volume31. The country's economic growth over the

last 25 years has been matched by an increased demand for wine.

The country is estimated to import 870 million dollars worth of wine by 2017

and Hong Kong will be well placed to take advantage of the Chinese growth

after the government scrapped duties on wine and beer. 32 33 34

The other big gainer was Russia, continuing a trend. Between 2000 and

2004, Russian imports tripled. Most of Moldova’s shipments went to

Russia, which also buys heavily in Eastern Europe. Russia is expected to be

one of the fastest growing markets for still light grape wine in absolute

volume terms over the next five years.35

The United States increased imports only modestly.

Wine Consumption Watch: Stagnant stability

World consumption of wine was roughly unchanged at 240.6 million

hectolitres

On the basis of world consumption trends since 1995, world wine

consumption is expected to continue to increase. However, this increase will

not keep up with the rate of estimated population growth and therefore

world wine consumption per capita will continue to fall.36

31 Trade and Development Council (TDC) 32 AFP: Asia's wine market to grow 10-20 percent in next 5 years – 11.03.08 33 Xinhua: China's import of wine in May 2008 – 31.07.08 34 Just-Drinks: Wine sales set for strong growth in Russia and China – 01.02.08 35 Euromonitor 36 Hall, Michael C. and Mitchell, Richard: Wine Marketing: A Practical Guide - Oxford: Butterworth-Heinemann, 2008

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Global wine consumption in volume (millions of hectolitres) - Source: Vinexpo

Americans are consuming more wine than Italians and in 2015, the USA is

estimated to be the world’s largest wine consumer, buying 32.9 million

hectolitres, ahead of France’s 25.7 million hectolitres and Italy’s 23 million

hectolitres.

If wine continues to grow at these levels, the U.S. will surpass both Italy and

France to become both the largest wine market and biggest wine importer in

the world by the end of the decade 37

Britain is moving up the chart, with an expected consumption of 13.47 million

hectolitres in 2015. The new world wine countries are also drinking more,

while consumption of 26.5 million hectolitres in the United States last year

easily outstripped the 20 million hectolitres it produced.

We welcome new production countries but we especially need new consumer

countries 38

Germany is the fourth largest wine market in the world but still lags far

behind countries such as Italy and France, where per capita consumption is 37 Eric Schmidt, manager of information services for the Beverage Information Group based in Norwalk, Connecticut 38 Federico Castellucci, OIV Secretary-General

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double the German figure at around 50 and 60 litres, respectively. However,

Germany is the largest market in the world for sparkling wine, with

per capita consumption of just above four litres. Sekt (German sparkling wine)

is a luxury in Germany that everybody can afford, in contrast to most other

countries, where sparkling wine is a luxury for special occasions and

celebrations.

Wine Production Watch: Concerning fall 39 40

Worldwide wine production is falling as vines are destroyed either

deliberately or by drought

About 266.7 million hectolitres of wine was produced in 2007, 6.9% less than

in the previous year41. The sharpest production decline has been in

Europe, where the European Commission wants sweeping changes to wine

policy, including cash incentives for producers to dig up their vines, to tackle

the European Union’s wine surplus.

Europe’s five leading wine exporters, Germany, France, Italy, Portugal and

Spain, have seen their share of world trade slip to 61.8% in 2007, from an

average 78.8% in the late 1980s. The share of the world wine trade taken by

southern hemisphere producers Argentina, Chile, South Africa, Australia and

New Zealand - climbed to 28% in 2007 from 3.1% in 1986-1990.

Wine Trade Watch: Off-trade dominates wine sales

by volume 42

The off-trade is clearly the more important channel of distribution

for global wine sales in volume terms, accounting for over 70% of

sales in 2005.

In value terms, however, the on-trade enjoys a slight advantage, with a share

of over 56%. The greater mark-up on wine sold through bars and restaurants

compared to off-trade outlets accounts for this discrepancy.

Global wine sales through off-trade outlets experienced volume

growth of 6% over the period 2000 - 2005. A key factor in growth was

the strong progress of developing markets in Eastern Europe and Asia-Pacific,

and steady expansion in the large North American market. In value terms,

39 Reuters: World wine body says production falling – 26.03.08 40 Reuters: World wine body says production falling – 26.03.08 41 The International Organisation of Vine and Wine (OIV) 42 Euromonitor International: Corporate Summary: World Wine Distribution, February 2007

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off-trade wine sales produced a rise of 40% since 2001 mainly attributed to

consumers preferring better quality and/or more expensive wine.

On-trade wine sales also registered an increase of 6% in volume

terms over the review period, driven by favourable publicity surrounding

wine's purported health benefits, its sophisticated image, manufacturers and

retailers' increasing promotional activity and growing numbers of young,

financially independent women eating and drinking out. In value terms, on-

trade wine sales displayed a value growth of just under 6%.

Supermarkets/hypermarkets increased their share of off-trade

global volume sales in all regions in 2005, as consumers' accelerated

lifestyles encouraged them to prioritise convenience in their shopping

patterns. Independent food stores remained the leading retail channel for

wine in Eastern Europe in 2005, while in Latin America, this format comes a

close second to supermarkets/hypermarkets. In the major Russian market

independent food stores held a leading share of 42% of off-trade wine

volume sales in 2005.

The convenience stores channel increased its share of wine volume

sales in most regions in 2005, with the strongest gain coming in Asia-

Pacific, and losses in Eastern Europe, Africa and the Middle East.

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In 2005, discounters saw their share of wine volume sales improve

in all regional markets, with the notable exception of Australasia, where

they have failed to become established. Gains in Western Europe and

North America derived from consumer demand for bargain-priced

products in markets where the average prices of wines are relatively high.

In 2005, specialist outlets held their highest volume shares of wine in

Australasia (over 88%) and North America (over 32%). However, the

specialist channel, in the face of competition from supermarkets, discounters

and convenience stores, saw its share of volume sales decline in all regions in

2005, except Eastern Europe, North America, and Latin America, where its

share remained unchanged from 2004. The key to specialist growth in the

region over the review period was the increasing sophistication of Eastern

European wine consumers.

Wine importers in major markets such as Russia and Poland are

increasingly opening their own retail outlets in an attempt to

increase the consumer perception of wine quality. In Russia, the

chained specialist, Aromatny Mir, is a driving force of this type of distribution

and contributed largely to specialist sales growth. Wine specialists are playing

an important role in bringing New World wine imports to the Russian market.

Direct sales suffer despite popularity of wine clubs in smaller

markets. Internet sales still account for only a small proportion of

direct sales in most regions, although Eastern Europe shows increasing

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promise as a market for Internet sales. In Poland, for example, a number of

New World wine importers, such as Wine Express, offer wines on-line from

Australia and New Zealand, and Wineria, specialising in wines from Chile.

Such Internet "shops" hold the advantage of prices that are up to 40% lower

than those in specialist outlets and supermarkets. However, sales growth is

expected to continue to be slow due to consumer reticence about purchasing

products on-line.

Lifestyle trends Healthy lifestyle adoption dominates the global

consumer nation 43 44 45 46 47 48 49

A notable sustaining trend predicted for the coming year and beyond

in the wine market is the increasing influence health concerns are

likely to have over wine-buying habits.

The issue of healthy lifestyles will be one of the most significant

marketing tools at the wine industry’s disposal in 2008 as the health

benefits of moderate wine consumption will continue to grow as an important

selling feature especially as population ages in developed countries.

Low-alcohol, organic, biodynamic wines and those containing extra

antioxidants are expected to continue to add interest and potentially

create new consumer bases. People are also eating more fish and chicken

as part of a healthier lifestyle, and this has changed the wine market from

one that drank primarily red wines to one that drinks more Chardonnay.

43 International Herlad Tribune: More companies will start touting how "green" their wines are – 22.09.05 44 NBC: 13.11.07 45 Just-Drinks: Wine sales set for strong growth in Russia and China – 01.02.08 46 Hall, Michael C. and Mitchell, Richard: Wine Marketing: A Practical Guide - Oxford: Butterworth-Heinemann, 2008 47 Epoch Times: Slow Food Nation Tackles Fast-food Appetite – 26.08.08 48 Slow Food USA: Slow Food movement encourages buying local, dining together – 21.08.08 49 (WM&S, p. 59)

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Sub-trend: The “French Paradox” increasingly

gaining space within “The Mediterranean Diet” and

“The Slow Food Movement ”

Awareness of the health benefits of drinking wine in moderation,

which is sometimes referred to as the ‘French Paradox,’ has had

considerable influence on wine drinking habits as well as the place of wine

within a healthy lifestyle, particularly one that is described as a

“Mediterranean diet” or lifestyle.

Green consciousness and ecological concerns

The green movement in wine has been expected to continue to grow in 2008

Organic and biodynamic farming is good for the environment, as it eschews

harmful pesticides and herbicides. Committing to “green” viticultural

techniques is a long-term investment of time and money. It’s not something

that is done as just a trend. It is argued that it results in better wine

aromatics and flavor character and thus better wine. Finally, concern over

GHG (Greenhouse gases) may have an affect on the behaviour of

wine consumers.

Slow Food Movement proliferates

One further trend that is having a potentially positive impact on

wine consumption is the Slow Food Movement, yet it is yet to be seen

whether it boosts domestic or imported wine consumption.

The Slow Food Movement encourages people to spend more time enjoying

the meals they eat and to eat locally grown foods. It was started by Carlo

Petrini in 1986 who protested fast food chains pushing out small family

restaurants in Rome. The organization, which is booming in Europe sees itself

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as an alternative to fast and industrialized processed food and supports eco-

friendly food, humane and socially just practices.

The Slow Food movement has also an American counterpart. Slow

Food Nation, the largest celebration of sustainable, local and artisanal food

ever attempted in the USA will take place in San Francisco, a city that has

long been known for some unusual events. And the event location, just

outside the City Hall, where the lawn was ripped up and dug out to make

place for an edible, organic garden is no different.

Slow Food Nation will catalyze a huge shift in how Americans perceive and

prioritize food50

Slow Food Nation’s four-day food festival and political convention is meant to

underscore the connection between the plate and the planet and that a

change in the current industrialized food system is about to shift the tide

against America’s cheeseburger and French fries fast food culture.

Participants will savour organic food and wine from throughout the

nation at a 50,000 square foot pavilion; meet farmers and producers at

a marketplace surrounding the 10,000 square food newly-planted vegetable

garden; and learn from visionary speakers about a more sustainable food

50 Anya Fernald, executive director of Slow Food Nation

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system, organizers say is capable of altering the appetite of the average

American.

Organic wines ride global healthy lifestyle adoption

and green mega-trends 51 52 53 54 55

The growing trend for health and wellness along with the cultivating

awareness of consumers about ethical products has increased

demand for organic wines.

Organic products have generally taken off in recent years in the food

market due to health scares and increased consumer health

awareness. This trend also influenced the wine sector, and there are more

organic wines available. According to industry consensus there is potential in

the market for organic wines as consumers become more interested in health

issues.

Recent scientific research validates the claims about the benefits of

organic wine to the environment. According to the research, Valentina

Niccolucci and colleagues from the University of Siena, Italy, measured the

resources used to grow, package and distribute wine made from Sangiovese

grapes at two farms in Tuscany 30 kilometres apart. The organic farm used

only natural fertilizers and pesticides, and most operations were done by

hand, while the other used conventional methods of production.

The team worked out the resources needed to support the making of

each wine - its "eco-footprint". A bottle from the organic farm had an

eco-footprint of 7.17 square meters, half that of the non-organic wine with a

footprint of 13.98 square meters. This is because the mechanized production

used more land and non-recycled glass. Though it's not clear that organic

food is always eco-friendly, the team said that wine producers could shift to

organic systems to reduce their overall ecological impact. An organic winery

51 Esmerk Swedish News: Sweden: Systembolaget's organic sales up by 71% - 26.03.08 52 Esmerk Norwegian News : Norway: Organic wine sales increased by 60% in H1 - 24.09.07 53 CTK Business News: Czech organic vineyards area increases almost by half in Q1 – 08.04.08 54 Asian News: Organic wine is twice as good for the planet – 02.09.08 55 El Paso Times: Eco-friendly wineries yield tasty results – 17.09.08

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or vineyard generally uses no pesticides or toxic fertilizers in the vineyard, no

artificial yeasts, and basically no added sulphites or other chemicals in the

winemaking process.

Twenty years ago, organic wines did not hold a good position in the

market. Nowadays, wine from organically grown grapes are on an

upward quality trend. The public has forgotten the stigma previously

associated with organic wines, and actively seeks out "green wines."

Many vineyards are turning their production to organic wines following the

trend, while sales are soaring in some countries. In 2007, Swedish alcohol

retail monopoly Systembolaget increased its sales of organic products by

71% to more than 4mn litres. Organic products accounted for just over

1% of Systembolaget's total sales, up from 0.6% in 2006. In value, the sales

of organic products increased by EUR 11.24mn. Red and white wine account

for more than 60% of Systembolaget's sales of organic products; red wine

alone for more than 50%.

Approximately 2% of the German wine production is organic. This special

niche is expected to grow steadily over the near future. In Norway organic

wine sales rose by more than 60% in the first six months of 2007. The

demand is highest among young consumers. In Czech Republic, the

number of organic wine producers is growing, as is the area of vineyards that

do not use chemical spraying. In the first three months of this year, the area

of organic vineyards increased by 44% to 353 hectares, while it is expected to

rise to almost 1,000 hectares within 2009.

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Certification of organic products is becoming a necessity, in order to drive

sales growth. A series of different provincial certifying bodies have made the

certification procedure quite complex in Canada forcing the Canadian Food

Inspection Agency to develop a new label for organic wines that will

appear on bottles that cross provincial or international borders. The

logo - a maple leaf rising behind a field with the words "biologique Canada

organic" - will be phased in until 14 December 2008, when it becomes

mandatory. The label is considered to enhance the sales on the international

market 56

Sub-trend: Biodynamic farming may bring the best

alternative in the organic frenzy continuum 57 58

The biodynamic farming movement during the past years has been

considered among the most popular alternative farming practices

and has a steady number of farmers that follow the particular techniques.

Although biodynamics and organics fall into the same general category of

alternative farming practices, the two are distinct. A small but growing

number of winemakers are going "biodynamic." They refuse to use pesticides

to help grow their grapes. More recently, there have been statements about

vineyards being certified as biodynamic, a cousin to organic farming that

emphasizes the influence of cosmic forces and involves the use of specific

"preparations" in the vineyard. The main principles of biodynamic farming

were laid down by Austrian philosopher and mathematician Rudolph Steiner in

the 1920s.

56 Calgary Herald: Certified organic wine to receive new label – 02.09.07 57 Agence France Presse: Biodynamic wines join big league of bottle-tasting – 08.04.07 58 The Journal: Organic wine-making moves on to a new level – 20.06.08

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As with organic farming, biodynamics forbids use of chemical fertilisers

and weed killers, but it goes further in terms of philosophy, arguing

that the entire vineyard is a living system influenced by various

factors, notably the moon. Adherents believe that by using special plant

and animal preparations, in tiny amounts, at certain times of the moon's

cycle, they can activate the soil and root system of the plant, which then

produces better fruit.

Pierre Frick is one of the pioneers of biodynamic viticulture in France. He is

keen to reduce sulphur levels in his wines to zero (sulphur is normally added

as an antioxidant and to kill unwanted bacteria). It is risky, but the results

appeared to be better, with wines generally fruitier than usual if

sometimes a little less aromatic.

Some wines grown biodynamicaly, are deliberately oxidised and do not appeal

to everyone. It is thought though that biodynamic viticulture is the

most effective way to cope with the extremes of weather seen over

the last few years as a result of climate change.

Preparations, which are known by numbers, include 501, which is quartz-

based and used in doses of four grammes per hectare to improve leaf growth

and fruit bearing. Another, preparation 500, is made of cow manure,

fermented in a cow horn and buried in the ground for one winter. It is diluted

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and sprayed in the vineyard to activate soil and roots. The future of top

wines, supporters believe, is in the terroir - the particular soil and climate

conditions associated with each parcel of vines.

Currently in France about 150 vineyards, of a total of more than

100,000, have been certified as biodynamic by the two main

certifying bodies, Demeter and Biodyvin. Of these about 20 are in

Bordeaux.

Counter trend: Organic wine market yet to prove

its growth prospects 59

The organic food market continues to grow at a phenomenal rate

and environmental issues are increasingly important to consumers.

However, this trend has not been so evident in the organic wine

market.

Attitudes towards organic wine do not change behaviour60. Although

consumers argue that they prefer organic wine, only a small

minority back up their preference by actually buying it.

Previous studies on the organic market showed that the greatest

barrier to the purchasing of organic products was price. However the

research found that consumers who did choose organic wines would only pay

up to $5 (EURO 3,5) more for a bottle. Producers who charged a higher

premium to cover their costs risked pricing themselves out of the market. The

study also found that only 14% of wine consumers preferred to buy

organic wines more than conventional wines. The research concluded

that successful organic wineries were capitalising on this small niche market.

Wine leaning towards luxury

Sales of luxury goods generally are holding up well, while there is a

world-wide increase in attention to top wines as they have become

accoutrements of the global elite, along with sports cars and silk scarves

While more and more moneyed people all over the globe, especially in Asia,

are interested in famous names, the production is fairly constant so there are

supply and demand issues. The greatest wines of France commanded

record prices in the 2005 vintage while 18 million litres of less-prized

Bordeaux wine was distilled into ethanol because it could not be sold. In

59 The Advertiser: We `prefer' organic wine but don't buy it – 20.05.08 60 University of South Australia's School of Marketing

:: CONFIDENTIAL ::




addition, there is an increasing amount of speculation in these wines as more

and more merchants insist that these will be the next great investment.

For the price of a single bottle of the just-released 2005 Chateau Latour, you

could buy about 170 shares of General Motors stock

Finally, 12 characteristics which describe wine were rated on a five point

desirability scale to examine the characteristics of wine that impact a

consumer's purchase decision. Characteristics concerning quality, price,

image, and use of wine were rated. Three attributes were more important to

the generation X consumer: premium quality, relaxing, prestigious

brand, and sleek label. The non-generation X consumers indicated that

healthy was a more important attribute of wine to them.

Sub-trend: Champagne registers unprecedented

soaring demand 61 62 63

Wine drinkers chose sparkling wines in record numbers in December

2007, with Champagne up about 12% and Prosecco also outperforming its

bubbly peers.

French authorities expanded the region in which wine growers are

allowed to make Champagne as the area struggles to cope with

soaring international demand. With annual sales growing in the past year

to EURO 8.8 billion, officials have decided to amend a law, which has not

been changed since 1927.

The area of the champagne appellation which contained 319 communes

covering 33,500 hectares will now include 357 communes 64

61 The Daily Telegraph: Wine's most exclusive club expands – 03.03.08 62 The Times: Champagne region expanded to meet world demand – 14.03.08 63 Financial Times: Majestic warns wine prices are poised to rise – 04.01.08 64 Yves Benard, the head of wine names in the Institut National des Appellations d'Origine (INAO)

:: CONFIDENTIAL ::




The increasing wealth and a growing taste for luxury goods in

countries not traditionally associated with champagne consumption

has boosted export demand. Sales of Champagne in India soared 129% in

2006, while China bought 50% more, and Russia 39% more. About 150

million bottles were sold in 190 countries last year and 188 million bottles

were drunk in France. After France, the British were the biggest consumers,

drinking 39 million bottles.

With a volume of 900 million glasses on 2007 Americans also present a

growing interest about champagne and sparkling wine. The holidays can

account for up to 40% of a maker's annual sales. 65

Sub-trend: Wine collecting and investing; an

upmarket hobby that catches up 66 67

Investments in fine wine have become a significant factor in

increasing its price relative to other wine in the last 20 years

Art, and other collectables such as classic cars, wine and even toys can have

a role in the investment portfolio. Like more financially-grounded assets such

as hedge funds and property, they can count as alternatives to mainstream

stock market investment, because they help diversify risk. The quality of

the harvest in the vineyards of Burgundy is unlikely to show much

correlation to the state of the bond market. Enjoyment plays an

important role in another prestigious alternative asset: premium wines.

65 USA Today: Consumers bubbly about champagne ; Sales grow as people develop a taste for and get to know sparkling wine – 24.12.07 66 Hall, Michael C. and Mitchell, Richard: Wine Marketing: A Practical Guide - Oxford: Butterworth-Heinemann, 2008 67 Financial Times: New alternatives: Wine helps your balance – 14.12.07

:: CONFIDENTIAL ::




The Liv-ex 100 Index was up 47.5% to the end of November 2007 and the

Liv-ex 500 up 27.5% although between 1996 and 2006 price had generally

been quite flat having done only marginally better than inflation.

Société Générale private bank offers an "Ultimate Wine Fund" to its

customers in Asia. Investors need at least $300,000 (EURO 207,000) to buy

shares in the fund. The money is used to buy a range of wines likely to

appreciate in value. An investment committee listens to recommendations

from wine experts and auction houses. Among purchases, they usually include

vintages from Bordeaux, Burgundy and other famous regions in France. The

fund appeals to knowledgeable customers as well as people who are new to

fine wines.

It's exactly the same as a discretionary portfolio. We select the wine for them.

We store it for them in Bordeaux. When they want it to drink it, a special

courier will deliver it. There will even be dust on the bottle.68

Investors do not have to redeem their shares for actual bottles of wine.

Instead, a wine broker will resell at a profit or loss. Unlike paintings, properly

cellared vintages are relatively commoditized (although the experts may not

like the term) and so are easy to sell.

68 Pierre Baer, chief executive of SG Private Banking for Asia Pacific

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Women drive global wine consumption 69 70

Women will continue to become even more significant as the drivers

behind wine brand choice and as consumers of wine.

Across the world, drinking alcohol has always been a predominantly male

activity. Contrary to wine's male image, in which men score vintages and then

hoard them in cellars, women buy 77% and consume 60% of the wine

in the United States. The gap has also closed significantly in Europe in

recent years. Alcohol consumption among British women increased by 27%

between 1998 and 2003, and since 55% of the British wine market's

value is consumed by women, compared to just 24% of the beer market,

wine has been in a natural position to benefit from the growth in women's

drinking habits.

In the UK, wine, especially white wine, has an image as a 'female'

drink. In pubs and bars especially, it has traditionally been socially

unacceptable for men to order wine, whereas it has been considered

acceptable, even expected, for women to do so. This attitude is declining, but

is not dead yet, so the rise in female alcohol consumption has played

an important part in making wine more popular. This may well have

substantial implications for wine marketing strategies including channel choice

for medium to larger companies while also having implications for some of the

specialized marketing strategies of small wineries.

Wine dominates restaurant meal-drinking 71

Restaurant visits are growing, and people are much more likely to

drink wine with meals.

People in northern Europe traditionally separate drinking and eating

occasions, spending evenings in bars that rarely serve food, and eating mostly

at home. But, the decline in trade alcohol volumes actually

understates the extent of the cultural shift. There is a move from

69 Datamonitor: 2005 70 Hall, Michael C. and Mitchell, Richard: Wine Marketing: A Practical Guide - Oxford: Butterworth-Heinemann, 2008 71 Datamonitor: 2004

:: CONFIDENTIAL ::




drinking in pubs and bars towards drinking with meals in

restaurants and 'gastro pubs'. In the USA, imports represent about 31%

of the total wine market by volume. But they account for a significantly larger

share – about 43%– of the wine sold at the restaurants.

Sub-trend: Wine-by-the-glass does not combat the

price barrier for many consumers 72

The response of consumers in the statement "You can enjoy fine wines at

a reasonable price by buying by the glass at a restaurant." was fairly

lower from previous studies. Specifically, only 38% of core consumers and

28% of marginal consumers agreed with the statement.

In 2000, 50% of both core and marginal consumers agreed with the

statement, while in 2003, agreement dropped only slightly, to 45% of core

consumers and 44% of marginal consumers. If wines were less expensive

in restaurants, 36% of core consumers and 33% of marginal

consumers would drink more wines. Price of wine is still a barrier for

many wine consumers.

72 Wine Business: Consumer Studies Show Positive Wine Trends – 15.03.06

:: CONFIDENTIAL ::




What is creating this new barrier is up to debate— either consumers feel

that wines by the glass are too expensive, or they feel that there

aren't enough good quality fine wines available in that format.

Core consumers are drinking wine at home 65% of the time, while 54% of

marginal wine consumption is at home. The second-most popular location is

at the home of a friend. The key thing for marginals in their wine drinking is

people around them. If they go to their friend's home and their friends are

wine drinkers, that's a very typical location for marginals to most

frequently have a glass of wine. Many consumers find the number of

brands intimidating and are generally unwilling to open a new bottle of

wine when they just want one glass.

Sub-trend: A younger generation of sommeliers

enters the restaurant universe

In just the last few years, there's been an explosion in the number of

sommeliers, or wine stewards, in their 20s.

The wines you'll be savouring five years from now are being picked today by

oenological trendsetters barely old enough to drink. But what they're looking

for – wines that are quirky, regional, with rich background stories – isn't what

the mainstream domestic industry seems to be selling today.

While sommeliers purchase only a small fraction of the wine bought each

year, their choices play an important role in establishing industry trends for

years to come. Import brands, especially Spanish and Italian labels, have

been especially successful at catering to the whims of a few particularly

influential wine buyers: the new generation of young sommeliers at the

nation's high-end restaurants.

More than their predecessors, the new generation of sommeliers is looking

both to have fun and to make a statement through wine and that often

means looking for something handcrafted and unique.

Sub-trend: The battle for the optimal Sushi wine 73 74

Japanese diners dictate sparkling wine as the premier accompaniment

for sushi thus boosting champagne consumption in the country.

Countering this emerging and highly recyclable concept, a Japanese winery is

73 Jiji Press English News Service: Japanese-Made Wine to Make World Debut – 07.03.08 74 Daily Yomiuri: Sparkling wine meets Japanese cuisine – 07.03.08

:: CONFIDENTIAL ::




set to launch white wine on the global market through a tie-up with a

Bordeaux chateau in south-western France.

Sparkling wines are becoming popular at Japanese restaurants

thanks to an increase in the number of establishments offering them

in a wide selection or at affordable prices. It is viewed that the

refreshing bite of sparkling wine matches the delicacy of Japanese dishes,

with both of them complementing each other. It has also been observed that

many female customers order sparkling wine not as an aperitif but as a drink

to enjoy with dinner. They also see dining with sparkling wine as somewhat

stylish, with 20 to 30% of female customers order sparkling wine.

The restaurants are responding to requests from female customers

in particular, and sparking wine is rapidly becoming a popular drink

to accompany Japanese dishes. Besides sake, shochu and wine, a dozen

kinds of sparkling wine are always available. The sparkling wine menu,

consisting mainly of those from the Champagne region of northern France,

includes Dom Perignon Rose.

Capitalising on the growing popularity of Japanese cuisine and in an effort to

counter the sparkling wine trends, Katsunuma Winery Co., based in Koshu,

Yamanashi Prefecture, west of Tokyo, will ship the wine, called Magrez Aruga

Koshu Isehara, in cooperation with Chateau Pape Clement. Companies in

Belgium, Switzerland and the United States have already expressed an

interest in procuring the wine for sale at liquor shops and restaurants.

:: CONFIDENTIAL ::




Philippe Magrez, son of Bernard Magrez, the owner of Chateau Pape Clement,

praises Japanese wines as delicate and balanced, saying that he is confident

of achieving success in the Japanese wine business.

Sub-trend: Wine for dessert 75

The latest trend in dessert wine merchandising is pairing wines with

desserts on that menu. Building on the success of the wine-by-the-glass

phenomenon, many operators also list dessert wines on their dessert menus.

The most popular dessert wines include late-harvest Rieslings, Semillons, and

Sauvignon Blancs; classic fortified wines, particularly Porto, Madeira and

Sherry; and sweet sparkling wines, such as Asti and Brachetto d'Acqui from

Italy.

Our guests are much more interested in dessert wines than when we first

opened, in 1991. They are aware of the different types, Muscats, Ports, late-

harvest Rieslings, and they are willing to order them if the service staff can

engage them in conversation 76

That practice can entice customers who are not interested in dessert

to order something in its place, particularly when a short, appealing

description is placed alongside each wine.

75 Nation's Restaurant News: 2004 76 Randy Rayburn, owner of popular Sunset Grill in Nashville, Tennesee.

:: CONFIDENTIAL ::




Home-drinking trend on the up77 78 79 80 81 82 83 84 85

A major boost for wine has come from a change in drinking patterns through

a move away from drinking in bars to drinking at home. Smoking bans around

the world boost that trend.

Consumers who are staying in to drink as an alternative to going out are

treating themselves to more expensive wines86

Wine tends not to be socially acceptable for males to drink in bars,

so the shift to home drinking significantly increases potential

consumption. It also allows people a much wider choice of wine – which is

important, given the limited and often unpalatable wine selection available in

many pubs.

In the UK, analyses of the changing costs of alcohol tend to show that the

number of licensed outlets has increased considerably over the last

two or three decades; that the consumption of alcohol per head has gone

up enormously; but that the price, relative to general expenditure, has not

shown a clear tendency in any direction.

77 The Independent: Britain"s real drink problem is wine at £1.97 a bottle – 13.11.07 78 The Daily Telegraph: Drinkers face 10pc rise in price of wine – 28.01.08 79 Bloomberg: Pricey Wine Resists Slowing U.K. on Home Drinking, Nielsen Says – 25.08.08 80 Datamonitor: 2004 81 The Associated Press: Giant wine glasses at center of new debate over Britain's problem drinking – 01.02.08 82 The Guardian: Britons drink more than we thought, says minister – 14.12.07 83 The Daily Telegraph: Why we are drinking stronger wine – 14.12.07 84 The Daily Telegraph: Stronger wine means 12 million now drink at 'hazardous levels' – 23.01.08 85 The Irish Times: Real worry may be the wine trend – 24.01.08 86 Jake Shepherd, Nielsen's marketing director

:: CONFIDENTIAL ::




Wine creates social networks beyond traditional

wine clubs 87 88 89 90 91

Wine clubs have always been the ultimate social networks for aficionados. Yet

innovation have driven wine enthusiasts to create premium urban winery

clubs and online social-networking platforms allowing younger generations of

wine consumers to aggregate.

Wine Clubs have a strong influence on the market providing knowledge

regarding wine and drinking wine, in enjoyable manner. Wine clubs introduce

new tastes and labels to their members promoting the sales of new wines.

Australia's first wine club, The Wine Society, was founded in 1946

and now has 55,000 members who are entitled to a range of

benefits, including newsletters, wine courses and dinners. Although

wine clubs only account for about 10% of all wine sold in Australia, they have

a strong influence on the domestic market.

Though wine can be an intimidating subject, seen as belonging to mature

audience more and more young adults are stepping into the online

viticulture world, to explore wine on their own terms. The iYellow

name came from Angela Aiello’s last name, which is pronounced iYellow, and

the club name also plays on the iPod culture so familiar to youth. iYellow

club’s demographic is mainly young adults and began in brainstorming

sessions between Aiello and Allewell while the two were working at Vineyards

Estate Wines after university. The Wine Enthusiasts credit iYellow’s growing

popularity to a dearth of wine information for young adults. It is not that

87 Sydney Morning Herald: The Sydney Magazine - eat drink – 30.08.07 88 San Francisco Chronicle: Social Swirl / Surging in popularity, wine clubs let you learn while you drink – 26.01.07 89 Trendwatching.com 90 The Toronto Star: Twenty somethings explore finer vintages and learn there's more to life than domestic beer – 31.01.08 91 Business Week: Building a Facebook for Wine – 10.12.07

:: CONFIDENTIAL ::




people in their early 20s do not want to learn about wine, they say, but they

do not know where to begin.

In 1999 an American attorney Michael Stajer sold his personal wine collection

for $25,000 to finance a wine auction site called WineCommune. The dot-com

collapse came a year after he started WineCommune. In 2007

WineCommune had $17 million in revenues from a mix of

advertising, paid referrals, and retail wine sales across the three

sites. Instead of relying solely on sales and competing with

established sellers such as Wine.com or brick-and-mortar stores,

where most wine is sold, they are building social networks aimed at

wine lovers. Some are attracting investors’ attention. Wine search engine

Snooth announced a $1 million round of angel funding in November 2007. But

most remain self-funded projects by wine lovers hoping to turn their passion

into profits.

When San Francisco-based Crushpad opened back in 2005, the idea

of a winery in an urban centre was surprising. Crushpad has since

blossomed, and now like-minded contenders emerge. Due to open this fall,

City Winery will combine a wine bar and event space with a fully operational

winery in the heart of Soho, New York City. The private-label winery—

apparently the city's first—will let consumers choose their favourite grape,

consult with City Winery's master winemaker and then crush, ferment, bottle

and label their own bottles of wine. The company will have the capacity to

make about 300 barrels of wine in its first year, and 200 of those will be

dedicated to a limited set of members, who will have access to City Winery's

state-of-the-art equipment and professional team.

Grape varietals will be sourced from vineyards in California, Oregon,

Washington State, New York, Chile and Argentina under strict temperature

control, and customers will be able to work with City Winery's specialists in

person or online to customize their barrel, participating as much or as little as

they like in the process. Membership is available on three levels, beginning at

USD 5,000 annually plus the cost of grapes, barrels and labelling for about

250 bottles of wine. Wine classes are also included, as is the opportunity to

:: CONFIDENTIAL ::




trade bottles with other members; wine sales, however, are prohibited. About

a third of City Winery's barrels have already been sold, according to its site.

City Winery's venue side, meanwhile, features a flexible space that can

accommodate up to 200 people seated or 400 standing, with an in-house

stage and sound system. A full catering kitchen is onsite to serve the venue's

multiple dining and tasting rooms, while the wine bar will have more than 50

wines available by the glass each night. Through City Winery's VinoFile

membership program, customers can track their wine consumption and get

related suggestions from the on-site sommeliers and winemakers. A special

cheese bar from Greenwich Village-based Murray's Cheese, meanwhile, will be

manned by a full-time expert to create the appropriate wine pairings from a

selection of over 30 cheeses. City Winery also plans to create unique pairings

of private concerts with such delicacies as wine and chocolates, mushrooms

or truffles, port or scotch.

Wine cannibalizing beer and breezers 92 93 94 95 96

Premium beers and specialist beers will always be popular with certain

drinkers but drinkers increasingly prefer wine to beer

Consumer preferences have altered incredibly over the past 10 years and are

becoming ever-more sophisticated. Prospects for future value growth remain

reasonably good, with wine increasingly seen as the most civilized way of

drinking alcohol, and a trend towards the consumption of more expensive

wines. As a replacement for the declining ready-to-drink sector such as

Smirnoff Ice and Bacardi Breezer, wines such as sparkling rosé and the

trendiest varietals, Pinot Grigio for example, have given wine an unusual

fashion boost in the mid-decade.

92 Talking Drinks: Wine riding high despite beer sales drop – 30.07.08 93 Business Wire: UK Consumers Spent a Record £10.65Bn on Wine in 2006 – 28.11.07 94 The Korea Herald: Germany's wine heartland – 28.06.08 95 Research and Markets: Sales of Beer Decline as Wine Takes the Fore in the German Drink Market – 07.05.08 96 Roy Morgan International: Wine Industry Outlook: Consumption Demographics, Market Segmentation, Trends And Opportunities – 24.11.08

:: CONFIDENTIAL ::




In the UK, a lot more people prefer drinking wine, and are becoming

more knowledgeable about it as beers sales were down 4.5% in the

second quarter of 200897. This year’s star performer has been rosé, with

customers moving away from the sweeter versions to drier varieties. Surveys

also reveal that a third of British adults buy supermarket “own-label”

wine, indicating the importance of the grocers’ superstores in

developing a take-home wine market. There is a move from drinking in

pubs and bars towards drinking with meals in restaurants and 'gastro pubs',

and again, this encourages people to shift from beer to wine.

With hundreds of brews and a rate of beer consumption that is one of the

highest in the world, it's not surprising that the German national drink is beer.

But, in far western Germany, along the banks of the Rhine and its tributaries,

beer is not the protagonist. A glass of Riesling is the prevalent trend in this

part of the country. Nowhere is that trend more prevalent than in the

city of Koblenz, where the Rhine and the Moselle River meet. It is

arguably the heart of the German wine industry.

97 British Beer and Pub Association (BBPA)

:: CONFIDENTIAL ::




Germans are known for our beer, but in this part of the country, we love our

wine. I think we produce some of the best wines in the world98

While the German beer industry is suffering due to declining domestic

demand, the country's wine producers are experiencing a boom as domestic

and the international reputation of German wine grows. In December 2007

the German federal statistics office Statistisches Bundesamt Deutschland

reported that in 2007 beer sales fell to their lowest level since records began

in 1993. Over the year 22bn pints of beer were sold representing a 2.7%

year-on-year decline on 2006. This trend is estimated to continue with value

sales dropping by a further 3.5% over the next five years to 2012.

Case Study: Australians are the strongest Anglo-

Saxon wine consumers

The wine industry could claim to have done an outstanding job in

changing the “beer culture” in Australia

In an average 4 week period 55% of Australians of drinking age have drunk

on average 21 glasses of wine. This is ahead of New Zealand, and the UK,

and well ahead of the US where in an average 4 week period only 30% of

people have drunk an average of 10 glasses of wine.

International Consumption levels – Source: Roy Morgan

Research conducted by Roy Morgan to 55,000 people every year has revealed

the following responses when it comes to wine in Australia:

98 Andreas Brommer, a 27-year-old resident of Koblenz.

:: CONFIDENTIAL ::




37% of wine drinkers in Australia “often ask the retailer for a

recommendation on wine”

42% say they “would be more likely to choose a wine if they knew it had

won some medals”

64% say “I’d prefer retailers to display their wine by type or variety

rather than by brand”

Marketing trends Price affects quality appreciation 99 100 101 102 103 104 105

More expensive means better wine! A person's enjoyment of wine can be

heightened if they are simply told that it is an expensive one.106

Wine is personal, and so is value. Sometimes a EURO 50-a-night motel room

is fine because you just want to put your head down and sometimes a EURO

1,000 suite is worth every penny because you have the greatest night of your

life. Wine is the same way.

21 volunteers were asked to sample different bottles of Cabernet Sauvignon

and rate the ones they preferred. Behavioral economists at Caltech attached

an EEG to the heads of 21 volunteers who knew not much about wine, fed

them one milliliter of cabernet through a tube and the only thing they told

them about the price, which was not always accurate. The more expensive

one was always thought to be the better one, even when it was the

same wine!

99 BBC: 14.01.08 100 The Wall Street Journal: Wine Tastings: Inflation Hits the Bottle – 01.08.08 101 Reuters: Higher wine prices boost drinking pleasure – study – 14.01.08 102 Sunday Times: High price makes wine taste better – 13.01.08 103 Financial Mail: The brain is a wine snob – 01.02.08 104 Daily Telegraph: Forget the quality, we enjoy wine if it's expensive – 14.01.08 105 Agence France Presse: Wine price test shows marketing at work in brain – 14.01.08 106 California Institute of Technology

:: CONFIDENTIAL ::




Expectation can affect the actual encoding of the pleasantness of the

experience107

The only information they were given was the price of the wine - but in a

number of cases, they were not told the real price. In one case, the

volunteers were given two identical red wines to drink and were told that one

cost much less than the other. Most described the "higher priced" wine as

much more enjoyable.

Researchers at the Stanford Graduate School of Business and the California

Institute of Technology found that because people expect wines that cost

more to be of higher quality, they trick themselves into believing the

wines provide a more pleasurable experience than less expensive

ones. People choose a bottle of wine not only for the taste or for social

reasons, but also to live a unique experience. Other factors include marketing

and economic variables as well as social, cultural, religious or demographic

factors.

The study, published in the Proceedings of the National Academy of Sciences,

claims that expectations of quality trigger activity in the medial orbitofrontal

cortex, the part of the brain that registers pleasure. This happens even

though the part of our brain that interprets taste is not affected. The

volunteers' brains were scanned to monitor the neural activity in the medial

orbitofrontal cortex - the area of the brain associated with decision-making

and pleasure in terms of flavour. Higher ratings were given to the more

"expensive" wines.

In this case, the volunteers appeared to have been associating the price of

the wine with prestige - they were expecting it to be a good vintage, with a

good label, even though they didn't have that information108

107 Antonio Rangel, who led the research team

:: CONFIDENTIAL ::




This response was common with certain prestige products such as clothing,

cars and, nowadays, handbags. While for most people wine is not normally a

luxury item - more of a "grocery product" - there are people who would

happily pay over the odds for a bottle with a cult label.

While many studies have looked at how marketing affects behavior, this is the

first to show that it has a direct effect on the brain. The researchers said that

when 20 adult test subjects sampled the same wine at different prices, they

reported experiencing pleasure at significantly greater levels when told the

wine cost more. At the same time, the part of the brain responsible for

pleasure showed significant activity. According to the study, if an experience

is pleasurable, the brain will use it to help guide future choices. That

conclusion has important implications for marketing that aims to influence

perceptions of quality such as expert ratings, peer reviews, information about

country of origin, store and brand names and repeated exposure to

advertisements.

Innovation Monitor: Sustainable viticulture and

Fairtrade wines 109 110 111 112

The growing trend for ethical products initiated the rise of

sustainable viticulture wines, which combine good taste and have

ethical credentials

Sustainable viticulture is a comprehensive approach to vineyard management

that involves all aspects of farming including human resources, viticulture, soil

management, water management, pest management, habitat management,

and wine quality. The outcome is reducing water use, building healthy soil,

and maintaining the surrounding wildlife habitat. Many farmers are

adopting the methods of sustainable viticulture since it provides

ethical products which are on high demand, while at the same time a

well-planned vineyard, based on sustainable principles, can be a money-saver

as well.

Ecologically friendly winemaking is also one of the strongest new

trends in French winemaking. It may take a number of forms - from

"agriculture raisonnée" (literally, reasoned agriculture), to organic, to

biodynamic. In the Rhône, Richaud is joined by Domaine Gramenon, Dard &

108 Oliver Johnson, CEO of the UK-based Wine Society 109 Market Wire: Ironstone Vineyards Practices Sustainable Viticulture for Nearly Thirty Years – 23.03.07 110 Wines & Vines: Equipped for sustainable farming: how leading vineyards are applying new practices – 01.03.07 111 Faitrade Foundation 112 Express: Fairtrade wine - and top quality wine too! – 05.03.08

:: CONFIDENTIAL ::




Ribo, Domaine Viret and Yves Cuilleron - all of whom also share shelf and

blackboard space in up-to-the-minute Paris wine shops and wine bars.

Regional certification programs are slowly being set up. The Lodi-Woodbridge

area already has one in place and has received federal approval to include the

certification on wine labels; the Napa Valley has started a certification

process, and the Central Coast Vineyard Team will begin one soon.

Fairtrade is a strategy for poverty alleviation and sustainable

development. Its purpose is to create opportunities for producers and

workers who have been economically disadvantaged or marginalized by the

conventional trading system. Usually a committee decides what to do with the

money - water facilities, schools, better housing, while it provides the

opportunity to farmers to buy their own land. Fairtrade wines are becoming

popular, not only are more producers making them, more stores are stocking

them and their quality improves with each vintage. There are 30 fairtrade

certified wineries spread across three countries - South Africa,

Argentina and Chile - and the UK remains their largest market, with

sales doubling each year.

Innovation Monitor: Carbon-footprint and carbon-

balancing wines 113 114

Concern over GHG (Greenhouse gases) may have an affect on the behaviour

of wine consumers.

For example, Carbon Footprint advises “Think twice about buying a

bottle of wine from the other side of the world – you may be able to

find much more local wine, which will have traveled far fewer miles”

as part of its tips to reduce an individual’s emissions.

Sedlescombe Organic Vineyard in the UK has also used the fact that its wine

has fewer “wine miles” than imported wine as a selling feature noting “Wine

113 New Zealand Herald: Wine to come in red, white and green – 05.02.08 114 Hall, Michael C. and Mitchell, Richard: Wine Marketing: A Practical Guide - Oxford: Butterworth-Heinemann, 2008

:: CONFIDENTIAL ::




flown in from New Zealand/Australia creates 3302 kg CO2. Wine

from Kent/Sussex creates 5 kg CO2.”

A new tool for calculating the carbon footprint of vineyards and wineries was

introduced by New Zealand Winegrowers. Developed through an

international partnership of industry organisations in New Zealand,

the United States, South Africa and Australia the wineries and

vineyards can use the downloadable calculator to work out their

level of greenhouse gas emissions.

New Zealand winery Grove Mill offset over 300 tons of carbon by investing

in carbon-balancing schemes that plant trees and finance renewable

energy projects. It accounts for the eco-impact of production as well as

transport.

There are not yet any regulatory requirements around carbon emission levels

but there is a strong demand in the market for an internationally credible

system such as this115

Innovation Monitor: Publicising greenness end eco-

friendliness

Apparently exploiting the eco-friendly green trend, many

winemakers tout their greenness and eco-friendliness by publicising

their initiatives.

Fetzer Vineyards, which has championed organic and sustainable practices for

years, last year took its message on a "green tour" to tout what the company

is calling its "earth friendly" wines and to educate consumers about

sustainability. Australia's Banrock Station, part of the huge Constellation

Brands portfolio, publicizes its commitment to wetland conservation; labels

bear the slogan "Good Earth Fine Wine."

115 New Zealand Winegrowers chief executive Philip Gregan

:: CONFIDENTIAL ::




Other companies are publicizing how eco-friendly their packaging is.

Bag-in-box packages, for example, weigh less than glass bottles, so they

require less fuel to be shipped. (The boxes are also recyclable.) Tetra Pak

aseptic cartons, which are similar to the cartons used for soup, juice and

other liquids, also weigh less than glass, and Three Thieves, which packages

its Bandit wines in these cartons, stresses the environmental benefits in its

marketing.

With almost 6% of its vineyard converted to organic production

Alsace can claim to be the greenest wine region of France. 116 Alsace

also boasts an unusually large number of “biodynamic” grape growers, an

extreme organic regime, based on the teaching of Rudolph Steiner, an

Austrian thinker, who just before his death in 1925, suggested that every

farm or vineyard is part of a living organism, while most treatments are

homeopathic or infusions of wild plants and herbs.

Numerous vineyards and wineries around USA are also "going green". In "7

Good Causes, 15 Top Wines" in Food and Wine magazine, the magazine

looked at several wineries and how they are taking up causes that are friendly

to the environment. Many are incorporating production practices that are eco-

friendly, and many vineyards are becoming "organic" and utilizing

biodynamic farming techniques.

One winery in the Napa Valley, Gargiulo Vineyards, has built a

tasting room almost exclusively from recycled materials. And

buildings aren't the only way wineries can go green. Fetzer Vineyards in

California, one of the pioneers in organic farming, has reduced the trash it

sends to landfills by 95% since 1990117. Fetzer is also the state's largest

producer of organic grapes. Novelty Hill Wines in Oregon, which sits among

the rivers of Washington's Columbia Valley, was the first in the country to

become officially salmon-safe certified.

116 The Newcastle Journal: Organic wine-making moves on to a new level – 20.06.08 117 Food and Wine magazine

:: CONFIDENTIAL ::




And even though pests can often be a vineyard's worst nightmare, Medlock

Ames Winery in Sonoma, created "wildlife corridors" to allow wild pigs,

deer, bobcats and mountain lions to pass through its vineyards without

damaging it.

Because many types of vines require ample sunlight, many wineries have also

used the sun's energy for power. Honig, in California, has 819 solar

panels. The winery has saved the equivalent of the energy to power 5,721

homes for one day and the pollution an average passenger car emits over

13,017 days.

Innovation Monitor: Low-alcohol and non-alcoholic

wines exploit health lifestyle trends 118 119 120

Healthier lifestyles and worldwide governmental campaigning

against alcohol abuse is expected to shift attitudes towards wine.

First signs of product innovation appear in the shape of low-alcohol and non-

alcoholic wines.

Australian kingpin Brian McGuigan is convinced that low-alcohol, light floral

flavours are going to be popular both stylistically and politically. Politically,

McGuigan says the world, especially Western Europe, is moving

towards low alcohol as governments like France and the UK clamp

down on alcohol abuse.

This is of paramount importance. We have to put something in their path.

Suddenly they will realise that low alcohol is just what they are looking for

and they will say, “this is what we need!

The UK Wine and Spirit Trade Association said it was in favour of exploring

low-alcohol options as research indicates that consumers are interested in

having the option to choose lower alcohol wines. The UK Government and the 118 Just-Drinks: Non-alcoholic red wine launches in US – 30.07.08 119 Decanter: McGuigan: low alcohol is the future – 18.07.08 120 Sudany Age: Chile times ahead for wine exporters – 02.12.07

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Scottish Executive are both seeking to encourage the Alcohol Drinks Industry

to provide a wider range of lower alcohol products. UK government research

has found up to a quarter of adults are consuming dangerous amounts of

alcohol at home. Ministers have started targeting middle-class wine drinkers,

describing their consumption as “hazardous.” New World wines are largely to

blame for the increase in the strength of the average glass of wine. However,

the proliferation and increased popularity of wines from hotter regions

brought with it much stronger wines of between 12 and 14% alcohol by

volume (ABV).

Wines with 13 or 14% alcohol just aren’t exciting any more and customers

are currently looking to the Old World for more refreshing wines. If you don’t

change, others will change faster121

Furthermore, Embodi™, a non-alcoholic beverage that provides the health

benefits of red wine without the alcohol, was launched in the US and it is

available in three flavours.

Embodi is combined with our red wine grape extract, which provides the

health benefits of two glasses of red wine, without the alcohol122

Innovation Monitor: Wooing women with 'girlie'

wine, fashionistic symbolism and lower alcohol

content 123 124 125

The "girlie" wine has dawned, dressed in gift bags resembling see-

through organza negligees and bearing cosmetics counter names like

Seduction or hip-cute ones like Rose the Riveter or Mad Housewife.

Whether it was triggered by "Desperate Housewives" or “Soccer Moms”, the

wine industry's seduction of women has begun. Market research

findings have inspired several wineries to introduce wines targeted specifically

at women. In response, Beringer Blass Wine Estates, owned by the Foster's

Group has introduced the first premium California wine ever to be

designed by women expressly for the U.S. female consumer. White

Lie Early Season Chardonnay, trademarked because of the groundbreaking

121 Director of Beer Wines and Spirits at Tesco, Dan Jago, stressed in the Winemakers’ Federation outlook conference in Melbourne. Tesco is the single largest overseas buyer of Australian wines and accounts for 25% of all wine sold in the UK. 122 Dan Waters, CEO of Embodi 123 International Herald Tribune: Wooing women with 'girlie' wine – 29.04.05 124 Hall, Michael C. and Mitchell, Richard: Wine Marketing: A Practical Guide - Oxford: Butterworth-Heinemann, 2008 125 Design Week: White Grenache scoops best design and packaging prize – 29.05.08

:: CONFIDENTIAL ::




way in which the wine is made, is a great-tasting wine that is low in

calories, sugar and alcohol, meeting the needs of today’s dynamic

women who want to “have it all”.126

The wine, with its pedicure red label and romance novel cursive lettering, has

a promotion involving Jennifer Weiner, a best-selling chick-lit author. The

corks carry messages, familiar white lies like "I'll be home by 7" and "It's my

natural color."

As women, we understood how busy we are. Women also tend to give up

things, whether it's time for themselves or a gooey desert or that second

glass of wine127

Wine, as a product of aesthetic and symbolic value, has the potential

to be conceptualized as a fashion item. For example, the release of a

new vintage of wine is to the wine enthusiast what the launch of a new

season’s clothing range is to the fashion leader: it is much anticipated; it is

the focus of critics and journalists; it may be released to its public at a show;

and it is something with which the consumer can make a fashion statement

about themselves. Wine, like clothing, also has fashion cycles. Different

wine varieties go in and out of fashion like clothing. Pinot Gris may be

perceived as being more fashionable than un-oaked Chardonnay or Pinot Noir

more than Merlot and, like clothing, these cycles can be influenced by the

media and the critical acclaim of experts.

126 Beringer Blass Press Release 127 Mason, part of an all-woman team, including a winemaker, Jane Robichaud, who developed the wine

:: CONFIDENTIAL ::




Gallo rose wine White Grenache scooped best design and packaging prize at

the 2008 Drink Business awards in May 2008. The 'clutch bag' design, with

capacity for the equivalent of two 750ml bottles, aims to appeal to its

female target audience and to brighten up the traditional

rectangular bag-in- box market.

Yet wine’s customisation for womanhood can go even further. Sophie

& Sophie is a Dutch rosé wine refresher sold in small bottles. It is made from

wine (51%), de-alcoholised wine (31%), and grape must (18%). Must is the

juice of freshly pressed grapes, before it's fermented into wine. Which leaves

a drink that tastes like semi-dry wine, but only contains 5.5% alcohol, and

half the amount of calories in real wine. Sophie & Sophie was created by

Natural Wines, a wine merchant that specializes in natural products with a low

alcohol percentage.

:: CONFIDENTIAL ::




The company's founder discovered that his three twenty-something daughters

were drinking nothing but Bacardi Breezers and hard liquor on their nights

out, and decided that they needed an oenophile's alternative. He teamed up

with an ad agency and they came up with Sophie & Sophie. The beverage is

aimed at female consumers between 18-30 years old who'd like a

change from sweet mixed drinks. The wine is sold in stylish little bottles

containing enough 'wine' for two glasses.

Innovation Monitor: From a ‘one-size-fits-all’

generic brand to one that developed sub-brands

In 2007, the Australian Wine and Brandy Corporation (AWBC) released a new

industry strategy and set of market programs as part of ‘a roadmap for wine

sector sustainability.’ The new Wine Australia market programs have been

developed so as to move Wine Australia (the banner under which the AWBC

promotes Australian wine internationally) from a ‘one-size-fits-all’ generic

brand to one that developed sub-brands that fitted in better with

the various elements of the wine supply chain, thereby adding value

through more of a value chain emphasis. The four sub-brands and their

characteristics are:

1. Brand Champions: The ‘standard bearers’ of Australian wine. ‘Category champions, popular premium brands, audacious commercial newcomers and wineries that aspire to a mainstream presence in either the Retail or Restaurant channels’

2. Regional Heroes: focused towards the development of regional identities under the Australian wine umbrella that illustrate varietal choice and/or styles linked to place

3. Generation Next: focused towards innovation in winemaking (new blends), viticulture (new varieties) and marketing (packaging and communication)

4. Landmark Australia: focus on Australian ‘ultra-premium collectables and image makers’

:: CONFIDENTIAL ::




Innovation Monitor: Regional collaboration

through commercial clusters

New Zealand’s Central Otago Pinot Noir Limited (COPNL) has been

highly successful at marketing the Central Otago region on the

international stage.

This commercial cluster was formed as an independent company by the

Central Otago Winegrowers Association (COWA) in 2003 to ‘market Central

Otago wine (primarily to export markets) and promote the Central

Otago wine brand (www.centralotagopinot.co.nz).’ COPNL’s stated

objectives are to:

1. Meet the global marketing challenge through cooperative marketing

2. Work hard through promotion, coordination of events and working

with media to ensure a consistent positive image for Central Otago

wine

3. Position Central Otago Pinot Noir at the very top of the market

through regional cooperation and activities

4. Make use of available Government funds through the ‘cluster

approach’

5. Encourage premium quality, protect and support the quality brand

Members may also choose to participate in optional marketing and

promotional activities which incur additional costs for the participating

members. These include:

Media and trade promotions in partnership with NZTE’s

‘marketnewzealand.com’

Trade and consumer events in New Zealand and in main export

markets (e.g. San Francisco, New York, London, Sydney and

Melbourne)

Hosting wine writers, buyers, chefs and other opinion leaders (e.g.

Masters of Wine)

‘Sneak preview’ tastings with writers and buyers

:: CONFIDENTIAL ::




The annual ‘Central Otago Pinot Noir Celebration’ events

which host around 200 influential media, buyers, opinion leaders and

consumers

Innovation Monitor: Repositioning using

Biodiversity

The South Africa Biodiversity and Wine initiative has a number of Viticultural

and marketing strategies to achieve its aims within the overall context of

connecting biodiversity, terroir and wine. The initiative is part of a wider

attempt to reposition South Africa in a premium wine niche and

reduce its low-value/high-volume orientation. In marketing terms the

biodiversity positioning was being used by Wines of South Africa as part of its

2006 ‘Variety in Our Nature’ campaign in key markets including Germany, the

UK and the USA. In the UK this included posters on the London Underground,

radio promotion and public relations, promotion in magazines and at trade

shows. However, the initiative is also regarded as a means of responding in

marketing terms to both the development of environmentally conscious wine

consumers as well as potential regulatory changes in key markets such as

Europe. According to BWI project director Tony Hansen, ‘The BWI is a useful

tool to communicate how far ahead we are in SA as an industry, and as

individual producers. The hope eventually is that sustainable wine

production will be a motivation for overseas buyers to buy South

African.

Celebrity labels compete with mass market brands

Celebrity wines will continue to be hot and rock & pop stars have

their own labels already

The use of celebrity ‘experts’ to provide a form of validation of the quality

of the wine is an old and tested practice. For example, Australia’s oldest

family owned winery, Yalumba, used celebrity chef Jamie Oliver in advertising

campaigns to take advantage of his celebrity status and popularity, as well as

his perceived expertise in all things food and wine as one of the world’s

best known chefs. Celebrity chefs have arisen because of what is known as

the ‘cult of celebrity,’ where celebrities have gained widespread public

followings, with fandoms, social status and cultural cachet. This trend has

moved further to include celebrity-branded and celebrity owned wineries and

wine brands.

:: CONFIDENTIAL ::




The number of celebrities (both living and dead) who are putting

their names and images on wine is growing rapidly. Wine writers are

divided as to whether these are serious wines or simply marketing gimmicks,

but recent wine tastings show how much more seriously they are being taken.

Prices can be high, fans being willing to pay premium rates for the "genuine"

bottle.

The Australian golfer, Greg Norman, has wineries in the Limestone Coast of

Australia. The golfer, Ernie Els, produces wines at Stellenbosch. Olivia Newton

John, actress and singer, with her Koala Blue collection. Sir Cliff Richard has

wineries in the Algarve which produce the Vida Nova brand sold in many UK

supermarkets. Sam Neill, the film actor, produces Pinot wines under the Two

Paddocks label in the Central Otago region of his native New Zealand.

An Italian Bob Dylan wine, a blend of Montepulciano and Merlot from Le

Terrazze in a bottle signed by the singer/songwriter, bears the name of

Dylan's 1974 album "Planet Waves". Perhaps the most well known in wine

circles are the wines of the film director, Francis Ford Coppola (at the

Niebaum-Coppola Winery) in California's Napa Valley. Many of these wines are

frequently highly rated by wine writers.

:: CONFIDENTIAL ::




Madonna has recently launched her own wines, the daringly titled Confessions

UnWine. The collection includes an ambitiously priced Californian cabernet

sauvignon selling for $40, pinot grigio for $29 and non-alcoholic "wine" for

$25.

We're not selling what's inside the bottle, but what's outside.128

So these trophies are not meant to be drunk but treasured as they

gather dust on the mantelpiece. Commentators propound that it's a

way of bringing young people to wine. There are also a number of

"dead" famous names whose estates are making considerable income from

licensing their name and image. These include, most famously, the Marilyn

Monroe and Norma Jean wines, signature Wines' Graceland Cellars, a line of

Elvis Presley brand wines, lead guitarist and composer for the Jerry Garcia

Band and the Grateful Dead, J. Garcia Wines of Sonoma County.

Film director, Francis Ford Coppola turned to a winemaker, and also a

packaging pioneer. Focusing mainly on marketing rather than environmental

purposes, his Sofia Mini Blanc de Blancs, sparkling wine comes in a shiny

red aluminium can. Sofia Mini Blanc de Blancs is the first wine being served

on a can. Many consumers are using a straw to drink from the can

familiarising them with the concept of drinking wine with a straw. The product

is very popular amongst that trendy set who enjoy the occasional bubbly and

want their own "pop".

128 According to the mastermind behind Madonna’s and the Rolling Stones' limited edition wine, Marty Ehrlichman

:: CONFIDENTIAL ::




The “hidden” movie placement wine battle

The wine industry has moved onto Hollywood to stage an

unprecedented battle of ingenious placement of products and

associated concepts in films

Historically, Hollywood has provided a platform for placement of wine

products going as back as Veuve Clicquot’s placement in champagne-

dominated Casablanca (1942) and Dom Perignon’s placement in the early

James Bond films such as Dr. No (1962), Goldfinger (1964), Thunderball

(1965) and on Her Majesty’s Service (1969). The first battles for placement

were seen even back then, when Bollinger took over the reign from Dom

Perignon as the British spy’s favourite wine.

This battle in ongoing, deepening and happening in the back scenes and has

strongly moved into wine culture, origination, associated concepts and grape

varieties. Notably, it all started with a non-wine movie. In Silence of the

Lambs (1991), Dr. Hannibal Lecter (Anthony Hopkins) is trying to scare FBI

trainee Foster and says: "A census taker once tried to test me. I ate his liver

with some fava beans and a nice bottle of Chianti." This may seem a

coincidental mention of the popular Italian wine, but it is absolutely planned

and planted. One has only to read the original book by Thomas Harris, where

Lecter prefers an Amarone with human liver, yet the movie boosted Chianti.

The use of product placement by wineries is relatively common and there

are many examples of where effective placements have been

achieved, including the follow high profile examples:

Ruffino Chiati Classico which appeared in The Sopranos television show

and the movie The Devil Wears Prada in 2006

Clos Du Val being ordered by Tom Hanks’s character in Steven

Spielberg’s The Terminal and The OC in 2004

:: CONFIDENTIAL ::




An E&J Gallo wine, Rancho Zabaco, appearing on Queer Eye for the

Straight Guy in 2004

At the moment, one can clearly see two battling fractions. On the one

hand, there are Hollywood movies praising French wine and

celebrating French wine-making tradition and culture, such as:

French Kiss (1995) Kevin Kline's famously spot-on portrayal of a

Frenchman combined with a fetching costar in Meg Ryan, an eventful

journey through the stunning French countryside and a quirky

subplot involving a smuggled grapevine provide the perfect

recipe for a winning wine flick.

A Good Year (2006) Depicts the sumptuous French countryside,

mouthwatering food and wine shots and amusing vigneron-next-door

subplot. In a prologue, the audience is introduced to young Max Skinner,

who spends his summer holidays learning to appreciate the finer

things in life from his Uncle Henry at his vineyard estate in

Provence in southeastern France.

On the other hand, the American wine industry striking back with

movies such as:

A Walk In the Clouds (1995) Keanu Reeves' stiff performance as a

chocolate salesman-turned-faux-fiancé in this cheesy 1940s-era love

story doesn't manage to overshadow the stunning scenery and ebullient

grape stomping that takes place during harvest at a fictional California

estate called Las Nubes ("the clouds"). Shot on location at such well-

known spots as Mount Veeder Winery, Duckhorn Vineyards and Charles

:: CONFIDENTIAL ::




Krug Winery, the film's splendid vineyard scenes are reputed to

have inspired more than one real-life dreamer to plant vines.

Sideways (2004) Set amidst the rolling hills of So Cal's Santa Ynez

Valley. The movie follows two friends on a raucous bachelor party

through wine country, punctuated by lush vineyard shots and plenty of

footage of local wineries and restaurants, the film is credited not only

with turning the once-sleepy region into a tourist hotbed, but

with putting Pinot Noir on the map. On the other hand it devalued

Merlot in pop culture and the public consciousness of millions of viewers.

Bottle Shock (2008): Highly anticipated film chronicles the events

leading up to the watershed 1976 Judgment of Paris wine tasting. Shot

on-location last year in Sonoma and starring Bill Pullman and Alan

Rickman, Bottle Shock shows how the passion and unflagging

commitment to quality shared by a maverick father-and-son winemaking

team (Chateau Montelena's Jim & Bo Barrett) translated to a

Chardonnay that trumped its French counterparts and put

American wine on the map for good.

Corked (2008) with its official debut at the 2008 Sonoma Valley Film

Festival just behind it, this well-received send-up of the California wine

industry has insiders chuckling and wannabe insiders half-seriously

wondering why the wine business is so wack. Shot during harvest in

2005, the mockumentary follows a manic winemaker, a billionaire, a

clueless winery manager and an incompetent rich kid - among other

colourful characters - as they compete to win the fictional Golden Cluster

trophy.

Finally, the wine industry expects with anticipation The First Emperor

(2009). Loosely based on Elin McCoy's 2005 biography, The Emperor of

Wine: The Rise of Robert M. Parker Jr. and the Reign of American Taste, the

:: CONFIDENTIAL ::




film will follow the ascent of the infamously influential critic to the fore of the

world's wine consciousness. Producers say the film will feature little-known

aspects of Parker's early career, and rumors peg Spanish Academy Award-

winner Javier Bardem in the lead with Sideways star Paul Giamatti lending

support as French wine consultant Michel Rolland.

Both Movies and television programs can have a huge influence on

consumer preferences. Perhaps the most notable example of this is the cult

movie Sideways, which changed consumption patterns in the US

overnight. Known as the ‘Sideways Effect,’ consumers began drinking Pinot

Noir in preference to Merlot because of one line in the movie.

Furthermore. movies such as the Lord of the Rings Trilogy have also

increased the desirability of all things New Zealand and wine has been

no exception.

Innovation Monitor: Attaching wine brands to

coolness and hipness

Launching trendy wines, with equally cool marketing campaigns,

has been recorded to bear success.

In the UK, Pernod Ricard's Jacob's Creek was the exclusive advertiser for TV

series Friends. Not to be outdone, Diageo's 'Blossom Hill' picked TV sitcom

Will and Grace to appeal to a hipper crowd. The deal was reportedly worth in

the region of GBP 850,000 and ran for twenty-four weeks.

In 2002, Hardy Wines sponsored London's Mardi Gras and Gay Pride

parades. And Brown-Forman's Italian wine brand, Fontana Candida, placed

hip lifestyle ads in Glamour Magazine.

Clos du Val pays a marketing firm around US$5,000 a month to ‘keep its

wines in directors’ minds.’ In 2004, this involved distributing around 240

cases (around US $36,000 worth) of their wine at premieres and other big

:: CONFIDENTIAL ::




show business events. Although they cannot quantify the impact that this has

on the end consumer, they reported a 50% jump in the sales following

the implementation of the strategy. Their wines ended up appearing

in around 100 films and television shows.”

Wine tourism offers storytelling platform to

industry 129 130

Countries new into winemaking along with traditional mammoths of the wine

industry are constantly developing and building upon concepts of wine

tourism; a rapidly growing field that present opportunities in both

from both the tourism pillar and the wine marketing dimension.

The first activity regarding wine tourism was a conference held in 1998 in

Australia and the increasing value of wine tourism has been proven in many

countries including Australia and the United Kingdom. In France, Cazes,

the president of the Union des Grands Crus Classes de Bordeaux

aims to explore wine tourism concepts such as the Relais &

Châteaux Cordeillan-Bages hotel, the restored village of Bages with

its bistro, bakery, wine store and art workshops, tour companies and

wine schools.

The value of wine tourism has been dramatically increasing. The vintage

season starts Aug. 15 and continues through the end of September. This is a

significant period to spread tourism to these months. There are many private

and public wine factories in Turkey. Trips can be organized to these factories.

Wine stores should also be opened next to factories for tourists to shop.131

Many wineries, especially those in the New World (e.g. Australia, New

Zealand, South Africa and North America), are taking advantage of the

relationship between wine and tourism and are now hosting visitors

to their cellar door. European wine producers also host visitors and in some

129 Decanter: Cazes: Bordeaux wine tourism is the future – 14.07.08 130 Turkish Daily News: Wine tourism can profit sector – 22.10.07 131 Sibel Çinar Oguz from Çukurova University’s tourism department, Turkey

:: CONFIDENTIAL ::




cases this has been happening for many years. Champagne Pommery in

Reims, for example, have been hosting visitors to their caves since the

19th century and the large reliefs that were carved into the chalk crayére

(underground wine cellars) to provide artistic decoration for the earliest

visitors are still used to tell part of the Pommery story in tours of the

caves.

Innovation Monitor: Vertical Clustering/Wine and

Tourism: British Columbia’s Wine Islands Project

The Wine Islands Region is situated on Vancouver Island and the outer Gulf

Islands, British Columbia and is home to 32 wineries, cideries and meaderies.

The newest wine region in BC and the fastest-growing in Canada, it’s been

energized by increasing wine tourism.

Recognizing the need to capitalize on this emerging and evolving

tourism market, a small group of wine-interested locals began the

search for an innovative plan to bring diverse sectors of the local

agritourism economy together. Initiated in early 2006, the Wine Islands

Project, a cooperative marketing initiative, was designed to promote the Wine

Islands Region and funnel potential visitors and media to market-ready wine

and culinary businesses. Bringing together 80 partner businesses from several

tourism sectors, this project acted as a networking and marketing hub for

industry.

Partner organizations pooled their resources to create 10 regional wine

touring routes that marked the location of tourism sector partners:

accommodation, food and beverage, transportation, attractions as well as

wineries, meaderies and cideries. These touring maps were incorporated into

two major project deliverables. Firstly, a comprehensive project website

(www.wineislands.ca) was designed to attract a worldwide audience

featuring regional images, downloadable maps and partner listings and

advertising. Secondly, the Wine Islands Guide, a 24-page rackable

brochure contained consumer travel information on the region, partner

advertising, a list of farmers’ markets and an hours of operation grid. This

second piece of marketing collateral was designed for those visitors already in

the region and in particular the short haul market.

On an individual level, several of the partners have experienced substantial

revenue and visitor increases. Wineries in particular have realized an

increased flow of visitors. Relationships between businesses have been built

:: CONFIDENTIAL ::




that have created mutual benefits in terms of leverage on other wine tourism

experiences.

Innovation Monitor: Wine moves into tryvertising132

There have been several efforts to simplify the wine bottle-picking

process, yet the tryvertising approach seems to offer the most

promising solutions.

Swedish Vinotek and San Francisco based VinoVenue combine the concepts

of a wine tasting bar and a dispensing machine (call them wine jukeboxes) in

a cool setting, enticing consumers to buy a chargeable smart card which will

give them access to dozens of bottles of wine including elaborate information.

The machines dispense a glass of the chosen wine for a couple of

bucks/euros.

It's all about choice and trying before you buy: VinoVenue's automated

wine stations offer more than 100 wines from around the world, all available

per glass and bottle. Smart cards are not only used for payment, they also

track which wines have been tasted, facilitating future purchasing decisions.

WineSide offers both sweet and classic wines in patented, flat-base glass

tubes with screw tops carefully engineered to protect the wines' flavour. The

sweet wines—which include Sauternes and Muscat, for example—are available

in 6cl tubes, while the Pomerol, Chateau Neuf du Pape and other classic wines

can be purchased in 6cl or 10cl sizes.

132 Springwise

:: CONFIDENTIAL ::




WineSide's collection represents a range of appellations and producers; tubes

are available individually or by the box, which can be chosen to provide an

introduction to a variety, year or region. Kicking off retail sales, the products

are available exclusively at Colette in Paris this month. In addition to giving

consumers a new way to sample and discover wines, WineSide's tube format

also promises to give vintners new tryvertising capabilities at relatively low

cost. The French company's website is still under construction, but it says it is

looking for distributors.

Encouraging people to organize their own wine tasting parties, 4xProeven

(Tastingx4) combines a board game with a four-pack of wine. The concept is

simple: four small (0.375 litre) bottles of red wine are packaged in a carton

that folds out to a board. Four blank stickers are included to hide the bottles'

labels. A leaflet explains the basic elements of wine tasting: look, smell, taste

and compare. It also describes the four single grape varieties included in the

game. Players shuffle the bottles and start tasting.

By comparing a wine's taste to the four descriptions, the objective is to guess

which is Merlot, Cabernet Sauvignon, Pinot Noir and Shiraz. Just launched in

The Netherlands, 4xProeven is currently sold online for EUR 24.95 and by a

small number of wine shops, and the company is planning to launch

internationally soon. While wine tasting games certainly aren't new, they

generally include game elements only, not the wine itself. And here's where

4xProeven missed a great opportunity. Instead of including unbranded wines,

partnering with a well-known label and turn the game into a smart and simple

:: CONFIDENTIAL ::




way to tryvertise, getting customers to sample a variety of reds or whites

while connecting with the brand.

Innovation Monitor: Online wine-tasting !!!

A new Massachusetts-based retailer of off-price wines is taking the technology

aspect a step further with wine tastings by Twitter.

Bin Ends, which was started up earlier this year, completed its second Twitter

Taste Live in August —the first one was in July. The project aims to give

wine enthusiasts around the globe a chance to join the world's top

wine personalities online for tastings via the popular social

networking tool Twitter.

Users need only set up a free Twitter account and then follow binendswine on

the service. In the U.S., they can also order the wines being tasted from Bin

Ends three weeks prior to the event, with free shipping across the country

(Bin Ends does not ship internationally). Then, equipped with the wines and

their Twitter account, users can join the event as it takes place, commenting,

asking questions and enjoying back-and-forth interaction with the winemakers

in real time. Tastings generally take place the third Thursday of every month

at 7 p.m. Eastern U.S. time, and are announced on Twitter, Facebook and Bin

Ends' own website.

Besides encouraging sales and trial of newer and lesser-known wines (one

might even consider this a mostly paid version of tryvertising), Bin Ends'

tasting program also offers consumers a generous splash of status skills

through their interaction with wine experts. It remains to be seen if Bin Ends

will track which tastings consumers participate in and use that to help guide

future purchase choices, the way Vinotek and VinoVenue do.

Innovation Monitor: Wine-tasting goes charitable

If the wine brand is new and not on many retail shelves, and customers do

not know what the wine tastes like, the most effective way to overcome this

bottleneck is through public tastings and donations.

Into the hand of every taster at every public tasting, Barefoot representatives

put a list of retailers that sell Barefoot. Furthermore, Barefoot finds out

exactly which non-profit foundations are the most important to each

:: CONFIDENTIAL ::




community in which it markets. Barefoot supports the organizations with

donations for fund-raising dinners. It promotes the foundations it supports at

the store level with an elaborate neck-tag program. These neck tags may be

in support of Ducks Unlimited in Fresno, the AIDS Foundation in San

Francisco, the Blue Water Task Force in Los Angeles, or the Seattle Center for

the Arts in that city.

The philosophy is to be a part of each community. The link is reinforced by a

toll-free number on each bottle, a Web page, and hundreds of tastings each

year. This helps establish a rapport with customers and has resulted in repeat

purchases rising to 80% of total sales.

Innovation Monitor: German wines advocate

“summer wine” trend in the UK 133

Six different German wines sampled to over 125,000 consumers at events

around the UK in July and August 2008

Wines of Germany's with Riesling & Co launched a summer sampling

campaign at picnic concerts at Arley Hall in Cheshire and Tonbridge Castle in

Kent during the summer. Around 7,500 samples of German wine were poured

at the concerts which featured performances by Jools Holland, Seth Lakeman,

Ronnie Scott's Swing Orchestra and The Levellers.

According to the director of Wines of Germany, lighter German wines are

perfect for drinking outside in the summer providing this way the

opportunity to open younger consumers' eyes to the range of German wines

that are now available on UK supermarket shelves, including dry and off-dry

Rieslings, Pinot Grigio, Pinot Blanc and even red wines.

To help consumers remember the wines they sample, Wines of Germany has

produced a postcard featuring pack shots of the wines, tasting notes,

stockists and retail price details for visitors to take home.

Airport bars and national themed cafes can become

wine taste embassies 134

Airport wine bars are becoming very popular with travellers offering large

selection of wines by bottle or glass in pleasant surroundings.

133 Off Licence News: German summer focus – 25.07.08 134 Financial Times: A wine lover's paradise - at the airport – 22.12.07

:: CONFIDENTIAL ::




For those who find flying an endless series of frustrations – and with delays at

record levels, that means just about everyone – there are three words of

consolation: airport wine bars. Nearly every airport has a bar or three, where

you can down watery, overpriced drinks in noisy, grimy surroundings.

However, the new trend is about a cosy den with pleasing decor and an

extensive list of more-than- decent vintages by the glass or bottle.

Vino Volo, a play on the Italian words for “wine flight,” offers weary

passengers an escape from the chaotic food courts and loud bars that are all

too familiar at major airports. At Vino Volo, customers can sample wines

either by the glass or in tasting flights. Plates of cheese, cured meats, salmon

rolls and other gourmet fare complement the flavours of the wine in a

relaxed, upscale atmosphere. The experience doesn't have to end when a

flight begins boarding: wines are available for purchase by the bottle and can

be shipped to a customer’s home (subject to state law). Currently available at

Washington Dulles, Seattle-Tacoma and Sacramento airports, plans are in the

works to expand to 10-12 additional airports, starting with JFK and Baltimore.

Taking this trend one step further, sponsored by Tourism New Zealand and

Air New Zealand, the New Zealand Travel Café opened in Tokyo's Roppongi

district three months ago. The café serves New Zealand burgers, beer and

wine in an upmarket setting. Kiwi music plays in the background, a small shop

sells NZ products and visitors can browse travel guides and brochures. Travel

Café, which operates 20 themed cafés across Japan, also runs a branch in

cooperation with the Philippine tourist board. The Philippine Travel Café

serves 'images of Philippine leisure resorts and tasty Filipino cuisine'.

:: CONFIDENTIAL ::




Innovation Monitor: Grass-roots communications

with the consumer

Whatever the case is, talking to existing and potential consumers is kept at

grass roots level by many innovative and trailblazing winemakers.

The story of Ernest and Julio Gallo visiting the retail stores in which their

wine was sold to talk with customers and shop owners is an inspiring

one. They kept close tabs on the buying preferences of their customers, and

gained valuable information from talking with wine shop owners. This type of

casual observation – though not standard quantitative research – can yield

fascinating qualitative information about wine brands.

Taking this approach up a notch, South African BLANKbottle boutique

winemaker's founder, Pieter Walser, sent 20 cases of its latest premium white

wine Moment of Silence to loyal customers on consignment, asking them to

evaluate the wine and then pay him what they thought it was worth.

They paid up to ZAR 90 per bottle (USD 11.80 / EUR 7.50), and the average

price came to ZAR 50. Since BLANKbottle aims to exceed customers' quality

vs. price expectations, the wine went on sale to the public at a price of ZAR

40.

Walser, for his part, got a high return on the wine he risked in the venture. In

addition to the publicity he garnered, he determined a new product's

price point based on the actual purchasing decisions made by the

winery's best customers. Feedback that's likely to be more valuable than

the opinions volunteered by focus groups or market research experts. And by

involving them in such a fundamental business decision, he no doubt

increased brand loyalty among the winery's core customer base.

:: CONFIDENTIAL ::




Innovation Monitor: Winemakers jump on wine

cocktail drink trend 135

As younger drinkers are increasingly opting for alternative alcoholic

drinks such as cocktails wine cocktails is the new trend, which never fails

to receive severe criticism by the serious wine aficionados

Calimocho (or a Rioja Libre), consisting of Rioja and Coca-Cola, is the tipple of

choice of wayward Spanish youths, a poor man's sangria. It is also extremely

delicious and refreshing on a hot day.

It's a dirty secret, but Coke with a big, fat red wine is great. It has to do with

lighter palates, people wanting something a little lighter 136

Fortified wines such as port and sherry have been old-school standards since

the early days of cocktail-making. The classic sangaree, for instance, mixes

ruby port with a teaspoon of sugar on ice; it's topped with grated nutmeg.

Winemakers R.H. Phillips and Ecco Domani recently jumped on the

bandwagon, hiring high-profile cocktail consultants to create drink

recipes for their brands. The results yielded a few winners, including the

Star Gazer, using R.H. Phillips' Night Harvest Chardonnay, dark rum, vanilla

simple syrup and pineapple juice. The Ecco Sidro, made with a teaspoon of

muddled ginger, 1 1/2 ounces of apple cider, a pinch of chai tea powder and

two ounces of Ecco Domani Chianti, is popular at the Buddha Bar in New

York. No discussion of wine cocktails can be complete without mention of

sangria, that oft-maligned party drink.

135 International Herald Tribune: Wine cocktails: winemakers jump on drink trend, hire experts for brand recipes – 09.07.08 136 Duggan McDonnell, owner of Cantina in San Francisco, where Sauternes, malbecs and muscats mingle with harder spirits on the cocktail menu

wine sector - global sustaining and emerging trends - cl ... 1.1a/marketlands… · :: confidential...

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