Review of the Year 2011 - Wine
The final part of just-drinks' December management briefing, looking back over the past 12 months, reviews what 2011 meant for the global wine industry. Ben Cooper reports.
The year began on an uplifting note for the wine industry as a report from Rabobank suggested it was turning the corner, with prices recovering and a better balance between supply and demand.
However, some high-profile divestments gave something of a contrasting picture.
In February, Constellation Brands completed the sale of its Australian, UK and South African wine interests to private equity group CHAMP for AUD290m (US$290.8m), the operations being renamed Accolade Wines.
Constellation’s rationale, that these interests were “no longer consistent with Constellation’s strategy”, reopened the debate about whether the wine business can match the profit expectations of public companies.
E&J Gallo, which reclaimed the mantle as the world’s largest wine company by volume as a result of Constellation’s move, was not slow to venture an opinion. Stephanie Gallo, marketing vice president and a grand-daughter of co-founder Ernest Gallo, said in February that remaining family-owned was "critically important" for the company’s success, enabling it to "innovate and develop relationships for the long term, without having to answer to the demands of Wall Street".
March saw Brown-Forman line up the sale of its Fetzer wine business to Chilean wine producer Viña Concha y Toro for US$238m. The sale comprised all of Brown-Forman's Californian wine assets, including Fetzer and the Bonterra, Jekel, Bel Arbor, Coldwater Creek and Sanctuary brands, which generated revenues in 2010 of US$156m.
Brown-Forman CEO Paul Varga said the company would be best served by redirecting its resources to "those opportunities around the world which offer stronger growth and higher returns on invested capital".
The Fetzer deal concluded in April and a month later Foster's Group completed the demerger of its wine operations which included the Rosemount and Penfolds wine businesses. Treasury Wine Estates was valued at around AUD2.1bn (US$2.3bn) on the day of the float.
At the same time, Rémy Cointreau was selling off its Champagne brands to Société Européenne de Participations, a family-owned company with interests in upmarket clothing and footwear, for an enterprise value of EUR412.2m (US$593.6m), in addition to paying off debts of around EUR240m owed by the unit to Rémy Cointreau. These operations generated revenues of EUR103.6m in the year to March.
EPI said this was a "very favourable environment" for the Champagne market, and a stream of 'good news' stories on Champagne suggests this was not post-takeover exuberance.
In May, the Comité Interprofessionnel des Vins de Champagne (CIVC) said worldwide Champagne sales rose by 18.7% in volume during the first quarter of 2011.
Champagne Jacquart CEO Laurent Reintau told just-drinks that Champagne was rebounding faster from the global economic downturn than after previous crises, but the industry still faced a challenge to win over emerging market consumers. With that in mind, the CIVC opened an office in Russia in May and announced plans to do the same in Brazil.
Champagne was not the only French wine region to report a brighter outlook.
In March, the Conseil Interprofessionel du Vin du Bordeaux (CIVB) said exports had risen by 14% and 17% in volume and value respectively in 2010, and reported further growth in June for the first quarter.
However, concerns over reforms in EU wine regulations were articulated by France's agriculture minister, Bruno Le Maire, at the opening of the Vinexpo wine show. The liberalisation of planting rights across the EU risked a wine glut, he warned.
Over-production was a prime reason why Europe found it difficult to compete during the New World wine boom, though New World progress this year was mixed.
Argentina and, the impact of a strong peso notwithstanding, Chile reported growth, while Brazil's prospects as a wine exporter also appear to be in the ascendancy.
However, reports emanating from Australia and particularly from New Zealand, were distinctly less cheery. Ironically, it is now these countries that are suffering from over-production.
In December, Oyster Bay producer Delegat's Group said it was performing in line with expectations, but currency, oversupply and macroeconomic weakness continued to represent challenging conditions. Delegat’s said the supply imbalance would prevail for at least another two years.
However, the record 2011 harvest, at 328,000 tonnes, was surprisingly greeted with "relief" by chair of New Zealand Winegrowers (NZW) Stuart Smith in June. In September, the NZW annual report stated that the industry was working through "difficult times" but that demand for the country’s wine continued to rise.
The tough times led to the first move into New Zealand by Chinese investors as a Chinese consortium acquired the Hawke’s Bay Paritua winery, which was in receivership, for an undisclosed fee. Analysts continued to forecast more business failures and concentration.
At 1.62m tonnes, the Australian harvest for 2011 may have been on a par with the average over the past five years, but Winemakers' Federation of Australia (WFA) CEO Stephen Strachan said it was still "too big", and that a harvest of that size was "out of step with the realities of sustainable production and the market opportunity for premium Australian wine".
One country whose wine sector is definitely on the up is the UK. Trade body English Wine Producers (EWP) reported that the 2010 harvest was the country's largest ever, at 30,346 hectolitres, equivalent to around 4m bottles, with sparkling wine now the UK's most popular wine style.
Meanwhile, the UK Vineyards Association (UKVA) recruited the world's most famous stepmother-in-law as its new president, announcing in July that the Duchess of Cornwall would be succeeding Lord Montagu of Beaulieu.
However, this year brought the news that the UK is no longer the most important market for the world's wine producers, at least according to a just-drinks survey of wine professionals published in May.
One reason cited for the change in sentiment was ever-increasing supermarket dominance, and it is interesting, as well as sad, to note that this year saw the demise of the Oddbins wine chain which had done so much to popularise wine in the UK, with its quirky style, knowledgeable staff and willingness to champion new wine regions.
On the other hand, the US market, in spite of current economic strife, appears to be attracting renewed attention.
Wines of South Africa (WoSA) announced earlier this month that it had appointed its first country manager for the US, reflecting its intention to increase its focus on the country's wine consumers.
The expansion of geographical horizons was probably welcome news for South African wine exporters, who faced a potentially damaging report from Human Rights Watch, entitled 'Ripe with Abuse', in August which accused a number of vineyard owners in South Africa of failing in their duty of care towards workers, claims rebutted by WoSA.
WoSA is not the only organisation to be eyeing the growth opportunities in the US. In November, Vinexpo unveiled plans to launch a consumer wine show in the US in 2012. 'Rendez-Vous by Vinexpo' will be the first Vinexpo show designed to bring companies and consumers together.
The US will consume 3.8bn bottles of wine in 2012, making it the world's biggest wine market, ahead of Italy and France, according to Vinexpo. A report published by the Beverage Information Group in August forecast that wine consumption in the US would increase by 6% over the next five years, having risen by 2% in 2010.
Another report, published in April by wine research and consultancy service Wine Intelligence, suggested the US wine market will witness a "revolution" over the next 20 years as younger consumers look for a broader range of wine styles.
US wine producers are also enjoying good times in the export arena, with the California Wine Institute reporting in February that US wine exports rose 25% to a record US$1.14bn in 2010, with volumes up by 2% to 47.3m cases.
Further proof that the California wine sector is a little more 'rock 'n' roll' than some of its European counterparts was provided this year.
In October, Wines that Rock, a joint venture between music business managers RZO and California's Mendocino Wine Co., added The Grateful Dead Steal Your Face Red Blend to its range, which also includes Rolling Stones Forty Licks Merlot, Woodstock Chardonnay, The Police Synchronicity Red Blend and Pink Floyd The Dark Side of the Moon Cabernet Sauvignon. A proportion of the proceeds from each sale go to various charities.
Earlier in the year, Gallo recruited Heidi Range from UK pop group Sugababes to promote its Summer Red.
Constellation launched a wine range called The Dreaming Tree, created by winemaker Steve Reeder and musician Dave Matthews in October, named after the Dave Matthews Band track The Dreaming Tree from the 1998 album Before These Crowded Streets.
The bottles are 50% lighter than average, with a sustainably grown natural cork closure, and the label is made from 100% recycled brown paper and sealed with an eco-friendly sealant.
On the subject of sustainable wine packaging, arguably the quirkiest innovation of 2011 was the announcement by GreenBottle that it had developed the world’s first 'paper' wine bottle. The fully recyclable and 100% compostable paper exterior is lined with plastic but the bottle as a whole uses around one third of the plastic of a conventional plastic bottle. The two materials can be separated on disposal.
This year has been a significant one regarding the drive for greater sustainability in the wine sector. In November, the International Organisation for Vine & Wine (OIV) agreed a universal method for calculating carbon dioxide emissions in the wine industry. The Greenhouse Gas Accounting Protocol will enable better tracking of emissions and make it easier to compare emissions data from different areas of the wine industry.
With regard to the health and diet side of the sustainability debate, all beverage alcohol companies have to cope with criticism and negative publicity, but at least the wine sector can put forward some credible evidence of associated health benefits. There are fewer 'light' variants on the wine market than in beer but this year saw the launch by a major brand of a low-calorie, low-alcohol range extension. Moreover, following Accolade Wines’ launch in August of Banrock Station Light, the company teamed up with slimming organisation Weight Watchers to promote the brand.
Associations with sport also do no harm when it comes to projecting a healthful image, and this year has seen a number of new wine sponsorships.
Tennis appears to be a popular sponsorship vehicle for wine. In November, LVMH unveiled a link-up with the Association of Tennis Professionals (ATP) granting Moët & Chandon 'Official Champagne' status on the ATP World Tour.
Meanwhile, Pernod Ricard ran promotions to capitalise on Jacob's Creek's position as the official wine brand of Wimbledon.
Earlier in the year, Beringer extended its sponsorship deal with the the PGA Tour in the US and Canada for a further four years. Also, Treasury Wine Estates signed a deal with the England Rugby Football Union making Wolf Blass the official wine of the England rugby team until June 2012.
Perhaps the most notable wine and sport connection of the year came in the form of new advertising launched by Viña Concha y Toro for its Casillero del Diablo in November.
The ad, which draws on the previously unrecognised acting prowess of Wayne Rooney, became an instant Internet hit.
Without wishing to cast aspersions, there are those who suspect Rooney, notwithstanding his genius on the pitch, may not be a great thinker, and expecting a sensitive, nuanced thespian performance from the star might have been a little optimistic. When he was last sent off for angrily kicking out at an opponent, one TV pundit suggested Rooney "really needs to learn to count to ten". Some people did wonder.
So does Rooney’s acting mean Concha y Toro’s attempt to reap a dividend from its tie-up with Manchester United has backfired? Or, does the ad going viral suggest the Red Devils’ partners knew exactly what they were doing.
Who knows. But, it’s worth another look.
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