Comment - Wine - Old World Problems Proffer New World Opportunity

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In recent years, the wine producers from the Old World have struggled with weak harvests. The issue has provided a perfect opportunity for the New World to make hay. But, how successful have the likes of Argentina, Australia, Chile and New Zealand been? Chris Losh takes a look.

The French have always liked to boast that God is a Frenchman. Indeed, after the vignerons of Bordeaux were handed the licence-to-print-money gift of a great millennial vintage, they claimed that he wasn’t just French, but Bordelais.

I suspect they were only half-joking.

However, le Dieu Francais has turned wrathful. The last three years have been patchy in quality and the last two years, in particular, way down on quantity. So far, so unremarkable, you might think; these things happen in an agricultural product like wine.

The significance of a year like 2012, however, is that that it wasn’t just France that got hit. Both Italy and Spain recorded vintages that year that were 15% to 20% below average. Between them, in 2012, Europe’s three powerhouse regions made some 20m hectolitres of wine less than they were expecting. The rest of Europe fared little better.

In any industry, such a significant drop in your competitors’ capacity would represent a massive opportunity; a chance to muscle in and steal some market share while your under-resourced opponent watches helplessly from the sidelines.

A look at the New World’s performance seems to support this. Chilean exports for 2013 were up 13% to 809m litres; South Africa’s 26% rise gave it a record 525m litres; while California’s 434m litres was its best performance for five years.

Yet, Australia’s exports for that year were the smallest since 2004, and Argentina was around 20% down. All of which suggests that it’s not as simple as "European shortage, New World steps in to fill the gap".

There are, I would suggest, two quite different dynamics at play in this post-2012 scenario. In the on-trade, there are real opportunities for the New World countries. Shortages and/or price rises in southern Italian, southern French or La Manchan table wine are sure to see more non-European countries gaining listings at the cheaper end of the wine list. 

And, since few punters care over-much where a house wine comes from, there’s a fair chance that they might hold onto these spots once Puglia and the Languedoc re-enter the game.

Moving upmarket, there are gains to be had, too. Yes, Sancerre, Chablis and Chianti are must-lists, and restaurants will still stock them. But, if price rises take the basic generic versions beyond price points that the uncritical customer is prepared to tolerate, this opens the door for New World alternatives. 

Australia, particularly, is making Chardonnays in a style, and at a price, that can compete squarely with Bourgogne Blanc and AC Chablis, and most sommeliers I’ve spoken to are happy with the idea of hand-selling something different from the norm, provided the wine over-delivers.

In the on-trade, then, the omnishambles Euro vintage of 2012 (followed, in the case of France and Italy, by a short 2013 as well) offers a real opportunity to gain a foothold on areas of the wine list that have traditionally been closed to them.

The same, however, does not seem to be true of the off-trade. While restaurants might be happy to de-list certain big-name styles at the lower-end, confident that they can hand-sell an alternative, supermarkets do not have this option.

As one buyer put it to me: "Customers don’t understand - or want to understand - fluctuations in vintages. They want to drink the same thing all year round."

Clearly, in freakish years where there’s practically no production at all (such as Loire whites in 2013), supermarkets can’t magic product out of thin air. But, they’re masters at managing sales levels; at spreading SKUs around their stores, or, more significantly, minimising promotional work to eke out volumes.

"We’ll see less Chablis and Chateauneuf promotions at Christmas," as one Burgundian negotiant put it.

Such guarding of volumes makes it hard for the New World to ‘steal’ facings off Europe. But, in fact, the issue is less about supply than it is about demand. As one buyer said: "There’s no point in putting more Rioja on the shelf to make up for a lack of claret. It’s a different consumer entirely."

In other words, a shortage of red Burgundy, say, won’t see a rise in facings of New World Pinot in the supermarkets.

Moreover, the loyalty (some might say conservatism) of off-trade customers is far greater when it comes to big-name Old World regions, than it is for their New World equivalents. A buyer of Sancerre, for instance, might migrate into Chablis, if no Loire Sauvignon is available, but he is unlikely to head to New Zealand; whereas buyers of New World Sauvignon Blanc care far less whether their chosen variety comes from the South Island or Stellenbosch.

Hence, while parts of the New World have made undeniable gains over the last 12 months, it’s valid to ask how easily they will be able to hold onto them once Europe is back at full speed, particularly since some of the growth has gone not to established export markets, but to the countries with the shortfall. 

Australia, for instance, sold almost 5m litres of wine to Italy in 2013 (20 times more than usual); Chile shipped a colossal 24m litres of bulk to Spain in 2012, doubling its bulk exports in the process.

Nobody would expect these to be permanent trends. Indeed, some have suggested that the single biggest factor in the New World’s recent encouraging performance has been less the travails of Europe, or even improvements in quality, than more favourable exchange rates. In which case, the performance of Argentina (whose currency fell off a cliff - again - a few months ago) could be an interesting bellweather over the next year.

Europe’s terrible 2012 vintage, then, was a paradox. As well as providing the New World with some new opportunities, it’s also revealed the magnitude of the task involved in breaking down the Old World’s defences. 

God, the winegrowers of the Southern Hemisphere might bitterly reflect, may not be French. But, on this evidence, he’s probably European…

Sectors: Wine

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