IntroductionOld World strategies against New Worldcompetition in a globalising wine industry

Gwyn CampbellDepartment of History, McGill University, Montreal, Canada, and

Nathalie GuibertAvignon University, Avignon, France

Abstract

Purpose – This introductory paper aims to place the contributions to this special issue within thecontext of the recent impact of globalisation on the wine industry, characterised by rapidly growingand evolving international markets, the expansion of New World wines on international markets, andthe response of Old World rivals to New World competition.

Design/methodology/approach – This paper examines the new competitive environment in thewine industry created by globalisation and outlines the way in which the authors of the papers in thisspecial issue have contributed to an understanding of that environment.

Findings – This paper reflects a renewed academic interest in winemaking, one of the most dynamicand rapidly developing agricultural sectors.

Originality/value – The paper hightlights how the authors of the papers in this special issue havecontributed to an understanding of this new competitive environment.

Keywords Wines, Globalization, International marketing, Marketing strategy

Paper type Research paper

This special issue of the BFJ comprises a number of papers on economics andmanagement, initially presented at the first international interdisciplinary conference on“Wine in the World: History, Management and Trade” organised by PRATIC[1] at theUniversity of Avignon (France) in spring 2004. These papers reflect a renewed academicinterest in winemaking, one of the most dynamic and rapidly developing agriculturalsectors. Viticulture, long the focus of research into new techniques and technologies, hasrecently attracted academic interest from a variety of disciplines, including economicsand management sciences due essentially to the globalisation of the wine industry overthe last decade or so, the accompanying rise in the value and profits of wines, and therapid emergence of new competitors on the international market (see Table I).

This introductory essay examines the new competitive environment in the wineindustry created by globalisation and outlines the way in which the authors of thepapers in this special edition have contributed to an understanding of thatenvironment.

The wine industry today: a global battlegroundAlthough Old World countries have retained their position as top producers of wine,they have been increasingly concerned by a widening gap between production anddomestic consumption of wine (see Table II).

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British Food JournalVol. 108 No. 4, 2006

pp. 233-242q Emerald Group Publishing Limited

0007-070XDOI 10.1108/00070700610657092

Per capita wine consumption in Italy halved from about 104 litres in 1975 to about 50litres in 2003 and in France fell from 103 litres in 1980 to 56 litres in 2003. Falling wineconsumption is in part due to competition from beer and soft drinks, notably amongstthe young, and in France also to tighter drink and drive legislation, and restrictions onadvertising wine (USDA, 2005). In France in 2002 bottled wine sales in supermarketsdropped 2.5 per cent, and volumes sold to the food service sector (traditionalrestaurants, cafeterias and company restaurants) by 2 per cent, although quality winessales continues to grow slowly. It is estimated that by 2010, French wine consumptionwill have declined by a full 25 per cent compared to 1999 (Gauthier, 2003) (seeTables III-V).

By contrast, domestic wine consumption in New World wine producing countries isgrowing. In Australia, for example, per capita wine consumption increased from 18.8litres in 1997 to almost 20 litres in 2002, while in the USA and Chile it has been growingat lower rates: in Chile from 16 litres in 1997 to 17 litres in 2003, while consumption inthe USA stood at 12 litres per capita in 2003 (USDA, 2005).

Country 2002 Rank 1986-1990 Rank

France 50,000 1 64,641 2Italy 44,604 2 65,715 1Spain 36,639 3 33,519 3USA 20,300 4 18,167 5Argentina 12,695 5 19,914 4China 11,200 7 2,734 16Australia 11,509 6 4,285 12Germany 9,885 8 10,012 7South Africa 7,189 9 7,742 9Portugal 6,651 10 8,455 8Chile 5,623 11 4,135 14Romania 5,461 12 7,133 10Russia 4,060 13 na naHungary 3,564 14 10,974 10

Source: International Organisation of Vine and Wine (2003)

Table I.Twelve top wineProducers, 2002 and theirposition in 1986-1990 –(in 000s ha)

Country 1991-1995 1997 1998 1999 2000 2001 2002

Italy Wine production 60,768 50,894 54,188 56,454 51,620 52,293 44,804Wine consumption 35,122 30,855 31,840 31,563 30,800 30,150 27,709Percent difference 42 39 41 44 40 42 38

France Wine production 52,886 53,561 52,671 60,535 57,541 53,389 50,000Wine consumption 37,310 35,500 36,330 35,400 34,500 33,916 33,580Percent difference 29 34 31 42 40 36 33

Spain Wine production 26,438 33,218 31,175 33,723 41,692 30,500 36,639Wine consumption 17,402 14,589 14,793 14,249 14,046 14,238 13,960Percent difference 42 56 53 58 66 53 62

Source: International Organisation of Vine and Wine (2003)

Table II.Difference betweenproduction andconsumption of wine inmain Old Worldproducing countries,1991-1995 and 1997-2002(in 000s hl)

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The export imperativeFalling domestic consumption has underlined for Old World producers the importanceof export markets (see Table VI).

Of particular importance for Old World producers are external wine marketscharacterised by a growth in both wine consumption and wine imports. These includeessentially non-wine producing countries like Britain and The Netherlands, but alsothe USA (USDA, 2005) and Germany – traditionally a white wine producer and themain export market for Italian wines (Perini, 2003) (see Table VII).

1985 1995 2000 2004% change1985-2004

Old WorldFrance 1,063 927 917 847 220Italy 1,103 927 908 837 224Spain 1,593 1,196 1,174 1,149 228

New WorldAustralia 64 73 140 164 157New Zealand 6 8 12 18 202Chile 106 54 104 111 5USA 334 305 413 382 14Argentina 295 210 209 202 232South Africa 110 103 117 126 15

Source: Gordon (2005, p. 52)

Table III.Vineyard-bearing areas,

1985-2004 (in ’000shectares)

1998/1999

1999/2000

2000/2001

2001/2002

2002/2003

2003/2004

2004/2005

forecastPercent

change (%)

France 54,271 62,935 59,741 55,338 51,850 47,519 58,533 23Italy 57,913 58,955 54,088 51,912 46,000 46,650 49,500 6Spain 34,741 37,809 45,572 33,850 38,186 47,300 44,000 27

Source: Brans (2004a)

Table IV.Old World wine

production1998/1999-2004/2005

(in ’000s hl)

2002-2003

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

Area under vine 140 146 153 159 163 167 171 176Production:

red 804 1,093 1,050 1,039 1,058 1,077 1,096 1,115white 519 683 727 744 783 821 859 897

Exports:quantity 508 581 679 778 880 980 1,082 1,181value 2,502 2,606 2,791 3,013 3,251 3,560 3,879 4,260

Source: Gordon (2005, p. 54)

Table V.Australia: medium-term

projected growth in wineproduction and export

(area in ’000s ha;production in kt; exports

in ML; real value in A$m)

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However, Old World wine producers have been severely challenged in all foreignmarkets by New World producers who have implemented sophisticated andaggressive international marketing strategies and are increasing their output ofmedium and quality wines.

Britain: a key marketA key market for both Old and New World wine producers is Britain, one of the fewmarkets showing a strong and sustained growth in per capita consumption of wine andwhere, due to climatic factors, domestic wine production is minimal. Britain, theworld’s largest importer of wine by value, is characterised by rising wine consumptionby both sexes and in all age groups[1]. Per capita wine consumption there has

Percent growth in quantity Percent growth in value

Old World producersFrance 26 þ4Spain þ9 þ12Italy þ9 þ15

New World producersAustralia þ20 þ29USA þ28 þ28South Africa þ12 þ26Chile þ18 þ24Argentina 217 þ31

Source: USDA (2005, pp. 17, 19)

Table VI.Percentage growth inwine exports, 2003-2004for selected Old andNew World producers

2000 2001 2002

Germany 727 744 732USA 543 611 718UK 215 244 271Switzerland 138 167 172Canada 106 113 127Japan 101 112 115France 135 107 89Austria 54 68 68Sweden 50 66 66Denmark 44 48 59The Netherlands 44 49 55Belgium 36 37 40Spain 29 13 14Russia 8 8 12Czech Republic 7 9 10Poland 10 9 7Others 185 175 174Grand Total 2,401 2,555 2,729

Source: Perini (2003, p. 7)

Table VII.Italian wine exports bycountry of destination(in e million)

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increased from 15.15 litres in 1993 to 24.02 litres in 2003 (compared, for example, to 21.6litres in The Netherlands), and is projected to rise to 28 litres by 2010 (USDA, 2005;Gordon, 2005[1]) (see Tables VIII and IX).

Factors taken into account by the British wine consumer are, in order of preference,previous acquaintance with the wine concerned, price, country and occasion. Theregion and grape variety are of major concern only to a minority of wealthy consumersof prestige wines – red Cabernet Sauvignon and Syrah, and white Chardonnay beingthe most popular varieties. In addition, by the mid 1990s, 70 per cent of wine purchasesin Britain were from supermarkets, which offer a wide range of good quality wines andtrain staff to advise customers specifically on wine choices, as opposed to 13 per cent inspecialist alcohol or wine retailers and 6 per cent in discount shops. By 2003, furtherstructural consolidation resulted in around ten major retailers controlling about 80 percent of off-premises sales – giving supermarkets enormous power over suppliers(Gordon, 2005; Nichterwitz, 1999[1]).

Moreover, consumer trends are changing. First, there is a marked tendency for winedrinkers to experiment rather than stick with traditional labels. Thus, whereas in 1990almost all the most popular brands were Old World wines, the competition hasincreased to incorporate about 26 wine-producing countries; the most popular brandscurrently come from the New World. Moreover, most purchases are made insupermarket chains (Shah, 2005; Nichterwitz, 1999). Second, whereas the market valueof wines sold in Britain increased by 43.2 per cent between 1996 and 2001, the volumesold increased by only 26.2 per cent – indicating a movement towards theconsumption of better quality wines rather than a price inflation – which has been heldback by a fiercely competitive marketplace. This in turn may be a reflection ofincreasing consumer incomes, greater leisure time, and continued interest in the

1992-2004 (av.) 1998 1999 2000 2001 2002

Imports 1,355.2 1,911.6 2,043.6 1,747.0 1,881.3 2,026.8Exports 48.8 118.0 122.9 121.8 121.4 137.6

Source: Overseas Trade Statistics (2003)

Table IX.Britain: imports and

exports of wine,1992-1994 (average) and

1998-2002 (in £ million inreal terms at 2002 prices)

2001 2002

UK 3,204 UK 3,242Germany 2,977 Germany 2,947Belgium and Luxembourg 1,702 Belgium and Luxembourg 1,772The Netherlands 1,530 The Netherlands 1,559USA 1,049 USA 1,116Denmark 696 Japan 636Canada 636 Denmark 621Japan 616 Switzerland 603Switzerland 658 Canada 596Others 14,140 14,360Grand total 15,189 15,476

Source: adapted from Gauthier (2003, p. 7)

Table VIII.France: wine exports

2001-2002 (’000s hl)

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potential health benefits of wine. However, the tendency even with quality wines hasbeen towards the purchase of New rather than Old World products (Gordon, 2005[1]).Moreover, the trends apparent in Britain are applicable throughout most of theWestern world (Iacopo Bernetti, Leonardo Casini and Nicola Marinelli in this volume;see also Jones, 2003; Kolkman, 2001).

The changing structure of demand in Britain has had a major impact upon OldWorld producers. In 1997, France was still the top supplier, representing one third ofimported wine by volume and almost half in value. Since excise taxes on wine inBritain are high, there was also considerable private import from France (rising, e.g.from 85 million litres in 1993 to 200 million in 1995) representing 10-15 per cent of themarket. French wines also dominated the pub, club and restaurant circuits(Nichterwitz, 1999).

However, whereas in 1995, French, German and Italian wines accounted for about66 per cent of British wine imports, this figure had dropped to almost 35 per cent by2003 (Jones, 2003). The French share of the British wine sale market is in steadydecline: Between 1991 and 1995 it fell from 41.09 to 32.43 per cent, picked up in 1996but dropped 6 per cent from 1988-1997 and is continuing to decline (although itremained stable in volume). German wines similarly fell – a reflection of growingBritish consumer preference for red wines.

By contrast, New World wine-producing countries have radically increased theirshare of the British market. Australia, which in 2003-2004 exported approximately 43per cent of its wine output and for which Britain is the most important market inquantity and value of wine exported (Gordon, 2005), has proved the most dynamiccompetitor. By 2000, the production of a limited range of non-traditional blends and anaggressive sales campaign led Australia to overtake France in the white wine marketin Britain, where its middle range of affordable wines have helped to create and enlargea consumer market amongst women (Usher, 2001). By 2004, Australia was stronglychallenging France in on-premise sales. Between 2003 and 2004, the French share ofon-premise wine sales by volume declined from 41 to 34 per cent, while the Australianshare increased from 13 to 17 per cent. Currently, six of the top-selling wines in Britainare Australian (Gordon, 2005).

Also, competition is increasing amongst New World producers. Thus in Britain,wines from California, Chile and South Africa are competing strongly with Australianbrands (Gordon, 2005) (see Table X).

2001 2002 2003Volume Value Volume Value Volume Value

White 900,743 352,577 1,001,061 388,312 920,380 377,688Red and rose 880,082 440,789 1,110,784 496,247 1,056,782 427,232Sparkling wines 35,305 24,559 38,514 23,218 48,808 26,685Fortified wines 7,874 2,675 18,029 9,014 8,476 4,086Total 1,824,493 821,078 2,168,677 916,911 2,034,630 795,849

Source: USDA Foreign Agricultural Service (2004, pp. 13-14)

Table X.Britain: imports ofAustralian wines,2001-2004 (’000s hl andAus $’000)

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New World successNew World producers are not only competing strongly for Old World markets, they arealso rapidly increasing their market share in the markets of the future, such as the USAwhere wine consumption is expected to rise by 29 per cent over the medium term tomake it the world’s biggest market for wine by 2010, and China which currently has apotential market of 80-100 million wealthy white-collar workers (Shah, 2005).

The rise and success of New World wine producers is due to a number offactors. The first is rapid vertical and horizontal integration. Second, they haveadopted a more industrial approach that uses technology to develop new cultivars,improve existing cultivars, and obtain standardised products (USDA, 2004). Also,they have developed strong marketing strategies (e.g. simplified labelling andattractive product design) aimed to appeal to the widest possible spectrum ofconsumers. They concentrate on promoting mainly varietal wines (e.g. for Jacob’sCreek, Alice White and Yellow Tail) via the supermarket chains and throughadvertising building brand loyalty (Nathalie Guibert in this issue; Shah, 2005;USDA, 2004; USDA, 2003). Moreover, whereas they traditionally focused chiefly onthe sale of medium-quality, medium-priced wines, they are widening their qualityrange to include premium wines. For example, Constellation, the world’s largestwine company, attributed record sales for its third quarter ending in November 2004to a sustained rise in the sale of premium wines (Gordon, 2005).

To sum up, recent research indicates that the conventional assumption thatspecialist producers of premium wines will thrive in the global market alongsidemultinationals catering for the mass market does not necessarily hold if, as is the casewith Australia and other New World producers, investment in advertising andmarketing techniques is such that they capture even those consumers traditionallyloyal to elite Old World labels.

The response of Old World producers

To penetrate the UK market, it is essential to have a good understanding of the market, tohave a well-prepared product strategy and to be flexible . . . The merchandising strategy ofsupermarkets has made wine more accessible to consumers who are now less apprehensive(especially women) . . . Generic promotion (of appellations d’origine) can add real value to themarket if the correct marketing strategy is not compromised by the desire to please everyone(Nico Thiriot, Director, Niconnection Ltd, ex-Sainsbury’s Calais, reported in Shah, 2005).

It is clear that the rapidly changing structure of the international wine market andfierce competition from the New World poses major challenges to Old Worldproducers, and the Old World response forms the context for the contributions to thisspecial edition.

Only from the end of the 1990s did Old World wine producing countries start toeffectively act to redress the twin problems of global overproduction and foreigncompetition. In traditional fashion, winegrowers in Old World countries have looked togovernment for protection and assistance. Some tactics employed are essentiallydefensive. On the EU level strict regulations have been implemented concerning theplanting of vines and of permitted varieties. However, the current CAP (CommonAgricultural Policy) call for a general prohibition of new vine planting up to 2010 hasnot been followed in all regions. In 2004, European production of wine increased for the

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first time since 2001: in Spain to c.40 million hectolitres, in France to an estimated 58.5million hectolitres (a 23 per cent increase) and in Italy to 53 million hectolitres (a 20 percent increase). Again, Old World governments have focussed particular attention uponprotection of regional names (appellations), winemaking practices and registeredtrademarks – including effective protection of semi-generic wine names such as“Champagne” (Gauthier, 2003; Brans, 2004a, b; Perez, 2003). Also, in January 2005 theFrench government announced a e66.5 million aid package for the wine industry, andin April 2005 an additional e30 million. Such aid is designed to compensate foroverproduction and, more critically for the long-term development of the wine sector, topromote exports.

On the other hand, as shown by Emmanuelle Reynaud and Eric Simon for Franceand Iacopo Bernetti, Leonardo Casini and Nicola Marinelli for Italy, many individualOld World producers continue to rigidly adhere to the customary gods of “terror” andfamily traditions of production. For example, in 2000 there were 144,000 wine growersin France, alone of whom 42 per cent produce chiefly VQPRD wines (“Quality WinesProduced in Determined Regions or Areas,” a European classification that combinesFrench AOC wines and VDQS “Superior Quality” wines). Moreover, vineyardsrepresented a significant proportion of cultivated land: 17 per cent in France, 15.8 percent in Spain and 11.9 per cent in Italy (Gauthier, 2003).

Nevertheless, the realisation that the future of their wine industries depends uponbeing able to successfully compete in foreign markets has forced Old World producersto critically reappraise how the forces of globalisation have reconfigured wineproduction and trade on an international level and seek ways to identify theopportunities and threats present in the new competitive global environment (Shah,2005). These issues have in turn attracted the attention of researchers wishing to testthe validity of both general and specific theories regarding the effects of globalisation.

Emmanuelle Reynaud and Eric Simon demonstrate that the first step to success isfor individual wine producers to redefine their key business competences, whileTatiana Chameeva-Bouzdine describes the main models of analysis that enable keycompetences to be both identified and fully utilised – the distinctive competency mostcritical to success being wine quality.

Another major factor is the ability of the most fragmented sectors of production inthe Old World to create or reinforce inter-company networks and otherwise seekgreater coordination between producers. In this, the winemaking sector constitutes aprime field for the application of modern theories, such as Mark Granovetter’s theory ofembeddedness, which focuses on strategies to develop more coherentinter-organisational structures (Granovetter, 1985).

Several papers presented here focus upon the importance of “networks” forindividual producers or wine merchants to effectively compete. Bernetti, Casini andMarinelli stress the importance of cooperatives in Italy. Jean-Laurent Viviani in hisanalysis of the collective response to the threats to revenue to wine-growers in Francenotes that pooled resources and management appear to be key for individual OldWorld producers, in terms both of risk reduction and marketing. In her turn, NathalieGuibert demonstrates the way in which, in the new competitive environment,intermediaries employ a range of regulating mechanisms within their own networks ofdistribution and observes that some Old World wine producers and merchants arerestructuring along New World lines, notably as regards vertical integration.

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In terms of the market, price and advertising are critical factors. In his study of18 countries including the chief wine producers and wine consumers, James Fogartyidentifies the underlying factors behind variations in the elasticity of demand foralcohol – a hitherto little studied phenomenon yet one vital to the formulation ofpricing and government tax policies. In particular, his study shows that nationalvariations are not significant. Finally, Iacopo Bernetti, Leonardo Casini and NicolaMarinelli note the role of advertising, notably in terms of consumer perceptions ofquality and building up “consumer loyalty” as a critical area upon which theproducer-distributor chain needs to focus in order to achieve an enlarged market.

In the current environment of rapidly changing factors on the demand and supplyside – as all contributors to this volume underline – there is urgent need for furtherresearch into organisational and managerial strategies. As noted by one of the topindependent (family-based) wine producers in Australia:

To survive, wine companies, especially smaller ones, have to match the weight and power ofretailers or offer a point of difference. That means that there is less and less room for smaller,inexperienced players and that, even medium-sized players are going to suffer. There seemsto be room only for either very big players or very small ones with a very good offer suited todifferent markets/channels and with a very good management team (Paul Pacino, CEO SimonGilbert Wines, New South Wales, quoted in Shah, 2005).

Note

1. “Programme de Recherche Avignonnais Transdisciplinaire sur l’Internationalisation duCommerce” (Avignon Interdiscinary Research Programme into Management and theInternational Wine Trade). The second conference in the series will be held at the Universityof Florence (Italy) in June 2006.

References

Brans, H. (2004a), “European Union Wine. U Wine Labeling – Amended Rules 2004”, GAINReport E24043, 2 March.

Brans, H. (2004b), “EU-25 Wine 2004 EU Wine Harvest 2004”, GAIN Report E34070, 10 August.

Gauthier, R. (2003), “France Wine Annual 2003”, GAIN Report FR3072, 22 December.

Gordon, W. (2005), “Wine outlook to 2009-2010”, Australian Commodities, Vol. 12 No. 1, March.

Granovetter, M. (1985), “Economic action and social structure: the problem of embeddedness”,American Journal of Sociology, Vol. 91 No. 3, pp. 481-510.

Jones, J. (2003), “The world’s wines flow to a brimming UK market”, AgExporter, June.

Kolkman, W. (2001), “The Dutch taste for ‘New World’ wines grows”, AgExporter, December.

Nichterwitz, K. (1999), “The Role of Cotes du Rhone in the British market”, Memoire de Maıtrise,Universite d’Avignon.

Perez, D. (2003), “Spain Wine Annual 2003”, GAIN Report SP3040, 19 November.

Perini, S. (2003), “Italy Wine Annual 2003”, GAIN Report IT3029, 19 December.

Shah, M. (2005), “The future is global”, Chianto Classico Magazine, Vol. 12, March.

USDA (2005), World Wine Situation and Outlook, USDA, Washington, DC.

USDA Foreign Agricultural Service (2003), “South Africa, Republic of Wine Competition Annual2003”, GAIN Report, 14 July.

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USDA Foreign Agricultural Service (2004), “Australia Wine Annual 2004”, GAIN Report, 18June.

Usher, R. (2001), “Portugal’s grape escape”, Time Magazine, 21 August.

Further reading

www.findarticles.com/p/articles/mi_m3488/is_7_83/ai_89240036/pg_2 (2005), accessed10 September 2005.

www.mindbranch.com/listing/product/R310-0339.html (2005), accessed 10 September 2005.

www.rspb.org.uk/countryside/whatyoucando/cork/world_market.asp (2005), accessed10 September 2005.

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