Wine industry – past, present, and future

Evolution of modern wine industry through three major epochs is characterized of several challenges and opportunities capitalized by major players in the present world. During the era as back as 4000 BC production of large scale wine was localized in Middle East due to limited know how around vine cultivation and preservation of wine. Consumption was also reserved for the elites and trade never expanded beyond few neighboring regions. The emergence of Greek and Roman Empire led to the expansion of both production and distribution of wine from Middle East to as far as Europe. The consumption was simultaneously widened including slaves. The inter-mixing of culture led to the spread of viticulture1 and wine making during this era. Successful attempt to make wine an inherent cultural ingredient especially in any religious event transformed its initial image from a luxurious to a compulsory drink. Consequently, it became a profitable agricultural product and a tradable commodity in Europe and Mediterranean region.With growing dominance of Church and their interest in wine helped the industry to thrive during the Middle Ages. However, the production and distribution, Europe (major market in the Middle Ages) was dominated by church as they owned and operated large vineyards. However, the peasants became major players to cater to the growing demand as wine and beer were no longer a luxury rather a necessity, due to the dearth of safe water supplies in most of the major cities in Europe.Since Middle Ages to the period sandwiched between the two world wars, wine industry survived major challenges which included epidemics, overproduction, new regulations, and prohibition. Epidemics affected the production leading to severe shortage around 1870s in France while in the later stages over production driven by high yielding vines led to an overall decline in prices. The mixing of domestic wines with foreign wines by wine merchants laid the foundation of regulatory oversight on the industry. The regulations aimed at ensuring the authenticity of various wines.In the next fifty years after World War II, wine industry witnessed new trends encompassing both supply and demand side of the industry. The industrial process took over the traditional methods of wine- making. The development of modern refrigeration techniques enabled warm countries to produce wine of quality that competed with that of the countries which gained expertise over centuries. Regulations across the globe to ensure quality wine and facilitate trade increased in both scale and scope, leading to severe penalties in case of non –compliance. Consumption in key markets especially, in France and Italy declined owing to affordable substitutes and negative perceptions about alcohol. At the same time, wine demand spread across new world (outside Europe) thanks to rising economic prosperity in respective regions.Similar to any industry with promising growth potential, wine industry has a fragmented structure characterized by spawning of many producers of various sizes, location, and specialties. However, the industry was more concentrated in Australia, the US, and Chile (The new world). In striking similarity with the ancient times, the production and consumption of wines in 20th century remained localized to a great extent despite ongoing expansion in trade and technology transfers. The wines in the modern world (20th century) evolved on the new way of wine making technological methods and innovations; transitioning from traditional to industrial process. The new age wine bottle also saw labeling – entailing clear details. Another point of difference from the European era was the New World produced wines focused on the wide range of pricing, regions, place, winery and ratings. A great importance was also given on the marketing strategies for increasing the wine demand.

The wine industry in 21st century is characterized by the success of New World producers vis-à-vis the fragmented markets created and dominated by traditional 1 is the science, production, and study of grapes

European players. New players with sound financial background embarked on a path of backward integration through both organic and inorganic means to i) mitigate the supply shock inherent in the cultivation of grapes, ii) increase the scale of manufacturing and distribution , and iii) rely more on focused marketing to increase the differentiation leading to higher average selling prices. Improved technologies, new source of grapes plantation, marketing skills and emerged academic expertise proved to be the turning point in the making of high quality wines of the modern world in comparison to the Old world.

The industry has high entry barriers which can be broadly classified as – financial and technical. New entrants must be financially sound to establish an integrated

Harvesting

Crushing & De-stemming

Fermentation Fermentation

Skins are fermented with crushed grapes for Red wine preparation

Skins are removed only after a few hours for white wine preparation

Yeast Yeast

Ageing

Filtered, Clarified

Bottling/ Labeling/ Certifications

Pressing Pressing

Free Run Wine Free Run Wine

Press Wine Press Wine

Aged Longer Consumed Early

Red Wine White Wine

Marketing Strategies:

- Positioning to create a value proposition- Cutting Edge Technology to ensure a wide range and superior quality- Advertisement to boost demand and to create brand awareness

Marketing & Branding

Oak/ Stainless Steel Barrels

Oak/ Stainless Steel Barrels

structure enabled through state of the art technology. Typically, industry has seen lot of merger and acquisitions, whereby, bigger players have acquired new or niche players to expand their product lines. e.g., Foster’s Brewing from Australia acquired more than 20 wine producers in the span of 6 years. Supply shocks inherent to grape cultivation, high capital investment with respect to manufacturing and distribution, extensive marketing and branding requirements undoubtedly poses stiff challenges to a new player.

Overall we are yet to see the evolution of wine industry into a global enterprise. The localized sources of production driven by the regional availability of grapes coupled with localized consumption are a major constraining factor. Nevertheless, wine distribution with varying degree has penetrated most part of the world.