the globalization of the wine industry_IMPLICATION

THEGLOBALIZATIONOFTHEWINEINDUSTRY:IMPLICATIONSFOROLDANDNEWWORLDPRODUCERSSusanCholette,Ph.D.,SanFranciscoStateUniversityRichardM.Castaldi,Ph.D.,SanFranciscoStateUniversityAprilFredrick,SanFranciscoStateUniversityOverviewTheconceptofindustryglobalizationinvolvesthemovementinactivecompetitiontowardaworldwidemarketplaceenvironment,theintegrationofnationalmarkets,andleadingrivalscompetingheadtoheadindifferentcountriesforworldwideleadership.Throughareviewofacademic,tradeandpopularpressarticlesandananalysisofrecentindustrydata,thispaperexplorestheglobalizingforcesthatarecurrentlyreshapingthewineindustryandhowdifferentwineregionsandtheproducersthereinarereactingtooranticipatingthechanges.Asrecentlyastenyearsago,theindustrywashighlyfragmented.Wineproducersindifferentcountrieswereisolatedfromeachother,andmostoftheworld’swinedrinkersconsumedeitherlocalwinesorimportsfromnearbyproducers,suchastheUnitedKingdom’shistoricalpenchantforFrenchwine.Aswinemakershadminimalcross-borderinteraction,theyfollowedtheirowntraditions.Thewineindustryhaschangeddramaticallyinrecentyears.Decreasesintariffs,logisticalcostreductionsandtheloweringofotherbarrierstointernationaltradehaveprovidedproducerstheopportunitytoselltheirproductsoutsideofalimitedregion,aswellasfacecompetitionfromdistantsuppliers.Winesfromaroundtheworldaredesiredandsoughtafterbyconsumers.Thisnewinternationalaccessisreshapinghowwinesareproducedandconsumedalike,andthoseabletoadapttothiswiderplayingfieldwillgainsignificantcompetitiveadvantage.Thepurposeofthisresearcheffortisto1)profilethemajorwineproducingcountries2)identifytheprimarydrivingforcesandkeysuccessfactorsshapingtheglobalwineindustryand3)toidentifywhichcountriesarebestpositionedtosuccessfullycapitalizeontheopportunitiesandcounterthechallengesbroughtbyglobalizationandtheotherdrivingforcesinthewineindustry.ProfilesofCountryProducersTounderstandthedifferentmajorplayersinthemarketthissectionexaminesseverallargewineproducingnations.Whileallcountrieshavetheirowndistinctwinemakingstyles,culturalandbusinessclimates,thispapercategorizesproducersaseitherOldWorldorNewWorldcountries.TheOldWorldproducers,definedasthosewithinEurope,havealong,uninterruptedhistoryofwineproductionandconsumption.Thesecondsmallestcontinent,Europeproduced73%ofallwinein2001.ThefourlargestEuropeanproducers,France,Italy,SpainandGermany,accountedfor73%ofEuropeanwineproductionand54%ofglobalproduction(Table1).NewWorldwineproducingcountriesaredefinedasthoseoutsideofEurope.FiveofthelargestandmostestablishedNewWorldproducersaretheUnitedStates,Argentina,Australia,SouthAfricaandChile.Thesefivecountriescomprised82%ofnon-Europeanvolumeand23%ofglobalproductionin2001.ThesefourOldWorldandfiveNewWorldcountriesaccountedfor77%oftheworld’ssupplyofwinein2001andareprofiledinthenextsection.TABLE1WineProductionbyProfiledCountryrankchange:2001in2001COUNTRY1997-2001average2001vs.1997-20001France5.65.3-4.8%-6.0%-12.7%-3.4%-13.9%-15.8%-1.6%2Italy5.35.03Spain3.53.14UnitedStates2.22.15Argentina1.41.616.0%7Austraila0.81.034.8%8Germany1.00.910SouthAfrica0.80.611Chile0.50.65.2%WorldTotal27.126.7Volume-billionlitersSource:adaptedfromWineInstitute,2003OldWorldWineProducingCountriesFrance.Franceisthelargestoverallproducerofwine,at5.3billionlitersofwinein2001,20%ofworldproduction(Table1).Francehastraditionallysetthestandardforqualitywineaswellasdefiningthesestandards.Frenchviticulturelawsmandatesfourlevelsofqualityas1)Appellationd’OrigineContrôlee(AOC)2)vinsdélimitequalitésupérieure(VDQS)3)vinsdupaysand4)vinsdutable(Table2).TABLE22002HarvestsforFrenchWine,fromHighesttoLowestQualityCategoryDescriptionbillionliters%ofTotalAOCStatusgrantedtowinesproducedonlyincertainareaswithspecificgrapesbystrictrules2.4346%VDQSWineswithcharacter,butnotyetrecognizedasworthyofAOCstatus.Lesscontrolsonyieldsandalcohol0.051%Vins-cognacWinesusedtoproducecognac,notAOCrated0.8716%VinsdePaysDesignatedfromaspecifiedarea,butregulationsarerelaxedoncropyieldsandgrapevarietiespermitted1.3425%Autrevins,Musts,JuicesVindeconnsumationcourrante,alsoknownasvinordinnaireorvindutable.Originneednotbespecified.0.5911%Source:AGRESTE,2002Total:5.28Thehighestlevel,AOC,hasover450appellationseachwithregulationsonallowablevarietalsandproductionmethods.AOCwinesreceivethemostattention,yettheyaccountforlessthanhalfoftotalwineproduction.Forinstance,4ofthe10largestwineproducingareasarewithinLanguedoc-Roussillon,whichproduces31%ofallFrenchwine,yetonly15%isAOCrated(Table3).Notallnon-AOCwinesarenecessarilyofpoorquality,andsomewinemakerswhousenon-traditionalvarietalsoptforlowerclassifications.Furthermore,somecriticsclaimthatmanyAOCwinesaremediocre;genericBordeauxhavebeendoggedbyaccusationsoffallingquality(Lechmere,2004).WhileFrancehasafewlargewinecompaniessuchasCastelFrèresandLVMH,productionisdominatedbysmallscalewineries;Bordeauxalonehasover20,000producers(Echiksonetal,2001).TABLE32002ProductionofWineinFrance,ShownfortheTopDepartmentsVolume-billionlitersRankbyRank(ofTopDepartmentAllWineAOC%AOCVolume14)by%AOCHeraultLanguedoc0.660.0812%112Giron