Global Wine Wars

Finally, the governance factor has played an important role, through their legislators and industry associations from each country. Originally, France began to tax to owners of vineyards, as it started to be a major industry, which was very attractive to the government, while in New World countries there is more freedom to produce and sell wine internally and for its production and export.

The first of these events was the spread of Phylloxera, which had destroyed much of Europe’s vineyards. Napa’s vineyards remedied this by grafting local rootstocks to their vinifera vines. In a way, Phylloxera’s devastating effect on Europe, helped Napa Valley and American vineyards in general. Tariffs “levied against French wine in 1879 coupled with the small production of European wines, due to the ravages of Phylloxera made California wines more popular than ever.” (Leve).

This growing demand has added to the attractiveness of the industry with many new producers entering the market. US Wine producers have also been able to establish an improved reputation among experts and are now becoming more accepted internationally. Wine producers have managed to make their products more accessible to consumers, offering them through a wider array of distribution channels. In relation to foreign competitors, US wine consumption is still small, with Americans consuming less than 3 gallons per person, demonstrating more room for industry growth. Wine sales through eccomerce and other direct to consumer sales have also experienced rapid growth. Laws facilitating direct-to –consumer shipments have helped in the increase of distribution of wine eliminating the need for other distributers.

To drive home the damaging nature of tariffs, Smith used the example of making wine in Scotland. He pointed out that good grapes could be grown in Scotland in hothouses, but the extra costs of heating would make Scottish wine 30 times more expensive than French wines. Far better, he reasoned, would be to trade something Scotland had an abundance of, such as wool, in return for the wine. In other words, because France has a competitive advantage in producing wine, tariffs aimed to create and protect a domestic wine industry would just waste resources and cost the public money.

Although France is known at the mother country as a whole, there are still some regions that are more productive and successful at making and distributing wine. Alsace, Beaujolais, and

Large-scale wine suppliers from New World countries (US, SAm, SAf, Australia) were exploiting modern viticulture and more scientific winemaking practices to produce more consistent “high-quality wines”.

For Old World wine producers such as France, it will be a little more difficult in implementing changes as

The wine industry was capital intensive. In addition to land and vineyards, a firm needed

The Old World wine industry, centered on France, Italy, Spain, Portugal, and Germany, was characterized by long-standing traditions of wine production, industry fragmentation, high levels of regulation from production to labeling and marketing, and strong domestic markets. Most Old World wines were made from a blend of different grapes and were named after the growing regions themselves, such as Bordeaux, Chianti, or Rioja, which resulted in considerable complexity of designation—for example, the French regulatory system included 450 different apellations d’origine controlées (AOCs, or registered origin names). The Old World philosophy of wine production was based on the importance of terroir (terrain), which assumed that every vineyard was unique because of differences including soil, microclimate, topography, and the skill and practices of the winemaker. The New World wine industry, dominated by Australia, the United States, South Africa, Chile, and Argentina, was more concentrated and more focused on exports. In addition, the lack of stringent regulation in the New World had spurred innovation in production processes and a more scientific

In the Old World, the declining demand caused a loss of share in export markets. Consequently, this caused a structural wine surplus. The wine surplus in the Old World caused the global wine market to lower their prices. Here, the challenge for the New World was to create a better image and move out of the competitive low price market.

Wine which was considered a simple and a limited drink became an industry of its own generating millions in profit and having a huge consumer base with different tastes and aspirations. The changes as well as the differences in the age groups who are becoming the major markets for wine producers have created visible and different market trends that cannot be ignored. These trends also affect the global market, as well as economies of many Counties that rely on the wine industry for profit.

The wine surplus in the Old World caused the global wine market to lower their prices. Here, the challenge for the New World was to create a better image and move out of the competitive low price market.

In order to understand exactly how wine is produced, one must go all the way back to it’s main component – fruit. In many cases, wine’s main component is grapes. Grapes are grown on a

Bordeaux’s cru classe wines are sold on the Place de Bordeaux, a system of wine merchants (negociants) and brokers (courtiers) who work with chateaux to send their wines to market. The wines are also sold en primeur, whereby customers may purchase wines far in advance of their bottling and public release. This trade structure is largely the result of three interrelated historical phenomena: Bordeaux’s unique relationship, and robust trade, with England; the arrival of foreign merchants in the seventeenth and eighteenth centuries; and the chateaux owners’ wealth and social standing.

Studies done in Australia during 2001 by the wine journal industry emerged with a very similar quality segment system which is divided in four categories as well; Commercial wines, Semi-premium wines, Premium wines and ultra-premium wines. Various winemakers have stated that there is only a hedonic difference between the last two categories (Blok, 2007). Retail distribution channels will therefore vary between wine categories as the winery management determines which channel to target. Depending on quality and quantity the winery could select to distribute for wholesalers, retailers, cellar doors, direct consumers or a combination of these (Heijbroek, 2003; SCSD, 2010).