The Global Wine War

September 6, 2017 Economics

9-910-405 AUGUST 13, 2009 CHRISTOPHER A. BARTLETT “We have the people, expertise, technology and commitment to gain global preeminence for Australian wine by 2025. It will come by anticipating the market, influencing consumer demand, and building on our strategy of sustainable growth. ” — Sam Toley, CEO of Australian Wine and Brandy Corporation. “By phasing out the buyback of excess wine and increasing incentives for farmers to uproot their vines, the EC reforms will only bring in the New World’s agro-industry model. We need to protect the age-old European model built on traditional vineyards. — Jean-Louis Piton, Copa-Cogeca Farmers Association. In 2009, these two views reflected some of the very different sentiments unleashed by the fierce competitive battle raging between traditional wine makers and some new industry players as they fought for a share of the $230 billion global wine market. Many Old World wine producers—France, Italy, and Spain, for example—found themselves constrained by embedded wine-making traditions, restrictive industry regulations, and complex national and European Community legislation.

This provided an opportunity for New World wine companies—from Australia, the United States, and Chile, for instance—to challenge the more established Old World producers by introducing innovations at every stage of the value chain. In the Beginning1 Grape growing and wine making have been human preoccupations at least since the times when ancient Egyptians and Greeks offered wine as tributes to dead pharaohs and tempestuous gods. It was under the Roman Empire that viticulture spread throughout the Mediterranean region, and almost every town had its local vineyards and wine was a peasant’s beverage to accompany everyday meals.

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By the Christian era, wine became part of liturgical services, and monasteries planted vines and built wineries. By the Middle Ages, the European nobility began planting vineyards as a mark of prestige, competing with one another in the quality of wine served at their tables – the first niche market for premium wine. ____________________________________________________________ ____________________________________________________ Professor Christopher A. Bartlett prepared the original version of this case, “Global Wine Wars: New World Challenges Old (A),” HBS No. 03056, which is being replaced by this version prepared by the same author. This case was developed from published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2009 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www. bsp. harvard. edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. Distributed by ecch, UK and USA www. ecch. com All rights reserved North America t +1 781 239 5884 e [email protected] com Rest of the world t +44 (0)1234 750903 e [email protected] com ecch the case for learning Purchased for use on the International Management programme, at SDA Bocconi School of Management. Taught by Markus Venzin, from 12-Sep-2011 to 12-Dec-2011.

Order ref 93825. Usage permitted only within these parameters otherwise contact [email protected] com Global Wine War 2009: New World versus Old 910-405 Global Wine War 2009: New World versus Old Wine Production Tending and harvesting grapes has always been labor intensive, and one worker could typically look after only a three hectare lot. (1 hectare. = 2. 47 acres) The introduction of vineyard horses in the early 19th century led to vines being planted in rows and to more efficient tending and allowed one person to work a plot of 7 hectares.

Yet despite these efficiencies, vineyards became smaller, not larger. Over many centuries, small agricultural holdings were continually fragmented as land was parceled out by kings, taken in wars, or broken up through inheritance. During the French Revolution, many large estates were seized, divided, and sold at auction. And after 1815, the Napoleonic inheritance code prescribed how land had to be passed on to all rightful heirs. By the mid-19th century, the average holding in France was 5. 5 ha. and was still being subdivided. (In Italy, similar events left the average vineyard at 0. ha. ) While the largest estates made their own wine, most small farmers sold their grapes to the local wine maker or vintner. With payment based on weight, there was little incentive to pursue quality by reducing yield. Some small growers formed cooperatives, hoping to participate in wine making’s downstream profit, but grape growing and wine making remained highly fragmented. Distribution and Marketing Traditionally, wine was sold in bulk to merchant traders—negociants in France—who often blended and bottled the product before distributing it.

But poor roads and complex toll and tax systems made cross-border shipping extremely expensive. In the early 19th century, for example, a shipment of wine from Strasbourg to the Dutch border had to pass through 31 toll stations. 2 And since wine did not travel well, much of it spoiled on the long journeys. As a result, only the most sophisticated negociants could handle exports, and only the rich could afford the imported luxury. Late 18th century innovations such as mass production of glass bottles, the use of cork stoppers, and the development of pasteurization revolutionized the industry.

With greater wine stability and longevity, distribution to distant markets and bottle aging of good vintages became the norm. Increased vine plantings and expanded production followed, and a global market for wine was born. Regulation and Classification As the industry developed, it became increasingly important to the cultural and economic life of the producing countries. By the mid-18th century in France, grape growing supported 1. 5 million families and an equal number in wine-related businesses. Eventually, it accounted for one-sixth of France’s total trading revenue, and was the country’s second-largest export.

The industry’s growing cultural and economic importance attracted political attention, and with it, laws and regulations to control almost every aspect of wine making. For example, Germany’s 1644 wine classification scheme prescribed 65 classes of quality, with rules for everything from ripeness required for harvesting to minimum sugar content. (Even in 1971, a law was passed in Germany requiring a government panel to taste each vineyard’s annual vintage and assign it a quality level. 3) Similar regulations prescribing wine-making practices also existed in France and Italy.

Rather than resisting such government classifications and controls, producers often supported and even augmented them as a way of differentiating their products and raising entry barriers. For example, the current French classification system was created by a Bordeaux committee prior to the 1855 Exposition in Paris. To help consumers identify their finest wines, they classified about 500 vineyards into five levels of quality, from premier cru (first growth) to cinquieme cru (fifth growth). 2 Purchased for use on the International Management programme, at SDA Bocconi School of Management.

Taught by Markus Venzin, from 12-Sep-2011 to 12-Dec-2011. Order ref 93825. Usage permitted only within these parameters otherwise contact [email protected] com Global Wine War 2009: New World versus Old 910-405 Because it helped consumers sort through the complexity of a highly fragmented market, this marketing tool soon gained wide recognition, leading the government to codify and expand it in the Appellation d’Origin Controllee (AOC) laws of 1935. These laws also defined regional boundaries and set detailed and quite rigid standards for vineyards and wine makers. Eventually, more than 300 AOC designations were authorized, from the well known (Saint Emilion or Beaujolais) to the obscure (Fitou or St. Peray). (A similar classification scheme was later introduced in Italy defining 213 Denominazione di Origne Controllate (or DOC) regions, each with regulations prescribing area, allowed grape varieties, yields, required growing practices, acceptable alcohol content, label design etc. 5) Later, other wine regions of France were given official recognition with the classification of Vins Delimites de Qualite Superieure (VDQS), but these were usually regarded as of lower rank than AOC wines.

Below VDQS were Vins de Pays, or country wine — inexpensive but very drinkable wines for French tables, and increasingly, for export. These categories were quite rigid with almost no movement across them. This was due to a belief that quality was linked to terroir, the almost mystical combination of soil, aspect, microclimate, rainfall, and cultivation that the French passionately believed gave the wine from each region— and indeed, each vineyard— its unique character. But terroir could not guarantee consistent quality.

As an agricultural product, wine was always th subject to the vagaries of weather and disease. In the last quarter of the 19 century, a deadly New World insect, phylloxera, devastated the French vine stock. From a production level of 500 million liters in 1876, output dropped to just 2 million liters in 1885. But a solution was found in an unexpected quarter: French vines were grafted onto phylloxera-resistant vine roots native to the United States and imported from the upstart Californian wine industry.

It was the first time many in the Old World acknowledged the existence of a New World wine industry. It would not be the last. Stirrings in the New World Although insignificant in both size and reputation compared with the well-established industry in traditional wine-producing countries, vineyards and wine makers had been set up in many New World countries since the 18th century. In the United States, for example, Thomas Jefferson, an enthusiastic oenologist, became a leading voice for establishing vineyards in Virginia.

And in Australia, vines were brought over along with the first fleet carrying convicts and settlers in 1788. Nascent wine industries were also developing at this time in Argentina, Chile, and South Africa, usually under the influence of immigrants from the Old World wine countries. Opening New Markets While climate and soil allowed grape growing to flourish in the New World, the consumption of wine in these countries varied widely. It became part of the national cultures in Argentina and Chile, where per capita annual consumption reached about 80 liters in Argentina and 50 liters in Chile in the 1960s.

While such rates were well behind France and Italy, both of which boasted per capita consumption of 110–120 liters in this era, they were comparable with those of Spain. Other New World cultures did not embrace the new industry as quickly. In Australia, the hot climate and a dominant British heritage made beer the alcoholic beverage of preference, with wine being consumed mostly by Old World immigrants. The U. S. market was more complex. In keeping with the country’s central role in the rum trade, one segment of the population followed a tradition of drinking hard liquor.

But another group reflected the country’s Puritan heritage and espoused temperance or abstinence. (As recently as 1994, a Gallup survey found that 45% of U. S. respondents did not drink at all, and 21% favored a renewal of prohibition. ) As a result, in the pre-World War II era, wine was largely made by and sold to European immigrant communities. 3 Purchased for use on the International Management programme, at SDA Bocconi School of Management. Taught by Markus Venzin, from 12-Sep-2011 to 12-Dec-2011. Order ref 93825. Usage permitted only within these parameters otherwise contact [email protected] com 10-405 Global Wine War 2009: New World versus Old In the postwar era, however, demand for wine increased rapidly in the United States, Australia, and other New World producers. In the United States, for example, consumption grew from a postprohibition per capita level of 1 liter per annum to 9 liters by 2006. In Australia the rate of increase was even more rapid, from less than 2 liters in 1960 to 24 liters by 2006. This growth in consumption was coupled with a growing demand for higher quality wines, resulting in a boom in domestic demand that proved a boost for the young New World wine industry.

Challenging Production Norms On the back of the postwar economic boom, New World wine producers developed in an industry environment different from their European counterparts. First, suitable land was widely available and less expensive, allowing the growth of much more extensive vineyards. As a result, in 2006, the average vineyard holding in the United States was 213 hectares and in Australia 167 hectares, compared to an Italian average of 1. 3 hectares, and 7. 4 hectares in France. 6 Unconstrained by tradition, New World producers also began to experiment with grape growing and winemaking technology.

In Australia, controlled drip irrigation allowed expansion into marginal land and reduced vintage variability. (In contrast, irrigation was strictly forbidden in France under AOC regulations. ) The larger vineyards also allowed the use of specialized equipment such as mechanical harvesters and mechanical pruners which greatly reduced labor costs. Innovation also extended into viniculture where New World producers pursued techniques such as night harvesting to maximize grape sugars, while innovative trellis systems permitted vines to be planted at twice the traditional density.

Other experiments with fertilizers and pruning methods increased yield and improved grape flavor. These innovations, when coupled with typically sunny climates, freed New World farmers from many of the stresses of their counterparts in regions like Bordeaux where the rainy maritime climate made late autumn harvests risky, and held wine producers hostage to wide year-to-year vintage variations. New World wine companies also broke many wine making traditions. Large estates usually had on-site labs to provide analysis helpful in making growing and harvest decisions.

In the 1990s, some experimented with a reverse osmosis technology to concentrate the juice (or must), ensuring a deepercolored, richer-tasting wine. (Ironically, the technique was developed in France, but most French producers deplored it as “removing the poetry of wine. ” Needless to say, it was a forbidden practice under AOC regulations. ) New World wine makers also developed processes that allowed fermentation and aging to occur in huge, computer-controlled, stainless steel tanks rather than in traditional oak barrels. To provide oak flavor, some added oak chips while aging their popular priced wines—another practice strictly forbidden n most traditional-producing countries. The economic impact of these and other innovations became clear in a comparison of the costs of production in the Langedoc region of France with the Riverina district in Australia, both big producers of popular priced wines. The French cost per tonne of ? €238 was 74% higher than the Australian cost of ? €137. 7 And South American grape costs were even lower, driving down the price of popular premium wine in Europe to ? €2 a bottle, while the French vins de pays was priced above ? €3. (Exhibit 1 shows the cost composition of a bottle of French wine. Reinventing the Marketing Model Beyond their experiments in growing and winemaking, New World producers also innovated in packaging and marketing. While the European targeted the huge basic wine market by selling the popular liter bottle of vin de table, the Australians developed the innovative “wine-in-a-box” package. Employing a collapsible plastic bag in a compact cardboard box with a dispensing spigot, the box’s 4 Purchased for use on the International Management programme, at SDA Bocconi School of Management. Taught by Markus Venzin, from 12-Sep-2011 to 12-Dec-2011.

Order ref 93825. Usage permitted only within these parameters otherwise contact [email protected] com Global Wine War 2009: New World versus Old 910-405 shape and weight not only saved shipping costs, it also made storage in the consumer’s refrigerator more convenient. More recently, Australian producers began replacing cork stoppers with screw caps, even on premium wines. The logic was based not just on economics, but also on the fact that many wines, particularly the delicate whites, were susceptible to spoiling if corks were deficient.

From their earliest experiences in the marketplace, New World producers learned the value of differentiating their products and making them more appealing to palates unaccustomed to wine. Several early products developed for unsophisticated palates were wildly successful—Ripple in the United States and Barossa Pearl in Australia, for example—but were dismissed by connoisseurs as evidence of the New World’s inferior winemaking skills. Yet these experiments provided valuable lessons in branding and marketing— skills that were rare in this industry prior to the 1970s.

With wine showing the potential for mass appeal, in 1977 Coca-Cola acquired Taylor California Cellars. Other experienced consumer marketers such as Nestle, Pillsbury, and Seagram followed, and conventional wisdom was that their sophisticated marketing techniques would finally crack the last major largely unbranded consumer product. But the challenge proved more difficult than expected, and within a decade the outsiders had sold out. Yet their influence endured in the consumer focused attitudes and the sophisticated marketing skills they left behind.

The other major change driven by New World companies occurred in distribution. Historically, fragmented producers and tight government regulations had created a long, multilevel value chain, with service providers in many of the links lacking either the scale or the expertise to operate efficiently. (See Exhibit 2 for a representation. ) In contrast, the large New World wine companies typically controlled the full value chain, extracting margins at every level and retaining bargaining power with increasingly concentrated retailers. And because their name was on the final product, they controlled quality at every step.

To traditionalists, the New World’s breaks with established grape-growing and wine-making ways were sacrilege. They argued that in the drive for efficiency and consistency, and in the desire to cater to less sophisticated palates, New World producers had lost the character that came with more variable vintages made in traditional ways. And they were shocked that many of these “engineered products” were sold using appellation names— Chablis, Burgundy, Champagne, and so on. In response, the European Community (EC) passed regulations making such practices illegal.

New World wine makers gradually adjusted by identifying their wines by the grape variety used, and eventually consumers recognized and developed preferences defined by the varietal name—cabernet sauvignon versus merlot, or chardonnay versus sauvignon blanc, for example. Indeed, many seemed to find this easier to understand than trying to penetrate the many complex regional designations that each of the traditional wine-producing countries had promoted. Purchased for use on the International Management programme, at SDA Bocconi School of Management. Taught by Markus Venzin, from 12-Sep-2011 to 12-Dec-2011.

Order ref 93825. Usage permitted only within these parameters otherwise contact [email protected] com The Judgment of Paris On May 24, 1976, in a publicity-seeking activity linked to America’s Bicentenary, a British wine merchant set up a blind-tasting panel to rate top wines from France and California. Despite the enormous “home field advantage” of an event held in Paris with a judging panel of nine French wine critics, the American entries took top honors in both the red and white competitions. When French producers complained that the so called “The Judgment of Paris” was rigged, a new judging was held two years later.

Again, Californian wines triumphed. 8 The event was a watershed in the industry. The publicity raised awareness that the New World produced quality wines, to the great shock of those who dismissed their innovative approaches. It was also a wake-up call to traditional producers, many of whom began taking their new challengers 5 910-405 Global Wine War 2009: New World versus Old seriously for the first time. Finally, it gave confidence to New World producers that they could compete in global markets. In short, it was the bell for the opening round in a fight for export sales.

Maturing Markets, Changing Demand “The Judgment of Paris” signaled the start of many disruptive changes in wine industry during the last quarter of the 20th century. More immediately alarming for most traditional producers was a pattern of declining demand that saw a 20% drop in worldwide consumption from 1970 to 1990, and a subsequent flattening of demand. When combined with radical changes in consumer tastes, consolidation in the distribution channels, and shifts in government support, these trends presented industry participants with an important new set of opportunities and threats.

Changing Global Demand Patterns The most dramatic decline in demand occurred in the highest-consumption countries, France and Italy. In the mid-1960s, per capita annual consumption in both countries was around 110 to 120 liters; by 2005 it was about 50 litres. Key causes of the decline were a younger generation’s different drinking preferences, an older generation’s concern about health issues, and stricter drunk-driving penalties. Simultaneously, steep declines occurred in other major of wine drinking cultures—Spain dropped from 60 liters to 35, Argentina from 80 to 30, and Chile from 50 to 15. See Exhibit 3. ) During the same period, demand was growing in many wine-importing countries, although not fast enough to offset losses in Old World wine countries. From 1966 to 2005, per capita annual consumption in the United Kingdom rose from 3 to 20 liters, in Belgium from 10 to 26 liters, and in Canada from 3 to 10 liters. Even more promising was the more recent growth of new markets, particularly in Asia where consumption in China, Japan, Taiwan, South Korea, and Thailand grew at double digit annual rates through the 1990s.

In fact, by 2005, China had emerged as the world’s fifth wine consuming nation — ahead of Spain, Argentina, and the U. K. (Exhibits 4 and 5 lists the world’s major consuming and producing nations). It was this shift in market demand that escalated the competition for export sales into a global wine war. (See Exhibit 6 for import and export data. ) Shift to Quality, Rise of Fashion Partially offsetting the overall volume decline was a growing demand for higher-quality wines.

While the basic segment (less than $5 a bottle) still accounted for half the world market in volume, the premium ($5 to $7) and the super-premium ($7 to $14) now represented 40% of the total—and more than 50% of the market in younger markets such as the United States and Australia. (Exhibit 7 shows one version of price segmentation as defined by a leading industry analyst. ) The trend was worldwide. Even in Old World wine countries where total demand was in decline, consumption of premium wine kept rising. Despite government subsidies, per capita consumption of basic wine in the EU fell from 31 liters in 1985 to 18 liters in 2005, while emand for quality wine increased from 10 liters to 15 liters. In that same 20 year period, jug wine sales in the United States declined from 800 million to 600 million liters, while consumption of premium wines increased from 150 million to 600 million liters. With the shift to quality, a greater fashion element began to influence demand. The decline in importance of working families’ daily consumption of locally produced table wine was offset by upscale urban consumers who chose bottles on the basis of grape variety, vintage, source — and increasingly fashion.

The 1980s’ emphasis on lighter foods led to an increase in demand for white 6 Purchased for use on the International Management programme, at SDA Bocconi School of Management. Taught by Markus Venzin, from 12-Sep-2011 to 12-Dec-2011. Order ref 93825. Usage permitted only within these parameters otherwise contact [email protected] com Global Wine War 2009: New World versus Old 910-405 wines, making white wine spritzers (wine with soda water) a fashionable drink in the United States market. By the late 1980s, white wine represented over 75% of U.

S. sales. This all changed following the 1991 publication of a medical report identifying red-wine as a partial explanation of the “French paradox”— low rates of heart disease in a population well known for its love of rich food. Featured on the U. S. television show 60 Minutes, the report soon led to an increase in demand, with red wine’s market share growing from 27% in 1991 to 43% five years later. Even within this broad trend of red versus white preference, the demand for different grape varieties also moved with fashion.

During the white wine boom, chardonnay was the grape of choice, but by the late 1990s, Pinot Gris and Sauvignon Blanc were emerging white wine fashion favorites. In red wine, a love affair with Cabernet Sauvignon was followed by a mini-boom for Merlot, which in turn was succeeded by a demand spike for Pinot Noir. Such swings in fashion posed a problem for growers. Although vines had a productive life of 60 to 70 years, they typically took 3 to 4 years to produce their first harvest, 5 to 7 years to reach full productive capacity, and 35 years to produce top quality grapes.

But New World wine regions had the capacity and the regulatory freedom to plant new varieties in new vineyards and could respond. For example, in the 1990s, the California acreage planted with chardonnay increased 36%, and merlot plantings increased 31%. As these various demand trends continued, the rankings of the world’s top wine companies underwent radical change. Despite their relative newness and the comparative smallness of their home markets, New World companies took nine slots in a list of the world’s top 15 wine companies, a list previously dominated by Old World companies. See Exhibit 8 for the listing). Increasing Distribution Power Because marketing had typically been handled by their negociants, most Old World producers were still isolated from such fast-changing consumer tastes and market trends—particularly when they occurred in distant export markets. Equally problematic was their lack of understanding of the rapidly concentrating retail channels. In contrast, because most large New World wine companies controlled their distribution chain from the vineyard to the retailer, they were able to sense changes in consumer preferences and respond to shifts in distribution channels.

Furthermore, the New World companies were able to capture even more economic advantage by him and reducing handling stages, holding less inventory, and capturing the intermediaries’ markup. Even the transportation economics that once favored European suppliers’ proximity to the huge United Kingdom market changed. As trucking costs rose, container-ship rates fell, making the cost of shipping wine from Australia to the UK about the same as trucking it from the south of France. Size also gave New World companies bargaining power in the sophisticated negotiations that a concentrated retail sector now demanded.

For example, following the huge wine surpluses flooding the market in the early 2000s, Australian producers used their cost advantage to drive prices lower. But equally important in the battle for volume sales was their ability to respond to retailers’ need for a consistent supply of strong brands at a good price/quality ratio. 9 In the face of this head-on competitive challenge, the French tried to defend their position through frequent promotions. 10 But they were hampered by their lack of consumer knowledge and marketing skills.

The Old World suppliers’ problems became clear from their dealings with Tesco, the world’s largest wine retailer with wine sales of ? 1. 5 billion in 2007. To maximize sales, Tesco emphasized that it wanted to work with creative suppliers. “Don’t just bring the deals, bring me innovation,” said Dan 7 Purchased for use on the International Management programme, at SDA Bocconi School of Management. Taught by Markus Venzin, from 12-Sep-2011 to 12-Dec-2011. Order ref 93825. Usage permitted only within these parameters otherwise contact [email protected] com 910-405

Global Wine War 2009: New World versus Old Jago, Tesco’s Wine, Beer, and Spirits division head. “If you want your prices to rise, you have to persuade customers why they should pay more. “11 While a handful of icon brands prospered at the top of the market based on image and quality, the fragmentation of Old World vineyards forced most to compete at the low end on price. When some chose to take on the New World brands under the umbrella of the AOC’s reputation, it soon became clear that they lacked the skills or resources to succeed in the last growth middle market.

Tesco’s Jago complained that despite its once strong reputation, the Bordeaux “brand” was losing sway with younger consumers. “Heaven knows I’ve tried to help them, but our consumers have such infinite choice that they don’t need to make [Bordeaux] part of it. “12 Purchased for use on the International Management programme, at SDA Bocconi School of Management. Taught by Markus Venzin, from 12-Sep-2011 to 12-Dec-2011. Order ref 93825. Usage permitted only within these parameters otherwise contact [email protected] com Ascendancy in of Brand Power For years, the wine industry appeared ripe for branding.

The extreme fragmentation of the European industry (Bordeaux alone had 20,000 producers) meant that few had the volume to support a branding strategy. Historically, only the handful of Old World producers whose wines achieved icon status—Lafite, Veuve Cliquot, and Chateau d’Yquem, for example—were recognized brands. But these appealed to the elite, who represented only a tiny fraction of the global market. In providing the consumer confidence that branding offers, government-supported classifications such as France’s AOC had been only partially successful.

Their value was weakened not only by their complexity (in 2009 there were 327 designated AOC regions), but also by the erosion of consumers’ confidence in the classification scheme as an assurance of quality13. For example, Burgundy’s most famous vineyard, Chambertin, had its 32 acres divided among 23 proprietors. While most produced the high-quality wine that had earned its grand cru status, others rode on that reputation to sell—at $150 a bottle— legitimately labeled Chambertin that wine critic Robert Parker described as “thin, watery, and a complete rip-off. 14 As interest in wine extended beyond educated connoisseurs, new consumers in the fast-growing premium wine segment were faced with hundreds of options and often insufficient knowledge to make an informed—or even a comfortable—choice. Government classification schemes required them to have an understanding of the intricacies of region, vintage, and vineyard reputation, and even if they found a wine they liked, chances were that by their next purchase, that producer was not stocked or the new vintage was less appealing.

Unsurprisingly, survey data in the early 1990s showed that 65% of shoppers had no idea what they would choose when they entered a wine store. Yet even in 2009, despite many attempts, no brand had been able to capture as much as 1% of the global wine market, in contrast to soft drinks, beer, and liquor, where global brands were dominant. Although European producers and their importing agents had successfully launched several mass appeal brands in the 1960s and 1970s (e. g. Blue Nun, Mateus, Liebfraumilch), a decade later New World producers had made branding a routine part of wine marketing. For example, by sourcing grapes from multiple vineyards and regions, Australian wine maker Penfolds built trust in its products by ensuring the vintage-to-vintage consistency that branding demanded. It then leveraged its trusted brand name by creating a hierarchy of Penfolds wines that allowed consumers to move up each step from $9 to $185 wines as their tastes—and their budgets–developed. See Exhibit 9. ) New World producers who built their marketing expertise in their home markets during the 1960s and 1970s, learned how to respond to consumer preferences for the simpler, more fruit-driven wines that were easy to appreciate. They then took those wines and the marketing and branding skills they had developed at home into the export markets. By 2007, New World companies claimed 14 of the world’s top 20 wine brands. (See Exhibit 10). 8 Global Wine War 2009: New World versus Old 910-405 The Government Solution

The radical shifts in demand proved extremely challenging to Old World producers. First, there was often no new land available to plant, particularly in controlled AOC regions. Equally restrictive were the regulations prescribing permitted grape varieties and winemaking techniques that greatly limited their flexibility. So, for example, when fashion switched away from sweeter white wines, the German wine industry which was constrained by tight regulations on sugar content, watched its exports drop from over 3 million hectoliters in 1992 to under 2 million just five years later.

But the biggest problem was that declining demand at home and a loss of share in export markets had caused a structural wine surplus — popularly called the European wine lake. The EU’s initial response was to pay farmers to uproot their vineyards, leading to 500,000 hectares (13% of production) being uprooted between 1988 and 1996. A parallel “crisis distillation program” provided for the EU to purchase surplus wine for distillation into industrial alcohol. An average of 26 million hectoliters (15% of total production) was distilled annually in the decade since 1999.

In a 2006 reform proposal, the EU aimed to uproot a further 200,000 hectares — equal to the size of the US wine industry — and gradually phase out crisis distillation. Critics contended that despite their intent to move towards more market-driven policies, the EU regulators were still dealing with challenges from the supply-side perspective of the grape growers. Little was being done to address marketing support, wine style, the freedom and willingness to innovate, or the business models Old World wine companies were pursuing so successfully.

But New World wine companies were also facing challenges. Problems of global oversupply were made worse by emerging signs of saturation in several major export markets. For example, after 2003, Australia’s wine export value to its major UK market was growing at less than half the rate of volume sales. And by 2005, its UK export volume increase slowed to only 1. 6% while its average price in that market declined by 4. 4%. There was also some evidence that New World wines were developing image problems born of their willingness to lower prices aggressively in an era of excess supply.

The challenge now was to remake their image and move out of the highly competitive low price segment. The Battle for the US Market Squeezed by chronic oversupply in producer countries and declining demand in mature markets, the Old and New World were again locked in a competitive battle for export markets which in 2008 accounted for 33% of global demand. Nowhere was the battle more intense than in the United States, which one industry analyst called “perhaps the most attractive market in the world. ” 15 The US Market It was easy to see why the U. S. was so attractive.

In Germany, the world’s largest wine importer, 65% of the market was accounted for by basic wine that sold for less than ? €2 a bottle. As the second largest importer, the U. K. offered a more attractive market (the ? €3-5 segment accounted for 57% of sales), but it was showing signs of saturation. But as third-place importer, the United States market had grown faster than any other major wine market — from $11 billion in 1993 to $30 billion in 2007. Better yet, the rate of increase in value was four times the volume growth. This reflected the fact that wine that sold for more than ? 5 ($7) accounted for 48% of the market, and this segment was growing at 15% p. a. — three times the rate of lower price segments. Still, the US wine market had long been one of the most difficult for imports to crack due to its distance from most producing countries, its state-by-state regulatory strictures, and particularly its complex three-tier distribution system that forced all sales to pass through state-licensed wholesalers. 9 Purchased for use on the International Management programme, at SDA Bocconi School of Management. Taught by Markus Venzin, from 12-Sep-2011 to 12-Dec-2011.

Order ref 93825. Usage permitted only within these parameters otherwise contact [email protected] com 910-405 Global Wine War 2009: New World versus Old Not only did these wholesalers add cost, they also exercised great power. (The largest of them, Southern Wine and Spirits, had twice the sales of Consolation Brands, the world’s largest wine company. ) But all this changed when a 2005 Supreme Court ruling allowed interstate wine shipments, triggering a series of state and federal regulation challenges that began to open up the US distribution system.

Finally, the largest entry barrier for imports began to erode. One of the key drivers of US market growth was due to Generation Y (born after 1997) embracing wine much more than Generation X, and almost as much as the Baby Boomers. These new consumers were not only price-sensitive, but also very Internet savvy, and consequently were well educated about their purchases. As they came of drinking age, research showed that they chose imported wines more than earlier generations, a cause for concern for in the US industry.

Not surprisingly, in the first decade of the millennium, the US became a major battleground in the fight for exports. Despite the fact that it had a successful domestic industry, wine imports into the US increased by 185% between 1995 and 2006, by which time they claimed a record 31% market share. Soon, the champions of the Old World and New World were battling head-to-head– the Americans defending their home market against the three countries that accounted for 77% of imports by value: Italy, France, and Australia. It had become a microcosm of the global ine wars. Purchased for use on the International Management programme, at SDA Bocconi School of Management. Taught by Markus Venzin, from 12-Sep-2011 to 12-Dec-2011. Order ref 93825. Usage permitted only within these parameters otherwise contact [email protected] com The American Defense Some industry critics suggested that because American producers had long focused on their large, high priced domestic market, they had fallen behind the prevailing global price/quality ratio, not only at the low end, but even at the higher price points.

One wake-up call was an analysis comparing the prices of all 2004 vintage Cabernet Sauvignon wines that achieved a Robert Parker Wine Enthusiast rating of 90. The average price for the Californian wines was $55, while the price for similarly rated wines from Australia was $20. 16 Having become a high cost producer, the US industry recognized that it needed to respond to the new competitive challenges. One of the greatest problems was that its land costs were extremely high. In 2008, an average acre of land in Napa cost $150,000, more than 10 times the price of an average Australian vineyard, and 20 times the cost in Chile.

Furthermore, there was virtually no land available for expansion in Napa or other premium wine areas. And labor costs were being squeezed as control over illegal immigration increased. The cost of pruning an acre in Napa in 2008 was $350, similar to the cost in France, but much higher than in highly mechanized Australia ($120 an acre), or in low labor cost Chile ($75 an acre). Because of their high cost, vineyards in North Coast locations such as Napa and Sonoma targeted the super-premium and ultra-premium segments at $12 a bottle and above.

Meanwhile, the Central Valley which produced 70% of California’s wine volume was focused on the basic segment typified by Gallo’s Carlo Rossi brand. And as market oversupply grew in 2002 and beyond, surplus wine purchased on the spot market created the Charles Shaw brand, nicknamed “Two Buck Chuck” for its $1. 99 price. Soon it was selling 5 million cases a year. This bifurcated focus led to the middle segment of the market ($5-$8 a bottle) being underserved. Into that gap stepped Yellow-Tail, an Australian import with a trendy label, and the full-bodied fruity wine the US market preferred.

Soon it was selling 10 million cases a year worldwide. With little ability to respond quickly from domestic sources, US wineries began looking to an unexpected source – imported wine from low-cost producing countries, a development we will describe below. 10 Global Wine War 2009: New World versus Old 910-405 Europe’s Renewed Advance As EU agricultural policy changes shifted the focus from reducing oversupply to subsidizing marketing and promotion, European wines began growing their market share in the US.

Finally, after years of beating a retreat to New World competitors, the major EU wine exporting countries could boast that they captured 99% of the 2006 dollar volume increase in imported wine sales into the US. With the Australians charging into the popular premium segment, French wines extended their penetration into the super premium segment. While ranked number three in imports by volume, France beat all other countries in terms of import value. Its price per bottle, at 77% above the average of all imports, reflected its strong position in the luxury segment including champagne.

In contrast, the growth in Italian imports was occurring mostly in the popular priced range that was their historic strength. Promoting well-known brands such as Riunite, Cavit and Bolla, they increased their 2006 volume by 2 billion cases, thereby retaining their position as the number one importer by volume. But ironically, the success of the European imports was also helped by US domestic producers. As they became more global in scope, many US wine companies began divesting vineyards and expanding their marketing role.

Foreign wine suppliers benefited from this shift in two ways. First, when domestic companies took advantage of a law that permitted up to 25% foreign wine in products that could still be labeled as American, the imports became the source of the less expensive bulk wine required for blending. Foreign suppliers also benefited when domestic companies broadened their line by importing and marketing country specific wines. Gallo became particularly adept at this strategy, and successfully launched brands such as Bella Sera and Ecco

Domani with wines sourced in Italy, and Red Bicyclette, its brand of imported French wine. In essence, the American companies filled the gap in marketing capability and distribution expertise that had previously been a barrier to entry for many European imports. Australia’s New Challenge For more than a decade, Australia’s wine producers had become accustomed to success. In 1996, the industry’s “Strategy 2025” plan had detailed a “total commitment to innovation and style” as its means of becoming “the world’s most influential and profitable supplier of branded wines by 2025. Ten years later, grape production had more than doubled and exports of had grown by 530% to 782 million liters in 2006, making Australia the world’s number four wine exporter. In fact, most of Strategy 2025’s goals had been achieved by 2006, almost 20 years ahead of schedule. But celebrations were dampened by the recognition that in the mid-2000s, exports to the UK, its largest market, were stagnating and average price was eroding. Fortunately, the US market was growing rapidly, and by 2007 represented 31% of Australia’s wine export market value, compared to 33% for the UK. But with an average price per liter of $4. 6 for Australian imports into the US, it represented a much more attractive market than the UK where the average had slipped to $3. 35. But Australian wine was also facing price and image problems in the US market. Challenged by overproduction since 2000, its bumper crops of 2004, 2005, and 2006 had led Australian producers to aggressively reduce prices in all export markets. While this led to a boom in export sales, it also established an image of Australian wines as “cheap and cheerful. ” The image was typified by Yellow Tail, the phenomenally successful brand that sold 8. million cases into the US in 2007, accounting for 36% of all Australian imports to the country. Being trapped by this image was particularly problematic as costs started to rise. Serious droughts in Australia led to major cost increases for water at the same time as global energy prices were soaring. Together, these factors caused an increase in production cost of almost $200 at tonne, and forced 11 Purchased for use on the International Management programme, at SDA Bocconi School of Management. Taught by Markus Venzin, from 12-Sep-2011 to 12-Dec-2011. Order ref 93825.

Usage permitted only within these parameters otherwise contact [email protected] com 910-405 Global Wine War 2009: New World versus Old Australian producers to recognize that regardless of their greater efficiency, Argentina and Chile were lower cost producers. For example, while Australia could land its bulk table wine in the US at $0. 80 a liter, Argentina’s price was $0. 36 a liter. Like other countries, the Argentineans and Chileans had learned from Australia’s success, and had copied its successful strategy to develop their own accessible wines marketed under consistent brands.

For example, Concha y Toro was the world’s fourth largest wine brand, ahead of Gallo and Yellow Tail, for example. And even where emerging New World producers had not developed the necessary marketing skills, a growing number of global wine companies could offset that shortcoming. For example, in 2007, the top selling new wine in the US was the popular premium South African brand Sebeka — sourced, bottled, branded, and marketed by Gallo. In short, Australia’s competitive position in the US was being seriously challenged. Behind the Battle Lines: Strategy in France and Australia

Buoyed by a decade of success, yet also concerned by the recent weakening of the average price recorded by Australian export wines, the Australian Wine and Brandy Corporation, the government’s wine export body, linked up with the industry-led Winemakers Federation of Australia to develop a new strategy supporting the continued growth of the industry. Under the title “Directions to 2025”, the document detailed how the industry would implement the second stage of the landmark “Strategy 2025” which had emphasized volume growth to 2002, value growth to 2015, and achieving global preeminence for Australian wine by 2025.

On a broad platform of Wine Australia, “Directions to 2025” planned to support four sub-brands, each targeting a separate consumer group. “Brand Champions” would cover accessible premium brand wines and promote ease of enjoyment; “Generation Next” would emphasize innovation which was important to younger consumers who associated wine with social occasions not grape attributes; “Regional Heroes” would develop an association between Australian regions and wine varieties or styles; and “Landmark Australia” would support Australia’s high profile aspirational wines and provide an umbrella of world-class reputation. Exhibit 11 shows a map off brand attributes. ) But a 2008 crush of 32% more than the previous year led many to believe that the recent droughtrelated production declines were over. Within the industry, there were concerns that as supply increased, producers would abandon the long-term strategy and return to their earlier discounting practices, particularly for popular brands that could generate the volume to remove excess supply. Australian wine making icon Wolf Blass despaired at what he called “a wrongheaded approach. He felt that Australian wine could not compete long-term in a low-cost battle, and argued that the export business should focus on full-bodied, quality wines that would raise its image. That would be a real challenge in an industry that was forecasting a 7% oversupply of fruit by 2013. Meanwhile, in France, the industry and the government were responding differently to the global surplus. In 2005, the grower-led Comite d’Action Viticole (CAV) launched its campaign of violence against imports, blocking highways and the overturning trucks of foreign wine.

In a subsequent meeting with the prime minister, a delegation of winemakers extracted his commitment to support a national strategy “to help French wine recover lost markets. ” The plan, funded to ? €90 million, offered direct support to wineries in financial difficulty, and promised funds to relaunch French wines into the world market. Furthermore, a new national wine committee would work on simplifying the complex classification systems, perhaps moving towards larger, simpler regional appellations such as Bordeaux or Burgundy.

Finally, the prime minister directed his agriculture minister to go to Brussels and argue for more funds to distill surplus wine into industrial alcohol. 12 Purchased for use on the International Management programme, at SDA Bocconi School of Management. Taught by Markus Venzin, from 12-Sep-2011 to 12-Dec-2011. Order ref 93825. Usage permitted only within these parameters otherwise contact [email protected] com Global Wine War 2009: New World versus Old 910-405 But the EU was moving in a different direction. In 2007, it announced plans to use its annual ? €1. 3 billion wine budget more effectively.

It would be ending the ? €500 million annual buyback of unsold wine, redirecting those funds to new incentives encouraging farmers to uproot vines on 200,000 hectares of vineyards, and providing ? €120 million a year for a marketing campaign. The plans were extremely unpopular with farmers, and when the EU plan passed in spite of their objections, the protests escalated. In France, the CAV claimed responsibility for explosions at supermarkets selling imported wines, particularly in the high productivity Languedoc-Roussillon wine region in the south of France.

Then, five balaclava-clad men appeared on French television threatening more violence unless wine prices increased. Purchased for use on the International Management programme, at SDA Bocconi School of Management. Taught by Markus Venzin, from 12-Sep-2011 to 12-Dec-2011. Order ref 93825. Usage permitted only within these parameters otherwise contact [email protected] com Most in the industry felt such actions were unhelpful, and undermined their marketing efforts. They urged winemakers to get behind the new promotion campaign for “South of France” wines that was supported with ? 20 million from government and industry coffers. In an unusual display of unity, producers from various AOC, VDQS, and Vin de Pays regions had agreed to launch products under this common banner. While some felt it was the only chance they had to compete against strongly branded New World wines, others worried that that the “South of France” brand was too generic, and hid the richness of the area’s diverse sources of wine. But in the battle for export markets, everyone agreed that something had to be done. 13 910-405 Global Wine War 2009: New World versus Old Exhibit 1

Consumer Price Breakdown: French Popular Wines EUR/litre 0. 50 0. 06 0. 56 = 0. 42 0. 35 0. 08 0. 10 1. 05 0. 45 1. 14 0. 05 3. 14 Purchased for use on the International Management programme, at SDA Bocconi School of Management. Taught by Markus Venzin, from 12-Sep-2011 to 12-Dec-2011. Order ref 93825. Usage permitted only within these parameters otherwise contact [email protected] com Cost Structure Juice Wine making Bulk wine (total) Bottling packaging Local taxes Logistics storage Margins/overhead Wholesale price Excise If VAT Consumer price in EUR dutiesa Retail and wholesale margins EUR/bottle 0. 10 Example from the Netherlands. Source: Changing Competitiveness in the Wine Industry, Rabobank Market Study, 2006, p. 16. 14 910-405 -15- Exhibit 2 Wine Industry Value Chain Source: Adapted from The World Wine Business, Rabobank Market Study, May 1999. Purchased for use on the International Management programme, at SDA Bocconi School of Management. Taught by Markus Venzin, from 12-Sep-2011 to 12-Dec-2011. Order ref 93825. Usage permitted only within these parameters otherwise contact [email protected] com 910-405 -16- Exhibit 3 Wine Consumption Per Capita, Selected Countries, 1966-2006 Liters per capita

Source: Figures for 1966 to 1999 from The World Wine Business, Rabobank Market Study, May 1999. Figures for 1998 to 2006 from Wine Institute Website www. wineinstitute. org/resources/world statistics/article 49. Purchased for use on the International Management programme, at SDA Bocconi School of Management. Taught by Markus Venzin, from 12-Sep-2011 to 12-Dec-2011. Order ref 93825. Usage permitted only within these parameters otherwise contact [email protected] com Exhibit 4 World Wine Production: By Country Global Wine War 2009: New World versus Old Source: Trade Data and Analysis, The World Wine Institute, 2006. 910-405 17

Purchased for use on the International Management programme, at SDA Bocconi School of Management. Taught by Markus Venzin, from 12-Sep-2011 to 12-Dec-2011. Order ref 93825. Usage permitted only within these parameters otherwise contact [email protected] com 18 910-405 Exhibit 5 World Wine Consumption: By Country Purchased for use on the International Management programme, at SDA Bocconi School of Management. Taught by Markus Venzin, from 12-Sep-2011 to 12-Dec-2011. Order ref 93825. Usage permitted only within these parameters otherwise contact [email protected] com Source: Trade and Data Analysis, The World Wine Institute, 2006.

Global Wine War 2009: New World versus Old 910-405 -19- Exhibit 6 Production Total hls (000s) 45,400 45,900 15,050 34,700 10,500 14,304 -20,000 4,240 8,450 4,624 -12,910 5,090 7,980 340 NA 3,450 14,240 2,710 15,280 200 NA 3,260 140 NA 1. 30 3. 20 1. 90 4. 70 3. 90 5. 40 18,480 1,750 474 2. 70 15,180 5,370 789 1. 40 Total hls (000s) Total hls (000s) Value ($Millions) $/Litre Exports Imports Consumption, Production, Export, and Import Figures for Selected Old World and New World Wine Producing and Consuming Countries, 2001 Consumption Total hls 000s 34,200 28,150 12,200 14,260 20,380 5,960 12,760 25,125 Liters Per Capita

France 52 Italy 46 Argentina 31 Spain 27 Germany 26 Australia 28 United Kingdom 22 United States 9 Source: Rabobank World Wine Map, 2008. Note: In several European countries, production does not equal consumption (plus exports minus imports) due to excess production being subject to government purchase. Exhibit 7 Ultra Premium $20–$50 Wine lover Quality, image Specialty shop, food service Little growth Gradually increasing 5% Scarce Growing Increasing, based on brand and quality/price ratio 10% Sufficient, year round Brand, quality Better supermarket, specialty shop Experimenting consumer Super Premium $10–$20

Quality Segments in the Wine Industry (Rabobank’s Categories) Premium $5–$10 Experimenting consumer Price, brand Supermarket Growing Fierce, based on brand, price 34% Large quantities, year round Basic Less than $5 Price-focused consumer Price Supermarket, discounter Decreasing Based on price 50% Surplus Price range (approx) Icon More than $50 Consumer profile Connaisseur Purchase driver Image, style Retail outlets Winery, boutique, food service Market trend Little growth Competition Limited, “closed” segment Volume market share 1% Availability Scarce

Source: Adapted by casewriters from The World Wine Business, Market Study, May 1999. Purchased for use on the International Management programme, at SDA Bocconi School of Management. Taught by Markus Venzin, from 12-Sep-2011 to 12-Dec-2011. Order ref 93825. Usage permitted only within these parameters otherwise contact [email protected] com 910-405 Global Wine War 2009: New World versus Old Exhibit 8 Top 15 World Wine Companies: 2007/08 Millions of Cases Source: Rabobank World Wine Map, September 2008. Exhibit 9 Penfolds Red Wine U. S. Brand Structure, 2009 Years Before Release 1 1-2 1-2 2 3 3 3 3 5 4 4 4 6

Label Rawson’s Retreat Koonunga Hill Thomas Hyland Bin 138 Bin 128 Bin 28 Bin 389 Bin 407 St. Henri Magill Estate RWT Bin 707 Grange Varietal Type Varietal rangea Varietal rangea Varietal rangea Shiraz Mourvedre Grenache Shiraz Shiraz Cabernet Shiraz Cabernet Sauvignon Shiraz Shiraz Shiraz Cabernet Sauvignon Shiraz Price Segment Premium Premium Premium Super Premium Super Premium Super Premium Super Premium Super Premium Ultra Premium Ultra Premium Ultra Premium Ultra Premium Icon Suggested U. S. Retail Price per Bottle ($US) $8. 99 $10. 99 $14. 99 $19. 00 $24. 00 $24. 00 $26. 00 $26. 0 $39. 00 $50. 00 $69. 00 $80. 00 $185. 00 Source: Southcorp Wines, the Americas. aTypical red varietal range included of these brands Merlot, Shiraz Cabernet, and Cabernet Sauvignon. (These brands also offer a range of white wines. ) 20 Purchased for use on the International Management programme, at SDA Bocconi School of Management. Taught by Markus Venzin, from 12-Sep-2011 to 12-Dec-2011. Order ref 93825. Usage permitted only within these parameters otherwise contact [email protected] com Exhibit 10 Global Wine War 2009: New World versus Old Source: Rabobank World Wine Map, September 2008.

Top 20 Wine Brands 2004-2008 910-405 21 Purchased for use on the International Management programme, at SDA Bocconi School of Management. Taught by Markus Venzin, from 12-Sep-2011 to 12-Dec-2011. Order ref 93825. Usage permitted only within these parameters otherwise contact [email protected] com 22 910-405 Exhibit 11 Wine Australia’s Market Segment Source: Wine Australia Marketing Strategy, Australian Wine and Brandy Corp. Wine Australia – features and benefits Global Wine War 2009: New World versus Old Purchased for use on the International Management programme, at SDA Bocconi School of Management.

Taught by Markus Venzin, from 12-Sep-2011 to 12-Dec-2011. Order ref 93825. Usage permitted only within these parameters otherwise contact [email protected] com Global Wine War 2009: New World versus Old 910-405 Endnotes 1 Historical discussions are indebted to Harry W. Paul, Science, Vine and Wine in Modern France (Cambridge University Press, 1996), pp. 2–15; to Jancis Robinson, ed. , The Oxford Companion to Wine, 2nd Ed. (Oxford University Press, 1999); and to James Wilson, Terroir (Berkeley: University of California Press, 1998), pp. 10–45. 2 3 4 5 Robinson, p. 308. Ibid. , p. 312.

Dewey Markham, 1855: A History of the Bordeaux Classification (New York: Wiley, 1998), p. 177. Robinson, p. 235. Purchased for use on the International Management programme, at SDA Bocconi School of Management. Taught by Markus Venzin, from 12-Sep-2011 to 12-Dec-2011. Order ref 93825. Usage permitted only within these parameters otherwise contact [email protected] com 6 Heijbrock, Arend “Changing Competitiveness in the Wine Industry,” Rabobank Research Publication, 2007, p. 5. 7 8 9 10 Heijbrock, p. 16. Gideon Rachman, “The Globe in a Glass,” The Economist, December 18, 1999, p. 1. Rachman, p. 99. Annemiek Geene, Arend Heijbroek, Anne Lagerwerf, and Rafi Wazir, “The World Wine Business,” Market Study, May 1999, available from Rabobank International. 11 Anonymous, “The World’s Largest Wine Retailer”, Meininger’s Wine Business International, June 2007, pp. 42-45. 12 13 Ibid. The same problem plagued wines from Italy, where DOC regulations were so often violated that the government eventually introduced a DOCG classification in 1980 (the G stood for guarantita) to restore consumer confidence in notable wine regions.

And in Germany, government standards were so diluted that, even in mediocre years, over 75% of wine produced was labeled Qualitatswein (quality wine), while less than 5% earned the more modest Tatelwein (table wine) designation. 14 15 Robert M. Parker, Jr. , Parker Wine Buyer’s Guide, 5th Edition (New York: Fireside Press, 1999), p. 276. Stephen Rannekiev, “The Future of the California Wine Industry,” F&A Research Advisory, Rabobank Industry Note, August 2007, p. 1. 16 Ibid, p. 5. 23

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