January 2005 Volume 2 Issue 1  
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Collaboration on the Web
From Coastal to Global
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From Coastal to Global

California’s Napa Valley vintners Charles Johnston III ’70 (founder and owner of Helena View Johnston Vineyards) and Olivier Portet ’02 (CEO of Portet Wine Selections), share trends associated with the United States’ increasingly global wine industry.

Two Buck Chuck isn’t a ring toss game at the fair. It’s the nickname affectionately given to the $1.99 Charles Shaw label sold at Trader Joe’s supermarkets and, incidentally, one of the most significant influences on America’s recent widespread fascination with wine.

According to Johnston, an oversupply of grapes in early 2000 led to bulk purchasing by large producers who, in turn, sold their wine at much lower costs, bringing in a whole new demographic of wine drinkers. “What we’re seeing is that someone who would only buy a $2 bottle of wine as an alternative to beer is now graduating to the $5 and $7 bottle,” he explains.

This affordability has uncorked some of the mystery associated with wine, making it a more acceptable and popular beverage in America. A strong U.S. dollar during the late ‘90s also allowed wholesale retailers such as Costco, Sam’s Club and Target to introduce inexpensive fine wines from around the world, dramatically expanding the presence of import wines. And as wine interest has grown, international boutique wines – unique or small production labels – have become palate-pleasers for American wine drinkers as well.

The Wine Institute, the public policy advocacy association of California wineries, reports that only French and Italians consume more wine than Americans. Americans annually drink more than $22 billion of wine, and the Adams Wine Report published in July 2004 stated an increase in U.S. wine consumption of 5.2 percent over the previous year.

Merger Activity
As wine interest has expanded in America, the industry itself has also grown and matured. “As more people consume wine, marketing becomes more sophisticated – including merger activity,” says Johnston. During 2004, London-based Diageo purchased Napa Valley’s Chalone Wine Group; New York-based Constellation Brands Inc. - the world’s largest winemaker – purchased Napa Valley’s Robert Mondavi Corp.; and Wine Group of San Francisco bought out California-based Golden State Vintners Inc. “As this consolidation occurs, it becomes a truly global market,” adds Johnston. “To stay in the game in a global marketplace, some wineries will have no choice but to become part of a marketing order much larger than they are alone.”

Emphasis on Service
In this competitive market for share-of-mouths, boutique wineries also have their place among national and global conglomerates. “Boutiques can be a niche player,” explains Johnston. “They can focus on a particular geographic region, segment of the market or a combination of those things.” In fact, boutique players have a distinct advantage in the area of service.

“There is a growing lack of service in the wine industry,” says Portet, whose company imports boutique wines to the United States from Australia, Chile and Argentina. “When wine is bought and sold by large corporations who are maximizing economies of scale, service often dwindles.”

Both Johnston and Portet believe that educating consumers, many of whom are new to the world of wine, is key when competing with the conglomerate wine companies. Portet’s company endorses shelf talkers, explanatory cards placed on retail shelves that describe the wine’s origin and foods that complement it. He believes that even the global players can benefit by paying attention to service.

Another key service area is personal interaction with and education of individuals closest to consumers – the distributor, supermarket sales staff, restaurateur, sommelier, and waiter. According to both wine enthusiasts, the end result is brand loyalty and a more enjoyable experience for the consumer.

As the U.S. wine industry suffers the growing pains associated with rapid consolidation, consumers stand to be the greatest beneficiaries – with resulting competitive pricing, emphasis on wine education and worldwide selection. Thoughtfully considering the palate preferences of various regions of the world and adjusting the product accordingly, Johnston predicts, will spell success in the global market. Educating consumers and keeping prices competitive will yield a fruitful harvest worldwide.

Charles Johnston (Charles.Johnston.III@morganstanley.com) is also a vice president with Morgan Stanley. To learn more about his vineyard, visit http://www.helenaview.com/.

Olivier Portet (oportet@global.t-bird.edu) is a 10th generation Portet to be involved in the wine business (http://www.portetwineselections.com/).

Formerly the American Vintners Association, this major trade association has more than 700 members from 48 states. Website contains free industry information on acreage, grape value, and production.

Copyright © 2005 Thunderbird. All rights reserved.
Thunderbird, The Garvin School of International Management
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