Vintage heaven; vintage hell

The transformation of Fine Wines

As you raise a glass of Chêne Bleu Rosé on a sizzling hot summer’s day, spare a thought for the wine industry, which is facing a perfect storm.

Global warming, increasing regulatory pressures, and disinvestment, are set to dent if not destroy what had seemed a simple story of emerging markets growth and increasing quality which would lead global wine consumption to reach $207bn in 2022.  

But the overall global wine and spirits market has slipped by -1.4% in the last five years, according to industry body IWSR, and disruption of the status quo is set to accelerate.  In the US, 54 per cent of the population chose to abstain from alcohol, driven largely by 21-34 year olds, according to a 2018 Nielsen Survey.

Parallels with the tobacco industry are not an exaggeration. Imagine a photograph of a liver riven by cirrhosis on a plainly packaged bottle of wine, along with a warning that alcohol can abet breast cancer. Inside, the magnum of Château Kirwan lies, un-drunk and unloved.

Demand for wine in developed markets is under pressure from older generations who are drinking less and younger generations who prefer cocktails and don’t buy into the elitist, obfuscating language used by connoisseurs. Millennials and Generation Z are in any case also drinking less, as evidenced by the drop in turnover at university bars and the increased availability of non-alcoholic cocktails and beers. Hashtags such as #sobersaturday are trending. The ever-widening legalisation of cannabis is another factor in wine substitution.

Health is on the global agenda, with the World Health Organisation (WHO) using increasingly alarmist language about the effects of alcohol, and cash-strapped governments looking more closely at the costs of ill-health from excess use and, in parallel, the benefits of increasing so-called sin taxes. This is affecting investor behaviour too.  KLP, Norway’s largest pension fund with $80bn under management, announced in May that it would divest from any company that made more than 5% of its revenues from alcohol. French champagne and wine house LVMH and beer giant Heineken are among those affected. It is likely that this policy will spread as Scandinavians generally lead the way on Environmental, Social and Governance (ESG) investing.

Meanwhile, climate change is harming crops, disrupting supply chains and eroding corporate profits. This summer’s European heatwave is likely to be the norm, not an exception, while global cooperation on climate change lies moribund amidst the wreckage of the post-Second World War order. Disorderly trade patterns – be it between China and the US or Britain and the EU – add to the confusion. The door to the fastest growing wine market in the world slammed shut in the face of the US wine industry when President Donald Trump imposed tariffs on China.

Can the industry adapt? Over two sun-drenched days in Bordeaux, 70 winemakers, technologists and reviewers from around the world, came together for a convivial brainstorming on Fine Wine’s evolution. Organised by ARENI, a wine institute, many of its conclusions were just as relevant for the broader wine industry and, potentially, for other consumer companies.

Navigating a future where sustainability and inclusiveness are among the paramount values is crucial to its survival. That means clarity on everything from the wine-growing process to the treatment of the seasonal labour who pick the grapes, along with an openness to sharing information via blogs and tech solutions like the Global Wine Database (GWDB).  Even information that may seem ridiculous. “Your millennials want to know the name of the wine maker’s dog - it’s true!” exclaimed a 27-year old sommelier from New York.

Websites like Wine Folly use straightforward language and by so doing are creating new enthusiasts, as are wine bars with top wines by the glass via the clever Coravin system, which doesn’t damage the cork, and apps like Palate Club. Champagne houses like Moët & Chandon are enlarging their offering to a younger clientele by offering a cocktail-like experience. Ice Impérial, a sweeter champagne poured over ice, is the result. Wine makers are exploring lowering the alcohol content without compromising on taste and signing up to wider industry campaigns to advise consumers on drinking responsibly.

China is set to become the second largest wine market after the US and by 2022 its value will be over $19.5bn, reports IWSR. Prestigious winemakers are taking the opportunity to make local wines to feed the increasing appetite of the growing middle class. Château Lafite is launching its first Chinese wine, Long Dai 2017, later this year. In India, private equity group Visvires Capital expects wine tourism to be a source of revenue. The business plan for its four vineyards includes an estimated 300,000 visitors over the next three years for wine tastings, restaurant meals, hotels stay, and wine buying.

 Global warming is an opportunity, as well as a challenge. English wine evoked sniggers when it started; wines like Chapel Down from Kent are now classified as Fine Wine and sell at premium prices. Spain’s Bodega Torres has been buying land at higher altitudes. Nordic wine could be the next discovery. 

On the back of an uncertain future, the Fine Wine industry is acclimatizing to a new world. Let’s raise a glass of Château Talbot to toast its journey.