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. 

Fine Minds for Fine Wines

Solutions to consumer company travails

At a recent weekend in Champagne, surrounded by vines and the combined intellect of 60 thinkers from the wine industry and tech/City/energy, we discussed the embattled future of Fine Wine. The conclusions of the Fine Minds for Fine Wines (FM4FW) think tank apply to many consumer companies, not least because between 2011-2016 large consumer brands lost 3 percentage points of market share to smaller brands, according to Boston Consulting Group, as smaller, more agile competitors use innovative marketing to engage customers.

The Fine Wine industry is facing clear challenges given its abysmal demographic statistics. The middle aged and the old are drinking fine wines. The younger generations can’t be bothered with the perceived pomposity of it all, preferring cocktails and prosecco, and they aren’t turning into their parents as they age – at least in their drinking habits. In the UK, over 40% of regular wine drinkers are over 55 years old, according to Wine Intelligence, with comparable statistics in other developed countries.

Meanwhile, the frequency of consumption is declining. In Germany, 16% of the population drank wine regularly in 2007. Only 5% do so in 2018, amid evidence of the harm wine does to health, and concerns about alcoholism. Fine wines could lose their social license to operate, warns energy guru Francis Gugen, just like traditional energy is losing it and tobacco has lost it. None of them is helped by climate change, which increases costs and creates problems with existing soil. Labouring under the weight of endless regulation – I hear the sigh of empathy from my financial services readers – and political upheavals add to the burden. Top Californian vineyards have shortages of harvesting labour because of Trump’s hostility to Mexico and the legalisation of marijuana, a crop that is easier to pick and pays better.

That’s the bad news. The good news? We drank some superb champagne and wines, like a 1996 Lenoble and the Moët & Chandon Grand Vintage 2008. There was even an attempt at a Chinese Fine Wine from the foothills of the Himalayas. Needs more work, was the conclusion. On a more serious note, a crisis is always an opportunity and FM4FW’s Chair Nicole Rolet* and Executive Director Pauline Vicard ensured we came up with game changing action plans.

The definition of luxury is being upended. In a world of terrorism and economic uncertainty, drinking a couple of bottles of a superb claret with a delicious picnic in a field with friends and family resonates with younger and older generations. Stuffiness is definitely out. “White tablecloths and great restaurants…people don’t give a hoot about all that, “says Paul Grieco, the award-winning maverick founder of Terroir, a US-based chain of upmarket wine bars where customers sit on stools, the waiters wear shorts, and the wine list is mouth-watering.

Champagne is associated with grandparents and parents. For it to become hip, celebrities and social media influencers must be brought on board. Adaptability is key: Moët created the Ice Imperial, which has more sugar in it, to turn it into a “cocktail” to be had on ice. So is creating excitement: Super Tuscan vineyard Orneillaia has a contemporary artist create a limited-edition label for one out of every six bottles in a case. We are all children at heart.

But the younger generations don’t just want hip, they want reassurance about the sustainability of the product, its environmental and social footprint. This is a great advantage for family owned houses with stories to tell. Take Anne and Antoine Lenoble, the brother and sister who run the family champagne company. At harvest time last year, champagne houses complained about not finding enough pickers. AR Lenoble had no such problem. “We believe in paying them properly; they are part of the family. Some of them have been coming over from Poland for many years,” says Anne.

Or Bodegas Torres. Patriarch Miguel Torres’s epiphany on climate change was in 2007 when he watched Al Gore’s film An Inconvenient Truth, leading to immediate changes. The head of the multinational, with vineyards in Chile and California as well as Spain, notes that in their main cellar they are already producing 5% of their electricity needs by means of photovoltaic panels and biomass. They are exploring the use of algae to capture CO2 generated from the fermentation process and, years ago, bought fields on higher ground to combat excessive heat.

Communicating the Fine Wine story without a Krug or a Ruinart budget – both champagne brands owned by deep-pocketed LVMH – will become easier with developments in smart labels, a recommendation from our think tank. As technology evolves, imagine pointing your phone at a wine label in a shop and having a Virtual Reality Anne Lenoble telling you the story of her Polish harvesters. Or, in the more mundane short term, a script comes up telling you about their certification as a “High Value Environmental” brand and giving you the traceability of all ingredients.

Technological advances are helping with production as well –   satellites, sensors, robots and drones – yet ironically the “human” has even more value. Creating a direct link between the consumer and the producer, a disruption of a mainly wholesale market, is the Holy Grail. Jordan wineries in Sonoma County, California, carefully segments its customers and creates unique experiences for them. Developments in Artificial Intelligence will take this further, while crowd funding can be a simple way of drawing in consumers and creating the personal link between the wine maker and the consumer – the money raised is secondary.

The younger generation’s emphasis on developing skills led to calls during the FM4FW sessions for accredited apprenticeships; its emphasis on collaboration to the idea of heritage brand rejuvenation clinics with both seniors and millennials/Generation Z contributing; for mentoring platforms for wine makers and for global Fine Wine standards in sustainability.

The future of luxury is offering what money can’t buy: an experience and an emotional connection. Like Proust when he bit into his eponymous madeleine in A la Recherche du Temps Perdu, a sip of that ’96 Lenoble will bring back to me sunny days in Champagne brainstorming the future of Fine Wine

*Nicole Rolet, along with her husband Xavier Rolet KBE, created Fine Wine Chêne Bleu in just over a decade. At a recent dinner honouring the former CEO of the London Stock Exchange, Sir Martin Sorrell, the former head of WPP, paid homage. “I have only two words: Chêne Bleu,” he said.

N.B.  I declare an interest as an Ambassador for Chêne Bleu, serving them at Robinson Hambro dinners.