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Mid-wine crisis?

Californian wines are growing at such a pace that they could soon topple France to take the number two spot in the UK market. If they could address the middle market, they’d get there even quicker, says Clinton Cawood

When it comes to branding, Californian wine does it best. But it has recently been suggested that the state’s wines would benefit further by linking these brands with broader images of California and the positive associations that go with them.

The Wine Institute of California suggested that this connection would give Californian wineries a competitive advantage. That may be true when dealing with US consumers, but it may not be quite as applicable when selling Californian wines in the UK market. Selling Californian wine to UK consumers may be a more complicated task than merely associating the wine with the state’s “fun lifestyle”.
In the UK there is a perception that Californian wine performs well in the mainstream, sub-£5 range, as well as having a strong presence at the top end of the spectrum – bypassing anything in the middle. Kendall Jackson sales manager Peter Ferguson describes this dichotomy as a degree of schizophrenia in consumers’ experience of Californian wine. “They’ve either tasted the low end or the premium end,” he says. This, according to Ferguson, leads to a need to “cover the mid-premium area. The lack of wines in this area is a British wine-market phenomenon, and is a fault with the retailer and the supplier.”

Simon Legge, marketing director in Europe for Brown Forman Wines, whose Fetzer brand he refers to as a “standard bearer for the above-£5 market”, concedes, “We have to recognise that Australia has done better than us in the £5 to £10 market.” Meanwhile, Keith Isaac, general manager of Patriarche Wine Agencies, acknowledges that with regard to California, “All the volume is driven by the bottom end. We’ve had success last year with wines around the £7 mark, but it’s a difficult market.”

Sense of place
California’s success in the mass market is largely a result of a few strong brands, such as Blossom Hill and Gallo. These are not particularly linked to “California-ness”, but rather stand on their own. Helen Wright, senior brand manager for Blossom Hill, believes  that, “In the sub-£5 range the most important thing is that people enjoy the wine and that the brand appeals to them.” Glenn Caton, senior marketing director in Europe for E&J Gallo, has a different approach. “Origin is important in wine. Obviously California is where we’re from, and we want to be proud, not shy about that. It is our terroir, so to speak.”

Traditionally, a greater emphasis is placed on origin at higher price points. John McLaren, UK trade director of the Wine Institute of California, explains, “At £7, you need to be slightly more precise than ‘California’, and at £10 consumers expect something like ‘Napa’ or ‘Sonoma’.” Ferguson agrees, saying, “If people are paying a mid-premium price, they need to know it’s not only from mid-California.”
Fiona Boundy, marketing manager for Constellation Wine’s Cellar Door, targeting the middle and top ends of the market, presents another point of view: “Our marketing is all about the wine’s credentials, talking about Robert Mondavi among the great wines of the world. In the entry level, it makes sense to associate a brand with California.”

In the marketing of J. Lohr, Damian Carrington, head of marketing for Enotria Winecellars, explains that he is “keen to push regionality. The market is beginning to become sophisticated enough for that.”

The best way to market mid-premium Californian wine remains a topic of debate. Whereas California has positive associations in the US, both in terms of its wine and more broadly, this poses potential hazards when directed at a European market. There is a concern that stereotypical images of California and Los Angeles may not be conducive to wine sales.

Andrew Chapman, sales director for Sutter Home in Europe, says, “I don’t know how well the UK or European consumer understands California. They know Florida better. California has a difficult image.”

“Images like Baywatch beaches aren’t going  to help sell that much wine,” adds Andrew Bewes, commercial director at Liberty Wines.

More important, however, seems to be a dissociation from the US when marketing wine from California in Europe. Carrington believes, “The image of California has a positive lifestyle element, but there are negative connotations about the States at the moment.” Legge expands on this, saying, “There’s a wide range of things that California stands for, that set it apart from Bush-ism. It doesn’t seem to have had an effect on growth rate of Californian wines. The Brits don’t pay too much attention to that – but some of our European cousins might.” McLaren puts it simply, saying, “Everything about the US to the UK consumer is negative, and everything about California is positive.”

Continuing growth
Californian wine’s growth rate in the UK has indeed been strong, rising in the off-trade last year, for example, by 15%. Australia, the leader in exports to the UK, continued to grow, increasing sales by 11%. France, in second place, decreased by 5% (ACNielsen). This has led to speculation that the USA, currently the third-largest exporter to the UK, may soon overtake France. Caton believes this could happen as early as a year from now.

The average bottle price for Californian wine decreased slightly last year, while, in the off-trade, total light wine’s average price increased. Bewes explains that there is “a need for mid- to top-end California to re-enter the game to provide at the key price points of £5 to £10.” McLaren confirms that this is indeed the price range being targeted, “and Australia, Chile and South Africa are doing the same. It makes sense, as the UK market doesn’t represent that these wines are being produced. In the US, all the growth is in the equivalent of the £7 to £10 market.”

Statistically, California continues to demonstrate its strength in the branded market, compared to other countries’ relative strength in own-label wines. Last year, according to Nielsen, 94% of US wine sales (the majority of which originate in California) in the UK’s off-trade consisted of branded wines. In contrast, only 59% of France’s sales were branded.

According to Wright from Blossom Hill, the biggest wine brand in the UK, “The £5 to £7 market is crying out to be developed.” And £7 is, indeed, the highest price point provided by Blossom Hill.

Better quality
There are other factors that affect price, of course. The Wine Institute reported a plentiful harvest in 2005, the second-largest in history. According to McLaren, this does not pose an oversupply problem for Californian wines, as their domestic market is strong. “Australia and Chile will fulfil the bulk market – they have wine coming out of their ears, but the US doesn’t have the same problem,” he says. Carrington, however, points out, “There have been some cheap deals around,
and more than a few bogofs in the Californian sector.”

Chapman explains that, despite the good 2005 harvest, “Demand is so high in the US domestic market that prices have remained high” – a fact supported by the Wine Institute. He also expects another duty increase in the next few months. “A lot of Californian wines hover at £4.99, and I’m not over-convinced that people will want to spend extra. There’s almost no point being at £5.10. There’s also going to be a lot of cheap wine in Europe, and this will have its effect on Australia and California.”

As far as quality is concerned, wine from the Golden State is showing signs of improving. McLaren, referring to mid-premium wines, explains that there are “new, interesting wines in the US that are applicable to the UK. The US palate is maturing – the residual sugar is lowering and there is less sweet oak”.

An increasing awareness of the mid-range market results in increasing wine quality. As Carrington explains, “It is the middle ground where good volume is to be had, and they should be good wines.” Wright supports the Wine Institute’s benchmarking exercises, believing they have “helped to show the trade that there is good quality”.

McLaren presents another reason for the increasing quality of Californian wine, particularly after a few recent low-harvest years. “There are no subsidies in the USA, so if no one buys your grapes you dig up the vines and plant something else. As a result, quality improves,” he says. This, apparently, has led to an increase in the percentage of grapes originating from coastal areas in California, further improving quality.

On-trade opportunity
High-quality, premium Californian wines have a strong presence in the on-trade. Bewes explains that their on-trade customer base is reliant on people “who are adept at selling high-quality expensive wines”. As with the off-trade, California also performs in the lower-end on-trade sales but, as Carrington confirms, “California lags in the on-trade sector in terms of the middle territory.” Caton thinks that, “Although California is underdeveloped in the off-trade in the premium sector, in the on-trade California as a whole is underdeveloped.”

This may be a side effect of the strength of Californian wine brands. McLaren believes that, “New world wines are primarily structured around brands and, therefore, the New World market share in the off-trade is not reflected in the on-trade. That said, California had 34% growth in the on-trade last year.”
Targeting the on-trade market seems, therefore, to be worthwhile for California at this point. Chapman believes that, to do this, one has to “place product as well as train waiting staff and sommeliers”.

Wright explains that Blossom Hill has recently expanded its on-trade sales team. “It was hugely under-trading. It’s really weird, the underperformance in the on-trade. I don’t know the reason for that.”

A number of Californian brands have developed a specific focus with regard to which sectors to target. J. Lohr is primarily an on-trade wine operating in the middle range, where Carrington believes there is the most opportunity for Californian wine. Chapman says, “We see Sutter Home becoming an independent and on-premise brand.” Isaac explains that, as far as sectors are concerned, “Hahn Estates is widespread, but less in the high street. We’ve had more success in the on-trade.”

Other brands are performing well across a number of sectors. Caton explains that Gallo has “always been a strong supporter of the convenience sector”. The company is currently targeting the independent sector with non-branded wines, and has been focused on the on-trade for about three years, “with estate wines that go up to £80” adds Caton.

Ferguson maintains that Kendall Jackson will not be restricted to the on-trade. “We try not to limit our horizons – as long as we’re represented in the style and price points commensurate with the overall style of the wine,” he explains. Meanwhile, Liberty Wines, according to Bewes, has a fairly even 50-50 split between the on- and off-trades.

Californian wine sales should continue to grow in the UK market. And, if the category successfully takes advantage of the mid-premium price range, increases its presence in the on-trade, and takes advantage of being Californian, while avoiding association with anything too American, France may soon find itself at number three.

Rising Rosé
California may be fighting to take second place in the UK market, but when it comes to rosé, it is undoubtedly winning.

The Wine Institute of California’s John Mclaren believes that “rosé is promising and timely at this point”, and the figures certainly back that up. Sales of Californian rosé  in the UK off-trade last year amounted to nearly 3 million cases. The next-largest producing country was France, responsible for 800,000 cases. And last year saw California reinforce its already significant hold in this category with a 40% increase over the year before (ACNielsen).

“As far as Sutter Home are concerned,” explains Andrew Chapman, “rosé is over half of what we do in the UK. Historically, we were the inventors of white Zinfandel.” Simon Legge describes Fetzer’s role as a rosé pioneer: “Five years ago we realised there wasn’t a premium rosé, so we came up with Fetzer Syrah Rosé. It went from zero to 100,000 cases. That was a trail-blazer.”

Helen Wright reports that Blossom Hill’s white Zinfandel is continuing to grow, and Gallo is leading a lot of rosé growth, according to Glenn Caton, with 24% of the UK blush category.

A lot of emphasis is being placed on premium rosé. According McLaren, this is a question of taste. “The US palate is maturing – they’re not as eager to drink blush Zin, but because of the climate they want rosé.” But aside from taste, premium rosé may owe some of its success to negative perceptions of white Zinfandel. Keith Isaac explains that, “For Cycles Gladiator we wouldn’t do a sweet white Zin. If we were doing something cheap, we would do something like that, but we would need something smarter.”

Damian Carrington for J. Lohr would agree. “Rosé is certainly something to look at, but a more serious rosé – we don’t want to go down the white Zin route.” McLaren explains that these perceptions “don’t do California as a brand any good, but it does bring people to Californian wine”. Chapman believes that it is merely a perception that “if it’s sweeter it’s cheaper. White Zin will grow with time.”

db March 2006

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