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CALIFORNIA UPDATE: Golden Opportunities

Dominated by two big brands, California’s wine market is perhaps not as developed as is commonly perceived.  Patrick Schmitt discovers that there is certainly scope for other brands to enter the fray – at higher price points

While it may seem strange to do anything other than celebrate a category in growth, many in California are less than satisfied with the country’s UK presence. Volumes are increasing at a respectable pace and so are average prices, but this is a segment of the UK wine market almost entirely dictated by the performance of two brands: Gallo and Blossom Hill. Remove these leading labels from the Californian equation and the country is left with a slice of the off-trade no larger than Germany’s.

That’s not to condemn Gallo or Blossom Hill, who’ve not only brought a vast raft of consumers into wine, revived rosé and taught the trade a thing or two about branding, but simply to remind that California is not as “mature” as statistics might suggest. In fact, the range from this region is poorly reflected in UK retail.

Add Constellation’s Echo Falls to California’s leading duo, with its far from insignificant 1.5 million cases (10% of the US category) – plus almost 1.2m cases of own-label – and what’s left for the rest of the category is even slimmer. Then there’s the fact that almost 90% of Californian wines are sold at £5 or below, and 30% of all US wines are rosé, and it becomes highly apparent that while California may have tapped very effectively into some key consumer trends, it has a narrow foundation from which to launch itself into higher priced segments, independent retailers and the on-trade.

Also, California has yet to really build a positive and premium wine-based image for itself in the UK. Among the UK trade, there are some who associate the category with little more than high sugar, high alcohol and high oak levels – and those with a knowledge of its more iconic offerings, simply high prices. For consumers on the other hand, there may be few preconceptions, but there also appears to be little connection between California and its leading brands. Keith Isaac MW, general manager of Patriarche, UK agents for Hahn Estates, mentions research showing that “the consumer thinks Blossom Hill comes from Australia and Gallo is a country – Pays de Galle?”

Certainly John McLaren, California Wine Institute UK director, admits that although the image of the region is positive, “The connection with brands is a bit hazy – they don’t tend to use California as part of the marketing mix.”

For those trying to introduce consumers to top-end, cool-climate coastal Californian wine this may be a fortunate oversight, but it is also a situation that’s changing. Constellation has not only launched the classically Californian Twin Fin but is also emphasising Mondavi’s heritage. The group has committed £3m to advertising and PR to push the Woodbridge brand with a campaign called “Not That California”. As Constellation Europe vice president of marketing Clare Griffiths explains, “The campaign is one of the largest UK wine advertising programmes this autumn and Christmas, and provides a fantastic platform from which to build consumer confidence and much needed value back into the Californian wine category.”

Trading up
It is also one high profile and not entirely price-driven attempt to try and take the consumer upmarket within the Californian category. Historically, the country’s leading brands have been very effective at building volume sales, but less good at persuading drinkers to spend more within the sector. Hence there is a large gap between the very top-end iconic names and mainstream wine brands. “The challenge for California is that it has had an armchair ride on White Zin for four to five years but it needs to turn its attention to the £5-£8 sector and come out with more wines to add icing to the Californian cake,” says Simon Legge, European marketing director for Fetzer Vineyards at Brown Forman Wines. He points out that while “California sells just over 10% of its wines over £5, France sells nearly 20% and Australia around 17% – it’s an area the US needs to do better at.

“We need intelligent solutions,” he adds, “not just financial muscle.” He is partly referring to his own brainchild, an unoaked Shiraz from Fetzer, in Tesco at £6.49. “Whenever I do tastings I find people don’t just want unoaked whites, but reds too. Think of the unoaked Shiraz as a modern-day Beaujolais, with more oomph.”

Bibendum has also been busy trying to plug this gap in the market with a new brand called Marmesa, priced at £9.99. “We have started to bridge the chasm between sub £5 and over £20 wines and we aim to encourage wine drinkers to explore California further,” says Kirstie Papworth, manager of Bibendum Wine Brands. Like Legge, innovation is important to this and it is hoped the Marmesa Dessert Pinot Noir “should get people talking – the wine has been frozen to concentrate the juice”.

Of course, if anyone is equipped to alter the landscape of the Californian category it is Gallo, and the company is well aware of the sector’s shortfalls. “The majority of US wines are priced between £3.51 and £4, and the average price for US wine comes in just above this at £4.08,” records Jane Hunter, Western European marketing director for E&J Gallo Winery. However, she makes the point that the real growth is now occurring in the £7-plus category (see table on page 26). “This is led by Napa Valley Vineyards and Gallo Family Vineyards Coastal Vineyards, which have grown 1,242% and 40% respectively. The growing popularity of these wines show that California can perform well at these price points and that there is a real opportunity to educate people about the premium wines available from California.”

Also pushing hard in this price band is Constellation, which is selling its Robert Mondavi Heritage Collection (Chardonnay and Zinfandel at £9.99) exclusively through Tesco, while Jackson Wine Estates International, with new UK agent John E Fells, has managed to secure a listing in Tesco for the Kendall-Jackson Vintner’s Reserve Pinot Noir and Sauvignon Blanc at £8.99. The supermarket has “taken a bigger interest in the premium Californian sector,” says Tim Matz, president and managing director of Jackson Wine Estates International. “We believe that if the trade would expand the amount of Californian wines at £6/7/8 on the shelf then the numbers sold would surprise buyers – the hardest aspect is getting distribution.”

Trade block

This trade block is widely reported when talking to Californian wine producers, as well as importers. “The consumer is much more comfortable with California than the trade,” says Papworth. Similarly, Kate Harborne, marketing manager for New World at Enotria Wine Cellars says California suffers from “too strong an association with big brands”. The on-trade specialist took on the Hess Collection with its Peter Lehmann joint venture in June, and Harborne adds that, “Sommeliers can be a bit snobby – they think the wines will have lots of residual sugar and oak. There also a lack of understanding of California’s cool climate regions such as Monterey.” She sees a “need to get sommeliers involved with California at the educational stage”. It will also be interesting to see how Francis Ford Coppola, whose wine range starts at £8, performs now that it’s under Mentzendorff’s capable wing.

In short, Legge ascribes a reluctance to experiment with California to previous less than positive experiences. “In the past the trade has been cheesed off with California for only focusing on the UK when exchange rates suited it or there has been a surplus. However, California has learnt its lesson and is more market orientated and committed, and no other country has grown as consistently.”

And it must be added that the UK trade appears already to be embracing a more concerted approach from California, especially at mid-range price points. As mentioned, Tesco’s range review included an increased focus on California’s £5-plus offerings, while Waitrose showed a number of new £5-plus California wines at its autumn press tasting. “Having addressed the sub-£5 sector we turned our attention to the mid-premium range,” says Nick Room, wine buyer for California at Waitrose. “The resulting assortment [including wines from J. Lohr, Hess, Phelps, Calera, Morgan and Rudd] is designed to offer our customers an interesting selection that goes quite a way towards filling gaps that have hitherto existed in this category,” he adds.

Importantly, such gaps present an opportunity for California. As Isaac admits, “We have had willingness from a few majors to take on the Cycles Gladiator brand at £6.99, although there is no major distribution for Hahn Estates at £9.99.” This he believes is partly to do with the hole in the Californian category around the £7 mark. “I think if it was a £6.99 wine from Australia then we would have had less interest as there’s already so much at that price.”

Go over a tenner in the multiple grocers, however, and he says it’s difficult to get a listing for California. “Not only is there little wine sold at that level but it’s only really Chablis, Sancerre and Châteauneuf-du-Pape.”

Nevertheless, it seems the trade is no longer solely relying on the easy sell that is California’s biggest brands at mainstream prices. Any complacency is giving way to renewed interest in the category and its higher priced wines. And the focus on £5-£10 is not only vital for California’s profitability but also image and ability to enthuse, as it is at these price points that “the real creativity is happening”, according to McLaren.

But, there is still a long way to go for California in the UK. “The diversity doesn’t manifest itself,” mourns McLaren, adding, “retailers think that if they have one red Zinfandel they have that covered, but you wouldn’t do that with Chardonnay.”

He’s also “a bit disappointed that when California is given another slot it goes to Pinot Grigio – I’d prefer there to be something inherently Californian”. Then again, it’s not clear the UK consumer understands what that is – yet.

© db November 2007

 Rosé trends

Rosé’s extraordinary rise to prominence is almost entirely attributable to California, or rather the powerful brands that are Gallo and Blossom Hill. These labels, with their sweet pink wines, made from White Zin and White Grenache, have captured the attention of mostly female drinkers and brought a whole generation of people into the wine category at an early stage in their lives. Today, as Gallo’s Jane Hunter explains, “The US wine category contributes 52% to the total rosé wine market, with almost 40% of that share from Gallo Family Vineyards.”

There’s still plenty of growth in the sector, which is currently posting a volume increase of 29.8% (Nielsen MAT to WE 08.09.07), driving overall growth in the wine market, which would otherwise be stagnant. Fuelling the rosé resurgence, apart from California (with a 26.8% increase), are Australia, Chile, Italy and South Africa.

However, while the big brands, and the leading dynamic duo in particular, are so active in the rosé category, it was perhaps remarkable to learn that, for example, Jackson Wine Estates don’t have a Kendall-Jackson rosé, and Fetzer are only now launching a Bonterra rosé.

On the other hand, there is a danger the growth will start to slow, leaving latecomers to rosé without a retail listing. As Fetzer’s Simon Legge says, “I can envisage the rosé category running out of steam and that will lead to rationalisation, with only the best-selling lines left.”

And Elaine Dickie at WaverleyTBS, who handle Gallo and new addition Adler Fels, records a switch from Californian blush in the on-trade to pink Pinot Grigio from Italy. “This is a trade-led development,” she says. “It is seen as more trendy.”

Such a change is one further reason for California to significantly expand its offer beyond inexpensive branded blush because spreading your offer broadly, if more thinly, is vital insurance against changing tastes.

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