Competition in the Global Wine Industry:
A U.S. Perspective

 

 

Murray Silverman
Professor of Management
College of Business
San Francisco State University
1600 Holloway Avenue
San Francisco, CA 94132
Phone: 415-338-7489
Fax: 415-338-0501
Email: msilver@sfsu.edu

 

Richard Castaldi
Professor of Management
College of Business
San Francisco State University
Phone: 415-338-2829
Fax: 415-338-0501
Email: castaldi@sfsu.edu

 

Sally Baack
Assistant Professor of Management
San Francisco State University
College of Business
Phone: 415-338-6421
Email: sbaack@sfsu.edu

 

Greg Sorlien, MBA
San Francisco State University
College of Business

 

 

Competition in the Global Wine Industry:
A U.S. Perspective

The total volume of the global wine market in 1998 was measured at 6.8 billion gallons, with 25% of the total volume accounting for wine that was purchased outside the country from which the wine was produced (California Wine Export Program, 2000). This represents an increase over the 1991-95 period, during which the export segment of the market averaged approximately 17% by volume. The increasing trend for the export market since 1995 is due primarily to a change in the strategic priority that wine producing countries are placing on exporting as a method for growth. Historically, the market for wine was primarily one of local production and consumption. That paradigm has changed in the last few decades as a few of the more established wine drinking countries have seen their per capita consumption stagnate or decline (Table 3). At the same time, several wine producing countries around the world have begun to make an impact on the export market in an attempt to expand their industries beyond their limited local markets. The result of this shift in market focus for some of the older wine producing countries plus the rise of new wine producing countries around the world has caused an increase in the competitive nature of the global wine market.

Currently the U.S. is the fourth largest producer of wine in the world (Table 1) yet only accounts for approximately 4.2% of the total wine export market based on volume (Table 2). One reason for this disparity can be attributed to the low level of strategic importance placed on exporting by most U.S. wineries. In the past, a very common export strategy for U.S. companies was to export only the excess capacity that was on hand due to over production (Monterey County Herald, 1998), thus there was little focus on establishing a presence in the global market place. Foreign governments could also restrict U.S. wineries ability to operate by using anti-competitive actions such as implementing high tariffs for wine in retaliation for other trade issues, or implementing laws specifically designed to protect local wineries. The end result of these government interventions is that U.S. wines carry an increased cost burden over local wines and other imported wines, making it difficult to compete in the local markets.

In recognition of the opportunities presented by the global wine market and the threat that importers pose to the U.S. wine industry in 1998, the industry created a voluntary initiative called "WineVision". The goal of WineVision is to help create strategies that will enable U.S. wineries to be more competitive and to increase the demand for U.S. wine both domestically and internationally. WineVision is focusing on three main strategic priorities: 1) become the leader in sustainable practices - environmentally sound, socially responsible and economically viable, 2) make wine an integral part of the American culture, 3) and position U.S. wine as the high-quality, high-value product (across price points) in global markets targeted for the greatest prosperity (WineVision, 2000).

This Industry Note provides background information relating to the third strategic priority of positioning U.S. wine as the high-quality, high-value product (across price points) in global markets. An overview of wine and the current global wine industry will be given along with some examples of how U.S. wineries are implementing strategies to compete against foreign producers.

Overview of Wine

The dynamics of the global wine industry are better understood through a brief history of wine as well as an overview of the wine making process. Some countries have longer historical and cultural ties with wine then others and that can affect the quality and perception of the product in the eyes of the consumer. Also, the conditions in which the wine grapes are raised and the processes used to make the wine can create a superior wine and therefore a competitive advantage.

Wine has been a part of Western history since the Neolithic Period (8,500-4,000 B.C.), when cultures first started to develop permanent communities, and stopped being nomadic hunter-gatherers (U. Penn, 2000). One of the earliest written records of the consumption of wine is recorded in the Bible and the impact of wine on Mediterranean cultures became more pronounced over the years as the geopolitical situation stabilized in the region under the Roman Empire. Roman Imperialism helped to spread the production of wine across most of the countries in the Empire, which included most of North Africa and Southern Europe (Britannica, 2000). During that same era, wine became ingrained in the Christian faith and is still used in Christian mass today. The close tie between wine and the Christian faith aided to the spread of wine production and wine consumption across Europe in the ages after the fall of the Roman Empire and eventually throughout the world with the European Imperialism of the 15th - 19th centuries. The wine producing and consuming countries listed in both Tables 1 and 2 are dominated by Western countries or ex-colonies, with most of them being historically Catholic.

There has never been a universally accepted system for naming styles of wine. Currently there are two prominent systems for naming wine, Varietal and Appellation. Appellation is a French term used to describe the region or specific area in which a wine is produced. In France when the Appellation naming convention was created, it was accepted that certain geographic locations, due to "terroir" the land where the grapes are grown, were better prepared to produce a specific type of grape, and therefore a specific style of wine. For example, that is why Champagne (wine with a degree of carbonation) comes from the Champagne region in France, east of Paris. Some Appellations that have been created around the world include, Bourdeaux (FR), Burgundy (FR), Chablis (FR), Champagne (FR), Tuscany (ITY), Maipo (CHL), Mendoza (ARG), New South Wales (AUS), Napa Valley (USA) and Sonoma County (USA).

Varietal is a descriptive naming convention based on the type of grape used to produce a wine. Varietal is predominately used as U.S. industry marketing tool to segment the market and is not specific to a geographic location. Some common Varietals today are; White Zinfandel, Riesling, Chardonnay, Burgundy, Shiraz, Petite Shiraz, Merlot, Pino-Noir, Zinfandel and Cabernet Sauvignon.

Terroir is a determining factor in the quality of the wine. It is not who makes it, or how they make it, but the quality of the grape that is used. It is the environmental factors that determine the flavors and sugar content in the grape. These factors are based on the temperature in the region, the amount of light that the grape vines are exposed to, the amount of rain that the area receives annually and the characteristics of the soil. A vineyard that has all of these natural benefits still must have considerable agricultural work done to keep the vineyards healthy and free of insects and/or molds that damage the vines ability to produce quality grapes. The combinations of attributes that are needed to create a high quality grape are not very common throughout the world. The amount of good "terroir" is limited, and therefore the ability to produce fine wines is limited.

The wine making process is very complicated and as a result there are many opportunities to damage, as well as improve, the quality of the wine being produced. The wine making process starts in late Fall, when the grapes are cut from the vine and laid on the ground in the sun to dry for a short period time. This is done to increase the ratio of water to sugar content in the grape, thus creating the opportunity to make a sweeter wine. Then the grapes go into a vat and are crushed to remove the juice. The longer the skin of the grape remains with the juice, the darker the wine will be. If a white wine is desired, then the skins of the grapes are removed soon after the crush, but if a red wine is desired then the skins of the grapes are left in with the juice for an extended period of time. The juice is then placed in a cask made of wood or vat made of stainless steel and aged, for on average, a year. The aging process allows the natural yeast from the sugar in the grape to ferment and produce alcohol. The aging process also allows the wine to absorb flavors from the container that it is aged in. After aging for the appropriate time, the wine is bottled, labeled and shipped to the market.

Wine Producing Countries

In the global wine industry there are two broad categories for the classification of wine producing countries, the New World Producers and the Old World Producers. The larger New World Producers include the USA, Australia, Chile and Argentina. The largest of the Old World producers are France and Italy. The New World (except the USA) and the Old World Producers industries are described in the following section.

Australia: Grape vines in Australia were first introduced in 1788 by English immigrants. The wine "industry" was born in the 1860's when European immigrants added the skilled workforce necessary to develop the commercial infrastructure. Despite the long history that they had at wine making, the industry in Australia was stagnant until the 1960's when several key factors occurred to transform the industry and domestic market. Those key factors helped in the development of more innovative techniques to make higher quality wine while keeping costs down. The result was that the wineries were in a position to produce quality wine at many price points, and soon after, domestic and international demand began to rise. Since Australia has a very limited domestic market (population of only 17 million), the wineries realized that if the industry was to continue to grow it would have to do so in the international market (Strategy 2025, 1996).

At the same time that the Australian wine industry was starting to show strong growth, the government was considering legislation that would severely tax wine in an attempt to gain revenue. To protect the industry, the local wineries joined together with government officials to develop a plan that would keep the government from doing this, and the result was the formulation of "Strategy 2025" (Vineyard & Winery Management, 1999). The consensus between the wineries and the government was that by growing the industry, the government and national economy would be better served then by instigating high taxes that could impede the growth of the wine industry. "Strategy 2025" is a business strategy that outlines how Australian wines will expand domestically and internationally. Their vision is that by the year 2025 the Australian wine industry will achieve $4.5 billion in annual sales by being the world's most influential and profitable supplier of branded wines and by pioneering wine as a universal first choice lifestyle beverage. They were even bold enough to name the specific markets that they would target. The top four markets targeted were the U.K., U.S., Germany and Japan (Strategy 2025, 1996). The top 5 markets that Australia shipped to in 1999 were the U.K., the U.S., New Zealand, Canada and Germany. The U.K. accounted for over half of the revenue gained by Australia in the export market with $343 million, while the U.S. came in second place as a market for Australian wines with $160 million in revenue. The next 3 countries, New Zealand, Canada and Germany only accounted for $97 million or 16.1% of the total revenue (Wines & Vines, July 2000). Japan was not in the list of top 5 countries that Australia exported to, despite being a strategic objective. Australia also plans on investing in the Asian Tigers as they develop due the large forecasted growth of their populations and economies. Australia was the 8th largest producer of wine in the world (Table 1) with output of 177 million gallons in 1996 and 195 million gallons in 1998. Australia had 3% of the total export market and was ranked 8th in the world for 1998 (Table 2).

Chile: The first vines were introduced to Chile in the 16th century by a Spanish priest. Over the years the cultivation slowly grew until the late 19th century when wine began to be produced on a large scale. Due to political and economic instability, the wine industry was not able to develop and take on a global perspective until 1979 when Chile began to focus on the exporting of natural resources to strengthen its economy.

The high Andean climate is very good for the production of high quality red wines. Chilean wines are higher in quality then their neighbor, Argentina, and in 1996, the government took an active role in maintaining the quality of wine for export by implementing the Denomination of Origin (DO). The DO is a set of laws that regulates the origin and variety of grape the wines use, as well as restricting the varietal labeling that is used to develop a consistent system. It has four wine producing regions that have appellations of origin and are monitored by the ministry of Agriculture. They are the Aconcagua, Maipo, Maule and Rapel. In 1999 the top five markets that Chilean wines shipped to were the U.K., U.S., Canada, Denmark and Japan. The U.K. accounted for the most revenue with $116 million, and the U.S. accounted for $107 million. Canada, Denmark and Japan accounted for $35, $25 and $24 million or 27% of the top five countries revenue (Wines & Vines, July 2000). Chile is the 9th largest producer of wine in the world (Table 1) with output of 100 million gallons in 1996 and 144 million gallons 1998. Despite being only the 9th largest producer, Chile had 3.5% of the total export market and was ranked 6th in the world for 1998 (Table 2).

Argentina: Like Chile, Argentina has a long history of making wine. However, the quality of the wine from Argentina was never as high, due to the small area of land that is capable of producing high quality grapes. The production of wine in Argentina has increased over the years (Table 1), but the wine produced tends to be for local consumption, not for export, due to low quality and government regulations. In recent years Argentina has developed several organizations to help boost the quality of the wines with the intent of increasing their presence in the export market. They include the Original Denomination (OD), Controlled Original Denomination (COD) and Guaranteed Controlled Original Denomination (GCOD). All of these organizations have the task of regulating the production and labeling of the wine to create a higher quality image in the global wine market. At present, there are many foreign companies that look to Chile to create joint ventures, but this is not the case in Argentina. The four main areas of wine production in Argentina are La Rioja, Mendoza, Rio Negro and San Juan. In 1999 the top markets for Argentine wine were Paraguay, the U.K., the U.S., Japan, Bolivia, Uruguay, Chile and Germany based on volume. The total volume of the top 8 countries was 58 millions of liters, with volume shipments for the countries being 12, 11, 10, 7, 5, 5, 4 and 4 (Wines & Vines, July 2000). A significant portion of the volume, 45% of exports, went to other South American countries where the low cost/price of their product is a major factor. Argentina was the 5th largest producer of wine in the world (Table 1) with output of 334 million gallons in 1996 and 334 million gallons in 1998. Despite being the 5th largest producer in the world, Argentina held the 10th position in the total export market in the world for 1998 (Table 2).

France: France has been a long time world leader in the production of wine due to historical and cultural factors. In terms of volume, France was the number 2 producer of wine in the world (Table 1) with output of 1,506 million gallons in 1996 and 1,390 million gallons in 1998. The French developed the Vins d'appellation d'origine controlee (AOC) system centuries ago to help ensure that the quality of wine produced stays high. The AOC regulates the area of the production, the method used to produce and store the wine as well as the minimum alcohol content of the wine. There are many regions in which quality grapes can be grown in France, and the dominant position that France has in the export market reflects this. Some of the appellations that are better known in France are Bordeaux, Burgundy, Champagne and Rhone.

Italy: Italy, like France, also has a very old and established wine industry that relies on the appellation method to control the quality of their wines. Italy was the largest producer of wine in the world (Table 1) with output of 1,551 million gallons in 1996 and 1,430 million gallons in 1998. The two main organizations responsible for the control of the quality in Italian wine are the Denominazione di Origine Controllata and the Denominazione di Origine Controllata e Garantita. The second appellation control system was developed in recent years to help raise the quality of the wines produced.

New World Producers are using more modern methods of production thus creating more consistent high quality wine (Wine Appreciation, 1995). France was also in this situation since both countries tend to use older methods of production that have become a part of their "wine culture" instead of constantly innovating. All of the countries profiled, with the exception of Argentina, are capable of shipping brands that can compete at a wide range of price points. Argentine wines usually have a hard time competing in the premium market place, although there is one region capable of producing such wine. The French wines typically are capable of competing in the higher price classes, and it is not uncommon to find French wines that retail for over US$100. Italian wines tend to have more of an association of being good to have with meals and therefore do not tend to garner a price as high as French wines, but they do compete very well in the mid to lower price categories.

Major World Markets

Although several of the major wine producing countries are also major markets, there are many countries and regions that do not have the capability to produce quality wines in large volumes, but have high demand for the product. This section will provide an overview of wine markets around the world and will reference the per capita consumption rates of select countries listed in Table 3.

In Australia social behavior has driven the growth of the domestic market. These trends include a shift toward a Mediterranean style diet, the rise in the awareness of the health benefits of wine, recreational activities and general entertainment (Strategy 2025, 1996). As these trends have been increasing, so has Australia's per capita consumption. They were ranked #18 in the world for consumption (Table 3) in 1998 with 19.89 liters per person, up from 17.94 liters per person in 1996. The total market for imported wine in Australia for 1998 was 7.5 million gallons (Table 4), which translated into about a 5% market share for imported wines based on volume. According to Strategy 2025, this low market penetration by imported wine is attributed to the high quality and low price of the domestic brands, not because of government intervention to protect the market. In 1996 when Strategy 2025 was written, 6% of the brands sold in Australia accounted for more then 75% of sales.

In 1998 Argentina was ranked #8 for per capita consumption in the world. Consumption in Argentina is showing a very slow growth trend, with 39.52 liters per person being consumed in 1998, up from 38.97 in 1996. The total market for imported wine in Argentina for 1998 was 1.3 million gallons (Table 4), which translated into about a .4% market share for imported wines based on volume. The high volumes of wine produced at low costs makes it very difficult for imported wines to come in and compete on price.

France and Italy were the number 2 and 3 countries in the world for per capita consumption in 1998 (Table 3). Both countries have a long history of wine production and consumption, yet despite this the consumption rate in France is relatively stagnant while Italy is showing a decrease. Italy, unlike France, has a very small market for imported wines. The import market sizes were roughly 13.4% and 2.8% in 1998 based on volume.

There are other countries and regions around the world that do not have the capability to produce large quantities of high quality wine, yet have markets that must be sustained through importing. These markets include the United Kingdom, Canada, Japan and Asia. The United Kingdom's wine market is considered to be the "crucible" for the global wine market (Wine Market Report, May 2000). The U.K. has a very small domestic wine industry and also has good relationships with many of the wine producing countries in the world. That coupled with the long history of wine consumption the British have due to their historical association with the French and the Germans results in an open and competitive market. The British import market was second only to the German market in 1998, and the U.K. was ranked #23 for per capita consumption in the same year with a trend of increasing consumption. The situation is very similar in Canada, except that there are more governmental constraints to competition in Canada. In 1998 Canada was ranked #30 in the world for per capita consumption with an increasing trend.

Although Japan has seen a steady increase in the size of its imported wine market (Table 4), they do not rank in the top 33 countries in the world for per capita consumption (Table 3). In fact, no Asia country has a high per capita consumption when compared to Western countries. This has to do with the lack of traditional and cultural trends that drive the consumption patterns in more established wine drinking countries. Asia does present a great opportunity for wine producers around the world because it is a very large market that has yet to be tapped. China alone has 1.4 billion potential consumers.

Overview of the U.S. Industry and Market

The total wine market in the United States for 1999 was $18.1 billion with an average growth rate of 8.5% since 1994. However, there has never been a cultural disposition for Americans to drink wine like has historically existed in Europe, despite being populated primarily by European immigrants. The two main reasons for this are, 1) the vineyard and production infrastructure was very small in the 19th century when the country was developing, and 2) the first alcoholic beverages to be mass produced and readily available nationwide in the U.S. were beer and whiskey. The low volume producers of wine were relegated to niche markets that were comprised of ethnic enclaves or individuals who wanted to enjoy a beverage with their food. The key differentiators between the drinks that were readily available, beer or whiskey, and wine became cuisine and the money necessary to attain the harder to reach imported wine. As a result of this, in the U.S. the consumption of wine became viewed as an elite drink, and was not embraced by the public.

Wine is now consumed on a national scale, but the attributes that categorized wine as an elite drink during the early days of the U.S. have carried forward into the present. The demographic breakdown of wine consumers does show that there are several distinct segments that comprise a majority of consumers. According to the Adams Wine Handbook 1998, women are slightly more likely to consume wine then men, with the majority of drinkers being in the "Baby Boomer" generation. They also tend to be college graduates who are professionals or managers and make over $60,000 annually. Furthermore, WR Hambrecht & Co. estimates that 15.7 million U.S. adults comprise the core of wine drinkers. The members of this segment have wine at least once a week and are credited with consuming approximately 88% of the wine by volume (Wine Business Monthly, 2000).

The international image of the U.S. wine industry until the mid 1970's was that of a low quality jug wine producer. This image was prevalent due to the fact that the largest wineries of the time were high volume producers who targeted the mass market. The wineries that produced high quality wines were doing so in low volumes so their presence and reputation was understated by the Old World producers who had proven track records of producing world class wines. This changed in 1976 during a blind wine tasting contest in Paris, France where California wines from Napa Valley beat out several well established European wines for the top honors. From that time forward, there has been a focus on developing high quality wines that can compete in the international market from the Northern California Appellations like Napa Valley and Sonoma County.

The U.S. has one of the most "open markets" in the world, with low barriers to entry for imported wines. Despite this, California wines have traditionally dominated the domestic market for years due to the ideal growing conditions and favorable marketing and branding actions taken by some of California's larger wineries. The import segment has seen some fluctuations over the years and is currently on the rise, from 16% in 1992 to 17% in 1998, as more of the New and Old World producers start to implement targeted market strategies. California wines are also seeing increased competition from wines that are produced in Washington and New York states, as their market share has risen from 6.2% in 1992 to 14% in 1998 (Adam Wine Handbook, 1999). Table 5 shows the balance of trade for the U.S. in wine for the years 1992-1998. The deficit has been shrinking in volume but has been growing in value over the time period. The total volume is up from the 1992 deficit number of 33,974 million gallons to 38,624 million gallons in 1998. But the 1998 number is down from the 1994 and 1996 numbers of over 40,000 million gallons. The trade deficit based on value has seen a surge in the past few time periods and currently stands at over $1.3 billion. With the value of the imports out pacing the value of exports while keeping a relatively flat volume, the value per gallon has risen for imports from $15.36 in 1992 to $17.14 in 1998. This trend clearly supports the theory that the import market is overwhelmingly targeting the premium wine segments.

Table 6 shows the top U.S. competitors for the years 1994, 1996 and 1998 based on volume. The top 8 companies produced a total of 77.6% of the wine in the U.S. market based on volume, while an estimated 1600 plus other wineries produced the remaining 22.4% in 1998. A small number of companies dominating the majority of the production have been common for many years in the U.S. industry, however, the companies that have stayed in the top 8 were not always the same. The reason for this can be attributed to a volatility that is inherent in the industry as companies initiate strategic divestitures and acquisitions to build better brand portfolios to compete in select market segments. This dominance of the market by such a few players results in their ability to leverage distributors to gain shelf space, put millions of dollars into marketing budgets, and to have leverage with suppliers for lower costs on inputs. The consolidation trend in the market has taken on a new twist in 2000. Instead of U.S. wineries consolidating with each other, foreign companies are looking to acquire U.S. wineries. This strategy enables the foreign producers to gain access to the U.S. market quickly and comprehensively. By purchasing a U.S. winery, the foreign producers can utilize the established distribution channel, existing suppliers, as well as the market knowledge of the acquired employees.

With the high number of producers and with the market dominated by a few major wineries, competition in the U.S. wine market is high. Strategies implemented by wineries to try to establish a competitive advantage can include targeting varietal segments, strategic supplier and distribution partnerships, and differentiation based on image and price.

Table 7 shows how the customer preferences for the colors, or varietals, of wine in the years of 1990 to 1998 have shifted from white wines to red. White wines in 1990 accounted for 52.9% of the volume shipped, that number declined to 40.5% by 1998. This was due to the rise in demand for Red and Blush wines from 14.7% and 16.8% in 1990 to 31.9% and 21.4% in 1998 respectively. The category of Rose has dropped by over half of its market share from 15.6% to 6.2%.

Suppliers to the industry could be in the form of bottle manufactures, label printing services or grape production. The capital investment that is required to start a winery depends on the scale of production. Very small wineries can start up with a minimal capital investment and can purchase grapes from select suppliers. However, it is not uncommon for competitors to out bid each other for grapes from suppliers that have a reputation for high quality grapes. Therefore, wineries choose to either purchase vineyards and assume the higher capital investment and agricultural maintenance costs or try to attain long term contracts with grape suppliers.

In the U.S., there is a law mandating the implementation of a 3-tier distribution system. The system is mandated by law because alcoholic beverages are a controlled substance and as such the government implemented a controlled system for getting those products to the markets. This law was enacted after the repeal of Prohibition in 1933. The wine producers must sell to a wholesaler, who then sells to an established customer base of grocery stores, liquor stores, hotels and/or restaurants. Wineries are capable of using a 2-tier distribution system, which allows wineries to sell directly to the customers through gift shops located at the winery. Mailing lists and the internet can only be used in a limited number of states because most states have made direct shipments illegal. Direct sale volumes are very low when compared to the established 3-tier system. The distributors have a vested interest in keeping wineries from being able to use a 2-tier distribution system because every bottle that is sold directly to the customer does not generate revenue for them. As a result, there is an industry wide push by distributors to keep wine sales over the internet from being legal. One argument is that minors would be able to purchase wine by clicking a mouse. The role of the distribution channel is growing and taking on greater strategic importance as a trend of international and domestic consolidation grows. Recent examples of this would be the acquisition of grocery store chains like Koger's by Albertson's and mega-store acquisitions like Wal-Mart purchasing a German chain called Wertkauf (Wine Market Report, May 2000). The result for wine producers is the ability to now gain access to more domestic and international markets without added marketing and capital investments. At the same time, the number of distributors is declining due to the consolidation, so the ability of smaller wineries to find distributors to carry the low volume wines can be negatively impacted.

Like all branded products, image is a very important aspect to the sale of wine. With the target market for wine being educated professionals in the upper income brackets, the image of a high quality, low volume winery can have great appeal. An example of this are the so called "garage wines" being produced in France. The volume being produced by the wineries is very low and the quality and image of the wine is very high. Those attributes coupled with the fact that the wines are very hard to acquire, creates a show piece like aura. It is not uncommon for these wines to sell for over $500 a bottle (New York Times, 2000). Thus, the ability of small wineries to find niche markets and exploit them based on quality and image is very important. It is can also be very advantageous for small wineries to build strong associations with specific cuisine, lifestyle traits and local distribution channels to help set themselves apart. The competitive environment that small wineries are subject to is harsh. One analyst states that small wineries "stay small or perish" (Wine Business Insider, 2000), due to the tremendous obstacles that it takes to scale up from a low volume producer to a large volume producer. Table 8 gives a breakdown for the market segments based on the retail price per bottle with the corresponding volumes and value for each segment. Despite the fact that the Ultra-premium wine segment has only 7% of the volume shipped, it accounts for 25% of the revenue. So small wineries can be profitable in this segment if they can correctly target and penetrate niche markets.

U.S. Wine Industry Exporting

For the past 14 years the United States has seen huge gains in the total volume and value of its wine exports as referenced in Table 9. Table 10 provides a country breakdown for bottled table wine. The major markets for U.S wines include the U.K., Canada, Japan, the Netherlands and Switzerland. Together they represent 76.7% of the total export market value for the U.S.. Countries like the Netherlands and Switzerland have higher then average growth rates because they tend to be distribution hubs for the rest of Europe. Table 11 also gives a breakdown on the U.S. export market, but gives a breakdown based on regions, not countries. It is quite obvious that the European Union is the major market for U.S. wines, Canada alone is in second place and all of Asia comprises the 3rd position.

A majority of U.S. wineries have not had a long history of exporting for several reasons. First, the U.S. industry is very fragmented and a majority of the wineries do not have the resources to pursue international expansion. Second, the image of U.S. wines was poor until the 1976 Paris wine tasting competition, so the demand was not there. Third, the domestic market was still developing over the years, so it was possible to grow with out incurring the added costs of establishing an international presence. Now that more and more companies are looking to the international market for expansion, exporting issues are now making a more important impact on the wine industry. Access to foreign markets has also been a challenge for wineries due to trade barriers as well as the local business practices and customs that pose a barrier for entry.

There are many obstacles to doing business on a global scale because of diverse economic environments and multi-national political issues that are frequently played out in the form of trade issues. Some of the most common trade issues that need to be addressed in the international market place are subsidies, monopolies and tariffs. Currently, there are many countries around the world that subsidize their local industries by giving them money for research, brand building and exporting. Government monopolies of liqueur stores and over wine production are also seen in several countries around the world. These countries instigate monopolies to help protect local producers or because they are socialist countries where the government tries to gain revenue by taxing and controlling the sale of alcoholic beverages. High tariffs are also very common around the world and can often be used as a political tool, because they are relatively easy to implement and can be country specific. The implementation of the World Trade Organization (WTO) was designed to help alleviate some of these trade issues and help to foster a more open market system on a global scale. To a degree the WTO has succeeded in loosening up trade barriers, but here are still many out there that can limit companies competitive abilities.

Asia and the Pacific Rim accounted for 21% of U.S exports by value in 1997 (Table 11). Japan, Hong Kong and Taiwan were the major markets in the region accounting for 81% of the revenue. In 1997, Japan and Hong Kong had a 21% and 30% tariff on U.S. wines while Taiwan's government monopoly instigated a flat US$3.62 tax per liter. The result was that the U.S. wineries were only able to compete in the premium categories, even if the quality of the wine would not warrant that price class.

The European Union (EU) accounted for 49% of U.S. exports by value in 1997 (Table 11), making the EU the largest market for U.S. wines. In 1997 the EU subsidized local wineries with $US1 Billion (with $85 million for exports) and the countries of Spain, France and Italy gave out further subsidies. Furthermore, the 1983 "Wine Accords" agreement with the European Union, an agreement in which the European Union formally recognized some of the U.S. systems for making wine, did not formally accept all methods of production. Instead they grant on a regular basis, temporary recognition of U.S. practices for making and branding wine.

Canada has one of the most regulated markets for wine in the world and trade issue include state monopoly of liqueur stores, subsidies for the limited local production of wine, and a distribution system that curtails the ability of foreign companies to market their products. In Mexico, sales have dropped due to a trade dispute over brooms. As a result, tariffs on U.S. wines have gone up and Mexico now has a zero tariff trade agreement with Chile, whose wine sales are on the rise. (1998 International Trade Barriers Report published by the Wine Institute).

As a result of the international business dynamic, there are several export methods that are primarily used by wineries to get their products to market. To be successful at exporting, the wineries must choose the proper channel or mix of channels to support the brand image of their wine and to achieve the necessary return on investment.

Agents and Brokers: An agent is a person or firm that will take ownership of the product and then sell into channels that the agent has already established. It can be very advantageous for a winery to partner with an agent that has a well established network that can support their brand image. There can be several disadvantages to this system as well, such as no control over the channel used, marketing plans implemented by the agent could be different then the wine producer wants, and the producer has no access to data about the markets and consumers that purchase the product. The wineries are also very susceptible to competitive actions like brand proliferation that can cause an agent to drop competing brands in favor of a better selling brand or larger supplier. The agent is interested in profit, not necessarily the market penetration strategy of a wine brand that they currently carry. A broker is the same as an agent only they do not take ownership of the product. As a result all the same advantages and disadvantages apply with one addition, that revenue for the product can be delayed until it is sold to a retail establishment.

Distributors/Importers: The Distributors/Importers are locally based channels that sell to companies such as grocery stores, discount warehouse super stores and hotel/resorts. As they take on a more global strategy for delivering their products/services, they give their suppliers the advantage of being able to access many more markets then was previously possible. An example of how a distributor/importer can supply an advantage is, in Europe, customers are starting to shift their preference for purchasing wine from specialty stores to larger "hyper" stores and grocery stores. In the past wine sales used to be sold through specialty stores, now 47.9% of consumers prefer to buy from "hyper" or super markets and 60-70% of the wine sold in Europe now goes through this channel (Wines & Vines, 2000). Correctly positioning wines with distributors/importers can give a winery a competitive advantage in the market. This will continue to be very important as distributors/importers continue on their trend of global consolidations.

Direct: In the domestic market this method can be accomplished in several different ways, the internet, sales through wine clubs and sales through the winery gift shop. In the international market the dynamics are more complicated because of government regulations that can restrict sales of alcohol over the internet or through the mail. Also, it is not financially practical for small wineries to try to establish stores in every market, so in the international market this method may be very hard to implement.

Joint ventures: A very common occurrence in the wine industry, they can be implemented for several different strategic reasons. To gain access to local markets so that foreign companies can work from within to gain an understanding of the market, branding advantages by being associated with national brands that are already established, technology exchange (usually the other countries benefit), and to blend the local wine and U.S. bulk wine to circumvent the local import regulations, and access to established distribution channels.

The mix of channels for reaching consumers can vary greatly depending on the market strategy that the winery adopts and the market segments that the wineries want to target. The most common retail channels are supermarkets, mega-stores, restaurants, hotel/resorts, airlines, airports (wine bars and restaurants), duty-free shops and high-end liquor stores. Wineries decide which channels to use depending on the image and market segment they want their wine to portray and on their marketing budgets. Premium wine brands tend to be targeted to upscale restaurants, resorts and high end liquor stores while large scale producers target larger market segments that are served through supermarkets and mega-stores.

Profiles of Selected U.S. Exporters

In the U.S. domestic wine market in 1999 there were over 1600 wineries in operation. Most of those wineries have very low volume production capabilities, so a small number of large volume producers dominate the market. Despite the strengths and weaknesses that are dictated by the size of the companies versus their competition, every company has a need to get their product to the market and their customers. The following section provides a summary of a few select companies that have long histories in the industry, how they have adopted different strategies to go after specific market segments, and how they have leveraged their domestic strategies to help them in the international market.

E & J Gallo Winery: The largest winemaker in the world, their production capacity in 1998 was roughly equivalent to that of Argentina (Table 12). They also produce approximately a third of all the bottled wine consumed in the United States. Founded in 1933 in Modesto, California by two brothers, Ernest and Julio Gallo. They adopted early on the strategy of having their sales force "push" for very visible places in liquor stores and grocery stores to help drive sales. The visibility that the displays gave the products worked very well and sales grew at a fast rate. Their ability to build market share based on branding is one of their most successful strategies.

In order to get more control over their costs and to help position their products in the retail markets, the Gallo's also did a lot of forward integration into the distribution channel. This forward integration was considered one of their greatest competitive strengths and complemented their ability to get visible floor space in retail establishments. They also did backward integration into the suppliers for bottling plants, foil producers as well as owning a significant portion of their vineyards. The Gallo's were also pioneers in the development of new wine production techniques and growing high quality grapes. The innovations made in those two areas, helped them to be able to produce a consistently high quality wine for low costs. This enabled them to capture a very large portion of the low-end table wine market. After establishing a dominant position in the lower price/high volume wine segment, the Gallo's made the move into the higher price/low volume premium markets by purchasing land in Napa and creating several new brands. Their ability to make those brands successful is demonstrated in Table 13. Gallo was able to increase the number of brands that they had in the top 75 based on volume, from 11 in 1996 to 17 by 1998.

The Gallo's have always been very aggressive competitors in an industry that likes to consider itself a “Gentleman's” industry. They were sued by Kendal-Jackson for creating a label very similar to one of their best selling products, the case was eventually settled out of court. E & J Gallo is not a publicly owned company, it still family owned, so no financial data is available. The third generation of the Gallo family is currently taking over the operations of the winery, and they are continuing to use the techniques used by Ernest and Julio that made the company the largest wine producer in the world.

E & J Gallo exports to an estimated 86 country markets, but focuses for the most part on major markets such as Great Britain, Japan, Canada and Germany. Gallo sold about 13% of its production overseas in 1997, which is more then all other California wineries combined based on total volume (Table 14). The forward and backward integration strategy that enabled the Gallos' to be so successful domestically, have became an integral part of their export strategy according to the San Francisco wine consulting firm Gomberg, Fredrikson & Associates (San Francisco Chronicle, 1999). An example of this is the company had a front isle display at Harrods' new wine shop in London. In the United Kingdom approximately 3 out of 5 bottles of California wine are Gallo brands. Gallo demonstrated their commitment to the U.K. when they launched a brand named Garnet Point in 1998 that was supposed to be tailored to appeal to British tastes. On September 29, 2000 Gallo announced a strategic alliance with Wal-Mart that would consist of a brand called Alcott Ridge Vineyards being sold through that channel world wide (Wal-Mart Stores, 2000).

Robert Mondavi Corporation: A niche player in the wine market, Mondavi focuses exclusively on the premium market segment. Mondavi's production capacity is substantial considering the size of the market segment that they sell into, but is very small compared to Gallo (Table 12). The company was founded in 1966 by Robert Mondavi after he was asked to leave his previous position as sales manager at a winery owned by his family. Robert Mondavi was reportedly such an excellent salesman that the winery his family operated could not increase the production of the wine to keep up with his sales. While Robert Mondavi was part of the family wine business, he helped to create and bring to market several innovations. The use of cold fermentation in the production of wine, which created a lighter and fruitier taste enabled him to differentiate the wine from European and other California wines. Another innovation that Mondavi implemented was the use of French oak barrels. The barrels were used to age the wine in, and gave the wine a distinctive flavor to rival the French wines that were dominating the international market at the time. He was also responsible for the changing of the accepted naming convention. He did that by combining the French appellation and California varietal naming conventions. This elevated the brand image of his wines as being higher quality due to the associations with French wines and the region where his wines were produced, Napa Valley. When Robert Mondavi left the family winery, he took with him all of the innovations that he had previously implemented, and set forth with the strategy to create a winery that would produce only the finest wines. An example of his dedication to making only premium wines is the joint venture that was formed with Baron Phillippe de Rothschild of France to produce the Opus One label. Opus One is considered one of the finest wines in the world and retails for over $100 per bottle. Robert Mondavi, being a dynamic sales man, never spent money on advertising. Instead he relied on trade shows, awards, salesmanship and showmanship. Mondavi constantly states that love of wine comes from a way of life, and that way of life involves fine dinning, travel and love for the arts.

Mondavi sells to an estimated 77 countries and positions its products in restaurants, hotels, and other locations were a person would expect to find a premium and ultra-premium wine. This strategy is in line with the lifestyle image that Mondavi wants to promote along with his wine. Exporting and growing the global premium wine market is a priority for Mondavi who expects to export a minimum of 20% of their production to the global market in the future according to the 2000 annual report.

The Robert Mondavi Corporation went public in 1993, but the family still owns 92% of the stock. Financial information from their annual reports can be found in Table 15. Their focus on the premium market has been very successful with double digit growth rates in Net Revenue every year except one in the time period of 1995-1999.

Beringer Wine Estates, Inc.: Like Mondavi, Beringer has a market focus on the premium segment and has high production capacity for that segment (Table 12). The company was founded by Jacob and Frederick Beringer, two brothers who emigrated from the Rhine Valley in Germany. Beringer is the oldest continuously operating winery in Napa Valley, with their first crush occurring in1877. The brothers came to America like most immigrants because of the new opportunities that the U.S. offered. They gained notoriety, both locally and internationally, by the turn of the century due to their high quality wines.

In 1971 the Beringer winery was sold by the family to Nestle USA, Inc. because the company was under performing. The family did not re-invest in the vineyards or in the production process, so the quality of the wines that were being produced were low compared to the wines that made them famous. The operating name for the company given to them by Nestle was Wine World Estates. They took a long term approach and built up production and vineyards. Once the company was turned around it was sold in 1996 for $350 million and Beringer Wine Estates Inc. was formed. Soon after Beringer did several more acquisitions, focused on the high-end, then went public in 1997. The companies financial data can be found in Table 16. Beringer consistently had double digit growth rates for their Net Income in the time period of 1995-1999.

In the Fall of 2000, Beringer Wine Estates was purchased by Fosters Brewing Group Limited, the Australian parent company of Fosters Lager. Fosters Brewing Group acquired Beringer for US$1.2 billion and will combine Beringer's portfolio of wines with their wine subsidiary, Mildara Blass Limited. According to a Beringer Press Release (August 28th, 2000) the merger has resulted in making the largest premium wine company in the world with a combined revenue of $886 million in fiscal year 2000. Mildara Blass currently has 25% of the premium wine market in Australia and their main export markets are the U.S., the U.K. and Europe. By purchasing a U.S. winery, Fosters Brewing Company Limited now has access to a broader distribution system with the purchase of Beringers, and can now leverage the U.S. system for the Australian produced wines and the Australian distribution system with the California wines. The result should be delivering a broader product line that appeals to more market segments with increased customer satisfaction and market share. For companies trying to break into a foreign market, establishing a distribution system can be very difficult to achieve due to the specialized knowledge of the market that is needed as well as the capital investment.

Wente: A family owned company that was founded in the Livermore Valley, Ca. In 1885. Unlike the other companies previously discussed, Wente has long held to a strategy that focuses more on the export market then on the domestic market. Wente sells to an estimated 160 country markets and exported about 61% of their total production capacity in 1997 (Table 12). They implement specific marketing strategies on a country by country basis (San Francisco Chronicle, 1999). They do not focus on a few larger markets with limited service to smaller markets like their larger competitors. Instead, they have taken on more of a market development strategy that the company feels will lead to future opportunities, but in the mean time it also gives them many hurdles to leap.

A few examples of some of the distribution channels that Wente utilizes include opening wine bars in airports from Africa to the Pacific Rim. They are the number one wine retailer in the world through duty-free shops in airports and they have created special gift boxes that contain French wines specifically for that channel to help drive sales. Wente also claims that they sell to more airlines then any other winery in the world with a focus in Asia and the Pacific Rim. The airlines include Thai Airways, All Nippon Airways, Singapore, Philippine, Cathay Pacific, Malaysian, Vietnam, Garuda as well as Delta and United flights in the Pacific Rim. Wente invested heavily in the 1980's building up distributor relations in Japan. It paid off when a Japanese news program ran a segment that stated the health benefits of wine and they sold out their entire stock on hand. Wente also leverages traditional distribution channels and sells through restaurants, liquor stores and hotels in the Chinese market.

Wente has formed many joint venture throughout the world. Some times the joint ventures are in traditional markets with established wineries to help produce premium wines, other times the joint venture takes on more of a problem solving role to get access to local markets. A joint venture between Wente and Luigi Cecchi and Sons of Italy was made to produce an ultra-premium wine to be sold in the U.S. domestic market by 2003. Another joint venture was established with an Israeli winery named Segal Winery to produce a kosher wine. Examples of joint ventures formed to get access to foreign markets include a joint venture in India with The Indage Group to become the first company to import into the Indian market. The deal is not exclusive and the Indage group will also soon be entering into joint ventures with French and German wineries. The agreement stipulates that the foreign partners must export Indage wine to other markets and that all bottling of wine to be sold into India must be done locally. That was the only way the Indian government would allow the joint ventures to operate (South China Post, 1999). By arranging the joint venture that way, the government could offset the import and export credits between the participating countries. Another joint venture was formed with Bodegas de Santo Tomas, a Mexican winery to sell a brand named Duetto in the U.S. and Mexico. The joint venture was formed to get around high import tariffs established by Mexico in retaliation for the American government penalizing Mexican companies for dumping cheap brooms in the U.S. market. Shipping bottled wine to Mexican markets became too expensive to compete in the local markets, so Wente started shipping bulk wine to Bodegas de Santo Tomas. The wine was then blended and bottled locally in Mexico to get around the import costs (Orange County Register, 1998).

Some other examples of problems that Wente has experienced in the foreign markets include having to pull out of Myanmar due to political pressure, pulling out of Russia when the currency collapsed and marketing varietal wines in Africa to non-traditional foods such as zebra and antelope (San Francisco Chronicle, 1999).

Future Direction

With the competitive nature of the global wine market increasing, U.S. wineries will have a greater challenge competing in both the domestic and export markets. The formulation of the "WineVision" initiative was to help U.S. wineries address the many strategic issues confronting them in the export market. WineVision has the co-operation of a large number of wineries and winery associations. It is in the process of developing an approach it can use to assist non-exporting wineries in becoming exporters as well as improving the export effectiveness of currently exporting wineries. At the same time, however, it has identified the lack of urgency on the part of the U.S. wineries, as a whole, regarding the threat of globalization and competitive forces. Therefore, critical issues regarding the success of Wine Vision’s involvement in brining about a renewed commitment on the part of U.S. wineries to exporting still exist. Key individuals at Wine Vision are faced with the challenge of determining how to most effectively influence the U.S. wine industry overall, and whether they should focus their attention and effort on simply increasing awareness of competitive threats, serve as a collection ground for key information regarding sources of valuable expertise and connections for wineries interested in solving their exporting challenges and meeting their export goals, or whether they should actually provide educational and training workshops to help equip U.S. wineries with the business, competitive and export tools and skills they need to compete successfully in the global market place.

End Notes

California Wine Export Program; "United States Wine Exports, Imports and Balance of U.S. Wine Trade 1999"; Ivie International; July 24, 2000.

Monterey County Herald; "Monterey County, Calif., Wine Exports Increase"; Monterey, Ca.; November 14, 1998.

Wine Vision, American Wine in the 21st Century; July 6, 2000.

University of Pennsylvania; Museum of Archaeology and Anthropology web site; Oct, 2000.

Britannica.com;search on wine; Oct, 2000.

Strategy 2025: The Australian Wine Industry; Australian Wine Foundation; June 1996.

Vineyard & Winery Management; "U.S. Wineries Consider Long-Term Strategy to Maintain Competitiveness"; Franson, Paul; May/June 1999.

Wines & Vines; "New World Wine Exporters continued growth in '99"; Nicholson, Robert M.; July 2000.

Wine Appreciation; Durkan, Andrew and Cousins, John; NTC Publishing Group; Chicago, Il.; 1995.

Wine Market Report; "New World Global Wine Boom Shows No Sign of Faltering"; Cartiere, Richard; May 16, 2000.

Wine Business Monthly; "Fueling Increased"; Koerber, Kristine; Volume VII No. 5; May 2000.

Adam Wine Handbook; Adam Business Media, New York; 1999.

New York Times; "Controversy swirls around $1,000 garage wines"; Prial, Frank; October 25, 2000.

Wine Business Insider; "On Your Mark-Get Set-Consolidate"; Volume 10, Issue 35; September 2, 2000.

International Trade Barriers Report 1998; Clawson, James B., Boone, Jeannie and Atkinson, Alan; JBC International; Washington D.C.; May 1998.

Wines & Vines; "Globalization, Who's leading the way?"; April 2000.

San Francisco Chronicle; "California Wines Quenching in the World / Exports from the states have doubled in the past five years; Sinton, Peter; Jan 23, 1999.

Wal-Mart Press Release, September 29, 2000.

Beringer Wine Estates Press Release August 28, 2000.

Brown-Forman Corporation Annual Report 2000.

South China Morning Post; "Vintners uncork Indian market"; Hong Kong, China; March 21, 1999.

Orange County Register; "Multicultural Wine//Trade: A new red is being made with grapes from Northern California and Baja. The blend skirts Mexican tariffs"; Santa Ana,Ca.; September 19, 1998.

Reference Notes

Wine Business Monthly; "American Appellations Earn Distinction as a Marketing Tool"; Sawyer, Abby and Hammett, Jim; June .

www.reedbooks.co.uk "All about Wine"; Johnson, Hugh.

The Geography of Soils; Elliott-Fisk, Deborah; University of California.

Marketing Intelligence Services Ltd.; "Gallo Garnet Point Wine"; September 21, 1998.

Napa Valley Register; "Q & A, what he did right-and wrong- in the creation of his world wine empire"; Courtney, Kevin and Carson, L. Pierce; October 21, 1998.

Beverage Industry; "Brown-Forman Taps Wines From Down Under"; December 1999.

Duty-Free News International; "Wente and Bichot forge new partnership"; December 15, 1999.

Contra Costa Times; "California Vintners try to quench China's thirst for wine"; Walnut Creek, Ca.; October 10, 1997.

Contra Costa Times; "California's Wente Vineyards halts shipments to Myanmar"; Walnut Creek, Ca.; November 8, 1996.

Impact; "Wente Bros"; December 15, 1995.

 

Table 1
World Wine Production

(in millions of gallons)
Country 1996 1997 1998
Italy 1,551 1,343 1,430
France 1,506 1,414 1,390
Spain 818 876 800
US 498 580 539
Argentina 334 356 334
Germany 228 224 286
South Africa 230 232 215
Australia 177 162 195
Chile 100 120 144
Romania 202 176 132
Hungary 110 118 110
Yugoslavia 92 106 106
Rest of World 1,296 1,195 1,150
World Total 7,142 6,902 6,831

Source: IV International based on data from Office International de la Vigne et du Vin, (OIV)

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Table 2
% Share of the World Wine Production,
Wine Consumption,
Share of World Wine Market and
Share of Export Market 1998

(based on Volume)
Country* % Share of
Production
% Share of
Consumption
% Share of
World Market
% Share of
Export Market
World Export
Market Rank
Italy 21.0% 14.3% 20.8% 25.3% 1
France 20.4% 15.9% 20.3% 25.1% 2
Spain 11.7% 6.7% 10.6% 15.6% 3
United States 7.9% 9.3% 8.4% 4.2% 4
Argentina 4.9% 6.1% 6.4% 1.7% 10
Germany 4.2% 8.5% 4.1% 3.6% 5
Australia 2.9% 1.6% 2.3% 3.0% 8
Chile 2.1% 1.0% 2.0% 3.5% 6
Portugal 1.4% 2.2% 2.5% 3.4% 7
Others 23.5% 34.4% 22.6% 14.6%  
Total 100.0% 100.0% 100.0% 100.0%  

*sorted by % Share of Production
Source: Office International de la Vigne et du Vin (OIV) 1999

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Table 3
Per Capita Consumption of Wine
in Selected Countries, 1995-1999

(in liters)
Rank Country Population* 1996 1997 1998
1 Luxembourg 388,000 62.89 69.07 70.36
2 France 58,109,160 59.88 61.09 61.09
3 Italy 58,261,971 59.55 52.96 54.92
4 Slovenia 2,051,522 54.79 51.74 48.74
5 Croatia 4,547,000 37.61 47.26 47.66
6 Portugal 10,562,388 54.91 49.45 47.34
7 Switzerland 7,084,984 41.36 40.93 40.93
8 Argentina 34,292,742 38.97 39.05 39.52
9 Spain 39,404,348 36.69 37.02 38.07
10 Uruguay 3,222,716 29.88 33.57 35.13
33 United States 267,636,000 7.82 7.69 7.88

Source: Office International de la Vigne et du Vin (OIV) 1999

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Table 4
Wine Imports from 1996-1998

(in thousands of gallons)
Country 1996 1997 1998
Germany 306.7 318.2 318.6
United Kingdom 197.0 211.8 233.9
France 140.0 153.8 148.0
United States 96.3 122.2 111.1
Japan 28.4 38.3 84.8
Russia 62.0 106.8 76.9
Netherlands 57.2 73.4 76.3
Canada 44.8 47.1 53.6
Switzerland 48.9 48.9 49.8
Denmark 40.3 44.3 46.1
Portugal 13.5 11.0 39.0
Sweden 30.2 28.0 29.6
Italy 4.5 30.4 28.3
Spain 30.2 3.9 23.6
Australia 3.7 5.5 7.5
Argentina 1.1 1.3 1.3
Chile 0.1 0.1 0.1
Rest of World 280.0 265.0 268.3
Total 1,384.9 1,510.0 1,596.8

Source:Office International de la Vigne et du Vin (OIV) 1999

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Table 5
United States Balance of Trade for Wine
1990-1998

By Volume
Item 1992 1994 1996 1998
Imports 71,081 72,611 94,928 109,730
Exports 37,107 31,134 46,473 71,106
Trade Deficit 33,974 41,477 48,455 38,624
Ratio: Imports to Exports 1.9:1 2.3:1 2.0:1 1.5:1
By Value
Item 1992 1994 1996 1998
Total Value of Imports
($ millions)
$1,091.8 $1,050.0 $1,434.6 $1,880.8
Value per Gallon ($) $15.36 $4.46 $15.11 $17.14
Total Value of Exports
($ millions)
$174.7 $192.1 $320.0 $531.9
Value per Gallon ($) $4.71 $6.17 $6.89 $7.48
Trade Deficit
($ millions)
$917.1 $857.9 $1,114.6 $1,348.9
Ratio: Imports to Exports 6.2:1 5.5:1 4.5:1 3.5:1

Source: Adams Wine Handbook, 1999 / U.S. Department of Commerce

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Table 6
Domestic Table Wine Market, 1994-1998

(based on volume)
Company % Market Share
1994
% Market Share
1996
% Market Share
1998
E & J Gallo Winery 34.3% 27.7% 27.5%
Canandaigua Wine 17.7% 15.5% 14.8%
The Wine Group 9.7% 11.4% 14.6%
Beringer Wine Estates* 3.2% 2.5% 4.0%
Robert Mondavi Winery 3.2% 3.6% 3.8%
Next 3 Competitors 13.7% 11.9% 12.9%
Others 19.2% 27.4% 22.4%
Total 100.0% 100.0% 100.0%

Source: Adams Wine Handbook, 1999

*Named "Wine World Estates" in 1994

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Table 7
Share of Bottled California Table Wine,
Shipments by Color, 1990-1998

(based on volume)
Color 1990 1992 1994 1996 1998
Red 14.7% 19.6% 23.6% 27.2% 31.9%
Rose 15.6% 13.1% 9.2% 9.5% 6.2%
White 52.9% 48.7% 50.3% 46.8% 40.5%
Blush 16.8% 18.6% 16.9% 16.5% 21.4%
Total 100.0% 100.0% 100.0% 100.0% 100.0%

Source: Adams Wine Handbook 1999

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Table 8
Estimated 1999 California Table Wine
Shipments by Price Class

Retail Price
per Bottle
Price Segment Percent of Total
Volume
Percent of Total
Revenue
Over $14 Ultra-Premium 7% 25%
$7 to $14 Super-Premium 16% 27%
$3 to $ 7 Popular Premium 33% 31%
Below $3 Jug Wine and Others 44% 17%
Total   100% 100%

Source: estimated by Gomberg, Fredrikson, and Associates. Excludes exports

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Table 9
U.S. Wine Exports

Year Volume
(millions of gallons)
Value
(millions of dollars)
1999 75.4 $548.0
1998 71.9 $537.0
1997 60 $425.0
1996 47.5 $326.0
1995 38.8 $241.0
1994 35.2 $196.0
1993 34.9 $182.0
1992 38.9 $181.0
1991 33.1 $153.0
1990 29 $137.0
1989 21.9 $98.0
1988 16.9 $85.0
1987 11.9 $61.0
1986 7.3 $35.0

Source: U.S Dept of Commerce, National Trade Data Bank. Copyright: Wine Institute

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Table 10
U.S. Bottled Table Wine Exports to Selected Countries
and World Totals 1997-1999

By Value ($000)
Country 1997 1998 % change
(97-98)
1999 % change
(98-99)
United Kingdom $98,373 $134,509 37% $122,187 -9%
Canada $58,877 $68,909 17% $68,950 0%
Japan $20,702 $55,226 167% $46,235 -16%
Netherlands $7,782 $43,273 456% $68,249 58%
Switzerland $14,331 $18,797 31% $21,026 12%
Germany $22,082 $15,663 -29% $12,947 -17%
Denmark $6,968 $9,156 31% $11,052 21%
Ireland $6,599 $10,191 54% $10,678 5%
Belgium $5,205 $7,107 37% $5,937 -16%
Sweden $10,011 $12,130 21% $9,196 -24%
France $4,632 $7,059 52% $5,758 -18%
Mexico $1,944 $1,384 -29% $2,820 104%
Taiwan $13,334 $5,247 -61% $4,197 -20%
Hong Kong $8,676 $5,005 -42% $3,331 -33%
Singapore $2,515 $1,799 -28% $2,964 65%
Finland $2,746 2,131 -22% $2,395 12%
Norway $1,844 $2,452 33% $2,458 0%
South Korea $2,123 $790 -63% $1,480 87%
Netherlands Antilles $1,126 $1,304 16% $989 -24%
China $927 $391 -58% $1,040 166%
Thailand $2,261 $173 -92% $501 190%
Country Total $293,058 $402,696 37% $404,390 0%
Other Countries $14,910 $17,961 20% $21,399 19%
World Total $307,968 $420,657 37% $425,789 1%

Source:U.S. Dept. of Commerce, "National Trade Data Bank". Copyright: Wine Institute

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Table 11
U.S. Wine Exports by Region, 1993-1997

Value (US$000)
Region 1993 1994 1995 1996 1997
European Union $72,485 $68,447 $96,841 $151,160 $205,629
Canada $47,271 $52,424 $53,784 $72,440 $79,124
Asia $31,535 $37,270 $49,114 $57,078 $89,503
Other Europe $5,084 $8,545 $14,646 $16,566 $20,677
Mexico $5,456 $7,151 $2,816 $3,961 $3,550
Latin America $5,162 $5,972 $6,948 $7,791 $8,142
Caribbean $10,440 $10,477 $11,620 $13,393 $13,314
Eastern Europe &
Russian Federation
$1,989 $3,091 $1,739 $1,831 $1,768
Africa $855 $687 $533 $709 $1,028
Middle East $319 $151 $154 $307 $687
Other $1,350 $1,640 $2,918 $914 $1,705
Total $182,287 $196,271 $241,640 $326,589 $425,127

Source: The Wine Institute, International Trade Barriers Report, 1998

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Table 12
Winery Production Capabilities

(in thousands of gallons)
Company

Capacity

E & J Gallo 330,000
Beringer Estates 17,800
Robert Mondavi 17,387
Wente 5,100

Source: Wines & Vines, July 2000

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Table 13
Number of Brands in the top 75 in the U.S. 1996 & 1998

(based on Volume)
Company # in top 75
1996
Highest Rank
1996
# in top 75
1998
Highest Rank
1998
E & J Gallo Winery 11 1 17 2
Robert Mondavi Corporation 1 8* 2 8
Beringer Wine Estates 3 10 2 9
Wente 0 N/A 0 N/A

Source: Adams Wine Handbook 1997 and 1999

*Includes volumes for ALL domestically produced Mondavi Wines

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Table 14
Top California Wine Exporters

(based of Volume)

1997 Rank

Company Selected Brands Exports* % of Total Sales
1 E & J Gallo Gallo, Turning Leaf 17,555 13%
4 Robert Mondavi Woodbridge, Mondavi 1,302 8%
11 Wente Wente, Concannon 485 61%
12 Beringer Estates Beringer, Meridian 345 3%

*in millions of gallons

Source: San Francisco Chronicle research

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Table 15
Robert Mondavi Winery Financial Summary

(all data in millions)
  1995 1996 1997 1998 1999
Net Revenue $199.5 $240.8 $300.8 $325.2 $370.6
Gross Profit $93.0 $117.9 $151.0 $151.3 $169.7
Operating Income $28.9 $47.2 $71.2 $61.3 $6.6
Net Income $12.3 $24.1 $38.1 $30.2 $34.5
Volume
(9-liter case equivalent)
4.5 5.4 6.5 6.8 7.6

Source:Robert Mondavi Corporation Income Statement

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Table 16
Beringer Wine Estates Financial Summary

(all data in millions)
  1995 1996 1997 1998 1999
Net Revenue $202.0 $231.7 $269.5 $318.4 $376.2
Adjusted
Gross Profit
$100.7 $116.1 $134.9 $163.7 $194.6
Adjusted
Operating Income
$34.8 $43.9 $56.3 $70.5 $83.0
Adjusted
Net Income
$16.8 $15.6 $15.1 $29.5 $39.3
Volume
(9-liter case equivalent)
4.6 5 5.4 6.1 6.8
Total Assets $289.9 $438.7 $467.2 $543.6 $644.3
Total Debt N/A $289.2 $319.1 $277.2 $328.0

Source: Beringer Wine Estates 1999 Annual Report

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