Big wine companies and wine quality, part I

Godzilla: "What's so bad about big?"

This is the first of two parts looking at consolidation in the wine business and the rise of the giant producer --  a smattering of which dominate the U.S. wine business. Today, a look at size and why it matters.  Part II, posted on Dec. 14, offered advice on how to tell which multi-national made the wine you like.

A handful of giant companies produce as much as 90 percent of the wine sold in the U.S., contrary to what most of us think. We still believe that wine is made by families and small companies, fighting the good fight, and the wine business has been perfectly happy to let us enjoy that myth.

That’s one reason why the biggest producers, like E&J Gallo, The Wine Group, Bronco, and Constellation, rarely put their names on their various brands, even though the practice is quite common among other consumer goods companies. S.C. Johnson, for instance, labels its cleaning products (which include Glade, Shout and Pledge) with the slogan, “SCJohnson, a Family Company.”

Is big bad in wine? The answer requires ducking insults and dodging hyperbole, and even then it’s not necessarily clear. I may drink more grocery store wine – the staple of the big producers – than anyone in the world, and I’m grateful that it is better made and of a higher technical quality than ever before. But does that mean it’s "quality" wine, or that big is better?

More, after the jump:

Size and the influence of big companies has become an issue in wine over the last several years. The biggest wine companies have become bigger and gained more market share, buying out well-established independents in the process, and smaller and family-sized companies have seen the recession eat into their business.

About one-third of the 30 biggest U.S. producers in the first WineBusiness.com listing in 2003 are gone, either sold or merged into another company. And big is often not big enough; witness Constellation’s purchase of Mark West this year, in which the Mark West boss said the 600,000 case winery was too small to compete in the modern marketplace -- and Mark West was the 20th biggest producer in the U.S. this year.

Meanwhile, the man who runs Australia’s Treasury Wine Estates, a US$1.74 billion company whose brands include Beringer, Chateau St. Jean, Lindeman’s and Stags’ Leap, said in an interview that the aforementioned myth needs to be put to rest. “[S]ize matters, but it matters only because of what it enables us to do, and that is to make better, higher quality, wine.”

The family wineries were quick to strike back, citing the big companies’ slavish devotion to the bottom line, and an Australian trade group was even more vehement: “However, the iconic wines that we focus on, and the sacred sites that they hail from, are what helps to alter the perception of Australian wine as only industrial and helps to raise the acknowledgement of quality."

The truth, of course, is somewhere in the middle. There are small wineries that make wine that is as boring as anything a multi-national churns out; terrific wine is made by the super-premium labels of the biggest companies; and wineries of any size can make bad wine. To confuse matters even more, two of the biggest producers in the world, Gallo and Casella (which makes YellowTail), are family owned.

It's also worth noting that the biggest wineries transformed several non-wine parts of the business for the better. They were the first to hire women in responsible positions in a business that had traditionally been male from the vineyards to the wine room to the front office. Their economic clout, meanwhile, has revolutionized the wine supply chain, allowing them to use grapes from anywhere in the world for their grocery store wines, lowering prices and benefiting the consumer.

In this, my concern with the giant producers is not about quality, but marketing. They’re so good at the latter – as good, in some ways, as marketing giants like McDonald’s and Procter & Gamble – that it almost doesn’t matter what’s in the bottle. Does anyone buy Cupcake, owned by The Wine Group, because it’s “quality wine”? Of course not. They buy it because it has a cute name and clever writing and because it tastes smooth and fruity and maybe even a little sweet. Calling a Cupcake wine Red Velvet is close to genius, but there’s a cynicism there that bothers me more than than whether the wine is any good.

That’s the biggest difference between big and small. Smaller producers can’t perform marketing sleights of hand; because they can’t, they don’t have the clout to warrant the supermarket shelf space the multi-nationals get. Smaller wineries have to focus on what’s in the bottle. Their success depends on whether they produce a quality – and not a clever – product.

And that’s the way success should be. I don’t think it’s any coincidence that brilliant marketers who have success in the long run also produce quality products. Tide always shows up on best detergent lists, which makes selling the product that much easier. Hopefully, that’s something the wine business will eventually figure out.

Comments

[Beveragetradenetwork.wordpress.com]

Great article. Spot on "That’s the biggest difference between big and small. Smaller producers can’t perform marketing sleights of hand; because they can’t, they don’t have the clout to warrant the supermarket shelf space the multi-nationals get. Smaller wineries have to focus on what’s in the bottle. Their success depends on whether they produce a quality – and not a clever – product"

Quality is for long term play and reputation and marketing is to stay current and fresh in the wine business! For example, there is a reason why every other brand is launching a Malbec or a Moscato...but at the same time, they remain focused in their main award winning varietal.

[JimLit]

This story brought back memories of my wholesale days (now retired) of Gallo and how they deftly removed their name from their jug wines (Chablis, Red Rose, etc.)and dessert wines. The label remained the same, but kept reducing the size of the Gallo name and increasing the size of the Livingston name and the Fairbanks name until the Gallo name disappeared. All in an effort to change how the Gallo was going to be perceived for the future.

[SUAMW]

"Is big bad in wine?"

Insofar as the smaller the lot of wine, the harder it is to make a clean, stable wine, then: NO.

[Russ Kane]

Jeff,

Haven't you learned by now that size IS everything.

Cheers,

Russ