Wednesday, February 16, 2011

Key Issues Facing the Wine Industry: Sarah Kemp, Publishing Director, Decanter

China, and its evolution as a wine consuming/producing nation, is one of the most significant issues confronting the wine industry for the foreseeable future.  So said Sarah Kemp, Publishing Director, Decanter, when our conversation turned to key wine industry issues.  In previous posts I have reported on aspects of our conversation to include her entry into the wine publishing business and Decanter's positioning vis a vis its readers.  In this post I report on Sarah's views on the issues facing the wine industry.

According to Sarah, a fact that is not widely known is that by 2014, China will have as much acreage under vine as does Australia.  With this rapid growth of in-country capacity, it is probable that the west will be absorbing commodity wines from China in the not-too-distant future.  Wines made from grapes grown in China are not generally highly regarded but she tasted some Chinese wines that showed promise on her last trip over.

While future Chinese exports merit some consideration, the issue at hand is its seemingly insatiable appetite for First Growth Bordeauxs.  Sarah illustrates the state of affairs by revealing that 60% of the production of a particular St. Emilion chateau is going to China while 40% of Farr Vintners (UK wine merchant specializing in the purchase and sale of top Bordeaux wines) 2010 revenue was attributable to sales into the Asian market.  It is Sarah's contention that the business being done with China is under-reported because no one is tracking wines that come into the UK before being re-exported to China.  This increased demand is impacting the price of both new and old vintages of Bordeaux First Growths.

In response to a question on how the Bordelaise would balance new markets versus old, Sarah stated that top proprietors do not want to lose their traditional markets because the Chinese market is still immature and may not be able to withstand a shock at this early stage.  Snubbing traditional markets could prove to be a flawed strategy if such a shock were to occur.

A second big story, according to Sarah, is South America's rise in quality wine production.  This is a major challenge to Australia and New Zealand whose problems are compounded by UK advertising programs based on a "3 for £10" mentality.  This advertising program provides a great challenge for the really good wines.  Decanter just concluded an Australin Chardonnay tasting (February issue) and many of these wines were well received by the tasting panel and garnered good scores but selling these wines into the market will be difficult.

A third issue, especially for the European wine industry, is falling consumption.  There are a number of factors driving this issue: (i) there is greater concern in Europe about health and wellness issues; (ii) much more focus on physical appearance and the things that need to be done, and avoided, in order to promote a better look; and (iii) a generation that is growing up with new world wines.  In the latter case, the US experience may be a shot across the European bows.

Sarah foresees a major Bordeaux chateau being snapped up by Chinese investors at some point in the future.  There is already Chinese ownership of minor Bordeaux properties (February, March Decanter issues) but if it is so prestigious to own a bottle of a First Growth, think how much more prestigious it would be to own one of those properties.

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