International -- European Business: EUROPE
REVOLUTION IN THE VINEYARD (int'l edition)
New methods and marketing savvy help Europe's winemakers regain lost ground
Bruno Prats is having a happy holiday season. The president and co-owner of Cos d'Estournel, one of the best-known grands crus in Bordeaux, has watched his trademark red wines triple in price over the past two years, to as much as $330 a bottle. Like other top-ranked Bordeaux vintners, Prats can't produce enough to meet demand from a new host of American, Japanese, and even Russian wine lovers. Not that he wants to. "We have entered a virtuous circle," he says. "Our better-quality wines can be sold at high prices, which in turn give us the chance to produce smaller quantities of even better wine for even higher prices."
A revolution is taking hold in the $13 billion European wine industry. After losing market share in the early 1990s to inexpensive but excellent New World wines, a new generation of growers in Germany, Italy, Spain, and France is wising up and heading upmarket. These winemakers are producing better-tasting vintages by using less fertilizer, trimming bad grapes, and cutting yields. Instead of buying fermented wine, they control quality by vinifying their own grapes. And they are adopting marketing innovations--for example, identifying wine by its grape variety, such as merlot, rather than by village names, such as St. Emilion.
CLASS OVER MASS. Their timing is perfect. Europeans are again producing top-flight wines just as demand for high-priced vintages has exploded. Fewer Europeans now drink table wine with every meal, but they are buying more quality bottles. The U.S. bull market has boosted Americans' consumption of expensive wine. And the rarer and more expensive, it seems, the better. While the price of generic Bordeaux rose 3% in 1997, the cost of exclusive grands crus soared by 30%.
The move away from mass production has bolstered balance sheets. Margins on table wines are only around 25%, while premium wines can yield profits of more than 60%, says Conor O'Shea, an analyst at Paribas in London. Prats's Cos d'Estournel made more than $3 million last year on sales of only about $10 million. Jacques Lurton, another Bordeaux producer, expects to nearly quadruple his profits, to $1.5 million, within two years by making more expensive wines.
Across the Continent, growers are emphasizing class over mass. In the past two decades, Italy's yield has plummeted from 70 million hectoliters to about 50 million. Its export value, meanwhile, has increased threefold, to $2 billion. Piedmont grower Angelo Gaja set out in the 1970s to make world-class wines by slashing the amount of wine he produces per acre. Today his premium Barbarescos fetch as much as $1,000 a bottle.
Even in Germany, with its notoriously sweet and insipid rieslings, high-end vintners now emphasize quality over quantity. Wilhelm Weil, director of the Robert Weil Winery, often harvests as late as Christmas, while most German vintners finish harvesting their grapes in October. His careful grape selection means Weil's vineyards yield half the wine per acre others produce, but his rieslings are more aromatic. Weil's 1995 Kiedrich Griefenberg Riesling recently set a world record of $2,132 per bottle at an auction for young wines.
Such success represents a huge turnaround. European prices crashed in the early 1990s as consumers reacted to uneven quality. Burgundy got a black eye in 1987 when police caught the region's biggest merchant, Bouchard Pere & Fils, illegally mixing grapes from different villages and adding too much sugar to increase alcohol content. Even the famed chateaux of Bordeaux had become complacent. As a result, vintages from Chile, California, and elsewhere won more converts. In Britain, Germany, and the Netherlands, French wines lost seven points of global market share from 1990 to 1995.
ENOLOGY INTERN. Stunned Europeans finally opened their eyes. Lurton, son of a prominent Bordeaux grower, took enology internships in Australia and the U.S. and returned home determined to innovate. He began buying grapes in southeastern France and improved quality by better controlling temperature, yeast, and hygiene. He also adopted the U.S. and Australian practice of labeling his wine by grape variety, a help to non-French drinkers.
Such innovations have helped the Europeans turn the tide. In competitive markets such as Germany, Britain, and the U.S., the French have boosted market share. Italy increased its chunk of the German wine import market to 50%, up from 40% four years ago.
The biggest danger is that the Europeans may have moved too far upscale. Even some affluent customers have been driven away by recent spectacular price rises. But the Europeans now know that they must keep working to stay ahead of upstart Australians and Americans. Even as they savor their renaissance, Europe's reeducated vintners don't look ready to let success go to their heads.By William Echikson in Brussels, with Monica Larner in Rome, David Woodruff in Frankfurt, and Andy Robinson in MadridReturn to top