Monday, June 27, 2022

Where does the USA get all of that imported bulk wine?

Obviously, the United States of America produces a lot of wine, some of it for purchasers of bottled wine and some of it for bulk wine purposes. Bulk wine is never treated with much respect by the wine media, as it usually disappears into the ‘private labels’ of wine clubs and retail stores (An insider's guide to the US bulk wine market). However, it is allegedly now coming into its own (How bulk wine is shedding anonymity for celebrity status). Apparently, market dynamics are currently skewing in favor of bulk wines, so that the bulk and bottled parts of the wine industry are overlapping more and more.

Many of you may not realize, however, that the USA also imports a lot of bulk wine. Indeed, it is allegedly the world's fourth largest importer of bulk wine (Bulk wine importation in the U.S.). Even worse, though, some of you may be quite surprised about where it comes from. For that reason, I will discuss it here.

I will start by illustrating the increasing volume of  bulk wine imported into the USA over the past 16 years. The data come from Statista, and cover the volume imported from 2006 to 2021, inclusive. This first graph, in millions of liters per year, shows you that the amount of bulk wine imported has continued to increase until today, although there was an unusual peak in 2012.

Importing more than 400 million liters is an awful lot of wine. Indeed, according to Statista, in 2020 the USA imported 372 million liters of bulk wine but exported only 228 million liters of it, so that 63% more bulk wine was imported than exported. Which wine business is the USA in? [Note: financially, the USA is a net importer of wine in general; see: The monetary value of bottled wine imports versus exports]

Annual imported bulk wine for the USA

The data I will use to explore the source of the imported bulk wine come from the Bulk Wine Club (set up by The World Bulk Wine Exhibition), via Vinex (Bulk wine imports into the United States). The next graph below shows the data for the top 10 import countries for the 12 months up to March 2022. The horizontal axis represents the total volume imported from each country, while the vertical axis represents the total cost of the wine imported. The red line gives an indication of a cost of $US 1 per liter — countries above the line are getting more than $US 1 per liter for the wine they supply, while those below the line are getting less.

Obviously, the wine came from the usual culprits, when considering wine production, notably Argentina, Australia, Chile, France, Germany, Italy, New Zealand, South Africa, and Spain. However, the biggest amount, by far, came straight across the border from Canada.

In terms of pricing, those countries located near the red line, such as Australia and Italy, got roughly $US 1 per liter for their bulk wine. However, France and especially New Zealand did much better than this (NZ = $3.26 per liter). On the other hand, Chile and especially Canada did much worse than this. Indeed, Canada got $0.26 per liter, while South Africa got $0.70, and Chile got $0.79. So, that Canadian stuff is pretty cheap, which may explain its apparent desirability.

Bulk wine imports into the USA during 2021

Just in case you are doubtful about all of this, the final graph below shows the same data for the prior 12 months, up to March 2021. The numbers differ, but the pattern is roughly the same. Canada was out in front by a country mile.

The Canadian wine industry is not all that small, especially in Ontario (in the south-east) and British Columbia (in the south-west). Canadians rightly tout their bottled wines, of which icewine is a specialty. Mind you, more of it goes to China than to the USA.

However, bulk wine production in Canada is rarely mentioned (except as an importer). Presumably, it is trucked across the western border into California, where it ends up blended with the local stuff. * [Check out the Comment at the end of the post for more information.] This then makes an anonymous North American wine, equivalent to an anonymous European wine. The wine media do not write much about the latter, either.

Bulk wine imports into the USA during 2020

You can find out more about the current Bulk Wine Revolution through The World Bulk Wine Exhibition. They recently (June) had a get—together in the USA (Sonoma), and their next one will be in Amsterdam in November.

* Mind you, Canada is also reported to be the top export market for California wine (2020:  US$ 424 million), well ahead of the United Kingdom (US$ 236 million) and the European Union (US$ 191 million). So, both the biggest export market and the biggest import market — now that is a trading partner!

Monday, June 20, 2022

Why does world wine production always exceed consumption?

This is quite a reasonable question to ask. After all, in the modern world of social responsibility, over-production cannot be seen as environmentally sustainable (see Social responsibility (or lack of it) in the wine industry).

Yet, always, year after year, global wine production exceeds consumption, usually by a considerable margin. This has long been known, but rarely discussed; and so it is worth raising the issue again here.

The data I will use to illustrate this point come from The International Organisation of Vine and Wine (OIV), who collate statistics on wine worldwide. The first graph below shows both wine production (in blue) and wine consumption (in green) globally for every year since 1995 (the official 2021 data have not been released yet). These data cover all wines, including sparkling wines and special wines, but exclude juice and musts. Note that a hectoliter (hL) is 100 liters, so that 250,000 in the graph = 25 billion liters.

World wine production and consumption

As you can see, there has been an excess global wine supply every year for at least the past quarter-century (and actually much longer). That is, supply continues to outstrip demand, by an average of 3 billion liters each year. This amount is an average of 11.5% of production, per year, as shown in the second graph (below). That is an awful lot of wine. Only in 2017 could we come even close to claiming that the world needed the amount of wine that was produced.

The really strange thing about these data is that we know perfectly well that Global wine consumption has been declining for a long time. The data that I referred to in that previous post was per capita consumption (ie. per person per year); but you can see in the first graph (above) that, even in terms of total volume there has been a continual decline since 2017, after an increase in consumption until 2007.

Obviously, we expect production to not match consumption for individual countries, which tend to be either producers or consumers (here are some data for 2018). Production in each country will vary from year to year (eg. 2022 harvest to alleviate “rock-bottom” stocks in New Zealand). That is why it is important to concentrate on global wine data. The world has made it repeatedly clear that it does not want or need the amount of wine that the wine industry produces annually.

Excess world wine as a percent of production

Now, obviously, the wine industry really does consist of two quite distinct parts. In one part, people discuss terroir, grape varieties, grapevine age, vintage vagaries, and wine cellars; and they are generally ignored by the majority of people on the planet, who find it all too esoteric and (far too often) confusing.* In the other part of the industry, people are trying to make drinks that people will buy and drink.

In the latter case, the customer is always right, because if you tell them they are wrong then they won’t become your customer. So, this part of the wine industry tries to assess what the majority of potential wine drinkers would drink, and then provides it, in whatever way they can, at a price that the customers will pay. This wine is treated as a basic part of life, while the first type seeks its status as an affordable luxury (depending on what you can afford!). The alleged difference between the wine quality of the two is, of course, solely in a perceived assessment, or value judgment. If you personally cannot perceive any difference, or do not care, then there is no practical distinction.

Needless to say, it is the second group that dominates wine industry production, if for no other reason than that they make wine that costs less than US$15, preferably a lot less; and these wines appear on supermarket shelves worldwide, not in specialty stores in only a few big cities. This mass production cannot be done easily if the focus is on places (terroir) and times (vintages). So, the blending of cheap bulk wines is the way to go, along with a few additives like Mega Purple (Mega Purple is the wine ingredient nobody will talk about). Much of this wine is intended for consumption in the year of production.

Wolf Blass winery

However, it is also this second part of the industry that is responsible for the over-supply. In spite of what I said above, apparently they first make the wine and only then try to find someone to sell it to (The wine industry is asking the wrong question). This has nothing to do with excess wine that is sold into the bulk wine market — even the bulk market does not want the excess wine that I am discussing here. This situation has long been recognized (Overproduction - the greatest challenges to the wine industry), and is still occasionally discussed even today (Too much wine: the elephant in the room).

For example, 15 years ago the European Union officially faced up to it (How Europe is drowning in wine), decided to do something about it (EU wants to put a cork on excess wine production), and decided to attack it at the source (European Union proposes destroying 1 million acres of vineyards). Prior to this (eg. 2002), the excess wine was simply turned into industrial alcohol:
Since 1981, the EU has been distilling surplus wine into industrial alcohol, which is a costly process. There is an annual budget of c. €220 million, which can be used to distill 11 million hectolitres of wine. Until the 2002 vintage, there had been a crisis distillation each year since the mid-eighties. The last crisis distillation, from the 2001 harvest, removed an extra 7 million hectolitres of wine from the market.
The EU response does not seem to have had much effect globally, nor even within the Union itself. For example, in 2020 we had this familiar-sounding report: Europe may have to turn a billion liters of wine into industrial alcohol. At that same time, things were sadly no different elsewhere, either (Vineyard removals still needed to balance California grape supply). If I tried to tell this to someone outside the wine industry, they would collapse laughing.

Evidently, the more things change, the more they stay the same.** Surely we can do better than this?

* For example, when describing a single grape, Albariño: “There are also huge differences between sub-regional styles, influenced by soil type, altitude, rainfall, sunshine hours, vineyard orientation and proximity to the rivers, estuaries and the Atlantic Ocean that are such important features of Rías Baixas’ unique terroir” (The rain In Spain).

** Way back in 1849, French writer Jean-Baptiste Alphonse Karr wrote: “plus ça change, plus c’est la même chose”. The truth of this expression, whether in French or English, has not changed much since then, either!

Monday, June 13, 2022

Social responsibility (or lack of it) in the wine industry

A couple of weeks ago, I pondered the obvious similarity between The alcohol industry and the car industry, comparing the issue of who takes responsibility for societal consequences; and before that, I presented some data showing that one-quarter of wine makers cannot put a legal label on a bottle properly (Regulatory compliance is not something that the alcohol industry is good at). To me, this raises a more general question about social responsibility in the wine industry. So, I will ponder a range of potential topics here.

As I previously discussed, labels are the first point of communication from the producer. As far as these labels are concerned, there is now societal pressure insisting on some quite basic information to be placed on these labels, which is currently missing. Personally, I think that alcohol can reasonably be treated as “food” (I put it in my body, with the intention of metabolizing it), and so it should contain all of the same information as other food. How can anyone argue for an exception? However, apparently people have done so. *

I was recently invaded by a group of children, and amongst the wreckage of my house there was a half-empty container of micro-popcorn. It’s label includes information about the ingredients (corn kernels, palm oil, salt), as well as the percentage content of: Fat, Carbohydrate (with Sugars listed separately), Fiber, Protein, and Salt, plus the Energy value (kJ or kcal). Why do alcohol containers not contain this same sort of basic information? The industry would look more responsible if they did have it.

Moreover, some of the terms that actually are used on wine labels are a bit disingenuous. What, for crying out loud, does “organic” mean? It is becoming more and more obvious that it can mean many things, depending on the mood of the advertising requirements. So, we now have this unfortunate situation: Is criticism of organic or sustainable wine-growing programs adding to consumers’ distrust or confusion? The answer is all too obvious.

It goes further, of course, since almost any word can be used on a bottle label, including “clean” and “natural” (We need to talk about “clean,” “organic,” and “natural” wine). Not all of these terms stand up to scrutiny (PURE lies: winemaker Adam Lee puts a ‘clean wine’ to the test). In a responsible industry, they would do so; and the industry has already received an official warning (‘Clean’ wine marketing draws warnings from regulatory agency).

In addition to this issue of production techniques, there is also the old problem of wine regional names, and their use on labels. As but one recent example, see this: When does a wine qualify for Napa? Since wine regions are a long-standing topic, I will not pursue it again here.

This brings us to the topic of wine writing, which does not always seem to be as responsible as we might like. Advertisers have always been treated with suspicion, if not contempt, because they have such a blatant agenda. In the past, acceptable wine advertising has varied from country to country, from relatively unconstrained to rather seriously controlled. However, digital advertising has changed all of this, since it operates essentially across all borders. This is an area where irresponsibility could be widespread (Alcohol marketing has crossed borders and entered the metaverse – how do we regulate the new digital risk?).**

The issue with the media in general has always been, not that they don’t tell the truth, but that don’t tell us all of the truth, which can be seriously misleading (discussed in How to read this chart). For a wine industry example, why are writers continually extolling higher quality from new grape-growing regions, when the traditional markets are shrinking, younger people do not drink much wine***, and production already exceeds consumption (Global wine consumption has been declining for a long time)? Beats me!

We also have wine writers selling the wines they review, or making the wines they review, or simply knowing nothing specific about wine in the first place. The latter has become particularly problematic in the modern world of social media. This has been referred to as: The incurable plague of wine influencers. The issue here is that, in a responsible industry, we should be: Looking for context, insight and knowledge among wine influencers; and yet we get very little of any of these things. Wine’s ’social experts’ may be expert at being social, but so many of them are not experts at wine. They all have opinions, but there is no substance behind those opinions.

In addition to this, there is the matter of the writing associated with ordering wine in pubs, bars and restaurants. Surprise, surprise, wine lists are not considered to be very helpful things, for customers (Customers are crying out for support when buying wine). Mind you, with computers now capable of writing wine reviews (Everyone has opinions, even AI), wine writers may already be an endangered species.

It would be foolish to finish without mentioning something that wine industry seems to be addressing responsibly, plus one that I hope they will now also do.

The obvious choice, these days, for responsibility, is global climate change. Changes in grape-growing seasons have long been quantitative evidence for global warming (Grape harvest dates and the evidence for global warming), as well as the other effects of global climate change (Grape harvest dates and year-to-year climate variability). The wine industry has not been fast to react (Why have we left it so late to deal with climate change in the wine industry?), but it has become increasingly obvious that reaction there must be (The French grape-growers will need to get used to April Weather). Many wine-making regions are now reporting their activities about their changing activities (eg. Australian wine businesses moving ahead to tackle climate change).

One area where I think that more reaction is needed is the matter of wine containers; and I hope that responsibility takes precedence over the traditional use of glass bottles (Will tradition prevent the wine industry from embracing sustainability?). Glass was a great idea in its day; but that day started 4,000 years ago, and ended with the advent of global climate change (wine first appeared in bottles in the 1600s, after 7,000 years of making wine). The energy required even to recycle glass is massive, let alone to make it from sand in the first place. Aluminum cans (which have been around since the 1930's) and PET bottles are clearly much better in this regard, as are Tetra-pacs and bag-in-box (Life cycle assessment of beverage packaging). An alternative would be to re-fill the used bottles (as was done for milk delivery, when I was young), instead of treating them as single use (These are the top 5 most sustainable drink containers ranked). Even worse, the energy used to transport glass is pretty serious, since it is heavier than aluminum and PET. The days are clearly numbered for the use of millions of glass wine bottles every year (Ranked: the environmental impact of five different soft drink containers); and the sooner we face this, then the more socially responsible we will be.

So, what might we conclude from all of this navel gazing? The alcohol industry is certainly not perceived as being near the top of the pecking order, with regard to social responsibility. This is a pity, especially for the wine industry, which has always tried to position itself as a valued part of society, and which is now genuinely trying to make progress. We still have quite some way to go, I think.

* Ingredient labeling: a look back: “When all foods in the U.S. were required to list ingredients on their labels, the alcohol beverage producers led by the wine industry lobbied hard and effectively to be excluded from the requirement. The wine industry is legally defined as a food industry and as such, for example, during COVID, has been permitted to continue their agricultural and wine production work.” This exemption allows them, for example, to ignore the inclusion this: Mega Purple is the wine ingredient nobody will talk about.

** The metaverse consists of digital representations of people, places and things, including wine brands, inhabited by virtual experiences, information and goods (The metaverse and your wine brands). Since it is not real, the scope for irresponsibility is great.

*** Since the ’90s, the number of wineries in the United States has tripled, yet the volume output has only doubled. Because the industry has seen a disproportionate influx of smaller wineries that are producing their wines at a higher cost, younger consumers are being priced out (What the wine industry gets wrong about marketing to younger generations).

Monday, June 6, 2022

Which countries are dominated by only a few alcohol suppliers?

The supply of wine is of interest to the wine industry in several ways, including the available supply of grapes, the various ways of processing them, the packaging / labeling options, the distribution channels in existence, and the retailers willing to stock the wines.

One of the most interesting parts of this for the customer is just how concentrated are the last two (distribution and retailing), since this also includes beer and spirits. That is: how many distributors and retailers dominate the various national markets around the world?

Let's briefly start with the last one, first. Below is a graph showing a number of alcohol retailers from various countries, ranked by total revenue in 2021.* As you can see, one Australian retailer dominates its market, whereas the next three share the United States market between them. You may not have expected the Australian market to be concentrated in this way.

There are various other countries involved in the graph, including the Netherlands (Gall and Gall B.V.) and Finland (Alko Oy). The latter is a government owned (but not operated) retailer, as also exist in Sweden (Systembolaget AB) and Norway (AS Vinmonopolet). If Sweden was included in the graph, it's (sole) retailer would be 5th in the list (with 390 million USD).

Clearly, retail monopolies make you No. 1 in your country, but this does not actually make you a big cheese globally.

Moving on, we can look at importers and distributors. The Annual Database of Global Wine Markets contains data for 2009 and 2014. This illustrates market concentration by showing the combined market share (percentage) of the four largest firms, for each of a series of countries, based on sales volume. The data are graphed below, with each point representing one country, located based on the 2009 data (horizontally) and the 2014 data (vertically).

I have labeled those countries where the concentration of distributors is >50%, plus those where the situation changed notably between 2009 and 2014. I have also highlighted Sweden in pink, which I discuss below. You can read the list of all countries for 2014 at the AAWE Facebook page.

Wholesale concentration of alcohol sales by country

The AAWE page notes:
Amazing. Extremely high wine market concentration in Chile (= little competition) — 4 companies account for >90% of the market. Extremely low concentration in Belgium-Luxembourg and Germany (stiff competition). This is one of the reasons why BEL-LUX and GER have low wine retail prices.
Note that both Thailand and India moved into a similar position to Chile, over the 5 years, and a few other countries headed that same way, including New Zealand. Its nearest neighbor, Australia, on the other hand, headed the other way, along with, most notably, Japan, but also Finland, Taiwan, Greece, Portugal, and China. The movement of China towards more diversity is important, given that it is potentially the biggest alcohol market in the world. Canada and the Ukraine also increased their diversity somewhat, although the latter is now a moot point, given subsequent political events.

So, there was a general movement towards less concentration of distributors, so that only 10 of the 39 countries had >50% concentration in 2014. However, this did include the USA, which really should do something about this situation, especially given the size of the national market. (No-one will do anything, though, because "mergers and acquisitions" is the big thing in the US business world; and the three-tier alcohol distribution system doesn't help. either).) Americans have oodles of blog sites trying to identify a few value-for-money wines, and you can now see why.

Global Wine Markets: A Statistical Compendium lists the four biggest companies in the USA as (in descending order):
  • 2009: E&J Gallo Winery Inc, The Wine Group Inc, Constellation Brands Inc, Foster’s Group Ltd
  • 2014: E&J Gallo Winery Inc, The Wine Group Inc, Constellation Brands Inc, Trinchero Family Estates **
These lists surprise no-one (in the industry). After all, the lists for 2003 and 2021 are not that much different (Has U.S. wine industry consolidation gone too far?).

Moreover, the global list of companies is not that much different, either, just a slightly changed order:
  • 2009: Constellation Brands Inc, E&J Gallo Winery Inc, The Wine Group Inc, Foster’s Group Ltd
  • 2014: E&J Gallo Winery Inc, Constellation Brands Inc, The Wine Group Inc, Accolade Wines Ltd **

Sweden, as an alternative example, has no such concentration issue. Even though Sweden has a single wine retailer (Systembolaget), it has many wine importers and distributors. Back in 2012, An extensive list of importers of wine to Sweden listed 242 companies; and Sweden now apparently has more than 1,000 importers (The top distributors in Sweden). For a country of 10 million people, that is an awful lot. The Statistical Compendium lists the top ones as:
  • 2009: Pernod Ricard Groupe, Foster’s Group Ltd, Distell Group Ltd, MGM Mondo del Vino
  • 2014: Treasury Wine Estates Ltd, Kleine Zalze, Oenoforos AB, Altia Oyj

So, there has also been considerable turnover of suppliers, in this particular country, which adds to the diversity. This diversity helps keep the retail prices low, due to competition.

However, the prices are also low because the single retailer has a government-mandated lack of profit motive (Why are there wine monopolies in Scandinavia?). This keeps the prices down because there is a standard retail mark-up across all products (Why is wine often cheaper in Sweden than elsewhere?). I have earlier listed a few specific examples of wine prices (Can we trust between-country or between-state comparisons of wine costs?).

The bottom line here is that concepts like “market share” tell you very little about the concept of monopolies. The market concentration at either wholesale or retail may be the key. In Sweden there is high concentration at retail but not at wholesale, whereas the USA has much higher wholesale concentration (and higher retail prices). Australia actually has one very large retail chain (first graph above) but much less concentration at the supplier level (second graph).

* I have no idea where I got this graph (in May this year). If anyone knows its origin, then please let me know, and I will add the correct web link.

** In 2011, Foster’s Group split its beer and wine divisions — the former became Carlton & United Breweries, and the latter became Treasury Wine Estates. Also in 2011, Constellation Brands sold off its Australian and European divisions, which became Accolade Wines. Both of these events immediately  changed the size of the companies associated with the original names.