The impact of New World wines upon the UK market

Table of contents

ABSTRACT

ACKNOWLEDGEMENTS

APPENDICES

FIGURES

1. INTRODUCTION
1.1 AIMS AND OBJECTIVES
1.2 REASONING FOR TOPIC CHOICE
1.3 HYPOTHESIS
1.4 RESEARCH METHODOLOGY
1.4.1 Data sources
1.4.1.1 Primary data
1.4.1.1.1 Questionnaire for the wine consumer
1.4.1.1.2 Interviews
1.4.1.1.3 Blind Wine Tasting
1.4.1.2 Limitations of primary data
1.4.1.3 Secondary data
1.4.1.4 Limitations of secondary data
1.4.2 Nature of data
1.4.2.1 Quantitative data
1.4.2.2 Qualitative data
1.5 REFERENCE LIST

2. LITERATURE REVIEW
2.1 INTRODUCTION TO THE FOUR LEADING NEW WORLD WINE SUPPLYING COUNTRIES
2.1.1 Australia
2.1.2 USA
2.1.3 South Africa
2.1.4 Chile
2.2 NEW WORLD WINES
2.2.1 Initiation of the New World wine boom
2.2.2 Keys to success
2.2.3 Style of the New World wines
2.3 ACADEMIC MODULE: PEST ANALYSIS
2.4 ACADEMIC MODULE: COMPETITIVE ADVANTAGE ANALYSIS BETWEEN OLD AND NEW WORLD WINE- PRODUCING COUNTRIES
2.4.1 EXISTING DOMESTIC MARKET POSITION
2.4.2 DOMESTIC MARKET GROWTH POTENTIAL
2.4.3 ECONOMIES OF SCALE / COST STRUCTURE BENEFITS
2.4.4 ADAPTABILITY TO INDUSTRY CHANGE
2.4.5 POTENTIAL TO ATTRACT FOREIGN INVESTMENT
2.4.6 SUMMARY
2.5 REFERENCE LIST

3. THE UK WINE MARKET
3.1 UK PER CAPITA WINE CONSUMPTION & UK WINE CONSUMPTION (MILLION HL)
3.2 UK IMPORTS OF STILL LIGHT WINE FROM MAJOR SUPPLIERS BY VALUE (MILLION US$) AND BY VOLUME (HL ´000) FROM 2003–2005
3.3 UK OFF-TRADE: ANNUAL TOTAL SALES VALUE IN MILLION £ AND MARKET SHARE IN % BY COUNTRY OF STILL LIGHT WINE
3.4 UK OFF- TRADE: ANNUAL TOTAL SALES VOLUME IN `000 HECTOLITRES AND MARKET SHARE IN % BY COUNTRY OF STILL LIGHT WINE
3.5 UK OFF-TRADE: BRANDED VERSUS OWN LABEL VOLUME SHARE IN %
3.6 UK OFF-TRADE: TOP 15 BRANDS ANNUAL SHARE BY VALUE AND VOLUME
3.7 UK OFF-TRADE (RETAIL): PRICING – NUMBER OF BOTTLES SOLD IN KEY PRICE RANGES AND AVERAGE PRICE PER 75CL BOTTLE BY COUNTRY
3.8 MOST FAVOURITE PLACES OF PURCHASE
3.9 SUMMARY
3.10 REFERENCE LIST

4. KEY ISSUES CONTRIBUTING TO THE NEW WORLD WINE PERFORMANCE
4.1 COMPARISON OF FRANCE AND GERMANY IN TERMS OF COUNTERMEASURES
4.1.1 Germany
4.1.1.1 Threat of the New World
4.1.1.2 Countermeasures
4.1.1.3 Comparison of German and New World wines
4.1.1.4 Conclusion
4.1.2 France
4.1.2.1 French perception of wine and labelling
4.1.2.2 Quality improvement
4.1.2.3 Marketing
4.1.2.4 Brand building and labelling
4.1.2.5 Adoption of New World techniques
4.1.3 Summary
4.2 WINE LEGISLATION IN TERMS OF WINE CLASSIFICATION, LABELLING REQUIREMENTS, OENOLOGICAL PRACTICES AND THE IMPORTANCE OF BRANDING WINE
4.2.1 Wine legislation in terms of wine classification/appellation
4.2.2 Wine legislation in terms of wine labelling
4.2.3 The power of branding
4.2.4 Wine legislation in terms of oenological practices
4.3 THE MODERN WINE CONSUMER
4.3.1 Consumer wine consumption influences
4.3.1.1 Women
4.3.1.2 Senior citizens
4.3.1.3 Personal disposable income
4.3.1.4 One-person household
4.3.1.5 In-home boom
4.3.1.6 More sophisticated consumer
4.4 THE CHANGING FACE OF WINE
4.4.1 Health benefits
4.4.2 Wine as a meal accompaniment
4.4.3 The rise of the brands and the influence of wine perception
4.4.4 Image as a snob drink is disappearing
4.5 REFERENCE LIST

5. PRIMARY RESEARCH FINDINGS
5.1 BLIND WINE TASTING
5.2 SURVEY WITH QUESTIONNAIRES
5.2.1 Analysed relationships
5.3 REFERENCE LIST

6. CONCLUSION
6.1 REVOLUTION OF THE UK WINE MARKET
6.2 THE NEW STATUS OF WINE AND THE PERSISTENT INFLUENCE ON THE CONSUMER

7. BIBLIOGRAPHY

APPENDICES

Abstract

This dissertation aims to reveal the impact of the New World wines upon the UK market which necessitates an examination of all factors that might have strengthened the competitive position of the New World compared to the Old as well as the evaluation of current and past market figures, and also broad primary research in order to affirm or query the findings.

The observation of leading authors’ general view about New World wines has shown that the great differences between both worlds have started to blur as both regions are increasingly willing to learn from each other and to adopt the other’s wine producing and marketing methods which is particularly vital for all Old World suppliers’ performance.

A PEST analysis and an analysis of competitive advantages have revealed that the New World suppliers are generally better positioned to respond to current challenges and to perform successfully in the UK wine market.

The investigation of legal circumstances in terms of oenological practices and label requirements indicates that despite the stricter appellation systems of the Old World, both regions act under similar legal conditions and that the Old World has to cope with some minor legal disadvantages which are mainly due to traditional values and ideologies.

The comparison of the reactions of France and Germany, as two selected Old World producers, gave information that only France’s wine industry is really threatened by the New World and goes to great lengths to retain and increase market share.

An observation of the application of wine brands has shown that this is undoubtedly one of the key factors of which the New World has taken advantage.

New World wines emerged victorious from a blind wine tasting in all comparisons, and a comprehensive survey investigating consumer purchasing behaviour has, with some exceptions, largely underlined these current market findings.

The appearance of the New World has changed the market structure, consumer behaviour and the face of wine; it certainly is not simply a trend but now the absolute power on the market.

Acknowledgements

The author would like to thank all contributors who have assisted with compiling this dissertation.

Particularly warm thanks to Gordon Rule the supervisor of this dissertation who dealt with the issues and progress of this work well-nigh every week from the beginning up to the date of submission.

Cordial thanks to Franz Keller and Stefan Männle who agreed to be interviewed in order to assist the author in the primary research process.

Finally many thanks to everyone who helped distribute the questionnaires and also to the participants of the blind wine tasting who offered their time and now provide the reader with their opinions and knowledge.

Appendices

1 Glossary of terms

2 PEST Analysis

3 Overview of wine production and consumption 2004

4 Overview of nation-based wine competitive advantage position 2004

5 Interview with Stefan Männle, an estate manager of a Baden co-operative of growers

6 Interview with Fritz Keller, a German wine producer from Baden

7 EU still wine label sample

8 Non-EU still wine label sample

9 Overview of legal requirements in terms of labelling

10 Overview of legal requirements in terms of oenological practices

11 Blind wine tasting description

12 Blind wine tasting wine bottles

13 Wine temperature measurement

14 Blind wine tasting evaluation sheet: red

15 Blind wine tasting evaluation sheet: rosé

16 Blind wine tasting evaluation sheet: white

17 Explanation of blind wine tasting terms

18 Overview of blind wine tasting results

19 Overview of findings of the survey

20 Sample of a completed trial questionnaire

21 Sample of the proofed questionnaire

22 Analysed relationships of the findings of the survey

Figures

A) Main body

Table 2.3 – PEST analysis overview
Diagram 2.4.1 – Existing domestic market demand
Diagram 2.4.2 – Growth potential within the domestic market
Diagram 2.4.3 – Benefits of economies of scale and cost structure benefits
Diagram 2.4.4 – Adaptability to industry changes
Diagram 2.4.5 – Potential to attract foreign investment
Diagram 2.4.6 – Overall competitive advantage

Diagram 3.1 (a) – UK per capita wine consumption (volume)
Diagram 3.1 (b) – UK wine consumption (volume)
Diagram 3.2 (a) – UK imports of still light wine by value
Diagram 3.2 (b) – UK imports of still light wine by volume
Diagram 3.3 (a) – Off-trade annual total sales value by country
Diagram 3.3 (b) – Off-trade annual market share of value by country
Diagram 3.4 (a) – Off-trade annual total sales volume by country
Diagram 3.4 (b) – Off-trade annual market share of volume by country
Diagram 3.5 – Off-trade market share branded versus own label
Diagram 3.6 (a) – Top 15 brands annual share by value
Diagram 3.6 (b) – Top 15 brands annual share by volume
Diagram 3.7 (a) – Off trade share of sold bottles 2005
Diagram 3.7 (b) – Off trade share of sold bottles 2006
Diagram 3.7 (c) – Off trade average price per 75cl bottle
Diagram 3.8 – Favourite places of purchase of still light wine

Table 4.2.3 – Characteristics of branded wines

B) Appendices

Table 2.2 – Glossary of terms
Table 2.4.1 – Wine production and consumption by country 2004
Table 2.4.6 – Overview of competitive advantage evaluation by nation 2004

Table 4.2.2 (a) – EU still wine label sample
Table 4.2.2 (b) – Non-EU still wine label sample
Table 4.2.2 (c) – Labelling requirements overview
Table 4.2.4 – Overview of oenological practices legislation

Table 5.1 (a) – Evaluation sheet: red wine
Table 5.1 (b) – Evaluation sheet: rosé wine
Table 5.1 (c) – Evaluation sheet: white wine
Table 5.1 (d) – Explanation sheet for blind wine tasting
Table 5.1 (e) – Overview of blind wine tasting results
Table 5.2 (a) – Overview of survey results
Graphics 5.2 (b) – Completed trial questionnaire sample
Graphics 5.2 (c) – Sample questionnaire
Table 5.2.1 (a) – Relationship between gender and knowledge of the distinction OW/NW
Table 5.2.1 (b) – Relationship between age group and knowledge of the distinction OW/NW
Table 5.2.1 (c) – Relationship between gender and preference of origin
Table 5.2.1 (d) – Relationship between age group and preference of origin
Table 5.2.1 (e) – Relationship between wine knowledge and preference of origin
Table 5.2.1 (f) – Relationship between place of purchase and preference of origin
Table 5.2.1 (g) – Relationship between willingness to pay and preference of origin
Table 5.2.1 (h) – Relationship between importance of brands and preference of origin

1. Introduction

“The principal battleground between New World and Old is Britain, now probably the single most important market outside the wine-producing world.” (Walsh, 2006, p.4)

The UK wine market experiences constant development regarding the range of products and their variety. From the moment the so-called New World wines appeared in this country their market share grew and their success seems to continue. But what are the reasons for that process, how are these wines differentiated from the wines now referred to as Old World, and what are their effects on the market and consumer?

1.1 Aims and Objectives

The aim of this dissertation is to investigate the growth of New World wines and its impact upon the UK market.

In order to acquire the necessary information the objectives were determined as:

- introducing the four leading New World wine supplying countries and presenting their most famous brands on the UK market.
- analysing the UK wine market of the last few years with special consideration to the distinction between Old World and New World.
- investigating possible differences in the responses by the French and German wine industry in order to reverse declining wine sales.
- identifying the reasons for the success of New World wines with consideration to legislative circumstances and the use of branding exported wines. researching consumers’ purchasing and drinking behaviour of wine.
- concluding the New World wine’s future position upon the UK market.

1.2 Reasoning for topic choice

The reasons for choosing this specific topic lie in the author’s interest in wine in general and the pleasure of drinking different wines from the so-called New World. The chance to improve the basic knowledge of wine and to reach an upper level regarding New World wine knowledge seems to be both challenging but desirable. The possibility of using privately owned literature covering that topic, the enjoyment from analysing figures, and the chance to write a dissertation in an area of personal interest and consequent motivation were the deciding factors in selecting the topic of the very popular New World wines.

1.3 Hypothesis

Hypotheses are propositions that are “...stated in a testable form and predict a particular relationship between two (or more) variables. In other words, if we think that a relationship exists, we first state it as a hypothesis and then test the hypothesis in the field.” (Bailey, 1982, p.40)

The hypothesis to be validated in this dissertation:

“The New World wines have revolutionised the UK wine market and the general status of wine and will have a persistent influence on the consumer.”

1.4 Research Methodology

1.4.1 Data sources

The first distinction in the research methodology can be made with regard to the data source; use was made of both primary and secondary data sources.

1.4.1.1 Primary data

Referring to Walliman (2004), four types of primary data can be distinguished:

- Observation: Records, usually of events, situations or things, of what was experienced with the author’s own sense (eyes, ears, etc.)
- Participation: Data gained by experiences (as an intensified form of observation)
- Measurement: Records of amounts or numbers (e.g. population statistics)
- Interrogation: Data gained by asking and probing (e.g. people’s motivations etc.)

In order to obtain information in support of the stated objectives, the author used three forms of “interrogation”: a blind wine tasting, a survey and two interviews. “Measurement” information was used to define the wine market structure and as a supportive source.

1.4.1.1.1 Questionnaire for the wine consumer

A pilot was conducted on five individuals before distributing the real questionnaires in order to test the suitability of a self-developed questionnaire (see appendix 20). They were asked to comment on the questionnaire and the feedback was used to improve its comprehensibility. The amended questionnaire was used to interview 80 wine-consuming people in terms of their wine knowledge and drinking habits to assess the potential influence of New World wines on them and their current level of awareness of the presence of the New World on the wine shelves. The questionnaire was distributed in three ways:

- a digitalised form used for wine-drinking UK citizens who did not live nearby;
- a paper-based questionnaire (see appendix 21) for interviewing randomly chosen people in (wine-) stores, supermarkets, in the neighbourhood, on the street, in buses and in the University. It was also used on shop owners in Edinburgh who provided answers while the author was present which increased the accuracy of their answers because they were able to check if in doubt; and
- distribution through friends who were asked to give the questionnaire to friends, family and colleagues.

The second form was the main means of ensuring that everything was understood correctly, and that the diversity of consumers could be guaranteed and was not influenced by the author’s acquaintance. The sample is not representative for the whole of the UK but this can be taken into account and extrapolated to promote or confute other findings which apply for the whole wine market of the United Kingdom.

1.4.1.1.2 Interviews

A German wine producer, as representative of European wine producers, was consulted and interviewed for gathering information about the requirement for countermeasures, and if they were in place, which ones were effective in reversing the decline in export sales. In addition, an estate manager of the co-operative of growers of the German region “Pfaffenweiler” in Baden was interviewed in order to obtain further information about the threat of the New World wines upon the German export market and the perception of the New World producers in general (see appendices 5 and 6).

1.4.1.1.3 Blind Wine Tasting

In order to collect primary data, eight blind wine tasters were asked to taste, evaluate and describe six bottles of wine: a red, rosé and white from both Old and New World regions. The findings were analysed and should highlight if one region of the world is particularly successful in this tasting.

1.4.1.2 Limitations of primary data

The sample sizes of both questionnaires and blind wine tasting are limited by time and cost but should be of appropriate size to bear valid trends in the UK market.

As a general opinion, elimination it of bias in the questionnaire or tasting seems to be impossible but the author has spared no effort reaching a high objective status that should guarantee the applicability of the primary research results.

1.4.1.3 Secondary data

Walliman (2004) explains that “...secondary data are data that have been interpreted and recorded ... [e.g.] news broadcasts, magazines, newspapers, documentaries, advertising, the Internet etc” (p.136).

In this dissertation, the use of secondary data concentrates on books, journals, newspaper articles and internet sites and was conducted comprehensively. With regard to books, a wine encyclopaedia, wine atlases, as well as special books regarding New World wines and wines in general were taken into consideration. Moreover, in order to inform the reader extensively about the top four New World wine supplying countries, journals such as the British Food Journal and the Journal of Consumer Marketing (mostly accessed via Napier’s “NUINlink”) were consulted to critically appraise authors’ opinions. Market research companies such as MINTEL were used to gather actual and past market figures as well as to display the development of the market performances of New World wines. In order to obtain information about the differences between both Worlds in terms of current wine legislation, studies mainly from the internet have been examined and the results are presented in the following chapters. The same applies for research concerning the different utilisation of wine branding between the Old and the New World.

Two theoretical frameworks were used to assist the reader in understanding the wine market and all economic aspects that belong to this dissertation topic. Firstly, the PEST analysis was chosen to open the reader’s mind to the current position of the New World wines and their environmental circumstances. Secondly, a competitive advantage analysis was used to differentiate the competitiveness of the New World from the Old World and consequently their standing in the UK wine market.

1.4.1.4 Limitations of secondary data

The author tried to consult as many books, journals, etc. as but time and scope of this dissertation were limiting factors that led to a concentration on a feasible number of sources which should all be of high validity as the chosen authors are indisputable experts in their special areas. This is supported by the fact that their articles are published in prestigious magazines, that they have published books on the subject and their good reputation in general. These experts are therefore certainly suitable for being cited in this dissertation.

The author had to concentrate on the off-trade sector of the UK wine market which accounted for 79% of volume of wine sales in 2005. Any deeper analysis was not feasible due to limitations of the scope.

1.4.2 Nature of data

According to Swetnam (2004), a second distinction can be made regarding the nature of the data in terms of whether it can be reduced to numbers (quantitative data) or if it can only be presented in words (qualitative data). Some of the data used, such as the questionnaire, can be used in both ways.

1.4.2.1 Quantitative data

The use of both primary and secondary quantitative data is inevitable. From primary research, the questionnaire provided quantitative data, results of which are presented not only in tables and charts but also in words. The same applies for the blind wine tasting where findings are displayed in a quantitative way in order to build a ranking of how the wines affected the participants and how they evaluated the characteristics of the wines.

The secondary data collection also presents quantitative data such as the diagrams and tables of figures displaying wine sales in chapter 3. This allows a comparison of the current and past situations in the UK wine market.

1.4.2.2 Qualitative data

“Qualitative data cannot be accurately measured and counted, and are generally expressed in words rather than numbers.” (Walliman, 2004, p.141)

The use of qualitative data, especially for the literature review and as one kind of secondary data, is very important. The opinions of different authors regarding the quality, variety and flavour of New World wines were noted, and had to be viewed and critically appraised. Qualitative data was also utilised in the primary research, e.g. for the interview transcript and the verbal evaluation of the findings from the wine tasting and survey.

The author tried to use both qualitative and quantitative data in the most appropriate way to get high grade results out of the primary and secondary sources in order to follow the main aim and the objectives.

1.5 Reference List

Books:

Bailey, K. D. (1982) Methods of Social Research, 2nd edition. New York: Free Press.

Swetnam, D. (2004) Writing your Dissertation. Oxford: How to books.

Walliman, N. (2004) Your Undergraduate Dissertation – The Essential Guide for Success. London: SAGE Publications Ltd.

Newspapers:

Walsh, C. (11.06.2006) New World sparkles as French vineyards plunge into the red: As well-marketed brands from Australia become the toast of the British market, Europe's wine lake is filling up with vin ordinaire, writes Conal Walsh The Observer London, p.5.

2. Literature Review

2.1 Introduction to the four leading New World wine supplying countries

2.1.1 Australia

The first vineyard of Australia was founded in 1788 in New South Wales with vines from Rio de Janeiro and the Cape of Good Hope. The first governor of Australia, Captain Arthur Phillip of the Royal Navy, brought them on his flagship and planted them on the ground where, in future times, Sydney should emerge.

Castaldi, Cholette and Hussain (2006) inform that about 200 years later, prior to 1970, Australia’s world wine production accounted for less than 1% of the market. In 2004 Australia produced 1.4 billion litres of wine, equal to 5% of global production represented with a market share of 23.1% by value of the UK market, Australia ranked first in front of France and the USA. Due to the modest interest and small size of the population, wine producers and government officials developed “Strategy 2025” – a plan to expand the Australian wine industry domestically as well as internationally. By 2025 Australia should be the most influential wine producer in the world. The industry structure is concentrated on only four big companies which account for over 75% of Australian wine production. This mans that the industry can benefit from economies of scale to produce cheap but good-quality wine and also to invest strongly in marketing in both the domestic and foreign markets.

(http://winetitles.com.au/awol/overview/strategy2025/index.asp).

The best-known brands are Rosemount Estate, Penfolds, Lindemans, Hardy’s, Banrock Station (belongs to the BRL Hardy group) and Jacob´s Creek. Australia produced five of the top ten brands by value in 2006, led by Hardy’s.

2.1.2 USA

American wines emerged in 1565 when the British Admiral, Sir John Hawkins, found 20 hogsheads full of wine, made from wild Scuppernong Muscadine vines (= Native American grapes; Rattray 2006).

In 2004, the USA ranked 4th in worldwide wine production producing about 2.4 billion litres and accounting for 8% of the market, 90% of the production generated by California the driving force of the US wine industry (Brook 2002). The US citizens consumed around 2.8 billion litres in 2004 and although the domestic market is big in size, the per capita

consumption was very low at around 9.4 litres in 2004, which is more than 45 litres less than the French annual average consumption (Castaldi, Cholette and Hussain 2006). Although the potential of the domestic market would be huge, the wine industry is increasingly concentrating on export and the success can be seen in particular in the UK market where the USA already had 15% of market share in 2005.

The Paris Wine Tasting of 1976 in which Californian and French wines were compared, led to a victory for California both in the white and red wine section, placing California as a real competitor on the worldwide wine market (Musings on the Vine 2004). The first governmental appellation system for North America wine was founded in 1978 called AVA (Approved Viticultural Areas) which lifted the attitude of wine producing in the USA to a higher level. (Allen et al. 1998)

The UK imports most of its wines from the US, in particular from California, Oregon, Washington and New York; principal grapes are Cabernet Sauvignon, Zinfandel and Merlot. E&J Gallo, Fetzer and Blossom Hill account for approximately one-third of US sales in the UK and, along with Echo Falls, they are the most popular brands in the UK.

2.1.3 South Africa

Allen et al. (1998) highlights South Africa as being the oldest viniculture region of the world as the first vines were planted in 1655.

Since then, South Africa has developed into a wine-producing export nation with a worldwide consumption share of 3% by producing 0.9 billion litres and a domestic consumption of only 0.4 billion litres in 2004. That is why South Africa had to expand internationally as domestic consumption would not lead to further growth of the wine industry, however, due to constant uncertainties regarding political, economic and social stability the challenges were and still are particularly high. With strong and effective marketing efforts abroad, South Africa increased its UK wine market share up to nearly 10% in 2005 (Castaldi, Cholette and Hussain 2006). Although the South African wine industry is increasingly consolidating, the companies do not actively promote their brands which Losh (2006) declares as one of the reasons why they fail to build a presence in the UK market in the £5 plus category. Two well-known brands in the UK are Kumala, which ranked 5th in 2005 and has accounted for around 22% of South African wine exports and Namaqua (belongs to Westcorp International), which ranked 14th in 2005. According to the UK Wine Marketing Annual Report 2007, the purchase of the Kumala brand by Constellation – the world’s largest wine company – has “caused some interruptions in Kumala’s distribution and marketing strategy.” (p.12)

2.1.4 Chile

Chile’s wine-growing roots go back to 1548 when the first vines were introduced by priest Father Francisco de Carabantes who brought them from Cuzco in Peru. (Arkell 1999)

Chile returned to a democracy in 1990, stabilising the economy and attracting foreign investors to support the Chilean wine expansion efforts. With 2% (0.6 billion litres) of world wine production but a domestic consumption of only 0.2 billion litres, Chile had, like South Africa, to concentrate on exports to enable the industry to grow. Being the second most important export market for Chilean wines, the UK (18%) welcomes the excellent value-for-money wines that profit from the ideal growing climate and low land as well as labour costs as Arkell (1999) emphasises and the UK consumers acknowledge this with 6% market share by value. Chile uses a consistent brand strategy dominated by some large companies for their export products and in 2006 Gallo, an American company, has launched a Chilean brand in the UK. Mintel (2005a) underlines the positive prospects in the UK market: “Chile is fast becoming the one to watch in the UK wine market.” (p.28)

Some well-known brands are Cono Sur, Chileno and Concha y Toro, the latter being recognised by Wine Spectator magazine as one of the 20 best vineyards in 2005 (http://www.mack- schuehle.de/index.php?action=news einzel&Seiten ID=5&men%20=&ID=87&showthem=0).

However, many of the Chilean wines which are exported to the UK are sold as own-label wines.

2.2 New World Wines

“We really are living in new, exciting and changing times in the world of wine.”

(Szvetecz, 2005, http://www.savoreachglass.com/resources/articles/what-revolution)

“The expression <<New World>> dates from the time of the big European discovery journeys and originally identified the new continent ...: America.” (Broadbent, 1998, p.5).

The definition of New World wines is determined by the location of the country of origin and it seems clear that the boundary is continental Europe, particularly the western part as very few eastern countries produce wine at all. The countries of the Old World do not necessarily have a longer viniculture tradition; as mentioned in the introduction, countries such as the USA started growing vines in the 16th century. However, these countries were mostly producers for the domestic market, their intensive export efforts are comparatively young and there is a need to find answers for questions such as: What is the general opinion about these wines? What initiated the New World wine boom? Is it possible to ascribe a common style? Which keys to success might have been supportive for their performance?

2.2.1 Initiation of the New World wine boom

“The sheer speed at which winemaking has developed here simply takes the breath away.” Arkell about the rapid growth of New World wines viniculture (1999, p.6).

Allen et al. (1998) supported by Arkell (1999) see California as the initiator for the New World wine boom. When Robert Mondavi (a pioneer of the American viniculture) established a public tasting room and a colonial-style courtyard in his winery in 1966, he founded the cornerstone of the self-esteem for New World wines. Others followed his example and soon the Californian winemakers were proud of their wines instead of apologising for them, as reinforced at the previously mentioned blind wine tasting of Paris in 1976. They add that Australia was the second country to follow the lead of California by seizing the Californian wine style and exaggerating it with the use of more oak, more alcohol and more intensity of flavour.

Broadbent (1998) points out that the really new thing about the New World wines is precisely not that these countries are producing wine but how the wine is cultivated and pressed as well as the emergent worldwide trade, the collaboration and competition with European winemakers, and, moreover, the increasing interest of oenophiles in these wines.

Using the example of Australia, which is the main exporter for the British wine market, the demand of the importing market was the decisive drive to develop the wine business there. Especially the wine consumer in the United Kingdom appreciated soon price, value and taste of the wines from Australia as well as the other New World wine countries. (Arkell 1999)

2.2.2 Keys to success

Arkell (1999) considers the varietal labelling (introduced by Australia) and clear branding as two of the key factors why the British in particular have welcomed wines from the New World as they made it easier for the consumer to choose the wines. Furthermore she points out that “the most significant factor on the development of the modern-day, forward-thinking, New World wine industries...” (p.7) was when these countries improved and utilised the latest winemaking technology.

However, Clarke (2002) sees the reason for the competitiveness more in the vineyard itself: “...the New World realized that the key to their making wine which could equal the best in Europe lay not in the pages of the wine making manual, the sensitivity of the crusher-destemmer or the particular grain of oak the barrel maker used – it lay under their feet, in the vineyard” (p.8). In addition, he explains that the individuality of New World wines is caused by the special nature of their climate and soul. Moreover he adds that the New World concentrates on “promoting mainly varietal wines (e.g. Jacob’s Creek and Alice White) via the supermarket chains and through advertising building brand loyalty” (p.235).

Campbell and Guibert (2006) append further reasons for the huge success: the rapid vertical and horizontal integration and the strong marketing strategies developed expressed in simplified labelling and attractive design of the wine bottles. They underline that the technologies used to develop new cultivars as well as to improve existing cultivars and obtain standardised products have enforced the industrial approach and strengthened their competitiveness: “The new world has helped turn wine growing and wine making into a science” (Szvetecz, 2005, http://www.savoreachglass.com/resources/articles/what-revolution). Campbell and Guibert (2006) further assert that the New World wine producers are not concentrating only on the middle-class and medium-price range wines anymore but are extending their range of quality by including first-class wines.

Another aspect presented by Allen et al. (1998) is the finding that the alcohol level and the residual sugar content are in general higher in the New World which make the wines approachable and easy to drink while in their youth. Furthermore the wines are generally more fruit-driven and they seem to be very consistent from one year to another which helps the emerging educated consumer to link a taste to grapes or brands.

Stevenson (2001), using the example of South Africa, names another key to success as the general adaptation to the requirements of export like the reduction of overproduction which is highlighted by Labys and Cohen (2006) who see “the benefits of improvements in technology to adjust the flavour and aroma of their wines to meet consumers’ interests” (p.528).

In the case of Australia, Hubert (1999) states that the introduction of further grape varieties such as Chardonnay and Cabernet Sauvignon helped to improve their quality successfully.

The New World winemakers benefit from their general freedom to experiment in all respects which encourages them “...to respond to consumer needs instead of continuing to make what has always been made.” (http://www.wineaustralia.com/Australia/Default.aspx?tabid=836)

2.2.3 Style of the New World wines

Is there a commonality of the New World wines regarding their style or are all New World wine producing countries entirely unique and how is the style differentiated from the Old World? Allen et al. (1998) name two factors: “...flavour and accessibility. This, more than anything, is what defines the New World style” (p.11). Mintel (2005a) adds that they are “often characterised by fuller and bolder flavours ... [but] often condemned by the old school as being homogenous, tannic and volatile.” (p.16) in turn supported by Mintel (2005b) which points out that “New World wines are said to offer less subtle flavours, and are often disdained by wine buffs” (p.24).

According to Arkell (1999) there has been a lot of criticism in the beginning that many New World wines would taste the same and she supports this thinking up to the point where the first flying winemakers arose and worked on more individual characters for each winery. She explains that a “further development of cool climate regions within the New World will deliver wines with more finesse than has been tasted before (far more European in style, if you like)” (p.8). She says that so far the British in particular “have embraced with fervour the fresh, clean, fruit-driven flavours of New World wines” (p.6).

Waldin (2003) supports the finding that the influence of the flying winemakers was decisive for the future development of the New World wines and in terms of export success their advice was extremely helpful to “...change from the musty, oxidized styles favoured by South American wine drinkers to the bolder, cleaner ´fruit driven` wines favoured by wine drinkers in Europe and North America” (p.7).

Keevil (2004) uses the example of South Africa to highlight the growing finesse of New World wines: “Where whites used to be thin and green there are now zesty, zingy flavours. The reds that were dull and heavy are now full of ripe dollops of fruit” (p.100) but she also emphasises that, on the downside, some producers have cheated by adding flavouring compounds to some wines such as the Sauvignon Blancs in order to give them the character that the market wants to experience when drinking these wines. Allen et al. (1998) stress the statement that the desire for international recognition and accommodating the supermarket’s requirements dominate the development of South African wines: “...a bottle of wine has to provide a sufficiently strong point of difference for the retailer to highlight its potential.” (Shah 2005)

Chile experimented with a more comprehensive range of grape varieties and as a second step blended predominantly red wines which led to a further improvement in both quality and reputation of Chilean wines, Fielden (2003) points out. However, Allen et al. (1998) criticise the lack of diversion and they raise the question if there really will ever be a clear picture of regional wine styles in Chile. This criticism may be due to its year of publishing which nowadays would have to be reformulated and the evolution of these wines had to be taken into consideration.

According to Labys and Cohen (2006) “...consumers [instead] prefer ripe-tasting, rich, full-flavoured wines with some oakiness at reasonable prices” (p.528) which is a simple summary of the above described New World style. Szvetecz (2005) summed up the difference between Old and New World style as follows: “The Old World growing style imparts more subtle flavors and qualities. The New World growing style imparts bolder flavors and qualities.” (http://www.savoreachglass.com/resources/articles/what-revolution).

But is it still true to ascribe a general difference of the styles of New World wines on the one hand and Old World wines on the other?

Robinson (2006) strongly contradicts this by claiming that, “... it is not true any longer that all New World wines are made in full-throttle style and all Old World wines are reserved and need bottle age.” (p.4). This statement supports the fact that no country owns a monopoly on traditional practices or on the use of modern technology and because “... the Old World is seeking the freedom and innovation of the New World and the New World is seeking the strength in identity that some of the Old World regions enjoy” (http://www.wineaustralia.com/Australia/Default.aspx?tabid=836), a general distinction between Old and New World style is overstated and no longer up to date.

2.3 Academic Module: PEST Analysis

The political, economic, social and technological factors describe the external environment of the New World wine industry with regard to the UK wine market. These factors are often the ones which cannot easily be influenced by the industry itself. The analysis conducted can be found in appendix 2, where summarised results are highlighted in colour according to whether they are an advantage or disadvantage for the New World (= NW, Old World = OW):

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Table 2.3 – PEST analysis overview
Source: Author’s contribution

This framework shows that most circumstances which have recently shaped, and still are shaping, the market were in favour of the New World, or rather the New World has adjusted better to it as underlined by Roberts cited in Walsh (2006), “UK consumption has gone up hugely, but only the New World wines have been working creatively [to take advantage]” (p.5). Some of the above mentioned aspects will be examined further in the following chapters.

2.4 Academic Module: Competitive advantage analysis between Old and New World wine-producing countries

“Businesses that are successful in creating more value than competitors will attain an
advantaged position relative to competitors in the marketplace.” (Besanko, 2004, p.362)

This quotation can also be assigned to the wine market and its global players in both the Old and New World in terms of their performance skills and adaptability on the UK wine market. This academic module shall declare which of the wine suppliers, under certain competitive criteria, might be positioned best in order to defeat and expand market share.

The basis of this analysis is the research done by Castaldi, Cholette and Hussain (2006) Castaldi, Cholette and Hussain (2006) published on www.wine-community.com who concentrated on five key success factors leading to a conclusion that one Old, or alternatively New, World country could claim to have an overall competitive advantage position in 2004 and, as things have not changed significantly, the findings can be considered still valid and relevant to this study. The countries studied in this dissertation are the major UK suppliers, namely the USA, Australia, Chile and South Africa from the New World, and Italy, Spain, France and Germany representing the Old World. The author presents and analyses these key factors in a wider Old and New World boundary comparison.

2.4.1 Existing Domestic Market Position

Following the above mentioned analysis, a strong domestic market requires consumption in excess of two billion litres per year. Therefore, within the Old World three of the four producers (not Spain) have a strong domestic demand, however, from the New World only the USA belongs to this group; the others had a weak domestic consumption (see appendix 3).

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Diagram 2.4.1 – Existing domestic market demand
Source: Adapted from Castaldi , Cholette and Hussain (2006)

2.4.2 Domestic Market Growth Potential

The second factor influencing a country’s international profile is the potential for growth within the domestic market. Determining aspects are a comparatively large population as well as increasing per capita wine consumption. Countries demonstrating both aspects were considered to have strong growth potential; countries with decreasing consumption were considered weak. Three of the four Old World countries therefore fall in the weak category, Germany being the only one with increasing per capita consumption, but not a huge population, was considered to have moderate potential. Within the New World only the USA was considered to have strong growth potential as currently only 10% of adults make 90% of all wine purchases (Castaldi, Cholette and Hussain 2006).

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Diagram 2.4.2 – Growth potential within the domestic market
Source: Adapted from Castaldi , Cholette and Hussain (2006)

2.4.3 Economies of Scale / Cost Structure Benefits

This third factor is determined by the countries’ industry structure. Countries with highly consolidated wine industries have more companies which can enjoy the benefits of economies of scale and scope, as well as stronger power in terms of promotion and distribution channel control. The cost structure benefits relate further to the advantages of size but also to the lower costs of production in some nations. The Old World, due to its highly fragmented industry and comparatively high labour and production costs, had weak performance in that area, without exception, however, the New World benefits from lower labour costs in countries such as Chile (strong) and South Africa (moderate) but also from conglomerates and concentration within the industry which is particularly beneficial for Australia (strong) and the USA (moderate).

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Diagram 2.4.3 – Benefits of economies of scale and cost structure benefits
Source: Adapted from Castaldi, Cholette and Hussain (2006)

2.4.4 Adaptability to Industry Change

The penultimate factor observed was the preparedness and willingness of wine producers to experiment with methods that allow cost benefits, and the courage to introduce new and strong marketing techniques such as wine branding. The first part of the literature review has underlined that this is a particular strength amongst the New World producers who are innovative, modern and venturesome as opposed to the Old World where traditional procedures tend to be unchangeable. The New World therefore was evaluated strong without exception, the Old World countries of Italy and Spain were put in the moderate category. France and Germany are still too bound by long-standing tradition and not prepared enough to change old-fashioned procedures.

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Diagram 2.4.4 – Adaptability to industry changes
Source: Adapted from Castaldi, Cholette and Hussain (2006)

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