WI NESFROM SPAI N ADVI SORYCOUNCI L Meet i ngRepor t Oct ober2,2019
INTRODUCTION (While there was discussion of prospective tariffs, the 2019 Advisory Council meeting took place before tariffs were imposed or the USTR announced that tariffs of as much as 100% could be imposed. Regardless of the outcome with tariffs, the conclusions of the Advisory Council meeting provide positive recommendations for succeeding in the American market.) The fifth annual Wines from Spain USA, Advisory Council discussion took place on October 2, 2019. Ten leaders in the U.S. food and wine market gathered at the Trade Commission of Spain in New York for a moderated discussion on Spain’s position in the American wine market. The discussion group included buyers, sellers and educators from different segments of the U.S. food and beverage industry. The goal of the Advisory Council meetings is to conduct a discussion among an interdisciplinary team of American leaders from wine importation and distribution, independent and chain foodservice, chain retail and supermarkets, chain hotels, and wine educators, along with senior representatives from Spain’s export promotion authority. Wine producers and exporters are not included in order to keep the discussion focused on the needs and perceptions of the American market. For the fifth time, the daylong discussion was managed and moderated by Jon Stamell of Futureshift, a consultant who has worked with ICEX and Spanish wine regions since 2005.
Participants in this year’s discussion included: • • • • • •
Importer: Diego Lo Prete, Senior VP, Winebow, GM MundoVino Importer: Patrick Mata, CEO, Olé & Obrigado Distributor: Kathy Morgan, M.S., Director of Wine Education, Lauber Imports and Southern Glazer’s Wine and Spirits of NY Supermarket Chain: Devon Broglie, M.S., Global Beverage Buyer, Whole Foods Online Retail: Mike Osborn, Founder & EVP, Wine.com Chain Retail: Brian Gelb, Director of Category Management, Total Wine & More
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Restaurant Chain: Gretchen Thomas, VP of Food & Beverage Innovations, Barcelona Wine Bar Group Restaurant Chain: Andy Myers, M.S., Wine Director, Think Food Group Corporate & Wine Educator: Andrea Robinson, M.S. Delta Airlines Millennial Impresario: Tyler Balliet, Rosé Wine Mansion
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ICEX MADRID • Maria Peña Mateos, CEO, ICEX • Maria Naranjo Crespo, Director, Spanish Food, Wine and Gastronomy, ICEX TRADE COMMISSION IN NEW YORK • Bruno Fernández Scrimieri, Senior Trade Commissioner, Trade Commission of Spain • Katrin Naelapaa, Director, Wines from Spain USA •
MODERATOR: Jon Stamell, CEO, Futureshift
Recruitment for the meetings strives for a sales channel or category mix of participants. This year’s participants represented a range of industry verticals with the addition of two people, Andrea Robinson, who is both an educator and wine director for a global airline and cruise line, and Tyler Balliet from Rosé Mansion, a major entertainment/event space that focuses on marketing to millennials. The supermarket Whole Foods is increasingly impacted by Amazon, the chain’s parent company. The extended reach of the group’s combined store/restaurant and online presence gives them direct contact with a majority of American consumer wine buyers and much of the wine trade. Category Importer/Distributor Chain Foodservice Chain Hotels Supermarket Wine Retail Online Retail Culinary/Wine Educator Wine Data Analysis Entertainment/Event F&B Media TOTAL
2014 2 2 2 1 1 0 2 0 0 0 10
2015 2 3 1 1 2 0 1 0 0 0 10
2017 2 5 0 1 1 0 1 0 0 1 11
2018 2 2 0 1 1 1 1 1 0 1 10
2019 3 2 0 1 1 1 1 0 1 0 10
The Advisory Council discussion and the group’s recommendations focused around seven major areas. 1. 2. 3. 4. 5. 6. 7.
State of the market today and potential warning signs Sparkling wine opportunities How the wine industry is addressing millennials Health and wellness and the role of organic wines Sustainability and its impact on the market Importance of stories and the Spanish lifestyle The role of the export director and winery team
A discussion of each follows.
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1. State of the market today and warning signs on the horizon (Note: All charts and tables below show U.S. DOC data through September, 2019)
Wine imports into the U.S. have slowed over the past year and growth has been driven primarily by sparkling wines and sangria, with France and New Zealand driving the market. (Chart 1)
France is the only country showing significant growth in value with some growth also coming from New Zealand. However, the days of rapid year over year growth that were experienced from 2000 to 2008 appear gone forever and the growth curve has been flat since then. The exception for the past ten years has been France (Chart 2), whose imports have been fueled by Provencal rosĂŠs. However, as can be seen in the chart below, even French imports have begun to level off.
Relative to other countries, imports from Spain have been fairly stable (Chart 3). Spanish imports peaked in 2014, declined the following year but have remained relatively steady since. Considered largely a red wine country, Spain has shown comparative durability which has been largely
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propelled by the diversity of its wines, growth in its sparkling wine exports, and its active marketing programs from a number of wine regions.
Spain shows further resiliency to the market’s leveling off in the prices being paid per nine-liter case (Chart 4). As shown in the chart below, while shipments from both France and New Zealand increased in volume, the price per nine-liter case decreased by 4% and 3.3% respectively. Spain’s volume over the same period increased 4% but prices fell only ½ a percentage point.
With the initiation of tariffs by the U.S., we have yet to see what the impact on pricing is and how Spanish wines will fare in a more difficult market environment, but its current resilience is likely due to diversity in wine grapes, styles and regions. Without hesitation, every member of the Advisory Council agreed that Spain’s greatest strength in wine is its diversity.
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Further evidence that Spain’s strength is in its diversity (Chart 5) can be seen in year-to-year pricing of nine-liter cases among top producers. Among the top 7 major wine producing countries, Spain is the only one to show positive volume growth in both red and white wines. The one area in which Spain lags the market leaders is in exports to the U.S. of rosé wines.
Note: Customs data identifies Red Wines, White Wines, Tokay, Ice Wine and Others. All Other Wines above includes Tokay, Ice Wine and Others. This is predominately Other which can be assumed to give trends for Rose'
At the same time as the market is flattening, there is increasing concern among foreign producers and the U.S. wine trade over the impact of 25% tariffs on all still wines from France, Spain, Germany and the U.K. that contain less than 14 percent alcohol. Noticeably absent from the new tariffs is Italy, the largest exporter of wines to the U.S. While the tariffs were imposed in October, their impact still cannot be felt at year-end as pre-tariff inventories are still being worked down. If there is one word to summarize current projections, it is “uncertainty”. Producers and importers have been actively discussing how price increases can be minimized. Onpremise operators are likely to make changes in both pricing and origin in their by-the-glass programs, turning to wines from non-tariffed countries. Off-premise stores expect to see consumer resistance to the $9.99 ceiling being raised, while higher-end wines may be less affected. There also may be an opportunity to acquire market share and increase brand awareness for those wineries that can absorb a major portion of the tariffs and maintain their market presence. The picture is likely to change in January as inventories need to be replenished. One caveat for producers thinking they can pass the full tariff onto their importers is that it is unlikely that business will return when tariffs are removed in the future. There is some recognition that as France is included in the tariff regime, their producers and sellers are in the same position and that most sales of Italian wines (not tariffed) take place in Italian restaurants. However, with the fastest areas of wine sales in the $15 - $25 range at retail, there is hope that any increases can be held well within that range. Of additional concern is the glut of California chardonnay and the impact that it will have on bulk wines, generically bottled and marketed as low-priced alternatives. Spain may not be affected as much as bottlings of chardonnay are quite low and Spanish white grapes tend to be authentic to their region and the country, offering an opportunity for product differentiation.
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If it is not enough for producers and their importers to be hit by tariffs and a surplus of chardonnay, the criteria that consumers use to select their wines is also changing. There is more access to information than ever before, and consequently the new generation of consumers is viewing wine differently. They’re seeking “authenticity” in everything they buy. This applies to all aspects of how wineries present their wines both to the trade and consumers including (a) whether the wines have a sense of place; (b) the story behind the wines, regarding family owners, winemakers or winery history; (c) whether the wines are organic or produced utilizing sustainable practices; (d) the values of the owners and their commitment to corporate social responsibility. Wines are increasingly being evaluated on considerations that are not in the glass but within the broader concerns of buyers. Overall, 2020 will present significant challenges that demand serious analysis, sound strategy, and flawless execution.
2. Sparkling wine opportunities Internal disagreements among sparkling wine producers are of little concern to U.S. marketers and resellers as long as the focus is on quality within each price range. While Spanish producers have split into groups of cava, paraje or corpinnat, the American market is, so far, not going along with those designations and presenting the entire category as “Sparkling” whether in the on- or offmarket. There are questions among the trade of how much Spain may be losing because of a lack of sparkling identity. Both Champagne and Prosecco have high awareness among consumers even though not all French sparkling is Champagne nor is all Italian sparkling Prosecco. It is considered a missed opportunity for Spain and there is an opportunity cost that should be considered. As shown on Chart 6, the price per nine-liter case for Spanish sparkling fell 8.1%; for Italian, it was a drop of 6.2%, while French remained nearly the same. French sparkling, largely champagne, achieve prices five times higher than those of Spain. While France has had a large historical and image head start relative to Spain, the market confusion created by Spanish sparkling producers can’t be helping the situation as further attested by Italian sparkling being priced 23% above Spanish product. Spanish sparkling as an overall category could benefit from a well-run marketing campaign that takes the confusion out of the product and focuses on its positive attributes.
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3. How the wine industry is addressing millennials Demographic changes among American consumers are causing a huge shift in purchase patterns of alcoholic beverages. The wine purchases of the Baby Boom generation have built the wine market as it exists today. But now, the size of the Boomer cohort is declining and Millennials are becoming the dominant demographic (Chart 7) that is changing how wine is perceived, bought, and sold, as well as which drinks it competes with.
However, as shown on Chart 8, Millennials (ages 22 – 37) are not buying wine at the rate of their elders. The question is whether the wine industry is sending the right message to this younger generation in order to continue industry growth.
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The wine industry in the U.S. has not fully recognized the impact that demographic changes are having on annual sales and is still overly invested in older, white, more educated consumers. Millennials are far more diverse and their interests differ. Experiences, stories and values mean more to them. When wine marketers talk about how wine is made or focus on wine-ratings, Millennials often see that as patronizing and lose interest. They want to try new products—especially ones that fit into their idea of fun lifestyles. One company that was represented at the Advisory Council, Rosé Mansion, has had great success with diverse Millennials. Rosé Mansion is an entertainment space that shows consumers how much fun learning about wine can be. It combines Instagram opportunities, games, and a colorful, partylike atmosphere to people who come in. It is not your typical wine bar, but the results are startling. In their first year of operation, more than 180,000 visitors came through their doors. The average age is 32 and 92% are women, more than 60% are African American or Latino—groups that the wine industry has largely ignored. Rosé Mansion is selling an experience, not wine. Additionally, they are serving and selling wines that are sweeter than most wines on the market. What Rosé Mansion is proving is that each generation is attracted to companies that speak to their interests and needs, pay attention to their frustrations, and give them a memorable experience. These factors will play a determining role in whether wine consumption continues to grow beyond current levels. 4. Health and wellness and the role of organic wines Increasingly, consumers are reading wine labels, both front and back, to understand the healthfulness of the wines they’re buying. In a Wine Intelligence survey of more than 2,000 regular wine drinkers (Chart 9), consumers ranked the desirability of SOLA wines (Sustainable, Organic, Low Alcohol). Organic wines top the list and this is an opportunity for Spanish producers.
However, the topic of organic wines is confusing because there are different certifying bodies and rules in the EU and U.S. However, which type of certification a wine may have doesn’t mean as much to the consumer as knowing that the wine is certified by some authority. The best certification may be that the wines are made with organic grapes. One Advisory Council participant noted that “the conversation about certification is loose and there is no specific regulation. In 10 years, people won’t accept that.” Spain, with its high production of organic wines, can be a leader in swaying consumer opinions. As another participant said, “Organic is a value-add. The idea that wine is made without chemical additions is on the up-trend. Consumers are asking more and more questions. The natural wine movement premise is the same as organically grown. Our caveat is ‘only add sulfites at the end if we have to.’ Spain should start the effort to certify a higher percent of 8
producers who farm organically. Ten years ago, it was all about the cheaper the better. Now consumers want to know if there is potassium sorbate in that.” Spain’s message about organic production needs to be stronger and receive more attention. In 10 years, if a wine is not organic people will be suspicious about what’s in the bottle.
5. Sustainability and its impact on the market The same Wine Intelligence survey (Chart 9) looked at the importance of sustainability and carbon neutral wineries. Along with health and wellness concerns, sustainability has become increasingly important to consumers, particularly to Millennials and the Generation after them, Gen Z. How the environment is treated by farming, production, bottling, shipping and sales processes is of increasing importance. Carbon neutral certification is becoming the next important marker that wine makers need to care about. Lighter bottles and lower energy use should be explored. While experiences and stories that represent a lifestyle are important, the image of sustainability is getting through. For example, when asked about New Zealand, consumers are aware of the country’s attention to being healthy and green. When thinking about Spain, people may think “sun” but they don’t think “sustainable”.
As noted by one participant, “The future is connected to experiences but being socially responsible is important and connected to the idea of authenticity. Younger generations care more and more about environment. More people are concerned about the social aspect of products.” Companies across the U.S. are adopting sustainability and corporate social
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responsibility as priorities. They are asking their suppliers to explain their policies on diversity, sustainability, and philanthropy. Not only do they want strategic partnerships that go beyond wineries, they also want to avoid an adverse consumer reaction to a supplier that may not have high social responsibility standards.
6. Importance of stories and the Spanish lifestyle The discussion themes of the Advisory Council were all components of telling both consumers and the trade stories that can paint a positive picture of Spain’s wine industry and its wineries. Stories that will help to sell Spanish wines will focus on a winery’s family history and deep sense of place, and/or showcase its commitment to social responsibility, organic production, and other sustainable practices”
Stories are the way people remember because they can turn buying a wine into an experience that we want to tell and tell again. A winery that has always made great wine is not a memorable story. However, a winery that went through adversity, fought through it and came out as a winner is one that consumers can recall and attach to a brand. The world’s best and oldest wines have all faced adversity which ultimately made them stronger today. If not the winery, the region may have stories that contribute to its wine making reputation. Even the discovery of a grape variety shaped into a story can be memorable. The point is that awareness is not raised by wine ratings, soil content or harvest information. A human element of overcoming obstacles will be admired and retained by consumers. 10
The foundation of Spain’s food and wine production is in its implicit appeal to Americans who greatly admire an idealized vision of Spanish lifestyle. It is that lifestyle that Spain should be selling more than any individual wine. When Americans are asked about their trips to Spain, they talk about how people eat, drink and live in different regions, and those impressions sell more wine than any wine rating or technical description. The quick success of the Little Spain food court in New York is proof that the Spanish lifestyle is of great appeal. More attention should be given to promotion of the stories that represent Spain’s culture and lifestyle.
7. The role of the export director and winery team The Advisory Council’s consensus view is that export directors and managers are not the ones who should be developing the market in the U.S. They should be involved in the business side, negotiating and ensuring that all commitments are met. Their place is not educating the trade. Owners and winemakers are considered the best people for those roles. Importer and 11
distributor sales people, sommeliers and retail managers don’t need to hear technical data or ratings. This information is considered background data and is not the primary message that will sell wine. Spaniards need to become better storytellers and should not assume that their wines or what they advertise on their websites is going to be memorable. Trade presentations should be fun and create a sense of delight because the winery’s story is intrinsically interesting. Over the past five years, importers have been narrowing their portfolios. A wine has to play a specific role within their offerings, whether it’s in price range, country, grape or region selection, extraordinary quality or because it has such an interesting story that it’s easy to sell. Spanish producers need to keep in mind that whatever they say about their wines to the importer must create excitement with the distributor and then to the sommelier or wine store clerk. Simply having a great quality wine is not enough because quality has become an expectation of the market. Wines that exceed expectations do well: even a wine of great quality won’t succeed if it doesn’t have the other components that make it of interest to both the trade and consumers. One participant asked, “Who cares about what's in the glass? Romance them and make a personal connection. Every great brand makes the conversation about the consumer. How does Spanish wine make their life better?” A story that creates a smile will be remembered and sell. A story that doesn’t provide any basis for why a winery is different and distinct will have little impact. One way to better inform Americans of good Spanish wine stories is to create wine trips for sommeliers that have large social media followings. They’re practiced at telling good stories to their followers. Another suggestion was to create a trade portal of stories about different wineries, videos and photography that separates both the wineries and regions from their neighbors. Each of the seven discussion topics above has practical implications that can be further developed into an action plan. All of the participants in the Advisory Council expressed a willingness to be resources for ideas, suggestions and recommendations in the future. They’ll be needed because the U.S. wine market is entering a period that will make it more challenging than ever. Any one of the obstacles discussed by the Advisory Council would be difficult enough. However, the combination of tariffs and the rise of the millennial consumer market will make 2020 an exceedingly challenging year. At the same time, there are tremendous opportunities in developing wines that fit buyer expectations in health, wellness and sustainability. Described with a good story and support for the trade, a winning formula can be developed for long-term success in the U.S. market.
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