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Salient Shifts There was a massive increase in area of grapes available for crush in the 1990s. Vineyards that were planted early enough in the 1990s were able to capitalize on the relatively high prices in the latter part of the decade and probably already recouped the cost of vineyard establishment. It was during the 1990’s that the demand for wine increased and some wineries offered growers multi-year “planting contracts” with guaranteed prices. However, during 2000- 2001 the increased supply of grapes and recession led to declining prices for wine grapes. Following the increased interest in the wine industry, consumers began to appreciate that the various tastes of wine reflect where the grapes are grown and how the wine is made. This resulted in changing consumption patterns, the consolidation of production and the globalization of sales and tastes that caused the reconfiguration of the wine economy. The marked a shift for the wine industry came in that farm and food industries consolidated so that fewer and larger firms account for an increased share in total sales. The increased share in total sales for these larger companies would reflect a ever growing consolidated industry marked by a few dominating firms. Yet, at the core of wine production lay the grape growers who began to sell to these larger firms for the larger firms ability to market many labels and increase their self-space. The Growth of a Differentiated Market The wine industry, including the structure of the production as well as the vertical relationship among the actors, has changed radically over the last 15 years. Ownership and production structure have suffered from complete change due to privatisation, compensation, liquidation and reorganisation of firms and set-up of new enterprises. The wine industry itself is evolving with a continued presence of hundreds of small and medium sized wineries and thousands of grape growers along with a handful of large wineries. The shifts in the industry reflect the consolidation of brands and a few large distributors along side the differentiation of many grape growers feeding into the larger more consolidated segments. The wine supply chain has always been complex and fragmented and with more distant suppliers and ever-more demanding customers, the unique characteristics of this supply chain bring challenges to those in both those involved in the Old and New World wine industry. In the Old World Europe, there are thousands of grape growers with few than five acres of grapes and most send their grapes to co-op wineries. Most European wines are a blend of several varieties of grapes and the wine is labeled to reflect the region in which the grapes were grown. However, the quality and quantity of wine varies from year to year, which means that the best wines are not the same year to year and that the consumer cannot depend on the tastes for which they have grown accustomed too. The New World, in California vineyards, for example is fragmenting into larger and smaller units to reflect the evolving consumer market in which sales of relatively expensive and relatively cheap wine are growing fastest. The future may be one of large wineries with many and small wineries that sell most of their wine to retail consumers. In the current consolidation, larger wineries are buying smaller ones, in part to improve bargaining positions with retailers such as Costco. Due to the consolidated market in terms of marketing and distribution there does not seem to be a place for mid sized wineries who are forced to sell their wine via middlemen who in some cases can have considerable market power. The trend in the wine industry then rises the question if wine industry will continue to be fragmented into distinct quality and price segments, leading to the consolidation of the industry to adhere to consumers demands and tastes? The mid sized wineries are at a competitive disadvantage to both the smaller and larger wineries: The largest companies account for a significant percentage of the industry and have significant technology requirements. The larger wineries aim to produce uniform wines with vertical integration, growing grapes in their own vineyards or having grapes grown for them according to winery set specifications. The remainder of the industry is comprised of small to medium enterprises, many of which have found niches in specialty products and branding. Winery tourism is a major contributor for smaller wineries, especially those located in scenic areas or convenient to higher population areas. Corporate ownership of larger wineries shifts occasionally with international connections across the industry coming and going. However, none of this has been a major force change in the past decade and there seem to be no major shifts on the horizon. |
