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Consolidation

Another important industry trend in recent years was global consolidation. At the producer level, this trend was exemplified by the case of constellation. In late 2004, that company bought the Robert Mondavi Corporation for $1.36 billion, becoming the world’s largest wine company, whit annual global sales of 87 million cases and 56 million cases in the United States. According toWine Industry Monthly, “ in an industry defined by consolidation, Constellation brand is the consolidator.” Consolidation was even more important at the distribution level. In the united states, where distributor consolidation was especially marked, the top 20 sprits and wine wholesalers had amassed such that they were proyected to account for nearly 70% of an estimated $36.6 billon in wholesalebeer and wine revenus for 2006. the top five distributors in that market accounted for 42% of revenues, and the top 10 for nearly 60%.” In the US market, the number of distributors went from around 2000 to 3000. some key states are handled by only 4 or 5 distributors – even 2 or 3 is some cases,” explained Carlos Serrano, Export Manager at Viña Montes, a producer of high-quality Chilean wines. Asthe Rabobank reported, the distribution and retail chains were exerting their power over producers, imposing price discounts. At the same time, distributor consolidation meant that “many small wineries can no longer get distribution, which has led to an emphasis on direct shopping... more wineries are taking responsibility for marketing and sales,” according to Cyril Penn, Editor in Chief of WineBusiness Monthly. To him, this was a long term trend: “The logistical role of distributors... will only strengthen.

Large distributors were pushing wine producers to market fewer bands – i.e less SKUs. They were also trying exploit the low brand loyalty of most wine consumers, and to increase their margins, through the creation of their own brands. The organic and natural food chain traderjoe’s had led the way with a highly successful “Tow – Buck Chuck” wine line, sold under the Charles Shaw Label. Whole Foods Market, Albertsons and Safeway soon followed with private labels of their own. As of 2006, grocery store wine sales amounted to $3.7 billion, accounting for 25% of total US wine sales. Of that amount, private labels corresponded to only 2%, but most observers believed that theirshare would increase. “The key is distribution,” said Brian Sharoff, President of the Private Label Manufacturers Association in New York. “If Wal – Mart decides to become an aggressive wine merchant, if Safeway decides to become an aggressive wine merchant, using their own brands, it will show up in the market – share statistics very quickly,” Cyril Penn concurred on this point: “private labelingwill be really big,” he noted.

CONSUMER BEHAVIOR

Long – global wine demand was growing modestly, both in absolute and per capita terms. (See Exhibits 10 and 11.) However, this broad trend masked more complex realities. While in mature markets, such as those of Western and Eastern Europe, absolute demand was stable or slightly diminishing, in new markets such as chine demand for wine wasgrowing at double digit rates. In the United States, wine consumption was increasing, with wine becoming the alcoholic beverage of choice, particularly among middle – aged male consumers ( see Exhibit 12). Despite variations across markets, one feature that seemed to cut across all was the”flight to quality”: The tendency was to drink less low – quality, brik – packaged wine and more high – quality,bottled wine.

According to some studies, the characteristics of wine markets made them particularly sensitive to information about the wines country of origin. Academic research claimed that the presentation and perception of origin retail environments could greatly impact wine sales. A recent study that tracked the influence of country of origin, varietals, and specialized ratings on...