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1 Please scan this QR code and Complete the Survey IMW Presentation On Regionality In Wine Business, January 20, 2016

2 Why am I here? Liz provides such glowing endorsement But what merits me the honor of presenting to you

3 The Regionality Challenge in Wine Business A presentation for the IMW Residency session Hyatt Fisherman s Wharf, San Francisco, January 20, 2016 The content of this presentation is based on facts All supporting references are provided on the final

4 Wine Markets Have to Grow BY A FUNCTION OF SUPPLY IMPROVEMENTS AND DEMAND GROWTH Supply Efficiencies come through Reduced production costs Advances in manufacture Efficiencies in delivery Efficiencies in scale Demand grows through a net increase in: Consumers Consuming frequency Consuming volume Expenditure per purchase

5 What Role do MWs play in all this? DO YOU IMPROVE SUPPLY OR DEMAND. Supply Efficiencies come through Are you intending to be a viticultural or oenological expert? How about DtC or Logistics.. Many of you will be creating Demand: Is it more consumers? More occasions? Consuming volume What about trading up? Let s hold that thought for a moment

6 We Love Wine s Regionality MW examinations are heavily focused on identifying it when analyzing wine But what are the implications for the wine sector, and other consumers?

7 Wine s Regionality can add value What do consumers think about: French wine? What about Californian Wine? Perhaps Stellenbosch wine? Or... Niagara Bench Icewine? *Look to Wine Market Council (2005), Ma et al. (2008) and Atkins et al. (2012) studies for the value attached to regional identities in the wine sector.

8 But this is how we think of wine

9 While this is how most consumers think of wine And how they see their own wine identities... Except when we talk to them about wine...

10 Yet this is why they buy wine

11 And this is how they buy wine

12 In case you missed it Consumers have a love for wine We have a love for wine s provenance Do we need to reconcile the difference?

13 How consumers consider wine Awareness of French wine>bordeaux>every AOC Regions with salience attract a price premium - From Combris (1997) to Schamel (2006), to Oczkowski (2010) and numerous others Tellingly, there s a premium from generic to specific but loss of awareness brings pricing discounts through loss of potential sales (Gillespie 2005) Remember how Regionality needed protection from NewWorld aggressors? But what happened as a result of that protection? Let s look at the wine market trends to highlight the differences

14 Euromonitor 2015 Global wine production, million 9L case equivalents Static over 5 years

15 Remember, these are the trends since 2000 From Euromonitor 2015 Wine Production, Billion L World +15% Wines of Region - Western Europe -10% N.America & Asia +50%

16 The US: Not Yet Bad News (Gillespie 2015)

17 The Not Yet Bad News (Gillespie 2015)

18 And this has happened as Appellation #s Doubled From France AgriMer ~45Million ~31Million

19 But an even bigger problem is pending From France AgriMer

20 How does that Apply in the US? CRC SEGMENTATION STUDY 2014

21 The difference in branded, premium wine From Silicon Valley Bank Boomers number more than 3x Millenials in highest price categories

22 Financial Health by Price Point From SVB NOTICE DESPITE THE POSITIVE SIGNS Entry-level categories are financially sound, as are prestige. But from variety to region..

23 The Hottest Thing in France THAT NO-ONE IN THE WINE SECTOR WANTS TO TALK ABOUT But this the fastest growing wine category in France Flavoured wine (3.6 million 82.5 Million euros +55% to mid-2014) Yet no-one is talking about it Even as the best growth in the market, it s destined to struggle because it doesn t match the French image of regional identity But consumers love it.

24 Converting Consumers to Enthusiasts Instead Of Driving A Wedge Between The Two Groups Consumers enter the wine category by style Education readily promotes to varietal distinction - Corsi et al (2014) But regionality creates more confidence than ability to discriminate Propensity to pay more and like wine needs to be linked to recognition of Sophomore status Drive demand by encouraging enquiry

25 Research has found How the boffins are trying to make your job easier We know that regionality can attract a premium But only for segments aware of, and valuing that regionality If the region is unknown, then a price premium is futile Regional awareness drives promotional strategy Move from wine variety region (Pearson 2015)

26 For further details, photograph this slide IMAGE TAKEN FROM: Regional fragmentation is fine, but only for a tiny portion of the wine market Recognize your personal preferences as distinct from market empirics Help consumers come into wine, encourage effort instead of correcting errors My contact details in this QR code

27 References Combris, P., Lecocq, S., & Visser, M. (1997). Estimation of a Hedonic Price Equation for Bordeaux Wine: Does Quality Matter? The Economic Journal, 107(441), Corsi, A. M., Cohen, J., & Lockshin, L. (2014). Optimising the impact of wine education on Asian international students. In Academy of Wine Business Research 8th International Conference June 28th 30th, 2014 Geisenheim / Germany. Geisenheim, Germany: Geisenheim University. Retrieved from ando_abstract.pdf Cross, R., Plantinga, A. J., & Stavins, R. N. (2011). The Value of Terroir: Hedonic Estimation of Vineyard Sale Prices. National Bureau of Economic Research Working Paper Series, No Retrieved from Horowitz, I., & Lockshin, L. (2002). What Price Quality? An Investigation into the Prediction of Wine-quality Ratings. Journal of Wine Research, 13(1), Latour, K. A., & Latour, M. S. (2010). Bridging Aficionados Perceptual and Conceptual Knowledge to Enhance How They Learn from Experience. Journal of Consumer Research, 37(4), Oczkowski, E. (1994). A hedonic price function for Australian premium table wine. Australian Journal of Agricultural Economics, 38(1), Oczkowski, E. (2001). Hedonic Wine Price Functions and Measurement Error. Economic Record, 77(239), Oczkowski, E. (2010). Hedonic wine price predictions and nonnormal errors. Agribusiness, 26(4), Priilaid, D., & Rensburg, P. V. (2012). The hedonic valuation of South African wine brands. South African Journal of Business Management, 43(1), Schamel, G. (2006). Geography versus brands in a global wine market. Agribusiness, 22(Summer, 3),