Maintaining the competitive edge

Wines & Vines, Jan, 2001 by Lewis Platt

I found it interesting that the title provided for my remarks included the phrase "Maintaining the Competitive Edge". It seems very clear that for the American wine industry, when speaking about the global marketplace, we're neither very competitive nor have any type of significant edge that any global competitor has yet had to worry about.

"America doesn't know what its point of difference is, and that's its problem." That's the view expressed by a major U.K. wine buyer in the current Wine & Spirits International magazine. Is he right? Exports of U.S. wine have risen every year since 1986, but in many years, just barely, measured in either dollars, gallons or cases. Clearly we can, and should, do better.

Our friends in Australia looked out one day at a rather small population (and some rather abundant vineyard plantings) and came to the conclusion that exporting to the world market was a duty, not just a virtue. They also quickly grasped that Fair Trade does not automatically mean Free Trade, as anyone facing the relatively high tariffs in Australia can attest. More about that later.

In the United States, by contrast, we've yet to effectively work together as an industry to conquer or adapt to the changing tastes of Generations X, Y and Z... (too many young people to keep track of, with a marketing half-life that seems to get shorter all the time).

Will they move from Cosmopolitans and Frappacinos to Merlots as they get older, as those of us in Generation -- what would it be, T, U, V?--graduated from Rolling Rock to Whiskey Sours to elegant Cabernets?

It takes only a moment for a newcomer like me to see how fragmented we are as an industry. We are torn at from all sides. We have regulatory issues with both the state and federal government (not to mention the rest of the world!). We are watching the consolidation of the three-tier system and wondering whether this is good or bad. We are suddenly the "bad guys" for environmentalists, and the neo-prohibitionists seem to always be lurking right around the corner. Add in our famously large company and individual egos and it's a wonder we can ever even contemplate working together on something like expanding the global marketplace for U.S. wines.

The parallels to my past life do exist: its not as if we didn't have famously large egos in the computer business.

But no one was confused about where the computer industry stood on global issues. We did our best to speak with one voice, and speak loudly. We built markets to benefit the industry, and then we got in and competed as hard as we could with each other.

The wine industry faces the same issues. We need to set personalities aside and move forward together. It is a tough task without fragmentation, and a nearly impossible task with fragmentation.

The Home Market

Becoming competitive in a global marketplace also includes the great untapped market that exists right here at home... before our global competitors steal it away from us.

That's a real concern. Australia has surpassed Chile as the third-largest exporter of bottled table wines to the U.S. (year to date, March 2000).

These are wines that are targeted squarely in our prime areas of growth, at the premium end of the pyramid. If these growth rates continue, Australia could surpass France as the number two exporter of table wines to the U.S. within three years.

Wine is imported into the U.S. at a rate that usually exceeds exports by a ratio of 2.5 to 1. Now I realize other countries have had a 6,000-year head start on developing effective programs, but... Do we believe our export programs can demonstrate that kind of strength any time soon?

As I look back over my first six months in the wine business, I must confess that I was frankly surprised, if not astonished, at how domestic (sic) the U.S. wine business is.

* Hewlett-Packard more than 50% international for the last two decades;

* Kendall-Jackson about 3%. Few U.S. wineries have done better. Most still in single digits;

* We've hired a new team and we're definitely going to take a more aggressive approach to overseas markets.

In fact, I believe one of my most important missions at Kendall-Jackson is to develop our overseas markets. I would like Kendall-Jackson to become one of, if not the first, truly global wine companies.

That way:

* If much forecasted "grape glut" ever arrives (it never has),

* Or if U.S. economy slows significantly and growth in premium wine sales slow,

We will be able to turn to overseas markets for growth.

I have a real passion for overseas business and I am unashamedly in favor of free trade.

As I thought about these remarks, I found the Strategic Priority III of the Wine Vision Plan very compelling. It reads: Position U.S. wine as the high-quality, high-value product across price points in markets targeted for the greatest prosperity.

Markets such as Japan (which doubled wine consumption in the short period between 1995-98), the United Kingdom or China.

Gaining the competitive edge in any market, of course, rests on some fundamental truths such as building awareness, then preference, for the product, whether it's wine or computer chips. As the reality of China draws nearer, as it moves from a curiosity to a most-favored trading partner, the tendency is still to want to avoid risk, to be patient and go slow.