Wine Policy, Economics and Competition

Did you know in 1962 Algeria was the number one exporter of wine in the world?  It was the result of French politics and business working together.  Today there are virtually no wine exports from Algeria.  USA wine policy tracks the French policy on wine.  There is much to learn from the Algerian experience.  Here is a study on that era.

"Get big or get out" is not limited to USA, the French have policies where the small guy pays taxes and the big guy does not, just like USA.  What is particularly damaging is the special pleading by the wine industry became the norm for all French industry.  And now France struggles.

When the first winery opened in Washington State in the 1970s, we sold souvenirs to their gift shop.  Their money was good, since they were a diversification project of a mega-tobacco corporation.  Selling cigs was going to get tougher, so they began to branch out.  Now there are over 700 Washington State wineries, due to government policies.  They struggle to find customers. What makes you can break you.

Those 700 make the one tobacco-winery look like the leader.  The benefit of advertising inures to the leader (advertise Royal Crown, Coca Cola sales rise.)  This is an extremely tough environment in which to sell.

It is not just Washington State.  I think all fifty states produce wine.  But in any case the rules, regs, subsidies, tax deals and so on are all so vast and complex that there is an economics group devoted to the one area of wine economics.

The study of wine and Algeria can give some insights on policy effects.  And perhaps help chart a course through dicey shores.  To see the reality of policies is to better predict the outcomes from change.  Those who truly have a passion for wine should survive the coming changes.

Aside from excellent skippering through rocky shoals, another possibility is to deregulate wine in Washington State.  And then roll back the pointless federal rules.  In this instance all 700 wineries would thrive.  But that is not going to happen.  That the wine industry is created by the state is not forgotten by the state.

There is another way out.  Get customer oriented.  "B O R I N G !  We already are....!!!"  No, go to any trade show, and watch the wine salespeople drone on about their wines...  look at the booths, talking about the state and the wineries...  look at all of the people slurping free samples...  wine clubs, wine tastings, all say "look at us, we have a consumer trophy item, we have a winery!"  The point of the winery is tax benefit, for high net worth individuals.  (Many a dream turns to nightmares.)

You cannot get away from the fact that the tax code is written, in part, to offer wealthy people an opportunity to express themselves in the form of a winery.  The winery is the thing, not the customer. The orientation is to the tax code, not to the customer.  The problem is the entire wine-promotion part of the industry is oriented to taking pictures of the winery or the bottle or yet another witty image of wine in a glass.

Think of every wine ad you see - a picture of the winery or the bottle.  When you exist for tax advantages and as a consumer trophy item, the only thing you want to show is your winery, you, you, you...

There are certainly genuine vintners who find joy in the struggle to coax fine wine out of the earth through the grape.  They can beat any competition.  But they have to shake free of the pack in marketing and advertising.  How?  1. Stop advertising.  (Let the retailer handle that.)  2. In your own promotion (trade shows, website)  show your customer (the importer overseas) what your product will do for their customers...

I want what she's got..
http://www.news.com.au/business/china-beefs-up-on-aussie-cuisine/story-e6frfm1i-1226242373787

Google "people enjoying wine" and still more than half of the images have no people in them.  Google anything else, "people enjoying boats" and almost every image has people.  This is a direct result of tax policy driving industry.

The person above does not exist so you can have a tax write-off.  That person has hopes and dreams and aspirations, and the right red with beef chow yuk is part of that.  She could care less about your tax situation.  She does not care about the rolling hills of vines around your tasting room.   She likes that there is something she can drink that does not knock her out, like Mao Tai (sorghum white lightening), so she can actually enjoy the time she spends entertaining.  She does not exist to compliment you on your tax advantages.

This may be hard to take, but if a vintner can accept the reality, then the vintner has an advantage in the marketplace.  The vintner can get the wine to the people who get that liquid in her glass.  Getting customers in the wine business is hard, because the tactic is wrong.

A good place to start is at the beginning, reading Ogilvy.  Every library has a copy, but if you plan to sell anything, at least become a good consumer of advertising.



There the specific tactic I have laid out over the last several weeks here begins to make sense.  In 1962, Algeria was the #1 wine exporter in the world.  Gone now.  Let's do better than Algeria.

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