Examination of Witnesses (Questions 512
WEDNESDAY 14 MARCH 2007
MR MICHAEL PAUL
Good morning, Mr Paul, and thank you very much for finding the
time to come and help us with our inquiry. We have taken quite
a bit of evidence here from people involved in the wine industry
from the British end, and we have been across to Brussels to talk
to the Commission and to talk to members of the European Parliament
and to representatives of a number of the Member States with significant
wine interests. We have heard a variety of views, one of them
being "Oh yes, it has to be reformed but it may be quite
difficult to identify what bits they are happy to reform".
Would you like to say something generally about yourself and your
organisation as an introduction? Or do you want to go straight
into the questions and answers?
Mr Paul: I am quite happy to talk about my credentials
if you like. But, if that is not important, we can go straight
into the questions.
I suppose the question I have to ask is that it seems to me that
wine is a rapidly changing area over the past 10 years; the nature
of wine drinking in Britain has changed and is changing. I understand
we are one of the few countries in Europe now where wine consumption
is increasing rather than decreasing, that a lot of our wine consumption
is now coming from what are referred to as third countries rather
than from the EU. Could you give us a summary of the main changes
in wine purchasing, wine consumption and behaviour over five to
Mr Paul: I think you probably need to take a
20-year timescale, because 20 years ago wine was still relatively
elitist and now it is an everyday drink for millions of people.
Twenty years ago I was drinking Hirondelle.
Mr Paul: I will not tell you what I was drinking.
The democratisation of wine referred to in the notes here is,
I think, a good term. It has really been led by two things, first
of all the supermarkets getting involved with wine, which was
not really the case 20 years ago; and, secondly, the Australians
coming into the market, which happened around the end of the eighties.
There was a combination of the two, with the Australians having
a totally different approach to marketing and selling wine and
with the supermarkets deciding that wine was something they needed
to get into, first of all because they had identified a growth
market and, secondly, because wine was seen as very aspirational
by consumers and, therefore, supermarkets used wine as a means
of building their own status as a destination for other similar
kinds of premium products. When the supermarkets got into wine,
they realised that the wine trade in the UK was pretty unequipped
to deal with their demands and behaved in a way that they would
have said was fairly amateurish, and that would have been a reasonably
fair criticism. What the supermarkets also realised at the time
was that they could take control of the supply chain and go direct
to producers in many instances and also develop own-label propositions
which, compared with most consumer categories, was pretty sophisticatedcertainly
compared to the rest of Europe pretty sophisticated. You now have
the situation where someone like Tesco, for example, has 400 own-label
wines in its range, and it is expanding very rapidly. The supermarkets
were able to differentiate their ranges from each other, which
of course gave them the competitive advantage. Wine fulfilled
a number of the aspirations of what has become obviously the most
important part of the supply chain in this country. As to the
benefit of wine as a category, there is no question that, if it
had not been for the supermarkets embracing wine and making it
a destination category, wine would not be in the position it is
now, having grown at 5% a year for the last 10 years. That is
largely down to the high street retailers' involvement. The other
part of that is the revolution led by Australia, which was then
picked up by Chile and, to a lesser extent, by South Africa. That
was a totally different way of approaching wine, actually listening
to what the consumer might want before you put something onto
the market. It also involved some basic business practices, like
not going to customers and saying "Look, it costs this. Do
what you like with it", but actually going to a customer
and saying "Look, we think this is probably worth around
£5 a bottle and our price takes into account what you might
need to sell it off your shelf" et cetera, et cetera. That
is what would be standard practice in virtually any other grocery
category but quite new to the wine trade. The Old World, if you
like, has picked up on that to some extent but not to the same
extent (it tends to be much more production-driven). Those were
the two key things, and they happened around the supermarket revolution
in the early eighties and the Australians came in at the end of
You said that the traditional producers in Europe had picked up
to an extent. How far have they picked up? Are they still blaming
the consumer for the fact that they are not drinking enough?
Mr Paul: If ask the average person in the wine
trade why was Australian wine successful, they will say it is
down to the style of the wine (it is pretty drinkable wine in
most instances); or it is down to the consistency, in that the
bottle tastes the same every time you buy it; or it is down to
accessible labelling, which again is partly true. However, what
people forget is that the structure of the industry in Australia,
in New Zealand, in Chile and in Argentinanot in South Africa
or California thoughwas totally different to the Old World
structure. The difference was that, it could be argued the best
wines in Australia and New Zealand are often produced by the biggest
companies, whereas if you take France, Italy, Spain and Portugal
the best wines are generally produced by the smaller niche producers
while the big guns basically produce sometimes not very good stuff.
Therefore, what the Australians were able to do was not only to
introduce standard businesses practices to the marketing of wine
but they also had the resource and the wine-making availability
to sell premium wines through those business practices as well.
If you take a brand that you might be familiar with, such as Penfolds,
Penfolds was able to sell wine at £5 a bottle but was also
able to sell a £100 bottle of wine within the same range.
And therefore you created this fairly seamless brand that went
across different price points whereas if you look at the French
market it is either down here or it is fantastic Bordeaux and
Burgundy, and in the middle you have a bewildering array of wines
which change virtually every time you go into a restaurant or
off-licence and nothing really connects the two. The Australians
were able, through the structure of their industry, to connect
the two. New Zealand does the same and so do Chile and Argentina.
South Africa has a structure which is more like France, and California
is somewhere in the middle. The New World had the structural benefits
and was therefore able to market their range across a broader
array of price points.
Some of the Old World producers are rather sniffy about the fact
that, if you open a bottle of New World wine, it tastes the same
every time you open a different bottle. It seems to me that the
consumer quite likes that consistency, whereas the producers seem
to think that this is terribly artificial.
Mr Paul: If you are a purist and very seriously
into wine, the idea of vintage variation appeals, because wine
becomes almost a lifelong study and therefore vintage variation
is something that is attractive; talking about it is attractive
too. If you are the average consumer, the last thing they want
is vintage variation.
Q517 Lord Plumb:
On marketing, a lot of supermarkets are obviously at airports,
but I understand that there is a problem with transfer passengers
who are coming in, moving acrossgetting another airplane
to go elsewhereand finding that their purchases have been
confiscated, which is causing some chaos in different airports.
Could I just ask whether you are aware of this and whether you
see action being taken to deal with it?
Mr Paul: I am not aware that it is a big issue.
I have heard instances basically of people not being aware of
the fact that, if they buy a bottle here, it might be confiscated
somewhere else. I am sure that is extremely irritating, but it
is not something that people in the wine trade would talk about
as a big issue.
Q518 Viscount Ullswater:
You were talking about the structure of the New World against
the structure of the Old World and the development of the Australian
market. Is that because they were from the beginning able to have
much bigger holdings and, therefore, able to standardise and mechanise
and blend (or whatever they do to make this consistency) which
I think we were hearing from so many of the producers in the Old
World, who are on one and a half hectares and producing something
which is bound to differ from year to year and from farm to farm?
Mr Paul: That is crucial, because the whole
culture and ethos of wine making is going to be different if you
have an almost infinite amount of land to expand into. You could
be a very, very go-ahead producer of Burgundy, but actually there
is not much you can do other than, perhaps, make better and better
wine if you cannot get more land. I am sounding quite New World-biased,
but one should not assume that everyone in France and Italy is
stuck in the last century, or the century before, and that everyone
in the New World is a fantastic marketer and wine maker. That
is definitely not the case.
Q519 Baroness Jones of Whitchurch:
Mr Paul, I would like to follow up a little bit about your organisation.
You have a website, and we have seen some extracts from that,
which have been very helpful. Can I ask you: do you put all the
research that you do on the website? Or is that only a selected
Mr Paul: It is a selected taster normally, because
we would come to an agreement with the people we do it for as
to whether they were happy for this to go into the public domain
or not. Some companies do so because it is good for their own
publicity; other companies would choose not to. We are obviously
using the website to tease people as well.