Select Committee on European Union Minutes of Evidence


Examination of Witnesses (Questions 512 - 519)

WEDNESDAY 14 MARCH 2007

MR MICHAEL PAUL

  Q512  Chairman: 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.

  Q513  Chairman: 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 10 years?

  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.

  Q514  Chairman: 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 sophisticated—certainly 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 the eighties.

  Q515  Chairman: 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 Argentina—not in South Africa or California though—was 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.

  Q516  Chairman: 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 across—getting another airplane to go elsewhere—and 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 taster?

  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.


 
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