Select Committee on European Union Minutes of Evidence


Examination of Witnesses (Questions 520 - 539)

WEDNESDAY 14 MARCH 2007

MR MICHAEL PAUL

  Q520  Baroness Jones of Whitchurch: There was a very useful report that we downloaded called "How do consumers select wines?". But that was going back to 2002. Presumably you have done other reports since then on how consumers select wine.

  Mr Paul: Yes.

  Q521  Baroness Jones of Whitchurch: Can you give us a flavour of how things have changed since 2002?

  Mr Paul: The average consumer is more confident when buying wine now, and one should not over-estimate that, and therefore maybe buying a wider variety of brands than perhaps they were buying before. As they become more confident, they are hopefully paying a bit more for the wine. The key thing which is often forgotten when people talk about how consumers choose wine is that the first decision they make is not about price, it is not about what they like or do not like; it is about whether they are going to drink it themselves or whether they are going to take it to someone else's house. That is absolutely crucial. They will pay more if they are going to take it to somebody else even though they know when they go there that they are probably not going to be drinking it themselves, and that it will get hidden away. Also they will play safe, so maybe they will drink a Chilean Chardonnay at home but they buy a bottle of Claret to take to a friend down the road. It sounds obvious when I mention it like that, but it is often forgotten. People think it is all about price, price, price or deal, deal, deal. But actually it is not.

  Q522  Baroness Jones of Whitchurch: Of the research you have done about how they choose wine, do you get a sense of what they would like, in terms of more information that we might be able to help deliver to them, that would make those choices easier?

  Mr Paul: That is a good question because, if you do research, the consumer always says it is so confusing, that this is a impenetrable maze. But actually there is something which I call the retail paradox, which is that if, say, you normally buy Jacob's Creek and you are given the choice between buying Jacob's Creek from a Tesco store that has 700 lines and from a garage forecourt that might have ten, you will go to buy from the Tesco store because Tesco has more credibility as a supplier of wine. So people are actually buying into the confusion and that is a key point about wine. Subconsciously or consciously, they actually like the confusion because it implies that it is more aspirational; this is something they really do not understand, so it must have a lot of added value in it. Complexity adds value, if you like, even though they may always buy Jacob's Creek. I think that is a crucially important point.

  Q523  Baroness Miller of Chilthorne Domer: I would like to turn now to the question of GIs. I found some of your comments on them were very interesting, people buying into the sun-splash dream and so on. But actually the GIs do not really reflect that. I would have thought that for most visitors to France, for example, then the south of France, say Languedoc-Roussillon, would have far more visitors than Chablis and within Languedoc-Roussillon all those little GIs would be pretty meaningless. How do you think the sector should start to address that in actually making more of a link between what the consumer understands as that sense of place—a place that they visit or a place that they would like to visit—as opposed to something that is actually such a small geographical area that it is meaningless?

  Mr Paul: I think that is a very interesting point, and of course a lot of these GIs are successful and premium because they have been around for so long. There are examples of names which, if their wine were launched today and did not exist beforehand, it probably would not get remotely close to the price it actually gets simply because it has gained from having been around for a hundred years or so. There are other GIs—as you rightly point out, in the south of France there are a lot of them—where actually a lot of the wine is pretty good but there is no awareness amongst the consumers of that wine being good because it does not have that history behind it and it has not necessarily been marketed very well. There are 750 appellations in France and you could get out your pen and end up with 500 and agree a way of marketing them in a way which would be appealing to the consumer. If you could start again and do that, then that would be sensible; but I would suggest it is unrealistic. By cutting down the number of GIs do you improve things at all? I would argue that actually that is not really the issue. There are an awful lot of GIs that need to market themselves better. We have just got a project working with InterSud in the south of France to do just that, but it is terribly easy to analyse the problem and less easy to come up with a solution of how a particular region in France should differentiate itself from any other region in France when maybe its wines are relatively similar to another one down the road. I suppose the point I am making is that the whole thing—the patchwork quilt, if you like—as a totality adds such huge value almost because people do not understand it, which is really the point I was making earlier. If you cut out half of them and simplified it so you had neat little rectangles on a map, you would probably destroy the added value pretty well over night. The issue is how do you take something which is production-driven and was set up to avoid terrible wine into a marketing opportunity? That is where the French generally have not been good and the Italians have been worse. The only people, I would suggest, who have done it particularly well are the Spanish, with the way they have given much more freedom and allowed almost companies to become GIs. That, to me, has a lot of potential but then the way the Spanish trade is structured there are actually big companies who, more on a New World model, produce some of the finest wines.

  Q524  Baroness Miller of Chilthorne Domer: The wine industry is much more complex, but if you take food now in Britain, for instance, with beef or lamb or cheese, it is tending to move the other way, into being much more specific about area. You talk about salt marsh lamb or beef from Ruby Country in Devon,—very specific but tying it into the qualities of the particular area it comes from, a very sunny area or the seaside, for example. Do you think the GIs actually give consumers any sense of what it is about the place beyond famous names? Or is that the move you think they will be making?

  Mr Paul: I think that is the way they have to do it. The thing about what is happening in other categories—I do not want to sound cynical because I do not mean to be at all—is that the move to create provenance or to create more naturalness of product is actually marketing-led. Then, of course, the product has to live up to the hype or whatever, but it is marketing-led. Wine is sitting over here with all this provenance and history and millions of GIs; food is actually moving in that direction, with wine as a kind of role model. Wine has already got there but it has got there in this totally chaotic and amateurish production-driven way. The issue for wine is: how do you inject marketing thoughts over here to make what wine has got more meaningful to the consumer, who is increasingly demanding what you are talking about, which is more provenance, and they want to know who makes it and whether it is made in the right way, whether there is quality control, et cetera. Wine has all that to a large extent but it is not marketing it effectively.

  Q525  Lord Cameron of Dillington: I would like to talk to you about labelling. It seems to me that the restrictions on labelling sum up the worst aspects of the constricted European market place and that they are more designed to protect existing producers than they are to give information to consumers. I would like to have an idea as to your definition of "accessible" labelling. Secondly, what sort of information do you think should be allowed? Should there be complete freedom of labelling? If there were to be complete freedom, how do you link that to the protection of GI status as being partially valuable to selling wines?

  Mr Paul: I actually have a couple of bottles here, which I thought might illustrate the point. I did not pick one of the big Australian brands but this is an Argentinean brand called Argento. It is well designed and it looks as though it could have been around a long time, even though it has not been. It has Argento, a very clear brand name; it has the variety if you need to know it. There is information, the real Argentina, on the front label, and then there is a mass of stuff on the back label which you either say you cannot be bothered with but it makes terribly interesting reading or, when you take it home, you look at it and see it has all the legalities. This is designed by a UK company and most of New World packaging would fit into that. That is attractive, appealing and, if the consumer only wants to know where it comes from, it tells them that; if it is a brand they know, it tells them that; and, if they want to know what shoes the wine maker wears when he treads the grapes, they can read the back label. Now this classic French regional label has the number it is—105887—in the make, as if anybody really minds about that, and no back label at all. That is an extreme. Funnily enough, I looked on the shelves in the office and most Old World wines now have some form of back label. I had to search quite hard for this. If you take the top clarets, they do not have back labels; it is assumed you know. There is this mixture of arrogance on the one hand, this assumption of "why would you want to know anything more, just drink it and you know it is great kind of thing". At the other end, there is this kind of "what does it really matter, it is just for everyday drinking, why do you need to know the name of the wine maker"? Or, it is far too expensive to put a back label on and the machine will not do it, whereas this obviously is designed by a marketing department but trying not to look to designed, which is also important. That is an accessible label. You could argue that there are more accessible labels which would have, say, Chardonnay in big letters, whereas that does not really tell you other than that it is a bottle of French wine and it is red.

  Q526  Lord Cameron of Dillington: Those may or may not have been decisions taken by the businessman responsible for producing and marketing the wine. But what worries me is the fact that there are so many restrictions on the label by the EU regime. What you are saying therefore is that there ought to be total freedom? Or maybe not?

  Mr Paul: Yes, I am saying there should be total freedom but obviously the legalities have to be on there. It has to say where it is from, the alcohol strength has to be on there, and of course we are now getting into the discussions about "units of alcohol" labelling and whether there should be any health warnings on the back label. That has all got to be taken into account. But apart from that there should be freedom for anybody to say what they want on a label. Let us give an example here, if you are a Burgundy producer. There is a lot of discussion in Burgundy about whether they should be allowed to put Chardonnay on the label, because some Burgundy producers want to be able to tell people that their Chablis is a Chardonnay. As a marketing person, my view is that that is the last thing they want to do. Why would they want to tell people that all Chablis is (in inverted commas) is a Chardonnay? That is like saying that Champagne is just wine with bubbles in it. You destroy your image in that way. However, that should be a business decision.

  Q527  Lord Cameron of Dillington: We are talking about the EU regime?

  Mr Paul: Absolutely, so if a Burgundy producer wanted to say Chablis and then Chardonnay in big letters, they should be allowed to do so.

  Q528  Viscount Ullswater: Could I ask about bottle shapes? Is there any kudos in bottle shapes? Those to me look like Bordeaux bottle shapes. Would Burgundy be very upset if you started using a Burgundy bottle to sell a Bordeaux wine?

  Mr Paul: The interesting thing is that, from a design perspective, labels look much better on bottles with shoulders than they do on Burgundy bottles. Generally, marketing people prefer bottles with shoulders, but again there should be total freedom. The New World has a real problem, because in most of the New World countries there is a glass monopoly and that is why Australian bottles tend to look all the same—pretty dull, whereas if you go to Italy every town seems to have a glass factory and that is why you get these kind of olive oil bottles on the wine shelves. That is an aside, but generally speaking New World would go for shoulders for design purposes.

  Q529  Lord Plumb: Could I just ask about corks and screw tops? We have heard evidence from the World Wildlife Fund—and I could not for the life of me think why they were concerned about wine—but, of course they are, because the cork trees are coming down. That is their argument and I wonder what the market is looking at at the moment.

  Mr Paul: I was involved in this around 2000/2001, because we were getting such a high incidence of corked wines. Corked wine is a fault in either the tree or the process, which means that wine either does not taste very good or tastes totally flat. Of course, if it tastes flat, the consumer just thinks it is a boring wine, when it actually is not; it is just the cork. To take for example an incidence of 4%, if you think of the market—that is six million cases of wine coming into the UK—it is totally unacceptable. The cork industry to us in the trade did not appear to be taking the problem seriously enough. Then you had plastic corks coming in, and then of course the move to screw caps, which was led by Tesco as an initiative. At that time all the consumer research said that screw caps were seen as cheap and should not be used. However, screw caps are now much more acceptable, particularly for white wines. Wine makers always did send their samples round the world in screw caps and they have done for years and years, because they know they are not going to get a corked wine. Of course, the Portuguese are now doing a lot more work on improving the quality of the cork, which is a good result all round. I have to say that the amount of cork that goes into wine bottles is a reasonably small proportion of the amount of cork that is produced, so I think to blame the wine industry for affecting the wildlife in Portuguese forests is a little bit strong.

  Q530  Chairman: Do you have anything to say about the rise of the back label? Tesco on their own brands have a back label, which gives about eight different bits of information in a very concise way. Is this because consumers want the information on the back label?

  Mr Paul: I think there is some information that needs to go on a label, and it is easier if it goes on the back than on the front, because obviously it gets in the way of the design on the front. Tesco have done research into this; some consumers never read back labels, others do. The issue with labelling is that you have to appeal to everybody on a back level; some never read it and some want probably even more than is on it. Tesco have come to the decision they have. They are a pretty professional outfit and I am sure they have researched that pretty well.

  Q531  Lord Plumb: You spoke earlier of protectionism, but would you like to spell this out a bit, protectionism both internally and externally, and how this compares with protectionism that may exist in various parts of the world where they are importing fairly large quantities. You did not specifically refer to protectionism as such, but in the market place you were making the comparison between the wines that are coming in and the varieties and so on, with the wines that are produced internally. There are protective measures which the EU has implemented for quite a long period of time. Really, my question is how this compares with protectionism in some of the New World wine markets.

  Mr Paul: Protectionism exists, if you like, informally in the New World, in the sense that, if you are a French producer wanting to sell your wines in Australia, you might find that pretty tricky—finding a distributor, finding a retailer who would be bothered with more than just the top-end stuff—and obviously marketing your product to consumers who are patriotic in the sense of buying their own product. The same is true in New Zealand, Argentina and Chile. Only the top-end wines tend to get through. Here of course—without wanting to be impolite about our own wine industry—we are very open to imported wines and I think there are something like 24 countries on our shelves at the moment. This, in a way, is by far the most open of the markets. Eire is the same, but Scandinavia has the monopoly system, which means there is not exactly competition at the retail end. Most of the other countries in Europe have their own wine industry to protect, but it is about the consumer favouring their own products as much as anything else. In the New World I would say there is no kind of formal protectionism but the informal one is very powerful.

  Q532  Lord Plumb: We find that in other products too.

  Mr Paul: Yes.

  Q533  Chairman: We have European wines losing market share in Europe and overall consumption of wine in Europe going down. What do you think the EU wine producers have to do to reclaim some ground?

  Mr Paul: Let us say you were in charge of the whole of the French wine regime. My message would be that all these New World people have come in, they have increased consumption, they have increased interest in wine. There is far more excitement now in wine than there has been; it was a pretty jaded market in the early eighties. The New World has come in and done that, they have provided a platform for the French or the Italians or the Spanish to say, "OK, we have had all that stuff, now let's get onto the real thing" or something like that. The overall marketing premise is pretty straightforward. What is interesting if you do research into Australian wine drinkers is that you find that Australian wine drinkers segment into people who drink Australian wine up to, say, £5 a bottle and then buy something else when they want to trade up or for special occasions; and the something else they go and buy is French or Italian. Even the average Australian wine drinker is actually buying into premium French wine. If you take, that argument all France has to do is take this incredible provenance and start marketing it in a way a hundred times better than it is at the moment. It is purely a marketing problem. The potential is there.

  Q534  Chairman: You were talking about the aspirational nature of trading up to the higher levels. But a lot of French wine is not at that level, is it? Can the European producer fill the sort of Jacob's Creek, middle range, £5 a bottle market?

  Mr Paul: That requires much greater flexibility in wine making practices and vineyard practices. It also requires much greater freedom in terms of cross-regional blending. The argument I was using before was on a generic level. Let us use Bordeaux or Burgundy as an example. To get down to the individual producer potential, they are obviously not going to get together with each other all the time, they are competing with each other. What can they do? They need much more freedom to be able to come up with styles of wine and labelling of wine that actually appeal to the consumer. It is far too rigid. For example, blending allows the wine maker to perform. Even in Australia, a Chardonnay only has to be 85% Chardonnay; it can be 15% something else. That is a huge flexibility.

  Q535  Chairman: That is what is missing at the moment in the European structure?

  Mr Paul: Absolutely. The point was made earlier about the landholding. If somebody only has two hectares, what can they do? Somebody who has 10 hectares and could plant another 10 to produce some interesting blend which could sell at £5 or £6 a bottle, then they should be allowed to do that. The issue is: who is going to decide whether that person should be allowed to plant and that person over there should not be allowed to plant?

  Q536  Lord Plumb: Is that due to the regime itself? Or is it individuals who are traditionalists—they work in a certain region, this is their wine, this is the way it is produced and they are not going to change? Is it a commercial problem? Or is it a political problem?

  Mr Paul: I think that is a very interesting point. I was talking at a Brewers' conference recently and, if you talk to brewers, they accept that the reason they are in business—apart from having fun and making great beer—is to make an acceptable return on investment. That is fundamentally why you are there, otherwise you go out of business. I would suggest that in France, Italy and Spain, the majority of companies—not in percentage value but in volume—would not understand that as a motive why they are in business. I do not mean that pejoratively. If you are a family company, your main objective is maybe to hand this over to your son or it may be that you just want to make great wine. The idea of making a return on investment and having a business plan, which most beer people would accept is the norm, actually does not exist in wine. If you look at the co-op system, the objective of the co-op is to get rid of the wine at the end of the vintage. There is no incentive to make better quality, because they are paid by the hectolitre. The profit motive, which is what drives business fundamentally, does not exist in wine to the same extent that it exists in other categories, and that is crucial to understand. The point is very valid: if people are not bothered about making a return, you can say, "Lucky old them, what a great position to be in". But how can people who do need to, compete with people who do not need to?

  Q537  Baroness Jones of Whitchurch: As you were saying earlier, over the hill comes Tesco and waves a cheque guaranteeing income over a number of years. Presumably, as you were saying, those supermarkets themselves can change production methods, practices and all those issues you have been raising. They have the power to make that change which the actual producers themselves would not necessarily initiate?

  Mr Paul: That is absolutely right and that is why major retailer involvement in wine has been so beneficial, because it has not just changed the market place, it has helped the person who wants to get on in wine develop by giving them advice, by sending in perhaps wine makers. The supermarkets, it seems, are extremely well qualified to be able to go into a winery and make recommendations; it is almost a free consultancy.

  Q538  Baroness Jones of Whitchurch: Would most producers want one of those supermarket contracts? Or are some of them a bit sniffy about it and think it is beneath them?

  Mr Paul: Having worked for French people in the past—I am going back a while now—the idea that you might want to have your wine in Sainsburys rather than in Harrods—why would I want to do that! I think that is breaking down now, but I am sure there are still people who take that attitude. You have to remember that supermarkets here are much more sophisticated than in many parts of the continent. They look far better here and the wine range is obviously pretty sophisticated, whereas maybe in a French market town the supermarket is seen as performing a different task.

  Q539  Viscount Ullswater: Are you saying that the price in a supermarket is equivalent to quality? You were talking about buying your £5 bottle of Australian Chardonnay and, when you want to impress your friends, you spend more. Are the supermarkets making a judgment on quality and pricing accordingly? They do seem to be powerful and important.

  Mr Paul: Yes, they are. They are important, but remember that a supermarket, just like a producer of wine, is marketing-oriented and will try to sell that wine for the highest possible price they can get away with. That is just the normal rule of business. The consumer will then decide whether they come back for more.


 
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