The Big Spill

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The French barely reacted to those seismic shifts, largely because global wine consumption has been growing, up about 10% in the past decade, to 240 million hectoliters annually. But now there's a rude awakening. So many countries have got into the winemaking business like Turkey, China, Brazil--that the world is currently awash in the stuff. In 2004 worldwide production hit its highest level in 20 years, almost 300 million hectoliters, or 15% more than the previous year. The glut is hurting producers everywhere, particularly in Australia, which has surplus wine stocks that exceed a year's worth of exports. Many grape growers there simply let this year's crop rot on the vine rather than harvest it.

In France a massive support system overseen by the state is cushioning the impact somewhat. Even so, sales and incomes have been dropping since 2002, and many producers are under pressure. The result is a growing stratification: good winemakers are investing heavily to get better; bad winemakers are facing the prospect of being squeezed out; and the rest, the vast majority caught in the middle, are scrambling to get better--or get out. "The crisis is having a salutary effect," says Christian Delpeuch, managing director of Ginestet, one of the biggest trading houses in Bordeaux and former head of the region's wine-industry lobby group.

The shakeout is a case study in globalization's impact. The best place to see it is in Bordeaux, the biggest French fine-wine region and perhaps the most prestigious. The place is suddenly rife with division: between winemakers and the merchants who traditionally sold their vintages; the top-name châteaux that enjoy worldwide fame--and that are making money faster than you can say premier grand cru classé--and the 9,000 others, about 500 of whom are estimated to be in dire straits; traditionalists and reformers."We thought we were the king of carrots. We just didn't see the others coming," admits Jean-François Bruere, who heads a 220-member regional cooperative. "We never bothered about consumers. Now we're beginning to wake up." The shakeout is bearing fruit: after dropping 20% over the past five years, Bordeaux wine exports are rising again, led by the top producers.

Driving those changes is a new attitude among Bordeaux's main customers, French supermarkets. They're driving an increasingly hard bargain because per capita wine consumption in France has halved since the 1960s and wine is no longer a staple with meals, being supplanted by soda and water. It didn't help that Bordeaux made a huge strategic mistake by stepping up plantings in the late 1990s--a move that increased production and exacerbated the already growing pressure on prices. As a result, the balance of power has shifted. "Until 2001, the mentality of producers was to say, 'I make the wine, I label it, and you take it and pay,'" says Frédéric Guiraud, who runs a regional wine-trading house called GRM. "Four years later, they're now saying, 'Do you want it? I don't care about the price. And can I have an advance?'"