Too Much Of A Good Thing

(4 of 5)
Marie Courselle knows all too well what he means. Château Thieuley, which her grandfather bought in the 1950s, used to sell about 30% of its output to big French retailers. Then, two years ago, it received a blunt message: Cut your prices, or we'll cut back on purchases. The Courselles refused, and their hypermarket sales dropped by half. They are now busy trying to build up a direct commercial network of their own. That means relying on a handful of merchants to sell into major markets, and doing the rest themselves. When they are not harvesting or tending their vines, Sylvie and Marie are on the road — to Luxembourg, Canada and elsewhere — touting their labels and looking for new ways to sell.

Not everyone has the stomach for a fight. Jean Gazaniol says he hesitated for a long time, but then finally bowed to reality and sold the Château de Parenchère, which his father bought almost 50 years ago. It's a gorgeous 19th century mansion with 65 hectares of vines whose wine is exported to 60 countries. The estate was bought by Per Landin, a Swede who made his fortune trading oil in London and who says he's passionate about wine. He's 44, and was looking for a place in which to retire. Gazaniol has promised to help him out for a while, but he isn't overly optimistic about the chances of success. In the 1990s, he worked hard to build Parenchère's reputation and even tinkered with the formula — pumping oxygen into the wine during fermentation to make it fruitier and smoother. But now he's 57 and looking for an easier life. "I'm not having fun any longer," he says. "The competition is growing and that scared me. This crisis will last. It's a structural one. Nobody will get out safe and sound."

The wine glut's impact is worldwide. In California, big grape growers and some wineries have gone into bankruptcy, including the Legacy Estate Group that owned prestigious brands such as Arrowood, Byron and Freemark Abbey. (The group was sold last month to a rival producer, Kendall-Jackson.) In South Africa, grape prices have dropped about 30% over the past two years, prompting a hunt by producers for new markets. In the Friuli region of Northern Italy, which specializes in Pinot Grigio and other whites, winemakers' cellars are filling up with unsold bottles. Most dramatic of all is the situation in Australia. Output there doubled in a decade, but now the country is swimming in unsold wine. And unlike France, Australia has no safety net of subsidized distillation. Mark McKenzie, executive director of the trade group Wine Grape Growers Australia, says incomes for some growers have fallen by 60% in the past two years. The situation is so bad that the group petitioned the government to pay severely affected farmers not to grow grapes. (The government, which frequently gripes about the handouts Europe gives its farmers, refused.) "It's as bad as I've seen it in 46 years," says Brian McGuigan, an industry veteran and former managing director of McGuigan Simeon Wines, the nation's second largest wine firm.

Viewed from Australia, the French measures seem timid and slow. Australia's 20 biggest winemakers account for 85% of the market, and they have reacted much faster to the crisis, cutting prices and taking the financial hit early by writing down the value of their stock. Some grape growers are pruning back vines or switching to citrus or almonds. And, in a boon to consumers, many producers have been selling their surplus stocks as "cleanskins" — bargain-priced bottles that show neither the winemaker nor the winery. Even so, Sam Tolley, chief executive of the awbc, reckons it will take at least another two years before supply and demand get back in line.

Letting the free market take its toll is not the way of French agriculture. That's one reason why the pain caused by the glut is less acute in France than in Australia. But it also helps to explain why the French lost out so badly in export markets in the first place: their producers are bound by a plethora of strict rules. Unlike their Australian rivals, Bordeaux winemakers aren't free to grow as many grapes or make as much wine as they want; quantities are strictly limited. Moreover, they can't sell their wine as Merlot, or any other single grape variety — one of the most popular New World innovations. And under a regulation passed in the early 1990s, they are even forbidden from using their grapes to make table wine; the only production allowed in Bordeaux is of high-quality appellation d'origine contrôlée (AOC). "They tied their own hands behind their back," says Christopher Carson, former ceo of the European arm of drinks firm Constellation, who played a key role in bringing Australian wine to the U.K. Over the course of 15 years, he watched the market share of Australian wines soar from about 1% to more than 21% now — five percentage points ahead of the French — as British drinking habits shifted. Wine has now overtaken beer as the nation's most popular drink, driven in part by supermarket chains such as Tesco and Sainsbury that have made it affordable. Pubs are getting in on the act, too. One chain, J.D. Wetherspoon, is even starting to serve wine on draught at its 650 pubs.