• Californian producers in the dark over Brexit fallout

    With the pound falling almost daily against the US dollar there are increasing worries in the US, particularly California, about the on-going impact Brexit is going to have on the competitiveness and availability of its wines in the UK. Napa-based writers, Katie Canfield and Matthew Gaughan, a former UK wine merchant, assess the mood from California.

    With the pound falling almost daily against the US dollar there are increasing worries in the US, particularly California, about the on-going impact Brexit is going to have on the competitiveness and availability of its wines in the UK. Napa-based writers, Katie Canfield and Matthew Gaughan, a former UK wine merchant, assess the mood from California.

    By October 11, 2016

    California’s decision to reposition its marketing strategy in the UK comes at a time when its producers face unchartered issues on how to do business in the UK.

    Californian wine has been a hot topic in the UK recently. And not all for the best reasons with news The Wine Institute of California was to close its UK office at the end of September.

    The announcement sparked news pieces on both sides of the Atlantic with much debate on social media about what it all meant for California wine. Such was the reaction that the Wine Institute, which represents over 1,000 wineries and affiliated businesses, made a second announcement to make it clear that the UK was still the top market for California wines and the office closure was simply a shift in the marketing approach in the country. It would instead be appointing a dedicated PR agency to run its UK promotional and communications strategy. 

    Linsey Gallagher remains firmly committed to the UK market
    Linsey Gallagher remains firmly committed to the UK market

    As Linsey Gallagher, vice president of international marketing, confirmed in a statement: “The UK is the number one country in Europe for California wine exports. This shift in the allocation of resources to this important market allows us to devote more funding to category building programs. California wines have made great progress in the UK in the past decade and we look forward to building on our success with a new, more dynamic approach to presenting California wines in the UK this fall.”

    All this came in the midst of the fallout from the UK’s decision to leave the European Union in the June referendum. News that raised blood pressures as far away as the west coast America.

    Handling Brexit

    As nothing like this has ever happened before, the feeling of uncertainty regarding Brexit resonates throughout California, from individual producers to state-wide industry advocacy associations such as the Wine Institute. Gallagher says it’s too early to quantify the impact of Brexit or “predict the outcomes”. But agreed “there is much to be done” as “global markets do not like uncertainty.”

    That said, Gallagher believes Californian, and other non-EU wine and drinks suppliers, will be better positioned following Brexit compared to EU wineries, who “will feel the effects most directly”.

    New agreements made by the UK may even benefit non-EU suppliers further through “the removal of the current ‘third-country’ duty” rates which will ultimately reduce the cost of doing business in the UK. 

    Gallagher adds: “California producers remain committed to the UK market and to navigating these changes in the future as they arise, to insure that the quality, diversity and value of our wines continue to succeed with consumers and trade in the UK.”

    California’s position also been helped further by the increased strength of the US dollar versus British sterling and an on-going lack of confidence in the stability of the British pound.

    The winemaker’s view

    Au Bon Climat's Jim Clendenden has real concerns over how competitive his wines will be in the UK
    Au Bon Climat’s Jim Clendenden has real concerns over how competitive his wines will be in the UK

    Jim Clendenen, of Au Bon Climat in Santa Barbera, admits he was filled with panic for the first 48 hours after the UK’s shock decision to withdraw from the EU, as billions were wiped off the stock markets and a global recession seemed imminent.

    But with the quick recovery of the markets, he regained his calm and is now “not as nervous” about the UK market as he initially was, with the exception of the pound’s continuing weakness.

    He has been exporting his label Au Bon Climat to the UK for 29 years and the UK is his biggest market. The last three years have seen record returns for the winery in the UK, thanks in part to a successful sales drive by importer Fields Morris and Verdin and to more consumer awareness of its ABC label and style.

    After his initial unease, he is now “looking forward to continued good things” in the UK. Especially as FMV has been able to sign important big deals to further distribute Au Bon Climat in the UK, including with the Wine Society, even in the aftermath of the referendum result. He feels that, despite the shock rippling through the UK, things have largely got back to “normal”.

    He is also keeping a close eye on the 2016 vintage coming out of France, particularly Burgundy. Although he doesn’t “anticipate a decline in the demand for French wine in the UK,  prices will increase,” after difficult vintages in key regions such as Burgundy, which have enabled Au Bon Climat to capitalise on the demand for high-end Pinot Noir, a trend mirrored in New York.

    One of his most popular wines in the UK is “Isabelle,” a Pinot Noir which sells for £65, which he believes offers extraordinary good value given  “there is less and less difference between the great wines of the Old and the New World”.

    Not all US producers have been as successful in the UK, and Clendenen believes that “style is the big difficulty rather than price” for breaking into a market attuned to European wines – something that will continue regardless of the implications of Brexit.

    Clendenen’s biggest fear is the forthcoming US presidential election and the possibility of a Donald Trump victory. “That would be far more serious, especially if he started ripping up trade agreements.”

    But that is the volatile climate that the Brexit vote has created. The thought of the UK having to negotiate a new trade agreement with the US with Trump at the helm may well reignite the panic Clendenen first felt after the result of the referendum, with lasting consequences for the US wine industry never mind its key export countries like the UK.  

    The UK wine merchant’s view

    Ben Stephenson, owner of Manchester's hangingditch, says he can get better value wine from elsewhere in the world than California
    Ben Stephenson, owner of Manchester’s hangingditch, says he can get better value wine from elsewhere in the world than California

    Ben Stephenson of Manchester’s hangingditch wine merchants recently visited Napa Valley, and shared what he learnt about local producers’ feelings on the impact of Brexit on the California wine industry. For him, there was ambivalence in Napa over what Brexit would mean overall, an uncertainty he understood given that negotiations for Brexit have yet to begin. “No one quite knows what Brexit means yet, so it’s very difficult for anyone to predict what’s going to happen,” adding that this hesitancy was even more pronounced from the distance of California. 

    However, he noted two connected difficulties that California could face exporting to the UK.

    Firstly, he feels the premium wines of California, particularly Napa Valley, are too expensive compared to wines of equivalent quality from elsewhere in the world.  “I can simply get better value from South Africa or Australia,” he stressed.

    Secondly, this is going to be exacerbated by the fall in the value of the pound: “California’s wines are just going to get more expensive.”

    Stephenson’s thoughts demonstrate the difference between the domestic California perspective of its wines and from the UK.

    Regardless of Brexit, the future challenges and potential successes of California’s wines in the UK are dependent on how competitive their prices are. There are two things that Gallagher, Clendenen, and Stephenson all agree on: a shared concern over the weakness of the pound and that no one knows, for better or for worse, what’s going to happen next.

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