A piece I wrote for ‘In Vino Veritas’

Last year, I was asked by the publishers of the ‘Academie du Vin Library’ to write a piece on English Sparkling Wine for their compendium of writing about wine – ‘In Vino Veritas’. Reproduced here with their kind permission. Buy a copy here

The English Wine Bubble

JUSTIN HOWARD-SNEYD MW (2019)

Justin Howard-Sneyd is a UK-based winemaker and merchant and Master of Wine. He asks if English Sparkling wine’s place as the underdog to Champagne might one day undergo a significant a shift in perspective.

In the decades to come, we’ll look back at 2018 as the year when English sparkling wine hit adolescence. You know the kind of thing: sudden growth spurts, rebellious behaviour, starting to explore relationships (sometimes with the wrong people), unrealistic expectations, experimentation, arguments… But, how long will it be before it reaches maturity?

The early years were promising. The roots of the modern English industry go back as far as 1951 when Sir Guy Salisbury-Jones re-planted the vineyards at his home in Hambledon, creating the first commercial vineyard in Hampshire (and the UK) for 100 years. But the vines he planted were the modest Seyval Blanc variety. Today’s boom in plantings has focussed on the much more marketable champagne grapes, Chardonnay, Pinot Noir and Pinot Meunier, to produce our own English sparkling wine. The change really began in the mid-1990s when the pioneers of méthode champenoise wines – Stuart and Sandy Moss at Nyetimber in West Sussex, and Mike Roberts at Ridgeview (East Sussex) – began to achieve repeated critical success with their wines.

Since then, the demand for English sparkling wine has grown steadily, and until very recently, the supply has struggled to keep up with demand. This has given rise to a very rare phenomenon in the world of wine: a situation where producers can sell everything they make on to allocated customers, and many buyers are left without the wine they need. (The same thing happened with New Zealand’s Cloudy Bay Sauvignon Blanc between 1990 and 2005: demand significantly exceeded supply.)

When there is not enough wine to go round, no producer ever needs to price-promote, and no retailer wants to create a price war for fear of running out of stock. This rather artificial environment trains the customer to pay the full price, and to buy the wine they want immediately, when they see that it is available. But this state of the market can very quickly unravel as soon as supply exceeds demand, even by a small amount. And sadly, it looks as if this is where English Sparkling wine may be headed next.

In any market, when there is a large structural oversupply, things can get messy. When this happens, buyers realize that everyone has wine to sell, and they start to play one producer off against another. Producers who want to make sure that THEY are the ones who hit the volumes in their business plan offer tempting deals to the retailers in return for guaranteed quantity sales. The price spirals downwards.

All of which means we may still have some bumpy adolescent years ahead. So how long before we reach the sunlit uplands of maturity? As Baroness Philippine de Rothschild liked to say: ‘Winemaking is easy – only the first 200 years are difficult.’

The great Grandes Marques Champagne houses were mostly founded between 1740 and 1850 (Veuve Clicquot in 1772, Pol Roger in 1849, Bollinger in 1829, Moët & Chandon in 1743), and while many of the names we know now have survived for two centuries, there were also a number of early names that fell by the wayside. Now, I have no doubt at all that in 200 years time, we’ll have our own English Grandes Marques, and a number of the names established already will be among them. But, will the current owners’ descendants still control their families’ businesses, or will the cold winds of commercial reality cause fortunes to be lost, as well as made?

You need deep pockets to set up a winery from scratch, and to keep financing it until any future investment can be funded out of cash flow. And to get a return on that original investment takes many more years of generating sufficient profit to pay back the capital. In practice, most successful traditional European wineries have written off the original investment many years ago. But this is not the case with our own wine estates.

Until recently, perhaps the deepest pockets in the English wine business belonged to Eric Heerema, owner of Nyetimber since 2006. It is estimated that that the purchase and operation of Nyetimber since he bought this prestigious property have soaked up over £65 million. It has never made a profit, and, in 2018, Nyetimber made a significant loss – admittedly during a phase of considerable investment in further expansion, and while securing further retail and restaurant listings.

Two new players on the scene may have even deeper pockets.

Mark and Sarah Driver founded the Rathfinny Wine Estate near Alfriston in Sussex in 2010, with the stated aim of making a million bottles of wine from 400 acres of land. And just this year, another Mark, Monaco-based businessman Mark Dixon, owner of Provence’s second largest producer Château de Berne, is said to be planting 1.25 million vines at several locations, including Kingscote Vineyard in East Grinstead (West Sussex), having purchased the property in 2016. In a good year, Kingscote should start yielding nearly two million bottles.

With all of the other investments in new vineyards, large and small, from new and existing players, we now have enough vines in the ground in the UK to make over 10 million bottles of fizz every year – and over 20 million bottles in a generous year. And planting is still on the increase.

But UK sparkling wine sales have yet to exceed an annual four million bottles and only increased by 6% in 2018. So it is hard to see how we are going to drink all we now make.

Both Marks are intelligent businessmen who have taken good advice, and both are prepared to take a long-term view of their investments. And given their net worth, they can both stand several years of losses before their bank managers start to look concerned. But 200 years? Hopefully it won’t take that long.

How many more wealthy individuals will be gripped by the fizz-lust? And is English wine beginning to look like a mere bubble?

Here’s what I predict for the future of this awkward teenager:

Firstly, there is going to be a short term glut. It may well manifest itself this harvest (2019), if the predicted yields are anything approaching last year’s record crop. The price of grapes will collapse, and people will start to question their contracts. New contracts will be signed at lower prices. Second, the large volume 2018 vintage will start to hit the market in 2020 and 2021. English sparkling wine will push deeper into supermarkets, and the wines will become available at under £20. Many more brands – those who have avoided the supermarkets so far – will realize that they won’t get close to their volume targets unless they deal with the ‘Big Four’ (Tesco, Asda, Sainsbury’s and Morrisons).

Thirdly, promotional activity will become commonplace, and brands that have established themselves at close to £30 a bottle, will be seen price-cutting to around £20 a bottle. For wineries who participate, the resulting sales spikes will become addictive, and their sales above £30 will slow to a trickle.

Then producers who sell through the supermarkets, but who don’t participate in promotions will be starved of sales, and their volumes will decrease. They then may lose their listings. There will continue to be success for well-established producers with deep pockets who make the right decisions, keep investing and hold their nerve. They will be investing real marketing money in competing with the Champagne houses to buy listings and strike deals with high-profile events partners like Royal Ascot, Wimbledon, the Royal Opera House in Covent Garden etc. But that success will be hard won and expensive.

These brave wine companies will not see a profit for a while.

Newcomers will stop establishing huge vineyards, and the rate of planting will slow to a trickle as the market slowly catches up with what has already been planted. There will still be a structural oversupply of grapes that will feed a market of supermarket own-labels, and tactical brands that will mostly trade in the £12 to £18 sector of the market, undermining the premium price positioning of English sparkling wine, and possibly eroding the quality perception too.

On the plus side, the quality of the wine from the best producers, and the international reputation of English sparkling wine, will improve dramatically. Export sales will grow slowly (it is expensive stuff, and this market segment, already dominated by champagne, is not large), and the best brands will become desirable in smart restaurants and wine shops in the likes of Tokyo, New York and Rio de Janeiro.

Those that don’t make the grade, or run out of money, will be swallowed up by larger players. Champagne houses who can’t plant any more vines in the their own region, will seek out ways to expand; many may invest in vineyards in the UK.

Eventually, in 20 to 30 years time, the Grandes Marques of England will emerge from the pack as stable, long-term businesses, no longer requiring further injections of cash. Some will do so under their current ownership.

I predict that we will drink as many bottles of English sparkling wine in the UK as we drink bottles of champagne, and our fizz will be talked about in the same breath in opinion-leading markets around the world, not just by journalists and buyers, but by drinkers too.

English sparkling wine will have finally come of age – and paid off the mortgage!

Award for Hart of Gold

12 December 2015

In April this year Justin launched an English sparkling wine called Hart of Gold.

The wine is from the highly-rated 2010 vintage, and is made from Chardonnay, Pinot Noir and Pinot Meunier grapes, which were grown in Herefordshire.

This week it was awarded Gold at the International Wine Challenge.  Justin’s really excited that Hart of Gold has been given such a significant medal in the first year of production. It was the only Gold Medal winner to be awarded to an English wine in this round of the IWC awards.

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The judges thought our fizz was, “Generous and fruity, yet elegant and fine.”

Having judged many times at The Wine Challenge, Justin knows how hard it is to impress the judges, and when a wine wins a Gold Medal, it has been tasted and loved by a lot of really good, and discriminating tasters.

For more information on Hart of Gold go to www.hart-of-gold.co.uk

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English Fizz – will the bubble burst?

Over the last 10 years, The English Wine Industry has built up to producing and selling approximately 2 million bottles of English Sparkling Wine.

For the vast majority of that period, we have been in a situation of undersupply, with even big players like Ridgeview and Nyetimber having to ration their wine to customers like Waitrose, and not able to supply new accounts, as there simply has not been enough wine to go round.

The huge boom in plantings in the late 2000’s has now resulted in enough vines in the ground, producing a crop, to make 4-5 million bottles a year. More vines have been planted since 2010, although the pace of planting has slowed a little.

The very poor vintage of 2012 has delayed the onset of this new volume hitting the market. We are now in the calm before the storm where new labels are springing up all over the place, but, as yet, without the capacity to make (or the necessity of selling) very large volumes.

All of this changes once the 2013 and 2014 vintages come on stream – both of which are predicted to deliver in the region of 4-5 million bottles (and maybe another 4 million in 2015, and potentially 4-6 million a year every year into the future).

There has been a scramble among producers to gain listings with the right kinds of customers, while supply is still quite scarce. Demand from gatekeepers is high, as buyers – tuned in as they are to the zeitgeist – are enthusiastically adding listings of new and exciting wines, in the quest for novelty and differentiation.

But this honeymoon phase won’t last for long once the oversupply starts to kick in, and producers begin to compete for opportunities to sell significant volumes of their wine. Rather as gin brands have proliferated in recent years, English fizz labels are two-a-penny, and many of them, while attractive propositions, have not yet built up any real brand equity, or consumer franchise.

The balance of power will shift away from the producers and towards the buyers, and producers who haven’t controlled their costs very well, or who do not control their own route to market, risk being squeezed out. Buyers can smell blood in the water, and won’t hesitate to exploit the situation ruthlessly if producers start to find themselves in difficulty.

In my view it is really important that in order to ensure a successful future for English Sparkling Wines, our producers do five things:

1. Remain fanatically committed to quality, and refuse to put out wines that may devalue the positive impression that prevails among the converted drinker that ‘English Sparkling Wine is better than Champagne’

2. Hold their nerve on pricing, and not start a race to the bottom in order to shift volumes of unsold wine.

3. Begin serious efforts to evangelise about English Sparkling wine in key export markets – especially the USA and China

4. Maintain a united front, and to work together to market the ‘English’ proposition, rather than squabbling about regional differences (which may develop in parallel, but should only ever be a supplementary designation).

5. Stop planting new vineyards, until demand once more exceeds supply.

I think that the history of New Zealand Sauvignon is a good model for how the market for English Sparkling Wine could develop.

This too was a premium product that was NOT cheaper than the French archetype, but tasted really good, if not better. It was marketed skilfully through a long period of undersupply, and just about weathered periods of significant oversupply without badly devaluing the proposition.

There were times when NZ producers flooded their existing markets with cheap ‘me-too’ brands, but they seem to have recognised the damage that this can do (and maybe still is doing), and have focussed on opening new markets (especially the USA), which has relieved the pressure somewhat, and helped to maintain a viable grape price.

There are a number of parallels with English Sparkling Wine, but I fear that unlike NZ Sauvignon, the difficulty we have in the UK is that all of the Sparkling Wine producers’ business plans are built on the majority of wine being sold at a price point equivalent to Grand Marque Champagne.

This may be achievable in the longer term for some niche, premium producers, and for the top tier of the larger producers, but don’t forget that the market for un-discounted Grand Marque Champagne around the world is quite small. In England, maybe 10 Million of the 35 Million bottles of Champagne we drink every year are sold at over £25.

In England, it is realistic that English wines could take a 20-30% share of this market over time, where patriotism, and ‘localism’ play a big part, but it is hard to imagine English Sparklers gaining more than a 5% share of the £25+ fizz category in other markets.

If you are a consumer in the USA, or Asia, buying a bottle of English Fizz may appeal once or twice as a curiosity, but there is little rationale for it becoming a regular choice when you can have ‘the real thing’ for the same price, or less.

Whether in England, or in New York, Tokyo or Berlin, selling 5 million bottles a year of English Sparkling Wine is not going to be easy.