Lebanon; no GI; vineyards are at some distance from the winery for historical reasons (founder was unsure of the future borders of Lebanon and so the winery is in Beirut while the grapes are grown more than 60km away)
This has the disadvantage that the grapes must be transported a considerable distance under conditions of some heat; however, there are good supplies of inexpensive labour available and it is possible to harvest in the early morning
Against that, the location of the winery in a major city means there is good availability of skilled labour where it is required
Red grapes are grown in the Bekaa valley
White grapes are grown in the foothills of the Anti-Lebanon mountains and on the seaward side of Mount Lebanon
Cabernet Sauvignon, Carignan and Cinsault (red); Obaideh and Merwah (white)
Styles of wines and price point
Premium: the house has a very strong historical reputation built up since its foundation in the 1930s. The reds may be seen as competing with Bordeaux which means that they can be quite expensive when compared to the median bottle sold and yet relatively inexpensive when compared to classified growths. The house has been carefully expanding its range while aiming to maintain brand identity which would suffer from any decline in quality. The white and rosé production of the house is much less well-known than the flagship red blend, but wine critics have described this as an unfortunate situation. There is therefore an opportunity here.
Notable viticultural/vinification practices, climactic factors or location details that may be used in the marketing of wines.
Vinification practices: there are no specific vilification practices which are unique to the house but the marketing will nevertheless note that care is taken throughout as one would expect from a premium product. All wines are made “naturally” on a minimum interventionist basis. Grape growing achieved organic certification in 2006. The wines ferment in concrete with some time in French oak (nevers) and are released after a generous seven years of maturation.
Climatic factors: The vineyards are located at 34N which would normally be too warm for viniculture; the altitude of the vineyards is 1000m which offsets this. The marketing can note this as an unusual though not unique quality factor/differentiator.
Location: The house is not the sole wine producer in Lebanon, but it is clearly the most well-known and has by far the best reputation. This forms the underpinning of the marketing. Many consumers at high and moderate levels of expertise are interested in trying wines from new locations and new grapes. The reds are without doubt the highest quality wines made in Lebanon or indeed the middle east region while the fact that they are basically made from a Bordeaux blend means that they can combine quality and a new experience without being too radical a departure from established premium benchmarks. The whites benefit from the novel location details and are made from two grapes both of which are likely to be unfamiliar to even quite experienced consumers. The “brand story” of the wine is extremely strong, being unusual and interesting. For example, the cellars of the house were used as air raid shelters during the civil war in Lebanon between 1975 and 1990 and there was no interruption in wine making during hostilities. The general location has an extraordinary long history of winemaking which may potentially be traced back to the Phoenicians in ca. 4500 BCE.
Specific social, economic, political or legislative factors that would impede/assist the sale of wine
As a general remark, it should be noted that the wine will be primarily sold overseas. While Lebanon has been up until very recently a relatively wealthy country, it has experienced a sovereign debt default in 2020 for the first time in its history. It has also been a relatively liberal country given its location, but it should still be noted that Muslims make up more than 2/3 of its population and that group consumes less alcohol than other groups. Given these factors, the social, economic, political and legislative factors obtaining in the international arena are of more significance to the fortunes of the house.
No current discussion of social factors can omit the effects of COVID19. While there is no very stringent lockdown in place in Lebanon at present, this could occur at any moment if infection rates become elevated. Such a lockdown would present a significant threat if it took place around the harvest; while agricultural workers in general would be exempt, it is quite conceivably that harvesting of grapes for wine production would be deemed non-essential in the unique circumstances of Lebanon. Similarly, the house relies on transportation via sea from Beirut port. Loading ships is a labour intensive operation but also is highly computerised and containerised. The house is therefore relatively optimistic that there are reasonably chances of being able to maintain shipments. Failing that, it would be appropriate to develop financial buffers to weather any income interruptions; the increased average maturity of wine that would be available post-crisis would be valuable and can be used as a negotiating point in seeking interim credit facilities from banks.
Similarly, the international economic situation in all key markets is dominated by the COVID19 shutdown, which is predicted to cause GDP declines of 30% or more in Q22020 and which count potentially continue into Q3 and beyond. The position of wine as a product which is extremely important to many consumers but nevertheless not actually essential is a difficult one. There are no ways for the house to mitigate this; it can only be observed as above that the markets will return and the house will be ready with product when they return. Given the global nature of the crisis, there are no clear new markets to explore. However, since the crisis appears to be closest to resolution in China, and there is a burgeoning middle class there which is anxious to display its status and wealth, this could be an opportune moment to focus marketing efforts in China. This could further benefit from the 2012 prohibition on “lavish gifting” promulgated by Xi Jinping. That severely affected sales of super-premium wines such as premier cru classé Bordeaux; there could be an opportunity for the house to benefit given its niche as a premium wine in a similar style which is nevertheless perhaps more “under the radar” as far as official perceptions of excessive luxury are concerned. Such an effort would need to be conducted with a high level of discretion and local expertise.
Away from COVID19, the international economy has been under strain in any case for some time. The aftermath of the global financial crisis had in some ways not ceased: interest rates were historically very low prior to the onset of the virus crisis and the US expansion was becoming very long. Economic conditions could therefore have been expected to turn negative in the next couple of years in any case. The house will rely on its strong reputation built up since 1930 to see it though this crisis and note that there could be further opportunities later since some producers will not survive this downturn.
Given the many international markets in which the house sells wine, there are not really any specific factors to note. However, Lebanese politics is a source of major instability and this could easily give rise to problems for the house. The political structure is unique — some might say uniquely unstable — with a sectarian basis for political appointments. There are three major religious groups in Lebanon (Shia, Sunni and Christian) and the top three political positions are divided accordingly. However, population numbers have changed significantly since the epoch when this arrangement was made. Young people who are highly educated had been protesting the poor economic performance of Lebanon, the concomitant unemployment and the widespread corruption. The recent debt default is likely to result in what is known as a “doom loop” between the sovereign and local banks. This places the house in an exposed position in terms of being a highly visible generator of cashflow which is not in a position to relocate. Any threat to the stability of the local banking sector can be generally mitigated by placing funds overseas, but this presents problems in funding the ongoing operations of the house. All of these factors could present the house with difficulties sever enough to prevent or impede production or sale of wine.
Lebanon has historically had good relations with most countries and has accordingly not suffered a great deal from trade embargoes or tariffs. There appear to be fair prospects of this continuing. There are slightly strained relations with Saudi Arabia but this country is not a customer for the house in any case. A resolution of the conflict in Syria appears to be in prospect and this would eliminate a major local source of instability.
There have been no local legislative threats, but in the context described above, it is clear that the government is desperate for funds. Its very survival was threatened by an ill-judged attempt to place a tax on WhatsApp messaging; the house could present a much easier target for taxation and other informal methods by which officials seek funding.
The house has historically sold a great deal of wine into France, partly because of the long shared history between the two nations. This has somewhat been impeded by the advent of the Lot Evin, which in 1991 greatly reduced the allowed advertising of alcohol. Nevertheless, the house has a strong enough reputation which continues to spread by word of mouth and expert opinion and so has suffered less than it might have done as a result of this factor.
Restrictions on social media are less in evidence currently so this represents an important opportunity to address new consumers. It would be valuable to explore engaging an appropriate celebrity/online influencer. Such an individual must fit with the high quality brand image and add brand awareness in a way which reaches likely new customers. These will need to be relatively affluent groups so some research on where high-earning Millennials are allocating their social media attention will be useful.
Costs associated with getting wine to the specific market: packaging, transportation, importation, sales and marketing
In general, costs within Lebanon are relatively modest since inexpensive labour is widely available.
Packaging: costs are relatively high since the house is a premium brand. Sales actually generated in Lebanon at the cellar door are important and require premium packaging. This consists of branded padded boxes and other branded accoutrements. These high costs are more than offset by the sales revenue however, since the premium nature of the house allows it to command high prices especially for older vintages.
Transportation: the winery is actually located adjacent to the major seaport of Beirut and so wine can be despatched there by road with no difficulty or expense. The house is fortunate in that its location in the eastern Mediterranean allows the easy transport by ship to many significant markets such as France, Italy and the UK. The US is more of a challenge, but again since the house is producing premium high priced product, air freight is an option.
The major issue is that the 60km from the vineyard to the winery is time-consuming given the quality of local infrastructure, but this is a fact of life rather than an addressable cost issue.
Importation: costs are in-line with market conditions generally. It must be observed that the climate globally has moved in a protectionist direction, partly as a result of the advent of the Trump admininstration and the subsequent US-China trade war. The election due in Nov-20 may ease this situation if the incumbent is not reelected. Brexit continues to be an event with extremely unclear outcomes; however the signature of a continuity trade deal between Lebanon and the UK in Sep-19 offers some reassurance that no new tariffs will be imposed in what is a major market for the house.
Sales: costs are in-line with market conditions generally. The cellar door operation is relatively expensive in that there are no charges currently made and free samples of vintages going back to 1974 are made available. However, in a group of 12-15 attendees, on average 3-5 will make purchases. Since these can be in the range of $1,000 to $2,000 — bearing in mind that most attendees will have travelled from Europe to attend the cellar door — this activity is highly viable economically.
Marketing: costs have been historically relatively modest because the house has been able to rely on its reputation. However, given the extremely challenging environment described above, this is likely to change. The engagement of a celebrity/influencer will be extremely expensive because of the requirements of the role. The house continues to incur expenditure on items such as branded corkscrews but it is unclear how rewarding this is.
Is selling wine in the assigned market a valuable business proposition?
Overall, despite the extreme challenges presented by the current environment, there are good prospects that the house will be in a position to continue to thrive. It is even conceivable that the difficulties of the situation will be offset by some positive factors. These include the possibility that houses in lockdown will consume more wine. The affordability will increase because restaurants are closed. This means that consumers will be buying the wine with a typical retail mark-up (ca. 20%) rather than a typical HoReCa mark-up (ca. 66%). It can also be expected that the end of lockdown will be greeted with enthusiasm by customers; wine can be expected to play a major part in the celebrations that will doubtless follow. The house can consider now how it can position itself to take advantage of this factor alongside champagne producers, who can be expected to take the lion’s share of such post-crisis celebratory revenues.