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Wine Business

Lebanon Wine Logistics

Introduction

This article discusses Lebanon wine logistics by using Château Musar as an example. See https://chateaumusar.com

Grape Transport

The vineyards are at some distance from the winery for historical reasons. The founder was unsure of the future borders of Lebanon. So the winery is in Beirut. But grapes grow more than 60km away.

The grapes are 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 winery is in a major city so there is good availability of skilled labour where it is required

Red grapes grow in the Bekaa valley as described above. The red grape varieties used are Cabernet Sauvignon, Carignan and Cinsault.

White grapes grow in the foothills of the Anti-Lebanon mountains and on the seaward side of Mount Lebanon. The white grape types are Obaideh and Merwah.

Styles of wines and price point

Musar makes premium or super-premium wine. The house has a very strong historical reputation built up since its foundation in the 1930s. The reds compete with Bordeaux. This means that they can be quite expensive when compared to the median bottle sold. Nevertheless, they can be 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.

Marketing: Vinification and Climate

This section describes notable viticultural/vinification practices, climactic factors or location details that are useful in the marketing of wines.

There are no specific vinification practices which are unique to the house. Vinification is done carefully throughout as one would expect from a premium product. All wines are “natural.” A minimum interventionist basis is applied. Grape growing achieved organic certification in 2006. The wines ferment in concrete with some time in French oak (from Nevers). Release is after a generous seven years of maturation.

There are specific 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.

Lebanon Wine Logistics: Location

Musar 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. 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.

Lebanon Wine Logistics: Cultural Factors

This section describes and specific social, economic, political or legislative factors that would impede or assist the sale of wine.

The wine is for sale overseas, mostly. 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 is a relatively liberal country. However, 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.

Lebanon Wine Logistics: Social factors

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.

Agricultural workers would probably be exempt. Harvesting of grapes for wine production could non-essential in the unique circumstances of Lebanon. (After this piece was written, Lebanon was indeed locked down.)

Similarly, the house relies on transportation via sea from Beirut port. Loading ships is a labour intensive operation. It is also 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. This is a negotiating point in seeking interim credit facilities from banks.

This article was also first drafted prior to the explosion in the port of Beirut. This has eliminated 80% of Lebanon’s import potential. The second line port further north at Tripoli lacks warehouse space. The situation is very difficult and wine exports will not take priority under the circumstances.

Lebanon Wine Logistics: Economic factors

The COVID19 shutdown is the most important economic factor. Lockdown will cause GDP declines of 30% or more in Q2 of 2020 and which could potentially continue into Q3 and beyond. The position of wine as a product which is important to many consumers but nevertheless not essential is a difficult one.

There are no ways for the house to mitigate this. 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, the crisis appears to be closest to resolution in China, and there is a burgeoning middle class there. That group is anxious to display its status and wealth. This could be an opportune moment to focus marketing efforts in China.

This approach could further benefit from the 2012 prohibition on “lavish gifting” issued by Xi Jinping. That affected sales of super-premium wines such as premier cru classé Bordeaux. Musar could 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. This would require discretion and local expertise.

Lebanon Wine Logistics: Political Factors

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. The top three political positions divide accordingly. However, population numbers have changed significantly since this arrangement. Young people had already been protesting the poor economic performance of Lebanon, the concomitant unemployment and corruption.

The recent debt default will likely cause 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. There may be instability in the local banking sector. Placing funds overseas solves that. But this presents problems in funding the ongoing operations of the house. All of these factors could present the house with difficulties severe enough to prevent or impede production or sale of wine.

There have been no local legislative threats, but in the context described above, it is clear that the government is desperate for funds. An attempt to place a tax on WhatsApp messaging threatened the survival of the government. It has subsequently fallen in any case. Musar could be an easy target for taxation and other informal methods by which officials seek funding.

Lebanon Wine Logistics: Regional Factors

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. Relations with Saudi Arabia are strained. That country is not a customer for Musar 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.

France

The house has historically sold a great deal of wine to France, partly because of the long shared history between the two nations. The Loi Evin in France reduced the allowed advertising of alcohol in 1991. 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 or 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.

Lebanon Wine Logistics: Cost Factors

This section describes 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 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 is relatively problem-free when the port is operating. The winery is next to the major seaport of Beirut. Wine can travel there by road easily. 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. 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 in Nov-20 could ease this situation. That requires the incumbent to lose.

For more specific discussion on marketing at Musar, see: https://timlshort.com/2020/04/20/marketing-creating-the-brand-story-in-wine/

Political Costs

Brexit still has extremely unclear outcomes. Lebanon and the UK signed a continuity trade deal in 2019. 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. There are no charges and samples of vintages going back to 1974 are 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 these individuals are scarce. The house continues to incur expenditure on items such as branded corkscrews but it is unclear how rewarding this is.

Viability

This section discusses whether 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. Possibly some positive factors will offset the difficulties of the situation. These include the possibility that people in lockdown will consume more wine.

Restaurants are closed. That improves affordability. 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%). The end of lockdown will be greeted with enthusiasm by customers. Wine will play a major part in the celebrations that will doubtless follow. Musar can take advantage of this factor.

The major difficulty is surviving COVID. That challenge faces everyone. But Musar has demonstrated more resilience than most wine producers.