Challenges Facing Wineries in
“Undiscovered” Wine Regions:
Results from Michigan, Missouri
and NW New York
R. Brent Ross, Michigan State University
Fabio R. Chaddad, University of Missouri-Columbia
Miguel I. Gómez, Cornell University
NCRCRD Webinar
February 15, 2012
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012
Number of Wineries in the U.S.
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1975
1970
1965
1960
1955
1950
1945
1940
0
Year
Source: U.S. Tax and Trade Bureau and Wine Institute.
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012
KEY DRIVING FORCES
 Food Curiosity
 Growing Interest in Wines for
Non-Traditional Regions
 Local Food Movement
 Food Tourism
OPPORTUNITIES
 Vector of Regional Economic
Development
 Economic Clustering
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012
Agenda
• NCRCRD Project Survey Results
• Collect information about wineries
• Identify challenges affecting “undiscovered” wine regions
• New Project
• Funded by NIFA/AFRI
• Research Objectives and Scope
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012
NCRCRD Project
Objectives and Scope
• Identify the challenges faced by rural wine entrepreneurs in
“undiscovered” wine regions
• Firm-level vs. Industry (region)-level
• Focus on:
• Economics of Wineries
• Business and Marketing Management Practices
• Collective Action
• METHOD: exploratory comparative analysis
• Literature review
• Interviews
• Industry Survey
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012
New Business Ventures
Number of Wineries (2009)
Michigan
Missouri
New York
100
97
240
(up from 17 in 1995) (up from 31 in 2000) (up from 113 in 2000)
Wine Volume
(2009, in million gallons)
1.4
1.1
28.7
Number of Grape Growers
711
393
1438
2,100
1,600
11,000
5,300
4,400
172,000
$790 million
(in 2005)
$1.6 billion
$2.5 billion
Wine Grape Acreage
Wine Grape Production
(in tons)
Wine Industry Economic
Impact
Sources: U.S. Department of Agriculture, Alcohol and Tobacco Tax and Trade Bureau, Michigan Grape and Wine
Industry Council, Missouri Wine and Grape Board, and New York Wine and Grape Foundation.
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012
Michigan Wine Industry
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012
Missouri Wine Industry
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012
NY-Penn Wine Industry
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012
Data Collection
• Joint mail survey conducted during May-June
2011.
•
•
•
•
Michigan
Missouri
New York (Lake Erie Region) and Pennsylvania
Target: winery owner
• Supported by interviews with winery owners,
extension specialists, and industry experts
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012
Overview of Results
Winery Characteristics
State
Michigan
Missouri
NY/PA
TOTAL
Wineries
80
94
70
Respondents
26
32
28
Response
Rate
33%
34%
40%
244
86
35%
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012
VARIABLE
N
MEAN
Winery Age (Years)
ALL
85
11.9
MICHIGAN
25
14.1
MISSOURI
32
11.9
NY-PENN
28
9.9
Wine Production (Cases)
ALL
84
7,749
MICHIGAN
24
5,622
MISSOURI
32
12,596
NY-PENN
28
4,032
Wine Production Growth (%, 2008-2010)
ALL
68
38%
MICHIGAN
26
17%
MISSOURI
21
63%
NY-PENN
21
38%
Non-Vinifera Grapes (%)
ALL
86
64%
MICHIGAN
26
38%
MISSOURI
32
84%
NY-PENN
28
64%
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
MEDIAN
MIN
MAX
7.0
9.0
7.8
5.0
0.0
0.0
0.5
2.0
47.0
41.0
40.0
47.0
2,000
2,450
1,500
2,000
100
100
100
100
200,000
20,000
200,000
32,000
20%
10%
25%
40%
-50%
-50%
-25%
10%
408%
300%
408%
100%
80%
34%
100%
80%
0%
0%
0%
0%
100%
100%
100%
100%
February 15, 2012
Distribution of Wineries by Years in Business
0.45
% Under 10 Years Old
ALL
65%
MI
55%
MO
65%
NY_PENN
80%
0.40
0.35
0.30
0.25
ALL
MI
0.20
MO
NY_PENN
0.15
0.10
0.05
0-2
3-5
6-10
11-15
16-20
21-30
31-50
>50
Years in Business
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012
Distribution of Wineries by Production (Cases/YR)
0.40
0.35
0.30
0.25
ALL
0.20
MI
MO
NY_PENN
0.15
0.10
0.05
0-500
501-1K
1K-2500
2501-5K
5K-10K
10K-25K
25K-50K
50K-100K
>100K
Production (Cases/YR)
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012
Wine Production by Years in Business
(r = 0.42)
250,000
200,000
150,000
100,000
50,000
0
0
5
10
15
20
25
30
35
40
45
50
-50,000
Wine Production
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
Linear (Wine Production)
February 15, 2012
Overview
Wine Owner/Manager Characteristics
% of Time Spent At The Winery
100%
90%
80%
Cumulative %
70%
ALL
MI
MO
NY_PENN
76%
87%
75%
69%
60%
ALL
50%
MI
MO
40%
NY_PENN
30%
20%
10%
0%
0-25%
26-50%
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
51-75%
76-100%
February 15, 2012
Overview
Wine Owner/Manager Characteristics
% of Net Worth Invested in the Winery
100%
90%
80%
Cumulative %
70%
ALL
MI
MO
NY_PENN
53%
50%
58%
49%
60%
ALL
50%
MI
40%
MO
30%
NY_PENN
20%
10%
0%
0-25%
26-50%
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
51-75%
76-100%
February 15, 2012
Overview
Wine Owner/Manager Characteristics
Motives for Entry into Wine Industry
CHALLENGE
Business Opportunity (GW+diversify)
Passion for Food/Wine/People (Wine+Other)
Quality of Life (2) (qual+retire+adv)
Hands in Dirt (2) (dirt+satisf)
Family (Family Business + Fun)
Community (Tourism, EcDev)
Other
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
ALL
9
49
38
32
6
20
3
FREQUENCY
MI
MO NY_PENN
0
3
6
17
21
11
12
16
10
13
12
7
2
3
1
7
8
5
0
0
3
February 15, 2012
Challenges Faced in “Undiscovered” Wine
Regions: At the WINERY
FREQUENCY
CHALLENGE
Grape Production
Winemaking
Marketing
Finance
Managing the Winery
Labor Related Issues
Environmental Issues
Regulatory Issues
Quality
Access to Resources
Competition
Other
ALL
32
27
46
25
24
19
0
29
11
10
6
5
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
MI
13
7
15
10
7
4
0
9
3
1
0
2
MO
12
12
16
8
13
8
0
9
5
5
4
0
NY_PENN
7
8
15
7
4
7
0
11
3
4
2
3
February 15, 2012
Challenges Faced in “Undiscovered” Wine
Regions: In the INDUSTRY
CHALLENGE
Grape Production
Winemaking
Marketing
Finance
Managing the Winery
Labor Related Issues
Environmental Issues
Regulatory Issues
Quality
Access to Resources
Competition
Other
ALL
24
21
38
11
7
25
0
25
25
8
10
21
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
FREQUENCY
MI
MO
5
8
5
8
1
23
1
8
1
4
15
6
0
0
8
8
4
13
5
2
2
4
17
1
NY_PENN
11
8
14
2
2
4
0
9
8
1
4
3
February 15, 2012
Specific Challenges
Marketing
CHALLENGE
Setting Prices
Developing new wines
Branding wine
Identifying the appropriate promotion strategy
Managing distribution channels
Dealing with competition
Segmenting the market
Understanding consumer needs/wants
Other
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
ALL
29
4
18
0
45
15
9
19
8
FREQUENCY
MI
MO NY_PENN
11
12
6
2
1
1
0
9
9
0
0
0
14
17
14
3
9
3
1
3
5
0
12
7
3
2
3
February 15, 2012
AFRI/NIFA GRANT AWARD
AwardNumber: 0031130
Description: 2011-68006-30815 Chaddad, Fabio
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012
Rural Entrepreneurship in the Wine Industry:
Identifying Success Factors Among Start-Up Wineries in Emerging Cool Climate Regions
Goal: To increase the success rate of start-up wineries and thereby foster the development of wine-hospitality-tourism clusters in emerging cool climate
regions in three states –Michigan, Missouri and New York.
Situation
Inputs
Activities
Growing number
of new wineries
in cool climate
wine regions.
Wine industry
stakeholder needs
& assets
Stakeholder input
on conceptual
framework
Statistical
analysis of
survey results
Research and
extension staff
with industry
knowledge
Lit. review on
procurement and
distribution
strategies
Econometric
model results
Three graduate
students in Agric.
Econ.
Survey wineries
and build panel
data set
Network of
collaborators in
three states
Econometric
analyses of data
across 3 states
Integrated
conceptual
framework
Workshops with
industry
stakeholders
Databases and
expert modelers
Study tour to
developed wine
region
Start-up wineries
face a complex
set of challenges
to survive and
grow.
Start-up wineries
need knowledge
input and
extension efforts
to overcome
challenges.
If successful, new
wineries will be
the basis for
regional cluster
development.
Existing wine
cluster analyses
AFRI Funding
Prepare
educational
materials
Outputs
Practical
knowledge for
wineries and
industry leaders
Scientific and
educational
publications
eXtension CoP
on Cool Climate
Wine Regions
Strategic
outreach plan for
wine cluster
development
Educational
materials
Hypothesis: we can identify strategies for wineries to overcome
survival challenges and for industry leaders to develop winebased regional clusters in cool climate regions.
Outcomes
Knowledge
Actions
Conditions
Factors that affect
winery survival
and growth
Start-up wineries
will:
-Adopt more
efficient grape
procurement
strategies
-Develop
marketing
strategies to
access non-local
markets
-Build more
relationships with
other wineries and
related local
industries
Increased success
rate of start-up
wineries in cool
climate regions
Efficient grape
procurement
strategies
Marketing
strategies to
overcome lack of
legitimacy
Extent and
impacts of interfirm collaboration
Effective
collective action
strategies for
cluster
development
Development of
wine-based
clusters in cool
climate regions
Industry leaders
will adopt
collective action
strategies for wine
cluster
development
External Factors: industry conditions that affect start-up winery
survival and growth; willingness of industry participants to develop and
engage in collective action strategies.
AFRI / NIFA Project
The Team
Fabio R. Chaddad (University of Missouri)
 Michael Leonardelli
 Randy Westgren
 Graduate students
R. Brent Ross (Michigan State University)
 Paul Jenkins
 Graduate students
Miguel I. Gomez (Cornell University)
 Nelson Bills
 Graduate students
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012
AFRI / NIFA Project
Conceptual Framework
Network-level
Resources
• Inter-winery
collaboration
• Collaboration with
related industries
Individual-level
Resources
• Human capital
• Education
• Experience
• Skills
Business-level
Resources
• Human
• Financial
• Organizational
• Entrepreneurial
orientation
Survival
• Cross
survival
threshold
Growth
• Sales
• Members
Legitimacy
• Regulative
• Normative
• Cognitive
• Industry
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012
AFRI / NIFA Project
Integrated Project
Research Objective 1: Examine existing
contractual mechanisms in buyer (winery) –
supplier (grape) relationships and help the
industry develop procurement strategies to
reduce transaction costs, increase grape and
wine quality, and winery performance.
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012
Detailed Results
Procurement Strategies
100%
90%
80%
% of Wineries
70%
60%
ALL
50%
MICHIGAN
MISSOURI
40%
NY-PENN
30%
20%
10%
0%
Grapes
Juice
Bulk Wine
Source of Raw Product
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012
Detailed Results
Procurement Strategies
100%
90%
% of Wineries Using Strategy
80%
70%
60%
ALL
50%
MICHIGAN
40%
MISSOURI
NY-PENN
30%
20%
10%
0%
Vertical Integration
Spot Market
Contractual
Arrangement
Other
Procurement Strategy
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012
Determinants of Vertical Integration
Winery Characteristics


Experience
Time commitment
Quality


Grape quality
Wine quality
Collaboration


Vertical
Integration
To produce grapes
Relationship with
grape growers
Transaction Attributes


Asset specificity
Uncertainty
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012
Determinants of Vertical Integration:
Logit Model Estimates
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012
AFRI / NIFA Project
Integrated Project
Research Objective 2: Identify strategies to
overcome distribution challenges of start-up
wineries and increase their access to nonlocal markets.
*Legitimacy: distributors and consumers.
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012
Detailed Results
Distribution Channel Strategies
CHANNEL
At the Winery
Liquor Store
Restaurant
Farmers Markets
Direct Shipments
Through Distributors
Festivals or Community
Events
Other
ALL
100%
41%
52%
10%
56%
29%
48%
13%
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
% of Wineries
MICHIGAN MISSOURI NY_PENN
100%
100%
100%
57%
45%
25%
61%
35%
64%
4%
0%
25%
83%
35%
57%
65%
26%
4%
35%
22%
35%
16%
71%
4%
February 15, 2012
Detailed Results
Distribution Channel Strategies
ALL=82
% of Wine Volume by Distribution Channel
80.0%
MI=23
MO=31
70.0%
NY_PENN=28
% Of Wine Volume
60.0%
50.0%
Other
Channels:
• Wine Clubs
• Own Retail
• Custom Wine
and CoPacking
• Direct Retail
(SM + Gift
Shop)
40.0%
30.0%
20.0%
10.0%
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
Other
Festivals or
Community
Events
Through
Distributors
Direct
Shipments
Farmers
Markets
Restaurant
Liquor
Store
At the
Winery
0.0%
February 15, 2012
Detailed Results
Other Marketing Strategies
Arrangements with Bus Tour Co.
Promotions for Returning Customers
Customer Database
Club Promotions
Website
Newsletter
Social Media (Facebook, Twitter, Groupon, etc.)
Price Discounts
Other
ALL
36%
60%
86%
38%
100%
68%
95%
94%
4%
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
MI
46%
54%
88%
54%
100%
75%
100%
96%
0%
MO
16%
66%
78%
41%
100%
66%
94%
94%
9%
NY_PENN
50%
57%
93%
21%
100%
64%
93%
93%
0%
February 15, 2012
Channel Choice Determinants
Winery Characteristics


Size
Years in business
Marketing Efforts


Promotion intensity
Marketing challenges
Vertical Integration

Distribution
Channel
Choice
Share of own grape in
the production
Horizontal Integration

Inter-winery
collaboration
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012
Channel Choice Determinants:
Fractional Logit Estimates
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012
AFRI / NIFA Project
Integrated Project
Research Objective 3: Examine the extent of
inter-firm collaboration in emerging wine
regions and develop collective action
strategies to foster the development of
regional clusters, including inter-winery
collaboration and collaboration with
supporting and related industries.
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012
Wine Trails
ALL
MI
MO
NY_PENN
N
82
22
32
28
Member of a
Wine
Association
69
19
25
25
Member of
Chamber of
Commerce
65
18
25
22
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
Is there a
Food/Wine
Trail in Your
Region?
64
18
24
22
Member of
Food/Wine
Trail
54
16
19
19
February 15, 2012
Detailed Results
Collective Action Strategies
Reasons to Collaborate with Other Wineries
Share
ALL
MI
MO
NY_PENN
Produce
Grapes
46
16
17
13
Produce
Wine
35
16
11
8
Market
Wine
37
9
16
12
Promote Information
Wine
and
Region
Resources
68
71
19
21
27
27
22
23
Time
None
Lack of motivation of
others
No equal wineries in
region
"Rising Tide Floats All
Boats"
5
5
2
1
1
Challenges to Collaborate with Other Wineries
ALL
MI
MO
NY_PENN
View Others Different
as
Business
No Interest Competitors Philosophy
3
6
35
1
2
7
1
2
14
1
2
14
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
Not a
Priority
19
6
8
5
Lack of Trust Distance
6
17
0
2
5
9
1
6
Other
16
7
5
4
February 15, 2012
AFRI / NIFA Project
Integrated Project
Extension Objectives: Disseminate knowledge and
research insights generated to engage winery
owners and managers, wine industry leaders, wine
grape producers, policy-makers and other wine
industry stakeholders.
Approaches: Workshops with industry participants,
and educational materials.
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012
Thank you!
AFRI/NIFA Grant Award
AwardNumber: 0031130
Description: 2011-68006-30815 Chaddad, Fabio
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions
February 15, 2012