Wine Sector in France July.doc, The - PARADIS.pdf - studia - yeciu

Wine Marketing Colloquium

Adelaide, Australia

26-27 July 2003

T HE WINE SECTOR IN F RANCE :

A TENTATIVE ECONOMIC SYSTEM DESCRIPTION

Jean-Pierre COUDERC and Hervé REMAUD

Jean-Pierre Couderc:

Associate Professor at Montpellier University of Sciences / CREGO research lab.

and Visiting Professor at Ecole Nationale Supérieure Agronomique de Montpellier / UMR

MOISA research lab.

H. Remaud:

Assistant Professor at Perpignan University

and Associate Researcher at UMR MOISA

A GRO Montpellier

U.M.R. MOISA

Place P. Viala – 34060 Montpellier cedex 1

France

Mail: couderjp@ensam.inra.fr

remaud@ensam.inra.fr

Tel (JPC & HR): 00 33 04 99 61 28 67

Fax (UMR MOISA): 00 33 04 67 63 54 09

A financial analysis of the wine firms in France leading to a tentative economic

system description of the wine sector

Abstract

The contribution of the wine firms to the French economy is not very well known, and due to broad

differences in methodology, it is very difficult to measure the added value they produce. This can

explain why, to our knowledge, a classic systemic approach of the wealth created by the various

subsets making up the wine industry in France has previously never been undertaken.

Most of the results presented here are issued from applied research undertaken in 2000, and updated

in 2002, which exhaustively lists and then analyzes (from a financial viewpoint) the French wine

firms. This exploratory article will first describe the context and methodology of this research and

explain why the analysis has been split between Still Wine Firms (SWF), mainly commercializing

table and fortified wines, and Effervescent Wine Firms (EWF) mainly commercializing sparkling

and Champagne wines. In a second part, it will present these French wine firms various values

contribution to the system, along with some of their most striking typologies. In a third part, it will

attempt to better define the economic weights of different subsets within the ‘wine sector’ system in

France.

One of the main findings emerging from this research contrasts the widely accepted view in similar

economic industrial sectors that ‘bigger is better’. In France, the ‘hectomaniac’ businesses

significantly under perform medium-sized firms with important vineyard properties… The fact that

‘viticulture’ is producing 50% more added value than the ‘wine firms’ is another revealing figure

issued from this tentative system description: it tends to confirm the primacy of the ‘origin’ over the

‘private brands’ in France.

Introduction

As strange as it may sound, the contribution of the wine firms to the French wine industry is not

very well known. Although it is the first agricultural production sector in value terms (8 900

millions Euros - MM

), and also the first industrial sector for its net contribution to the French

commercial external balance (4 900 MM

€

), the total value produced by the wine industry in France

is still unclear, and the shares of the added value it creates at production, distribution or

consumption stages have never been thoroughly evaluated.

€

The production level (viticulture and cooperatives) and the consumption level have benefited from

in depth research, contrary to the intermediate levels: the ‘ wine-firms ’ (independent marketing

entities, wineries, merchants or ‘negociants’ and commercial unions of cooperatives) and the wine

distribution channels. Both of them are still considered as ‘black boxes’ in most of the economic

literature aiming at a description of the wine sector. Methodological difficulties to measure the

added value they produce are quite numerous. This can explain why there has been, to our

knowledge, no classic systemic approach measuring the wealth created by each of these different

subsets making up the ‘French wine economic sector’.

Thanks to the results of an applied research run for the Onivins (National Office of the Wine Inter-

professions) in 2000, and actualized in 2002, which exhaustively lists and then analyzes (from a

financial viewpoint) the French wine firms, this tentative article will first discuss the context and

methodology of this exploratory research. In a second part, the analysis has been split between ‘Still

Wine Firms’ (SWF), mainly commercializing table and fortified wines, and ‘Effervescent Wine

Firms’ (EWF) mainly commercializing sparkling and Champagne wines, and presents some of the

SWF most striking typologies. A third part will be aiming at an original description of the ‘wine

firms’ various values contribution to the system in an attempt to better define the economic weights

at different stages of the ‘wine sector system’ in France. Once the ‘wine firms’ weight has been

estimated, then the distribution level can be inferred (by subtraction) from available consumer data 1 ,

and the whole system can then be reconstituted.

Part 1: Context and methodology of the research

2.1 The French wine sector: a simplistic view of the context

Broadly speaking, world wine competition today can be seen as a confrontation between the ‘Old

World’ (Italy, France, Spain and Germany) and the ‘New World’ (California, Australia, South

Africa and some South American producing countries):

- The ‘Old World’ has historically given a primacy to the origin of the grapes, and for

centuries, has mainly promoted its ‘appellations’ through regional, family-owned

businesses.

- The ‘New World’ supports the grape variety choice, and in the past decades, its large

integrated wine firms have been seeking to develop strong private brands 2 .

Regarding firms involved in the industrial sector, these phenomena should be reflected in the

‘configurations’ of strategy and structure, per D. Miller (1996), as well as in their financial structure

and performance.

Most of the estimations of economic aggregates used in this article come from publications obtained from the

Economic Services (Division of Studies and Markets) of ONIVINS (National Office of the Wine Inter-professions),

which is financing and centralizing most of the research and available statistics describing the wine sector in France.

On the subject of ‘branding’ and the consequent firms search for economies of scales we refer the reader to D. Aaker

(1996), J.N Kapferer and J.C. Thoenig (1989) or P. Aurier (1998).

We have always been surprised by the curious and unique metonymy in the food and drink sectors,

which confounds the ‘grape’ into the ‘wine’ sector, from the vineyard to the consumer, in France 3 .

This can be explained by the historic necessity for wine-making on the premises, whereas the

careful choice and balance between natural and human factors when establishing a vineyard with its

cellar were critical. Today technology development allows one to separate these ‘agricultural’ and

‘industrial’ activities.

Could this metonymy help explain the organization of the French wine sector and spark the

continuous internal squabbling about the division of added value between ‘producers’ and

‘merchants’?

This opens the debate about the definitions of ‘agricultural’ sectors of the economy as well as the

question of their “meso-analysis” (between micro and macro economy), as discussed by L. Malassis

(1992) or J.C. Montigaud (1992).

Although we do not pretend to develop such a detailed analysis of the French wine sector in this

paper, it might be worth mentioning that the results of the financial analysis of the French wine

firms presented in part 2, lead us to propose an original systemic view about the French wine sector

organization and the economic weight of its various subsets or stages from vineyard to the

consumer’s glass.

2.2 Wine firms panel construction and weight estimation

1. A ‘large’ selection of wine related firms has been extracted from the data available through the

SCRL-Diane financial database grouping French businesses by their mandatory fiscal

declarations.

2. Within this first list, the following have been eliminated from the final selection if they had no

direct wine activity or if they only had a ‘pure’ commercial role:

€

Brokers and wholesalers or distributors

€

All-purpose bottlers

€

Holdings and non-trading investment firms

Alcohol producers

This first selection was realized through a double-checking system:

€

Cross-checking of firms selected from ‘private’ data bases such as French

‘Negociant’ Syndicates and the viticulture office of the Crédit Agricole bank

Verification of the basic data: Firm national identification number (Siret),

address, number of employees, legal status, …) by the Regional Offices of

Onivins (occasionally using the data base of the regional winemakers

syndicates).

3. A second selection was made in order to eliminate the wine businesses with less than 2.3

million

€

total sales in year 2000, and was complemented by ‘qualitative’ and ownership data

extracted from the Financial Links (FIBEN) obtained from the French National Institute of

Statistics (INSEE).

4. Finally, this panel was completed by the complete financial data extracted from Diane-SCRL

for the period 1992-2000, and split into a ‘Still (and fortified) wine firms panel’ (SWF) and a

‘effervescent (and sparkling) wine firms panel’ (EWF). Thanks to previous research, we had

evidence of production and financial discrepancies in between these two groups (EWF require a

re-fermentation of still wines, special handling, storage and bottling capacities, three years

mandatory stocks in Champagne, etc.)

Due to the lack of economic measures of the wine firms activities, export sales statistics are the only

strong reference we can compare our panel to. In this respect, the final selection of SWF with more

€

Economists and agricultural institutions define a ‘milk’ sector, not ‘cheese’ ; or a ‘wheat’ sector, and not ‘pasta’.

than 2.3 MM € of sales represents about 70 % of the French table wine export sales and 90 % of the

French sparkling wine export sales.

Exhaustiveness of the Still Wine Firm (SWF) and Effervescent Wine Firm (EWF) panels

The sum of the total sales of the entire panel, which represents 75 % of the 18 000 MM

estimated

for the wine sector at wholesale level, does not include some 200 cooperatives which do not make

their accounts public (special research has thus been undertaken to determine this information).

€

On the other hand, the sum of declared exports by the firms of our panel is somewhat under-

evaluated against the figures produced by the French foreign exchanges statistics, as they are

supplied on an ‘ex-cellar’ basis in the financial declarations, when the Customs declarations are

based on a ‘FOB’ basis.

No. of

wine

firms

Export

turnover

(a)

Year 2000

MM €

Sales

turnover

Export share

of turnover

Total French

exports (b)

Workforce

a / b

TOTAL wine firms

691

13 241

4 109

31.0%

19 896

5 450

75.4%

For the SWF panel, we are only able to evaluate 70 % of the total French exports (described in

exhibit 1) due to the following factors: some firms do not declare their export sales in their

accounts, and the export sales of firms with less than 2.3 MM € sales can be very significant

(especially from renowned Domains or Chateaux in Bordeaux or Burgundy).

The data in exhibit 2 is highly representative as it includes 90% of all EWFs, and direct export sales

of small Champagne properties or cooperatives is quite limited.

When looking at these exhibits retracing the exhaustiveness of our panels, one can notice that the

selection coverage has improved over the years, thanks to the cumulated efforts of the experts

interviewed and the Onivins regional services. On the other hand, the decline observed in the year

2000 is simply due to a late deposit of the official accounts by some firms.

Part 2: SWF and EWF financial contributions and typologies

2.1 Financial analysis of the Table wines firms (SWF)

This representative panel of still and fortified wine firms with sales above 2,3 millions

accounts

for 55 to 70 % (depending upon the year) of the total still wines exports of France. A characteristic

of these firms is that they are quite small 4 . In fact, the average SWF size represents only 0.2 % of

the total estimated market, and has decreased in relative weight since 1992. We will explain this

further when measuring the concentration level of the industry.

€

This research is therefore positioned in the field of the ‘small businesses’ (SBE). The SBE financial specificities

which have been useful to conduct this analysis can be found in A. Marion (1982), R.R. Pettit and R.F Singer (1985),

J.S. Ang (1992), B. Belletante et N. Levratto (1995) or V. Colot et P.A. Michel (1996).

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