Putting a Cork in Climate Change
Given the environmental impact of rapid climate change, it is becoming imperative for companies in the wine industry to alter and align their business and operating models to remain competitive.
Given the environmental impact of rapid climate change, it is becoming imperative for companies to alter and align their business and operating models to remain competitive, particularly in the wine industry. The consensus in the wine industry is that the implications of global warming will have ramifications on its supply. In vineyards however, a great deal of variability exists so it is hard to trace specific aspects of climate change to wine yields, making it difficult to diagnose the problem and devise a working solution [1].
In order for grapes to harvest and eventually become wine, a vintner needs the vineyard grounds to dry out which generates the heat that develops the sugars, acids and tannins that truly construct a good wine [2]. The effects of climate change are evident in areas where the land is drying out earlier than in the past either due to droughts or abnormally warm temperatures, especially in the California regions. In most instances, that results in an overpoweringly sweet wine with poor tannins and can jeopardize the aging quality of the wine [3]. No doubt, the land that is available for viticulture is starting to shrink.
Founded in 1945, Constellation Brands (CS) is a leading international producer and marketer of beer, wine and spirits, and, as such, stands the most to lose from systemically lower grape yields. The wine division of CS includes more than 100 brands and operates 40 wineries and over 19,000 acres of vineyards worldwide [4]. The majority of CS wine brands are based in North America, where vineyards are typically low in elevation and susceptible to climate change. The overheating of the soil in these areas require excess fresh water usage to maintain cold temperatures which has proven difficult with recent California droughts.
Despite that climate change is effectively reducing the amount of wine that can be produced, consumer wine consumption has actually continued to rise in recent years [5], putting pressure on CS to produce premium wines at a fast pace. Given this environment and the regulatory landscape that exists around sustainability, the wine division of CS has an opportunity to differentiate by engaging its supply chain to minimize resource usage and costs. At many of its vineyards and production facilities, CS has implemented next-generation recycling programs, solar power initiatives, and water treatment programs where they engage with the entire supply chain on these measures. In fact, CS owns the largest solar array of any wine producer in California and estimates $8 million per year in savings from the initiative [6]. In 2010, CS became certified as part of the California Sustainable Winegrowing Alliance (CSWA), a certification program based on industry best practices, reporting and transparency around sustainability. Today, all of CS wine brands in CSWA are certified [7].
As a front-runner in this industry, CS has successfully made sustainability a pillar of the organization. Unfortunately, the several thousand independent wine brands in the US don’t have the deep pockets to implement sustainability programs. CS should continue to partner and/or acquire these brands so they to have the ability to fight climate change by leveraging the supply chain of CS. That said, CS should allow its brands to retain control and operate their businesses as they have in the past as to not disrupt the independent character of the industry.
While climate change is reducing California grape yield, rising temperatures actually may be increasing yield in other more nascent wine markets such as England and Canada. From both standpoints of capital and market leadership, CS is in a position to take advantage of non-traditional wine geographies. Whether through acquisition of companies, land, or building vineyards “on spec,” CS can also view rising temperatures as a Greenfield opportunity.
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[1] Climate Change From A Global Wine Industry Perspective, From Forbes, http://www.forbes.com/sites/thomaspellechia/2016/06/20/climate-change-from-a-global-wine-industry-perspective/#2901848d429f, Accessed November 2016
[2] An Upside To Climate Change? Better French Wine, From NPR, http://www.npr.org/sections/thesalt/2016/03/21/470872883/an-upside-to-climate-change-better-french-wine, Accessed November 2016
[3] Climate Change: Field Reports from Leading Winemakers, From Journal of Wine Economics: Volume 11, http://www.wine-economics.org/aawe/wp-content/uploads/2016/06/Vol11-Issue01-Climate-Change-Field-Reports-from-Leading-Winemakers.pdf, Accessed November 2016
[4] From Constellation Brands Website, http://www.cbrands.com/about-us , Accessed November 2016
[5] Wave Of Mergers And Acquisitions Sweeps U.S. Wineries, From Forbes, http://www.forbes.com/sites/brianfreedman/2016/08/11/wave-of-mergers-and-acquisitions-sweeps-u-s-wineries/#5fcc56ff5053, Accessed November 2016
[6] Constellation Brands Recognized By CDP as S&P 500 Leader for Climate Change Transparency, From Constellation Brands Website, http://www.cbrands.com/news-media/constellation-brands-recognized-cdp-sp-500-leader-climate-change-transparency, Accessed November 2016
[7] From Constellation Brands Sustainability Website, http://www.constellationcsr.com/sustainability/, Accessed November 2016
What do we want ? More wine ! How do we want it ? Sustainably produced ! When do we want it ? Now !
Great post, Gabby. It’s interesting that climate change not only has an impact on the quantity of wine produced, but also the quality – which in my opinion, is the primary differentiator in a competitive industry. I wonder if the investment in sustainable practices contributes to the bottom line, or, as is true in the case of fast fashion, the cost has to be passed through to customers ? If the latter, I would be curious to know what it will take customers to switch over to sustainably-sourced wines, particularly if they are not abundantly available.
Thanks for sharing Gabby! You brought up a great point that CS’s scale allows them to have sufficient capital to invest in sustainable growing initiatives while it may be more difficult for smaller, independent wineries. Outside of CS acquiring these smaller operations, I keep wondering if there are other ways for these independent shops to get the resourcing they need to develop their own sustainable practices, especially if the savings reap long-term benefits (both financially and environmentally).
Very interesting read, Gabby! Similar to the comment above, I wonder if there is an alternative method to acquisition that would promote sustainability of independent wine brands. Given that many vinyards pride themselves on being independent, family owned, etc, they may not be very open to acquisition yet willing to pay in order to increase their sustainability. Perhaps CS can create some type of sustainability guide / program that they can sell to the independent wine brands to create a new revenue stream. This may include the full package of solar power coordination, a recycleing infrastructure, etc.
Thought provoking. I’m curious if CS or any other vintners have been able to replicate grape yields in more controlled environments. If renewable energy is readily available, do grapes of a similar quality do well in indoor or other engineered growing environments? Applying some ingenuity to the grape cultivating process may yield a promising innovation to meet demand and reduce the pressure on the environment.