American Wine IncExporting to France?

Keith HaysFrench Economy

Bart HundtFrench & EU

Import Laws and Regulation

Trevor GrahamFrench Wine

Industry Analysis

Neal GeeFrench Wine

Market Overview

French Economy

Keith Hays

French EconomyDemographics France United States

Population 60,424,213 293,027,571

Age Structure 0-14 18.5% 20.8%

15-64 65.1% 66.9%

65+ 16.4% 12.4%

Median Age Total 38.6 Years 36.0 Years

Male 37.0 Years 34.7 Years

Female 40.1 Years 37.4 Years

Pop. Growth Rate 0.39%/Yr 0.92%/Yr

Birth Rate/1,000 12.34 14.13

Death Rate/1,000 9.06 8.34

French Economy

Moving to a market economyPrivatizing many sectorsGovernmental control of utility sectorCapitalistic Society Government lowered taxes

Taxes 43.8% of GDP Employment Issues

35 hour work week Restriction on Layoffs

Pension Reforms

French Economy

Economy Sluggish 2003 deficit 4% of GDP Business investment listless

Low rate of capital utilizationSluggish DemandHigh debtSteep cost of capital

Economic Data France United States

GDP $1.661 trillion $10.99 trillion

GDP Real Growth 0.50% 3.10%

GDP Per Capita $27,600 $37,800

GDP Composition By Sector

Agriculture

2.7% 1.4%

Industry 24.4% 26.2%

Services 72.9% 72.4%

Population Below Poverty 6.5% 12.0%

Consumption By % Share

Lowest 10%

2.8% 1.8%

Highest 10%

25.1% 30.5%

Inflation Rate 2.1% 2.3%

Labor Force $27.39 Million $146.5 Million

Labor Force By Occupation

Agriculture 4.1%

Industry 24.4%

Services 71.5%

Unemployment Rate 9.7% 6.0%

Public Debt (% Of GDP) 68.8% 62.4%

French & EU Import Laws and Regulations

Bart Hundt

French & EU Import Laws and Regulations

French labeling and product ingredient regulations are among the most strict n the EU. Severe limits on food labeling superlatives. Cannot use “ great tasting…” Labeling cannot be used to promote product

Products produced in accordance with specific processing procedures. If they do not conform they may be subject to

special taxes

Labeling Requirements

Labels must be in French regardless of origin. Multilingual labels are acceptable.

EU has an approved additive list . Does not mean that the additive is

approved in France. Foreign names are forbidden in place of existing equivalent French terms.

Labeling Requirements

Most items must have in same area of label Product name Net quantity (must be in metric units) Date of minimum shelf life

Date best consumed by (on non perishable products) To be consumed before (on perishable products)

Wines and spirits that have an alcohol content of 10.5 or greater are exempt from date labeling

Country of origin must be indicated not less than 4mm in height

France has its own packaging or container size requirements for wines and alcohol.

French Import Regulations

France is more strict than the EU.Items must comply with French regulations before they are shipped to France. French imports of wine from non-EU countries are subject to EU import duties which vary depending on the percentage of alcohol contained in the wine and the type of container.

French Import Regulations

Also a VI.1 document is necessary. EU document certifying that the US wine

exporter is approved by the US BATF. Taxes for alcoholic beverages.

Taxes for alcoholic beverages are 19.6%.

French Wine Market Overview

Neal Gee

Wine Industry in France

Tightly regulated by EU and AOC rules.Regulations address maximum yield, permitted grape varieties, location of vineyard site, and even pruning practices.Strict regulations have led to market decline.Wine growers are unable to adapt to global market changes because of strict guidelines.

Wine Industry in France

France is currently world’s second largest producer of wines, but is losing position quickly.France specializes in premium brands of wine that exceed, on average, $30 a bottle.Many of France’s wines are created from Hybrid grapes that originated in the US in the 1950’s.

Wine Industry in France

In the 1950’s one-third of wine grapes were from American pedigrees.In 2003 the average French adult drank 58 liters of wine.37% of French citizens consider themselves regular consumers of wine.

Recent Declines

In 1999 French wine producers exported 79 million fewer bottles than previous year.French wine exports plunged another 10% last year while domestic sales dropped 5%.French consumption in restaurants has slumped by 15-20%.The decline in the wine industry is also reflected in the sudden collapse in the value of vineyards in the country.

Recent Declines

Overproduction has been a constant problem leading to large supplies that far exceed demand and create downward price pressure.Due to slumping sales nearly one-third of France’s winescape has disappeared.

Problems

Growers complain that strict advertising laws are preventing them from reversing declining trends.Lack of focus and a shortage of new marketing strategies derived to adapt industry to the demands of a changing global market.Wine surplus will likely continue.New entry of abundant amounts of Spanish and Portuguese wines into EC trade.

Problems

French have failed to understand the markets they are selling to and have been production led instead of led by market.French have not been focused on quality across the board.AOC system has protected poorer wine producers from market forces that create incentives to achieve quality.

French Wine Industry

Trevor Graham

French Wine Production

World’s #1 wine producer in 2002.

Production statistics.

2002 France’s share of total world wine production was about 20% compared to the US 8%.

World Wine Production

01020304050

6070

France

Italy

Spain

United States

Argentina

Austalia

Chile

1999/2000

2000/2001

2001/2002

Mil

lion

H

ecto

lite

rs

French Wine Consumption

Has been decreasing in France since 1999. Study conducted by the French Agricultural

Research Center (INRA) and the French Office for Wines and Vines indicated that this trend will continue and result in a 25% decline in wine consumption by 2010 as compared to 1999.

French Wine Consumption

Domestic wine consumption has continued to decline. Trend is expected to continue in coming

years. Sales in supermarkets for 2002 dropped

2.5% compared to 2001 . Quantity purchased by food service sector

(restaurants, etc) decreased 2% in 2002. Shrinking use of cheaper “table” wines.

French Wine Consumption

Consumers are moving from quantity to quality

Preferences

French Wine Consumption

Age Market (Studies by ONIVINS) Consumers under the age of 35 (23%

French households) represent the smallest consumer group.

Consumers between the ages of 35 and 49 (30% French households) make 25% wine purchases.

They purchase white wines in larger quantities than any other age group.

French Wine Consumption

Age Market (Studies by ONIVINS) Consumers between the ages of 50 and 64

constitute the leading buying group in all categories with a preference for red wines.

Also major consumers of Champagne consuming 11% above the average consumption level.

Together with the 65+ this group constitutes 47% total French households.

The age group of 65+ are the leading buyers of still wines, mostly table wines

French Wine Exporting

1/3 of production goes to the EU; other major clients include US, Canada, Denmark, and Japan.

Early 2003 results.

Wine Export Market Share

Other12%

Italy28%

Spain18%

USA 5%

Portugal 3%

Germany 4%

S Africa 3%

Chile 5%

Australia 6%

France 26%

Argentina 2%

France-Wine Export Destinations

0

200

400

600

800

1,000

1,200

1,400

UK United States

Germany

Belgium

Japan

Netherlands

Switzerland

Canada

Denmark

Italy

1990

2000

2001

Mil

lion

D

olla

rs

French Wine Exporting

Continues to lose market share among major clients to the advantage of “new world wines” .

French Wine Exporting

French Wine Exporting

Trade surplus in wine for 2002 was €5.2B, an increase of 6.6 percent over the previous year. French wine exports are very concentrated.

French Export Promotions

In 2002 France had a total budget of €10.4M for promotions of French wines in different countries, including the US. Promotional activities funded by ONIVINS focused

on: Advertising campaigns. Promotional materials. In-store promotions in specialized outlets,

hotels, restaurants, as well as fairs and trade shows.

Four year program launched in 2003.

French Export Promotions

Assistance from the French Minister of Agriculture. Trade shows. Wine and Spirit Wholesaler Association in

Las Vegas, May 2004. VINEXPO in Chicago in June 2004.

French Wine Imports

2002 decreased 11.6% in volume with a worth of 460M Euros ($435M). US represents only 2% total French wine

imports, French imports of US wines has been growing steadily from 15K HL in 1994 to 96K in 2002.

In 2002 French imports of US wines increased 32% in volume and 19% in value.

French Wine Imports

Table wines represented 79% of total wine imports in volume, mostly from other EU countries. Leading Suppliers EU nations. Non EU nations.

French Wine Imports

Imports of US wines have increased 54% in volume over the period 1999-2002.

This can be largely attributed to the presence of Gallo Winery in this market since 1998.

French Market

Challenges Boosting both domestic and export

markets.France and the EU French government is urging European

growers to adapt to changing consumer demand in order to better compete with emerging third country competitors and in new markets.

French Market

Production Policy and Governmental Support Subsidies

2002 ONIVINS paid €1.5 Million. EU agreements to reduce subsidies

Goals Reduce 21% in volume and 36% in

value.

French Market

Distribution and Infrastructure Mail order sales are generally made directly

by the producer. Wholesalers and importers make up

France’s wine distribution system.Wholesalers specialized wine stores,

food stores, restaurants and institutions. Supermarket wine sales make up 78% of

household wine purchases, while 22% come from specialized wine sales (wine stores, etc).

French Market

Advertising Policy Television and radio

Wine industry continues to lobby for modifications to these laws.

US Opportunities in France

Most of the American wines sold in France are Cabernet Sauvignon, Chardonnay, Zinfandel, and Pinot Noir from California.

US competition

US Opportunities in France

There are opportunities for US wines in France, thanks to the “exoticism” and quality of US wines. E&J Gallo have been present in France since 1998 and Mondavi wines since 2000.

Recommendation

Surplus Supply Government subsidies Declining wine exports

Cost Prohibitive Labeling requirements Import taxes

Recommendation: NO