Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions February 15, 2012 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
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NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions February 15, 2012
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-ColumbiaMiguel I. Gómez, Cornell University
NCRCRD WebinarFebruary 15, 2012
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions February 15, 2012
Number of Wineries in the U.S.
19401945
19501955
19601965
19701975
19801981
19821983
19841985
19861987
19881989
19901991
19921993
19941995
19961997
19981999
20002001
20022003
20042005
20062007
20082009
20100
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
YearSource: 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 ProjectObjectives 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
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.
Michigan Missouri New York
Number of Wineries (2009)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
Wine Grape Acreage 2,100 1,600 11,000
Wine Grape Production (in tons) 5,300 4,400 172,000
Wine Industry Economic Impact
$790 million (in 2005) $1.6 billion $2.5 billion
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
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions February 15, 2012
0 5 10 15 20 25 30 35 40 45 500
50,000
100,000
150,000
200,000
250,000
Wine Production by Years in Business(r = 0.42)
Wine Production Linear (Wine Production)
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions February 15, 2012
OverviewWine Owner/Manager Characteristics
0-25% 26-50% 51-75% 76-100%0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
% of Time Spent At The Winery
ALLMIMONY_PENN
Cum
ulati
ve %
ALL 76%MI 87%MO 75%NY_PENN 69%
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions February 15, 2012
OverviewWine Owner/Manager Characteristics
0-25% 26-50% 51-75% 76-100%0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
% of Net Worth Invested in the Winery
ALLMIMONY_PENN
Cum
ulati
ve %
ALL 53%MI 50%MO 58%NY_PENN 49%
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions February 15, 2012
OverviewWine Owner/Manager Characteristics
FREQUENCYCHALLENGE ALL MI MO NY_PENNBusiness Opportunity (GW+diversify) 9 0 3 6Passion for Food/Wine/People (Wine+Other) 49 17 21 11Quality of Life (2) (qual+retire+adv) 38 12 16 10Hands in Dirt (2) (dirt+satisf) 32 13 12 7Family (Family Business + Fun) 6 2 3 1Community (Tourism, EcDev) 20 7 8 5Other 3 0 0 3
Motives for Entry into Wine Industry
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions February 15, 2012
Challenges Faced in “Undiscovered” Wine Regions: At the WINERY
FREQUENCY
CHALLENGE ALL MI MO NY_PENNGrape Production 32 13 12 7Winemaking 27 7 12 8Marketing 46 15 16 15Finance 25 10 8 7Managing the Winery 24 7 13 4Labor Related Issues 19 4 8 7Environmental Issues 0 0 0 0Regulatory Issues 29 9 9 11Quality 11 3 5 3Access to Resources 10 1 5 4Competition 6 0 4 2Other 5 2 0 3
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions February 15, 2012
Challenges Faced in “Undiscovered” Wine Regions: In the INDUSTRY
FREQUENCYCHALLENGE ALL MI MO NY_PENNGrape Production 24 5 8 11Winemaking 21 5 8 8Marketing 38 1 23 14Finance 11 1 8 2Managing the Winery 7 1 4 2Labor Related Issues 25 15 6 4Environmental Issues 0 0 0 0Regulatory Issues 25 8 8 9Quality 25 4 13 8Access to Resources 8 5 2 1Competition 10 2 4 4Other 21 17 1 3
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions February 15, 2012
Specific ChallengesMarketing
FREQUENCYCHALLENGE ALL MI MO NY_PENNSetting Prices 29 11 12 6Developing new wines 4 2 1 1Branding wine 18 0 9 9Identifying the appropriate promotion strategy 0 0 0 0Managing distribution channels 45 14 17 14Dealing with competition 15 3 9 3Segmenting the market 9 1 3 5Understanding consumer needs/wants 19 0 12 7Other 8 3 2 3
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions February 15, 2012
AFRI/NIFA GRANT AWARDAward Number: 0031130
Description: 2011-68006-30815 Chaddad, Fabio
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.
Rural Entrepreneurship in the Wine Industry:Identifying Success Factors Among Start-Up Wineries in Emerging Cool Climate Regions
Situation Inputs
Knowledge
OutcomesOutputsActivities
Actions Conditions
Increased success rate of start-up wineries in cool climate regions
Development of wine-based clusters in cool climate regions
Growing number of new wineries in cool climate wine regions.
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.
Wine industry stakeholder needs & assets
Research and extension staff with industry knowledge
Three graduate students in Agric. Econ.
Network of collaborators in three states
Integrated conceptual framework
Databases and expert modelers
Existing wine cluster analyses
AFRI Funding
Stakeholder input on conceptual framework
Lit. review on procurement and distribution strategies
Survey wineries and build panel data set
Econometric analyses of data across 3 states
Workshops with industry stakeholders
Study tour to developed wine region
Prepare educational materials
Hypothesis: we can identify strategies for wineries to overcome survival challenges and for industry leaders to develop wine-based regional clusters in cool climate regions.
External Factors: industry conditions that affect start-up winery survival and growth; willingness of industry participants to develop and engage in collective action strategies.
Statistical analysis of survey results
Econometric model results
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
Factors that affect winery survival and growth
Efficient grape procurement strategies
Marketing strategies to overcome lack of legitimacy
Extent and impacts of inter-firm collaboration
Effective collective action strategies for cluster development
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
Industry leaders will adopt collective action strategies for wine cluster development
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions February 15, 2012
AFRI / NIFA ProjectThe Team
Fabio R. Chaddad (University of Missouri)Michael LeonardelliRandy WestgrenGraduate students
R. Brent Ross (Michigan State University)Paul JenkinsGraduate students
Miguel I. Gomez (Cornell University)Nelson BillsGraduate students
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions February 15, 2012
Legitimacy• Regulative• Normative• Cognitive• Industry
Individual-level Resources• Human capital• Education• Experience• Skills
Survival• Cross
survival threshold
Growth• Sales• Members
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions February 15, 2012
AFRI / NIFA ProjectIntegrated 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 ResultsProcurement Strategies
Grapes Juice Bulk Wine0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
ALLMICHIGANMISSOURINY-PENN
Source of Raw Product
% o
f Win
erie
s
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions February 15, 2012
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions February 15, 2012
AFRI / NIFA ProjectIntegrated 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
Time 5None 5Lack of motivation of others 2No equal wineries in region 1"Rising Tide Floats All Boats" 1
NCRCRD Webinar: Challenges Facing Wineries in “Undiscovered” Wine Regions February 15, 2012
AFRI / NIFA ProjectIntegrated 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