Geography vs. Brands in a Global Wine Market

Producer brands increasingly dominate the international wine market. Concurrently, generic advertising campaigns are launched in an attempt to promote wine origin and exports (e.g. Australia, Austria, Spain). We analyze U.S. price data and quality indicators for 24 wine growing regions within eleven countries using a hedonic modeling approach. We assess the value of producer brands vs. geographical indicators that signal above average quality. We define an indicator for high, average, and low quality producers (brands) within a region based on their relative peer performance, i.e. whether they consistently produce qualities that are one standard deviation above or below the regional average. Based on this indicator, estimated premiums (discounts) range up to +20% (-10%) for high and low quality producers (brands) within their regions. The estimated regional price differences range up to 50%. On average, prices for a top new world producer never exceed the prices obtained for an average Napa Valley producer brand which was chosen as the reference category in the estimation. In contrast, prices for the top producers from France and Italy will exceed the prices even for the top Napa Valley producers. Therefore, we must conclude that new world wine still has to catch up with the old world in terms of regional reputation. However, leading new world producers are able to pick-up most of the price differential. We can conclude that generic promotions with export quality controls accompanied by quality leaders emphasizing origin in their own marketing efforts can level the playing field for laggard regions.