Quantity vs. Quality: An Analysis of Wine Export Strategies into the U.S. Market
The six largest wine exporters to the US are Italy, Australia, France, Argentina, Chile, and Spain which cover 87% of all wine exports by volume and 88% by value. Each of these countries follows quite different paths in terms of export volumes vs. export values for the ten years 1999-2008. French exports to the US for example have hardly moved in terms of quantity (+1%) during these years but they managed a 5% growth p.a. in terms of export value. In contrast, Australian exports to the US have increased by 20% p.a. in terms of volume but only by 16% p.a. in terms of value. Italian exports to the US have increased by 6% in terms of volume and by more than 10% in terms of value. In this paper, we attempt to analyze and interpret these macro trends using micro-level price-quality relations on an exporting country by country basis. For this purpose, we estimate separate hedonic regressions to determine the impact of quality indicators on consumer willingness to pay. Our analysis suggests that relative to Italy and France, Australian wine achieves a lower quality premium and a higher discount for labels exported in large quantities. This illustrates that the tremendous growth rates in Australian exports to the US has created a generic reputation problem for the country. On the other hand, the high quality wines from Australia struggle to find their market in the U.S. because consumers are not familiar with them and thus will only pay a lower quality premium relative to their European competitors. While rapid export growth has made Australian wine a household name in the US, it also has made it more difficult for high quality producers to differentiate themselves from high volume export brands.