Business

Cool wines, hot market

D’ARCY JENISH August 27 2001
Business

Cool wines, hot market

D’ARCY JENISH August 27 2001

Cool wines, hot market

D’ARCY JENISH

John Peller arrives a few minutes late for lunch, orders a sandwich and salad, and a glass of light golden sauvignon blanc. The 44-year-old president of Andrés Wines Ltd. is seated by a window in the restaurant of his company’s new $ 10-million Peller Estates Winery in Ontario’s Niagara Peninsula—Canada’s premier wine-producing region. The view is splendid—vineyards stretching seemingly uninterrupted to the Niagara Escarpment some 10 km away— and so is the food, but Peller barely touches his. He has come to talk about the winery. It is a two-storey building of stone and peach-colored stucco, with a high-pitched roof and the look of an elegant French country manor. Andrés has invested heavily in the facility, and the reason, he says, is simple: “We wanted to create a place that pays homage to wine life and culture. Besides, it is critically important to give people a reason to come down here.” People do visit Niagara’s wineries, of course—some 500,000 of them every year. Most drive, but a few cycle along country roads lined with vineyards. They travel from one winery to another sampling the products, traipsing through production rooms filled with big silver vats or down into cool, humid wine cellars where recent vintages are aged in oak barrels, then out to vineyards for a brief lesson on how grapes are grown to produce quality wines. The international wine industry has also taken note of the reds and whites produced in Niagara, and Ontario’s two other grape-growing regions—Pelee Island and the Lake Erie North Shore at the western end of Erie. Like their counterparts in B.C.’s Okanagan Valley, Ontario’s wine-makers have scooped up dozens of awards at prestigious foreign competitions over the past decade, including 19 prizes in June at Vinexpo in Bordeaux, France. They’ve made a splash in Europe and the United States with ice wine, a sweet dessert beverage made from frozen grapes, and are attracting both talent and investors from wine-producing countries around the world, all of which has led to some heady predictions for the future. “Niagara is set to become the world’s next hot wine region,” claims Paul Speck, presi-

Canada’s two biggest wine-makers are on an expansion binge, but their strategies are very different: one is going global while the other targets Canadians

dent of St. Catharines-based Henry of Pelham Winery and chairman of the Wine Council of Ontario. “If you look at our climate, and proximity to a big market, we’re on the verge of blowing wide open.” But others, like Peller, think the Ontario industry, which is made up of 90 mosdy small, owner-operated wineries, faces a big selling job at home before it takes on the world. A third-generation wine-maker and a lawyer by training, Peller runs the country’s second-largest wine producer— publicly traded Andrés—which has yearly sales approaching $140 million. In most countries, he says, domestic wine-makers dominate their own markets, and in places like Bordeaux and Burgundy in France, as well as California, up to 90 per cent of the wine consumed is locally produced. Not in Canada, however. Canadians nationwide spend about $3 billion annually on wine and a whopping 60 per cent goes to

imports, mainly from Europe, the United States and Australia—something Peller would like to change.

The new winery—one of the largest and splashiest in the region—is a key part of that strategy. Where many Niagara wineries have the look and feel of farm buildings, and a rustic air about them, Peller Estates is a high-end operation with gleaming

Teresa Barbiéri for Maclean's

hardwood everywhere, posh furnishings and the atmosphere of a small luxury country inn. Peller is betting that the facility will become a key stop for wine tourists, and a venue for corporate meetings and special events. It will mainly produce premium reds—priced at $20 to $50 a bottle—to keep pace with changing Canadian tastes, Peller says. Over the past seven years, red wine consumption has grown at double-digit rates annually, and now accounts for about half of total sales. But the company’s key objective in building the showcase winery is to enhance its reputation for quality. “People know Ontario produces good wine, but attitudes change slowly,” he says. “Canadians are only beginning to become attached to our wines.” Maybe so, but that hasn’t stopped Donald Triggs from developing an ambitious strategy to sell Canadian wines internationally. The 57-year-old Triggs, who traces

his love for land and agriculture to his boyhood on a Manitoba farm, is president of Vincor International Inc., the country’s other publicly traded wine producer and its largest, with annual sales of nearly $300 million. Triggs and vice-president Allan Jackson launched Vincor in 1989 by paying $25 million for the wine division of John Labatt Ltd., which was getting out of the business due to heightened competition brought about by the advent of free trade. After reducing the company debtload, Triggs and Jackson embarked on an acquisition binge financed, in part, by two share offerings that brought in $60 million. Each purchase fit a corporate plan of making Vincor an international force. “We have a vision of distributing our wines around the world,” says Triggs, “and turning them into global brands.”

Vincor began by acquiring vineyards from growers who were reluctant—postfree trade—to invest in the higher quality grapes required to produce premium wines. The company assembled a portfolio of estate wineries, including Inniskillin in Niagara, and Sumac Ridge and Hawthorne Mountain in the Okanagan. Last October, Vincor made its first international acquisition—paying almost $145 million for the California winemaker R. H. Phillips Inc., located in the Dunnigan Hills grape-growing region, 45 km northeast of the Napa Valley—and as part of the deal got Phillips’s U.S. sales representatives and network of 90 distributors. Now, Vincor is shopping for estate wineries in Chile and Australia, and last month officially opened its new JacksonTriggs Niagara Estate Winery, which rivals Peller Estates in scale and cost, although the company is not disclosing the exact price tag.

Vincor spared no expense in terms of personnel, equipment and design. Winemaker Rob Scapin is from Australia, one of his assistants is from California, and the vineyard managers are from South Africa and Australia. The company has incorporated some of the best wine-making technology from around the world, including a New Zealand dumping device for moving fresh grapes into the winery, French presses, and temperaturecontrolled fermentation vats made of German steel. And the wines are aged in oak barrels from France and the United States. Architecturally, the three-storey winery is a grand mix of old and new, with post-and-beam construction reminiscent of traditional Ontario barns, and exposed duct work and floor-to-ceiling windows that are decidedly contemporary. “Our company is about the future of the industry,” says Triggs, “and this winery reflects that.”

One part of the future, for Vincor at any rate, is strategic alliances with European producers. Triggs has convinced two prominent French wine-makers to invest in new projects in Niagara and the Okanagan. Vincor and Boisset, La Famille des Grands Vins, the largest producer in France’s Burgundy region, are currently developing a vineyard on 52 hectares of land at the foot of the escarpment and have commissioned the renowned expatriate Canadian architect Frank Gehry to design the winery. The Canadian company has also joined forces with the Bordeaux wine producer Groupe Taillon to develop a vineyard and winery above Lake Osoyoos in the southernmost part of the Okanagan. Besides putting money and expertise into Canada, the French investors will open doors for Vincor in Europe. “They have introduced us to agents and distributors who can market our wines,” Triggs notes. “We believe that Europeans are becoming very favourable towards new world wines.”

But in the past, regulations imposed by the European Union severely restricted Canadian access. Domestic wine-makers were allowed to ship annually up to 1,000 hectolitres, or 133,000 regular bottles of table wine, under a special allowance for small producers. Few companies were prepared to spend the money required to develop European markets when access could be withdrawn at any time. Furthermore, if a few wines took off, producers would very quickly have reached the import quota. As for ice wine, the EU ruled that its alcohol content could exceed the acceptable limit and prohibited sales in member countries. Federal and provincial officials, as well as the wine industry, lobbied vigorously against the ban and finally prevailed in May. At the same time, the EU removed the ceiling on imports of Canadian table wines.

Wine-makers anticipate that the changes will lead to an immediate surge in ice wine exports. The product, which was invented by German monks in 1794, is very rare in

Europe because only Germany and Austria can count on the right weather conditions with any consistency. Ice wine is made from extremely ripe grapes harvested while frozen solid at temperatures of-8° C to -12° C. It’s generally sold in 375-ml bottles—half the size of a standard bottle of table wine—at prices that start around $40 because it’s so risky to produce. Niagara wine-makers turned out 329,000 litres last year, and about one-third of the production is exported to the United States and several parts of Asia, including Taiwan, Japan, Flong Kong and even China. “All of a sudden, here’s a country that can start to supply the world,” says Speck. “It’s exciting, and people took notice.”

But most Ontario producers do not see

a ready market for their table wines in Europe. Sales and marketing campaigns are expensive, they say, and the market crowded. Paul-André Bose, 41, vicepresident of marketing and administration with Château des Charmes estate winery, points out that production from the world’s 60,000 wineries is increasing by nine per cent annually while consumption is growing by only two per cent. “Were seeing a lot of bullishness about the future,” says Bose. “But if we don’t find new markets, we’re just playing musical chairs. And five years from now, there won’t be chairs for everyone.” Before the music stops, though, wine-makers like Peller hope to find seats by turning more Canadians into loyal consumers. E3