Practice Change Research
Milestone Report
The Market Potential of Tannin Related Innovations in the Wine Industry
June 2007
Megan Hill and Geoff Kaine
Department of Primary Industries, Victoria
Published by the Victorian Government Department of Primary Industries
Tatura, June 2007
© Copyright State of Victoria, 2007
This publication is copyright. No part may be reproduced by any process except in accordance with the provisions of the Copyright Act 1968.
Find more information about the Department of Primary Industries on the Internet at www.dpi.vic.gov.au
Authors:
Megan Hill and Geoff Kaine
Department of Primary Industries
Ferguson Rd
Tatura, Victoria 3610
Acknowledgments:
Thanks Chris Linehan, Ben Rowbottom, Ruth Lourey, Guido Vazzoler and Roger Ashburner for assistance and input. Thanks to the multitude of people we have interviewed and pestered for information, including Mark Krstic and Mark Downey from the Winegrape Tannin Project research team. Thanks Vic Wright for editing and comments. Finally thanks to John Harvey from GWRDC for his support.
Disclaimer:
This publication may be of assistance to you but the State of Victoria and its employees do not guarantee that the publication is without flaw of any kind or is wholly appropriate for your particular purposes and therefore disclaims all liability for any error, loss or other consequence which may arise from you relying on any information in this publication.
Table of Contents
- Executive Summary
- Introduction
- Background
-
Methods and Materials
-
Competitive advantage and competitive strategy
- Cost leadership strategy
- Differentiation strategy
- Focus strategy
- Competitive strategy, innovation and technology
- Data Collection.
-
Competitive advantage and competitive strategy
-
Results
- The market for innovations from the Winegrape Tannin Project
-
Market segments for exogenous tannins
- Segment one - colour stabilisation
- Segment two - green tannins and other fruit faults
- Segment three - specialised characteristics
- Segment four - risk management
- Segment five - no, or minimal additives
- Segment six - superior natural tannins
- Opportunities for additional research
-
Discussion
- Implications for research and extension
- Extension processes
- Conclusion
- References
Appendix 1: Current practice of winemakers
Appendix 2: The quality grades of Australian wines
Executive Summary
In this study we aimed to identify the market for innovations related to wine grape tannins. These innovations are currently under development as part of a research project funded by Grape and Wine Research and Development Corporation and the Department of Primary Industries. The innovations relate to the identification, measurement and modification of natural and exogenous tannins. Natural tannins are compounds which occur in the seeds, skins and stalks of grapes, and are an important component of red wine quality as they contribute to the structure, colour, complexity and mouth feel of the wine. Tannins can also be added in an exogenous form to grape juice in the winery to influence the characteristics of the resulting wine. Exogenous tannins are used in the winery in response to the natural tannin content of the grapes being processed and the quality and style of the wine being produced. Winemakers use oak to provide flavour but do not see oak as exogenous tannin.
We drew on Porter’s (1985) framework for understanding competitive strategy to guide our research. Briefly, this framework characterises the purpose of commercial businesses as being the creation of profit. Businesses seek to establish a competitive advantage over competitors in order to remain profitable. There are two sources of competitive advantage – low cost and differentiation. Businesses will be most interested in adopting innovations that contribute to these sources of competitive advantage. Consequently, our approach was to understand the use of tannins by winemakers and how this contributes to the competitive advantage of wineries. This understanding then allowed us to draw inferences about the innovations in tannin measurement and management that may appeal to winemakers.
Data was collected by interviewing a range of wine grape growers, grower liaison officers and winemakers from selected Australian wine regions. Interview questions covered: current practice in managing natural tannin content when growing wine grapes, winemaking practices in regard to natural and exogenous tannins, and creating and maintaining competitive strategies in the wine industry. We also sought to identify problems related to tannins, or gaps in the information available on tannins.
We found that winemakers are the primary the market for tannin-related innovations. This is because tannins, both natural and exogenous, determine the characteristics of wine and the winery processes required to achieve this. Should wineries commence paying for grapes on the basis of specific tannins, we envisage that innovations that provide vineyard protocols to modify tannins will become important to grape growers.
We classified winemakers were into six market segments depending on the benefits they were seeking from using exogenous tannins. Segment one consisted of winemakers that used exogenous tannins primarily to stabilise wine colour. Winemakers in segment one were mainly from a warm-irrigated wine growing region where, the winemakers said, the growing conditions can result in fruit that is poor or unstable in colour. Consumers view weak wine colour as indicating poor wine quality.
This segment of the wine industry is competing on a cost advantage so they are interested in innovations that allow them to reduce the costs of production. Therefore, tannin-related innovations that could potentially reduce costs through tailoring or reducing inputs and increasing the efficiency of winery processes would be of interest to these wineries.
Segment two consisted of winemakers that primarily used exogenous tannin to try to mask fruit faults. The major fruit fault was green flavours or tannins. These tend to occur in the cooler wine regions or when the growing season in cool. They give the wine astringent, bitter flavours which consumers often find too strong, or unpleasant.
Winemakers in segment two were seeking a differentiation advantage. Smaller wineries were following a focus differentiation strategy while larger wineries appeared to be following a broad differentiation strategy. Winemakers in this segment will be interested in innovations that support their point of differentiation. Innovations of interest to them may relate to the identification and measurement of green tannins, and vineyard protocols to manage green tannins. Exogenous tannins and winery processes to remove green tannin and characters may also be of value.
Winemakers in segment three followed a focus differentiation strategy by using exogenous tannins in conjunction with other wine-making processes to create wines with specialised characteristics, such as a European style in their wine. The winemakers in this segment will be interested in exogenous tannins that can add new features or deliver existing features to their wines more reliably.
The winemakers in segment four used the addition of exogenous tannins as a risk management strategy. These were small-to-medium wineries that were using relatively inexpensive exogenous tannins as a preventative measure to ensure problems with wine colour, complexity and flavour did not arise. These wineries followed a focus differentiation strategy if they were small or a broader differentiation focus if they were medium-sized. Their differentiation was based on a range of characteristics including aspects of their wine, site, region, heritage, and so on. This segment may be interested in innovations that allow them to reduce or cease their exogenous tannin inputs, or provide novel exogenous tannins that are even less expensive or more effective than those that are currently available.
Winemakers in segment five did not use exogenous tannins due to differentiating their wines on the basis of using minimal additives in the winery. This segment may be interested in vineyard protocols to modify natural tannins in the grapes as they have fewer alternatives than their conventional counterparts to manage tannins in the winery.
Winemakers in segment six did not use exogenous tannins either. These winemakers found that the grapes grown in their region had superior natural tannins. These wineries were following a focus differentiation strategy based on the natural quality of their wines and are unlikely to be interested in tannin-related innovations.
Introduction
In this paper we report on the first stage of study titled “Enhancing the uptake of wine industry innovations through the development of targeted extension programs”, to trial techniques for understanding the adoption of innovations in an agricultural context. These techniques include an approach developed by Kaine (2004) to identifying and quantifying the potential market for an agricultural innovation and techniques for identifying and quantifying the potential market for an agricultural processing innovation based on Porter (1985).
The objective for this first stage in the study was to identify the potential market for innovations concerning tannins in grape and wine production that are currently being developed as part of the Grape and Wine Research and Development Corporation-funded project “Viticultural management of grape tannin and anthocyanin levels to achieve desired wine quality specifications” (the “Winegrape Tannin Project”). The innovations under development relate to the identification, measurement and modification of natural tannins in the vineyard.
Background
Australia’s competitive advantage in the global wine market is due to its capacity to produce a wide variety of quality wines at competitive prices (Invest Australia 2005). To maintain this advantage in an ever-changing market place, it is essential that the Australian Wine Industry continues to raise wine quality in each price segment of the market (Krstic 2005). Given this context the development of techniques for improving the management of the compounds in wine that influence quality is of fundamental importance to the industry.
A complex group of phenolic compounds which occur in wine grapes, known as tannins, is a major contributor to wine quality. These compounds, combined with other compounds such as anthocyanins and organic acids, contribute to the flavour, aroma, structure, colour, mouth feel, and hence quality, of wine (Krstic 2005). Tannins occur naturally in the seeds, skin and stalks of grapes. The type, amount and structure of the tannins in grapes depends on a range of factors including vineyard site (climate, soil, water etc), vineyard practices (irrigation, canopy management, yield etc), and plant genetics (variety, clone, rootstock and scion).
Grapes are harvested and crushed in wineries. In Australia, the white wine juice is traditionally pressed off the skins and removed. As a result, Australian white wines are low in tannins. Red wine juice is left on the grape skins and seeds while it ferments. This process releases natural tannins and anthocyanins into the juice. Hence, red wines tend to be high in tannins and these give red wine its structure, flavour and colour.
Tannins can also be added to the wine in an exogenous form. These are added during the winemaking process, and can be divided into two groups, oak and “other” products. Oak barrels are traditionally used in winemaking. The wine is put in the barrels to imbue the wine with the oak flavour. However, oak barrels are expensive and modern wine makers now have access to a range of oak products such as powder, chips or planks. “Other” exogenous tannins are usually packaged in a powdered form and are derived from a range of sources, including grape seeds, chestnut tree wood or other types of wood.
Methods and Materials
Preliminary interviews revealed that, at present, the composition of natural tannins in wine grapes cannot be reliably and precisely influenced by vineyard practices – largely because techniques for identifying and measuring tannins are yet to be developed. Consequently, the principal means of influencing wine quality by altering the composition of tannins in wine juice is through the addition of exogenous tannins during processing. This means that the primary interest in techniques for the identification, measurement and management of tannins would lie with wineries in the first instance.
The interest of wineries in such techniques would depend on the contribution of natural and exogenous tannins to their competitive advantage. As a result, we drew on Porter’s (1985) concepts of competitive advantage and generic competitive strategies to identify market segments among winemakers in the use of exogenous tannins. We then used our knowledge of these segments to form inferences about the likely nature of their interest in techniques for the identification, measurement and management of tannins.
In the next section we describe Porter’s (1985) competitive advantage and generic competitive strategy.
Competitive advantage and competitive strategy
Porter (1985) argued that to remain profitable in the longer term businesses must create a sustainable competitive advantage. A competitive advantage arises from combining activities that are valuable, rare, or difficult to imitate and provide the basis for the creation of value for buyers. Generally speaking, there are two basic types of competitive advantage – low cost and differentiation. These give rise to three types of generic competitive strategies depending on the scope of the business in terms of market coverage – cost leadership, differentiation and focus (see table 1).
Table 1: Three generic competitive strategies (adapted from Porter, 1985).
The cost leadership and differentiation strategies seek competitive advantage with a single offer across all market segments, while a focus strategy aims at cost or differentiation advantage in one or a limited number of market segments. Porter (1985) observed that a critical influence on the adoption of a new technology by a business would be the potential contribution of a new technology to the competitive advantage and strategy of the business.
Cost leadership strategy
A winery seeking to follow a cost leadership strategy sets out to be the low cost producer in its industry, in a broad range of market segments and price points. To achieve this, a winery must be aware of, and make use of, all sources of cost advantage (Porter 1985). Typically, a cost leader sells a standard, no frills product focusing on economies of scale, processing efficiencies, or preferential access to materials. To be successful their customers must perceive the product as being adequately comparable in quality to rivals’ products. A cost leader is most interested in innovations that lower production costs (refer to table 2).
Differentiation strategy
A winery following a differentiation strategy seeks to provide unique attributes or benefits that are valued by customers in a range of segments in the market. Differentiation can be based on the product itself, the delivery system by which it is sold, the marketing approach, and a broad range of other factors. The business aims to achieve a price premium for this uniqueness greater than the cost of differentiating, while maintaining cost parity or proximity to its competitors by reducing cost in all areas that do not affect differentiation (Porter 1985). To be effective a business must choose attributes that enable meaningful differentiation from rivals’ products in the eyes of customers. Businesses adopting a differentiation strategy are attracted to innovations that lead to new features or enhancement of existing features, of products or services (refer to table 2).
| Cost Leadership | Differentiation | Call Focus | Differentiation Focus | |
|---|---|---|---|---|
| Aim of product Innovation |
To reduce product cost by: Lowering material content, Facilitating ease of manufacturing, Simplifying logistical requirements, etc. |
Enhance product quality, features, deliverability, or switching costs (for customers to change supplier) | To design in only enough performance fro target segment's need | To meet the needs of a particular segment better than broadly-targeted competitors |
| Aim of Process Innovation |
Reduce material usage or lower labour input Enhance economies of scale |
Greater quality control, more reliable scheduling, faster time to orders, and other dimensions that raise buyer value | To tune the value chain to a segment's needs in order to lower the cost of servicing the segment | To tune the value chain to a segment's needs in order to raise buyer value |
Table 2: The aim of product and process innovations in relation to Porter’s Generic Competitive Strategies (adapted from Porter 1985).
Focus strategy
Porter’s third generic strategy is focus. Whereas cost leadership and differentiation present product offers that meet an average of the different preferences across distinct market segments, a winery following a focus strategy would select one or only a few segments within the market upon which to target their product. Within this target the business can seek either a cost or a differentiation advantage. By targeting a narrower range of customers the business seeks to service them more effectively and efficiently than its rivals (Porter 1985). A business following this strategy would be interested in innovations that support its basic strategy in the context of its specific targeted segment or segments and their preferences (refer to table 2).
The significance of these strategic alternatives is that they are, according to Porter (1985), mutually incompatible. Success in differentiation requires a prevailing concern in the business with understanding and meeting customer needs. With cost leadership the prevailing concern is to drive down costs. While a differentiator cannot completely ignore costs, and a cost leader cannot completely ignore changes in wines being offered in the market, the emphasis in the modus operandi of each will be defined by their strategy. Whenever a decision requires a choice between a focus on the customer or a focus on costs, it will be resolved according to the basic strategy. This includes consideration of innovations.
Competitive strategy, innovation and technology
Since technology is embodied in every activity in a business and is involved in creating linkages among activities it can have a powerful effect on the capacity for lowering cost and promoting differentiation. The technology adopted by a business must support its competitive strategy to be of benefit. Innovations vary in the potential improvement they offer in performance of activities that can create a competitive advantage. A technological innovation may offer cost reduction and/or differentiation possibilities. It may have positive, negative or neutral implications for differentiation and costs, respectively. Wineries would be expected to exhibit greatest interest in innovations which support their strategy as it is these that offer the greatest contribution to achieving competitive advantage. In effect, once their strategy is known, there is a predictable bias in their interest in any specific innovation.
Hence, whether innovations in the identification, measurement and management of tannins will be adopted by a winery will depend on how the innovation fits into their business and whether it enhances or creates a competitive advantage given the competitive strategy of the business.
A caveat to the above is the ‘rising tide’ effect of some innovations. An innovation that redefines the set of product features that all customers regard as the acceptable minimum may even force adoption by a cost leader. Alternatively, an innovation that drives costs down substantially may catch the attention of even a differentiator. The analyst has, as we have here, to be mindful of such second-round effects when considering specific innovations (Vic Wright pers.com).
Data Collection
Convergent interviewing techniques (Dick 1998) were used to collect the data. The convergent interviewing method is unstructured in its content. The interviewer employs laddering techniques (Grunert and Grunert 1995) to systematically explore the reasoning underlying the decisions and actions of the interviewee. The power of this interview process lies in identifying common and complementary patterns of reasoning among interviewees (Kaine et al. 2005). Interview responses were recorded manually by two interviewers, summarised and analysed using case and cross-case analysis (Patton 1990).
Twenty-seven interviews were conducted with grape growers, grower liaison officers, winery technical officers and wine makers. The interviewees were from cool (Coonawarra), warm (Nagambie, Colbinabbin and Rutherglen) and warm-irrigated (Sunraysia) wine grape producing regions. They represented large, medium and small, family and corporate businesses, and all of the quality grades of wine (see appendix 2).
In the interviews the following matters were covered: current practice in managing natural tannin content when growing wine grapes, winemaking practices in regard to natural and exogenous tannin and creating and managing competitive strategies in the wine industry. We also sought to identify problems in relation to tannins and gaps in the information available on tannins.
Results
The market for innovations from the Winegrape Tannin Project
Wine grape growers produce grapes to make wine, or to sell to wineries. The price the wineries pay for grapes is usually based on how well the fruit meets their quality requirements. During the interviews we did not find any growers being paid, or wineries paying for, grapes based on their tannin attributes. Consequently, the growers we interviewed said that understanding, measuring or modifying the tannin content of their grapes was not a priority for them.
This situation could change if wineries start including specific tannin attributes in their assessment of the quality of grapes when setting grape prices. If this occurs, innovations such as vineyard protocols to assist growers to modify their grapes and meet quality specifications, and obtain higher prices, would become attractive to growers.
While we did not find any growers receiving higher prices due to the tannin attributes of their grapes, we heard of growers being paid less. A winery representative who purchases grapes from cool regions told us that growers with otherwise high quality fruit sometimes miss out on bonuses due to the presence of green tannins in their fruit. It seems reasonable to suppose that growers experiencing these circumstances would be interested in vineyard protocols to minimise green tannins. None of the growers we interviewed had experienced these circumstances.
All the winemakers we interviewed expressed an interest in tannins. The winemakers said they tend to assess the natural tannins in the vineyard and use exogenous tannins to correct or complement natural tannins in the winemaking process (appendix 1). Some of the winemakers had read articles or conference proceedings relating to tannins, and a few of the wineries were measuring fruit or wine tannin content, or both. Only one winery with a vineyard was experimenting with canopy management techniques to modify tannin attributes. The following section will provide a detailed break down of winemakers’ interest in tannin related innovations.
Market segments for exogenous tannins
The winemakers we interviewed were classified into market segments based on their use of exogenous tannins in the winery and the contribution of tannins to their competitive advantage (refer to Figure 1). Briefly, winemakers in segment 1 used exogenous tannins primarily but not exclusively to stabilise wine colour and this enabled them to pursue a focus cost strategy. Winemakers in segment 2 used exogenous tannins primarily to mask fruit faults, mainly green tannins and flavours which assisted them in the pursuit of a differentiation strategy. The winemakers in segment 3 pursue a focus differentiation strategy and used exogenous tannins primarily to try to create specialised characteristics in the wine. The winemakers in segment 4 primarily used exogenous tannins as a form of risk management. We believe the winemakers in this segment were pursuing various focus differentiation strategies and the addition of exogenous tannins in the winery assured the quality of their product. The winemakers in segments 5 and 6 did not use exogenous tannins. Those in segment 5 were pursuing a focus differentiation strategy centred on avoiding additives. Finally, the winemakers in segment 6 considered that fruit from their region has superior natural tannins that need no modification in the winery and so pursued a focus differentiation strategy based on the natural quality of wines from their region.
The market segments we have defined refer to the primary benefit winemakers are seeking from the exogenous tannins. Hence, membership of a segment does not mean that winemakers seek only that benefit from using exogenous tannins. Winemakers may also obtain other, secondary benefits from using tannins. For example, while a winemaker in segment 1 may be using the tannins primarily to stabilise colour, winemakers from other segments may also be seeking this benefit as a secondary or additional aim. Likewise, a winemaker may be using exogenous tannins to correct a fruit fault and, if the wine shapes up to the quality they are seeking, they may use additional tannins to create the style of wine that will go in their ultra-premium label.
Figure 1: Typology of market segments based on the benefits sought by using exogenous tannins
It is clear from our interviews that the use of exogenous tannin depends on the natural tannins that are present in the grapes winemakers are processing. Hence, the segments reflect the natural tannin characters, a large contributor to quality, of wine grapes. As natural tannins are strongly influenced by climate and soil type, we found there was a link between region and typical exogenous tannin use. For example, all the winemakers interviewed that dealt with grapes from a hot region added exogenous tannins to stabilise colour. All of the winemakers that dealt with fruit from cool regions talked about green tannins. Hence, there is a link between region and segment membership.
We found that the large wine companies all have an extensive range of products that cover all the price points and quality grades in the market. To achieve this they obtain fruit from different regions and sometimes process it in different wineries, with a number of winemakers on staff. Hence, one company may have many winemakers and these may be placed in different segments depending on the grapes they are processing and the wine they are making.
Most of the winemakers we interviewed thought of exogenous tannins as powders or chips of non-oak products. Oak was not considered as exogenous tannin. Oak products were used for the flavour they contributed to the wine, with any tannins released being considered a bonus. Winemakers in each of the segments used oak in their wine.
Each of the segments will now be discussed in detail.
Segment one - colour stabilisation
The winemakers we placed in this segment used grapes from a warm-irrigated wine growing region, producing basic or premium grade wine. These winemakers said that the hot growing conditions that occur in this region, especially during certain stages of the grapes’ development and ripening, tend to break down, or inhibit the development of, natural tannins and anthocyanins. This leads to weak and unstable fruit and wine colour. This was seen as a major quality issue as consumers equate strong wine colour with a good quality product. Hence, weak colour significantly reduces the value of the wine.
To manage this issue the winemakers indicated they employed a number of strategies to optimise colour, including buying grapes with high colour levels, adding exogenous tannins to most, if not all, parcels of fruit coming into the winery, and sometimes using other winemaking practices.
Some wineries measure wine grape colour and pay growers accordingly. However, the winemakers we interviewed stated that strongly-coloured grapes do not necessarily turn into strongly-coloured wine, as grape colour can be unstable and break down over time.
All of the wine makers interviewed in this segment said that they add exogenous tannin to the wine with the primary aim of stabilising the wine colour. Any complexity or mouth-feel characteristics the tannins provide is usually considered a bonus. As one winemaker in this segment stated:
The fruit from this area does not have much colour or complexity. We add 200 ppm of VR supra tannin at the crusher to try to preserve what colour there is.
However, excessive levels of tannin in the wine are not desirable. These winemakers claimed that they aim to make a wine in a “soft, fruity and easy to drink” style that can be sold in the shortest possible time after production.
The addition of exogenous tannins increases input costs with one winemaker reporting that their company spends $200,000 per annum on exogenous tannins. Some winemakers reported that, even with the use of exogenous tannins, colour stabilisation was not always reliable with some wine still having weak colour, or the colour breaking down over time. As another winemaker said:
Even when we use exogenous tannins we only end up with the strong, stable colour we want 70% of the time.
Another technique to extract and stabilise colour is to leave the grape juice on skins for longer, to maximise tannin and anthocyanin extraction. However, this has implications for winery logistics and costs as far as utilisation of valuable tank space and resources during harvest are concerned. A representative from a large winery said:
“Every extra day the grapes are on skins costs our business $1 million”
Competitive advantage and strategy
The winemakers in segment 1 compete largely on price. Descriptors of this wine include “excellent value and consistency, and quality for the price”. The source of competitive advantage for these wineries is their capacity to offer consumers wine that meets certain quality standards at the same, or a lower, price than their competitors. These wines retail in the premium, or $5-$9.99 price range. In our view this suggests that these wineries follow a cost focus strategy. These winemakers have access to large volumes of low price grapes from warm-irrigated growing regions. They take advantage of economies of scale by processing the grapes in large quantities, at major wineries to produce wine at low cost.
These wineries are less likely to be interested in product development to provide additional product features, as they only require that the product meet the premium wine consumer’s needs, the predominant feature of which is low cost. To achieve this, wineries need to reduce or keep production costs low. Therefore innovations that allow them to reduce input costs, improve winery efficiency, reduce the time taken to get the wine to market or create additional economy of scale advantages, will be of interest.
Relevant innovations
In Table 3 we have listed the characteristics of innovations in the identification, measurement and management of tannins, and their potential benefit to wineries in segment 1. The primary theme is, given the reliance on cost advantage, on innovations that reduce costs and improve reliability in the preservation and stabilisation of colour. New exogenous tannins would have to be comparable in cost to those currently available, or be superior in reliability or performance.
| Location | Purpose of the Innovation | Potential Benefit to the Winery |
|---|---|---|
|
Vineyard |
Measurement of colour related tannins in the grapes |
To stream fruit so batches of like fruit can be processed together |
|
Vineyard |
Protocols to modify tannins in the vineyard |
Grapes can be purchased containing colour related natural tannins. This will minimise winery inputs and processes |
|
Winery |
Measurement of colour related tannins during processing |
To reduce exogenous, and other inputs |
|
Winery |
Alternative stabilising technologies |
Cheaper, more reliable methods for stabilising colour than existing practice |
|
Winery |
New exogenous tannins |
Cheaper, more reliable methods for stabilising colour than existing practice |
Table 3: Potential innovations, where they would be used, and winery benefits in regard to wine colour stabilisation
Segment two - green tannins and other fruit faults
The winemakers that we placed in this segment mainly used grapes from cooler wine regions to produce wine in the super or ultra premium quality grade (see appendix 2). Winemakers in this segment used exogenous tannins to mask or minimise the effect of faults in particular batches of fruit, the most prevalent of which were green tannins or flavours. Other fruit faults were Botrytis disease infection, which can taint the wine, or “poor” or “weak” fruit that lacked flavour or complexity.
Green tannin, flavour or character is a subjective term used to describe a range of problems around bitter, astringent, or vegetative flavours in grapes and resulting wines. It may or may not be tannin-related. This problem is more of an issue in cooler seasons, when grapes do not get the necessary warmth to ripen sufficiently, or when the vines are “out of balance” - which occurs when grape yield exceeds the vines’ ripening capacity.
Green flavours and tannins have a major impact on wine quality as they can strongly influence that flavour of wine and consumers generally do not like these flavours. This can result in lost sales. Green characters can be a problem in both red and white wines. As a representative from a large wine company told us:
We recently missed a major overseas contract because the buyer didn’t like the green characters in our Clare Riesling. That will impact on next year’s grower contracts in that region.
There are no winemaking techniques that are effective in removing green flavours, and as they are relatively strong they are difficult to disguise by blending with other batches of wine. For example, green characters can be minimised by reducing the time the juice spends on skins during fermentation. Less time on skins reduces the amount of tannins and other compounds that are removed from the grape seeds and skin. However, this can also result in reduced wine colour. Alternatively, micro-oxygenation of the wine is used to soften the tannins and other flavours. This creates additional steps in the wine making process and can have significant implications for wine quality, winery logistics and the cost of production. Consequently, winemakers are forced to use exogenous tannins to mask green characters as they provide other flavours, or soften the existing flavours, in the wine so that the green flavours are less obvious to the consumer.
Some wineries now go to considerable lengths to avoid green characters in their fruit. This may include numerous vineyard visits and tastings to monitor the development of the fruit and training growers and winery staff to identify green characters. Batches of fruit may be selectively harvested, and/or processed in the winery. Finally, by leaving grapes on the vine until the grapes ripen further so that all the green characters are gone, however this may compromise other components such as sugar levels, acid levels and flavour. Again this impacts on wine quality and cost of production.
Competitive advantage and strategy
The wineries in this segment are positioned at a higher price point than those in segment one because they are producing wines that are differentiated by style from the wines produced by winemakers in segment one, with more complexity, structure and tannins. Hence, we concluded differentiation was the source of competitive advantage for wineries in this segment.
We found that the while the wineries in this segment compete on a differentiation basis, they vary in scope. The small wineries tended to follow a focus differentiation strategy because they have limited capacity and resources. These wineries generally produced a small range of wines to meet one quality grade - often the ultra-premium grade. Larger wineries, with the capacity and resources to process, market and distribute a larger range of wine products, sometimes under different brands, tended to follow a classic broad, differentiation strategy.
Wineries pursue both types of differentiation strategies by growing or sourcing grapes from cool to warm region vineyards with the flavours, tannins and acids they seek. The grapes and other inputs are relatively expensive to purchase, and are processed in small-to-medium sized batches in smaller wineries than those found in hot regions. Also, more time and additional steps may be involved in the winemaking process.
Wineries in this segment will be interested in innovations that support product or process development that will enhance product quality, features, and reliability that are attractive to their customer segments (Porter 1985).
Relevant innovations
In Table 4 we have listed the characteristics of innovations in the identification, measurement and management of tannins, and their potential benefit to wineries in segment two. The primary theme is, given the reliance on differentiation advantage, on innovations that improve reliability in controlling or eliminating green tannins without substantially increasing production costs. New exogenous tannins would have to be comparable in cost to those currently available and superior in reliability or performance.
Other fruit faults
Winemakers in this segment also used exogenous tannins to compensate for other fruit faults such as Botrytis infection or weakness which usually means they are from overcropped or young vines, or have been grown in a poor site, and are low in colour, flavour and tannins. Exogenous tannins are used by winemakers to mask any undesirable flavours resulting from these faults. For example:
We add tannin to some weaker parcels of fruit that are going into the cheaper wines, or if it is a poor season.
Poor red grapes are low in tannin or have unripe tannins and make a light and pissy wine, but oak chips will give it some flavour.
Winemakers use a range of sources and types of exogenous tannin and oak products, to mask these faults depending on the value of the wine. High value wines were not made from fruit with faults.
| Location | Purpose of the Innovations | Potential Advantage to the Winery |
|---|---|---|
|
Vineyard |
Measurement of compounds causing green characters in the grapes |
Growers can identify and map areas of vines prone to produce green characters, for selective management and harvesting of grapes |
|
Vineyard and/ or winery weighbridge |
Measurement of compounds causing green characters in the grapes |
Stream grapes to separate batches with green characters |
|
Vineyard |
Protocols to modify tannins in the vineyard |
Growers will be able to grow fruit with minimal or no green characters Wineries will have access to better quality grapes |
|
Winery |
Measurement of green characters during processing |
To reduce exogenous, and other inputs |
|
Winery |
Alternative processing technology to remove undesirable characteristics |
Allow green characters to be extracted from the wine |
|
Winery |
New exogenous tannins |
Cheaper, more reliable methods for masking or neutralising green characters |
Table 4: Potential innovations and winery benefits in relation to green characters
We see limited opportunities for innovations in the identification, measurement and management of tannins among these winemakers at present. There are many causes of “poor fruit”, most of which are well understood and relate to management practices or site selection. If the fruit does not meet the required quality standards, better fruit can be purchased or grown. None of the winemakers interviewed were unhappy with what they could achieve using the exogenous tannins, although they sometimes were uncertain about which commercial tannins best suited their objectives.
Botrytis is a viticultural problem and the wineries have protocols in place to minimise the infected fruit they receive. While exogenous tannins to neutralise Botrytis taint would probably be useful to the industry, this did not emerge as a high priority.
Segment three - specialised characteristics
The winemakers we placed in this segment were located in cool to warm regions and are targeting the ultra-premium or icon quality grades of the market by creating wines with specialised features such as oak characters, individual flavours, or flavour blends and styles in their wine. They do this through their selection of inputs, including exogenous, often finishing tannins, winery processes and marketing strategy. Consumers that purchase these wines may feel that they are getting something special and unique. Such wines may be described by winemakers as, for example:
This is a richly textured, intensely concentrated, complex, beguiling wine. It has a substantial palate of rich, dark berry flavours, and persistent chewy tannins.
Another winemaker told us:
We have moved away from the Australian “fruit bomb”, to a more European style of wine. We use small parcels of fruit. We leave the wine on skins to give a richer, more complex, tannic style. We enhance this by using finishing tannins and the best oak barrels.
Competitive advantage and strategy
We believe winemakers in the third segment are following a focus differentiation strategy where their competitive advantage is based on creating complex wines with highly specialised characteristics that appeal to their customers.
Wineries in this segment will be interested in innovations that support product or process developments that will enhance product quality, features, and reliability that are attractive to their customer segments (Porter 1985). An example may be the development of exogenous tannins that could add new features, such as novel flavours, to the wine. Another would be tannins that could fine tune existing features or deliver existing features more reliably.
Relevant tannin innovations
In Table 5 we have listed our conclusions about the characteristics of innovations in the identification, measurement and management of tannins, and their potential benefit to wineries in segment three. The primary theme, given the reliance on differentiation advantage, is on innovations that enable wines with specialised characteristics to be created more reliably or innovations that enable wines with novel characteristics to be developed. New exogenous tannins would have to be comparable in cost to those currently available and superior in reliability or performance.
| Location | Purpose of the Innovations | Potential Advantage to the Winery |
|---|---|---|
|
Winery |
Measurement of selected tannins during processing |
To reduce exogenous tannins and other inputs |
|
Winery |
Alternative processing technology to remove undesirable characteristics |
Allow undesirable characters to be extracted from the wine |
|
Winery |
New exogenous tannins |
Enable new features, such as flavours to be added to the wine |
Table 5: Potential innovations and winery benefits in relation to wines with specialised characteristics
Segment four - risk management
The winemakers we placed in this segment were generally from small-to-medium-sized wineries, in the warm regions, producing super to ultra premium wines. They used exogenous tannins as a form of risk management or an insurance policy. These winemakers are not sure exactly whether the addition of exogenous tannins definitively and regularly created benefits in terms of benefits colour stabilisation, wine complexity and mouth feel. However, they believed the risk of problems with colour stability, complexity and mouth feel justifies the cost of adding exogenous tannins during the winemaking process. Note that, in order to make an informed decision not to add tannins, winemakers require precise information on what limited benefits the tannins are providing for them. Gathering this information is too expensive for small to medium wineries as this requires extensive testing and experimentation. Hence, wineries in this segment were generally unable to monitor the benefits of using exogenous tannins, and hence cannot say for sure what impact exogenous tannins are having on their wine.
During the interviews with winemakers in this segment we found that they were satisfied with the wines they are producing using exogenous tannins and that they had been using exogenous tannins for some time. We also found that exogenous tannins were a minor component of input costs for these winemakers. As one winemaker in this segment said:
The tannins fall apart and may not do what they are supposed to, but we add them anyway as they don’t hurt.
Note that the wine makers in this segment do not consistently have any specific quality issues. If these winemakers were to begin experiencing consistent problems with poor colour or excessive green characters they would then be placed in segments one or two respectively.
Competitive advantage and strategy
Wineries in this segment are following a focus differentiation strategy. These wineries tend to be small and use their resources to focus on one market segment, usually the ultra premium ($15-$49.99) quality grade of the market. These wineries differentiate variously across a range of sources including characteristics of their wine as well as their site, region, heritage, and philosophy. These wineries often market themselves as providing a tourism experience.
Relevant tannin innovations
Wineries in this segment will be interested in innovations that allow them to better, more reliably or more cheaply meet the needs of their target market. For example tannin measurement technologies may allow them to reduce or stop using exogenous inputs, while still making wine of the same quality and style. Or new exogenous tannins may be developed that are less expensive or that allow winemakers to add new features or refine existing wine features. The primary interest here is on reducing costs while managing the risk of problems with colour stability, complexity and so on.
Segment five - no, or minimal additives
The winemakers in this segment stated they do not use exogenous tannins in wine production as they are following a focus differentiation strategy based on avoiding the use of additives. In using this strategy the wineries in this segment are marketing their wines as being more “natural” because they used minimal additives. Sometimes this strategy was pursued in conjunction with the use of traditional, old style winemaking practices or equipment, or organic production. These winemakers were from small wineries in warm regions and were producing ultra-premium quality wine. For example:
We are growing dry land and “natural” fruit. We don’t add tannins because we are anti-additions in the winery, and because our yields are low we get enough natural tannin anyway.
These winemakers could use this low additive approach as they were growing grapes in sites where the natural tannins were sufficient in themselves to allow them to make wine with quality characteristics that met their market needs.
Competitive advantage and strategy
These wineries were following a focus differentiation based on creating a competitive advantage founded on the limited use of additives and this was promoted through their marketing. Region and site selection were critical as this strategy depends on the grapes being used to produce wine being naturally free of colour or green character faults.
Relevant tannin innovations
The winemakers in this segment may be interested in vineyard protocols to modify naturally occurring tannins as they want to ensure that their grapes meet their wine needs as closely as possible. They may also be interested in measuring tannin levels on the vine for the same reason. Given their competitive strategy limits options for modifying wine by the addition of exogenous tannins in the winery we believe winegrowers in this segment will not be interested in innovations in relation to exogenous tannins.
Segment six - superior natural tannins
The winemakers in this segment were from small boutique wineries. These winemakers were producing ultra-premium to iconic wines from their own vineyards. They were located in warm regions. These winemakers did not use exogenous tannins as the grapes grown in their region had sufficient natural tannins to ensure stable colour, wine complexity and flavour. As one winemaker said:
The tannins from this region are naturally fine and smooth. They are palatable early, but can age a long time without deteriorating. Other areas either have to be drunk early or else they are unapproachable and have to be aged.
These wineries were following a focus differentiation strategy based on their competitive advantage in growing grapes with superior natural tannins. This advantage derived from the soils and climate of the region.
This segment is unlikely to be interested in innovations produced by the Winegrape Tannin Research project. They perceive that they already have excellent natural tannins hence they are not interested in modifying them through vineyard protocols. Consequently, they are unlikely to be strongly interested in techniques for measuring tannins on the vine or in the winery. Also, they are unlikely to be strongly interested in techniques for altering wine through the addition of exogenous tannins or innovations in the wine making processes.
In Table 5 we summarise the segments and our conclusions about innovations in the identification, measurement and management of tannins that will be of use to them.
| Segment 1 | Segment 2 | Segment 3 | Segment 4 | Segment 5 | Segment 6 | |
|---|---|---|---|---|---|---|
| Description of the segment | Weak or unstable wine colour | Green characters in the wine | Specialised features in the wine | Risk management | No, or minimal additives | Regional advantage |
| Source of competitive advantage | Inexpensive inputs, bulk processing | Cool climate fruit | Small parcels of selected cool climate fruit, winemaking processes, oak | Various- wine style, tourist experience, heritage, region | Winemaking practices, marketing | The regions superior natural tannins |
| Competitive strategy | Cost focus | Differentiation or differentiation focus | Differentiation focus | Differentiation focus | Differentiation focus | Differentiation focus |
| VINEYARD INNOVATIONS | ||||||
| Measurement of selected tannins | √ | √ | - | - | √ | - |
| Vineyard protocols | √ | √ | - | - | √ | - |
| WINERY INNOVATIONS | ||||||
| Measurement of selected tannins | √ | √ | √ | √ | - | - |
| Exogenous tannin | √ | √ | √ | √ | - | - |
| Processing technologies | √ | √ | √ | √ | √ | - |
Table 6: Summary table of the market segments, their competitive advantage, strategy and innovations of interest
Opportunities for additional research
An extensive range of exogenous tannins are commercially available to winemakers. In fact, so many tannins are available that many winemakers voiced confusion and frustration over the range. Winemakers indicated it was difficult to get reliable information on what materials were used in the production of the exogenous tannins, what their functions were in the wine, and how to evaluate and select the tannins best suited to their needs. For instance:
I spend half the time trying not to get excessive pip tannin, and then they try to sell it to you.
The tannin options available to wine makers at the moment are overwhelming-so we do small trials. The manufacturers don’t disclose if they are oak or skin derived. They give data, which may or may not be believed.
Another observation that many winemakers made about tannins was that they did not precisely understand how tannins worked, with one winemaker describing tannin additions as a “dark science”. Consequently, we found different winemakers using the same type or brand of tannin at different stages of the winemaking process to perform different tasks, such as stabilising colour or adding mouth feel. Conversely, different winemakers used different types and brands of tannins to perform the same task, such as colour stabilisation.
Consequently, we believe opportunities exist to provide impartial information to the winemaking industry regarding:
- Which exogenous tannins are best suited to meeting various winemaking objectives (i.e. colour stabilisation, adding complexity, filling the middle palate etc) and why.
- How to evaluate and select the best tannins depending on objectives.
- Information on the timing of tannin additions to optimise their effectiveness.
Discussion
Implications for research and extension
As the innovations to be developed in the Winegrape Tannin Project are currently under development the opportunities for extension activity are limited at present. However, our results can assist in planning an extension program and identifying information to collect that would support the program.
Based on our results, we see the following opportunities for extension:
- Information could be provided to the wine industry to build an awareness of the project, its objectives, research staff and a point of contact for inquires. This is to maintain project profile and interest with industry, stakeholders and funding bodies.
- The level of technical knowledge among winemakers about exogenous tannins and how they work is fairly low. Winemakers are very interested in information regarding how to improve performance and reliability from the exogenous tannins. Therefore, an opportunity exists to provide technical articles presenting current knowledge on this topic.
- The research program could be expanded to include trials of exogenous tannins to determine which tannins are most effective in different circumstances, and how winemakers can maximise the benefits of using exogenous tannins through the selection and timing of applications.
- Further research may be worthwhile to understand the causes of green characters and protocols to manage or minimise them in the vineyard and the winery.
Extension processes
A range of extension processes are commonly used, including publications, action learning, discussion groups etc. However, as Fulton et al. (2003) suggest, it is difficult for the researcher or extension practitioner to determine what processes are most appropriate in a particular situation. This poses a challenge as to how they should design their extension effort to be more effective and more efficient. The classification of winemakers into segments in terms of their use of exogenous tannins provides a powerful means of improving the effectiveness of research and extension by enabling the targeting of efforts to specific segments and the tailoring of research products and extension messages to those segments.
In the next step of this project we will seek to develop methods that will assist in meeting this challenge. Our approach will be to adapt organisational behaviour literature on the competency and resource requirements of implementing different types of innovations and to apply this knowledge to understanding the competency and resource requirements associated with the adoption of innovations in grape production. The role of extension in facilitating producers to develop the requisite competences will be explored.
Conclusion
We have examined the role of natural and exogenous tannins in the production of wine and we have used this information to identify market segments amongst wineries in relation to innovations in the identification, measurement and management of tannins. These segments reflect the source of competitive advantage and competitive strategies, and therefore the appeal, of tannin-related innovations to the wineries in each segment. We believe that the wineries in segments one and two probably represent the major opportunities for these innovations. We anticipate this information will enable the Winegrape Tannin Research Team to tailor their research and extension efforts to better meet the needs of winemakers, thereby facilitating their adoption and enhancing the value of their research and extension efforts.
This project has required the novel application of Porter’s (1985) strategic competitive framework to identify market segments in relation to innovations in tannins and has illustrated the value of this approach to understanding the market for a specific innovation in a horticultural context. We see further opportunities for exploration of these and other techniques in guiding the design of research and extension projects.
References
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Dick, B. (1998). Convergent Interviewing: a Technique for Qualitative Data Collection. Available at http://www.scu.edu.au/schools/gcm/ar/arp/iview.html
Fulton, A. Fulton, D. Tabart, T. Ball, P. Champion, S. Weatherley, J. and Heinjus, D. (2003). Agricultural Extension, Learning and Change. A report for the Rural Industries Research and Development Corporation. Publication No 03/032.
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Invest Australia (2005). From Australian Wine Industry: A Fruitful Future. Wine Industry Overview. At http://www.investaustralia.gov.au/media/IS_AB_Wine.pdf
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Appendix 1: Current practice of winemakers
Exogenous tannin use
Exogenous tannins can be added at any stage of the wine making process, depending on the characteristics the winemaker is seeking. Some examples are, adding tannins to:
- The grape crusher to stabilise colour
- To the fermenting grape juice to stabilise colour
- At racking (transferring juice or wine between tanks or barrels) to mop up free oxygen and prevent the wine browning
- At any stage of the wine making process to enhance wine structure and complexity
- Late in the wine making process (finishing tannins) to enhance mouth feel
- Any combination of the above.
The type and amount of tannin used varied, with many winemakers being unsure of exactly what they had in the winery and what they used.
Measuring natural tannins
The majority of winemakers talked about tasting the grapes and chewing the pips to assess tannins content and ripeness. Some winemakers said that green characters can be hard to pick up during tasting. Many of the growers in the Coonawarra Region had done a course on berry sensory assessment to better assess tannin ripeness and grape flavours.
One of the wineries sent samples of fruit to the Australian Wine Research Institute to have total tannin content tested. They found that “we have lots of numbers, some anomalies, and no correlation between the winemakers and the assessments on quality”. They found that both the high quality wines and the low quality wines made from pressings had high total tannin contents.
While some of the larger wineries have full laboratory facilities and equipment, only one was regularly testing tannins to try to develop measurement techniques. Another winery reportedly provides their grape growers with information about the tannin profiles of their grapes, but these were not linked with payment, nor were vineyard protocols suggested.
Appendix 2: The quality grades of Australian wines
|
Quality |
Price Range ($AUS) |
Indicative Brands |
|---|---|---|
|
Icon |
> $50 |
Penfolds Grange |
|
Ultra- Premium |
$14 - 49.99 |
Wolf Blass Grey Label |
|
Super- Premium |
$10-14.99 |
Penfolds Koonunga Hill |
|
Premium |
$5- 9.99 |
Banrock Station |
|
Basic |
< $5 |
|
From Australian Wine Industry A Fruitful Future. Wine Industry Overview.
At http://www.investaustralia.gov.au/media/IS_AB_Wine.pdf
