Rethinking new wines: implications of local and environmentally friendly labels

Abstract

New wine production areas around the world are encountering challenges in creating a reputation for high-quality products. In order to help these new wine growing areas numerous labeling programs claiming local origin and environmentally friendly practices are being implemented. In this study, consumer response toward wine grown in a new production area such as Colorado is researched. Using an interval probit model, the mean willingness to pay (WTP) for Colorado environmentally friendly and Colorado regular wines are calculated. In summary, the results in this paper highlight the need to improve quality perceptions to garner a premium in differentiated wine markets. As a consequence, environmentally friendly labeling in wine is an inefficient marketing tool for wines perceived as low quality.

Introduction

Many new grape growing areas are expanding around the World. In the United States, for example, new areas that were not previously associated with wine production, such as Washington and Oregon (the Pacific Northwest) have developed smaller but profitable industries. Although each region produces wines with different styles and flavors, new emerging regions in the United States (such as Colorado, Texas, New Mexico, Virginia, and New York) are encountering difficulties in creating a reputation for high-quality products. Several marketing strategies have been designed to increase the market niche for these local wines, including numerous labeling programs claiming local origin and eco-labeling characteristics of different regional wines. This study focuses on the labeling of geographical origin combined with environmentally friendly labeling.

Wine labeling is a complicated issue. We can encounter labels signaling the producers’ names, types of wines (varietal labeling), origin, vintage, level of alcohol and sulfate content, and government warnings. When a winery wants to indicate the geographic pedigree of its wine, it uses a tag on its label called an appellation of origin. This tag must meet federal and state legal requirements. An appellation of origin can be the name of a country, the name of a state or states, or the name of a county or counties within a state. These appellations of origin are seen as a sign of quality for reputable production areas, and an assurance to consumers of quality standards. Australian and European wines are labeled with their own appellation of origin labels denoted as Protected Denominations of Origins (PDO) labels, which are not only exclusively used in wine, but in many other products that have been made using traditional techniques.

In the United States, on the other hand, the US wineries have mainly used strategies of product differentiation based on varietal names (such as Chardonnay, Merlot, Zinfandel, and Riesling to name a few), referring to the grape variety used in the production of each particular wine. However, as recognition and reputation of a certain quality in some areas of the country have increased (such as in Sonoma County or Napa Valley), origin and appellations of origin are gaining importance among the different marketing strategies used by the US wine industry. These appellations of origin and local labeling programs could have major implications for the wine industry in which consumers traditionally look for ‘signs of quality’ to make their wine choice.

This study will focus on the wine industry in one of the new production areas: Colorado. Winemaking began on Colorado’s Western Slope more than a century ago although its take off did not come until the 1990s. From 1990 to 1999, the number of wineries grew from five to 26, and the amount of wine produced in the state has more than tripled in the past eight years (Colorado Wine Industry Development Board, 2002). However, the local industry has a long way to go to compete with other wine growing regions. Currently, the Colorado Wine Industry Development Board (CWIDB) is considering different labeling alternatives that may increase Colorado’s wine market share and perceived quality. Among the considered alternatives are the use of local labels as well as environmentally friendly production processes and their corresponding eco-labels. In the case of environmentally friendly labels, in general the applied standards are not as strict as in organic labeling, and vary from producer to producer. Colorado counts with some comparative advantages to implement environmentally friendly processes. For example, grapes are grown in high altitudes above sea level. This natural condition contributes to the disabling of many pests, and the reduction of pesticide applications. In addition, many wineries are already familiar with ‘environmentally friendly’ production techniques, such as scattering the residues of the produced wine (grape pull) into the fields, reducing consequently the amount of applied fertilizers.

The objectives of the present study are twofold: first, to study the overall consumer perceptions regarding new Colorado wines; and second, to calculate and compare the mean willingness to pay (WTP) for regular and environmentally friendly new wines. Additional effects to be tested include that a reputation for low quality caused by the long-lasting effects of initial harvests is negatively affecting consumers WTP for Colorado wines.