MORNING SESSIONS: DATA-DRIVEN WINE ECONOMICS AND AI-ENHANCED WINE ECONOMY

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Keynotes From American Association of Wine Economists

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Introduction to Wine Economics | Orley Ashenfelter, President, American Association of Wine Economists, Joseph Douglas Green 1895 Professor of Economics at Princeton University

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There are several topics that have coalesced into a subject sometimes called "Wine Economics". These include big data analyses of fundamentals determining wine quality, vineyard location and grape type designed to optimize quality, and the role of expert opinion in guiding consumer search for quality.

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Tax Avoidance and the Punitive Tariffs on Wine from France, Spain, Germany, and the UK (2019 to 2021) | Karl Storchmann, Editor, Journal of Wine Economics, Director, American Association of Wine Economists; Clinical Professor of Economics, New York University

In response to an ongoing dispute between the United States and the European Union over Boeing and Airbus subsidies, the U.S. imposed additional duties on an array of products of certain member States of the European Union, effective on October 18, 2019. Among other duties, the U.S. imposed 25% punitive tariffs on bottled still wine with an alcohol content of 14% (ABV) or less imported from France, Germany, Spain, and the United Kingdom. Sparkling wine, bulk wine and wines above 14% ABV as well as wines from other countries were not affected. The tariffs stayed in effect until March 2021. We analyze their implications on trade volume, value, and prices of wines from affected countries and from non-affected countries.

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Data and AI for Wine Industry

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Wine Acquires a Taste for AI | Cathy Huyghe, Co-Founder and CEO, Enolytic

With its agricultural roots and winemaking lineages that trace back to ancient times, the wine industry hardly seems ripe for the latest applications of Artificial Intelligence (AI). Yet AI is proving to be an effective counterbalance to ever-increasing market challenges, from reduced consumer spending to global supply chain constrictions. Success stories for AI are hard-won within the traditional parameters of wine, but they are also clearing the path for others to follow.

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Consumer Obsession: Leveraging Technology to Transform Consumer Insights into Loyalty and Lifetime Value | Jeff Meisel, VP & GM Direct To Consumer Wine & Spirits, Constellation Brands

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At Constellation Brands, our Wine & Spirits division boasts over 20 esteemed wineries and distilleries, featuring 12 hospitality locations, from the iconic Robert Mondavi Winery to the innovative Prisoner Wine Company, and the prestigious Lingua Franca in the Willamette Valley. With a rich database of over 500,000 unique consumers, we are poised at the forefront of a technological and AI-driven transformation.

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Join us as we delve into the early, exhilarating stages of integrating cutting-edge technology and artificial intelligence to revolutionize our consumer connections. Through the compelling case study of The Prisoner Wine Company, discover how we leverage first-party data and AI to craft personalized experiences and communications at scale. Witness how this strategic approach not only enhances consumer engagement but also drives unparalleled loyalty and lifetime value.

Decoding the Information in Wine Review Texts | Jing Cao, Professor of Statistics, Department of Statistics and Data Science, Southern Methodist University

There is an ongoing debate on whether wine reviews provide useful information on wine properties and quality. Some researchers conducted studies to show those texts add little contribution in predicting outcomes such as wine price or wine ratings. Some other researchers used machine learning (ML) algorithms to demonstrate the opposite but can not explain why, a common limitation for ML as a “black box” model. In this study, we propose to incorporate the attention mechanism in ML into a relatively simple multiple instance learning statistical model. By doing so, we can combine the best of two worlds: the interpretability of a statistical model and the high predictive performance of ML algorithms. We will demonstrate that it can provide interpretable sentiment analysis results for online wine review data and help us decode the domain-specific jargons used in wine tastings.

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Connecting Customers and Products with Data at Total Wine and More | Troy Rice, CEO Total Wine & More

At Total Wine and More, our purpose is connecting people through joyful experiences. We strive to connect our customers with products that they will love (at great prices). In order to best achieve that vision, we have been on a multi-year journey to consolidate and expand our capabilities to bring as much First-Party data together under one platform. Those data comprise what we know about our customers, our products, and our operations. We transform that data into usable information and – by leveraging Machine Learning, Artificial Intelligence, and Data Visualization – generate actionable insights into our goal of bringing joy to our customers.

We think of data in three domains: Customer, Product and Location. We will share some specific examples of where we are using advanced cloud-native tools to leverage this data warehouse to drive business performance, customer actions and operational efficiencies. 

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From Grain to Glass: Examples of Applied AI at Pernod Ricard | Pierre-Yves Calloc’h, Chief Digital Officer, Pernod Ricard

Pernod Ricard, a worldwide player in premium wines & spirits, with brands like Jameson, Absolut, Mumm Champagne or Jacob’s Creek, has been at the forefront of using AI since the 2010s, leveraging its power to inform our decisions and secure a successful future for our business and the environment. 

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We'll share three real-life examples of how with use AI with a significant impact. First, in Australia, AI helps us predict sugar levels in our vineyards, leading to better wine quality and harvest and winery efficiency. Then, we'll delve into how AI assists our marketers in making smart budget decisions for our 240 brands, ensuring our marketing spend of over 1,5 billion euros is well allocated. Lastly, we're exploring AI for regenerative agriculture, teaming up with partners to use AI to assess soil conditions, weather patterns, and growth cycles. This helps wine growers make sustainable and informed decisions, boosting production quality and grape yields.

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The Impact of AI Integration on Rural Economic Development in the French Wine Industry | Houyem Chaib Lababidi, Lecturer in Strategy and International Business, ICD Business School

The French wine industry is not only a source of cultural pride but also a linchpin of the nation's economy, contributing significantly to GDP, export revenues, and rural development. As a global leader in wine production, France's vineyards and wineries support millions of jobs and sustain livelihoods in rural communities. Against this backdrop, the integration of artificial intelligence (AI) technologies into the wine industry represents a pivotal moment with profound implications for economic development. This study explores how the integration of artificial intelligence (AI) technologies within the French wine industry affects economic development in rural areas. Focusing on the intersection of AI and rural economies, particularly within viticulture, the study investigates the extent to which AI adoption influences local economic dynamics. Interviews with key informants, including experts in AI technology, economists specializing in rural development, representatives from agricultural organizations in the wine industry will provide qualitative insights into the socio-economic implications of AI adoption. This ongoing research result will show how AI-driven advancements reshape employment opportunities, income generation, and overall economic sustainability in rural communities dependent on wine production. Thus, it provides valuable insights for policymakers and industry stakeholders navigating technological innovation in the French wine sector.

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Wine Economics​

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Underpricing and Perceived Scarcity | Jill McCluskey, Regent Professor and Director of the School of Economic Sciences, Washington State University

We analyze why firms might set prices below the market equilibrium levels and thereby create excess demand and a perception of scarcity. If the perception of scarcity is a demand shifter, it can result in higher cumulative profits over time. Our empirical application is based on data from the market for “cult wines.” We implement a two-way fixed effects regression model. We find that the larger the difference between the primary and secondary market prices, the higher the market price will be for the next vintage of the same wine in the following year, consistent with a scarcity-pricing strategy.

Wine - A Fascinating Laboratory | Philippe Masset, Associate Professor, EHL Hospitality Business School

Wine is an interesting subject to study in its own right, but above all it is fascinating for the insights it can provide into issues related to a wide variety of fields: economics, culture, history, etc. In this presentation, we will take a closer look at the psychological aspects of wine tasting. More specifically, the presentation will focus on two complementary topics: the role of tasters’ expectations on wine perception; and the interactions between different senses during tasting. These two topics will be addressed through several tasting experiments. Tasting experiments provide a fascinating laboratory for obtaining unique data on tasters, their backgrounds, expectations, perceptions, and preferences. We first examine how tasters form expectations before tasting a wine, and how these expectations affect their perceptions of wine quality and their willingness to pay. Next, we consider an experimental framework that includes wine tasting and observation of paintings. We will study how tasters’ senses interact and what associations they make between gustatory and visual experiences.

Exploring the Impact of Vineyard Practices on Wine Quality: Insights from Big Data Analysis | Oliver Gergaud, Professor of Economics, KEDGE Business School (Bordeaux and Paris)

Assessing the impact of adopting greener vineyard practices (certified or not) on wine quality is challenging. Such an assessment requires data on wines produced by the same winemaker, on a similar land, but using different viticultural techniques such as conventional, sustainable, organic, biodynamic and natural. Once the different versions of the same wine from the same vintage are available, a panel of independent tasters would need to evaluate the samples. Ideally, we would need such data for different wineries in different producing regions of the wine world. To our knowledge, this data is not readily available to researchers. Another way to compare how different viticultural practices perform is to use Big Data techniques. The talk will present the results of a study using expert ratings for about 128,000 wines produced in France from 1985 to 2015 and published by three major wine magazines: Bettanne & Desseauve, Gault & Millau and Gilbert Gaillard. Published in Ecological Economics in 2021 with Magali Delmas (UCLA), this study has sparked  interest far beyond the academic world, both in France and abroad.

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The Economics of Introducing Alcoholic Beverages into Grocery Stores | Bradley Rickard, Professor of Applied Economics and Management, Cornell University

The repeal of the Prohibition Act in 1933 led to a patchwork of state-level regulations that control the production and sales of alcoholic beverages. For example, in New York State, beer is widely available in grocery stores but wine and spirits are not.  Over the past decade there have been a number of legislative proposals that seek to expand the retail availability of certain alcoholic beverages, most notably wine, and these have stirred much controversy among industry stakeholders.  This presentation will first provide an overview of my research that examines the implications of allowing wine to be sold in grocery stores for retailers and for consumers.  Second, I will present results from a current project that uses two large Nielsen datasets (the consumer panel data and the retail scanner data) to study how the introduction of beer into supermarkets in Colorado in 2019 affected total weekly sales, category-specific sales, and shopping frequency patterns. Given that Colorado also introduced wine into grocery stores in March 2023, the results from our research will also shed some light on the likely effects of the recent regulatory change in Colorado in 2023.

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AFTERNOON SESSIONS: CLIMATE AND GRAPES

Keynote

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Vineyard Design in the Face of Climate Change | Marco Simonit, CEO, Simonit & Sirch

Climate change has become a relevant topic in recent years. We knew that we would face new challenges in many aspects of our lives. We believed it would be a problem for next generations. We recently realized that climate change is here, we can see it and experience its effects every day. The effect of Climate Change (rising-up of average temperatures, extreme events like droughts, heat strokes, major storms…) are causing an increased frequency of effects on the world's major wine districts. New viticultural areas are needed, in order to escape these problems. So we have seen two occurrences:

• A "north-shifting"(for the northern hemisphere): search for new wine districts in cooler areas.

• "High altitude viticulture": planting vineyards at higher altitudes. In this context, it seems useful to promote the resilience of plants to climatic variables : on one hand, preserving the water conduction system efficiency in the plants and improving reserves in the living wood, and on the other hand managing shoots and bunches in accordance with the plant’s vigor. Planting densities should be reconsidered, in order to reduce the use of water/resources  and have enough space for plant’s architecture development. Dynamic architectures can be developed and changed according to the plant’s life. They are the backbone for shoots and clusters, and a key-point to get plants adapted to their terroir.

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The Impact of Climate Change on Wine Industry

The Problem of Terroir in the Anthropocene | Elizabeth Wolkovich, Canada Research Chair in Temporal Ecology and Associate Professor, University of British Columbia

Climate change has brought a new world of threats and challenges for most winegrape growers, including earlier harvests, increasing sugar levels and shifting pests and weather regimes. This new world of winegrowing in the Anthropocene requires adapting to an ever-changing environment, where the terroir of a region---all the environmental characteristics that contribute to a region's wine---is far more dynamic than anytime in winegrowing's history. This challenge has elevated the importance of matching varieties, rootstocks, and management regimes to changing environments, but research has lagged behind these demands. In my talk, I will outline these challenges then show how shifting varieties can greatly alter dire predictions for the future of the world's winegrowing regions, but will require new approaches by researchers and winegrowers alike.

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Climate, Weather, and Collective Reputation: Implications for California’s Wine Prices and Quality | Sarah C. Smith, Postdoctoral Scholar, Agriculture & Resource Economics, University of California, Davis

In 1980 the U.S. Government created American Viticultural Areas (AVAs) as a mechanism for wine producers to signal quality and better capture the benefits from collective reputation associated with the location of winegrape production.  California, which produces about 80% of U.S. wine, has 142 AVAs of which 16 are sub-appellations located within the Napa Valley AVA.  The objective of this study is to develop an improved understanding of the role of AVAs in conjunction with climate and vintage weather as they affect the quality and prices of varietal wines, and of the potential for climate change to disrupt the role of AVAs in providing signals of varietal wine quality.  Our analysis is based on a sample of 45,000 observations of ultra-premium varietal wines rated by Wine Spectator magazine, and a sample of 48,000 observations of auction prices for ultra-premium varietal wines sold by K&L Wine Merchants, each associated with a particular AVA.  Using spatially detailed weather data from PRISM (800m grids) we define AVA-specific measures of attributes of weather and climate during different parts of the growing season that are hypothesized to adversely affect wine quality and prices.  We (1) derive estimates of the location- and variety-specific relationship between prices (and ratings) and weather and climate, and (2) explore the role of adaptive responses by producers in the vineyard and winery seeking to mitigate the undesired effects of short-run weather shocks and longer-run climate drift on the quality and price of ultra-premium wine.

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How Can We Best Use Econometrics to Quantify the Impact of Climate Change on the Wine Industry? A Case Study for Australia | Germán Puga, Research Fellow, Wine Economics Research Center, University of Adelaide

Climate change is a major threat to vignerons in key wine-producing regions. In Australia, a country that is on average warmer and drier than other wine-producing countries, all wine regions are projected to become even warmer and drier in coming decades. The aim of this study is to review how best to estimate the potential impact that climate change could have on wine grape yields and prices, and apply that to Australia. We use a novel panel dataset to estimate  the impact of weather shocks on wine grape yields and prices in Australia, and then use those estimates to quantify  the potential  impact of climate change projections on those outputs. Preliminary results suggest wine grape yields are expected to decrease as all regions become warmer and drier, and despite a lower incidence of frosts. Further, winegrape quality is expected to decrease due to higher temperatures. These results suggest that for maintaining wine styles, Australian wine growers may need to grow varieties that perform better  in warmer and drier climates, and/or to plant their vineyards in cooler-climate regions, such as at higher elevations or latitudes, or closer to coastlines. We discuss ways to deal with three key challenges when applying climate econometrics to wine: 1- choosing appropriate weather variables and functional forms; 2- modeling outputs as static or dynamic processes; and 3- appropriately account for adaptation and the impact of the intensification of climatic events

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Judgment of Napa | Michael Silacci, Winemaker, Opus One

How will we answer our grandchildren when they ask, “What did you do to restore water and ecosystems and mitigate climate change?” It is a fine line between humility and hubris. Mother Nature sits at the fulcrum leaning one way or another to keep the teeter-totter in or out of balance. Our attention to detail and purity of focus are swept aside when Mother Nature enters the picture in a bad mood. Not that we should not prune grapevines as if we were sculptors nor blend wine as if we were painters. Not that we should not count leaves per shoot and drip irrigate. Not that we should not use cover crops to sequester carbon and cool grapevines. If we did not work with passion and reason as if we were saving lives, not just making them better, then we are in the wrong business. We are learning to adjust, be fluid, and become environmental ninjas with every changing vintage. Our grandchildren will find the answer to their question in the bottle they open on significant birthdays and life events.

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DBR Lafite’s Viticulture as an Ecosystem: How We Adapt to Climate Change | Saskia de Rothschild, CEO and Director General, Château Lafite Rothschild

It is DBR Lafite’s greatest strength to be able to count on 150 years of human experience in the vineyard and on a web of estates across different territories in order to write their future. Convinced that protecting our vineyards’ balance in the face of climate change has become a fighting game, DBR Lafite’s team has built an ambitious approach to care for their vineyards in a sustainable (and often organic) approach as they anticipate evolutions to come.

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Sun, Soil and Water: How Penfolds uses data-based decision metrics to help plan and adapt to growing grapes in a changing climate | Catherine Kidman, Penfolds, Treasury Wine Estates

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The history of Penfolds wines dates back to 1844, with the establishment of our first vineyard at Magill Estate, near Adelaide in South Australia. Since then, we have expanded our vineyard network throughout Australia (including the regions of Barossa Valley and Coonawarra), Europe and America. Penfolds is an iconic wine identity where both our wines and vineyards are celebrated for their heritage, diversity, sustainability and craftmanship. For Penfolds, each wine is underpinned by the Region and Terroir from which it was grown. For blends the Penfolds ‘House Style’ is similarly underpinned.

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Understanding climate risk specific to each of our vineyard locations is essential as we focus to adapt and mitigate to growing our grapes in a more variable future climate. This presentation will focus on how Penfolds uses data and technology to build climate resilience within our vineyards utilising RCP8.5 climate scenarios across current (2020’s) and mid-century (2040-2060) climate horizons. Data-based decision-making forms the backbone of our climate risk assessment framework for our vineyards and today we will explore the data sources that inform adaptation strategies for key climatic metrics that impact how we grow our grapes and make our wines now and into the future.