Demographic changes that will upend the wine sector

Monday, 25. June 2018 - 11:00

MBA graduates, Weincampus Neustadt, 2018 At the cold end of February, I found myself scurrying across the marketplace of Neustadt an der Weinstrasse to a wine bar. Inside was a table of people, offering warmth and welcome. They were a smattering of the students who had completed the first iteration of the MBA — Wine, Sustainability and Sales offered by the Weincampus Neustadt here in Germany. The students were all positive about their year-long experience, particularly because the course allowed them to work while studying. What really struck me about the group, though, wasn’t what they told me about the course — it was what they told me about themselves. The mostly 20- and 30-something young professionals were a diverse lot, coming from as far away as China and Greece. All spoke impeccable English, many spoke a third language, some of them had significant experience outside the wine industry and all were global in outlook. These are not the only MBA graduates entering the wine industry; there are now at least 10 wine-related MBAs offered in Europe, from Burgundy to Bologna and beyond. As these students enter the business, they are destined to shake it up. This new group has also arrived at a moment of dramatic demographic change — one which will transform European economies. The end of an era The first of the Baby Boomers (born between 1946 and 1964) turned 65 in 2011. This group established the modern wine industry, carving out New World regions or revitalising traditional territories — and now they’re retiring en masse. The people taking their place, members of Generation X and the Millennials, are quite different. Generation X came of age at the dawn of both globalisation and the digital transformation, while the Millennials have never known anything else. The impact of this generational shift on the family businesses that dominate the wine trade cannot be overstated. Family firms tend to be conservative and, in the wine industry at least, deeply risk averse. The generations about to take the reins actively embrace change — and not in the Silicon Valley sense of overthrowing the old in favour of the new. Rather, they are interested in both innovation and tradition. A significant number also have international experience, either because they studied or worked overseas, or simply because they’re used to cheap travel. It is no exaggeration to say that the rising generation look nothing like anything that’s ever come before: highly educated, multilingual, global in outlook but committed to their local community. By itself, this would be fundamentally transformative. But there’s another change on the way as well. The female surge Women have occasionally inherited businesses or wine properties, but generally only when there was no male heir. It has been historically so rare to have women in charge that we know the names of many of those who were: think the Widow Clicquot. As recently as 1990, Donatella Cinella Columbini of Montalcino was told that she could have her pick of female wine graduates to come and work with her, as nobody else wanted them. Now, however, women are benefiting from the great transfer that’s occurring. From famous wineries like Chateau Lafite Rothschild and Gaja to tiny affairs, daughters are rising. It’s hard to predict what the impact of this will be, though there is some evidence that female leaders tend to be more democratic and team-oriented than men. What is certain, however, is that it will not be business as usual. These changes are about to accelerate — and not only in wine. Consider that the backbone of Germany’s export economy is small- and medium-sized businesses, which are largely family owned. This group, the Mittelstand, accounts for more than 99 percent of all German companies, and 60 percent of German employment. Italy has more than a quarter of a million family businesses, accounting for 70 percent of employment. Across Europe, KPMG estimates that family businesses account for between 50 percent and 90 percent of all companies. Given the scale of what’s about to happen, what do the demographers, social scientists and economists think the impact will be? Lack of data I assumed that there would be plenty of experts out there, ready to get into long discussions about the coming transformation. At the very least, I expected a pile of academic papers on the topic. The reality was different. I contacted demographers, economists and social scientists from Berlin to Oxford to Princeton to Stockholm, only to find none were able to comment. I was told that demographic research is focused on the impact of what’s been dubbed the “silver tsunami” — the effect on the economy of the loss of the Baby Boomers. Economists expect spending and productivity to decline dramatically, and social and healthcare costs to spiral out of control. The data on the Baby Boomers is robust and deep, obviously for good reason. But there is no forecasting going on about what is likely to happen to their businesses after they leave. Darius Movaghar of European Family Businesses (EFB), founded to look at the transfer of wealth between generations, agrees the demographic changes are real, and says: “One of our biggest battles is to convince policymakers to look into this.” He said part of the reason the EFB was established was to remind legislators about families being the true demographic driving the business community in Europe. “There is a tendency to look at companies in terms of their size, because it’s statistically easier and politically it’s easier to justify support for small businesses.” Movaghar says some industries will be impacted more than others: “Manufacturing companies have gone through their digital transformation; they’re completely international.” Among the issues the EFB is considering is what to do about the many businesses with no natural heirs. “When it comes to things like succession there is no data in ownership and that’s the problem — a lot of countries have no registry of who owns what,” he says. Dr Paul Woodfield, research Fellow at the University of Auckland, agrees that there is little research “where the concentration is on the next generation”. He speculates: “Given some businesses may be in declining markets, the transformation may be one of diversification, or perhaps exit.” In the short-term, then, the wine industry will likely face consolidation, as heirs sell small, unviable properties and get on with their lives. Those businesses that remain in family hands are likely to become more modern, more professional and more open to ideas and practices taken from other industries. And this won’t just be the wine industry — it will be happening across the Eurozone as a whole. Every one of those young MBAs I met in Neustadt that night has a bright future, as the wine industry will have an unprecedented need for the analytical, strategic and communication skills they have been learning. Because change is coming — and coming fast. Felicity Carter