Seeing Rosso: the economic and social impact of changing Rosso di Montalcino

Why? I keep asking myself, Why?

I am seeing the news coming in from the Brunello Consorzio and it is exasperating! Why this constant push by the Consorzio to change the Rosso di Montalcino blend when most producers have clearly said no. Why is the decision that was scuppered in February back on the agenda in the first weeks of September, during vintage?

When the Brunello Consorzio reconvene again, during stressful vintage time (Sept 7), they will be there to talk about changing the laws for Rosso di Montalcino to include international varieties.

Why change a clear and unique product, from one tiny town in Tuscany, to make it more generic?

What is tabled by the Consorzio are two or three different versions of Rosso di Montalcino which will all have different names: Rosso di Montalcino, Rosso di Montalcino Sangiovese and Rosso di Montalcino Sangiovese Superiore. In other words, there is a move towards segmentation in this one little wine, which in layman’s terms, is a baby Brunello.

From a non-technical, wine lovers point of view, it is a very obvious change from what is a wine from Montalcino in Tuscany, Italy (let’s get down to brass tacks, because this wine is sitting on the shelf against many countries and styles of wine). It is easy to learn 100% Sangiovese is Montalcino. It is a clear beacon in Tuscany, and as an outsider, it makes sense and is easy to understand. It also speaks of the expression of the people and land. I could not put the position of the winelover better than The President of Brunello producer, Mastrojanni, 
Francesco Illy (of Illy Coffee) who has stated:

people consume stories of men of courage, territory, culture and passion. They search for features, specificity and personality. 
And who does not understand this … is designed to disperse his voice in a chorus of platitudes in which anyone can sing. 
Is this what we want? 
As we once lost our identity, to compete with this type of farming? And with that kind of laws on wine? 
Our identity is our first capital and it makes us different and gives us stories to tell different from anyone who does not have intensive viticulture.


So what are the benefits of “segmenting” Rosso di Montalcino?

In effect, it segments the market for the wine. Before you think I am a hard-headed capitalist and betraying my winelover roots, let’s try to understand the position of the Consorzio (because it must have an economic reason behind it, it is obviously not about keeping the integrity of the 100% Sangiovese wine).


In basic economic terms: by segmenting market you make more money. In theory, by splitting up Rosso di Montalcino into three groups there are now three new markets.


Let’s use an example of segmentation from another industry. The airlines segment the seats on the plane to increase profit. Once one class/type of customer/one price level has been exhausted the airlines segment the prices to encourage a new customer in a different class. This creates “endless” markets based on diversification.


Another example. If everybody buys a Ferrari – and there is a small group who can afford to buy a Ferrari at full price – if Ferrari lowers the price or have spin-offs of the Ferrari brand, there may make less money but Ferrari will get the money. (As an aside, will this cheapen the Ferrari name? I have not talked about the value-added by branding here)


The key question for Montalcio producers, and always discussed before segmenting a market: have you fulfilled the potential of the market right now? Is the current market truly exhausted?


If a winery produces 10,000 bottles and all are sold at full price there is no point to have segmentation. Segmentation reduces the intial prices.


If a winery sells 10,000 and has an extra ability to produce another 10,000 at no extra cost then it may be worth segmenting the market even if it is a lower price. For the producer who sells all bottles at full price, there is no point to sell at a lower price. There is no excess production to be sold.


You can see how this benefits the big producer over the smaller producer where we are often talking about 1,500 bottles not thousands or millions.


If the main market’s demand is exhausted and there are no more buyers then the winery must look at new markets. Have all the markets been explored and exhausted?


Can Montalcino supply all the demand in a new market such as China at full price?


If no, then there is no reason to blend it. You will find people to buy it at full price, especially if the “brand Montalcino” is clear and obvious.

If Rosso is segmented into different levels of Rosso di Montalcino, then it will not all be sold at full price. This is particularly important if you are small producer – which is the majority of producers in this one small town of Montalcino – who may not be able to have the stock to segment at different price levels.


The bigger producers, who have excess bottles, need to look at new markets. They can afford to lower the prices because they have an economy of scale. It is easy to diversify if you have an excess of wine.


What is the implication of this?


This will have the effect of pushing the prices lower for everyone, partly due to denigrating the brand, partly due to reducing prices when products are segmented. For a small winery who has sold 10,000 bottles anyway then they will have their “full price” prices pushed lower and reduced margins…


This has the risk of putting a few small producers out of business. In the worst case scenario, what will happen in 20 years time? Producers will go out of business making the land available to bigger producers who can snap the vineyards up at cheap prices, because small producers were forced out by a model that was unsustainable for them.


On the outside, being able to blend 1-5% of another grape into Rosso di Montalcino may seem like it will make a minor difference to the wine.


Social Impact


Apart from the fact, to quote Ziliani – this may be a Trojan horse to change Brunello blends to make them more international – this has social consequences for the town of Montalcino.


For wine is the expression of the land AND the people. When Montalcino is owned by two or three big companies and the artisanal producers are pushed out by economies of scale, then maybe the smaller issue of these new blends should not have been decided during the first weeks of vintage when everybody is nervous about 2011 vintage.

In retrospect, as they say in Italian, “chiaro anche ai sassi” – it will be clear to the rocks.


Thanks to Franco Ziliani, Dr Jeremy Parzen, and Walter Speller for their posts and clarifications.


Related links: Changes in Rosso di Montalcino race ahead