Wine: Innovation vs. Regulation

Wine is a product that exudes elegance, class and strict regulations. For many wine producers, centuries-old regulations continue to guide their production and marketing. The rise in New World wine industries like the U.S., Chile, Australia and others—which are subject to far fewer rules— is threatening the success of Old World wine industries in Europe.

Kevin Fandl, associate professor of Legal Studies in Business at the Fox School of Business, delved into this topic to uncover how regulation affects the wine market. His research was supported by Temple University’s Center for International Business Education and Research (CIBER).

“The idea was to look at both sides of the regulatory coin. That is, what impact do regulations have, positive or negative, on innovation in the wine sector,” says Fandl. “On the other end, how do regulations affect what consumers have access to when they select their wines and how do those preferences drive demand?”

To answer these questions, Fandl reviewed decades of winemaking legislation.

So how do Old World wines and New World wines differ? According to Fandl, “The difference is the history. The New World hasn’t been making wine [for centuries]. So, it hasn’t needed to regulate it except in the last fifty years. The Old World is fighting against centuries of legislation meant to protect the quality of their wines—regulations that are now constraining their ability to effectively market their products.”

This history that European wine companies are battling comes in the form of hundreds of years of inhibiting policies. From specific labeling guidelines to mandatory classifications of grapes, the European Union (EU) enforces strict protocols for its wine manufacturers.

“The regulations are meant to maintain high prices and high quality,” Fandl says. “That protectionist view is limiting European producers to older generations of wine drinkers. It’s ignoring their ability to innovate and sell to millennials.”

As Fandl wrote in his paper, “Regulatory Policy and Innovation in the Current Wine Market,” published in the American University International Law Review journal, millennials are the largest generation to consume wine since the baby boomers. “They are consuming, on average, 3.1 glasses of wine per sitting.” 

To better understand what these average consumers of wine are looking for, Fandl conducted an online survey of 500 American wine-drinkers.

“Millennials seem more interested in the story behind the wine. They also like innovation; for example, screw caps, interesting labels and descriptions, or new marketing techniques.”

New World wine industries like the U.S. and Chile are implementing these techniques, while Old World wine companies are locked into traditional production and marketing techniques, either due to

strict regulations or an unwillingness to adapt. From his research, Fandl determined that “innovation is something that consumers demand” and the regulations in the European wine sector are preventing that innovation.

So, what impact do these findings have on the wine market?

“I hope it speaks to governments to help them appreciate the flexibility that a loose regulatory structure gives to their wine sectors and how important those wine sectors are to their economic development,” Fandl explains.“I also hope it speaks to vineyards to show that you really need to innovate if you want to stay alive in the current wine market.” 

This isn’t the end of Fandl’s research, either. He will be continuing this analysis by bringing in other countries and identifying the specific policies they should focus on changing. 

If there’s any hope for this regulation reform, Fandl says Old World wine companies need to “push for change. They need to advocate for regulatory change through their government, to allow them more flexibility.”

From Fandl’s findings, it’s evident that the Old World wine industry needs some flexibility if they want to stay competitive. If consumer demand is changing, it’s crucial for the product to change with it.

“Let consumers make the decision on what they believe is quality,” says Fandl.

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