Fine wines and high-end cars make for a German renaissance

It took just 15 years to ruin Ernst Loosen’s 200-year-old family business. “In the mid 1970s, my father exported 95 per cent [of his Riesling], mostly to the US”, said the proprietor of an 80-acre estate in the Moselle valley. “By 1986, it was only 50 per cent, and by 1988 not a single bottle was sold abroad.”

Evolving tastes played a part in this spectacular decline, which was mirrored across much of the German fine wine industry. Rieslings, once so popular that they fetched higher prices than Bordeaux or Burgundies in the world’s ritziest hotels, fell out of fashion as younger drinkers flocked to lighter and drier varieties and, in the US, embraced California’s improving wines. An unfavourable exchange rate as the dollar dropped sharply against European currencies in the 1980s did not help German exporters either.

But it was the brand that suffered the most dilution. A 1971 law, designed to aid mass producers in marketing their multi-grape plonk to less discerning consumers, helped make Liebfraumilch labels such as Blue Nun and Black Tower ubiquitous and German wine a byword for bargain bin fare. Previously prestigious Rheingau vineyards, struggling to differentiate their superior products, faced bankruptcy. “We ruined 100 years of reputation, which even two world wars had not managed to destroy,” Loosen said.

Enter the Verband Deutscher Prädikatsweingüter, or VDP. A small association of winemakers that had led a low-key existence for more than 90 years, it came up with a singular mission: to restore their international reputation and compete in the big leagues with French and Italian producers. To do so, they would adopt a classification system similar to the one originally imposed on the châteaux of the Médoc in 1855, and, most important, reduce the quantity of wine they produced to focus solely on quality.

This renaissance really took off 20 years ago, with the launch of the VDP’s Grosses Gewächs label, a German equivalent of Bordeaux’s Grand Crus. Its success has lifted average prices for the 2021 “GG” vintage, which debuted this week, to €40 a bottle, up from between about €13 and €25 in 2001. Loosen’s estate, a VDP vineyard, is back to exporting roughly 80 per cent of its yield.

The lessons from this ready-made business school case study seem glaringly obvious. As another legendary German brand, Mercedes-Benz, is belatedly realising, luxury is scarcity. The Stuttgart-based carmaker is taking a leaf out of nearby vintners’ books and slimming down its entry-level range to focus instead on higher-end models, in an attempt to convince investors that it deserves a similar valuation to Louis Vuitton owner LVMH.

But the wine industry could, in turn, learn from another German carmaker, just down the road from Mercedes. As Stifel analyst Daniel Schwarz said, Volkswagen marque Porsche — which is due to be partially floated in one of Germany’s largest ever listings in coming weeks — did the opposite of the VDP in the 1990s. In 1996, after a weakening dollar had exposed its over-reliance on selling a single model — the 911 — to the US market, Porsche launched the cheaper Boxster and branched out into SUVs with the Cayenne in 2002.

Production of both cars was outsourced, at least in part, to contract manufacturers. But Porsche’s “Made in Germany” brand did not suffer, Schwarz said. “The expansion was a major success. Porsche increased unit sales from 21,000 in 1995 to 88,000 in 2005. The operating margin increased to 18.5 per cent and Porsche could claim to be the most profitable [manufacturer] in the world — the Tesla story of the 1990s.”

Chief executive Oliver Blume argues that Porsche, which now makes more than 300,000 cars a year, is in a “sweet spot”, where it has the scale to cater to ever-changing tastes, such as with the popular electric Taycan.

The VDP will need such agility to build on two decades of Grosses Gewächs success. In an attempt to avoid pejorative perceptions, it does not allow the imprimatur to be applied to sweet Rieslings, even as interest in them remains high. It was also slow to recognise how Germany’s superb Pinot Noirs could compete with pricey Burgundies. And as Porsche learnt when Japanese carmakers successfully aped European sports cars in the 1990s, a lack of variety leaves you vulnerable to cheaper imitations.

“The success is now our problem because people are copying us,” said Loosen of non-VDP makers who are capitalising on the GG’s renown. “We are going back to the old system . . . it is already beginning to get diluted.”

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