Tokenizing the Wine Industry with Somm Marc Flores

According to Research and Markets, the global wine industry is growing at a CAGR of 3.7 percent. It will reach $201 billion by 2025 and $434 billion by 2027. In the U.S. alone, the wine industry was valued at over 88 billion by the end of 2020. 

Despite the coronavirus pandemic, the demand for wine increased last year. Another parallel report revised the wine industry to grow by a CAGR of 4.8 percent, up from 4.7 percent, to 2027. During this period, the demand for wine in China will grow at a CAGR of 7.8 percent. In 2020, China, the second-largest market for wine, redistributed $93.5 billion in the wine supply chain.

This explains why projects are focused on tokenizing this multi-billion industry. With tokenization of this lucrative sector, automatic digitization opens up more opportunities, reduces fraud, and improves traceability, directly benefiting stakeholders.

In today's interview, we sat down with Somm Marc Floresm, the CEO of the wine ecosystem, ENO, to discuss the state of the wine industry, its tokenization, and what the future holds.

1) Let's start from the very beginning. What are the problems vineyards, wine tasters, sommeliers, and stakeholders face in the current process flow?

In Latin American countries, the wine industry faces cultural problems. In this region there is not an almost "born" taste for wine, it is more of an acquired taste or that people from families of European descent have or who are dedicated to the industry in some way.

In certain countries, the tax issue is an expensive factor. For example, in Mexico, one pays 16% VAT and 26% IEPS (a total of 42% in tax) making the product considerably more expensive; thus, reducing the frequency of consumption.

Another cultural aspect that acts as a barrier to the wine industry’s growth in Latin America is that a large part of the population views it as "a luxury product" or "a product for special occasions". Certain certificates of origin, such as champagne, are those who suffer the most from this idea that prevails among Latin American consumers.

One way to face this challenge is to introduce the benefits of wine by demonstrating that it is not only for special occasions and that it can be paired with almost anything ranging from fast food to complex dishes. The fear of wine must be lost. It is not only for connoisseurs, but it is for all types of people, and it can be paired with all kinds of food. It is even indicated by the producers themselves: there are bottles that cost 2 dollars and there are bottles that can cost hundreds of thousands of dollars.

Familiarizing and accustoming a market to drink wine while reading, living with friends or family, eating casually at home, on a picnic, with arepas or with a fine steak, is not an easy task.

Climate change is another challenge that the wine industry is facing. An extreme climate is not an optimal choice for a wine of excellent quality. Sure, there may be exceptions, but it is not ideal.

It is key for the sommelier to harmonize and correspond with the client's needs. Many sommeliers do not know how to create that special bond with the client and it is extremely essential when you want to take a consumer to the world of wine. You have to be patient, know the product well, know how to read your customers, decipher the limitations, express the wonders found inside a bottle and, of course, have the best disposition and provide the best service.

2) Even with these problems, analysts predict the global wine industry to reach $434 billion by 2027. What are the drivers?

I consider that an important factor that is a driver to reach these projections is the maturing generation that embraces wine more than the previous generation. I’m talking about the millennials and centennials. They are generations that grew up with access to a world of new content, where the favorite character from a series or movie lives the good life in Manhattan, drinking wine in their own home or in a luxurious restaurant. Or the group of friends who always find a bottle of wine on the table.

These generations see possible things, within their reach, they like to pamper themselves, that is why consumption will be higher for these generations.

Additional, let's face it, wine is instagrammable! Everything around the wine is aesthetic: the bottle, the cork, a beautiful crystal glass, a decanter, the way the wine falls into the glass, a person taking a glass by the stem … Everything is highly aesthetic, it is content that is pleasing to the eye that is easy to find on social networks.

We have to mention that the entry of relatively, young consumer countries, such as China, is a gigantic potential market, certainly the largest in the world. Let's face the reality: things are not quite right, and we have to improve many aspects as a human species, but the number of rich and poor has never been better than it is in recent years. The global market can access products more easily and effectively, and since basic needs can be satisfied, we begin to indulge ourselves.

China is joined by countries such as Indonesia, Vietnam, Taiwan, etc., that they are important markets that they see in the Chinese westernization, an example to follow.

3) Did the Coronavirus pandemic fast-track innovation and change of tact, especially in the supply chain?

It would be a mistake to answer NO to this question. Of course, the producers, distributors, owners, and workers looked for a way to get their products to the consumer in some way. We were able to observe it with the birth of several companies with take-away deliveries, virtual tastings (in which the product arrived a few days before the virtual event), and companies promising instant delivery within minutes after the purchase. 

Web catalogs had to re-evaluated and improved significantly. Certainly, there could be no room for doubt because all the consumer was going to see was a web page with pictures and information, no sommelier aside, unable to physically touch the bottle. Thus, significant efforts were definitely made to improve the content of e-commerce for the industry in general.

4) Why do we need a blockchain and a crypto token for the wine industry?

One of the challenges in the wine industry is the origin and distribution of wine; Knowing that the origin of the wine is from the vineyard it claims to be is particularly important for consumers and it assures them that their expensive wine is not false. In that sense, blockchain, as a trusted and unbreakable source, works as a catalyst to have the real data of wine that is being consumed and easily verifiable.

On the other hand, being able to have a token that represents the wine industry allows for not only an easier acquisition, verification, and collection of wines that is protected by the blockchain’s certainty. It permits stakeholders to attend wine tastings, vineyards, themed hotels, and other events with discounts and other services that the token, sponsors, vineyards, and business partners deliver within the ecosystem.

In addition, an important aspect of the token is that you can have a collection of wines as NFTs from the main participating vineyards as well as a whole market for the exchange of them through the digital platforms that will be available soon.

5) Do we need blockchain in agriculture as a whole? 

It is interesting the proposal and the need to have blockchain for agriculture. The greatest benefit is to be able to verify the origin and composition within the field products ranging from both the logistics part to making sure that the products do not contain components that are harmful to health or external factors. These certainties and the veracity of the information is what supports the use of this data within the blockchain as well as the support for the distribution of the same product. Blockchain technology would be essential for this type of activity.

6) What about regulations? Most countries, except China, the U.S., and some European countries, are taking a wait-and-see approach. Could this slow down the incorporation of blockchain in the wine business?

Yes, it is possible that the more regulations each country adopts, regarding the use of cryptocurrencies, affects the adoption of these instruments. On the other hand, the use of blockchain in most of these services is a benefit that counteracts any current problem; thus, blockchain is ideal to attack these issues where there is only one central entity or organization that controls and regulates these services and that has a human factor with problems. Therefore, a system supported by blockchain will allow the innovation and acceleration of the service in a more enhanced way than with current, traditional methods.

7) Do you think 2021 and subsequent years will see more players in the wine and agriculture sectors embrace tokenization to deter fraud and counterfeits?

Yes, the benefits of tokenization are clear and can deter and detect fraud. I believe that we will see more projects that will allow for better management of wine products through blockchain.

8) There are concerns that the lack of educational campaigns, especially among the tech-savvy, among baby boomers, will slow down impactful technology in agriculture and, by extension, the wine industry. What do you have to say about this? 

To a certain extent, yes. At the end of the day, it is today’s generation that has the most important political stands in the world. And, by nature, we tend to fear what we do not know.

Fortunately, these generations that you mention have adopted technology as part of their day-to-day life. They understand what it is to adapt or lag behind. We could observe this with extremely simplistic trends, such as the inclusion of these generations to social networks.

9) Regardless of their technology, Blockchain projects will find it hard to crack the global wine business without boots on the ground. What’s your take on partnerships and marketing?

It is important to maintain the relationship with producers and customers. Making customers aware of not only the need to have an ecosystem where wine consumption is promoted, but also knowing as a customer what the wine industry is and why is crucial through the education provided by the project. Therefore, it is essential to make these concepts known to customers through marketing.

10) Thus far, what are some progressive regulations that promote adoption of blockchain in agriculture and the wine industry? 

I know that there are some that exist within producing countries, mainly within the European community and these promote the use of blockchain to avoid fraud and crises in terms of food that is contaminated.

11) How will blockchain specifically solve problems around counterfeits and fraud? These are challenges faced by wine suppliers especially in China.

The most used way to avoid fraud is to have from the origin (vineyard) the classification and control of the products using technologies such as QRs with digital signatures stored in the blockchain and seals with holograms that are registered from the origin and monitored from their exit to the market of consumption. In addition, the points of passage are registered with the blockchain as well and these QRs and digital stamps can be verified through an app by the same consumer to know their origin, trajectory, and when validating their authenticity. This avoids the existence of duplicates or wines that were not packed in the same origin and with the established route.

12) For projects looking to balance between blockchain and environmental conservation given the rising calls for preservation and campaigns around raising awareness on climate change, what will be your advice on selection criteria?

Besides being cheaper by removing human intervention within the classification, distribution, and verification process, blockchain projects will be better for the environmental impact because the very same transactions will be verified by miners that use renewable energy. Technology is better than human process and will leave less of an impact on the environment.

Disclaimer: 

The author does not have any vested interest in the projects mentioned above.

The opinions in this article belong to the author alone. Nothing in this article constitutes investment advice. Please conduct your own thorough research before making any investment decisions.