Monthly Archives: July 2009

The End of France?

July 23, 2009 By in book reviews, EU wine market reforms, EU wine reforms 3 Comments

The rumors of my death are exaggerated — Mark Twain

Rumors are flying about the death of the French wine industry. One source reports that France has fallen to third place in the key UK wine market (behind Australia and the US) and is losing ground to surging South Africa. Other rumors whisper that France will seek authority for crisis distillation payments to deal with the growing lake of unsellable wine. And now a new book with more bad news!

Michael Steinberger writes about wine for Slate and other publications. We share many interests so when I heard about his new book, I just had to get a copy. It’s called Au Revoir to All That: Food, Wine and the End of France. The end of France? Gosh. Although just one chapter deals explicitly with French wine, it seems to me that the whole book comments in one way or another on the French wine dilemma.

We have met the enemy …

French cuisine, like French wine, once ruled the world, Steinberger argues, but not any more. Spain has taken the culinary lead, it is said, and many rivals compete on the wine shelf. Who is responsible for this sad situation, Steinberger asks? The answer is clear: the French themselves.

French economic regulations are one factor. They make it very difficult to operate restaurants profitably in France and so encourage the top chefs to look  abroad. Flying chefs are like flying winemakers, I guess, leveraging their skills (and celebrity) on a global scale.

Critics are part of the problem, too. Not Robert Parker this time — the Michelin Guide. The pressure to earn and keep precious Michelin stars is enormous, Steinberger argues, making nervous wrecks out of France’s culinary elite. Worse, Michelin has “a certain idea” of French cuisine and service and it is not clear that it encourages the best from French chefs.

The French invented critics like the Michelin Man and now Robert Parker, it seems, and today suffer from their “tyranny.” Exquisite irony!

… and he is us.

France suffers as well from its distinctive institutions, we learn in the chapter about French wine. The French invented the appelation system which now seems to be running amuck as winemaking regions large and small seek the status that geographical indicators allegedly provide. The French have made appelations so important, Steinberger argues, that they have backfired.

Appelations should be a guarantee of quality or typical style if they are to be very useful economically. But, according to Steinberger, the pressure is on to give the stamp of approval to all the wines in a given region because the economic consequences of losing AOC status is so great. Result, bad wines as well as good ones earn the designation, diluting the commercial value of the brand for all (pun intended).

Stressed out

So it seems as though the French have only themselves to blame for their problems, but I think they are not alone in this. We are all frequently our own worst emenies.

Steinberger’s book does a nice job of plotting his personal love affair with France and his ultimate disappointment reflects his great admiration for what French cuisine at its best can be. It is a good read; I recommend it, unless you are trying to diet!

I love France, too, and I am dismayed by the state of the French wine industry, but I think that rumors of its death are exaggerated. The combination of EU reforms and the current economic crisis will certainly stress French winemakers over the next few years. I am hopefully that this stress will produce less wine but better wine. That’s happens when vines are stressed, isn’t it?

Prime Time for Fine Wine?

July 17, 2009 By in economic crisis, Economic impact, robert parker, Supply and Demand, Wall Street Journal, wine distibution, wine markets, wine price 1 Comment

The Wall Street Journal reports that USDA Prime beef is now available in your supermarket meat case. Bad news for your cholesterol count, perhaps, but maybe good news for supermarket wine sales. Do you think it will last?

Steak-Out at Ruth’s Chris

USDA Prime beef is usually almost impossible to get outside of restaurants. Prime is the grade reserved for the top 1-3% of all beef — it is sort of like beef with a 93+ rating from Robert Parker. Fine dining establishments, including steak houses like Ruth’s Chris (which advertises itself as “The Best Prime Steakhouse Restaurant”), pay a premium for the limited supplies of this top quality beef. It is unusual, therefore, to find much Prime beef in the regular retail food distribution chain (USDA Choice is usually the top grade you will find at your store). It is especially rare to discover choice cuts like Filet Mignon in a supermarket meat case.

So then why did some shoppers recently find USDA Prime ribeye steaks at Costco for $9.99 per pound? The answer, according to the WSJ article, is the slump in high end restaurant sales. (I don’t know how Ruth’s Chris in particular is doing, but the fine dining industry overall is taking a beating. due to the economic crisis.)

The recession is bad news for restaurants and for the businesses that supply them. I have already written about the effect on wine.  Some hard-to-get, winery-list and restaurant-only wines are now relatively easy to find — a few have even shown up at Costco — because distributors are diverting the wine that restaurants won’t buy to their other selling channels. The same thing, apparently, has happened to Prime beef.

Prime Time on the Wine Wall

Some of the folks who used to splurge on expensive restaurant meals are now sometimes treating themselves to  fancy home-cooked meals, which can be less expensive even when they use similar ingredients because high restaurant labor costs are supplied in house for free (or lower cost, anyway, if you have to pay your children to be waiters, prep-cooks or dishwashers).  Prime beef and excellent wines are now more readily available to these home chefs, as the WSJ article indicates and, while they may be expensive in an absolute sense (compared to Kraft Macaroni Dinner, for example) they are still cheap relative to the restaurant experience. Good food and wine at home can cushion the recession’s hard knocks.

My friend Patrick, wine manager at a local upscale supermarket, has a front row seat as these shoppers assemble ingredients for a special meal. His  Wine Wall is located strategically at the corner of Meat, Fish and Produce, so aspiring gourmet chefs inevitably pass through his territory once or twice and he is happy to help them select a nice wine to complement their home creations.

Patrick thinks that this fine-dining shift from restaurants to residences may not be a temporary phenomenon. People are educating themselves about food, ingredients, cooking methods — and wine of course — and they may find themselves drawn more deeply into the home dining experience. As they become more skilled and knowledgeable they may begin to identify themselves as “foodies” who enjoy planning menus, shopping for and preparing food, not just eating it, and change their fine dining behavior for good.

I’m sure this won’t happen to everyone everywhere, but I think I agree with Patrick that a noticeable structural shift could occur. If sustained, this trend could have important implications for several industries, including wine. A major shift in sales from restaurants to supermarkets, specialty stores and big box retailers would force some winemakers to reevaluate their business plans and perhaps shake up the whole wine market.

Now, where are my car keys? I feel an urge to go to Costco …

Decanter’s Wine Power List

July 14, 2009 By in British wine market, Constellation Brands, cork vs screwcap, Costco, critics, decanter, Economic impact, EU wine reforms, globalization, Tesco, wine brands, wine critics, wine distibution, wine magazines, wine markets, wine ratings 1 Comment

Decanter, the self-proclaimed “World’s Best Wine Magazine,” takes its rankings very seriously. Wine rankings, of course,  and, in the July 2009 issue, Power rankings. Who are the most powerful people in the world of wine and what does the power list tell us? Let’s see if we can find the message in this bottle.

The Power List

The names on the power list are very interesting but the story that they tell about wine today is perhaps more important. Here are the first ten (top ten) people on the list.

  1. Richard Sands, USA, Chairman, Constellation Brands
  2. Robert Parker, USA, wine critic
  3. Mariann Fischer Boel, Denmark, EU Commissioner for Agriculture
  4. Mel Dick, USA, Southern Wine & Spirits (wine distributor)
  5. Annette Alvarez-Peters, USA, Costco wine director
  6. Dan Jago, UK, Tesco wine director
  7. Jean-Christophe Deslarzes, Canada, President of Alcan Packaging
  8. Jancis Robinson, UK, wine critic, author and journalist
  9. Nicolas Sarkozy, France, President of France
  10. Pierre Pringuet, France, Pernod Ricard

Since Decanter is a British magazine with very small US distribution you might be surprised that three of the top ten positions (and both of the top spots) are held my Americans, but don’t be. Constellation Brands is the largest wine company in the world and accounts for one out of eight bottles of wine sold in the UK. And Robert Parker is best known for his ratings of French wine, not Napa bottlings, which is important to British buyers and merchants. The presence of Sands and Parker at the top of the list does not reflect any sort of US-centrism, just the realities of the global marketplace. It really is a global list. Or at least, like those famous New Yorker cover illustrations, the globe as seen from London.

I won’t list the second ten names (out of 50 in total), but the I think they illustrate the global reach of the wine market today: America, China, Chile, Australia, Spain and so on. Even India, an emerging wine market, makes the top 50 ranking.

The list is complete and up-to-date (Gary Vaynerchuck, the US internet wine guru, shows up at number #40), but there are some interesting gaps. Fred Franzia, the godfather of Two Buck Chuck, is nowhere to be found, for example, despite his obvious influence on the US market, while Judy Leissner of Grace Vineyard in China, who perhaps represents the future of Chinese fine wine, makes the “Ones to Watch” list.

No wine economists make the list, alas. Greg Jones, the respected Southern Oregon University wine climatologist, is the only professor (#33). Maybe next year …

The Story

It is fun to see who makes the list and who doesn’t (why Jancis and not Oz?), but the ranking is more interesting if you strip out the personalities and consider what market forces they represent. Herewith my version of this  story.

The world of wine is very unsettled. Although wine is one of the most fragmented global industries (much less concentrated than beer or spirits, for example), size matters more and more as consolidation continues. [Hence the power of Constellation Brands, Pernod Ricard and Southern Wine & Spirits.] Reputation matters, of course [Parker and Robinson], but the world is changing and everything is up for grabs from how and where wine is sold [Costco and Tesco] to how the bottle is sealed [Alcan].

Although change is generally associated with New World wine, this is no longer the case. The biggest threats to “business as usual” for Old World wine come from inside the European Union itself. On one hand, the new EU wine regime [Mariann Fischer Boel] will pressure Old World wine to compete with the New World head-on and without continuing EU support. On the other hand we have an unexpected prohibitionist movement [symbolized by Sarkozy] that seeks to regulate wine like the Americans do (even as some parts of America are changing) — as a dangerous controlled substance. It is thus imperative for Old World wine to master the tricks of the New World industry — tricks that Constellation and Southern and Costco symbolize.

These changes take place, of course  within the context of the expanding global market, global climate change and a continuing global economic crisis (that’s where a wine economist would have been a useful inclusion).

I won’t pretend that the Decanter Power List is a scientific ranking (Decanter doesn’t claim this in any case), but it is an interesting peek into how wine insiders view their industry. I’ll be curious to see how the names and the story lines change when the next Power List appears.

Luxury Fever Cools Off

July 8, 2009 By in book reviews, economic crisis, Economic impact, wine investment, wine markets, wine price 7 Comments

An article in today’s Wall Street Journal about the collapsing market for expensive wine provokes an essay on luxury goods. (Click here to read previous posts on wine and the economic crisis.)

Conspicuous Consumption

In his 1999 book Luxury Fever: Money and Happiness in an Era of Excess, Cornell economist Robert H. Frank analyzed the economic consequences of  the status-driven arms race that has raged for some years among the group that I call the affluenza. I guess affluenza is both the social class and the disease that afflicts them rolled into one.

The affluenza don’t simply consume goods and services, they use them to construct identities much as the singer in the video above (see note). Identity building is a complex process (ask the parent of a teenager) and sometimes an expensive one, too. You need to send status signals to others, of course, and you’ve also got to convince yourself. The acquisition and display of consumer goods (including but not limited to luxury products) is one aspect of identity building. Thorstein Veblen coined the term “conspicuous consumption” to describe it.

Private Choice, Social Consequence

Affluent consumers purchase increasingly expensive and scarce commodities as a way of telling others (and convincing themselves) of their status and taste. Robert Frank was concerned about the rise of luxury fever because of its boundless ability to soak up resources that might be better used somewhere else.

If you are just buying a car for transportation, for example, you can get pretty much what you might need for less than $30,000 (much less, in fact). But if you are building a self-image or staking out a place in the social pecking order, then the sky is the limit, both in terms of the car itself and the gadgets, accessories and so forth. Pretty soon you’ve got enough automotive wealth parked in your garage to feed and clothe a small Africa village for several years.

Luxury fever isn’t a new phenomenon. Affluent citizens of renaissance Venice engaged in competitive conspicuous consumption that threatened to bankrupt the city and its great families. In desperation, sumptuary laws were enacted to protect the citizens from their own excessive zeal. Such conspicuous displays as the number of rings that women could wear in public were strictly regulated.

To this day the gondolas that ply the waters of Venetian canals must by law be painted plain black — a regulation that dates back to the era when elaborate and expensive decorations threatened to sink both the boats and their owners “under water.” I think about sumptuary laws whenever a Hummer fills my rearview mirror.

Positional Goods

Robert Frank isn’t the first economist to express concern about luxury fever. John Maynard Keynes wrote his famous essay “The Economic Possibilities of our Grandchildren” in 1930, in the depths of the Great Depression. Keynes’s main point in the essay was that the temporary problem of the Depression would eventually disappear leaving a bigger problem, which Keynes called the Permanent Problem: how to live a rewarding, fulfilling life.

Keynes meant the essay to both calm panicked citizens and to inspire them to think beyond their wallets and purses to bigger issues that matter more in the long run. I have been thinking a lot about this essay recently, since 2009 bears a family resemblance to 1930.

Keynes thought that we would be getting to that point where the economic problem was fading and the permanent problem being solved right about now. He thought we would be rich enough, most of us in the developed world, to have enough stuff to satisfy our needs and be ready to think about more important matters than material goods. He put a number of conditions on this forecast, however, and one of them was that we would get over our interest in positional or status goods — that we would get over luxury fever. But I guess he was wrong.

Luxury Fever Cools

Or maybe I am being too hasty. “Luxury Wine Market Reels from Downturn” is the story in today’s Wall Street Journal. It reports a collapsing market for high end wines in the United States with lower sales, discounted prices and the prospect of industry consolidation as the wine market shakes out. Some of these wines are the sort of rare, expensive luxury products that have an irresistible appeal to the affluenza. Their value goes beyond what’s in the bottle to the people who long to own them.

The collapsing luxury wine market is bad news for the wineries, distributors, retailers and restaurants that earn a living on luxury wines. Good news for bargain hunters and collectors, I guess.

And possibly good news for our grandchildren. The decline in luxury wine sales is probably simply an exaggerated reaction to the economic crisis and this market will likely bounce right back when the economy starts looking up. But maybe, just maybe what we are seeing here is a reassessment of the economic and social role of fine wines, designer clothes, and other luxury goods.

I’m not saying that luxury goods will disappear, but if they become a mere end in themselves, not a means to a more complicated  psychological goal, then they will lose a little of their toxic social effect. Perhaps the economic crisis will change public perception of conspicuous consumption and encourage individuals to define identities in the ways that Keynes imagined. It’s a long shot, I know. Or maybe it is just a beginning.

Video note: Elton John and Tim Rice wrote this song for their Disney musical Aida. The cartoon characters are from the Disney series Kim Possible. Enjoy!

Stimulus Package: Refreshing but Restrained

July 3, 2009 By in economic crisis, Supply and Demand, washington wines Leave a comment

cavatappiPeople are always asking me what I think about the stimulus package and they never seem to be satisfied with my answers.

What Stimulus Package?

For a while I was telling people, “Stimulus package? What stimulus package?” My reasoning was that the tax cuts were more political than economics — no one seriously thought they would stimulate much consumer spending — and the big government spending programs will take several quarters to kick in. Only a small percentage of the money has been spent so far. The promise of economic stimulus in six or nine months is a useful thing, but there hasn’t been much in the way of a direct effect yet.

Here in Washington State, cutbacks at the state level seem to be more than offsetting whatever Federal stimulus there has been. Although the Washington situation is very serious (see the recent Economist article on the recession in this state), things could be worse — think California.

Too Soon to Tell

Recently I’ve changed my tune a bit. Stimulus package? Too soon to tell, I say, or impossible to know. These are both good answers even if my friends don’t like them. Too soon to tell because it will take more time before the full effects, positive and negative, are felt. Too soon to tell because we haven’t figured out yet  how to deal with the inevitable consequences of the recent spectacular money creation and public debt increases. Some people fear that the cure to these problems will be more deadly than the recession’s disease.

Impossible to tell? Yes, because economics isn’t a hard science and we don’t have the luxury of running controlled experiments. We know that unemployment has increased to 9.5% with the stimulus package in place — that’s pretty shocking — but how high would it have been without the federal emergency programs? We will never know for sure, so these policies are sure to be debated back and forth for years.

No one seems to appreciate my analysis of the economic stimulus package so I’m going to change gears again. Now when people ask me my opinion I’m going to give them a wine review. That’s because I recently discovered an interesting white wine called Cavatappi Stimulus Package 2008.

In Vino Stimulus

Cavatappi (it means corkscrew in Italian) is a winery founded some years ago by former restaurateur and Italian wine lover Peter Dow. Cavatappi produces mainly Washington-grown Italian varietal wines (23 vintages of Washington Nebbiolo and Sangiovese). I’ve seen a Cavatappi white blend before, but this is the first one with an economic crisis hook. I couldn’t find anything about the wine on the web so I wrote to Peter Dow. He reports that

It is a blend of SB and Viognier. I tasted a similar wine in the Rhone last winter that was a Marsanne Roussane and SB blend and I really liked it.  It is designed to be a simple summer quaffer and at 10.00 retail it is being well received.

I was speculating about what message Cavatappi is trying to send by naming this white blend in honor of the economic stimulus program. Is it to show support for the Obama plan? To send a message to consumers: spend your tax savings on wine? Or maybe it’s a cash flow thing — white wines can be turned over relatively quickly, providing an economic stimulus to the winemaker. Buy this wine and stimulate the Cavatappi economy!

Unfortunately the correct answer is much less complicated. “I used the name because I thought there was some humor in it, but mainly wanted to see if I could get it by the TTB,” according to Peter. Apparently he did!

So here’s the bottom line: what do I think of the stimulus package? Refreshing, but restrained. (I’m not a skilled wine taster but it seems to me that the Viognier tames the Sauvignon Blanc and shapes it a bit.) It made a nice match with a hearty salad at dinner last night.

Refreshing but restrained. Not a perfect description of the economic stimulus package, but not completely off the mark either.

And I can honestly recommend this stimulus to all my friends. (Or almost all of them: ten dollars is more than my senior cheap wine researcher  Michael Morrell likes to spend — I guess you can’t please everyone.)