A look back at The Wrath of Grapes by Lewis Perdue (Spike Books / Avon, 1999).

Over long, hard decades, American winemakers have won the respect of connoisseurs everywhere. Many of the world’s most cherished, and expensive, wines come from the United States. But today, the unique and eccentric wine industry faces a grim set of challenges that could transform it forever: oversupply in the face of flat consumption, devastating vineyard diseases, an antiquated distribution system, fierce competition from abroad, attacks from anti-alcohol forces, and an inability to capitalize on wine’s proven health benefits.

Sound familiar? This list of problems plaguing the wine industry reads like it could be taken from today’s wine industry news headlines. But it comes instead from the back cover of a 1999 book by Lewis Perdue. What can a 25-year-old analysis of the wine industry’s woes tell us that will help us today? I couldn’t resist looking back. Here is what I found.

Is It Time Yet?

The Wrath of Grapes was one of the first books I read when I started studying the wine business. Going back to it now I am impressed with how relevant it remains today and how much it has obviously shaped my thinking about the wine industry.

The first part of Perdue’s book is a sharp critique of the American wine industry. Why don’t consumers buy more wine? Because the way that wine is marketed confuses and intimidates them. Perdue cites the famous Paul Masson ad campaign starring Orson Welles as an example. The tagline “We will sell no wine before its time” was meant to assure consumers that Paul Masson was mature and ready to drink. But, consumers might have wondered, does this mean there is a wrong time to drink this wine? Maybe I’d better stick to beer!

It might be possible to overcome the misguided marketing strategies of individual wineries through an effective generic marketing campaign, Perdue suggests. But the wine industry is too dysfunctional to do anything important. Leadership and followership both fail at critical points.  Vested interests focus on share of the wine market pie, so little is done to grow it.

I am not enough of an insider to evaluate Perdue’s critique of industry politics either then or now, but he pulls no punches in casting blame. Only one industry group, Women for WineSense, is praised for their effectiveness.

An even bigger problem than marketing is the lack of a cohesive strategy to address concerns about wine and health and the neo-prohibitionists who push for policies to reduce and restrict wine consumption. If nothing is done on this front, Perdue asserts, falling consumption is assured. Well, nothing much was done and here we are.

Love, Not Money

Part II is titled “Investing in Wine” and it takes the topic broadly, offering advice and analysis for those thinking of investing in a vineyard or winery, investing in fine wines for resale, and investing in the wine business through common stocks. Is investing in wine a matter of love or money? I suspect that most people would say “both,” but Perdue warns that you’d better be doing it for love because there are other ways to earn similar returns with less risk.

I think this was the first time I had seen an economic breakdown of a bottle of wine. Where does the money go to produce the wine (hint: grapes are not the biggest cost)? And how is the final price distributed between producer, distributor, and final seller? The specific numbers are different today, of course, but the fundamental analysis remains shockingly relevant.

Perdue’s hard-nosed analysis of wine-related common stock opportunities circa 1999 makes interesting reading. Coming from a Silicon Valley venture capital background, he is very objective about business models and risks and, interestingly, pays some attention to the perks such as wine discounts or special events that some of the wine companies offer their shareholders. He sees the perks as part of the “love” you need to get out of your wine investment to compensate for the risky return.

But perks aren’t everything. If you read Perdue’s analysis of the Robert Mondavi company, for example, you can appreciate the troubles that were building in its business model and why it got into such trouble a few years later. You’d need a lot of discounts on Opus One to compensate for the underlying economic woes.

There are three useful appendices. The first explains financial ratios, which anyone needs to understand to make sound investment choices, but not everyone thinks about when contemplating wine. Vineyard finance is the second topic, explored through a simple example of the sort of financial analysis that an intelligent investor should consider. The book concludes with a brief statement about wine and health.

Back to the Future?

Although some parts of The Wrath Grapes have naturally aged better than others, the book’s overall argument remains timely and relevant. Most of the big problems that Perdue wanted us to take seriously 25 years ago remain at the top of the agenda. No wonder the book is still in print.

If you haven’t read The Wrath of Grapes in a while, it’s time to look back at what Lewis Perdue was saying 25 years ago so that you can look ahead with more insight.