The Wine Economist

I’m back from Sacramento where I moderated two panels at the Unified Wine and Grape Symposium, North America’s largest wine industry gathering.  I chaired the morning “State of the Industry” session (estimated audience = 2200 according to one news report) and a smaller afternoon break-out on “Leveraging Global Supply.”

You can find a list of the session speakers at the end of this post and you can read a comprehensive  news report here. I thought I would use this space to outline what I said   in the morning session. My job was to try to provide a global frame for the speakers who followed.

Silver Linings and Dark Clouds

Global Perspective. Wine is a global business. When David Ricardo wrote his economics textbook almost 300 years ago the example he used to illustrate international trade was the wine trade between Britain and Portugal. It has always been important to have a global view of wine, but now more than ever as the wine world gets smaller and more tightly connected.

Silver Linings. This is a year with much good news for the wine industry, especially for winegrape growers as the shortage phase of the wine cycle unfolds and prices rise after years of structural surplus.

But as an economist, it is my responsibility to channel Alan Greenspan and to caution growers to avoid irrational exuberance. Silver linings don’t always come wrapped in dark clouds, but sometimes they do. There are dark clouds a plenty for the global economy and some of them will affect the wine industry.

A Dangerous Phase

A Dangerous Phase. The global economy has entered a “dangerous phase” according to the International Monetary Fund. It is a time of great uncertainty and risk because global growth is slowing, albeit unevenly, at a very inconvenient time.

The problem, of course, is the debt crisis. And while each country has built “mountains of debt” in its own way, there is only one route down from the summit: stop adding to the debt and then try to outgrow the debt burden.

Europe, the U.S. and Japan are all struggling to contain growing debt. Stopping the bleeding is the first priority, of course, but no one seriously expects the debt to be paid off. The only solution is for debtor countries to grow faster than their  compound interest bills and to slowly make the debt and its burden a smaller and smaller proportion of GDP.

Catch 22: Slowing growth (and the probability of recession in Europe) means that even more emphasis must be put on cutting budgets, which unfortunately makes it even more difficult to generate growth.

The Growth Squeeze. So everyone will be desperate for growth, but where will they find it? Consumer spending? Not likely with unemployment high and the housing crisis still unresolved. Business investment? Not with credit so tight and business confidence so low. Goverment spending? Please! The pressure is on to cut government outlays, not expand them.

This leaves only international trade and it seems likely that many countries will try to stimulate exports through currency depreciation to get the growth they so desperately need. This has worked for the U.S., which has had a secret “weak dollar” policy. Look for currency wars as many countries try to follow suit by depressing their exchange rates.

Wild Cards. There are many “wild cards” in the global economic scenario — factors that could change everything. The Euro is probably the biggest wild card, since a collapse of the single currency would be a financial earthquake with global repercussions. The U.S. economy is another wild card, especially in an election year.

A Tight Squeeze for Wine

A Tight Squeeze. The wine industry is connected to the global economy but not perfectly synchronized with it. The wine industry is in for a tight squeeze in the coming year. There will be increased competition on both ends of the market — for wine grapes (and bulk wine) and for wine drinking customers and retail accounts.

[The intensity of the squeeze, as detailed by the other speakers in this session, was probably the biggest news to come out of the State of the Industry panel. Vineyard plantings have been stagnant for several years, so there is not enough supply to meet rising demand in many market categories.]

The shortage of grapes and bulk wine will force wineries to search high and low for product to sell. The higher costs that result will put even more pressure on margins and this may be the biggest squeeze of all since buyers are now accustomed to discounts and, having reset once down to lower prices, will be not quickly reset back up again across the board.  The pressure on margins will increase because of rising competition for market share.

Currency Wars. Exchange rate shifts will make this situation more complex. The U.S. has enjoyed a weak dollar for several years — this stimulated wine exports and kept the price of import competition high. The dollar strengthened in 2011 and  is likely to continue to strengthen in 2012 and this will reverse some of those effects, making the U.S. wine market more attractive to foreign wine firms. These effects will loosen the big squeeze in some places and tighten it in others, creating both dark clouds and silver linings.

Wild Cards. There are lots of  wild cards, but the most interesting one for me is China. We expect China’s growth to slow in 2012  – perhaps to 8% or less — if Europe’s recession is more serious than projected and if U.S. growth stalls.

The “bicycle theory” of Chinese economic growth holds that China must grow by at least 8% in order to overcome structural weaknesses and social instability. If growth falls below 8%, the theory holds, a “tipping point” effect might cause rapid deceleration.

No one knows if the bicycle theory really holds for China, no one knows if 8% is the tipping point number. And no one wants to find out.

A Chinese slump would have some direct effect on wine sales there, but the biggest impact on global wine would be indirect, spread through trade flows and financial flows. The Chilean Peso, Australian dollar and South African rand would all likely fall in value dramatically altering the competitive structure of global wine trade.

All this could happen, but of course it might not. That’s the biggest squeeze this year — uncertainty.

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Thanks to the Unified Symposium’s organizers for inviting me to take part. Special thanks to my fellow panelists, who helped me so much, and to Jenny and Lisa for their guidance and support. Here are the details of the two sessions.

State of the Industry

The State of the Industry session will provide a comprehensive look at every aspect of the wine industry, from what’s being planted to what is selling. This 2½ hour session features highly regarded speakers and will offer incredible value for attendees who need to understand the market dynamics of the past year and are seeking insight into the market trends that will define the year ahead.

Moderator:
Mike Veseth, The Wine Economist Blog/University of Puget Sound

Speakers:
Nat DiBuduo, Allied Grape Growers, California
Steve Fredricks, Turrentine Brokerage, California
Jon Fredrikson, Gomberg, Fredrikson & Associates, California

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Leveraging the Supply Side of the Global Wine Market

This session will focus on supply to Brazil, Russia, India and China (BRIC) as well as to Chile and Argentina.

Moderator:
Mike Veseth, The Wine Economist Blog/University of Puget Sound

Speakers:
Steve Dorfman, The Ciatti Company, California
Liz Thach, Sonoma State University, California

Jason Lett’s business card reads “President, Winemaker & Curator” and it is true that he performs all three tasks at Oregon’s The Eyrie Vineyards. The first two jobs are easy to understand, but Curator? Yes, of course, since Eyrie is an important part of Oregon’s wine history and Lett’s challenge is to preserve the heritage without choking off the innovative spirit that defines the place.

Three jobs are a lot, but maybe Jason Lett should add a fourth to his business card: Mad Wine Scientist. The scientist part is uncontroversial — Lett has scientific training and he seems to approach wine and life with a scientist’s combination of curiosity and discipline. The “mad” aspect … well I’ll leave that up to you to decide.  Maybe it’s not madness so much as innovation and experimentation taken to the extreme. Either way he seems to belong in The Wine Economist’s “Extreme Wine” file.

Sue and I visited Jason Lett at Eyrie last fall when I was giving lectures at Linfield College. Jason invited us to visit the winery (housed in a converted turkey processing plant) and when we arrived he asked if we wanted to taste through the current releases or to check out some of his experiments. No question, we said. Take us to your laboratory. And so we learned about and sampled three different extreme wines.

Extreme Pinot Gris

Oregon is Pinot country — everyone knows that! But let me tell you a secret. It’s Pinot Gris (PG), not just Pinot Noir. Pinot Gris is Oregon’s #2 wine grape variety and its a darn useful one, too. Pinot Gris is what I call a Chateau Cash Flow variety, since the time from harvest to market is shorter than Pinot Noir and the production expense (think expensive oak barrels) is lower, too. No doubt about it, Oregon PG is a great wine for producers and consumers.

But there’s that respect thing. White wines seems to get less respect than reds in most parts of the wine world and probably nothing can match the status of Pinot Noir, so Oregon PG is the “second wine” in more respects than vineyard acreage. No wonder a group of winemakers has come together to create OregonPinotGris.org in an attempt to get their grape the recognition it deserves.

Eyrie was one of the PG pioneers in Oregon, but these wines (which account for 60 percent of Eyrie’s production) suffer from the recognition problem, too. (“Oh, it’s just Pinot Gris?”) So Jason Lett decided to try to do something to change the perception of PG — by tweaking it in a modestly extreme way. The result is the 2008 Pinot Gris Original Vine Rose, which has three unusual qualities according to Lett: 1) all “original vine” (first planting in the US ca 1965),  2) 100% skin contact fermentation like Pinot Noir  and 3) three years age sur-lies.

It was Pinot Gris all right, but a very different take on it. More serious? Maybe. It certainly made me think about Pinot Gris differently, which is what extreme wines are supposed to do.

The History of Oregon in a Glass

The second extreme wine was actually more interesting than delicious … but that’s not a criticism because it was very interesting. It was the history of Oregon wine in a glass and it came about through Lett’s curatorial duties.

Eyrie’s wine library contains Chardonnay vintages going back to the very first year. Lett went through these wines sorting out the good wines, the ones that had gone bad and some interesting wines in the middle — oxidized (“sherried” I guess you’d say) but still drinkable, with a certain distinct character. Lett mixed these middle wines from all 40 vintages along with some fresh 2009 Chardonnay and a little eau to vie made from estate grapes.

The wine tasted old because of the oxidization, but made me think about how young the Oregon wine industry really is — so young that you can drink a slice of its history this way. An extreme non-vintage blend. Very memorable.

Coltraine versus Hildegard

The final extreme wine was the result of a mad experiment. Lett knew about Clark Smith’s theories of wine and music. Wine’s taste can change depending on the music you are listening to, according to Smith. Although this sounds a bit wacky, some of my students have experimented and they say that there is some effect.  There’s a potential scientific basis, too, since music stimulates some parts of the brain that are also active in the sensory perception of wine. So far, so good.

But Jason Lett decided to take the next step. If music makes a difference when you taste wine, then how about when you make wine?  You know, the way that they say it is good for pregnant women to listen to Mozart — it is supposed to help the baby’s brain develop? (Alois Lageder has his “pregnant” wine barrels listen to Mozart played at a very low speed.)

So Lett set up an experiment. Identical grape juice and yeast, but with different music. One fermentation listened to music by  Hildegard of Bingen (click on the YouTube video above to get a sense of what this might sound like) while the twin tank grooved to the jazz of John Coltrane (see video below for one of my favorite Coltrane performances).

Incredibly, the two fermentations developed differently (the Hildegard started first) and the wines taste different, too. Or at least that’s what Sue and I thought as we tasted back and forth. Hmmmm. Maybe there’s something to this music thing!

Sue challenged Lett to take the next step. Does the Hildegard taste different listening to Hildegard than to Coltrane? Does the affinity for the music extend all the way down the line? Maybe we can find out when we go back in July for the International Pinot Noir Celebration.

Jason Lett isn’t really a mad scientist, but he is an innovator and I think that’s great. His role at Eyrie represents perfectly the modern winemaker’s dilemma — how to respect the past while creating the future.  Cheers!

Ian Mount, The Vineyard at the End of the World: Maverick Winemakers and the Rebirth of Malbec. Norton: 2011.

Malbec and Maradona

The most stunningly creative student paper I’ve received in more than 30 years as a college professor was written by a first year student enrolled in my introductory International Political Economy class. We were studying Argentina’s latest financial crisis and she analyzed the situation not just through facts and figures but rather by telling the story of Diego Maradona, the legendary soccer player who achieved great success on the global stage but succumbed to the pressures, stresses and temptations that came with it.

Maradona is always measured against Pele, the Brazilian star who is often proclaimed the greatest soccer player in history, and every talented young Argentinean forward is compared to  him (Messi is only the latest “next Maradona”). But an air of tragedy is unmistakable despite Maradona’s heroic achievements. This same air, my student wrote, hangs over Argentina’s politics and economy, and then she proceeded to analyze Argentina’s political economy history in detail in  terms of the Maradona story. It was, in both conception and execution, a brilliant analysis.

Ian Mount’s new book on Argentinean wine, The Vineyard at the End of the World, is also brilliant and in much the same way. Like my student’s paper, it can be read at several levels. It is, first and foremost, a history of the Argentinean wine industry from its roots with the Spanish explorers to its current spectacular flowering.

Although Argentina has been a major wine producer for literally centuries, it has only arrived on the global stage in the last ten years. Within Argentina its long history is heavy baggage that sometimes weighs it down. For the rest of the world, however, Argentina is a new discovery and the lack of prior experience of and attitudes toward its wines has arguably been an advantage.

Mount fills us in on the history and serious readers will appreciate the added depth this gives to the appreciation of the wines themselves. It also provides an interesting contrast to neighboring Chile and its wines, whose history is perhaps better known. But that’s only the beginning.

 Lucky Survivors

Malbec is a second theme, which is understandable because Malbec is king in Argentina right now. Malbec from Argentina has been one of the hottest product categories in the U.S. wine market is the past few years. But today’s Malbec (like Maradona) is a lucky survivor of Argentina’s booms and busts – a lot of Malbec was grubbed up during the market swings and swirls. It makes me appreciate wines (like one of our favorites, Mendel Malbec) that are made from the surviving old vine blocks.

More than anything, however, this is a history of Argentina itself told through wine, making this a book that deserves a very broad readership. Based on my previous research, I knew that Argentina’s politics and economics were reflected in the wine industry, but I didn’t know how much. Come for the Malbec, stay for the politics, economics and personal stories of those who succeeded or failed (or did both) and try to understand the country and people of Argentina.

Significantly, the book ends with a sort of Maradona moment. In terms of wine, Argentina has won the World Cup with Malbec, although the country must share the glory with international consultants (like Paul Hobbs and Michel Rolland) and foreign investors and partners (too numerous to mention). But for all its strengths the industry is still somewhat fragile, struggling to overcome the problems of the domestic wine market that it still depends upon and the domestic economy in which it is embedded.

After decades of “crisis and glory,” Mount sees a  bright future for both Malbec and Argentina. Let’s hope he’s right and the Maradona moment passes.

Ian Mount’s new book is a valuable addition to any wine enthusiast’s library. Mount provides a strong sense of the land and people of Argentina and the flow of history that connects them. Argentina is unique, as Mount notes early on, in that it is an Old World wine country (in terms of the nature of its wine culture) set in the New World, so that its history is broadly relevant and deeply interesting.

I studied the Argentina industry before going there last year, but Mount taught me things I didn’t know in every chapter. I love Laura Catena’s Vino Argentino for its account of the history of wine in Argentina told through the Catena family story and now I’m glad to also have The Vineyard at the End of the World for its broad sweep and detailed analysis. They are must reading for anyone with an interest in Argentina and its wines.

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Another Malbec-Maradona connection: Diego Maradona is most famous for a play that has gone down in soccer history as “the Hand of God” goal.  It was in a 1986 World Cup quarterfinal match that Maradona illegally struck the ball with his hand and scored the winning goal – an offense that was clearly visible to everyone in the stadium except the officials. Must have been the Hand of God, not Maradona, I guess.

Now (or very soon depending upon the release date) there is  Hand of God wine. We tasted Hand of God from the barrel when we were in Mendoza earlier in the year and we enjoyed the wine even if Maradona had nothing to do with making it. I suppose the name honors the importance of wine and soccer to Argentinean society and the struggles that both have endured. (Maradona’s team beat England in that famous game, so I wouldn’t look for big Hand of God wine sales in the U.K. market. Just saying …)

Special thanks to Jon Staenberg (proprietor of  Hand of God) and Santiago Achaval for letting us sample this wine!

I’m always excited to read the final papers written by students in my class on “The Idea of Wine.” The students come from all corners of the university and bring with them a diverse range of skills, interests, and experiences both with wine and with academics and life generally.

Reading these papers is never tiring or boring, but that’s probably obvious. To paraphrase Dr. Johnson’s comment about London, a person who is tired of wine is tired of life. As in the past, I’ve picked a handful of papers from the fall semester to feature here. This time I want to focus on two themes: wine science and wine politics.

Better Living Through [Wine] Chemistry

Alex (a Math and Chemistry major) wrote an excellent survey of  “Improvements in Wine Making Through Chemistry” that argued  that “In every part of the [winemaking] process there are questions that can only be addressed using modern chemical models and knowledge.” He supported this point with several examples of detailed chemical analysis. I suspect Alex was “provoked” to write this excellent paper by the combination of the anti-scientific sentiment of the film Mondovino, which the class watched, and the very pro-science attitude of Biology PhD and Master of Wine Benjamin Lewin’s book Wine Myths and Realities, which we read.

Two papers dealt with health issues. Julie (Biochemistry) wrote on “Resveratrol: Potential Health Benefits of Red Wine” while Abby (Exercise Science)  analyzed “Moderate Intake and the Risk of CVS: Resveratrol, NO pathways and SIRT1.” Both papers took the conventional wisdom of the French “Red Wine Paradox” and examined it in detail through the lens of scientific papers and studies. I learned so much from these papers and I can’t thank Julie and Abby enough for writing them.

Frankenwine and Tropical Terroir

Fletcher wrote “Happy Halloween, Enjoy Your Glowing Wine,” an analysis of what I call the “Frankenwine” issue – the application of genetic engineering to wine. As a Business major, Fletcher was naturally interested in consumer attitudes towards GMO products and the marketing implications, but I was impressed with his more technical survey of the application of GMO technology to grapes (to deal with climate change?) and yeasts (such as the ML01 strain, which has been in use since 2003).

Mike (International Political Economy) wrote about “New Lattitdes” viticulture in “Towards a Tropical Terroir: Winemaking Lessons from Thailand.” Although the Thai wine industry is a work in progress, Mike argued that the technical lessons learned in tropical viticulture might eventually be applied to other parts of the world as climate change progresses. His paper combined science with economics and also politics in his analysis of how the AOC system might make it more difficult for Old World producers to benefit from the technical findings of Thai and Brazilian researchers. Very interesting!

Crossing Over, Breaking In

Two students wrote especially interesting papers that probed wine politics issues.  Immigration policy is a hot button political issue this  year – it seems to come up in every Presidential candidate debate. Katherine (Spanish and Art History) wrote about “Grapes of Wrath: Immigration Policy and the U.S. Wine Industry,” looking at immigration flows both in terms of U.S. agriculture generally and the wine grape industry in particular. She suggests that the wine industry would be particularly impacted by changing immigration policy

Patrick (an International Relations major) wrote “The U.S. Racialized Wine Industry: Can Latinos Break Through?”  We know that Latino migrants provide skilled labor in the vineyards – have they been successful in breaking into the cellar, becoming winemakers and winery owners? The answer is yes, but not very often. Patrick examined the structural barriers that seem to stand in the way and speculated about the future .

Thanks to all my “Idea of Wine” students for their great work, both during the semester and on the final papers. A note to students who have signed up for the Spring 2012 class: the Fall students have set the bar pretty high!

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My policy with student papers is that they belong to the students not me, so I do not post them on-line. If you’d like to get a copy, send me an email and I’ll try to put you in touch with the particular students, who may or may not choose to share their work.

Happy New Year, everyone! Herewith brief reports on the top Wine Economist posts of 2011, the next stops on the Wine Wars World Tour and an unexpected book of the year award.

Wine Book of the Year

I’m very pleased (and more than a little suprised)  to report that Wine Wars and Benjamin Lewin’s terrific In Search of Pinot Noir have been named wine books of the year 2011 by Paul O’Doherty, the book reviewer at JancisRobinson.com.  He writes that

From the get-go you just don’t want to put this book down, slaloming as it does informatively through economic and social history, the wine industry, the future, and observations setting the scene for the great battle between the market forces redrawing the world wine map and, as Veseth puts it, ‘the terroirists who are trying to stop them’.

O’Doherty makes the fair criticism that, like the college professor that I am, I tend to go off on occasional tangents and not always get to the point as quickly as you might like. But he spins this into a rather charming compliment:

 However, in his defence, there’s a kindly lecturing sweep to his narrative so that, if you were listening to him at the back of his economics class in college, you’d just want him to keep talking forever.

Not sure my students would vote for “forever,” although I suspect it seems like forever to them on some days. He concludes that

This is undoubtedly a fascinating read that will be a treat to most tastes and is, along with Benjamin Lewin’s In Search of Pinot Noir, one of the books of the year.

Thanks for the kind words. I am flattered by the praise and honored to be on any list that includes a book by Benjamin Lewin.

Looking Ahead: Wine Wars Tour Continues

I’m excited to see what 2012 will bring. I know I will meet more interesting people as the Wine Wars World Tour continues to unfold. Here is my current schedule for January and February.

January 2012

I’ve made a New Year’s Resolution: De-Alcoholized Wine. I’ve resolved to study this misunderestimated wine market niche. Heck, I might even drink some!

My resolution is provoked by a friend who had a bad bicycling accident. She’s going to be OK, but she suffered a serious head injury and her doctor says no alcohol while her brain recovers from the shock.

No Wine? No Way!

No alcohol? Well, that’s easy enough. But no wine? No way! Wine is more than just alcohol — it’s civilization. And so she’s exploring the possibilities of de-alcoholized products as a way to enjoy wine without having to deal with the negative effects of alcohol. And she is not alone.

A lot of people are interested in alcohol-free beverages — you see non-alcoholic beer all the time at summer picnics, for example, and I think every holiday party features non-alcoholic alternatives like sparkling cider and fruit juices. Less alcohol means fewer calories, another advantage. No reason why wine shouldn’t be added to this mix.

In fact there might be particular reasons to consider wine, since it famously features health benefits. Many supermarkets feature gourmet grape juice as a health product and growers like Draper Valley Vineyards bottle unfermented juice of Riesling, Pinot Noir and other wine grape varieties. These juices are delicious, but they don’t taste like wine. In fact I have my students taste them so they can see how much different wine is from its juice.

With only a couple of exceptions (I think Moscato might be one of them), wine grape juice does not taste like the corresponding wine. The magic of fermentation does more than produce alcohol, it changes things in a good way. So making the wine then removing the alcohol is the way to go.

Haven’t Tried It? Yes You Have!

Have you ever tried de-alcoholized wine?  I’ll bet you have and don’t know it!

That’s because a lot of today’s wine is actually partially de-alcoholized. Some but not all the alcohol’s been removed (don’t look on the label — the info isn’t there).  It is not uncommon for wineries to take a portion of their wine and have the alcohol removed, with the resulting liquid blended back into the original vat, lowering the average alcohol level by a percent or two. Why do they do it? To correct the taste or style. And sometimes to bring the alcohol level below the 14 percent threshold where higher federal tax rates kick in.

No one talks much about this (or about the practice of adding “jesus units” — water — to fermenting wine to accomplish more or less the same result) but I am told that it happens all the time.  Imagine how much of a punch some of those big Zins and Shiraz/Syrahs would have if they weren’t tamed a bit!

My bicycling friend reports that the de-alcoholized wines she’s tried have been very satisfactory. They are clearly wine, not grape juice, she reports, and while the flavors and aromas aren’t as complex, they provide the civilized experience she seeks. “I find it a very acceptable way to feel like you’re drinking your traditional glass of wine with appetizer or dinner, especially if you have compelling reasons to avoid alcohol intake.”

Red, White and Orange?

De-alcoholized wine actually contains a tiny bit of alcohol, but can be sold as a non-alcoholic beverage so long as it contains less than 0.5 percent alcohol by volume. Amazingly, this is about the same amount of alcohol you will find in orange juice. Really!

A trip to my local upscale supermarket  revealed a surprisingly good selection of de-alcoholized wines (six still wines and one sparkler) selling for about $5 (a holiday discount price) to $12.  Fre (a Sutter Home brand) and Ariel (owned by J. Lohr Vineyards) are the two largest producers and accounted for all the wine I saw.

Other brands you might see here in the U.S. include Carl Jung from Germany and posssibly Vandalia from Napa Valley, the subject of a 2010 Wall Street Journal story (they’ll sell you a case of their 2002 de-alcoholized Cabernet Sauvignon for $200 if you act now). Other countries have de-alcoholized wines, too, including Wine Zero in Italy.

Interestingly, the two big U.S. brands are made in very different ways. Both begin with wine, of course. Ariel uses reverse osmosis to remove alcohol and water, resulting in a concentrated wine. The image above (from the Ariel website) shows how it works. Fresh water is added to the de-alcoholized wine concentrate before bottling.

Fre, on the other hand, uses the spinning cone method to remove alcohol and then adds back in a small amount of the unfermented juice to give the wine better body.

A Growing Market Segment?

I wrote to both companies asking for sales data but neither sent a reply. I wanted to test my hunch, which is that sales of de-alcoholized wine are growing. This might make sense since interest in wine is on the rise and concern about alcohol’s health effects is also strong. Possibly these two trends are in complete conflict, but maybe there is an overlapping niche where brands for Fre and Ariel (and the juice products, too).

Now that I am sensitive to the issue, I seem to see news reports about head trauma problems everywhere — in the international news about soldiers returned form overseas duty, for example, and in the sports pages where football, hockey and even soccer injuries are reported. I can’t help thinking that my bicycle-riding  friend is not alone among head trauma patients in her desire to enjoy wine in some form during her recovery.

My New Year’s Toast: Raise a wine glass (alcohol optional) to good health. Cheers!

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What is Wine-O, the product behind the label at the top of this post? It was a non-alcoholic wine substitute produced in Oregon during Prohibition. Not so much de-alcoholized wine, however, as pre-alcoholized. The idea as I understand it was that you would add a jigger of bootleg whiskey to a glass of this fruit drink and … hey presto! .. Wine-O! Yummy.

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That’s where the money goes

To buy my baby those

Crisp German Riesling wines

And Oregon Pinot Noir.

She shifts to bubbles when

Santa’s back in his den

Oh boy, that’s where my money goes.

I remember learning this tune from a Mitch Miller singalong LP years ago (click here to hear the song). I’ve written new lyrics to highlight a report from Nielsen about holiday wine and spirits sales (see chart above).

Wine sales surge around the holidays, but sales don’t increase evenly across the board. Here’s a summary of the findings, courtesy of Danny Brager, VP Beverage/Alcohol Group, Nielsen.

The U.S. consumer is much more inclined to open up their pocket books during the holidays.  While overall wine sales are 67% higher in that week leading up to Christmas compared to an average week, that jumps up to 124% higher for wines priced $15-$20, and 180% higher for wines $20 and higher

And which varieties tend to really shine during the holidays? Rieslings and Pinot Noir lead the way – with sales increases compared to an average week in the year 107% and 74% higher respectively, even more of a jump than the wine category overall.

By country, wines from Germany, tied to that Riesling jump, followed by France and Italy exhibit the greatest holiday sales leap compared to an average week, while wines from Oregon pop the most when looking at major U.S. wine producing states. 

Trading up for the holidays doesn’t surprise me, but I must admit that I would not have predicted surging sales for Riesling and Pinot Noir. Those are actually the wines that I recommend to my students for festive holiday meals (along with bubbles, of course). I guess the word is out!

A lot of money, talent, and technology goes into advertising today, but is the product really better than in the past? For your consideration (and winter holiday fun) we present three television wine commercials from past and present. All feature celebrities along with increasing levels of money and technology. The wine gets better as we move along,  but does the quality of the message? What do you think? Cheers!

Thunderbird: Not quite like anything I’ve ever tasted

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Paul Masson Chenin Blanc: Yummy

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Legendary wine (and acting)

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I know, I know, you were hoping for one of those famous Orson Welles commercials for Paul Masson. Well, you can find them and more on YouTube.com. Click on this link for a selection.

Can Carmenere be for Chile what Malbec has become for Argentina — a game-changing wine that opens up new markets and upgrade perceptions in old ones? That’s the question I asked at the end of my last post.

An Unlikely Curse

Chile has earned a reputation for good value Cabernet, Chardonnay and Sauvignon Blanc; this good reputation is ironically an anchor holding the industry back as it attempts to move upmarket. It will be quite a struggle to get consumers to pay more for established varieties of Chilean wines in the UK and US. New markets and new wine varieties may be the key to future success.

This is where Carmenere comes in. Carmenere is a variety that once produced famous wines in Bordeaux. But when vines were replanted after phylloxera, Carmenere was phased out because of its succeptability to a disease called coulure, which reduces yields. It thrived in phylloxera-free Chile, where it was mistaken for Merlot, an error only corrected in 1994. It is still unclear how many of Chile’s Merlot vines are really Carmenere.

Carmenere is a niche product here in the United States. If you take varietal Carmenere and blends together they account for about 0.2 percent of Nielsen- measured U.S. off-premises wine sales. Concha y Toro is the leading brand followed by Santa Rita and Root 1. By comparison, Chile has about a 2.7% overall share of the measured U.S. market by dollar value, so Carmenere is still quite small, but not insignificant. Total sales of all Chilean Carmenere and blends are less than the dollar value of revenues from Concha y Toro’s 1.5 liter Cabernet Sauvignon alone.

The first Chilean Carmenere that I remember seeing here in the U.S. was a line of wines called Oops, playing up the Merlot-Carmenere mix up. Here’s a nice Chilean Merlot … oops! It’s really something else! I remember trying a bottle and while the label was memorable it didn’t do much to establish Carmenere or Chile in my mind as a quality wine segment.

Carmenere Comes to Britain

Fast forward to 2010. Wines of Chile launched a big campaign in the key UK market called  Carmenere: made for Curry.  It was apparently quite successful, winning the prize for “generic promotion campaigns” at the International Wine Challenge Awards. The idea was to link Chilean Carmenere with Indian food (generically called “curry” in the UK), which is Britain’s most popular ethnic food category, and hope that Chicken Tikka Masala would do for Carmenere what Argentinean steak has done for Malbec.

But a big Carmenere tasting report in the July 2011 issue of Decanter raises some doubts about the quality of the wines, which is obviously a key factor in the strategy. Chilean Carmenere is a “work in progress” according to one of the panelists. Others suggested that Carmenere’s best bet is in blends (especially with Syrah), not as a varietal wine. None of the 132 wines tasted earned Decanter’s top 5-star rating and only 6 received 4 stars. Eight-six wines were “recommended” and 35 were named “good value” (Chilean good value — of course!).

[By comparison, a June 2010 Decanter tasting of 255 Argentinean Malbecs produced four 5-star, twenty-one 4-star and 131 three-star "recommended" ratings.]

Interestingly, the panel suggested that the “overt, oaky, alcoholic, heavy-bottle wines” were made to appeal to the U.S. and South American markets and lacked the balance they’d need to find favor in the U.K. The tone of the review was not as dark as I am probably painting it here, but the conclusion was clear: there was nothing revealed in those 132 bottles that would fundamentally alter Chile’s reputation.

Curry and Carmenere in the U.S.A.

The Curry and Carmenere campaign was so successful in the UK that Wines of Chile brought it to the U.S. earlier this fall and we were invited to participate in a blogger tasting. Sue and I asked two of my “Idea of Wine” students, Marina Balleria and Mike Knape, to join us.  Marina and Mike both studied abroad in Chile and brought local wine knowledge to the table as well as excellent critical thinking (and tasting) skills.

When Oz Clarke spoke at the Wines of Chile Awards seminar earlier this year, his theme was simple and clear: Chilean wine is at a crossroads and it was up to the people in that room to decide which direction to go. Would they make the same mistakes as winemakers in Australia, for example, or choose another path? Oz, who was a stage and film actor in a previous life, is a dramatic speaker, but if you watch the video I think you will agree with me that his message is even more powerful than the delivery.

Preaching to the Choir

Oz Clarke is not alone in this view and to a certain extent I’m sure he was “preaching to the choir.” Wines of Chile released its ambitious  Strategic Plan 2020  about a year ago (you can download a pdf of the full report here). The plans calls for Chile to become the #1 New World producer of “sustainable and diverse” premium wines by 2020.

The carefully devised Plan projects an average annual growth rate of 9.2% and is based on strengthening the recognition and appreciation of  “Wines of Chile” as a world-class appellation, which will in turn increase the average price, sales, and added value for all Chilean wine industry stakeholders, including small and large growers, suppliers, wineries, and exporters.

The plan focuses on four messages to drive the transformation:

• Diversity and Quality. Chile has much to offer with respect to quality, diversity, and wines that over-deliver at every price point.
• Sustainability. Sustainable Chile: Clean, efficient, and responsible.
• Country Image. Chile is good for you.
• Innovation. Chile: Moving above and beyond.

The plan’s ten year time horizon speaks to the sense of “Chile at the Crossroads” immediacy while the four “strategic pillars” indicate how much needs to be done in terms of recasting Chile’s image. Chile’s reputation as a producer of bargain Cabernet Sauvignon, Chardonnay and Sauvignon Blanc needs to be reshaped in terms of both wine types and price points. And the image of Chile itself must be updated or redefined, according to the plan’s analysis, so that the country sells the wine  (as Italy’s image obvious does for Italian wine) and not the other way around. (Whether a campaign built around the slogan “Chile is Good For You” can accomplish this is debatable.)

Audacious Goals?

Exports are key for Chile since domestic consumers drink up only about 30% of total production.  The idea that revenues might grow by 9.2% in the next decade is not as ridiculous as it might sound, given the current economic climate, although it is certainly an audacious goal.

Chile’s wine exports grew by a yearly average of 33% in the 1990s (according to data in the Wines of Chile report) and by 11% per year between 2000-2009. But whereas growth came through both increased price (7%) and quantity (25%) in the 1990s, the 11% revenue growth in the 2000s was due to volume growth (12%) offsetting 0.1% average price declines. The new strategic plan calls for a radical change, with rising price not higher production driving revenue growth.  Good idea, but easier said than done.

So (and this is the “crossroads” theme again), Chile needs to turn things around in a fundamental sense and this may be difficult in today’s market environment as an excellent interview with  with Rabobank’s Stephen Rannekleiv in a special September 2011 Chile Report  issue of The Drinks Business makes clear. Rannekleiv is an optimist about Chile’s wines, but very cautious about its wine industry’s ability to meet the 2020 goal.

 Something Completely Different

Rannekleiv suggests that Chile seek out new markets to supplement but not replace the UK, its largest export market today, where margins currently are thin or even  negative and where upward price adjustment is extremely difficult. Focus must be on price and quality, Rannekleiv notes, so major supply surges must be avoided.

It is very difficult to raise price (without dramatic loss of market share) for existing product lines in today’s market, so  ”Chile needs to find something different, such as marketing around new varieties that are exceptional; it also needs to continually work on improving quality.”

There is no silver bullet, Rannekleiv suggests. It will take a combination of controlled output growth, continuing quality improvements, image development and new products and markets to turn the Chilean wine industry onto the right path.

Getting the Message Out

One element of the Wines of Chile strategy is a series of blogger wine tastings that are designed to educate, inform and persuade social media representatives and their audiences of Chile’s new direction. I took part in one of these programs last year that featured Chilean Syrah and Pinot Noir, stressing the diversity of Chilean wine.

This certainly is part of the 2020 strategy’s message (and the wines told that story pretty well), but Syrah is a problematic market these days and while Pinot is popular, it is hard to break in except at the bulk level. (Although both Chile and Argentina produce Pinot Noir, for example, neither country made the cut for inclusion in Benjamin Lewin’s recent book In Search of Pinot Noir.)

Is Carmenere The Key?

Which brings us to Carmenere, the focus of the most recent blogger tasting program.  Is Carmenere the key (or one of them) to Chile’s crossroads dilemma? Carmenere is (like Malbec) a Bordeaux variety that is now better known in the New World than the Old. Can Carmenere be to Chile what Malbec has become for Argentina, a signature variety that creates a new market and that serves as a brand ambassador for the entire country?

A Carmenere boom would tick a lot of the Wines of Chile 2020 plan boxes. Is Carmenere the key? Come back next week for my answer.