Chateau Cash Flow: The Rise of House Brand Wine

Decanter.com reports that house brand wine sales are rising in Great Britain even as the overall market slumps.

Retailers are reporting impressive growth of own-label wines as cash-strapped customers look to rein in their spending.

A Datamonitor survey reports 41% of all grocery sales in the UK are now own-label, up from 38.2% in 2008, and wine sales are following the upward trend.

Supermarket retailer Sainsbury’s told decanter.com its own-label wines had grown at double the rate of its wine range this year. A spokeswoman said: ‘Last year we revamped our own-label packaging and we have put a lot of effort behind the range in store and in the media.’

House brands aren’t so important in the U.S. wine market [yet] but they may well be in the future. The best known U.S. house brand wines are Charles Shaw (a.k.a. Two Buck Chuck) at Trader Joe’s and Kirkland Signature at Costco. Big Box retailers Target and Wal-Mart have launched their own house brands in recent months and other retailer’s have commissioned discount brands (not yet closely associated with their names) in an attempt to get a grip on the trading-down market. Look for this trend to continue, especially if the economic downturn persists.

Chateau Cash Flow

House brands are a solution to several problems, which is why they are likely to increase in importance. On the consumer side, they provide buyers with reputational assurances. You might wonder if a $3 wine can be any good, but you are more likely to try it if Trader Joe’s or Wal-Mart stands behind it. As I have written before, a $3 unknown wine at Safeway makes you think “how can it be any good?” while a $3 wine with the Trader Joe’s imprimatur makes you think “how bad can it be?” You might buy the latter but not the former.

The British have years of experience with house brands — it is why they are [for now] the world’s most important wine market and why Britain’s supermarkets are arguably the most sophisticated wine distribution machines on earth. The U.S. is catching up, but Britain still leads.

Reputation is especially important when consumers are trading down, moving into unfamiliar territory on the lower shelves. Decanter reports that while some British consumers are trading down to house brands, building that market, existing customers are trading up within the house brand portfolio! If this trend continues it will be hard to resist the house brand strategy.

Supply Side Wine

House brands have big advantages on the supply-side, too. Producers with surplus wine are often happy to sell it off through house brand bopttlings because it generates cash flow without directly undercutting their own brands and market. In my international economics class we call this “dumping.” You sell off unintended surpluses (of which there are plenty just now) through retailers in a different market segment, allowing you to maintain reputation and price points in the home market. If you start discounting wine to sell it, we have learned, it is sometimes difficult to regain the ground you have lost.

Some British retailers have moved aggressively into the supply chain, buying up grapes and surplus wines and acting as full-fledged negociants, but it isn’t really necessary to make such a large commitment to get into the house brand wine business. There are plenty of regional and national firms who can quickly respond to demand. No large investment is required, cost is low.

House brands can also have a somewhat fluid identity (not tied tightly to a particular region or style), which allows them to benefit from global opportunities, sourcing Sauvignon Blanc from Chile, for example, and Pinot Noir from Northern Italy or the South of France.

The main problem is to be sure that quality is good enough. Otherwise you have put your own brand in jeopardy.

Three Way Battle

The world’s wine markets are a battleground for three models of wine sales. The German model is based upon low cost (one euro per liter) and hard discount sellers like Aldi. The American model is all about corporate brands like Gallo and Constellation Brands. The British model is built upon upscale supermarkets and the house brands they sell.

Recent news suggests that the British model is gaining ground, both in the UK and here in America, where it is the model that drives Costco sales (Trader Joe, on the other hand, uses a version of the German system). It will be interesting to see if this trend persists once the recession eases up.

Decanter’s Wine Power List

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.

GOOD News and the Grapes of Economic Wrath

As the economic crisis deepens and spreads, most of the news about the impact on the wine industry is not so good — falling sales and lower prices as consumers pull back and trade down.  I’ve written about this in How Will the Economic Crisis Affect Wine? and Trading Down: Wine and the Recession.

GOOD News on Wine

A number of journalists and wine writers have called me to talk about the trading down phenomenon, but yesterday was a first: I was interviewed by Roger Numbers, a bright blue animated avatar who is the host of a daily news show on the GOOD News network.  You can view the resulting 91 second report on “The Grapes of Economic Wrath.”

The program packs quite a lot of information unto a few seconds and is very lively and interesting — check it out and I think you will be impressed.  And look through the other recent programs while you are there. Kudos to Roger and the GOOD News team.

There is one point of clarification I’d like to add to the interview, since it is obviously impossible to cover every detail in 91 seconds.  One part of the trading down effect is that consumers are changing not only how much they spend for wine but also where they buy it. So upscale supermarkets are losing sales to discount stores like Costco and Sam’s Club.  But they aren’t going to Costco to buy the very cheapest wines (like the Franzia pictured in the video) because Costco doesn’t typically carry the cheapest wines. They leave that market to others.

Trading Down and Switching Over

Consumers are going to Costco and similar stores because they have lower mark-ups on better quality wine.  Costco’s wine mark up is no more than 14% over wholesale cost versus maybe 50% in a supermarket or wine shop, depending on the type of wine and other factors.  Costco can do this because it has a much smaller selection of wine than other stores, higher sales volume and of course because members pay $50 to $100 annual fees.  Read more about Costco wine economics here.

So wine buyers are both trading down (lower price) and switching over (changing where they shop). I knew this was happening when a friend who manages the Wine Wall at an upscale supermarket told me he was sellng less wine, but at a higher average price.  Explanation?  The trading down effect (lower prices) was being overwhelmed by the switching over effect (consumers of the cheaper wines were buying them elsewhere).  Good news?  Yes — for Coscto and other wine discounters.

Everybody’s Selling Wine

Suddenly it seems like everybody’s trying to sell me wine.  I wonder what’s going on?

Drinking and Flying?

It hit me earlier this week when I received an email from Alaska Airlines inviting me to earn frequently flier miles by buying wine.  Here’s the offer

You could stand in front of a wall of confusing wine labels and search for a special selection or you can take advantage of Vinesse Wine Clubs’ exclusive new customer offer.

Try a hand-selected sampler of their favorite wines for only $6.99 per bottle; plus earn 2,750 Mileage Plan Miles with your first shipment, free shipping, and a welcome gift. Plus, earn an extra five miles per dollar spent (or six miles per dollar spent when you use your Alaska Airlines Visa) on all wines from American Cellars Wine Club.

… This limited time offer is a way of introducing you to American Cellars Wine Club. Every two months, American Cellars Wine Club brings wine lovers a new shipment of six captivating wines.

The $6.99 per bottle (and free shipping) price applies only to the introductory offer, of course.  Prices are $12-$15 per bottle after that.  You’ve probably seen wine club plans like this before..  The interesting thing (to me) isn’t the wine club itself, it’s the tie in with Alaska Airlines’ frequent flier club.

Investment Grade?

The Wall Street Journal wants to sell me wine, too.  Perhaps they think I need more wine to help me forget what’s been happening to my retirement portfolio recently.  Go to wsjwine.com to read the news. You might expect the WSJ wine group to be a bit upmarket, but their come-on introductory offer is about the same – a $69.99 (a savings of $120, it says here)  mixed case of wine (plus some cool wine parephenalia). Future cases, if you join the club, are $139.99 plus tax and shipping (a saving of 20% over retail is guaranteed). Wine shops will sometimes give you a 15%-20% discount on a case purchase — just ask. Pre-selected mixed cases (this seems to be something wine clubs like to offer) range from about $80 to just under $200.

You can purchase individual wines, too, of course. A search for Pinot Noir found five wines ranging from a $19.50 2006 Mendocino single vineyard bottling to a 1996 Domaine Ponsot Clos de la Roche Grand Cru ‘Vielles Vignes’ for $250. The Cabernet Sauvignon offering includes 13 selections priced from $14.99 to $101.99 for a 1999 Heitz from the Trailside Vineyard.

Amazon AVA

The third announcement comes from Amazon.com, the internet book (and almost everything else) seller.  Wine is coming to Amazon country, although not necessarily in a big way.  The beauty of Amazon.com for books is that you can find everything there.  Wine will be different.  Early reports suggest that the Amazon store will stock about 300 wines that it will ship to customers in 26 states. That’s not a big presence, but it is a start.

Actually, Amazon made a start in web wine some years ago.  Amazon invested $30 million in WineShopper.com in 1999, during the dot com boom.  That venture didn’t really pan out. I understand that Wine.com sells gift baskets (but not wine) through Amazon.com now.  Amazon is counting on its new wine shop to be different.

Amazon.com is not the first big box retailer to sell wine on the web.  Costco.com has a pretty interesting wine selection, although they will ship to just four states: California, Washington, Oregon and New Mexico.  Here’s a snapshot of what’s available to Washington State buyers:

  • Twenty two wines from Bordeaux.  Chateau Mouton Rothschild 2005 ($599.99), a magnum of 1997 Chateau d’Yquem ($499.99) down to lesser names for about $10 per bottle. (It is interesting to note that big name Bordeaux wines are for sale to Washington buyers, but not to those in other states.)
  • Ten Champagnes and sparkling wine gift packs ($25 5o $139).
  • Thirty-three red wines in the $10 to $50 price range. Plus just a few white wines in the same general price area.

Costco is the largest single retailer of wine in the United States.  It is interesting, therefore, that they have taken a conservative approach to internet wine sales.  I wonder if Amazon.com can succeed where Costco (so far) hesitates to venture and where other sellers have found considerable challenges?

Leverage

What do these examples have in common.  Well, they are selling “mail order” wine, dummy.  Yes, I know.  But it seems to me that they are really examples of leverage.  Each of these businesses wants to leverage some proprietary asset to increase profits through wine sales. It’s a classic business strategy, but not one that works every time.

Alaska Airlines has a very successful frequent flier program, with lots of retail “partners” and mileage point purchase tie-in deals.  It’s pretty natural that they would try to leverage their big investment in the frequent flier program in ways that would both generate revenues and promote the “brand.”  Wine is seen as an upscale product that probably lends status to the airline brand, if anyone really thinks about these things the way marketing consultants say they do.  Interestingly, however, a really upscale wine buyer probably wouldn’t jump to purchase a case of seven-buck wine that someone else selects.  But probably some people will buy the package, to get both the discounted wine and the extra miles, and maybe that will be the start of good wine relationship (I don’t think wine clubs would exist if customers didn’t find them useful). If not, well there’s bound to be another introductory offer in the next email.

The Wall Street Journal is in good company in starting a wine club.  Other periodicals that feature wine reviews often offer wine clubs, special promotions, or other tie-ins.  The well regarded work of Dorothy Gaiter and John Brecher, the WSJ wine critics, gives the Journal and therefore the wine club instant credibility (even though Dorothy and John don’t have any connection with the club itself — the website says that the wine club is independent of the WSJ news department).  Prestige by association, you might say, and a way to leverage borrowed reputation to some extent, but not in any unusual or deceptive way.  It will be interested to see if the venture is successful and how many WSJ readers are attracted by the $69 introductory offer. Ultimately, it will be quality and service, not the WSJ name, that determine this venture’s fate.

Amazon.com has earned a sterling reputation as an online seller and perhaps they can leverage their reputation for  selection and service in books and other products to sell wine.  But I am a skeptic.  My feeling is that wine is never going to be as easy to commodify as books. You can do this to a certain extent by using numerical wine ratings to sell the wine (Costco does this for its more expensive online wines, but everyone does this in stores using “shelf talkers”), but really numbers don’t capture the complexity of wine.  How could they? (I wrote about this in Wine by the Numbers.)

So how can Amazon succeed?  Well, they might not. But I think the key is going to be whether customers really buy into the project and leave detailed feedback on the wines.  Anyone who has shopped Amazon for books knows that customer reviews can be very useful. If thoughtful wine drinkers use the Amazon marketplace to as a forum to exhange information, opinions and observations, they could make it into a virtual wine group that could at once demystify wine a bit and decommodify the internet wine buying experience. That would be a successful implementation Wine Web 2.0.  And, interestingly, it would mean that Amazon was able to leverage their most valuable assets, which are their active customer base and interactive feedback model. Let’s see what happens when Amazon wine goes live.

What are wine enthusiasts looking for?

The Search for Wine Drinker DNA

According to the data that WordPress collects about visitors to this website, the three most frequently viewed posts on The Wine Economist are

  • The World’s Best Wine Magazine?, an analysis of Decanter magazine, part of the ongoing series on wine critics and publications;
  • Costco and Global Wine, which examines Costco’s wine strategy in the context of the three most important global wine markets, the U.S., Great Britain and Germany, and
  • Masters of Wine (and Economics), which is about the prestigious Masters of Wine (MW) qualification and the importance of wine economics in its curriculum.

(Other popular posts include my discussions of global climate change, problems in Australia, rising wine prices, and the Hong Kong and Chinese markets.)

What can we learn from the fact that these three posts get the most hits? A closer examination of the WordPress data show that many visitors to this site are looking for information about the “Best” – the best wine, the best wine price, the best wine magazine and so forth. The search for the best and not just the good seems to be very important.

Wine enthusiasts also seem to be searching for credible authorities – people and publications that can guide them and tell them what to buy and drink.

Not unrelated to this is in the interest in Costco (and Trader Joe’s) and other retailers that seem to make the choice concerning good wine or good value wine a little simpler. Costco is now the largest wine retailer in the U.S., as the blog post explains, and it does this in an unexpected way – by giving consumers fewer choices than a typical upscale supermarket (about 120 different wines at typical Costco versus more than 1200 different wines at your supermarket), but also giving them more confidence in the choices that they make.

Project Genome

Visitors to The Wine Economist reflect many qualities that research by Constellations Brands (the largest wine company in the world) has uncovered. The study is called Project Genome, which suggests that it is an attempt to sequence wine drinker DNA. Wines and Vines reports that

The original 2005 study of 3,500 wine drinkers was one of the largest consumer research projects ever conducted by the wine industry. The new study examined the purchases of 10,000 premium-wine consumers–defined as those who purchased wine priced at $5 and higher–over an 18-month period. While the first Project Genome study asked online survey participants to recall their wine purchases during the last 30 days, the Home & Habits study tracked the actual purchases of Nielsen Co.’s Homescan® consumer purchase panel, which employs in-home bar code scanners and surveys to map consumer buying behavior across a demographically balance

Nielsen measured consumer attitudes and purchase behavior within multiple purchase channels, including warehouse clubs, supermarkets, mass merchandisers, drug stores, liquor stores and wine shops. The scan data were supplemented with online interviews to classify consumers by Project Genome consumer segments identified in Constellation’s original study: Enthusiasts, Image Seekers, Savvy Shoppers, Traditionalists, Satisfied Sippers and Overwhelmed.

The largest group of wine consumers are the Overwhelmed (23% of consumers). They are described as

  • Overwhelmed by sheer volume of choices on store shelves
  • Like to drink wine, but don’t know what kind to buy and may select by label
  • Looking for wine information in retail settings that’s easy to understand
  • Very open to advice, but frustrated when there is no one in the wine section to help
  • If information is confusing, they won’t buy anything at all.

The second largest group are Image Seekers (20% of consumers). They

  • View wine as a status symbol
  • Are just discovering wine and have a basic knowledge of it
  • Like to be the first to try a new wine, and are open to innovative packaging
  • Prefer Merlot as their No. 1 most-purchased variety; despite “Sideways,” Pinot Noir is not high on their list
  • Use the Internet as key information source, including checking restaurant wine lists before they dine out so they can research scores
  • Millennials and males often fall into this category.

Traditionalists (16% of consumers)

  • Enjoy wines from established wineries
  • Think wine makes an occasion more formal, and prefer entertaining friends and family at home to going out
  • Like to be offered a wide variety of well known national brands
  • Won’t often try new wine brands
  • Shop at retail locations that make it easy to find favorite brands.

The Savy Shoppers (16% of consumers)

  • Enjoy shopping for wine and discovering new varietal s on their own
  • Have a few favorite wines to supplement new discoveries
  • Shop in a variety of stores each week to find best deals, and like specials and discounts
  • Are heavy coupon users, and know what’s on sale before they walk into a store
  • Typically buy a glass of the house wine when dining out, due to the value.

Satisfied Sippers make up 14% of consumers. They

  • Don’t know much about wine, just know what they like to drink
  • Typically buy the same brand–usually domestic–and consider wine an everyday beverage
  • Don’t enjoy the wine-buying experience, so buy 1.5L bottles to have more wine on hand
  • Second-largest category of warehouse shoppers, buying 16% of their wine in club stores
  • Don’t worry about wine and food pairing
  • Don’t dine out often, but likely to order the house wine when they do.

And, finally, Wine Enthusiasts are the smallest group, accounting for just 12% of all wine buyers. They

  • Entertain at home with friends, and consider themselves knowledgeable about wine
  • Live in cosmopolitan centers, affluent suburban spreads or comfortable country settings
  • Like to browse the wine section, publications, and are influenced by wine ratings and reviews
  • 47% buy wine in 1.5L size as “everyday wine” to supplement their “weekend wine”
  • 98% buy wine over $6 per bottle, which accounts for 56% of what they buy on a volume basis.

The Fortune at the Bottom of the Pyramid

Not surprisingly, Wine Enthusiasts and Image Seekers account for nearly half of all wine sales while Overwhelmed consumers purchase disproportionately little wine. While wine magazines find a ready market at the top of the pyramid, retailers and wine companies probably view the Overwhlemed as the potential “fortune at the bottom of the pyramid.” There is a lot of money that can be made if wine can be simplified (or these consumers educated) so that they move up the wine buying ladder.

Visitors to The Wine Economists seem to fall into three of Constellation’s categories: Enthusiasts, Image Seekers and the Overwhelmed based upon the limited and superficial “most popular post” data reported here. It will be interesting to track further Project Genome results as they are released and to see how Constellation Brands uses this information in its wine market strategies.

The World’s Best Wine Magazine?

decanter-china.jpgDecanter bills itself as “The World’s Best Wine Magazine” and is sometimes referred to as the bible of wine. It is probably the most influential wine magazine in the world, too, although that could be a contested claim. It is the most-read wine magazine in the world’s most important wine market: Great Britain. Founded in 1975, it is based in London and published monthly in more than 90 countries including, since 2005, China. The Chinese Decanter (click on the image to see the Chinese cover) includes about 30% special content for the growing East Asian market.

The Most Important Wine Market

How can Great Britain (and not the United States) be the world’s most important wine market? The simple answer is that the British produce little of their own wine and import quite a lot, so just about every winemaker in the world wants to compete for British sales. The German market is large, too, but it’s a cut-throat pricing environment with emphasis on discounted price. The American market is big, but it is tough for international winemakers to compete with American wines at most segments of the market (especially for popularly priced branded varietal wines).

A slightly more complex answer is that entry into the British market is relatively straightforward, because it is for all intents and purposes an integrated national market with one set of rules and distribution channels. The American market is a maze, with 50 (plus the District of Columbia) different sets of rules and regulations to understand and comply with plus the nightmarish “three-tier” distribution system (retail/wholesale/producer) that adds cost and increases the mark-up at each stage.

You want national distribution in the U.S.? Better hook up with one of the big brand managers such as Constellation Brands or Cobrands. And you’d better have a lot of product to sell. Otherwise you should settle for regional distribution and hope for the best. No wonder many international sellers focus on the British market or go there first.

Decanter is published by a company called IPC Inspire, which produces a number of lifestyle monthlies including Country Life, Horse & Hound, Rugby World, SuperBike, Shoot Monthly and Yachting World. It is Britain’s largest specialist magazine publisher.

Although Decanter really is arguably the most important wine magazine in the world, it is not as ubiquitous as Wine Spectator and Wine Enthusiast here in the United States. You won’t find it on many supermarket racks. Like Robert Parker’s Wine Advocate, it attracts a specialist audience in America.

Mrs. Thatcher and the Rise of the British Wine Market

Decanter was founded in 1975, just at the moment when the British wine market was becoming the world’s most important. Most American’s think of the British as a beer and spirits drinking nation, but this has not always been the case. The British preference for ales and whiskey was partly the result of a tax and regulatory regime that biased the system against consumption of imported wine. High tariffs made wine expensive and retail sales regulation made it inconvenient to purchase.

Britain’s entry into what is now the European Union resulted in tariff rates more favorable to wine imports. Mrs. Thatcher’s programs of retail industry deregulation opened up the opportunity for cheaper wine and more convenient distribution, especially though the supermarket chains. These supermarkets – Tesco, Sainsbury and Waitrose among them – became world’s most important wine distribution channels. The produce of the world’s vineyards are now sourced to these British stores and, having made an impact there, have passed into the global market. Costco, I have argued elsewhere, is beginning to play a similar role in the United States.

Ironically, U.S. wines are underrepresented on the British market.  The U.S. and British distribution and marketing systems are so different as to represent a barrier to entry, at least for now.

Decanter was created to serve the consumer market created by the explosion of wine in Britain. As the global market has grown, Decanter’s distribution has followed (and sometimes, I suspect, leads the way).

If Decanter is so important, why doesn’t it have a stronger presence in the United States? The answer, I would argue, is that the British wine market is global and dominated in terms of volume by the large national supermarket chains selling wines from all over the world. The U.S. market is far more local (favoring American wines) with a far more fragmented distribution system and large firms like Gallo and Constellation Brands leading the way, selling branded wines from their large portfolios. Simply put, you won’t find a lot of the wines reviewed in Decanter in American stores. As vast as our selection is here in the U.S.A., it’s just a slice of what the global market offers. Really.

Uncorking Decanter

Decanter is a full service wine publication with something to offer almost any British wine enthusiast. There are interviews, topical essays and regional travel surveys (drink this, stay here, try this place for dinner). Columnists include such notables as Michael Broadbent, Steven Spurrier and Andrew Jefford. Decanter obviously includes wine investors among its readers because it contains very detailed monthly reports on wine auction sales prices. Bordeaux reds and the main focus (vintages dating back to 1961), but white Bordeaux, Burgundy and Port prices are also listed. It even publishes a wine auction index. This probably reflects Broadbent’s influence – he was for years head of the wine auction practice at Christie’s.

The monthly wine ratings are very interesting. Rather than try to sample a selection of all the new wines on offer each month as some American publications do (an impossible task in Britain, I reckon, with so many wines), one or two types of wines are chosen and about 100-150 wines from each of those segments of British market are tasted and rated.

The February 2008 issue, for example, has comparative ratings of just two types of wines, South Australian Shiraz and Loire (France) Reds (Cabernet Franc to Americans). Wines are first rating using a 20-point scale (with average scores from several tasters reported) and then grouped together into quality classes ranging from one to five stars. The five star (18.5 points or more) and four star wines (16.5-18.49 points) are listed along with photos of their bottles for easy identification in the shops. Three star wines get nice write-ups – this, after all, is where the real market is – and lesser wines are listed in appropriately grim tombstone format. It’s hard to imagine a Decanter reader buying a “fair” or “poor” wine except by accident.

How Decanter Rates Wine

I am impressed with the information provided for each wine. Besides the average 20-point rating, we learn the retail price, the degree of age-worthiness, receive brief tasting notes and find out where to buy it. Good value wines receive a gold £-sign designation. Thus, for example, the 2006 Shingleback Cellar Door McLaren Vale is rated at 14.75 points and sells for £7.99, which is a good value. Is has short term aging potential and can be purchased at Tesco. “Dark cassis jam notes. Medium body. Nice spicy notes. Fine velvet texture. Ripe and well-balanced fruit. 3-8 years.” Sounds good to me. Lots of useful consumer information here about these particular wines, although each monthly issue rates only a small slice of the British market.

The “stockist” listings are noteworthy. Wine Spectator will tell you what to buy, but not where to buy it. That would be nearly impossible in the U.S. The reason Decanter can tell you where to buy this wine is that the British wine system favors a relatively small number of national distributors and retailers, many of whom feature their own brands, much as Costco does here in the U.S. with the Kirkland label. The best value in the Shiraz tasting, for example. Was Berry’s Own Selection Elderton Australian Shiraz Barossa Valley 2006 (£8.50 and 16.5 points). “Big yet somehow seductive.” Berry isn’t a person, it is Berry Brothers & Rudd, a major British retailer.

Decanter wine critics are tough, by the way, stingy with the highest grades (the 4-5 star As and Bs) but generous in giving Cs that seem to really mean something.

Decanter and Global Wine
Decanter reflects the unique features of its main market, Great Britain, which makes me realize that this is probably true about all wine publications. Gambero Rosso has a strong regional focus because the Italian national wine market is less important there and regional identities matter more. U.S. magazines will be different because the U.S. market is so different.

Britain’s market is national in scale and global in reach so Decanter‘s strengths and weaknesses (particularly its inability to evaluate the majority of wines that are available) reflect this. I am not surprised that it would appeal to wine-drinking elites around the world, but it makes sense that it would not have a big market in the United States. The market is just too different over here.

The End of Cheap Wine?

It is becoming increasingly clear that a golden age of sorts (for American wine drinkers) is coming to an end. Good quality wine has been amazingly affordable for the last several years and New World wine consumption has risen as a result.

This is changing (or has already changed, as Jancis Robinson writes in Saturday’s Financial Times) and a quick look at the economics of the wine market explains how and why.

The demand for wine in the United States has increased for a number of reasons. Studies that show that moderate consumption of wine (especially red wine) is healthful gave consumers license to experiment with table wines. The existence of Two Buck Chuck (the Charles Shaw wines sold at Trader Joe’s stores) and other value brands made this experimentation affordable.

The increasing emphasis on wine brands helped demand grow by making the wine purchase itself somewhat less mysterious. The wine aisle is the most complex choice space in any grocery store — there are more options at more price points than anywhere else. Brands reduce uncertainty and so encourage consumption. The enormous success of [Yellow Tail] brand wine from Australia is testament to this fact. Costco, the nation’s largest wine retailer, has used limited selection and its Kirkland Signature own-brand wine to achieve spectacular results.

The demand for wine has not just increased it has also evolved as many consumers have moved to higher quality (or higher price,anyway) and developed specialized wine expertise. Wine is more than a beverage, it is a lifestyle for many people who collect wines, take wine tourist vacations and subscribe to wine publications such as Wine Spectator or The Wine Advocate and read the wine columns now found in many newspapers. There is a pretty steep learning curve when it comes to wine. Knowing more about wine and having more experience with it increases the pleasure that wine provides and makes further learning more efficient. In economic terms, the specific investment in wine knowledge makes the demand for wine more inelastic — less sensitive to changes in price since buyers are less likely to switch from wine to other products or beverages where they have less expertise.

The supply of wine has also changed to create higher prices. The falling U.S. dollar has increased the cost of imported wine, which contributes to rising domestic prices both directly, as those costs are passed along to consumers, and indirectly, as higher import prices allow domestic producers to raise price, too. I don’t think that we have seen the full pass-through effect of the exchange rate changes yet, so expect dollar-driven price increases to continue.

But domestic prices would have increased even without the dollar’s decline. Wine buyers in recent years benefited from a global surplus of wine grapes that drove down price and pushed up quality. Faced with accumulated surpluses that sometimes amounted to a year or more of sales, winegrowers held back on expansion plans (except for hot varietals like Pinot Noir). Demand has slowly grown into the existing supply and may soon exceed it for some wine types. Falling prices due to surpluses are coming to an end and rising prices seem likely, even in Australia where drought and disease have further reduced production. The new EU wine regime, if it is effective, should further reduce wine surpluses and tighten supply.

When you combine these factors along with a few others, such as growing interest in wine in Asia, the result is a new market environment and it will be interesting to see what happens next. The latest round of wine magazines seem to take higher prices in stride. The Wine Advocate reports that the cellar door price of California cult wine Screaming Eagle is now $500 per bottle — if you can get some — and a long list of wines are listed with prices above $100 or $200. Wine Spectator and the wine columnists in the Wall Street Journal and the New York Times all seem to be struggling to keep a lid on their definition of an inexpensive or good value wine — a $12 or $15 or even $20 ceiling no longer provides much choice! You can still buy cheap wine, but the good value bargains are disappearing.

It will be interesting to see how the American wine culture, which has been built in part on good quality at low prices, copes with this new world of wine. In the meantime, enjoy those bargains and good values when you find them, but don’t count on your good fortune lasting forever.

Follow

Get every new post delivered to your Inbox.

Join 1,899 other followers