The Wine Economist 200

This is The Wine Economist’s 200th post since it began a little more than three years ago under the name “Grape Expectations” —  a good opportunity to reflect briefly on readership trends, just as I did when we passed milepost 100.

Not that kind of list!

Milepost 200

The Wine Economist has an unusually broad readership given its focus (wine economics), content (no wine reviews, no ratings) and style (most posts are way longer than is typical for weblogs).

I never expected to get millions of visitors like Dr. Vino or Gary V. and other popular wine critic sites, so I’m surprised by how many people have found this page and come back to read and re-read.

About 200,000 visitors have clicked on these links, sometimes with surprising intensity. The Wine Economist has been ranked as high as #6 in the big “Food”  category where wine blogs are filed in Technorati‘s daily ratings and as high as the top 30 in the even broader “Living” group.

Reader Favorites

The most-read articles of the last few days are always listed in the right-hand column on this page, so it is easy to see track reader behavior. I thought you might be interested in readership trends since the blog began. Here are the top ten Wine Economist articles of all time.

  1. Costco and Global Wine — about America’s #1 wine retailer, Costco.
  2. Wine’s Future: It’s in the Bag (in the Bag in the Box) — why “box wine” should be taken seriously.
  3. The World’s Best Wine Magazine? Is it Decanter?
  4. [Yellow Tail] Tales or how business professors explain Yellow Tail’s success.
  5. Olive Garden and the Future of American Wine or how Olive Garden came to be #1 in American restaurant wine sales.
  6. Australia at the Tipping Point — one of many posts about the continuing crisis in Oz.
  7. No Wine Before Its Time explains the difference between fine wine and a flat-pack  antique finish Ikea Aspelund bedside table.
  8. How will the Economic Crisis affect Wine — one of many posts on wine and the recession. Can you believe that some people said that wine sales would rise?
  9. Wine Distribution Bottleneck — damned three tier system!
  10. Curse of the Blue Nun or the rise and fall and rise again of German wine.

As you can see, it is a pretty eclectic mix of topics reflecting, I think, both the quite diverse interests of wine enthusiasts and wine’s inherently complex nature.

My Back Pages

What are my favorite posts? Unsurprisingly, they are columns that connected most directly to people. Wine is a relationship business; building and honoring relationships is what it is all about.

KW’s report on the wine scene in Kabul, Afghanistan has to be near the top of my personal list, for example. I am looking forward to following this friend’s exploits in and out of wine for many years to come. (Afghan authorities found KW’s report so threatening that they blocked access to The Wine Economist in that country!)

Matt Ferchen and Steve Burkhalter (both former students of mine now based in China) reported on Portugal’s efforts to break into the wine market there. The commentaries by Matt, Steve and KW received a lot of attention inside the wine trade, but their thoughtful, fresh approaches also drew links, re-posts and readers from the far corners of the web world.

Looking back, I think my favorite post was probably the very first one, a report on my experiences working with the all-volunteer  bottling crew at Fielding Hills winery. I learned a lot that day about the real world of wine and I continue to benefit from my association with Mike and Karen Wade (and their daughter, Robin, another former student) who have taught me a lot about wine, wine making and wine markets.

Look for another report like this when The Wine Economist turns 300. Cheers!

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Thanks to everyone who’s helped me in various ways with these first 200 posts. I couldn’t have done it without you! (Special thanks to Sue, my #1 research assistant!)

Big Squeeze on Small Wineries in Argentina

Argentina is generally seen as the big winner in the current U.S. wine market. Sales of Argentinean wines have surged at every price point led by the signature Malbecs, (something that I wrote about in a recent post).  The big picture is great — perhaps the New World’s biggest success story since Marlborough Sauvignon Blanc hit the scene.

Both Sides Now

The devil is in the details, however, and a more detailed analysis of Argentinean exports suggests that some parts of the industry are facing significant challenges. As usual, my source for news and analysis about wine in Argentina is WineSur, which reports that small wineries are really feeling the squeeze in the critical U.S. export market. (See the report by Gabriela Mazilia. )

Small producers are what economists call “price-takers.” They cannot do very much to control the prices they receive on the export markets and they don’t have much control over input prices, either. While a great many business decisions are theirs to take, some of the most critical factors are beyond their control. This is true for all businesses, of course, but more so for some than others.

Mazilia’s report suggests that small Argentinean producers are feeling the squeeze from both sides of the market. Costs are rising rapidly, perhaps especially for the goods and services that winemakers require. Argentina’s  inflation rate is about 10% according to official statistics, but unofficial estimates put the number at about 25%, amongst the highest in the world today. Yikes!  The Economist‘s Big Mac Index reports that Argentina’s currency is much less undervalued now than a year ago even though the exchange rate has depreciated, which is consistent with rapidly increasing local prices.

Magnified Price Effects

Small producers would like to pass higher costs forward to consumers or backwards on to input suppliers, but neither of these options seems possible at this time. Mazilia’s report suggests that export price increases of 5%-10% are possible for wines that retail in the USD 10-18 range, where Argentinean wines are seen as good values. Increases for more expensive wines are apparently out of the question — the market for $20+ wines in the U.S. is just too competitive, too filled with expensive wines selling a a discount.

One problem Argentinean exporters face is that every 10% increase in the price they receive is magnified in absolute terms as the wine passes through the supply chain. One producer cited the dismal math that a USD 1 increase in FOB export price translates into a USD 4 increase in retail prices. Here is an example from the WineSur report:

A case in point is the winery Sur de los Andes. The firm’s owner and manager, Guillermo Banfi, announced: “In the course of this second semester we’ll raise prices from 5 to 10%, in particular in our line of classic wines. We won’t touch the prices of the great reserve line or of our icon wine. Margins have shrunk so much that there’s no way we can keep absorbing the high increase in costs.”

When asked how much of a margin of increase could be born by an Argentinian wine without losing market share, Banfi provided an example that illustrates the situation in the US, a reference market. “In the US, our wines in the USD 10-18 retail price segment sell very well – these are wines with an FOB price of USD 3-5. With an FOB price of USD 3, the consumer price is around USD 11. A rise of 5-10% would imply an increase of USD 1-2 in retail prices, which would have a negative impact on sales, since pricing is a very sensitive issue in this segment.”

Not Much Wiggle Room

Small producers are caught in a squeeze without much room to wiggle. If they don’t raise prices they will watch their margins disappear. If they do, well, they risk finding themselves in unfriendly market territory.

“The problem is that there will be a radical change of scenario for Argentinian wines in the USD 10-20 retail price range. Up to now, these wines have sold well because they are, on average, superior in quality to similarly priced European wines. But from now on, the gap in quality will be narrower, and we’ll be competing with wines of similar quality and price, from regions with a longer standing presence in the market.

Turbulent Tide

It sounds like Argentina’s small producers face an uncertain future, but this is nothing new. The great success of Argentina’s large international wineries in the U.S. market has masked a churning pattern among smaller winemakers. Each year several dozen small wineries enter the U.S. market, but each year others are forced to exit as the turbulent tide advances.

International connections, effective distribution, economies of scale and brand prestige are always advantages in competitive international wine markets. The are especially important to Argentina’s struggling price-taking small producers today.

Extreme Wines: Most Expensive Vintage?

[This post is part of an occasional feature on extreme wines. Extreme wines? You know, the cheapest, the most expensive; the biggest producers, the smallest; the oldest, the newest and so forth.]

2009 is by most accounts the most expensive Bordeaux vintage on record. Quite an achievement during a global economic slowdown! Jancis Robinson quotes some amazing prices for the en primeur wines:

Le Pin €1,050
Ausone €800
Cheval Blanc €700
Haut-Brion, Latour €600
Lafite, Margaux, Mouton €550
Yquem €540

Other’s People’s Wine

These prices are per bottle — except that no real bottles exist yet. The 2009 vintage is still in barrel and will stay there for several more months. Since Bordeaux wines are almost always varietal blends — and since the blending won’t take place until the wine is bottled — it is fair to say that the people who are paying these big prices can’t be completely sure what they are buying. They base their purchases on … on what? On faith (in the winemakers), on trust (in the critics’ judgments) and, of course, on speculation, since much of the action at this stage is to lock up hot wines for profitable resale later.

John Maynard Keynes once compared speculators to people who bet on the results of the “people’s choice” beauty contests that were popular in his day. The trick wasn’t to pick out the most beautiful entrant, but rather to  identify the one that other people would vote for. So making the bet was a matter of guessing what other people would think other people would do and playing the odds. That’s Bordeaux en primeur in a nutshell.

How did prices rise so high with the world economy in such a fragile state? There are many theories. Here are four.

(Another) Vintage of the Century

The first theory is quite simple. 2009 was an extraordinary year and the wines are (or will be) spectacular.  Wine enthusiasts will forever regret it if they don’t purchase this vintage, even at high en primeur prices.

This theory is supported by the rave reviews of many wine critics. Perhaps it really is the vintage of the century in Bordeaux, although it must be said that vintages of the century seem to come around pretty frequently these days — their schedule is more like the World Cup than Haley’s Comet.

The China Theory

A second theory is that the high prices of these wines reflects the full emergence of Asia as a market for fine wine.  I’m not sure what to make of all the chatter I heard during the en primeur tasting circus, but the scuttlebutt is that American buyers failed to show up in the usual numbers, but they were not missed because of the demand from China, both direct purchases and London houses buying for eventual Hong Kong resale.

One fact that supports this theory is the huge gap in prices between the top trophy wines and the rest of the Bordeaux market. It is said that Asian buyers want to purchase only the best, most famous wines (rather than looking for bargains or good value further down the list). I don’t know if this stereotype is true, but the stratification in price indicates a disproportionate demand for the top wines, which is consistent with the China theory.

Auction Theory

Another article by Jancis Robinson suggests that the Bordeaux winemakers and their agents are using strategic techniques to try to boost prices, dividing them in tranches, for example, a popular practice in financial markets. Tranche is French for a slice and it is a word that moved from financial jargon to everyday use during the economic crisis, when we all learned how Collateralized Debt Obligations (CDOs) were sold off in “slices” that allowed people to convince themselves that their sub-prime mortgage investments were safer than they turned out to be.

Bordeaux wine is sold in tranches, too, with the price of the first slice used to set the standard for the second.  This year, Robinson reports, the first tranche was ridiculously small, creating leaving excess demand and therefore forcing more buyers to weigh in for the second tranche (or risk not getting any wine), which was priced at €100 per bottle more than slice #1 in some cases.

(Wine fact: Tranche is also a winery — and a good one —  Tranche Cellars in Walla Walla.)

Cost-conscious wine drinkers can only hope that the Bordeaux merchants do not start reading the technical economics literature on auction theory, where they would likely find other ways to manipulate the market to squeeze out higher prices.

The No Theory Theory

A final theory is really no theory at all. It holds that the idea that Bordeaux 2009 (broadly defined) is the most expensive Bordeaux vintage ever is a misconception. There are about 8000 Bordeaux producers according to reports I’ve read recently and only about 400 of them take part in the en primeur market. The total production of “first wines” by these makers is surprisingly small. I think it is fair to say that 90 percent of the market’s recent attention is focused on less than 10% (by volume) of the wine produced in Bordeaux.

The prices of the top wines have gone through the roof, but what about the region as a whole? You don’t have to have a theory to appreciate the fact that the makers of ordinary Bordeaux wines do not share the status or benefits of the trophy wines and are probably feeling the pain of hard times like so many winemakers around the world.

Bordeaux 2009 might be extreme in two ways: most expensive and biggest gap between top and bottom!

Washington Brands vs Brand Washington

Lettie Teague’s column in today’s Wall Street Journal provokes a post on Washington wine’s identity crisis.

Teague writes in “Stalking the Wines of Washington” that the Washington wine industry has expanded rapidly in the last few years and that there are many great wines and great wine values. Yet Washington wines are hard to buy (she had trouble finding them in New York wine shops) and hard to sell (she quotes several winemakers in this regard, including Chris Camarda of Andrew Will, who is holding back wine and reducing capacity by 40%). What’s the problem?

I Can Get it for you Wholesale

Well, as in most cases, it is not a single thing but a confluence of forces at work. Although she says that fine wines from Washington have a reputation for good value, Teague suggests that many are currently over-priced relative to Napa Valley products. Judging from my email inbox, the reason for this is that a lot of Napa producers are selling off their wines at deeply-discounted prices.

The typical deal I am offered is “limited time only” 50% off the retail price plus discounted shipping. A great deal, except I can sometimes find even lower prices on these wines at local stores. The wholesale prices must be rock-bottom if wineries can do better with these low revenue direct sales. Teague writes that

One Washington winemaker lamented to me, “We can’t compete when Pahlmeyer Cabernet that used to be $90 a bottle is now $45 a bottle.” And so, while the quality has never been higher—Washington has had three excellent vintages (2006, 2007 and 2008)—the wines are getting harder and harder to find in stores outside of Washington state.

[Interestingly, some of the offers have six bottle limits -- a psychological ploy in most cases, I think, to make customers believe that surplus wines are really quite scarce. Wine people tell me that it works every time.]

I think that Washington wines are still a great value, given their high quality, but deep discounting by the competition is never a good thing for producers.

Napa Valley vs Columbia Valley

The lack of a strong regional wine identity is a second issue that Teague identifies (she also cites the small scale of most Washington producers as a disadvantage). Everyone thinks they know what Napa Valley wine is (although it is a large and very varied AVA that produces lots of different types and styles of wine). Napa was a strong brand.

What is Washington wine?  Washington apples have a strong identity and Washington cherries, too. But Washington wine — not so much. A stronger, more prestigious identity could be a real advantage, especially in this economic climate, Teague notes.

… Napa Valley has just done a much better job of marketing itself, according to Marty Clubb, whose L’Ecole 41 Winery in Walla Walla is probably one of the best known and oldest (circa 1983) wineries in the state. “Nobody really knows where our wines are from. People recognize our brand but not as a Washington-state winery.”

Washington has well-known wine brands at nearly every price point from Columbia Crest to Quilceda Creek, but there is no well-established Brand Washington. This is an issue that Paul Gregutt identified in his terrific book,  Washington Wines & Wineries: The Essential Guide (watch for a second edition on bookstore shelves this fall). He interviewed leaders in the Washington wine industry about their vision for Brand Washington and, while most considered this an important issue, no consensus emerged.

I’ve heard that Allen Shoup (the godfather of Washington wine: former head of Chateau Ste Michelle, now the driving force at Long Shadows) wanted to promote the idea of the Columbia Valley as Washington’s equivalent of Napa Valley — building the Columbia Valley brand to compete with California.

But this plan ran into a collective action problem as individual producers invested in their own private brands and sub-AVA brands instead. I’m sure some buyers today see Columbia Valley as a generic designation, not the prestige brand originally envisioned. And I’m sure a lot of people don’t associate it with any particular place (some people still confuse Washington  State with Washington DC; maybe they think the Columbia Valley is in … Columbia!).

Although the lack of regional identity may be a serious issue in the long run, I think other problems are more pressing right now. After all, most of those deep discount emails I’m getting aren’t coming from Washington, they’re being sent out by famous wineries in famous Napa Valley.  A strong identity surely helps, but can’t completely compensate for competitive market forces.

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One area where Washignton’s wine identity is strong is in Riesling. Riesling Rendezvous — sponsored by Chateau Ste Michelle and Mosel’s Dr. Loosen, begins tomorrow. Riesling makers from around the world will gather near Seattle to discuss the problems and opportunities they face. Look for a Riesling Rendezvous post in the near future.

Good News & Bad News from Oz

Sometimes the good news is that the bad news could be much worse. At least that’s how it seemed to me when the wine economists met at UC Davis last week to discuss the continuing Australian wine crisis.

Kym Anderson, a leading expert, spoke about the problems in Oz at the symposium on “Outlook and Issues for the World Wine Market” and I thought his assessment of the “challenges” Australia faces was pretty grim.  Big oversupply. Falling grape prices. More and more quality grapes sold off at fire-sale prices in the bulk market (40% this year compared to 15% in the past).

The best selling white wine type in Australia isn’t from Australia any more — it’s Marlborough Sauvignon Blanc. Even the Australians are tired of “Brand Australia” Chardonnay!

Maybe, Baby

Professor Anderson looked for a light at the end of the tunnel and was able to point to some potential sources of relief. Maybe water reforms could be implemented. Maybe R&D to help the industry deal with climate change would produce results. Maybe the new export strategy to promote Australia’s regional diversity and wine families would catch on. Maybe the China market will open wider and drink up the surplus.

Since the bad news was so compellingly concrete and the hopeful notes so speculative, I took the overall forecast to be very dark indeed. Imagine my surprise, then, when I attended a talk by another Australian expert the next day who described  Anderson’s presentation as optimistic! When the good news is this bad, the bad news must be really bad.

Bad News, Bad News

Sure enough more bad news arrived shortly thereafter in the form of a Wine Spectator article, “Aussie Wine Company Faces Angry Creditor,” concerning the financial problems of The Grateful Palate group, which exports many hot brands to the U.S. market including the unlikely-named Luchador Shiraz shown here.

Trouble is brewing in Australia. The Grateful Palate’s Australian affiliates, which produce wine under labels such as Bitch Grenache, Evil Cabernet Sauvignon and Marquis Philips for American importer Dan Philips, are in receivership and face the danger of possible bankruptcy. Growers and other creditors for the South Australia-based affiliates of the company received notice on June 18. Many growers, already facing tough times, worry that they’ll never get paid for fruit they sold Philips.

Philips, the company’s founder and owner, confirmed that he is in negotiations with his top creditor, Dutch lender Rabobank, but declined further comment. The bank initiated the action to put Grateful Palate International Pty Ltd and several related Australian companies into receivership. The most prominent is R Wines, a partnership with winemaker Chris Ringland, but 3 Rings, a joint venture involving Philips, Ringland and grower David Hickinbotham, is also part of it.

This is bad news, of course, but bad news is no longer a surprise to those of us who are following the Australian wine scene. Perhaps it is really good news of a sort — an indication that the necessary industry shake out is gaining speed. Hard to tell good news from bad.

Darker or Brighter?

The same situation applies to the Foster’s de-merger situation. Foster’s, the Australian beer giant, bought into the wine business at the top of the market, paying an estimated $7 billion for an international portfolio of about 50 top brands including Penfolds, Wolf Blass and  Beringer. The investment may be worth as little as $1.5 billion in today’s market.

Foster’s beer business is an attractive target for global giants like SABMiller, but not with the wine portfolio attached. So Foster’s announced a de-merger to allow the beer group to move ahead independently of the wine group. What will happen to the wine business?  Who will buy these assets in today’s depressed environment?

When I posed this question to an Australian winemaker several weeks ago the answer came back quickly: China! Everyone in Australia is paranoid about the Chinese buying up our natural resources, and so we are convinced that they will buy up Foster’s wine business, too.

Interesting idea, I thought at the time. No multinational wine firm (Constellation Brands? Gallo?) would want to go bigger right now. But maybe a Chinese firm that wants to break into the global markets would take the bait. Might make sense. Maybe.

Bright Idea

Sure enough, the Bright Food Group. (Mission: “To build the company into a leading enterprises group in the national food industry, with famous brands, advanced technology, strong competitive power and deep influence in the world by the end of 2015.”)  recently signed a three-way memorandum of understanding with the New South Wales government and the China Development Bank to explore opportunities for the Bright Group to invest in the sugar, dairy and wine industries.

A Financial Times article reports that  the company is interested in “global top ten players in wine, sugar, food packaging, commodities and healthcare sectors.” Bright Food is currently studying both wine and beer assets in Australia, but has not decided to buy either yet according to the FT.

Many Australians no doubt consider the potential sale of yet another natural resource business to Chinese buyers bad news in terms of their economic sovereignty, but that bad news might actually be the best news they can expect given the sorry condition of the global wine market today.

Secrets of Argentina’s Export Success

#1 Wine

Argentina’s wines are hot here in the United States. Recent Nielsen Scantrak off-premises  data show a 38.7 percent dollar value rise in sales of Argentinian wines for the 52 weeks ending April 3, 2010. That’s an enormous percentage increase, much greater than the total market (up 3.5 percent) and a good deal above the next biggest gainer (New Zealand with a 17.2 percent rise).

What’s Argentina’s secret?

The secret? As usual, there is no one simple answer. There are important factors on both the supply side and the demand side: good products, the right products at the right time and favorable economic policies.

Argentina produces excellent wines. Decanter magazine recently (June 2010 issue)  published a report on Argentinian Malbec that featured the largest tasting in their history — a record 255 wines. Four of them received  five stars, the highest designation. The Achaval Ferrer Mendoza 2008, which often sells for less than $20 here in the U.S., led the pack with 19/20 points.

Argentina is fortunate to be producing wines for the times. Many Argentinian wines are good values at a time when consumers are careful with their money and they represent good choices for ABC (anything but Chardonnay) and ABS (anything but Shiraz) buyers.

International Influences

#1 Export Brand

Argentina’s economic policies are another consideration. The favorable dollar/peso exchange rate contributes to Argentina’s competitiveness on the export market. And although I don’t know very much about them, I think that barriers to foreign investment in the wine industry must not be very high because so many important producers have international connections.

Bodega Colome is owned by Donald Hess of Switzerland, for example, who also owns The Hess Collection in the United States. Achaval Ferrer is a joint venture with a Montalcino winemaking family. Bordeaux wine investors are players in Diamandes and Clos de los Siete. O Fournier’s owner is Spanish. Cheval des Andes is a joint venture of Moët Hennessy’s Terrazas de los Andes and St-Emilion’s Cheval Blanc. Bodega Norton is owned by the Swarovski family of Austria (famous for their crystal.) Dig deeper and you’ll find even more international money and talent at work.

Top Export Brands

These are good reasons for Argentina’s recent success, but a recent article on WineSur.com titled “The Top 5 Export Brands” got me thinking that there might be other factors at work. I was particularly intrigued by the table showing the top bottled wine export brands to different markets. I’ve pasted the table below so that you can analyze it along with me. Click on the table to read the full article and view a larger image of the data.The first thing I noticed is how heavily weighted Argentina’s recent exports are toward the North American market. Britain, still the most important wine market in the world, has much lower export volumes as shown here. I suspect that one reason for this, however, is that these data are for exports of bottled wines (including bag-in-box and Tetra-Paks) and I’ll bet that Tesco and some of the big supermarket chains import their Argentinian value wines in bulk and bottle them in the U.K as house brands. Those export sales don’t show up here.

The second thing that caught my eye was the wide range of export prices. Alamos, the U.S. leader, sells for $30.57 per case export price, about the same as #2 Don Miguel Gascon. Marcus James, the top export wine in volume but only #3 in value, sells for just $12.54 per case.  Catena, the #4 brand, exported just 39,000 cases in the time period under consideration, but received an average of $64.97 for each one. Argentina’s exports to the U.S. (and the other markets shown here) span the price spectrum — another advantage.

Location, Location, Location?

Finally, I became interested in the particular brands that topped the export market tables and I think I discovered another secret weapon: distribution. It’s a cliche that in business the three most important things are location, location, location. Location is important in wine, too (ask any terroirist), but efficient distribution sure makes a difference and Argentinian producers have been wise in making good use of the most efficient distribution networks in each country.

Alamos has the highest export earnings by a good margin — why? Well Alamos is made by big gun Bodega Catena Zapata. It is a value line and is imported and distributed by the Gallo company. I suspect that Gallo’s large and efficient distribution network and its marketing prowess are reasons for Alamos’s great success. Significantly, Gallo also handles Don Miguel Gascon, the #2 export brand.

Marcus James, the #3 export brand, is a Constellation Brands product and is also backed by substantial marketing and distribution power. I was actually surprised to see Marcus James on this list because I didn’t realize they sold Argentinian wine. Guess I need to pay closer attention.  They used to source their wine from … Brazil!

Fuzion (a Shiraz-Malbec blend, I understand) is the best seller in Canada. It is made by Familia Zuccardi and distribution is one of its advantages, too. In Canada government wine and liquor shops are key sales vectors. The support of Ontario’s Liquor Control Board (in addition to successful viral marketing) seems to have made Fuzion a hit in a market that is otherwise very difficult to penetrate.  (At one time the Ontario Liquor Control Board was the world’s largest retailer of wine. I think Tesco is #1 today.) Distribution is key and both Alamos and Fuzion seem to have it.

Trickle Down [Wine] Economics Jitters

The stock market has the jitters these days and one of the causes is the fear that, even with massive fiscal and monetary stimulus, we may be experiencing a jobless recovery. Things looks OK from the outside (some of the numbers are pretty good), but bad things are still happening deep down where it counts.

A Wine-Free Recovery?

There is some concern that the wine economy is suffering a similar fate. Not a wine-free recover, but just not the big turnaround everyone was hoping for. Although retail sales numbers are cheerfully positive, with overall sales rising at close to double-digit rates and increases even in the $25+ “death zone” range, there’s still enough disturbing news around to give anyone the jitters.

Are jitters justified? I decided to do some fieldwork to see what I could learn about conditions on the ground in my local wine market. An upscale supermarket down the street has recently undergone a major remodel and is have a grand re-opening. One of the areas that seems to have received a lot of attention is the wine wall. Since the supermarket chain is known to do very thorough market research I wanted to see what the redesign would tell me about state of the wine economy today.

First Impressions

My initial impression was very positive. The wine wall is substantially increased in terms of the number of square feet of display space. The quality of the space is much improved, too, with the old industrial shelving replaced in part by the sort of dark wood cases and racks that you see at fine wine shops. Good news! A big investment like this suggests optimism about the future of the wine market.

A second glance provided more information. The wine wall is large enough to need directional signs to help customers find their “comfort zone” area.  Some of the signs were what you would expect: “France/Italy,” Australia” and so on. Just what you’d expect. But other signs pointed to continued “trading down.”

I found areas marked “premium 1.5 liter,” “value wines” and “box wines” and one that said simply “White Zinfandel.” It’s obvious that the marketing and design people knew that many of their customers would be looking for low cost or basic wines and they wanted to help them find them.

Box wine sales surged in the “trading down” wine economy that wine people like to think is over, but apparently isn’t.  There were a number of quality bag-in-box wines for sale in this section, which was conveniently located adjacent to the expanded take-out  delicatessen and bakery areas.

The White Zin section held both the expected Sutter Home and Beringer products plus a limited range of inexpensive domestic rosé wines and a small selection of fruit wine and fruit-flavored wines. My wine snob friends are probably shocked to learn that White Zin, the wine they love to hate  is so popular that it has its own part of the wine wall.  That would be trading down in both price and quality, they say.

Unexpected Discoveries

Now it was time to study the main section of the wine wall carefully. I was impressed by the large selection, of course. Lots of wines. Lots of brands. But some of the wines had unfamiliar labels that I think may be part of a “dumping” strategy where big producers sell off surplus wine under an ersatz value brand to avoid weakening the price position of established brands.

This is a very common practice in Australia, where the wines are sold with very generic labels. They call them “cleanskins” and I guess they are selling like hotcakes. The surplus wine, some of which could be very good, may be trickling down into a sort of  branded cleanskins market here in the U.S. But there’s another trickle down effect that got my attention.

As I surveyed the wine wall I was struck by a small number of hard-to-find or impossible-to-buy wines that were sitting quietly waiting to be found — fine wine that I suspect didn’t find a home in the usual wine club / fine wine shop / restaurant supply chain.

Since we’ve recently returned from a Napa Valley research trip, I was especially struck by the presence of two wines from Stag’s Leap Wine Cellars – their  Fay Vineyard Cabernet and the famous Cask 23. The Fay sold for $87 or $79 for buyers with the store loyalty card. Buy a case and get a further 10 percent discount. The Cask 23’s price was $164.

You can buy Opus One for $209 ($179 with your loyalty card) or Sassicaia for $245 ($213). The Chimney Rock SLV Cab that I liked a lot when I tasted it in California was a bargain at $60 ($48 with your card).

Pétrus at the 7-Eleven?

It’s hard to believe that these great wines can be found on neighborhood supermarket shelves. I could be wrong, but I suspect that they would not be found there during good economic times. But bad times drives good wines down the supply chain. That’s trickle down [wine] economics.

What’s next? Pétrus at the 7-Eleven? No, although 7-Eleven does have an own wine brand called Yosemite Road.

I’m glad there is finally good news about wine sales in the U.S., but while trading down may have stabilized I don’t think the sour economy’s effects will soon disappear. And so the trickle down effect continues. No wonder everyone’s got the jitters.

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