Taste the Washington Wine Market

Demand meets Supply in Seattle

Mike and Karen Wade of Fielding Hills Winery in East Wenatchee, Washington asked me if I’d like to pour their wines at the big Taste Washington event in Seattle on Sunday. I jumped at the chance, of course, because you hardly ever get to see supply and demand in the wine market at work in such a personal way. I will admit that I enjoyed this opportunity and I might have been a little too enthusiastic at times. I think my boss, Robin Wade, had to restrain me at times from talking up the wines and the winery more than I should. (Robin is my student at Puget Sound during the week, but she was my supervisor on Sunday at her family winery’s tasting table).

Taste Washington is a big event: more than 220 wineries, 70 restaurants and a long list of what I would call “lifestyle product” vendors ranging from Viking, the maker of high end kitchen appliances, to Maserati, the Italian sports car. Click here to download a pdf of the program. People paid $125 to attend the VIP tasting from 2-4pm. Then the doors opened to the “masses,” who paid $85 for unlimited tastings from 4-8pm. Many of the VIPs were industry people – winemakers, distributors, restaurants, wine shops, and so forth. The “masses” were a very mixed group that I’ll discuss below. I guess about 3500 people came in all.

The event is all about giving things away. Wine is sampled, but cannot be sold. Restaurants give samples of food. No cash changes hands once you are inside the room, but I suppose that exchanges can be arranged for future delivery. Apparently someone bought a Maserati ($135,000) off the show floor. There was a moment of silence (while everyone drew a breath) when that was announced.

The Supply Side of the Pour

The list of wineries was long and diverse. Columbia Crest makes at least 200,000 cases each of some of their Two Vine wines, for example, while Benke Cellars, located near us in the exhibition hall, has a total output of just 200 cases. Some of the most prestigious wines in Washington were represented (DeLille Cellars was across the aisle from us and Quilceda Creek was across the room) alongside humble family start ups. Fielding Hills was one of several wineries in a sort of intermediate position: a small family operation, but one with an impressive record of ratings and reviews and hence a built-in audience among wine enthusiasts.

What do wineries gain from giving away wine at tasting events like this? There needs to be a benefit, especially for the smaller wineries who may pour away a couple of percent of their annual production. Some of the large volume wineries seemed to use the event to show that they were about more than just fruit forward popular premium supermarket wines. Chateau Ste Michelle, for example, poured these wines

  • 2005 Boreal, Columbia Valley $30
  • 2005 Ethos Cabernet Sauvignon, Columbia Valley $38
  • 2006 Chardonnay, Horse Heaven Hills $22
  • 2007 Eroica, Columbia Valley $22

and Columbia Crest offered these

  • 2005 Grand Estate Merlot, Columbia Valley $11
  • 2004 Reserve Red Walter Clore, Columbia Valley $44
  • 2005 H3 Chardonnay, Horse Heaven Hills $15

These are very good wines – on average several steps above what you would probably taste for free at the winery. I like the Eroica quite a lot and I wish I’d found an opportunity to taste the Walter Clore. The Grand Estates Merlot is a great value in my opinion.

I spoke with a famous winemaker – he was treated a bit like a rock star – who spent most of his time in close conversation with customers, distributors, and fellow winemakers. He said he thought it was important to be at the tasting and to make personal contact, but he wasn’t sure if it had much effect on sales. He was “preaching to the choir,” he said, talking with current customers and business clients more than making new ones. I wonder if he’s right. I like to say that wine is good but wine and a story is better. A story about talking with a rock star winemaker adds a lot of value to a bottle of wine. Maybe he was just being modest.

Mike and Karen Wade are certain that this event benefits them by connecting them with the trade network and giving wine drinkers who read about their wines in magazines (but often cannot find them on local shop shelves) an opportunity to see what all the fuss is about. I certainly think the wines made a good impression and even created a bit of a buz in the room as word spread. It will be interesting to see how this is reflected in the market.

Spit, Don’t Swallow!

Spit! We were told to encourage people to spit the wine rather than swallow it so that they would not get tipsy so soon. The trade visitors often did spit, as you have to do if you are really going to taste a lot of different wines, but most people didn’t. They did dump out extra wine into the spit buckets, however, which was a good thing. The woman who came around to empty the spit buckets every 15 minutes estimated that she had collected 20 gallons by 6pm.

Like the organizers, I was worried about the alcohol problem. Faced with 200+ wineries pouring maybe 700 different wines – and you with a bottomless glass until 8pm – it is easy to see how things could get carried away. I only talked with a few tasters who had clearly had too much to drink, however. Most people seemed to understand the problem and, even if they didn’t spit, they tried to limit consumption so that they could continue tasting.

The people on the other side of the table were an interesting collection of wine people. The $125 VIP tasters were mostly trade people, as you might imagine, many with well-defined agendas of people to meet and wines to taste. It was fun to talk with them to get an insider view of the event and the business. The $85 general admission tasters were perhaps younger than I expected (many in their 20s) and more diverse in their apparent knowledge of wine. Many were wine enthusiasts, of course, armed with detailed notes and Parker numbers, looking to taste specific wines, interested in every detail from vineyard to barrel.

Others were “image seekers” (to use Constellation Brands’ Project Genome taxonomy – see next post). They didn’t know as much about wine but they wanted to learn. It was fun to meet them because we were pouring a 2005 Cabernet Franc – a varietal many of them had never tasted before – and I enjoyed watching them make up their minds about what was in the glass. Finally I would say that I met some “traditionalists” and even some “overwhelmed” consumers (it was easy to be overwhelmed at this event, to be honest, with so many wines and wineries present). They were spending $85 to try to figure out what was new and what they liked. That seems like an expensive education until you consider how fast you can burn through $85 on failed wine experiments.

People always ask me if interest in Washington wine is a bubble that will someday pop leaving broken wineries in its wake. It is difficult to be sure about bubbles (ask Alan Greenspan about this) and I actually worry that there might be a supply side wine bubble shaping up and a shakeout coming (Paul Thomas, a pioneer Washington winery, closed shop last year). But the demand side looked strong to me as I poured my measured tastes on Sunday. Education is the key to sustainable growth in the wine industry and I met a lot of people who seemed to be committed to broadening and deepening their knowledge of wine. The Washington wine industry can only benefit from this. That makes Taste Washington a more important program than I thought it would be.

Internet Wine Scams

The internet has done a lot for the global wine industry. It promotes the diffusion of useful marketing and research information, facilitates wine tourism, promotes professional collaboration, and helps individual winemakers and regional groups to establish distinct market identities. Many winemakers and winesellers rely upon internet contacts for a good proportion of their sales. If you are reading this blog entry, chances are that you get a lot of your wine information over the internet, too. It’s a good thing, for the most part.

But not everything about the internet is good for winemakers. Do you remember the old New Yorker cartoon with the punchline “On the internet nobody knows you’re a dog?” On the internet we are who and what we pretend to be. Obviously wine marketers can use this fact to tailor the imagine of their wines and winemakers. Nothing surprising there. But, as I have recently learned, there are some predators out there who use the internet to try to take advantage of wine producers.

Karen Wade, who owns the Fielding Hills winery with her husband Mike, recently sent me an email that she received from someone posing as a wine buyer, writing under the subject heading, “I Need Wine for my Birthday Party.”

Hello,
My name is Robert Peter, an American .
I live and work here in Seoul, South Korea.
Actually when I was around last year for chistmas holiday, I got a a bottle of of one of your wines from a friend and i love the taste .since then , I been planning on getting your wines for my birthday party …coming up third week of novemebr here in Seoul, South Korea.
I will be making my payment via my American based credit card .
You are not shipping the wines ….The wines will be picked up at your winery by a licensed shipping agency .This shipping agency have all the appropriate exportation documents and permits .
I got your contact thru your website and I want to know if you will be able to supply me some cases of wines for my upcoming birthday .
Concerning the shipping of the wines , I will refer you to a shipping company that will come for the pick up of the wines in your winery once I have made my payment .
Kindly get back to me so that I can make my orders .
Thanks.
Robert .

Karen writes that

Mike and I receive almost weekly, very official emails from places in Asia wanting to buy wine. They always offer to pay by American credit card and promise to have the wine picked up by their shipper. I answered once and told them to fax me the credit card info and order and never heard anything back.

I guess this indicates that the sort of people responsible for those bogus Nigerian email scams have now become more specialized, targeting wine producers. I wonder if anyone has fallen for this? Have any other winemakers received these emails, or are the Wades just lucky? Do other businesses received specialized scams like this?

On a related note, Mike and Karen Wade received good news this week in the 2008 edition of Tom Stevenson’s Wine Report, one of the best annual guides to global wine. Paul Gregutt, the Pacific Northwest contributor to this volume, rated their winery as the number one “new and up-and-coming producer” in the region. He also listed the 2004 Fielding Hills Cabernet Sauvignon as number four on his list of the ten “greatest quality” wines. That’s high praise for Fielding Hills.

Paul Gregutt has a new book out about Washington wines and wineries. I’ll be posting a review of it later this week.

Fielding Hills Strikes Gold

A quick update on Fielding Hills winery (see below). Mike and Karen Wade earned three gold medals for their 2004 wines — the Merlot, Syrah and RiverBend blend — in the recent Seattle Wine Awards competition.

What does it mean to win a gold at a wine competition? Karen Wade pointed out to me that it means different things to different people. To the Wades, for example, wine competitions are a way for them to see how they are doing relative to other boutique wineries (Fielding Hills bottles just 800 cases per year). Winning a gold is good for them, but what it really means depends upon what other wineries also entered the competition and which of their wines they entered. It would be possible, I suppose,for the Wades to win a meaningless gold medal if there were no other boutique wineries in the competition. I notice a number of high-end wineries represented on the Seattle Wine Awards list, so this is probably a satisfying win for the Wades.

I naturally think about wine competitions in terms of their market value. Success in wine competitions is one of several factors that can be used to differentiate a wine in the marketplace and so sell more of it or charge a premium price. Since most buyers are not able to taste wines before they buy them, I think that they look for independent quality indicators, such as wine magazine ratings, wine competition medals and regional or vineyard designations, to assure them that they are making a good choice.

I’d like to know what a gold medal is worth — how much does a medal increase the demand for a given wine? My intuition is that it is a complex problem. Some wine competitions are probably more important to buyers than others. And a medal is probably worth more to a wine that has not received any other distinction than to one that has plenty of laurels. And I suspect that all the medals in the world are not as economically significant as a good rating from or The Wine Advocate or Wine Spectator. But it would be interesting to know what the numbers look like. I notice that some of the judges at the Seattle Wine Awards competition head up the wine programs at prestigious Pacific Northwest restaurants including Salty’s, Canlis, Rover’s, Ray’s Boathouse and The Herbfarm. They are people who know wine, obviously, but they are also people who can influence wine sales.

Bottling the 2005 at Fielding Hills Winery

I spent the weekend after commencement in Wenatchee, Washington helping Mike and Karen Wade and their friends bottle the 2005 vintage of Fielding Hills. I got to drink some great wine, meet some wonderful people and learn more about the wine business. Here are some photos (courtesy of Dave Seago) and some observations.

The Wades are orchardists and fruit distributors in Wenatchee, which is the heart of Washington Apple country. They got the wine bug a few years ago and now run an 800 case operation from a building near their home, overlooking the Columbia River. The grapes come from vines they own near Matawa on the Wahluke Slope, further down the Columbia. They make reds — Cabernet Sauvignon, Merlot, Syrah, Cabernet Franc and a blend called RiverBend red. These wines are not easy to find (remember: only 800 cases total) but they have received rave notices in the wine press: Wine Enthusiast rated them all between 91/100 and 95/100 points in its December 2006 assessment of the 2004 vintage. They are all good, the magazines and web sites say, the only question is which one is best.

I know the Wades through their daughter Robin who is one of my students at the University of Puget Sound. She knows about my interest in the wine business, so when they needed volunteer labor for the annual bottling weekend, she knew who to call.

I have taken dozens of tours of large wine-making operations, so it was interesting to see the process first-hand and on a very human scale. I hope the photos capture something of the process. We bottled the Cab, a blend featuring 76% Cabernet Sauvignon, on Friday afternoon. The first step was get the appropriate barrels of wine out of storage and to carefully pump the right proportions of the right wines into a large stainless blending tank. From there, the wine moved to the assembly line, where I worked alongside about a dozen of the Wades’ friends and neighbors.

The bottling process reminded me of Adam Smith’s famous pin factory example of the division of labor. One person (1) brought in pallets that contained cases of empty wine bottles. A second person (2) removed the bottles from the cases onto a table so that another worker (3) could invert them over a nitrogen supply, which removed any oxygen. The bottles were then (4) filled with wine on a six-bottle machine (see photo), then corked (5). A foil closure was then placed over the cork top (6) and secured firmly using a surprisingly nasty electric device (that was my job — #7). Then the bottles were wiped down (workers 8 and 9) before going through a label operation (10), being loaded back into boxes (11) that were sealed and stacked (12) and then moved out on the pallets they came in on. It took us about six hours to bottle 200 cases of Cabernet Sauvignon on Friday afternoon. We did 150 cases of the RiverBend Blend in four hours on Saturday morning. My reward? Wonderful family-style meals with my co-workers and one bottle of each of the wines I worked on, autographed by my fellow volunteers.

One thing that you can’t see in the photos is the fuel that kept the volunteers going: it was the wine we were bottling, drawn straight from the barrel. Good juice, in my opinion. Can’t wait to taste it when it’s had a bit of time in the bottle. (Expected release date: October 2007.)

One thing I learned from this is that although 800 cases of wine is a tiny operation by the scale of today’s wine business today, it is still a very significant investment of time and energy. I thought we would never come to the end up those 200 cases (2400 individual bottles) of Cabernet on Friday afternoon!

Because they have been so successful, both in terms of wine quality and wine economics, the Wades are planning to take the next step — to expand production from 800 cases to 2400 cases. This is a big step, since the business model changes with the higher volumes. Family labor plus volunteer help at key points works fine for wineries producing 1000 cases or less, but a bigger operation means hired help and higher fixed costs. The marketing end changes, too. The Wades prefer to sell most of their wine direct to customers rather than to discount it in order to get it into wine shops and restaurants. Given their stellar ratings, they have a good opportunity to build a “wine club” list that will automatically take most of their output, matching demand and supply very efficiently. Building a bigger winery will mean matching a bigger demand to their bigger supply.

Mike Wade told me what it takes to make good wine — it’s in the fruit, he said. The economics of wine is in the market — matching demand and supply. I would say that the Wades understand both the fruit side of their operation and the market side, too.

Follow

Get every new post delivered to your Inbox.

Join 1,898 other followers