In Vino Veritas? The Truth About Wine in Three Tastings

In vino veritas — in wine there is truth — this is one of the touchstones of the wine enthusiast world. I like the sound of this, but I admit to being a bit confused by two recent wine tastings that I organized where the wines easily fooled us (or perhaps we just fooled ourselves), but a third tasting helped put things right.

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Mary Thomas asked if I would be willing to speak at a wine tasting that she donated (along with autographed copies of Wine Wars) to the local  YWCA fund-raising auction. Yes, of course — and I knew at once what I wanted to do. A flight of red wines made by three University of Puget Sound alumni (Tom Hedges of Hedges Family Estate, Chuck Reininger of Helix and Reininger Cellars and Michael Corliss of Corliss Estates and Tranche Cellars), but first a blind tasting of white wines that figure prominently in Wine Wars.

If you’ve read Wine Wars you know that I end each flight of chapters with a wine tasting designed to explore the themes raised in the book. Three Sauvignon Blancs make up the first flight and thus inspired I put together a tasting of Charles Shaw (a.k.a. Two Buck Chuck) Sauvignon Blanc from California, Robert Mondavi Fume Blanc from Napa Valley and Cloudy Bay Marlborough Sauvignon Blanc from New Zealand.

After tasting the three wines blind in the order given above I asked the tasters to (1) name the grape variety, (2) guess the country or region of origin for each wines, (3) guess the prices and (4) choose their favorite wine from among the three. I am not a big fan of blind tastings, but this one is fun to do in a group. I thought the auction group would enjoy it (and they did).

But first I decided to try out the blind tasting on my “lab rats” — the students enrolled in my university “Idea of Wine” course. Their tasting featured the same blind first flight followed by a different set of reds — a vertical of three Phelps Creek “Le Petit” Pinot Noirs from three years with very different weather. My hypothesis was that students would have more trouble guessing the grape, terroirs and prices of the blind flight than would the more experienced wine drinkers in the auction group.

Things did not go according to plan.  After tasting the three white wines the college students were very confused and guessed all the grape varieties they could think of, but not Sauvignon Blanc. For me the signature taste of the Cloudy Bay is a giveaway — Marlborough Sauvignon Blanc — but tasted in the context of the Fume Blanc and Two Buck Chuck wines, which are so very different, nothing seemed to make sense.  The common thread that connected the three wines was difficult for these wine novices to detect.

Interestingly, the experienced auction tasters did no better than the lab rat students in this regard. This really did surprise me and I think it was the confusing context that caused the trouble. Tasting the Mondavi Fume or the Cloudy Bay by itself might yield a good guess of type of wine or place of origin, but stringing the three wines together apparently distorted the view a bit too much.

One place where there was a significant difference between the groups was when it came to guessing the prices. The experienced auction group did much worse! How is that possible? Well, the big difference was the Two Buck Chuck. No frugal college student would offer to pay more than $12 for it in the blind tasting, but at least one member of the auction group was willing to pay $25 or more!

Why were seemingly rational people willing to pay so much for such a modest wine? Well, the quality of the Two Buck Chuck must be part of the answer. Wine drinkers of a certain age (and I include myself in this category) remember when cheap wines were really foul and Two Buck Chuck and its bargain priced siblings changed all that.  The quality may not be high (only a couple of people in the two groups picked it as their favorite of the three), but it does reach a commercial standard that actually shocked one experienced drinker who had not previously tasted a $2.49 wine.

But the real answer is again probably context. The students are used to me presenting them with wines that are just outside a student budget — wines that cost say $10 to $30. They guessed at the low end of that range, which made sense given their expectations. The auction group’s higher guess also reflected context. Who would expect to attend a charity auction tasting and be served such a simple inexpensive wine? Impossible! So it must cost a lot, the logic probably went, and I just can’t taste the difference! If true, this is a classic case of using price (or expected price) as a proxy for perceived quality.

Which was the favorite wine? The auction group was pretty much divided between the Mondavi Fume and Cloudy Bay. The students were divided, too, but Cloudy Bay received most of the votes. That Marlborough style is so distinctive — like nothing they ever had before — and in a blind tasting context it stood out to them.

What conclusion can we draw from these two tastings?  Our perception of wine is sometimes less about truth and more about  context and expectations than we might want to think. That’s not the conclusion I thought I would find when I set up this tiny experiment. Fortunately a third tasting helped balance the scale.

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The nice people at Wines of Chile sent us three Cabernet Sauvignons, which we decided to use for a small scale student tasting. Sue and I were joined by Bruce Titcomb, Eben Corliss and Ali Hoover. Ali’s attendance was based upon her study abroad experience in Chile and a paper she wrote about its wines. Bruce and Eben are enthusiastic students of geology and business respectively with a special personal connection — their parents also took classes from me back in the day.  It promised to be an interesting tasting. We began with a glass of Sauvignon Blanc (from Chile this time) and then got to work on the Cabs we were sent. Here is the list.

  • Montes Classic Series Cabernet Sauvignon 2011 Colchagua Valley 85% Cabernet + 15% Merlot 14% abv. Typical price: around $10.
  • Santa Carolina Colchagua Estate Reserva Cabernet Sauvignon 2011 (from Miraflores in Andes Foothills) 13.5% abv. Around $12.
  • Undurraga T. H. (Terroir Hunter) Alto Maipo Calbernet Sauvignon 2009 (from Picque in Andes Foothills) 14% abv. Around $20.

We sampled the three Cabs by themselves, with food (savory empanadas) and then with chocolate truffles. The wines were very different from each other and each had its moment in the spotlight. On first tasting, the Montes (the least expensive of the group) was simple, enjoyable, and fun. When Ali tasted the Santa Carolina her eyes lit up — this was Chilean wine as she knew it from her time there, she said — a reminder of her temporary South American home. The Undurraga T.H. lived up to its “Terroir Hunter” name — it was much more precise and focused.

Returning to the wines to pair then with food the Montes was a puzzle — Blake noted a strong caramel aroma when the wine had time to air out a bit.  The Santa Carolina seemed to be the best match for the empanadas just as the T.H. was the favorite on its own. Then we broke out the dark chocolate truffles and tried again. This time it was the Montes that stood out — that caramel aroma really worked with the chocolate and made a hard to beat combination.

Which wine was best? Well the T.H. was probably my personal favorite but the answer depended on how you drank it (alone, with savory food, with chocolate) and what you were searching for (for Ali that memory of her time in Chile was pretty special).

So what did we learn from our three tastings. Well, I don’t really want to argue against the idea of in vino veritas, but I do think our impressions of wine are context-sensitive — perhaps more so than we really want to admit.

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Blake, Eben and Ali at the Chilean Cabernet tasting.

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Thanks to Emily Denton of The Thomas Collective for providing  the Chilean wines for this tasting. Thanks to Blake, Eben and Ali for their help with the Chilean Cab tasting. Photos by contributing editor Sue Veseth.

Bottoms Up: The Bargain Wine Revolution

George M Taber, A Toast to Bargain Wines: How innovators, iconoclasts, and winemaking revolutionaries are changing the way the world drinks. Scribner, 2011.

George Taber knows something about how seemingly small events can sometimes turn the world of wine upside down. He was the Time magazine reporter who covered the famous 1976 “Judgment of Paris” tasting where top French wines were matched against California Cabs and Chardonnays in blind tastings evaluated by famous French critics. The New World wines held their own and even took the top prizes in both red and white categories. Thus was a fermenting revolution recognized and encouraged.

Now the issue isn’t so much Old versus New as it is Expensive versus Cheap and Elites versus Masses. Taber sides with a democratic vision of wine and this book is a celebration of the fact that there are more drinkable bargain (less than $10) wines in the world now than ever before. The glass is more than half full. Drink up!

What to Drink (for $10 or Less)

Taber’s celebration comes in two parts. The second half of the book is a bargain wine buyer’s guide. Taber provides top 10 lists of his favorite “$10 and less” wines and wine brands sorted by grape variety and region. He also recommends a couple of splurge wines in each category for good measure.

My, what a lot of inexpensive wine George Taber must consumed to write these recommendations. Bottoms up, indeed!

Here’s what I mean. The section on blush wines highlights 10 wines including a $3 Oak Leaf White Zinfandel (from Wal-Mart) and a $6 Riunite Strawberry White Merlot. I assume that Taber tasted the big selling Sutter Home White Zin and found it wanting since it does not appear on the list, but he doesn’t list all the wines he tried in each category, only the best ones, nor (and this would be particularly useful) the really really bad ones to steer clear of.

Revolution from Below

The first half of the book makes the case that maybe you should take bargain wines more seriously (and not just because of the current economic situation). Taber sets out to undermine the conventional wisdom about wine. Maybe wine judges are as confused as the rest of us. Maybe taste is so subjective that your opinion really is all that matters. Maybe (gasp!) bottles and corks are a pointless anachronism when it comes to everyday wines and you should reconsider your prejudice against “box wines,” which have changed a lot since you tried them in college.

My favorite chapters are the profiles of the iconoclasts who are leading the wine revolution. Taber’s reporting skills are put to good use in telling the tales of Fred Franzia (the godfather of Two Buck Chuck) and John Casella (the father of Yellow Tail wine).  Both wines changed the world in important ways and it is interesting to have their stories told so effectively and to be able to see these two phenomena side-by-side.

The final chapter (before the buyer’s guide) examines China. Will it too change the wine world? Maybe – that’s the answer here. China is still a work in progress and perhaps it is too soon to draw many conclusions. Taber does a good job pulling together different trends and facts.

What’s a Bargain?

One of the ironies of this book comes from the fact that Taber needs to define what he means by “bargain wine” and value (like taste) is pretty subjective. He draws the line at $10, which is a good thing I believe since this allows him room to include a lot of pretty good wines in his lists and not just focus on extreme values. Ironically, however, a $10 wine is classified as “premium” and sometimes “super-premium” here in America. The majority of American wine drinkers think of a $10 wine as a splurge.

I have friends who are afraid to try a $10 wine because they fear that they will be able to taste the difference and be forced to turn their backs on the $6 wines they’ve been enjoying for years.

I wonder if wine snobs will be annoyed by George Taber’s book? After all, with this book Taber seems to suggest that democratic wines deserve the same respect as those Judgment of Paris aristocrats. Me? I’m just grateful that he’s done the dirty work of tasting and sorting all those really inexpensive wines so that I don’t have to! Bottoms up!

Wagnerians vs. Martians

Rhine maidens from an opera by a different Wagner.

I’ve spent the last couple of days reading Thomas Pinney’s masterful A History of Wine in America (Vol. 2: From Prohibition to the Present, University of California Press, 2005).  If you want to understand how wine in America got the way it is, this is the best general reference I have found.

Pinney devotes the last section of the book to what he sees is a fundamental battle for the idea of wine in American. It is a conflict between Wagnerians and Martians, he says.

Song of the Wine Maidens

The Wagnerians are inspired by the ideas of Philip Wagner, a Maryland journalist, viticulturist and winemaker who was especially active in the years that bracket the Second World War. Wagner believed that wine should be an affordable part of ordinary life and a constant companion at mealtime.  Pinney writes that

Wagnerians are always delighted to have a bottle of superlative wine, but their happiness does not depend on it, nor are they so foolish as to think that only the superlative is fit to drink. Their happiness does depend upon wine each day … good sound wine will not only suffice. It is a necessary part of the daily regimen.

Wagnerians sing an appealing but fundamentally radical song in the American context, where wine is just one of many beverages  and not always the cheapest or most convenient to purchase.  Regulations that treat wine as a controlled substance are very anti-Wagnerian.

Wagner founded Boordy Vineyads and was well-regarded by wine people from coast to coast.  He is an important figure in the history of American wine, according to Pinney, and one whose idea of wine lives on in many forms. I guess you could say that Two Buck Chuck is a Wagnerian wine, for example, although I think there’s a lot more to Wagner’s idea of wine than just low price.

Wagner promulgated his populist vision by promoting the so-called French Hybrid grape varieties on the East Coast and elsewhere. I think he wanted America to be Vineland (the name given it by the Viking explorers), a country covered with grapevines and abundant with honest, respectable wine. This is easier said than done, however, as Pinney’s history makes clear.

My Favorite Martian

Martians are inspired by Martin Ray’s idea of wine. Whereas Wagner was disappointed that America lacked a mainstream wine culture, Martin Ray was upset that the standard was so low in the years following the repeal of prohibition.  He persuaded Paul Masson to sell him his once great winery in 1935 and proceeded to try to restore its quality with a personal drive that Pinney terms  fanatical.

He did it, too, making wines of true distinction — wines that earned the highest prices in California at the time.  His achievement was short lived, however. A winery fire slowed Ray’s momentum and he finally sold out to Seagrams, which used a loophole in wartime price control regulations to make a fortune from the Paul Masson brand and its premium price points, starting a trend of destructive corporate exploitation that forms a central theme in Pinney’s book.

The Martian view, according to Pinney, is that “…anything less that superlative was unworthy, that no price could be too high, and that the enjoyment of wine required rigorous preparation.”

Ray’s history is therefore especially tragic since his attempt to take California wine to the heights through Paul Masson ended so badly. Paul Masson today is an undistinguished mass market wine brand — as un-Martian as you can get.

When wine enthusiasts of my generation think of Paul Masson (now part of the Constellation Brands portfolio), it is often because of Orson Welles’ classic television ads, like this one from 1980 promoting California “Chablis.” Roll over, Martin Ray!

Two Ideas of Wine

Martians and Wagnerians have two very different ideas of wine and it is a shame that one needs to choose between them. It seems to me that wine could and should be both a daily pleasure and an opportunity for exceptional expression. The good isn’t always the enemy of the great. But many people see it that way, including Pinney, who reveals himself to be a Wagnerian and expresses concern that the Martians have won the bottle for wine in America.

The people who write about wine in the popular press largely appear to be Martians, who take for granted that anything under $20 a bottle is a “bargain” wine and who routinely review for their middle-class readership wines costing $30, $40, $50 and up. Even in affluent America such wines can hardly be part of a daily supper. They enforce the idea that wine must be something special — a matter of display, or of costly indulgence. That idea is strongly reinforced by the price of wine in restaurants, where a not particularly distinguished bottle routinely costs two or three times the price of the most expensive entrée on the menu.

“No wonder, Pinney concludes,” that the ordinary American, unable to understand how a natural fruit product (as wine undoubtedly is) can be sold for $50 or more a bottle, sensibly decides to have nothing to do with the mystery.”

Monolithic Thinking?

I guess I am a Wagnerian, too, if I have to choose, but I’m not as pessimistic as Pinney. I’m about to throw myself into full-time book-writing mode: I need to finish my current project this summer so that it can be in bookstores in early 2011. The more I work on this project the happier I am with its upbeat title.

Grape Expectations started out as a simple pun on the famous Dickens novel, but it has evolved into something more. I have developed genuinely optimistic (if not “great”) expectations for the future of wine and I see the three forces I study in the book — globalization, Two Buck Chuck and the “revenge of the Terroirists” — as possibly bridging the Martian-Wagnerian divide.

Can wine be both common and great? Why not? Wine isn’t one thing, it is many things to many people. No purpose is served in my view, by monolithic thinking. That’s my hope … and my Grape Expectations!

Bottoms Up: Extreme Value Wine Demand

“Life is too short to drink cheap wine,” but either life is getting longer or the definition of cheap is changing, because cheap wine (or extreme value wine, as I called it in my last blog post) is a booming market category.

The US off-premises wine market grew by 3.7 percent dollar value in the last year, according to Nielsen Scantrak results reported in Wine Business Monthly, but sales of wine under $3 per bottle equivalent rose by more than 5 percent and sales of $3-$5 increased by 9.4 percent. This gives the old toast “bottoms up” a new meaning. The bottom of the wine wall is currently leading the way.

Bottoms Up!

Since I’m an economist I tend to approach market problems from the perspective of supply and demand. It is easy to understand where the supply of extreme value wine is coming from. The global wine surplus combined with structural falling demand in the Old World and recession-induced slow growth in the New World means that there is a lot of wine out there searching for a home. Some of it ends up being deeply discounted or dumped in stores like the Grocery Outlet chain.

A lot of it goes into own-brand wines at mainstream stores. Safeway has introduced its Quail Oak brand and 7-Eleven just announced a line of $3.99 wines called Yosemite Road.  Both wines (and many other own-brands) are made by The Wine Group, the giant privately held California winemaker that, like Fred Franzia’s Bronco Wines, seems to specialize in making wines to hit particular price points.

Demand Side Puzzle

Although it just seems wrong, let me assure you that supplying wine to sell at $5, $4, $3 or even two bucks per bottle is not that difficult once you set out to do it. Cheap surplus grapes, cheap surplus wines, low-cost winemaking processes and economies of scale all contribute to extreme value supply. Nope, supply is easy. The challenge, until recently at least, has been selling the stuff.

Studies have repeatedly shown that wine drinkers are influenced by price – but not in the way you learned in Econ 101.  A lower price does not always produce more sales because insecure buyers infer quality from price. They assume that higher price means better wine. In a blind tasting of two identical wines, buyers will often rate one above the other if they are told it costs more.

So why are many wine drinkers now stooping down and buying cheaper (sometimes very cheap) wines – and shopping at stores like Grocery Outlet — when in the past they have been programmed to consider these products inferior? I think there are three forces at work.

Two Buck Chuck Effect

The first factor is what you might call the Two Buck Chuck effect. Trader Joe’s stores have led the way in introducing American wine drinkers to inexpensive own-brand wines. Because shopping at Trader Joe’s is cool, trying Trader Joe’s discount wines is cool, too (or at least not as un-cool as buying Carlo Rossi at Kroger would be).

You might ask “How good can a $3 wine  be?” elsewhere, but at Trade Joe’s it’s “How bad can it be?” TJ’s lends its reputation to the wine, which is the key to all own-brands. It is clear that Safeway, 7-Eleven, Target, Wal-Mart and many other chains that have introduced own-brand wines believe that they can do the same.

Costco Effect

Costco, the big box store chain, is the largest retailer of wine in the United States. Although their selection of wines is surprisingly limited (fewer than 150 different wines in each store compared with 1000-2000 or more at a typical upscale supermarket), it draws people in with low prices, made possible in part by the fact that buyers pay annual membership fees for the right to shop. The maximum markup on Costco wines is 15 percent above wholesale, which is hard to beat if you want to buy what they want to sell.

Costco has trained its upscale clientele to look for low price, but that’s not the Costco Effect I’m talking about here. Costco doesn’t sell extreme value wines – it leaves the bottom-feeding market to others.

The Costco Effect refers to the fact that shopping for wine at Costco is a lot like a treasure hunt. The wine selection changes all the time and so you need to come back often. Costco makes a point of stocking limited production wines, which run out. So if you see something you like, you better buy it now. I have friends who have scored one or two spectacularly good buys on impossible to find iconic wines at Costco and who are now completely addicted – they stop by as often as they can just to see what might be in the bin today.

Costco’s success with its treasure hunt strategy has generated a group of upscale customers (including perhaps my friend Jerry who was featured in the last blog post) who find the hunt almost as pleasant as the wine they buy. It’s a big a step but not an impossible one to go from Costco to Grocery Outlet since both position themselves as happy hunting grounds.

Trading Down Effect

The final piece of the demand puzzle is the recession, which made most of us stop and think about what we are paying and what we are getting. The data indicate that trading down (lower price), trading over (adopting a more casual and lower cost wine lifestyle) and drinking up (drinking from the cellar rather than buying expensive wines) are significant effects. Paying less for wine doesn’t carry the social stigma it might have in the boom-boom days and it doesn’t dent your personal wine identity as deeply either.

When you combine these three effects you get a market where extreme value wines can enter the mainstream. The demand for these wines is increasing, with different wine buyers responding to different motivations. It will be interesting to see if the market shift is permanent or if wine buyers will go back to their old habits.

Good, Bad or Ugly?

It is easy to conclude that the extreme value trend is a bad thing for the wine industry. People are paying less for wine, buying more generic wine and less of the quality product. I don’t see this as a completely negative trend, however. At least they are buying wine and not switching to other beverages. That would be ugly. This is part of the story of the collapse of wine demand in Europe. Wine became just another beverage and faded away as a quotidian pleasure. That hasn’t happened here, at least not yet.

I am actually hopeful that the extreme value trend will ultimately benefit the wine world, although I admit that my viewpoint is backed up by anecdotes more than hard data. I spoke with a young couple at the local Grocery Outlet who seem to me to be an optimistic future of wine in America. They had parked their shopping cart (with two small kids) in the wine corner and were busy picking out three or four bottles of wine from the huge selection of inexpensive bottles.

Do you buy wine here often? Yes, every week. We try different wines, which is fun. Some of them are disappointing, but it doesn’t cost very much to try them and we can also buy something different the next time. It’s been a long time since we found something that made us want to come back and buy a case, but that’s OK – it’s still fun.

Serious Business

What I like about this couple is that they use the extreme value store as an opportunity to experiment and they have the confidence to trust their own taste rather than some wine critics ratings. If they keep this up I think they will work their way out of the bargain bin. But I hope they never lose their sense of fun and willingness to take a chance on something different.

Wine is a serious business, but it is a mistake to take it too seriously. Wine can be intimidating, that’s for sure, especially the high-stakes wine game. It might be a healthier business in the long run if more people learn to love its treasure hunt side. If mainstreaming extreme value wine helps accomplish that, I think it is a positive development.

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.

Wine Distribution Bottleneck

I have often argued that to really understand an industry you first need to understand where the bottlenecks are in the value chain.  Bottlenecks disrupt the efficient flow of resources and so industries tend to evolve around them.  I believe that this observation holds especially true for wine. Herewith a brief update on the current situation.

Do the Math

Silicon Valley Bank released their annual State of the Wine Industry Report yesterday.  SVB is a major lender to US wine producers and thus has a strong interest in producing clear, relevant wine economics research. (I also admire the wine economics research produced by the Dutch agricultural lender Rabobank.)

The report provides some good news along with many worrisome  observations (click on the link above to download the study) and fresh data on the biggest single bottleneck in the U.S. wine industry — distribution.

Here’s the basic math.  SVB estimate that there are 6000 wineries actuve in the US market producing about 7000 wine brands.  All these brands need to squeeze through the U.S. three tier distribution system bottleneck.  This means they need to go from maker (first tier) to state-licensed distributor (second tier) to local retailer (third tier). That’s the law here in the United States,  where we still think of wine as a controlled substance.

There are only limited opportunities for producers  to skip a step.  I understand that Bronco Wines, for example, can sell its Charles Shaw brand directly to Trader Joe’s in California because of a legal loophole there, but has to use an independent  distributor in other states. That’s why Two Buck Chuck costs $1.99 in L.A. but $2.99 here in Washington State.  That extra buck is the cost of the extra distribution layer.

The Big Squeeze

Now we get to the big squeeze. These 7000 brands get funneled through about 550 major distributors according to SVB (obviously this does not count many smaller Mom-and-Pop and specialized distributors that I am familiar with), which is about half as many as a few years back.  Hopefully you can appreciate the bottleneck — 7000 brands worth $30 billion in retail sales have to squeeze  through 550 distributors in 50 states on their way to 76 million wine consumers.  Any blockage in the distributor tier backs up the whole industry.

And the problem gets worse because the distributors are obviously getting squeezed themselves by the economy — falling sales, trading down, shrinking margins, credit limits and counter-party risk.  Expect distributors to consolidate in some cases and pull back to reduce cost and risk in others.

The net effect is clear — distributors are reducing their SKUs (stock keeping units to non-economists) and focusing a smaller number of  reliably profitable products lines.  This means that it is harder and harder for new and niche wineries to get on the warehouse pallet.

The Missing Middle

I’m not sure exactly how this all will shake out, but I suspect the problem will be worse in the middle market. Very small wineries can often successful self-distribute.  Very large ones will probably get distribution because of the volumes they can generate.  The middle falls awkwardly in between — too big to sell it all yourself, too small to be worth a major distributor’s time. The fact that the distribution system is fragmented into 50 (plus DC) pieces just makes the situation worse.

In the same way, SVB data suggest that lower priced fine wines ($35 and less on their scale — remember that a lot of SVB’s customers are in Napa Valley) are still selling pretty well and very expensive icon wines apparently are doing OK, too.  The mid-range is in trouble.  SVB calls $35-$50 a “gray area” and $50-$125 a “dead zone.” Ouch.

I would hate to be a new 3000-5000 case winery trying to sell wine made to be priced in the dead zone.  Unfortunately, I think there may be a lot of new wineries coming on line now who planned to do just that back when economic conditions were sunnier. It will take exceptional effort (or truly exceptional wine) to make this business model work in the current economic environment. I recently talked with one middle-sized premium winemaker who has already figured this out and pulled back — lower output, lower prices — to get clear of the dead zone.

This is the “missing middle” effect that economists are familiar with in other contexts (small family operations and huge corporate businesses survive, the middle simply disappears).  The distribution bottleneck isn’t necessarily the cause of the coming missing middle effect in the wine industry, but it will certainly make it worse.

The Future of Wine & Globalization

My life is about to get a lot more complicated, but  in a good way. And that’s not Globaloney.

Readers of this blog know that I’m working on a book that I call The Future of Wine: Globalization, Two Buck Chuck and the Revenge of the Terroiristes.The argument is that the future of wine will be different from its past and that difference will be shaped by three powerful forces, globalization (new producers, new consumers, new values, new opportunities, new pressures), Two Buck Chuck (mass market commercialization and changing wine distribution channels) and the Revenge of the Terroiristes (the inevitable reaction to these radical forces of change).

It is not a completely original idea (have you seen Mondovino?), but I think it is a very useful one.  It’s a framework that will let me tell an important story in a way that a lot of people will find interesting.

But my work on the wine book was recently interrupted by a call from my publisher. Would I be interested in revising my last book (Globaloney: Unraveling the Myths of Globalization) to take into account the continuing financial and economic crisis?  Wow, what an opportunity.  I had to jump at it.  The impact of the economic crisis on global relations is so obviously interesting and important. The chance to rethink globalization in this context is too tempting to refuse.  So tomorrow I start work on Globaloney 2: The World Economic Crisis and the Future of Globalization.

You can read all about the new book at Globaloney2.com.

You’ll notice that “The Future of ” features in the titles of both the wine book and the new Globaloney edition and that’s not an accident. Thinking about the future of wine has affected the way I think about the economy. The conventional wisdom is to consider the wine world and the global economy as fundamentally stable, suffering inevitable booms and busts (globalization) or vintage variations (wine) within a relatively stable and predictable overall environment.

But we know that this isn’t always true with wine.  Wine’s history is full of structural shocks that have transformed established relations. Phylloxera, the rise of Australia, and  prospect of global climate change are just three examples that come to mind.

And we know that the global economy doesn’t always bounce back to the old path, either.  There is no reason to think that globalization after the crash will take the same form as globalization before it. Ask anyone at Lehman Brothers or General Motors if they think the road ahead and the one in the rearview mirror are the same and see what they have to say.

There are times when the “givens” give way and fundamental change occurs.  My working hypothesis for both books is that these are such times and that both wine and globalization are being deeply transformed. I may be wrong about this, but I know from experience that you never see the the big changes unless you look for them. I’m willing to risk seeing change that isn’t there in order to avoid missing it if it is.

So that’s how I’ll be spending the next few months — hoping that my understanding of wine will help me think clearly about globalization and that what I learn about the global economy will help me write more effectively about the future of wine.  It should be a wild ride. Watch this space for frequent updates.

Note: Ken Bernsohn reports that in Canada it is illegal to predict the future on a fraudulent basis.  He recommends that I add a disclaimer to this post and my “future of” work just in case.  Good idea.  Here is Ken’s suggested general purpose disclaimer:

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The Sub-Prime Wine Crisis

What does the sub-prime mortgage crisis have to in common with the market for wine today? More than you might think! Read on …

Liquidity Problems

Here’s a simplified version of the sub-prime mortgage crisis narrative. A housing bubble masked the inherent risk of the mortgaged-backed securities that financed the bubble itself. Investors were unable to fully assess risk because the complicated financial vehicles were not very “transparent” and the rating agencies did not prove to be trustworthy guides.

When the crisis came, liquidity dried up and the market deflated (crashing in some cases). The solution to the problem, many think, is to increase transparency — to make it easier to figure what is in a mortgage-backed security and how to assess its risk and return.

Some wine buyers will find it easy to relate to elements of this story, according to the Project Genome study recently released by Constellation Brands (I have written about Project Genome in my post “What are wine enthusiasts looking for?”).

According to this study, the largest single group of wine consumers are”overwhelmed” by the choices confronting them and cannot adequately assess the risk they face when staring down a crowded supermarket wine aisle or endless restaurant wine list. Their “liquidity crisis” is a real one — they are afraid to invest in complicated wine products due to a lack of confidence in their knowledge and lack of transparency regarding what’s really in the bottle. Intimidated, they buy a lot less wine than other groups. They lose and winemakers lose, too.

Project Genome estimates that overwhelmed consumers represent 23% of wine buyers, but make just 13% of all wine purchases. They are the “bottom of the pyramid” of wine and many industry people figure that a fortune awaits anyone who taps this market.

Making Wine More Transparent

So what’s the best way to make the wine buying process more transparent and end the overwhelmed consumer’s liquidity crisis? Better information is one approach. Wine critics are the bond rating agencies of the wine market. Their scores give many wine buyers the confidence they need to make what really is a risky purchase. At their best, wine critics serve a useful function of reducing uncertainty about what’s in that bottle and whether it is worth the price.

But there are dozens of wine critics and their ratings, using different scales and ranking protocols, do not always agree and are not always a clear guide. How many disappointing wines have you bought because of the “89-point” rating on the shelf tag? It only takes a few highly-rated losers to discourage an overwhelmed buyer from taking a chance.

Wine critics are part of the answer, but they are also part of the problem. What other options are available? The May 15, 2008 Wall Street Journal included an interesting article by Charles Passy (the “Cranky Consumer” columnist) that examined how some wine retailers are trying to demystify wine. “For Novice Shoppers, a Little Wine 101” describes four retailers, WineStyles, Total Wine & More, The Grape and Costco, and their different marketing strategies (I wrote about Costco’s system in an earlier post, “Costco and Global Wine“).

I’ve been to a WineStyles store so I can give a personal report. The store is arranged according to wine style profiles (crisp, silky, rich, etc.) rather than varietal type, production region or retail price. So if you know you like a crisp wine, you go to that wine rack and you find wines such as Washington Riesling, Chilean Sauvignon Blanc and South African Chenin Blanc. You are directed to the style you like and hopefully encouraged to try unfamiliar types of wine. If consumers can actually figure out what they like about wine and if they develop confidence in the style categories, this system helps them make better and more self-assured choices.

Food and wine writer Cynthia Nims reports on another strategy on her blog, Mon Appétit. Cynthia discovered a line of branded wines called “Wine that Loves” that are intended to simplify the wine-food pairing choice. Are you looking for something to serve with roast chicken? Pick up “Wine that Loves Roast Chicken.” Fish tonight? Look for “Wine that Loves Grilled Salmon.”

The chicken wine is “Predominantly Garnacha” according to the label — not a wine that an overwhelmed consumer would probably risk as a varietal choice, but might try and like in this format. The salmon wine is a Pinot Grigio/Garganega/Chardonnay blend. I like this concept because it links wine to food, which is very important, and encourages experimentation. It will be interesting to see if buyers embrace it or if it is just a novelty that soon fades.

The British System of House Brands

Great Britian is the most important wine market in the world in part because British retailers have developed a number of successful strategies to increase wine buyer confidence. Supermarkets are the big players in the U.K, and house brands are key to their wine strategies. Tesco, Waitrose, Sainsbury’s and Marks & Spencer all have their own brands of wine (sourced from around the world). Buyers are willing to try an unfamiliar wine because their confidence in the supermarket chain transfers over the the wine.

(It doesn’t hurt that at least some of the house brand wines are very good, of course. A M&S house brand wine is one of the highest-rated New World Sauvignon Blancs in the current Decanter ratings, for example.)

Trader Joe’s uses this strategy here in the U.S. (I have written about this in 300 Million Bottles of Two Buck Chuck). Trader Joe’s sells vast quantities of Charles Shaw (a.k.a. Two Buck Chuck) wine each year and the key is reputation. Not the wine’s reputation — the store’s. Trader Joe’s has a reputation for value and quality, which lends credibility to their house brand wine. As I have said before, the miracle of Two Buck Chuck isn’t that you can sell a wine for $1.99, it is that you can get anyone to buy it. The $1.99 price point just screams “rotgut.” But people happily buy wine at Trader Joe’s  at price points they would never think of considering at Safeway or Kroger because they have confidence in the TJ brand.

My local upscale grocer, Metropolitan Market, is trying the house brand route, apparently with success. For the last year or so they have occasionally stocked limited-release house brand wine specials such as the 2007 Columbia Valley “White Selection #1″ shown here. The wines go for $8 per bottle or $88 per case and they are stacked in big displays that remind me of, well, Trader Joe’s.

These house brand wines are kind of interesting. The first release of the year was a Rosé — hardly an easy sale given upmarket consumer resistance to pink wines (too close to White Zin!) and the chilly spring we have had — and now a white that turns out on close inspection to be an oak-free Semillon blend. I like Semillon quite a bit, but I don’t think you could sell it by the case at a neighborhood grocery store with a traditional brand name and varietal label. But “Met Market White #1″ and the Rosé are products that buyers seem to embrace as safe bets and good values because of the store’s reputation for quality.

They fly out the door, according to the satisfied customers in line with me last week. You might have trouble selling them as ordinary branded varietals, but they go down easy as trusted house brand wines. The British know the wine game really well. We are smart to learn from them.

Confidence Game

Everyone is trying to solve the overwhelmed consumers’ liquidity problem. Here in the Pacific Northwest we have consumer friendly labels like House Wine (produced by the Magnificent Wine Company) and Wine By Joe, an Oregon brand. Like the Met Market generics, these are good quality upmarket answers to the question, what should I buy to drink tonight? The reputations these brands have developed for value and quality makes buying their wines a comfortable experience for many consumers. (My Costco sells the House Wines brands by the case.)

Take a close look at your supermarket wine aisle and I think you will see a lot of products designed to make wine easier to understand and buy. With so much creative energy at work here, I am confident that the needs of overwhelmed wine buyer market are being well served. Maybe they’ll stop being overwhelmed and their liquidity crisis will end. I wish I had the same confidence about the financial markets!

[Yellow Tail] Tales

caselawinery-coloured-small1.jpgYellow Tail is the best selling imported wine in the United States. Yellow Tail accounted for 11 percent of all U.S. imports in 2005. This one wine brand represents about 8 percent of all Australian wine production and 15 percent of that country’s total wine exports. Yellow Tail sells more wine in the U.S. than all French producers combined.

This is an aerial photo of the winery, which is located in a small village called Yenda in the Riverina region of South East Australia. If it doesn’t look like a quaint little craft winery it is because the volumes are so large. The warehouse structure in the upper right corner can store 900,000 cases of wine at a time, according to Wine Business International. The bottling line next door is the fastest and loudest in the world, filling 30,000 bottles per hour (two more lines are planned to increase capacity). Total production is about 11 million cases, of which about 8.5 million are exported to the United States.

It is a sophisticated factory, with blending facilities that assure that each bottle tastes just like the one before. That differentiates it from Charles Shaw wine (a.k.a. Two Buck Chuck), the Trader Joe’s wine, which people say can vary considerably from case to case.

Yellow Tail is expanding in every imaginable way: more varietals (an Australian Pinot Grigio), a Reserve line of wines sourced from cooler-climate vineyards and now sparkling wines, too. The Yellow Tail’s distinctive yellow-footed rock wallaby “critter” is everywhere.

Yellow Tale is a phenomenon, but not one you will read about in the supermarket wine magazines. They don’t waste much ink on wine that costs about as much per bottle as the magazine itself does per issue. Magazine? Bottle of wine? It’s easy to tell which one the Yellow Tail customer will purchase! So I’ve been trying to find out more about Yellow Tail and here is my report.

Wine as a Family Affair

The interesting thing about the Yellow Tail success story is that it can be told in several different ways. This is not unusual in my experience. Stories of success and failure are frequently spun into meaningful narratives to try to make particular points. One version of the Yellow Tail story, for example, focuses on family and the importance of family businesses in the wine business.

This Yellow Tail Tale begins with the Casella family, winemaking immigrants who came from Italy in the 1950s and eventually planted their own Australian vineyards in 1965, selling grapes under contract to larger producers. Keen to make their own wines and export them, Casella invested in production facilities in the late 1990s and started looking for ways to crash the emerging U.S. wine party.

The key event in this version of the story is the alliance that was struck between Casella Wines Ltd, an Australian family business, and an American one, the William J. Deutsch company. Deutsch is a major U.S. wine distributor — they helped make the French Georges DuBoeuf wines a major U.S. brand — and they were willing to take a chance on an unknown Australian wine with a clever label. A partnership was established, with each family firm owning half of the Yellow Tale brand. Casella made the wine, Deutsch sold it. U.S. sales soared, from about 60,000 cases in 2001 to more than 8 million cases today.

Why was Yellow Tail so successful? One theory is that it is family and trust that are the key elements and that the cooperation and commitment that Casella and Deutsch have demonstrated would not have been possible if either of them had been a public corporation, beholden to shareholders and driven to meet quarterly profit targets Family is the key to Yellow Tail.

Red Ocean, Blue Ocean, Yellow Tail

A second group of business analysts have also appropriated Yellow Tail and made it the basis of a wholly different narrative, this one told using some unfamiliar jargon (unfamiliar to me, at least). Here is the Yellow Tail story told in terms of Blue Ocean versus Red Ocean.

The oceans in question are markets. Blue Oceans are markets for new products. Red Oceans are markets for existing products. Why are they red? I don’t really know but based upon what I saw last summer on the Discovery Channel’s “Shark Week” I’m willing to guess that existing markets are a tough environment to enter. You’ve got to compete with well-adapted predators who will cut you up badly if you aren’t really strong (Red Ocean = bloody ocean — get it?). A Blue Ocean, on the other hand, is uncontested open water. You’ve got a much better chance of profit if you can stake out the market for a new product before the competition gets there.

So how is Yellow Tale a Blue Ocean product? According to one article it is because Yellow Tail isn’t wine as we know it — it’s a whole new thing. The Wine Business International article cited above provides the details. People don’t really like wine, the article suggests. Even the Casellas don’t like it (is this possible?). It’s very tannic and acid and people aren’t used to those qualities except in tea. Who wants to pay $6 a bottle for something that is bitter and sour. The key to Yellow Tail was the realization that wine without tannin and acid could be very appealing, especially to the majority of Americans who really don’t like wine. (It was designed to appeal to the 85% of non-wine drinkers, according to the article, while not offending the 15% who already like wine. That’s 100%, if my math is correct. No wonder it is so popular). Yellow Tail isn’t as strong a brand in Great Britain — maybe it’s because the British actually like wine, acid tannin and all?

The Red Ocean, then, is the market for wine and the Blue Ocean is the market for wine that doesn’t taste like wine. (You might call it the Blue Nun Ocean in honor of a popular semi-wine wine of the 1970s.) If this analysis is correct, then you can see why Yellow Tail is such as success. But you can also see why its success might be short lived (and why, therefore, Casella may be moving into other markets). The Blue Ocean of semi -wine was quickly populated by competing predator species. Two Buck Chuck is an obvious example but there are really dozens and dozens of copycat critter wines out there. The trick for Yellow Tail is thus how to succeed now that their Blue Ocean is turning Pink.

Water Torture

Here’s a final Yellow Tail Tale that continues the focus on water. A third explanation for Yellow Tail’s success can be summarized in a single word: irrigation. Yellow Tail was made possible by the existence of enough water to irrigate the vast Casella and South East Australia vineyards. Water made it possible to grow grapes so efficiently that you could ship the wine half way around the world and sell it cheaply and make a fortune.

a_wby_lg_pic01.jpgBut the environment is changing for Casella’s vineyards. It’s not Blue to Red, but wet to dry. Australia has experienced several consecutive drought years, which have caused vineyard yields to crash and changed the whole business model of Australia wine. Put simply, the plentiful cheap fruit that has fueled Yellow Tail’s growth is now just a memory. What is to be done?

Casella seems to be considering several approaches. The first is conservation. According to their website, they have invested heavily in water recycling facilities, which will allow them to reclaim 400 million liters of wastewater each year for use in their vineyards. That’s a good start — and sustainable winegrowing is everywhere a concern — but I don’t think it will be enough to irrigate all the vineyards.

So another strategy may be considered: outsourcing. There are many places on earth where inexpensive wine can still be produced. Will Yellow Tail consumers care if their wine comes from Chile, South Africa, France or maybe even Romania instead of Australia? My guess is that it won’t matter very much and that Yellow Tail may become a globally-sourced brand. Boy, that little wallaby gets around.

But the long term threat to Yellow Tail probably isn’t water, it is wine. If Yellow Tail customers ever learn to like wine (you know — the stuff with tannin and acid?) then the brand’s days will be numbered! Until then, little critter, wallaby wine is safe.

Globalization, Wine Value and the Two Buck Chuck Index

Has the globalization of the wine industry given us the best of wines, as many wine drinkers believe, or the worse of wines, as the film Mondovino suggests?

Two economists from the Whitehead School of Diplomacy at Seton Hall University address this question in the December 2007 issue of the Journal of Wine Economics (see full reference below). Their conclusion? Globalization has benefited American wine drinkers, who have a broader choice of quality wines at lower prices.

That’s pretty much what my supermarket empiricism leads me to conclude, but can it be proven scientifically? Here’s how the article’s authors arrived at their results.

First you need to define what it is that American wine drinkers are buying. The authors decided to focus on the Wine Spectator annual Top 100 list of wines. This has the advantage of limiting the study to a reasonable number of widely available wines. The Top 100 list is chosen each year on the basis of price, wine rating, availability and “excitement.” Many people use rankings like the WS 100 to guide their purchases, so I suspect that there really is some correlation between what is on the list and what is on store shelves and restaurant wine menus. The disadvantage of limiting the study to the Top 100 is of course that most of the wine sold in America — the inexpensive Gallo, Yellow Tail and Two Buck Chuck wine — does not make it to this or any other “top” list. If we want to know if globalization has improved choice at the middle and bottom of the market we will need more research.

The authors examined the WS 100 lists from 1988 – 2005 to determine (1) where the wines came from, (2) how much they cost and (3) their quality as measured by the WS ratings. They then calculated measures to determine changes in the geographical concentration of the wines (more or less choice in terms of countries of origin), the average quality rating and the relative value to consumers as measured by rating points per dollar.

What we learn from this is that the overall quality of the top wines has stayed relatively constant over the years, but the real price has fallen and the range of offerings has increased. It cost $4313 (in today’s dollars) to purchase the entire WS100 in 1988, for example, but just $2622 to buy the Top 100 wines in 2005. The cost per “point” of ratings in 1988 was 46 cents, so a hypothetical average 90-point wine cost $41.40. The per point cost was 28 cents in 2005 and so a hypothetical average 90-point wine cost just $25.20.

The top wines came from just six countries in 1998 versus 11 countries in 2005, an indication of the globalization effect. A great majority of WS100 over the years have come from four core wine countries: Australia, France, Italy and the U.S., but the proportion of non-core wines has increased, too, from just 5 percent in 1988 to 24 percent in 2005.

The authors divide the wine world of this study into Old World (France, Italy), New World (Australia and the U.S.) and “New-New World” (New Zealand, South Africa, Argentina and so on). Globalization has brought American wine drinkers more and more excellent New World and now especially New-New World wines that provide the same quality at lower average prices, according to the study.

Research like this is interesting both for the questions that it answers and for the new questions that are raised. It would be interesting, for example, to find how important the four criteria for selection are — price, rating, availability and “zing” — and if the relative weight they are given has changed. As the wine market has expanded, for example, greater emphasis may have been put on price and availability, leading to a Top 100 that leans more toward (global) good value wines.

It would also be interesting to see if the editors respond in any way to external forces. A lot of people read and study the Top 100 list, so perhaps they use it as a way to build the wine market (and thereby indirectly build their potential subscriber base). A focus on value would be consistent with this goal. A Top 100 list that you can’t find or can’t afford doesn’t build the wine market and won’t sell many magazines. The fact that there are more New-New World wines might reflect rising quality and availability of these wines or it could indicated that the WS editors desire to add these wines to keep costs down, value up and the market growing. In other words, the WS100 might show more choice and continuing good value because that’s what the WS editors want it to show. I suspect that the truth is that the market has evolved toward global good value and that WS has been part of that process, encouraging people to try New-New World wines by putting them on the Top 100 list.

Exchange rates could also play a role here. The dollar has fallen against most currencies (increasing the cost of imported wine), but the depreciation is not uniform. The Euro is much more expensive but the Argentine peso has not changed as much. If would be interesting to see to what extent the WS100‘s New-New World globalization has offset exchange rate driven increases in Old World wine costs.

Another interesting question relates to the idea of value in wine purchases. It does seem to me that people often find themselves buying WS points or Parker points more than the wine itself because they are unsure of their ability to judge quality. One local wine merchant had a sale of wines rated 90 points or more for $20 or less. The idea was that the wines must be good value because of the low cents per point ratio. But there is more to wine than rating scores, as anyone who has tasted high-scoring wines will tell you.

It might be interesting to try to put together a slightly more sophisticated wine value index using WS and other ratings. I don’t think that cents per point is a good measure because it assumes a linear relationship between money and quality — and we all know that is not the case. Very expensive wines frequently receive much lower ratings than their cheaper competitors. I understand that a $100 Chardonnay came in last at the tasting where Two Buck Chuck won the Gold Medal.

Even where price and quality are correlated, the relationship isn’t necessarily linear. The average price difference between an 86 point wine and a 88 point wine may be pretty small, for example, but it might cost a great deal to go from 92 to 94 points if the demand for the very best wines is particularly strong as is often the case in winner-take-all markets.

The price-quality relationship, even using imperfect wine scores as a measure of quality, is certainly non-linear. No wonder wine buyers are so confused — and depend so much on ratings and lists like the WS100.

Here is a simple alternative to cents per point as a measure of value. Let’s adjust price and quality for a baseline wine: Two Buck Chuck. You could call it the TBC index. Suppose that you can purchase a 70-point (to just make up a number) TBC Chardonnay for $2 (or $3 here in Washington State). The question we want to answer is how much does it cost to improve on TBC? A wine that gives you a lot of additional value for only a little additional money is a good deal.

In other words, the TBC index would be a relative index of value calculated by asking would be how many points in excess of 70 (or whatever the quality of the baseline wine you choose) you can buy for the dollars you spend in excess of the baseline cost. Here’s a numerical example. A 88 point wine for $20 would have a TBC rating of (88 – 70 points)/($20 – $2) = 18 point/$18 or a dollar a point. An 86 point wine for $10 would be a better value because (86 – 70)/(10-2) = 16 points /$8 = two points per dollar. It seems to me that this is a better (but still badly flawed) indicator of relative value. (Economics students have already realized that I am applying the principle of decision-making on the margin to this problem).

Perhaps I will find some students to work on the TBC index, perhaps using a different base wine for each varietal or wine type. I predict that their research would find that the “optimal” TBC point is being pretty close to the heart of the premium wine market — right on the center shelf in the supermarket — where so many wine brands compete for your wine dollars.

Wine ratings are very important in some parts of the wine market and very controversial, too, so I think I will see what I can learn about them. With this in mind I have subscribed to six different wine-rating publications: Wine Advocate (Robert Parker), Wine Spectator, Wine & Spirits, Wine Enthusiast, the British Decanter and Wine Press Northwest (for Washington/Oregon wine news and ratings). Watch this space for a comparative analysis of these influential publications.

References: Omer Gokcekus and Andrew Fargnoli, “Is Globalization Good for Wine Drinkers in the United States?” Journal of Wine Economics 2:2 (December 2007) pp. 187-195).

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