No One-Liners in Wine

King of One-Liners: Take my wine ... please!

Jon Fredrikson likes to say that there are no one-liners in wine. He isn’t saying that there aren’t any one-line jokes (take my White Zinfandel … please!) but rather that nothing in wine is cut and dry. Wine is always complicated — always this and that, too —  so generalizing is a dangerous practice.

I was reminded of this twice during our recent California expedition. The first time was by Jon Fredrickson himself, who stated the case very well in his talk at the Unified Wine and Grape Symposium in Sacramento (North America’s largest wine industry trade show and seminar series).  His dynamic analysis of how the wine market is evolving was widely reported in the press.

Winery of the Year

At the end of Jon’s report he always names a “winery of the year” and for 2011 it was DFV Wines of Manteca, California. DFV (for Delicato Family Vineyards) has its roots in the decision of Italian immigrant grape grower Gasparé Indelicato to try his hand at winemaking in early post-Prohibition California. His grandson, Chris Indelicato, has been CEO since 2004 and many other family members populate the company’s org-chart.

DFV sits in the #10 position in the Wine Business Monthly Top 30 American Wineries league table for 2011, producing more than 4.5 million cases. DFV owns more than 10,000 acres of vineyards (quite a change from Gasparé Indelicato’s first farm). But it is the business’s dramatic growth, not just its large size, that drew Jon Fredrikson’s attention and, well, everyone’s attention. “Delicato” was all that I heard in pre-announcement speculative conversations.

Gnarly and Twisted

You have probably seen Delicato wines on store shelves, but they are just the tip of the family business iceberg. Other DFV brands include Bota Box, Twisted, Gnarly Head and many more. I usually think of the DFV wine portfolio in terms of good value wines and I think this good value accounts for the company’s success.

But saying that a wine is a good value sometimes imposes a subconscious ceiling on perceived quality and distinctiveness. I admit that I tend to think of DFV wines as good, but not necessarily great. That’s because I sometimes forget Jon Fredrick’s line about one-liners. Good value doesn’t rule out distinctivenes — wine is too complicated for that.

On the Old Silverado Trail

This point was driven home to me for the second time as I stood at the tasting room bar at Black Stallion Estate Winery on Silverado Trail in Napa Valley — DFV’s newest venture, which it acquired just a couple of years ago. The winery itself resists being a one-liner as it is both historically significant (as an equestrian center) and an architectural beauty.

We drove by the winery a couple of years ago (on our way to a Stags Leap AVA event) but didn’t stop.  We were impressed with the BSEW Cab at a tasting back home (it is a larger production wine that is widely distributed), so we came back to try the small production (4000 total cases) wines sold only at the winery.

Imagine my surprise to learn that the same company that makes Botta Box also makes a $150 red blend called Bucephalus. I’m interested to see what happens as the Indelicato family’s winemaking knowledge and resources are focused on this relatively new enterprise — perhaps even more distinctive wines like the Rockpile Zinandel that was my tasting room favorite?

I expect there will be lots of interesting wines to taste and things to say as DFV and Black Stallion continue to develop. But don’t expect to hear any one-liners.

Occupy Napa (and Sonoma and Burgundy and Bordeaux)

One of my loyal readers, perhaps inspired by Wine Economist posts about bargain wines and Martians versus Wagnerians, writes to suggest that I  organize an “Occupy the Vineyards” movement. The purpose? To protest that part of the wine world that focuses on iconic wines for elites. What about the rest of us, he says? What about the other 99% of wine drinkers who are looking for good, affordable quotidian wines and don’t really care about impossibly expensive 100-point wines?

Not Wine Porn

It is a very Wagnerian idea (the reference here is to Philip Wagner, who promoted a democratic notion of wine here in the U.S., not the more famous aristocratic composer) and I am very sympathetic towards it. Wagnerian wines don’t have to be cheap cheap cheap, they just need to be good drinkable, affordable wines   Wine food, not wine porn, if you know what I mean. A sensible idea.

So I started fooling around on the internet, searching for titles like “Occupy Napa” and “Occupy Bordeaux.” I figured that a catchy name would help make the point.

But they’re already taken — by groups affiliated with the “Occupy Wall Street” movement. Occupy Napa leads weekend protests at a Napa, California town square. Occupy Bordeaux seems to be part of the broader Occupy France movement. (I thought France was already occupied …)

CafePress website sells Occupy Bordeaux souvenirs including T-shirts, water bottles and the neat 20 ounce drinking glass pictured here, but I don’t think it is directly affiliated with the group in France. The Occupy Together website has a cool interactive map that shows “Occupy” movements around the world and lists their websites if you are interested in seeing how this movement has evolved.

The Occupy Principle

I like the idea of promoting a more casual idea of wine, but I guess I won’t be using the “Occupy” trademark, since it would be  too easy to confuse the wine group with the larger transnational advocacy movement.  But I think that what I am calling the “occupy principle” probably applies to both.

Usually we think that movements need to stand for something quite specific — to have an clear agreed agenda — and in the long run I think this is very important. But in the short run sometimes it helps if a movement is a little ambiguous, with a flexible identity that can lend it self to several different purposes and attract a good many followers. I think this ambiguity helped the Occupy Wall Street movement to gain initial attention and to spread as it has done.

The Occupiers I have read about resent and oppose unequal wealth and power (the gap between the 1% and the rest), but differ in many other respects. It will be interesting to see if a clearly focused agenda emerges and, if it does, what specific goals are adopted. Perhaps, of course, the protest itself and the consciousness-raising it provokes are sufficient as a first step.

Conspicuous Non-Consumption?

A wine movement for the 99% would surely bring together the wine world equivalent of “strange bedfellows,” too. Some supporters are just cheap (or thrifty, if you will) and want a little respect for their self-restraint. Others may be against an elitist idea of wine or oppose conspicuous consumption (which in the case of trophy wines often takes the rather bizarre form of conspicuous non-consumption — costly “collector” wines to look at and talk about, not necessarily to drink).

The reader who originally suggested the Occupy Wine idea has a more basic approach: wine doesn’t have to be a mystery (and most wine isn’t) and it shouldn’t cost an arm and a leg (most wine doesn’t). There’s no reason that perfectly decent, relatively affordable wine can’t be a part of almost everyone’s daily life. That’s a Wagnerian attitude through and through and I can see why he wantd to see it given more attention in the wine world.

The Commanding Heights

So if there were to be an Occupy Wine protest, where would we gather and what would we do? That’s a bit of a problem since the places that sell the most wine (including supermarkets and wine shops) often have a lot of choices for the 99 percent — not much to oppose there.  Costco is the largest wine retailer in the U.S. and although it does sell some icon wines, most of the products are more affordable. Most 99-percenters probably view Costco as friendly territory because of its policy of marking up wine only 15% for most bottles and 17% for house brand Kirkland Signature wines.

I suppose that we could protest in front of high end restaurants that sell superstar wines at super-nova prices. But I think restaurant wine mark ups are an issue of their own. And besides, the smell coming out of the kitchen would probably make me crazy. We could meet at Trader Joe’s to acknowledge the Two Buck Chuck phenomenon, but it wouldn’t be the same.

No, we would need to occupy the “commanding heights” — which in the case of wine means the wine media, where the 1 percent wines are praised and raised to an often unreachable altar.  But there are flaws in the plan to Occupy Wine Spectator, too. First, all the popular wine magazines are making efforts to reach price-sensitive “99%” buyers just now, even if they also run stories about one percent wines. Even Wine Advocate identifies good values and I have seen box wines and house brands included in some wine magazine reviews.

Fait Accompli?

The other problem is that I am not sure that there is a market for an alternative Occupy Wine magazine that would focus on everyday wine values and ordinary wine lifestyles. The target audience probably wouldn’t buy it — they’d rather spend their money on wine than wine literature. And in any case there are several wine blogs that cater to the good value audience.

Maybe … and this is only speculation … maybe we have already occupied wine and we just don’t realize it? The wines are there and so are we, the 99 percent.

Occupy Wine is a fait accompli? Who knew! Spread the word.

The {Wine Economics} Magnification Effect

One of my pet theories about globalization could be called “the magnification effect.” Although global markets change things for sure, often their biggest effect is to magnify or exaggerate existing trends and conditions. A Decanter report from Bordeaux provides a good example of how the Magnification Effect works.

The Law of One Price

Although people talk about “Bordeaux wine,” there has never been a “Bordeaux wine market.” The Law of One Price holds that if there is a single market there will be a single price. But it is the difference in prices that is Bordeaux’s most notable feature. Some wines from the region sell for thousands of dollars, others for a few bucks and some … well they go to the distillery for mere pennies.

This market segmentation occurs in all wine regions, but it is more noticeable in Bordeaux because these wines have always been targeted for export (the globalization element) and so price stratification is more pronounced.

Students of wine history know that Bordeaux is in fact defined by these differences. The Classification of 1855, which established a strict hierarchy of Medoc wine producers that persists to this day, was not based upon sensory evaluation, as you might expect, or critical analysis but simply on market price.

The gold's at the top ...

The Twilight Zone

Over the years, as global markets expanded, the price differentials recognized in 1855 became embedded in the market and magnified. The Decanter article illustrates the current extreme. Announced prices for 2009 are substantially higher for the 400 top-tier Bordeaux wines that are sold en primeur: up an average of 18.6% over the 2005 “vintage of the century” and 48.7% above the recession-plagued 2008 market. Good times for the top names, as Orley Ashenfelter pointed out on two occasions during the recent American Association of Wine Economists meeting at UC Davis.

But there are thousands of wine producers in Bordeaux and times are very hard for many who are not in the top tier. Decanter reports that

…  the official price paid by merchants for a tonneau (900 litres, or the equivalent of 1,200 bottles sold in bulk) of AOC Bordeaux red has dropped to around €600 per barrel – less than the ex-chateau price for a single bottle of any of the top wines.  Most producers report that actual transaction fees are dropping as low as €500 per tonneau. Bernard Fargues, president of Syndicate of Bordeaux (which represents over half of the regions’ 8,000 winemakers, all producing AOC Bordeaux and AOC Bordeaux Superieur) told decanter.com that around 90% of his members were in difficulty, with at least 50% suffering serious financial problems.

If my math is right, some Bordeaux wines have fallen into the Two Buck Chuck danger zone while others have risen to … to what? The Twilight Zone!

This magnification effect has become global, as was readily apparent at a symposium on “Outlook and Issues for the World Wine Market” held in association with the Davis meetings. Speakers emphasized the widening market segmentation. Bulk wines (wines that sell for less than $5 per bottle equivalent and often for much less) have developed a truly global market in part, as several speakers noted, because bulk wine buyers aren’t particularly interested in terroir — they basically don’t care where their wine comes from, only what that it has a familiar taste and doesn’t cost very much.

Somewhere vs. Nowhere at Trader Joe’s

I noticed this on a recent visit to Trader Joe’s where a new line of Two Buck Chuck has appeared — Charles Shaw International wines, sourced from Australia’s surplus wine lake and selling for the same low price as the original product. I don’t imagine that anyone will refuse to buy it because it is “international” rather than from the San Joaquin Valley like the rest of the Two Buck Chuck lineup.

Bulk wine prices are deeply depressed because of this mass global market, squeezing out inefficient producers (or those who don’t benefit from government subsidies of one sort or another). Profits per acre in the San Joaquin Valley (where most of California’s bulk winegrapes are grown) is down to $200 acre — an amount so low that growers are switching to other crops such as walnuts and almonds where the global competition situation is more favorable. One grower who attended the symposium talked of leaving fruit on the vine for the first time in 25 years.

If the market for bulk wines is global, I guess you could say that the premium wine market is “international.” Buyers do care about where these wines come from and so global sourcing is not an option. This exposes producers to a different set of risks and rewards. Australian winemakers, for example, find themselves victim of the strong Australian dollar. China’s huge needs for Australian minerals has driven the currency up and helped price Australian premium wines out of their traditional market niches.

The Law of Yuan Price

(The exchange rate obviously affects the bulk wine market, too, and is one factor in Australia’s excess capacity in that market segment. The exchange rate depresses price both directly, by raising export costs, and indirectly as unsold premium wines are diverted to low-price bulk wine markets.)

Wines at the very top of the pyramid also face challenges, but they are different from those of bulk wine and premium wine. Globalization is a positive benefit to top-flight Bordeaux, for example, because it means that Hong Kong and Chinese buyers can be found to replace (or apparently more than replace) declining buyer interest elsewhere.

Decanter recently published their first Chinese language Bordeaux report — a clear indication of the expanding global market and a suggestion that the Magnification Effect has not yet reached its peak.

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.

Wine Spectator 100: North and South

The lists of the Top 100 wines have started to appear — just in time for holiday buying. Wine Spectator released their Top 100 last week and now Wine Enthusiast has followed suit. Other lists are showing up, too, such as Paul Gregutt’s list of the 100 best Washington wines.  Fun and informative, these lists provide wine lovers with endless opportunities to discuss, debate and of course pull corks. Gotta love ‘em.

But you’ve gotta hate ‘em, too. Top 100 lists are a mixed blessing on the supply side of the market. Although they do promote wine and wine drinking generally, they necessarily privilege some wines over others and this is always problematic given the thousands and thousands of good wines that are produced each year. Why this wine and not that one? It’s an inevitable question that matters because wines on the list get more attention than the wines that don’t for some reason make the cut.

Dancing in the Streets

Top 100 lists slice up the market in many ways and this year my email inbox has revealed a North-South divide. Here in Washington State we are very happy with the 2009 Wine Spectator league table. Nine Washington wines made the list — more than any previous year — including the #1 spot, which went to the 2005 Columbia Crest Reserve Cabernet Sauvignon (95 points, $27 dollars). Two Oregon wines were also listed, so altogether this was a banner year for the Pacific Northwest.

While they are dancing in the streets in Woodinville and Walla Walla, the mood is more sober down south in Mendoza.  Two Argentinian wines appear on the WS100, which is welcome recognition of course, but that’s down from four last year. This is really Argentina’s year to shine in the U.S. wine market, with overall sales surging by more than 40% in dollar value according to Nielsen ScanTrack data. But only half as many WS100 wines! You can’t blame members of the Argentinian industry for kinda hoping to see their success more enthusiastically celebrated in the Top 100 lists. Hmmm. Maybe next year.

A Nobel Prize for Wine?

It seems to me that these top 100 wine lists are a little bit like the Nobel Peace Prize. Highly publicized awards like the Nobel and the Top 100  end up being both reflections of excellence and opportunities for the judges to send a message (political, economic or otherwise). There are many worthy nominees for each award so the final choice is always arbitrary — and the opportunity to send a message is irresistible. Or at least I wouldn’t be able to resist it.

There are obviously many factors that go into a Top 100 wine list and a wine’s objective quality  is just one of them. This is easy to see if you take numerical ratings seriously. The WS100 #1 wine this year earned a 95 score, for example, but the #2 wine received a higher score (96) and the #8 wine’s score was even higher (99). A 100-point wine was placed in the 21st spot last year. This is a numbers game but not just a numbers game.

Don’t Cry for Argentina

Wine Spectator uses four criteria in making their list: quality (the score), value (the price), availability (the volume) and excitement (the X-factor). The Columbia Crest wines (both the Reserve that won this year and their other wines) generally do very well on the first three factors year in and year out. The X-factor this year, I believe, was the recession and the desire to inspire some excitement among American buyers by giving them a #1 wine they could find and afford. That $27 Columbia Crest wine says that American wine drinkers can enjoy truly excellent wines at relatively affordable prices. Time to start pulling those corks! A good message to send in this economic climate.

What about Argentina? Well, I understand their situation. No problem with quality, volume or availability. But I think the market excitement is already there and doesn’t need any help from the wine lists at this point (as much as the Argentinian makers would love to have it). The U.S. industry (like President Obama?) could use some encouragement right now, which may be a good enough reason to draw attention to its outstanding, good value wines like the Columbia Crest Reserve.

Note: Congratulations to Juan Manuel Muñoz Oca, the 34-year old Argentinian winemaker who made the #1 Columbia Crest Washington State wine. What a great North-South connection!

Beaujolais Nouveau: A Black Friday Wine

I’m putting together wine recommendations for the upcoming Thanksgiving holiday feast. Bubbles (for celebration), Riesling and Pinot Gris (great food wines), Zinfandel (the most American of wines) and Pinot Noir (just because).

Missing from my list is perhaps the most appropriate wine of all: Beaujolais Nouveau. Here’s why.

A Wine for Today’s Thanksgiving?

Although the United States is not the only country to set aside a day for giving thanks, we like to think of Thanksgiving as our distinctive holiday. It was conceived as a day for deep reflection, but Thanksgiving has evolved into a long weekend of over-consumption and discount shopping. Some of my friends really prefer to celebrate Black Friday, the day after Thanksgiving, when the holiday shopping season formally begins and retailers find out if they will be “in the black” for the year based upon early sales data.

If you plan an Old Time giving-thanks Thanksgiving, then Nouveau is not for you. It is not an especially thoughtful wine. It is a sorta soda pop wine; if wine were literature, my friend Patrick points out, Nouveau would be the  trashy paperback novel you read at the beach. Nothing wrong in that — everyone needs an escape once in a while.

The grapes for Nouveau are picked in late September or thereabouts and the only thing that prevents instant sale is the necessity of fermentation and the mechanics of distribution.  It’s still a bit sweet when it’s bottled and sometimes a bit fizzy, too, when it arrives with great fanfare on the third Thursday in November (a week before Turkey Day). Best served cold (like revenge!) it is the ultimate cash flow wine.

Black Friday Wine?

Nouveau is not very sophisticated, so why do the French, who otherwise are known to guard their terroirist image, bother with it? The Beaujolias producers make very nice ordinary (non-nouveau) wines; character complexity, you can have it all and for a surprisingly low price.

Ah, but that’s the problem. Sitting close to prestigious Burgundy, the Beaujolais cannot command high prices for their wines, good as they are, so they must try to make money through turnover more than markup. They churn out millions of bottles of Nouveau to pay the bills.

At the peak of the bubble in 1992 about half of all wines made in Beaujolais were Nouveau. The proportion remains high even today. Ironically, Nouveau often sells at prices as high as Beaujolais’ more serious wines because it is marketed so well. So it is hard to see why you’d want to buy it instead of the region’s other wines. It’s easy, on the other hand, to see why you’d want to sell it.

Beaujolais Nouveau, it seems, is France’s Black Friday wine! If the makers can sell their Nouveau, then maybe the bottom line for the year will be in the black. If the Nouveau market fails, well that red stain on the floor won’t be just spilled wine.

More than the Usual Urgency

Nouveau is therefore generally marketed around the world with more than the usual urgency (just as those Black Friday sales seem a little desperate at times) — and not just because young wines hit their “best by” date pretty quickly. This year things are even more stressful than usual, as you might imagine, with the economic crisis still on everyone’s minds and 10+ percent unemployment here in the United States.

I saw Georges Duboeuf Beaujolais Nouveau selling for $8.99 a bottle on Saturday, about $4 less than last year. Given typical retail margins and the high cost of shipping this product by air, it is hard to see much profit. It will be a Red Thursday this year, I think, not a Black Friday, for Beaujolais.

Nouveau is usually distributed around the world via expensive air freight rather than more economic sea transport in part because the short time between harvest and final sale makes speed a factor. This year Nouveau was bottled in plastic for the Japanese market in part to lower shipping cost — a controversial move that may not be repeated because of its negative product image potential.

Intentionally choosing to adopt a more casual image (see photo), Boisset put all its US-bound Nouveau in screw-cap PET bottles, with a resulting 40% reduction in shipping cost.

An American Wine?

Sweet, fizzy and packed in PET bottles — Beaujolais Nouveau sounds like the perfect wine for the American consumers brought up on 2-liter jugs of fizzy-sweet Mountain Dew and Diet Coke. If you were kinda cynical, you would think Nouveau was an American wine … made in USA.

And it is, in a way. Although the wine obviously comes from France (and there is actually a long tradition of simply and fun early-release new wines in France and elsewhere), I think it is fair to say that the Nouveau phenomenon is an American invention.

W.J. Deutsch & Sons, the American distributors, really put Beaujolias in general and Nouveau in particular on the U.S. wine market map when they became exclusive distributors for Georges Duboeuf some years ago. They took this simple wine and made it a marketing event. To paraphrase an old Vulcan proverb, only Nixon could go to China and only the brilliant Deutsch family could sell Nouveau!

In fact they were so successful that they partnered with another family firm — the Casella family from Australia — and created a second wine phenomenon tailored to American tastes: Yellow Tail!

So although Nouveau is an American wine of sorts and might be perfectly crafted for this American holiday as we actually celebrate it on Friday, I’m going to pass this year (on Thursday, at least) and see if I can nurse some thoughtful reflection from my holiday glass instead. Cheers, everyone! And thanks.

Marketing the Wines of Spain

Mario Batali famously said that there is no such thing as Italian food – there are only the diverse regional cuisines of Italy. I believe the same idea applies to the wines of Spain. Spanish wine? No such thing. 

The many regions are so different and the wines, grapes and styles so diverse that it is impossible to say very much about them as a group. They are best understood individually.

Something for Everyone

This is a great advantage for wine enthusiasts who are seeking diversity. And it is an advantage for Spain’s producers too just now because their wines are seen to be good values and at time when value is so important.

Diversity and value mean that Spain can offer something for everyone and indeed sales of Spanish table wines are up 3.7 percent in the last year (same as the overall market), rising at an annual rate of 9.4 percent in the last quarter according to Nielsen Scantrak data.

The Diversity Challenge

But diversity is also a challenge because it means that you need to be both a winemaker and an educator. Spain’s regions and grape varieties are unfamiliar to many wine enthusiasts and to engage them you need to inform them. How do you establish a market identity for such a diverse group of wines? It’s a real problem and I decided to look closer at how Spain’s wine establishment is trying to solve it.

What image or images do current marketing campaigns project of the wines of Spain and how do they compare with other national or regional advertising efforts? Raphaela Haessler and Lily Chiang, two of my students, volunteered to help me find out. I loaded them up with a stack of wine and lifestyle publications (Wine Spectator, Wine Enthusiast, Wine & Spirits, Bon Appétit, and Gourmet among them) and asked them to prepare a comparative analysis of the advertising they found. Here, in part, is what they had to say.

The ads portrayed Spanish wines as new, different, fresh, and lively.  In contrast, the French seemed outdated, austere, cold, and inaccessible.  The Spanish ads had bright but earthy colors connoting Southern Spain, late summer and late evening parties; whereas Italy’s romantic black and white photos and France’s monotone or beige imagery did not pop out as much to the reader.  The French, Italians, and even Americans based their advertising off of their reputation, family, and tradition.  The Spanish, on the other hand, focused more on moments of joy and lightheartedness.  While the traditional wine producers said “you should buy our wines” the Spanish message was “anyone’s invited to our party.”

I think this is a great message for the current economic climate. Wine enthusiasts don’t want to simply trade down because wine is a lifestyle product and trading down means accepting a lower self-image for many buyers. They would rather “trade over” to a different lifestyle that is more fun and relaxed (and, incidentally, less expensive to support).

Reputation versus Lifestyle

Reputation and tradition are still powerful marketing tools, to be sure, but the lifestyle message is potent in today’s market

The Spanish wine ads also highlighted the wine’s uniqueness and diversity with the national wine slogan being “far from ordinary” (and the national tourism slogan being “Smile, you’re in Spain.”)  The ads mention that there is great variety and something for every taste.

Something for every taste — yes!  And every wallet, too, I suppose. Good to see the diversity advantage being exploited. But there are two sides to diversity when it comes to wine.

The ads promoted a specific state of mind, but what they were lacking was a sense of place.  While one ad had historical sights of the country, there were no images of vineyards, cellars, or even winemakers.  There was also a lack of refinement.  Most of the other advertisements presented wine as a cultured, luxurious form of leisure, or at least a family endeavor resting on tradition.  In contrast, Spain’s ads came across as youthful, energetic, social, yet naïve and flippant.

Faceless and Placeless

As you can see, Lily and Raphaela really reacted quite strongly to the lack of terroir in the Spanish wine advertisements. The association with a fun Spanish lifestyle is a plus in their view, but compared with other marketing schemes Spain was surprisingly faceless and placeless. That’s the diversity challenge.

So what is my bottom line of Spain’s wine identity? First it is important to acknowledge the limitations of this study — these conclusions are based on a snapshot of Spanish wine marketing at the present moment in a small number of important publications. A more detailed analysis over a longer time frame might produced different conclusions.

I think that the current campaign is right for the times, but incomplete as an overall stragegy. I hope Spain’s wine marketing gurus are prepared a follow up program that will educate and inform about the particular wines and regions (or an orchestrated set of private marketing campaigns by the major producers and distributors to accomplish the same thing).  It is important to drop the second shoe and not leave well enough alone.

That’s the message that Australian producers have learned the hard way. Their inexpensive Shiraz wines were so successful that they let them become Brand Australia. Now that they have fallen from favor, the job of re-branding Australian wine in terms of its fabulous regions is very hard. Spain should start now on this project and not wait until the fun lifestyle fad fades.

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Thanks (and a bottle of Las Rocas Garnacha from Calatayud) to Raphaela and Lily for their research assistance on this project.

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.

Starbucks and the Coffee-Wine Paradox

The Water-Diamond paradox is a classic problem in economics. Water is essential to life, but it is relatively cheap in most situations. Diamonds, on the other hand, are non-essential luxuries in most uses, yet they cost the earth compared to water. How is this possible? How can market price deviate so clearly from practical value? A tough problem. John Law, John  Locke, Copernicus and Adam Smith all tried to provide sensible answers.

In Vino Paradox

Starbucks (the Seattle-based company that sells coffee with a side of lifestyle) presents us with a similar puzzle today. I call it the coffee-wine paradox in honor of the original problem.

Starbucks has started selling wine. Not at branded Starbucks stores, but at three experimental “15th Avenue Coffee and Tea” shops in Seattle.  As near as I can tell they have not yet begun to market a Starbucks wine (the image here, courtesy of Google Image Search, is apparently bogus), but who knows what will happen in the future?

I know a number of coffee bars here in the Pacific Northwest that double as wine bars and authentic espresso bars in Italy nearly always serve alcoholic beverages including wine. Starbucks knows how to sell branded goods. Connect the dots. Maybe there is Starbucks Pinot Grigio in your future?

So what is the paradox? Well, the joke is that Starbucks coffee products are very expensive. You know what I mean — the mythical four dollar caffè latte? But when you compare Starbucks coffee to wine, it looks like coffee is unbelievable cheap. Thinking in terms of absolute price both wine and coffee cost a lot but, as in the water-diamond problem, their relative prices seem totally out of line. Why is wine so expensive compared to coffee and why is coffee so darn cheap?

Pulling the Supply Chain

Coffee cheap? Well, consider what a diagram of the global supply chain for a Starbucks latte would look like. The high tech espresso machine is usually Italian-made. The milk is probably a local product and the labor likewise, but the coffee and flavorings such as chocolate and vanilla come from all over the world and pass through many processes and middleman hands on their way to you.

Wine, by contrast, is the simplest of products. It practically makes itself. Even with the notorious three-tier distribution system here in the US, it is a whole lot easier to get wine into your glass than coffee into your 20-ounce cardboard takeaway cup.

And think about the wine bar versus espresso bar experience. Servers at the wine bar retrieve the bottle and pour some in your glass.  Pretty simple. At the espresso bar, by contrast, your coffee made to order with sometimes extravagant special requests (a tall half-caff soy vanilla latte with caramel?). No doubt about it, in terms of both global sourcing and labor-intensive local production,  Starbucks coffee seems like it would be a lot more expensive to produce and serve than my mythical Starbucks wine.

So here’s the paradox. $4 for a cup of coffee (or espresso-favored coffee drink) seems impossibly expensive. Ridiculous. A joke. But $4 is impossibly cheap for a glass of decent wine these days when you are dining out. What do you think Starbucks would charge for a glass of wine? If they conform to the industry rule of thumb (and I don’t know if the 15th Avenue shops do) the price for each glass would equal the wholesale cost for the bottle. So you’d expect to pay $6 and up for fine wine (wine poured from a bottle in this context) or less if it is drawn from a bag-in-box hidden somewhere in the back room.

Generic industrial wine sells for more than a premium custom-brewed coffee product. No question about it. Wine costs too much and coffee is too cheap. Why? That’s the first part of the coffee-wine paradox.

A Factor of Sixteen

A second aspect of the coffee-wine paradox is revealed in the November 2009 issue of Decanter magazine in a short but very interesting article on coffee. It seems that coffee, like wine, comes in all sorts of variations from cheap bulk product to the equivalent of vineyard-designated grand cru coffee cuvées (if that isn’t stacking the adjectives a bit too high).

Coffee connoisseurs will pay enormous sums to get the finest, rarest coffees. Decanter quotes the price of the winning coffee from a recent international competition at £13 per 250 grams of roasted beans or roughly 40 U.S. dollars per pound. On a per-cup basis, according to the article, the top coffee sells for about sixteen times the most humble Cup of Joe. That’s a pretty high premium to have the best instead of the simply pretty good.

Consider the corresponding wine ratio. If we take Two Buck Chuck as our Nescafé equivalent, the most expensive wine on the market would cost $32 in California (where Two Buck Chuck really costs $1.99) and $48 dollars per bottle nearly everywhere else in America. But this is ridiculous. The most expensive wines cost much more than this. If you read the wine magazines you frequently encounter prices of hundreds and even thousands of dollars for the finest, rarest wines. The coffee factor is sixteen from bottom to top. The wine factor, by comparison, is fifty, sixty, a hundred, even more.

What is the solution to the coffee-wine paradox? Why does wine seem to cost so much more than coffee despite the factors that would seem to raise coffee’s cost? And why do the best wines cost so much more, in relative terms, than the best coffees? What’s your answer? Watch this space for mine!

Wine’s Future: It’s in the Bag (in the Box)

One of my favorite globalization books is The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger by Marc Levinson. It is the story of how the invention of the standard shipping container (those 20-foot steel boxes you see on ships, rail cars and truck beds) made international trade much cheaper, more efficient and more secure. Now it looks like another kind of box is about to shake up the wine world.

Cheap and Nasty

I’m talking about box wines or bag-in-box (BIB) wines (the Australians call them cask wines) that feature an airtight wine-filled plastic bladder inside a cardboard box. You use a built-in spigot to get to the wine. They can be found on the bottom shelf of the wine wall and behind the bar and out of sight at your local restaurant. They come in several sizes — 3 liter and 5 liter containers are the most common.

Box wines have a bad reputation. They first appeared in the 1970s and were filled with generic bulk wines.  They were one step down from the popular 1.5 liter “magnum” bottles of  “Burgundy,” “Chabils” and the notorious “Rhine” wine. Box wine was cheap, nasty stuff that acquired a frequently deserved bad reputation.

[Re]-Thinking Inside the Box

It’s time to reconsider box wine. Screw caps had a bad reputation, too, until quite recently. We associated them with low grade swill until fine wines appeared under screw cap (the New Zealand producers were in the vanguard) and we began to appreciate that that screw caps have many advantages. Now screw caps are actually associated with quality for some types of wine, especially youthful whites, and no one expects to pay less or get less because of the screw-top closure.

The technology of box wine is very solid. The airtight bladder is a neutral container that is well suited to holding wine for relatively short periods of time. (Don’t cellar box wine — consume within a year of production — check out the “drink by” date on the box.) The bladder and spigot do in fact protect the wine from oxygen in the short run, so it will last longer once opened (especially if the box is stored in the fridge) than similar leftover wine in bottles.

Bladders are so good at the particular thing that they do that they have become an industry standard technology for bulk  imported wines, which are shipped in huge bladders inside steel shipping containers (big bag in big box) and then bottled in the import market. So you may already be drinking box wine and not know it.

The Box Also Rises

The most recent Nielsen retail wine sales figures (reported in the October 2009 issues of Wine Business Monthly) suggest that box wine sales are growing. Wine sold in 3, 4 and 5 liter containers (most of it is box wine, I think) accounts for just under 10 percent of US supermarket wine sales, according to the Nielsen data (compared to 65% for standard bottles with the remainder in 1.5 liter and other formats). Sales are rising in this category, with 3 liter packages up 8.7% in the last year on a dollar basis, for example, and 5 liter packages are up 9.3% by value.

The total market for box wines rises if we include on-premises sales. Recent data (see previous posts) indicate that box wines (served to customers in carafes and by the glass) are strong sellers in casual dining establishments.

The rise of box wine is part of the trading down effect, clearly, since most box wines fall into the two price categories that are experiencing the highest growth. Sales of wines that are less than $3 per 750ml bottle equivalent have risen 7.1 percent according to Nielsen and by 10% for wines between $3 and  $5.99. Supermarket sales of $20+ wines, on the other hand, have fallen by 3.4%.

Nasty, Brutish and Short?

Does this mean that Americans have traded down all the way to the bottom, back to the nasty box wines of the 1970s? The answer, incredibly, is no. Or at least not necessarily, according to the October 15 issue of Wine Spectator.  You can’t miss this issue on the newsstand — it features a cover story on “500 Values for $20 or Less” and includes a set of box wine reviews that make interesting reading.

Wine Spectator purchased 39 box wines in packages that ranged from 1 liter to 5 liters. Twenty seven wines were rated as “good” (a score of 80-84) and ten “very good” (85-89). The names of the 2 wines that scored below 80 were not reported.

The top box wine, going by the rating numbers, is a white: Wine Cube California Chardonnay, which sells in Target Stores for $17 per 3 liter box, which is $4.25 per standard bottle equivalent. It earned a very respectable 88 points. Wine Cube is a partnership between Target and Trinchero, the maker of a wide range of wines including Sutter Home.

The best red wine (at 87 points) is the Black Box Cabernet Sauvignon Paso Robles 2006, which costs $20 for 3 liters or $5 per standard bottle equivalent. Black Box is a widely distributed Constellation Brands product.

Good and Cheap?

Some box wine, apparently, is both pretty good and pretty cheap. Perhaps just to show that they really do rate wines blind, Wine Spectator gave a pretty good 84-point score to a non-vintage Carlo Rossi Cabernet Sauvignon California “Reserve” wine. Five liters for $13, in case you are interested,  That’s $1.97 per standard bottle equivalent.

How can decent wine be this cheap? One answer, of course, is that you can choose to make the wine itself less expensive by economizing in the cellar in many ways (less oak or none at all for red wines, for example). But to a considerable degree the box itself is responsible for the savings.

The bag in box container costs less than $1, according to the Wine Spectator article, which automatically saves $4 to $8 compared with a similar quantity of wine in standard glass bottles and the box they come in. Shipping costs are also less since the boxes weigh much less than glass bottles for the same quantity of wine and are less likely to be damaged in transit.  There are environmental benefits too, especially in areas where glass bottle recycling is problematic because the sour economy has undermined the market for recycled glass.

Is box wine the future of wine? No. The wine market is too complex to be dominated by any single trend. But with better wine in better boxes (and with consumers embracing a more relaxed idea of wine) box wine deserves to play a bigger role in the future of wine. Another triumph for The Box!

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November 1, 2009: I was recently interviewed about box wines by Simon Morton of Radio New Zealand’s  This Way Up . Click on the link to listen to the interview.

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