Get Ready for the Wine Industry Financial Symposium

Sue and I have just returned from a week in Northern Italy as guests of the Valpolicella Consorzio (look for a series of industry reports on Valpolicella and Prosecco in the coming weeks) and now we are getting ready to head to Napa, California for the Wine Industry Financial Symposium that will be held there on September 22 and 23.

The theme of the symposium is “Let the Good Times Roll,” which will strike some as a bit off-key since the California headlines this year have been dominated by bad news — first drought and then the recent Napa earthquake. The program (see below) doesn’t sidestep the challenges, but seeks to put them into the context of a rising tide in the U.S. market. It should be an interesting couple of days!

Monday’s program features workshops that focus on specific issues of interest to wine industry professionals including the Hispanic wine market in the U.S., the rise of craft beer, the emerging talent gap in the wine industry, tax issues and vineyard finance.  Lots of interesting topics and great speakers — something for everyone.

The Tuesday morning program accentuates the positive, beginning with David Freed’s industry overview and ending just before lunch with Carolyn Wente and the celebration of 130 years of Wente Vineyards. In between Dr. Robert Smiley will present the results of his annual survey of wine industry CEOs and John Ciatti will report on U.S. and global harvest trends.

I will talk about “Lessons from the Global Wine Wars,” with an overview of important global market trends, focusing on two that I think are particularly relevant for the U.S. industry today: the “premiumization” of the wine market and the surge in “disintermediation” in the wine industry.

Tuesday afternoon features sessions on social media marketing, “next generation” consumers and wine distribution. Looking forward to hearing the speakers and seeing everyone in Napa next week. Here’s the complete program. Cheers!

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Wine Industry Financial Symposium

Monday Workshops – September 22, 2014

Session I: 1:30 p.m. – 3:00 p.m. – Choose One

1. NEW DIRECT TO CONSUMER TRENDS
Examine new ways to relate to consumers through the direct to consumer channel. Speaker-moderator Craig Root will present several new tips designed to enhance your operation. Featured speaker Norman Stolzoff, President of Ethnographic Insight, will offer a detailed look at ethnographic research. This important field uses anthropological insights to solve real-world problems. Ethnography helps better serve customers, leading to profitable results.
Craig Root, Visitor Management Resources
Norman Stolzoff, PhD, President, Ethnographic Insight Inc.

2. TRANSACTIONS: WHO ARE THE BUYERS AND WHO ARE THE SELLERS?
John Mackie,
Partner, Carle, Mackie, Power & Ross, LLP, Moderator
Tony Correia, Owner, The Correia Company
Matt Franklin, Principal, Zepponi & Company
Josh Grace, Managing Director, International Wine Associates

3. THE HISPANIC WINE CONSUMER
What does it mean to the wine industry and what do we do to make wine the beverage of choice?
Steve Rannekleiv, Executive Director, Research, Rabobank International
Natalia Velikova, PhD., Texas Tech University

4. THE EMERGING TALENT GAP POSES RISKS FOR THE WINE INDUSTRY
Ray Johnson, Director of Wine Business Institute, Sonoma State University
Carol O’Hara, Partner, Burr, Pilger & Mayer, Moderator
Tom O’Brien, Director of Human Resources, Trinchero Family Estates
Larry Smith, Senior Vice President, Human Resources, Jackson Family Wines
Dawn Wofford, Managing Partner, Benchmark Consulting

Session II: 3:30 p.m. – 5:00 p.m. – Choose One

5. EQUITY AND DEBT MARKETS: CURRENT TRENDS AND FUTURE OUTLOOK
David Freed, Chairman, The Silverado Group
William Beyer, Principal, Prudential Agricultural Investments
Hal Forcey
, American AgAppraisal
Perry F. Deluca, Senior Vice President, Wine Industry Team Leader, Wells Fargo Bank

6. WHO IS THE COMPETITION? WILL CRAFT BEER AND CRAFT SPIRITS HURT WINE SALES, OR SHOULD YOU JUST JOIN THEM?
Bill Leigon, President, Jamieson Ranch Vineyards
Mark Crisler, CS, Founder & Chief Everything Officer, Trellis Wine Group
Jesus Ceja, Ceja Winery / Carneros Brewing Company

7. USE PERMITS: CURRENT ISSUES AND FUTURE TRENDS
Phillip Kalsched, Partner, Carle, Mackie, Power, Ross, LLP, Moderator
Dean Parsons, Project Review Manager, Sonoma County Permit & Resource Management Department
Jeff Redding, Principal, Land Use Environmental Planning Service
Beth Painter, Principal, Balance Planning

8. COMMON TAX ISSUES FOR VINEYARDS AND WINERIES
Federal Income Tax Updates, State Income Tax Updates, Sales Tax Updates and Estate Tax/Valuations
David Pardes, Tax Director, PricewaterhouseCoopers
George Famalett, Tax Partner, PricewaterhouseCoopers
Joan Armenta Roberts, Managing Director, PricewaterhouseCoopers
Eric W. Nath, ASA, Principal, Eric Nath & Associates
Thomas Garigliano, Tax Partner, Burr, Pilger & Mayer


Tuesday General Session – September 23, 2014
7:45 – 8:15 a.m.
COFFEE & REGISTRATION

8:15 – 8:20 a.m.
WELCOME & INTRODUCTIONS
Lisa Adams Walter, Director of Programs, Wine Industry Symposium Group

8:20 – 8:30 a.m.
WINE INDUSTRY OVERVIEW
David Freed, Chairman, The Silverado Group

8:30 – 9:15 a.m.
WHAT WINE INDUSTRY LEADERS THINK IS IMPORTANT FOR THE FUTURE
Robert Smiley, PhD, Dean and Professor Emeritus, Director of Wine
Graduate School of Management, University of California, Davis

9:15 – 10:00 a.m.
LESSONS FROM THE GLOBAL WINE WARS
Mike Veseth, Editor, The Wine Economist Blog

10:00 – 10:30 a.m.
GET – ACQUAINTED BREAK

10:30 – 11:15 a.m.
THE CALIFORNIA AND GLOBAL HARVEST UPDATE
John Ciatti, Broker, Ciatti Company LLC

11:15 a.m. – 12:00 noon
WENTE VINEYARDS CELEBRATES 130 YEARS
Carolyn Wente, CEO, Wente Vineyards

12:00 – 1:15 p.m.
NETWORKING LUNCHEON

1:15 – 2:15 p.m.
HOW SKILLFUL USAGE OF DIGITAL MARKETING AND SOCIAL MEDIA
NEED TO BE INTEGRATED IN THE BIGGER PICTURE OF BRAND BUILDING AND POSITIONING
John Gillespie, President, Wine Market Council and CEO, Wine Opinions
Karena Breslin, VP Digital Marketing, Constellation Brands
Alisa Joseph, Vice President, Business Development, The Nielsen Company
Mark Gordon, Digital Marketing Manager, Jackson Family Wines
Mike Osborn, Founder and VP Merchandising, Wine.com

2:15 – 3:00 p.m.
NEXT GENERATION WINE
Liz Thach, PhD, MW, Professor of Management and Wine Business, Sonoma State University
Judd Finkelstein, Judd’s Hill Winery
Lisa Broman Augustine, Broman Cellars
Nicole Bacigalupi Dericco, Bacigalupi Vineyards

3:00 – 4:00 p.m.
WINE AND DISTRIBUTION
Jonathan Pey, Principal, TEXTBOOK Napa Valley
Jon Moramarco, Principal, BW 166 LLC
Dan Grunbeck, EVP Corporate Business Development & Strategy, Youngs Market

4:00 – 5:00 p.m.
FINANCIAL SPONSOR FINALE
WINETASTING & RECEPTION – Hosted by WIFS Sponsors

 

Groot Expectations: South Africa Confronts the Wine Bottleneck Syndrome

People think that growing quality grapes and making great wine are big challenges — and they are right — but that’s not the whole story. There are a great many obstacles and complications that taken together sometimes make selling wine even more difficult than making it. I call the problem the wine bottleneck syndrome

The bottleneck syndrome is particularly troubling for South Africa just now, which looks to the U.S. to pick up some of the slack left by a stagnant European market. (The South African flag even looks a little like a bottleneck design, don’t you think?)

The largest wine market is the world is hard to ignore, but when I was in the Cape Winelands two years ago to open the Nederberg Auction I sensed great uncertainty about how to get the job done.  Realistic goals, but few proven strategies when it came to the U.S. market.

A lot has changed in two years and now I sense greater confidence and see concrete plans in place. I’ll use this column to highlight a few of the initiatives we discovered on our recent visit.

International Cellar Door Sales

Last week I talked about the importance of wine tourism and South Africa’s many advantages. If there is a better region anywhere in the world for wine tourism I don’t know what it is. But the Cape is geographically remote from both Europe and the United States. Wine tourists who are used to making purchases and taking them home run into significant logistical problems.

What you need is a bit of “Star Trek” magic where you taste and buy the wine in Stellenbosch or Robertson and it magically appears at your door in London, Paris, Seattle or New York.  This magic now exists in the form of drop shippers in Germany and the U.S. who stock the wines in their warehouses and then quickly and efficiently ship them to Europe and the UK and U.S. addresses respectively in response to South African cellar door orders. A logistical solution to the wine tourist’s problem. Beam up my Sauvignon Blanc, Scotty!

I discovered the program when I spied a special offer notice at the Durbanville Hills winery tasting room. Buy 18 bottles (mixed cases allowed) and get free delivery to your home in Europe within 5 business days. Wow, what a service. Albert Gerber explained that they use a German  firm called Red Simon that specializes in sale and distribution of South African wines and handles remote cellar door sales delivery for a number of wineries.

Adinda Booysen at  the historic Lanzerac Wine Estate alerted me to a similar program here in the U.S. Cape Ardor is associated with Red Simon and operates in much the same way, although with some difference in terms of participating wineries and subject to the peculiar restrictions of U.S. wine shipping regulations. These long-distance cellar door sales programs have the potential to more successfully leverage the wine tourist market and to make sure that follow-up sales can be efficiently managed.

Defining Brand South Africa

Image really isn’t everything (the old Nike ads were wrong), but it matters a lot in the world of wine and South Africa’s wine image is still being defined here in the U.S. and in other markets. I have argued elsewhere that building a regional wine brand is everyone’s business — it is not just the responsibility of Wines of South Africa or Wines of Chile, etc. — and requires a multi-prong strategy. I have praised a group called Australia’s First Families of Wines, for example, for taking the lead in the ultra-premium export sector of that country’s wine industry.

piwosa

We were pleased to discover a similarly focus effort called Premium Independent Wineries of South Africa (PIWOSA). Like the Australian group, these wineries span the most important regions and present many different styles of wines. What they have in common is a set of values and a commitment to quality, which they seek to communicate to define their niche in the  marketplace and that hopefully will help define South Africa’s position, too.

Prominent on their website (and in the shared goals of the producers, I believe) is an ethics charter. Interestingly, the charter includes not just a set of abstract commitments but a statement of what it means in practice. South Africa seeks to identify itself with sustainability and ethical production and this group makes a strong statement.

PIWOSA isn’t the only private group that is taking the initiative to raise the country’s profile on world wine markets. The Cape Winemakers Guild  and the Nederburg Auction have a long history in this regard, for example, and the recent successful AfrAsia Bank Cape Wine Auction used Napa-style flair to raise money for charity and raise awareness of South African and its wines.

Three of the PIWOSA members — Paul Cluver, Jordan (Jardin here in the U.S. because of trademark considerations) and The Winery of Good Hope — have taken the next step by collaborating on import and distribution in the U.S. market, gaining scale and exploiting their shared goals and diverse products lines.

Developing Distribution Channels

We were also impressed with several other positive initiatives to develop Cape Wine distribution in the U.S. market.  Some U.S. importers and distributors have really embraced the potential of South African wine. For example, we found ourselves in frequent conversation with clients of Broadbent Selections, one of the leading importers with an impressive Cape Wine portfolio that includes A.A. Badenhorst, Cape Point Vineyard, De Wetshof, Delaire Graff, Dorrance, Sadie Family Wines, Savage, The Curator, Vilafonté, and Warwick Estate.

Broadbent (and they are not alone in this)  seems to be making a major investment in developing the South African premium wine market here in the U.S. and these wines are a great foundation. Our discussions with Mike Ratcliffe (Warwick and Vilafonté), Danie De Wet (De Wetshof) and Duncan Savage (Cape Point and Savage) revealed both distinctive wines and strong brand identities, both of which are surely necessary when taking aim at the cluttered and competitive U.S. market.

Some ambitious export projects are still in the development stage.  Distell, the South African wine, cider and spirits market leader with a portfolio of brands that includes Nederberg, Durbanville Hills, Two Oceans and Fleur Du Cap, is putting resources into a  focused assault on the U.S. market. I am hopeful that Distell’s initiative when it is fully implemented will be successful for its own select brands and will also help elevate awareness of  South Africa and its wines more generally.

When Size Does Matter

Volume is valuable in the U.S. market if only because the fixed costs of market penetration are high, so we were impressed by multi-tier programs, with higher volume premium wines paired with ultra-premium products. At Stark-Condé, for example, their limited production Stellenbosch and  Jonkershoek Valley Cabernets and Syrahs (which I compare to wines from Napa Valley’s Stags Leap AVA) share a distribution channel their more popularly priced M-A-N Family Wines, which are made from grapes sources from 30 farmers in the Agter-Paarl region. The resulting scale is a market advantage.

The M-A-N wines are both delicious and very good values — the Cabernet, Chenin Blanc and Pinotage have been selling for less than $10 recently in my area. The Pinotage will surprise any Pinotage-haters in your circle. The fruit comes from low-yield bush vines and the easy-drinking wine can give popular Argentinean Malbecs a real run for their money.

Although the market strategy is a bit different, Antonij Rupert‘s Protea brand is another developing success story. Rupert’s fine wines and its very distinct vineyard specific Cape of Good Hope brand are necessarily smaller production propositions. So having Protea with its ever-so-memorable bottle (Sue, who is a fiber artist, really loves the designs)  and wide distribution to lead the way is a plus.

Excelsior Wine Estate is currently the best-selling South African brand in the U.S. market and so they already have that useful volume that the M-A-N and Protea wines are growing into, but that doesn’t mean that they are standing pat. Sue and I recently saw Excelsior Hands Cabernet Sauvignon at a local Total Wine store. It is part of Total Wines’ “WineryDirect”  portfolio of directly sourced wines, which seems to now be a key element of that retailer’s business model.

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South African winemakers are trying many different approaches to breaking through the wine distribution bottleneck. Not all will be equally successful and some will surely fail, but I think the net result will be very positive, both for South African producers and for U.S. consumers, too. I plan to revisit this topic in the future to see what lessons can be learned.

From Marco Polo to Eric Asimov: Invisible Cities, Imaginary Wines

Kublai Khan is old and tired and his empire is vast and fraying at the edges. It is impossible for him personally to  know his great domain, so he studies his atlas and sends emissaries to be his eyes and ears and bring back reports. His favorite eye-witness correspondent is Marco Polo, with whom he sits for days on end in the palace garden, turning gestures and then words into vivid images of otherwise unseen cities via the advanced technology of the human imagination.

Are the stories and the cities they represent truth or fiction? It is impossible for Kublai Khan to know for sure since they cannot easily be verified. Some of the tales are fantastic and understandably raise doubts. But they all seem to contain an ehpemeral kernel of truth, which makes the invisible cities important even if they might only be figments of the imagination.

In any case, Marco Polo advises, the truth is in the hearing, not the telling, since each listener (or reader, I suppose) will shape the words to reflect their own experiences, anxieties and desires. The same accounts, he advises Kublai, will produce entirely different images when he eventually tells them again back home in Venice.

Invisible Cities, Invisible Wines

Do you recognize this story? It is the from one of my favorite books, Italo Calvino’s Invisible Cities (1972). This is a book that I have read and re-read perhaps 10 times, with those bits of truth always just beyond my reach (perhaps this is why Kublai Khan spends so much time with Marco Polo).  It is a great book, but what does it have to do with wine?

I was inspired to dig out my copy of Invisible Cities by a recent column by New York Times wine critic Eric Asimov called “Why Can’t You Find That Wine?”   Asimov uses the article to respond to readers who are frustrated that the fabulous wines he often praises turn out to be nearly impossible for them to actually experience. Asimov writes that,

Often plaintive and occasionally hostile, the missives arrive regularly by email, snail mail and phone: “You have an uncanny ability to discuss wines that are difficult if not impossible to find,” one California reader wrote in June.

And this from a reader in New York: “Once again, I have wasted more than a half-hour trying (in vain) to find where in New York City to buy wines mentioned in your column.”

Asimov is sympathetic to his readers’ frustration and explains how the almost hopelessly fragmented US wine market (a lasting legacy of Prohibition) makes it nearly impossible to talk about important wines if you limit your list to only those that can be found in all the nation’s many marketplaces. (He usefully provides hints and strategies for consumers to use to track down special wines.)

My goal is to explore what I think makes wine so thrilling. I’m seeking wines that inspire, with stories to tell and mysteries, perhaps, to conceal. Sometimes deliciousness is enough. But often, the flavors and aromas are only part of what a wine conveys. It’s the rest of the message that’s so fascinating. Part of the joy is for consumers to take part in this journey and make up their own minds. It hurts when they cannot.

Many of the wines that Asimov finds inspiring are produced or imported in tiny quantities with very limited distribution. The wines are real, but for most of Asimov’s readers they might as well be imaginary since their only chance to experience them is to imagine them much as Kublai Kahn imagined Marco Polo’s cities.

The Empire of Imaginary Wines

“I fervently wish all drinkers could find what they want. I sympathize with those who can’t,” he writes, ” But the simple solution — choosing only wines that are easy to find — is worse than the problem.”  That’s because Asimov sees his mission not just to report but to elevate and inspire — to excite our imaginations and to draw attention to those who somehow through their winemaking are able to bring us a bit closer to an ephemeral kernel of truth.

Those are my words, not his, but you get the drift. And do you see how how Asimov and Marco Polo are connected? They both tell us stories about a world too vast for us to ever really know. There are, I am told, about 80,000 different wines for sale in the United States today — far too many for any of us to really know and appreciate even if they were all available to us in one easy to shop aisle., which of course they are not. They are a bit like Kublai Kahn’s vast empire (and we are a bit like him, I suppose).

Eighty thousand wines? That seems like a lot, but there are probably even more. Wine Business Monthly reports that there are about 8,000 wineries in North America and if each produced just five different wines that would account for half the total.  Could the rest of the world with its many thousands of wineries supply the rest? My goodness yes.

Imaginary Wine: A New Wine Genre?

So we really are in Kublai Khan’s position, aren’t we? The difference, I suppose, is that unlike him we are not satisfied with a glimpse of the truth to inspire us — we really want to see the invisible cities and to taste the invisible wines and won’t be satisfied until we do.

I am sure that Asimov is right — it is best for him to tell us about inspiring wines even if we can never really know them, since the accounts may inspire us even if they also frustrate us. (There is a place, however, for accounts of the visible wines, too, don’t you think?) But perhaps we need to take the next step. Asimov’s wines are real, but if we cannot taste them ourselves wouldn’t inspiring stories about fictional wines be just as good — or maybe even better?

I guess what I am asking is if there is a place the wine world for fantastically fictional descriptions of imaginary wines (and  not just those fake bottles that Rudy K produced) that would make us rethink wine the way that Marco Polo’s stories made Kublai Khan rethink his (and our) world? We could never actually taste the wines, but perhaps they might still  elevate and inspire. Life does at least sometimes imitate art!

What do you think? If you were Marco Polo describing an imaginary wine to Kublai Kahn, what would you say?

Deconstructing and Disentangling the Disintermediation of the Wine Business

Disintermediation was a hot topic in financial economics a few years ago — I built an entire economics class around it — and it remains a powerful idea even if it may be an unfamiliar word.  I think we don’t use the term so much these days because the concept is now woven into the fabric of our daily lives! Time to untangle it and see how it works, especially in the wine business.

Disinter … what?

Disintermediation refers to the process of “cutting out the middle man” — reducing the number of links in the supply chain by eliminating certain functions. If you’ve ever tried to sell a home yourself rather than using a real estate agent “intermediary” or bought or sold anything on eBay or Craig’s List then you’ve been part of the disintermediation movement to a certain extent. As the video above suggests, the quotidian activity of buying an airline ticket was once upon a time a middleman business. Not so much any more!

Commercial banks were the main focus of financial disintermediation back in the day. Banks and other financial intermediaries provided valuable services (that’s how middlemen earn their pay), but the incentive to borrow or lend directly through “securitized” products was strong and that’s why financial disintermediation started to occur. Disintermediation increased the apparent efficiency of the financial markets but also probably increased risk and volatility because some of the functions of the intermediaries were lost and the bank-based regulatory structure found it difficult to cope with the “non-bank banks” and other institutions that evolved. Or at least that’s my take on how the process unfolded.

Disintermediation still goes on today, but it has become so commonplace that we don’t give it much attention — until we are the links cut out of the chain! The advent of “crowd-sourcing” or “crowd-funding” websites is a good example of disintermediation. There are all sorts of ways to shorten the supply chain, both when it is a good idea and when it is not (sometimes it turns out the missing link was really important).

How Does This Relate to Wine?

Which brings us (finally) to wine. A Wine Economist reader writes to suggest disintermediation as a topic for a column and I think it is a great idea.  There are a lot of big and little examples of disintermediation at work in the wine industry.

On the big end of the scale we have giant firms like Tesco who now often source bulk wines directly from around the world and bottle them under their own labels (sometimes in their own plants) and sell them under house brand labels.  The streamlined process shortens the chain and cuts cost.

Disintermediation was part of the story for one of American wine’s biggest success stories of recent years — Two Buck Chuck (a.k.a. the Charles Shaw wine sold at Trader Joe’s stores). Most wine in America goes through the three-tier distribution system with its built-in middleman structure. But Bronco Wine, which makes 5 million cases of Two Buck Chuck a year, and Trader Joe’s took advantage of a provision in California regulations that allowed companies like Bronco to deliver directly to the retailer, cutting out a link and making it possible to profitably sell a two dollar wine. A lot of factors contributed to Two Buck Chuck’s success and this disintermediation was one of them.

Disintermediation works for medium sized firms, too, such as Naked Wines, which uses an interesting crowd-funding and direct sales model — their “angel” investors finance wine production and become a built-in direct-to-consumer market for the final product — that’s double disintermediation in a way. My helpful reader drew my attention to a direct wine retailer called Fass Selections. which aims to cut out two links in the supply chain for their wines: importer and distributor. That’s disintermediation, all right! Disintermediation isn’t everywhere, but there’s a lot of it around (tasting rooms and cellar door sales?), even in places you wouldn’t think to look.

 Down Under Disintermediation

My favorite example of wine disintermediation was a discovery that Sue and I made while walking through the big Queen Victoria public market  in Melbourne during our visit to Australia in September. I couldn’t believe my eyes when I saw the big stack of wine barrels at the ReWine market stall.

refillers

The ReWine folks offer a carefully curated selection of wines that they have purchased in bulk from Australian producers. They sell them directly to consumers in the Queen Victoria and Preston markets — the bottles are filled from the barrel containers you see in the photos. Bring your bottle back to be refilled (like the wine “growlers” that are gaining popularity here in the U.S. where local law permits them) and you get a discount.

The wines range from basic dry red and dry white wines sold at a low price to some very interesting products on up the line including dry, sweet and fortified wines. There was a nice Pinot Noir from the Adelaide Hills on offer when we stopped by.

You get what you pay for in the basic range, we were told, as these wines are blends made for a particular price point like basic wines everywhere in the world, with more distinctive products at the higher price points. Something for everyone, I think especially for a wine economist like me!

These examples just scratch the surface of disintermediation in the wine industry. I visited with a  2500 case winery recently that seemed to build its entire distribution model around the concept of cutting out the middleman. Easy to see the incentive to do this and also to appreciate the risks.

Once you start to think about disintermediation you will begin to see it at work everyone, even in the world of wine. Keep your eyes open — it might not change everything, but it’s bound to have a big effect.

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Thanks to my economics-savvy reader for suggesting this topic. Thanks to Sue for the Melbourne photos.

How Much Choice Do Wine Drinkers Really Have?

galaxy2*

How much choice do U.S. wine drinkers really have? The answer to this question, according to a study by a group of Michigan State University scholars, is that it depends on how you look at the question and where you seek your answer.

The study is called “Concentration in the U.S. Wine Industry” by Phil Howard, Terra Bogart, Alix Grabowski, Rebecca Mino, Nick Molen and Steve Schultze and it follows up on previous research on concentration in the U.S. beer and soft drinks industries. (Click on the link to read the whole report and select the tabs you will find there to view the beer and soft drinks information.)

A Question of Perspective

If you look at the question in terms of the number of different wine brands on the market and varieties within each brand, then the answer is clear. U.S. consumers have a galaxy of choices when it comes to wine. I use the term “galaxy” because I’ve taken one of the key info-graphics from the report and doctored it up to look like an image of the stars in the night sky.  More wines than than there are stars in the universe — or at least it seems that way some of the time.

But click on that galaxy image above and you will open a window that shows how those wine stars are aligned. And I am sure that you won’t be surprised to see that there are several huge business “solar systems” with dozens of brands each: Gallo, the Wine Group and Constellation Brands among the producers, for example, and Deutsch and Winebow among the importers.

mktshare

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The wine world has its share of Mega and Mini businesses and some of the Megas are very large indeed, although the degree of market concentration is much less in wine than in beer or soft drinks.  So if you look at wine compared to beer, for example (and I suspect that this would hold true for spirits, too), there is a very low level of concentration — lots of different choices even taking the biggest firms into account. And if you look at it in terms of number of individual wines for sale you get the same sort of answer. But if you look at the number of wine firms and the amount of the total wine market they fill, the choice seems a lot narrower.

As the graphic above suggests, the top 5 firms account for more than half of U.S. wine sales, which is a lot even if it is less than the corresponding figure for beer or soft drinks. Although the study does not provide any international comparisons, I believe the the U.S. wine market is much more concentrated than France, Italy or the U.K., for example,  but less so than Australia. (In the UK the critical concentration factor is at the retailer rather than the producer level since the big retail chains are so influential there.)

The degree of concentration also differs depending upon whether you look at all wine as this study does or segment the market according to price, which is the analysis I prefer. The market for wines selling for less than $5 per bottle equivalent is much more concentrated than the $20+ segment, for example. Most consumers make most of their purchases within a relatively narrow price range and it’s the diversity in that segment that matters most to them.

Location, Location, Location

The Michigan State team found that the nature of your choice also depends upon where you shop. Some of the supermarkets and wine shops that they surveyed in Michigan sourced their wine from dozens of different suppliers, providing that galaxy of choices that the vast potential selection promises. But other stores — national-chain convenience or drug stores, for example — can (and frequently do) quite easily fill a 100-item wine wall with products from just two or maybe three suppliers. The Megas can easily provide foreign and domestic selections of all the main varieties at every relevant price point. So choice is both smaller and different, if you know what I mean.

This has an impact on wines produced or imported by smaller firms, of course, and also (according to an interesting study by Rebecca  Mino) on local wineries.  Mino found that Michigan wines were far more likely to be available in Michigan-only retailers than at the Michigan affiliates of national retail chains.

These studies are very interesting and fun, too  – I admit that I played with the “galaxy” graphic for quite a while because I enjoyed seeing the business connections within the different wine portfolios. It is just fascinating — if you haven’t clicked on that “galaxy” image at the top of the page already you’ve got to do it now.

What’s the Right Way to Think About Choice in Wine?

But the main thing I appreciate about this research is the question that it raises: how should we think about choice when it comes to wine? Does that fact that some of the Megas have dozens of brands diminish choice? Certainly not if the brands have considerable autonomy when it comes to winemaking (like the “string of pearls” model that Ste Michelle Wine Estates follows).  Sometimes the vast perceived choice is real.

But that doesn’t mean that that there aren’t any effects of industrial concentration in wine, as the national chain store part of the study indicates. Some of the national retail chains treat wine as they do other products and attempt to minimize the number of suppliers while maintaining choice. Choice is diminished when the availability of “Mini” products and especially locally-produced wines is taken into account and  this would be a problem if these stores are the only choice for wine (as they may be in some areas). Apparently we need a mix of different retail suppliers to assure that the true diversity of wine is represented on the shelves.

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Thanks to Phillip H. Howard for sharing his results and giving me permission to reprint some of the graphics.  Speaking of “it depends on how you look at it” questions, here is one of my favorite science videos — “Powers of Ten” from the Office of Charles and Ray Eames (1977). Enjoy.

Naked Naked Naked Naked Wine

Maybe it’s just me. I’m kind of a modest guy but it seems like everywhere I look in the world of wine someone or something is getting undressed. I wonder where it will lead?

Naked Wine

It started with Alice Feiring’s 2011 book Naked Wine: Letting Grapes Do What Comes Naturally, which is an account of her attempt to make wine in the most natural way, with the smallest possible amount of intervention. The description on Amazon.com explains that

Naked wine is wine stripped down to its basics—wine as it was meant to be: wholesome, exciting, provocative, living, sensual, and pure. Naked, or natural, wine is the opposite of most New World wines today; Alice Feiring calls them “overripe, over-manipulated, and overblown” and makes her case that good (and possibly great) wine can still be made, if only winemakers would listen more to nature and less to marketers, and stop using additives and chemicals. But letting wine make itself is harder than it seems.

Three years ago, Feiring answered a dare to try her hand at natural winemaking. In Naked Wine,she details her adventure—sometimes calm, sometimes wild, always revealing—and peers into the nooks and crannies of today’s exciting, new (but centuries-old) world of natural wine.

The book is a contribution to the “natural wine” movement, which is both particularly active and controversial these days, especially in France where some wine bars specialize in the natural product while some critics argue that it is just an excuse for making bad wine. I love a good controversy, so the whole natural wine debate appeals to me.

But why not call the book “Natural Wine?” I guess publishers must think that “natural” doesn’t sell books (perhaps book buyers think — with some justification —  that all wines are natural). I noticed that when Jamie Goode and Sam Harrop published their excellent book on this topic then ended up calling it Authentic Wine not Natural Wine. Naked (or authentic) sells better than natural I guess.

Naked Naked Wine

More and more wines are made using organic and biodynamic practices, but they seldom advertise it prominently on the label. I think winemakers see the “natural wine” category as unnecessarily limiting and so choose not to position their products that way.

One that does is the range of Naked wines made by Snoqualmie Vineyards, one of the Ste Michelle Wines Estate wineries. There is a Naked Riesling as well as Naked Merlot, Cabernet Sauvignon, Chardonnay and Gewurztraminer.

“Although all of our wines are made with minimal intervention,” the website declares, ” grapes used in the Naked wine series are farmed as “au naturel” as possible. “Naked” is made with certified organically grown grapes in a certified organic facility. Very true to the varietal, these wines fit in perfectly with [winemaker Joy Anderson's] philosophy that it is best to leave Mother Nature alone – let nature take her course and then try to capture the natural essence of the vineyard in the bottle.”

Naked Naked Naked Wine

A six-pack of naked wines arrived at our door last week and they weren’t from Snoqualmie or from Alice Feiring. They came from an online retailer called NakedWines.com Inc. NakedWines originated in Great Britain and is now online for the U.S. market.

The idea behind NakedWines is to go beyond just buying and re-selling wine (although the UK site does this, too, including some “flash” sales). NakedWines encourages its customers to become “angels” and invest $40 per month (£20 in the UK) in the particular small wineries that are associated with the company. Angels are repaid in the form of deeply discounted prices on the wines that their angel dust has made possible.

This is an interesting business model, sort of a cross between Wines.com and Kiva.org, the online micro-lending website. Here is an explanation from the UK website:

Good winemakers want to invest in quality and NOT waste funds on slick marketing campaigns. Your £20 a month makes it possible for them to do just that. They know their wine is sold before they’ve even grown the grapes, so they can invest all their time, money and energy in the vineyard crafting delicious wines, and pass the savings on to you.

NakedWines was founded by a former colleague of Virgin’s Richard Branson according to the Wikipedia page and is credited with being a pioneer in the use of social media marketing. I poked around the websites and failed to find an explanation for the “naked” part of the name. Perhaps it has something to do with stripping away the middleman’s profit or maybe it is just marketing meant to attract attention by introducing a risqué element. If so, they are not the only ones to think of this.

OMG: Naked Naked Naked Naked Wine

We visited the beautiful Columbia Gorge AVA during the recent Wine Bloggers’ Conference in Portland and I found myself sitting at a table with representatives of the Naked Winery & Orgasmic Wine Company of Hood River, Oregon. Their wines include Naked Merlot, Foreplay Chardonnay, Missionary Cabernet Sauvignon and Climax Red Table Wine. There is also a Virgin Chardonnay which presumably is not to be confused with their Penetration Cabernet.  (I’ll stop listing the wine names here to avoid getting a PG rating.) Customers are invited to “Get Naked” by sampling wines at the tasting room.

At Naked Winery, we aim to tease!  A family owned winery based out of Hood River Oregon, we are on a mission to produce premium class Washington and Oregon wines, with exotic brands and provocative back labels that are just a bit risqué. We aim to please the palate, change the conversation and enhance the romantic experience of wine.

We believe that the entire experience around wine should be fun. Read our back labels or have your mother-in-law read the back label aloud at your next family function. As we say, drink what you like and who wouldn’t like to get a little Naughty now and then? You can taste all three of our brands, Naked Wine, Orgasmic wine and coming soon, Outdoor Wino at our Hood River tasting room. Enjoy live music four nights a week and good company all year round. Come get Naked!

Clearly this wine is “naked” in a different sense than the others. Naked is a way to get people to let down their hair and be more relaxed about wine. To have a little fun. I understand that that the tasting room is a popular destination.

Whether it is serious or only a bit of a tease, this naked thing seems to be a very popular. I wonder what is next? Naked Naked Naked Naked Naked!

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Speaking of a tease, here’s the final video from The Naked Wine Show series. It is (apparently) the only show in the series where the reviewer was clothed.

Big Apple Report: Where’s Washington [Wine]?

Waldo is easier to find than Washington wine in NYC.

Lettie Teague wrote a Wall Street Journal column back in 2010 called “Stalking the Wines of Washington.” In it she complained about her difficulty finding Washington wines in the New York City area. There’s just no demand, she was told, so wine shops don’t bother with Washington wines.

The Incredible Story

That’s incredible, I thought as I read Lettie’s story, since so many Washington wines are both very good (served at White House dinners, we are told) and very good values, too. Hard to believe that smart New Yorkers aren’t interested in these wines! So I decided to do a little fieldwork on the question during my recent East Coast speaking tour to see if the situation has changed.

OK, am I the only one who thinks visiting out-of-town wine shops is a fun way to spend the day? In this case I headed for the Morrell & Co store in Rockefeller Center and the Sherry Lehmann shop a few blocks away. Two wine shops is a very small sample size, so this study isn’t statistically significant, but these are the flagships of the region’s wine fleet, so surely they reveal something. Here’s what I found.

Both stores were smaller than I expected given their fame  – I guess I didn’t factor in Manhattan retail floor space costs when I imagined what they would look like. But the number of bottles isn’t as important as the quality of the selection (that’s the key to Costco’s wine selling success).

New York State of Wine

My attempt to find Washington red wines in these stores was not very successful. I managed to locate a wine from Betz Family Winery at Morrell and a modestly priced red blend from Claar Cellars at Sherry Lehmann. And that was it for Washington reds. I might have missed a bottle or two (I blame my bifocals), but even if I did the selection was pretty limited. I didn’t check the white wines — maybe there were more over there.

There were plenty of French and Italian wines. Sherry Lehmann’s Burgundy selection made my mouth water and my credit card cry. Lots of great wines from Bordeaux, too. But where was the Washington wine section? Nowhere. No California wine territory, either. They were all grouped together as “American wines,” suggesting that Sherry Lehmann’s customers might be more interested in the fine points of French geography than domestic wine terroir.  And apparently almost completely uninterested in Washington. Why?

Supply Side Theory

I talked a bit with a friend who knows New York wine business pretty well and we came up with a couple of theories. Maybe it is a supply-side problem — distribution?

Yes, I suppose that could be the case. Distribution inefficiencies usually affect the “middle market” the most. Iconic wines (and I’d put the Betz wine in this category) get distribution and so do larger volume wines (Chateau Ste Michelle, Columbia Crest, etc), but in-between producers (like Claar Cellars) get squeezed out.

As you can see, my “small n” obversations aren’t completely consistent with a supply-side explanation, although you cannot rule it out, either. So what about demand?

Demand Side Theory

Maybe the demand just isn’t there as the shop owners told Lettie Teague. So why not? Well, here’s where a second set of observations is useful. While I was looking for Washington wines I also kept an eye out for Oregon Pinot Noir. And, while the Washington wines were all but invisible, I discovered a handful of interesting Oregon Pinots in each store.

So now the question gets more interesting. Why is Oregon part of the New York state of wine but not Washington? Here my NYC friend (who is a Washington wine fan) offered another theory: Oregon stands for something concrete in the crowded New York market, but Washington doesn’t.

When you think of Oregon wine you think of Pinot Noir because that’s its signature wine variety and demand-side market focus. But what do you think of when you think of Washington? Well, that’s the problem because Washington makes so many great wines but lacks a signature variety or style. I’ve written about this situation before and I don’t want to beat a dead horse here, but you can see how it can be a demand side problem.

Every NYC customer who asks for Oregon wine is probably thinking Pinot, but if ten customers ask for Washington wine they are unlikely to request the same wines or types of wines or grape varieties. It’s easy to see how a critical customer mass for Oregon Pinot Noir might appear but not for any particular Washington wine.

The Gravity Theory

A final theory comes from the economics literature — you might call it the “home court advantage” theory but technically it is based on the “gravity model” that is used to analyze international trade patterns. The gravity model holds that geographical proximity is a strong predictor of trade patterns — the closer countries are to one another the stronger the force of  “economic gravity” that pulls their economies together.

I see the home court advantage at work here within Washington State and it is widely observed that while the wine industry is global, wine consumption has a strong local bias. If this theory applies to the New York case, then it suggest that Europe is New York’s home court and that the pull of French gravity is especially strong. Given the many different languages that fill conversations on cosmopolitan New York City streets, this doesn’t seem like a crazy theory at all.

Convergence Zone

A quick analysis of the Morrell and Sherry-Lehmann websites reinforces my on-the-scene observations and adds more data since the warehouse selection is so much bigger than the Manhattan stores.

I found more Washington wines in the online stores, but I was still surprised by the relatively  limited selection. And I was surprised as well that Washington and Oregon had about the same number of wines on the sales lists despite Washington’s vastly greater number of wineries and total production. Burgundy (1122 wines on the Sherry-Lehmann site) has many more wines than California (612), Oregon (31) or Washington (30).

The particular wines listed on the Sherry Lehmann site suggest that the distribution theory is part of the explanation. More high volume Chateau Ste Michelle and Columbia Crest wines and some famous name icons, but a thinner middle market selection. It looks to me like all three forces are at work here, making this a particularly complex and difficult situation.

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Readers: use the comments section below to provide your own observations and theories.

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