The Surprising Rebound & Unexpected Bifurcation of the U.S. Wine Market

Let’s climb in my time machine and go back a few years to 2008-2009, when the impact of the global financial crisis was beginning to be felt in the wine markets. It was a pretty gloomy time and there was a lot of talk about the need to reset our expectations to the “new normal.”

Gone were the days of great expectations as everyone scrambled to cope with the changing economic and consumer environment. What did we imagine the future would hold? Well, opinions varied, of course, but the “conventional wisdom” generally revolved around a few dire trends.

Trading Down and Trading Over

One of the most-cited trends was trading down. It sure looked like wine consumers were pulling away from wines at higher price points and shifting to less expensive products — or even moving away from wine altogether. Here’s a video that captures the moment fairly well (it was the first time I was ever interviewed by an animated character)

Trading down seemed like an unstoppable force at the time, although I suggested that it was more complicated. I noticed the strength of the Barefoot wine brand and proposed that it wasn’t just the price of the wine that made it so appealing to recession-battered wine drinkers, it was also the casual image that it offered with its surfer dude footprint in the sand style.

No one wants to admit to themselves that they are trading down, I wrote. Not good for self-esteem. But we can all embrace the idea of trading over — over to a more relaxed, less serious (and incidentally also maybe less expensive) idea of wine. Relax (there is even a brand of Riesling called “Relax”) and just enjoy wine. That’s what I thought I saw in the marketplace.

The $20+ Dead Zone

Whether it was trading down or trading over, the result was the same: the $20 and up segment of the wine market was declared a “dead zone” where nothing moved.  People still drank more expensive wines, then just didn’t buy them. They “drank up” from their cellars rather than “trading down” at the wine shop.

Wineries found that many wine club members were pulling back from scheduled shipments. Restaurant wine sales took a very big hit, too, as consumers dined out less frequently and economized on wine purchases when they did. Restaurants coped by trading down themselves, putting more pressure on wineries.

Dumping, Discounting and Flash Sales

Some wineries held their prices and absorbed inventory accumulations rather than discount or dumped excess wine on the bulk market (where Cameron Hughes and others found some outstanding bargains for their customers). They saw price cuts as a one-way street. You can lower prices, but can you raise them back up again when good times return?  Some wineries split the difference by bringing out second labels to sell for less — chateau cash flow wines — while holding the price line on prestige brands.  Lots of mistakes were made along the way and some wineries fell out of the market.

Many discounting strategies were rolled out. Safeway stores began running promotions where $20+ wines could be purchased for 30% off the regular price (or 40% off with a 6-bottle purchase) — a clear attempt to reduce inventories in the “dead zone” category. A number of “flash sale” wine websites appeared that allowed wineries to sell off surplus stock quickly and outside of the usual sales vectors.

Sometimes wineries found themselves caught in competition with their own wines as buyers (wine club members, restaurants, a few distributors) dumped their stock back on the market, under-cutting carefully calculated producer pricing strategies.

There were some great bargains for buyers who recognized them (and had the credit card headroom to take advantage), but there were not very many true winners among wine producers, especially those in the higher price ranges. The frankly defensive strategy of generating cash flow while protecting key price points was the best that many wineries could hope for.divide

Up the Down Staircase

Would consumers shift back when the recession was over? Not many people held out hope for a reset of the reset. So the current state of the U.S. wine market, which Jon Fredrikson has called “A Tale of Two Markets” comes as something of a surprise.

The U.S. wine market has split in two as the table above shows. (The table shows recent data for off-premises wine sales as measured through the particular retail channels monitored by the Nielsen Company. These data are indicative of what’s going on in the broad market.)

While the market is expanding at a moderate +3.4% pace (at least it is growing, unlike wine markets in some Old World regions), there is a clear division between wines selling at prices below $9 and those that sell for more. Although the cheaper wines make up the majority of the market by volume, they are shrinking in dollar sales value, especially the $6.00 to $8.99 segment.

The New Conventional Wisdom?

More expensive wines, on the other hand, represent a rising market segment. All price segments over $9 are growing as per these data, with the fastest growth at the highest price point — $20 and above!

This is truly a dramatic turnaround for U.S. wine. What is behind this unexpected change?  I’ll survey the new conventional wisdom in my next column.

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BTW that’s a really old picture of me in the video — I hope that  I’ve improved with age since 2008. The Costco reference is a bit off in that interview, too. Costco sells wine at a low mark-up, but they don’t try to compete at the very bottom of the market as the video images suggest. I don’t think I’ve ever seen boxes of Franzia at a Costco, for example.

Unintended Consequences: How the U.S. & Canada Accidentally Destroyed Wine

At one point in Kym Anderson’s new book about the Australian wine industry he reflects on what can be done to shorten that country’s current wine slump and to get things sailing again on an even keel. One of his suggestions caught my eye:

“Governments need to keep out of grape and wine markets and confine their activities to generating public goods and overcoming market failures such as the free rider problem of collecting levies for generic promotion and R&D.”

This is more than the simple Adam Smith “laissez-faire” idea. Anderson’s book clearly demonstrates the law of unintended consequences — how well-meaning government policies sometimes have had unexpectedly negative side-effects. No wonder he recommends a cautious approach to wine and grape policy.

I was reminded of this when I was researching the history of the Canadian wine industry for a recent speaking engagement in Ontario. I was struck by Canada’s experience with Prohibition in the 20th century, how it differed from the U.S. experiment, and how both ended up crippling their wine industries but in very different ways. Here’s what I learned.

How U.S. Prohibition Crippled the Wine Industry

The great experiment in Prohibition in the United States started in 1920 and lasted until 1933. The 18th Amendment outlawed the manufacture, sale or transport of intoxicating beverages, including wine. Most people assume that the wine industry collapsed as legal wine sales and consumption fell and this is partly true but not the complete story. Commercial wine production almost disappeared, but wine consumption actually boomed.

How is this possible? There were three loopholes in the wine regulations outlined in the Volstead Act. Wine could still be produced and sold for medical purposes (prescription wine?) and also for use in religious services (sacramental wine). This kept a few wineries in business but does not account for the consumption boom, which is due to the third loophole: households were allowed to make up to 200 gallons of wine per year for “non-intoxicating” family consumption.

Demand for wine grapes exploded as home winemaking increased (but not always for strictly non-intoxicating purposes). Total U.S. vineyard area just about doubled between 1919 and 1926! But the new plantings were not delicate varieties that commercial producers might have chosen but rather grapes chosen for their high yields,  strong alcohol potential and ability to survive shipping to eastern markets.

Thus did Prohibition increase wine consumption in the U.S. but it also corrupted the product by turning over wine-making from trained professionals to enthusiastic  amateurs working in often unsanitary conditions. The home-produced wine sometimes had little in common with pre-Prohibition commercial products except its alcoholic content.

Americans drank more wine during Prohibition, but it was an inferior product. No wonder they dropped wine like a hot stone when Prohibition ended. That’s when the real wine bust occurred and it took decades to fully recover. Do you see the unintended consequence in this story? But wait, there’s more …

How Canadian Prohibition Crippled Its Wine Industry

Prohibition started earlier (1916) and ended earlier (1927) in Canada and took a different fundamental form. With support from temperance groups, consumption of beer and spirits (Canada’s first choice alcoholic drinks) was banned as part of war policy with the stated intent of preserving grain supplies for vital military uses. Consumption was forbidden, but production of beer and spirits was still allowed for export, which accounts for the boom in bootleg Canadian whiskey in the U.S. in the 1920s.

Neither production nor consumption of wine was included in Canada’s ban on alcohol, although wine sales were limited to the cellar door. What made wine different? Maybe grapes were not as vital to the war effort as grains, although John Schreiner cites the political influence of the United Farmer’s Party in his account of this period in The Wines of Canada. Wine became the legal alcoholic beverage of choice for Canadian consumers and production boomed. By the end of Canadian Prohibition there were 57 licensed wineries in Ontario (up from just 12) to serve the big Toronto market.

Wine sales increased 100-fold, according to Schreiner, but “It would be charitable to describe the quality of the wines being made in Ontario during this period as variable,” he writes. The market wanted alcohol and set a low standard of quality, which many producers pragmatically stooped to satisfy. No wonder wine production collapsed at the end of Prohibition as consumers went back to spirits and beer.

Unintended Consequences

Thus did government policy in both Canada and the United States create wine booms during their respective Prohibition eras, but the worst kind of booms: bad wine booms. Quality suffered as quantity surged. It is no surprise that consumers turned away from wine once other beverages were available. It took decades for these industries to recover.

Both the Canadian and U.S. wine industries are vibrant and growing today, having recovered from the crippling effects of poor quality wine. But they both are still hampered by other policies — especially regarding distribution and sales — that date back to the end of Prohibition. Economic policies can obviously have unintended effects and the shadows they cast can be long indeed.

No wonder Kym Anderson is skeptical about government interference in the Australian industry. Prohibition is an extreme case, to be sure, but such cases clearly show the unintended consequence potential that exists even with other seemingly harmless proposals. A cautious approach makes sense.

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You can read more about both the Australian booms and busts and also Prohibition in the United States in chapter 6 of my 2013 book  Extreme Wine. Look for a review of Kym Anderson’s book in an upcoming Wine Economist column.

How Will the Rising Dollar Affect the U.S. Wine Market?

fxHow will the rising dollar affect the U.S. wine market? The answer, predictably, is that it’s complicated. Read on for analysis organized around three questions. Why has the dollar appreciated? What are the textbook effects of a rising dollar? How and why is the impact on U.S. wine likely to be different?

Why has the dollar appreciated?

The U.S. dollar has appreciated dramatically on foreign exchange markets, powered by several factors. Expectations of higher interest rates in the U.S. is a big part of the story as the reality of the end of the Federal Reserve’s asset purchase program sinks in. Add to this the fact that the Europoean Central Bank is finally close to beginning its own quantitative easing program, which will keep rates down on that side of the pond. This combination is a recipe for the sort of change you see in the graph above.

The relative strength of the U.S. economy, weakness of the E.U.with its potential “triple dip” recession and uncertainty regarding China and oil prices all contribute to the economic environment that has helped fuel the dollar’s recent rise. Where is money going to go in a risky world? Can you say USA? A lot of us have been impatiently waiting for the dollar to move higher for a couple of years. Now that it has happened, what should we expect?

What are the textbook effects of a rising dollar?

The classic textbook effect of a rising currency is that imports increase because they are relatively cheaper and exports decline because they are costlier to those holding foreign currencies. Imports up, exports down. That’s where the Econ 101 story often stops, but the situation is a little more complicated.

Prices adjust faster than quantities in most cases. Price effects (rising export costs, falling import prices) tend to happen quickly, but quantities take longer to change because of inventory lags, recognition lags, and contract lags. Basically, it takes time before the new exchange rate translates into real actions because existing inventories must be depleted before new orders are made, because it takes some time before economic actors feel certain that the change is sustained and not just a market blip, and because existing contracts often preclude immediate adjustments.

These lags create what economists call the “J curve” effect, with opposite short-term and long-term payments impacts. The Econ 101 results take longer to show up in significant amounts than you might think and even then will only appear if other intervening economic factors don’t offset them. So predicting the short term impact of an exchange rate change isn’t as simple as you might think even if you earned an “A” in Econ 101.

But price is a powerful force, and the fact that a rising dollar makes our exports more expensive to foreign purchasers (and imports cheaper for U.S. buyers) should not be ignored even if immediate run impacts are not obvious. Don’t expect everything to change at once.

One more complication is that although we like to talk about the dollar rising or falling, the overall trend conceals the fact that the dollar might be higher relative to one currency and still falling compared to another. During one recent period when the dollar was quite weak by some standards, for example, it still rose compared to some other currencies that were even weaker.

How and why is the impact on the U.S. wine markets likely to be different?

Given all this, it is instructive to read a 2012 report by Kym Anderson and Glyn Wittwer titled “Studying the impact of exchange rate movements on the world’s wine markets, 2007-2011” (a University of Adelaide Wine Economics Research Centre working paper — the link takes you to a pdf of the paper). The Anderson-Wittwer study examined the impact of exchange rates on wine trade during a period when the dollar was falling instead of rising and finds that the impact of exchange rates was different in different import markets and in different wine market segments. (I told you it was complicated!)

In the U.K. market, for example, the exchange rate impacts were pretty much what theory suggested both in terms of import effects and distribution among different wine exporting countries. A good textbook case.

But the U.S. was a different story, as you might expect given that we have a substantial domestic wine production base and that we both export and import wine with the two trade flows connected to a certain degree by the “wine drawback program”  (Click here to read a 2012 UC/Davis report on the drawback program.)

The wine drawback program allows a refund of 99% of import duties and excise taxes on wine for which the importer has matching exports of commercially “interchangeable” wine. Because per-unit import duty and excise tax rates are substantial compared to the price of bulk wine, use of the program is high for bulk wine imports, which compete with wine from low-price Central Valley grapes. Bulk wine exports dominated imports until 2009 and the program stimulated import growth. Now, with imports and exports roughly in balance, the program stimulates both exports and imports—leaving net trade in bulk wine roughly in balance.

– Summary of the U.C. Davis Report

The Anderson-Wittwer study found that the falling dollar had different effects on U.S. consumption of  Old World and New World wine imports during 2007-2011. Old World imports increased despite the dollar’s fall and New World imports fell.  Obviously the price effects were more strongly felt for New World wines than for Old World products (see Table 6 of the report) and although Australia accounted for much of the import decline and may be a special case in some ways, Argentina, Chile and South Africa were also negatively affected.

The study found differences by price category, too. Non-premium and commercial premium New World wines were the most affected by the exchange rate changes while super-premium wines showed less impact. This makes sense because the lower priced products are often part of the bulk wine trade, which has become highly efficient, facilitating ease of substitution from one country’s products to another. A small change in cost can have a big impact on the size and direction of trade. Textbook effects rule here.

More expensive products benefit from greater product differentiation. The power of an established brand acts as a shock absorber when costs increase, although there are obvious limits to this.

It’s Complicated

So if Old World imports increased and New World imports fell during the period when the dollar was slumping, can we expect just the reverse now that the dollar is soaring? It would be great if we could just take the Anderson-Wittwer numbers and change the signs from plus to minus and so forth, but life is more complicated than that. Anyone who has tried to sell wine can tell you that it is easier to lower a price than to increase it! It’s a kind of hysteresis in the sense that where you can go now depends on where you have been. You can’t just back out to where you started.

That said I think there are important insights to take away here, key among them is the idea that the impacts are likely to be different for bulk wine and packaged good trade and for Old and New World products.

Textbooks and research give us good guides to understanding the impacts, but there aren’t any simple answers. And the exchange rate isn’t the only thing that’s changing this time around. I know a number of New World producers who made big bets on the Russian market, for example. Seemed like a good idea at the time, but my how things have changed! They’ll be desperately  looking for markets for the wine they can’t sell to Moscow. And imports from Argentina may be more affected by that country’s domestic policies (and the upcoming elections) than exchange rates.

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It occurs to me that this column is a classic example of what Paul Krugman once called “up and down economics.” This goes up, that goes down, and so on. Made me think of the Winslow Homer painting “Right and Left” that you can see in the National Gallery in Washington D.C.

Not That Easy Being Green (Wine): Review of Two Books

Britt & Per Karlsson, Biodynamic, Organic and Natural Winemaking: Sustainable Viticulture and Viniculture. Floris Books, 2014.

John Kiger, A Vineyard Odyssey: The Organic Fight to Save Wine from the Ravages of Nature. Rowman & Littlefield, 2013.

It’s really not that easy being green if you are a winegrower or wine maker. For a long time green wines (organic, biodynamic, sustainable and so forth) were not a very dynamic category here in the U.S. You could find them, but they were tucked away in what I call the “green ghetto” neighborhood at the supermarket, close by de-alcoholized wines, half-bottles, and other sometimes slow-selling SKUs.

Some research actually suggested that consumers were not only unwilling to pay more for organic wines, as they often do with other organic products. They actually valued them less than other wines. So many people who made organic or biodynamic wines didn’t go out of their way to advertise the fact. Much different from Europe, where “bio” wines are a strong category.

This is changing and I expect to see green wine sales grow, albeit from its current small base. The dynamic is driven by both supply and demand. On the supply side, more and more wine grape growers and producers simply want to be green — they see it as the best way to do business, especially in the long run — and want to advertise that fact and develop the market category.

Jean-Guillaume Prats, chief of the wine group at LVMH, goes further. He told the Wine Vision 2014 audience that in considering vineyard investments, if you can’t grow the grapes organically, maybe you shouldn’t grow them at all! He’s obviously focused on the luxury wine segment, but the message resonates in other parts of the market.

On the demand side I see green wines as part of a bigger movement. A friend pointed out to me that consumers who shop at Whole Foods, Trader Joe’s and other upscale supermarkets simply expect that the products they find there will be organic — and are turned off if they are not. They look for organic certification everywhere else in the store. Why should wine be any different?

So things are changing, although it may take a while for the build-up of small ripples and waves to come crashing to shore. I think this is a good time to rethink green wines and the two books reviewed in this column are excellent places to begin.

Green Wine Primer

Britt and Per Karlsson write about wine from their base in Sweden and this book, which first appeared in Swedish in 2012, is a welcome green wine primer. Its scope is broad, including organic, biodynamic, sustainable and natural viticulture and winemaking.  The Karlssons provide good depth and detail, covering the science, economics and regulatory politics of green wine today. Theory and practice, just what you need.

I was especially interested in the curious politics of EU organic wine regulations. Because of the desire to have one set of rules for everyone from Greece to Latvia, the compromise results can seem illogical. The limits on copper use, for example, seem driven by the need to accommodate Burgundy in a particularly bad year and so are out of balance for other parts of the EU. A regional approach would seem to make better sense here as in many other instances, but I think some of the Eurocrats are suspicious of regionalism, so illogical compromise rules.

Although there is more detail about European practices and regulations than New World activities, I found plenty to work with and the contrast of regimes helped me understand them all much better.

The book is clearly written and organized and lavishly illustrated with color photos that are both beautiful and informative. I learned something new in every chapter, but I was especially interested in the biodynamics section. The combination of thorough research and personal interviews with growers and winemakers made this material come alive for me.

Sometimes the smallest points are the most satisfying, so I was pleased to learn the origin of the numbers that are used to identify the biodynamic preparations. These preparations often raise eyebrows because they seem to represent the “voodoo” side of biodynamics — manure stuffed in cow horns, buried in the vineyard and then made into a tea to spray on the vines, for example. Why are they identified with numbers not names? Numerology?

No, it’s more about politics. The numbers (cow horn manure is Preparation 500) may have come about when the Nazis in Germany banned biodynamic agriculture, the Karlssons report. Proponents learned to speak in a numbers code to avoid detection.  Who would have guessed?

The Karlssons present all this information objectively and openly question some of the most extreme claims of green wine proponents, but I don’t think you write a book like this unless you think there is something in the concept itself. In this regard I think they reflect both the times, which as I noted before now seems to favor organic products, and their location (Scandinavia is a good market for green wines).

This is a fine book and worth your attention.

Green Isn’t Easy at All

It really isn’t easy being green — not easy at all — and as much as the Karlssons give a strong sense of this in their survey, there is really nothing like a report from the front lines of the battle. John Kiger and his wife Deb own and operate Kiger Family Vineyard in Sonoma Valley, which is not a region where nature cuts the green winegrower any slack. Just the opposite in fact. At times it seems like being natural is a battle against nature itself.

Kiger’s book makes a nice pairing with the Karlssons’ because it is at once so similar in topic and yet so different in approach. Kiger’s book is clearly personal, for example. The author presents a first person account of the triumphs, failures and struggles. The book has heroes (including the Kigers and their allies) and villains, too, chief among them is oidium or powdery mildew, which  is a threat to vineyards everywhere and perhaps especially in cool-climate Sonoma Valley.

Kiger becomes obsessed with powdery mildew, by his own account, and so we learn a great deal about it. This intense focus is very helpful because an organic wine farmer necessarily becomes obsessed with all the harmful fungi and harmful insets and so forth and is driven to find natural ways to combat them.

The book’s first chapter is titled “If I’d Only Known Then What I Know Now,” which tells you that it really hasn’t been easy being green, and the last chapter is called “Truce.” which might suggest that the Kigers have come to terms with nature’s many sides. But I think it is really that they have accepted that  each new year starts a new cycle of natural challenges like powdery mildew and that this struggle has value in itself in addition to the grapes and wine that are produced.

These two books make a nice pairing for your wine economics bookshelf. File them alongside Caro Feely’s books on her struggles with organic and then biodynamic winegrowing in France. Follow this link to read my review of Feely’s books. Cheers to everyone who struggles to be green — we know it’s not easy!

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Here’s the obvious music for this column and the lyrics sort of apply to the green wine case, don’t you think?

Are Wine Prices Too High? Or Too Low? (Wine’s Golden Age & Its Discontents)

ukwineAre wine prices too high? Or are they too low? Two prominent wine writers raised these questions in different columns and it is worth pondering them separately and then together.

Tim Atkin: Race to the Bottom

Tim Atkin recently complained that British wine prices are too low in a column titled “Mad Frankie Fraser and the Price of Wine.” The average price of wine in the UK has risen slightly in recent years to £5.50  (about $8.75 at recent exchange rates), but the increase is mainly due to rising taxes (I have called this the UK government’s “war on wine”), which disproportionately impact lower-priced wines.

UK consumers resist paying more (having been trained by supermarkets to look for loss leader 3-for-£10 sales and BOGOF promotions), so the tax burden has been shifted back onto producers, who apparently have had to cut corners to cut cost and try to hang onto what were already slender margins.

The result, Atkin says, is that the quality of the average bottle of wine is now very low, which damages the reputation of wine generally. You used to be able to find a few nice wines at £5, Atkin says, but not any more with the tax soaking up so much of the retail price. £5.50 is the average and so if these wines are unworthy of attention, you can just imagine what must be true of the many wines selling for less.

Wine needs to cost more to be better, according to Atkin. Some UK consumers have figured this out, of course, and so the market, which is always segmented, has become even more bifurcated with one market for decent wines and another for mediocre stuff.

The problem is approaching crisis, according to Atkin. “I hesitate to say this, but maybe what wine needs is a minor scandal that exposes the way bargain basement wine is made, blended and traded,” he writes.  “Otherwise, I can’t see the UK’s polarised wine markets converging. It would take more than a sadist with a pair of pliers [the Mad Frankie Fraser of the column title] to change the wine buying habits of a nation.”

The Amazon-ification of Wine?

Atkin focuses on the impact of low prices on wine quality in the particular UK market environment, but there are other reasons to be concerned about bargain pricing. In the publishing industry, for example, some people are concerned about the larger implications of Amazon.com’s continuing quest for market share through low prices for books and ebooks.

The argument here is that by driving the price of books so low Amazon risks turning literature into a commodity. In the short term it might get more books and articles into more hands (and Kindle e-readers). But since consumers have a tendency to equate price with value, will this ultimately devalue the entire industry? Will literature become simple interchangeable “content?”

You can see how this argument might apply to wine. If wine is so cheap that it is no longer seen as having any special qualities, will it lose its distinctive identity and become just an alcoholic beverage, vulnerable to competition from beer, spirits and cider? Has this already happened? Perhaps it is has in the UK, especially if Atkin is right about collapsing quality.

This is food for thought, although the theory depends upon a lot of assumptions.  Some say that Amazon.com’s book prices are not so cheap as they once were because the company needs book profits to fund its rapid expansion into other markets.  Are book prices too low? I don’t know. Are wine prices too low? Or …  are they too high?museo

 Matt Kramer: Museum-ification

Here in the United States Wine Spectator columnist Matt Kramer is concerned that wine prices are too high. His article is called  “The Museum-ification of Wine: Have ultrahigh prices distorted our understanding and enjoyment of wine?” and its clear that the sort of wine he’s concerned about is much different from the nasty, cheap stuff that Atkin finds so revolting.

Fine wines are a luxury, Kramer notes, but it used to be possible to actually drink them occasionally and to really enjoy their special qualities. Now, however, the prices of the best wines get bid up to stratospheric levels and the top wines become trophies that are collected and exchanged but not necessarily consumed.

Kramer gets to taste these wines on occasion because he’s an influential wine writer, but even he isn’t able to actually drink them — to enjoy them in the ordinary way that wine is meant to be enjoyed. For the rest of us who are not famous wine writers, the wines might be like works of art in a museum. Look but don’t touch (or sip).

“Now, tasting for exploratory or analytical purposes, such as occurs with critics or anyone’s learning experience, is not only essential, but admirable,” Kramer writes. “But there’s a limit. If you’re buying wines only to “taste,” then you’ve museum-ified wine. And that, I feel free to say, is not just mistaken, but genuinely wrong. It objectifies wine. It denatures the experience, transmuting pleasure into comparative performance.”

Touchstones No More?

I framed this issue in a less sophisticated way in my 2013 book Extreme Wine (see chapter 5 on “Money Wine”), focusing on cultural significance. I compared the great Bordeaux wines to grand opera not museum displays. Once upon a time opera was the music of both the masses and elites, I wrote — everyone knew and sang, whistled or played the tunes and arias — it was a basic cultural reference point. And fine Bordeaux was once a fundamental reference point for wine in about the same way.

But things have changed. Opera, with its elaborate productions, costumes, orchestras, singers, chorus and sometimes dancers, is now perhaps the world’s most expensive art form and the prices of the best Bordeaux are sky high as well. Both risk being priced beyond the means of wine and music lovers and must work to maintain there relevance. Bordeaux almost disappeared here on the Pacific coast (Costco seems determined to bring it back now, if the current wine selection is any indication — or maybe they just got screaming deals).  Opera’s niche seems more secure, but is still vulnerable.

I  develop this idea in greater detail in Extreme Wine but hopefully you get the drift of the argument from this quick summary. Both opera and Bordeaux are still great and we love them, but they are now different in terms of their cultural significance, no longer the touchstones they once were.  Have they become museum-pieces as Kramer argues? Perhaps.

A Golden Age Slipping Away?

So are cheap wines too cheap and fine wines too expensive? Prices are what they are from an economic standpoint (it’s that demand and supply thing), but we can evaluate their effects. I think both Atkin and Kramer make good points, although it is hard to know how to change the dynamics they have identified.

Fortunately the cheap wine situation is different here in the U.S. where the war against wine was fought and lost back in the Prohibition era. It took a long time to recover, but we’ve won many battles since then and wine is on the upswing. I think the Two Buck Chuck revolution of the early 2000s raised the standard for inexpensive wines, for example. Today’s inexpensive wines  are not to everyone’s taste, but they undeniably achieve a commercial standard that the British, with their high taxes, might envy. The high prices at the top that Kramer bemoans and the problem he outlines exists just about everywhere, however.

Jancis Robinson recently called this a golden age for wine  and said that our challenge is to make the most of  it. I think she’s right.  Atkin and Kramer are doing their part to try to keep all the gains we’ve made from slipping away and we should help out.

It may be cold comfort to some, but there is a world of wines that exist between the extremes that Atkin and Kramer represent. Wines that are interesting and sometimes inspiring — and that people can and do buy, drink and enjoy.  That’s what we all should do at this holiday time of the year. Embrace the golden age: find these wines, share and enjoy them as they should be enjoyed.

So two cheers to the golden age of wine, with a third cheer in reserve to use if reserve if we can find a way to navigate the obstacles that Atkin and Kramer have charted. Cheers to all!

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Opera + Champagne = Cheers to Wine Economist readers all!

Wines & Vines: A Global Perspective on Regional Wine Identity

The December 2014 issue of Wine & Vines is out and it features the usual mix of interesting and informative articles. This issue includes a preview of the sessions scheduled for the Unified Wine & Grape Symposium in Sacramento at the end of January, a “Best of 2014″ collection, a guide to building an urban winery and much, much more.

Great stuff — the wine industry is lucky to be served by top notch professional publications like Wines & Vines, Wine Business Monthly, Harpers Wine & Spirits, Beveragedaily.com,  Meininger’s Wine Business International, The Drinks Business and  other useful and informative publications.

Wines & Vines has for some time now included content from Practical Winery & Vineyard, which is edited by Don Neel. This month Don chose an article that I wrote for him last year to be featured in the combined publication. It is called “A Global Perspective on Regional Wine Identity: Think Global, Drink Local.”

The article is based on a presentation I made to a gathering of wine makers in Southern Oregon. Some of the remarks are aimed specifically at this under-the-radar region, where some great wines are being made, but I think many of the conclusions I draw are more general. I invite you to click on the link and read the column along with the other Wines & Vines articles.

Fear Beer? Sometimes the Best Wine is a Beer (or a Cider)

The theme of the Wine Industry Financial Symposium this fall was “Let the Good Times Roll,” but the news stories that came out of the two-day gathering were as much about potential threats as golden opportunities.  “Wine has nothing to fear but beer itself” is a typical example.

Connect the dots

No individual speaker focused specifically on craft beer and cider, but it’s fair to say that they were the 300-pound gorillas in the room. The reporters present picked up on a comment here and a mention there and effectively connected the dots. Let the good times roll? Or roll out the “beer” barrel? Hard to tell which was the stronger message.

I was one of the dots along with UC Davis dean Robert Smiley and others.  I spoke about the trends I have observed traveling the world in the past year and one of them is the rise of craft beer and cider and their growing incursion into the wine space. I see it everywhere and the people I meet are often surprised that it is a widespread phenomenon. I thought it was just something that’s happening here is a common response.

As if to illustrate my point, the post-conference reception featured a number of nice wines from Napa area wineries plus a Napa-based craft brewer who was pouring three or four interesting products. Can you guess what many of the wine people were drinking? You guessed right if you said that it was beer.

The price is right?

Which makes sense because sometimes the best wine is a beer (or a cider). That’s not just a fact of life, it’s also the title of a chapter in my next book, which is set for release next fall. The book is called Money, Taste & Wine: It’s Complicated and it’s a collections of essays, rants and raves about the crazy business of wine.

The gist of the chapter (and part of my remarks in Napa and also later in London at Wine Vision 2014) is that inexpensive generic wines can be pretty uninspiring in a world where  upscale consumers look for distinctive products like they find at Whole Foods and see on Food Network shows. For about the same price as that generic wine you can purchase a really distinctive craft beer or cider.  And while the best wines can cost hundreds, the top of the craft beer category is not that many dollars above the middle market. The relative cost of really distinctive products versus generic plonk can be much less for beer than for wine.

In other words, if you want to feed your terroirist soul, you might find craft beer or cider a very cost effective alternative to wine. Obviously I develop this idea more thoroughly in the forthcoming book chapter, but I think you probably get the idea already. Just go to an upscale supermarket and stare at the beer case and cider shelf for a while.  You may be impressed by the sophisticated products you see and the reasonable (compared to wine) prices they fetch.

I’m especially taken with the new ciders I’ve encountered. Ciders come in many types — blends, single variety, oak-aged and so on. There are even ice ciders that, like ice wines, are made from naturally frozen fruit.

No need to fear beer …

Beer and cider also have a number of supply side advantages over wine. Because grains and apples can be stored for months you can make batch after batch of beer and cider pretty much continuously through the year. With wine you get one shot at fermentation and that’s it. This gives beer and cider more production flexibility and permits small lot seasonal experimentation, too.

So should wine “fear beer” as the story headline suggests? No, but wine needs to take these products into account and respect them as strong competition. Honestly I don’t think craft beer and cider are threats, but I do see them as challengers. If we don’t want to lose customers to these innovative products, we need to up our game and make sure that wines at key price points have the quality to compete.

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