California Conundrum: The Best of Wines, The Worst of Wines?

“It was the best of wines, it was the worst of wines (apologies to fans of Charles Dickens). The global wine glass seems both quite empty and full to the brim.”

These are the opening lines of my 2011 book Wine Wars and if you change “global” to “California” they apply very well to the situation today.  That’s why I will be in Napa Valley next week, speaking at the California Association of Winegrape Growers‘annual meeting summer conference (I’ll paste the conference program at the end of this column). There’s good news for California wine these days and bad news, too.

When is a Drought a Good Thing?

The good/bad – best/worst situation exists in several dimensions. Take the case of water. The on-going drought in California is on everyone’s mind, but its impact has been very different in different regions. The recent news from Napa Valley, for example, is that the drought can be beneficial  in terms of wine quality. Smaller grapes, the story goes, produce more intense wines. Good news for those who drink or make Napa Cabernet, we are told.


I can’t tell you how many of my friends have told me how amazing it is that four years of drought are actually good for California wine! Really? Well, I’m amazed too, but because there much more to California wine than Napa Valley. To focus just on Napa and the North Coast as many articles have done is misleading about the overall situation.

Napa Valley produces a lot of wine, but it is more or less a drop in the bucket compared with the huge wine production in other parts of California where the drought situation is very different. Higher costs and lower yields are not good news to most California producers, who are less able to extract a quality premium and suffer falling margins.

Many winegrowers have grubbed up their vines, in fact, switching to higher-value crops in the face of poor winegrape profitability. Paradoxically, however, some farmers are actually switching into grapes from other thirstier or less drought-tolerant crops, presumably because they see scarce water as a long term trend. It’s a complicated situation.

Demand and Supply Apply (As Usual)

Changing market conditions add to the good news/bad news conundrum. Rabobank reports that the current excess supply situation for under-$10 California value wines (as opposed to higher-price North Coast and mid-price Central Coast  wines) is likely to go from a worrisome problem to a real crisis in the next few years, as this graphic suggests.


A recent report by Allied Grape Growers reinforces this message. AGG President Nat DuBuduo noted grape prices as low as $15o per ton in the San Juaquin Valley and as high as $6000 per ton in the North Coast.

Part of the problem is that, for reasons I discussed earlier this year on The Wine Economist, the momentum in wine demand has shifted to premium and super-premium wines with lower-priced wine sales stagnant or falling. At the same time, however, potential production of value wine is about to increase dramatically because of vineyard decisions made a few years ago when market conditions were much different.

Rabobank estimates that 100,000 acres of currently non-producing wine grapes will come into production in the next three years. That my friends is a lot of wine to sell. Where is the increased acreage? Don’t look in Napa Valley, where rising demand and limited supply push prices higher and higher. Some of it is in the Central Coast, according to Rabobank, where demand is rising to potentially match the larger supply.

A lot of it is in the Central Valley when California’s value wines are produced and where prices are already low. This emerging wine lake will add to the current problem of full tanks and lackluster sales of value wines. Bad news for Central Valley winegrowers who are most affected by this pattern.

Best of Wines and the Worst, Too

Best of wines, worst of wines? The Rabobank report suggests a building crisis in one part of the California wine industry while it’s happy days in the North Coast with Central Coast wine seeking to balance rising demand and supply.

My job at the CAWG meetings will be to analyze the international and global aspects of the complicated situation and my remarks will suggests that this is a time of great uncertainty on these fronts, with important risks that might not come from usual sources. Combined with what the other speakers will offer I think it will be a great discussion.

Here’s the agenda for the sessions. Hope to see many of my California wine industry friends in Napa.


CAWG’s Annual Business Meeting & Conference, on Thursday, July 23, 2015

Wine Market Update and Insights explores the interplay between current trends in U.S. wine consumer behavior, the influence of foreign wines in the U.S. market, and what California growers and wineries need to do to stay competitive. Mike Veseth, Editor of The Wine Economist and John Gillespie, Wine Market Council president, will speak.

How Do We Grow the Market for California Wines? Wine consumption in the United States continues to grow, but that growth is unevenly distributed and competition in the domestic beverage alcohol market is fierce. California winegrape growers must compete with foreign wine growers, and domestic producers of craft beers and distilled spirits. This session will consider the  current trends, conditions and future views on wine industry growth, consumer demand trends and how growers and wineries must position themselves to compete and grow market share here and abroad. Amy Hoopes, Chief Marketing Officer/Executive Vice President, Global Sales, Wente Family Estates and Rob McMillan, Executive Vice President and Founder Silicon Valley Bank Wine Division, will speak.

Update from Washington, DC will highlight a variety of federal policy issues, including taxes, water, immigration and more. Louie Perry, CAWG’s federal lobbying team member from Cornerstone Government Affairs in Washington, DC, will provide the update.

The View from Trinchero Family Estates will be the luncheon keynote address from Bob Torkelson, president and COO of Trinchero Family Estates. Mr. Torkelson will share his insights and analysis on leading industry trends and issues.

The 41st Annual Business Meeting will take place after the speaker program, during lunch.


The [Sometimes Slow] March of the Kiwi Terroirists

slowhorseLast week’s column looked back to the concerns about terroir and geographical designations a few years ago when Sue and I visited New Zealand to gather material for my book about globalization, Globaloney. There was frustration and anxiety about how to delimit the Kiwi vineyards and concern that things weren’t moving fast enough.

The people in Hawkes Bay were so frustrated that they took  matters in their own hands, creating and trademarking the Gimblett Gravels region! Well, the good news is that progress is at last about to be made on the policy front although the promise of progress hasn’t stopped winemakers from trying to speed things along through their own branding strategies. Here’s a quick report.

The Slow Horse Theory

My friend Woody says that justice rides a slow horse and, if that’s true, then the new Kiwi geographical indicator policy must be just indeed. It certainly has been slow in coming!

I was struck by a recent Decanter article about New Zealand geographical indicators for wine.  “Ministers said …that they would put into practice the Geographical Indications (Wine and Spirits) Registration Act – first passed as long ago as 2006 but yet to enter into force.” The  reason for the rush to get the law implemented is a concern over international competitiveness.

‘The act will set up a registration scheme for wine and spirit geographical indications, similar to the trademark registration scheme,’ said New Zealand Trade Minister Tim Groser.

‘Being able to register wines and spirits geographical indications here will make it easier for their users to enforce them in New Zealand.
‘It will also make it easier for our exporters to protect their geographical indications in some overseas markets.’

Since the New Zealand industry is very dependent on exports, it makes good sense to bring Kiwi practices into line with the global rules of the game.

The move was ‘warmly welcomed’ by generic body New Zealand Winegrowers, whose CEO Philip Gregan said: ‘It will equip the industry with the tools to protect its premium brand from misappropriation or misuse, as well as help secure market access in some regions.

‘It’s a big step forward for the industry.’

A Bill to amend the Act will be introduced to New Zealand’s Parliament later this year, and the Act is expected to be passed by the end of 2015.

Paul Goldsmith, New Zealand’s Commerce and Consumer Affairs Minister, noted that some consumers are prepared to pay a significant premium for wines from certain New Zealand geographic regions.

“The reputation of New Zealand wines must be jealously guarded if we are to continue growing our wine exports.

“The ability to register geographical indications under the new Act will help our wine industry promote and protect its premium brand from misappropriation or misuse by overseas producers, as well as secure access in certain markets which require government-recognised geographical indications.”

Good idea. But what took so long?  I found an analysis of the situation on the Baldwins intellectual property law website which provided useful background. Apparently passing the geographic indicator act back in 2006 wasn’t enough — it is also necessary for the Governor General to issue an Order in Council, which was not done (as was the case with a previous geographical indicator act from 1994).

I have not been following this situation, so perhaps there have been very good reasons for the long delay in implementing the GI act. As I noted last week, some think that it might be premature to set down strict boundaries or worry that appellations in general have gotten out of control.  But clearly the NZ wine export sector’s needs are now being given priority. With a little luck they can begin to use the new system next year. Slow justice I suppose. I’d appreciate comments from those in New Zealand who are directly affected by the change. Are there issues here that don’t show up in the news stories?

Marlborough Pioneer Brancott Estate

I hope the geographical indicator law, when it is finally implemented, will provide New Zealand producers with the protections and processes that they need. But in the meantime terroir grows in importance every day in the global market as upscale consumers look for markers of integrity and authenticity in everything they buy. Wines of origin designations don’t guarantee these qualities, but they are a way to signal intent to buyers.

Smart Kiwi producers are doing their best to exploit terroir both in bottle and as brands, a fact that was clear when we were invited to participate in a digital wine tasting of Marlborough Sauvignon Blanc organized by Pernod Ricard’s Brancott Estate.

Brancott Estate is the pioneer Marlborough Sauvignon Blanc producer. The photo at right shows Frank Yukich planting the first Marlborough Sauvignon Blanc vine at the Brancott vineyard in Marlborough in 1975. If  you look closely you can see he is “fertilizing” the vine with a silver coin and irrigating it with Champagne.

The Yukich family’s company, Montana Wines, eventually changed hands and current owner Pernod Ricard rebranded it globally as Brancott Estate a few years ago. I suppose the Montana brand wine was never going to be an easy sell here in the U.S. where a wine from Montana can have more than one meaning, but Brancott Estate is a hit, hence our digital tasting.

P1090870There were five wines in the tasting flight, starting with a low alcohol Sauvignon Blanc called Flight Song and moving on to the mainstream Brancott Estate wine that is widely distributed here in the U.S. Then we climbed up the wine ladder from Stoneleigh Latitude (Stoneleigh is a sister winery to Brancott) to Brancott Estate Letter Series and ending with the Brancott Estate Chosen Rows (tiny production — not currently available in the U.S. market).

We tasted the wines in the company of Sue’s parents Mike and Gert with Brancott winemaker Patrick Materman as our virtual guide via a web link. The low alcohol Flight Song, made from early-harvest grapes, was not a favorite, but the popular Brancott Estate bottling was well received with its classic Marlborough flavors and aromas. A good reference point for the wines that followed.

The Stoneleigh Latitude Sauvignon Blanc is made from vines planted in Marlborough’s “Golden Mile,” where river rocks carpet the vineyard floor capturing the sun’s heat. Stoneleigh focuses exclusively on wines made from this one vineyard area. This wine, my favorite of the flight, displayed unexpected minerality on first taste and rich fruit when re-tasted an hour later and then the next day.

The Letter Series wine came exclusively from vines in the original Brancott vineyard (and not a regional blend) while the Chosen Rows (my second favorite) was sourced from a selection of the best rows of vines from Brancott. It was noticeably more serious and elegant — and more expensive. It’s s shame that it is made is such limited quantities because it might change some minds about Marlborough Sauvignon Blanc. I hope I have an opportunity to taste it again.

Strengthening Brand Marlborough

Together these wines demonstrated, just in case anyone had doubts, that Marlborough’s particular terroirs show themselves in the wines and that Pernod Ricard and the Brancott team are committed to making these wines and telling terroirist stories to go with them.

Focusing on the vineyard level with a particular brand isn’t the only way to tell the story, but it’s one way to do it until a more formal system of geographic indicators is in place. And even when sub-regional designations are improved, the vineyard-level story will be powerful and relevant.  The time is ripe for a terroirist take on New Zealand wines and producers are ready to rock and roll.


Here is a march to accompany the [slow] implementation of the New Zealand legislation. Perhaps you have heard it before?

Kiwi Wine Wars: Terroir and Its Discontents

When Sue and I visited New Zealand in 2004 we found a wine industry experiencing tremendous success, but worried that the good times might not last. It seemed like New Zealand’s wine production was doubling every few years — could global markets continue to absorb so much Kiwi wine?

Eleven years later the conclusion is that global consumers still love Kiwi wine, but the concern is still there for the future.

A Kiwi Variant of the Dutch Disease? 

There were lots of worries back in 2004. One was a kind of Kiwi variant of the “Dutch Disease” — the concern that tremendous success in one part of the wine industry would put a curse on the rest of it. Would the triumph of Marlborough Sauvignon Blanc crowd out other regions and winegrape varieties and leave New Zealand uncomfortably reliant on a single type of wine?

But that wasn’t the only problem people saw then. Ironically, we met with one very successful Marlborough producer who was worried about Pinot Noir messing up Sauvignon Blanc. New Zealand’s brand is Marlborough Sauvignon Blanc, he told us. Giving more attention to Pinot Noir risks confusing consumers about the Kiwi wine identity and killing the goose that lays the golden egg.  Put all the chips on Marlborough Sauvignon Blanc and make sure that very successful and profitable wine doesn’t fade away, he advised.

Eleven years later I think the concern about reliance on Sauvignon Blanc is  still around, but I’m not hearing much talk about Pinot Noir getting too much attention for the industry’s good. And that producer who wanted to deemphasize Pinot is now proud to make some highly-regarded Marlborough Pinot Noir in addition to his Sauvignon Blanc!  So a lot has changed even if some things stay the same.

 It’s Terroir Time

One concern that is still on the agenda is terroir and its importance in marketing the wine by telling an authentic terroirist story. As I have suggested in previous columns, terroir designations have morphed from a protective tool in Europe (an attempt to control fraud, for example, and protect geographical trademarks) and a brand issue here in the U.S. (brand Napa Valley) to an indicator of authenticity in the story-telling necessary to effectively sell wine today.

It’s terroir time in wine world. Upscale consumers want to have authentic stories to go with the products they buy — this is true for wine and other products — and a specific geographic designation is one way (but not the only way) for winemakers to tell that story.

Some of the people we talked with in Marlborough back in 2004 were thinking in terms of protection and brands and they were worried by New Zealand’s lack of a stronger geographic indicator system for wine. Marlborough is a very large designation, one producer told me, and it is a powerful brand for Sauvignon Blanc. But it is such a big and diverse area, he said, and the wines are so diverse in terms of style and quality.

He was afraid that as production was ramped up the lack of consistency would undermine Marlborough’s credibility. Private efforts to stress particularly excellent sub-regions did not seem to be getting traction and official actions looked slow in coming. Would Marlborough’s success ultimately undermine its credibility? That’s the pattern that I called “the Curse of the Blue Nun” in Wine Wars.

NZ-based wine writer Rebecca Gibb recently wrote about the movement to identify key Marlborough zones for Pinot Noir, concluding that as appealing as the idea is it might be premature. Maybe Kiwi winemakers are still learning where the the best places are to grow particular varieties, Gibb says. If she’s right then it was certainly too soon back in 2004, when the zones might have been crafted with SB, not Pinot, in mind. And Jamie Goode has recently cautioned about the movement to adopt geographical indicators in general.

Gimblett Gravels: Seizing Control

We visited Hawkes Bay on the North Island in 2004 and some of the winemakers there were impatient with Kiwi geographical indicator policies. Growers in the Gimblett Gravels knew that they had special terroir and, having saved it from exploitation as a gravel quarry, wanted to both protect it and brand it. But how?

They did both in the most direct way available to them, forming an association, registering “Gimblett Gravels” as a trademark and rigorously regulating its use. In essence I guess they “privatized” their terroir designation because they were frustrated with the lack of a clear public path.

Here is an explanation from the GG association’s website.

GIMBLETT GRAVELS is the registered trademark of the Gimblett Gravels Winegrowers Association. The Association and registered brand were developed to define and then name a winegrowing district using principles that are not catered for within New Zealand’s proposed Geographic Indications Act legislation.  … The Association and designation of the area was formed at a relatively early stage in its winegrowing life to ensure that the purity and integrity of its designation was not compromised by political issues outside its control. … To the best of our knowledge this is the first viticultural appellation in the New World where its ultimate boundary is defined by a distinct soil type boundary, no compromises, no politics.

The approach taken has determined that a carefully planned and professional branding program was required to promote the Gimblett Gravels Winegrowing District as a viable sub-region within the Hawke’s Bay region. The lack of any legal Geographic Indication status for Gimblett Gravels Winegrowing District has determined this approach. The branding program has developed a strong logo and branding platform that controls the use of the name “GIMBLETT GRAVELS” and “Gimblett Gravels Winegrowing District”.

Kiwi Terroir Today

I suspect my friends here in the U.S. who are caught up in various aspects of AVA and sub-AVA politics will look at the Gimlett Gravels initiative with respect, admiration and even a bit of envy. What a bold move! And I think it has been very successful, too.

Terroir and geographical indicators have grown and changed in their significance. Where does New Zealand stand today? Come back next week for a quick look at progress on this front both in private sector branding  and in Kiwi wine policy.

Natural Cork vs Alternative Closure Wars: Race to the [Wine Bottle] Top

At the end of my review of To Cork or Not to Cork, George Taber’s informative 2007 survey of the wine bottle closure wars, I vented some frustration. Not with the book, which is great, but with the closures themselves. Taber taught me that no wine bottle closure was perfect, although he had high hopes that competition among closure producers would make the future brighter. Here’s the conclusion of my 2007 column.

[Taber writes that]  … finding a solution to the wine closure dilemma is a worldwide problem and global market competition is forcing the stopper makers to innovate and make better and better closures and forcing winemakers to get better, too, since they can no longer automatically blame any flaws in their wines on bad corks. “Unfettered competition,” he writes, “remains a powerful driving force for good.”

I think Taber is right, but for now I’m just standing here in the basement, looking with suspicion at the wine in my little cellar, trying to guess what is going on beneath the lids. Having read Taber’s book, I now know enough to be anxious about each and every bottle!

A Wealth of  Closure Choices

Eight years have passed and the closure wars continue. Perhaps the single most-asked question when I speak to consumer groups is about what’s at the top of the bottle, not the contents. “What do you think of screw-caps?”  Well, what should I think?

The question continues to haunt the wine industry. Recently two U.S. wine industry monthlies featured cover stories on the closure wars. “Alternative Closures Go Upscale” was the headline on the May 2015 issue of Wine & Vines. while the June issue of Wine Business Monthly featured their 2015 “Closure Survey Report.”

Jane Firstenfeld’s Wines & Vines article “Unconventional Toppers for Top-Shelf Wines” takes the form of a series of brief interviews with premium winemakers who report their use of screw-cap closures (including Van Duzer, Chehalem, Meoimi, Silverado and Sonoma-Cutrer) or synthetic closures (Schug and Eberle).

The article gives a sense of the great variety of alternative closures available (gone are the days of one-size fits all) and the research and trials necessary to assure the best possible fit between wine, winemaker and closure. It’s a good piece of reporting if you have a dog in this fight!

Natural Cork is #1. So are Synthetic Closures. Discuss.

Curtis Phillips presents the results of the Wine Business Monthly survey of winery closure use in his article “Natural Closures Rated Highest.” One colorful graph caught my eye — it showed the results of the survey for five years where respondents were asked which closures they used for their $14-$25 red wines? Options (more than one choice allowed) started with natural cork and moved on to technical cork, synthetic closures, screw caps and an “other,” category that includes Zork and Vino-Seal.

The graph suggests that natural cork is used by about 50% of the wineries surveyed, down from nearly 70% a few years ago. Technical cork is shown rising from about 20% to 30%, while ynthetic closures are roughly stable at a little more than 10% and screw caps are shown rising from about 10% to 30%.

The devil is in the details in surveys like this and to their credit WBM provides details that clarify the picture. The unit of analysis for the survey is the winery whether it is big or small, which changes up the conclusions you might otherwise draw.

Many more wineries use natural cork, but many more bottles of wine here in the U.S. are sealed by synthetic closures. The 10% of wineries that use the synthetics such as Nomacorc include some boutiques (Oregon’s Ken Wright Cellars, for example) and some giants (Gallo), so that about half of all wine bottled in the U.S. comes with a synthetic closure even though only about 10% of wineries surveyed use it.

There is more to the WBM story than this, of course. Winery respondents were asked to give their ratings of closure alternatives and the result is a rising tide — all of the closures were rated higher than they were a few years ago. When it comes to quality in wine closures, the trend seems to be up and up.

Creative Destruction in the Closure World

This did not surprise me because closure manufacturers keep me well-supplied with press releases about their newest innovations and I have been impressed with the way that they have responded to criticisms and invested in improved technology giving wineries higher quality and greater choice. There has also been something of a shakeout taking place over the years, with some producers dropping out of the market, increasing the scale of the others, which further increases the return to new investment.

The race to the top is true for natural cork, as Antonio Amorim and Carlos de Jesus made sure I appreciated when I met with them in Porto last year.  Natural cork producers made a terrible mistake when they did not recognize problems in past years, and they paid a high price in lost market share as a result, Amorim told me.

But better consistency, higher technical quality and strong consumer acceptance makes natural cork a competitor in every market, he said. And of course better natural corks force the other closure makers to raise their game, too. Winemakers and wine consumers certainly gain.

If there’s one area where cork closures would seem to have an unavoidable disadvantage over screw-caps, however, it would be convenience. Screw caps are just easier to handle and, with rising technical quality, that would seem to give it a big advantage in some markets at least. Even wine guru Hugh Johnson thinks so. His  May 2015 column in Decanter magazine proclaimed that “I am faintly irritated now when I come to open a bottle of wine and find I need a corkscrew.” Gosh! The screw-cap is “incomparably better” than natural cork, he says.

Do the Twist — Like This!

Well, Amorim doesn’t want to lose Hugh Johnson’s business (or anyone else’s) so last year they released a screw-cork closure called Helix.  That’s right — screw-cork (see the image above). The cork and specially-made bottle are designed so that the cork screws into (and out of) the bottle slick as can be.

Screw-cork? Amazing.Probably not as important in the grand scheme of things as the technical improvements in cork production at Amorim, but still a great example of how innovation occurs even in centuries-old industries like cork closures.  Is this an example of Taber’s idea that unfettered competition is a driving force for for good? When it comes to closures, it sure seems to be true. Here’s to the race to the top!

Book Review: Jurafsky on The Language of Food (with implications for wine)

Dan Jurafsky, The Language of Food: A Linguist Reads the Menu. W.W. Norton & Company, 2014.

Dan Jurafsky is a Stanford University computational linguist who is fascinated by the way we talk about food. He’s written this provocative book that tells a series of stories that mainly trace the way that the language of food changes over time and how this is related to global cultural and economic exchange.

Turkey, turkey, sushi and ketchup

One story, for example, explain how the turkey, which is native to Southern Mexico, came to be named for the country of Turkey in England and here in the U.S. while acquiring names associated with India in France and elsewhere.

Another chapter traces the origin of ketchup (or sometimes catsup) back to China and then around the world to the familiar red Heinz bottle buried in the back of your refrigerator.  Great stuff if you are interested in food, globalization, history or language.

Unsurprisingly, I was hoping to read about wine in this book and I did both directly (the origins of the social custom of the  “toast” in spiced toasted bread that was dipped in wine to improve its flavor) and indirectly (vinegar, wine’s close relative, as the unlikely global connection between sushi, the food of Japan, English fish and chips, and a host of other delicacies).

Menu Language and Economics

The most thought-provoking ideas about wine actually came from the chapter of the language of restaurant menus. Jurafsky and his colleagues were able to amass a considerable database of restaurant menus for digital analysis. The data is both broad (there are hundreds of thousands of menus on the web) and deep (the New York Public Library has a historical collection of 10,000 menus dating back to 1843). So it is possible to analyze both how the language of the menu has changed over time and how if has evolved differently for different types of restaurants.

The menus don’t just describe food, they also list prices, which makes them interesting to an economist. What types of words are most associated with higher and lower menu prices? The researchers adopted the necessary control procedures (so that they were comparing apples with apples) and here’s what they found.

Language varied by the type of restaurant. Inexpensive restaurants tended to talk about the choice they provide their customers, which I suppose makes sense. Diners understand that inexpensive cafes often offer long menus and so standardized products are the norm. Choices (eggs as you like them, for example, or a dozen different flavors of dipping sauces and salad dressings) are a way to diminish the industrial quality of the experience.

More expensive fine dining restaurants don’t stress choice and, in fact, sometimes deny choice by having chef-chosen set tasting menus (sometimes even “blind” set menus where the list of dishes is not revealed when the diner maker her order).  Instead of stressing choice, the menus focus on the particular characteristics of the food, the origins of ingredients, and the nature of the preparation. Language literally “counts” here. There is a positive correlation between average word length in the menu descriptions and the price of the item. Each one letter increase in the average word length is worth about 18 cents!

You Said a Mouthfull!

Longer words and more specific terms are associated with higher menu prices. This is correlation not causation, of course, so it isn’t necessarily true that you and I see longer words or detailed descriptions and pull out our credit cards, but it could be true that these characteristics help us justify a higher price because they seem to signal to us higher quality. If wine drinkers have trouble avoiding the assumption that higher price signals higher quality, it’s not impossible that high-end diners respond to sophisticated word play.

Interesting finding: there seems to be a “spicy” or “exotic” tax. Menu items that include these words typically carry a higher average price than similar products without this designation.

So chicken you order at Wendy’s is about choice (do you prefer grilled or fried?) and at a fine dining restaurant it is about specific qualities and longer words (spicy Palliard of vegetarian-fed Draper Valley Farm chicken with exotic accompaniments), what about casual dining restaurants that occupy a vast middle ground?

Casual dining restaurants like TGIFriday’s, Applebee’s and Ruby Tuesday have a menu language all their own, stressing how the food tastes or is prepared, but in very broad general terms. Chicken is tender. Steak is juicy, Crab is … real (because you might think it could be fake crab). Interestingly, terms of this type are all associated with lower prices! It isn’t that you are thinking that tender chicken is worth less, it’s just that a higher quality place wouldn’t need to tell you that the steak is juicy or the crab is real, but a less expensive restaurant would.

Jurafsky calls these “filler words” and they are the types of things you say when you have to say something but there isn’t anything better or more specific to say. The more filler words on the menu, it seems, the less distinctive the actual food items and the lower the price. Interesting, isn’t it?

The Language of Wine

So what does this have to do with wine? Well, it seems to me that the same sort of research could be done on the language of wine, both how it has changed over the years and also the way that certain types of terms are associated with different categories of wine. I’m going to start paying more attention to wine advertising, wine label text and wine reviewer descriptions.

Some off the cuff observations are inevitable. If box wines are the vinous equivalent of fast food, then it makes sense that they would talk about convenience the same way that inexpensive restaurants talk about choice. No sense dwelling on low cost since that’s obvious. It’s the way that the product can be made to accommodate your desires that matters.

Very detailed descriptions reign at the top of the wine food chain just as they do for restaurant food — and this is perhaps because indicators of place and craftsmanship are now almost universally seen as indicators of quality and authenticity. It’s not just food or wine, it is pretty much everything that consumers look for.

Maybe this is why so many AVAs have been created in the U.S. — having an AVA associated with your wine is important to its credibility even if the consumer doesn’t really know what or where it is (and even if it doesn’t really mean very much in terms of quality or style of wine). Sue and I enjoyed a nice Vioginier recently that got my attention because it came from the Clarksburg AVA. Clarksburg? You don’t see that every day. Interesting! Gotta try it (and it was indeed interesting).

I’ve inserted an image of the back label of that Viognier above so that you can read the text. Pretty upscale messaging, don’t you think? Even the average word length is impressive.

What about the wine equivalent of casual dining — branded wines selling in the $8-$12 range?  A quick look at some labels suggests that the descriptors are just as vague (“juicy,” “delicious”) as on the casual dining menus and they probably fill the same function — fillers to provide a little (very little in some cases) textual weight when more specific terms don’t apply. Sometimes, I have noted, the labels can have very little to do with wine at all — simple but perhaps effective filler.

Robert Louis Stevenson said that wine is bottled poetry, but I think there is even more to it than that! The language of food and the language of wine seem to have something in common. Food for thought for wine marketers and consumers both!

The Curse of Corporate Wine-Think?

When I wrote about the global financial crisis in my 2010 book Globaloney 2.0: The Crash of 2008 and the Future of Globalization, I focused on three forces that I saw as both key to the crisis and limits on global finance: misperceptions of risk, the excessive use of leverage and the resulting moral hazard, which produced the boom and then the bust.

Now, as I think about the reasons why corporations are not more dominant in the wine industry, I find myself returning to those same themes. Is this an important insight, or am I just a broken record? You be the judge!

Note: This is the final column in the current series on family wine businesses. This column is more speculative than the earlier ones — as many questions as answers! — reflecting the fact that it is difficult to generalize about either corporate wineries or family and private wine firms.


Asking the Right Questions

Last week’s column ended by questioning the question of the curious success of family wine business. There are good explanations for the success of family-owned wine businesses, I wrote,  but sometimes they feel a bit ad hoc, tailored to explain a particular case and less capable of generalization.  And they often fail to fully account for the fact that many family wine businesses  either fail or, like the Taylor family, end going over to the dark corporate side.

The question of why family wine businesses are successful isn’t easily answered. But maybe we are asking the wrong question. Maybe the issue isn’t why family-owned wine businesses are surprisingly robust and instead why corporate owned wine businesses are sometimes ineffective? Is there something about wine that turns smart corporate brains to mush (not all of them, but a few)?

Protecting Assets versus Leveraging Them

One difference that I have noticed about family wine businesses versus some of the corporations regards the role of key assets such as brand and reputation.  Many family wineries that come to mind seems to see their role as protecting brand and reputation so that they will continue to provide benefits well into the future. Some corporations that come to mind, on the other hand, seem to focus on leveraging brand and reputation in order to increase short run returns.

What’s the problem with leveraging a brand? Leverage has the potential to increase returns in any business, but it also increases risk. And one risk is that the integrity of key assets can be undermined by the leverage process itself.

An example? Well, I hate to pick on Treasury Wine Estates because they have seen enough bad news in the last few years, but one of my readers emailed me in dismay when a news story appeared about Treasury’s latest market strategy. I’ll use this as an example, but Treasury isn’t the only wine corporation that I could pick on and maybe not even the best example

One element of Treasury’s plan is to develop brands for the “masstige” market segment, which means taking a prestige brand and levergaing it by introducing a cheaper mass market product that rides on the iconic brand’s reputation. 

Masstige? Sounds like something from a Dilbert cartoon, which means of course that it is a totally authentic contemporary business term. Prestige fashion house Versace, for example, seems to have developed a masstige product line for mass market retailer H&M. The line was launched in 2011 and I’m not sure where it stands today. Maybe it was a big success? If  masstige  worked for shoes and dresses, how could it be a bad idea for wine?

I’m sure a prestige association helps sell the cheaper mass market products, but I can think of some examples in the wine business (Paul Masson? Beringer?  Mondavi?) where it might have undermined the iconic brand itself a little or a lot, which seems self-defeating. I know that has happened in the fashion field (think about how the Pierre Cardin brand was diluted by cheap logo products) so I imagine it could be a factor in wine, too.

Think Global, Source Global

Here’s another example. Regional identity is more important in wine than in some other industries and Treasury owns some famous “wine of origin” brands — wines associated with particular regions, which are valuable assets.  But my worried reader was concerned about Treasury’s plan to source globally to expand the scale of some of these regional brands.

“Building scale via sourcing breadth is one of the most critical platforms necessary for the globalization of wine brands,” according to the report. Gosh, that even sounds like corp-speak, doesn’t it? Logical, I suppose, but maybe locally-defined brands need to be locally sourced to maintain authenticity? Maybe consumers would be suspicious of a Stags Leap wine, to make up an example, that is sourced from Australia or some other distant place as a way of leveraging its brand power? I wonder just how flexible these terroir-based brand concepts are in the real world where consumers are the ones who decide what is authentic and what is bogus.

Cupcake Vineyards, a Wine Group brand, is an example of a multi-regional strategy that has been astonishingly successful, so it is clearly possible to build a globally sourced brand and perhaps this is Treasury’s model. But I’m suspicious of the idea of leveraging a place-specific brand through global sourcing. Does it make sense to try to turn icon Penfolds, for example, into a Cupcake look-alike? Maybe! But I worry that you’d lose what’s important about Penfolds in the process.

Treasury has no doubt studied this thoroughly and they are probably right about their strategies and I am probably wrong, but it seems problematic to me. I wonder if family firms are more likely to resist corporate wine-think and  try to protect key assets like a prestige brand or a regional identification while corporations are driven instead to try to leverage these assets to expand their market share? I am sure there are counter-examples to this theory and I can think of a few myself. I’d appreciate hearing from readers in the comments section below.

Global Market Moral Hazard

What about moral hazard? Some big wine corporations that have had troubles in recent years seem to have made the mistake of thinking that big global markets will soak up all that they (and the other big firms) can produce. It’s a matter of global-think. The global markets are huge. There’s always a market for another dozen containers somewhere in the big world of wine, or so it might seem, and so the risk of failure is misunderestimated, to use a GW Bushism.

In finance we would say that the false sense that the global market is always there to bail you out  leads to moral hazard and this is probably true in wine, too.  Moral hazard encourages excessive investment and promotes booms and the busts that often follow. What seems to be true for an individual company is not necessarily true for an industry and misunderstanding this sort of risk is downright dangerous in an industry like wine, which is by its nature subject to cycles and booms and busts.

If private- and family-firms avoid the tendency to think global when their markets are local and thus avoid misunderestimating risk and if they really do work to preserve rather than leverage key assets it might help explain their lasting power and influence. Lots of “ifs” there, but its a theory. What do you think?


Thanks to everyone who has followed this series. Next up: what wine can learn from the analysis of the language of restaurant menus.

The Curious Dominance of Family-Owned Wine Businesses in the U.S.

Last week’s column about the rise and fall of the Taylor Wine Company of New York raises a number of interesting issues and one of them is the singular importance of family-owned and privately-held businesses in the U.S. wine industry and the very mixed record of publicly-listed wine corporations. In retrospect, a case can be made that Taylor’s downfall began when they made the initial move from family ownership to public corporation.big10

The conventional wisdom holds that family-owned and privately held firms can be very successful, but their scale and scope are necessarily limited. Corporations, it is said, can have better access to capital and may be able to negotiate risk more successfully because of limited liability structure. You might expect the largest firms in any given industry to be corporations and this is true in some industries, but not in others.

Wine Exceptionalism

Wine is one exception to the dominant corporation rule. Here (above) is a table of the ten largest wine businesses in the U.S. market (measured by estimated or reported volume not value of sales) for 2014 and 2003. The data are from Wine Business Monthly, which publishes an analysis of the 30 biggest U.S. wine firms each February.  I’m looking at just the top ten to keep the analysis simple, although I should note that these ten firms collectively account for about three-quarters of all wine sold in the U.S. You can find a link to the whole list at the end of this column.

Looking at the 2014 data, you will note that only four of the top ten firms (those in italics) are public corporations or subsidiaries of public corporations. The other six are family-owned or, like The Wine Group, privately-held and together they produce more than half of all the wine sold in America. The bias towards private- and family-ownership is even stronger if we look at the next 20 wineries where only a few corporate names like Pernod Ricard make the list.

The picture becomes even more interesting if you look at the list for 2003, the first year that Wine Business Monthly released its Top 30 report. Many of the players remain the same, but the names of three public companies (shown in boldface) that were in the top ten a dozen years ago have disappeared by 2014: Beringer Blass Wine (now part of Treasury Wine Estates), Robert Mondavi Winery (now part of Constellation Brands), and Brown-Forman Wines, which sold its big Fetzer wine business to Concha Y Toro in 2011 so that it could focus on spirits. Concha Y Toro is #11 on the 2014 list.

Looking closely at the 2014 numbers it is hard not to be impressed by the growth of family firms Delicato and Jackson Family Estates and also the success of Ste Michelle Wine Estates, which seems to behave like a privately-held firm even though it is a subsidiary of a public one, albeit in a different line of business (Altria specializes in tobacco products, not drinks).

All in the Family

Family- and private-owned wine companies are if anything more important today than they were before the Great Recession. Why are family-owned wineries so vibrant despite their structural economic limitations?

The conventional answer to this question — and there is in fact a substantial academic literature dealing with family businesses and even family wine businesses — stresses the ways that family businesses take a multi-generational approach and are able to negotiate the trade-off between short run returns and long run value. Corporations, it is said, are sometimes driven too much by quarterly returns and end up sacrificing the long term to achieve immediate financial goals.

When business requires a long run vision, it is said, families gain an advantage. Wine is certainly a business where it is necessary to look into the future if only because vines are perennials not annuals like corn or soybeans and successful brands are perennials, too.

Another school of thought examines issues of trust and transactions costs within the firm and the ways that family ties can reduce internal barriers and make interactions more effective.  It is commonplace to say that wine is a relationship business and family firms may have advantages in this regard. I have knows some family wine businesses that even go out of their way to work with family-owned distributors and so forth.  I think one author saw family-to-family links (the Casella family and the Deutsch family) as keys to the success of Yellow Tail brand wine.

Maybe the Real Question Is …

There are good explanations for the success of family-owned wine businesses, but sometimes they feel a bit ad hoc, tailored to explain a particular case and less capable of generalization.  And they often fail to fully account for the fact that many family businesses (and family-owned wine businesses) either fail or, like the Taylor family, end going over to the dark corporate side. Family relationships can be good, bad or ugly — you cannot think of the Mondavi family story without channeling an episode of Family Feud) and not every new generation wants to stay in the business. So there must be something more here than simple families think long-term. But maybe we are actually asking the wrong question.

Maybe the question isn’t why family-owned wine businesses are so strong and instead why corporate owned wine businesses are sometimes so ineffective. Is there something about wine that turns smart corporate brains to mush (not all of them, of course, but maybe some of them)? Come back next week for some thoughts on this provocative question.


You can view the February 2015 issue of Wine Business Monthly here. The story on the Top 30 wine U.S. wine businesses begins on page 40.


Get every new post delivered to your Inbox.

Join 2,284 other followers