Disintermediation: How Many People Did It Take to Make Your Wine?

How many people does it take to produce a case of wine?  Well, it depends on how you look at it — and the number may surprise you.

When you think about all of the steps in the process from vineyard to cellar to bottling line and so forth, it seems like a lot of different people must be involved although the degree of labor-intensity necessarily depends on many factors. Where wages are high as in Europe and the United States, more of the steps are likely to be mechanized compared with Chile or South Africa, for example.

And there are economies of scale at certain production levels. But it still seems like lots of hands are needed to produce a bottle of wine.

(In The Wine Economist’s very first post, I counted about  twelve workers needed to simply bottle a vintage of Fielding Hills wine.)

So how man of these  people will a winery end up employing? All of them, you  might think, if you have that romantic image of an estate winery stuck in your head, where all of the production from vines to wines to finished product takes place on the same property.

Specialization and the Division of Labor

But this picture ignores the fact of disintermediation, which I wrote about a few weeks ago. Disintermediation is basically Adam Smith’s theory of specialization of labor applied to the entire product chain. Instead of specialization within a business (specialized vineyard labor and cellar crews, for example) you have different businesses specializing in each function within the process. That traditional estate winery is deconstructed into perhaps a dozen different specialized business units.

Thus, for example, many wineries rely upon outside contract labor firms to maintain the vineyards and harvest the grapes and thus do not have such workers listed directly on their payrolls. Many also contract with mobile bottling lines to handle that important function. And of course buying grapes is a way to disintermediate compared to growing them yourself and buying wine from others takes desconstruction one additional step.

With product chain disintermediation, the number of people actually employed by a winery can be surprisingly small with that tiny workforce specializing  in coordinating the various firms and contractors that make up the links in the chain.

Small is Beautiful?

How small can the  winery staff be (which is another way of asking how far can you push disintermediation)? Well, the data provided in Wine Business Monthly’s annual  “Review of the Industry” issue (February 2014) gives us a glimpse at how disintermediation is working in the American wine industry. Here are WBM’s data for the 30 largest wine companies in the United States.

Rank

Wine Company

U.S. Production

Number of Employees

1

E&J Gallo Winery

80 million cases (US, estimate)

85 million (global, estimate)

4000

2

The Wine Group

57.5 million

1000

3

Constellation Brands

50 million (US)

64 million (global)

6000 (global)

4

Bronco Wine Company

20 million

n/a

5

Trinchero Family Estates

18.5 million

1000

6

Treasury Wine Estates

15.4 million (US)

32.1 million (global)

1140 (US)

3600 (global)

7

Ste Michelle Wine Estates

7.5 million

800

8

DFV Wines

7 million

600

9

Jackson Family Estates

5.5 million

1000

10

Diageo Chateau & Estates

3.8 million

2700 (US & Canada)

11

Viña Concha Y Toro (Fetzer)

2.7 million (US)

30 million (global)

308 (US)

12

Korbel Wine Estates

2.3 million

450

13

Bogle Vineyards

1.7 million

95

14

CK Mondavi Family Vineyards

1.6 million

120

15

J. Lohr Vineyards & Wines

1.55 million

250

16

Don Sebastiani & Sons

1.5 million

90

17

Francis Ford Coppola Winery

1.25 million (est)

n/a

18

Precept Wine

1.1 million

350

19

Foley Family Wines

950,000 cases (US)

1.45 million (global)

400

20

Rodney Strong Vineyards

820,000

164

21

Caymus Vineyards

800,000 (est)

n/a

22

Vintage Wine Estates

800,000

280

23

Boisset Family Estates

750,000 (US)

6.5 million (global)

n/a

24

Wente Vineyards

750,000

550

25

The Hess Collection

700,000

140

26

Mesa Vineyards

650,000

n/a

27

Domaine Chandon

625,000

217

28

Castle Rock Winery

550,000

9

29

Michael David Winery

420,000

150

30

Purple Wine Company

400,000

60

You can see that the degree of disintermediation varies quite a bit within the US wine industry with wineries of similar production size often directly employing very different numbers of workers (see Don Sebastiani & Sons versus J. Lohr)  and wineries with about the same direct payrolls pumping out vastly different amounts of wine (compare The Wine Group, Trinchero, and Jackson Family Estates).

Modesto’s Tight Ship

The most interesting winery from this standpoint is obviously Castle Rock, which sells more than a half million cases of wine but directly employs just nine people! Wow, that’s just amazing — about 61,000 cases of wine for each person on the payroll. Of course it takes many more people working for contractors and so forth to actually get the job done. Castle Rock is a disintermediation machine!

As the Wine Business Monthly profile of Castle Rock notes, the company does not own any wineries or vineyards. The original business model was based upon opportunistic bulk wine purchases that were then bottled by others and brought to market. Now the business is built around long-term contracts with vineyards and production wineries that also grow grapes and make wine for others. WBM reports that the portfolio includes about 20 different wines at any time, many of them relatively site-specific offerings.

What if giant Gallo embraced disintermediation to the same degree as Castle Rock? Well, the math is easy to do. Gallo makes about 150 times the amount of wine, so it might in theory be able to reduce its direct employment from 4000 workers to 9 x 150 = 1350 people on staff. I suppose that you could look at that number and conclude that Gallo is way over-staffed at the moment.

But I see it the other way. Given that Gallo does own wineries and other production functions that Castle Rock eschews, I’d say that folks in Modesto run a very tight ship!

Off the Beaten Path Wines

There’s a chapter in my book Extreme Wine that is titled “The Invisible Wine” and although it examines many types of wines that are so nearly impossible to find that they might as well be invisible (including the famous “Twenty Dollar Bill Wines”). It ends up championing those wines that are so local, so tied to a particular place, that they rarely appear elsewhere. These wines are a terroirist’s delight and I treasure them when I find them on my travels.

There’s a problem with these wines, of course. You sometimes have to travel to where the wines are made to be able to taste them — and not everyone can do that. But I like to talk about them anyway if only to encourage my readers to look for the unusual, the local, and particular in wine and to boldly buy and celebrate them.

I’m pleased to see this same spirit on view in the February 28, 2014 issue of Wine SpectatorInside the glossy cover you’ll find a major article called “Off the Beaten Path” where many of WS‘s editors and contributors recommend their favorite under-the-radar wines.  Although some of the selections are more extreme than others, I think the overall project i is interesting and useful.

Some examples? Harvey Steiman proposes that we look beyond Pinot Noir in Oregon and consider some of the great Chardonnays made there (including the Roco Chard, which we like a lot). He also suggests Australia beyond Shiraz and Malbec from other places than Argentina (we like the Columbia Valley Fidelitas and Southern Oregon Abacela that he recommends).  James Laube sends us in search of Tannat, Torrontes and Pinotage (we like the recommended Kanonkop a lot).

Although it might be said that not all of the many recommendations are very far off the main wine road — Sherry, Tawny Port and Cru Beaujolais certainly have established reputations, for example) I think we have to remember that Wine Spectator has a broad audience and it is not ridiculous to think that its readers should actually be able to find and purchase the wines it recommends or at least wines very much like them. And in any case many wine drinkers probably fall into a rut from time to time and even a gentle nudge is worthwhile. (See note below.)

That said, a more forceful push would not be unwelcome and so I applaud Maryann Worobiec for proposing red wines from the overlooked Sierra Foothills and North American Tempranillo. And, since I am in Porto this week to speak at a Portuguese wine industry meeting, I have to admit that I am a big fan of Dana Nigro for recommending that readers seek out the under-appreciated Touriga Nacional wines from the Douro.

If I could change one thing about this nice article it would be to try to have more value wines listed. I often recommend that consumers look for unusual varieties or wines from unexpected places because, a bit like port and sherry, they are undervalued in the marketplace relative to their quality. I still believe that this is true, but it might not be easy for a new wine consumer to appreciate this fact given the prices of some of the particular wines listed in this article. Adding a value wine to each category would invite in a larger audience for these wines.

Thanks to the Wine Spectator team for giving its readers a nudge off the beaten path.

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My recent column on Invisible Cities, Imaginary Wines generated some interesting comments that are also relevant to this post.  My column was a reaction to Eric Asimov’s article about the complaints he received from some of his readers that the wines he praised were often nearly impossible to find — really off the beaten path (unlike most but not all of the Wine Spectator’s recommendations).

Several people who left comments or contacted me off-line noted that there are importers and distributors who are really committed to making small production wines as available as possible. Consumers ought to support them and so should wine writers.

One very useful suggestion was that wine reviews ought to include the name of the importer or distributor along with a phone number. That way it would be relatively easy to track down a particular wine. And if that wine isn’t available, one reader suggested, the importer/distributor would be well placed to recommend a similar wine to try instead.

That sounds like a good idea to me and I note for the record that it is the standard practice at The Wine Advocate, the subscription-only journal that Robert Parker founded. Perhaps other publications could do the same — if not in the print publication itself then perhaps on their websites. (Some academic publishers have now started to put the often extensive footnotes and bibliographies on the web as a keep publication costs down while preserving scholarly integrity!)

Extreme Wine Experience: The Stray Mongrel of Hentley Farm

Winery dogs are a ubiquitous presence. You see them everywhere. There are even photo-filled coffee-table books and colorful calendars devoted to them. Decanter, the self-declared “world’s best wine magazine” used to profile a winery dog on each issue’s final page. Always dogs — almost never cats (I once met a winery cat called “Muscat”). Go figure

Exception to the Rule

It comes as a bit of a surprise therefore that The Stray Mongrel of Hentley Farm is a wine, not a four-legged cellar companion. A blend of Grenache, Shiraz and Zinfandel (!), it received the 2013 Rob Schubert Trophy for the most outstanding red wine at the annual Barossa Wine Show Awards. The Stray Dog has a gnarly name, but it is really quite an elegant beast — it would have to be to win such a prize — and it represents the elegant spirit of  Hentley Farm very well.

We had the good fortune to visit Hentley Farm the day after the big prize was announced and Keith Hentschke, the proprietor, was glowing with pride. Recognition is always welcome — who can complain about good scores or reviews? — but this was something special and the warmth that filled the room was only partly the result of the fireplace’s glowing embers.

We came to Hentley Farms because we wanted to see what Hentschke and his team had created in terms of an extreme wine experience. Hentley Farm was started in 1997 and has evolved to align with very definite ideas of what it should be from the vineyard to the cellar to the marketplace.

This 360-degree vision of the supply chain and wine experience is something that Hentschke acquired over the years, starting at age 15 when he began to manage the family vineyard on through agriculture training, an MBA and work at Orlando, Nepenthe and other wine businesses. All this helped prepare him to launch Hentley Farm and to produce wines as distinctive — and unexpected — as The Stray Mongrel.

First Class from the Ground Up

The initial strategy at Hentley Farm was to focus on exports, but then the global financial crisis turned things around a bit and now the Australian market itself is the priority and the cellar door experience the key. The idea, as I understand it, was to create first class wine and a first class wine experience from the ground up with as much attention to the business side of things as to enology and viticulture. Hentschke warmed to the opportunity to talk about markets, marketing and so on, so we learned a great deal about his carefully calculated approach.

There are many interesting aspects to the Hentley Farm approach. The wine club, called simply the Loyalty Program on the webstie, impressed me by offering a choice of progressive levels of expenditure and engagement. It reminded me very much of museum memberships and symphony and opera donor clubs, with very clear expectations about financial commitments and benefit levels.

Restaurant Australia Realized

Sue and I came to Hentley Farm having spent a week at Savour Australia and it seems to me that Hentschke’s winery is the very model of the branding approach — called “Restaurant Australia” — that was launched at that meeting. The idea behind Restaurant Australia, as I have written before, is to appeal to upscale tourists through their interest in food and wine. Come for elevated cuisine, enjoy the great wine then go home and tell your friends about an idea of Australia that is little in common like the “shrimp on the barbie” Yellow Tail tales of the past.

Hentschke and team seem to have realized the power of this relationship well before the current campaign launch, so Hentley Farm’s visitor center pairs a warm cellar door facility with The Restaurant, which features multi-course tasting menus paired with the estate wines. (The Restaurant was named South Australia’s restaurant of the year for 2013.) It brings in the patrons, who seem delighted to find a destination restaurant in this surprisingly quiet valley. The wine hook, because there should be one, was clear and successful. Hentley Farm wines with the meal, of course, and then also a credit to be applied against Hentley Farm wine purchased that day at the cellar door.

One of the challenges of designing a wine tourism experience is to get the target audience to “stick” — to stay around long enough too be engaged and for a strong impression to be formed. The restaurant, with its elaborate (and not inexpensive) tasting menus asks  visitors to make a significant time commitment. Perfect if you want to communicate the sense of the place.

Chance and Circumstance

We ran into some new friends we had met in Adelaide at the Barossa Valley farmer’s market in nearby Angaston and asked about Hentley Farm. The Restaurant? Fantastic! Did you use the credit to buy the wine next door? Of course! Would you go back? Can’t wait! It was really an enthusiastic response from a sophisticated wine industry couple and provided a bit of unscientific evidence that the Hentley Farm strategy does its job.

The wine, the food, the experience. Hentley Farm brings it all together and provides a model for others in the wine business who seek to design an experience to capture the imagination of sophisticated wine enthusiasts.

I think there is a real winery dog at Hentley Farm and maybe he is a mongrel — I don’t really know. But if a mongrel is the product of chance and circumstance, Hentley Farm itself is just the opposite — a well-conceived and designed wine destination.

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Thanks to Keith Hentschke for finding time to meet with us.

CSI Fine Wine Edition

  • Crime doesn’t pay.
  • The best way to make a small fortune in the wine business is to start with a big one.

What happens when you combine these two old sayings? Well, you would think that it would add up to the fact that if crime doesn’t pay, then wine crime really doesn’t pay. But that may not be true. How else can we explain the recent fine wine crime wave, which may well be just the tip of the iceberg.

Wine Crime Wave?

Most of the attention has been focused on Rudi Kurniawan’s recent conviction for wine fraud — the first federal criminal prosecution and conviction for wine counterfeiting. This dramatic crime and the revealing trial has really captured the public’s imagination in part, I think, because of the romance associated with rare wine and the “lifestyles of the rich and famous” environment of the crime, the criminal and the victims.

There’s also a bit of what you might call a “Lance Armstrong” effect. The crime went on for years along with accusations, defenses and denials. Then suddenly there was the trial, the conviction and the house of cards collapsed. Now we are left to wonder how widespread this sort of wine fraud might be and what wines are true and which are false. The conviction isn’t the end of the story, only the beginning of the next chapter in the mystery.

Thanksgiving Day Heist

The Thanksgiving Day wine heist in Seattle was a grittier affair but perhaps equally interesting to wine crime buffs. I’ve been trying to piece together what happened from published reports and private sources. The more I learn about it the more this crime reminds me of something from a television show — CSI or maybe Mission Impossible!

Here is what I think I know.

Two “common thieves” (plumbers by trade, according to the Seattle Police) broke into the wine storage facility operated by Esquin wine merchants in the SoDo neighborhood (SoDo stands for South of the Dome — the Kingdome sports stadium in this case, which was demolished by implosion in 2000). They ransacked 15 of the 450 private storage lockers in the climate-controlled facility and made off with more than 200 cases of wine valued at more than $600,000.

If you are doing the math, that’s an average of more than $3000 per case or more than $250 per bottle. I’m guessing that no Two Buck Chuck was taken!

The break-in was ingenious — the perpetrators apparently cut a hole through a wall and brought the wine out case by case. Police report that the crooks spent  13 hours selecting their wines and then driving the loot to another warehouse less than a mile away. Their SUV getaway vehicle had limited capacity, so they had to make 9 round trips. Although they blacked out all the security cameras that they could, apparently this was not completely successful and some images of the crooks and their SUV’s license plate were captured.

You would think that “common thieves” would not be terribly discriminating wine shoppers — after all I suspect that most of the bottles and cases at this storage facility were of some value. Why not just smash and grab? But that’s not what happened.

Making a List, Checking it Twice

The bad guys apparently worked from some sort of shopping list, taking specific wines and vintages and leaving the rest. I’m told that the only Washington State wines taken were Quilceda Creek and Corliss, for example. Leonetti and Andrew Will? Apparently not up the discerning crook’s standards! I understand that wine was not just stolen, but also moved around and mixed up during the extended shopping spree and a few of the victims are apparently having to sort out which wines are theirs and which belong to someone else as well as which bottles have gone missing.

A good old-fashioned paper trail of evidence helped solve the crime and now opens the door to other possible heists. The first criminal captured had apparently kept receipts from a home improvement store — great idea in case you need to return an item! — and police used the day/time information on the paper to access security camera footage showing the suspect and his accomplice buying  the hardware used in the criminal act.

According to the Seattle Times a second paper trail opens the door to an earlier wine crime.

A shipping label found in Harris’ wine-storage locker led detectives to a San Francisco wine consultant, who told police he purchased $100,000 of wine from Harris and another man in April or May, charging papers say. Through an online search, Detective Don Jones determined there had been a large wine theft in the Bay Area in March, the papers say.

Covering Their Tracks

KOMO news report added a another Mission Impossible-style detail about the carefully plotted plan to crack the wine storage facility.

New details from the charging documents filed Monday reveal police found a journal labeled “The Plan” in Harris’ SUV. The journal reportedly included a step-by-step guide to the crime, a list of needed equipment, steps to destroy any evidence, steps to ship the wine and how to leave the country.

In addition, police found a book titled “Thinking  About Crime,” as well as printed out documents called “Is it Accidental Fire or Arson?” and “How to Commit the Perfect Crime,” inside Harris’ house, according to the charging documents.

Where does the arson come in? Well, the thieves planned to cover their tracks in the most comprehensive possible way. They cut  gas lines and expected the building to blow up. Good fortune prevented any loss of life and good police work captured the criminals. Some of the victims are more upset about the idea of the flaming cover-up plan with its potentially tragic consequences than the actual robbery.

So case closed for now — the thieves in custody and a good chance that most of  the wine (minus one  empty Champagne bottle) has been recovered. But are these two common thieves the whole story? Or is there a criminal mastermind (not necessarily Rudi K) still at large making up a shopping lists for clients too smart to buy fakes but maybe not too smart to avoid stolen goods? Good question!

So welcome to the new era of wine crime where the questions a fine wine enthusiast needs to answer now range from red or white and Burgundy or Bordeaux all the way to real or fake, stolen or legit? Cheers!

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I can’t resist adding the opening credits from the Mission Impossible television show.

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.

Invisible Vineyards & the Division of Labor Theory

Last week I wrote about the Yakima Valley AVA, which I described as Washington’s invisible vineyard. Why doesn’t it get more attention? I considered the “amenities gap” theory and concluded that it was at best a partial explanation. This week I dig a bit deeper into the issue.

Division of Labor Theory

The romantic idea of wine is a tiny vineyard farmed by a rugged individual who makes wine right there on the spot. We call this an estate winery and for better or worse the conventional wisdom holds that its it the model for quality wine. There are estate wineries in Yakima, but they are the exception rather than the rule.

In general the Washington State model is that there is a division of labor between farming the grapes and making the wine. The vineyards hereabouts are often large and supply grapes to many different wineries. The advantages of scale are tempered with the ability to give special treatment to particular blocks, rows, and sometimes specific grape vines within the larger vineyard.

Exceptional Exceptions

Betz Family Winery and Brian Carter Cellars  are both extreme and typical at the same time. Their wines earn the highest praise, but I don’t think they own any vineyards at all — they “outsource” the grape growing to others (although I think they are far from “laissez faire” in their relations with their winegrowers.) There is no indication that their wines suffer from the lack of “estate” status and probably benefit from the specialized system that has evolved.

Côte Bonneville is an instructive exception to the rule. Kerry Shiels makes the wines from grapes grown by her parents Hugh and Kathy at their iconic DuBrul Vineyard. But only a fraction of the grapes go into the estate wines — the majority are sold to a short list of wineries that are happy to feature the DuBrul Vineyard name on their labels.

Thurston Wolfe is another exceptional example. Wade Wolfe, who has inherited Walter Clore’s place as the valley’s leading viticultural authority, relies upon winemaking skill and an unchallenged knowledge of the region’s vineyards. He makes wines that have a cult-like following despite their lack of “estate” designation. An estate vineyard provides only a small proportion of the winery’s fruit — the rest is purchased.

Famous Names

Many of the most famous names in Yakima Valley such as Boushey and Red Willow are vineyards, not wineries, famous for the quality of their fruit and the dedication of their owners.  But they don’t produce a drop of wine themselves. This model has been very successful and accounts in part for the growth of the Washington wine industry since it is possible to start a new winery, a capital intensive commitment, without also having to develop equally capital intensive vineyard properties. If wine is really made in the vineyards, then Washington wineries with access to these Yakima vineyards start the game with a real advantage.

But the division of labor has also contributed to Yakima’s invisibility. More attention is given to Walla Walla and Red Mountain (a Yakima AVA sub-appellation), for example, in part I think because the estate winery model is more typical in these areas, helping them to achieve a stronger reputation.

(One consequence of the division of labor is that many wineries blend across regions, which they could not do with an estate wine, drawing upon fruit from different vineyards, rather than focusing on expressing a particular terroir. Some critics argue that something is lost in this process, even though the wines may be very good or objectively even better than similar single-vineyard products. And because the vineyards may not all be within the Yakima AVA’s strict boundary, their wines often carry the broader Columbia Valley appellation.)

Westward Ho!

This division of labor was shaped early on by Chateau Ste Michelle’s decision to build its showcase winery in rainy Western Washington, in Woodinville just a short drive from Seattle, rather than in the more distant Yakima Valley where the grapes are grown It must have seemed like a peculiar choice back in the 1970s, but it has turned out to be a brilliant move in terms of the development of the wine industry. (Ste Michelle makes its white wines in Woodinville — the freshly pressed juice is rushed to the winery by tank truck — while the red wines are made in the wine country itself).

Because wine is an industry that seems to develop in clusters, one result of the Ste Michelle strategy has been to help create a vibrant wine production zone in the Seattle area, with literally hundreds of wineries, all far from the vineyards that supply them. Even wineries that have no production facilities in the Seattle area see the wisdom of setting up tasting room operations to facilitate direct sales to the critical mass of wine tourist consumers that the cluster has encouraged.

There are wine clusters in the Yakima Valley, too (especially around Prosser and on Red Mountain), but they are obviously smaller than on the west side of the Cascades and are less successful in generating critical mass. This is changing, however. A number of new investments are in the works including Ste Michelle’s decision to convert its Snoqualmie brand facility in Prosser into a home for its spectacularly successful 14 Hands wines. This might be the cornerstone investment that really starts things moving.

Is This a Problem?

Yakima is sort of a middle sister. Not as big as the Columbia Valley of which it is an integral part but huge compared to the sub-AVAs like Red Mountain and Rattlesnake Hills that live within it.  Some producers choose the broader designation for their wines while others prefer to focus on the more local name. Yakima, which is key to both the big and little, is left to spend Saturday night alone at  home. How sad.

But I think this is the wrong way to look at the situation and so I am glad that the Yakima Valley wine folks are choosing to use the occasion of their 30th birthday to celebrate what and who they are, focusing on the wines, vineyards and the people who make and tend them.

It is only a bit of an exaggeration to say that there would be no Washington wine industry without the Yakima Valley. The next time you pull the cork of a Washington State wine you might stop to consider the invisible vineyards that are responsible for the liquid in your glass.

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Here’s my favorite example of the division of labor (and how not to do it!).

Fifty Ways to Sell Your Misunderstood Wine

Last week I wrote about two “misunderstood” or maybe “misunderappreciated” wines — Riesling and Oregon Pinot Gris — and the conferences that Sue and I attended where the problem of marketing them was discussed. This week I report on those discussions and try to draw some conclusions.

Identity Crisis

So how do you get consumers to buy wines that they don’t necessarily completely understand or fully appreciate? Well, perhaps predictably the discussions at both the Oregon Pinot Gris Symposium and Riesling Rendezvous turned early on to the idea of a cool motto — the “Got Milk?” killer tagline for their respective wines.

This always seems to happen when wine people get together to talk category marketing despite the fact that there are darn few generic marketing slogans that have had much impact on sales (how many can you think of?) and even fewer when it comes to wine. I used to think that this discussion was simply a waste of time, but now I recognize that the function is not so much to bring in consumers as to give wineries and distributors a rallying cry.  No harm in that, so long as the slogan isn’t offensive, and it might even be useful.

Chateau Ste Michelle CEO Ted Baseler proposed “Right On, Riesling!” and that seems fine — certainly better than the vaguely suggestive “Riesling: Just Put It In Your Mouth” that one break-out group played with for a while during a discussion of how consumer perceptions change when they actually taste different Riesling styles.

Similarly, the Oregon group settled on “Oregon, Get Your Gris On!” for a summer campaign, which I prefer to “Fifty Shades of Gris,” which may be more descriptive of the wide range of styles of Oregon Pinot Gris, but is a bit too reminiscent of the title of a recently popular erotic novel.

Radar Love

Fortunately, the discussions soon turned to what I see as more substantive ideas. Riesling Rendezvous panelist Blake Gray (of The Gray Report) offered the very useful suggestion that efforts to bring new wine drinkers into the Riesling camp should perhaps be secondary to strategies to get consumers who already know and like Riesling to drink more of it.  Riesling is already on their radar, so they are your best prospects for increased sales.

This idea is particularly relevant for Riesling because research reported at the conference suggested that Riesling lovers don’t focus on their favorite wine with quite the intensity as Sauvignon Blanc followers, for example. I’ll bet this is true for Pinot Gris consumers, too.

So how do you do that? Well, I’m not quite sure (although I have ideas — I think the Summer of Riesling project is terrific), but the point is that it is a different problem than trying to convert consumers who don’t currently drink Riesling either because they don’t know it yet or because they were unhappy with a previous Riesling experience. Current drinkers are known knowns, as one former Bush-era official might have said. The non-drinkers have many unknown unknowns and that’s a different problem.

There Must Be 50 Ways

But even if increasing consumption by current buyers should be the number one priority for both Riesling and Oregon Pinot Gris, that doesn’t mean that the rest of the market is unimportant. So how do you win them over? Well, it seems to me that the examples of Ernst Loosen (in the Riesling group) and David Adelsheim (at the Oregon Pinot Gris symposium) are instructive. Ernie and David have worked tirelessly to promote their wines. I can’t imagine how many times they (and their colleagues at other wineries) have poured the wines, told the stories, answered the questions and then gone on to do it all again.

There isn’t any one way to build a market for a misunderstood or misunderappreciated wine — no silver bullet as we say in the U.S. And it’s not really rocket science either, despite what that mashed up Einstein photo above seems to suggest. There must be 50 ways (or 500), but they all seem to boil down to hard work that is done one glass and one consumer at a time (leveraged by whatever peer-to-peer social media effects you can muster and of course beneficial media attention). Unite behind whatever rally cry works for you, residents of Planet Riesling and people of Oregon Pinot Gris, because there really is strength in numbers, and get on to the hard work.

Do Think Twice (About Price)

But this still leaves the problem of price which, as you may remember from last week’s column, is the sticking point for Oregon Pinot Gris. The difficulty of raising price is seen by at least some Oregon producers as an obstacle to raising quality and assuring a sustainable future.

Raising price, especially in the face of rising costs, is a problem all right, but not exclusively a problem for Oregon Pinot Gris or even for wine. Many business sectors struggle to find a way to pass on costs to distributors and final purchasers, as a recent “Schumpeter” column in the Economist magazine makes clear.

Many businesses, the Schumpeter columnist writes, have prices but not a pricing strategy or, if they do, it is determined at a low level in the business structure (perhaps because selling stuff isn’t always given a high priority compared with making stuff or organizing the business). Sometimes prices are “eye-balled” based on intuition rather than carefully calculated or strategically set.

It wouldn’t be fair to pick on Oregon Pinot Gris when it comes to pricing strategy, since this is a general issue, but it is probably true that improvements could be made. Purchasers generally see Pinot Gris in the context of other Oregon wines, especially Pinot Noir, so that a joint pricing strategy is probably necessary to account for the complex complement and substitution effects.

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The British economist economist John Maynard Keynes famously took an interest in the pricing of Champagne in the bar at the Cambridge Arts Theatre where his wife, the Russian ballerina Lydia Lopokova, often danced. As chair of the theater’s board, Keynes would have  to help fund the inevitable operating deficit, so anything that increased revenues was highly desired.

Keynes wanted to nudge patrons to move up to the better Champagne on the bar menu, where profit margins were higher. His strategy? Not to cut the price of the good stuff in an attempt to sell more, which he had reason to think wouldn’t work because of inelastic demand. And not to raise the better wine’s price, which was sure to make enemies. Instead he pressured the bar manager to raise the price of the ordinary product, thereby lowering the relative cost of the upgrade to the better Champagne that he suspected many patrons secretly desired.

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