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.

Marketing Misunderstood (and Misunderappreciated) Wines


How do you market misunderstood wine? That was the question posed at two otherwise very different wine industry symposia that Sue and I attended in recent weeks.

Although neither meeting arrived at a definitive solution, I think I begin to see the outline of an answer as I compare the two situations and start to connect the dots.

Gris: The Other Oregon Pinot

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The Pinot Gris gathering

The first gathering took place amid barrels and cases of wine in the cellar room of Oak Knoll winery near Hillsboro, Oregon. The common thread that united the small group that assembled was Oregon Pinot Gris.

The first Pinot Gris vines in the United States were planted by David Lett at The Eyrie Vineyard, so Oregon has a legitimate claim to this wine, which is hugely popular in its Italian Pinot Grigio identity, but still not as widely embraced when presented as Alsace- or Oregon-style Pinot Gris.

The wines themselves can be wonderful and distinctive and Jo Diaz is helping to organize a movement to make Pinot Gris Oregon’s signature white wine (to complement Pinot Noir, the signature red). But there are problems to overcome.

The first is consistent quality, which is obviously key. Oregon Pioneer David Adelsheim told the group that the variability in quality, which was once shockingly high, is now thankfully reduced. Although there may not be a distinctive “Oregon style” there is far more consistent quality. Good news.

Misunderappreciated Quality

Perhaps because of this quality, the wines sell very well. When Paul Gregutt asked the wine makers if they sell out of Pinot Gris, a great many hands were raised. Much of this action is in the tasting room and it seems that tasting is believing. They come for the Pinot Noir, but when they taste the Gris (at half the price of the Noir and sometimes less), they walk out clutching bottles. Sounds like a success story.

But that’s also the problem, too, Adelsheim noted. Pinot Gris sells very well in the $15 to $20 price range, but there are precious few PGs that break though the $20 glass ceiling. My calculations (based on very limited data) suggest that a $15 Oregon Pinot Gris is not hugely profitable when sold directly and less so when sold into the 3-tier system at a discount. Low profitability puts a glass ceiling on quality, according to some of the winemakers present, who believe that additional research and investment in viticultural and winemaking practices could make Oregon PG as great in its own way as Oregon Pinot Noir.

Consumers misunderstand Pinot Gris — or maybe I should say they misunderappreciate it (if that is indeed a word). They love it, but they don’t appreciate its quality (maybe it is the Pinot Grigio curse?) and won’t pay prices that would power the category to new heights. That’s what we heard in the Oak Knoll barrel room. What is to be done?

A Riesling Rendezvous

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300 participants x 20 dry Rieslings each = 6000 Riedel glasses

The second gathering started on the grounds of Chateau Ste Michelle in Woodinville, moved to the Bell Harbor Conference Center on Elliott Bay and concluded (lavishly) at the Chihuly Gardens at Seattle Center. Riesling Rendezvous gathered together Riesling makers, drinkers, distributors, sellers and critics from just about everywhere on what master of ceremonies Stuart Pigott calls “Planet Riesling.”

Winemakers (and their wines) came from seven U.S. states (Washington, Oregon, California, Idaho, Michigan, New York and New Jersey) and seven  countries (Germany, Austria, Slovakia, Australia, New Zealand, Canada and the United States) .  France was missing in action (Planet Riesling sans Alsace? Incroyable!), but they made a big appearance at the last Rendezvous three years ago and so perhaps can be given a pass this time.

(Riesling Rendezvous is part of a three year rotating series of international Riesling gatherings with the other meetings taking place in Germany and Australia. This was the fourth edition of Riesling Rendezvous and my third.)

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Mike with Ernie Loosen

Riesling Rendezvous is organized by Washington State’s Chateau Ste Michelle, the world’s largest producer of Riesling wines, and Germany’s Dr Loosen. Ernst Loosen is perhaps the world’s foremost, most enthusiastic and hardest-working proponent of Riesling. And he makes some damn good ones, too.

So what’s the problem with Riesling? Well the issue, which has been discussed at each of the four meetings of this group, is that most consumers misunderstand the wine and the issue is usually sweetness. Riesling is fascinating because it comes in such a vast array of styles — I almost run out of dimensions when I try to explain all the aspects of Riesling, but sweetness seems to be the focal point.

Rieslings come in all shades of sweet from not sweet — as dry as you can get — all the way over to intensely sweet (but usually balanced by acidity).  What you think of Riesling may be determined by your first sip and for many people that sip was uncomfortably sweet (especially if you weren’t expecting it).

So Riesling (like Sherry, another misunderstood wine) is held to be guilty of criminal sweetness until proven innocent. And many consumers, convinced by what they have heard or believe, never give it a fair trial.

Even worse in a way is the fact that some people who like sweeter wines are confused when they chance into a dry Riesling. Is that Riesling? Not what I expected. The opposite confusion can confront the dry Riesling fan who ends up with a bottle of off-dry to sweet wine.

It isn’t always easy to tell sweet from dry from the information that you find on the bottle, although the sweetness scale created by the International Riesling Foundation (an organization that came out of the first Rendezvous meeting) certainly helps.

Research presented at the conference suggests one final problem. The people who love Riesling the most (perhaps because they appreciate its diversity) apparently also appreciate the diversity of wine generally. They drink Riesling, of course, but not with the single-minded resolve of, for example, Sauvignon Blanc fans, who come back more frequently to their favorite wine than do Riesling’s core consumer group.

As with Pinot Gris, the problem isn’t life threatening, just frustrating. Riesling, in fact, has been a hot wine category in the U.S., but growth has faded a bit recently and the momentum shifted elsewhere. That seems to make everyone on Planet Riesling nervous.

Misunderstood Riesling. Misunderappreciated Oregon Pinot Gris. What is to be done? A further report on the discussions and perhaps the outline of a strategy in the next post.

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Thanks to both the Oregon Pinot Gris group and to Riesling Rendezvous for allowing us to participate. Thanks to Sue Veseth for the photos.

Decanter’s Power List 2013: Globalization and China’s Continuing Rise

He’s still #1

The July issue of Decanter (the self-proclaimed “world’s best wine magazine”) is out and with it comes the Decanter Power List 2013 – a list of the 50 most powerful people in wine this year as determined by the magazine’s editors.

The Power List, which appears every other year, is great fun, both in the way that it spurs debate (my soccer-fan friends spend hours and hours debating similar lists for their sport) and because of the glimpse it offers into the way the world wine map is changing … or not.

Small World After All

What does the 2013 list reveal? Well, the #1 most powerful man (only 15% of those on the list are women) is once again Pierre Pringuet, CEO of drinks multinational Pernod Ricard. There are bigger wine companies – Gallo (Gina Gallo is #17 on the list) and Constellation Brands (#5 Robert Sands) but it is Pernod Ricard’s global reach and decidedly global strategy that sets it apart and makes Pringuet #1. Or so I believe, because one of the messages of this Power List and the last one is that globalization is now the way of wine.

The new #2

Asia is the key to the global kingdom, or so the list seems to say. Ten of the 50 listed luminaries have a strong Asian connection, including the new #2 (up from #8 last year) Wu Fei, head of the wine and spirits division of COFCO, China’s state-owned Cereals, Oils and Foodstuffs Corporation.

COFCO makes wine (Great Wall brand), invests in wine properties (Chateau Viaud in Bordeaux with more foreign acquisitions to come) and is a key potential partner for anyone in the world who wants to sell bulk wine into the Chinese market. It will soon start bottling Australian and Chilean wines to sell under the Great Wall label, with more international expansion planned.

COFCO’s (and China’s) influence is so strong that its association with Bordeaux flying winemaker Michel Rolland seems to account for his surge in the ratings from #18 last year to #7 in 2013. The China connection also might explain Aubert de Villaine’s meteoric rise from #30 to #8.

De Villaine is co-owner of Domaine de la Romanée Conti and that alone might justify a place on the list. But 2013 has been widely seen as the year that many Chinese investors and collectors lost interest in Bordeaux and turned their attention to Burgundy. So no surprise that DRC, perhaps the most sought-after Burgundy wine, would surge in the ranking.

New Names and Faces

There is always a good deal of churn in the Power List and this year is no different. I counted 14 new names, starting with #48 Judy Leissner (CEO of Grace Vineyards, China) and ending with #11 (John D Watkins, ASC Fine Wine, China) and #12 (Yang Wenhua, C&D Wines, China).

Not every new face has a Hong Kong or China link, but many do including # 44 Li Demei (Chinese consulting winemaker), #42 Paolo Pong (Hong Kong retailer and restaurateur), #27 David Pedrol (Chinese online wine retailer) and #23 David Dearie (CEO of Treasury Wine Estates, which is noteworthy for opening a vast 6000 square meter wine gallery in Shanghai).

Other new names on the Power List are Magdalena Gerber (#33 – she is CEO of Sweden’s wine monopoly, Systembolaget) and Bob Peter (#32, head of the provincial monopoly Liquor Control Board of Ontario). Systembolaget and the LCBO are two of the world’s largest wine purchasers and retailers (along with Costco, the U.S. leader, represented by Annette Alvarez Peters at #4 and Tesco’s Dan Jago at #14). Globalization can create a huge wine pipeline and this gives power to those who can fill it (like Pernod Ricard) and those who can empty it profitable (Costco, Tesco, Systembolaget and the LCBO).

More questions than answers

The U.S. is the world’s largest wine market today and it seems a bit under-represented on the Power List with only eight names, but they are heavily concentrated in the top tier: #9 critic Robert Parker, #6 Constellation’s Robert Sands, #5 distributor Southern Wine & Spirits’ Mel Dick and Costco’s Annette Alvarez Peters at #4.

It’s interesting to ponder the Power List because it raises more questions than it answers.  Who do you think really is the most powerful wine person in the world?

Why aren’t there more women on the list, especially from Europe where Jancis Robinson and Magdalena Gerber are the only female representatives? This is a question for the industry (and not just Decanter’s editors) to ponder. Will this year’s new faces still be around in two years when the next list is released? Where will the next group of new names come from?

And, of course, when will Decanter finally include a wine economist in the power list? I guess we’ll just have to wait and see.

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Click on the links to read my analysis of previous Power List selections for  2011 and 2009.

Early Days for Virginia’s Early Mountain Vineyards

P1050858It is still early days for Early Mountain Vineyards, the ambitious and progressive new project that Jean Case has started along with her husband Steve (of AOL fame).

The goal (and the challenge) goes beyond establishing a destination winery in the Monticello AVA. The Cases want to help elevate the profile of Virginia’s growing wine industry generally.

That’s a worthwhile aim, but not a simple or easy one in today’s competitive market environment. As one friend put it, early days and a mountain to climb.

Virginia Wine Mosaic

We were in Virginia to visit Sue’s parents Mike and Gert who live near Richmond and came to Early Mountain on the advice Frank J. Morgan who writes the popular Drink What You Like blog, which analyzes Virginia wine.   With about  200 wineries of various sizes and foci and 15 AVAs, Virginia presents the potential wine tourist with many choices. Frank suggested several interesting winery targets and I selected Early Mountain both for its proximity to Charlottesville and for its ambitious stance.

The Cases are big fans of all things Virginia and saw in the bankrupt Sweely Estate winery an opportunity to contribute to the wine industry here. The Sweelys built an impressive facility — a 20,000 case winery and a separate spectacular hospitality and event center, but they were apparently better at making wine than selling it for profit.

Early Mountain (named for the famously hospitable Early family who lived in these hills in Revolutionary War times) rose from these financial ashes in 2011 with the double mission to add to the chorus of Virginia wineries and also help the whole industry open a new era.

Best of Virginia

The most obvious evidence of this broader purpose is the Best of Virginia wine program at Early Mountain. The winery has partnered with the nine wineries shown above and promotes their products along with its own. This is done mainly through a series of tasting flights, only one of which is based on Early Mountain wines alone.

The rest feature a mix of products from the ten different producers carefully selected by Michelle Gueydan, a sommelier employed specifically for the Best of Virginia program. The flights are changed up periodically to both broaden the range of wines so promoted and to encourage visitors to return repeatedly to see what’s new.

I understand that there are also plans to eventually channel winery profits to promote Virginia wines in line with Case’s Revolution concept of social entrepreneurship. Profits seem a long way off, based on my back-of-the-envelope calculations of revenues and costs, but a patient capital philosophy rules.

Early Days for Wine Identity

We enjoyed platters of local cheeses and meats, which paired very well with an Early Mountain Pinot Gris. The focus on local producers was both clear and delicious.We then turned our attention to a red wine flight that showcased four wineries and four grape varieties or blends. The Barboursville Sangiovese (they are owned by the Italian Zonin family) and the ’08 Early Mountain Merlot were Gert’s favorites among the reds we tasted. I was attracted to a distinctive Petite Verdot.

I’m optimistic about this project (as I am about the future of Virginia wine more generally), but I think everyone agrees that it is still early days. Early Mountain is still building up its wine portfolio, which necessarily takes a few years to accomplish. (If you were starting from scratch you would wait for the wines before opening the hospitality center but the desire to seize the opportunity caused the cart to be put ahead of the horse for now).

My perspective is that the components for success are coming into place and need to be lined up effectively into an identity for the winery and a message for the industry. I think the Early Mountain project is about Virginia hospitality and while that is clear in a sensual way when you step into the big open room, it could be communicated more explicitly in other ways.

The Early Mountain wines themselves don’t seem to have an identity yet, but that is perhaps natural since they are still works in progress. But they will need to be more clearly defined at some point, too, and that is not a trivial problem. The most successful wineries know who they are and express this identity consistently from first greeting through the wines and the wine experience on down to the product design and promotion materials and throughout every member of the staff.

An American [Wine] Dream

The Best of Virginia idea is a good one, but at this point the wines more or less speak for themselves and while visitors might find individual wines that they enjoy from around the state, I would like to see a better developed educational element to draw them progressively into Virginia wine in a way that includes the varieties and styles, the wineries, the AVAs and the terroir and of course a cultural element that connects to local history and cuisine.

An educated consumer is more than just a buyer — she can be an ambassador for Virginia wines and that’s where the real pay-off comes. It might seem like I am demanding a lot — and I am — but this is a rare opportunity due to the resources and commitment of the Case family and it would be great if it succeeded on all fronts.

This is not just Early Mountain’s problem, of course, but an issue that the Virginia industry needs to wrap its head around. Right now it seems to this outsider that the Virginians, like wine producers in many regions, are working through the debate about the need for a signature grape variety. Viognier? Cabernet Franc? Petite Verdot? It seems to me that this is an unproductive debate (or maybe a counter-productive one).

Virginia makes lots of different wines (Barboursville apparently makes a helluva Nebbiolo – who would have guessed?) from many grapes varieties in many styles (something the Early Mountain flights demonstrate). Defining the region by one grape or two wouldn’t do justice to this diversity.

Virginia also makes some disappointing wines, as is the case with most developing wine regions, and the store shelves feature many sweet wines and fruit wines, too, which may be very good but certainly provide a mixed message. Perhaps  a focus on more consistently high quality (and not signature grape) is the road ahead? I think that’s part of the Best of Virginia plan — to draw attention to high quality and try to raise the bar for everyone.

As the recently published  American Wine by Jancis Robinson and Linda Murphy teaches us, America is full of wine and wineries — they are not just in the big states or made by the big producers. I dream of an America where wine is made everywhere and enjoyed everywhere. Early Mountain can be a part of that dream. I wish them success.

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Thanks to Allison, Dave, Steve, Erich and Jacob at Early Mountain for their hospitality and willingness to answer all our questions. Thanks to Frank for his advice. Thanks to my most senior research assistants Mike and Gert for their able assistance and to Sue for photographs and her sharp eye and keen ear.

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Update June 5, 2013. A nice article about Virginia wines (including a mention of the Early Mountain “Best of Virginia” partnership) has been posted on the Appellation America website. Enjoy!

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Term Papers: Wine, Women, Song (and more)

I’ve been reading the final papers from my university class on The Idea of Wine and I thought I would share some of the topics with you to give you an idea how bright college-aged American students think about wine after spending a semester studying it.

Women and Wine Bars

The “wine, women and song” of this post’s title was inspired by two first-person research papers. Ali is interested in both gender issues and wine in a social setting, so it was natural that she might want to study “Women and the Wine Bar: a Tacoma Case Study.”

Ali’s paper began with academic study (the social analysis of drinking cultures), which she then applied to wine bars. Traditional bars, which feature beer and spirits, are seen by some scholars as a space to create and sustain male relationships.

Ali observed that wine bars attract a disproportionately female clientele and she and a friend observed the demographics of three local wine bars and the pattern of apparent relationships of the patrons. An interesting first step towards an understanding of wine, women and wine bar culture.

Music and Wine: A Harmonious Relationships

Erin, a music performance major,  added song (or music) to the mix with her study of “The Musical Palate: An Exploration of Factors Linking Wine and Music.” Her research began with Clark Smith’s famous studies of  how different musical pieces affect the perception of specific wines. Correctly paired, Smith suggests, music can improve the wine experience. I understand that a number of wineries are working with Smith in this regard.

A classically trained musician, Erin decided to see if the effect could move in the opposite direction, so she tried pairing  several different wines with iconic musical pieces to see if they might enhance the listening experience. Incredibly she found that the right wine really did add something to musical appreciation — it was something like the way turning up the base or treble knobs on a stereo can alter the sound itself, she said. Erin’s study was personal, not scientific, but like Ali’s it suggests an area ripe for further study.

Money, Taste and Retsina?

Several of my students were able to connect wine with their other academic studies in interesting ways. Joanna, for example, saw links with her Psychology class on Sensation, Perception and Action. The course description reads

This course considers the phenomena and methods of sensation, perception, and action in biological organisms. It focuses primarily on vision and audition, but with an emphasis on the general principles of how various forms of physical energy in the world are transduced and transformed to yield useful representations and purposeful behavior.

Joanna moved the focus from sight and sound to taste. Her scientific final paper, “It’s on the Tip of My Tongue: Impact of Individual Tasting Difference on Wine,” was fascinating in a geeky kind of way I really appreciate.

Kelsey also asked to write a cross-over paper that would merge her wine studies with her work in Advanced Empirical Economics. The result was “China and Bordeaux Wine Auction Prices,” which used econometric techniques to probe the timing and impact of Chinese demand on wine prices.

Crown cap from a bottle of Retsina

Many students found ways to connect wine with their personal and professional interests. Taylor had never tasted Retsina, but she was attracted to it as a cultural artifact with contemporary relevance. Her paper is titled “Retsina: An Ancient Wine with an Ongoing Impact in Greece.” I wish I could have been there to see her face when she took her first sip of Retsina — it’s always a surprise!

Business major Eben looked at the closure issue from a winery business perspective in  “A Corking Predicament: Closures of the Present, Past and Future.” Home brewer Lukas just had to write “Beer versus Wine: Switching Roles?” And Kirsten examined social media applications in “Wine on Facebook: Marketing Wine to a New Generation.”

The University of Puget Sound where I teach is a liberal arts college and it is easy to see from these paper topics why The Idea of Wine fits into the curriculum so well. Wine, with all its many forms and functions, is a clearly liberal art!

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Sorry, but I cannot distribute copies of these student papers. Anyone with an interest in a specific study can contact me at Mike@WineEconomist.com and I will try to connect you to the author.

Is Craft Beer the Next Big Thing in Wine?

Is craft beer the next big thing in wine? No — not if you’re asking if wineries are going to start putting in tanks for IPA (India Pale Ale) alongside their racks of expensive french oak barrels.

But yes — maybe — if you are thinking about things in terms of market spaces. The wine market space and that of craft beer are increasingly overlapping as craft beers infringe on wine’s turf (and low alcohol wines threaten to do the same for beer). And if the common battlefield isn’t huge at this point, it is certainly growing and warrants attention.

Anatomy of Craft Beer

A Craft beer producer, according to CraftBeer.com, the Brewers Association website, has three essential qualities:

  • Small: Annual production of 6 million barrels of beer or less.
  • Independent: Less than 25% of the craft brewery is owned or controlled (or equivalent economic interest) by an alcoholic beverage industry member who is not themselves a craft brewer.
  • Traditional: A brewer who has either an all malt flagship (the beer which represents the greatest volume among that brewers brands) or has at least 50% of its volume in either all malt beers or in beers which use adjuncts to enhance rather than lighten flavor.

Although by definition craft beer producers are relatively small, the market category has made a lot of news recently because of its rapid growth, both in terms of number of retailers who carry craft beers and total sales. Rapid growth from a small base — sound familiar?

It’s the growth that gets your attention. Remember Moscato? It surged from a small market niche to become the next big thing and is according to one report is now the third best selling (by volume)  white wine varietal in the U.S. after Chardonnay and Pinot Grigio and ahead of Sauvignon Blanc. Is craft beer the next Moscato?

The Next Moscato?

I put the question this way because the particular beer that provoked this post was actually made with Muscat grapes. It was a 12 ounce  bottle of Midas Touch from Dogfish Head Brewery. that I bought for $3.50 at the Metropolitan Market up the street.

Although Midas Touch probably wasn’t made with wine drinkers strictly in mind, it is certainly being marketed to the wine space as the videos below will show you and I have to say that its complex aromas and flavors (plus wine-like 9% alcohol by volume) made it a beer that can stand up to many wines in a sip by sip comparison.

The brewery says that “This sweet yet dry beer is made with ingredients found in 2,700-year-old drinking vessels from the tomb of King Midas. Somewhere between wine and mead, Midas will please the chardonnay and beer drinker alike,” and I can’t really disagree. I found it very pleasing (and not overwhelmed by the addition of saffron as you might expect), although this is clearly a matter of taste. Sue was less impressed, saying that it didn’t taste like beer and wouldn’t be her choice over wine.

Midas Touch is not a typical craft beer, but it demonstrates pretty well what craft beer is capable of doing in competition with wine.  It is a complex and interesting beverage that pairs well with food — just like wine. It tells a story that draws in the consumer and deepens the attachment — just like wine.

New and Improved!

Innovation is a hot topic in the beverage business these days and craft beer presents more opportunities for innovation and product development than most wines if you are aiming at that market segment. Midas Touch, based on an ancient recipe using exotic ingredients — is an example of how far the innovations can go.

Interestingly, complexity comes at a lower relative price with craft beer than with wine, which is something to consider. The difference between the lowest and highest priced grocery store wines is huge — sometimes a factor of 50 or more — with $2-3 per bottle equivalent for a 5-liter Franzia box at the low end and $100 or more at the top is not unusual at an upscale supermarket.

By comparison, the exotic product premium for craft beers is relatively low. The Midas Touch was a bargain at $3.50 or about $7.00 per 750 ml bottle equivalent in the sense that it was not very much more expensive than basic beers and ales.  I have to admit that it was a lot more interesting to drink that a lot of $7 wines that I have tasted even if, like any particular wine, it is not necessarily to everyone’s taste.

And even the most exotic cult beers (like the locally fabled Pliny the Elder) can often be found for $10-$20. So the Screaming Eagle craft beer equivalent can be purchased for the price of a good but not exceptional bottle of wine. You can see how that might attract the attention of some wine drinkers, especially young ones. And I guess it has.

Wine’s Counterattack?

A lot of the attention has been focused on alcohol levels. Some craft beers are even more potent than the 9% abv Midas Touch, which puts the beer in ballpark of wine.  Certainly high octane beer should be treated like wine and sipped (wine glasses are often recommended) not gulped.

But not all craft beers are this boozy and in fact I think that their lower alcohol levels (compared with wine and spirits)  can be a competitive advantage when you look at the market that way.

The trend towards lower alcohol wine (like the 5.5% abv line of wines that Gallo recently launched in the British market)  might be seen as wine trying to capture some of the beer market through product innovation.

Craft beer drinkers often display the same sort of insane devotion and geeky attachment that we see in wine enthusiasts and there are even interesting beer tourist destinations like Bend, Oregon — an old mill town that is home to 14 craft breweries within easy walking (or stumbling) distance of each other along the Bend Ale Trail, which attracts some of my university students as a Spring Break destination.

Midas Touch

So craft beer has a lot in common with wine and maybe a couple of advantages. With these products more widely available and a growing customer base that is ready and willing to experiment, I think it is plausible and wine and craft beer will increasingly share market space and must take that competition into account.

Will some wineries take the next logical step and start brewing small lot beers? Well, it isn’t a crazy idea where regulations permit it. Compared to wine with its single annual harvest, beer is a Chateau Cash Flow business. Breweries can operate pretty much year round as one batch it bottled and another fills the tanks.

Cash Flow Ale? Maybe that’s how beer-drinking Midas got his golden touch!

OTBN: The Cure for Conspicuous Non-Consumption

The last Saturday in February has for some years been officially designated “Open That Bottle Night” and we plan to celebrate it again this year in the company of our friends Jenny,  Bonnie and Richard, Rosemary and Ken and Mary and Ron, who are hosting the gathering.

OTBN was invented by wine writers Dorothy Gaiter and John Brecher to solve a problem that plagues many wine enthusiasts. Some wines are just too precious to open. For one reason or another we want to let them sit, waiting for a “special occasion.” As if opening an intriguing bottle isn’t special occasion enough! Go figure.

So, Dottie and John proposed, let’s just pick an arbitrary date, pull the cork, and celebrate. The wine doesn’t have to be old (although it might not be a bad idea to drink up older vintages if you have any) or expensive, either. It’s the thought that counts. Or the story that goes with the wine — I like “story wines” best of all.

I’m a big fan of OTBN because I see it as positive step. Wine enthusiasts do lots of silly things, as I point out in my forthcoming book Extreme Wine. We spit out good wines (at tasting events, where there are too many wines to even think of swallowing them all) and then slurp down mediocre ones (at weddings and receptions, etc.)

And whereas others suffer what Thorstein Veblen called “conspicuous consumption,” we sometimes stand out because of what we don’t drink (but could). No doubt about it: time to open that bottle.

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otbn2013

Update February 24, 2013. I thought you might be interested in the menu and wine list for our OTBN dinner last night. Try not to drool on your keyboard or tablet screen as you read this. (Note: I failed get the maker of the 1990 Riesling .)

Hors d’oeuvres: Smoked chicken and dried apricot terrine with a lemon caper sauce /  Smoked lamb loin with tarragon aioli served on toasted baguette / Pecorino cheese beignets with pink lady apple butter

  • Gloria Ferrer Brut Sonoma

First course: Smoked salmon rosette, lemon cream, crispy brioche, shaved fennel and arugula with citrus olive oil

  • 2010 Venge Vineyards Bacigalupi Vineyard Pinot Noir Russian River

Second course: Seared jumbo scallop with forbidden rice, avocado poblano butter, and roast bell pepper foam

  • 2007 Joseph Drouhin Savigny Les Beaune “Talmettes” Premier Cru
  • 2008 Domaine Drouhin Oregon Pinot Noir, Willamette Valley

Third course: Sunchoke and cauliflower puree with coriander cream

  • 1990 Wehlener Sonnenuhr Riesling Auslese, Mosel
  • 2008 Joseph Rosch Riesling Kabinett, Mosel

Fourth course: Poached lobster tail, lemon beurre fondue, stewed leeks, and caramelized anise

  • 1996 Verget Puligny-Montrachet Les Enseigneres
  • 1996 Chavet-Chouet Puligny Montrachet Premier Cru

Fifth course: Muscovy duck, braised red cabbage, roast pearl onions and bacon lardons, herb spätzle

  • 1982 Gloria St Julien, Bordeaux
  • 1998 Cuvee Vatican Chateauneuf du Pape
  • 2000 Le Vieux Donjon Chateauneuf du Pape

All accompanied by Sue’s signature fresh-baked bread

Dessert: Bonnie’s famous chocolate dacquoise

  • 2006 Cakebread Cabernet Sauvignon Napa Valley

Afters: Fantasy of Spanish almonds, Italian hazelnuts, Turkish figs and dried apricots

  • 2004 Dobogo Tokaji Aszu 6 Puttonyos

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James May seems to be an opponent of conspicuous non-consumption, as this clip from the wonderful BBC mini-series he made with Oz Clarke makes clear. Enjoy!

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Juice Box Globalization: Is this the Future of Wine?

applegrapeI’m back from the Unified Wine & Grape Symposium and busy trying to process all that I’ve learned while simultaneously catching up on the work that seems to have piled up while I was away. You know the feeling …

One theme of the seminars this year was the impact of globalization on the U.S. wine industry. I thought I would approach this topic in two parts. First, let me tell you a little of what I said on the Tuesday Globalization panel and then I’ll try to synthesize what learned from the discussion in a follow-up post.

Thinking Outside the [Juice] Box

My remarks were an attempt to get the audience to think about the impact of globalization in a broader context (it’s that liberal arts thing I do in my day  job as a college professor). Globalization isn’t a simple thing, I told the audience, and it isn’t a one-way street, either.

Don’t think that globalization is just competition from imports from other countries (although that’s part of it, of course) or just export opportunities abroad (as important as they can be). Globalization is both of them and many more influences, too.

One way to understand wine globalization a bit better is to look at globalization in another industry and seek out parallels and note contrasts, too. The apple industry is a bit further along the globalization process than wine, so maybe it reveals something about the road ahead.

The apple market has always been segmented, for example, but globalization has magnified the category distinctions and intensified competition within them.  Maybe that’s happening to wine? Here are three flavors of apple globalization that may or may not have lessons for wine business in the future.

juicebox

Juice Box Globalization

Consider the common juice box. If you have children or grandchildren or pack your own lunch you probably have these things around you all the time. Who knew that they embody an extreme form of globalization?

Take a look at the list of ingredients. Water, juice concentrate, etc. — no surprises there. But look where the juice concentrate comes from: USA of course but also Argentina, Austria, Chile, China, Germany and Turkey.  The apple juice concentrate that supplies the juicy fruit taste could come from any of five countries on four continents. Wow! That’s globalization for you.

The concentrate is a completely generic product (simply apple — not some particular variety of apple) traded in highly competitive global markets where cost (for standardized quality) is king and minor changes in exchange rates, transport costs and trade fees can have big effects.

As we consider the major increase in bulk wine shipments around the world — 45 percent of all New World wine exports are now big bag – big box bulk shipments – you can’t help but wonder if Juice Box globalization might be on the horizon.

Granny Smith Globalization

I’m old enough to remember when Granny Smith apples entered the U.S. market in 1971 (from New Zealand, as I recall) as a premium product. The Granny Smith was developed nearly 150 years ago by a grandmotherly Australian woman named Smith who discovered the natural cross in  her garden  and propagated it.

Initially, I think, the appeal of Granny Smith was that it was a premium Southern Hemisphere apple that filled a seasonal market niche in United States. Now however, Granny Smiths are grown pretty much everywhere and have lost some of their premium appeal. Highly integrated international apple companies source them from everywhere and distribute them everywhere.

Granny Smith globalization is not nearly so extreme as Juice Box globalization, but it is still quite dramatic. It reminds me of some of the bulk wine trade today, where certain varietal wine brands at certain price points are increasingly sourced from all over the world. Product differentiation in some segments is increasingly based upon brand rather than appellation or country of origin — which can change from California to Chile to Italy and beyond from year to year — just like the  Granny Smiths.

Honeycrisp Globalization

The best margins in the apple business today are probably found in what I call the Honeycrisp market segment where innovative super-premium products command high prices. The Honeycrisp apple was developed by the Agricultural Experiment Station at the University of Minnesota to be an eating apple with distinctive flavor and especially texture profiles that consumers seem to love. Patented and licensed, it has been a very profitable product.

The plant patent on the Honeycrisp has apparently expired, so production is increasing and prices have fallen a bit, but the idea behind it is still strong. Plant scientists in Europe have developed new specialized patent apple products to take over where Honeycrisp left off. Sue is especially fond of  Kiku and Kanzi, which I think are variations on the Fuji variety from Japan that were developed in Northern Italy and the Netherlands respectively and are grown in limited quantities here in Washington State.

Honeycrisp globalization is about product innovation and product differentiation. Follow the money: the tight margins created by Juice Box and Granny Smith globalization have nudged the Honeycrisp strategy into the spotlight.

Apples, Oranges and Wine

Is there anything to be learned about wine by thinking about apples? Or is it an “apples and oranges” thing? Well, my goal was to get people thinking and I admit that when I asked the big audience if they thought that there was something to the Juice Box (or Granny Smith or Honeycrisp) idea of wine I saw many heads nodding “yes.”

Not a surprise, of course. Apples and wine are specialized industries, but they are both businesses, too, and perhaps the similarities that people see are because of that. Maybe this little lecture has got you thinking, too. If so, come back next time when I’ll talk about some of the interesting ideas I heard from other speakers regarding globalization and U.S. wine.

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Here’s a video about Kiku — about as far from a Juice Box (in terms of product differentiation) as you can get.  Enjoy!

The Unified Symposium: Globalization, State of the Industry and Book Signing

I hope to see many Wine Economist readers next week at the Unified Wine and Grape Symposium in Sacramento, California. The Unified is North America’s biggest wine industry gathering. Here’s how the website describes it.

Built with the joint input of growers, vintners and allied industry members, the Unified Wine & Grape Symposium is held annually in Sacramento, California and is the largest event of its kind in the western hemisphere. Serving as a clearinghouse for practical information important to wine and grape industry professionals, the Unified Symposium also hosts a trade show with over 650 suppliers displaying their products and services to the more than 12,400 people who attend annually.

It’s a Really Big Show (as Ed Sullivan might have said) and I’ll be part of three events: two sessions and a book signing. I’ll paste the details of the sessions at the end of this post.

  • I’ll be on the panel for the general session on globalization and the U.S. wine industry that starts at 9 am on Tuesday, January 29,
  • I’ll be moderator for the “State of the Industry” panel that starts at 8:30 am on Wednesday, January 30, and
  • I’ll be signing copies of Wine Wars at the Wine Appreciation Guild booth in the trade show from 12:30 – 2 pm on Wednesday.  Please stop by Booth # 1620 and say hello if you are there.

Here are the details:

How the Global Wine Market Affects U.S. Production

U.S. growers and wineries are directly or indirectly impacted by the global wine market. Bulk wine movements ebb and flow based upon changes in currency valuations, relative costs of production, transportation costs, and supply and consumer demand. U.S. producers are accustomed to competition from branded imports, but numerous U.S. brands also source bulk wine internationally to meet cost-of-goods targets or to satisfy consumer demand for popular wine styles or varietal grapes in short supply. These trends affect U.S. grapegrowers and wineries, and this session will help you understand the market forces that will likely affect your business.

Moderator:

Jeff O’Neill, O’Neill Vintners & Distillers, California

Speakers:
Kym Anderson, University of Adelaide, Australia
Greg Livengood, Ciatti Company, California
Stephen Rannekleiv, Rabobank, New York
Mike Veseth, The Wine Economist Blog and The University of Puget Sound, Washington

State of the Industry

The State of the Industry session will provide a comprehensive look at every aspect of the wine industry, from what’s being planted to what’s selling. This 2½ hour session features highly regarded speakers and delivers incredible value for attendees who need to understand the market dynamics of the past year and are seeking insight into the market trends that will define the year ahead.

Moderator:
Mike Veseth, The Wine Economist Blog and The University of Puget Sound, Washington

Speakers:
Nat DiBuduo, Allied Grape Growers, California
Jon Fredrikson,
 Gomberg, Fredrikson & Associates, California
Charles Gill, Wine Metrics, Connecticut
Glenn Proctor, Ciatti Company, California

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