Busting the Big Tank Myth: Durbanville Hills

dhwThere are easier ways to get to Durbanville Hills Winery than aboard a snorkel-equipped Land Rover, but I don’t think there’s a better way to go.

They brought out the 4×4 vehicles (snorkel-equipped — who knew? — so the engines can breathe even in deep water crossings) so that we could experience and appreciate the hills, the vineyards and the rugged terrain even before we came to the winery itself and the braai lunch that was planned for us there.

My visit to Durbanville Hills Winery started as adventure and became a learning experience about the diverse nature of wine in South Africa. Now it is also Exhibit A in the case against the One Big Tank myth that I wrote about last week.

The Big Tank theory is that giant wine and drinks companies with dozens of brands in their portfolios offer consumers the illusion of choice, not real choice. It’s as if all the different wines came out of one big tank.  Although there is a grain of truth in this idea, I think it is fundamentally bogus and Durbanville Hills is a case in point.

From Oom Tas to Nederberg Noble

Durbanville Hills Winery is part of the Distell drinks empire. As I wrote last week, Distell is South Africa’s largest wine and spirits producer and is a global power in several beverage categories. They superficially fit the Big Tank stereotype, but within their range of brands you will find choices over a wide range starting with very basic wines such as Oom Tas (described as “an inexpensive, dry, golden, unsophisticated wine of constantly good quality and taste”) and Kellerprinz (” an unpretentious, fun wine, its quality is nevertheless good and consistent, offering value for money”) and moving on up the ladder to the rather special Nederberg Noble Late Harvest wine I wrote about last year.

Durbanville Hills Winery is a relatively new addition to the Distell group.  The winery is beautiful in a modern way that does not seem out of place for its setting. The public spaces are welcoming, the restaurant gets good marks and you can’t beat the views looking out over the vineyards or on to the city. It looks like Distell has put a lot of time and money into the operation and the result is impressive.

Even Lettie Likes It

The wines are impressive, too. I especially liked the Sauvignon Blanc, which seems to do especially well in these hills. And the Pinotage is good enough to get a nod from self-confessed Pinotage-hater Lettie Teague, wine critic for the Wall Street Journal.

Durbanville Hills’ wines are distinctive (which runs counter to the Big Tank myth), but in fact the whole operation is unusual and not what you would expect from a “drinks company” winery at all.

Durbanville Hills was founded in 1999 as a partnership between Distell and seven wine farms in this region and the first wines were released in 2001. This area has a long history of wine growing — the youngest of the farms was founded in 1714 according to the winery website.

Triple Bottom Line

Distell’s representatives sit on the winery board, as I understand it, along with the farmer partners plus a workers’ representative. The wine farm workers have a 5% equity stake in the business that is administered through a trust that provides a number of social and economic benefits to workers and their families. Durbanville Hills was one of the first wineries to be accredited by the Wine Industry Ethical Trade Association. 

Cellar master Martin Moore is an enthusiastic promoter of a particular brand of sustainability that is sometimes called the “triple bottom line” approach (although he never used this term when talking with me). Businesses need profits to sustain themselves in the long run, of course, but economic sustainability doesn’t mean much if the environment is sacrificed (true for all business, but especially for wine), so you have to add that factor into the equation. And what are planet and profit without people? Communities must be sustained along with business and the environment. So true sustainability is the intersection of the three spheres of life taken together.

To quite intentionally organize a wine company around these values is a long term commitment and not the sort of thing that you associate with a corporation nervous about quarterly earnings reports. But it seems to me that everyone at Durbanville Hills is in this for the long run and the structure of the business is meant to keep it that way. It’s an impressive achievement and it makes a glass of Durbanville Hills wine a particularly satisfying drink.

Not Free Range

Clearly there are values and principles beyond a simple short-term profit motive behind the Durbanville Hills project, but they are usefully balanced with a sense of realism — you have to be pragmatic to make the triple bottom line work because this idea of business  isn’t about avoiding trade-offs, it’s about confronting them and making effective choices.

I saw this in a sort of sustainability manifesto that Martin Moore gave me at the end of my visit. Moore writes that, “We farm responsibly … not organic, not biodynamic … but sustainably.”  I think his point is that it is difficult to balance all three bottom lines if you swear off potentially important tools. “I would not even claim that we have free range vines,” he jokes, “as most of it is stuck in a trellis system.”

But I do believe that if we continue improving strengthening our 3 pillars of sustainable farming Durbanville Hills, our producers, our farm workers and community will hand over a successful business to the future generation without having to apologize.P1040576

Myth and Reality

Clearly Durbanville Hills Winery doesn’t fit the Big Tank theory and I think it is an indication that Distell and other giant wine and drinks companies are capable of offering wine consumers real choice — choice in both the wines themselves (which is the point after all) and in the entire wine experience.

It would be easy to make the case that Distell and Durbanville Hills are special cases. South Africa has a unique wine history that stretches back for hundreds of years and a unique social history, too, which motivates many there to address directly issues of race and inequality.

And then there is the Rupert family’s influence on Distell. If anyone understands the the benefits of product differentiation and avoiding a Big Tank syndrome, it is probably the Ruperts, whose broad holdings control many luxury brands including Cartier. They would certainly appreciate the business value of distinctive products compared with Big Tank uniformity.

Distell is a unique wine company in many ways, but I don’t see it as unique in terms of the Big Tank myth.  While I don’t deny that there are a few Big Tanks out there, in general I believe that even giant wine companies have strong business incentives to provide consumers with diverse choices (and even in some cases to take seriously the triple bottom line).

It is a sad fact that some of the great potential diversity of wine production does get filtered out by the logic of distribution and retail economics, and the vast scale and scope of the wine giants indirectly contributes to that problem. But, as I said in my last post, it takes a village to raise a child and it takes an entire supply chain to deliver diverse wine choices … or not. But it’s not just a Big Tank problem.

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I realize that one example, even a really good one like Durbanville Hills, isn’t enough to bust a myth (n=1 is a pretty small sample size). But there are lots of examples if you only take off the “Big Tank” glasses and look around.

Thanks to Cellar master Martin Moore and Managing Director Albert Gerber for taking the time to answer all my questions at Durbanville Hills and Cape Wine 2012. The images up top are from the winery’s website.

The “One Big Tank” Myth

My recent post about How Much Choice Do Wine Drinkers Really Have? made the point that true diversity in wine choice is complicated. Although there are constellations of wine brands that are theoretically available, from a practical standpoint the choice available to you depends on your price point “comfort zone,” how you shop (on-line or wine club versus bricks and mortar stores), where you shop (local shop versus national chain store), where you live (state regulations vary enormously) and many other factors.

It takes a village to raise a child, they say, and it takes an entire product chain to raise up a diverse selection of wine … or not!

The Illusion of Choice?

A persistent concern is the influence of giant wine companies with dozens of wine brands in their portfolios. The conventional wisdom seems to be that these big firms merely create the illusion of choice, not choice itself. I guess the idea is that all of these different wine brands actually pour out of the spigot of one giant wine tank. If they all come from Gallo (or Constellation Brands or Treasury Wine Estates, etc.) then they must all be the same — or so similar as to make choice irrelevant.  I call this the “One Big Tank” theory and I think it’s a myth, although like all myths it contains a grain of truth.

The reality is that giant wine companies can and often do produce distinctive wines. And smaller operations sometimes pump out quantities of relatively terroir-free negociant wine to pay the bills. Size matters in wine, but it’s not the only thing. My motto is still “think global, drink local,” so I am not arguing against small terroir-driven producers, but I think at least some of the big wine companies have an undeserved poor reputation from the wine choice standpoint.

Giant wine companies have many advantages: access to capital, technology and vineyards, for example, and economies of scale in purchasing, distribution  and some aspects of production. What matters from the consumer choice standpoint is how these advantages are employed. You can aim to fill that one big tank as cheaply as possible or you can leverage the large scale advantages to create real quality and diversity.

Big Tank Stereotypes

A good example of how the myth unravels at least some of the time comes from my visit to South Africa. I was a guest of Distell for part of my visit (Distell owns Nederberg and I gave the keynote at the Nederberg Auction) and this gave me an opportunity to learn about the company, which is South Africa’s largest wine and spirits producer.

If you go strictly on stereotypes, Distell has got to be one of those “big tank” operations because it has most of the defining characteristics. It is, first of all, a “drinks company” and not a “wine company,” to use a distinction I first heard from a New Zealand winemaker (who worked for a “wine company,” of course). Here’s how the wine vs drinks dichotomy works.

Wine companies make wine (and only wine) and are often family owned. Drinks companies, on the other hand, manufacture all sorts of alcoholic beverages and are usually public corporations.  Whereas wine companies think tradition and  terroir, the story goes, drinks companies think marketing and product positioning.  Wine companies sometimes stay in the founding family’s control for generations. Drinks companies often get acquired, merged and traded back and forth like properties on a Monopoly board.

Distell fits the drinks company profile pretty well. It dominates the market for brandy in South Africa and is the leading wine producer, too. It is the world’s #2 producer of cider, another “drinks” category. Distell has strong international interests and owns  both a French Cognac house (Bisquit) and an Asian distributor. It has over 30 spirits brands in its portfolio and an even larger number of wines, wine apertifs, ciders and “ready to drink” beverages.

Distell is probaby best known in the U.S. for its Two Oceans and Fleur du Cap wine brands, but its hottest product is a cream liqueur called Amarula, “the Spirit of Africa.” It is the #2 best-selling cream liqueur in the world according to the company’s 2012 annual report.

Circumstantial Evidence

Distell also has a complicated business history.¹ The current firm was created in 2000 with the merger of Stellenbosch Farmers’ Winery and Distillers Corporation, but the history stretches back a ways. Key players include the South African billionaire Rupert family, which controls a diversified multinational business portfolio (they own the  Richemont  group of luxury goods companies, for example), the South African wine giant KWV and the big beer player SAB (think SABMiller — SAB stands for South African Breweries).

So, Distell fits the big tank  stereotype pretty well and some of its products have the classic “drinks company” profile, too. But the evidence that wine choice at Distell is an illusion is what Perry Mason would call “circumstantial.”  Can a “drinks company” like Distell offer consumers wines that give then a real choice and not just an illusion of choice?

Inside the big drinks company I found a good deal of counter evidence to the big tank theory. Join me in my next post as I climb into a snorkel-equipped Land Rover 4×4 and visit Distell’s Durbanville Hills Winery.

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The top image is an historic example of a great big tank: the famous Heidelberg Tun, made in 1751, with a reported capacity of 220,000 liters. Here’s what Mark Twain had to say about it in A Tramp Abroad (1880). 

Everybody has heard of the great Heidelberg Tun, and most people have seen it, no doubt. It is a wine-cask as big as a cottage, and some traditions say it holds eighteen hundred thousand bottles, and other traditions say it holds eighteen hundred million barrels. I think it likely that one of these statements is a mistake, and the other is a lie. However, the mere matter of capacity is a thing of no sort of consequence, since the cask is empty, and indeed has always been empty, history says. An empty cask the size of a cathedral could excite but little emotion in me. I do not see any wisdom in building a monster cask to hoard up emptiness in, when you can get a better quality, outside, any day, free of expense.

¹ Most of what I think I know about Distell’s business history I learned from the company’s investor website and from Nick Vink, Gavin Williams and Johann Kirsten, “South Africa” in Kym Anderson (editor), The World’s Wine Markets: Globalization at Work (Edward Elgar, 2004).

How Much Choice Do Wine Drinkers Really Have?

galaxy2*

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

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

A Question of Perspective

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

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

mktshare

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

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

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

Location, Location, Location

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

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

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

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

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

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

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

Can Chile Break Out of the “Value Wine” Trap?

First of all let me say that I have nothing against wines that are good values. We all struggle to find wines that pass the “is it worth it?” test and Chile has for a long time been a reliable source of wines that answer this question in the affirmative.

But it is in Chile’s interest to be seen as more than just a good value supplier. So I was very interested when Wines of Chile asked me to participate in a blogger tasting stressing Chile’s terroir. I think that an emphasis on distinctive terroir is just what Chile (and Argentina and South Africa) needs to attract wine enthusiast consumers and clearly differentiate themselves from the bulk wine pack.

The Terroir Two-Step

Establishing a reputation for terroir requires two things. First, you have to actually have terroir, which is to say wines that really are reflections of particular and distinctive winegrowing regions or sites. And, second, you need to be able to communicate this to consumers. Absent the first factor it’s just marketing. Absent the second it’s an exercise in futility from a wine economics standpoint.

Wines of Chile provided us with a dozen wines (see list below) — three each Sauvignon Blanc, Pinot Noir, Carmenere and Cabernet Sauvignon — and the opportunity to participate in an interactive video conference with Chilean winemakers hosted from Santiago by Fred Dexheimer (click here to view the video). I found the video conference to be very helpful and informative — the best yet! — both in terms of matching faces to wines and especially in unlocking details of the particular vineyard sites through Dexheimer’s probing questions.

Listening to the winemakers talk, it dawned on me that the rapid improvement in Chilean wines over the last decade derives from two sources. Improved winemaking is the first factor and the one that gets the most credit in discussions, but increased attention to matching particular varieties of wine grapes to particular sites is the under-rated other. This may be especially true for Carmenere, which was planted very widely back when it was mistaken for Merlot but that now is receiving more specific attention.

Taste the Terroir?

I organized two extended tastings to see if we could (1) detect the differences in terroir by tasting the wines and (2) find a terroir story in the wine marketing materials, especially the labels.

Sue and I were joined by Pierre, Cynthia, Patrick and Grant to taste the Sauvignon Blanc and Pinot Noir and by Ron and Mary for the Carmenere and Cabernet Sauvignon. I was especially interested in what university students Patrick (who wrote a paper on Chilean wine) and Grant (who studied abroad in Burgundy) would say about the wines. Here’s what we learned

The Sauvignon Blanc and Pinot Noir tasting was very interesting. The wines were well chosen both to highlight differences — differences between the Chilean wines and those from other countries and differences among the wines themselves. Our reference point for New World Sauvignon Blanc is Marlborough and these wines avoided the “me-too” trap, presenting styles somewhere between New Zealand and France. Our reference point for Pinot Noir here in the Pacific Northwest is Oregon and the Chilean wines were very much darker and riper — so much so that Patrick wondered if he would recognize them as Pinot in a blind tasting.

All six of the wines at the first tasting came from cool climate sites, where altitude or ocean influences (or both) affected growing conditions. We could easily detect differences between the wines, but I will honestly say that we struggled to connect them to the variations in terroir. Some of the wines helped us a bit by providing detailed information about the viticulture on the labels, but some focused more on the winemaking rather than the terroir.  This was a very successful tasting in terms of quality of the wines themselves, but it left some questions unanswered.

The Mythbuster Test

The story was much the same for the Carmenere and Cabernet tasting. We enjoyed the wines a great deal, especially with food (tasty pampeana  empanadas), and some  wines were even better on the next day.  Each flight presented real differences in aroma, flavor and style, showing the diversity of Chilean wines at these price points.

Once again, however, we had mixed results in searching for the terroir connection. Some of the wine labels made a point to provide specific information about vineyard site and growing conditions, so the link between terroir and what was in the glass was quite clear. Other wines didn’t highlight terroir as much as history or winemaking techniques. A couple of the labels were printed in type so small or light that it was nearly impossible to know the marketing message (this particularly annoyed Sue, who is an inveterate label-reader). My trusty magnifying glass got a good workout trying to read the details.

Confirmed. Plausible. Busted. These are the available options on the Discovery Channel’s hit show Mythbusters. I think our tasting panel was a bit divided in reaching a verdict about Chilean terroir. At least two tasters came to a “Busted” conclusion. They just couldn’t find the link they were looking for between the wines and their terroir and their advice to Chile is “don’t give up your ‘good value’ market position.” Most of the rest of us believed that it was “Plausible” that the distinct differences between the wines was due to different terroirs, but the connection was not strong enough or clearly enough explained to arrive at a “Confirmed” conclusion.

If the terroir story is important (and I think it is if Chile is going to upgrade its market position), then the wineries need to do a better job making the connection. I think Wines of Chile has provided a very good foundation, but the individual wine brands should take better advantage of the opportunity to promote the terroir factor. The labels of the San Pedro 1865 Sauvignon Blanc and the Carmen Gran Reserva Carmenere get high marks for their terroir message, although the Carmen’s tiny type was difficult to read.

The Los Vascos “Le Dix” didn’t even try to tell a terroir story — the focus was all about selecting the very best lots and blending them. But it was a terrific wine — Ron’s favorite, I think — which suggests that while terroir is important, it isn’t (and shouldn’t be) the only distinguishing characteristic.

Can “terroir wines” help elevate Chile’s international wine reputation? It’s a plausible proposition, but like most initiatives the key will be execution, especially coordination between Wines of Chile and key producers to provide wine enthusiasts with a clear and consistent message.

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Vina Casablanca Nimbus Single Vineyard Sauvignon Blanc 2012 Casablanca Valley

100% Sauvignon Blanc / SRP: $12.99

 San Pedro 1865 Single Vineyard Sauvignon Blanc 2011 Leyda Valley

100% Sauvignon Blanc / SRP: $19.00

 Casa Silva Cool Coast Sauvignon Blanc 2011 Colchagua Valley

100% Sauvignon Blanc / SRP: $25.00

 Emiliana Novas Pinot Noir 2010 Casablanca Valley

100% Pinot Noir / SRP: $19.00

 Cono Sur 20 Barrels Pinot Noir 2009 Casablanca Valley

100% Pinot Noir / SRP: $32.00

 Morandé Gran Reserva Pinot Noir 2009 Casablanca Valley

100% Pinot Noir / SRP: $17.99

 Concha y Toro Marques de Casa Concha Carmenere 2010 Cachapoal Valley

100% Carmenere / SRP: $22

 Carmen Gran Reserva Carmenere 2010 Apalta- Colchagua Valley

95% Carmenere 5% Carignan / SRP: $14.99

 Koyle Royale Carmenere 2009 Colchagua Valley

85% Carmenere 8% Petit Verdot 7% Malbec / SRP: $25.99

 Ventisquero Grey Cabernet Sauvignon 2009 Maipo Valley

94% Cabernet Sauvignon 6% Petit Verdot / SRP: $29.00

 Maquis Cabernet Sauvignon 2010 Colchagua Valley

100% Cabernet Sauvignon / SRP: $19.00

Los Vascos Le Dix Cabernet Sauvignon 2009 Colchagua Valley

85% Cabernet Sauvignon 10% Carmenere 5% Syrah / SRP: $64.99

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The photo shows (clockwise from top left) Grant and Patrick, Cynthia and Pierre, Mike’s magnifying glass and Mary and Ron. Thanks to Sue for the photos. Thanks to Wines of Chile for the wines and supporting material. Thanks to my research assistants for their feedback on the wines and marketing strategies.

Is the Wine Market Saturated?

Is the wine market saturated? That’s the question a journalist asked me a few weeks ago. The query was provoked by the release of a study of the economic impact of the wine industry in Washington State, which noted that the number of wineries has reached 700+.  Lots of wineries hereabouts and in California and the rest of the U.S. Lots of imports, too. Have we reached the limit? Is the market saturated?

Big and Small Cycles in Finance

Well, it is a mistake to think of a market as a sponge that sits there waiting to be filled up. Markets are complicated and adaptable — they are literally living creatures because they are made up of smart, incentive-driven human beings. So their behavior is likely to be more complicated than empty versus full.

Financial markets are a good example. Scale is useful in financial markets, so it is not uncommon for finance to go through periods of consolidation, where the big get bigger and absorb (another sponge reference) the small. At some point you might worry about saturation. But as the big get really big, they always seem to leave gaps behind that smaller financial firms rush to fill. So a cycle of big creating opportunities for the little emerges.

Financial markets cycles are more complicated than this, of course, and sometimes the sponge gets squeezed out in market adjustments, but I think you get the idea. The same dynamic process that seems to be filling the market in some ways is also leaving gaps for new entrepreneurs. It’s an interesting industry to study, but not necessarily a stable one to work in! Finance is a crazy business. Almost as crazy as wine!

Washington Wine Gets Bigger

So what does this have to do with wine? Well, I see some of the same patterns. Here in Washington State, for example, I see some of that consolidation going on right now. Gallo has finally (because it was inevitable) entered the state as a producer, acquiring the venerable Columbia Winery and Covey Run brands. It looks like Gallo will invest heavily to revive and upgrade Columbia’s wines and historic brand. It’s less clear what will happen with Covey Run — some speculate that the brand will disappear but the valuable vineyards and facilities will continue to produce.

Precept Wines is part of the consolidation pattern here in the Pacific Northwest, too. Precept has built and acquired a number of brands over the years — including the recent acquisition of Idaho’s Ste Chapelle — as it has established valuable scale and scope. Ste Michelle Wine Estates is also part of the trend. SMWE recently announced the purchase of O Wines, a maker of Washington Chardonnay. SMWE intends to add a red wine to the O Wines portfolio and take the brand national.

Washington Wine Gets Smaller

At the same time that Washington wine has gotten bigger (and some wine brands are being squeezed out like water from a sponge), it’s very clear that other winemakers are finding opportunities at the opposite extreme of the market. Their wines will succeed (or fail) not so much because of national branding and economies of scale but depending upon how well they can achieve real quality and successfully attract a small but loyal (usually local) following.

I wrote about Mosquito Fleet Winery a couple of months ago. This small Belfair, Washington winery has found a market for its excellent wines. The fact that the wines celebrate local history helps them connect to a particular customer base in a way that big brother wineries probably cannot.

Another local winery — this one only a few blocks from The Wine Economist’s office in Tacoma — is also succeeding in a crowded market by stressing its distinctly local roots. It is called 21 Cellars for the simple reason of its location: in a cellar beneath a medical office on North 21st Street, just a short walk from the University of Puget Sound.

21 Cellars is a two person operation. Philip Coates is the winemaker and Katrina Lange is assistant winemaker. But job titles are essentially meaningless in an artisan operation like this one, where everyone pretty much does everything — and most of it is done by hand. Here’s how the website describes the operation.

Fermenting in small lots with native yeasts, aging in French oak, and bottling unfiltered and unfined allows for highly structured and distinctive wines. Our limited production allows us to give more hands-on attention to each varietal, de-stemming by hand and using unique methods such as whole berry barrel-fermentation for our reds. Every bottle sold has been filled, corked, and waxed by hand, with labels designed by local artists. We are proud to present wines exhibiting creativity and longevity; showcasing the deep, earthy qualities of Washington’s premier vineyards.

Ruthless Exploitation?

21 Cellars’ roots go back to a home winemaking kit that Coates received several years ago. He caught the wine making bug and the rest is history if by “history”  you mean lots and lots of hard work, constant learning and experimentation. Coates’s efforts were good enough to impress some picky vineyard owners, who agreed to sell him their fruit. (Reputation is key in wine and no vineyard owner wants his or her name on the label of a mediocre bottle of wine). We tasted the 09 Malbec and 09 Cab made with grapes from the Two Blondes vineyard, for example, which was developed by Chris Camarda for his Andrew Will winery. The wines we tasted were excellent, with real depth and balance.

Production is modest (less than 500 cases per year) with sensible plans to grow in the future. 21 Cellars will get bigger, but not too big. They don’t want to outgrow the niche that they have so successfully begun to fill.

21 Cellars ruthlessly exploits (and that’s a good thing) its small scale, personal approach and local base with the same passion that Gallo and the others exploit large scale and national or global reach.  Marketing is community based. 21 Cellars seems to take pride in supporting local causes and events, including the Washington State Historical Museum. The small and local strategy seems to be very effective. Their recent Semillon release sold out in three weeks!

Is the wine market saturated? Well, it is crowded and competitive, that’s for sure. And some wineries and brands are certainly feeling the squeeze. But as in finance, it seems like there is always room for one more on the bus — if there is quality and commitment and if a legitimate local need is met.

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Thanks to Philip and Katrina for showing us around 21 Cellars and telling us their story. Thanks to Sue, Cynthia and Pierre for their work as research assistants for this project.

Naked Naked Naked Naked Wine

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

Naked Wine

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

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

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

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

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

Naked Naked Wine

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

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

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

Naked Naked Naked Wine

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

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

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

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

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

OMG: Naked Naked Naked Naked Wine

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

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

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

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

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

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

History in the Making: Mosquito Fleet Winery

Mosquito Fleet was the name given to a busy group of small steamer ships that provided basic transportation back and forth and up and down Puget Sound before the advent of the Washington State Ferry System or the development of good inter-city roads. The boats were relatively small and usually family-owned. Competition was fierce so you had to provide reliable service to keep your customers. They buzzed around the Sound like  mosquitoes at a picnic.

I dream of those days whenever I find myself stuck in a traffic jam on I-5. How great to be on the water cruising to my destination instead of being stuck in yet another endless backup.

Mosquito Fleet Winery, which opened its doors a couple of months ago in Belfair, Washington, draws its inspiration from those little boats. I’d like to say that the owners, Jacquie and Brian Petersen and Jacy and Scott Griffin, saw a parallel between the wine business today and the fleet’s business back them. Their winery is family-owned, too, and starting out small in a very competitive industry where finding and keep customers isn’t easy. But in fact they drew the name from a different source — an an almost forgotten part of Washington State wine history.

Wine, Mosquitoes and Island Belle

Mosquito Fleet is located just a few miles from the old St. Charles Winery, which was Washington’s first bonded winery, started  just before Prohibition’s end by Charles Somers. Somers wasn’t a wine lover — real estate was his business. He sold many parcels on Stretch Island, promising the buyers good income from table grape and juice sales if they planted vines on their properties. They did and I guess that’s why the nearest little town is called Grapeview.

Then the Depression came and those markets disappeared. With the end of Prohibition approaching, Somers saw an opportunity to use those surplus grapes to make wine. The first wines were sold legally in drug stores, exploiting the “medicinal wine” loophole in the Volstead Act according to Ronald Irvine’s great 1997 book The Wine Project: Washington State’s Winemaking HistoryThen Prohibition ended and the winery business took off.

A Concord grape hybrid named Island Belle (a.k.a. Campbell’s Early) was the go-to variety on Stretch Island (ripening vitis vinifera on Puget Sound is a challenge, although a few have been successful). Hoodsport Winery still makes an Island Belle that has a loyal local following.

The Somers family kept the winery going until 1987 when they retired from the business. The historic facility was converted to a museum devoted to Puget Sound maritime history, with special focus on the Mosquito Fleet. So in choosing the name of their winery, the Petersens and Griffins sought to honor more than the little ships that carried people and their wine in the early days, but also the St. Charles Winery that helped launch the modern history of Washington wine.

Sue and I stopped in to visit Mosquito Fleet during its hectic opening weekend and winemaker Brian Petersen (photo right) invited us to return for a more thorough tour. We were joined by volunteer research assistants (and experienced wine tourists)  Sarah, Bob, Lydia and Mike (see photo below).  Petersen and team started small — a few hundred cases to begin with — but are scaling up rapidly to the 2000-3000 case level. It’s mainly a production facility now, but a tasting room is planned for the future.

The initial response to Mosquito Fleet has been very positive, Peterson said, with strong sales so far at the winery and through Puget Sound region restaurants, wine shops and even a few upscale supermarkets. Wine is a relationship business and those who have tasted the wines (or met the Petersens and Griffins) have spread the word.

The current 2009 release includes a Pepper Bridge Vineyard Cabernet Sauvignon and a Meritage blend. (Our friend Bob was especially taken by a barrel sample of the 2010 blend and would have hauled it home with him if he could have muscled the heavy barrel into his car.) The crowded barrel room promises more choices in the future, including a Port-style wine made with the authentic Portuguese grape varieties.

Making History

The Petersens and Griffins seem to want to both honor wine history and make some, too. The winery’s name, the website and the labels (each of which features a particular Mosquito Fleet ship) look back, but the wine inside the bottle is very much focused on the future.

Petersen’s medical background shows in his attention to detail and relentless desire to learn more about winemaking. The grapes go through an insanely rigorous triple sort before fermentation and then ageing in new French and American oak. I was particularly impressed by the balance of the wines we sampled from bottle and barrel and the effective use of oak.

Petersen is justifiably proud of what he and his team have accomplished so far, but it’s clear he believes they can do even better as they continue to experiment and learn. Learning and teaching are two sides of the same coin and what struck my research assistants was Petersen’s strong desire to share all that he had learned with them. They found their visit to Mosquito Fleet unusually stimulating and informative.

The history behind the Mosquito Fleet label seems to be an authentic indicator of what this project is about, not just a clever branding exercise.  It will be interesting to follow Mosquito Fleet to see how they convert the past and present into a prosperous future and how they navigate in the competitive wine market environment.

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Thanks to Brian Petersen for his hospitality. Thanks to my loyal research assistants for their insights.

Research Assistants Sarah, Bob, Lydia and Mike

Blue Nun Gets a Makeover


Blue Nun wine reinvented itself a few years ago — I wrote about it in a chapter in Wine Wars called “The Curse of the Blue Nun.” It stopped being that rather mediocre sweetish German white wine that some of us remember from the 1970s (along with Matteus Rosé) and became something a bit different.

The classic Blue Nun

The classic Blue Nun white wine got better. It became Riesling, not a Liebfraumilch blend, for example. And the brand became more global, with Blue Nun wines in many different varieties (Cabernet, Pinot Grigio, Rosé) sourced from several countries. There was an alcohol-free “lite” Blue Nun and a bubbly wine with tiny sparkly, floaty golden bits to brighten your day.

Blue Nun became a brand with the same sort of broad portfolio of wines that, say, Barefoot Cellars offers. This approach is very successful in today’s market and, as the promotional video above indicates, Blue Nun is back (if it ever really went away).

One key to the transformation was the Blue Nun herself. She was perhaps the one constant. Marketers saw the gentle, friendly nun on the label as a key marketing tool — memorable and and maybe especially appealing to women, who are a target market.

More Than Skin Deep

I was prowling the Wine Wall recently and I noticed that Blue Nun has had a makeover — and it’s more than just skin deep! The surface change is significant, however. The bottle is still blue, of course (but not for all the varieties – see images here). But the blue nun is now only a shadow of her former self — a small golden cameo medallion.

Blue Nun Makeover

The gold highlights a smaller gold seal that I thought must be a wine competition award of some sort (all the Barefoot bottles feature them), but turns out to be a seal of “Sichel Superior Vinification.” Good to know!

I guess the sleek modern look and gold accents must now be seen as a more powerful image than the kindly nun. But the change goes deeper than the label.

I was puzzled to see “Rivaner” on the label. “Now made from the classic Rivaner grape, it has more balance, softness and depth of fruit flavor.” That’s what it says on the back. More than Riesling? Really?

More Appetizing?

I wasn’t sure that I’d ever had a Rivaner wine before, so I rushed home to check out my copy of Jancis Robinson’s Oxford Companion to Wine:

Rivaner: another name for müller-thurgau, used in Luxembourg, where it is the most planted grape variety, and, increasingly, elsewhere. Rivaner sounds more appetizing.

And I suppose it does sound more appealing — or maybe just easier for a novice to pronounce. Am I the only wine veteran who didn’t know that  Müller-Thurgau is now Rivaner?

Blue Nun Delicate is another interesting innovation. With just 5.5% alcohol by volume, it rides the Moscato-powered low alcohol  wave (just fyi the Rivaner is only 10% abv).

I’m looking forward to twisting the cap on this bottle with a couple of my research assistants when they get back from a trip to the Northeast. Müller-Thurgau can make fine wine, but its general reputation is for quantity more than quality, especially in Germany. It is the most-planted variety is Rheinhessen, where this wine is from. In Vino Veritas, as they say. How deep is the Blue Nun’s makeover?

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I encourage readers to use the Comments section below to report their experiences with Blue Nun, both today and in the past, and to comment generally on the transformation. You might also be interested in these cooking videos from Blue Nun.

Tight, Fat, and Uncorked: Three Wine Scenarios

This is the final post in my series on Tight, Fat and Uncorked, the three trends I see shaping the wine industry. This week I want to think about how the future of wine might unfold depending upon which of these three forces is most powerful.

Wine markets are getting “tight” as demand for many grape and wine types outstrips supply, “fat” because of the growing demand for middle class, middle market, middlebrow wines and “uncorked” as more and more international wine trade shifts from bottle to bulk. Each of these forces is important, but it will untimately be the ways they interact that will determine the path of wine’s future development.

For your consideration, here are three possible histories of the future of wine. As always, I invite readers to share their own scenarios in the Comments section below.

Scenario 1: Wine as a Global Commodity

The first scenario sees the three forces fitting together neatly in a way that leads to the increasing commodification of wine.  Tight markets force wine producers to scour the world for juice to maintain their “fat” market wine brands. Bulk wine shipments help solve this problem in a cost-effective way but sacrifice regional identity and local “terroir” to a certain degree.

This scenario is so neat and clean that it is tempting to stop right here. But that’s a mistake because this “future” is really more about the present  and or recent past misses some of the more interesting dynamic elements. Things change when we tweak this scenario a little.
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Scenario 2: The Center Does Not Hold

The second scenario looks more closely at the implications of tight markets. Grape and bulk wine prices are already rising (alarmingly so, in a few specific cases) and this trend is likely to persist for several years.

Many have observed that the demand for wine has become more “elastic” or price sensitive. The recession is one cause: consumers have learned to trade down. Many new “fat” wine buyers think of wine as just one of many possible beverage choices and are more willing to substitute beer, spirits, juice, soda,  and even water as relative prices change. Not all wine drinkers are equally sensitive to price, of course.

So what will happen as wine drinkers are faced with higher prices? One possibility is that the “fat” wine segment will be particularly affected as competition focuses on this price-sensitive market. It isn’t hard to imagine that margins could shrink or disappear as price-sensitive demand meets rising costs. Maybe today’s “fat” market will go on a diet, as grapes and wine are pushed upmarket in search of higher margins and consumers go down market in search of cheaper (or different) ways to fill their glass.

Scenario 3: The Center Shifts [on the margin]

The final scenario focuses on income and demand. The middle class, middle market, middle-brow “fat” wine demand is thought to have a high income elasticity — it is relatively sensitive to changing income. A 10% increase/decrease in income produces more than a 10% rise/fall in wine demand. This property is important as the wine market demand expands (the rising global middle class) in a multi-speed world.

If Europe’s recession continues and even deepens (as seems likely) and the U.S. recover slows or even stalls (as seems possible), then the center of gravity in the wine world will necessarily a bit shift towards those areas where middle class incomes are growing, including parts of Asia, South America and even Africa.

Is this a serious concern? Well, don’t forget that the United States is now the world’s largest wine market and this didn’t happen over night but it did occur because of just the sort of persistent marginal movements I’m talking about here. Certainly all eyes are on Brazil right now because it seems like a country where a substantial “fat” wine market might develop if solid economic growth can be sustained.

Not Nairobi [yet]

I’m not saying that suddenly Nairobi (or Säo Paulo or Shanghai) is going to be the center of the wine world, but supply tends to follow demand and, with markets tight and bulk wine shipments increasingly efficient, new directions are very possible, particularly if margins in these new middle markets are attractive.

Some of these scenarios are more likely than others, but all three embody valid points. So the future of wine (as shaped by these trends) is likely to encompass all three factors plus some unexpected “wild cards.” It is going to be interesting to see how this complex interaction plays out.

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Wine Uncorked: The Rise of Big [Really Big] Box Wine

This is the fourth in a series of articles on Tight, Fat and Uncorked, the three trends I see shaping the wine industry. This week’s topic is how wine is becoming increasing “uncorked” and what this implies.

If you take the “uncorked” metaphor and add it to the “box wine” reference in the title, you might reasonably assume that I’m going to talk about alternative wine packaging — boxes, bags, 1-liter tetrapak containers and so on. That would sure make sense.

But you’re wrong. The box I’m talking about is big [really big] as in 20 foot ocean shipping containers holding maybe 25,000 liters of bulk wine in a “flexitank” bag.

Welcome to the New World of international wine trade — the ultimate ‘uncorked’ experience!

The Incredible Bulk

I’ve known about Big Box wine for a while — my 2009 post on “Wine’s Future: It’s in the Bag [in the Box]“ is one of the most-read articles in Wine Economist history. But I didn’t realize how big the big box wine trade had become until I received a Rabobank  report titled “The Incredible Bulk: The Rise in Global Bulk Wine Trade” earlier this year.

Rabobank’s report focuses on New World wine trade since 2001 and the change in the composition of wine shipments (in terms of bottled versus bulk) is dramatic. Bulk wine (the big box stuff) accounted for about 22% of New World wine exports in 2001 (the remaining 78% was shipped in bottle). By 2010 the bulk share increased to over 40% while the bottle share fell to less than 60%. That’s a near doubling of the bulk wine share of New World wine trade in less than a decade, an amazing shift that is all but invisible to consumers.

Big Green Wine

What drives the shift from bottle to bulk in New World wine trade? The short answer is Big Green, but green in two ways. Green, first, in the environmental sense. Bottled wine is both heavier and bulkier than bulk wine (glass accounts for more than 40% of a standard bottle’s total filled  weight). All else being equal (a big assumption in wine economics) shipping wine in bulk and bottling closer to the final consumer should lower the wine’s carbon footprint.

Tesco, the world’s largest wine retailer,  is reported to be particularly aggressive on this front with bulk wine imports being bottled in screw cap-topped lightweight glass for its high volume private label brands. (Click here to read about their very green “furnace glass” wine bottles!)

Cost is another green (as in greenback) factor and there are savings here as well. Rabobank estimates that bulk shipping yields an average cost savings of $2.25 per standard 9-liter case (they estimate total annual savings of $142,300,000 in 2010 compared with the 2001 level of bulk shipments).  This is a very substantial saving for commodity wines of the type that often appear in private label brand portfolios.

The movement towards increased bulk wine exports started in the Age of Abundance, when surplus wine flooded the markets and it was important to move it as cheaply and efficiently as possible. Those days are now in the past; rising costs and tight margins are likely to make that $2.25 per case saving even more attractive to producers now, especially as they scour the world for supplies of wine (did someone say “Moscato?”) to supplement scarce domestic juice.

Subtracting Value Added

For vertically integrated international wine producers, the decision to ship in bulk and bottle in the domestic market is mainly about these cost savings.  They pay less to ship the wine and pay lower import excise, too, since the wine enters the country at the lower bulk value rather than a higher bottled value.

But more is at stake, as the Rabobank report notes, for wine makers who sell to third party importers. In this case bulk shipping results in a new division of value added in the supply chain, with less in the producing country and more further down the line. The impact is thus complicated: bulk wine shipment subtracts some value added in the producing country, although the lower overall cost encourages exports.

There are also relative price effects to consider. Bulk shipping increases the relative price of traditional bottled wine imports relative to bulk products, a difference that may be magnified as wholesale costs differentials are passed along through the supply chain.

Economic Impact: The Box

The standard 20-foot shipping container (a.k.a. “The Box”) revolutionized international trade when it became widely adopted. It changed everything (OK, maybe not everything) because it was so much more secure and efficient than the previuosly standard “break bulk” shipping system. One of the things it changed was the scale of international transactions because the greatest economies were realized by those who could reliably fill ocean containers.

I don’t think the rise of “uncorked” big box bulk wine shipments is going to change everything in the same way the ocean container did, but I do think the effects will be significant. I’ll talk about this more in my next post where I consider how the world of tight, fat and uncoked wine is likely to unfold.

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