Deconstructing and Disentangling the Disintermediation of the Wine Business

Disintermediation was a hot topic in financial economics a few years ago — I built an entire economics class around it — and it remains a powerful idea even if it may be an unfamiliar word.  I think we don’t use the term so much these days because the concept is now woven into the fabric of our daily lives! Time to untangle it and see how it works, especially in the wine business.

Disinter … what?

Disintermediation refers to the process of “cutting out the middle man” — reducing the number of links in the supply chain by eliminating certain functions. If you’ve ever tried to sell a home yourself rather than using a real estate agent “intermediary” or bought or sold anything on eBay or Craig’s List then you’ve been part of the disintermediation movement to a certain extent. As the video above suggests, the quotidian activity of buying an airline ticket was once upon a time a middleman business. Not so much any more!

Commercial banks were the main focus of financial disintermediation back in the day. Banks and other financial intermediaries provided valuable services (that’s how middlemen earn their pay), but the incentive to borrow or lend directly through “securitized” products was strong and that’s why financial disintermediation started to occur. Disintermediation increased the apparent efficiency of the financial markets but also probably increased risk and volatility because some of the functions of the intermediaries were lost and the bank-based regulatory structure found it difficult to cope with the “non-bank banks” and other institutions that evolved. Or at least that’s my take on how the process unfolded.

Disintermediation still goes on today, but it has become so commonplace that we don’t give it much attention — until we are the links cut out of the chain! The advent of “crowd-sourcing” or “crowd-funding” websites is a good example of disintermediation. There are all sorts of ways to shorten the supply chain, both when it is a good idea and when it is not (sometimes it turns out the missing link was really important).

How Does This Relate to Wine?

Which brings us (finally) to wine. A Wine Economist reader writes to suggest disintermediation as a topic for a column and I think it is a great idea.  There are a lot of big and little examples of disintermediation at work in the wine industry.

On the big end of the scale we have giant firms like Tesco who now often source bulk wines directly from around the world and bottle them under their own labels (sometimes in their own plants) and sell them under house brand labels.  The streamlined process shortens the chain and cuts cost.

Disintermediation was part of the story for one of American wine’s biggest success stories of recent years — Two Buck Chuck (a.k.a. the Charles Shaw wine sold at Trader Joe’s stores). Most wine in America goes through the three-tier distribution system with its built-in middleman structure. But Bronco Wine, which makes 5 million cases of Two Buck Chuck a year, and Trader Joe’s took advantage of a provision in California regulations that allowed companies like Bronco to deliver directly to the retailer, cutting out a link and making it possible to profitably sell a two dollar wine. A lot of factors contributed to Two Buck Chuck’s success and this disintermediation was one of them.

Disintermediation works for medium sized firms, too, such as Naked Wines, which uses an interesting crowd-funding and direct sales model — their “angel” investors finance wine production and become a built-in direct-to-consumer market for the final product — that’s double disintermediation in a way. My helpful reader drew my attention to a direct wine retailer called Fass Selections. which aims to cut out two links in the supply chain for their wines: importer and distributor. That’s disintermediation, all right! Disintermediation isn’t everywhere, but there’s a lot of it around (tasting rooms and cellar door sales?), even in places you wouldn’t think to look.

 Down Under Disintermediation

My favorite example of wine disintermediation was a discovery that Sue and I made while walking through the big Queen Victoria public market  in Melbourne during our visit to Australia in September. I couldn’t believe my eyes when I saw the big stack of wine barrels at the ReWine market stall.

refillers

The ReWine folks offer a carefully curated selection of wines that they have purchased in bulk from Australian producers. They sell them directly to consumers in the Queen Victoria and Preston markets — the bottles are filled from the barrel containers you see in the photos. Bring your bottle back to be refilled (like the wine “growlers” that are gaining popularity here in the U.S. where local law permits them) and you get a discount.

The wines range from basic dry red and dry white wines sold at a low price to some very interesting products on up the line including dry, sweet and fortified wines. There was a nice Pinot Noir from the Adelaide Hills on offer when we stopped by.

You get what you pay for in the basic range, we were told, as these wines are blends made for a particular price point like basic wines everywhere in the world, with more distinctive products at the higher price points. Something for everyone, I think especially for a wine economist like me!

These examples just scratch the surface of disintermediation in the wine industry. I visited with a  2500 case winery recently that seemed to build its entire distribution model around the concept of cutting out the middleman. Easy to see the incentive to do this and also to appreciate the risks.

Once you start to think about disintermediation you will begin to see it at work everyone, even in the world of wine. Keep your eyes open — it might not change everything, but it’s bound to have a big effect.

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Thanks to my economics-savvy reader for suggesting this topic. Thanks to Sue for the Melbourne photos.

Invisible Vineyards & the Division of Labor Theory

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

Division of Labor Theory

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

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

Exceptional Exceptions

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

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

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

Famous Names

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

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

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

Westward Ho!

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

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

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

Is This a Problem?

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

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

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

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

Fifty Ways to Sell Your Misunderstood Wine

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

Identity Crisis

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

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

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

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

Radar Love

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

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

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

There Must Be 50 Ways

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

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

Do Think Twice (About Price)

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

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

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

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

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

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

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.

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