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.

Fat Wine: Middle Class, Middle Market, Middlebrow

The world is becoming Hot, Flat, and Crowded according to New York Times columnist Thomas Friedman’s bestselling 2008 book. Hot and crowded are easy to understand, but flat?

Yes, Friedman, said, flat as  “a metaphor for the rise of middle-class citizens, from China to India to Brazil to Russia to Eastern Europe, who are beginning to consume like Americans. That’s a blessing in so many ways–it’s a blessing for global stability and for global growth. But it has enormous resource complications ….”

Fat Not Flat

Friedman is counting on the world’s growing middle class to shake things up and he is probably right. Here in Wine World, however, I think the trend is fat more than flat, although it might amount to the same thing in the end.

“Flat” suggests to me that the gap between the top and bottom — 1% elites and 99% masses — is closing. Wine certainly isn’t getting flat in this sense, although the recent softness of Bordeaux en primeur prices argues against this a bit.

No, the floor and the ceiling aren’t getting any closer when it comes to wine — so  I think the best way to describe this trend is Fat — fat in the sense of “thick in the middle:” middle class, middle market, middlebrow.

Thick in the Middle

Wine’s recently-concluded long slack cycle (see previous post) flooded many  markets with good, reasonably priced wine. The impact of the economic crisis encouraged consumers to trade down (to cheaper wines), to trade over (to different types of wines), and trained wine drinkers to look for bargains. Many new consumers entered the wine market at the same time, bringing with them new tastes, new attitudes, and a refreshing willingness to experiment.

There are several key indicators of the degree to which wine markets have been open to new ideas. The great success of New Zealand and Argentina as wine exporters reflects both the quality and value of the products from these countries but also, I believe, their good fortune in entering the global market at this time.

Marlborough Sauvignon Blanc and Argentinean Malbec are easy to understand, easy to drink and even easy to pronounce. They are the hottest import categories in the U.S. market. Significantly, neither of these wines is especially cheap. They are generally priced in the middle market, well above Two Buck Chuck and even higher than popular brands like Barefoot. They fit my “thick in the middle” model to a “T.”

The Moscato boom is another indicator, although I won’t press this too far since there is not yet a consensus about where it came from, what it means or how long it will last (readers should feel free to correct me about this in the comments section — I’d really like to know the answers).  Moscato/Muscat sales have surged in the U.S. — up by 65% in the last year alone according to Nielsen data published in this month’s Wine Business Monthly. Moscato wines had higher dollar sales than Riesling, Syrah/Shiraz, Zinfandel or Malbec in the last year in the retail vectors that Nielsen monitors . Wow!

Now For Something Completely Different

The one thing I am sure about is that Moscato’s unexpected popularity indicates that consumers are willing to try something new. And while they look for bargains and value, they don’t seem to be focusing on the bottom shelf.  Nielsen reports that sales of wines below $6 have been essentially flat in the past year in revenue terms and spending on wines in the $6 to $8.99 range declined. Spending on wines in the $9.00 to $11.99 range, however, has actually increased by about 10%.

We’ve also seen the emergence of hot new brands in this middle market middlebrow segment. The rapid rise of brands like Gallo’s Apothic Red Blend and Ste Michelle Wine Estate’s 14 Hands suggests that consumers are focusing on this market category.

It’s not quite true that these particular wines came out of nowhere to achieve great success in the off-premises trade, but it’s not entirely wrong either. They are another sign of the thickening of the middle segment of the wine market of consumers ready and willing to try new things and not entirely constrained by old attitudes and allegiances.

The Supply Side of the Story

So far I’ve focused on the demand side of the story but supply plays an important role, too. As grape and bulk wine markets tighten up (see previous post) it is only natural that scarce wine resources will go where the margins are and where substitution is easiest. The “middle” wines I’ve just discussed are often priced at the “fat” part of the market where better margins may be found. (I say “may” because this market segment is quite competitive and competition has a way of squeezing margins.)

Some of these “middle” wines are blends, not single varietal wines, and come from broad appellations (Washington State, California). A few are non-vintage. These properties allow winemakers to more easily substitute among supplies of grapes and bulk wines to make or complete their products — the ability to substitute is important when supplies are tight and costs are rising.

Middle market wine for middle class, middlebrow consumers — is this a good thing? I guess it depends upon whether you are a Martian or a Wagnerian. I’m a Wagnerian myself, so I see this as a healthy development, even if wine loses a little of its mystery and becomes just a bit more like other everyday products. Making wine a part of everyday life is a worthy goal here in the U.S. and I don’t think the 1% wines (or even the 25% wines) have much to fear.

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There’s one more trend on the horizon that completes this theme. Come back next week to learn about how wine has become even more “uncorked.” And I’m not just talking about screw caps!

[This is the third in a series of articles on Tight, Fat and Uncorked, the three trends I see shaping the wine industry in the near future.]

Wine’s Future: Tighten Up

“Tighten Up” was a big hit for a Archie Bell and the Drells back in 1968. If you aren’t familiar with this R&B tune and its trademark dance you might want to take a moment to learn it because Tighten Up is where the U.S. wine market is headed.

[This is the second in a series of articles on Tight, Fat and Uncorked, the three trends I see shaping the wine industry in the near future.]

Up and Down Economics

There is nothing new about tight wine markets (where shortages pull prices higher) or slack markets either. Wine is an agricultural product subject to the sort of persistent cycles that economists have long studied. Today’s high price encourages farmers to plant more even as it discourages growth in demand. Result: future surplus and falling price when the new crops hit the market. Low prices discourage production but encourage consumption growth, resulting in shortages and future price hikes.

Up and down — that’s happens in wine markets. The Turrentine Brokerage’s “Wine Business Wheel of Fortune” illustrates the U.S. wine cycle — click here to view a detailed pdf version that will be helpful in understanding what follows.

This Time Really Is Different

If tight and slack wine markets are not uncommon, what’s the big deal? The answer is that we are coming off an unusually long period of low prices and most likely headed into a long period of tight supply. It is the length of the cycle, not the fact of it, that is striking and important.

The current Turrentine Wine Wheel shows the most recent cycles. The figure shows that prices started falling in 1982, for example, hitting bottom in 1986. By 1989 prices were at their peak again, setting up the next cycle, which ran from 1990 until 1999.  It took seven years for the first cycle to work itself out and nine years for the second cycle.

Now let’s look at the current wine cycle, which Turrentine says began in 2000 and that they project will last an incredible 18 years!  The slack side of the cycle was exceptionally long — 2000 to 2011 — because it combined several factors. First was the typical domestic surplus that results as vineyards planted at the previous cycle’s peak begin to bear fruit. The second factor was increased global wine production, which served to keep prices low even as some domestic producers cut back. This extended the period of falling price.

The Great Recession is the final factor, depressing prices and further extending the slack side of the cycle past 2010. As you can see from the figure, Turrentine originally expected the down side to last only through 2006, but a “perfect storm” kept prices low through 2010 as demand and supply slowly moved into balance.

Ebb Tide

Now we have finally entered the tight market phase where demand exceeds available supply at the current price  and this part of the cycle is likely to be extended as well.  Vineyard capacity did not expand sufficiently during the long down cycle and in fact it contracted dramatically in particular places. The EU wine market reforms removed some capacity in Europe and the collapse of part of the Australian industry has done the same there. In the U.S. some Central Valley producers, tired of low or negative margins, switched from wine grapes to more consistently profitable crops like tree nuts.

In theory it should take only a few years to rebuild vineyard capacity but in practice it will take longer for several reasons. First, the length and severity of the slack part of the cycle will naturally make some who have left the market in the U.S. and elsewhere hesitate to reenter it. The supply response in the U.S. will be delayed for this reason and also because of what I am told is a shortage of nursery stock needed to establish new vineyards and renew old ones.  It will take a few years to rebuild stocks needed to rebuild vineyard capacity.

Prices for grape contracts and bulk wine have already risen (dramatically in some specific cases) as they must do to eventually bring the market back into balance, but this will be a slow adjustment process. Domestic wines must compete with imports, which act to limit price increases in some segments of the market. And of course consumers have become accustomed to lower prices and are not generally expected to “trade up” (except in response to bargain pricing) as much as they may have previously traded down.

Hysteresis: Winding and Unwinding

Rising grape costs are good news for growers, who have borne the brunt of adjustment costs during the long slack cycle. Now the big squeeze will move up the supply chain in the form of tighter margins and the effects are expected to be substantial precisely because the length of the tight market cycle will be so long.

What will the wine industry look like when we get back to the top of the cycle? One thing we can be sure about is that it won’t look the same as it did back in 2000. Economic adjustments are not necessarily symmetrical — they don’t wind up the way they unwound. (Economists have a name for this property: hysteresis.) The history that unfolds in the intervening years matters a lot and there has been a lot of time for things to change since the last market cycle began.

In particular, the long slack tide brought new products, new consumers and new consumer behavior into the market. This doesn’t change everything, but it changes a lot — as I’ll explain in next week’s post.

Big Apple Report: Where’s Washington [Wine]?

Waldo is easier to find than Washington wine in NYC.

Lettie Teague wrote a Wall Street Journal column back in 2010 called “Stalking the Wines of Washington.” In it she complained about her difficulty finding Washington wines in the New York City area. There’s just no demand, she was told, so wine shops don’t bother with Washington wines.

The Incredible Story

That’s incredible, I thought as I read Lettie’s story, since so many Washington wines are both very good (served at White House dinners, we are told) and very good values, too. Hard to believe that smart New Yorkers aren’t interested in these wines! So I decided to do a little fieldwork on the question during my recent East Coast speaking tour to see if the situation has changed.

OK, am I the only one who thinks visiting out-of-town wine shops is a fun way to spend the day? In this case I headed for the Morrell & Co store in Rockefeller Center and the Sherry Lehmann shop a few blocks away. Two wine shops is a very small sample size, so this study isn’t statistically significant, but these are the flagships of the region’s wine fleet, so surely they reveal something. Here’s what I found.

Both stores were smaller than I expected given their fame  – I guess I didn’t factor in Manhattan retail floor space costs when I imagined what they would look like. But the number of bottles isn’t as important as the quality of the selection (that’s the key to Costco’s wine selling success).

New York State of Wine

My attempt to find Washington red wines in these stores was not very successful. I managed to locate a wine from Betz Family Winery at Morrell and a modestly priced red blend from Claar Cellars at Sherry Lehmann. And that was it for Washington reds. I might have missed a bottle or two (I blame my bifocals), but even if I did the selection was pretty limited. I didn’t check the white wines — maybe there were more over there.

There were plenty of French and Italian wines. Sherry Lehmann’s Burgundy selection made my mouth water and my credit card cry. Lots of great wines from Bordeaux, too. But where was the Washington wine section? Nowhere. No California wine territory, either. They were all grouped together as “American wines,” suggesting that Sherry Lehmann’s customers might be more interested in the fine points of French geography than domestic wine terroir.  And apparently almost completely uninterested in Washington. Why?

Supply Side Theory

I talked a bit with a friend who knows New York wine business pretty well and we came up with a couple of theories. Maybe it is a supply-side problem — distribution?

Yes, I suppose that could be the case. Distribution inefficiencies usually affect the “middle market” the most. Iconic wines (and I’d put the Betz wine in this category) get distribution and so do larger volume wines (Chateau Ste Michelle, Columbia Crest, etc), but in-between producers (like Claar Cellars) get squeezed out.

As you can see, my “small n” obversations aren’t completely consistent with a supply-side explanation, although you cannot rule it out, either. So what about demand?

Demand Side Theory

Maybe the demand just isn’t there as the shop owners told Lettie Teague. So why not? Well, here’s where a second set of observations is useful. While I was looking for Washington wines I also kept an eye out for Oregon Pinot Noir. And, while the Washington wines were all but invisible, I discovered a handful of interesting Oregon Pinots in each store.

So now the question gets more interesting. Why is Oregon part of the New York state of wine but not Washington? Here my NYC friend (who is a Washington wine fan) offered another theory: Oregon stands for something concrete in the crowded New York market, but Washington doesn’t.

When you think of Oregon wine you think of Pinot Noir because that’s its signature wine variety and demand-side market focus. But what do you think of when you think of Washington? Well, that’s the problem because Washington makes so many great wines but lacks a signature variety or style. I’ve written about this situation before and I don’t want to beat a dead horse here, but you can see how it can be a demand side problem.

Every NYC customer who asks for Oregon wine is probably thinking Pinot, but if ten customers ask for Washington wine they are unlikely to request the same wines or types of wines or grape varieties. It’s easy to see how a critical customer mass for Oregon Pinot Noir might appear but not for any particular Washington wine.

The Gravity Theory

A final theory comes from the economics literature — you might call it the “home court advantage” theory but technically it is based on the “gravity model” that is used to analyze international trade patterns. The gravity model holds that geographical proximity is a strong predictor of trade patterns — the closer countries are to one another the stronger the force of  “economic gravity” that pulls their economies together.

I see the home court advantage at work here within Washington State and it is widely observed that while the wine industry is global, wine consumption has a strong local bias. If this theory applies to the New York case, then it suggest that Europe is New York’s home court and that the pull of French gravity is especially strong. Given the many different languages that fill conversations on cosmopolitan New York City streets, this doesn’t seem like a crazy theory at all.

Convergence Zone

A quick analysis of the Morrell and Sherry-Lehmann websites reinforces my on-the-scene observations and adds more data since the warehouse selection is so much bigger than the Manhattan stores.

I found more Washington wines in the online stores, but I was still surprised by the relatively  limited selection. And I was surprised as well that Washington and Oregon had about the same number of wines on the sales lists despite Washington’s vastly greater number of wineries and total production. Burgundy (1122 wines on the Sherry-Lehmann site) has many more wines than California (612), Oregon (31) or Washington (30).

The particular wines listed on the Sherry Lehmann site suggest that the distribution theory is part of the explanation. More high volume Chateau Ste Michelle and Columbia Crest wines and some famous name icons, but a thinner middle market selection. It looks to me like all three forces are at work here, making this a particularly complex and difficult situation.

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Readers: use the comments section below to provide your own observations and theories.

No One-Liners in Wine

King of One-Liners: Take my wine ... please!

Jon Fredrikson likes to say that there are no one-liners in wine. He isn’t saying that there aren’t any one-line jokes (take my White Zinfandel … please!) but rather that nothing in wine is cut and dry. Wine is always complicated — always this and that, too —  so generalizing is a dangerous practice.

I was reminded of this twice during our recent California expedition. The first time was by Jon Fredrickson himself, who stated the case very well in his talk at the Unified Wine and Grape Symposium in Sacramento (North America’s largest wine industry trade show and seminar series).  His dynamic analysis of how the wine market is evolving was widely reported in the press.

Winery of the Year

At the end of Jon’s report he always names a “winery of the year” and for 2011 it was DFV Wines of Manteca, California. DFV (for Delicato Family Vineyards) has its roots in the decision of Italian immigrant grape grower Gasparé Indelicato to try his hand at winemaking in early post-Prohibition California. His grandson, Chris Indelicato, has been CEO since 2004 and many other family members populate the company’s org-chart.

DFV sits in the #10 position in the Wine Business Monthly Top 30 American Wineries league table for 2011, producing more than 4.5 million cases. DFV owns more than 10,000 acres of vineyards (quite a change from Gasparé Indelicato’s first farm). But it is the business’s dramatic growth, not just its large size, that drew Jon Fredrikson’s attention and, well, everyone’s attention. “Delicato” was all that I heard in pre-announcement speculative conversations.

Gnarly and Twisted

You have probably seen Delicato wines on store shelves, but they are just the tip of the family business iceberg. Other DFV brands include Bota Box, Twisted, Gnarly Head and many more. I usually think of the DFV wine portfolio in terms of good value wines and I think this good value accounts for the company’s success.

But saying that a wine is a good value sometimes imposes a subconscious ceiling on perceived quality and distinctiveness. I admit that I tend to think of DFV wines as good, but not necessarily great. That’s because I sometimes forget Jon Fredrick’s line about one-liners. Good value doesn’t rule out distinctivenes — wine is too complicated for that.

On the Old Silverado Trail

This point was driven home to me for the second time as I stood at the tasting room bar at Black Stallion Estate Winery on Silverado Trail in Napa Valley — DFV’s newest venture, which it acquired just a couple of years ago. The winery itself resists being a one-liner as it is both historically significant (as an equestrian center) and an architectural beauty.

We drove by the winery a couple of years ago (on our way to a Stags Leap AVA event) but didn’t stop.  We were impressed with the BSEW Cab at a tasting back home (it is a larger production wine that is widely distributed), so we came back to try the small production (4000 total cases) wines sold only at the winery.

Imagine my surprise to learn that the same company that makes Botta Box also makes a $150 red blend called Bucephalus. I’m interested to see what happens as the Indelicato family’s winemaking knowledge and resources are focused on this relatively new enterprise — perhaps even more distinctive wines like the Rockpile Zinandel that was my tasting room favorite?

I expect there will be lots of interesting wines to taste and things to say as DFV and Black Stallion continue to develop. But don’t expect to hear any one-liners.

Economic Impact: Wine [Not Just] By the Numbers

Apple, maker of iPods, iPads and other iGadgets, recently released data that tried to establish the corporation’s economic impact on the American economy (this in response, I think, to charges that its high-outsource policies mean that its products benefit China and other countries more than its U.S. home market).

The company published the results of a study it commissioned saying that it had “created or supported” 514,000 jobs in the United States. The study is an effort to show that Apple’s benefit to the American job market goes far beyond the 47,000 people it directly employs here.

The number of indirect jobs claimed drew attention from economists.

David Autor, an economics professor at the Massachusetts Institute of Technology, said via e-mail that the “entire business of claiming ‘direct and indirect’ job creation is disreputable” because most of the workers Apple is taking credit for would have been employed elsewhere in the company’s absence.

I tend to agree with Prof. Autor’s comment mainly because I can do the math. If Apple is right, then its small labor force is responsible for an incredible fraction of all U.S. jobs. If we made similar estimates for all other U.S. industries I am confident that the total number of jobs claimed would quickly exceed the total number of jobs … period.

Suspicious Minds

But then I tend to be suspicious of economic impact studies … period … whether they are about the gadget industry or any other industry. And this is due mainly to the incentives that are present. No one ever commissions an impact study unless they have a reason to want to show a large impact (usually it is politics — to prevent a political backlash against Apple’s outsourcing policy, for example, or to encourage provision of “key industry” government benefits).

And I know from personal experience that no one ever takes on an economic impact study without realizing that higher numbers are better for the client. I’m not saying that anything shady takes place. I’m just pointing out the incentives and you know what economists think about the power of incentives!

So (and I’m sure you can see this coming) I’m also suspicious of economic impact studies of the wine industry that are occasionally published. Economic theory says that economic impact (the total value added throughout the supply chain) should be equal to the final sales price of the product. This is such a strong idea in economics that it is stated as an identity rather than an equation or theory.

And the reported economic impact always seem to exceed the final sales by a large margin just like Apple’s jobs study. Yikes. No wonder I have my doubts!

Visible Hands

It is good to be critical in assessing numbers, but I’m afraid my skepticism sometimes goes a bit too far, to the point where I don’t really appreciate how important the wine industry is and how broad its impacts really are. That’s why my travels this year to the Unified Wine & Grape Symposiium and the Washington Association of Wine Grape Growers meetings have been so useful.

It’s not [just] that the presentations have been useful, although they have. It’s really the trade shows that have taken my breath away and provided a needed perspective. I’ve been able to see and meet the people behind the numbers and it has been very helpful.

This was especially true at the Unified in Sacramento, which had two huge floors brimming with about 650 exhibitors. The trade show was so large that Wine Business Monthly created an online planning guide to help visitors navigate the room (http://www.winebusiness.com/planningguide/2012/). Wow! I heard that there was a smartphone app available to optimize your walk through the trade show based upon your business interests. A great idea.

The Ordinary Business of Wine

I’ve pasted in a directory of exhibitors from the 2011 Unified event so that you can see the wine range of businesses that come to the meetings (and the wide range of economic impacts involved, too). I really wanted to use a photo for this, but I couldn’t find an image that captured the sense of the place, so the table (more numbers) will have to do.

Many of these firms are specific to the wine industry, but a number are what I would call “ordinary businesses” (see my last post) that provide the wine industry with the sorts of goods and services that all businesses need, albeit often with a special wine slant. If wine has a large economic impact, and I think it does, these ordinary businesses — banking, accounting, marketing, legal services, flooring, hoses, tanks and even iPad-enabled electronic sommelier apps — are part of the process.

iPad apps for wine? Wow, I guess this means that we are part of the Apple empire, too. (Or is it the other way ’round?)

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Thanks to Ken (who put it better than I did here) for suggesting the “wine as an ordinary business” theme.

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