Washington Brands vs Brand Washington

Lettie Teague’s column in today’s Wall Street Journal provokes a post on Washington wine’s identity crisis.

Teague writes in “Stalking the Wines of Washington” that the Washington wine industry has expanded rapidly in the last few years and that there are many great wines and great wine values. Yet Washington wines are hard to buy (she had trouble finding them in New York wine shops) and hard to sell (she quotes several winemakers in this regard, including Chris Camarda of Andrew Will, who is holding back wine and reducing capacity by 40%). What’s the problem?

I Can Get it for you Wholesale

Well, as in most cases, it is not a single thing but a confluence of forces at work. Although she says that fine wines from Washington have a reputation for good value, Teague suggests that many are currently over-priced relative to Napa Valley products. Judging from my email inbox, the reason for this is that a lot of Napa producers are selling off their wines at deeply-discounted prices.

The typical deal I am offered is “limited time only” 50% off the retail price plus discounted shipping. A great deal, except I can sometimes find even lower prices on these wines at local stores. The wholesale prices must be rock-bottom if wineries can do better with these low revenue direct sales. Teague writes that

One Washington winemaker lamented to me, “We can’t compete when Pahlmeyer Cabernet that used to be $90 a bottle is now $45 a bottle.” And so, while the quality has never been higher—Washington has had three excellent vintages (2006, 2007 and 2008)—the wines are getting harder and harder to find in stores outside of Washington state.

[Interestingly, some of the offers have six bottle limits -- a psychological ploy in most cases, I think, to make customers believe that surplus wines are really quite scarce. Wine people tell me that it works every time.]

I think that Washington wines are still a great value, given their high quality, but deep discounting by the competition is never a good thing for producers.

Napa Valley vs Columbia Valley

The lack of a strong regional wine identity is a second issue that Teague identifies (she also cites the small scale of most Washington producers as a disadvantage). Everyone thinks they know what Napa Valley wine is (although it is a large and very varied AVA that produces lots of different types and styles of wine). Napa was a strong brand.

What is Washington wine?  Washington apples have a strong identity and Washington cherries, too. But Washington wine — not so much. A stronger, more prestigious identity could be a real advantage, especially in this economic climate, Teague notes.

… Napa Valley has just done a much better job of marketing itself, according to Marty Clubb, whose L’Ecole 41 Winery in Walla Walla is probably one of the best known and oldest (circa 1983) wineries in the state. “Nobody really knows where our wines are from. People recognize our brand but not as a Washington-state winery.”

Washington has well-known wine brands at nearly every price point from Columbia Crest to Quilceda Creek, but there is no well-established Brand Washington. This is an issue that Paul Gregutt identified in his terrific book,  Washington Wines & Wineries: The Essential Guide (watch for a second edition on bookstore shelves this fall). He interviewed leaders in the Washington wine industry about their vision for Brand Washington and, while most considered this an important issue, no consensus emerged.

I’ve heard that Allen Shoup (the godfather of Washington wine: former head of Chateau Ste Michelle, now the driving force at Long Shadows) wanted to promote the idea of the Columbia Valley as Washington’s equivalent of Napa Valley — building the Columbia Valley brand to compete with California.

But this plan ran into a collective action problem as individual producers invested in their own private brands and sub-AVA brands instead. I’m sure some buyers today see Columbia Valley as a generic designation, not the prestige brand originally envisioned. And I’m sure a lot of people don’t associate it with any particular place (some people still confuse Washington  State with Washington DC; maybe they think the Columbia Valley is in … Columbia!).

Although the lack of regional identity may be a serious issue in the long run, I think other problems are more pressing right now. After all, most of those deep discount emails I’m getting aren’t coming from Washington, they’re being sent out by famous wineries in famous Napa Valley.  A strong identity surely helps, but can’t completely compensate for competitive market forces.

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One area where Washignton’s wine identity is strong is in Riesling. Riesling Rendezvous — sponsored by Chateau Ste Michelle and Mosel’s Dr. Loosen, begins tomorrow. Riesling makers from around the world will gather near Seattle to discuss the problems and opportunities they face. Look for a Riesling Rendezvous post in the near future.

Anatomy of Wine Fraud

The crime was elegant in its simplicity: create a fake 1982 Chateau Mouton Rothschild – the 100-point wine that recently sold at auction for a record price of more than £14,000 (for a case)  according to the July 2010 issue of  Decanter.

The perpetrator used an empty bottle of the famous wine (although it would not have been that hard to fake bottle, label, etc.) and invited several wine enthusiast friends (a.k.a. the dupes) to a social  tasting where they would have an opportunity to unintentionally authenticate the DIY Mouton. (Some of the dupes unexpectedly brought along bottles of other 100-point wines from their personal cellars to share with the group. Impressive generosity! I’m sorry I called them dupes.)

The accomplice, a winemaker known for his blending skill, created the bogus vintage from an assortment of his own Washington State (!) wines from the 1990s. Some but not all of the experts took the bait — none of them suspected a fake. Wine of the night, one confidently proclaimed, even after the fraud was revealed.

The Sting

The purpose of the fraud was not, as you might expect, to make money. As reported by Lettie Teague (the perp) in the October 2008 Food & Wine article “Wine Scams: A Counterfeiter Confesses,” the idea was to see if it was possible to fool wine experts who had tasted wines like this (and even this particular wine) many times and could, presumably, easily detect a bogus wine immediately. She actually got the authentic empty Mouton bottle the hard way — by buying a full one for $1200. Not much room for illicit profit there.

Her accomplice was Chris Camarda, maker of the highly regarded Andrew Will wines. I guess it wasn’t fraud so much as a sting operation and the trap wasn’t set for Lettie’s wine expert friends (who presumably have forgiven her by now) but rather for the whole wine industry. Beware of wine fraud!

Wine Fraud: A Global Phenomenon

Old news? Hardly! My inbox has been stuffed to overflowing recently with reports of wine fraud. We seem to be Shocked! Shocked! But I wonder why? One source estimates that five percent of wines traded in the secondary market are fakes and we know that ordinary table wines aren’t always what they appear to be either. Wine fraud isn’t difficult, even at the high end. Indeed, it is remarkably simple.  No wonder there is so much of it!   And that’s the point of this post. Here are examples from the last few weeks.

  • The U.S. has just removed  restrictions on Brunello imports, finally satisfied that wine fraud issues there have been resolved.
  • The fallout continues from the French case involving large quantities of  bogus Pinot Noir sold to Gallo as the real thing.
  • Jancis Robinson’s website recently ran a multi-part report on wine fraud in China, including examples of hopelessly inept but apparently successful wine fakes. My favorite was a bottle of “Bordeaux Port” labeled “dry red wine.”
  • Newly minted Master of Wine Rys Pender’s recent Master of Wine dissertation “Counterfeit wine — its impact on the business of wine takes stock of the damage so far.
  • Slate readers were treated to Mike Steinberger’s big article on wine fraud, including the continuing saga of “the billionaire’s vinegar.”
  • And then there is the “Cellared in Canada” controversy, which doesn’t seem to have gone away — a sort of “soft-core” version of wine fraud produced by rules that permit consumers to willingly mislead themselves.

Wine fraud seems to be everywhere. What are we to make of it?

New Wine in Old Bottles

Can you spot the fake?

Well, the first thing is to realize that this is nothing new. Wine fraud is as old as wine itself, or nearly so. Pliny the Elder complained about the amount of fake wine on the market. The Roman equivalent of Petrus was everywhere, even in the humblest tavern, he said. Who can you trust?

The familiar phrase “new wine in old bottles” is, of course, a description of wine fraud. Indeed, the contemporary European idea of wine is rooted in fraud – the AOC system was provoked in part by the prevalence of fake or adulterated wines.

Then as now, fraud is easily accomplished. Why are people like Lettie Teagues’s wine expert friends so easily fooled? It is partly a matter of interests (Upton Sinclair observed that it is impossible to get people to understand something if their paychecks require them to not understand it), partly  human nature (we all like to be experts and hate to lose face) and partly a matter of Mother Nature — wine is a living, changing thing, everyone’s palate is a bit different, and even with high tech science (carbon dating?) it’s quite difficult to really know what’s in your glass and effectively impossible to know what might be inside an unopened bottle.

And some people want to be fooled in the sense that they want that seemingly impossible trophy (or unforgettable bargain) forgetting the rule that if something is too good to be true … it is probably false. As Walter Bagehot said, “At intervals, from causes which are not to the present purpose, the money from these people – the blind capital, as we call it, of the country – is particularly craving; it seeks for some one to devour it …”. And someone generally does, whether through credit fraud, wine fraud or something else.

Money, Greed and Wine

So what is to be done? The truth, I suspect, is that we must acknowledge that wine fraud is an unavoidable part of the wine world (just as financial crises are an apparently inevitable characteristic of financial markets).  When faced with fraud in other circumstances, the first thing economists do is suggest greater transparency, but there are obvious problems with this in the case of wine. The Gallo example shows us that it is possible to create impressively realistic fake documentation while the Chinese case suggests that wine is sufficiently complex that even transparently false wines with error-filled labels will fool someone.

It would be hard to make wine more transparent in any case because some of the people with the most at stake would probably be the first to resist it. Suggestions that wine labels should include normal consumer information like you find on boxes of breakfast cereal inevitably produce a harsh reaction. Wine is above such detailed accounting (and accountability), apparently. It is as if revealing what is actually in the bottle would somehow let the genie out of it. Consumers aren’t just buying wine, they are buying mystique and lack of transparency is part of the deal. And so, I suspect, is fraud.

While I applaud efforts to punish offenders, I think we must admit that the combination of economic interests, human nature and Mother Nature will make it impossible to eliminate wine fraud. Trophy wine fakes will get all attention, no doubt, but I think that the possibility of fraud in ordinary table wine is the bigger concern — another indication of my strong Wagnerian leanings.

Chapter 4: Crisis

“At intervals, from causes which are not to the present purpose, the money from these people – the blind capital, as we call it, of the country – is particularly craving; it seeks for some one to devour it, and there is a ‘plethora’; it finds some one, and these is ‘speculation’; it is devoured, and there is ‘panic’.”

Secrets of Argentina’s Export Success

#1 Wine

Argentina’s wines are hot here in the United States. Recent Nielsen Scantrak off-premises  data show a 38.7 percent dollar value rise in sales of Argentinian wines for the 52 weeks ending April 3, 2010. That’s an enormous percentage increase, much greater than the total market (up 3.5 percent) and a good deal above the next biggest gainer (New Zealand with a 17.2 percent rise).

What’s Argentina’s secret?

The secret? As usual, there is no one simple answer. There are important factors on both the supply side and the demand side: good products, the right products at the right time and favorable economic policies.

Argentina produces excellent wines. Decanter magazine recently (June 2010 issue)  published a report on Argentinian Malbec that featured the largest tasting in their history — a record 255 wines. Four of them received  five stars, the highest designation. The Achaval Ferrer Mendoza 2008, which often sells for less than $20 here in the U.S., led the pack with 19/20 points.

Argentina is fortunate to be producing wines for the times. Many Argentinian wines are good values at a time when consumers are careful with their money and they represent good choices for ABC (anything but Chardonnay) and ABS (anything but Shiraz) buyers.

International Influences

#1 Export Brand

Argentina’s economic policies are another consideration. The favorable dollar/peso exchange rate contributes to Argentina’s competitiveness on the export market. And although I don’t know very much about them, I think that barriers to foreign investment in the wine industry must not be very high because so many important producers have international connections.

Bodega Colome is owned by Donald Hess of Switzerland, for example, who also owns The Hess Collection in the United States. Achaval Ferrer is a joint venture with a Montalcino winemaking family. Bordeaux wine investors are players in Diamandes and Clos de los Siete. O Fournier’s owner is Spanish. Cheval des Andes is a joint venture of Moët Hennessy’s Terrazas de los Andes and St-Emilion’s Cheval Blanc. Bodega Norton is owned by the Swarovski family of Austria (famous for their crystal.) Dig deeper and you’ll find even more international money and talent at work.

Top Export Brands

These are good reasons for Argentina’s recent success, but a recent article on WineSur.com titled “The Top 5 Export Brands” got me thinking that there might be other factors at work. I was particularly intrigued by the table showing the top bottled wine export brands to different markets. I’ve pasted the table below so that you can analyze it along with me. Click on the table to read the full article and view a larger image of the data.The first thing I noticed is how heavily weighted Argentina’s recent exports are toward the North American market. Britain, still the most important wine market in the world, has much lower export volumes as shown here. I suspect that one reason for this, however, is that these data are for exports of bottled wines (including bag-in-box and Tetra-Paks) and I’ll bet that Tesco and some of the big supermarket chains import their Argentinian value wines in bulk and bottle them in the U.K as house brands. Those export sales don’t show up here.

The second thing that caught my eye was the wide range of export prices. Alamos, the U.S. leader, sells for $30.57 per case export price, about the same as #2 Don Miguel Gascon. Marcus James, the top export wine in volume but only #3 in value, sells for just $12.54 per case.  Catena, the #4 brand, exported just 39,000 cases in the time period under consideration, but received an average of $64.97 for each one. Argentina’s exports to the U.S. (and the other markets shown here) span the price spectrum — another advantage.

Location, Location, Location?

Finally, I became interested in the particular brands that topped the export market tables and I think I discovered another secret weapon: distribution. It’s a cliche that in business the three most important things are location, location, location. Location is important in wine, too (ask any terroirist), but efficient distribution sure makes a difference and Argentinian producers have been wise in making good use of the most efficient distribution networks in each country.

Alamos has the highest export earnings by a good margin — why? Well Alamos is made by big gun Bodega Catena Zapata. It is a value line and is imported and distributed by the Gallo company. I suspect that Gallo’s large and efficient distribution network and its marketing prowess are reasons for Alamos’s great success. Significantly, Gallo also handles Don Miguel Gascon, the #2 export brand.

Marcus James, the #3 export brand, is a Constellation Brands product and is also backed by substantial marketing and distribution power. I was actually surprised to see Marcus James on this list because I didn’t realize they sold Argentinian wine. Guess I need to pay closer attention.  They used to source their wine from … Brazil!

Fuzion (a Shiraz-Malbec blend, I understand) is the best seller in Canada. It is made by Familia Zuccardi and distribution is one of its advantages, too. In Canada government wine and liquor shops are key sales vectors. The support of Ontario’s Liquor Control Board (in addition to successful viral marketing) seems to have made Fuzion a hit in a market that is otherwise very difficult to penetrate.  (At one time the Ontario Liquor Control Board was the world’s largest retailer of wine. I think Tesco is #1 today.) Distribution is key and both Alamos and Fuzion seem to have it.

Trickle Down [Wine] Economics Jitters

The stock market has the jitters these days and one of the causes is the fear that, even with massive fiscal and monetary stimulus, we may be experiencing a jobless recovery. Things looks OK from the outside (some of the numbers are pretty good), but bad things are still happening deep down where it counts.

A Wine-Free Recovery?

There is some concern that the wine economy is suffering a similar fate. Not a wine-free recover, but just not the big turnaround everyone was hoping for. Although retail sales numbers are cheerfully positive, with overall sales rising at close to double-digit rates and increases even in the $25+ “death zone” range, there’s still enough disturbing news around to give anyone the jitters.

Are jitters justified? I decided to do some fieldwork to see what I could learn about conditions on the ground in my local wine market. An upscale supermarket down the street has recently undergone a major remodel and is have a grand re-opening. One of the areas that seems to have received a lot of attention is the wine wall. Since the supermarket chain is known to do very thorough market research I wanted to see what the redesign would tell me about state of the wine economy today.

First Impressions

My initial impression was very positive. The wine wall is substantially increased in terms of the number of square feet of display space. The quality of the space is much improved, too, with the old industrial shelving replaced in part by the sort of dark wood cases and racks that you see at fine wine shops. Good news! A big investment like this suggests optimism about the future of the wine market.

A second glance provided more information. The wine wall is large enough to need directional signs to help customers find their “comfort zone” area.  Some of the signs were what you would expect: “France/Italy,” Australia” and so on. Just what you’d expect. But other signs pointed to continued “trading down.”

I found areas marked “premium 1.5 liter,” “value wines” and “box wines” and one that said simply “White Zinfandel.” It’s obvious that the marketing and design people knew that many of their customers would be looking for low cost or basic wines and they wanted to help them find them.

Box wine sales surged in the “trading down” wine economy that wine people like to think is over, but apparently isn’t.  There were a number of quality bag-in-box wines for sale in this section, which was conveniently located adjacent to the expanded take-out  delicatessen and bakery areas.

The White Zin section held both the expected Sutter Home and Beringer products plus a limited range of inexpensive domestic rosé wines and a small selection of fruit wine and fruit-flavored wines. My wine snob friends are probably shocked to learn that White Zin, the wine they love to hate  is so popular that it has its own part of the wine wall.  That would be trading down in both price and quality, they say.

Unexpected Discoveries

Now it was time to study the main section of the wine wall carefully. I was impressed by the large selection, of course. Lots of wines. Lots of brands. But some of the wines had unfamiliar labels that I think may be part of a “dumping” strategy where big producers sell off surplus wine under an ersatz value brand to avoid weakening the price position of established brands.

This is a very common practice in Australia, where the wines are sold with very generic labels. They call them “cleanskins” and I guess they are selling like hotcakes. The surplus wine, some of which could be very good, may be trickling down into a sort of  branded cleanskins market here in the U.S. But there’s another trickle down effect that got my attention.

As I surveyed the wine wall I was struck by a small number of hard-to-find or impossible-to-buy wines that were sitting quietly waiting to be found — fine wine that I suspect didn’t find a home in the usual wine club / fine wine shop / restaurant supply chain.

Since we’ve recently returned from a Napa Valley research trip, I was especially struck by the presence of two wines from Stag’s Leap Wine Cellars – their  Fay Vineyard Cabernet and the famous Cask 23. The Fay sold for $87 or $79 for buyers with the store loyalty card. Buy a case and get a further 10 percent discount. The Cask 23′s price was $164.

You can buy Opus One for $209 ($179 with your loyalty card) or Sassicaia for $245 ($213). The Chimney Rock SLV Cab that I liked a lot when I tasted it in California was a bargain at $60 ($48 with your card).

Pétrus at the 7-Eleven?

It’s hard to believe that these great wines can be found on neighborhood supermarket shelves. I could be wrong, but I suspect that they would not be found there during good economic times. But bad times drives good wines down the supply chain. That’s trickle down [wine] economics.

What’s next? Pétrus at the 7-Eleven? No, although 7-Eleven does have an own wine brand called Yosemite Road.

I’m glad there is finally good news about wine sales in the U.S., but while trading down may have stabilized I don’t think the sour economy’s effects will soon disappear. And so the trickle down effect continues. No wonder everyone’s got the jitters.

Cracking the Chinese Wine Market

Portuguese Wines in Beijing

President Obama wants to double U.S. exports within five years. With this in mind he recently sent Commerce Secretary Gary Locke to Hong Kong to sign a Memorandum of Understanding (MOU) on Cooperation in Wine-Related Businesses. The press release says that

The United States is one of the leading wine-producing countries in the world, and American wines have been growing in stature internationally for decades as people around the world have learned what American wine producers and consumers have known for years: American wines are outstanding,” Locke said. “Working with the Hong Kong government, we want to create opportunities to heighten exposure to American wines in Hong Kong and the region. This MOU will help do just that.

“Hong Kong and the region” … I think that would be code for China. Everyone wants to crack the Chinese market, something that is easier said than done. I’ve written about this problem before (see “Wine and the China Syndrome”). Sean, one of our recent graduates, wrote his senior thesis on the challenges and opportunities of exporting Washington wine to China. Sean identified a number of significant political, economic and cultural barriers that American wine exporters must overcome. He was optimistic regarding the long term, but very cautious about short term success. (Secretary Locke, you might want to give Sean a call.)

Cracking the Chinese Market

Everyone looks hungrily at China with its growing economy and expanding consumer base. But it is hard to break in. Bulk wine imports are substantial (imported wines get blended with local products and labeled “Chinese wine”), but at unsustainably low prices. No future there.

France and Spain have had better luck. The French have been able to leverage their reputation and the prestige of their finest producers to carve out a attractive niche markets for Bordeaux and Champagne as luxury products.

The Spanish achieved success through old fashioned hard work. They have partnered with Chinese wine producers in both production and distribution. If Chinese wines are improving in quality (and I understand they are) then this is at least in part due to technical improvements facilitated by joint ventures.

Miguel Torres has been particularly active in partnerships and ventures of all sorts. You might be interested in their everwines project, which was recently launched in an attempt to develop a western style Chinese wine culture. If you check out the site be sure to click on the Online Shopping link to purchase a variety of international wines in the $20 range and also Opus One for about $550 and a first growth Bordeaux for more than $1200.

Any Port in a Storm

The U.S. is obviously not the only wine producing country with China on its mind and  I was pleased to receive an invitation from ViniPortugal to participate in their recent China seminar program and tasting of Portuguese wines. Sixteen winemakers flew from Lisbon to Beijing to present and promote their wines. A good chance to observe this Old World wine country’s China strategy in action.

Beijing is a long way to go for an afternoon tasting, so I was represented by my crack China wine research team, Matt Ferchen (Assistant Professor of International Relations at Tsinghua University) and Steve Burckhalter (who works as a translator for the Chinese public relations firm BlueFocus). Matt and Steve are former students of mine at the University of Puget Sound and keen observers of rapidly changing Chinese markets.

Matt said that he was impressed with the wines he tasted.

The first wines I tasted, and the ones I ended up liking the best, were from a cooperative called Adega Coop. De Borba.  A couple of the wineries were family owned and there was a kind of earthiness to the wines that I really enjoyed.  I was especially impressed with the Portuguese whites, which were all very crisp and I think would go very well with spicy Chinese food.

I find that most of the wines available in Beijing, both foreign and Chinese, are expensive and mediocre or cheap and bad.   Across the board the price to quality ratio was just excellent and I really hope that some of these wineries can find distributors here … [but] …there was only one of the wineries that had any presence in Beijing.

So the product is good and a good value. But that doesn’t necessarily solve the Chinese market puzzle.

Most of the representatives seemed rather disappointed that the turnout at the tasting was quite small and that many of those who were in attendance weren’t in the wine business (i.e. they didn’t see many prospects for finding distributors even if they found possible retail customers).  I was asking some of the representatives why Portugal seemed so far behind Spain in terms of entering the Chinese market, especially given what seemed to me the outstanding quality of their product.  The answer mostly just seemed to me a question of focus, that somehow the Spanish wine organization was just more aggressive about getting Spanish wines to China and advertising.

Steve also commented on quality and value — and the problem of focus and establishing reputation.

The[seminar] speaker, who I believe was a Chinese man from Macau, noted the long history of wine making in Portugal, the long time presence and popularity in Macau (“We drink this all the time in Macau”), the diversity of wines they are able to grow thanks to the wide range of different climates in Portugal, wines unique to Portugal – such as a “green wine” they grow in the North, which he reasoned would do well in China, being ‘fruity and sweet’ – and finally he also stressed that “Nearly all Portuguese wines are reasonably priced. It’s hard to find any in excess of 2000 RMB.”

He also expounded on why Chinese outside of the Southeast regions don’t care for white wines, which I found interesting. As for the growers and the distributors, there was some diversity to be found in “Brand Portugal”. Interestingly, some were insistent on showing tasters how they straddled both New and Old World wine making (actually, the speaker also touched on this, going on about a vineyard that had invited Australian winemakers to teach them in the ways of new world wine). Others, however, were insistent that they were exclusively Old World – “Portugal is Old World. How can it be New World – that’s not us.”

In response to how they were looking to position their wines, one of the winery reps said that they were looking to focus on promoting, above all, their grapes: the varieties, why they grow so well in Portugal, etc. And their other edge (which I heard from several people) is in pricing, “what you get for X RMB in a Portuguese wine is better than what you get for X RMB in a French wine.” That tended to be the dual answer whenever someone brought up how Chinese people generally went straight for French or Italian wines.

A Wineglass Half Full. Red or White?

Based on Matt and Steve’s reports you can be either an optimist or a pessimist regarding Portuguese wines in China. The upside is that there are many potential advantages, cost being one of them. It is obvious that Portuguese winemakers would like to be seen as a “value” fine wine and avoid the cheap and anonymous bulk wine trap. Good thinking.

But then there is a bit of an identity crisis. Old World or New? Well, both – a harder sell. Focus on regions or grapes (or both)? That requires a substantial sustained education program.

Even the most basic question is problematic: red or white?  Westerners know that crisp whites like Vinho Verde taste great with Asian foods – great to westerners, anyway. But, as has often been said, the first duty of wine in Asia is to be red.

I’m cautiously optimistic about Portuguese wines in China, especially if they can settle on the right focus and sustain the education/marketing efforts. But they have a long way to go.  Steve reports that “I noticed at a store (targeting Western tastes) last night the only Portuguese wines (out of hundreds and hundreds) were four Ports. Haven’t been to Carrefour in a while, but I bet it’s the same deal.”

Good luck to Portugal – and to American winemakers, too, of course.  China is a key market for the future. But scaling the Great Wall is a real challenge and many will fail in the attempt.

Oregon Pinot Noir: Peaks & Valleys

A quick getaway to Portland provokes a post about Oregon wine’s highs and lows.

Cheers for All the [Peak] Years

I was browsing through the wine books at Powell’s, Portland’s famous bookstore, when I came across a used copy of  Vintage Timelines, a 1989 book by Jancis Robinson. The idea of the book was to select a group of the world’s greatest wines and examine how different vintages have evolved (and would be expected to continue to evolve) over time.  The research required Jancis to taste trough verticals of each great wine (research is such a drag!) and compare notes from previous years to create complex and quite fascinating graphical timelines.

It’s a great book for wine lovers (despite its 1989 date) and valuable to me because of the particular wines Jancis selected for the study.  No New Zealand or South African wines, for example. The recent history of their great wines was too brief in 1989 to permit long-term analysis.  Just five Australian wines made the cut (led by Penfolds Grange Hermitage, of course).  Seven California wines are listed and just one from the rest of the U.S. — David Lett’s Eyrie Vineyards Pinot Noir Reserve, the wine that put Oregon on the world wine map.

JR's Vintage Timeline for the Eyrie Pinot Noir Reserve

There is an inscription in the book. “To Nick — Cheers for all the years — past & future. Dave Lett, Christmas 1989.”  Needless to say, I bought the book as both a research tool and a personal souvenir. It’s a good reminder of Oregon Pinot Noir’s humble origins and the high peaks it has climbed. Oregon’s wine industry is just a little over 40 years old, yet is is often  mentioned in the same breath with Burgundy because of the quality of its best Pinot Noir wines, like David Lett’s Eyrie Reserve.

Whole Foods Letdown

So I was feeling pretty good about the Oregon wine industry when I stopped off at Whole Foods, about a block away, to survey their selection of Oregon wines.  As I entered the store, however, I ran smack into a display of Oregon Pinot Noir priced at … wait for it … $9.99.  That’s about ten dollars less than the usual price for an entry level Oregon Pinot. The wine was produced by Underwood Cellars, a second label of Union Wine Company, which also makes King’s Ridge. The fruit was sourced mainly from Southern Oregon — the Umpqua and Rogue Valleys — not the Willamette Valley where Eyrie and most of the other famous Oregon Pinots are made.  The bargain price was a real shocker.

Oregon is a high cost wine production area. Even higher than  Burgundy, I think, because many of the vineyards there  have been in family hands for years and land costs are often not explicitly considered in calculating cost (an economic mistake, of course, as any Econ 101 student will tell you). That’s not the case is Oregon, where it is hard to ignore the cost of capital.

A study using 1999 data put the average cost of Willamette Valley Pinot Noir at $12.79 per bottle (see Oregon Viticulture edited by Edward H. Hellman for the details) and more recent proprietary data I have seen puts cost in the same range or higher. $9.99 might or might not be a sustainable price for a wine made from Umpqua Valley fruit, but  it certainly isn’t a  sustainable price point for Willamette Valley wine.  If the price of entry level Willamette Valley Pinot  were to reset from $20-$30 down to $10-$15 … well I think the Willamette River would bleed red ink. Click here to read a recent article from Wines & Vines about the Oregon situation.

Boom and Bust

The quality of Oregon Pinot Noir is higher than ever, I believe, but the industry’s economic health may be falling. Oregon (and New Zealand) rode the Sideways Pinot boom for several years, expanding vineyard plantings repeatedly because it seemed like the demand for this wine would never be satisfied.

Now the recession is here, Malbec is  hot, the new Pinot vineyards in Oregon, New Zealand, Chile and elsewhere are all coming into production at the same time and prices are tumbling. Bargain Pinot Noir is a fact of life for now. It will be interesting to see where the market resets when supply and demand eventually find their new balance.

In the meantime, I guess there’s only one thing to do. Drink more Pinot Noir!

Wine Spectator 100: North and South

The lists of the Top 100 wines have started to appear — just in time for holiday buying. Wine Spectator released their Top 100 last week and now Wine Enthusiast has followed suit. Other lists are showing up, too, such as Paul Gregutt’s list of the 100 best Washington wines.  Fun and informative, these lists provide wine lovers with endless opportunities to discuss, debate and of course pull corks. Gotta love ‘em.

But you’ve gotta hate ‘em, too. Top 100 lists are a mixed blessing on the supply side of the market. Although they do promote wine and wine drinking generally, they necessarily privilege some wines over others and this is always problematic given the thousands and thousands of good wines that are produced each year. Why this wine and not that one? It’s an inevitable question that matters because wines on the list get more attention than the wines that don’t for some reason make the cut.

Dancing in the Streets

Top 100 lists slice up the market in many ways and this year my email inbox has revealed a North-South divide. Here in Washington State we are very happy with the 2009 Wine Spectator league table. Nine Washington wines made the list — more than any previous year — including the #1 spot, which went to the 2005 Columbia Crest Reserve Cabernet Sauvignon (95 points, $27 dollars). Two Oregon wines were also listed, so altogether this was a banner year for the Pacific Northwest.

While they are dancing in the streets in Woodinville and Walla Walla, the mood is more sober down south in Mendoza.  Two Argentinian wines appear on the WS100, which is welcome recognition of course, but that’s down from four last year. This is really Argentina’s year to shine in the U.S. wine market, with overall sales surging by more than 40% in dollar value according to Nielsen ScanTrack data. But only half as many WS100 wines! You can’t blame members of the Argentinian industry for kinda hoping to see their success more enthusiastically celebrated in the Top 100 lists. Hmmm. Maybe next year.

A Nobel Prize for Wine?

It seems to me that these top 100 wine lists are a little bit like the Nobel Peace Prize. Highly publicized awards like the Nobel and the Top 100  end up being both reflections of excellence and opportunities for the judges to send a message (political, economic or otherwise). There are many worthy nominees for each award so the final choice is always arbitrary — and the opportunity to send a message is irresistible. Or at least I wouldn’t be able to resist it.

There are obviously many factors that go into a Top 100 wine list and a wine’s objective quality  is just one of them. This is easy to see if you take numerical ratings seriously. The WS100 #1 wine this year earned a 95 score, for example, but the #2 wine received a higher score (96) and the #8 wine’s score was even higher (99). A 100-point wine was placed in the 21st spot last year. This is a numbers game but not just a numbers game.

Don’t Cry for Argentina

Wine Spectator uses four criteria in making their list: quality (the score), value (the price), availability (the volume) and excitement (the X-factor). The Columbia Crest wines (both the Reserve that won this year and their other wines) generally do very well on the first three factors year in and year out. The X-factor this year, I believe, was the recession and the desire to inspire some excitement among American buyers by giving them a #1 wine they could find and afford. That $27 Columbia Crest wine says that American wine drinkers can enjoy truly excellent wines at relatively affordable prices. Time to start pulling those corks! A good message to send in this economic climate.

What about Argentina? Well, I understand their situation. No problem with quality, volume or availability. But I think the market excitement is already there and doesn’t need any help from the wine lists at this point (as much as the Argentinian makers would love to have it). The U.S. industry (like President Obama?) could use some encouragement right now, which may be a good enough reason to draw attention to its outstanding, good value wines like the Columbia Crest Reserve.

Note: Congratulations to Juan Manuel Muñoz Oca, the 34-year old Argentinian winemaker who made the #1 Columbia Crest Washington State wine. What a great North-South connection!

Beaujolais Nouveau: A Black Friday Wine

I’m putting together wine recommendations for the upcoming Thanksgiving holiday feast. Bubbles (for celebration), Riesling and Pinot Gris (great food wines), Zinfandel (the most American of wines) and Pinot Noir (just because).

Missing from my list is perhaps the most appropriate wine of all: Beaujolais Nouveau. Here’s why.

A Wine for Today’s Thanksgiving?

Although the United States is not the only country to set aside a day for giving thanks, we like to think of Thanksgiving as our distinctive holiday. It was conceived as a day for deep reflection, but Thanksgiving has evolved into a long weekend of over-consumption and discount shopping. Some of my friends really prefer to celebrate Black Friday, the day after Thanksgiving, when the holiday shopping season formally begins and retailers find out if they will be “in the black” for the year based upon early sales data.

If you plan an Old Time giving-thanks Thanksgiving, then Nouveau is not for you. It is not an especially thoughtful wine. It is a sorta soda pop wine; if wine were literature, my friend Patrick points out, Nouveau would be the  trashy paperback novel you read at the beach. Nothing wrong in that — everyone needs an escape once in a while.

The grapes for Nouveau are picked in late September or thereabouts and the only thing that prevents instant sale is the necessity of fermentation and the mechanics of distribution.  It’s still a bit sweet when it’s bottled and sometimes a bit fizzy, too, when it arrives with great fanfare on the third Thursday in November (a week before Turkey Day). Best served cold (like revenge!) it is the ultimate cash flow wine.

Black Friday Wine?

Nouveau is not very sophisticated, so why do the French, who otherwise are known to guard their terroirist image, bother with it? The Beaujolias producers make very nice ordinary (non-nouveau) wines; character complexity, you can have it all and for a surprisingly low price.

Ah, but that’s the problem. Sitting close to prestigious Burgundy, the Beaujolais cannot command high prices for their wines, good as they are, so they must try to make money through turnover more than markup. They churn out millions of bottles of Nouveau to pay the bills.

At the peak of the bubble in 1992 about half of all wines made in Beaujolais were Nouveau. The proportion remains high even today. Ironically, Nouveau often sells at prices as high as Beaujolais’ more serious wines because it is marketed so well. So it is hard to see why you’d want to buy it instead of the region’s other wines. It’s easy, on the other hand, to see why you’d want to sell it.

Beaujolais Nouveau, it seems, is France’s Black Friday wine! If the makers can sell their Nouveau, then maybe the bottom line for the year will be in the black. If the Nouveau market fails, well that red stain on the floor won’t be just spilled wine.

More than the Usual Urgency

Nouveau is therefore generally marketed around the world with more than the usual urgency (just as those Black Friday sales seem a little desperate at times) — and not just because young wines hit their “best by” date pretty quickly. This year things are even more stressful than usual, as you might imagine, with the economic crisis still on everyone’s minds and 10+ percent unemployment here in the United States.

I saw Georges Duboeuf Beaujolais Nouveau selling for $8.99 a bottle on Saturday, about $4 less than last year. Given typical retail margins and the high cost of shipping this product by air, it is hard to see much profit. It will be a Red Thursday this year, I think, not a Black Friday, for Beaujolais.

Nouveau is usually distributed around the world via expensive air freight rather than more economic sea transport in part because the short time between harvest and final sale makes speed a factor. This year Nouveau was bottled in plastic for the Japanese market in part to lower shipping cost — a controversial move that may not be repeated because of its negative product image potential.

Intentionally choosing to adopt a more casual image (see photo), Boisset put all its US-bound Nouveau in screw-cap PET bottles, with a resulting 40% reduction in shipping cost.

An American Wine?

Sweet, fizzy and packed in PET bottles — Beaujolais Nouveau sounds like the perfect wine for the American consumers brought up on 2-liter jugs of fizzy-sweet Mountain Dew and Diet Coke. If you were kinda cynical, you would think Nouveau was an American wine … made in USA.

And it is, in a way. Although the wine obviously comes from France (and there is actually a long tradition of simply and fun early-release new wines in France and elsewhere), I think it is fair to say that the Nouveau phenomenon is an American invention.

W.J. Deutsch & Sons, the American distributors, really put Beaujolias in general and Nouveau in particular on the U.S. wine market map when they became exclusive distributors for Georges Duboeuf some years ago. They took this simple wine and made it a marketing event. To paraphrase an old Vulcan proverb, only Nixon could go to China and only the brilliant Deutsch family could sell Nouveau!

In fact they were so successful that they partnered with another family firm — the Casella family from Australia — and created a second wine phenomenon tailored to American tastes: Yellow Tail!

So although Nouveau is an American wine of sorts and might be perfectly crafted for this American holiday as we actually celebrate it on Friday, I’m going to pass this year (on Thursday, at least) and see if I can nurse some thoughtful reflection from my holiday glass instead. Cheers, everyone! And thanks.

Money, Power, Memory, Taste and Wine

A review of Liquid Memory: Why Wine Matters by Jonathan Nossiter (FSG, 2009). Original French edition published in 2007 as Le Goût et le Pouvoir (Taste and Power).

Jonathan Nossiter is famous for his 2004 film Mondovino. Love it or hate it (or love to hate it), Mondovino has given Nossiter standing in the world of wine and he takes advantage of this fact in Liquid Memory: Why Wine Matters.

Remembrance of Terroir Past

Although it is not intended to be a supplement to or continuation of Mondovino, I certainly learned quite a bit about the making of the film and its characters and about Nossiter, too. Indeed, the book is really about Nossiter and how wine inspires his memories and provokes his emotions just as a small cake, a madeleine, famously provoked Marcel Proust. It’s not my favorite book because I guess I’m not that interested in Nossiter’s memories, or at least not as interested as he is, but I did find things to like in it.

In one of my favorite scenes from the book, Nossiter and a film-making colleague are driving back from a day of Mondovino pre-shoot research in Burgundy and they talk about why they are so attracted to terroir. Members of a somewhat rootless transnational artistic class, they recognize that perhaps terroir is so precious to them because it is something they feel they have lost. Nossiter, the American raised in Paris, now lives in Brazil, well you can see how he would feel nostalgic for the authentic home terroir he maybe never had. That’s an emotion many of us can appreciate.

The Bland Taste of Peace?

Another passage subtly probes this same feeling in a different context. Why is terroir and regional identity so important now? Because sharp divisions have caused so much pain and hardship in the past (think Europe and the two World Wars).  Suppressing differences and rounding off sharp corners to create a more peaceful whole has been the agenda of the last 50 years.

Now we find that universalism has gone pretty far, creating the terroir-free transnational world of the European Union and we start to value what we have lost. Sharp edges seem pretty desirable now that we’ve lost them, even if they  sometimes bruise or cut.

I tasted both sides of this problem when we visited Friuli in the Italian Northeast a few years ago. We stayed outside of Cormons with the Venica family at their winery estate and the Sirk family at La Subida.

The land and people of this area where brutalized by the two Great Wars and so, when postwar peace appeared, they gathered grape varieties from around the world and planted them all together in one serene vineyard. The wine from these grapes, Vino della Pace (wine of peace) isn’t especially distinctive on the palate as I recall, but is memorable nonetheless for its optimistic symbolism.

We longed for the taste of peace when we didn’t have it. Now that we do, we find it a little bland. So we seek out terroir, even if it threatens to divide us once again.  Interesting, isn’t it?  Even in Friuli it is the intensely distinctive local wine of long memory – Pignolo, Schioppettino, Ribolla Gialla – that attracts our attention today, not the wine of peace.

Wine and Money

Although this is a book about cultural politics (if you believe the French title) and social philosophy (if you consider the American one), it seems to me that a great deal of space is actually given over to wine economics. The business of wine with its commercial pressures, and especially the ethics of wine pricing get a great deal of space.

“It occurs to me,” Nossiter writes, “that it is impossible to talk about wine without talking about money” and I think he is right. “Wine is inextricably linked to money like all objects of desire in a capital-driven world.”

Though a given bottle’s price varies even more peculiarly than the price of fine arts, a given bottle’s price is supposed to be a reflection of its intrinsic values. Whether it is the producer who sets the initial price, or the importer, distributor, or end seller, each time the price of the wine is set an ethical decision has been made in relation to the wine’s origins and contents.

Nossiter is disgusted by the religion of money, but in this passage he seems instead to be seduced by it, to accept the premise that market prices are moral judgments even as he protests their verdict. I think the premise is wrong and that intrinsic worth is measured by a different scale.

But that’s just the economist in me talking, I suppose.

A review of

Anatomy of Australia’s Wine Crisis

Australia’s wine bubble seems about to burst (as I reported in my last post) and a number of observers have jokingly compared it to the global economic crisis.  You have too much wine? Ha! We have too much bad debt! Shall we swap problems?

Since I’ve just written a book about about the financial crisis (Globaloney 2.0 — it will be out in December 2009), I started to wonder if I could learn anything by seriously comparing the two crises. Here’s a first draft of my report.

This Time is Different

One of the arguments I make in Globaloney 2.0 is that financial investors and speculators convinced themselves that their risky, highly leveraged holdings were really “safe as houses” (irony intended).  Although they saw the bubble building and realized that bubbles often burst, they convinced themselves that “this time is different.” (They always do this, as a new book by Carmen Reinhart and Ken Rogoff makes clear.) It’s what I call Financial Globaloney.

Their false assessment of risk (which created  moral hazard, which encouraged even riskier behavior) combined with leverage and liquidity to produce the boom and bust we are living through just now. Booms and busts are a persistent feature of financial markets and we shouldn’t be surprised when they come ’round again. This time is not necessarily different. Is the same true for wine?

The Twenty Year Wine Boom

Everyone knows about Australia’s recent wine boom and its imminent bust, but it is important to put these events into a broader context, to understand that the present crisis is nothing new. University of Adelaide Professor Kym Anderson’s 2004 book World Wine Markets: Globalization at Work tells the story.

The current Aussie wine boom began in the mid 1980s. Wine production had closely tracked slowly growing domestic demand for the forty years after World War II (Australia was a net importer during this period), but began to rise dramatically after 1987.

Changes in retail sales laws in the UK transformed the wine market there (I wrote about this in an earlier post). Supermarket chains became mass market wine sellers that searched the world for good value product to fill their shelves and own-brand bottles. Australia stood ready to answer this call. Wine was identified as a key potential export industry. Private and public resources were organized to support and expand it. Vineyards and cellars started to grow to meet rising export demand.

A number of factors contributed to the boom, including liberal trade laws, increased international investment flows and of course the French Paradox findings that made red wine popular for reasons of health. Here in the US the partnership between the Casella family of Australian winemakers and the Deutsch marketing/distribution family firm produced the Yellow Tail phenomenon, which helped create what we now call Brand Australia. The high ratings that Robert Parker and others gave to Australian fine wine didn’t hurt demand, either.

Vineyard area doubled then doubled again over the 20 boom years (see brief data appendix below). Since domestic demand did not increase nearly this fast exports had to rise, and they did. It must have seemed that the global markets could and would absorb any amount of wine, an attitude that encouraged further investment. This belief in infinite world wine markets gave investors confidence to make what might otherwise (or with hindsight) be seen as quite risky investments. Thus a classic bubble was born. Parallels between the wine bubble and the mortgage credit bubble are easy to see here.

The level of output was unsustainably high given modest Australian consumption, rising production costs, realistic limits to global market growth and increasing international competition. Recent problems such as drought and recession-induced collapse in demand for high priced wine may have triggered current crisis talk, Australian wine was already at the tipping point,

Not So Different: Australia’s Wine Bubble History

This is not the first time that Australia has experienced wine boom and bust. In fact, according to Professor Anderson, this is the fifth time Australian wine has experienced a wine boom.

The first boom (1854-1871) was driven increased domestic demand and ended when over-production caused prices to collapse. A gold rush brought lots of thirsty prospectors and business people to Australia (as happened in California a few years before), inflating a wine bubble. Protectionism abroad and high shipping costs limited export potential so when domestic demand stopped growing the over-sold market tumbled.

The second boom (1881-1896) like the current one was more export driven. Wine exports increased by 23 percent per year due to a combination of factors including liberal trade regimes abroad and preferential access to the key British market.

The third boom (1915-1925) was, like the first, internally driven but with an emphasis on supply over demand. Government policies and incentives combined with irrigation-generated high yields contributed to over supply. Wine production rose 12.7 percent year year during this decade — hard to support that kind of compound growth.

The fourth boom (1968-75) was mild by comparison and followed 20 years of much slower postwar growth. A number of factors contributed to the rising market including income growth, changing consumer preferences and improved wine marketing programs. As in all the other cases, the market soared until the momentum ran out and then slumped as prices fall back to earth.

So wine booms are nothing new for the Australian wine industry. Each boom was different in the details, of course — so “this time is different” is not entirely a lie –  but similar in the overall pattern and final result. No wonder, writing in 2004, Professor Anderson asked “… the obvious question of whether Australia’s current wine boom is to be followed by yet another crash. at least in wine grape prices if not in wine production and export volumes.”

Past as Prologue

Re-reading Kym Anderson’s essay today, five years after its publication, I am impressed by his foresight.  Anderson found several hopeful factors in the current boom — reasons why this time might be different — but everything about the essay is really a warning not to ignore the lessons of history.

Anderson’s concludes with a rather serious analysis what Australia needed to do to make its growth sustainable. The analysis was wise in 2004 and still looks very much on the mark today, although the problem is obviously deeper now. It is recommended reading for wine people in Australia and everywhere else, I think.

Wine and finance are very different economic sectors, but there are some parallels — cycles of boom and bust, for example, and a tendency to assume “this time is different.” I hope both industries take advantage of the opportunity the current crises present to rethink, relearn and restructure. If they don’t — if they simply reload –  then I think the next crisis won’t be far away.

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Here’s a bit of data to flesh out the story, taken from The Global Wine Statistical Compendium 1969-2005. Data are for Australia in 1995 and 2005.

  • Total vineyard area increased from 73,000 hectares to 153,000 hectares. Vineyard area roughly doubled between 1985 and 1995 as well.
  • Grape yield rose from 10.5 tonnes per hectare to 13.2 t/h.
  • Wine grape production rose from 577,000 tonnes to 1.8 million tonnes due to the combination of greater vineyard area and higher yields.
  • Per capita production rose from 27 liters per capita to 71 l/c.
  • Per capita consumption rose from 18 liters per capita to 22.5 l/c. That leaves nearly 50 l/c for export markets.
  • Total value of exports increased from USD 301 million to USD 2.129 billion. All that increased production had to go somewhere.
  • Average unit value of bottled wine exports rose from USD 3.04 per liter to USD 3.65.  New Zealand was getting more than USD 6.50, however.
  • Average unit value of bulk wine exports fell from USD 1.12 per liter to USD 1.04.
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