Disintermediation: How Many People Did It Take to Make Your Wine?

How many people does it take to produce a case of wine?  Well, it depends on how you look at it — and the number may surprise you.

When you think about all of the steps in the process from vineyard to cellar to bottling line and so forth, it seems like a lot of different people must be involved although the degree of labor-intensity necessarily depends on many factors. Where wages are high as in Europe and the United States, more of the steps are likely to be mechanized compared with Chile or South Africa, for example.

And there are economies of scale at certain production levels. But it still seems like lots of hands are needed to produce a bottle of wine.

(In The Wine Economist’s very first post, I counted about  twelve workers needed to simply bottle a vintage of Fielding Hills wine.)

So how man of these  people will a winery end up employing? All of them, you  might think, if you have that romantic image of an estate winery stuck in your head, where all of the production from vines to wines to finished product takes place on the same property.

Specialization and the Division of Labor

But this picture ignores the fact of disintermediation, which I wrote about a few weeks ago. Disintermediation is basically Adam Smith’s theory of specialization of labor applied to the entire product chain. Instead of specialization within a business (specialized vineyard labor and cellar crews, for example) you have different businesses specializing in each function within the process. That traditional estate winery is deconstructed into perhaps a dozen different specialized business units.

Thus, for example, many wineries rely upon outside contract labor firms to maintain the vineyards and harvest the grapes and thus do not have such workers listed directly on their payrolls. Many also contract with mobile bottling lines to handle that important function. And of course buying grapes is a way to disintermediate compared to growing them yourself and buying wine from others takes desconstruction one additional step.

With product chain disintermediation, the number of people actually employed by a winery can be surprisingly small with that tiny workforce specializing  in coordinating the various firms and contractors that make up the links in the chain.

Small is Beautiful?

How small can the  winery staff be (which is another way of asking how far can you push disintermediation)? Well, the data provided in Wine Business Monthly’s annual  “Review of the Industry” issue (February 2014) gives us a glimpse at how disintermediation is working in the American wine industry. Here are WBM’s data for the 30 largest wine companies in the United States.

Rank

Wine Company

U.S. Production

Number of Employees

1

E&J Gallo Winery

80 million cases (US, estimate)

85 million (global, estimate)

4000

2

The Wine Group

57.5 million

1000

3

Constellation Brands

50 million (US)

64 million (global)

6000 (global)

4

Bronco Wine Company

20 million

n/a

5

Trinchero Family Estates

18.5 million

1000

6

Treasury Wine Estates

15.4 million (US)

32.1 million (global)

1140 (US)

3600 (global)

7

Ste Michelle Wine Estates

7.5 million

800

8

DFV Wines

7 million

600

9

Jackson Family Estates

5.5 million

1000

10

Diageo Chateau & Estates

3.8 million

2700 (US & Canada)

11

Viña Concha Y Toro (Fetzer)

2.7 million (US)

30 million (global)

308 (US)

12

Korbel Wine Estates

2.3 million

450

13

Bogle Vineyards

1.7 million

95

14

CK Mondavi Family Vineyards

1.6 million

120

15

J. Lohr Vineyards & Wines

1.55 million

250

16

Don Sebastiani & Sons

1.5 million

90

17

Francis Ford Coppola Winery

1.25 million (est)

n/a

18

Precept Wine

1.1 million

350

19

Foley Family Wines

950,000 cases (US)

1.45 million (global)

400

20

Rodney Strong Vineyards

820,000

164

21

Caymus Vineyards

800,000 (est)

n/a

22

Vintage Wine Estates

800,000

280

23

Boisset Family Estates

750,000 (US)

6.5 million (global)

n/a

24

Wente Vineyards

750,000

550

25

The Hess Collection

700,000

140

26

Mesa Vineyards

650,000

n/a

27

Domaine Chandon

625,000

217

28

Castle Rock Winery

550,000

9

29

Michael David Winery

420,000

150

30

Purple Wine Company

400,000

60

You can see that the degree of disintermediation varies quite a bit within the US wine industry with wineries of similar production size often directly employing very different numbers of workers (see Don Sebastiani & Sons versus J. Lohr)  and wineries with about the same direct payrolls pumping out vastly different amounts of wine (compare The Wine Group, Trinchero, and Jackson Family Estates).

Modesto’s Tight Ship

The most interesting winery from this standpoint is obviously Castle Rock, which sells more than a half million cases of wine but directly employs just nine people! Wow, that’s just amazing — about 61,000 cases of wine for each person on the payroll. Of course it takes many more people working for contractors and so forth to actually get the job done. Castle Rock is a disintermediation machine!

As the Wine Business Monthly profile of Castle Rock notes, the company does not own any wineries or vineyards. The original business model was based upon opportunistic bulk wine purchases that were then bottled by others and brought to market. Now the business is built around long-term contracts with vineyards and production wineries that also grow grapes and make wine for others. WBM reports that the portfolio includes about 20 different wines at any time, many of them relatively site-specific offerings.

What if giant Gallo embraced disintermediation to the same degree as Castle Rock? Well, the math is easy to do. Gallo makes about 150 times the amount of wine, so it might in theory be able to reduce its direct employment from 4000 workers to 9 x 150 = 1350 people on staff. I suppose that you could look at that number and conclude that Gallo is way over-staffed at the moment.

But I see it the other way. Given that Gallo does own wineries and other production functions that Castle Rock eschews, I’d say that folks in Modesto run a very tight ship!

American Wine Economists to Meet in Walla Walla — June 2014

The American Association of Wine Economists have announced a Call for Papers to be presented at their annual meeting, which will be held in Walla Walla, Washington this year.  Click on the links below for more details. Hope to see you in Walla Walla. Hope you enjoy this video, which is a good introduction to the Walla Walla wine story. Enjoy!
>>><<<
The 8th Annual Conference of the  American Association of Wine Economists AAWE  will be held from
 
          June 22-25, 2014 
   in Walla Walla, Washington.
Check the website for more information.
Please send a 500-word abstract to   aawe@wine-economics.org.
The submission deadline is March 1, 2014.

Economist Report: Bacchus to the Future?

Wine Economist readers might want to check out the current (November 30, 2013) issue of the Economist newspaper to see what they have to say about the changing (and  not so changing) world of wine. I’m talking about an article called “Bacchus to the Future” that is featured in the Technology Quarterly section of the newspaper.

The story is about technological advances in what outsiders might consider a very traditional business. Please follow the link to read the entire article. I will insert a few quotes just to tease you a bit.

Few industries are more suspicious of change than winemaking.

True, but not universally true.  My reading of wine history shows that sometimes technology is  embraced (the Gallos and Robert Mondavi are on my list of noteworthy innovators) and sometimes stubbornly resisted. Europeans were in denial for decades after phylloxera hit them. How long did they resist grafting their vines onto American rootstocks?

“Technology has vastly improved the low end,” says Tim Keller, a former winemaker at Steltzner Vineyards in Napa. “There’s no longer an excuse for making a defective wine.”

So true. I discuss  this in the chapter of Extreme Wine about the best and worst wines. Inexpensive wines might not be to your taste, but they consistently achieve a commercial standard and are unlikely to be the worst wines you will ever taste. A warm embrace of technology is part of the explanation.

Because consumers remain seduced by the notion that wine should be made by humble farmers with as little intervention as possible, fine-wine labels still try to keep their experiments under wraps. But they are quietly deploying technology in a new way: not just to make bad wine decent, or to make good wine more cheaply, but to make already-great wines greater still.

The article talks about de-alcoholization as one of the hidden technological innovations and I think most of us agree that this useful (and sometimes necessary) tool is generally kept out of sight. Other examples of widely used but invisible wine technology?  Two words: Mega Purple!

France is the undisputed global leader in wine technology. As Mr Merritt notes, the country has a greater demand for mechanisation than America because its agricultural wages are higher. And France’s reputation means that its elite winemakers, unlike those in other countries, do not have to worry about criticism from elite French winemakers.

This is a point that I haven’t considered before. Sorta makes you think, doesn’t it. And I guess that’s the point. Check out the article to see what else it has to say.

>>><<<

While you are thinking, you might give some thought to holiday gifts for your wine-loving friends. You can’t go wrong with my books, Wine Wars and Extreme Wine. Just a suggestion!

European Wine Economists to Meet in Lyons — June 2014

Update 17 December 2014. The date of this conference has changed — now scheduled for June 4-7, 2014.

Our friends at the European Association of Wine Economists have asked us to announce the “Call for Papers” for their upcoming annual conference. As you can see below, they are interested in broadening the academic discussion of wine economics to include scholars from other fields — a great idea! And Lyons is great location for wine and food. Interested? See details below.

call_1_EuAWE

  For more information please click through to these websites:

Vineyard Data Quantification Society – VDQS http:// www.vdqs.net

European Association of Wine Economists – EuAWE http://www.EuAWE.org

Society for Quantification in Gastronomy – SQG http://www.gastronometrica.org.

The Economic Origins of the Kosher Wine Conundrum

Wine Economist reader Rob Meltzer has been searching for drinkable kosher wines (and trying to understand why he wasn’t finding them)  and he has been kind enough to share his observations with me along the way. I found his methods rigorous and his analysis fascinating, so I asked him to summarize his research for publication here. Thanks to Rob for sharing his results with other Wine Economist readers!

>>><<<

During the past year or so, I’ve tasted nearly 90 kosher wines priced between $20-$120 from the United States, Italy, Spain, Chile and Israel. My goal has not been to find the best kosher wines, but rather to determine whether kosher wines exist which could replace non-kosher fine wines in my cellar. From my days living in Northern California, I retain my passion for California reds, but I would prefer to keep exclusively kosher wines. Equally, I wanted to determine which kosher wines I could, with clear conscience, serve to guests in my home.

There are two primary determinants of kosher wines. First, the winemaker must be Jewish. Second, all kosher wines that are served in restaurants and catered events must be “mevushal,” which means that the wine has been boiled before being bottled. If you look at a bottle of kosher wine, you will see “mevushal” specifically referenced. Fine kosher wines exclusive for home consumption can be “non-mevushal.” The “P” next to the kosher symbol denotes that the wine may also be consumed during Passover.

The Search

The methodology of comparison was this: first, my friends and I tasted kosher wines within specific grape types to find the best within each category of grape for red and white. Most of the tastings were “blind.” Food pairings were always the same and the food was always kosher. The “best” kosher wine in each category was then compared to a non-kosher wine in the same category. By way of example, we tasted about ten kosher sauvignon blanc wines from various countries and in various price levels, and determined that Covenant’s 2012 Red C was really most drinkable.  Curiously, both the Red C and the runner-up were non-mevushal. (Red C seems to be going for a “hip” level of quasi-kosher; the label read “non-mev” instead of the usual “non-mevushal” statement.)

Red C was then compared to Honig’s Napa Valley 2012 Sauvignon Blanc. However, as drinkable as Red C was, it also did not compare well with the Honig, or other sauvignon blancs we tasted that day. (The tasting also included Domaine Serge Laloue Sancerre (France), Cloudy Bay (New Zealand) and Buitenverwachting (South Africa). The Chilean sauvignon blanc we tasted was so unremarkable it didn’t even make it to the tasting notes.

I also went to a number of public wine tastings of kosher wines. I quickly grew tired of having sub-standard product shoved at me, while the philanthropic donors who sponsored most of these events for charity rolled their eyes in ecstasy over glasses of brownish sludgy merlot at $120/bottle that would never be confused with a 2007 Duckhorn.

Failure and Success

I never did find a kosher red wine that seemed satisfactory in terms of both quality and price for the quality received. We had particularly poor luck with Israeli maker Barkan. Its Cabernet Sauvignon was an entirely undrinkable product. We tried everything from allowing it to breathe uncorked, to decanting, to the magical blender-aeration method, without any success. In fact, several of my tasters told me that Barkan normally tastes like that, and they couldn’t understand my complaint. If they are to be believed, they were regularly drinking something without complaint that tasted like vinegar. Poor quality vinegar, at that.

The best whites were non-mevushal. For what it’s worth, if I were interested in stocking only kosher wines, I wouldn’t buy non-mevushal wines, leading some to question the inclusion of non-mevushal wines in this survey. Surprisingly, the mevushal white table wines which scored consistently high in terms of quality and price-appropriateness came from Italian wine maker Bartenura.  Bartenura wines aren’t great, and they won’t be replacing my Napa and Sonoma bottles any time soon. Nonetheless, since they aren’t expensive, they could easily fill out the low end of the cellar quite nicely as a sort of kosher two-buck Chuck. Several of the Spanish cavas were equally good (try En Fuego, as an example of a drinkable Spanish Cava).

An Economic Vicious Cycle

I have several observations from all this. First, boiling wine is never going to be good for the product. Red wines seem particularly vulnerable to damage. The best reds and the best whites were not boiled. Second, the hindrance to a good kosher wine industry seems to be a marketing and economics problem; the percentage of people who drink kosher wines exclusively is very, very small. If you don’t or haven’t compared kosher wines to non-kosher fine wines, you probably don’t know what you are missing and you are unlikely to demand better product. Third, since the available offerings are small, people who really want kosher wine will buy and drink what is offered. Many times, the pricier red wines were found improperly racked at wine stores, and covered with dust. I suspect that the combination of wine-making methods and poor or improper storage explains the poor table experience. I’m also assuming that the boiling precludes proper aging after bottling.

One of the challenges being confronted by kosher wine makers is to find a way to make kosher wines mevushal by some other acceptable heating method that does not damage the wine. While I think this will ultimately solve the problem, the real issue is one of economics. Rather than make a wine that will satisfy the very small market of kosher wine drinkers, the wineries should focus on making fine wines for the broader market, while incidentally achieving the kosher designation. Just as kosher food products are mixed in to the non-kosher product at supermarkets, the day needs to come when Red C is found in the California whites section, not a kosher section. If you don’t keep kosher, you don’t go to that aisle and you would never see or try the product. I have yet to meet anyone who doesn’t keep kosher who heads to the kosher wine section first. Enlarging the market should naturally create the capital necessary for experimentation of new methods. There is no reason why a kosher wine should not be outstanding. While the industry is moving toward that grail, it’s not there yet.

Fly-over Vineyards: How Climate Change Redraws the Global Wine Map


There has been a lot of buzz about climate change and the future of wine recently, starting with a New York Times article on Sunday and spreading all around the web. Now there is a video to help us envision the research.

They say that a picture is worth a thousand words, so a cool “fly-over” animation like the one at the top of this post must speak volumes (see this article about the video and the research behind it). As you circle the globe in the video, keep these color codes in mind so that you can interpret the images.

climate3

Bear in mind that forecasting is difficult, especially about the future, so projections shouldn’t be confused with fact. But quality wine grapes are sensitive to climate change as this chart from Bemjamin Lewin’s Wine Myths and Realities (see p. 79)  makes clear. Relatively small changes in average temperature can have significant impacts on vineyard patterns and, as the video suggests, the impact varies in different regions.

climate2

While the dramatic changes you see in the video may not happen, they certain could. And some of the possible climate effects go beyond the sort of changes that might be mitigated by adaptations and innovations in viticultural practices.

Food for thought.

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

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

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

The Terroir Two-Step

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

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

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

Taste the Terroir?

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

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

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

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

The Mythbuster Test

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

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

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

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

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

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

>>><<<

Vina Casablanca Nimbus Single Vineyard Sauvignon Blanc 2012 Casablanca Valley

100% Sauvignon Blanc / SRP: $12.99

 San Pedro 1865 Single Vineyard Sauvignon Blanc 2011 Leyda Valley

100% Sauvignon Blanc / SRP: $19.00

 Casa Silva Cool Coast Sauvignon Blanc 2011 Colchagua Valley

100% Sauvignon Blanc / SRP: $25.00

 Emiliana Novas Pinot Noir 2010 Casablanca Valley

100% Pinot Noir / SRP: $19.00

 Cono Sur 20 Barrels Pinot Noir 2009 Casablanca Valley

100% Pinot Noir / SRP: $32.00

 Morandé Gran Reserva Pinot Noir 2009 Casablanca Valley

100% Pinot Noir / SRP: $17.99

 Concha y Toro Marques de Casa Concha Carmenere 2010 Cachapoal Valley

100% Carmenere / SRP: $22

 Carmen Gran Reserva Carmenere 2010 Apalta- Colchagua Valley

95% Carmenere 5% Carignan / SRP: $14.99

 Koyle Royale Carmenere 2009 Colchagua Valley

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

 Ventisquero Grey Cabernet Sauvignon 2009 Maipo Valley

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

 Maquis Cabernet Sauvignon 2010 Colchagua Valley

100% Cabernet Sauvignon / SRP: $19.00

Los Vascos Le Dix Cabernet Sauvignon 2009 Colchagua Valley

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

>>><<<

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

Follow

Get every new post delivered to your Inbox.

Join 2,150 other followers