Stags Leap Through the Looking Glass

May 3, 2010 By Mike Veseth in Economic impact, globalization, wine markets, wine research, wine tourism Leave a comment

This week I’m reporting on my research expedition to Napa Valley, where I attended the Stags Leap District Winegrowers Association Vineyard to Vintner’s (V2V) event and ventured “through the looking glass” to consider the past, present and future of wine.

My last post ended with a question: Stags Leap was still an emerging region when I visited in 1980, but it was already attracting a great deal of attention and international investment. Would the influx of big money into the Stags Leap District destroy its great wines or would the terroirists managed to save them? Here’s what I found out.

Follow the Money

The big money certainly arrived and you can see it today in the wonderful facilities that the wineries have created.

Stag’s Leap Wine Cellars was a tiny one-building operation when I visited there 30 years ago. Now that original structure with its oak doors is Building 1 on an expanded campus of facilities that includes a vast arched barrel room and a network of tunnels for barrel storage (I’ve heard these called wunnels — wine tunnels). Everything is sleek and custom made for entertaining clients and visitors as well as making wine.

The barrel room at Stag's Leap Wine Cellars is gently curved like a barrel stave. The barrels are stacked five deep.

Warren Winiarski is responsible for these changes, but he doesn’t own Stag’s Leap any more. He sold out in 2007 to Italy’s Antinori family. I’ve read that he figured he could trust the Antinori to uphold his vision of wine.

The Antinori partnered with Ste Michelle Wine Estates (SMWE) of Washington State, who they trusted because of their successful joint venture on Red Mountain, Col Solare. (SMWE is owned by Altria, a corporation that also owns Phillip Morris and U.S. Smokeless Tobacco.)

Changing Hands

Stag’s Leap is not the only winery in the district to be acquired big business. Chimney Rock is now owned by The Terlato Wine Group, a company that owns several notable U.S. wineries and is a major force in wine distribution (they represent Gaja and Santa Margherita wines from Italy, for example).

Pine Ridge Winery, which produced its first vintage in 1978, was acquired by the Leucadia National Corporation in 1991, which also owns Archery Summit in Oregon but is is best understood as a diversified holding company investing in manufacturing, telecommunications, oil and gas drilling gaming, entertainment and real estate activities.

So the big money did in fact come to Stags Leap and the many of the wineries they created are rather grand – as far from the simple cellar that I visited 30 years ago as can be imagined.

The Economic Factor

Dinner at Stag's Leap Wine Cellars

Economics dictated the large scale and luxurious feel of many of today’s Stags Leap District wineries. Winemaking is capital intensive, so it is important to produce in volume. Stags Leap AVA Cabernet Sauvignon (necessarily limited in supply by the AVA’s tiny size) is often therefore produced alongside higher volume “Napa Valley” wines, for example, and Chardonnays from Carneros grapes in order to get volumes up to an economic level. Nothing wrong with that.

The plush feel of the wineries themselves, with plenty of space for entertaining, events and on-site culinary staff, is a product of the practicalities of distribution. Direct sales – to cellar visitors and wine club members – yield more revenue than restaurant and retail sales that must make their way through the tortuous and costly three-tier distribution system. So it is important to build and establish direct-sale personal relationships and to provide appropriate winery facilities.

One winery’s wine club manager told me that nearly 70% of sales came through this direct channel. Wow! That’s a lot of revenue and worth a substantial investment. So it is important to both make good wine and to create a memorable winery experience. Understandable.

But what happens to the wine in the process? Is there so much focus on image and marketing that the wines themselves are an afterthought?

The Mondovino hypothesis

My answer, based on an intense weekend in Stags Leap, is that it ain’t necessarily so. Sure, we tasted a couple of wines (I won’t name the makers) that seemed like they were made to catch the attention of critics more than to capture a sense of place, but for the most part the wines we sampled seemed to be authentic variations on a Stags Leap theme. And the winemakers we talked to spoke with conviction of wine made in the vineyard, not the advertising agency.

Can big multinational money coexist with an authentic idea of wine? Yes, at least in Stags Leap. (Robert Parker goes further — he seems to think that the Antinori/Ste Michelle money and technical attention might actually restore the faded — according to him — glory of Stag’s Leap Wine Cellars.)

So the way I framed my question — money, business and globalization versus terroir — was plain wrong. Money, marketing and multinationals doesn’t guarantee great wine, but it doesn’t make it impossible, either. Wine is too complicated for that.

The pessimistic Mondovino hypothesis that the wine business inevitably destroys wine itself doesn’t always hold. I’m not saying this is true everywhere, but I am quite sure that the somewhereness of Stags Leap has survived these 30 years.

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Thanks to the Stags Leap District Growers Association for inviting us to attend the Vineyard to Vintner program. Thanks as well to Russell Weiss (Silverado), Mark Smith and Jim Duane (Stag’s Leap Wine Cellars), Elizabeth Vianna (Chimney Rock), Tim Dolven (Steltzner), Jeff Virnig (Robert Sinskey) and Michael Beaulac (Pine Ridge) conversations and help in various ways.

Wine Economist in Wonderland

April 27, 2010 By Mike Veseth in globalization, wine brands, wine history, wine markets, wine tourism Leave a comment

Alice entered Wonderland by jumping down a rabbit hole. I got there by walking through this doorway.

It happened 30 years ago and inside the door I met a famous winemaker who was as interested in economics was I was in wine. The result of our chance conversation was my fascination with wine economics and, ultimately, this blog.

Through the Oak Door

This is not an ordinary door. It is made from the planks of a huge oak cask. I rediscovered it a few days ago when I visited Napa Valley to attend the annual Stags Leap District Winegrowers Vineyard to Vintner (V2V) seminar, tasting and celebration.

The Stags Leap AVA can understandably be viewed as Wonderland by wine lovers. It is famous for its distinctive Cabernet Sauvignon wines, including some of the ones that did so well in the famous 1976 Judgment of Paris commemorated in George Taber’s excellent book of that name and the more recent somewhat dubious but nearly always entertaining film, Bottle Shock.

I was in Stags Leap at the invitation of the growers association to attend the events and to consider how wine has changed in 30 years, using the terroir of this region as my test bed.

One Side Makes You Grow Larger …

It was hard to know how Stags Leap and its wines would develop when I first opened the door thirty years ago. There were a lot of indications that the area might turn into what some critics say the whole of Napa Valley has become — the over-commercialized Disneyland of wine.

Although it was only really “discovered” as a winegrowing area in the early 1970s, a lot of money was already focused on Stags Leap when I made my first visit. Clos du Val (first vintage in 1972) was the result of a collaboration between American businessman and wine industry investor John Goelet and Bordeaux winemaker Bernard Porter. It was just the sort of thing that gives Mondovino fans screaming nightmares.

Chimney Rock Winery (1980) looks like a South African Cape Dutch estate because its founder Sheldon “Hack” Wilson made his money selling Pepsi Cola in South Africa. He was the largest volume Pepsi bottler in the world at one point, according to my copy of James Halliday’s Wine Atlas of California.

Silverado Vineyards (1981) — a beautiful winery with a beautiful view — unintentionally reinforces the Disneyland theme because the family of Walt Disney built it, starting with a vineyard purchase in 1976 and continuing today.

It was easy to imagine in 1980 that this trend would continue — and the wines would suffer — as more money flooded into the tiny Stags Leap area.

… And the Other Makes You Grow Smaller

But capital is not always blind (to paraphrase Walter Bagehot). Some of the early Stags Leap investors were the sort of people I have labeled terroirists who value wine for its somewhereness.

I suppose that Dick Steltzner would fit into this group. An experienced viticulturalist, he planted what might have been the first vineyard at the base of the Stags Leap palisade in 1965, finally making his own wine at Steltzner Vineyards in 1977.

Warren Winiarski, the guy who won the red wine competition in the 1976 Paris tasting with his Stag’s Leap Wine Cellars Cabernet Sauvignon, strikes me as a terroirist, too, although perhaps he was just a stubborn, philosophical wine perfectionist. So all the pieces were in place for a battle for the soul of Stags Leap wine.

And Now Which is Which?

Looking back to 1980, it seems like it could have gone either way. Globalization money and media creating Coca Cola wine … or the revenge of the terroirists, preserving the distinctive quality of Stags Leap.

How did the story turn out? Check back in a few days to find out what I think I learned from my fieldwork.

Stag’s {Stags’} (Stags) Leap

April 4, 2010 By Mike Veseth in Wine Competitions, wine festivals, wine history, wine law, wine research, wine tourism Leave a comment

The Stags Leap District Winegrowers Association has invited us to their V2V (Vineyard to Vintner) program later this month and we are looking forward to the event.

I have a particular interest in the Stags Leap District. My study of wine economics can be directly traced to a conversation with one of this area’s leading winemakers in his cellar many years ago. I’m looking forward to this focused opportunity to learn more about the Stags Leap District today and see what has changed since my last visit.

Money, Wine and Lawyers

The first stage of my research to prepare for the Stags Leap trip took an unexpected turn that reminded me of Warren Zevon’s song “Lawyers, Guns and Money.” Most stories of famous wine regions are about places, faces and wine. They start with places (the terroir), then move to faces (of the famous winemakers who helped establish the region’s reputation) and end with the wines themselves.

Stags Leap AVA certainly has the terroir. The district, about six miles north of Napa on the Silverado Road, is marked by a 1200 foot vertical basalt palisade that is both landmark and a source of the particular soil and microclimate that helps define the district. The growing season is longer in Stags Leap than in other parts of Napa Valley, with bud break coming two weeks earlier. The grapes ripen more slowly during their longer time on the vine, which seems to have a positive effect.

Stags Leap has it famous wine faces, too. The most notable is Warren Winiasrski of Stag’s Leap Wine Cellars. A former lecturer in Greek at the University of Chicago School of Social Thought, he was one of the early movers in Stags Leap. His second vintage, a 1973 Cabernet Sauvignon, was declared the red wine winner at the famous 1976 “Judgment of Paris” wine tasting that Steven Spurrier organized to test California wines against the French originals. (You know about this event if you’ve read George B. Taber’s excellent book on the subject or seen the fictionalized film version, Bottle Shock.)

(Incredibly, the winning wine was made with grapes from three year old vines — infants! Unfortunately, according to my sources here, the vineyard was not in the Stags Leap District but rather farther north in Napa Valley. It established the winery’s and the region’s reputations at once.)

There is even a hallmark Stags Leap style — “perfumey fruit” according to Bruce Cass, although not every wine is made in a way that highlights this.

Lawyers, Wine and Grammar

So where do the lawyers come in? Well, the first thing I did when I started this project was to grab my copy of James Halliday’s classic Wine Atlas of California. Halliday devotes seven pages to Stags Leap places and faces and its distinctive Cabernet Sauvignon wines. But he begins his report with the most controversial part of the AVA’s history: its name and the legal battle over the the valuable intellectual property rights (IPRs) associated with it.

The area takes its name from the legend of a prodigious jump that a stag (or maybe several stags) took on the palisade while fleeing hunters. Warren Winiarski naturally included this colorful reference in the name of his winery, Stag’s Leap Wine Cellars, when he founded the operation in 1972.

But so did Carl Dounami, who started founded Stags’ Leap Winery just up the road, also in 1972. Two wineries, two strong personalities — they battled for years over the right to the Stag’s / Stags’ Leap name. More than an apostrophe separated them, of course, although any grammarian can tell you that where the apostrophe is placed makes all the difference.

The right to label your wine with some variation of Stag’s/Stags’ Leap had obvious economic advantages and both winemakers wanted clear title to the designation. The IPR battle reemerged and intensified when the AVA was formed and its geographic lines drawn.

Clashing economic interests made the process of choosing a name and drawing AVA lines particularly contentious, according to Halliday. The compromise name — Stags Leap (no apostrophe anywhere, purely plural, nowhere possessive) settled the legal squabble, leaving the real task clear: making great wine.

Challenges Old & New

The old wine economics story of Stags Leap was about intellectual property. The new one — the one I want to explore when I visit later this month — is how the winegrowers are dealing with the current economic challenge and will respond to the future ones.

The current challenge, of course, is the continuing economic crisis, which has hit some upscale producers especially hard.

The future challenges? The future is hard to predict, but I’d suggest globalization (with its many threats and opportunities) and climate change, which would seem to be an especially scary prospect for a micro-region like Stags Leap. But maybe I’m missing an even bigger story? I guess I’ll have to go there and find out!

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Here’s Warren Zevon performing “Lawyers, Guns and Money.” Feel free to sing along, adding wine and grammar references as necessary. Enjoy!

Book Review: In Search of Bacchus

January 22, 2010 By Mike Veseth in book reviews, wine tourism 1 Comment

George M. Taber, In Search of Bacchus: Wanderings in the Wonderful World of Wine Tourism. Scribner, 2009.

While the Japanese are trying to wake up Bacchus through the Kami No Shizuku phenomenon I wrote about last week George M. Taber has been circling the globe tracking down the Roman god of wine. He reports on his adventures in this interesting new book, the third in a series that includes The Judgement of Paris (2005)and To Cork or Not to Cork? (2007).

Taber appears to be one of the luckiest wine enthusiasts on earth. He travels the world tasting wines, visiting wineries and then tells us all about it. It is understandable if we are a bit jealous and this book only makes matters worse.

The subtitle says that this is a book about wine tourism and I suppose it is. But sending a journalist like George Taber to study wine tourism is a bit like sending Alexis de Toqueville to study American prisons. You end up with a lot more than you expected (in de Toqueville’s case, of course, if was Democracy in America).

Taber spent the better half of a year traveling the world, visiting the most important wine-producing countries, talking with wine makers and doing some of the things that wine tourists do. He had to be selective in writing about his experiences, so he picked just one wine region in each country.

Chapters are devoted to Napa (but not Sonoma) Valley, California; Stellenbosch, South Africa; Mendoza, Argentina; Margaret River (but not Barossa), Australia; Central Otago (not Hawkes Bay or Marlborough), New Zealand; Rioja, Spain; Douro Valley, Portugal; Tuscany, Italy; Bordeaux (not Burgundy), France; Rheingau and Middle Mosel, Germany and Kakheti, Georgia.

Tourism is hard work, of course, and research is even harder, but Taber seems to have found ways to relax by reporting on typical wine tourist adventures in each spot. Thus he takes a cooking class in Tuscany, bikes along the Mosel, walks through Burgundy, goes wild game watching in South Africa, bungee jumping in New Zealand and so on.

Getting jealous? Yes, so am I. It seems like George Taber has stumbled upon the ultimate wine lover boondoggle. He goes to great places, drinks good wine, does fun things –and we pay him to write about them!

But there’s more to this book than George Taber’s vacation slides, which is why I can recommend it enthusiastically. Taber the hedonistic vacationer cannot shake off Taber the inquisitive journalist. Each chapter reveals some interesting and unexpected aspect of the wine, wine business or wine history of each region. The payoff goes much beyond wine tourism. Indeed, I think for me the wine tourism element is quite secondary.

I found the chapters on Georgia and Central Otago the most interesting. I know relatively little about Georgia’s wine industry and so every well-described detail about their practices is appreciated, especially since the traditional methods still in use are so completely different from anything I have encountered before. I know quite a bit about New Zealand wine, on the other hand, but I’ve never visiting Central Otago, so Taber’s history and report on the current status of the industry there usefully connected a lot of dots for me and in a very enjoyable way.

This book isn’t the last word on wine tourism and no one should view it as a textbook on wine tourism economics, but it is a very interesting examination of the wine world through a particular tourist’s sharp eyes. I’m looking forward to Taber’s next book to see where his search for Bacchus will take him next.

Wine Festivals Uncorked

August 1, 2009 By Mike Veseth in critics, Jancis Robinson, Supply and Demand, Wall Street Journal, wine critics, wine festivals, wine markets, wine tourism 1 Comment

Jancis Robinson and Wine Economist Mike Veseth at the IPNC. Wine Festivals draw celebrity wine critics, who taste, talk, sign books, pose for photos and lend credibility to the event.

Wine festivals have become big business. So big that the Wall Street Journal publishes a guide to upcoming festivals in each Friday’s edition. Click here to see their online August festival listing.There are lots of different wine events, but I’m not talking about charity wine walkabouts here, where you make a small donation, get a few drink tickets and visit tables where random bottles of donated wine are poured. The modern wine festival is a lot more focused and sophisticated and designed to engage wine enthusiasts on a different level.

International Pinot Noir Celebration

The International Pinot Noir Celebration (IPNC) in McMinnville, Oregon is a good example of the state of the art in wine festivals today. Sue and I attended the grand tasting last Sunday (a chance to sample dozens of Pinot Noir in a beautiful but hot outdoor setting), but the real deal for serious Pinot lovers is the full three day festival. For a fee of about $900 per person (not including lodging) you spend your days in tastings, seminars and vineyard tours and your nights under the stars at grand dinners.

The festival attracted winemakers from Oregon, California, Washington, Canada, France, Austria, Australia and New Zealand — quite an international lineup in a recession year.

I’m told that about 400 people attend the big festival — many of them come back year after year — and I would guess that another 300 or so came to the grand tasting on Sunday, so the festival’s total budget must approach a half-million dollars. More than enough to pay the expenses of wine critics and celebrities (like Jancis Robinson above).

What’s In It For Me?

It is interesting to consider what brings all these people together? Yes, yes, I know that it must ultimately be about buying and selling wine, but that doesn’t fully explain it. No wine typically changes hands at events like this and there are probably more cost effective ways to market wine, from the supplier standpoint, and cheaper ways for consumers to fill their glasses, too. So what’s really going on?

One reason winemakers travel so far to attend these festivals is to communicate with other producers and to taste and compare their wines. Although I still don’t fully understand it, I have observed a subtle kind of dialogue when winemakers taste together. Information about taste, technique and status are all transmitted in the glass. Professors go to conferences and communicate by reading papers. Winemakers go to festivals and taste each others’ wines. It is easy to see who has the more sensible approach to intra-industry communication.

I suspect that there was a lot of producer dialogue at the Pinot festival because the wines that we tasted did not have much in common except the genetic pedigree of the grapes used to make them. Although the world wine market is moving to a lingua franca based upon grape varietal labeling (Chardonnay not Chablis, Pinot Noir not Burgundy) it is very clear that wines made from Pinot Noir grapes can have extraordinarily different textures, flavors and aromas. depending upon who makes them, how and where.

The Old World naming system (based on place not varietal) sure has its merits in the wineglass where terroir is actually experienced — too bad it works so poorly in the cluttered supermarket aisle when wines are bought and sold.

I met more than one winemaker who told me basically that she came to Oregon to prove something — to prove that good Pinot Noir could be made in X where X = Oregon, Austria, California, Australia — fill in the place — only Burgundy has nothing to prove.

Hemispheric Exchange

A good deal of business gets done whenever producers come together, as you might expect. Partnerships, consulting services, distribution agreements and so forth are frequently arranged. The McCrone vineyard wines made by Ken Wright Cellars and Ata Rangi are a good case study of the sort of connections that probably could only happen in face-to-face meetings at a wine festival.

Don and Carole McCrone

Don McCrone is a distinguished retired politics professor turned distinguished active winegrower. His vineyard outside of Carlton, Oregon produces amazing fruit, which winemaker Ken Wright turns into a wonderful single-vineyard bottling. Don and Carole McCrone met the winemakers from New Zealand’s famous Ata Rangi winery at IPNC a few years ago and were encouraged by them (while tasting each others’ wines, no doubt) to scout out vineyard properties in Martinborough.

Now the McCrones spend half of the year in each hemisphere supplying grapes to both Ken Wright and Ata Rangi for “McCrone Vineyard” wines. Are there any other winegrowers with vineyard designated wines in both hemispheres? It is an extreme example of the sort of cross-fertilization that can happen behind the scenes at major wine festivals.

Relationships not Transactions

I think that the most important function of wine festivals is to establish and build relationships. I always say that wine is good, but wine and a story is better. Wine and a relationship (even a superficial one with the grower, the winemaker, or other wine enthusiasts) is best of all. Doug Tunnell, winemaker at Oregon’s Brick House, explained to me that he brings his wines to IPNC every year to maintain contact with the people who attend. I got the impression that it isn’t so much about selling wine as honoring relationships. I think elite makers recognize that investing in relationships with customers (and with wine critics and journalists and all the others who attend these events) pays dividends down the road. Winemaking and relationship-building both require a long-term perspective.

The fact that many people come back to IPNC year after year suggests that they value the relationships, too, both with the producers and with each other. I have written that wine always tastes best when it is shared with others who enjoy and appreciate it. This may be especially true with festivals like IPNC, which tend to attract participants who are especially focused on a particular wine or region.

What I Think I Have Learned

So here is what I think I have learned from my fieldwork at wine festivals so far, both at IPNC and elsewhere, on both sides of the table, both pouring and receiving wine.

Wine festivals aren’t really about the wine, they are about the people, the conversations and the relationships. The role of the wine is to bring the people together and to give them something to share in a way that is impossible to recreate electronically.

Wine, or really the sharing of wine, is a personal relational experience in an otherwise increasingly impersonal transactional world. That people seem to appreciate this sort of experience (and seek it out, even at high monetary cost and even in a deep recession) suggests something about its scarcity, don’t you think?

How will the Economic Crisis affect Wine?

October 4, 2008 By Mike Veseth in Economic impact, Supply and Demand, wine bargains, wine markets, wine tourism 7 Comments

Some people think that wine is recession proof. They’re wrong.

Demand and Supply

The still evolving economic crisis is already having serious impacts on the wine industry. Although some segments of the industry are gaining as a result of the collapsing credit markets and contracting real economy, there are a lot of losers, too. Herewith a brief report compiled from a variety of published and industry-insider sources.

In the short term the problem is all about falling and shifting demand. In the longer run, the supply effects of the financial crisis need to be considered.

The hospitality industry is a bellwether of the overall economy — restaurant meals and hotel stays are some of the first things to be sacrificed when people and businesses are uncertain about the future. It is no surprise, therefore, that restaurant wine sales are down, apparently a reflection both of fewer customers and smaller tabs (wine tourism is falling, too, although high gas prices are part of that story). This is already affecting both wineries who target restaurant sales and restaurants that have invested in high-margin wine programs in the last year to try to compensate for soaring food costs. The squeeze is on, as I wrote in March, and getting worse.

The evidence I’ve seen concerning supermarket and wine store sales suggests that buyers are trading down. The $10 and up market segment has been the fastest growing part of the Wine Wall in the last two years. It’s still expanding, but the pace of growth has slowed considerably and there is evidence that buyers are trading down within it. An article in today’s New York Times suggests that even very affluent buyers are being more cautious.

Low cost wines ($4 and less) are seeing a surge in sales. This has apparently created something of a crisis in Great Britain that pits the big retailers (the supermarket chains) versus the big producers (the global wine companies like Constellation Brands) in a battle for control of the Wine Wall. The producers see their long term future in upmarket wines and have worked hard to reposition themselves in at the top of the Wine Wall. They are very much committed to this strategy. The retailers, however, are focused on value wines. They see a real short term threat in discount store competitors. They need to stress value and lower price, on the Wine Wall and throughout their stores, they believe, to keep their customers from switching to Aldi-class hard discount outlets.

There is a lot of turbulence in the middle of the Wine Wall ($4-$10), which is the heart of the market in some respects. Microdata harvested from grocery store loyalty card programs suggests that buyers really are trading down from $7.99 to $5.99, for example. Since the cost of making the distributing a $5.99 wine is not $2 less than a $7.99 wine, trading down has a big effect on producer and retailer profits. Wine may be recession proof if you look only at overall volumes, which have held up pretty well for the industry as a whole, but don’t expect revenues and profits to tell the same sanguine story.

Not everyone will lose from this trend, of course, as there are many wines that are positioned to appeal to value-conscious buyers. But the upmarket strategy that so many winemakers have embraced, and which I still believe is wise for the long run, is taking a short term hit. And the effects on the wine industry may be especially large because some of the key regional wine markets are also the areas that have been most affected by the mortgage crisis and will be heavily hit by credit tightening.

Credit Crisis Effects

Most industry people I’ve talked with are focused on the short run impact of the recession on wine demand, and that makes sense. Making wine is all about long term decisions and relationships, but making a living from wine means holding onto buyers now. But I think there will be longer term supply effects that should be considered because this economic downturn isn’t just a recession, it is also a credit crisis.

Even if the Treasury rescue plan is a success, I still believe that credit will be much tighter for the next three years (some of my colleagues think it will take even longer to work though the credit cycle). This will have serious effects because so much of the real economy has become dependent upon ready credit to finance business operations and to fund customer purchases. Winegrowers are obvious potential victims of this trend. Winegrowing is a risky business with special credit needs and an overall credit freeze could have serious effects that may extend all the way from the price and availability of the grapes themselves to the value of vineyard properties. Retailers and distributors may also need to scale back their operations to match their reduced access to credit.

The big global wine companies may be affected, too. Anyone who follows the business has noticed that the big corporations are all trying to reconfigure themselves around particular market strategies. Constellation is moving upmarket and shedding downmarket wine units while others are refocusing on particular parts of the Wine Wall. A credit squeeze will both change the logic of some of these investments and make funding of sales and purchases more difficult.

Finally, the credit squeeze is affecting foreign exchange rates and this means that producers around the globe, who may or may not be affected directly by the crisis, will inevitably suffer indirect effects. The dollar has appreciated rapidly against many currencies in recent weeks (the Euro’s cost has fallen from $1.44 to $1.38 is just the last few days, for example) as international investors have sought a save haven for their capital until the international effects of the crisis become clearer. This exchange rate effect will work against those US producers who hoped to increase sales abroad and benefit European exports here.

There will be a lot of economic turbulence from shifting demand and supply before we come out of this crisis. Buckle your seat belts. We’re in for a bumpy ride.

Chateau Cash Flow

May 14, 2008 By Mike Veseth in Economic impact, Jancis Robinson, Washington wine, wine tourism Leave a comment

Everyone knows that wine is a big business in the United States, but how big is it and where does the money flow? I’ve spent the last couple of days reading studies of the economic impact of the wine industry to try to get answers to these questions. Here’s a brief summary of what I have found out (follow the links for more details).

Economic Impact Studies

Let’s start with grapes. Grapes were the sixth most valuable agricultural crop in the U.S. in 2005 (and the #1 fruit crop) worth nearly $3.5 billion, according to a 2007 economic impact study by MKF Research LLC, a leading wine economics research consultancy based in St. Helena, California. California accounted for about 6.1 million of the 6.9 million tons of total U.S. grape production in 2005 followed by Washington (415,000 tons), New York (178,000 tons) and Michigan (100,000 tons). A ton of grapes yields 50-60 cases of wine according to published sources.

Roughly half the grape crop ends up in wine. The other half becomes raisins (30%), table grapes (11%) and grape juice (9%). Raisins and table grapes come mainly from California while Washington is an important player in the juice market (juice grape production actually exceeds wine grape production in Washington!). Juice grapes, mainly native Concords, sell for about $150 per ton (Washington data). Wine grapes sell for much more depending upon varietal type, quality and provenance.

There are about 5000 bonded (commercial) wineries in the U.S., according to the study. Nearly half of these are located in California, as you would expect, with Washington (about 500 wineries), Oregon (about 300) and New York (about 250) trailing far behind.

There are bonded wineries in every state including Alaska . I visited one in Anchorage that blended local huckleberry juice with grape must from Washington State to make Alaskan wine. The study indicates that Puerto Rico’s sole commercial winery closed in 2003, suggesting that the Caribbean wine boom has peaked.

Follow the Money

One of the things I have learned in studying wine economics is that the wine business is more than wine. Wine (its production, distribution and sale) is important to the wine economy, but there are a lot of associated businesses that are sometimes as important as wine itself. I have seen some small, scenic wineries, for example, that use wine strategically to create an attractive venue for other more profitable activities, such as restaurant sales and money-earning events such as weddings and parties. Wine is important because of the opportunities it creates for other activities.

The economic impact study gives some sense of this. Winery sales totaled about $11.3 billion in 2005, for example, while wine tourism expenditures were reported at $3.5 billion (about 30% of wine sales). Other related industries include wine labs and consulting ($11 million), winery research and education ($31 million) and the value of charitable contributions (goods and services, $128 million).

The economic impact studies I studied are very complete, but they don’t provide data for some interested wine-related businesses. Wine publishing (books and magazines) is a business that is growing as more consumers seek out knowledge and advice. Wine critics may indeed be parasites, as Jancis Robinson recently asserted, but they do generate cash flow even when they add little value.

I am also interested in the growing wine lifestyle industry. Some people build satisfying lifestyles around wine and the material goods that are associated with it and I think that the total economic impact may be quite large. It starts with wine, of course, and glasses, corkscrews, and storage units of various sorts. Wine tourism (eno-tourism according to a European email correspondent) comes next, followed by wine collecting and investing, which can be expensive indeed.

Then finally there is the urge to own a winery or at least live a winegrower lifestyle. There are a number of winery properties for sale today, according to the Wine Business Monthly real estate listings. Some of these are working operations but others are tailored for lifestyle investors. Recently I have become aware of the growth of gated winery communities like this one in Mendoza, Argentina, which offer the benefits of a luxury villa in a planned and managed (but romantic) vineyard setting. I know of several vineyard estate projects like this being developed in the United States.

Wine consumption is rising in the United States, but I think the economic impact of wine is growing faster as wine tourism and lifestyle investments grow. It will be interesting to see if this trend can be sustained or if some aspects of the wine economy prove to be bubbles.

Desert (Not Dessert) Wine

March 23, 2008 By Mike Veseth in climate change, emerging wine regions, Oregon wine, sustainability, wine tourism 2 Comments

[Note: My senior Arizona correspondents m&n recently went searching for the Erath vineyards -- and they found them and Dick Erath's Arizona wine, too! Click here to read their report. Update posted 5/15/2011.]

Erath in Arizona

I spent Friday in the Arizona wine country – south-west of Tucson near Sonoita – with my “research assistants” Michael, Nancy and Sue (Michael and Nancy took these photos). I thought that I would learn something from talking with winemakers here, and I did, but it wasn’t exactly what I expected. Here is my report.

I was drawn to explore Arizona wine by the news about Dick Erath’s investment there. Erath is one of the pioneers of the Oregon wine industry; his early wines helped establish the reputation of Pinot Noir in Oregon and he has been instrumental in the growth of the industry over the years. I think you can say that he is a legend in Oregon. Like many north-westerners, Erath likes to go south – to Tucson — during the winter months and he became acquainted with the nascent wine community there in the mid-1990s. He started buying vineyard property near Wilcox east of Tucson a few years ago and has planted vines there. He recently sold his Oregon brand to Ste Michelle Wine Estates (he still owns the vineyards) and is moving forward with the Arizona project.

Erath’s presence lends credibility to the region. People like me figure that Erath wouldn’t put his name, time and money here if he didn’t believe in the potential of Arizona wine.Wines from unfamiliar places always raise questions and Arizona winemakers hope to change the questions from “Arizona? Are you kidding?” to “Is Arizona the next Napa Valley?” Establishing credibility is the critical second step for an emerging wine region (achieving quality is the first) and Erath’s investment is an enormous advantage in this regard.

A Working Hypothesis

My hypothesis going into this research was that the wines themselves would be a bit problematic, as emerging region wines often are, and that the biggest challenge would be in the vineyard not the cellar — growing wine grapes in the high desert.

Our first two winery stops quickly made me change my mind about the quality of Arizona wine. The wines atDos Cabezas WineWorks were intense and flavorful, with a spicy complexity that surprised me. I am not a wine critic, so I will not bore you with amateur tasting notes and doubtful ratings, but we were very impressed with these wines and bought some to give as gifts to Arizona friends who did not know about Arizona wine. Todd Bostock, the winemaker, really knows how to draw flavor from Arizona (and some California) grapes. Todd is working with Dick Erath in addition to his own projects and I think this collaboration bodes well for Erath’s Arizona wines, when they are ready, and for the region’s reputation.

Our second stop was C allaghan Vineyards. Kent Callaghan’s wines were strikingly good. We noted the depth and distinctive character of these wines, particularly the Tempranillo- and Petit Verdot-based blends but also a Mourverdre, Syrah and Petite Sirah blend. These wines were different from Bostock’s and gave us a hint of the potential range of Arizona wine styles. Kent let us taste some library wines and the question, can Arizona wines age well, was answered in the affirmative. We bought wine and had it shipped home, which is I suppose the highest praise a wine consumer can provide.

We visited one other winery, a new one that I won’t name, that made the sort of wines that I originally expected to find – what I would describe as immature wines showing wood in the wrong places. They served to put Bostock’s and Callaghan’s achievements in context. It is possible to make very good wine in Arizona, but it’s probably not easy.

The Globe in Your Glass

Wines have started to appear from many regions not on the list of “usual suspects:” India, Thailand, Peru and Brazil, for example. Brazilian wines actually make a cameo appearance in the film Mondovino, but not in a way that makes them seem in any way part of the classic tradition of wine.

It is possible to grow wine grapes at unexpected latitudes, but special conditions are necessary. In Arizona it is the desert at an altitude of about 4500 feet, where summertime highs are only in the 90s and the temperature at night can drop by 35 degrees. Altitude compensates for latitude. This advantageous diurnal variation along with lots of sunshine and rocky red soil are a good recipe for wine if you can add the right amount of water – not too little or too much.

Climate is not the problem I thought it would be and I think some of the wines we tasted displayed that mystical terroir that is the holy grail of wine critics. But climate change is a problem and that’s the unexpected story here. (I’ve written about climate change and wine in Chateau Al Gore.)

Kent Callaghan told me that the climate seemed to him to have changed significantly in the last 18 years. He reported recent crop yields of just a ton an acre for some varieties due to unfavorable weather. Some of the plantings of the classic varietals that showed promise earlier now seem misplaced so he has started slowly to change over to grape varieties that are able to produce consistent quality in the evolving environment.

This helps explain the use of California grapes for a few wines I tasted (to compensate for low Arizona yields) and the effective use of unexpected varietals (Tempranillo from Spain and Petit Verdot, a Bordeaux blending grape). Having learnt to make good wine in Arizona, winemakers like Callaghan have had to learn the process all over again with new varietals. In this regard I think they are perhaps ahead of the curve – winemakers all over the world will have to adjust to climate change in the decades ahead.

I understand that the Erath Arizona vineyard is being planted with many different varietals. It sounded to me like an experimental vineyard when I heard the list of plantings, but I think there is more than guesswork involved. I expect that Erath, Bostock and Callaghan and other talented winegrowers will figure out what Arizona’s terroir is meant to produce. It will be interesting to track Arizona’s progress and see how its wines fare in a world where the environmental givens are shifting and the market conditions becoming increasingly diverse and competitive.

Wine and Wine Tourism

The wineries I visited are all relatively small with limited distribution, so don’t expect to find these products at your local shop. Production is limited to a couple of thousand cases, even with the use of California grapes to fill in the gap left by low local yield, and sales are mostly cellar door. The winemakers I spoke with are beginning to develop wine clubs and internet sales facilities, but most of the product is sold face-to-face. Restaurant placements, if done well, can help build reputation, but there is not much money in it for a small winery. And output isn’t usually big enough to fill a distributor’s pipeline. All of this may change in the future, of course, but for the present it is a craft industry. The future of Arizona wine, at least in the short run, is local not global.

And that is not necessarily a bad thing because exploiting the local is an important strategy and it seems to me that Arizona has a good potential for wine tourism. The world will probably come to Arizona wine before the wine is produced in sufficient volume to venture out into global markets.

The country around Elgin and Sonoita is strikingly beautiful and closer to Tucson than Napa Valley is to San Francisco. It is already a desirable day-trip destination from Tucson because of its bicycling and horseback riding opportunities. All you need is wine (and food) to complete the deal. The wine is already there, as we learned, and the food, too, but the word hasn’t leaked out. That, I think, is about to change.

Note: Thanks to Michael, Nancy and Sue for their help with this report and to Joyce at Dos Cabezas and Tom Bostock and Kent Callaghan for taking time to talk with us.

The Wine Economist

Category Archives: wine tourism