Wine, Recession & the Fed-Ex Effect

botThe impact of the evolving coronavirus recession on the wine industry is complicated. It seems like you get a slightly different story depending on when and where you look.  One way to think about this situation is to analyze  other industries where the impacts might be easier to discern. Fed-Ex, the package delivery giant, offers several potential insights.

Business is Booming, But …

How is Fed-Ex doing in this environment? A recent report from The Economist newspaper provides some clues. You’d think that business would be booming, since so many consumers have turned to on-line shopping and home delivery in the past few months. Of course there is competition to consider. United Parcel Service is a strong competitor. And Amazon.com has developed its own package delivery service. But there is plenty of delivery business to go around. So Fed-Ex must be doing well, right?

Well, yes and no. Home package delivery is booming, but bring those boxes to your front door is a high cost part of the business. And the costs of protecting the workers who process the packages have increased, too. So the business surge has put pressure on margins.

And the most profitable part of the business — which is bulk shipment to businesses — has actually fallen as overall consumer spending has decreased, reducing the pull-through effect. Higher margin deliveries to businesses and retailers have been only partly replaced by lower margin deliveries to you and me.

Fed-Ex announce quarterly earnings after market close on Tuesday of this week.  The MarketWatch.com report noted that

Commercial volumes were down significantly due to worldwide business closures, but there were surges in residential deliveries for its FedEx Ground business and in transpacific and charter flights for FedEx Express, which required incremental costs to serve.

The company also incurred in about $125 million in increased operating costs related to personal protective equipment and medical and safety supplies for its employees, as well as additional security and cleaning services to protect them, it said.

Quarterly earnings were well below the level of a year ago, but much better than analyst expectations. The company’s stock rose in after-hours trading. It sounds like
Fed-Ex is managing the unavoidable big squeeze pretty well under the circumstances.

Lessons for the Wine Industry

Can you see how the Fed-Ex effect relates to wine? It isn’t a perfect parallel, but the surge in supermarket and on-line wine purchases is one side of the coin — like the boom in Fed-Ex home delivery — and if we focus just on that we end up drawing the wrong conclusions.

Higher operating costs and stagnant overall sales, when lost on-trade business is taken into account, are the rest of the story for wine. Depending on where your business is in wine’s market constellation, you might find yourself doing quite well or, like Fed-Ex and many other firms, caught in a squeeze.

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What’s that gizmo in the photo above? Well, Amazon.com is experimenting with drone delivery. Fed-Ex has tested an autonomous delivery robot.

 

Holiday Flashback: How the U.S. and Canada Almost Destroyed Wine

patriotic_pourThese are tough times for many people in the wine industry, especially those who depend on bar and restaurant sales for much of their income. The restrictions necessary to address the coronavirus pandemic have had many unintended consequences.

The wine industry has been shut down before and took decades to recover. But the story isn’t exactly what you might expect. This special holiday week flashback column takes us back to 2015 to tell the story of how, in very different ways, the U.S. and Canadian governments almost destroyed their respective wine industries.

The U.S. government is considering imposing 100% tariffs on some wine imports from Europe, an act that would hurt both European producers and many in the U.S. wine trade, too. The unintended consequences of acts like this are serious business.

Have a happy and safe 4th of July holiday.

Unintended Consequences: How the U.S. & Canada Almost Destroyed Wine

March 17, 2015

At one point in Kym Anderson’s new book about the Australian wine industry he reflects on what can be done to shorten that country’s current wine slump and to get things sailing again on an even keel. One of his suggestions caught my eye:

“Governments need to keep out of grape and wine markets and confine their activities to generating public goods and overcoming market failures such as the free rider problem of collecting levies for generic promotion and R&D.”

This is more than the simple Adam Smith “laissez-faire” idea. Anderson’s book clearly demonstrates the law of unintended consequences — how well-meaning government policies sometimes have had unexpectedly negative side-effects. No wonder he recommends a cautious approach to wine and grape policy.

I was reminded of this when I was researching the history of the Canadian wine industry for a recent speaking engagement in Ontario. I was struck by Canada’s experience with Prohibition in the 20th century, how it differed from the U.S. experiment, and how both ended up crippling their wine industries but in very different ways. Here’s what I learned.

How U.S. Prohibition Crippled the Wine Industry

The great experiment in Prohibition in the United States started in 1920 and lasted until 1933. The 18th Amendment outlawed the manufacture, sale or transport of intoxicating beverages, including wine. Most people assume that the wine industry collapsed as legal wine sales and consumption fell and this is partly true but not the complete story. Commercial wine production almost disappeared, but wine consumption actually boomed.

How is this possible? There were three loopholes in the wine regulations outlined in the Volstead Act. Wine could still be produced and sold for medical purposes (prescription wine?) and also for use in religious services (sacramental wine). This kept a few wineries in business but does not account for the consumption boom, which is due to the third loophole: households were allowed to make up to 200 gallons of wine per year for “non-intoxicating” family consumption.

Demand for wine grapes exploded as home winemaking increased (but not always for strictly non-intoxicating purposes). Total U.S. vineyard area just about doubled between 1919 and 1926! But the new plantings were not delicate varieties that commercial producers might have chosen but rather grapes chosen for their high yields,  strong markets.

Thus did Prohibition increase wine consumption in the U.S. but it also corrupted the product by turning over wine-making from trained professionals to enthusiastic  amateurs working in often unsanitary conditions. The home-produced wine sometimes had little in common with pre-Prohibition commercial products except its alcoholic content.

Americans drank more wine during Prohibition, but it was an inferior product. No wonder they dropped wine like a hot stone when Prohibition ended. That’s when the real wine bust occurred and it took decades to fully recover. Do you see the unintended consequence in this story? But wait, there’s more …

How Canadian Prohibition Crippled Its Wine Industry

Prohibition started earlier (1916) and ended earlier (1927) in Canada and took a different fundamental form. With support from temperance groups, consumption of beer and spirits (Canada’s first choice alcoholic drinks) was banned as part of war policy with the stated intent of preserving grain supplies for vital military uses. Consumption was forbidden, but production of beer and spirits was still allowed for export, which accounts for the boom in bootleg Canadian whiskey in the U.S. in the 1920s.

Neither production nor consumption of wine was included in Canada’s ban on alcohol, although wine sales were limited to the cellar door. What made wine different? Maybe grapes were not as vital to the war effort as grains, although John Schreiner cites the political influence of the United Farmer’s Party in his account of this period in The Wines of Canada. Wine became the legal alcoholic beverage of choice for Canadian consumers and production boomed. By the end of Canadian Prohibition there were 57 licensed wineries in Ontario (up from just 12) to serve the big Toronto market.

Wine sales increased 100-fold, according to Schreiner, but “It would be charitable to describe the quality of the wines being made in Ontario during this period as variable,” he writes. The market wanted alcohol and set a low standard of quality, which many producers pragmatically stooped to satisfy. No wonder wine production collapsed at the end of Prohibition as consumers went back to spirits and beer.

Unintended Consequences

Thus did government policy in both Canada and the United States create wine booms during their respective Prohibition eras, but the worst kind of booms: bad wine booms. Quality suffered as quantity surged. It is no surprise that consumers turned away from wine once other beverages were available. It took decades for these industries to recover.

Both the Canadian and U.S. wine industries are vibrant and growing today, having recovered from the crippling effects of poor quality wine. But they both are still hampered by other policies — especially regarding distribution and sales — that date back to the end of Prohibition. Economic policies can obviously have unintended effects and the shadows they cast can be long indeed.

No wonder Kym Anderson is skeptical about government interference in the Australian industry. Prohibition is an extreme case, to be sure, but such cases clearly show the unintended consequence potential that exists even with other seemingly harmless proposals. A cautious approach makes sense.

Rediscovering Ruchè, One of Italy’s “Invisible” Wines

rucheThe coronavirus pandemic has paused The Wine Economist’s usual travel and speaking schedule and while I don’t miss the chaos of international air travel I do miss the opportunity to meet interesting new people and the chance to discover wines made from indigenous grape varieties that often don’t get the attention they deserve.

At this time last year, for example,  we were visiting Sardinia and Friuli, two regions of Italy that are especially known for their indigenous wine grapes. Some of these wines are pretty readily available here in the U.S. — Cannonou di Sardegna is a good example. You can find good examples if you look around at bit. But others are much too local to get much outside distribution — you sometimes need to go to the source to try them. Vermentino di Gallura and Carignano del Sulcis are examples, also from Sardinia, of wonderful wines that you may not easily find.

Discovering Invisible Wines

These intensely local wines are a special treat and I wrote about them in a chapter called “Invisible Wines” in my book Extreme WineI cited three wines from Italy — Pignoletto from the vineyards around Bologna, Lacrima di Morro d”Alba from Marche, and Ruchè di Castagnolo Monferrato in Piemonte.

As I wrote on The Wine Economist in 2011, we discovered Ruchè (prndounced ROO-kay) by accident. We were attending the annual regional culinary fair in Moncalvo, a hill town half an hour north of Asti. Thirteen “pro loco” civic groups from throughout the region set up food and wine booths in the central square and sold their distinctly local wares to an enthusiastic luncheon crowd. As I reported then,

“I had never heard of Ruchè and honestly didn’t know what it might be until I happened upon the stand of the Castagnole Monferrato group. They were cooking with Ruchè , marinating fruit in Ruchè and selling it by the glass — they were obviously very proud of their local wine. I had to try it and it was great. Suddenly I saw Ruchè everywhere (a common experience with a new discovery) and enjoyed a bottle at dinner in Asti that  night. “Like Nebbiolo,” Jancis Robinson writes, “the wine is headily scented and its tannins imbue it with an almost bitter aftertaste.”

Tenuta Montemagno

Sue and I were excited to re-live our Ruchè discovery when we were contacted by Tenuta Montemagno and offered the opportunity to taste their two Ruchè wines, Nobilis and Invictus. Sue prepared a special meal (see note below) and we pulled the corks.  The Nobilis brought back many memories. A juicy, light bodied red wine, it had the distinctive aroma of roses and the mix of red fruit and warm spices on the palate. It was great with Sue’s signature veal meatballs.

And then  came Invictus, made from riper grapes, vinified dry (2g/l compared to 1 g/l for Nobilis) with a bit more alcohol (15.5% versus 15%).  A fuller wine, Invictus is what I call a philosopher’s wine — something you might want to sit with for a while so you can appreciate how it develops in the glass.  Recognizably Ruchè, but a different experience.  Fascinating. Memorable.

No one comes to The Wine Economist for tasting notes, but here is a video note that captures some of what we found special about these wines. Watch closely and you will see that this seasoned reviewer is surprised (at one point nearly at a loss for words) at what’s in his glass and is keen to learn more. That’s Ruchè.

Tenuta Montemagno is devoted to the tradition of these wines in addition to their Grignolino, Barbera D’Asti, and Barolo reds.  The white wines include Sauvignon and Timorasso, another  indigenous grape variety that I need to learn more about the next time we are in the neighborhood. But maybe I won’t have to wait that long. The winery is working to get its products into wider distribution in the U.S. market and I hope they succeed so that more people can discover their “invisible wine.”

The Priest Did It

Today Ruchè is nearly invisible — you won’t find it unless you make an effort. But it could have been much worse. Like some other indigenous varieties, Ruchè fell from favor and was on the road to commercial extinction. It was saved starting in the 1960s by one man: the parish priest.

As Ian D’Agata explains in the chapter on Ruchè in his recent book Italy’s Native Wine Grape Terroirs, Don Giacomo Cauda, Castagnole Monferato’s town priest, was obsessed with Ruchè, studied it, collected specimens from scattered small plots,  and promoted Ruchè as the region’s signature wine. Ruchè di Castagnole Monferrato received DOC recognition in 1987 and was elevated to DOCG in 2010, putting it up among the elite of the Italian wine world. A long climb from near-extinction to the summit in just 50 years.

The Oxford Companion to Wine reports that there were about 100 hectares (247 acres) of Ruchè in all of Italy in 2010. Not a lot, but a viable amount that I hope will grow. Now the challenge is to assure the economic success of Ruchè and invisible wines like it, which is why I encourage you to seek them out, both at home and when you (eventually) travel. You will enjoy the experience, of course, and help support local wines.

Thanks to Tenuta Montemagno for providing Nobilis and Invictus for us to taste for this column. I hope Sue and I can visit you in person once the pandemic crisis has passed.

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These wines really want to be paired with food and so Sue made one of my favorite dishes which, although it comes from a different region of Italy, proved to be an excellent match. A few years ago we spent an entire day cooking and eating with Bologna’s famous Simili sisters  (see this New York Times article by William Grimes about these celebrated chefs). They had closed their cooking school and were experimenting with personal classes in their apartment. Try the Tenuta Montemagno wines with the Simili sisters’ veal meatballs in Port sauce.

China’s 10-Point Scale: Wine Ratings with Chinese Characteristics

chinasaleA couple of years ago the China Alcoholic Drinks Association announced that it was working on a new wine ranking system to help guide Chinese consumers to the best wines and best values.  A recent newsletter from Rob Geddes MW reports that things are moving forward quickly.

Geddes says his China sources indicate the new scale  will soon become a national standard. He should know. As an important actor on the Australian wine scene — his annual book of wine ratings is the gold standard when it comes to Aussie wines — Geddes naturally spends a lot of time in China. China is Australia’s largest export market and Geddes has helped develop the market there through his tastings and seminars.

Much of the discussion about the China ratings system focuses on the fact that it uses a 10-point scale for maximum clarity rather than the 20-point or 100-point scales commonly used elsewhere. I think the real news is that this is moving toward a national rating system that would potentially assign an official score to each wine on the market taking into consideration, it is said,  Chinese tastes, cuisine, and culture.

I can’t imagine that happening anywhere else in the world. I guess it is part of a movement to a wine industry and culture with distinctly Chinese characteristics. What do you think?

The new Chinese scale makes me think about wine rating systems generally. There are all sorts of scales in use. Geddes (along with South Africa’s Platter’s Guide) use a five-star system. Gambero Rosso rates Italy’s wines on a Tre Bicchieri (3-glasses) scale that mirrors Michelin’s three-star restaurant ratings. And of course Robert Parker is famous for the 100-point system he helped make so popular.

What’s the best wine rating system? Glad you asked! Here is a vintage Wine Economist column from way back in 2008 that tries to answer that very question. Cheers!

Wine By the Numbers

February 9, 2008

Rating the Wine Rating Systems

People turn to wine critics to tell them what’s really inside that expensive bottle (or that cheap one) and how various wines compare. Some critics are famous for their detailed wine tasting notes (Michael Broadbent comes to mind here) that provide comprehensive qualitative evaluation of wines, but with so many choices in today’s global market it is almost inevitable that quantitative rating scales would evolve. They simplify wine evaluation, which is what many consumers are looking for, but they have complicated matters, too, because there is no single accepted system to provide the rankings.

I’m interested in the variety of wine rating systems and scales that wine critics employ and the controversies that surround them. This blog entry is a intended to be a brief guide for the perplexed, an analysis of the practical and theoretical difficulties of making and using wine ranking systems.

Wine Rating Scales: 100-points, 20-points, Three Glasses and More

winescales.jpgThe first problem is that different wine critic publications use different techniques to evaluate wine and different rating scales to compare them. Click on this image to see a useful comparison of wine rating systems compiled by De Long Wine (click here to download the pdf version, which is easier to read).

Robert Parker’s Wine Advocate, the Wine Spectator and Wine Enthusiast all use a 100-point rating scale, although the qualitative meanings associated with the numbers are not exactly the same. It is perhaps not an accident that these are all American publications and that American wine readers are familiar with 100-point ratings from their high school and college classes.

In theory a 100-point system allows wine critics to be very precise in their relative ratings (a 85-point syrah really is better than an 84-point syrah) although in practice many consumers may not be able to appreciate the distinction. Significantly, it is not really a 100-point scale since 50 points is functionally the lowest grade and it is rare to see wines rated for scores lower than 70, so the scale is not really as precise as it might seem. (Any professor or teacher will tell you, there has been both grade inflation and grade compression in recent years and this applies to wine critics too, I believe.)

The 100-point scale is far from universal. The enologists at the University of California at Davis use a 20-point rating scale, as does British wine critic Jancis Robinson and Decanter, the leading global wine magazine. The 20-point scale actually corresponds to how students are graded in French high schools and universities, so perhaps that says something about its origins.

The Davis 20-point scale gives up to 4 points for appearance, 6 points for smell, 8 points for taste and 2 for overall harmony, according to my copy of The Taste of Wine by Emile Peynaud. The Office International du Vin’s 20-point scale has different relative weights for wine qualities; it awards 4 points for appearance, 4 for smell and 12 for taste. Oz Clarke’s 20 point system assigns 2, 6 and 12 points for look, smell and taste. It’s easy to understand how the same wine can receive different scores when different critics used different criteria and different weights.

A 20-point scale (which is often really a 10-point scale) offers less precision in relative rankings, since only whole and half point ratings are available, but this may be appropriate depending upon how the ratings are to be used. Wines rated 85, 86 and 87 on a 100-point scale, for example, might all receive scores of about 16 on a 20 point scale. It’s up to you to decide if the finer evaluative grid provides useful information.

Decanter uses both a 20-point scale and as well as simple guide of zero to five stars to rate wines, where one star is “acceptable”, two is quite good, three is recommended, four is highly recommended and five is, well I suppose an American would say awesome, but the British are more reserved. Dorothy J. Gaiter and John Brecher (who write an influential wine column for the Wall Street Journal) also use a five point system; they rates wines from OK to Good, Very Good, Delicious and Delicious(!).

The five point system allows for less precision but it is still very useful – it is the system commonly used to rate hotels and resorts, for example. ViniD’Italia, the Italian wine guide published by Gambero Rosso, uses a three-glasses scale that will be familiar to European consumers who use the Michelin Guide’s three-star scale to rate restaurants.

Which System if Best?

It is natural to think that the best system is the one that provides the most information, so a 100-point scale must be best, but I’m not sure that’s true. Emile Peynaud makes the point that how you go about tasting and evaluating wine is different depending upon your purpose. Critical wine evaluation to uncover the flaws in wine (to advise a winemaker, for example) is different in his book from commercial tasting (as the basis for ordering wine for a restaurant or wine distributor or perhaps buying wine as an investment) which is different consumer tasting to see what you like.

Many will disagree, but it seems to me that the simple three or five stars/glasses/points systems are probably adequate for consumer tasting use while the 20- and 100-point scales are better suited for commercial purposes. I’m not sure that numbers or stars are useful at all for critical wine evaluation – for that you need Broadbent’s detailed qualitative notes. Wine critic publications often try to serve all three of these markets, which may explain why they use the most detailed systems or use a dual system like Decanter.

In any case, however, it seems to me that greater transparency would be useful. First, it is important that the criteria and weights are highlighted and not buried in footnotes. And I don’t see why a 20-point rating couldn’t be disaggregated like this: 15 (3/6/6) for a 20-point system that gives up to 4 points for appearance, 6 for smell and 10 for taste. That would tell me quickly how this wine differs from a 15 (4/3/8). Depending upon how much I value aroma in a wine and what type of wine it is, I might prefer the first “15” wine to the second.

Wine and Figure Skating?

So far I’ve focused on the practical problems associated with having different evaluation scales with different weights for different purposes, but there are even more serious difficulties in wine rating scales. In economics we learn that numerical measures are either cardinal or ordinal. Cardinal measures have constant units of measurement that can be compared and manipulated mathematically with ease. Weight (measured by a scale) and length (measured in feet or meters) are cardinal measures. Every kilogram or kilometer is the same.

Ordinal measures are different – they provide only a rank ordering. If I asked you to rate three wines from your most preferred to your least favorite, for example, that would be an ordinal ranking. You and I might agree about the order (rating wines A over C over B, for example), but we might disagree about how much better A was compared to C. I might think it was a little better, but for you the difference could be profound.

To use a familiar example from sports, they give the Olympic gold medal in the long jump based upon a cardinal measure of performance (length of jump) and they give the gold medal in figure skating based upon ordinal judges’ scores, which are relative not absolute measures of performance (in the U.S. they actually call the judges’ scores “ordinals”). Figure skating ratings are controversial for the same reason wine scores are.

So what kind of judgment do we make when we taste wine — do we evaluate against an absolute standard like in the long jump or a relative one like the figure skating judges? The answer is both, but in different proportions. An expert taster will have an exact idea of what a wine should be and can rate accordingly, but you and I might only be able to rank order different wines, since our abilities to make absolute judgements aren’t well developed.

This is one reason why multi-wine social blind tasting parties almost always produce unexpected winners or favorites. The wines we like better [relative] are not always the ones we like best [absolute] when evaluated on their own.

Ordinal and cardinal are just different, like apples and oranges (or Pinot Gris and Chardonnay). Imagine what the long jump would look like if ordinal “style points” were awarded? Imagine what figure skating would look like if the jumps and throws were rated by cardinal measures distance and hang time? No, it wouldn’t be a pretty sight.

Economists are taught that it is a mistake to treat ordinal rankings as if they are cardinal rankings, but that’s what I think we wine folks do sometimes. I’ve read than Jancis Robinson, who studied Mathematics at Oxford, isn’t entirely comfortable with numeric wine ratings. Perhaps it is because she appreciates this methodological difficulty.

Lessons of the Judgment of Paris

paris2.jpgOr maybe she’s just smart. Smart enough to know that your 18-point wine may be my 14-pointer. It’s clear that people approach wine with different tastes, tasting skills, expectations and even different taste buds, so relative rankings by one person need not be shared by others. This is true of even professional tasters, as the Judgment of Paris made clear.

The Judgment of Paris (the topic of a great book by George M. Taber – see below – and two questionable forthcoming films) was a 1976 blind tasting of French versus American wines organized (in Paris, of course) by Steven Spurrier. It became famous because a panel of French wine experts found to their surprise that American wines were as good as or even better than prestigious wines from French.

A recent article by Dennis Lindley (professor emeritus at University College London – see below) casts doubt on this conclusion, however. Read the article for the full analysis, but for now just click on the image above to see the actual scores of the 11 judges. It doesn’t take much effort to see that these experts disagreed as much as they agreed about the quality of the wines they tasted. The 1971 Mayacamas Cabernet, for example, received scores as low as 3 and 5 on a 20-point scale along with ratings as high as 12, 13 and 14. It was simultaneous undrinkable (according to a famous sommelier) and pretty darn good (according to the owner of a famous wine property). If the experts don’t agree with each other, what is the chance that you will agree with them?

Does this mean that wine critics and their rating systems are useless and should disappear? Not likely. Wine ratings are useful to consumers, who face an enormous range of choices and desperately need information, even if it is practically problematic and theoretically suspect. Wine ratings are useful commercially, too. Winemakers need to find ways to reduce consumer uncertainty and therefore increase sales and wine ratings serve that purpose.

And then, of course, there is the wine critic industry itself, which knows that ratings sell magazines and drive advertising. Wine ratings are here to stay. We just need to understand them better and use them more effectively.

References:

Dennis V. Lindley, “Analysis of a Wine Tasting.” Journal of Wine Economics 1:1 (May 2006) 33-41.

George M. Taber, Judgment of ParisCalifornia vs. France and the History 1976 Paris Tasting that Revolutionized Wine. Scribner, 2005.

Wine & Coronavirus Recession: Three Questions

51ufhc3glvl._sx361_bo1204203200_This is the Age of Uncertainty (to reference the title of John Kenneth Galbraith’s famous book) both in general and with respect to the wine industry. Everyone’s looking  for answers as they confront a murky future. But most answers right now (especially including my own) are at best informed speculation, subject to frequent revision.

If we can’t have solid answers, maybe the next best thing is to try to refine the questions. Herewith my attempt to pin down three important questions about the near- and intermediate-term wine market and environment.

Please use the comments section below to raise other questions that need attention now

Q1: Recession Uncertainties

It is clear that the conoravirus pandemic and its health and economic effects have  produced a global recession of historic proportions.  Income and wealth have declined and unemployment increased. There is no way that wine cannot be affected by such an economic downturn. Many questions about the recession beg for answers. How deep?  How long? The Great Depression made a indelible mark on the people who lived through it. Will the coronoavirus recession do the same?

There are pluses and minus to consider. Monetary and fiscal stimulus packages have been huge by historical standards — much larger than during the Great Recession of a dozen years ago.  And we’ve seen some bright spots in the data. The May employment numbers in the U.S. surprised nearly everyone with a strong net increase in jobs and decrease in unemployment. A short, sharp V-shaped recession, while still unlikely, may not be as impossible as most of us believed.

But there are problems starting with the jobs report figures themselves, which may result in under-estimates of unemployment by several percentage points because of unusual data collection and classification problems created in part by the deep churning of the labor market.  I am also very concerned about changes in state-local government employment. Budget deficits in the second half of the year may lead to big lay-offs in local governments just as economic re-opening brings others back to the workplace. Programs to stabilize employment have so far focused on private sector jobs and left public sector employment pretty much alone. This will be a problem, but how big is unclear.

Bottom Line: I think it is all going to come down to the question of consumer spending.  Governments have already gone all-in — they may not have much more to contribute to a recovery. Business investment — the real kind, not the stock market — will probably lag consumers, not lead them. And trade has fallen taking potential net export gains down, too. It’s going to be up to consumers to get the economy moving.

Consumers have surprised many analysts by saving an amazingly high proportion (about 30%) of their incomes in recent weeks, which may be good for their individual financial security but unhelpful in terms of  increasing aggregate demand. It is easy to say that they didn’t spend because the shops were closed, but there is more going on. It is that age of uncertainty thing.

Consumers will continue to hold back on spending so long as they lack confidence in economic recovery. Until that confidence switch is flipped, economic growth is uncertain and consumers are right to be cautious. Is that a Catch 22 problem? Yes.

Q2: Wine’s New Normal?

Consumers are also at the center of questions about how the wine market will look when the recession and pandemic fogs start to clear. In the short run, the situation is a bit like the person who was swept over a waterfall. Half-way down things seem to be going just fine, but there’s a big splash ahead and it is hard to know who’s going to sink or swim away.

As noted in recent Wine Economist columns, there has been much turbulence in the wine market so far this year. Wine sales volumes are up overall but revenues not so much as high-margin restaurant sales have been replaced by lower-margin retail. On-line sales have risen dramatically, albeit from a relatively small base.  Wine hasn’t done as well as spirits, which seem to fly off the shelves, but better than beer.

As Rabobank’s Stephen Rannekleiv noted in a recent Ciatti market update webcast, the wine industry is going to need to rethink the route to market and how on-trade, off-trade, on-line, cellar door, phone sales (!), and other strategies fit together and what products work best in each channel. Consumers are changing their buying behavior for other products and wine shouldn’t think it is different in this regard. On-premise sales, in particular, are likely to be slow to recover as bars and restaurants struggle to both safely and profitably serve customers.

Bottom Line:  They say that generals are always preparing to fight the last war and so are often unprepared for new battle lines when they emerge. The same might be said for many wine businesses. The lesson that many small and medium-sized wineries learned in the last war (the Great Recession) was the importance of direct-to-consumer cellar door sales.

This strategy is problematic in a socially-distanced world. Shifting on-line now seems like the obvious reaction, but does that change the nature of consumer relationships and perhaps the nature of wine itself? Remember that Jeff Bezos picked books for his Amazon.com start up because they could easily be commodified. If that’s where wine is going, there will be implications. Fortunately (see last week’s Wine Economist column), many wineries are finding ways to keep wine personal even in the virtual space. How is wine going to evolve to succeed in an increasingly on-line market place?

Q3: Global Wine Market Threats

The global wine market environment is most directly defined by the big exporting wine economies. Italy, Spain, and France are the Big Three that together producer more than half the world’s wine. Argentina, Chile, and Australia are much smaller, but very important. New Zealand is tiny but punches above its weight. China, like the U.S. is currently most important in terms of global dynamics as an importer.

Wine sector conditions are unfavorable in all the largest wine-exporting countries. On-trade sales are much more important in Europe than the U.S., accounting for more than half of wine purchases. The closures of bars and restaurants during the pandemic lock down period has therefore produced a huge unsold inventory of wine. Some of this will disappear through emergency distillation schemes, which promise to dispose of between 750 million and one billion liters of excess wine. The rest will be looking for export market sales.

The bad old days of the EU wine lake depended on distillation to eliminate subsidized unmarketable wine. The policy changed several years ago to focus subsidies on modernization and marketing to encourage producers to make wines that the market would absorb. But no amount of marketing euro is going to help this year, so surplus wine will head off to the distillery. Maybe it will end up as hand sanitizer?

A billion liters is a lot of wine taken off the market. But I don’t think it will be enough to prevent a short term worldwide wine glut, especially when you consider the troubles that Southern Hemisphere producers are experiencing (despite short harvests in many regions). Australia and Chile depend on China to buy much of their wine and China’s growth has slowed dramatically. New Zealand looks especially to the UK and US markets, which are in recession. Argentina and South Africa have large domestic markets, but there are complicated economic and political problems in both countries that have affected sales.

Bottom line: A lot of wine is going to be looking for a home in the next year. Who in the world is going to buy it?

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Galbraith’s Age of Uncertainty was both a book and a 1977 television series. Here is the first episode.

Down the Rabbit Hole: Wine Takes the Virtual Plunge

alice02aThe recent pivot to on-line and virtual programs, events, and communication presents challenges and opportunities. How well has the wine industry responded? What does the future hold? Join me on a trip down the virtual rabbit hole to find out.

Can’t Un-Ring a Bell

It has been fascinating to see how quickly we and our wine industry friends and colleagues have adapted to using technology to overcome necessary distancing and business and travel restrictions. There are costs, for sure, in terms of lost personal interactions, but gains, too. They say that you can’t un-ring a bell, and I don’t think we can (or should) completely un-do the recent pivot towards virtual communications.

So Sue and I have decided to embrace the opportunities of virtual wine for the time being and to appreciate the many creative ways that wineries are using online platforms to get their messages out and connect with customers. Herewith several examples from our personal explorations. There is still a steep learning curve, but as you will see below, lots of progress, too. Please use the comments section below to give more examples  of successful virtual programs and events from your personal experience.

 

People, Places, Things

Let me start with an example of a simple idea well done.  Promotional videos are not a new thing and, with the rapid advance of technology, they are easier to make and to distribute via the web. But they seem to be very difficult to do well. Videos are the perfect opportunity to tell first-person stories, but so many winery videos seem to forget what their story is once the camera light comes on and default to generic “four seasons in the vineyard” images.

So we celebrate when someone gets it right and tells the story of the people, the places, and the wines and how they are all connected, as the video above from Andrew Will Winery does.  Andrew Will is located on Vashon Island, just a short ferry ride from our home base, sourcing grapes from some of the best sites in the Columbia Valley, including the Two Blondes estate vineyard.  The wines are elegant, distinctive, delicious — we are big fans.

The video is very effective in introducing the people, Chris Camarda and his winemaker son Will, their views and values, the role of terroir, and the nature of the wines.  You will know if you would like the wines after seeing the video and why they are special. And the winery is using the video effectively just now to maintain connections with customers during the current crisis.

BDX In the Rocks

The virtual space can be as interactive as you want it to be (up to a point!) so many wineries are experimenting with virtual tastings. Our friends at Reynvaan Family Vineyards in Walla Walla show one effective approach.  Winemaker Matt Reynvaan went live on Instagram several Friday afternoons in April and May, talking about his work and tasting interesting pairs of Reynvann wines.

One thing that made these tastings especially appealing was that wine-list members were invited to taste along with Matt by purchasing the library wines at their original release prices, a terrific and unexpected opportunity.

We focused on the May 1 tasting of Cabernet Sauvignon and BDX blend wines from the Reynvaan’s In the Rocks vineyard. These are very special wines that surprise many people because Reynvaan and that region are best known for their outstanding Syrah. Sue and I tasted the Cab wines when we visited the Reynvaan family last year and they are really memorable. Honestly, I couldn’t wait to relive that tasting via the internet.

If you watch the video (even if you aren’t able to taste the wines) I think you will get a sense of Matt and his family and what drives and inspires them.  Toward the end of the tasting Matt opened up the conversation to questions from his on-line audience, adding a small but important interactive element.

The Reynvaan tastings achieved many goals. It got scarce wines into the hands of people who enjoy them and probably replaced to some extent lost sales to restaurants. Most of all, however, it created and nurtured personal relationships, which everyone believes are at the heart of the wine business, and allowed Matt and family to tell their story in the most natural way.

fhw2Virtual Release Party

Mike and Karen Wade, the proprietors of Fielding Hills Winery in Chelan, Washington, had planned to host a big release party this spring for their new line of white wines.  Mike, the founding winemaker of the family operation, is famous for his distinctive red wines, but as the winery grew and winemaker Tyler Armour joined the team, it was clear that white wines and maybe a Rosé needed to be added to the mix.

The Rosé and a Chenin Blanc from the estate Riverbend Vineyard on the Wahluke Slope came first and this year they are joined by a Chardonnay and Roussanne. It’s a big deal for the winery. But the coronavirus crisis made an in-person celebration impossible. With daughter Megan’s help they organized a Zoom-fest instead and brought together friends of Fielding Hills from across the country to taste the wines and learn about them from Mike, Karen, and Tyler.

fhw3Because of the Zoom platform’s flexibility there was the opportunity for more interaction with the audience. Tyler also gave a mini-tour of the wine-making facility and Mike used Google maps to take us to the vineyards, which Sue especially appreciated.  I think everyone enjoyed the delicious wines and appreciated the opportunity to taste them together and learn about them.

Will virtual release parties like this replace in-person events after the crisis is over.  I hope not! But I hope the virtual is retained because it can reach a different and broader audience in a different way, expanding the local to the regional, national, or even global.

The Virtual Tasting Room

boedeckerBy far the most personal virtual experience that Sue and I have had happened last Tuesday, when we Zoomed to Portland to talk wine with Stewart Boedecker and a couple of other wine friends. Stewart and Athena Pappas run Boedecker Cellars, an urban winery that sources grapes from some of Oregon’s best sites. They have been trying many initiatives to connect with customers and supply them with wine while the tasting room was shut down.

One of the clever offers was a trio of “Happiness on a Tuesday” wine packages — six-packs and cases of wine put together from small quantities of interesting products Stewart rescued from the warehouse. Sue picked out an all-Pinot six-pack for us (plus another 6 bottles of her favorite Pinot Blanc) and we will be working our way through them in June and July. Our affordable six-pack included a 2014 Pinot Noir from the famous Stoller Vineyard, so there is no chance of coming away disappointed.

We like the idea of Tuesday night wines and so we couldn’t resist Stewart’s invitation to attend a Tuesday evening virtual tasting. The group was small enough that Stewart just opened up the microphones and we all chatted and learned about the wines just as if we were sitting at the tasting room bar with the winemaker. It was great and reminded us of how much we have missed such previously normal moments during the pandemic crisis.

Virtual Trade Events

It is easy to think about virtual wine events just in terms of consumers and direct sales opportunities, but the coronavirus pandemic has done much more than just shutter cellar doors. Wine fairs and trade events around the world have been canceled or postponed, depriving many producers of the opportunity to present their wares to potential importers, distributors, restaurants, and retailers.

It isn’t the same, but virtual pitches can at least partially replace the wine fair booth and give wineries an opportunity to get their messages out. That’s what I found at the On-Wine Fair, where 45 Italian wineries were each given twenty minutes to tell stories to a virtual U.S. trade audience.

I attended the webinar of Tenuta Montemagno, a producer in Monferrato (Piemonte) that specializes in wines made from local indigenous grape varieties.  The brief and well organized presentation was very effective.  Place, personality, emotion. These characteristics came through clearly. This won’t replace the traditional wine fair — the opportunity to taste and talk in person is very important — but it goes a way toward filling the gap in the current crisis and expanding opportunities in the future.

vinarium

Vinarium Becomes TeleVinarium

The virtual world really is a rabbit hole. One you dive down there’s no telling where you might end up. The only limit (besides bandwidth, I guess) is imagination.  So when the Romanian organizers of Vinarium, the International Wine Competition Bucharest realized that it might be possible to shift on-line for their annual wine competition, they took the fateful first step. First time anyone has tried  to organize a virtual wine competition, but changing conditions provoke innovation.

A typical wine competition is a coronavirus nightmare. Five jurors sit close together around a table, spitting and dumping repeatedly while sommeliers fill glasses from masked bottles in a specified secret order.  There’s a certain close-quarters logistical choreography here that, when done well, would make Balanchine smile but earn a frown from Dr. Fauci today.

Virtual Vinarium aimed to get the results, but without the risk, and on-line platforms meant that jury members could be safely isolated.

The 36 international judges from 12 countries (including 4 Masters of Wine) were divided into juries of 5 or 6 persons. Getting them zoomed-up and their OIV judging software connected was probably the easy part (although I am glad I didn’t have to figure it out). Bringing the physical world along for the journey came next. That meant taking each of the 853  entered wines and decanting them into small coded sample bottles that could be shipped away to wherever the judges were. Then, of course, they needed to be tasted in the correct order and all the usual protocols followed.

I have only judged a couple of wine competitions and I’ve always been impressed with the complexity of the logistics involved. TeleVinarium went to the next level. Outrageously ambitious!

These are just a few of the hundreds of virtual events and projects. They begin as supplements to real world activities, sometimes replace them, and have the potential to transform them. Where will it all lead? Only one possible answer. Ask Alice!

Pandemic Mode 2020 Harvest: Southern Hemisphere Wine Lessons

 

One way that wine differs from beer is that whereas beer can be produced pretty much continuously throughout the year, there is only one opportunity to make wine. A crisis that comes at harvest time is therefore especially disruptive and unwelcome. And that”s exactly what happened to wine producers in the Southern Hemisphere this year.

webinar

The International Organization of Vine and Wine (OIV) recently organized an important webinar on the experience of Southern Hemisphere wine producers harvesting their 2020 vintage just as the coronavirus pandemic threat became clear and lock down policies initiated. View a recording of the webinar by clicking on the image above.

Presenters (see list below) from Australia, New Zealand, South Africa, Chile, and Argentina each highlighted the particular problems that they faced and how they managed these challenges. The stories are very different with many lessons to learn and puzzles to ponder.

After the five presentations (at about 1:11 on the video) moderator António Graça asks each presenter to summarize the most important lessons in the form of a tweet.  The discussion that follows focuses on practical problems and the search for solutions. The analysis of successes and failures is worth your attention.

One of the clear lessons cited by several speakers is that communications must be clear, transparent, and omni-directional. Everyone needs to be on the same page. One of the failures cited by two speakers was the inability to convince government regulators of the importance of the wine sector in the national economy and therefore the need for more favorable treatment and accommodating protocols. In part it’s that “we only get one chance” thing — at some point harvest delayed is harvest wasted.

The webinar is required viewing for winery businesses and organizations everywhere — in the Northern Hemisphere because we should learn from our colleagues south of the equator and for Southern Hemisphere producers because this may not be the last time such a crisis is experienced.

SPEAKERS

  • Tony Battaglene, Australia /  Chief Executive of Australian Grape and Wine Incorporated
    Jeffrey Clarke, New Zealand / General Manager Advocacy & General Counsel of New Zealand Winegrowers
  • Yvette Van Der Merwe, South Africa / Executive Manager, South Africa Wine Industry Information and Systems (SAWIS)
  • Aurelio Montes, Chile / President, Wines of Chile
  • Daniel Rada, Argentina / Director, Argentine Wine Observatory / Professor of International Economics, National University of Cuyo, Argentina

MODERATOR

  • António Graça, Head of Research and Development at Sogrape Vinhos SA, Secretary of Sustainable Development and Climate Change experts group – OIV

Wine Book Review: Laura Catena’s Gold in the Vineyards

catenaLaura Catena, Gold in the Vineyards: Illustrated Stories of the World’s Most Celebrated Vineyards (Catapulta Editores). Illustrated by Fernando Adorneti (Caveman).

Nicholas Catena had to make a choice. His chosen career as an economics professor? Or the family wine business,  Bodega Catena Zapata, which was threatened, along with the rest of Argentina’s wine sector, by shifting and unstable economic currents?

Prof. Catena met Robert Mondavi during a spell as a visiting professor at UC Berkeley and then made his choice. He gave up the academic life and went back to Argentina inspired by Mondavi’s determination to make New World wines as good as the best the Old World could offer.

I suppose that Prof. Catena’s daughter Laura must have faced a career choice, too, at some point. Pursue a career as a medical doctor in the United States, where she studied at Harvard and Stanford and raised a family? Or return to Argentina to advance her family’s vision of wine excellence and help guide the business through more turbulent times? Tough choice. Impossible to do both. But both is what she does. Amazing.

She is an author, too, and a good one.  Sue and I enjoyed her 2010 book Vino Argentino and took it with us on our first trip to Mendoza. We learned a lot about the development of the Argentina wine industry from this book and it helped us meet people, too, when Sue would ask winemakers to autograph the sections of the book where they appeared. Big smiles! There are even a few recipes — Dr. Catena’s chimichurri  often features (along with Mendoza Malbec) on steak night.

616jvwlqdml._ss500_Dr. Catena’s new book, Gold in the Vineyards, is very different from Vino Argentino. At first glance you wonder if it is for adults or children? The answer (typical, I suppose, for Laura Catena) is probably both. The reason this question comes up is that the book is lavishly illustrated with colorful drawings and cartoons that make it look a bit like a children’s book. And Dr. Catena tells us that she was actually inspired by the illustrated books she loved as a child.

I think this book might be a good way to introduce young people to the world of wine, but adults are the main audience and they will find plenty to enjoy (and learn) here. Each of the 12 chapters tells the story of a famous wine producer, starting with Chateau Lafite Rothschild and Tuscany’s Antinori and ending with Catena Zapata, with stops along the way that include California (Harlan Estate) and Australia (Henschke’s Hill of Grace) along with other global icons.

Each chapter tells a story in words and pictures and includes interesting infographics, too.  What do the chapters have in common? What is the moral of the story (books, especially children’s books, need to convey a message)?

Looking back through the chapters I find three threads that run through the text. The first is the power of place. Dr. Catena is a terroirist, as you will know especially from her discussion of Catena Zapata’s Adrianna Vineyard. The second thread is the power of family, because the wineries that appear here all drew strength from their family bonds.

The final thread is the power of women in wine — Dr. Catena dedicates the book to the women in her family from her great-grandmother Nicasia to her daughter Nicola. Although women do not feature prominently in the first chapter on Lafite, they are inescapable throughout the remainder of the book. Women have often struggled to gain authority and recognition in the wine industry, so this empowering message is welcome and important.

Gold in the Vineyards entertains, informs, encourages and inspires. Highly recommended for young and old alike.

Wine Goes Up the Down Staircase (Coronavirus Recession Edition)

41f8v8blzal._sx301_bo1204203200_Wine consumers today seem to be going “up the down staircase” (to evoke the clever title of Bel Kafuman’s best-selling 1964 book). They are buying more expensive wine at lower prices. That sounds crazy! Read on for analysis and a look back to what happened in 2009.

The COVID-19 Wine Boom

Recent consumer trend  data from Nielsen and Wines & Vines Analytics present a complicated picture of off-premise wine consumer behavior for March and April 2020. Wine sales at supermarkets and other retail outlets have boomed, as you know. The initial pantry stocking frenzy was followed by a growth plateau, but high growth rates have returned in recent weeks.

The dollar value of off-premise wine sales in the Nielsen-measured channels has risen at a 30% rate since the COVID-19 crisis began compared to the same period last year. Wine sales in the week ending March 21 surged to 66% more than the previous, year which is amazing.

The rise in off-premise sales is partially offset by the collapse of the on-premise (bars,  restaurants) channel. Net sales are up, but not by as much as you might imagine. Nielsen estimates that off-premise sales need to rise by roughly 22% (by volume) to offset the falling on-premise sales. Wine volumes are up 27.7% since March 7, so that’s a 5% net volume gain.

Less is More? Or is More Less?

Since sales volume is up 27% and sales value has risen 30%, it is clear that unit sale price has increased and this is true because of the distribution of purchases in different price points.. While sales have increased in all price categories, the fastest growth is for wines $11 and higher. Interestingly, the highest percent growth rate is in the $20 to $24.99 price category.

Some speculate that this rise is driven in part by consumers who are substituting retail wines for the ones they would otherwise have purchased at a restaurant. A $25 wine purchased at retail and consumed at home (perhaps with a home-delivery restaurant meal) might seem like a bargain compared to a similar wine with a higher mark-up on a restaurant wine list. Bottom line: consumers are moving up the wine wall, but paying less at the same time.

Online wine purchases are booming, too, but the reported pattern is different according to shipment numbers for April 2020 from Nielsen’s partnership with Wines Vines Analytics in collaboration with Sovos ShipCompliant. Sales volume increased by 45% compared to the previous  year. But sales value rose by only 15%, which means that average unit price has fallen. 

Indeed, the average bottle price in this sales channel fell from $42 to $33. Some of this might be due to changes in the commodity composition on online purchases, but readers of this column probably guess that discounting also plays a part. Here at Wine Economist world headquarters our email inbox is filled with sales offers that start with free shipping and continue with increasing levels of discounts.

Napa Discounts 

Significantly, according to the Nielsen data, Napa Valley wines, which are the Big Dog in the DtC market, had the largest average price reduction. Our friend Allan found a Napa winery in obvious financial difficulty that offered full cases of their California- and Napa-appellation wines for the price of one or two bottles.  Some of the deals like this are shared with club members, but some are kept quiet indeed to avoid reputation erosion.

So it is up the down staircase. DtC buyers are snapping up expensive wines at discount prices. Many thanks to Nielsen’s Danny Brager, Senior Vine President Beverage Alcohol Practice, for sharing data and insights.

Up and Down in 2009

Consumers also looked for ways to go up the down staircase during the global financial crisis a few years ago. Here are two Wine Economist columns from 2009, when internet sales were less of a factor, that examine how wine consumers were shifting their buying strategies during the global financial crisis: Wine, Recessaion, and the Aldi Effect and Extreme Value Wine Goes Mainstream.

Significantly the bargain-seeking changes we saw then didn’t really disappear when the economy improved. Wine buyers continued to search out bargains, at both low and high price points even as “premiumization” swept through the market. Hey, that’s up the down staircase again!wine_awards_factsheet_thumb_9.13.17

Wine , Recession and the Aldi Effect

January 13, 2009

Aldi stores are about to expand in the United States, drawn here by the recession according to an article in today’s Wall Street Journal “Aldi Looks to US for Growth” ).  I wonder how this will affect the wine market?

A Tough Nut to Crack

Aldi is a German “hard discount” store chain.  A “hard discounter” sells a limited selection of house-brand goods at very low prices in small, bare-bones outlets.

Hard discounters are a niche, albeit a growing one, in the U.S.  Wal-Mart is a successful discounter, of course, but not a hard discounter because it still features many mainstream branded products, its prices are higher and its stores a bit more plush.  Aldi and other hard discount stores drove Wal-Mart out of Germany, according to the WSJ article, but the U.S. market has been a tough nut for the hard discounters to crack. American consumers are primed to buy brand-named products and they like lots of choice, marketing experts say, and so tend to resist the house brands that hard discounters feature, which has limited their penetration here.

Germans are more willing to sacrifice brand names for low prices, apparently.  Aldi and other hard discounters are dominant powers in German retailing. The WSJ reports that 90% of German households shop at Aldi stores and 40% of all grocery purchases are made in hard discount outlets.

Divide and Conquer

Interestingly, there are actually two Aldi store chains in Germany.  Aldi is short for Albrecht DIscount. The Albrecht brothers  who founded the company after World War II fell out over the issue of tobacco sales in their stores.  They divided the German market between them (Aldi Nord and Aldi Süd) and then, eventually, split up the world market too.  Here are links to Aldi USA and Aldi International websites if you want to learn more about this retailer’s local presence and international reach.

Wine is an important product in Aldi’s German stores, as you can see from the wine selections featured on their website.  I believe that Aldi is the largest single retailer of wine in Germany.

Since Germans are rich and Germany makes great wines, you would think that Aldi must sell mainly fine wines, but you would be wrong.  Aldi’s median  German wine sale is red not white, imported from a low cost producer, sold  under a house-brand name, packaged in a box or TetraPak and priced at around one euro per liter.

You could say that it is Two Buck Chuck (TBC) wine, but in fact TBC is more expensive.  TBC is to Aldi wine as Wal-mart is to Aldi itself. (Note: Wal-Mart now has its own brand of two dollar wine, which makes this comparison even more appropriate. It is called Oak Leaf Vineyards and is made for Wal-Mart by The Wine Group.)

The Aldi Effect

Aldi figures that the recession is its moment to press more vigorously for U.S. market share.  Data indicate that consumers are much more cautious now, so perhaps they won’t be so picky about brand names and will, like their German cousins, be willing to trade down for a lower price. The Financial Times reports that Aldi sales in Great Britain are up 25 percent! Aldi plans to speed up store openings in the U.S. and to expand into New York City. New York!  If you can make it there … well, you know.

The good news here is that Aldi’s U.S. push may also help drive wine deeper into the U.S. consumer mainstream.  You can say all you like about the quality of Two Buck Chuck but it sure did help expand the wine culture in the U.S. and some (but not all) my TBC-drinking friends have moved upmarket for at least some of their purchases. The wine may not be to everyone’s taste, but its market impact has not been all bad.

Will Aldi Succeed?

Will Aldi’s drive be successful?  There is reason to think it will be. They seem committed to tailoring their hard discount operations to local market conditions, which is important because markets have terroir as much as wine.

But there is a more important reason.  Both German Aldi chains are present in the U.S. now, although you are probably not aware of them.  Aldi Süd operates on under the Aldi name, of course, with the same logo as in Germany.  The owners of Aldi Nord invested years ago in a different chain, based in California and intentionally tailored for thrifty but upwardly mobile U.S. consumers. It’s an upscale Aldi Nord and it has been very successful here.

Perhaps you’ve heard of them.  They have limited selection, smaller stores, lots of house brands, and low prices.  They even sell a lot of wine.  The name?

Oh, yes.  Trader Joe’s!

Extreme Value Wine Goes Mainstream

November 1, 2009

groc_receiptOur friend Jerry doesn’t seem like the kind of guy who would go digging around in the closeout bin or shopping for wine at Aldi — too classy for that — but there he was at Joyce and Barry’s house on Friday showing off his latest finds: cheap wine from a Grocery Outlet store.

The wine wasn’t so much good or bad as simply intriguing — is it really possible for a sophisticated wine enthusiast like Jerry to be satisfied shopping for wine at an “extreme value” store? Only one way to find out, so we got in the car the next day and headed for the strip mall.

Searching for Extreme Values

Headquartered in low-rent Berkeley, California, Grocery Outlet bargain market is America’s largest extreme value grocery chain with more than 130 independently owned stores in six western states. It has been in business since 1946. Prices are low, low, low.

Grocery Outlet stores here in the Pacific Northwest are supermarket sized spaces filled with off brand and closeout products along with a wide enough selection of fresh goods to allow families to do all their grocery shopping in one place. They are nice if not especially fancy stores. I can see why budget-minded families shop there.

Mystery Wine

The wine corner at the nearest store was large and well-stocked. Most of the brands were mysteries (one was even named “Mystery” as in “Mystery Creek” or something like that), although a few third and fourth tier products from recognized mass-market makers were available. Mainly, I think, these were leftover wines closed out by distributors to raise cash or make room for incoming shipments along with no-name brands “dumped” under a bogus label.

The wines came from all over — California, naturally, Australia, France, Italy, Chile. There was even a $3.99 “Champagne” from Argentina. Honest — it said “Champagne.”

Prices were suitably low — most of the wines sold for $2.99 to $5.99. It isn’t hard to make money selling extreme value wine when you can buy up surplus bulk wine for just pennies a liter and package it up for quick sale.  Extreme value retailers are the perfect distribution channel for wines like these.

As you can see from my receipt, I walked out with three bottles of wine for a total of $13.97 plus tax. “By shopping with us you saved $28.00.”  That would mean an average of 67% off the retail price.

Unexplained Tales from Down Under

I wasn’t really surprised at what I saw as I surveyed the wine wall. Then, slowly, a different kind of wine mystery began to unfold.

Sue must have sharp eyes because she picked out the first surprise. Sam’s Creek Marlborough Sauvignon Blanc 2008 for $3.99.  That’s awfully cheap for a New Zealand wine here in the U.S. I’ve read about heavily discounted NZ wines in Great Britain but not here in the U.S. — until now.

New Zealand is a high cost wine producer that has succeeded in charging a premium price for its wine. Indeed, NZ earns the highest average export price of any country in the world despite surging production that threatens to create unmarketable surpluses. Everyone worries that one day the export limit will be hit and prices will start to tumble from $12-$20 down to, well, $3.99. Is that what this Sam’s Creek wine really means? The end of NZ wine’s premium price?

Frighteningly, Sam’s Creek isn’t a no-name closeout wine. The label says that it is made and bottled by Babich, one of the famous names in New Zealand wine, and the internet tells me that Waitrose sells it for about $10  in Britain. I wonder if the unsold British inventory has somehow made its way here?

Prestige Wine at Extreme Value Prices

Two more bottles raised more questions about New Zealand wines. I paid a whopping $5.99 for a 2008 Isabel Estate Marlborough Sauvignon Blanc.  I almost overlooked it, but the label caught my eye. Isabel Estate is one of the most famous Marlborough quality producers, exceedingly well-known in Great Britain where this wine sells for about £10, but not so widely distributed here in the U.S., I think.

How did it get here and who among the Grocery Outlet clientele would recognize its quality sitting there surrounded by cheap and cheerful closeouts?

The third wine makes the puzzle more complicated. It is a 2004 Te Awa Merlot from the Gimblett Gravels of Hawkes Bay. Te Awa Farm is another famous NZ producer and, while this wine — a estate product from a distinguished producer in a famous region — may be slightly past its prime and therefore a typical closeout risk, it is still very surprising to see it sold at a place like Grocery Outlet for $3.99 rather than the $16-$20 retail price.

These three New Zealand wines may be random surplus wines found in the sort of place where random wines go to be sold. Or they may be indicators of important changes in the world of wine. Kinda makes you wonder, doesn’t it?

Wine markets are all about supply and demand. It is pretty clear that a supply of interesting wines has appeared along with the rock-bottom remainders at extreme value stores like Grocery Outlet, pushed along, no doubt, by the slump in fine wine sales.

What about demand? And what does Grocery Outlet tell us about the wine market more generally?

The Return of Mateus Rosé 

 

This column’s title is a bit misleading. Mateus Rosé never really went away, so how can it return? But the brand is rebooting, changing with the times, which gives us an an excuse to consider this iconic Portuguese wine and the Rosé wine category it helped create.

Wine Discovery Mode

Let’s zoom back five decades to an era when U.S. consumers were in Wine Discovery mode. What were they looking for? Well, many things, but as the 1971 Mateus Rosé commercial above suggest, one side of wine’s appeal was its exotic nature. Could wine really transport you to romantic places? Of course!

Mateus Rosé is an important part of the evolution of the wine world — so important that it has its own entry in the Oxford Companion to Wine. I included this humble wine in my book Around the World in Eighty Wines.  Pink, sweetish, slightly fizzy, Mateus was created by Fernando van Zeller Guedes in 1942, aimed initially at the Brazilian market, but its export domain soon reached around the world, including especially the U.S. and Great Britain.

Chilled in its distinctive dark bottle (shaped, it is said, like a WWI army flask), with the image of the Palace of Mateus prominently displayed, it was a a post-war phenomenon. I’ve read that it was a favorite of Queen Elizabeth. A quick internet search yields photos of rock legend Jimi Hendrix chugging a half-bottle of Mateus. It was at one point the best-selling imported wine in the U.S. market.

Still Crazy After All These Years

Mateus sold 3.5 million cases in 1978, accounting for an incredible 40% of Portuguese wine exports. Mateus dominated the market of that day the way that Yellow Tail ruled in the 2000s. Even now, when the global wine market Mateus helped create is crowded with big brands, it sells 20 million bottles a year in 120 markets. Still crazy popular after all these years.

for-new-prods-copyToday we are told that consumers want Rosé wines that are dry dry dry and pale pale pale. Classic Mateus didn’t fit that profile at all and yet the style still found an enthusiastic following. Maybe wine drinkers are more diverse in their tastes than popular opinion has it? A Portuguese friend tells me that he sneaks Mateus into blind tastings, where it surprises even professionals with its appeal.

Mars and Venus

The rebooted Mateus, branded Mateus Dry Rosé in the U.S., introduces this iconic wine to a new audience without ignoring consumers looking for a nostalgic experience. The label is silver now, with the Palace of Mateus much smaller. The packaging shows off the pink color. The bottle is clear with an elongated neck, which makes it a bit more elegant. If the old bottle was from Mars (think WWI army flask) the new bottle is from Venus, don’t you think?

Mateus Dry Rosé is made from Baga and Shiraz grapes (Baga is an indigenous Portuguese variety). It is dry according to the tech sheet — just 4 g/l of residual sugar — but fruity, so that first sip tasted sweeter to us than the rest of the glass. Sweetness is subjective, so you may find it drier or sweeter than we did.

50 Shades of Pink?

Will Mateus Dry Rosé dominate the marketplace the way the original did? No, that’s simply not possible. Too much competition — thousands and thousands of SKUs in the market these days. But it has the qualities that can make it a very successful wine brand.   The color may not be the pale pale pink we are told is best, but have you looked at the Rosé section of the wine wall recently?  As this photo (below) from a tasting of Loire Rosé wines suggests, there are many shades of pink on offer and different buyers will seek out different hues.

Rosé was a hot wine category going into the coronavirus crisis and if it is still hot as we exit lock down then the rebooted Mateus Dry Rosé is ready to take its place on the wine wall and in the hearts of pink wine drinkers.

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Sue notes that one of the great things about Mateus back in the day was that the empty bottle made an attractive candle-holder. Hey Boomers, what did you do with your empty Mateus bottles? Just FYI you can buy vintage bottles on EBay!

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