Restaurant Wine: A Double-Sided Puzzle

September 19, 2010 By Mike Veseth in Fielding Hills, restaurant wine, Supply and Demand, wine investment, wine markets, wine price 2 Comments

If there is one thing that wine enthusiasts have in common (maybe the only thing?) it is their frustration with wine in restaurants. I was reminded of this fact as I read through the weekend newspaper wine columns. Lettie Teague’s Wall Street Journal piece is an extended rant (or maybe she’s venting and not ranting) about wine-by-the glass in restaurants.

The Confidence Game

Teague can’t decide which is worse in restaurant wine-by-the glass programs — the price or the quality. The rule of thumb is that restaurants charge as much per glass of wine as they actually paid for the whole bottle (and sometimes even more). This makes her feel ripped off. At the same time, the wine has been sitting around open for who knows how long, losing some or all of its freshness. Fancy wine storage systems can help with this, but still it’s difficult to order a glass of wine (sometimes for $25 or more) with much confidence.

Over at the Financial Times Nicholas Lander approaches the issue from the business side and looks for a solution in cooperative arrangements between wine collectors (who are willing to sell off some of their stash at market prices) and restaurants who offer these wines to their customers at reduced mark-ups. The collectors get a fair price on their investment, the restaurants get a middle man return without big up-front costs and customers get access to special wines at lower prices. A great idea, but perhaps hard to scale-up.

Restaurant wine is like a double-sided jigsaw puzzle. The same pieces have to fit together to form two different appealing pictures — one for the customers and another for the business. If any of the pieces are upside down or missing, the whole experience is ruined.

Putting the Pieces Together

Not that it is impossible to put it all together. One of my most completely satisfying wine experiences of recent years was a dinner at The Black Rabbit Restaurant at Edgefield, a funky old hotel in Troutdale, just outside of Portland, Oregon. A bottle of the stellar 2006 Fielding Hills Cabernet Sauvignon sold for the same price that the winery was charging at that time — what a deal! It wasn’t the only good value on the menu, either. (The current wine list on the Black Rabbit website lists a 2007 Ken Wright Cellars McCrone Vineyard Pinot Noir for $60. I saw the same wine on another wine list for about $200. Where are my car keys?)

How can they do it? Well, Edgefield is an unusual operation. It is an affordable destination hotel housed in a former Depression-era poor farm (really!) with its own movie theater, winery, brewery and distillery. The owners can afford to sell their own wine at good prices and the rest of the list falls into place around those wines. Edgefield is part of a regional chain of restaurants and hotels, so some scale economies may exist, too.

Constantly Disappointed?

Edgefield shows that it is possible to put the pieces together to everyone’s satisfaction. But is it the model for restaurant wine programs generally? Obviously not. Like Lander’s proposal it is too much of a special case, but it shows that there is hope for constantly disappointed wine enthusiasts. Unlike a real jigsaw puzzle, which has just one solution, I think there are probably many different ways to put the pieces together to improve the restaurant wine experience.

Flemming’s Steak House offers 100 wines by the glass at its restaurants, for example. Although Lettie Teague is appalled by this for the price and quality reasons noted above, the broad choice may please many customers. After all, we are accustomed to choosing from a huge wine selection at competitive prices at supermarkets and wine shops. Even a very large restaurant wine list (say, 300 choices) is tiny compared with your local upscale supermarket, which may have 2000 or more wines on the shelves.

The fact that the restaurant charges a semi-monopoly price (hard to get a competitive bid once you’ve been seated) makes the situation more frustrating.

One solution is to loosen the monopoly hold on price, which some restaurants are doing right now by reducing or eliminating corkage fees. Bring your own wine (purchased at normal retail prices) and enjoy dinner and a wine experience. Since wine is typically the highest priced item on a restaurant bill (more expensive than the entree, for example), reducing the wine cost removes a disincentive to dine out.

I don’t think many customers take up the “no corkage fee” offer, but some do and if treated well they are likely to return to dine again. If there are conditions on free corkage (the wine cannot be on our list, for example, or free corkage on one bottle if you purchase a bottle from us) they need to be clearly stated to avoid misunderstanding and hard feelings.

Wine-by-the Keg?

The continuing recession is putting more strain on restaurant wine programs, which is unfortunate for everyone involved. But perhaps it will also spur the search for creative solutions to the double-sided puzzle problem.

One interesting approach to the wine-by-the-glass problem, for example, is keg wine — wine packaged in reusable steel containers. Cheaper per unit than bottled wine (assuming that the keg can be returned and refilled efficiently) with a reasonably long quality shelf life if properly tapped, keg wine may be the rosy future of restaurant wine-by-the-glass.

Someone should tell Lettie Teague the good news.

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Thanks to Michael and Nancy Morrell for their assistance with this report.

The Trouble with Wine Porn

September 13, 2010 By Mike Veseth in decanter, globalization, Jancis Robinson, Michael Broadbent, wine auctions 6 Comments

Not for everyone.

Sometimes I have doubts. Here at The Wine Economist we seem to be interested in what you might call everyday wines. Not that you necessarily drink them every day, but they are generally available and you can buy them if you can afford them. It’s a matter of choice. Everyman wines might be a better term if it didn’t sound just a little bit sexist.

Wine Porn

But much of the wine world seems preoccupied with impossibly expensive or incredibly rare trophy wines. A lot of attention is given to stories, ratings, tasting notes and images of wines that only a lucky few of us will ever have an opportunity to taste.

I’m tempted to call this wine pornography, mirroring the well-documented phenomenon of food porn. Stare if you like, drool if you must, but never, never touch! (I didn’t coin the term; I found it in Jancis Robinson’s “Wine Porn of the Highest Order.“) The whole Bordeaux en primeur phenomenon strikes me as borderline wine porn, if only the soft-core kind.

Wine porn may be a harmless vicarious thrill for the most part, but like pornography generally it can be a problem when people become compulsively attracted to it. I’m worried that all the fuss that trophy wines receive really does divert us from the excellent Everyman wines on offer and the problems and delights of everyday wine life.

Broadbent to the Rescue

Well, thank goodness for Michael Broadbent. I realize that this is an unlikely thing for me to say at this point because it would be easy to make the case that Broadbent is one of the inventors of wine porn. As the director of the wine department at Christie’s auction house in London, he certainly helped create the winner-take-all economic environment that fuels the wine porn industry now.

And then there’s his writing. Gosh! Broadbent’s tasting notes are extraordinary. Some, dare I say, are voluptuous! My glasses steam up when I read them. But it turns out that he shares many of my distinctly non-pornographic concerns about wine.

Broadbent recently published his 400th consecutive monthly column for Decanter magazine and he used the occasion to talk about the state of the wine world, very much focusing on Everyman and her wines. “My feeling is that consumers have never had so much choice but they have never been so confused,” he said. ‘”The whole world is making a good standard of wine today and they need some guidance.”

The Perfect Disguise Below

This embarrassment of riches sounds like good news, but Broadbent is concerned that the democratization of wine has created a power vacuum that big players will rush to fill. “Big business seems to be taking over and I don’t like the way things are going,'” he says. He’s concerned about the fate of small producers.

Head-spinning number of choices

Well, I certainly agree with Broadbent’s premise. Globalization has spread wine and wine expertise around the world. The discipline of global markets is slowly driving technically flawed wines from the market place (some still hang on, justifying their existence on the basis of low price or disguising their flaws as terroir). More wines, from more places, with a higher overall quality standard: good news for Everyman.

But globalization really has created problems. More choice is good, but only up to a point. Some times too much is too much, especially as wine draws in new consumers. The Constellation Brands study of American wine buyers found that 23% of potential buyers were “overwhelmed” by the choice and frequently walked away empty handed. Broadbent’s right about the confusion factor.

Globalization has changed the problem from making good wine to distributing and marketing it. Here (especially in distribution) large firms really do have an advantage, but this is not a new thing. Power in the wine world shifted to those who could manage distribution long ago — with the introduction of the railroad system in France in the 19th Century.

Beyond Wine Porn

Broadbent is concerned that the corporations will destroy wine as they try to simplify it for the mass market. This is contrary to their own business interests, of course, since people pay more for distinctive products. Building a wine portfolio ladder that starts buyers in Two Buck Chuck territory and leads them up to a higher (or at least more expensive) shelf only works if wine’s diversity is preserved.

Dumbing down to create a simple flat wine world is economic suicide as much as it would be an aesthetic tragedy of the commons. But these are desperate times for some large wine businesses and desperate CEOs do desperate things, so I do not rule this out absolutely.

I guess I am more optimistic about the future than Broadbent, even if I share his concerns. I think there is a pretty large middle ground between the bland corporate wine that worries him and the spicy wine porn that troubles me. This probably suggests that the state of wine today is quite good!

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Congratulations to Michael Broadbent on his 400th Decanter column and his extraordinary life in wine.

Inside Argetinean Wine: Vino Argentino

September 6, 2010 By Mike Veseth in Argentina, book reviews 1 Comment

A review of Vino Argentino: An Insider’s Guide to the Wines and Wine Country of Argentina by Laura Catena. (Chronicle Books, 2010.) Photographs by Sara Remington.

I’m making plans for some fieldwork in Argentina next year and so I was very pleased when Laura Catena’s new book arrived in the mail. I think it is the perfect reference for anyone interested in Argentinean wine or planning a visit to the vineyards there.

Laura Catena is part of Argentina’s most important winemaking family. Her father Nicolás is Argentina’s Robert Mondavi. He helped reinvent Argentinean wine at about the same time that Robert Mondavi was leading the Napa Valley revolution. Laura has been an active member of the family wine business Bodega Catena Zapata (serving as research director at one point) and owns her own winery, Luca, which is named for her son. Somehow she also finds time to be a practicing physician. Mother, doctor, winery owner and now author. too. I think she must have a lot of energy!

Family History

The first part of the book is a brief history of wine in Argentina, which becomes in Catena’s telling also her family’s history. Not that she claims that the Catena clan go back to the first Spanish plantings, of course. It is just that the Catena family story mirrors so well Argentina’s modern history. Immigrants from Italy, the Catenas followed the railroad to Mendoza and found their calling in the vineyard and cellar.

Starting with her great-grandfather, Catena shows us how the family business and the Mendoza industry evolved. At first bulk wines were shipped to the big cities where they were often bottled and sold by local firms under their own labels (the same pattern as California in the 1930s). This eventually made way for a greater focus on winery brands. Nicolás Catena was a leader in developing branded wine in Argentina and implementing effective national marketing programs.

Fifty years ago Argentina’s per capita wine consumption was among the highest in the world — its Old World immigrant roots clearly showed — but like the Old World its wine drinking culture has changed and domestic consumption has fallen dramatically. This problem inspired Nicolás Catena to look upmarket for higher margins and abroad for export sales. The change from an inward focus on bulk wines to outward strategy created the need for better quality. Much of the “family history” presented here is the successful and on-going quest to make world class wine.

Places, Faces and Wine

Wine may be sold in bars, restaurants, supermarkets and elsewhere, but it is made in the vineyard, so any book about a wine region must get down to the dirt. Vinos Argentino does this in an unusual but very effective way. We go on a tour of the main wine areas in Mendoza, Salta and Patagonia. The discussion once again is very personal. It is as if you are walking through the vineyard with Laura Catena and she is telling you all about it in the way a conversation naturally evolves.

First she might talk about the terroir— the soil and climate. And this reminds her of the types of grapes that are grown here and their history in Argentina. This makes her think about the history of the region and her friends and colleagues who made that history and make wines today. The path of the conversation is sometimes not very straight — just like an actual conversation — but there is much to be learned in the meanderings and I find it perfectly charming. The occasional wine tourism references (eat there, go to see this) are quite as welcome here as they would be on a stroll through the vineyard. The last part of the book provides tourist tips for Buenos Aires and some Argentinean recipes, too.

Lessons Learned

I learned a lot from Vinos Argentino. The first lesson is how much the wine industry has been affected by the economic cycles of Argentina generally (and how much the economic uncertainty that continues today conditions this sector’s future). You can’t really take wine out of the context of the broader political economy and society — a fact that is as obvious as it is easy to forget.

Perhaps because of this, international (notice that I didn’t say “foreign”) influences have been unusually important in Argentina. As you walk the vineyard with Laura Catena a great many of the wineries she tells you about have international linkages, some going back 50 years. Catena says that about 45% of Argentinean producers are internationally-owned or use international partners or consultants.

International wine-making expertise is part of the story of course (Michel Rolland and his Clos de los Siete project appear in the Uco Valley chapter), but really I think the issue is capital. Argentina’s economic cycles make investment funding very difficult and international interests can bring needed capital as well as technical expertise and international marketing and distribution connections.

Breaking Down Terroir

The final lesson was about the Mendoza terroir. There are several distinct wine regions located within Mendoza and, like New Zealand, Argentina does not have a detailed appellation system that adequately reflects the diversity of its terroir. This might not have mattered much in the past, especially since the tradition was to blend using wines from throughout the regions. But I think moving beyond Brand Mendoza to exploit the individual terroirs is important if Argentina is to avoid Australia’s fate (they are desperately trying to rebrand themselves in terms of regional diversity now).

Walking the vineyards with Laura Catena, I think I got a pretty clear sense of the shape and feel of the land and true diversity of the wines produced. It made me optimistic about Argentina’s wine future and curious to try more of the wines (especially her Luca Pinot Noir). If that was Catena’s purpose in writing the book, it worked. I hope it enjoys a wide readership.

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Dozens of color photos by Sara Remington give a real sense of the faces and places. I wish there were more detailed maps, but I guess that’s what I have my wine atlases for.

Extreme Wines: Idaho?

September 1, 2010 By Mike Veseth in emerging wine regions, extreme wine 7 Comments

When the writers of “The Muppet Movie” tried to think of the most extreme, the most ridiculous source for wine to use in this scene with Kermit, Miss Piggy and an obnoxious waiter played by Steve Martin, their minds somehow turned to Idaho. Idaho wine — what could be funnier (and indeed it is a funny scene)? So I guess Idaho wine is a suitable entry in the Wine Economist Extreme Wine files.

The Undeserving

But I don’t think Idaho deserves its problematic place in the cinematic history of wine. Why not? Well, first of all, there are funnier places for wine to come from. Wine is produced in all 50 U.S. states, so in choosing Idaho the Muppet writers missed the opportunity to make fun of other states like North Dakota and Nebraska or Arkansas and Mississippi. (I would suggest Minnesota and Wisconsin, but I’ve had perfectly good wine from both states.)

That’s the second reason why the Idaho line is confusing. Not only does Idaho make wine, it actually produces really good wines, including some quite outstanding ice wines. To someone who knows the wines of the region, there is nothing funny at all about the idea of an Idaho wine. (There is something funny, on the other hand, about Steve Martin’s skimpy waiter costume).

This meditation on the topic of Idaho wine is provoked by the receipt of a new book about that state’s wine industry, Idaho Wine Country by Alan Minskoff with photographs by Paul Hosefros (Caxton Press, 2010). It’s a beautiful book and a very interesting read. I’ve been following Idaho wines for some times, but I was still a bit surprised at how much has changed in recent years.

Surprising Terroir

I appreciate that wine grapes don’t automatically spring to mind when you think of Idaho. Idaho, isn’t that where all the spuds come from? Yes, it’s true: the license plates still say “famous potatoes.” You’d think they’d make vodka in Idaho instead of wine. And they do.

But Idaho isn’t all potato fields or Rocky Mountain slopes. While there are several regions that produce wine, the main area is the Snake River AVA in the southern part of the state, which has everything you might look for in wine growing region. It has a moderate climate where tree fruit and grapevines both thrive. And the Snake River, too. Grapevines famously love to overlook water. This region has a great deal in common with the Columbia Valley AVA in Washington, but at an altitude of 2900 feet it is a little like Mendoza, too.

Early grape plantings were the usual cold climate suspects like Riesling and these varietals still do fine, but global climate change has benefited the area immensely and warm climate varietals are now commonly planted including Chardonnay, Cabernet, Merlot and Syrah.

Idaho Spuds?

To a certain extent the modern history of Idaho wine is the story of Ste Chapelle Winery, which is by far the largest winery in the state and the fifth largest producer in the Washington-Oregon-Idaho region. Ste. Chapelle is to Idaho as Chateau Ste. Michelle has been to Washington: the early trailblazer, the dominant producer by volume, a leading advocate of quality and a key factor in the expansion of the entire industry. It is hard to imagine that we would be talking about Idaho wine today (or even joking about it) without Ste. Chapelle.

Ste. Chapelle was basically a collaboration between winegrower and winery owner Dick Symms and legendary winemaker Bill Brioch beginning in the 1970s. Symms and Broich lasted only a few years as a team, but made a reputation for high quality despite surprisingly high volume (more than 100,000 cases). Their legacy stands tall today, both the winery (now owned by Ascentia Wine Estates, which also owns Columbia Winery and Covey Run, Buena Vista Carneros, Atlas Peak and Geyser Peak) and the growing Idaho wine industry.

Idah0. No joking, it’s not just spuds any more.

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Thanks to my old friend Jim Thomssen of Home Federal Bank for reminding me about Idaho’s interesting wines.

Where are they now: Bill Broich has retired from full time wine making duties, but he still has the wine bug. He and his wife, Phyllis McGavick, own McGavick Winery and donate 100% of their proceeds to charity! You can find them on Facebook.

Questionable Taste [in Wine]

August 29, 2010 By Mike Veseth in book reviews, critics, globalization, Riesling 5 Comments

A review of Reading Between the Wines by Terry Theise (University of California Press, 2010).

It’s pretty easy to tell that Terry Theise isn’t an economist. The unofficial motto of economics is degustibus non est disputandum, which is generally translated as “there’s no accounting for taste.” Taste is an individual matter, everyone is different and everyone’s entitled to their opinion. Accepting tastes as given is where economics begins.

Who Ya Gonna Call?

Terry Theise is worried about where a radical idea like this might lead. He sees taste as a slippery slope. You start with degustibus and pretty soon you start thinking that all ideas of taste are equal. If all tastes are equal, then it is obvious that majority should rule and, in any case, in the marketplace majority frequently does rule.

Since the taste of the masses tends toward the least common denominator McWine taste, the train of thought that starts with degustibus ends in a train wreck of poor taste and mediocre standardized quality. Accepting taste as given (instead of constantly questioning it) means giving up on taste. Someone’s gotta do something to stop this — who ya gonna call? Terry Theise!

I met Theise at the 2008 Riesling Rendezvous conference at Chateau Ste Michelle. He organized and moderated an end-of-the-day workshop on Old World Riesling Terroir. He was as complex, intense and interesting as the 15 German and Austrian wines we tasted. These were some of the most memorable wines (Hirsch, Nikolaihof, Josef Leitz and Dönnhoff) I have ever sampled presented in flights intelligently designed to help us drill down into the idea of terroir.

Almost Too Intense

Theise was so intense, so totally into what he has doing, that there were a couple of points where I just couldn’t stand it and had to take a break outside to catch my breath. At times his propensity to extended navel-gazing (in both English and German) was more than I could take, too. But I always came back, drawn to the wines and the strong sense of place that each displayed and to Thiese’s addictive if sometimes irritating passion.

This book has the same intense energy and the same ability to frustrate — I like it a lot in small doses. Too much at a time and I feel overwhelmed.

Much of the book is a defense of elitism regarding wine — an attitude that I term Martian (after Martin Ray) using Thomas Pinney’s terminology (see Wagnerians versus Martians). Theise wants to “remystify” wine, for example. Attempts to make wine “accessible” so that the masses can understand and appreciate it have the bad effect of dumbing down consumers and dumbing down the wine. Don’t de-mystify, Theise argues, educate and elevate.

Curse of the Blue Nun

It’s Theise’s business to sell wines, mainly German and Austrian Rieslings and some grower Champagne, and you can appreciate why his commercial experience would cause him to resist sacrificing authenticity for accessibility. I’ve written about how the boom in simple cheap German wines in the 1970s nearly destroyed the industry (see Curse of the Blue Nun). If it could happen to Riesling, once the undisputed Queen of white wines, it could happen to any wine. To all wines. You see the problem.

So I could practically hear Theise moaning over my should as I wrote my last blog post on the Democratization of Wine. Making wine easier and more accessible? That’s the road to Hell.

And yet I think Theise and I could easily find common ground (especially if we opened a bottle of Dönnhoff as we talked about it). At one point in the book Theise backs away a bit and looks at the debate about wine from a broader perspective. There are some who believe that globalization has improved wine, he says, and they are right. And there are others who fear that globalization will ruin wine. And they are right, too.

The rise of the global market for wine has raised the floor on wine quality, but has it also lowered the ceiling? Theise knows that the rising floor doesn’t need any help to sustain itself — the market will flush out flawed wines without his assistance. But someone’s got to keep the ceiling from collapsing and those great Rieslings and other unique wines from disappearing into the McWine vat.

Revenge of the Terroirists

It’s a matter of taste, of course. You might think the rising floor is great and that the ceiling is plenty high enough. Others might disagree. Well, if we can’t agree about taste, Theise writes, at least we may be able to agree about diversity and the need to preserve a great diversity of different wines.

I agree with Theise about the rising floor and I acknowledge that markets’ rationalizing tendency. But I am more optimistic than he is. I’m optimistic because the same global markets that allow for mass-production of wine also create the opportunity for small, quirky producers to find markets for their artistic output. (Josko Gravner is a good case in point.)

It’s not either/or. The market doesn’t either destroy small producers or preserve them, it does both. Finding a healthy mix is what we need to be concerned about.

I’m also optimistic because I believe that the the active force of globalization of wine has produced a reactive force that I call terroirism in my new book (watch for it in 2011). The terroirists will keep us from forgetting about the heights wine can reach and the diversity that wine can attain, even when we find ourselves reaching for ordinary everyday wine on Tuesday night.

Terroirists are key to the diverse future of wine. And Terry Theise is the über terroirist.

The Democratization of Wine

August 23, 2010 By Mike Veseth in decanter, popular culture, wine awards, wine distibution, wine education, wine markets 1 Comment

As a known “Wagnerian” sympathizer, I am naturally in favor of the “democratization” of wine. Power to the People is good, Wine to the People is even better (and sometimes equally difficult to manage). Recently I’ve run into a couple of stories that suggest that good wine may be trickling down to the masses in interesting ways.

Le Froglet Wine

The first story comes from Britain, where “wine by the glass” now has a new meaning. I’m talking about Le Froglet wine, which comes in ready-to-drink stemmed plastic cups. The special “glass” is sealed by a patent-applied-for process that replaces oxygen with inert gas before a peel-away airtight foil seal is applied, thus keeping the wine fresh (in the short term) in its unlikely container

The 187 ml serving of French Shiraz (really?), Chardonnay or Rose wine sells for £2.25 at Marks & Spencer stores. This is wine that you can take anywhere and consume as you please, even if you only want a single glass. It is sort of a wine juice box in functional terms, if you know what I mean, but classier, with a stemmed plastic glass in place of the cardboard box and sippy-straw. I have seen Le Froglet here in the U.S. selling in the $3.50-$4 range.

Expert Opinion?

Le Froglet is noteworthy for several reasons, First, it seems to be very popular in Britain, where it has created a new market category. That doesn’t happen very often.

It has succeeded despite highly publicized expert opinion that the idea of takeaway “cuppa wine” is totally lame. James Nash, the inventor of the packaging and process, appeared on the popular BBC television show Dragons’ Den where supersmart investors took his product and business plan apart brick by brick, leaving him standing in a pile of rubble. Fuggetaboutit, they told him in no uncertain terms.

Interestingly, the people at retailer Marks & Spencer saw the same idea and came to a different conclusion. They viewed the single-serving glass as a perfect place to put their line of Le Froglet French wines. I suppose with a name like Le Froglet they weren’t taking themselves too seriously. Why not wine by the glass to go? Why not indeed? And so they gave it a try. They seem to be pleased with the results.

An M&S spokesman said: ‘The glasses are merchandised in our ‘Food on the Move’ section, which is obviously the aisle people on the go head to – particularly office workers. ‘We think that they are proving popular with people who want to perhaps enjoy the summer with a glass of wine in the park as part of an impromptu picnic – either after work or for a relaxing lunch.

‘They are also popular with commuters who want to enjoy a drink on the train home from work to wind down. We have found that they are very popular in locations popular with tourists.’ The M&S winemaker, Belinda Kleinig, said: ‘This is a really exciting step for M&S – our research has shown that our customers really like the greater convenience of lighter weight bottles so we thought we’d take it one step further with great quality wine ready to drink from a glass.’

The Benefit of Low Expectations

I think one key to Le Froglet’s success is that it exceeds everyone’s expectations (except perhaps the grumpy Dragons’ Den gurus). You don’t really expect the packaging to work, for example. You expect the seal to leak or the plastic glass to break. But apparently it works pretty well. Surprise!

And then there’s the wine itself. You logically expect it to be crap since it comes in such a goofy container. Who’d put good wine in something like this? But apparently the wine is surprisingly good. In fact, Decanter magazine recently announced that Le Froglet Shiraz has won a hard-to-get Gold Medal in its 2010 global wine competition. The award is actually for the bottled version of the wine, which sells for £5.49. Decanter’s editor reported that

‘The bottle is a great value find. It’s fragrant and complex, with lots of dark fruit and savoury chocolate. The plastic glass version is a great idea, but given that the bottled version has a screwcap, won a gold medal and works out cheaper per serve, I’d probably buy a bottle and find my own glasses.’

One element of the democratization of wine is making it more convenient and Le Froglet certainly does that. Of course this convenience comes at a price. One £5.49 bottle of Le Froglet holds four £2.25 single-serving glasses, making the bottled product the better buy. But that glass-bottle price ratio is about what you find in most restaurants, where the rule of thumb is that the retail price of a glass of wine is equal to the wholesale cost of the whole bottle.

Good, cheap and convenient seem to form a trilemma with wine — difficult to get all three at once. Cheers to Le Froglet for making decent wine more convenient, even if it isn’t really cheap.

Burger, Fries and Syrah?

What could be more democratic than fast food wine? Sounds perfect, but it is hard to imagine a fast food restaurant that could find a way to serve wine here in the U.S. with our Byzantine regulatory system.

So you can appreciate my pleasant surprise when I was able to order wine with my dine-in meal at the Burgerville fast food outlet near Vancouver, Washington. Burgerville is a popular Oregon-based fast food chain that specializes in fresh, local and sustainable products.

Burgerville is designed to exceed your expectations about what a fast food meal can be and if you pay a bit more for the food you probably get more, too. The restaurants have always been very busy when I have visited, so people must think they are a good value. I certainly do.

Here is the sales receipt from our meal at the Salmon Creek Burgerville (the only store in the chain to offer wine by the glass so far). I passed on the upscale burger / fries / shake part of the menu this time to take advantage of seasonal offerings: a mound of Walla Walla Sweet Onion Rings (yum!) and two Full Sail Amber Ale Battered Albacore fillets with a side of Oregon cranberry-studded summer slaw. My beverage of choice, a $5.95 glass of flavorful and refreshing A to Z Wine Works Oregon Pinot Gris. Heaven! Fast food taken to a new level.

Burgerville offers three red wines and three white wines by the glass at this location priced at $5.95 and $6.95. I think I’ll have a glass of the Syrah with a bacon cheeseburger on my next visit!

Small Steps [in the Right Direction]

The wines sell pretty well, I was told, which is of course what I hoped to hear. The Salmon Creek store is testing the concept of what you might call premium fast food wine. This store was apparently chosen because it has a large and well organized dine-in area that made it possible to meet regulatory requirements. (Don’t look for wine at the drive through window just yet, although with Le Froglet I suppose it isn’t completely out of the question!).

The democratization of wine? We’re not there yet — wine is still more difficult to buy, sell and consume than it needs to be — but Le Froglet and Burgerville show what we are headed in the right direction. Wagnerians, rejoice!

Big Squeeze on Small Wineries in Argentina

August 15, 2010 By Mike Veseth in Argentina, economic crisis, Economic impact, exchange rates, wine markets, wine price 3 Comments

Argentina is generally seen as the big winner in the current U.S. wine market. Sales of Argentinean wines have surged at every price point led by the signature Malbecs, (something that I wrote about in a recent post). The big picture is great — perhaps the New World’s biggest success story since Marlborough Sauvignon Blanc hit the scene.

Both Sides Now

The devil is in the details, however, and a more detailed analysis of Argentinean exports suggests that some parts of the industry are facing significant challenges. As usual, my source for news and analysis about wine in Argentina is WineSur, which reports that small wineries are really feeling the squeeze in the critical U.S. export market. (See the report by Gabriela Mazilia. )

Small producers are what economists call “price-takers.” They cannot do very much to control the prices they receive on the export markets and they don’t have much control over input prices, either. While a great many business decisions are theirs to take, some of the most critical factors are beyond their control. This is true for all businesses, of course, but more so for some than others.

Mazilia’s report suggests that small Argentinean producers are feeling the squeeze from both sides of the market. Costs are rising rapidly, perhaps especially for the goods and services that winemakers require. Argentina’s inflation rate is about 10% according to official statistics, but unofficial estimates put the number at about 25%, amongst the highest in the world today. Yikes! The Economist‘s Big Mac Index reports that Argentina’s currency is much less undervalued now than a year ago even though the exchange rate has depreciated, which is consistent with rapidly increasing local prices.

Magnified Price Effects

Small producers would like to pass higher costs forward to consumers or backwards on to input suppliers, but neither of these options seems possible at this time. Mazilia’s report suggests that export price increases of 5%-10% are possible for wines that retail in the USD 10-18 range, where Argentinean wines are seen as good values. Increases for more expensive wines are apparently out of the question — the market for $20+ wines in the U.S. is just too competitive, too filled with expensive wines selling a a discount.

One problem Argentinean exporters face is that every 10% increase in the price they receive is magnified in absolute terms as the wine passes through the supply chain. One producer cited the dismal math that a USD 1 increase in FOB export price translates into a USD 4 increase in retail prices. Here is an example from the WineSur report:

A case in point is the winery Sur de los Andes. The firm’s owner and manager, Guillermo Banfi, announced: “In the course of this second semester we’ll raise prices from 5 to 10%, in particular in our line of classic wines. We won’t touch the prices of the great reserve line or of our icon wine. Margins have shrunk so much that there’s no way we can keep absorbing the high increase in costs.”

When asked how much of a margin of increase could be born by an Argentinian wine without losing market share, Banfi provided an example that illustrates the situation in the US, a reference market. “In the US, our wines in the USD 10-18 retail price segment sell very well – these are wines with an FOB price of USD 3-5. With an FOB price of USD 3, the consumer price is around USD 11. A rise of 5-10% would imply an increase of USD 1-2 in retail prices, which would have a negative impact on sales, since pricing is a very sensitive issue in this segment.”

Not Much Wiggle Room

Small producers are caught in a squeeze without much room to wiggle. If they don’t raise prices they will watch their margins disappear. If they do, well, they risk finding themselves in unfriendly market territory.

“The problem is that there will be a radical change of scenario for Argentinian wines in the USD 10-20 retail price range. Up to now, these wines have sold well because they are, on average, superior in quality to similarly priced European wines. But from now on, the gap in quality will be narrower, and we’ll be competing with wines of similar quality and price, from regions with a longer standing presence in the market.

Turbulent Tide

It sounds like Argentina’s small producers face an uncertain future, but this is nothing new. The great success of Argentina’s large international wineries in the U.S. market has masked a churning pattern among smaller winemakers. Each year several dozen small wineries enter the U.S. market, but each year others are forced to exit as the turbulent tide advances.

International connections, effective distribution, economies of scale and brand prestige are always advantages in competitive international wine markets. The are especially important to Argentina’s struggling price-taking small producers today.

Vinonomics: The Mouton Cadet Index

August 10, 2010 By Mike Veseth in Economic impact, exchange rates, Supply and Demand, wine distibution, wine price 6 Comments

Richard Hemming, whose writing appears on the Jancis Robinson website, has invented the Mouton Cadet index to measure international differentials in wine prices. It is an interesting project that is worth following.

Hemming’s price index, which he is calling Vinonomics (in homage to the Freakonomics craze), works like this. First he selected a high-volume wine that is in very wide international circulation to serve as the one-item “market basket” for his international comparisons. Mouton Cadet, the ubiquitous Bordeaux wine, is a great choice since it is so widely distributed (a “15-million-bottle, 150-country brand distributed from Andorra to Zimbabwe,” according to Hemming).

Mouton Cadet may not be the wine sold in the most different countries — Moët & Chandon Champagne would be my pick for that honor — but using Mouton Cadet keeps the Big Mac spirit of tracking the price of an everyday product, not a luxury good.

Sky High in Seoul

Hemming then searched the internet and other sources for prices of Mouton Cadet in as many countries as he could. He converted these prices to Euro, USD and GBP at market exchange rates and published them on the website. (He is hoping that readers will send in additional price data to help complete the table.)

The price differentials that Hemming finds are quite large. The French ‘home country” price for Mouton Cadet is given as EUR 9.55, which is incredibly more than the reported price of the same wine in the United States (USD 7.99 or about EUR 6). Within the Eurozone, where trade is allegedly free, Cadet’s price runs as high as EUR 19 in Austria and EUR 21 in Italy. So much for the “Law of One Price!”

What’s the cheapest place in the world to purchase Mouton Cadet? So far Hemming’s low price leader is the U.S., where French wines struggle to sell in a crowded and very competitive market, followed by Hong Kong (EUR 8.56).

The most expensive? South Korea (EUR 26), Brazil (EUR 21.5) and Italy (EUR 21). The difference between the high and low price is stunning. It is easy to explain South Korea’s high price in terms of transportation costs, regulatory expenses and multiple middleman markups, but the high price given for Italy is difficult to understand. Hard to know who would pay so much for Cadet in Italy.

Bordeaux with your Big Mac?

Hemming’s research project is based on the Economist’s famous Big Mac Index (BMI), which tries to measure the relative purchasing power of different currencies by comparing the local prices of McDonald’s ubiquitous hamburger. Here is a table showing the index as of July 2010.

The table shows that Japan and Australia are very close to Purchasing Power Parity — the condition where a U.S. dollar has the same purchasing power abroad (when exchanged at market rates) as at home. The dollar cost of a Big Mac is approximately the same in all three countries.

Norway’s currency is very over-valued according to the BMI. A Big Mac that sells for USD 3.73 in the U.S. costs a whopping USD 7.20 (converting at market exchange rates) in Oslo. The high cost of buying a Norwegian Krone contributes to the hamburger’s high dollar price there. The Swiss Franc is almost as over-valued — a Big Mac costs the equivalent of USD 6.19 in Geneva.

Hong Kong and China have undervalued currencies by this measure. A Big Mac costs less than the equivalent of USD 2.00 there. The harburger is cheap in part because the currency is so cheap in these countries.

Wine vs Burgers

The Big Mac index is far from a perfect measure of relative purchasing power, but it is not a bad guestimate because Big Macs are standard products with easily discoverable prices and most of the cost of producing a Big Mac takes place within the country in question. I’ve found that if the BMI says a country’s currency is over-valued then it probably is, although not necessarily by as much or little as the index suggests.

The Mouton Cadet index is very interesting for what it tells us about wine prices, but it is probably less useful as a measure of PPP. The wine, of course, comes from France unlike the locally-produced burger ingredients and the local price in South Korea, for example, is influenced by that cost basis (adjusted for exchange rate effects) plus transportation costs. The biggest “local content” factors are the local taxes and wholesale and retail markups within South Korea, which are probably quite high.

Mind the Gap

At this point the Mouton Cadet index is most interesting to me for the questions it inspires (I’ve always said that questions are more interesting than answers). Who’s buying that EUR 21 Cadet in Rome (and are they interested in buying a bridge I happen to have for sale?)

What accounts for the high price in South Korea? The exchange rate is certainly part of it. The South Korea Won is undervalued relative to the EUR according to the BMI. A Big Mac costs USD 2.82 in Seoul and USD 4.33 in Paris — a 50% price differential. The exchange rate therefore might explain 50% of the price gap between the Mouton Cadet price in France and South Korea. What accounts for the rest? (And does that fact that South Korea has no substantial domestic wine industry that I am aware of affect the mark ups on foreign wines?)

And what about Brazil? The Euro is actually undervalued relative to the Brazilian Real according to the Big Mac index, and so the exchange rate is not necessarily a factor in Mouton Cadet’s high price in Rio. What other factors account for the big price gap?

I hope Richard Hemming continues with this project. It would be interesting to have data for additional countries (Japan? Russia? India?) and to see how the rankings change over time and relative to Big Macs.

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I’d like to encourage interested readers around the world to send Hemming local store prices for Mouton Cadet so that he has better data both for international comparisons and to get a sense of intra-country price dispersion.

Fair Trade Wine’s Long Journey

August 8, 2010 By Mike Veseth in Argentina, Fair Trade wine, South Africa, wine distibution, wine exports, wine markets 3 Comments

In this global age we are accustomed to having the world’s assorted products (including wine) wash up conveniently on our local supermarket shores. We seldom give much thought to how they got there or why, but wines don’t make, move or sell themselves so there is always a story to tell.

Case in point: this bottle of 2008 Fairhills Mendoza Vineyards Carbernet Sauvignon purchased last week at a Cost Plus World Market store in Tacoma, Washington. It is the product of a rather complex process of globalization.

Uncorking a Bottle’s Biography

The Fairhills brand is South African, but the wine is from Argentina. Must be a story there. The logo at the bottom proclaims that it is Fair Trade certified – wine with an ethical intent. You don’t see Fair Trade wines every day. The red tag up on the bottle’s shoulder indicates market reality: marked down from $9.99 to $8.88.

(Some studies suggest that wine buyers are not willing to pay more for “ethical” organic or biodynamic wines. In fact, one study found that wines labeled “organic” sold for less than identical wines without the ethical indicator. I wonder if this inverse price/ethics relationship holds for Fair Trade wine as well?)

Fair Trade products, like this wine, ask us to think about supply chains more seriously because they promise to return a bit more to the original producers to help build sustainable communities. I’m interested in the Fair Trade wine movement (I wrote about Fair Trade wines here, here and here), so I thought I’d try to learn a bit about this particular bottle’s long journey.

Twists and Turns

The story begins, unexpectedly, at the Du Toitskloof Winey in South Africa, founded in 1962 as a cooperative by six wine families. Originally a bulk wine producer in the bad old days of South African wine, DTK as it is known has moved upmarket in the post-apartheid export-driven era and Fair Trade wines are part of its strategy.

Since 2005 DTK has worked with the Fairhills Association to produce Fair Trade wine. Fairhills brings together a group of South African vineyard owners and their workers, with the workers having a majority of votes. Fairhills wine farmers supply the grapes, DTK makes the wine and Origin Wine, the third partner, provides logistical and market support. The growers receive a premium for their Fair Trade grapes and funds are returned to the Fairhills Association for community investments, a typical Fair Trade practice.

The initial market for Fairhills wines seems to have been Great Britain, since they worked closely with the UK-based Fair Trade certification group there. Susy Atkins, the Telegraph’s wine critic, reports that Fair Trade wines have good penetration in London through supermarket chains including Co-op and Sainsbury’s and are featured in annual Fairtrade Fortnight programs. Click here to view a list of Fair Trade wines available in the UK. Fairhills has the largest listing (44 wines).

Fair Trade Pipeline

The South Africa-UK wine pipeline proved very robust (South African wines are now the fastest growing segment of the British market) and helped to expand the market both in terms of supply (drawing Chile and Argentina into the mix) and demand (introducing Fair Trade wines to the U.S. and other markets). Argentina is the biggest supplier of Fair Trade wines to the U.S. and the Fairhills Mendoza Vineyards Cab that I purchased at Cost Plus is part of that pattern. Organic Wine Trade Company distributes Fairhills here along with their other “ethical” wine products.

Whole Foods Market is one of the most important retailers of Fair Trade wine in the U.S., which makes sense since they sell so many other Fair Trade products (coffee, tea, chocolate, sugar, energy bars, body care products, flowers and rice according to one list). Other national retailers that stock Fair Trade wine include Sam’s Club, Target and of course Cost Plus World Market where I bought this bottle.

TransFair USA reports that over 120,000 cases of Fair Trade wine were sold in the U.S. in 2009, up from about 20,000 cases in 2008. The growth rate is a source of optimism, but the absolute quantity is relatively modest – about the production of a single medium-sized domestic winery. TransFair says that the 2008-2009 sales produced a “premium” of over $130,000 that was returned to the grower cooperatives — quite a lot relative to the low wages they receive as farm workers. The distributor website reports that:

Fairhills Cabernet Sauvignon benefits the local farmers of Bodegas y Viñedos de Marañon and three small producers along with their farm worker community in Mendoza, Argentina. The Fair Trade initiative is dedicated to ten farms to improve the quality of life for 210 members and 300+ children. The initiative is one of the first in Argentina and has used their sales to upgrade various schools in the region, purchasing new toys, establish a soup kitchen, and purchase an ambulance for the local health care center. Future plans are to convert from conventional farming to all organic, building a sports club, and continue improving health care clinics and schools.

The journey that brought this bottle to my cellar is thus quite complicated. The wine comes from Argentina, but it wouldn’t have got here without help from people in faraway London and South Africa. The fact that this complex web can return community benefits to Mendoza farm workers is heartening, even if the amounts are quite modest at present.

The Future of Fair Trade Wine

Fair Trade coffee is easy to find these days — in fact it is impossible to buy anything other than Fair Trade coffee on my university campus. Fair Trade chocolate is everywhere, too. But Fair Trade wine remains a tiny (but growing) market niche. I wonder if this will change and what barriers Fair Trade wine must overcome to achieve the success of Fair Trade coffee? With this question in mind I’m starting a small research project to learn more about Fair Trade wine’s present market condition and future prospects. Watch this space for occasional related posts in the coming months.

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Thanks to Kazuko Golden at TransFair USA for helping me with statistics about the Fair Trade wine movement. Thanks to Leigh Barrick for sharing her research on Fair Trade wine with me.

Extreme Wine: The Worst?

August 2, 2010 By Mike Veseth in extreme wine, technology, wine education, wine markets, wine science 10 Comments

What’s the worst wine in the world? Not the worst type of wine, varietal or style (these are matters of taste and degustibus non est disputandum here at The Wine Economist). And let’s rule out the worst idea for a wine, too, because Miles’s dump bucket cuvée from the film Sideways (shown above) is the clear winner.

No, I’m talking about the worst professionally made (amateur efforts are another category), commercially sold wine — the wine with the most serious objective flaws that was released to the market despite its potentially reputation-ruining qualities?

Corked and Screwed

In terms of a single vintner economic impact, it was probably the 1985 David Bruce Chardonnay that George Taber talks about in his excellent book To Cork or Not to Cork? David Bruce is known today as a maker of fine Pinot Noir but back in the 1980s their Chardonnay was a big hit. A hit, that is, until the 1985 vintage was plagued by massive incidence of cork taint that almost destroyed the winery by ruining the reputation of its most important wine and effectively drove it out of the Chardonnay business.

Turns out the faulty corks had been rejected as tainted by Robert Mondavi and the cork importer sold them off to David Bruce rather than having them destroyed or sent back to Portugal. A big economic hit indeed. But I need to rule out cork taint for this extreme wine competition because it is so utterly unexceptional. Virtually everyone who bottles wine with cork will experience cork taint — 3-5 percent loss is the figure usually cited.

Bad Wine Uncorked

I had the opportunity to understand what really bad wine is like last week when I attended a professional wine faults workshop organized and taught by Amy Mumma, director of the innovative World Wine Program at Central Washington University (profiled in this recent Yakima Herald-Republic article) .

Amy’s background is in biochemistry and wine business and this gives her an unusual ability to detect and analyze wine flaws and advise wineries (something that the legendary Emile Peynaud was famous for). To steal a line from Ghostbusters, Amy is the answer to the question “who ya gonna call?” when something goes wrong with your wine.

Amy led my group of about 50 wine professionals through a tasting of twelve wines that illustrated different fundamental flaws ranging from what was probably a simple shipping problem (“cooked” when its shipping container got too hot) to a palate-destroying example of a badly corked wine. When retailers are suspicious that a wine on their shelves may be faulty, they call Amy and, if the problem is bad enough, she buys the bottles for use in her classes. All of the flawed wines we sampled were purchased through normal retail channels.

Worst of the Worst

The worst wine we sampled was a real dog (no offense to canines intended). It was a Columbia Valley Merlot plagued by the thankfully rare combination of reduction, oxidation and Brettanomyces. It looked bad, smelled bad and tasted (gasp!) horrible. Certainly one of the worst wines I’ve ever tried. Why in the world would anyone put their label on this wine and send it into the marketplace to represent them?

Drawing upon her science background, Amy was able to explain to us how this awful combination of defects occurred, but the question of why anyone would try to sell it remains. Ignorance? Incompetence? Arrogance? Cash flow demands? Hard to say. Some wine flaws (like the “cooked” wine) can happen after wine leaves the maker’s control, but many of the flawed wines on retail shelves were already in bad shape when they left the warehouse. No excuse for this. Reputation is critically important in the wine business and it is established (or destroyed) one bottle at a time.

You May Not Want to Know the Answer

Amy’s class was great — she’s a wonderful teacher — and gave us a lot of useful tools for detected and understanding wine flaws and for dealing with related trade and consumer issues. Amy answered all our questions but one: who made these awful wines? She kept the makers secret, so I can’t report them here (although I have a guess concerned one particularly nasty white wine that was clouded with silky black strands of dangerous bacteria).

What’s the worst wine you’ve ever tasted, I asked Amy. You may not want to know her answer.

The worst wine ever sampled smelled and tasted like somebody urinated in a tin can of clams. Seriously. Absolutely disgusting. It was a process of putrification caused by high levels of bacteria and was a Washington State Cab Sauv. And it was at retail price in wine shops. I think some of the worst have been high levels of mercaptans or those with excessive ethyl acetate that you can’t even get near your face without your eyes watering.

I’m trying to imagine who would sell a wine like that! I wonder what consumers thought when they brought home the bottle and pulled the cork? I imagine that some of them probably thought the wine was supposed to taste like that. You can scratch that customer off your mailing list!

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Watch for a future post on the World Wine Program at CWU, a unique approach to educating wine business professionals.

[Note: This post is part of an occasional feature on extreme wines. Extreme wines? You know, the cheapest, the most expensive; the biggest producers, the smallest; the oldest, the newest and so forth.]