Between Two Worlds: The Paradox of the Columbia Gorge AVA

Columbia Gorge: Washington on the left, Oregon on the right.

Washington State produces much more wine than Oregon, but Oregon wines are sometimes easier to find outside the Pacific Northwest. That was a paradox that I discovered as I traveled around the country last year on the Wine Wars book tour and giving alumni talks for the University of Puget Sound.

The Signature Wine Advantage

One explanation for this surprising situation is that Oregon has a “signature wine” while Washington does not. When people think of Oregon they think Pinot Noir and so retailers know what to stock — Pinot Noir at various price points. But what comes to mind when you think of Washington? Nothing, the argument goes, because Washington is many things — Cabernet, Merlot, Riesling, Chardonnay, Syrah, various blends, etc. etc. — and not any one particular thing. Lacking a signature wine variety, retailers don’t know what to stock on their shelves, so they stock less, concerned that it might not sell.

This argument is over-simplified for sure and probably over-sold, too, but the signature variety issue does seems to give Oregon a bit of an advantage over Washington and has caused much hand-wringing on the north side of the Columbia River over the years.

Lucky Oregon — they’re Pinot Noir. Everyone knows who they are. Poor Washington — we’re [almost] everything, but how do we communicate that? I want to look at both sides of this dilemma over the next few weeks and see if I can shed any light on the question of how wine regions define themselves and the challenges and opportunities of the different strategies.

The Other Oregons

So let’s talk about Oregon. It is rightly known for its fine Pinot Noir wines and it highlights this fact each year at the International Pinot Noir Celebration in McMinnville. The IPNC gathers Pinot-makers and Pinot-lovers from all around the world, drawing attention to the Oregon industry. It’s an intense experience — so intense that I use it as the focal point for the chapter on “Extreme Wine People” in my forthcoming book Extreme Wine.

But Oregon is not really a one note samba — it is more than Pinot Noir and more than the Willamette Valley, too. And that’s a bit of a problem, because while signature varieties like Oregon Pinot open doors to a wider market, they can also erect barriers to public recognition of other wines and regions. The wine world is very complicated and I wonder if consumers and retailers who think they finally understand Oregon (or Washington or Chile, etc. etc.) are interested in having that understanding challenged, even if the result would benefit them?

I’m exploring how this question plays out in the “other Oregons” in two stages. We’ve just returned from a weekend of research in the Columbia Gorge AVA, to see one example of Oregon beyond Pinot Noir, and we plan to visit Southern Oregon later in the year for a different take on the situation.

Absolutely Gorgeous

The Columbia Gorge AVA, established in 2004, is a beautiful region with many excellent wines, but it is sort of trapped between two worlds. It starts near the town of Hood River, about an hour east of Portland on Interstate 84, and extends up to The Dalles. The AVA runs along both sides of the Columbia River, embracing vineyards and wineries on both the Washington and Oregon shores. Is it a Washington AVA or an Oregon AVA? Both, I think, but that’s part of the “two worlds” confusion.

A typically complicated Columbia Gorge terroir.

The western end of the AVA is very much classic Oregon on both sides of the river. Like the Willamette Valley, the climate is rainy (36 inches a year on average, but as much as 50 inches at the famous Celilo Vineyard) and cooler climate grapes like Pinot Noir, Chardonnay, Riesling and Gewurztraminer do well here. The Chardonnays and Pinots we tasted at Phelps Creek Vineyards were distinctly and intentionally Burgundian in style, for example, and Rich Cushman’s Rieslings at Viento Wines are works of the Riesling-maker’s art. Nice wines!

Oregon to the West, Washington to the East

So the Gorge is Oregon on the west end (and on both sides of the river), but as you drive east things begin to change. By the time you reach The Dalles you’ve experienced a rain shadow effect and the average rainfall is just 10 inches! Cabernet and Merlot (Washington wine grape varieties) do really well here as do Syrah and even Zinfandel. (Watch for a future post about the 120 year-old Zinfandel vines we found!).

Washington or Oregon? It’s not so much which side of the river as which end of the AVA. But it gets even more confusing (for anyone seeking a simple identity for the wine region), because elevation and aspect are key factors, too. Winegrower Lonnie Wright (the curator of those old Zin vines), drove us to a hilltop where rows of Zinfandel vines cascaded down the south-facing slope while Pinot Noir vines streamed down the north-facing side, the Zin benefiting from the advantageous aspect while the Pinot prospered because of the elevation.

It’s Complicated

The Gorge is divided in other ways, too. While you and I might think of it in terms of wine, other crops are probably bigger business for the local landowners. You can’t imagine the acres of apples, pears and cherries we drove through on our way to the hillside vineyards. And tourism just might be a bigger industry in the long run. Fortunately these three sides of the Gorge economy mainly reinforce each other in a happy way except of course when they don’t (water rights in drier areas, for example).

Washington or Oregon? Well, as I said, both, but not a region that clearly fits into the stereotype of either state’s wine industry. Some of the wine people I met were happy to have the Oregon association since that is so clearly defined (and works quite well for the quantities of Pinot Noir grapes grown here, which often end up in Oregon appellation wines from Willamette Valley makers). But obviously it cannot encompass the great variety of terroirs, climates and grape varieties found in the Gorge.

Wine is just too darn complicated to be reduced to a single thing. Even in Oregon. Or Washington. Or wherever the Columbia Gorge is!

>>><<<

The paradox of the Columbia Gorge AVA is just one aspect of the increasing interwoven nature of the the Washington and Oregon wine industries (and the fact that the Columbia River actually unites these regions more than it divides them). The Walla Walla AVA also crosses the state line, of course, and many “Oregon” wineries have grapes trucked down along the river from Washington AVAs such as Horse Heaven Hills to wineries in the Gorge and the Willamette valley, where they make “Washington wines” in “Oregon” wineries — a good thing for everyone involved in my book even if it adds to the wine region identity crisis just a bit.

>>><<<

Thanks to Lonnie Wright (The Pines 1852) and Rich Cushman (Viento Wines) for showing us their sides of the Gorge — look for more about their projects in future posts. Thanks to Bob and Becky Morus for making our visit to Phelps Creek possible. Thanks to research assistants Bonnie Main and Richard Pichler for their expertise and enthusiasm. Thanks to contributing editor Sue Veseth for research assistance and the photos shown here.

Is Craft Beer the Next Big Thing in Wine?

March 19, 2013 By Mike Veseth in wine markets, wine tourism 3 Comments

Is craft beer the next big thing in wine? No — not if you’re asking if wineries are going to start putting in tanks for IPA (India Pale Ale) alongside their racks of expensive french oak barrels.

But yes — maybe — if you are thinking about things in terms of market spaces. The wine market space and that of craft beer are increasingly overlapping as craft beers infringe on wine’s turf (and low alcohol wines threaten to do the same for beer). And if the common battlefield isn’t huge at this point, it is certainly growing and warrants attention.

Anatomy of Craft Beer

A Craft beer producer, according to CraftBeer.com, the Brewers Association website, has three essential qualities:

Small: Annual production of 6 million barrels of beer or less.
Independent: Less than 25% of the craft brewery is owned or controlled (or equivalent economic interest) by an alcoholic beverage industry member who is not themselves a craft brewer.
Traditional: A brewer who has either an all malt flagship (the beer which represents the greatest volume among that brewers brands) or has at least 50% of its volume in either all malt beers or in beers which use adjuncts to enhance rather than lighten flavor.

Although by definition craft beer producers are relatively small, the market category has made a lot of news recently because of its rapid growth, both in terms of number of retailers who carry craft beers and total sales. Rapid growth from a small base — sound familiar?

It’s the growth that gets your attention. Remember Moscato? It surged from a small market niche to become the next big thing and is according to one report is now the third best selling (by volume) white wine varietal in the U.S. after Chardonnay and Pinot Grigio and ahead of Sauvignon Blanc. Is craft beer the next Moscato?

The Next Moscato?

I put the question this way because the particular beer that provoked this post was actually made with Muscat grapes. It was a 12 ounce bottle of Midas Touch from Dogfish Head Brewery. that I bought for $3.50 at the Metropolitan Market up the street.

Although Midas Touch probably wasn’t made with wine drinkers strictly in mind, it is certainly being marketed to the wine space as the videos below will show you and I have to say that its complex aromas and flavors (plus wine-like 9% alcohol by volume) made it a beer that can stand up to many wines in a sip by sip comparison.

The brewery says that “This sweet yet dry beer is made with ingredients found in 2,700-year-old drinking vessels from the tomb of King Midas. Somewhere between wine and mead, Midas will please the chardonnay and beer drinker alike,” and I can’t really disagree. I found it very pleasing (and not overwhelmed by the addition of saffron as you might expect), although this is clearly a matter of taste. Sue was less impressed, saying that it didn’t taste like beer and wouldn’t be her choice over wine.

Midas Touch is not a typical craft beer, but it demonstrates pretty well what craft beer is capable of doing in competition with wine. It is a complex and interesting beverage that pairs well with food — just like wine. It tells a story that draws in the consumer and deepens the attachment — just like wine.

New and Improved!

Innovation is a hot topic in the beverage business these days and craft beer presents more opportunities for innovation and product development than most wines if you are aiming at that market segment. Midas Touch, based on an ancient recipe using exotic ingredients — is an example of how far the innovations can go.

Interestingly, complexity comes at a lower relative price with craft beer than with wine, which is something to consider. The difference between the lowest and highest priced grocery store wines is huge — sometimes a factor of 50 or more — with $2-3 per bottle equivalent for a 5-liter Franzia box at the low end and $100 or more at the top is not unusual at an upscale supermarket.

By comparison, the exotic product premium for craft beers is relatively low. The Midas Touch was a bargain at $3.50 or about $7.00 per 750 ml bottle equivalent in the sense that it was not very much more expensive than basic beers and ales. I have to admit that it was a lot more interesting to drink that a lot of $7 wines that I have tasted even if, like any particular wine, it is not necessarily to everyone’s taste.

And even the most exotic cult beers (like the locally fabled Pliny the Elder) can often be found for $10-$20. So the Screaming Eagle craft beer equivalent can be purchased for the price of a good but not exceptional bottle of wine. You can see how that might attract the attention of some wine drinkers, especially young ones. And I guess it has.

Wine’s Counterattack?

A lot of the attention has been focused on alcohol levels. Some craft beers are even more potent than the 9% abv Midas Touch, which puts the beer in ballpark of wine. Certainly high octane beer should be treated like wine and sipped (wine glasses are often recommended) not gulped.

But not all craft beers are this boozy and in fact I think that their lower alcohol levels (compared with wine and spirits) can be a competitive advantage when you look at the market that way.

The trend towards lower alcohol wine (like the 5.5% abv line of wines that Gallo recently launched in the British market) might be seen as wine trying to capture some of the beer market through product innovation.

Craft beer drinkers often display the same sort of insane devotion and geeky attachment that we see in wine enthusiasts and there are even interesting beer tourist destinations like Bend, Oregon — an old mill town that is home to 14 craft breweries within easy walking (or stumbling) distance of each other along the Bend Ale Trail, which attracts some of my university students as a Spring Break destination.

Midas Touch

So craft beer has a lot in common with wine and maybe a couple of advantages. With these products more widely available and a growing customer base that is ready and willing to experiment, I think it is plausible and wine and craft beer will increasingly share market space and must take that competition into account.

Will some wineries take the next logical step and start brewing small lot beers? Well, it isn’t a crazy idea where regulations permit it. Compared to wine with its single annual harvest, beer is a Chateau Cash Flow business. Breweries can operate pretty much year round as one batch it bottled and another fills the tanks.

Cash Flow Ale? Maybe that’s how beer-drinking Midas got his golden touch!

Extreme Wine Update and Wine Economist Milestones: Make My Day!

March 12, 2013 By Mike Veseth in Shameless Self-Promotion 5 Comments

Extreme Wine Update

I only have time for a quick update this week — my next book Extreme Wine has gone into production, so I’m busy with the copy-edited manuscript and reviewing potential cover designs. Those of you who simply can’t wait for this sequel to Wine Wars can already pre-order Extreme Wine on Amazon.com — and be very sure to receive it on or before the October 16, 2013 official publication date!

Wine Economist Milestones

Meanwhile The Wine Economist blog has passed a few milestones, publishing its 350th post last week. That adds up to over 300,000 words or more than three book-length publications (a metric that makes sense because I sometimes use this blog to work out ideas for my books).

WordPress.com, the company that hosts this blog, reports that The Wine Economist has had more than 650,000 visits since the first post in May 2007. More than 1600 readers either subscribe to the blog or follow via the Facebook page. Readership is up again this year, with an average of more than 20,000 visits per month so far in 2013.

Who Knew?

Who knew that so many people would find something to like in a blog about the economics of wine? Now if everyone would just pre-order a copy of Extreme Wine — that would really make my day!

Sell Local, Source Global: Welcome to Bota Box Globalization

March 5, 2013 By Mike Veseth in globalization 3 Comments

I think I’ve seen the future of American wine — or at least one aspect of the future, since nothing in wine is simple — and I didn’t need a Time Machine, Crystal Ball or souped-up DeLorean to do it. All I had to do was walk into my neighborhood Safeway store and take a look around.

[This is the final post in a series about what I think I learned at this year’s Unified Symposium regarding the future of the American wine market. Scroll down to the earlier posts if you haven’t already read them.]

The buzz at the Unified Symposium this year was about America’s growing wine market and the bodacious 2012 U.S. grape harvest. Higher demand, abundant supply — happy news. But, as I have argued over the past few weeks, the future is more complicated, full of both opportunities and challenges.

The U.S. is unlikely to be able to meet all of the rising demand profitably in the long run if current trends continue, so imports will likely fill the gap. U.S. producers should adopt a “Machiavellian” strategy to seize control of import flows, especially important at the low-price end of the spectrum, and systematically shift U.S. products into up-market categories. The changes are coming, I’ve written, so the best bet is to think ahead and be well-positioned when the future finally comes around.

Bota Box Globalization

Not everyone agrees with this vision of the future and I’ll talk about alternative views in a moment. But first I want to show you where things seem to be headed. Here for your consideration is a version of globalization that I think points the way. I call it Bota Box Globalization.

Bota Box is a line of 3-liter bag-in-box and 500 ml tetrapak wines from DFV. Jon Fredrikson named DFV winery of the year for 2011 at last year’s Unified and the company has been growing by leaps and bounds — it’s easy to see why.

When I’ve thought about Bota Box in the past, I’ve associated it with good value, alternative packaging and put it squarely in the “California wine” category. Why California wine? Well, because that’s the appellation I remember seeing on the boxes and also because DFV is a major California producer, making about 6 million cases of their own wine brands last year and about another 6 million cases for other firms.

(Data from the 2013 Wine Business Monthly top 30 U.S. producer report — DFV is #8 out of 30 if we take only their own brands into account, wedged between #7 Ste Michelle Wine Estates and #9 Jackson Family Wines.)

Sell Local, Source Global

I guess Bota Box is still a “California brand” and of course an American brand, but DFV is already doing with it what I think many large volume (and some smaller ) producers will do — sell the brand locally but source the wines globally.

The wines were attractively displayed at the Safeway on Proctor Street when I visited on Saturday — appealing enough that the 3-liter Cab boxes were sold out. The wines were priced at $24.99 for the box, which is equivalent to $6.25 per 750 ml bottle, but you could bring the cost down to $19.99 by flashing your Safeway Club Card and cut another $2 off if you purchase in quantity, as you might for a party.

This is good value, but not bottom-shelf cheap. Bota Box is a leader in the “premium box wine” category that represents a big step up from brands like Franzia.

The packaging, the brand and the grape variety are the main things you notice when you survey the color-coded Bota Box shelf, but a little investigation brings the global factor into focus. The Merlot, Riesling, Shiraz were all California wines at my store, but the rest were imports from Chile (Cabernet Sauvignon), France (the RedVolution red blend), Italy (Zinfandel!), Argentina (both Malbec and Moscato) and South Africa (Chardonnay).

South African Chardonnay in a Bota Box? Wow! I didn’t see that coming.

Poking around the web, looking at Bota Box images, it is pretty clear that the sourcing is both flexible and global. Looks like the Malbec has come from exotic Lodi, for example, and that the Shiraz, Cab and Chard were once sourced from Australia, probably back before the Aussie dollar became so ridiculously over-valued.

And the Zinfandel once came from California instead of Puglia and probably still does in some of the containers — you sometimes find the same varieties from different countries on adjacent Bota Box shelves. The 3-liter RedVolution was from France and the big box Cab from Chile at my neighborhood Safeway, for example, but the 500 ml tetrapaks of the same wines wore a California designation.

Bota Bottom Line?

Brand, package and variety are the key factors in this business model — the particular source of the wine is a secondary characteristic for Bota Box, so long the as quality is consistent, as I assume it is.

The bottom line of my series of posts is that I see the U.S. wine market continuing to grow and imports making up a larger and larger part of it as domestic supply constraints kick in, competition increases at the lower price levels and wine export momentum is sustained. Bota Box globalization illustrates one way that smart producers will position themselves to compete in this evolving market while controlling their own destiny.

Going back to an earlier post in this series where I compared the wine market to the apple market, I think we’ll see Juice Box Globalization at the bottom shelf of the wine wall, where pressure for global integration will be very strong indeed, Granny Smith (and Bota Box) Globalization in the middle and the highly differentiated products that represent Honey Crisp Globalization at the top. It’s already happening. Are you ready? It looks like DFV is!

>>><<<

What’s wrong with my analysis? Well, prediction is difficult — especially about the future — and so there is a lot of room for error. One criticism is that my analysis is fairly simplified and a much more nuanced approach is needed. Fair enough. Fortunately Jim Lapsley has already provided that in an enlightening analysis he prepared in 2010. Click here to download the pdf — it is well worth reading if you are interested in this issue. Jim concludes that

The U.S. wine market will look different in 2030. On the demand side, per capita consumption will increase as acculturated Hispanics adopt wine and as wine becomes a more integral part of the American culture. Increased per capita consumption combined with population growth could quite possibly increase total table wine sales to 3.60 billion liters.

California will remain the dominant producer within the United States, but it is likely to lose market to inexpensive bulk-wine imports. These wines are likely to be marketed as global brands, with the location of grape supply of little importance to consumers. This article has also discussed the supply and demand picture for higher priced wine for which location of production is a dominant marketing attribute. These wines, which are largely produced from coastal grapes, face quite different economic drivers on both the supply and demand sides of the market

Jim’s analysis is more sophisticated than what I have posted on The Wine Economist, but we see many of the same factors at work. I see the global integration as being a more powerful factor, but maybe that’s because I’m a globalization expert and pre-disposed to see globalization wherever I look.

Another set of reader comments essentially argues that I am too influenced by recent events and conditions — the relatively weak dollar, for example, the recent surge in bulk wine trade and current supply-demand balance trends and conditions. All these factors could and probably will change. Will they change enough to alter my conclusions?

Good point. They might! But I’m not convinced they will. I guess we will have to wait and see, but in the meantime I don’t think if would be a mistake to get ready for the increasingly global future of U.S. wine if and when it comes around.