Wine Books Revisited: Lewis Perdue’s “The Wrath of Grapes”

March 26, 2024 By Mike Veseth in book reviews, economic crisis, wine, wine markets 5 Comments

A look back at The Wrath of Grapes by Lewis Perdue (Spike Books / Avon, 1999).

Over long, hard decades, American winemakers have won the respect of connoisseurs everywhere. Many of the world’s most cherished, and expensive, wines come from the United States. But today, the unique and eccentric wine industry faces a grim set of challenges that could transform it forever: oversupply in the face of flat consumption, devastating vineyard diseases, an antiquated distribution system, fierce competition from abroad, attacks from anti-alcohol forces, and an inability to capitalize on wine’s proven health benefits.

Sound familiar? This list of problems plaguing the wine industry reads like it could be taken from today’s wine industry news headlines. But it comes instead from the back cover of a 1999 book by Lewis Perdue. What can a 25-year-old analysis of the wine industry’s woes tell us that will help us today? I couldn’t resist looking back. Here is what I found.

Is It Time Yet?

The Wrath of Grapes was one of the first books I read when I started studying the wine business. Going back to it now I am impressed with how relevant it remains today and how much it has obviously shaped my thinking about the wine industry.

The first part of Perdue’s book is a sharp critique of the American wine industry. Why don’t consumers buy more wine? Because the way that wine is marketed confuses and intimidates them. Perdue cites the famous Paul Masson ad campaign starring Orson Welles as an example. The tagline “We will sell no wine before its time” was meant to assure consumers that Paul Masson was mature and ready to drink. But, consumers might have wondered, does this mean there is a wrong time to drink this wine? Maybe I’d better stick to beer!

It might be possible to overcome the misguided marketing strategies of individual wineries through an effective generic marketing campaign, Perdue suggests. But the wine industry is too dysfunctional to do anything important. Leadership and followership both fail at critical points. Vested interests focus on share of the wine market pie, so little is done to grow it.

I am not enough of an insider to evaluate Perdue’s critique of industry politics either then or now, but he pulls no punches in casting blame. Only one industry group, Women for WineSense, is praised for their effectiveness.

An even bigger problem than marketing is the lack of a cohesive strategy to address concerns about wine and health and the neo-prohibitionists who push for policies to reduce and restrict wine consumption. If nothing is done on this front, Perdue asserts, falling consumption is assured. Well, nothing much was done and here we are.

Love, Not Money

Part II is titled “Investing in Wine” and it takes the topic broadly, offering advice and analysis for those thinking of investing in a vineyard or winery, investing in fine wines for resale, and investing in the wine business through common stocks. Is investing in wine a matter of love or money? I suspect that most people would say “both,” but Perdue warns that you’d better be doing it for love because there are other ways to earn similar returns with less risk.

I think this was the first time I had seen an economic breakdown of a bottle of wine. Where does the money go to produce the wine (hint: grapes are not the biggest cost)? And how is the final price distributed between producer, distributor, and final seller? The specific numbers are different today, of course, but the fundamental analysis remains shockingly relevant.

Perdue’s hard-nosed analysis of wine-related common stock opportunities circa 1999 makes interesting reading. Coming from a Silicon Valley venture capital background, he is very objective about business models and risks and, interestingly, pays some attention to the perks such as wine discounts or special events that some of the wine companies offer their shareholders. He sees the perks as part of the “love” you need to get out of your wine investment to compensate for the risky return.

But perks aren’t everything. If you read Perdue’s analysis of the Robert Mondavi company, for example, you can appreciate the troubles that were building in its business model and why it got into such trouble a few years later. You’d need a lot of discounts on Opus One to compensate for the underlying economic woes.

There are three useful appendices. The first explains financial ratios, which anyone needs to understand to make sound investment choices, but not everyone thinks about when contemplating wine. Vineyard finance is the second topic, explored through a simple example of the sort of financial analysis that an intelligent investor should consider. The book concludes with a brief statement about wine and health.

Back to the Future?

Although some parts of The Wrath Grapes have naturally aged better than others, the book’s overall argument remains timely and relevant. Most of the big problems that Perdue wanted us to take seriously 25 years ago remain at the top of the agenda. No wonder the book is still in print.

If you haven’t read The Wrath of Grapes in a while, it’s time to look back at what Lewis Perdue was saying 25 years ago so that you can look ahead with more insight.

The Tax Man, Carl Lewis, and the Paradox of South African Wine

March 19, 2024 By Mike Veseth in economic crisis, Economic impact, South Africa, wine, wine markets 4 Comments

It was an unlikely pairing. Thirty years ago the legendary Olympic champion Carl Lewis became the face of Pirelli, the Italian tire maker. “Power is nothing without control,” the advertisements proclaimed.

This photo of sprinter Lewis in high heels made the point very well (as did a spectacular television commercial). Power without a strong foundation isn’t very useful. It is important to assess situations from the ground up (where the “rubber meets the road”) rather than simply top-down.

The Tax Man Cometh

What prompts my interest in vintage tire advertisements? I am inspired by recent reports from South Africa. The wine industry there, as I will explain below, is robust and resilient, and yet fragile. However, the South African government doesn’t seem to appreciate the situation’s complexity and has recently announced an excise increase of 7.17% on still wine, 7.17% on sparkling wine, and 6.67% on brandy. This is a harsh blow to an economically important but fragile industry just as it moves to recover more fully from the dismal pandemic days.

It is worth noting that South Africa is not the only wine region facing detrimental tax or other policies. One survey of winegrowers in Ontario, for example, lists discriminatory tax treatment as one of the top two or three headwinds and I know other regions with similar concerns.

It seems to me that the officials behind this tax fail to appreciate the wine industry’s double nature. It is robust, resilient, and an important economic driver of the national and many local economies, which is something to be protected. But, at the same time, it is fragile because the foundation of the wine industry is farming, and especially in South Africa, that is a difficult business.

Read the Report!

I recommend that government officials study a recent report issued by South Africa Wine titled “Macro-Economic Impact of the Wine Industry on the South African Economy.” The report traces the economic impact of the wine and brandy industry on the South African economy, making the case that it is an effective driver of economic growth.

The wine and brandy industry’s extensive value chain, which is deeply rooted in agriculture, has, over the past 365 years, played a significant role in South Africa’s cultural and economic history. Its distinct role within the South African alcohol industry landscape includes an extensive rural footprint, tourism, foreign revenue via exports of wine to more than 120 countries, and the associated brand reputation for the country.

You would not think it necessary to make such a case, but the industry suffered a variety of headwinds in recent years, including devastating drought and covid-related policies that banned the domestic sale of alcoholic beverages for long periods and also limited port access that is necessary for export shipments. What a nightmare!

Unsustainable Foundations

So it is important to dig down into the report to assess the condition on the ground, which in this case means the wine growers. The news is not good. Winegrape growers in South Africa, as in many places including the United States, have been hit with rising costs and limited opportunities for price increases. Margins have been squeezed like a fragile grape.

This chart from the report shows how quickly a fragile situation has worsened. In 2018 only 20 percent of grape farmers reported profits high enough to justify continued investment. Fifty-two percent of growers reported unsustainably low profits. Twenty-nine percent experienced losses. This is a picture of an industry on the edge.

Fast forward to the 2022 vintage and you can see that conditions deteriorated significantly. Only 12 percent of growers experienced sustainable profits while nearly a third reported losses and almost half unsustainably low net revenues. It is no wonder that hectares under vine have been in steady decline.

The Curse of Stein’s Law

In the past, the report explains, winegrowers have responded to higher costs by pushing up vineyard yields rather than through price increases. This strategy is difficult to sustain, however, and Stein’s Law holds that if something cannot go on forever, it will eventually stop. The steadily falling quantity of producing vineyard land indicates Stein’s Law at work.

So what should the government do when an economically important industry, with substantial domestic and international backward and forward linkages, is in such a fragile condition? Raising taxes on its products doesn’t seem like the obvious answer. Some may argue that the tax increases are intended to reduce alcohol abuse, which they might do, except for the existence of robust illegal alcohol markets, which would likely expand as the regulated market declines.

The South African wine industry has many problems, just like other wine regions today, but it has one thing going for it: professional organizations like Sound Africa Wine that provide unusually strong data and analysis that could and should help guide public policy. Now it needs government officials to wake up and understand that the wine industry is a powerful but fragile engine for growth and change and not just a conveniennt source of tax revenue.

What’s Your Wine’s Story? From 19 Crimes to 1000 Stories

March 12, 2024 By Mike Veseth in The Next Big Thing, wine, wine brands, wine markets 4 Comments

“What Young Wine Drinkers Want” is the title of a recent Financial Times article by Hannah Crosbie, one of several recent reports probing the priorities and buying habits of younger consumers. Taken together, they give anyone concerned about the future of the wine industry a lot to think about. Compared to the baby boomers who drove the wine industry for many years, younger consumers differ greatly in terms of their economic situation, communications preferences, relationship to alcohol, and much else.

The Changing Nature of “Story Wines”

One common theme is that younger consumers want more than something to eat or drink. They want products that tell a story that they can pass on to their friends and make part of their own story, too, in one way or another. Wine is good, but wine and a story about the wine are much better.

To be fair, the story element of wine purchases is not new, it is mainly that the importance has increased and the type of story has changed. First-person stories of visiting wineries and meeting winemakers are powerful, for example. I have some boomer friends who like to tell some version of a numbers story. Sometimes it is about how much the wine cost and sometimes it is about how little they paid (hello, Two Buck Chuck). Often it is about critics’ ratings. These stories intersect with various identities ranging from aspirational to reverse snobbery.

I am sure that these stories resonate with many younger consumers, but recent articles suggest that today’s consumers are looking for narratives that better connect to their identities. So story-telling, which has always been important in wine, is even more critical today.

Don’t Need No Stinkin’ Badges

One of the most-read articles in Wine Economist history is a 2018 column about 19 Crimes wine, “Outlaw Wine? 19 Crimes Succeeds by Breaking All the Wine Marketing Rules.” The article argues that there is no particular reason 19 Crime, which started as a brand featuring rather unfashionable Australian Shiraz, would have become a hit, especially with younger consumers. The key, I wrote, is the “outlaw” backstory, which resonated with many young male consumers.

19 Crimes is still a storied wine, but the story has shifted a bit since that column first appeared. Now it is also a celebrity story wine, with labels that feature Snoop Dogg and Martha Stewart. “Every bottle tells a story,” the wine’s website proclaims along with the outlaw motto, “It’s good to be bad.” And every bottle does tell a story via augmented reality technology. Just download the app and scan the label. Talk about a story wine.

One Thousand Stories

Sue and I recently took part in an online tasting of wines from a winery that has so completely embraced story-telling that it is even in its name: 1000 Stories wine. 1000 Stories is a line of California appellation wines produced by Fetzer/Bonterra, which is part of the multinational Concha y Toro wine group.

The name draws directly from the interest in story-telling. We all have stories, according to the website, and we want to add stories and share stories. Every bottle tells a story, too. The mood is upbeat compared with the darker 19 Crimes vibe, but wine as part of your identity theme is still there.

This umbrella story is supplemented by several (but not necessarily a thousand) supporting stories. 1000 Stories claims the title of the first bourbon barrel-finished wine (there are now several of these on the shelves). Used bourbon barrels are toasted and used to finish the wines. Since these barrels come from different distilleries and have different characteristics, each batch of wine is a bit different (that is, it tells a different story of its origins). In a world of homogeneous commodities, this will be a story that will resonate with many.

The use of bourbon barrels is not traditional, but I don’t see a problem. I remember visiting Justino’s winery on Madeira, where used barrels are so important to the process. They were using a few used whiskey barrels in an exchange with a distillery that was using used Madeira barrels to add some complexity to its whiskey. I thought that was pretty interesting, so I can’t criticize bourbon barrels for Zinfandel if the results are worthwhile.

The Bison Story

Concha y Toro and all its subsidiaries are certified B Corporation businesses, so there is a subtle social and environmental responsibility story told by the “B Corp” logo on the back label.

The back label doesn’t mention the story behind the bison on the front label, which is kind of puzzling. What does a bison have to do with the 1000 Stories? The answer is a good story. 1000 Stories is working with a group called Yellowstone Forever to support bison conservation in Yellowstone National Park. Why not advertise these efforts more clearly on the wine bottle? I speculate that perhaps it is left to the informed wine drinker to share the story with friends. Word-of-mouth is the most effective way to get a story passed around.

Sue and I have been tasting through the 1000 Stories lineup. The Zinfandel is balanced and rounded by its 5 grams per liter of residual sugar, but not avoids being the sugar bomb that many wines that target younger drinkers have become. It was great with BBQ brisket. The Red Blend is an interesting mix of grape varieties including Teroldego, Zinfandel, Cabernet Sauvignon, Petite Sirah, and Pinot Noir. It played nicely with a ham dinner.

I admit that I sort of wish that 1000 Stories really just focused on one story — it would make the wine’s story easier to tell. But I admit that people aren’t one-dimensional, so why should wines and their stories be monolithic.

I am not sure which of the many stories of 1000 Stories resonates with me, but then I doubt that I am the target audience. Pragmatically, what’s important for the wine industry is that wine brands pitch stories that connect with consumers, especially newbies who are looking for reasons to connect.

License to Steal 2024: Forging Best Practices in Wine Marketing

March 5, 2024 By Mike Veseth in wine, wine education, wine markets 1 Comment

I will be in Syracuse, New York, next week to speak at License to Steal, a national wine marketing conference that is being held in conjunction with the Eastern Winery Exposition.

License to Steal? Well, it is all about wine industry people gathering to talk about their marketing experiences, encouraging each other to “steal” strategies that have worked as a way to grow the total market pie. This would be called “sharing best practices” in consultant-speak. It is a great idea whatever you call it and very important today when the wine industry faces many headwinds.

License to Steal is nearly 20 years old. It started when seven state association directors (Illinois, Indiana, Michigan, Missouri, New York, Ohio, and Pennsylvania) got together. It is a national conference today, providing an important grassroots forum for wine marketing information.

Donniella Winchell, Executive Director of the Ohio Wine Producers Association and Conference Chair, describes License to Steal as “a place where wineries, growers, and ancillary entities willingly share, collaborate, and contribute to the future strength of the grape and wine communities across the nation. Sessions are lively, interactive, and led by some of the most exciting marketing minds in the business.”

I am looking forward to seeing everyone in Syracuse, learning as much as I can, and contributing a few ideas of my own, Here is the program agenda. Lots to talk about, think about, and plenty to steal, too.

Wednesday, March 13
8:15 – 9:15
Mike Veseth, The Wine Economist
Secrets of the World’s Most Respected Wine Regions
Wine economist Mike Veseth probes the world’s most respected wine regions to uncover the
secrets of their success and reveals how these secrets can be applied to wine regions around the
world.

9:25 – 9:55
Karen Thornton, AVA Program Manager
Avoiding AVA Petition Pitfalls
This presentation will help applicants move through their application with a minimum of
mistakes and resulting subsequent delays in the approval process.

9:55 – 10:10
Jim Trezize, President, WineAmerica
How WineAmerica represents your interests in Washington
Learn how this dynamic organization serves as a sounding board, represents your interests and
helps to protect the industry’s future as we deal with the coming pressures from the neo
prohibitionists, shipping issues, including the coming Farm Bill as is crafted in Congress.

10:10 – 10:25
Michael Kaiser, Vice President, Wine America
Legislative and Regulatory updates from Washington
An update from Washington on issues of concern to the American Wine industry including
Ingredient and Nutrition Labeling, Interstate shipping issues, and music licensing.

10:25 – 10:40 Coffee break

10:45 – 11:25
Ankita Okate, Chief Growth Officer, Beverage Trade Network | USATT
Using AI to take your winery into the techno future PRE-RECORDED
This topic encompasses the current impact of AI on the business, future AI trends, and
opportunities, preparing for the AI revolution, personalized recommendations, predicting market
demand and consumer preferences, quality control, compliance with regulations, enhancing the
sensory experience, sustainability, inventory management, and the future of the industry.

11:25- noon
Steal Session – Identifying New “on-ramps” For Our Industry
As boomers age and the Z generation’s affinity for RTDs and bourbon is ever-growing, we need
to find new ways to build new ‘on ramps’ to maintain the vitality of our industry

Lunch and visit the trade show

2:30 – 3:15
Maureen Ballatori, 29 Design Studio
Algorithms Reward Accounts That Share Videos
As social media moves more and more toward entertainment, algorithms reward accounts that
share videos. Video content tends to receive more impressions and a wider reach. In this session,
we’ll go beyond the basics to look at what truly moves the needle on social media.

3:15 – 3:30
Roger Brooks – Destination International – video PRE-RECORDED
Words that work
As marketing programs are designed, using the ‘correct’ words will provide the foundation for
success.

3:40 – 4:20
Clint Bradley, the Bradley group
New Customer Experiences & Inter-Generational Connections
What’s Old is New will focus on opportunities for the wine industry to capitalize on current
societal and demographic trends. Hint: it’s about creating new customer experiences and
building intergenerational connections by introducing young people to wine in ways that touch all
the 5 senses.

4:20 – 4:40
Steal Session
Refreshing Events: Festivals, Trails, Dinners, Wine & Food Pairings
As wine festivals and events are experiencing diminishing attendance numbers, we will explore
new ideas and approaches to rebuild and re-imagine these marketing tools.

Thursday, March 14
8:20 – 9:20
Chris Puppione, Regional Account Manager for Coravin
Part 1 of a 2-part workshop
What I Talk About When I Talk About Tasting Rooms
Welcome to the modern world of hospitality, where customer loyalty is not good enough; we
must dedicate ourselves to transforming those we serve into passionate advocates. In an era when
the bar for hospitality in tasting rooms is set painfully low and satisfaction will not suffice, we
must redefine the game. We will discuss the power of listening, creating unforgettable moments that elevate experiences, and how to make it effortless for your customers to love your brand

9:30 – 10:30 –
Chris Puppione
Part 2 of a workshop
By mastering the art of influence, rapport-building, and storytelling, learn how to fulfill your
guests’ core needs while fostering a sense of belonging, status, and self-fulfillment. We will
discuss impactful ideas that help keep things fresh in developing exclusive experiences and will
make everyone want to be a part of your tribe. In this session, we will explore our current
hospitality economy and discuss how you can be the answer to building lasting cultures where
teams and customers stay for years, making it stunningly simple to get it right.

10:30 – 10:40 Coffee break

10:45 – 11:45 Bennett Caplan, FIVS and FIVAS Adbridge
What Does “No Safe Level” Or “NSL” View Of Alcohol Mean For The Wine Sector
There are those who are effectively reconceptualizing alcohol in terms of a view that any level of
alcohol consumption is associated with preventable diseases, such as cancer and heart disease.
What does this “no safe level” or “NSL” view of alcohol mean for the wine sector?

Lunch and visit the trade show

2:30 – 2:45
Steal Session: The WHO’s Wine as “Carcinogen” & the Neo-Prohibition Movement
Sharing ideas about the pressures from the re-emerging Neos: tactics, and potential action plans
to counter their efforts

2:45 – 3:30
Kathy Kelley, Penn State University, professor of Horticultural Marketing and Business
Management
Using Emotion to Engage and Build a Connection with Your Customers
Learn how to use emotion to enhance your customer relationship and improve your brand
commitment. Attendees will discover ways that positive feelings about a brand can significantly
impact consumer loyalty.

3:40 – 4:40
Roger Brooks
“Sell the Experience, not the Amenities” – video PRE-RECORDED
Research indicates that stories sharing engaging, interactive experiences will sell an attraction to
every generation while pretty, but mundane pictures of wine and tasting rooms will not sell them
effectively.

From Yellow Jersey to Blue Bin: Wine Bottle Innovation Steps Up

February 27, 2024 By Mike Veseth in French Rabbit, wine, wine markets, wine research 6 Comments

Last week’s Wine Economist stressed the need to adapt to changing wine market conditions and to embrace innovations as part of that process. However, innovations are not always readily accepted (often rightly so). There is often the fear that change will simply ruin whatever good or service is being considered.

Curse of the Paperback Novel

The economist Paul Krugman likes to point to an innovation in the publishing industry that was initially met with fear and alarm. It will be the end of publishing and literature as we know it, critics said. What was the next big thing that got authors and publishers all worked up? No, it wasn’t the e-book, as you might guess. It was the paperback, which ended up vastly expanding the literature’s reach.

Paperbacks opened up a new world for book lovers. Packaging is one area where wine has embraced innovation, too, but slowly. Bag-in-box was once seen as only fit for inexpensive bottom-shelf wines, but now premium (which in this context means $4+ per bottle equivalent) 3-liter boxes are a hot commodity, one of the few growth categories in the U.S. market.

B-in-B and Beyond

Bag-in-box shows that wine packaging need not end with the traditional glass bottle, but how far can innovation go (without going too far)? My first glimpse of the possible future was back in 2007 when I wrote about two wines that were part of the Boisset portfolio back then. The innovation: extremely lightweight containers.

French Rabbit got my attention with its lightweight (40 grams for the 1-liter box) tetrapak container. The French Pinot Noir in the box was just fine and I liked the smaller sizes, too. Perfect for picnic, backpack, or boat. This kind of container is no longer unexpected, the innovation found its market, although the most recent sales data suggest that 1-liter boxes are not currently a growing category.

Le Tour de Vin

Boisset introduced me to another packaging innovation that did not catch on quickly: the plastic (or PET) bottle. The wine was a French Sauvignon Blanc brand called Yellow Jersey (a reference to the Tour de France leader’s signature shirt). The yellow bottle with a yellow label and screw-cap closure held a perfectly decent wine in its 56-gram container. A delightful bonus (which I did take advantage of) was that the empty bottle could be re-filled with water and then fit perfectly into a bicycle water bottle holder. What could be better? Seriously.

The idea of the PET wine bottle did not catch on, however, and it is easy to see why. Although it preserved the basic traditional wine bottle format, the lightweight turned some people off and many expressed concerns about the interaction between the wine and the bottle itself. I recently found a bottle producer with a PET product line and the recommended shelf life was 18 months. It was a brave (or forward-thinking) producer who took a chance putting wine in a bottle like that.

Enter changing attitudes and innovation. Lightweight wine bottles now have a broader following as environmental concerns have risen in importance and technology has advanced, too. I know of a couple of firms that are working on hybrid solutions that use lightweight PET for structure and a special internal coating to keep the wine from ever touching the PET itself. (This is similar in concept to the cans that hold canned wine, which have a liner to keep metal and wine from interacting.)

Blue Bin to Blue Bin

Blue Bin Wine from Ron Rubin Winery is the first of this next generation of wine bottles that I have seen on the market. The bottles, which are made by Amcor Rigid Packing, are made from rPET (recycled PET) and the bottles are themselves recyclable, but you put them in the plastics bin rather than the glass bin. The bottles are lined with Plasmax, a thin glass-like oxygen barrier. The Plasmax coating holds the wine, rPET holds the bottle, and everything is recyclable.

The shatterproof Blue Bin bottles weigh just 52 grams compared to 450 grams for a very lightweight glass bottle and 550 to 850 for standard glass bottles (the Wine Economist record for an empty wine bottle so far is 1218 grams). A full bottle of Blue Bin (812 grams on Sue’s precision scale) weighs less than many empty glass bottles.

It is easy to see the weight savings from adopting lighter-weight bottles, and there are additional advantages from efficient recycling. Recycled materials are used to make the bottles and the used bottle is easily recyclable, too. As you can see from the photo above, Blue Bin’s label doesn’t hide the recycling story behind this innovative wine.

The wine’s name comes from the ubiquitous blue recycle bins that Rubin and his team saw everywhere they looked in California. The material for the bottles comes from blue bins and that’s where the empty bottles go, too.

Ron Rubin is also the driving force behind River Road Family Vineyards and Winery in Sebastapol (certified sustainable and B Corp and recently recognized by Sonoma CountyWinegrowers for their commitment to sustainability ) and that’s where the wines (Sauvignon Blanc, Pinot Grigio, Chardonnay, and Rosé) come from. Initial distribution is targeted at California, Texas, and Florida plus through the winey website.

How was the wine? Sue and I opened a bottle of the Sauvignon Blanc at our annual Open That Bottle Night gathering. The bottle itself was the main topic of conversation. It was so different from any of the others on the table. But while we talked about the bottle, the wine in our glasses steadily disappeared. The consensus was that the wine showed well, especially considering its very reasonable price point (about $13-$15 depending on where you buy it).

Who will buy a wine like Blue Bin? Well, as with Yellow Jersey a few years ago, there are niche markets that will be attracted by the obvious utility of the lightweight and unbreakable bottles for outdoor activities of various sorts. Our tasting group thought that lots of wines and lots of occasions might be well suited to this packaging, with obvious environmental benefits.

But I think there is another audience that will be attracted to the environmental benefits as well as the convenience factor. Restaurant wine-by-the-glass programs might be interested in the easy recycling element. Fine wine? I don’t see DRC and Screaming Eagle in a bottle like this for now. But wine drinkers, especially younger people concerned about the impact of consumption choices on the environment, just might find Blue Bin irresistible.

Blue Bin wines are a big step in the right direction for wine innovation. Can’t wait to see what’s next.

Got Bacon? What Can the Wine Industry Learn from Pork’s Problems?

February 20, 2024 By Mike Veseth in economic crisis, Uncategorized, wine, wine history, wine markets 9 Comments

The outline of the Wall Street Journal story was very familiar to anyone who has followed wine industry trends in recent years. The product had a long history and was well-loved in America and around the world. But the industry itself was in crisis. Demand was down. Part of the problem was health concerns and part of it was price (its retail price was higher than the most popular substitute). Worse of all, younger consumers were turning away.

Production costs kept rising and rising, but retail prices not so much (or at all, in some cases) eating margins and leaving red ink stains on the account books where black ink profits once regularly appeared.

It all had a familiar ring, except (here’s the punch line), the story was about pork, not wine. “We’re not eating enough bacon, and that’s a problem for the economy,” the headline proclaimed.

Does misery like company? If so, I guess I now feel solidarity with pork producers. Or is it a case of miserable company? I don’t know. But I decided to dive into the article, looking for lessons from the pork crisis.

Lesson One: Re-Education is Difficult.

Wine has a health problem. Moderate wine consumption can be part of a healthy diet (the French Paradox effect), but alcohol itself has many detrimental effects. If you define wine by its alcoholic content, then that’s a problem for health-conscious consumers, who are increasingly drawn to no- and low-alcohol wine (and to the not-wine alternative, too). A challenge for the wine industry is to tell a positive story in the face of the negative anti-alcohol headwinds.

Once upon a time, pork had serious health issues, too. Pork was fatty, which discouraged health-conscious consumers, and needed to be very thoroughly cooked (165-170 degrees) to avoid the disease trichinosis. Changes in production methods over the years have created a healthier product, which is leaner and safer to eat without over-cooking. Pork has become so lean that foodies now seek out fattier heritage breeds with more flavor.

The facts about pork have changed, but consumer attitudes have not changed with them. It isn’t easy to re-educate consumers once the conventional wisdom has been established. It will be hard for wine to change the narrative, too.

Lesson Two: The Perils of Generic Marketing

What would a generic marketing campaign for wine look like? I don’t know (I’m not sure “Got Wine?” would do the trick), but a lesson that we can learn from the pork industry is to be careful what you say and how you say it.

“Pork, the other white meat” was a popular ad campaign that raised awareness of pork products and created an opportunity to establish pork as an alternative to low-fat chicken. The good news is that it might well have prevented a steep decline in pork consumption in the past.

But, the WSJ article reports, the campaign seems to have backfired in the current environment because, if you compare pork to chicken, the chicken is likely to be cheaper — and that matters a lot.

The WSJ article quotes one stakeholder who suggests maybe they should have tried to position pork as a cheaper alternative to beef rather than the new chicken. But, as the graph shows, beef consumption is falling, so maybe that’s not the optimal strategy. The current campaign is “real pork makes a real difference.” Really? Is the goal to lure people away from fake pork? Or is it to discourage chefs from using chicken instead of pork in traditional recipes? Not sure.

Wine needs to take the pork experience into account and remember that wine is more expensive on a per-serving basis than beer or spirits (on average) and a moderate wine consumption message, even if effective, can’t change that.

Lesson Three: Innovation

I was especially interested in the WSJ’s report on how pork producers are innovating to try to stimulate demand. Innovate? How can you innovate something as basic as bacon or a pork chop?

As noted above, some farmers are going back to the future by re-introducing heritage pig varieties that have more fat and flavor than the lean pork products that have taken over the market in recent years. Foodies will look for (and pay for) heritage breeds.

Bacon is a favorite pork product and there are lots of different styles in the supermarket meat case. Smithfield is innovating by making bacon that is more convenient to use, needing just 10 minutes in the oven to crisp up rather than the usual 20 because of special processing before packing. Quick bacon.

My favorite innovation idea (I like the idea, but I haven’t tried the product yet) is Tyson Food’s “pork griller steak.” This is a new cut of pork that Tyson seasons and marinates. It is designed to be flavorful and easy to cook. You can grill it, broil it, pan fry it, or even cook it in an air-fryer so long as you stop cooking when the internal temperature reaches 145 degrees. Note that the recommended temp is well below the old cooking standard for pork, producing a result that is more tender and juicy.

The Folly of Complacency

Some people may be uncomfortable with this wave of innovation in the pork business, but it seems to me that change is nothing new for bacon, ham, and chops. A lot of new ideas will need to be tried to discover the ones that make a difference.

The same is true in the wine business. As a traditionalist, I am not always persuaded by the new wine ideas I see on the shelves. But, as I said recently in a public radio interview with reporter Tina Caputo, “If we simply make the same wine, packaging it the same way, sell it with the same message, we will get the same result.”

Stalin, Machiavelli, and Nutritional Labels for Wine

February 13, 2024 By Mike Veseth in health, wine, wine markets 4 Comments

If you want to start an argument among wine industry people, bring up the issue of nutritional labeling. Should wine labels provide consumers with the same kind of nutritional information and ingredient lists as found on most other food and drink items? Stand back!

The Soviet System

There is an old joke that everything in Stalin’s Soviet Union was either mandatory or forbidden and sometimes it seems like that’s the logic behind wine label regulations.

All wines in the U.S. market already have some required information on the label, but thi smainly takes the form of warnings. Beware of alcohol! This product contains sulfites (without any explanation of what this is and why it might be a useful thing). Negative labeling is required, but FDA-standard nutritional information is not.

Some wineries already provide nutritional information. Some do it because they believe consumers seek transparency in wine as in the other products they buy. Some do it to differentiate their products.

Stella Rosa wines, which are incredibly popular, are the exception to the rule. They do have nutritional labels and they are required to have it. Stella Rosa wines have alcohol levels so low that they are regulated as both wine and also food. The back label of a Stella Rosa wine bottle is a glimpse of the future whether you like it or not. Note that the Stella Rosa label shown here includes sulfites in the list of ingredients, but it also explains its antibacterial function.

A Lot to Learn about Labels

Machiavelli advises us to do willingly that which we will otherwise be compelled to do. Although I don’t accept this as a universal rule, it pretty much sums up my position on the issue of nutritional labeling of wine here in the United States.

The program committee of the Unified Wine & Grape Symposium seems to have embraced the inevitability of wine labeling regulations. There were several sessions devoted to label regulations including the two I have reproduced below. Read the descriptions to get an idea of the topic and issues that were discussed.

Prepping for Nutrient and Ingredient Labeling. The EU is changing its laws to require labels on all wines sold there to have nutritional and ingredient information. The US is exploring this option and potentially will follow suit in several years. What does this mean for you in terms of how you make wines and how you will need to label them?

This session will explore actual EU requirements and some recommended practices to best describe and comply with these regulations. We will also discuss managing your ingredient list and nutritional levels and how to message this information to your customers. Some people have already been doing this for decades and we will discuss their reasons for why they were early adapters and why and how they have managed this through winemaking and messaging over time.

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Labeling Requirements and Regulations. Join us for a two-part comprehensive session on labeling regulations and requirements in the wine industry. The first part of this session will focus on the intricacies of the California Bottle Bill, featuring insights from industry experts and regulators. The second part of this session will explore proposed and anticipated changes in federal labeling regulations and strategies for addressing these changes. Our panel of distinguished speakers will provide valuable insights, and you will leave with a clear understanding of upcoming changes and compliance deadlines.

My Machivellian view is that it is better to accept that the labels are coming (and are already here in the European Union) and try to shape them to best suit both consumer and producer needs rather than to fight an all-or-nothing losing battle. But that doesn’t mean that there aren’t problems with labeling requirements.

Forest vs Trees

My issues with nutritional labels go beyond the wine category. I am a label reader. I want to know what’s in my food and drink and where it came from. But in the process of atomizing products into their parts, I think we have missed something important, which is a focus on the whole. Individual properties are important, especially to people with specific health issues, but the overall characteristics of foods and diets more generally are important, too. And the forest gets lost when we focus so tightly on trees.

This was not always the case. One of the factors that drove wine’s Golden Age, for example, was the French Paradox, which argued that wine was a vital part of a healthy diet and lifestyle. A healthy diet, like a good wine, is about balance.

You might not be able to exactly say that wine was good for you, but like this Wine Spectator cover, you could argue that a diet that includes moderate wine consumption is healthy for many people.

Two cheers for nutritional labels for wine. They are coming and we need to make the best of the situation. Many consumers will find that wine isn’t as unhealthy as they think. But there is much off-label work to do to get wine’s positive message back on the public radar screen.

The Road Ahead: Lessons from the Unified Symposium

February 6, 2024 By Mike Veseth in economic crisis, Unified Wine & Grape Symposium, wine, wine markets 7 Comments

What’s the state of the wine industry? Here are four observations inspired by things I learned at the Unified Wine & Grape Symposium‘s State of the Industry session and in hallway conversations. The theme, if there is one, is a spin on Robert Frost’s poem about the road not taken. The industry needs to choose a direction. Follow the well-trodden path that got us where we are or break away? Frost thought the choice was significant. What do you think?

One: The wine industry has a problem. But it isn’t just wine’s problem.

Everyone knows that the volume of wine sold has declined in recent years, which is a serious problem for many people in the wine value chain. Not every category has suffered equally and there are a few areas of growth. The picture improves a little if we look at the value of wine sold, but this mainly highlights segments where increases in average price have outpaced declining volume.

For many years the industry was built on an expectation of continued growth and it is difficult to re-gear for a declining market with high inventories from previous vintages that cloud prospects for the near future.

Some people were shocked when Jeff Bitter, President of Allied Grape Growers, called for the quick removal of 30,000 net acres of vineyards in California in order to bring supply into line with demand. Jeff has been saying this for several years and I think his message is finally starting to sink in.

What’s behind the headwinds blowing against the wine industry? We used to blame spirits and craft beer. The story was that consumers were shifting to beer and cocktails in preference to wine. But that’s not true in general today. Both beer and spirits have falling overall demand, too.

Wine’s problem is not just a wine problem, it is a beverage alcohol problem. The situation is so bad that even once-hot tequila is cooling off. The Financial Times recently reported that some agave farmers in Mexico are balking at requests to replant for another harvest cycle. Maybe demand will be there when the plants mature. But maybe not, especially if U.S. demand tumbles (markets in other countries are not large enough to absorb a big U.S. surplus).

Two: We are not alone.

OIV data show that global consumption has fallen after a decade of stagnation. The soft wine market is just about everywhere you look, but especially noteworthy in the U.S. and China. I highlight the U.S. because it is the world’s largest consumer of wine (and still, many would argue, the best market around because American wine declines are relatively small compared to some others).

China? Well, that’s my own addition to the list. Chinese wine consumption increased dramatically before the pandemic struck and many imagined that its growth would be enough to offset declining sales elsewhere.

But then came covid, which crippled critical on-premise sales in China, and then the trade wars and tensions that have followed. The Chinese market is opening up again now (Australia has its fingers crossed that Aussie wine will be granted favorable access to China soon), but the market there has changed, and lost its dynamism. China after covid is not the growth market for wine that some counted on. It’s a small world after all and wine’s share of it has shrunk.

Three: The prisoners’ dilemma.

It is one thing to say that the wine industry needs to become smaller, more efficient, and more profitable (and it does!), but how do you do that when there are thousands of growers and wineries each protecting their own interests? There is an element of the prisoners’ dilemma problem here. Collectively, the ideal strategy would be for many winegrowers to reduce vine acreage and take surplus grapes off the market. That would help everyone gain some control over margins.

But collective interests and individual incentives aren’t aligned. If everyone else is going to pull up their unprofitable vineyards, then it is in my interest to keep vines in the ground and gain from the higher prices while they suffer from smaller production. The private incentive encourages everyone to keep production high and the problem continues.

How do you overcome the prisoners’ dilemma created by this conflict of collective versus individual interests? Well, one solution is to play and replay the game over and over until the participants learn that cooperation is a better solution (even then, the “defect” strategy is always a problem). Or some sort of collective action mechanism can be employed, which is one of the things that the Spanish industry’s strategic plan hopes to achieve.

Four: A tale of two futures.

Susana Garcia Dolla, the director general of Spain’s broadest wine industry organization, framed the question in terms of two cycles, one a vicious cycle that reduces the wine industry through crisis and shake-out, and another, a virtuous cycle, that moves ahead toward sustainable profit by design.

Lots of forces will shape the wine industry’s future and it is impossible to expect any predictions to bear up over time. That said, it seems to me that the facts above suggest that we have reached a fork in the road and need to take the right path.

One road leads … well, it leads nowhere in terms of the future of wine. And it seems like the road we are on right now. This road blames consumers for the soft market and fails to confront over-supply in any coordinated way. The industry will lurch along until a critical point comes along, forcing action.

The other road leads to a smaller, more efficient, and profitable wine industry through timely and intentional actions. The process is painful but follows Machiavelli’s advice to give the bad news all at once and the good news a little at a time. Which road will be taken for wine? And what’s the road not taken?

The Case for Cautious Optimism about the Future of Wine

January 30, 2024 By Mike Veseth in economic crisis, Unified Wine & Grape Symposium, wine, wine markets 4 Comments

Sue and I have just returned from the 30th edition of the Unified Wine & Grape Symposium in Sacramento. The Unified is the largest wine industry gathering in the Western Hemisphere with about 12,000 attendees over three days and 900 trade show exhibitors. If you want to take the pulse of the American wine industry, this is the place to go.

So how is the industry’s health? Well, if you go by the economic indicators such as sales trends (more about this next week), the patient is in bad shape. There was bad news in the wine press and the expectation that more bad news was coming (it did).

Economic Pessimism

The situation reminded me of an essay called “The Economic Possibilities of Our Grandchildren” that the English economist John Maynard Keynes wrote in the depths of the Great Depression. “We are suffering just now from a bad attack of economic pessimism,” the essay began. “It is common to hear people say that the epoch of enormous economic progress … is over; that the rapid improvement in the standard of life is now going to slow down …

“I believe that this is a wildly mistaken interpretation of what is happening to us. We are suffering not from the rheumatics of old age, but from the growing pains of over-rapid changes, from the painfulness of readjustment from one economic period to another.”

I quote these lines here because I think that we are today also suffering from an attack of economic pessimism, both in the wine industry and more generally. We tend to look down and to look back, not ahead, and we avert our eyes from good news (about inflation or unemployment or, occasionally, politics) when it unexpectedly appears.

The only bright lights we allow ourselves to see (the Barbie movie, Taylor Swift) are ridiculously popular because of their novelty and scarcity. We look like the drab men and women of Keynes’s day. How sad.

I am part of this environment, of course, and because I am an economist and therefore a licensed deliverer of bad news, I am also part of the problem. I expected to meet a pessimistic wine industry at the Unified Symposium and that’s what I found. But only at first.

Cautious Optimism

Gloom and doom. But then in casual conversations Sue and I discovered a streak of cautious optimism that we didn’t expect. A friend we met at the registration counter who is involved in winery recruiting said she felt that hiring had turned a corner. Another friend who works in bottle closures was optimistic, too. He accepted the current problems but saw a path forward and was moving with confidence. This was not the first crisis he’d seen and he didn’t think it would be the last. Talking with him was a moment of quiet inspiration.

One winery owner was frustrated by all the bad news in the air because she worried about self-fulfilling prophecies. If we think the future will be dark and act accordingly then it will indeed be dark. Someone must turn on a light or at least acknowledge that the light switch is still on the wall.

Sue was working the trade show floor while I was moderating the State of the Industry session. She reported that it seemed like lots of business was getting done. There was a record number of trade show exhibitors and thousands of people in the aisles shopping for equipment and services or checking out what’s new. It was not a dismal scene, she told me. And it was still buzzing when I got there a couple of hours later after the press conference, even though a lot of people were at lunch.

Don’t Look Back!

What should we make of this uncomfortable combination of bad news and hopeful sentiments? In my remarks to the State of the Industry audience, I invoked the great American philosopher (and baseball pitcher) Satchel Paige, who warned, “Don’t look back, something might be gaining on you.”

How you see the future depends upon how you look at the past, which is your reference point. And that’s a dangerous thing because the past can be different depending upon your viewpoint.

If you look at today’s wine industry from the viewpoint of 2008 (as I discussed in last week’s Wine Economist), then you can’t help but be disappointed. The continued rapid growth that the industry expected then has failed to materialize in general. However, there are obvious market segments (thank you, New Zealand Sauvignon Blanc) that have grown beyond expectations.

But if instead, you look back 30 years, to the very first Unified Symposium, then your perspective is quite different. Seen from 1994, the wine market of 2024 is almost unimaginably prosperous. Wine has grown in every dimension: quantity, value, quality, number of producers and brands, global reach. It’s not where we thought we’d be back in 2008, but it is pretty damned amazing from the 1990s perspective.

The fact that the wine industry today is somewhere between the smaller market that they expected in 1994 and the much bigger one projected in 2008 should give us pause. There is a path forward from here; it is not without costs, challenges, and risk, but it is there for those who take it.

Don’t get me wrong. I am not denying the seriousness of the problems wine faces. Remember that I’ve been the frequent bearer of bad news for several years now. But cautious optimism is justified. The road ahead? Come back next week for more thoughts.

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Come back next week for more about what we learned at the Unified Symposium. In the meantime, follow this link for a pdf of Keynes’s essay.

A Look Back at the Future of Wine

January 23, 2024 By Mike Veseth in Future Wine Project, Unified Wine & Grape Symposium, wine, wine markets Leave a comment

The Unified Wine & Grape Symposium, North America’s largest wine industry conference and trade show, is happening this week in Sacramento, California. It is an exciting event where people from throughout the industry (and around the world) gather to share concerns and ideas about the challenges facing wine today.

Questions about the future of wine are never far below the surface of these discussions, which perhaps might explain why, in the run-up to the Unified, a very old Wine Economist column has suddenly started to get more clicks. The column was called “The Future of Wine” and it appeared in 2008 when The Wine Economist was in its first year as an online newsletter.

I am republishing “The Future of Wine?” now not because it got everything right, but rather because it illustrates how much recent events weigh on our vision of the road ahead and how hard it is to guess the future.

Please read all the way to the end if you have time because I think Kenneth Boulding’s point cited there is worth considering now and always. Come back next week when I will get out the crystal ball once again and speculate about the future of wine in the context of what I hear and see at this year’s Unified Symposium.

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Wine Economist “The Future of Wine?” May 25, 2008

What will the world of wine look like in 50 years? A look in the crystal ball.

What if the Chinese were French?

A journalist with a Brazilian newsweekly called me on Thursday to ask for help with a story on China. The magazine is doing a sort of “worst case scenario” report on the potential impact of China’s economic growth on world markets. What would happen to oil prices, for example, if the Chinese used as much fuel per capita as Americans do? Yikes, that would be a lot of drivers using a lot of gas and it would send oil prices through the roof. What would happen if Chinese consumers generated as much waste and pollution per person as people in the West? Once again, the global effects would be dramatic.

What would happen, the journalist asked me, if Chinese tastes changed and they drank as much wine per capita as the current world champtions, the French? Well, that is a very interesting question, even if it isn’t a very realistic one. Annual Chinese consumption of wine is about a half-liter per capita and rising, according to my copy of The Global Wine Statistical Compendium (and a lot of that wine isn’t grape wine, as I wrote in The China Wine Syndrome). Wine consumption in France, on the other hand, is 55 liters per person and falling (it was more than 120 liters per capita in the early 1960s). The figure is about 8.5 liters per capita for the U.S. and 20 liters per capita for Great Britain.

It is hard to imagine how Chinese wine consumption could rise to the current French level. Heck, it is unlikely that the French will sustain their current level for long. But isn’t entirely out of the question that Chinese consumpion could rise to the world average, which is about 3.5 liters per capita per year. That’s a lot smaller increase than the Brazillian reporter was concerned with, but it would still have a huge impact on global wine markets. Much of the increase would probably be met by higher Chinese production; China is already a major wine producer — smaller than Chile but larger than Portugal in total production. But the global effects would be substantial and prices would surely rise.

We can already see some indication of the potential “China Effect” in the market for fine wine. Everyone seems to think that at least some of the rise in Bordeaux prices in recent years is due to Asian and especially Chinese purchases. This trend seems likely to accelerate now that Hong Kong has eliminated its high tax on wine transactions so that it can become the auction hub of the Asian wine market. The latest Wine Advocate reports prices of 2005 Bordeaux that reach stratospheric levels — $500, $1500, $2500 per bottle! This is what happens when a global market focuses on an object of speculation — huge rents (excess returns) are created. As China (and India, too) become more completely integrated into global markets for products like fine wine, these rents will likely rise higher still.

The View from London

The Brazilians are not the only ones interested in the future of wine. Berry Bros. & Rudd (BBR), the London fine wine house, recently celebrated its 310th anniversary with the release of the Future of Wine Report written by four of their top wine buyers (Alun Griffiths MW, Jasper Morris MW, Simon Field MW and David Berry Green). It makes pretty interesting reading if you are interested in what wine markets might look like in 2058.

I say wine markets (plural) because BBR correctly recognizes that there is not one wine market but many interrelated ones. The fine wine market, BBR predicts, will see the rise of China and India as important factors in terms of both demand and supply. “I absolutely think China will be a fine wine player rivalling the best wines from France,” writes Jasper Morris. Britain will become an important producer of fine wines, too, perhaps especially Champagne-like sparkers.

Wine prices will soar even higher, according to the report. “If values increase by 15% per annumn, as they have been doing recently, a case of 2005 Ch. Lafite-Rothschild, currently available for £9,200. could be worth just shy of £10 mllion by 2050,” according to Simon Staples.

The forecast changes are more dramatic in the volume wine market. China will be the world’s largest wine producer. Global warming will shift wine production from France to Eastern Europe and from Napa Valley to Canada. Australia, the report speculates, could see a collapse of its volume wine industry if recent droughts persist. Goodbye Yellow Tail. Hello boutique producers in cooler, wetter areas like Tasmania.

Brands will become even more important in the volume business, BBR suggest. “In 50 years, consumers will ask for wine by the brand name or flavour and won’t know, or care, where it has come from. Grapes will be genetically modified to change a wine’s taste,” according to Jasper Morris, “and producers will add artificial flavourings to create a style wanted by consumers.” Wait — OMG I think I drank those wines back in the 1970s when I was in grad school!

Bottles and corks? They’re history. Corks will disappear because they are inefficient — the contamination rate is too high. Bottles are heavy and environmentally problematic. Tetra pak containers (like the ones used in today’s French Rabbit wines) and other sustainable packaging systems will prevail for volume wine.

The Future of Wine?

So what should we think of these visions of the future of wine? Economists like to say that prediction is difficult, especially about the future, so long range forecasts need to be taken for the educated guesses that they are.

Some forecasts, will be wrong because they are more or less simple straight line extrapolations (How much wine would the Chinese drink if they were French? How much will fine wine costs if its price compounds at the current rate?). It seems to me that simple projections are usually wrong because they are sensitive to initial conditions. Who is to say if long term trends will match those of the recent past?

Some predictions, like the £10 million case of wine, are extreme, but others are probably too conservative. The wine world has a way of surprising us — who in 1958 would have predicted the importance of Chile and Argentina today or the decline of consumption and production in France? People matter, too. People and their ideas are powerful forces that do not always respect historical trends, as refelction on the recent death of Robert Mondavi remind us.

Kenneth Boulding, the great 20th Century social scientist, once wrote a history of the future. He looked back to see what people in the past had said about the world just ahead. What he learned, he told me, was that when the future eventually rolled around, it never matched the predictions, it was always unexpected. The best way to prepare for the future, he concluded, was to prepare to be surprised. I expect this rather general advice applies as well to wine.