Ten Years of Open That Bottle Night

Photo OTBN2009By Sue Veseth, Contributing Editor

In 2009, a group of people with a love of wine and connections to the University of Puget Sound decided to celebrate Open That Bottle Night. Our wines on that February evening included a sparkling wine and a Cabernet Sauvignon from Washington State, a classic Bordeaux, a Chateauneuf du Pape, a California port-style wine, and a Sauternes. The only “rule” of our gathering was that each participant had to bring a story with his or her wine.

At that first OTBN dinner, we knew we were on to something exciting. Open That Bottle Night was an opportunity for our core group — Mike and Sue, Ken and Rosemary, Ron and Mary, Richard and Bonnie — to get together to share wine, food, and, stories.

OTBN logoOver the years, our OTBN celebrations have included additional friends. A few times, one or two people from the core were unable to attend because of work or family needs. Some years, we met at someone’s home for an elegant dinner. Other years, we met at restaurants (with our own wine, of course). We even held potluck dinners for OTBN.

We have toured the world on OTBN, with wines from Washington State, Oregon, California, Arizona, Okanagan Valley in Canada, France, Italy, Spain, Germany, Portugal, Hungary, China, and South Africa.

The rule of wine-and-a-story is still the centerpiece of our OTBN. As expected, most of the wine stories have included special people: My mentor (or parent or boss or friend) gave me this. This was my engagement (or wedding) wine. This wine is from the birth year of my child. We visited with the winemaker at this winery. A wine merchant we trust recommended this wine.

Photo OTBN2019By coincidence, but not by design, our wine selections and stories have complemented each other. This year, with a decade of OTBN experience, a theme of “firsts and lasts” developed with our wines:

  • Sorelle Bronca Brut Prosecco — Mike thought this was the last bottle in his stash of this beautiful Prosecco, but there may be another one or two.
  • La Grande Dame Champagne Brut 1989 — For Ken, the Champagne “was the last of a four bottles I bought from a London wine merchant soon after moving there in 1992. They were the most expensive bottles of anything we had bought up to that point but as you know, I was always on the lookout for the 1989 vintage because Rosemary and I were married that year. Of course, I wish now that we had bought more.”
  • Ramsay Mouvedre 1995 Napa — For Ron, this wine “represents the last bottle of booty Mary and I brought home from our twice annual trips to Napa from 1991-2002. We always brought home to Connecticut some of our favorite tastings from these trips, and this bottle is the last of those souvenirs.”
  • DiStefano Cabernet Sauvignon 1999 Columbia Valley — This was the last bottle from the first full case of wine that Bonnie and Richard purchased. “I think we were all surprised that a Washington Cabernet had held up so well,” Richard said. “That bodes well for our collections!”
  • Andrew Will Sorella 2007 Horse Heaven Hills — For Ron and Mary, this wine was a “first” because it is their favorite Andrew Will wine. It also was the last bottle in a case of Sorella they purchased when it was released.
  • Chateau de Beaucastel Chateauneuf du Pape 2014 —This was the first bottle of the first case of wine that Bonnie and Richard purchased on a futures basis. Maybe not quite ready to drink but a double-first!
  • Dow’s Vintage Port 1994 — This was the first bottle out of a case Ken bought in London. “I have been eager to try it but decided to wait until its 25th birthday to try the first bottle,” he said.
  • Armagnac Napoleon J. Dupeyron Condom c. 1955 —Sue liberated this bottle from her parents when they down-sized. Jacques-François Ryst of Ryst Dupeyron said it dates from about 1955.

“I find it uncanny and wonderful how each year a collective story emerges from our individual wine contributions,” Ron said. “In vino veritas — and narrative!”

At a time when we lament that we are glued to our devices for interaction with family, friends, and colleagues, Open That Bottle Night gives us an opportunity to gather together to share, talk, eat, and drink. The beauty of OTBN is that your event can be as over-the-top or as modest as you want; it’s yours. Even better, the evening reinforces and strengthens long-standing friendships.

Wine & Climate Change: Groundhogs, Gulliver & the Porto Summit Challenge

portoccl

Porto will host a global gathering next week devoted to the topic of Climate Change Leadership: Solutions for the Wine Industry. Sue and I will attend the meetings, including a session on “Economics & Efficiency: A Call to Action” where I will speak along with Stephen Rannekleiv of Rabobank and Robert Swaak of PriceWaterhouseCoopers.

The program is a who’s who of wine industry leaders who have chosen to have a dog in the climate change fight. The list begins with Adrian Bridge, CEO of Taylor’s Port,  who was instrumental in organizing the event, and continues with Miguel Torres, Cristina Mariani-May, Pau Roca, Antonio Amorim, Greg Jones, Roger Boulton, Jamie Goode, Gerard Bertrand, and on and on. Some guy named Al Gore is giving the summit keynote. Anyone heard of him?

I will be very interested in how the conversation evolves both in the official sessions and in the informal discussions that are sometimes more important. Sue will be paying special attention to the associated trade show because she’s very interested in how talk about climate change and wine translates into action and both the nature of the vendor turnout and the quality of interaction will be a good indicator of potential success.

Groundhog Day Syndrome?

There are lots of meetings and conferences about the environment, sustainability, and climate change. Sometimes in the past they have reminded me of the 1993 film Groundhog Day, where the same talk and motions are repeated as if on an endless loop and little of substance seems to change (until, at last, it does). Climate change has reached a critical moment, however, which demands action over talk.

I’m hopeful that the Porto meeting will avoid the Groundhog Day syndrome and one reason why is the focus on solutions — concrete steps to address climate change issues. And that’s why the trade show will be important, too, because it will an indicator of how seriously the market has embraced the importance of climate change and the opportunity for solutions.

The Gulliver Problem

But then there is the Gulliver problem.  Jonathan Swift’s Gulliver found himself in Lilliput where he was vastly larger and more powerful than the tiny citizens. His every action posed a threat to their world and their only hope was to work together to control the giant. Lacking a massive rope to tie the big guy down, the Lilliputians teamed up with thousands of tiny strands.

Climate change is a bit like Gulliver in that it is a huge force that none of us has the power to stop by ourselves. Top-down initiatives like the Paris Agreement are very important, but need to have bottom-up support. Grassroots. Tiny strands. Addressing climate change head on requires thousands of small concrete actions that taken together can have real meaning.

Why is Wine Different?

So where does the wine industry come in? What is different about wine that makes its Lilliputians think that they can take on Gulliver? This is one of the themes of my talk and, while I don’t want to give too much away just yet, let me share a little of my thinking.

There are many reasons why wine is particularly responsive to climate change issues (you have probably already thought of a few reasons as you read this sentence). But here is an important one. Climate change is an existential threat to civilization and the natural environment, but it is not taken seriously enough by many people because its impacts are uncertain, uneven, and projected into the future.

But wine really is different. The future is now for climate change and wine as the combination of higher temperatures and more frequent extreme weather events redraws the world wine map. Wine is fragile, vulnerable. Ultimately there is not escaping the climate change threat.

Wine people have little choice but to seize their Lilliputian tools and work to save their businesses, their vineyards, and ultimately themselves.  Porto will be an opportunity to see both the small and the big. Hope to see you there.

Flashback Friday: OTBN 2010 Revisited

Tomorrow is one of my favorite days of the year, Open That Bottle Night! It is a holiday invented especially for wine lovers.

In honor of OTBN, here is a Flashback Friday column excerpt that returns to a rather fantastic celebration in 2010. Enjoy! (And use the comments section to let everyone know what bottle you uncorked this year!)

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The last Saturday of February is a holiday for wine lovers: Open That Bottle Night (OTBN). It’s the evening when wine enthusiasts come together to share wine and stories.

Although the wines are the official reason for these gatherings, the people and their stories are what it is really all about.

This year Sue and I will be getting together with Bonnie & Richard, Ron & Mary and Michael & Lauri at Ken & Rosemary’s house in Seattle. Everyone’s bringing wine and a story about the wine and Rosemary is making another of her spectacular meals. I’ll report the specifics in a note at the bottom of this post.

Vino Exceptionalism

The premise of OTBN is that wine is different — or maybe that we are different when it comes to wine.  Americans are famously interested in instant gratification — we want what we want when we want it. That’s one reason the U.S. saving rate is sometimes a negative number. Can’t wait — gotta have it now. That’s our typical consumption profile.

Isn’t it interesting, then, that we sometimes behave in exactly the opposite way when it comes to wine. Yes, I know that 70% of wine is consumed within a few hours of its purchase. That is unexceptional.

No, what I’m talking about is our counter-stereotype tendency to tuck special bottles away and save them for … for what? For the right occasion, I suppose. For the moment when they will mean more than they do just now.  Sometimes it is about proper aging of the wine, but usually there is an intangible component that transcends the bottle’s contents. For whatever reason, it seems we need to be reminded once a year to get these wines out and enjoy them!

Frequently (in my case, at least) we hold them too long so that when the cork is finally pulled the wine within is a shadow of its former self.

Liquid Memory

The interesting thing is that it usually doesn’t matter that the wine has faded away. Turns out it was the story that mattered most. Liquid memory!

Dottie & John

John Brecher and Dorothy Gaiter invented OTBN in 2000 as a way to celebrate wine by releasing its pent up stories. Dottie and John wrote the weekly wine column for the Wall Street Journal until quite recently and each year they invited readers to send them accounts of their experiences, some of which appeared in post-OTBN columns.

It was quite an experience reading what other people were inspired to say by the wines they opened that night. Kind of a peek into their souls. I think that was the point, however. As Dottie and John wrote in their final column on January 26, 2010.

Wine isn’t a spectator sport. It’s utterly intimate. Don’t let anyone tell you what you should like, including us. Try wines broadly—there have never been so many good ones, at all prices, on shelves—and keep raising your personal bar for what is truly memorable, so that you are always looking for the next wine that will touch your soul and make you feel you’ve gone someplace you’ve never been before. It’s not about delicious wines. It’s about delicious experiences. May your life be filled with them.

Post OTBN: Here’s What We Opened

We had a delicious experience on Open That Bottle Night 2010: great wine, spectacular food and fascinating stories. By the numbers: five and a half hours, ten people, thirteen wines, 75 wine glasses. Here are the food and wine menus — you will have to imagine the stories. Special thanks to Rosemary and Ken for hosting. And thanks to Dottie and John for inventing OTBN.

Wine Menu (listed by vintage year, not the order tasted)

Solter Rheingau Riesling Brut Sekt 2006

Casanova di Neri Brunello di Montalcino Tenuta Nuova 2004

Callaghan Vineyards Sonoita (Arizona) Padres 2003

Shanxi Grace Vineyards (China) Tasya’s Reserve Cabernet Franc 2003

Racines Les Cailloux du Paradis (Loire) 2003

Chateau Haut Brion Blanc 1998

BV Georges de Latour Private Reserve Cabernet Sauvignon (magnum) 1997

Champagne Charles Ellner Brut 1996

Chateau d’Yquem 1996

Paul Jaboulet Hermitage La Chapelle 1990

Chateau Figeac St-Emilion Premier Grand Cru 1967

Chateau Cheval Blanc 1961

Taylor Vintage Port 1960

The Food Menu 

Rosemary Flatbread with Artichoke and Green Olive Spread

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Wild American Shrimp and Fennel Salad

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Roasted Tenderloin of “Wild Idea” Buffalo

Polenta with Cremini and Porcini Mushrooms and Mascarpone

Green Beans with Sautéed Shallots

Cranberries and Cherries in Madeira sauce

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“The Cheese Cellar” Cheeses

Gorgonzola Hand Picked by Luigi Guffanti

Piave High Mountain Cow Cheese

Sottocenere with Truffles, Clove and Cinnamon Rub with Ash Rind

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Panna Cotta with Blueberry Compote

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Chocolate Biscotti

Soft Amoretti Cookies Sandwiched with Chocolate Ganache or Raspberry Jam

Deconstructing Rosé: Simplicity is Complicated

rose“Here in France, restaurant wine lists now have a separate rosé section. And this is not confined to Provence … The world seems to have gone pink, perhaps one small sign of an increasing desire for simplicity when we sit down to eat and drink.”

(Peter Mayle, My Twenty-Five Years in Provence, 2018 – emphasis added.)

The world does seem to have gone pink, as Peter Mayle says. Rosé wine is the fastest growing wine category by far here in the United States and Rosé is now transcending the idea of wine by entering other products as a color, aroma, or taste. You can munch on a Rosé chocolate bar, chew on Rosé gummy bears, lick your lips with Rosé lip balm, anoint yourself (or someone else) with Rosé body polish, and … well, Rosé your way through the day and night, too.

The New Pumpkin Spice?

Rosé is the new pumpkin spice. Or maybe it just looks that way from here. Peter Mayle was on the money when it came to Rosé. And while he might or might not be right in thinking that Rosé is a simple beverage choice for over-whelmed consumers, I think it is wrong to think that Rosé is itself quite a simple thing.

Or at least that’s what I think I learned from attending a professional seminar on Rosé wines at the Unified Wine & Grape Symposium in Sacramento (which was followed two weeks later by another seminar at the Washington Winegrowers Convention that I was forced to miss when a snowstorm caused my flight to be cancelled).

Rosé is hot, so wine business people want to learn more about growing, making, and selling it. Sue and I got a heavy dose of Rosé last year when we visited Languedoc and the Loire Valley and met Elizabeth Gabay whose book, Rosé: understanding the pink revolution, is the best resource we have found for understanding everything pink. Herewith some observations as I try to deconstruct the Rosé phenomenon.

A Paler Shade of Pink?

I cannot think of any other type of wine where color seems to matter as much as for Rosé. This is a fact that was stressed in all the presentations we attended. Although the first Rosé wines I can remember tasting here in the U.S. were dark pink in the Tavel style, the fashion today, according to conventional wisdom, is that paler is better — to the point where one wine we sampled could have passed for a white wine!

I don’t know if it is true, but the word on the street is that consumers think pale is dry and darker is sweeter.  Pale and dry is associated with Peter Mayle’s Provence and those wines seem to fly off the shelf.

It is not the case that all French wines fit this profile — Tavel remains a noteworthy outlier, for example. And Rosé from Languedoc and from the Loire Valley come in a range of hues, as Sue’s photo from a Loire tasting makes clear. Rosé wines made here in the U.S. range from dark to light and I was once served a deep dark “Rosé” that was not a Rosé at all in my view — I think it was an attempt at saingée Syrah gone badly wrong.

One Hue to Rule Them All?

Does one (pale) hue really rule them all? I was interested in the presentation by Jason Haas of Tablas Creek at the Unified Symposium that provided some insights into consumer attitudes. Tablas Creek Vineyard makes two Rosé wines, which makes sense given its association with the Perrin family, which make a lot of Rosé wine in France. Together they account for about 20% of total production. One is a pale pink dry wine made as a Rosé using purchased grapes from the local area. It’s a big hit in the by-the-glass on-trade market.

The other wine, made in much smaller quantities, comes from estate grapes and is made using the saingée method, which means that some of the juice is drained off while still pink leaving a more concentrated red wine behind. You might say that the Rosé is a by-product of red wine making, but I prefer to think that the pink and red are co-produced. This wine has more structure and character and demands food. Sue and I thought it was the best wine of the tasting.

The darker wine, which might be a tough sell if it went into distribution because of its color and higher price, is reserved for tasting room and wine club purchases. It sells out every year in part, I suppose, because tasting room buyers can sample the wine and not just look at the color. And also, frankly, because it is different and a bit special and that’s something people look for. Haas thinks having two pink wines, each crafted for its own market, works pretty well.

Hitting a Moving (Color) Target

So pink isn’t as simple as you might think when it is time to sell the wines and it isn’t simple either when they are made. One speaker said that his Rosé was the hardest wine in his portfolio to make. I am not enough of an enologist to appreciate all the technical details that were presented (there were plenty of experts in the room all nodding their heads), but it was easy to understand how color makes things more difficult.

You might think that pink is pink and once you have the color you want, that’s that. But apparently you would be wrong. The color you achieve in the tank, we were told, is just the beginning and as time passes, and especially as SO2 is added at bottling, the wine gets paler and paler. So you need to begin darker than you want and then control the process pretty closely in order to coast into the shade of pale you are aiming for.

This is something that Elizabeth Gabay finds disturbing because it means, at some point, winemakers may sacrifice what’s necessary to make the best wine in order to get the right color of pink. Rosé wines in general might be better, she suggests, and more popular and drinkable, if color wasn’t such a central concern.

Simplicity is Complicated

The complexity increases when other issues such as grape varieties and viticultural practices are considered. Here in the U.S the Rosé wines are made from easily recognizable grape varieties. Barnard Griffin, a Washington State producer, makes a Rosé of Sangiovese that wins gold (and double gold) medals in competitions and flies off the supermarket shelves. Sangiovese is easy to understand and to like even if it isn’t part of the standard Provence recipe. But in the Loire we discovered wines made from unfamiliar grapes that are in fact only grown for Rosé! Who knew?

I guess Rosé is like any other type of wine. It can be as simple (or complex) as you want it to be. Will consumers revolt if and when they discover Rosé’s hidden geeky side? Yes, if Peter Mayle is right and they are fleeing what they see are unnecessary complication. But I’m not really sure that’s true.

Ch-Ch-Changes: Unified Wine & Grape Symposium 2019 Field Notes

unified

The times they are a-changing. In fact, they have already changed, so the wine industry needs to change, too. That was the over-arching theme of the just-concluded 2019 edition of the Unified Wine and Grape Symposium. More that 14,000 wine industry participants from 27 countries came Sacramento to assess the evolving landscape and debate appropriate strategies.

There were so many informative sessions that even working together Sue and I could not attend them all. I am especially sorry we missed the program about cannabis and the wine market — everyone was talking about it.

Herewith some field notes from three sessions that Wine Economist readers are likely to find interesting.

The State of the Industry session

One of the lines in David Bowie’s song “Changes” notes that “pretty soon now you’re going to get older” and that is part of the problem that the California wine industry faces today. Baby boomers, who powered the U.S. into the top spot among wine-consuming nations, are starting to get older and their ability to push consumption higher and higher no longer exists. For a variety of reasons that I have written about recently, Gen-X and Millennials are not stepping up in sufficient numbers to fill the gap.

Wine consumption isn’t collapsing, it is just reaching a plateau. Peak wine? Not sure. Some wine categories are booming — especially Rosé and New Zealand Sauvignon Blanc — but the overall trend is much less optimistic than last year or the year before that.

Wine production has continued to rise, especially in the premium and super-premium wine coastal regions. The value of sales is still rising, especially for higher-priced wine, but volumes are down in many categories. There is a lot of wine in California (plus increased import pressure) and great concern about who is going to buy it and at what price.

Jeff Bitter, President of Allied Grape Growers, shared information from his annual nursery survey that indicates that the problem will not go away soon. Based on nursery sales and analysis of non-producing acreage (vines that have already been planted but are not yet productive), it is clear that grape production will continue to rise in the short term all around California except perhaps the Central Valley.

New vineyards are disproportionately planted to what Jeff called the chocolate-vanilla-strawberry grape varieties: Cabernet Sauvignon, Chardonnay, and Pinot Noir. Since even these very popular wines are already unusually abundant, with falling price trends in the bulk markets, it looks like there are dark clouds on the horizon.

Jeff argued that root of the problem was demand and not supply, and the recent Silicon Valley Bank Report makes clear that selling wine in the changing environment is going to be challenging. But it isn’t a demand problem alone. Someone once asked the great British economist Alfred Marshall (who actually invented demand and supply curves) which force set price — demand or supply? Which scissor blade cuts the paper, he replied? Both is the right answer and that’s true of wine markets, too.

Jeff, Danny Brager (Nielsen), Glenn Proctor (Ciatti), Marissa Lange (LangeTwins Winery) and I all contributed to the State of the Industry session’s analysis, which news reports thought was both realistic in terms of the problems on the horizon and cautiously optimistic that effective strategies were available. But you can’t confront change without changing and expect everything to work the way it once did.

Technology Thursday: From Drones to Chatbots; How the Wine Industry is Embracing Digitalization

The new Tech Thursday session , which I was pleased to co-moderate with Dr. Tom Collins of Washington State University, pushed the change theme beyond the marketplace and well into the future. A dozen speakers told of their experiences with digital technology in wine business operations, grape growing, wine making, and wine marketing. Together they illuminated change in the present, peered at what is just on the horizon, and probed the distant future (which, because this is technology and change happens quickly, is only a few years away).

There were so many different ideas in the air, each presented in only a few minutes, that it was exciting just to be in the room. I especially liked what Dr. Nick Dokoozlian (E&J Gallo Winery) had to say: you must measure, model, and manage. Digital sensors have the potential to flood us with real time data, so we need effective models to organize it and strategies for action.

I am no expert in this field, but it seems to me that it would be easy to put the cart before the horse by asking “what can we measure?” rather than what can we manage and how can data and models facilitate better and more timely actions? Lots of research and innovation here.

Keynote Speaker Luncheon: Lance Winters, St. George Spirits

Lance Winters, master distiller at St. George Spirits, opened the 2019 Symposium as the luncheon speaker. Winters is an entrepreneur who has expanded St. George’s into one of the most innovative craft distilleries in the nation.

What can wine people learn from a successful spirits entrepreneur? I am a firm believer that there is much to gain by crossover analysis, but Winters actually began his talk by saying he wasn’t sure if he had anything relevant to say.  He asked the audience to help him figure it out during the Q&A session.

Winters is right that craft spirits is very different from wine, especially from the production side, but I found some things to take away from his entertaining talk (which included tasting of three of his spirits). He noted that spirits has appropriated some of the terminology and special character of wine. We tasted Winters’ “Terroir Gin,” for example, which was distilled with herbs and spices chosen to give it the character of a particular forest location that Winters discovered. It is sort of manufactured terroir, I admit, since the flavorings don’t actually come from one particular place, but there was a much more rooted- in-place sense than, say, industrial vodka.

Winters also stressed that story-telling was important in marketing his products and, with this in mind, he suggested the wineries ought to consider producing grappa by distilling the pressed skins of their wine grapes. You already have a story for the wine, he said, which you can leverage into the spirits space. This is an appealing idea, especially for small producers, and some wineries are already taking advantage of the opportunity. Perhaps more will follow suit.

Sue and I also attended a seminar on growing, making, and selling Rosé, which will be the subject of an upcoming column. Overall, I have to say that this was one of the best Unified Symposia I have attended. Congratulations to organizers and speakers!

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The Wine Economist will be back in two weeks with a column about the Rosé boom. I will be in Washington state next week to speak at the Washington Winegrowers Conference. I’ll moderate and speak at their State of the Industry session and talk about global market trends in a seminar on “Intentional Rosé.”

In the meantime, here is a version of David Bowie’s “Changes” from the film Shrek 2.

Global Wine’s Lost Decade

consumption_oiv

One of the great puzzles of wine is captured in this OIV chart, which shows global wine consumption from 2000 to 2017. Consumption peaked in 2007-2008, just as the global financial crisis struck. Wine consumption fell sharply after that, as you would expect.

But then the economic recovery began and total wine consumption increased back to its old level and kept rising, right? No, not at all. In fact, wine consumption continued to fall, albeit much more slowly and unevenly, and even the small increases in 2016 and 2017 have failed to restore total sales to the level before the crisis. It has  been a lost decade for global wine.

Wine’s Stagnant Market

Viewed this way — total global consumption measured by volume — wine is a stagnant industry. If you are looking for growth, look somewhere else.  The picture brightens a bit if we were to look at value not volume. The premiumization trend has pushed up total global spending on wine, but not by much.

oivtable

As usual, the plot thickens when we dive a bit deeper, as this OIV table for the last few years shows. While several countries show modest growth in volume for 2013-2017, France, Germany, Argentina, and Russia experienced declines and the key UK market failed to grow at all.

What’s wine’s problem? Why hasn’t wine consumption risen along with income during the recovery? I am sure that there is no single factor that accounts for situation and different factors in different places. In the UK, for example, tax policy and now Brexi’s side effects have discouraged wine consumption in ways that are not experienced elsewhere. And anti-alcohol policies in Europe generally and especially France and the UK, have impacted wine sales, too.

Talking About the Generations

Here in the US, where wine demand is still growing modestly, Rob McMillan and John Moramarco have highlighted generational transitions in the marketplace, with Baby Boomer falling consumption not being replaced by rising Gen X and Millennial demand. McMillan sees some fundamental differences in the generational characteristics while Moramarco believes that the generational cohorts are more similar than not, just at different stages in their wine consumption life cycle, but they both think that slack market is baked in the generational cake.

McMillan’s recent Silicon Valley Bank Wine Report raises the alarm level, arguing that millennials have failed to engage with wine as some analysts have assumed they  would, creating a hole in market demand that will be difficult to fill. As I have noted before,  only a small minority of each generation accounts for the bulk of wine purchases. How boomers behave in general is less important to wine than how that 15 or 20 percent who buy the most wine (and are therefore different from their cohort) behave. The same is true for millennials. McMillan warns us that that loyal wine-drinking subset of millennials hasn’t come together.

Other theories are needed to understand the global trend, however, since wine’s relative decline began much earlier in the old world (and so cannot be solely explained by baby boom ageing and of course there are special cases such as the UK noted above and the rapid emergence of China as a wine consumer and producer.

Wine versus Weed?

The search for explanations turns naturally to alternatives, such as craft beer and spirits or cannabis-infused beverages, which are now legal in certain areas. Is there a fundamental change in demand from wine to beer, booze, and weed?

Constellation Brands seems to think so because they have doubled down on their investments in wine alternatives, especially Mexican beer and now cannabis. This is significant because Constellation seems to me to be a very data-driven company that does thorough research on market trends and then follows through with major strategic shifts.

Given their earlier success moving upmarket in wine and then focusing on imported beer, I have to think that the cannabis moves have been carefully calculated. I would not bet against their success. Significantly, their most recent earnings report projects rising beer and falling wine and spirits sales. That news, plus the high cost of the cannabis investment, sharply depressed its share price.

But it is not clear that beer, spirits, and cannabis are wine’s most serious competition these days. Some researchers note that younger consumers seem to be less interested in all these products than in the past. They are less interested in sex, too. The U.S. birthrate has fallen to an historic low, dropping even below the replacement rate.

Better Than Sex?

What is better than wine and better than sex? Well, I think you know because you probably have one with you right now. It is your smartphone and the apps that are designed to stimulate and engage in an intentionally addictive way. Simply irresistible. If you have your phone (and you almost always do), you have everything you need. Why bother with anything else?

Besides the obvious appeal of the phone itself is its ability to produce entertainment on command and to serve as a convenient purchasing platform for a world of products where wine is not always the most important part of the mix. Trust me, that device in your hands, purse, or back pocket may not entirely be the good friend you thought it was, at least not if your livelihood involves making or selling wine!

Strong Headwinds

The thing about these theories and some of the others I have heard is that they are based on long-term structural shifts and so do not project rapid short term improvements in wine’s market position.

But even if total wine demand doesn’t return to the pre-2007 growth path, there will be opportunities in the regions and market niches that do experience growth as we wait for the structural forces to work themselves out.

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We will be in Sacramento next week for the Unified Wine & Grape Symposium, so the Wine Economist will take a short break. Back soon!

Global Wine Market: Storm Clouds Gathering?

What a difference a year makes! I am preparing remarks for the State of the Industry session at the Unified Wine & Grape Symposium in Sacramento at the end of the month and I’m struck by how much the global wine market environment has changed in just a year. Last year’s relatively hopeful situation has given way to threatening storm clouds. Here’s a sneak preview.

production_oiv

#1: Global Shortage to Surplus

2017 was a terrible year for global wine production. There are always a few regions where wine production falls due to weather problems of one sort or another, but this is usually offset by unexpectedly good harvests elsewhere.  As this OIV chart shows,  however, 2017 saw substantial short harvests in several of the largest producer nations, resulting in the lowest total production in 50 years despite an abundant harvest in the United States.

Shortage is a problem, as I wrote last year, but so is surplus and 2018 brought a return to excess production in a big way. This was especially problematic in the U.S., where finding room for the new vintage was difficult because of the large 2017 harvest already in the tanks.

Because nothing about wine is ever simple, the shortage affected some countries and grape varieties more than others and the surplus does the same. As I wrote last August, the boom in Cabernet Sauvignon planting in California and Washington over the past few years seems to be hitting the market all at once. There is a lot of bulk Cab on the market right now and prices have softened. That’s a problem for growers who counted on prices continuing to rise.

ontheup#2: Synchronized Global Expansion Deflates

Last January I was able to report the rare occurrence of “synchronized” global economic expansion, which the Economist magazine captured with this uplifting cover.

It wasn’t really synchronized, because that suggests some coordinating force, but all the largest economies were rising at the same time. As the year unfolded, however, the picture changed dramatically.

China and the United States have not fallen into recession, but both are slowing with problems in key sectors. The U.S. stock market, which is not a good recession predictor,  closed out the year with substantial losses and the yield curve, which is, is flatter than you might like.

China’s overall growth rate has declined and some sectors (automobiles in particular) have been hard hit. It is not a good thing when the two engines of global growth are sputtering.

Germany and Japan have experienced down quarters followed by a bounce, avoiding the official recession designation, which requires two consecutive quarters of economic decline. The UK and EU economies are fragile, too, and Italy is a big concern.

What accounts for the sudden change? Well, it might be like the wine grape situation above, where conditions just happened to be positive in 2017 and turned around in 2018. But the intensification of tariff wars and trade disputes is an important factor in the global growth downturn since the shrinking of trade and finance flows (and the movement of people, too) tends to reduce efficiency and stifle growth.

The new year begins with the world economy in a much more fragile condition than 12 months ago and more susceptible to an economic shock. Which explains why financial markets are jittery and everyone is concerned that trouble in the U.S. might start the dominoes falling.

recession#3: U.S. Recession Worries

There is a lot of talk about the next U.S. recession even though unemployment remains extremely low and many elements of the economy are positive. To be clear, there will eventually be a downturn, but it is impossible to say when it will be or what it will look like.

This Economist cover shows one scenario — up and then down — but there are many others such as a double-dip or a prolonged stagnant plateau such as Japan experienced. One thing I am pretty sure about is that it won’t be a repeat of the 2008 crisis just because the circumstances are so different and the ability of economic policy makers to deal with problems is different, too.

The reason everyone is so nervous is that the list of factors that could trigger a recession is long, starting with those trade wars mentioned above. The financial markets sometimes focus on monetary policy — the Federal Reserve’s slow rise in interest rates. But short term rates are now just barely above the inflation rate, which means that real interest rates are slightly above zero after years of being negative. By historical standards, interest rates are low indeed. It is scary that near-zero interest rates are seen by many as too high. Maybe they are worried because negative rates have encouraged a debt boom.

The federal budget should be in surplus with unemployment so low. Instead we have the highest annual deficits I have ever seen outside of war time or during a recession. When a recession strikes (or, God forbid, there is a war), the deficit will sky-rocket. Just as already-low interest rates would handcuff the Federal Reserve if stimulus is needed, already-high deficits would constrain the federal government. No wonder investors are nervous.

In the meantime, the cost of interest on the debt is staggering and will grow, especially with positive real interest rates. When did we stop caring about the debt and deficit? Incredible.

Storm Clouds Gathering

There are other risks to consider including especially heightened political instability (US, UK, France, Germany, the list goes on) and Brexit, which is an important concern both to the world economy and the world wine economy.

How serious is the situation? What strategies do industry actors need to consider? These are some of the questions we will try to address at the Unified Symposium.