The wines of Georgia are having a moment, and it is about time. Wine is very old in Georgia, the cradle of wine, but Georgian wines are relatively new on the markets here in the United States, as Georgian producers pivot from dependence on Russia and former Soviet states and work hard to develop markets in the UK, EU, US, and China.
The push into new markets comes at a difficult time because pandemic restrictions have limited travel by charismatic Georgian producers, who represent their wines so well in person, and have shuttered or crippled many restaurants where hand-selling of the wines would be very effective.
We are fortunate, therefore, to have this new book by Lisa Granik MW to spread the word and build momentum for Georgian wine in the post-covid world. Granik tells us that she’s written a reference book, which readers can dip into as needed and read in any order that pleases them. This is partly true. The second half of the book, which presents information about each specific wine region, certainly fills the reference book bill. I am very impressed by the attention to detail and deep scholarship I see here. A wonderful resource for any who wants to take a deep dive into Georgia’s wine industry.
The first half of the book, on the other hand, is a compact primer on Georgia and its wines that I’d recommend to anyone who wants to get a basic understanding of this topic. The chapter on wine culture, with its explanation of the supra wine feast tradition, was fascinating. We attended a couple of supra feasts when we visited Georgia a few years ago for a United Nations conference and Granik’s analysis helped me understand a few fine points I missed at the time.
I was especially interested in the history chapter. Georgians are proud of their long history — dating back thousands of years — but I admit that I am even more interested in the history of the Soviet days and the transition to the market economy. I was not disappointed both with the main narrative and with the detailed footnotes (which are conveniently placed where they belong — at the foot of the page, not the back of the book).
One thing that I asked when we were there, and apparently it is not an uncommon question, is why grape vines are mostly planted on valley floors in Georgia and not on the hillsides as you might expect? The answer goes back to the Soviet days. Quantity and cost were paramount and hillside vineyards did not lend themselves to machine harvest and cultivation.
The chapter on native wine grape varieties is best seen as a reference because there are so many of them that it is hard to remember the names after a while, but I enjoyed reading through the descriptions, focusing especially on the main varieties.. Granik lists the grape varieties alphabetically: white grapes from Akhaltsikhuri Tetri and Avasirkhva to Tsolikouri and red grapes from Adansuri to Usakhelouri.
Granik’s accounts of the places we visited and the people we met in Georgia rang true and went beyond what we learned while we were there. Granik is obviously a fan of Georgia and its wine, but not an uncritical booster. She doesn’t hold back in discussing problems and challenges where she finds them. Her final chapter, where she pulls together challenges and opportunities, is required reading. Highly recommended.
Some people like to define wine regions by their signature grape varieties. New Zealand = Sauvignon Blanc. Argentina = Malbec. You know what I am talking about. So what should you think of a Kiwi Malbec like the one shown here? Read on to find out.
What do you think of when I say Malbec? Well, there are lots of things that could come to your mind, but I expect that Argentina or Mendoza are at or near the top of your mental list for this term. Malbec is Mendoza’s signature wine grape and it tends to dominate the region’s image.
Signature Wines & the Dutch Disease
This is convenient from a marketing standpoint — it is good to stand for something in the world’s congested wine markets. Here in my home state of Washington, for example, we make great wines from many different wine grapes and we sometimes yearn to have a defining variety like Argentina or our neighbor Oregon with its famous Pinot Noir.
But signature wines have a downside, which I have compared to an economic condition called the Dutch Disease. Sometimes when one sector of an economy becomes particularly successful the result isn’t a tide that lifts all boats, but rather a sort of whirlpool that drags the other sectors down.
Thus Argentine Malbec’s great success makes it more difficult for other interesting wines to get attention. Personally, I always look for Argentine Cabernet, Semillion, Cab Franc, and Syrah, for example, and there are some wonderful Chardonnays and high-elevation Torrontes, too. But I imagine they are tougher to sell than good old Malbec. The signature wine rises high, but can cast a deep shadow.
New Zealand and the Dutch Disease
Now consider New Zealand wine. What comes to your mind? Chances are that Marlborough Sauvignon Blanc comes first, with Pinot Noir from Central Otago on the list for many. I’m a big fan of these wines, but the Dutch Disease dilemma applies here, too. Other wines and other regions don’t get the attention (Rodney Dangerfield would say they don’t get the respect) they deserve because of the signature wine phenomenon.
So what would you think about a Hawke’s Bay Sauvignon Blanc or a Gimblett Gravels Malbec? Well, I hope your interest would be piqued at the very least. Sue and I visited the Hawke’s Bay area (think Napier on New Zealand’s north island) several years ago, where we were fortunate to meet with Steve Smith MW of Craggy Range. He helped us understand this interesting region and introduced us to the Gimblett Gravels’ rocky dry river bed terrain that makes me think of alluvial fan terroirs such as To Kalon in Napa Valley or The Rocks District of Milton-Freewater in Oregon. Hawke’s Bay is warm enough to make great wines from Bordeaux grape varieties (of which Malbec is one), which are unexpected for those who haven’t fully explored New Zealand’s varied wine scene. The Gimblett Gravels is a special case within that special case. Fascinating.
Now Hear This!
Which brings us to some wines we’ve been for fortunate to be able to sample during this pandemic period. Daniel Brennan is an American who came to New Zealand in 2007 with the intent to focus on Pinot Noir. But somehow the people and terroir of the Hawke’s Bay region captured his attention, which is something Sue and I can appreciate. We stayed with a modest grower/winemaker family in the Esk Valley during our visit and got a deep sense of the people and place.
The Sauvignon Blanc broke through some of the stereotypes about Kiwi Sauv Blanc, with more savory notes than you might expect. The Malbec Nouveau was just what you want from a young wine like this: fruity, juicy, easy to drink and enjoy. The Gimblett Gravels Malbec featured a line bright acidity that tied together fruit and tannins in ways that evolved in the glass over time. The acidity made it different from most of the Argentina Malbecs we’ve tried.
Brennan makes a number of wines that run counter to the signature wine stereotype, but his passion for Pinot Noir is undiminished. He hosts a popular podcast called Vintage Stories that spreads the word about Kiwi Pinot and the people who craft it.
I’m a Pinot fan, too — and I hope to taste Brennan’s Martinborough wine at some point — but I enjoy these Hawke’s Bay wines because they are distinctive and because they challenge the signature wine stereotype and the Dutch Disease that can go with it. The Gimblett Gravels Malbec forces you to re-think the conventional wisdom about New Zealand … and about Argentina, too, I hope.
WineFuture 2021, an ambitious virtual wine conference, is just two weeks away and I am excited to be part of the program. The wine industry has embraced the necessary pivot from in-person events to on-line programs, so there are lots of virtual conferences these days. What makes WineFuture 2021 different?
One distinguishing factor is the expansive vision of the organizers. This program thinks big, with global reach and broad societal focus. The gist of the program is this: the world is facing not one, not two, but at least four crises and the future — of wine, but not just wine — depends on what we do to address these challenges. The four crises are these.
Coronavirus Pandemic Crisis. The global health crisis comes first if only because it is an inescapable fact of daily life today that is likely to cast a long shadow into the future.
Global Economic Crisis. The pandemic and policies to address it have pushed the global economy into crisis, which some regions suffer more than others. China seems to be recovering pretty well, for example, while Europe looks likely to slip into another recession in 2021.
Inequality and Social Justice Crisis. The health and economy crises have accentuated many serious underlying issues. Inequality and social justice problems are not new, but they, along with the political reactions and social responses to them, have captured our attention.
Climate Change Crisis. Climate change is an existential threat and no serious attempt to address other problems can afford to ignore it.
Each of these crises demands our attention. And although there is a natural desire to prioritize the crises and tackle them one at a time, it is important to consider that they are interdependent and can’t really be unstirred, to use a phrase from Tom Stoppard’s “Arcadia.” It is a dauntingly complicated situation. But that’s not a reason to ignore complications and uncertainties. It is a reason to try to unravel the threads to increase understanding so that effective action is possible. That’s what WineFuture 2021 is about.
Beyond Davos Man
Looking through the many sessions and keynote talks it occurs to me that this is the sort of ambitious agenda that I normally associate with the World Economic Forum, that insanely expensive gathering of the global elite that takes place every winter in Davos, Switzerland (except this year, of course, because of the pandemic). What’s different about WineFuture 2021 is that it focuses on the wine industry, of course, and is open to a much broader audience and pressing practical concerns. “Davos Man” has become a derogatory synonym for a certain insulated attitude toward the world and its problems. I don’t see much evidence of Davos Man at WineFuture 2021 … and that’s a good thing.
So what is it about wine that provokes ambitious projects like this? I pondered this question a couple of years ago at the equally ambitious Porto Climate Change Leadership Conference. Maybe it is because wine is an agriculture product, and so rooted in nature in a way that finance capital and some manufactured goods are not? Maybe it is because so many of the largest and most important wine firms are family businesses, which bring a generational perspective to their thinking. Maybe it is wine’s special ability to bring people together — especially thoughtful people like Adrian Bridge, who was instrumental to the Porto project, and Pancho Campo and David Furer, who are the organizing forces for WineFuture 2021.
And then there’s this. WineFuture 2021 will benefit three non-profit initiatives, with funds from the program plus an auction of items donated by speakers going to the charitable causes. The non-profits are SOS Cape Town, which works to address water issues in South Africa, The Porto Protocol, which promotes sustainability in wine, and North Bay Jobs with Justice, which supports initiatives to improve worker conditions in California.
Unfolding Wine’s Future
The four day conference begins with analysis of the challenges, then dives deep into particular areas of concern, focusing on workable solutions, before gazing ahead to the future. Here is how the first day unfolds.
Francis Ford Coppola opens the show — and with his experience in film I know he will do this in dramatic fashion. Coppola is famous for his cinema work, of course, but also for his important efforts in wine and for the values that guide his many and varied efforts. The first formal panel, moderated by the wine industry’s most famous MD — Laura Catena — will address the inescapable topic of the health crisis.
The second panel examines at the economic crisis. I’m speaker and moderator and am delighted to have Rabobank’s Stephen Rannekleiv, South Africa’s Carina Gous, and Professor Eugenio Pomarici of the University of Padova join me for this discussion. Together we plan to break down the economic impacts and reactions in ways that generate useful insights. We are followed by important panels on reviewing and reversing discrimination, how to deal with the unexpected, and then a keynote by UNESCO Director General Irina Bokova.
The program on days 2, 3, and 4 follow with more important programing by global leaders and wine industry luminaries including keynote talks by Pancho Campo, UNWTO Executive Director Manuel Butler, and OIV Director General Pau Roca. Click here for a list of all the speakers and here for the complete program.
WineFuture 2021 is kind of a big deal. It thinks big, acts big, and seeks to set a high standard for the wine industry as we move into the future. I am proud of the wine industry for its support of and commitment to big ideas and big initiatives like this one.
I’m the luckiest person I know and one aspect of my good fortune is that I have had the opportunity to moderate and/or speak at the Unified Wine & Grape Symposium‘s “State of the Industry” session each year since 2012. Last week’s program was therefore my tenth appearance on the “State of the Industry” panel. How time flies!
Each year’s session brings together leading wine industry experts to talk about key trends and opportunities, recognize unresolved problems, and celebrate success. No wonder the big room (see photo above from a few years ago) is packed with industry leaders from around the world each year — until 2021, of course, when the pandemic moved us on-line.
I get a ringside seat for both the formal presentations and the backstage banter and discussions. I always come away with fresh ideas and a better understanding of the wine industry. Herewith a few observations from the 2021 program.
#1 Elusive Market Balance
A year ago one of the biggest concerns in California and Washington state was the structural surplus of wine grapes and bulk wine. With new vineyard acreage coming on-line,= a couple of big harvests already in the tank, and demand hitting a plateau, growers were encouraged to take a realistic look at their options and proactively manage supply until demand had time to catch up.
The market is much closer to balance as we enter 2021 and the big bulk wine hang-over seems to have receded. The 2020 harvest was short in California and Washington, too. The market hasn’t flipped, but things have tightened up constructively.
But that structural surplus is still there. The short term balance is more about a short crop and smoke taint issues more than long term strategies. And price is a factor, too, with coastal fruit selling for California appellation prices in many cases. That’s supply and demand, of course, but it only works in the long term if costs adjust to the new price realities.
#2 The Mandela Rule
“They say that time changes things, but sometimes you have to change them yourself.”
I first encountered this saying when I was on a speaking tour in South Africa. I heard it attributed to Nelson Mandela, which pleased me, although the interweb thinks that Andy Warhol said it first. Either way, it seems to apply to today’s wine industry.
Jeff Bitter of Allied Grape Growers advocates a proactive approach to the supply side of the market, for example. Last year he called for growers to take a hard look at their vineyards and pull out marginal vines sooner rather than later. Better to turn the page than to leave fruit unpicked when prices drop too low or demand dries up.
Cost can be addressed, too, at least in some market segments. Higher yields don’t necessarily mean lower quality any more. The same is true for machine harvesting, which addresses both cost and labor availability issues.
There is still a lot of work to do, but it has been inspiring to see the industry rise to the occasion of all the challenges that we face in these “perfect storm” times of pandemic and recession.
#3 Pathways to Success
The “State of the Industry” panel concludes with a brief presentation by market guru Danny Brager where he spotlights “best of the best” wine firms that have been especially successful in the previous year. The awards are modeled on the Olympic games awards, with bronze, silver and gold medals. It is always fun to try to guess who will get the prize.
The specific criteria for the gold medal means that it generally goes to big firms that have achieve high levels of both absolute and relative sales growth. This years winners were Riboli Family, Delicato Family, Deutsch Family wineries. If you are familiar with these firms you know that they are very different in terms of their product lines and marketing strategies. Their success proves what Jon Fredrikson always told us when he was on the State of the Industry panel: there are no one-liners in wine.
This point is even clearer if you look at the wineries that received silver medal recognition this year. Regional, national, and international wineries. Iconic brands alongside firms that fill private label needs.
What do they all have in common? Wine, of course, but it is obviously more than just fermented grape juice that connects this diverse list of successful wineries. Let me make this a discussion question. Give this some thought and leave a comment below with your ideas.
I don’t want to discount the hardships that many wine businesses have faced. I know a number of wineries, distributors, and sellers that have been forced to close their doors or dramatically reduce operations. I wish there was more support available for these businesses and that counter-productive policies like the U.S. wine tariffs could be reversed quickly. But Danny Brager’s lists of most successful wineries suggests there are still good opportunities for growth if you are in the right place and the right time with the right products and strategy.
#4 Bonus insights
Bait-and-switch alert: there were a lot more than three key points presented at the State of the Industry session last week. Herewith a few of them in quick-fire bullet format.
Cab Bubble Deflates? One of my concerns in recent years is that Cabernet Sauvignon has been over-planted and that the bubble would eventually pop. Well, it looks like the Cab bubble is losing pressure, at least in California (I’m not sure about Washington state) as some vines are being replaced with other grape varieties. But …
Pinot Noir Over-Inflated? All the attention to Cabernet may have hidden irrational exuberance in Pinot Noir plantings. Is this a bubble ready to burst?
Sauvignon Blanc the Next Big Thing? Sauvignon Blanc sales have been growing steadily for many years. Initially this phenomenon was associated with New Zealand wine imports, but now it seems to be a broader trend. Will growers move out of over-supplied Cab and Pinot and away from Pinot Grigio to Sauvignon Blanc?
It’s a War Out There. Both Danny Brager and Jon Moramarco made an important point about the nature of competition strategy. Wine, beer, and spirits are all segments within the broader beverage alcohol category. It is typical to think about competition within each segment: wine vs wine, beer vs beer, etc. It makes sense that you would target customers of close substitutes for incremental sales. But really the bigger war is between and among the segments: wine vs beer (wine does well here) and wine vs spirits (a tougher battleground). Overall beverage alcohol sales have been and likely will be flat, it is a battle for market share.
And the Winner is … Hard seltzer! Hard seltzer sales have boomed in recent years and continued to rise during the pandemic, the fastest-growing slice of the beverage alcohol category. What’s the appeal? Single serving size. Low calorie, low alcohol. Maybe even a healthy image (because they have low alcohol, hard seltzers feature nutritional labels that most wine brands don’t have). The low alcohol sweetish wine segment has done very well — Stella Rosa sales have boomed, for example, and Indiana-based Oliver wines have thrived here as well.
That’s all for now. Looking forward to 2022 when (fingers crossed) we will be able to meet in person in Sacramento in the new and improved convention center.
What will the wine world look like a year from now? Will our assessment of 2021 be good, bad, or ugly? Last week’s Wine Economist column briefly explored a “Roaring Twenties” scenario that is making the rounds both for wine and for the economy generally.
The Roaring Twenties theory holds that the pandemic has created pent-up demand for all the things that we’ve had to sacrifice in the last year but that will soon become available again. Parties and celebrations. Gatherings in bars and restaurants. Travel and tourism. They won’t all necessarily come roaring back at once, but the rebound will be substantial and be fueled by a corresponding rebound in economic activity.
The Roaring Twenties scenario is what I call a “ceteris paribus” (holding all else constant) theory. That is, it assumes that pretty much everything remains the same except that the covid vaccine lets people come out and play. With interest rates pegged near zero, fiscal stimulus doubling-down, and financial markets soaring, the good times will surely roll, or at least that’s what some hope and others firmly believe.
The Wheel’s Still in Spin
But it is important to keep in mind that a lot of positive events have to line up all at once for this to happen. I was reminded of this by the cover of The Economist newspaper’s The World in 2021 issue, which features a casino slot machine device (and not a crystal ball) as its symbol. The future isn’t written and waiting to be perceived is the message here. There is a lot of risk and uncertainty ahead.
The future, whatever it turns out to be, won’t be just one thing. It will be the combination of what happens on the politics wheel, the economics wheel, the public health wheel, the environment wheel, and so on. Our experience in 2020 shows that these wheels can sometimes align in terrible ways — think pandemic, recession, wildfires, and social and political unrest. There is even the chance of problems in one area cascading through the system in a vicious cycle.
We might feel we deserve the happy flip-side of things in 2021, but the odds of a golden Goldilocks outcome are longer than we’d like. We should anticipate problems as well as potential good times. Not trying to be unnecessarily gloomy — just realistic.
To simplify, let’s imagine that 2021 depends on four variables or spinning wheels: public health, economy, politics, and the possibility of “black swan” wild card events Clearly there are many different possibilities for public health. The hope for very fast roll out of vaccines is no longer realistic, although there is a sense that officials are learning quickly about troublesome bottlenecks. Fingers crossed …
Attention is focused on vaccines, but the virus surge continues in many regions with record case counts and deaths. It isn’t clear how quickly vaccination can overcome community spread and whether this third infection round is the last or will be followed by more surges or echoes of this one into the future.
Spinning the Economic Wheel
Clearly a lot is riding on where the public health wheel settles, especially for the travel and hospitality sectors, which are economically important both in general and for the wine industry. Then there is the economy wheel. to consider.
The relatively strong economic recovery in the United States is built on heroic levels of government support, which will end at some point, but when? Will monetary authorities hold their nerve and keep the spigots open as the economy begins to open? Will fiscal stimulus continue to preserve incomes and employment? What about the high levels of debt that corporations and governments have taken on?
This will depend to a certain extent on politics. Each of the major economies is currently experiencing its own unique brand of political instability or crisis. It is easy to imagine scenarios where political crisis in one country creates contagious economic or social problems elsewhere. Here in the United States there is widespread disagreement about what a good political result would look like. Many observers, for example, were happy when it looked like Republicans would control the Senate and gridlock would prevail. Gridlock, to this way of thinking, would mean that only the most moderate policy actions would prevail.
The Curse of the Black Swan
Now, with Democrats in the White House and majorities in the House and Senate, more aggressive policies are possible, at least in theory. Is this good or bad? Opinions vary according to political persuasion and the particular programs considered. So you can see that ceteris is unlikely to be paribus in 2021. And that doesn’t take into account any “black swan” wild cards that might be on the deck.
A Black Swan event is something with very low (but not zero) probability, but very high impact. The covid pandemic of 2020 is a good example of a Black Swan event. The possibility of a global pandemic, originating in Asia and spreading through international travel vectors has been known for some time. Indeed several of my university students studied the situation in the aftermath of earlier Asian pandemics and a number of government- and non-government agencies worked on detailed response plans.
It seemed pretty clear that there would be a problem eventually, but the particular path and specific consequences were not clear. Looking back it appears that countries that had previously experienced such a pandemic took the possibility more seriously and acted more decisively than others did. In any case, the low-probability event happened and the cost has been very high.
Black Swan Inflation
Inflation is the Black Swan event I most worry about for 2021. (Although I am not sure which kind of inflation — see Neil Irwin’s recent New York Times column.) Most economists acknowledge that there is a chance of an inflation spike is 2021 or 2022, but most assign a very low probability to the threat. Nothing to worry about. And probably they are right. However …
Literally trillions of dollars (and other currencies) have been pumped into the global economy recently and so far inflation in general has remained very low Governments and businesses have borrowed enormous sums at the resulting low or even negative interest rates. A resurgence of inflation would push interest rates higher and alter dramatically the economic landscape.
In a way, an inflationary surge would make the covid pandemic crisis a bit like the oil crisis of the 1970s. The initial impact of the oil crisis was harshly disruptive, but the long term effects, including both high inflation and the draconian policies needed to contain it, were challenging, too, and cast a long shadow over global events.
Good, Bad, or Ugly?
So you can see that the Roaring Twenties is just one of many possible economic scenarios and, even if it comes to pass as many hope, there are still many possible pathways and denouements. Good, bad, or ugly? Too soon to tell.
I know that some people believe that wine is immune to economic cycles, but wine businesses are businesses with debts, interest payments, counter-party risks, and so on. What happens to the economy happens to all of us in one way or another and it is wise to think about the possibilities.
Times are changing and perhaps that’s as much as we can confidently predict. This kind reminds me of an old Bob Dylan song. Listen up!
Will wine’s next chapter be characterized by continued crisis and austerity? Or is a return of the Roaring Twenties on the cards? Herewith some thoughts about the changing wine market and where it might be going next.
I became an economist because I’m interested in change and economics provides a logical framework to study cause and effect. I gravitated to the study of wine economics as I began to learn more about global wine markets and saw in them case studies of the sort of dynamic forces that fascinate me.
There are many ways to think about the economics of change. The first formal model that I discovered in my first year university economics course was the “cob web model” of agricultural markets, which explains why some markets are in constant flux and seldom static or idle. Under some conditions markets will gradually converge to equilibrium, but sometimes they can blow up! Change is the rule, not the exception. It is no surprise that the cob web model applies to the wine market as the Turrentine Brokerage wine business “wheel of fortune” aptly illustrates.
The Dynamics of Change
I studied globalization for many years and developed an analytical framework to help me understand global change. It isn’t original by any means and doesn’t apply to every situation, but it is a way of thinking that helps me work things out. Here’s a way to think about change. Start with a dynamic force, the source of change. Could be a change in policy, technology, or even nature. The dynamic force stimulates responses in the form of actions, which attempt to accommodate or exploit change. The actions further disrupt existing systems and bring forth reactions to both the initial change and the actions it produced. If the reactions are strong enough, they can produce another wave of change.
Change. Action. Reaction. Change. Once you think about it you start seeing these forces everywhere.
The Wine Wars Scenario
If you’ve read my book Wine Wars you can already see how this analysis can be applied to the wine industry. Globalization is the dynamic force in this case and it comes in many flavors and has many impacts both positive and negative. Globalization has spread wine around the world and fostered the exchange of international investment (think Chandon China), expertise (think Flying Winemakers like Michel Rolland), and grape varieties (Rkatsiteli in the Finger Lakes of New York, Gruner Veltliner in Australia’s Adelaide Hills, Chardonnay and Cabernet just about everywhere).
Globalization brings a world of wine choices to your doorstep, inducing many actions is response. The one that I focused on in Wine Wars was the commodification action. With so many choice at so many price points, consumers can feel overwhelmed. Risk and uncertainty discourage wine consumption, so a logical action is to simplify wine. I identified “the Miracle of Two Buck Chuck” as a particularly successful example of this action. Consistent commercial quality wine plus low price backed up by Trader Joe’s bulletproof reputation equaled a phenomenon. Two Buck Chuck gave millions of Americans the confidence they needed to try wine and to enjoy it. It helped democratize wine, if you see my point.
But not every attempt at commodification grows the wine pie the way that TBC did. And sometimes simplification can go too far, as the current hard seltzer phenomenon attests. It is no wonder that there is a reaction that I called “the revenge of the terroirists.” The reaction also took many forms, with the natural wine movement just one highly visible aspect.
We have experienced a lot of change in the last 12 months in terms of the pandemic and the resulting economic crisis. This prompted a flood of actions ranging from dramatically aggressive monetary policies and fiscal stimulus packages to lockdowns of bars, restaurants, cities, regions, and sometimes whole nations. It’s been a “K-shaped” situation: some people have profited from the pandemic syndrome while others struggle and sometimes fail to hang on.
Now there is relief in sight with the emergency release and slow roll-out of vaccine. How will people react when the dark clouds begin to lift? I have argued that we are unlikely to see a sudden return to what we used to call “normal” life. You cannot simply flip a switch and bring back business and lives that have disappeared.
The Punch Bowl Overflows
But not everyone shares this cautious view and there are plenty who look forward to a “Roaring Twenties” of fast growth and exuberantly high times as Financial Times columnist Martin Sandbu recently noted in an op-ed titled “Goodbye virus-ridden 2020, Hello Roaring Twenties.” One hundred years ago the world was traumatized by a bloody world war and the devastating Spanish flu. When the fog cleared, people looked around and decided it was time to celebrate — to live for now since tomorrow is always uncertain.
From a financial standpoint, there is reason to think that the twenties might roar, at least for a while. I used to teach my university students the conventional wisdom that it was the role of the Federal Reserve to take the punch bowl away just as the party was really getting rolling. But these days central banks are pledging to keep interest rates very low and easy money available far into the foreseeable future. It is easy to see how this could pump up a bubble (for bears) or sustain solid growth (for bullish types).
Sandbu writes that
Public health restrictions have disproportionately hit the more hedonistic end of the consumption spectrum: what we have stopped doing is eating together, drinking together, entertaining one another and going on holiday together. Vaccine-induced herd immunity will, quite literally, make it OK to party again. And my goodness will we have reason to party.
It is not just the numbers that point to a consumer boom; behind them lies something less tangible but yet more convincing. You do not have to be an economist, only human, to understand the desire to let loose, get together, and take risks after a year of cautiously locking down at home and distancing ourselves from one another.
This scenario suggests a roaring decade for wine, too, as the travel and hospitality sectors take flight. It won’t be a simple reset, however. As any Marty McFly fan can tell you, the future changes when you tweak its past. But the wine sector should share the good times in Sandbu’s roaring economy scenario.
There are no guarantees, however. The roaring 1920s didn’t end very well. The current economic expansion depends upon both good health policy and good economic policy. What happens when fiscal stimulus ends, as it much eventually, and the monetary punch bowl runs dry? What will the receding tide reveal?
And then there is inequality to consider. Sandbu notes that
What all this calls for are measures which ensure that everyone feels the economic and social system has their back. A dark underbelly was, of course, also as much a feature of the previous Roaring Twenties as the glitz of its Great Gatsby surface.
The economy and the wine economy, too, have been K-shaped so far, with some sectors rising sharply while others struggle or fall. That’s not a recipe for sustainable growth.
As the door to 2021 slowly swings open, the landscape looks both familiar and transformed at the same time. When the U.S. wine industry entered 2020, for example, the problems seemed to be stagnant demand on one side and excess wine grape supply on the other. Not a good situation for the world’s largest wine market, but not something beyond our ability manage, either.
Those problems are still with us, although they’re a bit lost in the fog. Structural wine production capacity is still too large, but this is disguised a bit by a smaller 2020 harvest in California and widespread smoke damage, which took some grapes off the market.
Overall wine demand is still under-performing, too, but that is hard to gauge exactly because of the way that wine channels have been disrupted by the covid pandemic in general and bar/restaurant restrictions in particular. Consumers are buying much more through retail channels, a good deal more direct-to-consumer and much less in the on-trade. Whatever the net impact, which seems to be negative, the effects on individual wineries in particular sales channels is significant.
The Unified Sine & Grape Symposium‘s “State of the Industry” session is about two weeks away so those of us on the panel are working to put our thoughts about 2021 in order. Here are some of my working notes. The theme here is that, while there is plenty of bad news going into 2021, if you take an international perspective on the U.S. situation, it quickly becomes clear that things could be much worse. If that sounds like a “glass half full” perspective, well it is.
Take the loss of on-premise sales. These lost sales are costly indeed, but producers in Europe had it much worse because they depend much more on bar and restaurant sales. No wonder their industries are hurting to badly and that crisis distillation is back in some E.U. countries.
If people in the U.S. wine industry are looking for something to be thankful for, they might consider how lucky they are not to be Australia. The U.S. industry has been caught in the trade war crossfire to be sure. Importers and distributors have been hit by U.S. tariffs on many European wines, for example, and China has imposed tariffs on the relatively small amount of U.S. wine sold there.
As if matters weren’t bad enough, the U.S. recently imposed 25% tariffs on French and German still wines above 14% abv, which had been spared in earlier rounds of the trade wars. U.S. firms that import, distribute, or sell these wines are collateral damage in the bigger trade fight, which has nothing to do with wine. These are daunting challenges, to be sure, but nothing in comparison to what Australia is experiencing.
The Australian wine industry invested heavily in opening the door to the Chinese market and moving up-market once inside. And they were remarkably successful. As you can see above in data from Wine Australia, China was by far Australia’s largest export market by revenue in 2019, accounting for $1.3 billion of the $2.9 billion of wine exports. China bought almost three times as much as the #2 export market, the United States.
Australian wine is #1 in China, too, measured by value. Australia overtook France in the Chinese sales league table in 2019.
This was good news for Australian producers back with economic relations with China were happy ones, but now a variety of tensions exist and China was imposed up to 212% tariffs on Australian wine. I don’t know if sales will go to zero immediately, but that is a lot of tariff to absorb. Although anti-dumping measures are cited in this case, the real conflict is elsewhere. Economist have long held that anti-dumping tariffs, ostensibly designed to deal with damage from predatory pricing, are often subject to political abuse.
Australian producers hope to be able to divert previously China-bound production to other Asian markets and some of it may end up in the U.S. and U.K., too. But realistically there is just too much wine for these markets to absorb and margins in the pivot markets are unlikely to match those in China.
But things could be even worse. What if Australia was even more dependent on Chinese market? The turn of the political screw would be even more painful then. And that is what happened in the past to Moldova and to Georgia when their biggest wine export market, Russia, decided to use wine as political tool.
The Good News is That the Dollar is in the Dumpster
You can find another good news story by looking at the foreign exchange markets. Typically when there is any kind of crisis around the world there is a rush to the security (and liquidity) of the U.S. dollar. Uncertainty drives the dollar in turbulent times. Or at least that’s what we thought.
A strong dollar translates into cheaper imports, which would not have helped in any way restore domestic balance in the U.S. wine market. A strong dollar isn’t the worst thing for domestic producers, but the negatives outweigh the positives for many firms.
As I noted in a Wine Economist column back in August, this crisis is different and the dollar didn’t soar, it plunged as this graph (above), which shows the dollar versus the euro, indicates. And then, after bouncing around for a while, it plunged again.
Now this is bad news for consumers who want to buy imported wine because a cheap dollar buys less on international markets, so European wines, many already subject to U.S. tariffs, are even more expensive. But it is good news for U.S. wine producers who compete against euro-priced imports. The cheap dollar gives them a cost advantage in the domestic market. There is also a theoretical advantage in export markets, but honestly those markets are pretty congested right now with lots of unsold wine (some of it from Australia) looking for a home.
But foreign exchange news isn’t completely sunny for U.S. wine because the dollar isn’t falling against all currencies. As this graph shows, the Argentina peso is even weaker, so the U.S. dollar steadily increased in relative terms, making wine from Argentina a fierce competitor where price is the key factor, especially bulk wine trade.
Economics is often called the dismal science and these examples of good news have a decidedly glass-half-empty feel. Stay tuned for glass-half-full analysis in coming weeks.
The Wine Economist World Tour is back on the virtual road in 2021. We hope for the return of in-person events before too long, but until that’s possible virtual events will do very well. Here are the first three stops for the new year.
The Unified: State of the Industry
The Unified Wine & Grape Symposium (January 26-29, 2021) is going virtual this year, including both the seminars and the amazing trade show. It will be quite an experience.
The program addresses a host of important issues, with special attention to wildfire threats and diversity and inclusion initiatives. Several sessions analyze changing wine market conditions including the State of the Industry session on Wednesday, January 27. Danny Brager, Glenn Proctor, Jeff Bitter, and Jon Moramarco join me on the virtual panel.
Idaho Wine Commission: State of the Industry
The Idaho Wine Commission’s annual meeting goes virtual this year, too, with half-day sessions on February 22-23, 2021. This is the third time I’ve spoken at this event and I am sad that I won’t be able to visit Boise in person to refresh friendships, exchange insights, sample great Idaho wine, and enjoy Boise’s amazing Basque food scene.
I will anchor the first day’s program with a special take on the State of the Industry. Greg Jones, the world’s foremost viticultural climatologist, will speak the following day. Economic change, climate change. Food for thought for Idaho’s dynamic wine industry.
Wine Future 2021: Challenges & Solutions
WineFuture 2021, an incredibly ambitious international event, will happen on February 23-26, 2021. This big international conference boasts an all-star cast. I will lead a panel on the economics of the crisis on February 23.
The folks behind Wine Future 2021 think big. The theme of the first day is the four crisis challenges facing wine (and the world): climate, economy, pandemic, and inequality. Day 2 focuses on solutions and sources of inspiration. The final two days look to the future from many different points of view.
Wine Future 2021 has been hosting a pre-conference webinar series since November to get ideas in the air and discussion flowing. You can view previous webinars (including one I did with Rabobank’s Stephen Rannekleiv) and register for upcoming broadcasts on the Wine Future 2021 Webinar home page.
January is just around the corner and that means Dry January, the month when many people pause to assess their alcohol consumption. If a lot of people have been indulging as much during the covid pandemic as their social media feeds suggest, Dry January could be particularly traumatic this time around.
Not Just January Any More
But it is a mistake to think of the interest in low- and no-alcohol beverages as being strictly seasonal. The marketing gurus at Heineken beer haven’t invested a fortune promoting Heineken 0.0 because they are looking for a short-term January sales bump. There are lots of reasons for consumers to seek out alcohol-free alternatives and the beer industry, always on the lookout for growing market niches in a fairly stagnant category, has responded with gusto.
If you don’t believe this, take a trip to the beer aisle of your local upscale supermarket. You might be surprised by the number of low/no abv products you find there and the range of styles. When I first explored this question in a Wine Economist column earlier this year I was impressed by a number of German products that had real beer flavor without the abv that usually goes with it.
My favorite among the half-dozen products I tried was Dry Hopped Clausthaler. It ticked the boxes for me: single serving container, affordable price, and it tasted so authentic that I didn’t miss the alcohol. Very impressive. I’ve got some in the fridge now.
Another appealing product that I stumbled upon is All Out non-alcoholic stoutby Athletic Brewing Company. It’s an oatmeal stout and it tastes like an oatmeal stout — very satisfying. Because it is non-alcoholic, the usual nutritional information is provided on the can. Ingredients: Water, malt, oats, wheat, hops, yeast. 90 calories per can. If you like oatmeal stout, you’ll like this, too.
Beer makers have an advantage over wine producers in that they can produce many different batches of beer over the course of the year. Winemakers generally have one shot and that’s it. So seasonal beer products are available and for the winter months Clausthauler made a non-alcoholic holiday beer, Santa Clausthaler (Santa Claus-thaler — get it?) shown above dressed in miniature Santa hats. It is a 50-50 blend of their non-alcoholic beer with a cranberry cinnamon drink. Interesting! Kinda reminds me of mulled wine.
Fear of Missing Out
My earlier column on Dry January worried that wine was missing out on the low/no abv beverage trend. I know there are good wine products out there, but I don’t see the same investment in this category that the beer industry has made. Every bar or restaurant that I visited (when such visits were possible) had a non-alcoholic beer option available. None had non-alcoholic wine.
So what I am looking for? Single serving container is important. Affordability is important, too. And a non-alcoholic wine needs to remind me of wine as much as the best of these non-alcoholic beers remind me of beer.
A new product that seems like a step in the right direction is called H2/Heart Sonoma Soft Seltzer, which comes in Sauvignon Blanc, Pinot Noir, and Rosé flavors. Although the target is non-alcoholic seltzer, not wine, these carbonated drinks contain de-alcoholized wine and grape juice, too.
Sue and I received samples of the sparkling Pinot and Rosé flavors. Sue thought that the Pinot tasted like Black Cherry soda and didn’t see it as a wine substitute at all. The Rosé tasted like sparkling raspberry lemonade to me and, while I can’t say it especially reminded me of Rosé wine, I think I would be happy with this sparkler in my glass at some future post-covid holiday party. Festive, refreshing, enjoyable.
So clearly some people are hard at work bringing wine to the low/no abv party and that’s a good thing because I think this market niche is only going to grow. I’d like to think that wine can play in this arena because I suspect there are many people like me who sometimes want a high-quality low/no abv option, but would like to stick with wine.
That’s it for 2020. The Wine Economist will be back in 2021. Happy Holidays to all.