Author Archives: Mike Veseth

Riesling’s Rising Tide

July 19, 2010 By in Chateau Ste. Michelle, Dr. Loosen, Flying Winemakers, globalization, Long Shadows, Riesling, wine history 4 Comments

The continuing globalization of wine presents many challenges and opportunities. The opportunities are fresh in my mind because I recently attended the third Riesling Rendezvous conference – an international gathering of Riesling makers from around the world (Germany, Austria, France, Canada, Australian and New Zealand) and across the U.S. (Washington, Oregon, California, Michigan, New York and New Jersey).

It was a real love fest. Riesling is the fastest growing market segment in the United States right now and the rising tide raises all boats. There was a strong sense of good will and collective achievement.

International [Wine] Relations

The meeting was organized by Washington State’s Chateau Ste Michelle (CSM), the number one U.S. Riesling maker, and Dr. Loosen, a leading Mosel producer. Their partnership was really at the core of the event — you could see evidence of it everywhere. Loosen and CSM have collaborated for a dozen years on a number of projects, the most visible of which is Eroica, consistently one of America’s top Rieslings.

It was interesting to listen to Ernie Loosen and Bob Bertheau, CSM’s head winemaker, talk about their work together and how much they have learned from each other. There was a real sense of mutual respect and pride of accomplishment – part of the feel-good feeling.

Another of Washington’s best Rieslings is also the result of international collaboration. I’m thinking of Poet’s Leap, the wine that Germany’s Armin Diel makes with Gilles Nicault, the resident winemaker at Allen Shoup’s ambitious Long Shadows winery in Walla Walla. I got the same feeling about this collaboration from Gilles.

Eroica and Poet’s Leap are wines I recommend to my students – exceptional wines, widely distributed and  priced at around $20. Loosen & CSM and Diel & Long Shadows have made their partnerships work very well.

The Ghost of Rieslings Past

But collaboration is difficult and partnerships don’t always work out so well. This was the case with the first attempt by an international winemaker to make Riesling in Washington State. I’m talking about the great failed (and now nearly forgotten) F.W. Langguth winery experiment.

The Langguth family has been making wine in the Mosel for over 200 years. F.W. Langguth is today best known mainly for its mass market wines – it purchased the Blue Nun global brand (see  the Curse of the Blue Nun ) a few years ago and makes many of the low cost wines that fill German supermarket shelves.

Langguth became interested in international expansion in the early 1980s (two of its current brands, made in Tunisia of all places, were born in this period). The success of Washington Rieslings from Chateau Ste Michelle and other producers caught Langguth’s attention and soon plans were under way for a major investment.

Langguth and local partners developed Weinbau Vineyard (now part of Sagemoor Farms) on the Wahluke Slope and built a $5 million 35,000 square foot state of the art winery in Mattawa. The winery was the second largest in the state at the time, behind only Chateau Ste Michelle’s big Woodinville facility.

A Simple Idea

The idea was simple – make German-style Rieslings in Washington State and ride the rising U.S. market tide. The first vintage (220,000 gallons) was made in 1982 and released the next year. The wines sold for $4 to $6 per bottle, equivalent to the $8 to $12 price band today. There was a heady feeling of coming success, both at Langguth and within the Washington wine industry generally, which I think was flattered and encouraged by the international attention.

It did not last long. By 1986 the bankrupt Langguth winery was being sold to Snoqualmie Vineyards, where Mike Januik and Charlie Hoppes made wine. Snoqualmie was eventually absorbed by CSM’s parent company and the gleaming stainless steel of the Langguth facility disappeared. The big building was eventually used for storage.

What went wrong? Well, as I said, collaboration is difficult and it seems that there was a great failure to communicate in this one. The wine was made in Mattawa, of course, but I understand that all the decisions were made back in the Germany. The grapes were picked early at low brix and high acid, just like in Germany where climate and geography make this necessary, even though that combination didn’t make much sense in sunny Mattawa, where longer hang times are the current norm.

Remote Control Winemaking

The technicians back at the mother ship analyzed the data – wine by the numbers — but I guess they didn’t taste the grapes, as winemakers around the world always do. So they couldn’t tell that the resulting wines were soulless (as one critic concluded) and seemed over-processed. The market was under-whelmed by the wines when they were released.

Although Langguth wines improved in the following vintages, it was already too late. The market opportunity was gone. It is too harsh to say that Langguth was the Edsel of Washington Rieslings, but that’s the general idea I get from published accounts.

No one talked about Langguth at the Riesling Rendezvous – and I don’t blame them. Why dig up old skeletons?

But I think remembering the failed Langguth experiment usefully helps us appreciate how truly exceptional these recent successful partnerships really are. Here’s to Riesling’s rising tide!

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Thanks to Chateau Ste Michelle for inviting me to participate in Riesling Rendezvous. Information for this report was drawn from Paul Gregutt’s Washington Wines & Wineries (2005), Ronald Irvine’s The Wine Project (1997) and Ronald and Glenda Holden’s Touring the Washington Wine Country (1983).

Extreme Wines: Most Expensive Vintage?

July 13, 2010 By in economic crisis, extreme wine, Jancis Robinson, wine price 2 Comments

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

2009 is by most accounts the most expensive Bordeaux vintage on record. Quite an achievement during a global economic slowdown! Jancis Robinson quotes some amazing prices for the en primeur wines:

Le Pin €1,050
Ausone €800
Cheval Blanc €700
Haut-Brion, Latour €600
Lafite, Margaux, Mouton €550
Yquem €540

Other’s People’s Wine

These prices are per bottle — except that no real bottles exist yet. The 2009 vintage is still in barrel and will stay there for several more months. Since Bordeaux wines are almost always varietal blends — and since the blending won’t take place until the wine is bottled — it is fair to say that the people who are paying these big prices can’t be completely sure what they are buying. They base their purchases on … on what? On faith (in the winemakers), on trust (in the critics’ judgments) and, of course, on speculation, since much of the action at this stage is to lock up hot wines for profitable resale later.

John Maynard Keynes once compared speculators to people who bet on the results of the “people’s choice” beauty contests that were popular in his day. The trick wasn’t to pick out the most beautiful entrant, but rather to  identify the one that other people would vote for. So making the bet was a matter of guessing what other people would think other people would do and playing the odds. That’s Bordeaux en primeur in a nutshell.

How did prices rise so high with the world economy in such a fragile state? There are many theories. Here are four.

(Another) Vintage of the Century

The first theory is quite simple. 2009 was an extraordinary year and the wines are (or will be) spectacular.  Wine enthusiasts will forever regret it if they don’t purchase this vintage, even at high en primeur prices.

This theory is supported by the rave reviews of many wine critics. Perhaps it really is the vintage of the century in Bordeaux, although it must be said that vintages of the century seem to come around pretty frequently these days — their schedule is more like the World Cup than Haley’s Comet.

The China Theory

A second theory is that the high prices of these wines reflects the full emergence of Asia as a market for fine wine.  I’m not sure what to make of all the chatter I heard during the en primeur tasting circus, but the scuttlebutt is that American buyers failed to show up in the usual numbers, but they were not missed because of the demand from China, both direct purchases and London houses buying for eventual Hong Kong resale.

One fact that supports this theory is the huge gap in prices between the top trophy wines and the rest of the Bordeaux market. It is said that Asian buyers want to purchase only the best, most famous wines (rather than looking for bargains or good value further down the list). I don’t know if this stereotype is true, but the stratification in price indicates a disproportionate demand for the top wines, which is consistent with the China theory.

Auction Theory

Another article by Jancis Robinson suggests that the Bordeaux winemakers and their agents are using strategic techniques to try to boost prices, dividing them in tranches, for example, a popular practice in financial markets. Tranche is French for a slice and it is a word that moved from financial jargon to everyday use during the economic crisis, when we all learned how Collateralized Debt Obligations (CDOs) were sold off in “slices” that allowed people to convince themselves that their sub-prime mortgage investments were safer than they turned out to be.

Bordeaux wine is sold in tranches, too, with the price of the first slice used to set the standard for the second.  This year, Robinson reports, the first tranche was ridiculously small, creating leaving excess demand and therefore forcing more buyers to weigh in for the second tranche (or risk not getting any wine), which was priced at €100 per bottle more than slice #1 in some cases.

(Wine fact: Tranche is also a winery — and a good one —  Tranche Cellars in Walla Walla.)

Cost-conscious wine drinkers can only hope that the Bordeaux merchants do not start reading the technical economics literature on auction theory, where they would likely find other ways to manipulate the market to squeeze out higher prices.

The No Theory Theory

A final theory is really no theory at all. It holds that the idea that Bordeaux 2009 (broadly defined) is the most expensive Bordeaux vintage ever is a misconception. There are about 8000 Bordeaux producers according to reports I’ve read recently and only about 400 of them take part in the en primeur market. The total production of “first wines” by these makers is surprisingly small. I think it is fair to say that 90 percent of the market’s recent attention is focused on less than 10% (by volume) of the wine produced in Bordeaux.

The prices of the top wines have gone through the roof, but what about the region as a whole? You don’t have to have a theory to appreciate the fact that the makers of ordinary Bordeaux wines do not share the status or benefits of the trophy wines and are probably feeling the pain of hard times like so many winemakers around the world.

Bordeaux 2009 might be extreme in two ways: most expensive and biggest gap between top and bottom!

Washington Brands vs Brand Washington

July 10, 2010 By in AVAs, Chateau Ste. Michelle, economic crisis, Paul Gregutt, Wall Street Journal, Washington wine, wine markets, wine price 3 Comments

Lettie Teague’s column in today’s Wall Street Journal provokes a post on Washington wine’s identity crisis.

Teague writes in “Stalking the Wines of Washington” that the Washington wine industry has expanded rapidly in the last few years and that there are many great wines and great wine values. Yet Washington wines are hard to buy (she had trouble finding them in New York wine shops) and hard to sell (she quotes several winemakers in this regard, including Chris Camarda of Andrew Will, who is holding back wine and reducing capacity by 40%). What’s the problem?

I Can Get it for you Wholesale

Well, as in most cases, it is not a single thing but a confluence of forces at work. Although she says that fine wines from Washington have a reputation for good value, Teague suggests that many are currently over-priced relative to Napa Valley products. Judging from my email inbox, the reason for this is that a lot of Napa producers are selling off their wines at deeply-discounted prices.

The typical deal I am offered is “limited time only” 50% off the retail price plus discounted shipping. A great deal, except I can sometimes find even lower prices on these wines at local stores. The wholesale prices must be rock-bottom if wineries can do better with these low revenue direct sales. Teague writes that

One Washington winemaker lamented to me, “We can’t compete when Pahlmeyer Cabernet that used to be $90 a bottle is now $45 a bottle.” And so, while the quality has never been higher—Washington has had three excellent vintages (2006, 2007 and 2008)—the wines are getting harder and harder to find in stores outside of Washington state.

[Interestingly, some of the offers have six bottle limits — a psychological ploy in most cases, I think, to make customers believe that surplus wines are really quite scarce. Wine people tell me that it works every time.]

I think that Washington wines are still a great value, given their high quality, but deep discounting by the competition is never a good thing for producers.

Napa Valley vs Columbia Valley

The lack of a strong regional wine identity is a second issue that Teague identifies (she also cites the small scale of most Washington producers as a disadvantage). Everyone thinks they know what Napa Valley wine is (although it is a large and very varied AVA that produces lots of different types and styles of wine). Napa was a strong brand.

What is Washington wine?  Washington apples have a strong identity and Washington cherries, too. But Washington wine — not so much. A stronger, more prestigious identity could be a real advantage, especially in this economic climate, Teague notes.

… Napa Valley has just done a much better job of marketing itself, according to Marty Clubb, whose L’Ecole 41 Winery in Walla Walla is probably one of the best known and oldest (circa 1983) wineries in the state. “Nobody really knows where our wines are from. People recognize our brand but not as a Washington-state winery.”

Washington has well-known wine brands at nearly every price point from Columbia Crest to Quilceda Creek, but there is no well-established Brand Washington. This is an issue that Paul Gregutt identified in his terrific book,  Washington Wines & Wineries: The Essential Guide (watch for a second edition on bookstore shelves this fall). He interviewed leaders in the Washington wine industry about their vision for Brand Washington and, while most considered this an important issue, no consensus emerged.

I’ve heard that Allen Shoup (the godfather of Washington wine: former head of Chateau Ste Michelle, now the driving force at Long Shadows) wanted to promote the idea of the Columbia Valley as Washington’s equivalent of Napa Valley — building the Columbia Valley brand to compete with California.

But this plan ran into a collective action problem as individual producers invested in their own private brands and sub-AVA brands instead. I’m sure some buyers today see Columbia Valley as a generic designation, not the prestige brand originally envisioned. And I’m sure a lot of people don’t associate it with any particular place (some people still confuse Washington  State with Washington DC; maybe they think the Columbia Valley is in … Columbia!).

Although the lack of regional identity may be a serious issue in the long run, I think other problems are more pressing right now. After all, most of those deep discount emails I’m getting aren’t coming from Washington, they’re being sent out by famous wineries in famous Napa Valley.  A strong identity surely helps, but can’t completely compensate for competitive market forces.

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One area where Washignton’s wine identity is strong is in Riesling. Riesling Rendezvous — sponsored by Chateau Ste Michelle and Mosel’s Dr. Loosen, begins tomorrow. Riesling makers from around the world will gather near Seattle to discuss the problems and opportunities they face. Look for a Riesling Rendezvous post in the near future.

Good News & Bad News from Oz

July 6, 2010 By in Australian wine, China wine, economic crisis, Economic impact, exchange rates, Foster's, speculation, wine exports, wine investment, wine markets 6 Comments

Sometimes the good news is that the bad news could be much worse. At least that’s how it seemed to me when the wine economists met at UC Davis last week to discuss the continuing Australian wine crisis.

Kym Anderson, a leading expert, spoke about the problems in Oz at the symposium on “Outlook and Issues for the World Wine Market” and I thought his assessment of the “challenges” Australia faces was pretty grim.  Big oversupply. Falling grape prices. More and more quality grapes sold off at fire-sale prices in the bulk market (40% this year compared to 15% in the past).

The best selling white wine type in Australia isn’t from Australia any more — it’s Marlborough Sauvignon Blanc. Even the Australians are tired of “Brand Australia” Chardonnay!

Maybe, Baby

Professor Anderson looked for a light at the end of the tunnel and was able to point to some potential sources of relief. Maybe water reforms could be implemented. Maybe R&D to help the industry deal with climate change would produce results. Maybe the new export strategy to promote Australia’s regional diversity and wine families would catch on. Maybe the China market will open wider and drink up the surplus.

Since the bad news was so compellingly concrete and the hopeful notes so speculative, I took the overall forecast to be very dark indeed. Imagine my surprise, then, when I attended a talk by another Australian expert the next day who described  Anderson’s presentation as optimistic! When the good news is this bad, the bad news must be really bad.

Bad News, Bad News

Sure enough more bad news arrived shortly thereafter in the form of a Wine Spectator article, “Aussie Wine Company Faces Angry Creditor,” concerning the financial problems of The Grateful Palate group, which exports many hot brands to the U.S. market including the unlikely-named Luchador Shiraz shown here.

Trouble is brewing in Australia. The Grateful Palate’s Australian affiliates, which produce wine under labels such as Bitch Grenache, Evil Cabernet Sauvignon and Marquis Philips for American importer Dan Philips, are in receivership and face the danger of possible bankruptcy. Growers and other creditors for the South Australia-based affiliates of the company received notice on June 18. Many growers, already facing tough times, worry that they’ll never get paid for fruit they sold Philips.

Philips, the company’s founder and owner, confirmed that he is in negotiations with his top creditor, Dutch lender Rabobank, but declined further comment. The bank initiated the action to put Grateful Palate International Pty Ltd and several related Australian companies into receivership. The most prominent is R Wines, a partnership with winemaker Chris Ringland, but 3 Rings, a joint venture involving Philips, Ringland and grower David Hickinbotham, is also part of it.

This is bad news, of course, but bad news is no longer a surprise to those of us who are following the Australian wine scene. Perhaps it is really good news of a sort — an indication that the necessary industry shake out is gaining speed. Hard to tell good news from bad.

Darker or Brighter?

The same situation applies to the Foster’s de-merger situation. Foster’s, the Australian beer giant, bought into the wine business at the top of the market, paying an estimated $7 billion for an international portfolio of about 50 top brands including Penfolds, Wolf Blass and  Beringer. The investment may be worth as little as $1.5 billion in today’s market.

Foster’s beer business is an attractive target for global giants like SABMiller, but not with the wine portfolio attached. So Foster’s announced a de-merger to allow the beer group to move ahead independently of the wine group. What will happen to the wine business?  Who will buy these assets in today’s depressed environment?

When I posed this question to an Australian winemaker several weeks ago the answer came back quickly: China! Everyone in Australia is paranoid about the Chinese buying up our natural resources, and so we are convinced that they will buy up Foster’s wine business, too.

Interesting idea, I thought at the time. No multinational wine firm (Constellation Brands? Gallo?) would want to go bigger right now. But maybe a Chinese firm that wants to break into the global markets would take the bait. Might make sense. Maybe.

Bright Idea

Sure enough, the Bright Food Group. (Mission: “To build the company into a leading enterprises group in the national food industry, with famous brands, advanced technology, strong competitive power and deep influence in the world by the end of 2015.”)  recently signed a three-way memorandum of understanding with the New South Wales government and the China Development Bank to explore opportunities for the Bright Group to invest in the sugar, dairy and wine industries.

A Financial Times article reports that  the company is interested in “global top ten players in wine, sugar, food packaging, commodities and healthcare sectors.” Bright Food is currently studying both wine and beer assets in Australia, but has not decided to buy either yet according to the FT.

Many Australians no doubt consider the potential sale of yet another natural resource business to Chinese buyers bad news in terms of their economic sovereignty, but that bad news might actually be the best news they can expect given the sorry condition of the global wine market today.

The {Wine Economics} Magnification Effect

June 30, 2010 By in Economic impact, globalization, wine bargains, wine exports, wine research 3 Comments

One of my pet theories about globalization could be called “the magnification effect.” Although global markets change things for sure, often their biggest effect is to magnify or exaggerate existing trends and conditions. A Decanter report from Bordeaux provides a good example of how the Magnification Effect works.

The Law of One Price

Although people talk about “Bordeaux wine,” there has never been a “Bordeaux wine market.” The Law of One Price holds that if there is a single market there will be a single price. But it is the difference in prices that is Bordeaux’s most notable feature. Some wines from the region sell for thousands of dollars, others for a few bucks and some … well they go to the distillery for mere pennies.

This market segmentation occurs in all wine regions, but it is more noticeable in Bordeaux because these wines have always been targeted for export (the globalization element) and so price stratification is more pronounced.

Students of wine history know that Bordeaux is in fact defined by these differences. The Classification of 1855, which established a strict hierarchy of Medoc wine producers that persists to this day, was not based upon sensory evaluation, as you might expect, or critical analysis but simply on market price.

The gold's at the top ...

The Twilight Zone

Over the years, as global markets expanded, the price differentials recognized in 1855 became embedded in the market and magnified. The Decanter article illustrates the current extreme. Announced prices for 2009 are substantially higher for the 400 top-tier Bordeaux wines that are sold en primeur: up an average of 18.6% over the 2005 “vintage of the century” and 48.7% above the recession-plagued 2008 market. Good times for the top names, as Orley Ashenfelter pointed out on two occasions during the recent American Association of Wine Economists meeting at UC Davis.

But there are thousands of wine producers in Bordeaux and times are very hard for many who are not in the top tier. Decanter reports that

…  the official price paid by merchants for a tonneau (900 litres, or the equivalent of 1,200 bottles sold in bulk) of AOC Bordeaux red has dropped to around €600 per barrel – less than the ex-chateau price for a single bottle of any of the top wines.  Most producers report that actual transaction fees are dropping as low as €500 per tonneau. Bernard Fargues, president of Syndicate of Bordeaux (which represents over half of the regions’ 8,000 winemakers, all producing AOC Bordeaux and AOC Bordeaux Superieur) told decanter.com that around 90% of his members were in difficulty, with at least 50% suffering serious financial problems.

If my math is right, some Bordeaux wines have fallen into the Two Buck Chuck danger zone while others have risen to … to what? The Twilight Zone!

This magnification effect has become global, as was readily apparent at a symposium on “Outlook and Issues for the World Wine Market” held in association with the Davis meetings. Speakers emphasized the widening market segmentation. Bulk wines (wines that sell for less than $5 per bottle equivalent and often for much less) have developed a truly global market in part, as several speakers noted, because bulk wine buyers aren’t particularly interested in terroir — they basically don’t care where their wine comes from, only what that it has a familiar taste and doesn’t cost very much.

Somewhere vs. Nowhere at Trader Joe’s

I noticed this on a recent visit to Trader Joe’s where a new line of Two Buck Chuck has appeared — Charles Shaw International wines, sourced from Australia’s surplus wine lake and selling for the same low price as the original product. I don’t imagine that anyone will refuse to buy it because it is “international” rather than from the San Joaquin Valley like the rest of the Two Buck Chuck lineup.

Bulk wine prices are deeply depressed because of this mass global market, squeezing out inefficient producers (or those who don’t benefit from government subsidies of one sort or another). Profits per acre in the San Joaquin Valley (where most of California’s bulk winegrapes are grown) is down to $200 acre — an amount so low that growers are switching to other crops such as walnuts and almonds where the global competition situation is more favorable. One grower who attended the symposium talked of leaving fruit on the vine for the first time in 25 years.

If the market for bulk wines is global, I guess you could say that the premium wine market is “international.” Buyers do care about where these wines come from and so global sourcing is not an option. This exposes producers to a different set of risks and rewards. Australian winemakers, for example, find themselves victim of the strong Australian dollar. China’s huge needs for Australian minerals has driven the currency up and helped price Australian premium wines out of their traditional market niches.

The Law of Yuan Price

(The exchange rate obviously affects the bulk wine market, too, and is one factor in Australia’s excess capacity in that market segment. The exchange rate depresses price both directly, by raising export costs, and indirectly as unsold premium wines are diverted to low-price bulk wine markets.)

Wines at the very top of the pyramid also face challenges, but they are different from those of bulk wine and premium wine. Globalization is a positive benefit to top-flight Bordeaux, for example, because it means that Hong Kong and Chinese buyers can be found to replace (or apparently more than replace) declining buyer interest elsewhere.

Decanter recently published their first Chinese language Bordeaux report — a clear indication of the expanding global market and a suggestion that the Magnification Effect has not yet reached its peak.

Extreme Wine Report: Wine in Kabul

June 28, 2010 By in alcohol, emerging wine regions, extreme wine, wine distibution, wine law 3 Comments

I’m starting an occasional feature on extreme wines. Extreme wines? You know, the cheapest, the most expensive; the biggest producers, the smallest; the oldest, the newest and so forth.

The first report comes from one of the least likely places to find wine: Kabul, Afghanistan. It is unlikely because Afghanistan is a Muslim country and Islamic Law is not very wine-friendly.  Wine is pretty much the last thing you think of when someone mentions Kabul. But there is it, as a recent Time magazine story makes clear.

The Wine Economist’s Chief Kabul Correspondent (codename K.W.) sends this report on the wine scene there, including a rough and ready shopping guide, firsthand market (and black market) analysis and … tasting notes!. Here’s the report.

Note: This is a report from The Wine Economist’s Chief Kabul Correspondent, “K.W.”  All names have been changed. Click here to read a recent Time magazine article on nightlife in Kabul.

In Kabul, if you know the right people you can have them use their security clearance to get wine, beer and spirits from one of the military bases or the UN. Unfortunately, I have not been able to utilize such resources. My wine supply comes through slightly less direct channels and is only available at night when the streets of Kabul are sufficiently dark.

Afghanistan is an Islamic country but is also home to thousands of foreign workers who very much enjoy winding down the evening with some type of alcoholic beverage. The legal technicalities with respect to alcohol are consequently rather vague. At times, the Afghan National Police Force sweeps through the restaurants frequented by foreigners in Kabul and seizes their supply of alcohol. These “raids” only happen every once in a while and it is largely assumed that they are simply a way of maintaining a supply for their own consumption. At other times, it seems to be legal for alcohol to be consumed by foreigners but not by Afghans. For this reason, my Afghan coworkers from my day job at an NGO are hesitant to join me at the bar I manage at night.

All of this ambiguity means that when the bar runs out of red wine and our normal supplier is on leave in Dubai, Hamad (the bartender) and I are forced to find alternate sources.   Hamad and I jumped into his car and after I came to terms with the fact that the seat wasn’t going to slide back from the fully-forward position it was in we were on our way. Hamad floored it out onto the main road, with Bollywood beats on full blast and the windows down – Hamad puffing on a cigarette. Traffic can get pretty bad in Kabul but that depends on how good you are at weaving and playing chicken with on coming traffic. I had about a thousand dollars in twenties wadded up in my pocket.

On Flower Street, named after the displays of bright, plastic flowers in front of nearly all of the stores, we went in a spoke with a man behind the counter who wore a Mona Lisa grin. You would think that buying something out of the black market would mean you could get it for cheap. Not so much. After trying very unsuccessfully to haggle the price down I handed over a little over half the money in my pocket and we got back in the car and waited, with the trunk just barely open. The Afghan National Police has a bigger presence on Flower Street than anywhere else I’ve seen. When the time was apparently right three guys ran out of the store with four cases of beer and a case of Tajikistan vodka wrapped up in black plastic bags, dumped them in the trunk, slammed it shut and ran back into the store. The engine had been running and we took off only to be stopped behind another car right next to three Policemen.

If I get caught buying alcohol it gets taken away, they pretend to make a big deal out of it and then they send me on my way. If Hamad – an Afghan – gets caught buying alcohol he gets taken to prison where he could stay for years if he is unable to pay a several thousand dollar fine. A flashlight scanned our faces for an uncomfortably long period of time as the policeman holding it took a long, thoughtful drag of his cigarette. Traffic cleared, Hamad shifted into gear and I watched the policeman in the rear view mirror look passively back to his friends.

Before we had finished letting out our sighs we had made a few turns and were stopped in the middle of a dark, dirt road ready for our next purchase – the main reason for our trip. Hamad sent a text and we waited for about two minutes before two dark figures with boxes under their arms appeared down the street walking towards us. The two men shifted their eyes at us. After the greetings, a quick series of questions which neither side answers, I broke open the boxes to see what we were getting. Right then I felt I was in the scene of the movie where the mobster checks the trunk to make sure “the goods” were all in order and accounted for.  I looked down, half expecting to find some sort of vastly illegal contraband and instead found “Calvert Varietals” a French Cabernet marketed towards an international market, and then Sutter Home California Cabernet. I pointed at the Sutter Home and told one of the guys he should be the one paying me to take it off his hands. The joke didn’t really go over. Wine snobbery, even in jest, isn’t really understood here. We didn’t have enough money for all of it so some of the Sutter Home found its way back into dark alley wine supply to await its next nervous, desperate wine-starved foreigner.

I was reminded of the last wine purchase we made, an unusually large order of 72 bottles, all of a relatively drinkable and non-threatening Merlot, my favorite varietal. One customer, for some reason eager to expound his wine knowledge upon a 24 year old behind a bar in Kabul, expressed his distaste with the selection. “Merrrllot?”, he exclaimed, “Is that really all you have? I think I’ll stick to Becks”. While opening his bottle of beer I had wondered at how the reputation of one of the worlds greatest wine grapes had been tainted all the way out here. There was a chance that the customer knew what he was talking about and that his owns tastes led him to prefer other types of wines over what he reasonably assumed was a run-of-the-mill example of the often-times poor crafting of Merlot. There was also a chance that having tried a good amount of mediocre Merlot in the 1990’s the customer developed his own aversion to the grape that has continued to this day. More likely than not, this customer – an American – saw a movie and perhaps some snippets of Merlot criticism in the media and decided to use the outside influence to help guide him down the sometimes overwhelming path of wine selection, which is not unreasonable. After finishing a fervent defense of the grape (in my head), I took a sip and remembered that fewer people wanting to drink Merlot meant that there would be more for me.

Most of the bar patrons know better than to ask for a specific type of wine beyond red and white. In fact, most patrons of the bar know better than to ask for wine in the first place. That said, nearly every week we have a different red wine on the shelf and you never know, this could be the week when it’s drinkable before rather than after those rum and cokes. Recently we’ve had a decent supply of a South African white which is decent, especially now that the summer is swinging into gear and most everyone chooses to sit out in the garden at a picnic table. Red will typically be either Italian or French with the occasional American, Australian and Spanish bottles as well. As I cringe at the blown out fruit I have to remind myself that much of this wine has been sitting in giant metal shipping containers for months, seeing some of the worst transportation conditions possible.

How did this wine get here? For the most part, deals are cut with distributors or directly with producers and larger shipments are flown in on large cargo planes, destined for Embassies, the UN, the military bases and perhaps one or two influential individuals or groups. But what about my handful of cases in the alley? My guess is that occasionally, cases find their way off the pallets while waiting to be trucked off to the bases. Somebody’s cousin has a friend who’s brother knows somebody who once mentioned to Hamad the bartender that he may be able to get him something. Most of the wine I see is fairly recent, usually 2008, but every once in a while I see something like the dateless Barolo we had a few bottles of the other day with its yellowed, ripped labels and corks that indicated at least decade. What channels had those bottles gone through to eventually find their way to the bar?

When Hamad and I get back to the bar “Alain”, the rather stereotypical Frenchman is relieved to see the cases under our arms. Most of the customers are there for the Heineken or the Jim Beam but occasionally I see hopeful eyes peruse the bottles of wine behind me, looking for something that has not already disappointed them. In general, you are forced to ask the question, “why is this wine in Afghanistan in the first place?” The answer, more often than not, is revealed with the first unfortunate sip. That said, there is always the hope of finding that diamond in the rough, a glass of which will make you forget that when your last bottle of Tuscan red was fizzing in your glass, you shrugged your shoulders and decided to take a sip anyway.

Kabul Tasting Notes:

Calvert Varietals, Cabernet Sauvignon 2008 Vin Pays d’OC France

When the back label, in English, tells you that this bottle is good with everything from burritos to Satay beef your hopes tend to whither just a bit. A cooked nose (perhaps literally, given the way it was likely transported here), not unpleasant in taste but lacking in body and length.

Dona Beatriz, Rueda Verdejo, 2007 Spain

Very promising and interesting nose with several layers of red to dark-red fruit laced with deep roses. Unfortunately, it seemed watered down, completely lacking in taste.

Torregaia Negromaro Salento Indicazione Geographica Typica Italy

Bright fruit in the form of moderately high acidity. Dried cranberry followed by a small hint of cluster rot – as if the grapes were caught in an early rain while still too young and the vintner left them on the vine to try to get them a little riper.

Anatomy of Wine Fraud

June 21, 2010 By in wine fraud, wine markets, wine price, wine ratings, wine research 1 Comment

The crime was elegant in its simplicity: create a fake 1982 Chateau Mouton Rothschild – the 100-point wine that recently sold at auction for a record price of more than £14,000 (for a case)  according to the July 2010 issue of  Decanter.

The perpetrator used an empty bottle of the famous wine (although it would not have been that hard to fake bottle, label, etc.) and invited several wine enthusiast friends (a.k.a. the dupes) to a social  tasting where they would have an opportunity to unintentionally authenticate the DIY Mouton. (Some of the dupes unexpectedly brought along bottles of other 100-point wines from their personal cellars to share with the group. Impressive generosity! I’m sorry I called them dupes.)

The accomplice, a winemaker known for his blending skill, created the bogus vintage from an assortment of his own Washington State (!) wines from the 1990s. Some but not all of the experts took the bait — none of them suspected a fake. Wine of the night, one confidently proclaimed, even after the fraud was revealed.

The Sting

The purpose of the fraud was not, as you might expect, to make money. As reported by Lettie Teague (the perp) in the October 2008 Food & Wine article “Wine Scams: A Counterfeiter Confesses,” the idea was to see if it was possible to fool wine experts who had tasted wines like this (and even this particular wine) many times and could, presumably, easily detect a bogus wine immediately. She actually got the authentic empty Mouton bottle the hard way — by buying a full one for $1200. Not much room for illicit profit there.

Her accomplice was Chris Camarda, maker of the highly regarded Andrew Will wines. I guess it wasn’t fraud so much as a sting operation and the trap wasn’t set for Lettie’s wine expert friends (who presumably have forgiven her by now) but rather for the whole wine industry. Beware of wine fraud!

Wine Fraud: A Global Phenomenon

Old news? Hardly! My inbox has been stuffed to overflowing recently with reports of wine fraud. We seem to be Shocked! Shocked! But I wonder why? One source estimates that five percent of wines traded in the secondary market are fakes and we know that ordinary table wines aren’t always what they appear to be either. Wine fraud isn’t difficult, even at the high end. Indeed, it is remarkably simple.  No wonder there is so much of it!   And that’s the point of this post. Here are examples from the last few weeks.

  • The U.S. has just removed  restrictions on Brunello imports, finally satisfied that wine fraud issues there have been resolved.
  • The fallout continues from the French case involving large quantities of  bogus Pinot Noir sold to Gallo as the real thing.
  • Jancis Robinson’s website recently ran a multi-part report on wine fraud in China, including examples of hopelessly inept but apparently successful wine fakes. My favorite was a bottle of “Bordeaux Port” labeled “dry red wine.”
  • Newly minted Master of Wine Rys Pender’s recent Master of Wine dissertation “Counterfeit wine — its impact on the business of wine takes stock of the damage so far.
  • Slate readers were treated to Mike Steinberger’s big article on wine fraud, including the continuing saga of “the billionaire’s vinegar.”
  • And then there is the “Cellared in Canada” controversy, which doesn’t seem to have gone away — a sort of “soft-core” version of wine fraud produced by rules that permit consumers to willingly mislead themselves.

Wine fraud seems to be everywhere. What are we to make of it?

New Wine in Old Bottles

Can you spot the fake?

Well, the first thing is to realize that this is nothing new. Wine fraud is as old as wine itself, or nearly so. Pliny the Elder complained about the amount of fake wine on the market. The Roman equivalent of Petrus was everywhere, even in the humblest tavern, he said. Who can you trust?

The familiar phrase “new wine in old bottles” is, of course, a description of wine fraud. Indeed, the contemporary European idea of wine is rooted in fraud – the AOC system was provoked in part by the prevalence of fake or adulterated wines.

Then as now, fraud is easily accomplished. Why are people like Lettie Teagues’s wine expert friends so easily fooled? It is partly a matter of interests (Upton Sinclair observed that it is impossible to get people to understand something if their paychecks require them to not understand it), partly  human nature (we all like to be experts and hate to lose face) and partly a matter of Mother Nature — wine is a living, changing thing, everyone’s palate is a bit different, and even with high tech science (carbon dating?) it’s quite difficult to really know what’s in your glass and effectively impossible to know what might be inside an unopened bottle.

And some people want to be fooled in the sense that they want that seemingly impossible trophy (or unforgettable bargain) forgetting the rule that if something is too good to be true … it is probably false. As Walter Bagehot said, “At intervals, from causes which are not to the present purpose, the money from these people – the blind capital, as we call it, of the country – is particularly craving; it seeks for some one to devour it …”. And someone generally does, whether through credit fraud, wine fraud or something else.

Money, Greed and Wine

So what is to be done? The truth, I suspect, is that we must acknowledge that wine fraud is an unavoidable part of the wine world (just as financial crises are an apparently inevitable characteristic of financial markets).  When faced with fraud in other circumstances, the first thing economists do is suggest greater transparency, but there are obvious problems with this in the case of wine. The Gallo example shows us that it is possible to create impressively realistic fake documentation while the Chinese case suggests that wine is sufficiently complex that even transparently false wines with error-filled labels will fool someone.

It would be hard to make wine more transparent in any case because some of the people with the most at stake would probably be the first to resist it. Suggestions that wine labels should include normal consumer information like you find on boxes of breakfast cereal inevitably produce a harsh reaction. Wine is above such detailed accounting (and accountability), apparently. It is as if revealing what is actually in the bottle would somehow let the genie out of it. Consumers aren’t just buying wine, they are buying mystique and lack of transparency is part of the deal. And so, I suspect, is fraud.

While I applaud efforts to punish offenders, I think we must admit that the combination of economic interests, human nature and Mother Nature will make it impossible to eliminate wine fraud. Trophy wine fakes will get all attention, no doubt, but I think that the possibility of fraud in ordinary table wine is the bigger concern — another indication of my strong Wagnerian leanings.

Chapter 4: Crisis

“At intervals, from causes which are not to the present purpose, the money from these people – the blind capital, as we call it, of the country – is particularly craving; it seeks for some one to devour it, and there is a ‘plethora’; it finds some one, and these is ‘speculation’; it is devoured, and there is ‘panic’.”

Secrets of Argentina’s Export Success

June 14, 2010 By in Argentina, decanter, economic crisis, Economic impact, emerging wine regions, Supply and Demand, wine exports, wine investment, wine markets, wine price 4 Comments

#1 Wine

Argentina’s wines are hot here in the United States. Recent Nielsen Scantrak off-premises  data show a 38.7 percent dollar value rise in sales of Argentinian wines for the 52 weeks ending April 3, 2010. That’s an enormous percentage increase, much greater than the total market (up 3.5 percent) and a good deal above the next biggest gainer (New Zealand with a 17.2 percent rise).

What’s Argentina’s secret?

The secret? As usual, there is no one simple answer. There are important factors on both the supply side and the demand side: good products, the right products at the right time and favorable economic policies.

Argentina produces excellent wines. Decanter magazine recently (June 2010 issue)  published a report on Argentinian Malbec that featured the largest tasting in their history — a record 255 wines. Four of them received  five stars, the highest designation. The Achaval Ferrer Mendoza 2008, which often sells for less than $20 here in the U.S., led the pack with 19/20 points.

Argentina is fortunate to be producing wines for the times. Many Argentinian wines are good values at a time when consumers are careful with their money and they represent good choices for ABC (anything but Chardonnay) and ABS (anything but Shiraz) buyers.

International Influences

#1 Export Brand

Argentina’s economic policies are another consideration. The favorable dollar/peso exchange rate contributes to Argentina’s competitiveness on the export market. And although I don’t know very much about them, I think that barriers to foreign investment in the wine industry must not be very high because so many important producers have international connections.

Bodega Colome is owned by Donald Hess of Switzerland, for example, who also owns The Hess Collection in the United States. Achaval Ferrer is a joint venture with a Montalcino winemaking family. Bordeaux wine investors are players in Diamandes and Clos de los Siete. O Fournier’s owner is Spanish. Cheval des Andes is a joint venture of Moët Hennessy’s Terrazas de los Andes and St-Emilion’s Cheval Blanc. Bodega Norton is owned by the Swarovski family of Austria (famous for their crystal.) Dig deeper and you’ll find even more international money and talent at work.

Top Export Brands

These are good reasons for Argentina’s recent success, but a recent article on WineSur.com titled “The Top 5 Export Brands” got me thinking that there might be other factors at work. I was particularly intrigued by the table showing the top bottled wine export brands to different markets. I’ve pasted the table below so that you can analyze it along with me. Click on the table to read the full article and view a larger image of the data.The first thing I noticed is how heavily weighted Argentina’s recent exports are toward the North American market. Britain, still the most important wine market in the world, has much lower export volumes as shown here. I suspect that one reason for this, however, is that these data are for exports of bottled wines (including bag-in-box and Tetra-Paks) and I’ll bet that Tesco and some of the big supermarket chains import their Argentinian value wines in bulk and bottle them in the U.K as house brands. Those export sales don’t show up here.

The second thing that caught my eye was the wide range of export prices. Alamos, the U.S. leader, sells for $30.57 per case export price, about the same as #2 Don Miguel Gascon. Marcus James, the top export wine in volume but only #3 in value, sells for just $12.54 per case.  Catena, the #4 brand, exported just 39,000 cases in the time period under consideration, but received an average of $64.97 for each one. Argentina’s exports to the U.S. (and the other markets shown here) span the price spectrum — another advantage.

Location, Location, Location?

Finally, I became interested in the particular brands that topped the export market tables and I think I discovered another secret weapon: distribution. It’s a cliche that in business the three most important things are location, location, location. Location is important in wine, too (ask any terroirist), but efficient distribution sure makes a difference and Argentinian producers have been wise in making good use of the most efficient distribution networks in each country.

Alamos has the highest export earnings by a good margin — why? Well Alamos is made by big gun Bodega Catena Zapata. It is a value line and is imported and distributed by the Gallo company. I suspect that Gallo’s large and efficient distribution network and its marketing prowess are reasons for Alamos’s great success. Significantly, Gallo also handles Don Miguel Gascon, the #2 export brand.

Marcus James, the #3 export brand, is a Constellation Brands product and is also backed by substantial marketing and distribution power. I was actually surprised to see Marcus James on this list because I didn’t realize they sold Argentinian wine. Guess I need to pay closer attention.  They used to source their wine from … Brazil!

Fuzion (a Shiraz-Malbec blend, I understand) is the best seller in Canada. It is made by Familia Zuccardi and distribution is one of its advantages, too. In Canada government wine and liquor shops are key sales vectors. The support of Ontario’s Liquor Control Board (in addition to successful viral marketing) seems to have made Fuzion a hit in a market that is otherwise very difficult to penetrate.  (At one time the Ontario Liquor Control Board was the world’s largest retailer of wine. I think Tesco is #1 today.) Distribution is key and both Alamos and Fuzion seem to have it.

Trickle Down [Wine] Economics Jitters

June 7, 2010 By in Argentina, Australian wine, brands, economic crisis, wine bargains, wine brands, wine markets, wine price 7 Comments

The stock market has the jitters these days and one of the causes is the fear that, even with massive fiscal and monetary stimulus, we may be experiencing a jobless recovery. Things looks OK from the outside (some of the numbers are pretty good), but bad things are still happening deep down where it counts.

A Wine-Free Recovery?

There is some concern that the wine economy is suffering a similar fate. Not a wine-free recover, but just not the big turnaround everyone was hoping for. Although retail sales numbers are cheerfully positive, with overall sales rising at close to double-digit rates and increases even in the $25+ “death zone” range, there’s still enough disturbing news around to give anyone the jitters.

Are jitters justified? I decided to do some fieldwork to see what I could learn about conditions on the ground in my local wine market. An upscale supermarket down the street has recently undergone a major remodel and is have a grand re-opening. One of the areas that seems to have received a lot of attention is the wine wall. Since the supermarket chain is known to do very thorough market research I wanted to see what the redesign would tell me about state of the wine economy today.

First Impressions

My initial impression was very positive. The wine wall is substantially increased in terms of the number of square feet of display space. The quality of the space is much improved, too, with the old industrial shelving replaced in part by the sort of dark wood cases and racks that you see at fine wine shops. Good news! A big investment like this suggests optimism about the future of the wine market.

A second glance provided more information. The wine wall is large enough to need directional signs to help customers find their “comfort zone” area.  Some of the signs were what you would expect: “France/Italy,” Australia” and so on. Just what you’d expect. But other signs pointed to continued “trading down.”

I found areas marked “premium 1.5 liter,” “value wines” and “box wines” and one that said simply “White Zinfandel.” It’s obvious that the marketing and design people knew that many of their customers would be looking for low cost or basic wines and they wanted to help them find them.

Box wine sales surged in the “trading down” wine economy that wine people like to think is over, but apparently isn’t.  There were a number of quality bag-in-box wines for sale in this section, which was conveniently located adjacent to the expanded take-out  delicatessen and bakery areas.

The White Zin section held both the expected Sutter Home and Beringer products plus a limited range of inexpensive domestic rosé wines and a small selection of fruit wine and fruit-flavored wines. My wine snob friends are probably shocked to learn that White Zin, the wine they love to hate  is so popular that it has its own part of the wine wall.  That would be trading down in both price and quality, they say.

Unexpected Discoveries

Now it was time to study the main section of the wine wall carefully. I was impressed by the large selection, of course. Lots of wines. Lots of brands. But some of the wines had unfamiliar labels that I think may be part of a “dumping” strategy where big producers sell off surplus wine under an ersatz value brand to avoid weakening the price position of established brands.

This is a very common practice in Australia, where the wines are sold with very generic labels. They call them “cleanskins” and I guess they are selling like hotcakes. The surplus wine, some of which could be very good, may be trickling down into a sort of  branded cleanskins market here in the U.S. But there’s another trickle down effect that got my attention.

As I surveyed the wine wall I was struck by a small number of hard-to-find or impossible-to-buy wines that were sitting quietly waiting to be found — fine wine that I suspect didn’t find a home in the usual wine club / fine wine shop / restaurant supply chain.

Since we’ve recently returned from a Napa Valley research trip, I was especially struck by the presence of two wines from Stag’s Leap Wine Cellars – their  Fay Vineyard Cabernet and the famous Cask 23. The Fay sold for $87 or $79 for buyers with the store loyalty card. Buy a case and get a further 10 percent discount. The Cask 23’s price was $164.

You can buy Opus One for $209 ($179 with your loyalty card) or Sassicaia for $245 ($213). The Chimney Rock SLV Cab that I liked a lot when I tasted it in California was a bargain at $60 ($48 with your card).

Pétrus at the 7-Eleven?

It’s hard to believe that these great wines can be found on neighborhood supermarket shelves. I could be wrong, but I suspect that they would not be found there during good economic times. But bad times drives good wines down the supply chain. That’s trickle down [wine] economics.

What’s next? Pétrus at the 7-Eleven? No, although 7-Eleven does have an own wine brand called Yosemite Road.

I’m glad there is finally good news about wine sales in the U.S., but while trading down may have stabilized I don’t think the sour economy’s effects will soon disappear. And so the trickle down effect continues. No wonder everyone’s got the jitters.