Argentinean Wine: Striking a Balance

Old and New at Mendel Wines

Balance is the key to great wine (and profitable wine business, too). I was reminded of this truth many times during our visit to Mendoza, where wine makers are trying to chart a course between and among several extremes:

  • Competitive export sales versus the challenging domestic market;
  • Reliable value wine sales versus potentially more profitable premium products;
  • Popular and successful Malbec versus TNGT — The (speculative and uncertain) Next Big Thing.

The key to long term success involves finding the right balance in this complex economic environment.

Thinking Global: Anabelle Sielecki

I want to use this post to consider three types of balance that I think are particularly interesting in Mendoza – the balance between crisis and opportunity,  local and international winemaking influences and the simple tension between the old and the new.  We learned about all three dimensions during our brief visit to Mendel Wines in Lujan de Cuyo.

Crisis and Opportunity

Mendel is both very old and quite new.  The vineyards are old, planted in 1928. Somehow these Malbec vines survived the ups and downs of the Argentinean economy. The winery is almost as old and has a certain decaying charm. It stands in stark contrast to Salentein, O. Fournier, the Catena Zapata pyramid and the many other starkly modernist structures that have sprung up in this part of the world.

The winery project is quite new. Mendel is a partnership between Anabelle Sielecki and Roberto de la Mota and is the result of a balance between crisis and opportunity. When economic crisis struck Argentina ten years ago, opportunities were created for those with vision and entrepreneurial spirit. Anabelle and Roberto seized the moment and purchased these old vines and well-worn structures for their new super premium winery project.

That their impulse was timely and wise may not have been obvious at the time (crises are like that), but it is perfectly clear now. Wine Advocate named Mendel one of nine “Best of the Best” Argentinean wineries in a recent issue.[1]

Old and New

The winemaking that goes on in Mendel is also a combination of old and new. The technology is modern, of course, with stainless steel and French oak very visible. The setting, however, constantly reminds you of the past and the vineyard’s and winery’s history. Walking through the winery, for example, I was struck by the big concrete (or were they adobe?) fermenting tanks – a blast from the past for sure.

No, we don’t use them to ferment the wines anymore, Cecilia Albino told us, but we put them to good use. Peek inside. Sure enough, the tanks were filled with oak barrels full of wine aging quietly in the cool environment.

[Interestingly, I saw concrete tanks again during our visit to Achaval Ferrer.  Roberto Cipresso, the winemaker there, built the tanks because he uses them at his winery in Montalcino.]

Mendel also illustrates the balance between local and global that characterizes wine in Argentina, where much of the capital and many of the winemakers come from abroad.  Roberto de la Mota, partner and chief winemaker at Mendel, personifies this balance. Roberto is the son of  Raúl de la Mota, who is sometimes said to be Argentina’s “winemaker of the century” so important was his work in developing quality wine in this country.

Roberto naturally grew up in the wine business both here and in France, where he sought advanced training on the advice of Emile Peynaud. He was the winemaker at Terrazas, Chandon’s still wine project in Mendoza, and then at Cheval des Andes, a winery with connections to Château Cheval Blanc. I think it is fair to say that Roberto’s resume represents a balance between local and global, between deep understanding of Mendoza terroir and knowledge that perhaps only international influences can provide.

Acting Local: Roberto de la Mota

Local and Global

I asked Roberto if it was important that Mendel is an Argentinean project and not owned by a foreign multinational. Yes of course, he said, but he hesitated a bit and I think I see why. Many of the influences and markets are international, but people, vines and inspiration are  purely local. Not one or another, but intertwined, balanced.

And this thirst for a complex balance defines the future. Talking with Anabelle over coffee in Buenos Aires, she was ambitious to break into new markets – Hong Kong, China, and so forth. Anabelle is an architect — another field where global and local intersect.  She is married to Héctor Timmerman, Argentina’s Foreign Minister and former Ambassador to the United States, so her international interest comes naturally.

Meeting with Roberto at the winery in Mendoza, he was interested in learning even more about his vines and terroir so as to better develop their potential. And to bring more of the classic Bordeaux grape varieties (like Petit Verdot) into the mix.

Mendel has charted its balanced course quickly, purposefully and well.  It is a perfect illustration of both the tensions that define wine in Argentina and the potential for success if a clear but balanced path is boldly taken.


[1] The other “Best of the Best” wineries in Wine Advocate issue 192 are Achaval Ferrer, Alta Vista, Catena Zapata, Viña Cobos, Colomé Reserva, Luca, Tikal and Yacochuya.

What’s The Next Big Thing in Wine?

Is Moscato The Next Big Thing (TNBT) in wine? That’s the question Liza B. Zimmerman asks in an article in the March 2011 issue of Wine Business Monthly titled “A New White Zin is in the House.”

Moscato wines sales soared by 91.4 percent by dollar value according to Zimmerman’s article, compared with 4.9 percent overall market growth (Nielsen off-premises survey data for the 52 weeks ending October 16, 2010).  That’s a big surge in sales, albeit from a relatively small base.

Move Over White Zin

Some of the increase probably comes as consumers switch over from White Zin, as the article’s headline suggests. The decline in White Zinfandel sales is accelerating as measured by Nielsen, with a 7.4 percent decrease in the most recent month reported in the same issue of WBM. Since White Zin sales are huge (almost double the sales of Red Zinfandel, for example, and slightly larger than Sauvignon Blanc in the Nielsen rankings), it wouldn’t take many consumers switching from White Zin to Moscato to generate big growth numbers.

Wineries have been quick to respond to the trend. Sutter Home, the White Zin king, has a popular Moscato Alexandria. Robert Mondavi Woodbridge and Gallo’s Barefoot Cellars are in the market, too, and yesterday I saw an advertisement for a Moscato from Columbia Crest. Now that I have started to pay attention, I am seeing Moscato everywhere.

I associate Moscato with low-alcohol fizzy Moscato D’Asti wines from Italy, but Zimmerman points out that Moscato can be made in a variety of sparkling and still styles, which she sees as a plus. The fact that the wines do not typically cost an arm and a leg is an advantage, too. I will be interested to see to what extent Italian producers will benefit from the Moscato boom or if American wineries will capture much of the market growth.

TNBT Effect

Now to be honest, I don’t really care if Moscato becomes The Next Big Thing — I’m more interested in TNBT wine phenomenon itself.  Many of the winemakers and winery executives I talk with around the world display an understandable fascination with TNBT. White Zin, which once defined TNBT here in the United States, shows that fads and trends can at least sometimes develop staying power, as the huge sales figures make clear. But TNBT of today cannot afford to get too comfortable — there’s always another NBT on the horizon.

Some of my contacts in Italy worry about Pinot Grigio (PG), for example, which was TNBT for a while and continues to grow in the U.S. market. Nielsen reports sales of Pinot Grigio/Pinot Gris totalled $751 million in the sales vectors they monitor in the 52 weeds ending January 8, 2011 — much higher than White Zin’s $425 million for the same period. The Italians are glad that PG sales are growing, but they worry that their share of this market may be crowded off the shelves by U.S. PG wines (from Sutter Home, Barefoot Cellars, Columbia Crest and Woodbridge, for example).

And, of course, they are concerned that the market will swerve and TNBT will shift in some other direction entirely, leaving behind a smaller market niche.

Is Torrontés TNBT?

So when I was getting ready to visit the wine country in Argentina I found two groups interested in the question, is Torrontés TNGT?  — the hopeful Argentinean producers and fearful makers of Pinot Grigio back in Italy!

Torrontés is an interesting candidate for TNBT. Some people see it as Argentina’s signature white grape variety, ready to take its place along side Malbec in the market place. While Malbec has its roots in France (it is one of the classic Bordeaux blend varieties), Argentinean Torrontés is thought to be theirs alone —  a cross between Muscat (think Moscato) and the Criolla or Mission grapes planted by the early settlers. It is or can be intensely aromatic and some of the wines I’ve tasted (the Doña Paula, for example) seem to be all about flowers more than fruit or minerals. Distinctive, but everyone’s cup of tea.

Having read so much here in the U.S. about the amazing TNBT potential of Torrontés, I was a bit surprised at the reactions I found in Argentina. Some of the wine people we talked with were clearly enthusiastic and ready to ride the wave if and when it came, but others had doubts.

The optimists view Torrontés as the next wave of distinctive “Blue Ocean” Argentinean wines. Malbec paved the way, then Torrontés broadens the market, then Bonarda and so on each filling a unique market niche.

More than one person talked about the potential for Torrontés in Asia, pointing out how well it pairs with Asia food. Of course everyone in the world who makes white wine with good acidity dreams about selling their wines in Asia, so this is hardly an uncontested market. And it is also useful to remember that while you and I might like the taste of Torrontés (or Alsatian Pinot Gris) with Pad Thai or Kung Pao Chicken, most Asian consumers believe that wine should be red and that it is not necessarily meant to be consumed at meals. So caution is warranted.

Parallel (and Ambiguous) Universes

I was surprised at the number of wine people who were Torrontés sceptics. Some were concerned that Torrontés lacks the quality to be an important grape varietal. They would rather focus on quality international varietals like Chardonnay and Cabernet Sauvignon, to complete directly based on quality and price rather than trying to develop a new but possibly marginal market segment.

Torrontés is like Pinot Grigio, only it’s good, one expert told us with a grin — and  with obvious disdain for both wines.  Although Italian Pinot Grigio can be excellent, its reputation is influenced by simple basic products that flood the market and I think there is  concern that this could happen with Torrontés in Argentina.

The parallels with Italian Pinot Grigio are interesting. The best of the Torrontés and Pinot Grigiot wines come from particular geographic areas (Salta in Argentina, for example, and Alto Adige in Italy), but expanded production would probably  come from other zones where the quality is not as high.  As TNBT effect strikes, if it does, the initial quality could be undermined as output expands. The concern is that Argentina is not as established as Italy in world wine markets and its reputation might not be able to withstand a wave of mediocre wines.

But perhaps it is the nature of TNBT phenomenon that hot products simultaneously exist on many levels, simple and complex, highest quality and no-so-good. Perhaps that is the key to their success. Maybe it is the diversity (or is it ambiguity?) that allows fads or trends to evolve into TNBT.

Although wine snobs almost universally reject White Zinfandel, for example, some good wines of this type have been made, including an early vintage by Ridge Vineyards that I talk about in Wine Wars.

If this is true, then maybe Moscato and Torrontés have a chance!

Bodegas Salentein: World Class Wine Tourism in Mendoza

Arriving at the hospitality center and Killka art museum.

We came to Bodegas Salentein because I wanted to see the state of the art in wine tourism in Argentina. Wine tourism is a big and growing business and I wanted to gauge its development here in Mendoza.

Wine tourism is increasingly important on both sides of the market. Many consumers look for ways to deepen their wine experience by visiting the places, meeting the faces and developing a personal relationship with wine. Producers have much to gain, too. Wine is a relationship business and meeting consumers, distributors and wine critics at the winery is an effective way to make or maintain these connections. Direct (and full price) cellar door sales are a priority, too, as well as the opportunity to exploit other revenue streams ranging from t-shirts and corkscrews to space rental for special events like weddings and conferences. (George Taber’s book, In Search of Bacchus, is a highly readable examination of this global industry.)

Bodegas Salentein provides the most complete wine tourism experience that we found in the Mendoza region. It is a world class operation and a tribute to the “if you build it they will come” school of thought. As you look at the photos here, imagine how empty the landscape would have appeared just a dozen short years ago and what a miracle it is that thousands of wine tourists now flock here each year to visit Salentein and the other spectacular wineries that followed in its wake.

Arrivals/Departures

You approach Salentein, located in the Valle de Uco about 90 minutes by car south of Mendoza city, by driving up the long  entry road shown above. You arrive at the main hospitality center, which contains a reception center, gift shop, restaurant and Killka, a spectacular modern art museum built to display part of the owner’s collection.  Another beautiful building, the  “Chapel of Gratitude,”  is just down the road.

The winery.

Incredibly, you have not yet arrived at the winery. To get there you pass through the reception center and walk down another dramatic lane (this time through a vineyard) to arrive at one of two wine production facilities on the property.  The photos here don’t really do justice to the experience, so I have embedded a short video below that includes some aerial footage  — scroll down to check it out.

The winery’s architecture is even more impressive than the museum’s, especially inside, where winemaking is organized around the “cathedral of wine” barrel room, laid out like a cross around a mosaic compass rose. Entering the vast space, you really do feel like you are in a cathedral.  I could hear the click, click, click of our friend Scott’s camera as he tried to capture every line and curve of the stunning building’s architecture.

Posada Salentein completes the package with a 16-room inn and gourmet restaurant that serves creative cuisine paired with estate wines. It is hard to image a better way to visit the Valle de Uco than to stay here among the vines and to exploit the restaurant menu to answer burning questions such as “how does Malbec go with fresh local trout?” (Perfectly, as it happens, based on our experience.)

The inn and restaurant.

Bodegas Salentein hosts 25,000 to 30,000 per year according to Lorena Cepparo, who heads the Hospitality and Tourism Business Development department. Salentein is a destination winery that is high on the hit list for every Valle de Uco wine tourist (O. Fournier is another “must see”  in the area.)

Dutch Treat

The typical “day tripper” experience, according to Lorena, involves a tour, tasting of three wines and lunch at the restaurant — an appealing combination.  But the basic package is just a start and can be customized in many ways depending upon the particular interests of visitors.  International visitors come from the winery’s main export markets: the U.S., Brazil, Canada and the Netherlands.

The Netherlands? Well, yes. Lorena explained. The winery’s owner is Dutch (Salentein is the name of a Dutch estate) — click to visit Mundo Salentein, the ambitious Dutch website.  And Holland’s Princess Máxima is from Argentina, Lorena said, so the Dutch are understandably crazy about all things Argentine. Who can blame them?

It seems to me that Bodegas Salentein sets a high standard for wine tourism here in Mendoza and, as the first destination winery built in the Uco Valley, it has inspired others to try to match or exceed their facilities and services. Bórmida & Yanzó, the local architect firm that designed Salentein, has gone on to create an incredible collection facilities here (click on the link to see what I mean).  The contrast between their cutting edge architecture and the starkness of the high desert vineyards makes wine tourism here a unique experience.

But Wait … There’s More

I went to Bodegas Salentein looking for a wine tourism story and I found it. Salentein is an audacious bet on the wine tourism concept in the the relatively remote Valle de Uco.

But as I talked with Loren, COO Andrés Arena and legendary (for his work at Catena Zapata) winemaker José Antonio Galante, I began to realize there there is much much more to Salentein than the beautiful buildings and sophisticated visitor experience. Especially now that the talented Galante is on board as winemaker, Salentein’s ambition continues to soar.

>>><<<

Bodegas Salentein from John Stevens on Vimeo.

Thanks to everyone at Bodegas Salentein for showing us their facilities and answering all of our questions. Special thanks to Andrés Arena, Chief Operating Office, José Antonio Galante,  Chief Winemaker and Lorena Cepparo, Chief of the Office of Hospitality and Tourism Business Development.

Extreme Wine: A Certain Idea of Malbec


One of my goals in coming to Mendoza was to add to my collection of Extreme Wine stories (yes, I’m working on another book). I was thinking that the story would be the Great Malbec Boom, one of the most extreme regional wine surges in recent years.

The Malbec boom may still make my extreme wine list, but a fellow wine economist suggested a different entry: Tempus Alba‘s  ambitious project to create an extreme wine, one that uniquely captures the essence of Malbec.  Here’s the story of Vero Malbec.

One Hundred Years of Winegrowing

The Biondolillo family has been in the winegrowing business in Mendoza for more than 100 years. This means that they have lived through booms and crises, both in the wine industry and in the Argentinean economy more generally. Aldo Biondolillo, who holds a Ph.D. in Economics from the University of Minnesota, is the third generation to make a living this way. His sons Leonardo and Mariano are in the family business, too, and there is a very young fifth generation in the wings (if you look closely you can see their fingerprints on the wine label in the video above). Theirs is the kind of business that necessarily looks to the long run.

When Aldo began the Tempus Alba project in the 1990’s he was looking for a way for his family to continue the winegrowing tradition well into the future. He knew that they couldn’t live on grape sales alone and becoming a bulk wine producer would be a dead end road. Commodity pricing — of grapes or bulk wine — often puts an emphasis on cost more than quality – and there is always some one who will charge less.  Economic theory teaches that product differentiation is key to escaping the commodity trap. But how?

Aldo’s project is ambitious: to create not just another good Malbec, but a different idea of Malbec.

His method is to isolate the purest or perhaps just the best Malbec vines in the region from among the many different clones that have been planted here over the years. The goal is to identify the truest clones and, in the long run, to make them available to other wineries who could join a circle of producers making unique wines – unique in terms of the particular grape clones and then unique once again as expressions of their respective terroir.

In Malbec Veritas?

And so Aldo and family began, planting 800 different Malbec cuttings in the Mother Block. The 800 vines were narrowed in stages to 589 vines and then finally 20 by teams of experts. After 10 years of hard work, the project’s first commercial Malbec was made in 2007.

It is called Vero Malbec (vero is Italian for truth, although the letters are also the initials of Aldo’s grandchildren). The Biondolillo do not claim that it is the original Malbec brought over from France or The One True Malbec. It is their version of the truth, seen from their family’s particular 100 year perspective.

Everyone knows that I don’t rate wines or give tasting notes, but I found the Biondolillo’s version of the truth very appealing (as have a number of wine critics). It will be interesting to see how this wine develops over several vintages. It will be even more interesting if Aldo’s dream of a winemaking circle evolves, so that a group of Mendoza winemakers adopt the Tempus Alba clones and produce their own unique wines, perhaps along the lines of the Coro Mendocino project that I wrote about a while back. (Hmmm … they could call it Vero Mendocino!)

Our visit to Tempus Alba’s beautiful winery in Maipu was informative in several respects. First, It was interesting to see a project that is at once so scientifically ambitious (the labs and the clones)  and, through the winemakers’ circle idea, so socially progressive. Although there is a lot of plant science employed here, however, the work to narrow down the cuttings was done using nose and palate, not by sequencing grape  DNA.

I accused Aldo of being an empiricist in his search for true Malbec and someone in the group said, “Well of course … he’s an economist.” Aldo and I reacted in the same instant, “No, no, no!” we said in unison, shaking our fingers. We know that most economists are more comfortable with theories that with facts. (It is an old saying in economics, for example, that a theory cannot be refuted by facts – only by a more appealing theory will do the job). Wine theories are well and good, but it’s what’s in the bottle that really counts.

Stop and Think

I was also fascinated by the visitors to Tempus Alba. The other wineries we visited in Mendoza were fairly remote and sometimes difficult to find; most had guarded gates meant to restrict entry to those with pre-arranged tours. Tempus Alba’s winery is in the Maipu valley,  an area with lots of wineries and a good many backpacker hostels. The courtyard was filled with the rental bikes of the 20-somethings who travel from winery to winery as long as they can manage to stay upright. The action in the restaurant and on the deck overlooking the vineyard was young, lively and fun.

I’m not sure the 100+ per day biking visitors (a big wine tourist number by Mendoza standards) buy much wine, but they appear to have a great wine experience – almost a unique one it seems to me. The self-guided tour shows them the winery, teaches some viticultural science, and even exposes them to the family’s “dogma” or guiding principles. Then it is up to the sunny deck to taste the wines and have a bite to eat. Many will be untouched and just enjoy the good wine, food and company, but some will stop and think, and that seems to be the idea behind Tempus Alba’s whole approach.

Is Tempus Alba’s Vero Malbec really unique? I won’t judge the wine, but certainly the idea is completely different and a potentially important addition to the rich mosaic of  Mendoza wine.

>>><<<

Update: Leo Biondolillo writes

“Answering your question of Is Tempus Alba’s Vero Malbec really unique? in my personal opinion, every wine is unique or every good wine must be unique… that is the magnificent wine world.”

Argentinean Wine: A SWOT Analysis

The first thing we did when Sue and I arrived in Mendoza was to walk to the offices of Área del Vino, the group that publishes Vinos y Viñas magazine, the WineSur website and provides economic and strategic analysis to the wine industry here. We met with Javier Merino, Área del Vino director, and Gonzalo Merino, director of WineSur. They got our visit off to a flying start.

Our discussion was wide ranging. Gonzalo is working on new media projects to expand the market for Argentinean wine and reach a new generation of consumers. Javier was just back from Hong Kong and China and keen to discuss the potential new markets there. Both were happy to talk about controversial questions, such will the Malbec boom be sustained and whether Torrontés really is The Next Big Thing.

Their analysis has been very useful to me as I have met with wine-makers, winery owners and managers. Based on all these discussions I have prepared this SWOT analysis, which represents my current thinking about Argentinean wine today. This is a work in progress (and necessarily very brief), so I welcome comments that correct my thinking or re-direct my analysis.

Strengths

Argentina has many strengths. The most important may be that it has a “hot” brand, its signature Malbec. When wine enthusiasts think of Argentina they think of Malbec and vice versa — a strong identity that many wine regions envy.

But, as I will explain in future posts, Argentina is not just Malbec (or even just Malbec and Torrontés as some writers propose).  Quality extends across a broad spectrum of wine varieties, styles and price points, which is a very good thing.

Weaknesses

That said, the industry is very dependent upon exports of Malbec to three main markets, the United States, Brazil and Canada.  There would be trouble if Malbec exports to these markets were to falter due to either a decline in demand to a shift to some other “hot” variety.

The domestic market for wine is very substantial, but it is still dominated by low-price basic wines — another weakness. The Argentinean industry would be much stronger if a larger domestic market for quality wines could be developed.

Water is also an issue here as it is in many wine regions. Not an issue today, Javier told me, but for the future. And of course the future is fast approaching.

Threats

There are a number of very serious economic threats that cloud the short term outlook. Domestic inflation is high in Argentina. The government estimate is about 10%, but I failed to find anyone who thinks that it is less than 25%.  Production costs are rising rapidly– labor, grapes and other inputs are increasingly expensive. Land prices for new vineyard projects seem to be growing exponentially.

Revenues are not increasing at the same rate, with the result that margins are being squeezed.  In fact, the pressure is on to cut prices in the competitive U.S. market. It is not clear how long the current combination of rising costs and falling revenues (or soft revenue growth) can be sustained.

I visited several wineries that were clearly focused on increasing efficiency in an attempt to claw back margin without sacrificing quality.  But I also heard rumors of wineries that were taking the perhaps desperate move to source lower cost grapes from other regions to stay in business. The concern was that quality would suffer and The Brand undermined.

Opportunities

There are many opportunities and they fall into two categories: new wines and new markets. By new wines I mean a movement to expand Brand Argentina beyond value Malbec, both into the higher reaches of the wine wall and into other varietals. I’ll be writing more about this in future posts.

I’ve already written about the new markets. As I listened to Javier discuss the great potential in countries like Brazil, with large and growing populations and fast economic growth I knew just what he was talking about: The BRICs (and the New BRICs). Javier believes that the BRIC-like markets  are the key to the next stage of Argentina’s export growth. Because geography still matters in both wine and economics, Brazil is a particularly attractive target, but both Hong Kong and China are high on the list.

Argentina’s China card is that its wines could fill an open market niche. Not cheap bulk wines like those from Chile and Australia. And not overpriced prestige labels like those from France. Quality Malbec from Argentina would be more affordable (and in most cases better) than the French and of course much better than the bulk wines. Distinctive, too, on several dimensions.

But China’s a tough market to break into, as I have said before.  China will require patience and good luck as well as good wine.

The new market with the greatest potential for Argentinean wines may be Argentina itself.  Nearly everyone I talked with said that the best thing that could happen would be for the domestic market for quality wine to expand, making the industry less dependent on exports and less vulnerable to inflation and exchange rate changes.

Bottom Line Analysis

So what’s the bottom line? Well, of course, I believe that the long run opportunities are important, but it seems to me that the short term threats are on everyone’s mind right now, in particular, the inflation-exchange rate squeeze. If inflation continues at high rates and the U.S. dollar – peso exchange rate stays stuck at about 4 pesos per dollar, some producers here will be squeezed out of the U.S. market. Perhaps they can sell to Brazil or on the domestic market, but the prospects are not good if everyone tries to shift focus at once.

What is keeping the exchange rate stuck at an over-valued level? Politics and fear, I suppose. There’s a presidential election in the fall and everything here has taken on a political significance, so it is no wonder that holding the line on the exchange rate (and denying that an inflation problem exists) would be political, too.

And then there is the fear.  Argentina has experienced inflation-devaluation vicious cycles in the past. Inflation leads to a falling currency, which adds to inflation pressures, which forces the currency down even more. Etc, etc.  There’s a worry here that lowering the exchange rate would set the cycle off once again and nobody wants that.

Fear and politics are powerful forces. Argentinean wine, for all its strengths and opportunities, is caught in the squeeze.

>>><<<

Thanks to Javier Merino, Área del Vino director, and Gonzalo Merino, director of WineSur for meeting with us in Mendoza and to everyone who has talked with us about wine economics in Argentina during our stay here.  Watch for future posts that examine particular elements of the Argentina wine story in more detail.

Argentina: You’ve Come a Long Way, Baby

I’m here in Mendoza looking for clues to the future of Argentinean wine and it is pretty interesting work.  To Malbec … and Beyond!

Many of the wines we are tasting here are distinctive and delicious. The industry’s future is bright if certain economic problems can be overcome (stay tuned more about these  challenges in upcoming posts).

The Real Argentinean Wine Miracle

As I have talked to winemakers and industry experts it has slowly dawned on me what a miracle these fine wines are. Not a miracle of nature — Mendoza has long been known to possess superior terroir — but a bigger social and economic miracle. The fundamental idea of Argentinean wine has been transformed in just a few years.

The excellent wines we take for granted today did not exist in a serious way just twenty or twenty-five years ago. The standard of wine was hopeless low and the industry’s health was no better.

Why were the wines so bad? Well, Argentina has been a boom and bust economy for many decades and quality wine is a long term business. It is difficult to keep a focus on quality when both consumers and producers are riding an economic roller-coaster. This is one reason family-owned wineries are important here as in other parts of the wine world. Families can often think in terms of generations while financial investors focus on quarterly reports.

Industrial organization also leaned away from quality for many years. Growers would sell grapes to producers (who sought low prices) who would make bulk wine and ship it by rail to Buenos Aires, where negociants bottled it under their own labels and sold it to bargain-hunting consumers. This is not a supply chain that favors quality over cost.

Bad Incentives Make Bad Wine

A stubborn grower, and there were a few, who insisted on producing high quality grapes got the same payment per ton as his high-yield low-quality neighbor. No quality premium existed because all the grapes went into the same pink bulk wine.

Even the grape varieties reflected this sad story. Malbec is on everyone’s short list of hot selling wines today. But back in 1968 Malbec made up less than 20% of Argentinean production.

Nearly half (43%) of the wine grapes grown were pink-skinned heavy-yielding Criolla  (Mission grapes), which were made into the cheap oxidative wines stored in large wood casks. Not much varietal flavor made it through the aging process, or indeed survived fermentation in the absence of temperature control.

The wines that resulted, given the prevailing cellar practices, had almost nothing in common with the wines of today except alcoholic content. Since Argentina’s present as found here in Mendoza is so delicious, I set out to find examples of the past so that I could better gauge the degree of the transformation.

I didn’t find what I was looking for at the nice shop on the main square in Mendoza (or earlier in Buenos Aires, either). So I went looking at the Central Market in the heart of town, where wine tourists seldom go but typical families shop for fish, meat and vegetables. There I found the dinosaurs — styles of Argentinean wine still made for consumers with a taste for the past.

What I Found at the Market

I suspect that the bottles at the top of the page are Criolla blends and the closest thing to the old wines. They sure looked like they were very oxidized, with brownish sherry like color. Market price = 9.80 pesos, or just under $2.50 per bottle. They were displayed on the top shelf of the wine wall, up close to the florescent lights. Perfect storage conditions!

You can buy wines like this and other inexpensive products in big refillable jugs, too, at an even lower unit price. I saw these jugs back in Buenos Aires, too, and I am sure that they are ubiquitous outside the tourist zone.

The last photo shows cheap wines I found at a tourist shop a few blocks down from the central market. The sign offered six bottles for 42.90 pesos (less than $11).

The Taste of  History

So what does history taste like? Well, history is pretty bland if you go by the glass of vino tinto I was given, poured from the big jug, while waiting for my take-away empanada order.

But I hope you will understand that I did not actually taste these wines. I wimped out. My time in Mendoza is too short to drink bad wine with so much great wine available. But even if I had bought them all and pulled the corks, I would not have experienced the true taste of Argentinean wine past.

During our visit to Catena Zapata winemaker Pablo Sanchez advised me that even the most basic wines today (which make up the majority of sales in the domestic market) are far superior to the old pink wines. Better practices in the vineyard and the cellar today have raised the standards here just as they have for basic wine in the United States and almost everyplace else.

The bad old days of Argentinean wine are [thankfully] lost to history. The wine has changed but, more important, the idea of wine is transformed. The future? Well, that’s another story! Stay tuned.

Argentina: Beyond Malbec

“To Infinity … and Beyond!”

That’s the motto of Buzz Lightyear in the Toy Story movie series. The joke is on Buzz of course — there’s nothing beyond Infinity. It’s infinity all the way out. Try as you might, you’ll never get past it.

The Malbec Buzz

I’m thinking about Buzz and his Infinity dilemma because we are in Argentina right now learning as much as we can about the wine industry here, which is enjoying an unprecedented boom. Especially Malbec, which accounts for 60% of Argentinean wine exports to the U.S. market.

The Malbec boom must provide a Lightyear buzz for Argentinean wine makers. Malbec seems to go on and on … not to infinity, but certainly as far as the eye can see.

What Lies Beyond?

What lies beyond Malbec? That’s one of the questions I wanted to ask Andrés Rosberg, President of the Association of Argentinean Sommeliers and a judge for the Decanter World Wine Awards.Andrés was way ahead of me, of course. He invited us to lunch at Hernan Gioppini Restaurant (where he is executive sommelier) at the Fiero Hotel in the lively Palermo duistrict of Buenos Airea. As the wine and food arrived over the course of several hours, I found some satisfying answers to my “Beyond Malbec” question.

Knowing that we would expect Malbec, Andrés orchestrated a meal that surprised at every turn. Malbec ultimately made an appearance, but not until the final act in the form of a fortified Port-style dessert wine.

The road to Malbec (or beyond it, if you see what I mean) was an exploration of the nearly infinite possibilities that Argentina’s complex terroir provides.

Messages in the Bottles

Each wine had a story to tell. Gewurtztraminer (and a Blanc de Noir sparkler) spoke to the cool-climate potential of the Uco Valley.  Semillon, an underapprecaited variety almost everywhere, is underappreciated in Mendoza, too, where it has deep roots and “old vine” vineyards.Fine Semillon wines are here, however, waiting to be re-discovered.

Chardonnay spoke to Argentina’s ability to make distinctive wines from the “international” varieties. This wine argued for Argentina as a complete player and not just limited to one or two particular roles.

And the fortified Malbec? I guess it was there to tell us that Beyond Malbec may be more Malbec, but not just Malbec and not necessarily the same old Malbec, either.

But that still leaves a problem. “If you build it, they will come.” That’s a line from another film, Field of Dreams. Will Argentina’s future beyond Malbec be dream or reality? Will the world’s consumers answer the call? More to follow in upcoming reports.

>>><<<

This is the first in a series of posts based on our recent visit to Argentina. I’ll be writing about the past, present and future of Argentinean wine (and wine tourism) and examining the strengths, weakness, threats and opportunities of this fascinating wine region.

Thanks to Andrés Rosberg for his hospitality and to Hernan Gipponi for a wonderful meal. Special thanks to my research assistants, Sue Veseth, Scott Hogman and Janice Brevik, for their help with this project.

Here is a list of the wines Andrés used to tell the “Beyond Malbec” story along with Hernan Gipponi’s cuisine.

Tasting Menu

Breaded veal tongue stuffed with brie cheese & sundried tomatoes and piquillo peppers sauce paired with Chandon Cuvée Reserve Pinot Noir

Baby squid & pickled vegetables salad
Rutini Gewürztraminer 2009

Rabbit liver & spinach ravioli with mushroom stock
Ricardo Santos Sémillon 2010

White salmon with ajoblanco, almonds, roasted tomatoes, zucchinis & bean pods
Miguel Escorihuela Gascón Pequeñas Producciones Chardonnay 2009

Iced lullo, litchis, caramelized pumpkin seeds & yogurt foam
Rutini Vin Doux Naturel (Sémillon – Verdicchio) 2007

Allspice philo pastry, chocolate cream, apple, saffron ice cream & cardamom milk
Rutini Vino Dulce Encabezado de Malbec 2007

Andrés

The Paradox of [Wine] Choice

I always look forward to the week between the Christmas and New Year holidays because that’s when the pace seems to slow down a bit and I can settle in to read The Economist‘s special double issue.

Of particular interest this year is the essay on page 123 called “Tyranny of Choice: You Choose.” The main point is simple, but the implications are quite broad, with particular relevance for today’s wine markets.

Good — Up to a Point

The simple point? Choice is good, but only to a certain degree. Too much choice is, well, too much and can sometimes stop decision-making dead in its tracks. I say that this is a simple point because we have all suffered from the problem of too many options overloading our preference systems. Or am I the only one who sometimes has trouble ordering coffee at Starbucks or a sandwich at Subway?

Government is a good example of this Paradox of Choice. One party rule is notoriously problematic.  Multiple parties provide useful competition. But at some point more political choice is really less –particularly less in terms of stability.  Fragile, shifting multi-party coalitions mean short governmental half-lives with no one looking after the whole since everyone’s focused on their own tiny slice of the electoral pie.

What makes The Economist article interesting is that it ties together so many elements of this dilemma, from literature to academic research and from potato chips to human reproduction.

Rollerblading Monstromart

Super-abundant choice is a fact of modern life. The Economist suggests that you …

Wheel a trolley down the aisle of any modern Western hypermarket, and the choice of all sorts is dazzling. The average American supermarket now carries 48,750 items, according to the Food Marketing Institute, more than five times the number in 1975. Britain’s Tesco stocks 91 different shampoos, 93 varieties of toothpaste and 115 of household cleaner. Carrefour’s hypermarket in the Paris suburb of Montesson, a hangar-like place filled with everything from mountain bikes to foie gras, is so vast that staff circulate on rollerblades.

One cost of this embarrassment of riches is confusion or, put another way, higher transactions costs. Making a choice means comparing the qualities and value of different options, which is difficult enough when there are only two brands of breakfast cereal, but mighty time-consuming and complicated when there are 200.

The Economist explores several dimensions of this problem, citing a Nobel Prize winning economist (Daniel McFadden), an Italian novelist (Italo Calvino) and cartoon character Marge Simpson!

Expectations have been inflated to such an extent that people think the perfect choice exists, argues Renata Salecl in her book “Choice”. … In one episode of “The Simpsons”, Marge takes Apu shopping in a new supermarket, Monstromart, whose cheery advertising slogan is “where shopping is a baffling ordeal”. “How is it”, muses Ms Salecl, “that in the developed world this increase in choice, through which we can supposedly customise our lives and make them perfect leads not to more satisfaction but rather to greater anxiety, and greater feelings of inadequacy and guilt?” A 2010 study by researchers at the University of Bristol found that 47% of respondents thought life was more confusing than it was ten years ago, and 42% reported lying awake at night trying to resolve problems.

Greater choice first delights us, then overwhelms us, then it can sometimes drive us crazy. There must be a “best” among all the rest. Which is it? And how will I know? The quest for the best can sometimes destroy the pleasure of the very good by introducing an unwanted but unshakable sense of doubt.

The Age of Anxiety

Which brings us to wine. It does seem like the problems of exaggerated choice apply especially to wine. Of those 48,000 items on the upscale supermarket shelves, chances are that 1500 or more are bottles of wine. Wine is the largest choice space in the modern grocery store, ten times richer in terms of the number of options than the #2 area (breakfast cereals) and much more complex.

Wine buyers have never had it better in terms of the number of choices available from around the world. And we’ve never had it worse regarding the possibility of confusion and the pressure to find our perfect wine. It’s the Age of Anxiety for wine.

I find it interesting that some of  the hottest products in the wine market seem to simplify wine just a bit and perhaps unintentionally  address this anxiety. Gallo’s inexpensive Barefoot brand wines have very done well in the last few years; most people view this as a price thing — the result of trading down. But Barefoot also offers consumers a more casual idea of wine that would appeal to anyone who wants to get out of “perfection” rat race and just enjoy wine without over-thinking it. (And every Barefoot bottle features a “Gold Medal” from a wine competition, giving buyers the security of a sense of quality.)

The hottest wine sectors today are Marlborough Sauvignon Blanc and Argentinean Malbec; is it a coincidence that these wines are easy to understand, with many good producers at various price points? The problem of choice still exists for buyers of these wines, of course, but perhaps more of the pleasure of choosing survives.

>>><<<

Several people have asked about the series on BRIC wines.  Fear not — it will resume in a few days with a report on Russia,

Retail Wine Sales: Big versus Hot (Hot Hot)


I thought it would be interesting to take a look at what’s “big” in the wine market (where the most consumer dollars are going) versus what’s  “hot” (or “hot hot hot” as in the video above), showing the fastest growth.  I’m using U.S. off-premises wine sales data from Nielsen for the 52 weeks ending 9/18/2010 taken from the December 2010 issue of Wine Business Monthly.

Baseline information: Off-premises wine sales in the U.S. totaled $9,172 million in the period covered here according to the Nielsen report, with an overall growth rate of 3.2%.

Which product categories are the largest in absolute terms and which are growing the fastest? I’m going to break down the data by wine varietal, country of origin (for imported wines) and price category. Take a minute and write down what wines/countries/price points you think will be at the top in each category and see if you’re right. Here goes

Chardonnay Leads the Way

Forget what you thought you knew about Chardonnay being so yesterday and Pinot Noir kicking Merlot’s butt. In terms of the overall retail market sales, the giants (or are they dinosaurs?) still dominate.

BIG varietals

Varietal $ million
Chardonnay $1,996
Cabernet Sauvignon $1,347
Merlot $911
Pinot Gris/Grigio $734
Pinot Noir $526
White Zinfandel $427

American wine drinkers are nothing if not traditional, reaching again and again for familiar varietals, so the usual suspects come top of the table. Pinot Noir has indeed surged in the post-Sideways era, but its lead over wounded White Zin is not large and it still lags far behind arch nemesis Merlot.

Obvious Chardonnay is the consumer default with a 50% lead on Cabernet and double the sales of Merlot. Pinot Grigio, the #2 white varietal, lags far behind.

I find the varietal “hot list” below quite interesting. The fastest growing wine varietals  are Riesling, Pinot Noir (of course), Sangiovese and Sauvignon Blanc. (Interestingly, varietal Sangiovese is rising while Chianti is a shrinking category in the Nielsen league table.)

HOT varietals

Varietal Increase
Riesling 9.4%
Pinot Noir 8.9%
Sangiovese 8.7%
Sauvignon Blanc 8.5%

It seems to me that while the “big” varietals are wines that many consumers purchase to drink on their own (because of their high alcohol levels and for other reasons), the “hot varietals” are a bit more likely to be food wines. I wonder if that’s a trend?

World Wine Web

Most of the table wines that Americans drink are American — there is a very strong home country preference. Domestic wine sales totaled $6,524 million for the period covered here while imports accounted for $2,648 million. What countries supply the most imported wine as measured by total expenditures? Here’s the Big list:

BIG import countries

Country of Origin $ million
Italy $804
Australia $771
Chile $243
France $228
Argentina $187
New Zealand $125

As the table shows, Italy and Australia are #1 and #2 respectively in off-premises sales. It is interesting that France has fallen to #4 behind Chile. Argentina and New Zealand make the cut here (Spain did not!) as you might expect, but bear in mind that Italy still sells more wine in the U.S. than Chile, France, Argentina and the Kiwis combined. The concentration ratio in this market is very high: Italy and Australia may be struggling at the moment, but they are in a league of their own.

Italy and Australia will not be over-taken soon, but the market momentum seems to have has passed. Look at the big growth numbers that Argentina and New Zealand are putting up below! Wow. Annual growth rates of more than 20%!

HOT import countries

Country of Origin Increase
Argentina 27.6%
New Zealand 21.1%
Germany 4.4%
Chile 1.7%
Spain 0.6%
Portugal 0.3%

Now look at the gap between the really hot ones and the rest! Germany comes in at #3 on hot list, but with a low 4.4% increase for the year. Sales of most wine imports (including Italy and Australia) have actually fallen in the last year. Spain and Portugal squeeze onto the list at #5 and #6 by simply avoiding utter collapse. The import wine segment is slumping badly, with Argentina and New Zealand the only significant exceptions.

The Price is Right

Finally, let’s look at the market in terms of price points.  What are the biggest and hottest parts of the wine wall in terms of price?

BIG price points

Price Segment $ million
$3.00 – $5.99 $2,688
$6.00 – $8.99 $1,903
$9.00 – $11.99 $1,868
$12.00 – $14.99 $910
$0 – $2.99 $794
$15.00 – $19.99 $557
$20+ $446

You can see from the data why Gallo is having a good year (or probably having a good year, since they are a private company and don’t release data so I can only guess). Their brand portfolio is aimed at the heart of the market, from $3.00 to $11.99. Lots of good targets there!

You can also see why Constellation Brands is probably finding this a challenging year. They reconfigured their brand portfolio to take advantage of what they saw as upmarket opportunities.  They moved up the wine wall a bit but the market changed directions and went downmarket, leaving them in a less competitive position.

HOT price points

Price segment Increase
$9.00 – $11.99 9.1%
$20+ 7.4%
$12.00 – $14.99 5.0%
$3.00 – $5.99 4.5%
$15.00 – $19.99 2.5%
$0 – $2.99 (0.1)%
$6.00 – $8.99 (4.0)%

But Constellation’s upmarket bet may yet pay off. The hot price segments are all in the wine wall’s upper strata.

The Old Elasticity Trap

The rise in spending in the super-premium + categories is an encouraging sign, but I think some caution is necessary in interpreting the data. Many observers see the big increase in expenditures on $20+ wines and conclude that consumers are coming back to this segment strongly — that the demand curve has shifted. But I suspect that there is a lot of bargain hunting taking place and that margins are falling – bad news. Maybe we are just following discounted prices down the demand curve.

For many of today’s buyers a $20+ retail wine is a highly discretionary purchase and so the demand curve may be quite elastic. Econ 101 students will remember that total expenditure increases when price falls for a product with an elastic demand.

The large percentage expenditure increases we seen in the data could result from discounting — $30 wines being sold off for $25 and so on — rather than an actual increase in demand or shift in the demand curve.  The increased revenues are good and inspire optimism, but they may disguise the bad news of shrinking margins.

(As I am writing this, the neighborhood Safeway is offering an extra 20% off any wine selling for $20 or more. I suspect sales revenue will increase at the lower retail markup.)

Overall conclusions? I’d rather not, thanks. These data are interesting more for the questions they raise than the answers they provide. But the questions about how the U.S. wine market is changing are worth pondering (hopefully over a nice glass of wine). Cheers.

Now Playing in Napa & Mendoza: Wine and a Story

Wine is good. Consumed in moderation it can even be good for you. But wine and a story is better. Wine famously stimulates all the physical senses (sight, smell, taste, feel and even sound if you touch glasses). But wine a story unlocks your curiosity and imagination, which are arguably the most powerful senses of all.

Recent initiatives in both Mendoza and the Napa Valley suggest that the power of a good wine story is undiminished. Herewith two brief reports.

>>><<<

The wines of Argentina have been big winners in North American wine markets in recent years. Argentinean Malbec is the wine category that has experienced the fastest off-premises sales growth according to Nielsen data.  To the displeasure of many, I have found this trend worrying. Not because of the wine, but because of the story.

The story that is most frequently told when it comes to Argentinean wine is about value. For example, Alamos Malbec (the best selling brand in this market segment in the U.S.) is a $12-$15 wine that you can buy for just $8-$10, according to my street-smart friends. What could be better than that?

Well, it is a good story, but there may be problems.  Chile was branded as a value producer back in the 1960s and has found it hard to shake that label. Consumers expect to spend less for Chilean wine and so producers have struggled at times to squeeze more from less — not an easy thing to do with worldwide competitors breathing down your neck. I would feel better about the future of Argentinean wine if the mainstream narrative was a bit more complicated and less value focused.

So naturally I applaud the efforts of Área del Vino and Wine Sur to draw out the story of Argentinean wine and create a narrative with greater upscale potential. Their just-launched website is called Wine Sur: My Wine Stories and it invites local producers to tell their own stories, creating a colorful mosaic of images.

Not all the stories submitted so far are very memorable — some do a better job than others of giving a sense of the people and places that are the wine’s origins. One that I especially like is from Winery Alto Cedro for its Desnudos wine. Family heritage is at the heart of this story and local art is highlighted, too.

Altocedro Our idea was to relate the Cedar Tree for two reasons: the first is that we are 4th generation of Lebanese descent in Argentina and for us the Cedar is a sacred tree. The second is that in our land of La Consulta, we have more than 27 old cedars planted in the middle of the vineyard.  Desnudos is a tribute and collection of female nudes made by Mendocinean artists that illustrate various crops where we release this wine.

The Trivento Eolo Malbec’s story evokes terroir and highlights history.

Eolo received from Zeus the power to evoke or annul the winds. He governs them with absolute dominion, seizing and liberating them, engendering great changes in the heavens, on earth, and at sea. The Keeper of the Winds was seduced by the refuge at the northern edge of the Mendoza River in Luján de Cuyo, a traditional winegrowing area in Mendoza. The EOLO vineyard, planted in 1912, is defined by its relationship to the river. Soil, wind and water –in conjunction with man– have cared for these vines over generations. The result is the authentic expression of Malbec.

My Wine Stories is a small effort, but a useful and encouraging one. The stories are very brief (meant to be short enough to be used in social media, where attention spans are apparently particularly short ). Hopefully they can be expanded and set into a broader context so as to contribute to a more complex narrative of Argentinean wine.

>>><<<

California’s Napa Valley is much more advanced when it comes to telling its story. Robert Mondavi built a great winery, but I think he was even more influential as a story-teller. His story was that the New World (California/Napa/Mondavi) could compete with the Old World on equal terms. The famous 1976 “Judgment of Paris” completed the story by having French experts rule in favor of California wines.

Napa Valley has a great story and one worth frequent retelling. The Napa Valley Museum in Yountville is hosting an exhibition called “Art & Wine: Expressions of an Industry” through October 31 that does this very well. According to press materials it highlights “all things wine-related outside of the bottle” including the packaging and promotion of wine through displays of wine labels, cookbook photography, totes, wooden wine boxes, bottle tickets, decanters, corkscrews, heraldic banners, vintage posters, portraits of vintners and winery architecture. More than 100 objects are on display.

This is a very Mondavi-esque idea. Robert Mondavi tried to elevate the image of California wine by associating it with art, music, architecture and fine food. All it would take to complete the classic Napa story would be a link to the Judgment of Paris … and maybe something to nosh on. Well, OK, here it is.

Additionally, we are featuring the Judgement of Paris Revisited in conjunction with the closing reception of Art & Wine. The reception features a conversation with Warren Winiarski and Jim Barrett, moderated by George Taber commemorating the 1976 tasting revelation that brought worldwide prominence to California, and Napa Valley wines. This program is just $20 for members and $45 for non-members. Stag’s Leap and Chateau Monelena  wine and hors d’oeuvres will be served.

What a great event and what a great way to tell the Napa Valley story! A great model for other wine regions to consider as they try to develop their own stories or look for strategies to communicate the ones they already have.