Taste the Washington Wine Market

Demand meets Supply in Seattle

Mike and Karen Wade of Fielding Hills Winery in East Wenatchee, Washington asked me if I’d like to pour their wines at the big Taste Washington event in Seattle on Sunday. I jumped at the chance, of course, because you hardly ever get to see supply and demand in the wine market at work in such a personal way. I will admit that I enjoyed this opportunity and I might have been a little too enthusiastic at times. I think my boss, Robin Wade, had to restrain me at times from talking up the wines and the winery more than I should. (Robin is my student at Puget Sound during the week, but she was my supervisor on Sunday at her family winery’s tasting table).

Taste Washington is a big event: more than 220 wineries, 70 restaurants and a long list of what I would call “lifestyle product” vendors ranging from Viking, the maker of high end kitchen appliances, to Maserati, the Italian sports car. Click here to download a pdf of the program. People paid $125 to attend the VIP tasting from 2-4pm. Then the doors opened to the “masses,” who paid $85 for unlimited tastings from 4-8pm. Many of the VIPs were industry people – winemakers, distributors, restaurants, wine shops, and so forth. The “masses” were a very mixed group that I’ll discuss below. I guess about 3500 people came in all.

The event is all about giving things away. Wine is sampled, but cannot be sold. Restaurants give samples of food. No cash changes hands once you are inside the room, but I suppose that exchanges can be arranged for future delivery. Apparently someone bought a Maserati ($135,000) off the show floor. There was a moment of silence (while everyone drew a breath) when that was announced.

The Supply Side of the Pour

The list of wineries was long and diverse. Columbia Crest makes at least 200,000 cases each of some of their Two Vine wines, for example, while Benke Cellars, located near us in the exhibition hall, has a total output of just 200 cases. Some of the most prestigious wines in Washington were represented (DeLille Cellars was across the aisle from us and Quilceda Creek was across the room) alongside humble family start ups. Fielding Hills was one of several wineries in a sort of intermediate position: a small family operation, but one with an impressive record of ratings and reviews and hence a built-in audience among wine enthusiasts.

What do wineries gain from giving away wine at tasting events like this? There needs to be a benefit, especially for the smaller wineries who may pour away a couple of percent of their annual production. Some of the large volume wineries seemed to use the event to show that they were about more than just fruit forward popular premium supermarket wines. Chateau Ste Michelle, for example, poured these wines

  • 2005 Boreal, Columbia Valley $30
  • 2005 Ethos Cabernet Sauvignon, Columbia Valley $38
  • 2006 Chardonnay, Horse Heaven Hills $22
  • 2007 Eroica, Columbia Valley $22

and Columbia Crest offered these

  • 2005 Grand Estate Merlot, Columbia Valley $11
  • 2004 Reserve Red Walter Clore, Columbia Valley $44
  • 2005 H3 Chardonnay, Horse Heaven Hills $15

These are very good wines – on average several steps above what you would probably taste for free at the winery. I like the Eroica quite a lot and I wish I’d found an opportunity to taste the Walter Clore. The Grand Estates Merlot is a great value in my opinion.

I spoke with a famous winemaker – he was treated a bit like a rock star – who spent most of his time in close conversation with customers, distributors, and fellow winemakers. He said he thought it was important to be at the tasting and to make personal contact, but he wasn’t sure if it had much effect on sales. He was “preaching to the choir,” he said, talking with current customers and business clients more than making new ones. I wonder if he’s right. I like to say that wine is good but wine and a story is better. A story about talking with a rock star winemaker adds a lot of value to a bottle of wine. Maybe he was just being modest.

Mike and Karen Wade are certain that this event benefits them by connecting them with the trade network and giving wine drinkers who read about their wines in magazines (but often cannot find them on local shop shelves) an opportunity to see what all the fuss is about. I certainly think the wines made a good impression and even created a bit of a buz in the room as word spread. It will be interesting to see how this is reflected in the market.

Spit, Don’t Swallow!

Spit! We were told to encourage people to spit the wine rather than swallow it so that they would not get tipsy so soon. The trade visitors often did spit, as you have to do if you are really going to taste a lot of different wines, but most people didn’t. They did dump out extra wine into the spit buckets, however, which was a good thing. The woman who came around to empty the spit buckets every 15 minutes estimated that she had collected 20 gallons by 6pm.

Like the organizers, I was worried about the alcohol problem. Faced with 200+ wineries pouring maybe 700 different wines – and you with a bottomless glass until 8pm – it is easy to see how things could get carried away. I only talked with a few tasters who had clearly had too much to drink, however. Most people seemed to understand the problem and, even if they didn’t spit, they tried to limit consumption so that they could continue tasting.

The people on the other side of the table were an interesting collection of wine people. The $125 VIP tasters were mostly trade people, as you might imagine, many with well-defined agendas of people to meet and wines to taste. It was fun to talk with them to get an insider view of the event and the business. The $85 general admission tasters were perhaps younger than I expected (many in their 20s) and more diverse in their apparent knowledge of wine. Many were wine enthusiasts, of course, armed with detailed notes and Parker numbers, looking to taste specific wines, interested in every detail from vineyard to barrel.

Others were “image seekers” (to use Constellation Brands’ Project Genome taxonomy – see next post). They didn’t know as much about wine but they wanted to learn. It was fun to meet them because we were pouring a 2005 Cabernet Franc – a varietal many of them had never tasted before – and I enjoyed watching them make up their minds about what was in the glass. Finally I would say that I met some “traditionalists” and even some “overwhelmed” consumers (it was easy to be overwhelmed at this event, to be honest, with so many wines and wineries present). They were spending $85 to try to figure out what was new and what they liked. That seems like an expensive education until you consider how fast you can burn through $85 on failed wine experiments.

People always ask me if interest in Washington wine is a bubble that will someday pop leaving broken wineries in its wake. It is difficult to be sure about bubbles (ask Alan Greenspan about this) and I actually worry that there might be a supply side wine bubble shaping up and a shakeout coming (Paul Thomas, a pioneer Washington winery, closed shop last year). But the demand side looked strong to me as I poured my measured tastes on Sunday. Education is the key to sustainable growth in the wine industry and I met a lot of people who seemed to be committed to broadening and deepening their knowledge of wine. The Washington wine industry can only benefit from this. That makes Taste Washington a more important program than I thought it would be.

Wine in Restaurants: Recent Trends

mainpage_april08.jpgEach year Wine & Spirits publishes a special issue that reports the results of their annual survey of wine sales in restaurants — information of more use to trade professionals, I imagine, than to wine lifestyle readers. Although the sample is relatively small — 309 Zagat -ranked U.S. restaurants participated in the 2008 survey — and restaurant wine sales are probably unrepresentative of broader market sales, I still find the trends reported here to be of interest, especially since many of them reinforce data I have found elsewhere.

More and More.

Some of the trends are unsurprising to any restaurant wine-drinker. The importance of wine in restaurants continues to grow — over 70% of the restaurants reported that wine was a larger percentage of their total sales in 2007 compared with 2006. More restaurants are paying more attention to wine and wine-drinkers and increasing sales accordingly. A second non-surprise is this: restaurant wine costs more. More than 60 percent of the surveyed restaurants reported that the average price of the wine they sold increased in the last year. Personally I have been staggered at the price of wine in some restaurants recently. There are both demand and supply drivers behind this trend.

Restaurants have an incentive to raise wine prices, of course, but nobody forces diners to buy the stuff. Some of the price increase is demand-side — educated (or status-seeking) wine consumers choosing more prestigious and expensive bottles. Smart restauranteurs and their sommeliers take advantage of the wine boom by offering interesting and hard-to-find wines, which attract wine enthusiast diners and generate higher revenues. So higher prices are the result of education, enthusiasm and strategic behavior. We pay more because we are willing to pay more, up to a point at least.

Even Less is More

The falling dollar is another part of this trend. Cheap dollars mean that restaurants have to pay more for imported wines, which drives up costs and prices. The pass through effect of the exchange rate changes is not yet complete, however, so you can expect even higher prices in the future. Rising wine costs are a supply-side driver of higher wine prices generally. The recent trend to more wines from Argentina and Chile is partly a reflection of the fact that the dollar has not fallen quite so far relative to these currencies, so South American wine is a relative bargain.

The weak dollar also affects the demand side. Many of the surveyed restaurants are located in transnational hub cities where international travelers are a significant factor. Foreign tourists and business travelers take advantage of the weak dollar to treat themselves to otherwise more expensive wines when they dine in the U.S., thus driving up the price averages. This is not an insignificant factor for many of the upscale urban eateries that participate in the Wine & Spirits survey.

Prices continue to rise for even the most inexpensive restaurant wines. About 35 percent of the restaurants reported that they have increased the price of the least expensive wine on their list in the last year. In my experience, however, no one ever orders the least expensive bottle on a wine list. The real indicator would be the price of the second cheapest bottle. I imagine that it costs more now, too.With the price of wine edging up relentlessly it is not surprising to find that restaurants and wine drinkers are paying more attention to by-the-glass sales. More restaurants are offering more wines (and more interesting wines) by the glass as well as the bottle. The average price reported by the survey rose to a new high of $11.05.

The trend toward rising wine prices is not likely to slow very much in the future (see my previous post about The End of Cheap Wine), but this trend is not uniform across the entire wine list. Surveyed restaurants reported steep declines in sales of Merlot and Chardonnay, for example, and flat sales of Cabernet Sauvignon. Average sales prices actually declined for Cab and Merlot. Pinto Noir prices and sales have increased again, as you might expect.

Hot or Not?

No sales trend data were reported for two supposed “hot” wines: Riesling and Syrah. Riesling is the sommelier’s favorite, according the Wine & Spirits (and I don’t disagree), because it is so food-friendly, but it does not seem to be an important factor in restaurants sales. I have my own theories about this, but no facts, so I won’t speculate at this time. I’ll try to find out more at the Riesling Rendezvous that Ste Michelle Wine Estates is organizing this summer.

The case of Syrah is interesting, too. Wine & Spirits says that there was a Syrah/Shiraz boom a few years ago, but that it has faded and Syrah has now settled into a minor niche-role on the restaurant wine list. I suppose that this reflects the changing circumstances of Australian wine (see The Wizards of Oz) more than anything else since so many people identify Australian wine with Shiraz and vice versa.

The fact that Riesling and Syrah don’t figure prominently in restaurant sales suggests to me that restaurant buyers as a group are less adventurous than you might think. Rather than using an unfamiliar wine list as an open invitation to experimentation I think they might on average be looking to avoid making a faux pas, either in terms of the wine they choose or the social signals that they send to the others seated around the table with them. Wine trends in restaurants might, therefore, lag behind wine trends generally rather than leading them. Or it could be that restaurants believe that their patrons are unadventurous and wine lists reflect this, focusing mainly on old standbys rather than hot trends. The result would be the same in either case.

If this is true then Riesling and Syrah will move up on the restaurant wine lists, if they do at all, only after they have become more prominent in other wine venues. Or at least winegrowers in Washington State should hope that this will happen. Because, my goodness, we seem to be making a lot of Riesling and Syrah!

Washington and Oregon Wines in London

There is a special tasting of Washington and Oregon wines in London today, held at the Institute of Contemporary Arts at 12 Carlton House Terrace. More than 190 wines from 40 Pacific Northwest wineries are being sampled. Marty Clubb of L’Ecole 41 in Walla Walla is leading an educational seminar about the Washington wines and Howard Rossback of Firesteed is doing the same for the Oregon products. The event is funded in part by a $200,000 federal trade grant. I believe it is the largest organized effort (so far) by Northwest winemakers to break into the European markets. It will be interesting to see if this seedling can grow to bear fruit.

Washington and Oregon are important winemaking regions, of course, but their reputations and sales are concentrated in the United States. Although Oregon Pinot Noirs are always included in the discussion when people anywhere talk or write about new world Pinots, the fact is that not much of it is sold abroad. Oregon wine sales in the UK and France were just over 2000 cases in 2006, for example, out of total production of 1.6 million cases. The word may be out around the world about Oregon wines, but wine distribution and sales haven’t followed — yet.

I don’t have figures for Washington wines, but I suspect that the situation is more or less the same. Washington makes excellent wines (better than Oregon wines, if you judge by the Wine Spectator and Wine Advocate ratings, where several Washington wines receive 95+ points), but so far Washington doesn’t seem to have that one distinctive wine that could establish an international reputation. The state is too varied, I think, in terms of climate and geography for that to happen. Washington is Riesling country, judging by volume of production, but it hasn’t yet established an international reputation with this wine (although it is trying to do so with the Riesling Rendezvous conference). A variety of reds do well here, including both the Bordeaux and Rhone varietals, but no signature style of wine has emerged as the champion. Marty Clubb is telling the people in London that Washington has the ideal climate for wine (that’s the official Washington wine theme), which may be true but doesn’t really define the product for confused international buyers.

Washington does have one advantage over Oregon in the export market: distribution muscle. The Washington wine industry features a few very large players that have the financial clout to potentially open up foreign distribution channels. Money is necessary; it isn’t easy to establish a brand abroad in this crowded market and margins on exports are necessarily lower than for domestic sales, at least at the beginning. I have read that export sales by small scale winemakers are “vanity” projects and there may be some truth to this. That doesn’t mean it’s not worth doing, however.

The Chateau Ste Michelle family of wines have penetrated some European markets. I was surprised to discover a large display of CSM wines in an upscale supermarket next to the train station in Riga, Latvia, for example. I haven’t been able to find out how the wines got there yet — my guess is that CSM’s deal to distribute Antinori wines in the U.S. may be reciprocated by Antinori in Europe but I don’t really know. Other Washington wines including Columbia, Covey Run and Hogue are part of the Constellation Brands portfolio, which may aid in their international distribution, too.

The London tasting isn’t the first effort to get Northwest wines attention in the UK. I remember being in London in about 1990 and walking into Fortnum and Mason only to be shanghaied by an excited clerk who was directing anyone she could to a lonely wine tasting display where they were sampling wines from Hogue Cellars of Yakima. Needless to say, no one had any idea where Yakima was located, but they were amazed that such a unlikely place could produce good wine. Today’s London event is a much larger project than that Fortnum display, but the goal is much the same, to make friends, establish relationships, and get our foot in the door.

I hope the London tasting goes well. Many of the wineries are apparently looking for UK distribution, which makes sense. The UK is the most important wine market in the world. It is a good market to sell wine and to establish a worldwide reputation. A disproportionate number of the world’s leading wine writers and experts are based in London, including Jancis Robinson, Oz Clark, Michael Broadbent and Steven Spurrier. A good word by any of these celebrity wine critics would encourage wine enthusiasts in the UK and around the world to give Northwest wines a try. But the real prize would be a distribution deal with Tesco or Sainsbury’s, which dominate supermarket sales, or one of the big high street wine store chains, since you can’t try wines you can’t buy.

One reason this is a good time to try to break into the UK and European markets is that the exchange rates favor U.S. exports. The dollar fell dramatically in 2007 against both the Pound and the Euro, making U.S. wines relatively less expensive. This will help, but it will still be difficult to get British wine drinkers to think beyond Gallo and one end of the market and Napa Valley at the other.

It’s tough to break into foreign wine markets. Ernie Hunter famously did it the DIY way — he brought his wines to London and entered them in the Sunday Times wine festival, where they won the people’s choice award. Ernie was from New Zealand and his surprise victory paved the road for Marlborough Sauvignon Blanc’s dramatic rise in the world of wine. Washington and Oregon are taking a direct and organized approach, with tastings and seminars. Every case is different. My next post will tell an unlikely story of how Washington wines first came to Sweden.

Chateau Ste Michelle

I gave a brief talk to a university group at Chateau Ste Michelle in Woodinville, Washington yesterday and it gave me a chance to think at bit about the Washington wine industry in general, now with more than 500 wineries and growing, and Chateau Ste Michelle (CSM) in particular.

Sue and I were fortunate to be able to spend a couple hours in the afternoon with CSM Enologist David Rosenthal (pictured here) , who is a 2001 marine biology graduate of the university. He’s worked at Mondavi as a chemist and at Oregon and Australia wineries and he now helps make the white wines at CSM. They produce about 400,000 cases of Chardonnay and 750,000 cases of Riesling in addition to smaller amounts of other white varietals. It is quite an operation and David was nice enough to answer all of our questions and take us through the cellar room, sampling wines starting from unfermented juice that had just arrived from Eastern Washington on through the various stages of fermentation and aging. I learned a lot — thanks, David.

I’ve read that CSM uses its large scale wisely, treating size as a resource that permits experimentation and diversity, and I could see this pretty consistently through our tour with David. CSM’s scale is tailored to give its winemakers a great deal of choice when it comes to blending their high volume wines and also to facilitate limited production products, including of course the single vineyard bottlings.

Chateau Ste Michelle is part of Ste Michelle Wine Estates (SMWE), which owns several other Washington brands, including Columbia Crest, Snoqualmie, Domaine Ste. Michelle (sparkling wines), NorthStar (which began as a high end merlot specialist label), Red Diamond, Stimsom Estates Cellars (up-market jug wines), 14 Hands (the manditory critter wine — the critter on the label is a horse that stands 14 hands high) and the boutique Walla Walla producer Spring Valley Vineyard. If you’ve been reading this blog you know how important brands are in the wine market today and SMWE’s strategy reminds me of the old Robert Mondavi company — to have competitive brands from the popular premium shelf on up to the icon level, leaving the low margin bulk wine market (the bottom shelf) to Gallo, Yellowtale and Charles Shaw. CSM and Columbia Crest are the leading brands, with 3 million cases produced between them.

Although everyone associates CSM with Washington, the company’s reach is much broader. Other brands in their stable include Erath (Oregon), Villa Mt. Eden and Conn Creek (Napa Valley) and Distant Bay (Monterey). They are the exclusive U.S. distributors of Antinori wines and have partnerships with both the Antinori family (to produce Col Solare, Washington’s answer to Opus One) and, with the Mosel’s famous winemaker Ernst Loosen (to make Eroica, an exceptional Riesling). SMWE is the largest producer of Riesling wines in the U.S. and possibly in the world! Together with the Antinoris, SMWE recently purchased Stag’s Leap Cellars in Napa Valley, one America’s most distinguished wineries.

In other words, this is big business, both in terms of volume and quality. Altogehter SMWE’s brands produce 4 million cases a year, which is about two-thirds of all Washington wine, and it is a correspondingly huge influence on the whole industry here. Of course, Washington is still tiny, in quantity terms, compared to California. People say that Gallo produces about 70 million cases all by itself. (Since Gallo is family-owned, it doesn’t report as much data as publicly-traded wine producers do, so we have to guess what’s going on in the big warehouses in Modesto.)

SMWE makes a lot of very good wine, which is perhaps more important that quantity in today’s market. SMWE’s brands account for the largest number of Wine Spectator 90+ wines (and the most total top 100 wines) of any producer in the world. It is an interesting fact that Washington doesn’t compete at all at the very bottom rung of wine ladder — the very inexpensive bulk wines that account for much of the total volume in today’s market. You know what I am talking about — Two Buck Chuck and the lesser wines that make that brand look so good. Of all the New World wine regions, only Washington and New Zealand have been able to build a wine industry from the popular premium level up.

But it makes sense: Washington cannot hope to compete with California’s Central Valley producers when it comes to cost-sensitive bulk wines, so it doesn’t try. New Zealand is in the same position with respect to Australia. In both cases, I believe, this actually works to the smaller, higher-cost producer’s ultimate benefit, since all of the focus is on quality and on the growing upper-tier of the market.