Last week’s column about the Porto conference on Climate Change and Wine struck an optimistic note. Powered in part by the Porto Protocol the big international gathering showed that the wine industry is moving the needle on climate change, both in terms of mitigating the impacts and addressing causes.
Sue and I learned a lot from the experts who spoke on the science and technology aspects of climate change and wine, but of course it was the business side we were most interested in. If you have a little time, for example, I recommend watching the video of the session on “Consumer Expectations and Sensible Marketing” featuring Marks & Spencer’s Paul Willgoss, Antonio Amorim of Amorim Cork, and moderator Richard Halstead.
“Economy & Efficiency: Call to Action” was the title of the final session on the second day, which featured Stephen Rannekleiv of Rabobank, Robert Swaak of PriceWaterhouseCooers, and me as speaker/moderator. I led off the discussion, focusing on the need to rethink the relationship between economics and the environment and issuing a call to action.
Stephen was next up, showing how Rabobank has gone beyond its traditional role as an agricultural lender to creating platforms where innovative solutions can be tested and developoed. He followed up with a program on this subject on the popular Rabobank beverage industry podcast Liquid Assets.
Robert’s powerful talk covered several important points, but was especially effective in developing the notion that climate change introduces or magnifies a number of risks, which wine businesses need explicitly to take into account and act upon.
As I wrote in the run up to the conference, Sue and I were interested in the trade show that took place along side the sessions. We were hoping to see a showing of the products and services that vendors provide to firms that are committed to climate change action. What we found was different from our expectations. The trade show mainly gave conference sponsors (see graphic below) an opportunity to demonstrate their commitment to the cause.
We were a little disappointed, but I think we harbored unrealistic expectations. Vendors are more likely to put their efforts into meetings that attract thousands, not hundreds, of wine industry actors. The Unified Symposium in the U.S., for example. Or SIMEI in Milan. We will look closely when we are at these and similar events to see to what extent climate change is being integrated into the daily business of wine.
I have sometimes made fun of my wine collector and investor friends, saying that they are engaged in what Thorstein Veblen might have called “Conspicuous Non-Consumption.” They buy some fine wines for the purpose of not enjoying them in the glass, or so it seems at times.
Owning the wines and visiting these great wines in their climate-climate-controlled secure storage lockers is pleasure enough. Drink them? Horror! Then they’d be gone! OK, I know it is more complicated than this, but you get the idea of the joke.
Not For Sale
Now a fascinating report from liv-ex.com, the fine wine market trading platform and research center, suggests that non-drinking of great Bordeaux wines must be considered along with another phenomenon that would make even Veblen scratch his head: producers who make a business of not selling their wines. Or not selling very much of what they produce.
“Final Thoughts on Bordeaux 2015” is the title of a Liv-ex report that tries to make sense of the recently concluded Bordeaux en-primeur campaign. This year’s market for 2015 wines was unusually complicated, the report indicates. Vintage quality varied greatly by sub-region, for example. And while critics gave the wines high markets overall, they didn’t do so consistently, which is important since the speculative value of a 97 score (Suckling’s overall rating of the vintage) is very much greater than 94 points (Wine Spectator‘s evaluation).
Add to this exchange rate changes in the run up to the Brexit vote and you have a recipe for confusion. But all of this doesn’t really explain the fact that seller prices were well above what the market expected and so not much wine changed hands (at least compared with a few years ago). The opportunity to re-set the market, which the Liv-ex analysts had anticipated, was apparently wasted.
High Taxes, Low Interest Rates
This wasn’t a universal situation, the report makes clear. 2015 was the best vintage ever for some producers and the market accepted the higher prices. And some producers offered necessary discounts to move their stocks. But many raised prices and seemed content with meager sales and big retained stocks. Why?
The answer, according to Liv-ex, is complicated and begins with today’s historically low interest rates, which make the cost of carrying inventory low. Fine, but don’t they need to sell wine to pay costs? Yes, Liv-ex explains, but the margins on the grand vins are very high and so most costs can be covered quickly with an initial tranche of sales. Second- and third-wines provide additional cash flow.
France’s high tax rates are also mentioned — postponing revenue is also postponing taxation (possibly until a more business-friendly administration takes office).
A Different Economic Model?
But perhaps the biggest factor, which contributes to the “new normal” that Liv-ex sees, is a change in the economic structure of the business. Profits from making and selling wine are now less important than maintaining and advancing the capital value of the chateau itself. Selling wine at a lower but very profitable market price is old news. Raising price to enhance reputation and capital value is the new strategy.
The Liv-ex study notes that
“Priorities have shifted from making sales and generating cash flow to trying to maximise prices (of the grand vin in particular) and by extension the capital value of their properties. Indeed, … the motivation to generate profits is dwarfed by that of keeping land values high. … Owners have achieved this by releasing smaller quantities onto the market and spreading their production across a second and sometimes a third label. … Many commentators ascribe this trend to deep pockets. It is true that most top chateaux these days are owned by billionaires and insurance companies, but this has always been the case. The main motivation for the strategy is exceptionally low interest rates.”
The combination of the factors described here combined with similar incentives for the negoçiants results in prices generally above what consumers are willing to pay, the Liv-ex study concludes. The 2015 Bordeaux market was an improvement over 2014, but this is a “low bar,” the study says. “Moreover, for as long as the current environment — distorted by low interest rates — persists, there will continue to be a standoff … ” between supply and demand.
Hotelling’s Rule Alternative
The Liv-Ex researchers study Bordeaux closely, so their theory is probably correct, but as I read the report I couldn’t help thinking of one of the most famous microeconomics theories of the first half of the 20th Century: Hotelling’s Rule, named for Harold Hotelling. Hotelling was interested in the rate at which a firm exploits a finite resource that it owned, assuming the usual (for economic theory) perfectly competitive market environment.
To over-simply, the objective is to maximize the present value of the finite resource and so the short-run production decision depends on whether market price is expected to rise faster or slower than the rate of interest. If price is expected to rise faster than the rate of interest, it paid to hold back production for the future. If price is expected to rise more slowly than the rate of interest, then selling now and investing the returns makes more sense.
Under theoretical conditions, the equilibrium occurs when market price rises at an exponential compound interest rate.
A given vintage of a particular wine is indeed a finite resource to be sold today or sold tomorrow. Interest rates today are extremely low and so only very modest expected price increases are necessary to induce a winery to hold back stocks. At zero interest, prices need only remain steady to make stock-building a viable strategy.
The incentive to retain inventory is stronger than this, in fact, because the Bordeaux fine wine market is not perfectly competitive and restricting supply of a particular classified wine raises its current price. So in fact withholding stock may allow a wine firm to have its revenue “cake” today (scarcity premium for the wine that is sold) and eat it tomorrow, too (in the form of future sales of the retained inventory at prices above the low compound interest bar).
All else being equal, when market interest rates inevitably rise, this will shift the calculation towards current sales. But in the meantime, No Sale is the name of the game.
Logical Extreme: No Sale
I don’t think this application of Hotelling’s Rule is a better explanation than the Liv-Ex analysis or inconsistent with it, but it does open up a different way of thinking — looking at the situation in terms of the present value of the income stream.
It is possible to take this way of thinking too far, however, which is what New York Times columnist Frank Bruni hilariously did earlier this year when he wrote an “April Fools” column about college admissions. He announced that Stanford University had taken selective admissions to its logical extreme … and admitted zero percent of its applicants!
Because it was now totally unattainable, Bruni reported, Stanford was even more ardently desired than before and admission applications and strategic financial donations poured in. In Bruni’s fictional world, zero admission “sales” maximized Stanford’s reputation and revenue stream. Wow!
I wonder if that would work with wine? Whatever you do, don’t let the folks at Lafite, Latour and Margaux read Bruni’s column.
The Beatles’ Boeing 707 landed in the USA on February 7, 1964 and pop music has never been the same. It isn’t that the British Invasion conquered American pop music as much as that a creative dynamic was accelerated. The influence can still be felt more than 50 years later.
Another invasion took place from about 1970 to 1990 when a number of Europeans made significant wine investments in the United States, stirring the creative pot in ways big and small. Last week I talked about the Skalli family’s Mondavi-inspired investment in St Supéry and the recent sale of that property to the brothers who own Chanel. That event got me to thinking about the other invaders. Where are they now? Here are a few quick case studies.
Chandon’s French Invasion
Domaine Chandon, for example, has thrived as a sparkling wine producer and now also a maker of fine still wines. Chandon California (1973) is part of Moët Hennessy’s global luxury wine portfolio that also includes Newton Vineyard in Cailfornia, Chandon Argentina (1959), Chandon do BrazIl (1973), Chandon Australia (1986) and Chandon China (2013) as well as Cape Mentelle, Cloudy Bay, and other famous brands.
(Newton Vineyard is the part of the answer to one of my favorite trivia questions. What two California wineries were featured in the Japanese re-make of the film Sideways, which was set in Napa Valley? Answer: Newton and Frog’s Leap.)
Boisset Comes, Goes, Returns
Chandon was not the only French firm to invest in the California wine industry. Boisset, known today for DeLoach, Raymond, and Buena Vista wineries among others, came on the scene in the early 1980s. In fact, Boisset sold Robert Skalli the Rutherford property on Highway 29 that became the St Supéry winery.
Boisset first entered the California market as an importer and producer in 1980. The Rutherford property was purchased in 1982 (the Victorian home you see there was used as a summer residence for a couple of years). But it was sold to Skalli in 1984 as the result of a strategic shift to focus to building the company back in France rather than expanding further into California.
Jean-Charles Boisset returned in California in 2003 with the DeLoach purchase and has gone on to become an integral part of the wine industry here with a large wine portfolio and deep local roots. He is married to Gina Gallo and the couple live in the old Robert Mondavi house.
Water to Wine: Hess Collection
Donald Hess wasn’t looking to start a winery when he came to the U.S. from Switzerland in 1978, although he ended up creating the Hess Collection vineyard and winery on Mount Veeder and starting an international wine portfolio that now reaches out to California, Argentina and South Africa. Hess wanted to produce and sell bottled water in the U.S. and he traveled across the country looking for both a production source that appealed to him and evidence that there was a growing market for bottled water.
Having failed on both fronts when it came to water (he was obviously just ahead of his time), Hess became inspired by some of the wines he tasted and changed direction. He invested first in the vineyards high up on Mount Veeder and then took over the historic Christian Brothers winery up there, which is quite an inspiring place to visit now that Hess has strengthened and restored it after the Napa earthquake. Hess’s signature modern art collection is spectacular, too, and some of the wines we tasted were memorable indeed.
Atlas Peak to Antica Napa Valley
As we drove the winding road to Antica Napa Valley I had that feeling of déjà vu: have I been on this road before? Impossible? Nothing much out here except Antica Napa, the Antinori family’s Napa Valley winery (the Antinori are also involved in Stag’s Leap Wine Cellars and Red Mountain’s Col Solare in partnership with Ste Michelle Wine Estates) and this was our first visit.
But I think I had been there before, back when it was called Atlas Peak. The winery and its famous cave system are a fascinating story. Piero Antinori first came to California in 1966, when Robert Mondavi was just starting out with his new winery. Antinori fell in love with the place and started a slow, thorough search for the right path to enter the region. He finally found it in 1986 when he entered into agreement to purchase land for vineyards and a site for a winery in the beautiful Atlas Peak area. Antinori formed a partnership with Whitbread, Inc., the British brewer, and Christian Bizot of Bollinger Champagne, who were also keen to get a toe in the U.S. pond.
The partnership did not go quite as planned (a long story that Richard G. Peterson outlines in part in his new book The Winemaker) and in 1993 Antinori bought out the Whitbread and Bollinger shares and in 2006 renamed the operation Antica (Antinori + California) Napa Valley. The road from 1966 to today has been as full of twists and turns as the road to the winery itself and I think it is fair to say that the journey continues with growing confidence. The Townsend Vineyard Cabernet Sauvignon we tasted speaks volumes about this winery’s capacity, vision and direction.
Two for [Opus] One
No one remembers for sure, it is said, whether it was Mondavi who approached the Rothschilds or if it was the other way around, but whoever had the idea for a French-California partnership it proved to be a good one. The terms were simple: fifty-fifty. No one had a controlling interest, everything had to be mutually agreed.
The first Opus One wines were made in 1979 and 1980 and in 1981 a single pre-release case sold for $24,000 at the Napa Valley Wine Auction. It was the highest price ever paid for an American wine at the time and still quite a lot of money for a case of wine today. The first wines were released in 1984.
The landmark winery sits just off Highway 29 across the road from the Robert Mondavi winery where those very first wines were made. The dramatic architecture of the winery gets all the attention, but the vineyards are the important thing here. Opus One counts part of the historic To Kalon vineyard as a key asset and component in its wine.
Constellation Brands purchased Mondavi in 2005 and inherited half ownership of Opus One. The Rothschilds considered buying out the American half interest as was their right under the founding agreement, but opted instead to keep the winery with a foot in both wine worlds. Constellation and the Rothschilds reached an agreement to remain partners while assuring the winery’s independence and integrity.
I admit to being surprised when I learned about the Constellation side of Opus One. I could not imagine that the Mondavi family would structure things in a way that would allow this jewel to slip away.
But things don’t always turn out the way we plan and perhaps this quick survey of the European Invasion shows just how diverse the experience has been for those who came to America in the 70s and 80s to make wine here (and for American winemakers, too).
Last week’s column about the rise and fall of the Taylor Wine Company of New York raises a number of interesting issues and one of them is the singular importance of family-owned and privately-held businesses in the U.S. wine industry and the very mixed record of publicly-listed wine corporations. In retrospect, a case can be made that Taylor’s downfall began when they made the initial move from family ownership to public corporation.
The conventional wisdom holds that family-owned and privately held firms can be very successful, but their scale and scope are necessarily limited. Corporations, it is said, can have better access to capital and may be able to negotiate risk more successfully because of limited liability structure. You might expect the largest firms in any given industry to be corporations and this is true in some industries, but not in others.
Wine is one exception to the dominant corporation rule. Here (above) is a table of the ten largest wine businesses in the U.S. market (measured by estimated or reported volume not value of sales) for 2014 and 2003. The data are from Wine Business Monthly, which publishes an analysis of the 30 biggest U.S. wine firms each February. I’m looking at just the top ten to keep the analysis simple, although I should note that these ten firms collectively account for about three-quarters of all wine sold in the U.S. You can find a link to the whole list at the end of this column.
Looking at the 2014 data, you will note that only four of the top ten firms (those in italics) are public corporations or subsidiaries of public corporations. The other six are family-owned or, like The Wine Group, privately-held and together they produce more than half of all the wine sold in America. The bias towards private- and family-ownership is even stronger if we look at the next 20 wineries where only a few corporate names like Pernod Ricard make the list.
The picture becomes even more interesting if you look at the list for 2003, the first year that Wine Business Monthly released its Top 30 report. Many of the players remain the same, but the names of three public companies (shown in boldface) that were in the top ten a dozen years ago have disappeared by 2014: Beringer Blass Wine (now part of Treasury Wine Estates), Robert Mondavi Winery (now part of Constellation Brands), and Brown-Forman Wines, which sold its big Fetzer wine business to Concha Y Toro in 2011 so that it could focus on spirits. Concha Y Toro is #11 on the 2014 list.
Looking closely at the 2014 numbers it is hard not to be impressed by the growth of family firms Delicato and Jackson Family Estates and also the success of Ste Michelle Wine Estates, which seems to behave like a privately-held firm even though it is a subsidiary of a public one, albeit in a different line of business (Altria specializes in tobacco products, not drinks).
All in the Family
Family- and private-owned wine companies are if anything more important today than they were before the Great Recession. Why are family-owned wineries so vibrant despite their structural economic limitations?
The conventional answer to this question — and there is in fact a substantial academic literature dealing with family businesses and even family wine businesses — stresses the ways that family businesses take a multi-generational approach and are able to negotiate the trade-off between short run returns and long run value. Corporations, it is said, are sometimes driven too much by quarterly returns and end up sacrificing the long term to achieve immediate financial goals.
When business requires a long run vision, it is said, families gain an advantage. Wine is certainly a business where it is necessary to look into the future if only because vines are perennials not annuals like corn or soybeans and successful brands are perennials, too.
Another school of thought examines issues of trust and transactions costs within the firm and the ways that family ties can reduce internal barriers and make interactions more effective. It is commonplace to say that wine is a relationship business and family firms may have advantages in this regard. I have knows some family wine businesses that even go out of their way to work with family-owned distributors and so forth. I think one author saw family-to-family links (the Casella family and the Deutsch family) as keys to the success of Yellow Tail brand wine.
Maybe the Real Question Is …
There are good explanations for the success of family-owned wine businesses, but sometimes they feel a bit ad hoc, tailored to explain a particular case and less capable of generalization. And they often fail to fully account for the fact that many family businesses (and family-owned wine businesses) either fail or, like the Taylor family, end going over to the dark corporate side. Family relationships can be good, bad or ugly — you cannot think of the Mondavi family story without channeling an episode of Family Feud) and not every new generation wants to stay in the business. So there must be something more here than simple families think long-term. But maybe we are actually asking the wrong question.
Maybe the question isn’t why family-owned wine businesses are so strong and instead why corporate owned wine businesses are sometimes so ineffective. Is there something about wine that turns smart corporate brains to mush (not all of them, of course, but maybe some of them)? Come back next week for some thoughts on this provocative question.
The best way to make a small fortune in the wine business is to start with a big one.
What happens when you combine these two old sayings? Well, you would think that it would add up to the fact that if crime doesn’t pay, then wine crime really doesn’t pay. But that may not be true. How else can we explain the recent fine wine crime wave, which may well be just the tip of the iceberg.
Wine Crime Wave?
Most of the attention has been focused on Rudi Kurniawan’s recent conviction for wine fraud — the first federal criminal prosecution and conviction for wine counterfeiting. This dramatic crime and the revealing trial has really captured the public’s imagination in part, I think, because of the romance associated with rare wine and the “lifestyles of the rich and famous” environment of the crime, the criminal and the victims.
There’s also a bit of what you might call a “Lance Armstrong” effect. The crime went on for years along with accusations, defenses and denials. Then suddenly there was the trial, the conviction and the house of cards collapsed. Now we are left to wonder how widespread this sort of wine fraud might be and what wines are true and which are false. The conviction isn’t the end of the story, only the beginning of the next chapter in the mystery.
Thanksgiving Day Heist
The Thanksgiving Day wine heist in Seattle was a grittier affair but perhaps equally interesting to wine crime buffs. I’ve been trying to piece together what happened from published reports and private sources. The more I learn about it the more this crime reminds me of something from a television show — CSI or maybe Mission Impossible!
Here is what I think I know.
Two “common thieves” (plumbers by trade, according to the Seattle Police) broke into the wine storage facility operated by Esquin wine merchants in the SoDo neighborhood (SoDo stands for South of the Dome — the Kingdome sports stadium in this case, which was demolished by implosion in 2000). They ransacked 15 of the 450 private storage lockers in the climate-controlled facility and made off with more than 200 cases of wine valued at more than $600,000.
If you are doing the math, that’s an average of more than $3000 per case or more than $250 per bottle. I’m guessing that no Two Buck Chuck was taken!
The break-in was ingenious — the perpetrators apparently cut a hole through a wall and brought the wine out case by case. Police report that the crooks spent 13 hours selecting their wines and then driving the loot to another warehouse less than a mile away. Their SUV getaway vehicle had limited capacity, so they had to make 9 round trips. Although they blacked out all the security cameras that they could, apparently this was not completely successful and some images of the crooks and their SUV’s license plate were captured.
You would think that “common thieves” would not be terribly discriminating wine shoppers — after all I suspect that most of the bottles and cases at this storage facility were of some value. Why not just smash and grab? But that’s not what happened.
Making a List, Checking it Twice
The bad guys apparently worked from some sort of shopping list, taking specific wines and vintages and leaving the rest. I’m told that the only Washington State wines taken were Quilceda Creek and Corliss, for example. Leonetti and Andrew Will? Apparently not up the discerning crook’s standards! I understand that wine was not just stolen, but also moved around and mixed up during the extended shopping spree and a few of the victims are apparently having to sort out which wines are theirs and which belong to someone else as well as which bottles have gone missing.
A good old-fashioned paper trail of evidence helped solve the crime and now opens the door to other possible heists. The first criminal captured had apparently kept receipts from a home improvement store — great idea in case you need to return an item! — and police used the day/time information on the paper to access security camera footage showing the suspect and his accomplice buying the hardware used in the criminal act.
According to the Seattle Times a second paper trail opens the door to an earlier wine crime.
A shipping label found in Harris’ wine-storage locker led detectives to a San Francisco wine consultant, who told police he purchased $100,000 of wine from Harris and another man in April or May, charging papers say. Through an online search, Detective Don Jones determined there had been a large wine theft in the Bay Area in March, the papers say.
Covering Their Tracks
A KOMO news report added a another Mission Impossible-style detail about the carefully plotted plan to crack the wine storage facility.
New details from the charging documents filed Monday reveal police found a journal labeled “The Plan” in Harris’ SUV. The journal reportedly included a step-by-step guide to the crime, a list of needed equipment, steps to destroy any evidence, steps to ship the wine and how to leave the country.
In addition, police found a book titled “Thinking About Crime,” as well as printed out documents called “Is it Accidental Fire or Arson?” and “How to Commit the Perfect Crime,” inside Harris’ house, according to the charging documents.
Where does the arson come in? Well, the thieves planned to cover their tracks in the most comprehensive possible way. They cut gas lines and expected the building to blow up. Good fortune prevented any loss of life and good police work captured the criminals. Some of the victims are more upset about the idea of the flaming cover-up plan with its potentially tragic consequences than the actual robbery.
So case closed for now — the thieves in custody and a good chance that most of the wine (minus one empty Champagne bottle) has been recovered. But are these two common thieves the whole story? Or is there a criminal mastermind (not necessarily Rudi K) still at large making up a shopping lists for clients too smart to buy fakes but maybe not too smart to avoid stolen goods? Good question!
So welcome to the new era of wine crime where the questions a fine wine enthusiast needs to answer now range from red or white and Burgundy or Bordeaux all the way to real or fake, stolen or legit? Cheers!
I can’t resist adding the opening credits from the Mission Impossible television show.
My third column on the fine wine investment market for Wine-Searcher.com appeared recently — it’s an end-of-year analysis called “Reading the Fine-Wine Tea Leaves.” Tea leaves? Yes, because I look ahead to 2014 using the recent Hong Kong auction results as my “tea leaves” leading indicator.
Please click on the link to read the whole article — be sure to leave a comment if you agree or disagree strongly with my analysis.
One of the missions of The Wine Economist project is to promote objective analysis of the wine industry — to treat wine as a business, which it is, and not as a completely special “planet wine” where the laws of physics (and economics) don’t really apply. Although it is fair to say that I am still getting the hang of writing about the very specialized fine wine investment markets, that’s what I try to do with my Wine-Searcher columns, too.
One of the points I make this time is that we perhaps should not be too surprised that the blue chip fine wine market (read “Bordeaux”) is not booming right now. If fine wine is an “alternative investment” category like gold, for example, then it is natural that interest wanes when there’s a boom market for more conventional investments (the alternatives to the alternatives, if you get my drift).
Equity indices are up strongly in the U.S. and Japan this year. Gold — perhaps the ultimate alternative investment asset — is sharply lower. Should we be surprised that Bordeaux-heavy fine wine investment indices (which have declined much less than gold) are not on the rise?
That said, I am cautiously optimistic about fine wine investment in 2014. Read the Wine-Searcher column to find out why!
Special thanks to Wine-Searcher editor Rebecca Gibb for her help.
My column has an unexpected “hook:” a 2010 episode of the U.S. television show “Pawn Stars” that featured a bottle of 1921 Dom Perignon. You’ll have to read the article to get the whole story, but basically I use this example as a way to talk about how investing in wine is different, in terms of financial economics, from other types of investments. It’s an unlikely approach, but I think it works.
We so often hear about the benefits of wine investments or the problems with it in only a very general way. I’m interested in doing more serious comparative analysis, while keeping the mood light. If you’ve seen the show “Pawn Stars” you know that you can actually learn a lot of history through its often funny “reality TV” stories. My column also comments and reports on some recent trends in wine investment.
Hope you’ll check out my column. Here’s a photo from the Portland book event. Great to see all of independent booksellers (God bless them!), publishers, authors and volunteers (bless them, too) in Portland.
Maybe it’s just me. I’m kind of a modest guy but it seems like everywhere I look in the world of wine someone or something is getting undressed. I wonder where it will lead?
It started with Alice Feiring’s 2011 book Naked Wine: Letting Grapes Do What Comes Naturally, which is an account of her attempt to make wine in the most natural way, with the smallest possible amount of intervention. The description on Amazon.com explains that
Naked wine is wine stripped down to its basics—wine as it was meant to be: wholesome, exciting, provocative, living, sensual, and pure. Naked, or natural, wine is the opposite of most New World wines today; Alice Feiring calls them “overripe, over-manipulated, and overblown” and makes her case that good (and possibly great) wine can still be made, if only winemakers would listen more to nature and less to marketers, and stop using additives and chemicals. But letting wine make itself is harder than it seems.
Three years ago, Feiring answered a dare to try her hand at natural winemaking. In Naked Wine,she details her adventure—sometimes calm, sometimes wild, always revealing—and peers into the nooks and crannies of today’s exciting, new (but centuries-old) world of natural wine.
The book is a contribution to the “natural wine” movement, which is both particularly active and controversial these days, especially in France where some wine bars specialize in the natural product while some critics argue that it is just an excuse for making bad wine. I love a good controversy, so the whole natural wine debate appeals to me.
But why not call the book “Natural Wine?” I guess publishers must think that “natural” doesn’t sell books (perhaps book buyers think — with some justification — that all wines are natural). I noticed that when Jamie Goode and Sam Harrop published their excellent book on this topic then ended up calling it Authentic Wine not Natural Wine. Naked (or authentic) sells better than natural I guess.
Naked Naked Wine
More and more wines are made using organic and biodynamic practices, but they seldom advertise it prominently on the label. I think winemakers see the “natural wine” category as unnecessarily limiting and so choose not to position their products that way.
One that does is the range of Naked wines made by Snoqualmie Vineyards, one of the Ste Michelle Wines Estate wineries. There is a Naked Riesling as well as Naked Merlot, Cabernet Sauvignon, Chardonnay and Gewurztraminer.
“Although all of our wines are made with minimal intervention,” the website declares, ” grapes used in the Naked wine series are farmed as “au naturel” as possible. “Naked” is made with certified organically grown grapes in a certified organic facility. Very true to the varietal, these wines fit in perfectly with [winemaker Joy Anderson’s] philosophy that it is best to leave Mother Nature alone – let nature take her course and then try to capture the natural essence of the vineyard in the bottle.”
Naked Naked Naked Wine
A six-pack of naked wines arrived at our door last week and they weren’t from Snoqualmie or from Alice Feiring. They came from an online retailer called NakedWines.com Inc. NakedWines originated in Great Britain and is now online for the U.S. market.
The idea behind NakedWines is to go beyond just buying and re-selling wine (although the UK site does this, too, including some “flash” sales). NakedWines encourages its customers to become “angels” and invest $40 per month (£20 in the UK) in the particular small wineries that are associated with the company. Angels are repaid in the form of deeply discounted prices on the wines that their angel dust has made possible.
This is an interesting business model, sort of a cross between Wines.com and Kiva.org, the online micro-lending website. Here is an explanation from the UK website:
Good winemakers want to invest in quality and NOT waste funds on slick marketing campaigns. Your £20 a month makes it possible for them to do just that. They know their wine is sold before they’ve even grown the grapes, so they can invest all their time, money and energy in the vineyard crafting delicious wines, and pass the savings on to you.
NakedWines was founded by a former colleague of Virgin’s Richard Branson according to the Wikipedia page and is credited with being a pioneer in the use of social media marketing. I poked around the websites and failed to find an explanation for the “naked” part of the name. Perhaps it has something to do with stripping away the middleman’s profit or maybe it is just marketing meant to attract attention by introducing a risqué element. If so, they are not the only ones to think of this.
OMG: Naked Naked Naked Naked Wine
We visited the beautiful Columbia Gorge AVA during the recent Wine Bloggers’ Conference in Portland and I found myself sitting at a table with representatives of the Naked Winery & Orgasmic Wine Company of Hood River, Oregon. Their wines include Naked Merlot, Foreplay Chardonnay, Missionary Cabernet Sauvignon and Climax Red Table Wine. There is also a Virgin Chardonnay which presumably is not to be confused with their Penetration Cabernet. (I’ll stop listing the wine names here to avoid getting a PG rating.) Customers are invited to “Get Naked” by sampling wines at the tasting room.
At Naked Winery, we aim to tease! A family owned winery based out of Hood River Oregon, we are on a mission to produce premium class Washington and Oregon wines, with exotic brands and provocative back labels that are just a bit risqué. We aim to please the palate, change the conversation and enhance the romantic experience of wine.
We believe that the entire experience around wine should be fun. Read our back labels or have your mother-in-law read the back label aloud at your next family function. As we say, drink what you like and who wouldn’t like to get a little Naughty now and then? You can taste all three of our brands, Naked Wine, Orgasmic wine and coming soon, Outdoor Wino at our Hood River tasting room. Enjoy live music four nights a week and good company all year round. Come get Naked!
Clearly this wine is “naked” in a different sense than the others. Naked is a way to get people to let down their hair and be more relaxed about wine. To have a little fun. I understand that that the tasting room is a popular destination.
Whether it is serious or only a bit of a tease, this naked thing seems to be a very popular. I wonder what is next? Naked Naked Naked Naked Naked!
Speaking of a tease, here’s the final video from The Naked Wine Show series. It is (apparently) the only show in the series where the reviewer was clothed.
Alfred Marshall defined economics as the study of people as they go about the ordinary business of life. People who love wine believe that it is special and they are right to a certain extent, but it is also ordinary at least in terms of some of the business functions. Herewith the first of two posts about how ordinary and extraordinary intersect in the wine business.
Information technology (the bits and bytes of the title) has insinuated itself into almost every aspect of our daily lives — why should wine (the sniff and swirl) be any different? And indeed it is not, although most of us probably romantically wish it were otherwise.
The most obvious place where IT comes into play is in the marketing of wine. Most winemakers today try to use social media vectors such as FaceBook and Twitter to establish and nurture relationships with customers. I’ve read that the hard sell approach isn’t generally effective (readers: use the comments section below to share your experiences with this), so the focus is on soft sell.
But is it worth it? That’s the business question. Yes, it is probably a mistake to ignore social media entirely (just as you would be crazy not to have a winery website or a website for your barber shop if that’s your business), but what’s the smart level of investment? After all, social media doesn’t create and manage itself. Someone’s got to represent the winery as host, posting content and responding to friends and followers. How much investment makes sense?
One big time winemaker friend put it this way. Which is better for the winery — a full time employee to manage social media or three full page advertisements in Wine Spectator? Wow, that’s a tough one, especially since the audiences and the nature of the impact are so different. But, from a business standpoint, that’s the sort of trade-off that must be evaluated.
It’s the same thing for QR codes. Wineries can use QR codes to enrich their story-telling to smart phone-enabled customers, which is surely an advantage, but not without some investment. The old marginal cost versus marginal revenue questions will always be there, even in the wine game.
Cloud Data Systems
Trend Micro sent me information about their SafeSync for Business cloud data system. It provides a safe, secure data storage system. What got my attention is that they featured a winery case study: Good Harbor Vineyards on Michigan’s Leelanau Pennisula.
“As a wine maker, we are highly monitored and regularly audited by numerous government agencies. We have to keep track of everything—every bottle and every ounce has to be accounted for—from purchase through production, bottling, sale, and shipment. We were worried that someone could gain access to these records. Losing our files would be crippling in any type of audit — and these take place frequently.
This made me realize that wineries have all the business IT needs that other types of firms do, and a few more as well. I think it is interesting that a big firm like Trend Micro would make a point to feature winery applications. I wonder if small and medium sized wineries (like similar businesses generally) have lagged behind the IT cutting edge and are therefore a ripe market for upgrades. Or maybe wine is just the sort of example that makes everyone realize how important data can be.
Extraordinary Business Needs
While some parts of the wine business are not so different from any other business (with a couple of special wrinkles in the cloth just to keep things interesting), some business needs really are fairly specific to wine. Every business needs to be able to track shipments and inventory, for example, but wine’s needs often go beyond the norm.
A London to Hong Kong shipment record.
The wine business is large enough to spawn IT applicantions to meet its particular specialized needs. For example, a company called eProvenance has been formed to provide reliable detailed information about wine shipping conditions. Wine buyers, especially those at the high end of the market, now seek assurance of the quality and authenticity of their investments and their concerns extend all the way through the supply chain.
A Bordeaux to Beijing shipment record.
Your bottle of Chateau Margaux (lucky you!) won’t be the same if it has been “cooked” in an improperly handled shipping container, for example. But how can you be sure it hasn’t been? Enter the NFC temperature sensor!
Boston, Massachusetts – December 6, 2011 – eProvenance, a Franco‐American company applying advanced technology to monitor the temperature of fine wines as they travel from wine producer to customer, has developed temperature sensors that are compatible with the Near Field Communication (NFC) protocol and can be read through wooden cases of wine. Using the NFC protocol, which makes it easy to communicate data via smartphones (like the Google Nexus S), the new eProvenance sensors can transfer the temperature history for the case of wine through a reader or smartphone to the secure eProvenance online database. Using their NFC mobile phones, consumers will be able to access the eProvenance temperature history, and thus verify the provenance of the wines they purchase.
As you can see from the two temperature tracks above, not all wine shipments are treated with the care they deserve (and their buyers probably expect), so the tracking data can be very important. And now data can be collected in the warehouse as well as the shipping container for longer time periods, another way to ascertain quality.
With a 15‐year battery life, the new 2G (second generation) eProvenance sensors can be embedded in the wooden wine case to provide continuous, long‐term temperature monitoring, which creates a record of provenance over time that adds to the value of the wine. eProvenance customers can choose either to convert the temperature data into a provenance rating or simply share the data, allowing the importer or customer to make their own judgment about the temperature conditions.
The Opus One Story
Opus One is taking the logical next step in the use of IT, according to the press release from eProvenance — combining story-telling and temperature tracking at the single-bottle level.
Presenting at WineFuture Hong Kong 2011, David Pearson of Opus One said, “Starting with our 2008 vintage, we have an NFC tag on each bottle under the back label, which connects consumers to a video of our winemaker. Now we envision adding an eProvenance sensor inside each case to monitor the temperature for 15 years, allowing consumers with an NFC phone to read the entire temperature history with one click. The potential to connect with our consumers and to safeguard their wine is tremendous.”
I’m not sure if Alfred Marshall liked wine, but I’m pretty sure he would like the wine business today for its combination of ordinary and exceptional business practices.
Thanks to eProvenance for giving me permission to use the temperature charts above. Thanks to Ken B. for the suggestion that provoked the “ordinary business” blog posts.
I’m just back from the San Francisco Treasury Symposium where I gave the luncheon keynote speech on “Wine Boom and Bust — With Lessons for Finance in the 21st Century.” You might well ask what business a wine economist has speaking to a group of treasury executives (I asked that question myself!), and the answer has two parts.
First, I actually know a little bit about global finance from my day job as a university professor. I’ve written frequently about global financial flows and especially the periodic crises that seem to plague them.
The other reason is that the conference organizers thought it would be interesting and different to hear someone talk wine, but in a way that would still be relevant to their treasury executive audience. So that was my challenge.
Money into Wine? Easy! Wine into Money … Not So Much
Money and wine are closely tied, although it is an asymmetrical relationship. It is pretty easy to convert money into wine, for example. In fact, it may be a little too easy to do this. Some of my friends report that the whole “money into wine” thing has gotten way out of hand for them. You probably know the problem from personal experience if your cellar has grown bigger than your bank account.
It is harder to convert wine into money, especially if you are in the wine business. The best way to make a small fortune in wine, people tell me, is to start with a large one. I focused on three aspects of wine economics for my talk: globalization’s opportunities and threats, the “new rules of the game” and the need to embrace (or at least accept) volatility. All these points apply to both wine and 21st Century finance.
Globalization: Opportunity and Threat
Globalization offers a world of opportunity to winemakers and financial managers alike, but it is a complex world and a very competitive one. New markets open their doors … but your market doors are open wide, too. Optimists will see the wine glass more than half full and seize the opportunities that present themselves, hopefully taking the associated costs and risks into account.
One problem with globalization is that the risks are so difficult to fully evaluate. The Australian wine industry, for example, is currently suffering from a bad case of globalization gone bad and part of the problem has nothing directly to do with wine.
Although the Crash of 2008 slowed down the global economy, China continues to surge ahead, its demand for natural resources (one of Australia’s strong sectors) growing year after year. Australian has come down with a bad case of the “Dutch Disease” where success in one sector causes chaos elsewhere. As mineral sales have increased, the strong Australian dollar has depressed the already weakened wine industry by discouraging exports. Click on the “Dutch Disease” link to see my report on this problem.
The [New] Rules of the Game
Global finance is dominated by a number of key financial centers that set the “rules of the game” for money. Wine works the same way, but the centers have shifted and the rules of the game have changed.
Producing nations (think France and Italy) once determined the rules of the game with their AOC designations. The center shifted to Great Britain, Germanyand the United States in the last 20 years and now the rules are written by those who sell wine (think Tesco, Costco and Aldi) more than by those who produce it. The most successful wine sectors so far are those that have best adjusted to the new rules.
The rules will change again soon, I suspect, as the BRIC and new BRIC nations make their wine market influence felt. I think finance will also experience shifting centers with new rules and have to adjust accordingly.
Volatility was my final point and wine markets have plenty of it. Boom and bust cycles seem to be “baked in the cake” in both money and wine. I talked about Australia’s five big wine booms and busts in the past 150 years and characterized them in terms of Hyman Minsky’s famous “seven stages” description of financial crises.
Beyond Boom and Bust
Booms and busts are bad enough, but wine markets also suffer from medium-term cycles of surplus and scarcity as illustrated by the Turrentine Brokerage “Wine Business Wheel of Fortune.” High prices today sow the seeds of low prices a few years down the road, according this analysis, which is based on the well-known “cob-web” model of lagged adjustment in agricultural markets.
Anyone who has tried to guide their 401k portfolio (much less manage corporate financial affairs) knows how volatile financial markets can be – the wine world’s bubbles and cycles must seem pretty peaceful by comparison.
Wine and money may be very different, but the problems they face bear a certain resemblance, don’t you think? What can wine teach money in these uncertain times?
One lesson, I proposed, is to “think global but drink local.” This sounds pretty simplistic, but it captures trends that I see in wine today. Economic imperatives have made both global and local markets more important than in the past. Developing direct sales vectors and developing and maintaining personal relationships is high priority today. Wine (like money) is a relationship business that needs constant attention.
But it’s useful (and often necessary) to keep a global mindset even as you cultivate local markets. The world is getting bigger and smaller at the same time and the rules of the game continue to change.
The second lesson is what I call “Boulding’s Law” after Kenneth Boulding, the famous economist. Boulding once made a study of the history of the future. He looked at what people thought about the future at various points in time and then did a “fast forward” though the history books to see if they were right.
His conclusion? When the future came around people were usually surprised. It wasn’t what they expected at all (even if it was exactly what they predicted years before!).
Hence Boulding’s Law: The best way to prepare for the future … is to prepare to be surprised. That holds for wine, I think, and for money, too.
Thanks to the San Francisco Treasury Management Association for inviting me to speak at their symposium. Special thanks to Jim Lindsay and Larry Goldman.