The Bottleneck Bottleneck

Bottlenecks are always problematic.  It seems like they are always too narrow or not narrow enough.

We ran into an unusual bottleneck last week when were went to Wenatchee to help our friends Mike and Karen Wade bottle the 2008 vintage at the Fielding Hills Winery.  FHW is award winning 800-case operation and the bottling is done by a volunteer crew of friends, family and wine club members. I wrote about it in one of my first blog posts, comparing the wine bottle assembly line to Adam Smith’s famous pin factory.

Bottleneck Bottleneck

The division of labor does improve efficiency,  just as Smith said, but anyone who’s worked an assembly line knows about bottlenecks – the whole process only moves as fast as the slowest work station.  If the corker is slow, for example, nothing else will go very fast. (The corker was no slacker on our shift – John Sosnowy of the Wine Peeps blog.)

Our crew worked very well, but there was still a bottleneck, albeit an invisible one. The capsules that fit over the bottle’s neck hadn’t arrive (a bottleneck bottleneck!) – they were held up somewhere in customs in a container that must contain hundreds  of thousands of capsules for many wineries. We bottled the wine, but when the capsules finally arrive it will be necessary to open each of the 800 cases, pull out every bottle, affix the capsule, return and reseal. That’s about 10,000 bottles. What a headache! I hate bottlenecks.

The biggest bottleneck in the American wine business, of course, is distribution. With 51 different sets of state rules and regulations and the three-tier winery/distributor/retailer/consumer system, it sometimes seems like making wine is the easy part – getting it to customers is the bigger problem. Widening the distribution bottleneck seems to me to be a key to expanding the wine market and building a more robust American wine culture.

Tightening the Distribution Bottleneck

The Obama administration seems to want to build up the U.S. wine industry – that’s why he sent Commerce Secretary Gary Locke to Hong Kong to sign an agreement to ease the wine export process and open that bottleneck a bit.

But Congress is moving in the opposite direction. Wine Spectator reports that more than 100 members of Congress have announced support for H.R. 5034, a bill that would further restrict direct wine sales in American. It would make it (even) harder to ship wine across state lines. Wine Spectator reports that wine distributors (who benefit from their key position in the three tier bottleneck) actively support the bill.

The supporters of H.R. 5034 argue that direct shipping undercuts the power of states to regulate alcohol distribution and sales, and I understand this logic. But the winery owners I know actually go to extremes to satisfy state regulations because the penalties for making a mistake are often extremely onerous. (I know one winery that has stopped all interstate sales for now because of compliance concerns.)

Focus on Direct Sales

The slack economy has put direct sales in the spotlight. With wine sales down in many categories and price points still eroding, wineries are trying to boost the yield per bottle and increasing direct sales and reducing the flow that goes through distributors is one way to do that. Isenhower Cellars in  Walla Walla  has actually reorganized itself (and opened an off-site tasting room) so that it can rely entirely on direct sales. Their website announced that

Isenhower Cellars is no longer selling wine to restaurants, wine shops, or grocery outlets in Washington State. Our wines are now exclusively available from the winery in Walla Walla, Washington, our tasting room in Woodinville, Washington, or here on our web site. We treasure the past relationships with our Washington State distributors and friends in the wine trade. However a complete focus on quality limits production to 2,000 cases of wine and the success of our wine club and second tasting room leaves no extra Isenhower wines available for sale outside of our winery’s embrace.

Even E&J Gallo, which has done quite well thank you during the recession, is trying to increase direct sales. I’m on a couple of email lists for Gallo wine brands that I follow and they frequently offer nice discounts or low cost shipping to try to encourage orders from their online wine shop, The Barrel Room.

It seems inconsistent to send Gary Locke to China to expand wine exports and then discourage the equivalent interstate trade. As an economist, I am naturally biased toward more choice and freer trade. I hope the attempt to tighten the wine shipping bottleneck gets caught in some legislative bottleneck somewhere down the line and never reaches President Obama’s desk.

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Thanks to Karen, Mike and Robin Wade for their hospitality and great wine. Thanks to the members of the 2008 FHW Cabernet Franc bottling crew both a fun and productive afternoon.

Wagnerians vs. Martians

I’ve spent the last couple of days reading Thomas Pinney’s masterful A History of Wine in America (Vol. 2: From Prohibition to the Present, University of California Press, 2005).  If you want to understand how wine in America got the way it is, this is the best general reference I have found.

Pinney devotes the last section of the book to what he sees is a fundamental battle for the idea of wine in American. It is a conflict between Wagnerians and Martians, he says.

Song of the Wine Maidens

The Wagnerians are inspired by the ideas of Philip Wagner, a Maryland journalist, viticulturist and winemaker who was especially active in the years that bracket the Second World War. Wagner believed that wine should be an affordable part of ordinary life and a constant companion at mealtime.  Pinney writes that

Wagnerians are always delighted to have a bottle of superlative wine, but their happiness does not depend on it, nor are they so foolish as to think that only the superlative is fit to drink. Their happiness does depend upon wine each day … good sound wine will not only suffice. It is a necessary part of the daily regimen.

Wagnerians sing an appealing but fundamentally radical song in the American context, where wine is just one of many beverages  and not always the cheapest or most convenient to purchase.  Regulations that treat wine as a controlled substance are very anti-Wagnerian.

Wagner founded Boordy Vineyads and was well-regarded by wine people from coast to coast.  He is an important figure in the history of American wine, according to Pinney, and one whose idea of wine lives on in many forms. I guess you could say that Two Buck Chuck is a Wagnerian wine, for example, although I think there’s a lot more to Wagner’s idea of wine than just low price.

Wagner promulgated his populist vision by promoting the so-called French Hybrid grape varieties on the East Coast and elsewhere. I think he wanted America to be Vineland (the name given it by the Viking explorers), a country covered with grapevines and abundant with honest, respectable wine. This is easier said than done, however, as Pinney’s history makes clear.

My Favorite Martian

Martians are inspired by Martin Ray’s idea of wine. Whereas Wagner was disappointed that America lacked a mainstream wine culture, Martin Ray was upset that the standard was so low in the years following the repeal of prohibition.  He persuaded Paul Masson to sell him his once great winery in 1935 and proceeded to try to restore its quality with a personal drive that Pinney terms  fanatical.

He did it, too, making wines of true distinction — wines that earned the highest prices in California at the time.  His achievement was short lived, however. A winery fire slowed Ray’s momentum and he finally sold out to Seagrams, which used a loophole in wartime price control regulations to make a fortune from the Paul Masson brand and its premium price points, starting a trend of destructive corporate exploitation that forms a central theme in Pinney’s book.

The Martian view, according to Pinney, is that “…anything less that superlative was unworthy, that no price could be too high, and that the enjoyment of wine required rigorous preparation.”

Ray’s history is therefore especially tragic since his attempt to take California wine to the heights through Paul Masson ended so badly. Paul Masson today is an undistinguished mass market wine brand — as un-Martian as you can get.

When wine enthusiasts of my generation think of Paul Masson (now part of the Constellation Brands portfolio), it is often because of Orson Welles’ classic television ads, like this one from 1980 promoting California “Chablis.” Roll over, Martin Ray!

Two Ideas of Wine

Martians and Wagnerians have two very different ideas of wine and it is a shame that one needs to choose between them. It seems to me that wine could and should be both a daily pleasure and an opportunity for exceptional expression. The good isn’t always the enemy of the great. But many people see it that way, including Pinney, who reveals himself to be a Wagnerian and expresses concern that the Martians have won the bottle for wine in America.

The people who write about wine in the popular press largely appear to be Martians, who take for granted that anything under $20 a bottle is a “bargain” wine and who routinely review for their middle-class readership wines costing $30, $40, $50 and up. Even in affluent America such wines can hardly be part of a daily supper. They enforce the idea that wine must be something special — a matter of display, or of costly indulgence. That idea is strongly reinforced by the price of wine in restaurants, where a not particularly distinguished bottle routinely costs two or three times the price of the most expensive entrée on the menu.

“No wonder, Pinney concludes,” that the ordinary American, unable to understand how a natural fruit product (as wine undoubtedly is) can be sold for $50 or more a bottle, sensibly decides to have nothing to do with the mystery.”

Monolithic Thinking?

I guess I am a Wagnerian, too, if I have to choose, but I’m not as pessimistic as Pinney. I’m about to throw myself into full-time book-writing mode: I need to finish my current project this summer so that it can be in bookstores in early 2011. The more I work on this project the happier I am with its upbeat title.

Grape Expectations started out as a simple pun on the famous Dickens novel, but it has evolved into something more. I have developed genuinely optimistic (if not “great”) expectations for the future of wine and I see the three forces I study in the book — globalization, Two Buck Chuck and the “revenge of the Terroirists” — as possibly bridging the Martian-Wagnerian divide.

Can wine be both common and great? Why not? Wine isn’t one thing, it is many things to many people. No purpose is served in my view, by monolithic thinking. That’s my hope … and my Grape Expectations!

Stag’s {Stags’} (Stags) Leap

The Stags Leap District Winegrowers Association has invited us to their  V2V (Vineyard to Vintner) program later this month and we are looking forward to the event.

I have a particular interest in the Stags Leap District. My study of wine economics can be directly traced to a conversation with one of this area’s leading winemakers in his cellar many years ago. I’m looking forward to this focused opportunity to learn more about the Stags Leap District today and see what has changed since my last visit.

Money, Wine and Lawyers

The first stage of my research to prepare for the Stags Leap trip took an unexpected turn that reminded me of Warren Zevon’s song “Lawyers, Guns and Money.” Most stories of famous wine regions are about places, faces and wine. They start with places (the terroir), then move to faces (of the famous winemakers who helped establish the region’s reputation) and end with the wines themselves.

Stags Leap AVA certainly has the terroir. The district, about six miles north of Napa on the Silverado Road, is marked by a 1200 foot vertical basalt palisade that is both landmark and a source of the particular soil and microclimate that helps define the district. The growing season is longer in Stags Leap than in other parts of Napa Valley, with bud break coming two weeks earlier. The grapes ripen more slowly during their longer time on the vine, which seems to have a positive effect.

Stags Leap has it famous wine faces, too. The most notable is Warren Winiasrski of Stag’s Leap Wine Cellars. A former lecturer in Greek at the University of Chicago School of Social Thought, he was one of the early movers in Stags Leap. His second vintage, a 1973 Cabernet Sauvignon, was declared the red wine winner at the famous 1976 “Judgment of Paris” wine tasting that Steven Spurrier organized to test California wines against the French originals.  (You know about this event if you’ve read George B. Taber’s excellent book on the subject or seen the fictionalized film version, Bottle Shock.)

(Incredibly, the winning wine was made with grapes from three year old vines — infants! Unfortunately, according to my sources here, the vineyard was not in the Stags Leap District but rather farther north in Napa Valley. It established the winery’s and the region’s reputations at once.)

There is even a hallmark Stags Leap style — “perfumey fruit” according to Bruce Cass, although not every wine is made in a way that highlights this.

Lawyers, Wine and Grammar

So where do the lawyers come in? Well, the first thing I did when I started this project was to grab my copy of James Halliday’s classic Wine Atlas of California. Halliday devotes seven pages to Stags Leap places and faces and its distinctive Cabernet Sauvignon wines. But he begins his report with the most controversial part of the AVA’s history: its name and the legal battle over the the valuable intellectual property rights (IPRs) associated with it.

The area takes its name from the legend of a prodigious jump that a stag (or maybe several stags) took on the palisade while fleeing hunters. Warren Winiarski naturally included this colorful reference in the name of his winery, Stag’s Leap Wine Cellars, when he founded the operation in 1972.

But so did Carl Dounami, who started founded Stags’ Leap Winery just up the road, also in 1972.  Two wineries, two strong personalities — they battled for years over the right to the Stag’s / Stags’ Leap name. More than an apostrophe separated them, of course, although any grammarian can tell you that where the apostrophe is placed makes all the difference.

The right to label your wine with some variation of Stag’s/Stags’ Leap had obvious economic advantages and both winemakers wanted clear title to the designation. The IPR battle reemerged and intensified when the AVA was formed and its geographic lines drawn.

Clashing economic interests made the process of choosing a name and drawing AVA lines particularly contentious, according to Halliday. The compromise name — Stags Leap (no apostrophe anywhere, purely plural, nowhere possessive) settled the legal squabble, leaving the real task clear: making great wine.

Challenges Old & New

The old wine economics story of Stags Leap was about intellectual property. The new one — the one I want to explore when I visit later this month — is how the winegrowers are dealing with the current economic challenge and will respond to the future ones.

The current challenge, of course, is the continuing economic crisis, which has hit some upscale producers especially hard.

The future challenges? The future is hard to predict, but I’d suggest globalization (with its many threats and opportunities) and climate change, which would seem to be an especially scary prospect for a micro-region like Stags Leap.  But maybe I’m missing an even bigger story? I guess I’ll have to go there and find out!

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Here’s Warren Zevon performing “Lawyers, Guns and Money.”  Feel free to sing along, adding wine and grammar references as necessary. Enjoy!

Book Review: From Demon to Darling

Richard Mendelson, From Demon to Darling: A Legal History of Wine in America. University of California Press, 2009.

There are many ways to tell the story of wine in America. Wine is a people story (Gallo and Mondavi, Parker and Vaynerchuck), a story of nature and terroir and even, at times, a tale of popular culture as indicated by Sideways, Bottle Shock and the rise of celebrity winemakers. Readers of this blog will know that I think wine is very much an economics story, too.

Richard Mendelson believes that wine is also a legal story and I think he makes a good case. Especially in America, I don’t think you can understand wine without an appreciation of its legal history. This is therefore a very timely and useful volume.

Wine, Bad Wine, and More of It

Changing social attitudes toward alcohol in general and wine in particular obvious affects the legal environment in which wine is made, sold and consumed. The law story is therefore also a social and political story with many unexpected twists and turns. I found many useful nuggets of history as I followed Mendelson’s historical narrative.

The discussion of wine during Prohibition is particularly memorable. Did you know that wine consumption in the United States increased during Prohibition? Commercial wine sales were restricted, of course, limited to a few categories such as medical wine and wine for use in religious ceremonies.  But households were allowed to make up to 200 gallons of “bathtub” wine each year for their own use, a significant loophole.

Vast quantities of poor quality homemade wine more than replaced the  better quality but now illegal commercial products. Winegrowers shifted from quality grapes to varieties that could best survive the long train ride to market. Supply and demand both deteriorated in terms of quality, but quantity actually improved.

Please, Sir. May I have More?

I guess I knew the basics of federal wine regulation and the AVA geographic designation system before I read this book, but I found the legal history very revealing. Now I understand why the early AVAs were so crude in terms of defining terroir — they were based, more or less, on the borders of local telephone services and aligned very poorly with winegrowing realities. No wonder there has been continuing pressure to expand, refine and redefine AVAs ever since.

I wish that Mendelson had gone into greater detail regarding today‘s legal wine sale environment, the resulting patterns of wine regimes in the various states and the three-tier system that services them. His basic outline of the current situation is fine, but I’d appreciate more details and state-by-state breakdowns. But maybe that’s beyond the scope of this book.

One test of a good wine is that you want more of it. Who knew that a book on wine law would leave me begging for more? Highly recommended!

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NB: More and more books are being published without full reference “backmatter” to save printing costs, a practice that makes them less useful as research tools even if it does make them more accessible to cash-strapped readers. Joe Stiglitz’s new book on the economic crisis, Freefall: America, Free Markets and the Sinking of the World Economy, for example, has endnotes aplenty, but no bibliography and no index.

No index! Sure hope you caught all the important points the first time through because it will be hard to track them down again.

In this light, I want to commend the University of California Press for keeping up scholarly standards. This book has 190 pages of text followed by 68 pages of notes, ten pages of bibliography and a usefully detailed index.