Decanter’s Wine Power List

Decanter, the self-proclaimed “World’s Best Wine Magazine,” takes its rankings very seriously. Wine rankings, of course,  and, in the July 2009 issue, Power rankings. Who are the most powerful people in the world of wine and what does the power list tell us? Let’s see if we can find the message in this bottle.

The Power List

The names on the power list are very interesting but the story that they tell about wine today is perhaps more important. Here are the first ten (top ten) people on the list.

  1. Richard Sands, USA, Chairman, Constellation Brands
  2. Robert Parker, USA, wine critic
  3. Mariann Fischer Boel, Denmark, EU Commissioner for Agriculture
  4. Mel Dick, USA, Southern Wine & Spirits (wine distributor)
  5. Annette Alvarez-Peters, USA, Costco wine director
  6. Dan Jago, UK, Tesco wine director
  7. Jean-Christophe Deslarzes, Canada, President of Alcan Packaging
  8. Jancis Robinson, UK, wine critic, author and journalist
  9. Nicolas Sarkozy, France, President of France
  10. Pierre Pringuet, France, Pernod Ricard

Since Decanter is a British magazine with very small US distribution you might be surprised that three of the top ten positions (and both of the top spots) are held my Americans, but don’t be. Constellation Brands is the largest wine company in the world and accounts for one out of eight bottles of wine sold in the UK. And Robert Parker is best known for his ratings of French wine, not Napa bottlings, which is important to British buyers and merchants. The presence of Sands and Parker at the top of the list does not reflect any sort of US-centrism, just the realities of the global marketplace. It really is a global list. Or at least, like those famous New Yorker cover illustrations, the globe as seen from London.

I won’t list the second ten names (out of 50 in total), but the I think they illustrate the global reach of the wine market today: America, China, Chile, Australia, Spain and so on. Even India, an emerging wine market, makes the top 50 ranking.

The list is complete and up-to-date (Gary Vaynerchuck, the US internet wine guru, shows up at number #40), but there are some interesting gaps. Fred Franzia, the godfather of Two Buck Chuck, is nowhere to be found, for example, despite his obvious influence on the US market, while Judy Leissner of Grace Vineyard in China, who perhaps represents the future of Chinese fine wine, makes the “Ones to Watch” list.

No wine economists make the list, alas. Greg Jones, the respected Southern Oregon University wine climatologist, is the only professor (#33). Maybe next year …

The Story

It is fun to see who makes the list and who doesn’t (why Jancis and not Oz?), but the ranking is more interesting if you strip out the personalities and consider what market forces they represent. Herewith my version of this  story.

The world of wine is very unsettled. Although wine is one of the most fragmented global industries (much less concentrated than beer or spirits, for example), size matters more and more as consolidation continues. [Hence the power of Constellation Brands, Pernod Ricard and Southern Wine & Spirits.] Reputation matters, of course [Parker and Robinson], but the world is changing and everything is up for grabs from how and where wine is sold [Costco and Tesco] to how the bottle is sealed [Alcan].

Although change is generally associated with New World wine, this is no longer the case. The biggest threats to “business as usual” for Old World wine come from inside the European Union itself. On one hand, the new EU wine regime [Mariann Fischer Boel] will pressure Old World wine to compete with the New World head-on and without continuing EU support. On the other hand we have an unexpected prohibitionist movement [symbolized by Sarkozy] that seeks to regulate wine like the Americans do (even as some parts of America are changing) — as a dangerous controlled substance. It is thus imperative for Old World wine to master the tricks of the New World industry — tricks that Constellation and Southern and Costco symbolize.

These changes take place, of course  within the context of the expanding global market, global climate change and a continuing global economic crisis (that’s where a wine economist would have been a useful inclusion).

I won’t pretend that the Decanter Power List is a scientific ranking (Decanter doesn’t claim this in any case), but it is an interesting peek into how wine insiders view their industry. I’ll be curious to see how the names and the story lines change when the next Power List appears.

Crisis and Change in the Wine World

When the economic crisis began to unfold last year many people said that it wouldn’t affect the world of wine — people will still want to drink, they said, even more so when they are worried or depressed.  Recession is good for wine, they assured us.

Well, we all know now that that line of reasoning was misguided.  The crisis is hitting almost every shelf on the Wine Wall as consumers cut back and trade down (only a few value brands like Barefoot Cellars seem to be benefiting).  The most recent issues of Wine Spectator and Decanter feature cover stories that are designed to appeal to recession-shocked bargain-hunting wine enthusiasts. (See note below.) Wine industry publications are packed full of stories about how producers, retailers and restaurants are coping with declining demand.

Cycle or Shift?

Now that we know that economic crisis is having a real impact on wine, it is time to think more seriously about what form that impact is taking. Most people that I have talked to are thinking in terms of boom-bust cycles. The current downturn will be very difficult — and a shake out will take place across the industry — but, they say, the wine economy will bounce back again once the economy itself starts to recover.  This is probably the correct way to think about the future of wine markets, but it isn’t the only way.

A second possibility is that the crisis will produce a long term structural change in the wine market.  The market won’t bounce back from its low, but rather will reset itself and proceed along a new and possibly unpredictable future path. Economists who study other sectors (finance, automobiles, agriculture) and taking the possibility of structural shifts seriously.  Could it be happening in the world of wine?

I have given a lot of thought to question of cycles and shifts over the years.  My best known work in this regard is a comparative economic history of public debt in advanced economies called Mountains of Debt: Crisis and Change in Renaissance Florence, Victorian Britain and Postwar America (Oxford University Press, 1990).  (Mountains went out of print in the Clinton years when the US deficit went away, but George W. Bush and the current crisis convinced the publisher to bring it back).

One point of the book is that some crises are more significant than others.  Sometimes a crisis is a tremor that shakes things up for a while but leaves the landscape pretty much unchanged.  Other crises are major earthquakes, with more lasting long term implications.  Maybe this is a “Big One,” at least in terms of wine. I’m going to use the next few blog posts to think through this important question.

The Market Center Shifts

One early indicator of structural change comes from London, the center of the wine world.  Great Britain, as I’ve said before, is the most important wine market in the world. The British don’t drink the most wine in the world or produce the most, either, but they buy a lot of wine from other countries, making them the largest import market and therefore the focus of international competition (Germany and the United States along with Britain form the Big Three import markets).

But this may be changing.  Britain’s economy is being badly battered by the economic crisis, as an article in yesterday’s Financial Times makes clear.

As the UK economy contracts at its fastest rate since the second world war, the … Industry Watch report predicts that more company casualties will follow in 2010. It says 39,000 businesses, or one in 50, are likely to fail next year.

Britain’s banking sector is in bad shape, perhaps even worse than the US industry, and its government budget deficit is also spiraling into the red.  This has general wine market effects similar to those in the US (cutting back, trading down, switching over), but some different ones, as well, the most important of which is due to the exchange rate.

As Britain’s economy has imploded the pound has collapsed as well. The pound has fallen by about 25% against both the dollar and the Euro. It took about $2 (or €1.30) to buy a pound a year ago, now it is selling for $1.45 (or €1.06) today.  This means that imported wine (which in Britain is, well, wine) costs much more because of the exchange rate at the same time that the slumping economy (and lowered expectations) are undermining demand. The US dollar, on the other hand, has appreciated relative to most currencies apart from the yen, promising wine buyers lower prices to match their reduced economic circumstances.  So the recession is affecting wine in Britain more than the US wine market.  A shift is taking place — is it temporary or will it be permanent?

Although it is too soon to know for sure, I think it is possible that these factors could cause London to lose its preeminent position in the world wine market.  I see indicators in the decline of the Australian industry (complicated by other factors, I know — but the collapse of the British market is part of it) and the recent global focus on Argentina and its excellent wine values (both Wine Spectator and Decanter make this point).

Although Argentinean producers are looking to export wherever they can get a foot in the door, my strong sense is that they see their future in the U.S. market more than Great Britain.  Perhaps they are at the head of the pack as the world wine market resets and proceeds on a different path.

[Note: Wine Spectator includes 18 tips on stretching your wine dollar. My favorite is tip #7: buy by the case and get a discount (page 55 of the April 30, 2009 issue).  Sound advice, although the particular example cited may miss the point: “A 10 percent discount on a $300 case translates into a saving of $2.50 per bottle. That adds up fast.”  The problem, of course, is that the people who used to buy those $300 cases are cutting back the hardest and I’m not sure that $2.50 a bottle  is going to turn them around.]

The Wine Spectator Award Hoax

It has been a couple of weeks now since the Wine Spectator hoax hit the news. Robin Goldstein (a.k.a. fearlesscritic.com) “blew the whistle” on Wine Spectator in a session that I happened to chair at the American Association of Wine Economists meetings in Portland. (Robin actually revealed his hoax as an unscheduled prelude to a completely different presentation at the meetings.)

The wine media quickly picked up the story and now it is everywhere. The story has generated a certain amount of embarrassment for Wine Spectator and given Robin and his new book a lot of  publicity.

What Robin did was to create a fake Italian restaurant (Osteria L’Intrepido di Milano) along with a made-up menu and wine list. Then, following directions on the Wine Spectator website, he applied for an Award of Excellence, which is the way that Wine Spectator recognizes and encourages restaurants with strong wine programs. Wine Spectator tried but was not able independently to confirm the facts about the fake restaurant; they took the application on trust as an honest entry and presented it with the appropriate award in the August 31, 2008 special restaurant issue (see page 181). You can read all about it on Robin’s website for the fake restaurant, http://osterialintrepido.wordpress.com/

Where is the Outrage?

How upset should we be to discover that Wine Spectator can be tricked into giving its wine award to a fake restaurant?  Michael Morrell, my chief cheap wine research assistant, was outraged.  Although price is the most important factor for him in choosing wine, he admits that he is also influenced by wine ratings. The award hoax undermines his trust in wine critics in general and the ratings and advice they produce.

I can understand Michael’s concern, so I consider this a very serious matter, but I don’t think the fact that Wine Spectator fell for a hoax is reason for us to doubt its integrity.  Here is my report.

The Wine Spectator Award of Excellence is given to restaurants to recognize their wine programs.  Although the actual criteria for receiving an award seem very modest to me (you can read them on page 97 of the special restaurant wine issue), it is a fact that about 30% of the new entries each year fail to meet them (the success rate is obviously higher for establishments who enter and receive an award year after year).

There are three levels of award.  3254 restaurants received the base level recommendation.  802 second tier “Best of Award” ratings were given to restaurants with more comprehensive wine lists. 73 top of the line “Grand Awards” were bestowed.  The people at Wine Spectator are proud of their award program and believe that it has encouraged restaurants to upgrade their wine programs.

Caution: Economics Content

I’m sure this is true, but I tend to view the matter in economic theory terms.  Consumers have lots of restaurant options and are uncertain which ones might have good wine choices. The restaurants know how good their wine selections are but have trouble effectively communicating this to potential customers. This is the classic economic problem of “asymmetric information” and the classic economic solution is “signaling” – where one side of a potential transaction finds a way to reveal key information to the other side to help seal the deal.

Restaurants that want to attract wine enthusiast customers need a way to “signal” them about their wine programs and the Award of Excellence is one way to do this.  Restaurants that think sending this signal is worth meeting the criteria and paying the entry fee do it and get on the list.  Others, even some that have strong  wine programs, don’t bother. They have other ways to send the message, I guess.

Wine Spectator fell for the Osteria L’Intrepido hoax because it relied upon the honesty of applicants, assuming, I suppose, that no one would go to the trouble and expense of applying without a conventional commercial purpose. This is another side of asymmetric information — Robin presumably knew his motives in setting the fake restaurant “sting” and Wine Spectator could only guess or assume.

In Vino Veritas

Truth is especially important in the wine world and, because of the problem of asymmetric information, it is particular difficult to know with confidence.  We depend upon the honesty of self-interested actors and the truthfulness of their signals. When we read wine ratings or see wine competition awards, for example, we assume that the judges and critics are tasting the same wines that we buy in the market. But it would be easy for a dishonest producer or distributor to put special wines in the bottles sent to the critics or wine award competitions. The easiest switch would be to put some of last year’s highly ranked wine in place of this year’s weak effort. Most wine critics rate products that are sent to them by makers and distributors and rely upon the honesty of the sender.  Only a few – Gaiter and Brecher at the Wall Street Journal come to mind – seek out and purchase their wines through normal retail channels.

Doctored “critic cuvee” wines are a potential hoax problem.  I am not aware of any wine publications that have been hoaxed in this manner, but I have read and heard speculation about special “award cuvee” wines being entered in competitions.  The nature of the situation makes us all vulnerable to hoaxes.

Wine Spectator fell for this hoax but it wasn’t because its editors are dishonest in giving their awards.  I think most of the criticism of Wine Spectator in this situation is a bum rap, especially since the magazine’s editors seem to be unusually careful in avoiding advertising conflicts of interest.  That’s the subject of my next post.

What are wine enthusiasts looking for?

The Search for Wine Drinker DNA

According to the data that WordPress collects about visitors to this website, the three most frequently viewed posts on The Wine Economist are

  • The World’s Best Wine Magazine?, an analysis of Decanter magazine, part of the ongoing series on wine critics and publications;
  • Costco and Global Wine, which examines Costco’s wine strategy in the context of the three most important global wine markets, the U.S., Great Britain and Germany, and
  • Masters of Wine (and Economics), which is about the prestigious Masters of Wine (MW) qualification and the importance of wine economics in its curriculum.

(Other popular posts include my discussions of global climate change, problems in Australia, rising wine prices, and the Hong Kong and Chinese markets.)

What can we learn from the fact that these three posts get the most hits? A closer examination of the WordPress data show that many visitors to this site are looking for information about the “Best” – the best wine, the best wine price, the best wine magazine and so forth. The search for the best and not just the good seems to be very important.

Wine enthusiasts also seem to be searching for credible authorities – people and publications that can guide them and tell them what to buy and drink.

Not unrelated to this is in the interest in Costco (and Trader Joe’s) and other retailers that seem to make the choice concerning good wine or good value wine a little simpler. Costco is now the largest wine retailer in the U.S., as the blog post explains, and it does this in an unexpected way – by giving consumers fewer choices than a typical upscale supermarket (about 120 different wines at typical Costco versus more than 1200 different wines at your supermarket), but also giving them more confidence in the choices that they make.

Project Genome

Visitors to The Wine Economist reflect many qualities that research by Constellations Brands (the largest wine company in the world) has uncovered. The study is called Project Genome, which suggests that it is an attempt to sequence wine drinker DNA. Wines and Vines reports that

The original 2005 study of 3,500 wine drinkers was one of the largest consumer research projects ever conducted by the wine industry. The new study examined the purchases of 10,000 premium-wine consumers–defined as those who purchased wine priced at $5 and higher–over an 18-month period. While the first Project Genome study asked online survey participants to recall their wine purchases during the last 30 days, the Home & Habits study tracked the actual purchases of Nielsen Co.’s Homescan® consumer purchase panel, which employs in-home bar code scanners and surveys to map consumer buying behavior across a demographically balance

Nielsen measured consumer attitudes and purchase behavior within multiple purchase channels, including warehouse clubs, supermarkets, mass merchandisers, drug stores, liquor stores and wine shops. The scan data were supplemented with online interviews to classify consumers by Project Genome consumer segments identified in Constellation’s original study: Enthusiasts, Image Seekers, Savvy Shoppers, Traditionalists, Satisfied Sippers and Overwhelmed.

The largest group of wine consumers are the Overwhelmed (23% of consumers). They are described as

  • Overwhelmed by sheer volume of choices on store shelves
  • Like to drink wine, but don’t know what kind to buy and may select by label
  • Looking for wine information in retail settings that’s easy to understand
  • Very open to advice, but frustrated when there is no one in the wine section to help
  • If information is confusing, they won’t buy anything at all.

The second largest group are Image Seekers (20% of consumers). They

  • View wine as a status symbol
  • Are just discovering wine and have a basic knowledge of it
  • Like to be the first to try a new wine, and are open to innovative packaging
  • Prefer Merlot as their No. 1 most-purchased variety; despite “Sideways,” Pinot Noir is not high on their list
  • Use the Internet as key information source, including checking restaurant wine lists before they dine out so they can research scores
  • Millennials and males often fall into this category.

Traditionalists (16% of consumers)

  • Enjoy wines from established wineries
  • Think wine makes an occasion more formal, and prefer entertaining friends and family at home to going out
  • Like to be offered a wide variety of well known national brands
  • Won’t often try new wine brands
  • Shop at retail locations that make it easy to find favorite brands.

The Savy Shoppers (16% of consumers)

  • Enjoy shopping for wine and discovering new varietal s on their own
  • Have a few favorite wines to supplement new discoveries
  • Shop in a variety of stores each week to find best deals, and like specials and discounts
  • Are heavy coupon users, and know what’s on sale before they walk into a store
  • Typically buy a glass of the house wine when dining out, due to the value.

Satisfied Sippers make up 14% of consumers. They

  • Don’t know much about wine, just know what they like to drink
  • Typically buy the same brand–usually domestic–and consider wine an everyday beverage
  • Don’t enjoy the wine-buying experience, so buy 1.5L bottles to have more wine on hand
  • Second-largest category of warehouse shoppers, buying 16% of their wine in club stores
  • Don’t worry about wine and food pairing
  • Don’t dine out often, but likely to order the house wine when they do.

And, finally, Wine Enthusiasts are the smallest group, accounting for just 12% of all wine buyers. They

  • Entertain at home with friends, and consider themselves knowledgeable about wine
  • Live in cosmopolitan centers, affluent suburban spreads or comfortable country settings
  • Like to browse the wine section, publications, and are influenced by wine ratings and reviews
  • 47% buy wine in 1.5L size as “everyday wine” to supplement their “weekend wine”
  • 98% buy wine over $6 per bottle, which accounts for 56% of what they buy on a volume basis.

The Fortune at the Bottom of the Pyramid

Not surprisingly, Wine Enthusiasts and Image Seekers account for nearly half of all wine sales while Overwhelmed consumers purchase disproportionately little wine. While wine magazines find a ready market at the top of the pyramid, retailers and wine companies probably view the Overwhlemed as the potential “fortune at the bottom of the pyramid.” There is a lot of money that can be made if wine can be simplified (or these consumers educated) so that they move up the wine buying ladder.

Visitors to The Wine Economists seem to fall into three of Constellation’s categories: Enthusiasts, Image Seekers and the Overwhelmed based upon the limited and superficial “most popular post” data reported here. It will be interesting to track further Project Genome results as they are released and to see how Constellation Brands uses this information in its wine market strategies.

The Big Vineyard Squeeze

Globalization and Wine Costs

wv_issues_2008-03_208.jpgThe March 2008 issue of Wine & Vines reports three stories of how global forces are pushing up the cost of making wine in the United States. They make interesting reading for anyone interested in how the wine industry is changing today.

The first article examines the rising cost of planting new vineyards. Environmental concerns are causing winegrowers to substitute steel posts and stakes for the old treated wood products that have been used for years. Steel makes the vineyard greener, but it is now pushing the vineyard bottom line into the red because the cost of posts and wire has been pushed up by surging demand in for steel in China.

Once the vineyards are planted the vines need to be pruned and the grapes harvested. This is normally a pretty labor-intensive process but machine alternatives exist and the technology has improved considerably over the last 20 years, according to a second article in the magazine. Winemakers are laying out vineyards with wider spacing to accommodate mechanical pruning and harvesting. This is partly because of rising labor costs in the United States and partly because unreliable federal immigration policy makes access to foreign vineyard workers uncertain. High end winemakers may be willing to pay up to $750 per acre for careful hand harvesting, but many others are willing to employ machinery for a cost per acre of $70 to $250 (plus the $150,000 – $250,000 cost of the machine). The cost difference is significant, of course, but my sense is that this trend would be much weaker if federal immigration policy were more stable and industry-friendly.

Bottle Top and Bottom Line

Winemakers are being squeezed everywhere — input costs, labor conditions and even on the cost of the capsules that protect the cork and decorate the bottle top. High end wines often use imported tin capsules for their sleek and beautiful appearance. But their cost is being pushed up in three ways.

First, the price of the raw material – tin – has soared due to high demand in China, where it is used to solder electronic connections. Tin sold for $3600 a ton in 2002 and $6600 in 2005. It costs $16,500 a ton today due to the China effect and speculation associated with it. This huge increase is necessarily reflected in rising capsule prices.

But wait, there’s more. Rising oil prices and demand for shipping container space has helped push up the cost of shipping tin capsules from Europe by 27 percent. The third and final factor is the falling dollar, which makes everything from Europe more expensive. Much more expensive, given the dollar’s recent collapse. Winemakers are having to consider how much a tin capsule adds to their wine’s image, since it is obviously taking from, not adding to, the bottom line.

Global market forces (steel, oil, tin, shipping costs, exchange rates) and the government policies that try to contain them (think immigration) are squeezing winemakers in many ways. It will be interesting to see how much the industry is transformed by these effects.

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!

The Martha Stewart Wine System

march-2008-cover.jpgWine Enthusiast magazine celebrates its 20th anniversary with the March 2008 issue and editor and publisher Adam Strum reflects on the changing market in “The Enthusiast Corner” column. He writes that

“I’d like to think Wine Enthusiast played an important part in helping to bring wine to the attention of the American public at large, and not just the elite, over these 20 years. Wine magazines, books and the rise of food television have all undoubtedly played a role in making America a wine drinking nation. Other factors abound: American cuisine at home and in fine dining restaurants underwent a renaissance, and wine naturally became an important part of that. News of wine’s health benefits enlarged its consumer base. But most responsible for the growth of wine is the incredible leap in terms of overall quality at the same time that wine became more affordable. How often does that happen? Name me one consumer product that can compare.”

I think he is right in all this. Wine’s vigorous growth in the United States is a complex phenomenon. Many factors have contributed to the rise in per capita consumption in the United States and other New World markets at the same time that wine drinking has fallen dramatically in the Old World. The wine media’s role may be an under-appreciated element of this phenomenon.

The Supermarket as Home Depot with Wine

My friend Patrick works the wine aisle at a local upscale supermarket and he constantly delights me with his original insights into consumer behavior. He sees cable TV’s influence everywhere, for example. People watch Trading Spaces or the home remodeling network HGTV, he says, and run out to Home Depot for wallpaper and remodeling supplies. A huge industry has been built around their media-driven passion to renovate and restore. People watch the Food Network, he says, and run to supermarkets for exotic ingredients — and the wine to go with them. Wine is scattered throughout the store, not just in the wine aisle, to make the idea of a sophisticated meal (one that would please the Barefoot Contessa) a convenient choice.

Wine, in other words, is a lifestyle product that is promoted by lifestyle media like cable TV and lifestyle magazines that encourage and enable consumers to develop adventurous, sophisticated, consumption-driven identities. I don’t mean this in a bad way, although I know it sounds pretty bad. It’s just a fact. The magazine racks at Borders are filled with lifestyle magazines. You probably read a couple of them yourself. Even serious newspapers like the Wall Street Journal and Financial Times now have thinly disguised weekend “lifestyle” sections. Don’t pretend you don’t know what I mean!

Wine Enthusiast is a particularly good lifestyle magazine — there is a reason it has lasted 20 years. One factor in its success is that globalization has helped the wine market expand, providing more choice at affordable prices. Mr. Strum writes that

“New regions such as Australia, New Zealand, Chile, South Africa and others new to a global industry muscled their way on to the world stage. Competition drove improved methods in the winery and the vineyard. Competition also drove prices down at the middle and lower tiers.

“The world wine map has been redrawn so dramatically in the past 20 years it’s almost unrecognizable. Back then, it consisted of France, Italy, Spain and, way off in the margins, California. Now you must include Oregon and Washington State, not to mention the other New World countries I mentioned above. Every state in the union now produces wine. Countries like China and India are ramping up production in numbers that boggle the western mind.”

Martha Stewart Wine

Globalization has certainly made wine more interesting and wine drinkers can appreciate the value and variety. It would be a mistake to think that the wine media are passive observers of this phenomenon, however. It is in their interest to promote the industry that they cover and to try to profit from every aspect of it. You aren’t surprised when cable television networks expand outside the box, are you? They sell advertisements on their programs along with videos of the shows, books, lectures and assorted types of lifestyle paraphernalia. Think Martha Stewart! (And yes, there really is a Martha Stewart wine — made by Gallo).

Wine critic publications do the same thing — they have adapted the Martha Stewart System to lifestyle wine. I will focus on Wine Enthusiast here because it is their anniversary, but they are not an unusual example. Wine Spectator, Decanter, Gambero Rosso and most of the others have commercialized the wine experience in the spirit of Martha Stewart.

Mr. Strum describes Wine Enthusiast’s expansion this way

“Wine Enthusiast, as a company, has evolved dramatically over the past 20 years, too. In addition to the success of our catalog and our magazine, we have created an events division that is an astonishing success. We now annually produce four Toast of the Town events to introduce American consumers to wines that are available in their markets. These walk-around tastings, held in spectacular cultural venues, offer a sample of each city’s restaurants, accompanied by tastes of the portfolios of 70 wine companies. These events help educate and expand the palate of the American consumer, and to reinforce wine’s place at the table.”

Wine Enthusiast is more than a magazine, it is a lifestyle system. It sells magazines, of course, plus wine-related products through their catalog and website, produces wine events and so on. It informs, enlightens, educates and enables. A Wine Enthusiast cable network (or YouTube.com channel) would be the next logical step.

Even the magazine is commercialized in perhaps unexpected ways. Everyone knows that wine magazines sell lots of advertisements, of course. The editors always say that they don’t let advertising dollars influence their ratings, and I actually believe them — although market forces obviously do have some influence over the wines that they choose to consider for their reviews. National magazines need to pay attention to wines that are in national distribution. And these are the wines that are featured in the ads.

Wine Enthusiast takes one more step into commercial waters, however. The magazine includes a monthly Buying Guide that provides 100-point ratings and thumbnail reviews of dozens of wines. (I actually find their reviews to be very accurate, by the way.) But just before the long list of ratings there is section where a smaller number of wines are featured, with images of their labels for easy supermarket identification. These are the wines you will remember if you scan through the magazine quickly. I have always assumed that these were featured wines, selected by the editors for their good value or wide availability.

Imagine my surprise, then, when I started reading the fine print about how Wine Enthusiast rates wines and discovered that the labels are in fact “paid promotions.” Wineries can’t write the reviews or designate their products “best buys,” but they can pay to have them highlighted in the illustrated section! I wonder if that is true of other wine magazines? I’m going to be reading the fine print a lot more closely now so that I have a better idea of what is editorial content in the wine press and what is “paid promotion.”

Martha Stewart has only recently entered the wine business (with Paul Newman close behind), but it seems to me that the Martha Stewart system of total lifestyle marketing is already here. Hmmm. I wonder if that’s a good thing?