The Changing Face of Wine in America: The Cooper’s Hawk Phenomenon

As I noted last week, wine is everywhere in America, or nearly so, and while it is common knowledge that the U.S. is the world’s largest wine market and that wine is produced in all 50 states, the diversity of the wine experience here sometimes comes as a surprise. Case in point …

What if I told you that one of the largest wineries in the U.S., home to what is probably the largest direct-to-consumer winery club program in the world, is based in Illinois, not California?

Illinois? (I can hear you saying this). No way! You’ve got to be kidding? Well, Cooper’s Hawk winery is no joke and learning about it helps us understand how wine is changing in the U.S. and where it could be going.

Top 50 U.S. Wineries

Wine Business Monthlys February 2018 issue lists the 50 largest wine companies in the U.S., from #1 Gallo (estimated production 70 million cases) to #50 McMannis Family Vineyards (340,000 cases). Most of the wineries are located in California as you would expect with a few exceptions such as Washington-based Ste Michelle Wine Estates (#8), #13 Precept Wine, and #36 Mesa Vineyards of Fort Stockton, Texas (550,000 cases).

Number 34 on the list with 570,000 case annual production and a wine club that is approaching 300,000 members is Cooper’s Hawk Winery and Restaurant of Woodridge, Illinois. All that wine is sold directly to restaurant patrons and wine club members. It is an interesting case study of wine’s growing (and changing) place in American culture.

A Wine-Centered Lifestyle Brand

The first Cooper’s Hawk location opened in 2005 and the chain, which identifies itself as a “lifestyle brand centered around wine” has grown to 30 stores in the  mid-west (Illinois, Indiana, Ohio, Michigan, Missouri, Wisconsin) plus Maryland, Virginia, and Florida. Five new locations are scheduled to open in 2018. A total of 4.4 million guests visited Cooper’s Hawk last year.

A Cooper’s Hawk experience combines several elements. It is a restaurant, of course, with a wide-ranging upscale menu that encourages patrons to think food and wine with a suggested pairing for each dish.  Bin 70 (Cooper’s Hawk Pinot Gris) is the suggested match for pan-roasted Baramundi, for example, and red wine braised short ribs are matched with Bin 04 (the Cooper’s Hawk Red, a Cab-Merlot-Syrah blend).

Ordering wine by the numbers rather than listing the wine names on the food menu is a way to keep things simple, rather like many people order by number from an Asian restaurant menu. You don’t necessarily need to speak wine to enjoy it at Cooper’s Hawk.

Each restaurant features a “Napa-style” wine tasting room and an “artisanal retail market,” where various food and lifestyle items are sold along with the Cooper’s Hawk wines. The idea is to bring the feel of a wine-country tasting room and restaurant to customers who are attracted to wine lifestyle experiences.

47 Varietieslux

A total of 47 different Cooper’s Hawk wines are listed on the online wine menu, divided into several categories, including International, Sparkling, White, Red, Sweet Red, Sangria, Fruit Wine, Dessert, Mulled Wine, Barrel Reserve, and top drawer Lux. As the video above indicates, grapes are trucked to the Illinois winery from California, Washington, Oregon, and other regions and the wines made, aged, bottled and shipped to Cooper’s Hawk stores.

Cooper’s Hawk invites its guests to embrace wine and gives them both broad choice and attractive pricing. Bottles of wine sell for what glasses of wine might go for at other restaurants. Retail shop prices begin at under $15 per bottle and top out at $39.99 for the Lux Pinot Noir. Restaurant prices are a bit higher, as you would expect, but the mark-up is surprisingly small. You can have that $40 retail Lux Pinot for $47.99 in the restaurant.

All 47 wines are available by the glass, with prices starting at less than $7. A glass of Lux Pinot Noir or Lux Meritage will cost you $13. How you view these prices depends on context, I think. If you are used to New York City restaurant prices, these wines are incredibly cheap — so cheap you might hesitate to try them. On the other hand, if lower-shelf supermarket wines are your reference, the prices might seem a bit high. It is clear from Cooper’s Hawk’s success,, however, that there is a sweet spot for an upscale casual dining restaurant wine list and they seem to have found it.

World’s Largest Wine Club?

One of the most interesting elements of the Cooper’s Hawk phenomenon is its wine club, which has nearly 300,000 members and is growing at a 25% per year rate. Guests who join the club are offered special “members only” wines plus invitations to various exclusive programs and events. Although there is an option to have monthly wine allocations shipped to your door, the pricing structure strongly encourages members to pick up their wines at the tasting room, which obviously produces repeated visits to the restaurant and reinforces the lifestyle relationship.

I am kind of fascinated by Cooper’s Hawk, which seems to have struck a chord with many American consumers by making wine the central element of a carefully crafted experience. I am therefore disappointed that I have so far been unable to visit one of the locations. Our travels take us many places, but so far the opportunity to belly up to a Cooper’s Hawk tasting room bar has eluded me.

But I have tasted a couple of the wines. The Cooper’s Hawk Lux Pinot Noir was the featured wine at this year’s Screen Actors Guild awards (Cooper’s Hawk is the official SAG wine partner) and we received samples of this wine plus the Lux Chardonnay, which were served at the event’s gala dinner, as part of the promotion of this partnership.

The details of the wines we received are a bit of a mystery — the Chardonnay and Pinot Noir are American appellation (not California or Oregon as you might expect). The Pinot was medium-bodied with a strong oak presence on the nose and palate that eventually faded to reveal varietal character. Perhaps the wine needed more time in the bottle to pull itself together or perhaps this is a winemaking decision to feature more oak on the premium product. The oak was nicely integrated in the Lux Chardonnay, on the other hand, and the wine was very enjoyable.

No one reads The Wine Economist for tasting notes, of course, and I’ve only sampled a couple of the wines. It is clear that these wines appeal to Cooper’s Hawk customers, who order them with meals and come back for more. Very impressive.

Cooper’s Hawk has achieved amazing success by creating or expanding a market that few of us imagined could be so large. Cooper’s Hawk recently announced and growing list of collaborations with famous wineries (Francis Ford Coppola, Boisset Collection) and celebrity chefs (Tyler Florence among others) that promise to expand the brand’s lifestyle appeal.

Is Cooper’s Hawk the future of American wine? No — wine is too complicated to have a single road ahead. But the Cooper’s Hawk phenomenon does suggest several important trails to explore — direct-to-consumer sales, focus on experience not just product, innovative marketing structures, and broadening the consumer base beyond the Wine Spectator reader “usual suspect” base to explicitly include Food Network viewers and foodies more generally. I think there’s a lot to learn about the market for wine in America from Cooper’s Hawk.

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The Wine Economist will pause for a couple weeks while Sue and I are in France to participate in Terroir and Millésimes in Languedoc and Roussillion from April 15-22 and Val de Loire Millésimes from April 22-25. Looking forward to meeting fascinating people, drinking wonderful wines, and learning as much as we can. Full report to follow when we return and have had time to digest our experiences.

Scratching the Surface of Wine in America

wineamericaI was busy this winter speaking at national and regional wine industry gatherings here in the United States: the Unified Wine & Grape Symposium in Sacramento (the western hemisphere’s largest wine industry meeting) and smaller but equally ambitious wine business meetings in Colorado, Idaho, and Washington State.

It’s been inspiring to meet so many hard-working and talented wine people and to talk with them about their challenges and achievements. I’d like to give a sense of what I learned in today’s column but — fair warning — I only have room here to scratch the surface of what I saw and heard and the places I’ve been.

As I said in my “State of the Industry” presentation at the Unified Symposium, wine is bustin’ out all over America. More consumers drank more wine in 2017 from more producers in more places than ever before.  The United States is well on the way to fulfilling Thomas Jefferson’s (and Phillip Wagner‘s) dream of a widespread wine-making and wine drinking nation.

American Wine By the Numbers

Wine America commissioned a study by John Dunham & Associates of the American wine industry’s economic impact  and the 2017 numbers are impressive (here is a pdf summary of the study). The total economic impact of American wine was more $219 billion, when both direct and indirect effects were included, and spread across all 50 states.  Follow this link  if you want to see the numbers for particular sectors or regions.

Wine Business Monthly‘s February 2018 issue surveyed the American wine scene and found nearly 10,000 wineries in the U.S. today (the exact number was 9,654), of which 7,751 were brick-and-mortar bonded wineries and 1903 were “virtual” wineries. California (1241) and Oregon (301) account for most of the virtual wineries. Nearly 40% of Oregon wineries are virtual — brands based upon wine produced under contract by others or sometimes purchased on the bulk wine market.

California makes the most wine, of course, and has the most bonded wineries (3,151) followed by Washington (713), Oregon (473), and New York (365). California was both the most wineries and the largest ones. It is no wonder that the California section of your local shop’s wine wall is so large.

My speaking schedule took me to Washington, Colorado, and Idaho this year. Colorado is 12th on the winery league table (behind Missouri and ahead of Illinois), with 121 bonded and 6 virtual wineries. Idaho sits in 28th place with 47 bonded and 5 virtual wineries. Although the scale is obviously smaller in regions like these, compared with California, that doesn’t mean that potential quality and ambition are any less.

Grappling with Challenges

Sue and I were much impressed by the energy and intensity we saw in the winemakers we met as they grappled with their particular challenges and opportunities. At the Unified Symposium in Sacramento, for example, special seminars inspired by last year’s wildfires were organized around emergency planning, preparedness, and response.

The Colorado program included applied research on Phylloxera, which has now come to parts of the state, and necessary practices to deal with it more effectively and to slow its spread. Paul Hobbs presented a seminar and growing and making Malbec, so put Colorado Malbec on your radar.

Idaho has its own vineyard problems — a killer freeze last year wiped out a lot of the production capacity. Growers are working together to rethink what should be grown, where, and how, treating the problem as an opportunity to improve. I was especially impressed by one conference session that I was not allowed to attend. Each year the Idaho winemakers gather in private to taste and frankly evaluate each other’s wines. The idea is everyone needs to improve quality if the regional industry’s reputation is to grow. No outsiders allowed in these pointed discussions.

To Tip or Not to Tip?

Sometimes regional meetings rely upon outside consultants for imported expertise, but often the biggest gains come from internal discussions like this. I sat in on one session at the Washington Winegrowers meetings, for example, where participants shared their experiences running tasting rooms. With direct-to-consumer sales more important than ever, tasting rooms need to adopt the best practices — but what does that mean in highly localized wine markets? It was fascinating to hear what worked and didn’t and why.

One issue that I did not expect to come up in the tasting room discussion was tipping. Tipping is for restaurants and cruise ships, not for wineries, or so I thought. But once you are using computer-based credit card payment systems, it is a simple task to insert a tip option ranging from zero to ten percent to twenty to whatever you like. Some winery owners were dead set against tipping — we pay our tasting room staff a good wage, no need to tip them to do their jobs. Others reported that customers brought the subject up, asking how they could tip — they appreciated the personal service that much.

One winery owner, who seemed to enjoy stirring things up, said he gave visitors who wanted to tip three options: 10%, 20%, and 200%. That 200% tip possibility usually generated an interesting conversation, he said, and that’s just what he had in mind.

There is a big world of American wine out there beyond California. If you haven’t taken advantage of the opportunities, consider this a wake-up call. The world of local American wineries is not as ubiquitous as craft breweries, which seem to lurk around every corner, but they are widespread and deserve your attention and support.

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This is the first of a short series of columns on the changing face of wine in America. Come back next week to learn the surprising story of the world’s largest winery club and the innovative winery project behind it.

Book Review: Intriguing Variations on a Wine Globalization Theme

9781107192928Wine Globalization: A New Comparative History edited by Kym Anderson and Vicente Pinilla, Cambridge University Press, 2018. (See also The World’s Wine Markets: Globalization at Work edited by Kym Anderson, Edward Elgar, 2004.)

The fact that wine is such a global business was one of factors that motivated me to study it seriously in the first place. My 2005 book Globaloney (named a Best Business Book of that year by Library Journal) included a chapter that examined the evolution of global wine markets and that got me hooked.

Globalization’s Terroir

Globaloney was a heart a series of case studies that together argued that  globalization is not an  unstoppable tsunami that sweeps away all before it, but rather a complex set of forces that play out differently in different industries. Fast food globalization, for example, is different from slow food globalization. And while high fashion and used clothing are both traded in global markets and acted upon by some of the same general forces, their specific patterns and impacts are very different.

Globalization reflects its terroir, I used to tell audiences at book talks, and the volume that Kym Anderson, Vincente Pinilla, and their talented team of authors have assembled take this idea one step further. The core of the book is a collection of historical case studies of how national wine industries have developed in both the old and new wine worlds in the context of global markets.

Two things struck me as I read the studies. First, I was excited by how detailed and interesting this research is. Fascinating. Irresistible. I couldn’t wait to turn the page to read more.

The second striking feature was how much wine globalization really does reflect its terroir. Although there are some common themes (the impact of phylloxera and the Great Depression, for example), the fact is that wine has developed and evolved in distinctly different ways in different parts of the wine world. Globalization has been an important factor in many cases, but not in the same way everywhere.

Argentina’s Unique History

Let me use the excellent chapter on Argentina by Steve Stein and Ana Maria Mateu as an example. Argentina’s wine history has been shaped by a series of strong internal and external forces. Let’s start with the grapes. Spanish missionaries from the Canary Islands brought high-yielding low-quality Criolla grapes with them and this set the tone for wine-making and drinking for much of the country’s history.

French wine authority Michel Aimé Pouget was lured away from his work in Chile to improve wine quality and he brought higher quality grapevines, including especially Malbec. Alas, the authors tell us, Malbec was frequently valued less for the quality of its wines than the fact that they were dark and strong and could therefore successfully be diluted with water without completely losing their identity as wine. Low standards like this defined the domestic market for decades.

British influence, in the form of the railroads that they financed and helped to build, had a profound impact on Argentina wine. Prior to the railroads that connected Mendoza and San Juan with bustling Buenos Aires, the domestic wine industry was quite small.

Mendoza and environs made wine for local consumption. Buenos Aires residents (more and more of them immigrants from Spain and Italy) filled their glasses with imported wine. Lower land transportation costs changed everything  when the train line was completed, expanding the internal market and fostering a wine boom.

Anticipating the impact of the railroads, Mendoza officials sent recruiters to Europe to bring back experienced Spanish and Italian wine-growers and wine-makers who expanded the industry. With phylloxera spreading at home and hard times all around, the difficult decision to uproot and replant families and businesses to immigrant-hungry Argentina was easy to  make.

Peso Problems

The list of international and global forces and effects in Argentina is a long one and I  only scratch the surface here. In recent decades, for example, the government’s strong-peso policy of the 1990s (the peso was linked to the U.S. dollar) made imports of wine-making equipment and technology artificially cheap and wineries were quickly upgraded. The collapse of this monetary system and the peso crisis that followed made the output of those wineries artificially cheap to foreign buyers, a factor in the country’s wine export boom.

Rapid domestic inflation combined with an unyielding exchange rate earlier this decade made the peso over-valued again and the wine export boom fizzled. Policies are changing now. Perhaps the export boom will return, albeit in a different form. Too soon to tell at this point.

Argentina’s wine history and its experience with international and global forces is fascinating and other chapters in the book are equally interesting. Wine’s story is a complicated one, with each nation developing and responding in a different way depending on many factors including history, culture, institutional structure, timing, and government policy.

This book is a great resource for anyone interested in understanding the wine world today and how we got here. The volume concludes with “Projecting Global Wine Markets to 2025” by Kym Anderson and his colleague Glyn Wittwer, a set of forecasts and analyses based upon their econometric model of global wine markets.

Economists Know the Price of Everything …

Wine Globalization has many strengths that recommend it to a broad readership and one obvious weakness that will discourage some who would otherwise benefit from studying it: the price. If you are not familiar with the academic book market, the price of this volume will take your breath away: $139.50 for the hardback and $124 for the Kindle on Amazon.com.

This is how books are often priced by academic publishers, who need to spread high fixed costs over small expected press runs.  If you have a son or daughter in college (or are in college yourself), you already know what textbooks cost these days. Incredible.

But all the news about price is not so discouraging. Kym Anderson and his colleagues at the Wine Economics Research Center at the University of Adelaide provide an enormous array of useful and interesting global wine market data (some of which informs the Wine Globalization volume) for the attractive price of … free. Free!  Here are some of the data sets you might want to explore. (You can find even more data here.)

Anderson, K., S. Nelgen and V. Pinilla, Database of Global Wine Markets: A Statistical Compendium, 1860 to 2016 (November 2017)

Anderson, K., S. Nelgen and V. Pinilla (with the assistance of A.J. Holmes), Annual Database of Global Wine Markets, 1835 to 2016 (November 2017)

Holmes, A.J. and K. Anderson (2017). Annual Database of National Beverage Consumption Volumes and Expenditures, 1950 to 2015 (July 2017)

Wine Globalization is a valuable contribution to our understanding of world wine markets. Highly recommended. And that’s not globaloney!

Beyond Wine Boom & Bust: Taking a Closer Look at the SVB Report

svb-2018wine-thumbSilicon Valley Bank recently released their 2018 State of the Industry report on the U.S. wine market and if you haven’t read it you should. It is well researched, written, and argued. Most important, it will challenge your ideas about the U.S. wine industry and make you think.

Most of the media reaction to the report has focused on two “boom and bust” elements: the predictions that (1) the 20-year wine market expansion is coming to an end and (2) that the relentless rise in grape prices and vineyard valuations in Napa Valley will pause or plateau.

Both of these predictions are significant although, as the report notes, calling a “turn” in the market is inherently problematic and will be difficult to assess until a few years down the road. In the short term, for example, the report notes that the U.S. wine market should continue to grow in 2018, although at a slower pace. Value will grow faster than volume due to the “two track” U.S. market with growth in premium wine sales offsetting declining lower-shelf demand.

This Changes Everything?

Boom and bust make headlines, but there are two important points that the SVB report makes that I think should get more attention. The first is the fact that we are witnessing fundamental changes in the retail market environment. Not just retail wine market, retail everything (or just about). Who buys, when, where, and how, who consumes, when, where, why, and how. Even the way people pay is changing.  Amazon is one driving force in this environmental transformation, but only part of it.

This fact was driven home to me a few weeks ago when I read that the Swiss luxury group Richemont (controlled by South Africa’s Rupert family), announced plans to buy out Yoox Net-a-Porter,  an Italy-based  luxury “etailer.” Richemont’s brands include Cartier, Van Cleef & Arpels, Piaget, Vacheron Constantin, Jaeger-LeCoultre, IWC Schaffhausen, Panerai and Montblanc. High end stuff.

You might think that consumers would be willing to buy books and t-shirts online but that they would hesitate to throw down $5000 or more for jewelry or a watch without holding it in their hands. But you would be wrong, or so the Richemont folks believe. The idea kind of takes my breath away.

It’s a new world for wine as for other things, the SVB report suggests. And the patterns and practices that were successful in years gone by, including but not limited to bricks-and-mortar versus online sales, are not guaranteed to work in the future. Time to question and rethink.

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Talking ‘Bout the Generations

A second interesting but possibly under-appreciated point that the SVB report raises concerns generational analysis of the wine market. Most of what you read about wine today frames the changing market demographics in terms of baby boomers versus millennials. But, as this figure from Statista.com suggests, there is a “missing middle” to this analysis. The figure shows 2016 median household income by age of householder.

Lost in the focus on rising younger, poorer millennials versus declining older, richer boomers is the Gen-X generation who are in their 40s now (more or less) and reaching their peak earning (and consuming) years. They are, SVB argues, an important but sometimes underappreciated market for wine. And, as a recent Wine Access study reveals, although Gen-X is a smaller cohort than boomers or millennials, they are willing and able to spend proportionately more on wine.

I think these are very useful insights, although I’m always a bit cautious regarding generational analysis. My years as a university professor taught me that the differences between generations are sometimes less important than diversity within them. Sometimes it is appropriate to generalize about a generation, but not always.

Take boomers, for example. The conventional wisdom is that baby boomers have driven the wine market growth — and this is true — but remember that most boomers don’t drink wine regularly and many don’t drink it (or any alcohol) at all.

The boomer wine boom is driven by a relatively small segment of this generational group. In a way, the boomer wine phenomenon is about a subgroup that is at least somewhat atypical of its cohort — and that difference is key.

The SVB report goes well beyond boom and bust to include these significant insights and many others, too. Highly recommended for anyone who wants to understand the American wine industry today and where it is headed.

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Congratulations to Rob McMillan and his team for a thought-provoking report.

David Ricardo to Donald Trump: Global Wine Trade and Its Discontents

5788597-mWhen David Ricardo wanted to make the logic of his famous Theory of Comparative Advantage crystal clear he knew what example to choose: wine. It was obvious that Britain should import wine from Portugal in exchange for cloth rather than trying for vinous self-sufficiency. Any fool could see that!

Make Great Britain Great?

But wine wasn’t really the point of his example. He was more concerned about the Corn Laws, a set of trade barriers designed to choke off agricultural imports and promote higher prices for domestic grain (lining the pockets of rural landowners in the process). If Britain should trade cloth for wine, then why not trade cloth for wheat and other grains as well?

The wine story was good enough to convince Ricardo’s economist colleagues, but not so much those in parliament. The Corn Laws lasted from 1815 until 1846. Economic logic triumphed over vested interests in the long run, but the human cost of the trade barriers to urban workers and their families in terms of higher food costs and lower living standards was very high.

Britain really didn’t fulfill the promise of its Industrial Revolution until the Corn Laws were repealed. It is fair to speculate that Parliament could have acted to Make Great Britain Great much sooner if they had been guided by the economic logic of wine trade.

Wine is perhaps a good guide to British political economy today, too. Brexit, which was promoted as a way to Make Great Britain Great Again, seems to have instead made British families poorer even though the change in trade policies has not yet been enacted or even agreed.  Rising import prices and stagnant wages have squeezed consumer budgets for wine as for many other items (sound familiar?). Tesco, the upscale supermarket giant, is reportedly planning a discount chain of its own to compete with increasingly popular “hard discount” Aldi and Lidl stores.

Make American Wine Even Greater?

The wine trade has lessons for the United States, too. Or at least that was my takeaway from two speakers at the “State of the Industry” session at the recent Washington Winegrowers Convention and Trade Show. 

Glenn Proctor of The Ciatti Company presented a very interesting survey of global wine market conditions. There are only two big wine markets that are growing in terms of total consumption, Proctor said: China and the United States. The Chinese market is particularly attractive because of the large rising middle class and potential for further growth.  French wines are top of the import table in China, followed by Australia and Chile — two countries that have benefited from free trade agreements with China.

Indeed, China is now the #1 export market for Australian wine, accounting for 33 per cent of exports, ahead of the US (18%), UK (14%), Canada (7%), and Hong Kong (5%). The Chinese market has powered Australia’s resurgence as a global wine power and the free trade agreement is an important part of the story.

The United States? Well, the U.S. has no free trade agreement with China and President Trump pulled the U.S. out of the Trans-Pacific Partnership negotiations — which could have opened up Asian markets — on his first day in office. Partly as a result, I suppose, the U.S. ranks #6 on the China import list. Australia wine sales volumes are more than ten times the U.S. amount.

If recent import trends continue for a couple of years, U.S. sales to China may be surpassed by relatively tiny Georgia. Georgian wine sales to China have surged (up 45%) in part because of the Georgia-China free trade structure that went into effect at the beginning of the year. The U.S. wine industry is clearly handicapped in foreign markets where other producers have preferential access.

John Aguirre, President of the California Association of Winegrape Growers, also highlighted  the importance of trade agreements for the wine industry. President Trump has raised doubts about  U.S. – Korea free trade (the Korean market has lots of potential for U.S. wine) and launched negotiations to revise NAFTA. Since Canada is the largest export market for U.S. wines, it is essential that NAFTA maintain open cross-border access.

The wine industry would suffer if the NAFTA negotiation somehow collapse, although the negative impacts would obviously be less than agriculture generally and the automotive industry, both of which have become dependent on efficient trans-border industrial integration in order to compete with efficient producers in other parts of the world.

I am hopeful that the NAFTA negotiations will be successful at updating the treaty since there is so much at stake. But my confidence is shaken somewhat by President Trump’s actions to block new appointments to the World Trade Organization’s appeals body — the entity charged with enforcing the rules of the trade game.  This will make it more difficult for the U.S. wine industry to pursue its complaint against the British Columbia wine regulators concerning their discriminatory supermarket wine sales policy, which favors B.C. wines relative to imports in clear violation, in my view, of the WTO’s non-discrimination principle.

What’s the bottom line? If President Trump: wants to Make American Wine Even Greater, he might take a lesson from David Ricardo and re-think administration actions and policies regarding global trade agreements.

Wine Business 101: Exploring America’s Largest Wine Industry Trade Show

unifiedContributing editor Sue Veseth is fascinated by wine industry trade shows. She recently attended the Unified Wine & Grape Symposium trade show in Sacramento, California. Here is her report.

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Making wine is not very stuff-intensive, right? Some grapes, a vessel for fermentation, maybe a couple of barrels, some bottles or jugs, closures — voilà!

But modern winemaking, even for small wineries and those making natural wines, can be very stuff-intensive. A good place to start looking at or shopping for all of the stuff for winemaking is the trade show at the Unified Wine & Grape Symposium in Sacramento, California. This is the largest trade show in North America for the wine and grape industry, attracting more than 600 vendors from around the world and more than 14,000 visitors. A lot of people in the industry use the trade show to connect with friends, colleagues, suppliers, and peers in the industry, in addition to shopping.

Some trade shows are focused on particular aspects of the industry. The SIMEI show we attended in Milan, Italy, in 2015, was all about machinery and technology. Smaller regional trade shows may combine winemaking and other agriculture industries. The January 2018 VinCO trade show in Grand Junction, Colorado, was about winemaking and fruit-based agriculture.

Soup-to-Nuts

In contrast, the Unified is a soup-to-nuts trade show: tractors, plants, fertilizers, trellises, bottling lines, hoses and fittings, flooring, waste and wastewater management, vessels and containers of all types and sizes, construction services, irrigation systems, cleaning equipment, chemicals, testing services, software to manage just about everything, bottles, closures, labels, packaging, marketing materials, financial services, transportation, industry publications — and the list goes on. Some vendors have been in the show for years; a few new vendors show up every year. Some vendors may wait several years before scoring a spot.

It seemed to me that the people staffing the booths this year were spending more time talking to customers and passers-by than staring at their cell phones — hooray! Conversely, fewer exhibitors this year insisted on scanning my visitor badge, probably easily realizing that I was looking not buying.

One vendor in particular especially impressed me. This vendor had a dozen staff members, including high-level executives, in a standard-sized, attractive-but-not-flashy booth. But few were actually in the booth. They were always working the floor, with both intense and casual conversations with customers and potential customers. You could tell that this vendor was focused on business.

The raptors are always one of the most popular exhibits. The falcons are used for pest control. It is easy to anthropomorphize and conclude that the birds’ beady stares may be sizing us up — perhaps as lunch?

I also enjoyed looking at the pruning equipment and vineyard supplies that could be useful to the home gardener.

Vegan Fertilizer?

So, is there anything new? Yes, to me anyway. Especially intriguing were two French vendors with vegan products and processes for winemaking. One was showing vegan fertilizer. I had hoped to bring home a sample to try, but the smell was very strong, very fertilizer-y, even packed in multiple layers of plastic zip bags. Alas, it did not make it into the suitcase. Another company offers a range of products for vegan winemaking.

I was not aware of vegan winemaking, but it turns out that many wines I know and enjoy are vegan, at least based on the Barnivore list (http://www.barnivore.com/), although they are not necessarily promoted as vegan. Another “who knew?” moment.

Costs and Benefits

The question always arises: Is it worth it? There were moments when the trade show was jammed (after the State of the Industry presentations, during lunch, and during the regional wine tasting, for example) and other times when the aisles were open and easy to navigate (such as the afternoon of the second and final day of the show). The busy times seemed as busy as in past years but the slow times seemed slower to me this year.

Participating in the show is not inexpensive, for both the vendors and those attending. A lot of people were looking, but how many were buying? Does the activity level reflect expectations about expansions, contractions, or no change at individual wineries and the industry in general? Is it an opportunity to see and be seen?

The answers probably depend on who you are, what you are selling, and what you are buying. But if you want to understand the scope of the wine industry, the Unified Wine & Grape Symposium trade show is a good place to start.

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New York Times wine critic Eric Asimov attend the Unified trade show for the first time in 2017. You might be interested in his reflections on the experience. Spoiler alert — he was also fascinated by falcon pest control.

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Many thanks to everyone who works to make the Unified Symposium and its trade show a success. Special thanks to John Aguirre and Jenny Devine and to photographer Ken Freeze for providing the image above.

 

Trickle Up Wine Economics and the Big Wine Market Squeeze of 2018

trickleYou’ve probably heard of “trickle down” economics. It’s the theory that if you give money to the rich it ends up benefiting those who are not so rich as the wealthy spend or invest their money and create incomes and jobs for others.

Trickle Up and Down

Trickle down economics is controversial. Not because it is crazy to think that the rich spend or invest their funds; the question is how much actually gets down to the bottom of the economic pyramid? Mega-rich Scrooge McDuck, my favorite childhood cartoon character, didn’t spend much of his money at all, so very little of it trickled down to others.

Although it might initially seem counter to the laws of fiscal physics, it is also possible for money to trickle up. In my studies of Italian economic history, for example, I discovered that the wealthy families of Renaissance Florence sometimes successfully enacted a trickle up policy.

There were some situations where the working class found themselves tapped out and disgruntled. The economy stagnated and social tensions heated up — a dangerous combination. So the rich found ways to get cash into the pockets of the poor, which they spent immediately and, by the end of the month, the coins were back in the hands of the rich where they started, the markets were churning away steadily, and peaceful social relations had been restored. Priming the pump, we used to call it. Enlightened self-interest at work!

How Does Wine Trickle?

Under certain conditions it is possible to experience a trickle down effect in wine markets. When grape harvests are unusually bountiful and grapes therefore cheap, it is possible for a winery to have more quality wine than they need for a particular brand or line of wines. They could of course simply cut the bottle price and sell the extra wine that way, which is what you learned in Econ 101, but price and reputation are closely associated in the minds of many wine consumers, and it is difficult to raise price back up in the future if you cut it now because expectations have change. This is sometimes called an example of economic hysteresis.

So the wine trickles down, either in the form of a second label or through bulk market sales. Trickle down bottom line: the surplus of good wine can trickle down to lesser wine market tiers when the conditions are just right. In recent years a whole industry has developed to take advantage of structural surpluses and trickle down situations. The rise of “asset lite” wine businesses (which own a brand, but no land or production facilities) is predicated in part on the ready availability of wine supplies.

This Time is Differenttrickleup

This time is different. As a recent Rabobank report makes clear, Wine’s Big Three global producers (France, Italy, and Spain) all had significantly short harvests this year and many other major producers had similar experiences either in 2017 (some parts of California) or 2018 (drought will dramatically limit production in South Africa). The tight global market will be felt mainly through squeezed margins, but other impacts may be felt.

A global wine shortage renders trickle down opportunities scarce, for example,  but creates the right condition for  trickle up wine economics. Here’s how it works. The shortage is going to raise wine prices in some categories and put the squeeze on those who are used to selling them. They’ll need to give priority to wine markets where margins are higher and can better absorb the rising costs.  In Spain, for example, this may mean favoring exports over the domestic market.

At some point basic bulk wines will cost too much to go into the boxes and budget bottles where they found homes in the past. To the extent that quality permits (and this is an uncertain factor), they will migrate up to wines selling at a higher price point. And the wines that would have gone there will migrate up a bit, too, as grape demand shifts up  and the effort to preserve and protect margins moves along.

Or at least that’s what the Law of 100 suggests. This is a rule of thumb that holds that you take the cost per ton of wine grapes and divide by 100. The result is the bottle price necessary to make wine production economically sustainable. If shortage pushes the effective tonnage price up far enough, the grapes need to be used for a higher tier of wine.

If the more costly wine cannot trickle up in one way or another, then tighter margins will likely trickle down. Many links in the value chain get squeezed in this process, but wine producers with the greatest ability to substitute and avoid higher costs and shortages face fewer potential difficulties. Brands built around specific grape varieties (versus flexible blends) and narrow appellation designations with limited alternative sourcing options are more vulnerable.

Price and Quantity

How will the Big Squeeze and the trickle up game affect wine price and quality? Well, costs will certainly squeeze margins and higher prices may result, but as I’ve just noted, there are some ways to mitigate that. One of them is to sacrifice quality, so that will be an important thing to watch as grapes migrate to higher price points.

This could be a serious issue for wines at the bottom of the shelf. Some of my wine friends have told me privately in the past that they believe the stagnant market for some of these wines is due in part to a decline in quality — which they often blame on cheap bulk imports used to preserve margins.

The economic impacts of the Big Squeeze could extend to the vineyard real estate market as well. Look for some of asset lite business to try to purchase or lease more vineyards to assure future grape supplies. This is not a new trend — it has been going on for a while in the Napa Valley, for example — but it is likely to accelerate.

It is obviously too soon to tell exactly how the big squeeze will play out — especially on the global markets — but these are some of the forces and patterns that I will be watching for.

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The Wine Economist will pause next week so that I can concentrate on my role as moderator and speaker at the “State of the Industry” session at the Unified Wine & Grape Symposium in Sacramento. Hope to see many of you there.