The Forbes Interview: Wineries that “Get It”

July 12, 2011 By Mike Veseth in Chateau Ste. Michelle, China wine, Shameless Self-Promotion, sustainability, Wine Wars 2 Comments

Forbes Asia published “The Future of Wine,” a three page excerpt from Chapter 15 (“The China Syndrome”) of Wine Wars last month. A follow up interview appeared this week on Karl Shmavonian‘s Forbes.com blog “Horse Feathers” under the heading “An Economist Shares His Thoughts on Wine.” (You can read the excerpt and the interview by clicking on the links provided.)

It was fun to answer Karl’s questions. Karl’s focus is Asia, so I wasn’t surprised that he had questions about Chinese wines, the Chinese-Bordeaux wine market and even the prospects for South African wine in India and … Sub-Saharan Africa!

One question really made me think. Who “gets it” in the wine world? Here’s the question and my brief answer copied from “Horse Feathers.”

Name a few wineries that “get it” from a business standpoint.

I think Chateau Ste Michelle gets it here in Washington State. Ste Michelle Wine Estates has a “string of pearls” operating philosophy that allows each of their winery brands (including Columbia Crest, for example, and Stag’s Leap Wine Cellars) a good deal of independence while benefiting from the economies of distribution, etc. Even the large production facilities like the white wine facility in Woodinville contain mini-wineries that allow the winemakers to do small scale projects while also producing hundreds of thousands of cases of the mainline products. Chateau Ste Michelle balances the big and the small without losing their terroirist souls. Boisset and Frog’s Leap (both in California) are examples of two totally different companies that both get it. In particular, they both get the environmental problem, although they approach it in very different ways.

Reading this, you probably wonder what I mean by “getting it” and why I picked these three wineries as examples? Here’s the story.

What does it mean “to “get it?”

“Getting it” in this context means understanding the tensions that are at the core of the wine market (and that I analyze in Wine Wars). Globalization and wine market expansion generally have brought a world of wines to our doorstep. This embarrassment of riches is both blessing and curse. It’s a blessing because of the opportunity to sample wines from all around the world. It is a curse because of the difficulty of choosing. Too much choice can be intimidating, especially in the case of wine, which has so many other intimidating factors associated with it.

Anyone who can simplify the choice and gain the consumer’s trust stands to benefit in this complex market environment. Brands have therefore become increasingly important, both private brands like Mondavi and Mouton Cadet and more general types of brands like Brand Marlborough Sauvignon Blanc and Brand Argentina Malbec. Consumers understand the wines associated with these brands and so are more confident in making purchases. (Just having a strong brand is not enough, however, as the roller-coaster story of Brand Australia Shiraz demonstrates).

The risk with brands, however, is that they can sometimes go too far in their effort to simplify (the Shiraz problem). It is important that branded wines not sacrifice the qualities that make wine special. Wine that is just another packaged good has lost its “terroirist” soul — the winemakers just don’t “get it.”

The Terroirist Revenge

So Wine Wars argues that the future of wine will be determined by the battle between the market forces that will push wine into the world and the “revenge of the terroirists” that will push back. Because I am an optimist (I have “grape expectations”), I think the future is bright. But this requires that wineries “get it.” So, Karl asked me, who does?

Well, a lot of wineries get it, to be honest, but in the short time available I only mentioned three of them. Boisset gets it, for example. It’s a good example of a “global” wine business, with strong brands in both the Old World (France) and New World (California). But there is a strong terroirist element to Boisset that keeps it honest, both in terms of the desire for wine to express a sense of place and also a concern for the environment. Boisset has been especially active in packaging innovations, for example, that aim to reduce the carbon footprint of wine. That’s one way to “get it.”

Frog’s Leap gets it in a different way. It is an example of a producer that has developed a strong brand without dumbing down its wines or selling its soul. Frog’s Leap is such a strong brand in Japan, for example, that it was the featured winery in the Japanese re-make of Sideways. But Frog’s Leap proves that branding doesn’t have to sacrifice quality or reduce wines to a least-common-denominator status. Frog’s Leap stands for something, both in terms of wine and with respect to the environment (dry farming, sustainable methods). They show that it is possible to “get it” this way, too.

Global-Local Nexus

Chateau Ste Michelle is my third example. They are the largest wine producer in Washington State and the largest producer of Riesling wine in the world. The parent company, Ste Michelle Wine Estates, usually ranks about #7 among U.S. wine producers. The Chateau as it is known here in Washington knows about globalization (its wines can be found all around the world) and brands, too, but it hasn’t sacrificed its soul in the process. In fact, I think you could argue that it has tried to use the forces of globalization and brands very constructively — through international partnerships with Germany’s Dr. Loosen and Italy’s Antinori family, for example.

The Chateau collaborates with the Antinori on two projects: Col Solare (an ambitious winery in the Red Mountain AVA) and as partners in the Stag’s Leap Wine Cellars in Napa Valley. Working together, they leverage powerful brands and bring together international expertise, but the goal is to produce distinctly local wines.

The partnership with Germany’s Dr. Loosen has created Eroica, one of America’s most distinctive Riesling wines, and a series of Riesling Rendezvous conferences, which bring together terroirists from across the nation and around the world to share their expertise and plot strategies to promote Riesling without sacrificing quality. The Chateau really “gets it,” but in its own unique way.

The future of wine? A big question. Not everyone will “get it” but I’m betting that enough will to justify my grape expectations.

It’s Official! The Wine Wars Have Begun

June 15, 2011 By Mike Veseth in Shameless Self-Promotion, Wine Wars 7 Comments

June 16 is the official release date of my new book Wine Wars: The Curse of the Blue Nun, the Miracle of Two Buck Chuck and the Revenge of the Terroirists.

The hardcover book has been available for several weeks (and has frequently been listed on Amazon’s wine best-seller list), and the e-book versions will be on-line starting on the 16th. (Wine Wars was a pre-release wine best-seller in Amazon’s Kindle store!)

So far the response to the book has been very positive, but I know that books, like wine, are a matter of taste. One reviewer, for example, thinks I was a bit too clever when I organized the chapters into three “flights” rather than just calling them sections. “Flight” is a wine term, of course, but also a general description of a group of related things (flight of geese, flight of stairs), so I don’t think I was too far out of line, but I appreciate the point.

The same reviewer was a bit suspicious of the way I end each flight of chapters with a flight of wines — a suggested wine tasting to encourage readers to make up their minds about my wine arguments by tasting the wines themselves. Maybe that is too clever, but I still think it is a good idea. In vino veritas, as they say.

I actually appreciate all the comments and critiques because they help me think through both what I argued and how I argued it. Without outside reactions an author can develop an uncritical “cellar palate” and I want to avoid that. In fact, one reason that I stated writing The Wine Economist was to be able to work out ideas in public, where I could benefit from the comments and suggestions of a great many people, not just my own wine industry friends. This strategy has served me well by introducing me to many interesting people and viewpoints.

I don’t know if you’ll find Wine Wars to your taste, but I hope you’ll give it a try. The fact that you are here, on The Wine Economist website, suggests that you are interested in the sort of problems that Wine Wars tries to figure out. Cheers!

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I want to take this opportunity to thank everyone who has been involved in the Wine Wars project including wine makers, wine industry executives, wine critics and fellow wine writers. Thanks as well to all the family, friends and former students who provided support, encouragement and critical feedback.

Special thanks to Paul Gregutt, Sasha Issenberg and Jeff Lefevere for writing “blurbs” for the book cover and to my editor, Susan McEachern, for guiding the project through to a successful completion.

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July 1 update: Apparently Amazon will release the Kindle version on July 16, a month after the official publication date. I think all the other ebook versions are available now.

Wine Economics: Coming Full Circle

May 24, 2011 By Mike Veseth in Fielding Hills, Shameless Self-Promotion, Wine Wars 5 Comments

My new book, Wine Wars, will be officially released next month; it tells the story of the battle for the future of wine (the Curse of the Blue Nun, the Miracle of Two Buck Chuck and the Revenge of the Terroirists) starting in Napa Valley, where my interest in wine economics began, and ending back in the same place 30 years later. Here’s a brief excerpt from the book.

Back on the Silverado Trail

People often ask me how I became a wine economist, an economist who studies the global wine markets. The answer is rooted in a particular time and place. Sue and I were still newlyweds, taking a low-budget vacation in the Napa Valley back in the day when that was still possible. We were headed north on the Silverado Trail late on our last day, pointed toward our economy motel in Santa Rosa, when we decided to stop for one last tasting.

The winery name was very familiar and I had high hopes for our tasting. If I had known more about wine back then I would have recognized this as one of the wineries that kicked French butt in the 1976 Judgment of Paris wine tasting. We pulled off the road and went in to find just the winemaker and a cellar rat at work. No fancy tasting room back then, just boards and barrels to form a makeshift bar. They stopped what they were doing and brought out a couple of glasses. If I knew more about wine back then, I would have been in awe of the guy pouring the wine, but I was pretty much in the dark. So we tasted and talked.

I started asking my amateur questions about the wine, but pretty soon the conversation turned around. The winemaker found out that I was an economics professor. Suddenly he was very interested in talking with me. What’s going to happen to interest rates? Inflation? Tax reform? He had a lot of concerns about the economy because his prestigious winery was also a business and what was happening out there in the financial markets (especially to interest rates and bank credit, as I remember) had a big impact on what he could or would do in the cellar. Wineries, especially those that specialize in fine red wines, have a lot of financial issues.

Besides the initial investment in vineyards, winery facility, equipment, and so forth, there is also the fact that each year’s production ages for two or three years, quietly soaking up implicit or explicit interest cost as it waits to be released from barrel to bottle to marketplace. The wine changes as it ages, but the economy changes, too. It’s impossible to know at crush what things will be like when the first bottle is sold. As Bill Hatcher (of Oregon’s A to Z Wineworks) likes to say, from an economic standpoint the only person who is crazier than a winemaker is his or her banker.

Wine economics is a serious concern. Few winemakers are completely insulated from the business side and sometimes the economy can have a huge effect on what winemakers get to make (if they have the resources to stick with their vision) or have to make (if they don’t).

And so a famous winemaker taught me to think about wine in economic terms and to consider that supply and demand sometimes matter as much as climate and soil when it comes to what’s in my wineglass. I should have known. Fully a third of the ferociously difficult Master of Wine exam (the MW designation that appears after the names of many famous wine experts) deals with business and economic issues.

Coming full circle — returning to the Stags Leap District and to that same cellar 30 years later — gave me a strong appreciation for how wine has changed in the past and will likely continue to evolve in the future. I hope I have captured that understanding in Wine Wars.

Adam Smith’s Winery

I came full circle in another sense last weekend, when Sue and I crossed the Cascades to work on the bottling line at the Fielding Hills Winery in East Wenatchee. Mike and Karen Wade use the great fruit from their Riverbend Vineyard in the Wahluke Slope AVA to make wine at their small production facility perched high on a hill overlooking the Columbia River.

The very first Wine Economist blog post was an account of my initial visit to the Wade’s winery and the fun Dave Seago and I had helping out on the bottle line that year. I was struck by the productivity of the bottle crew (particularly since some of us were “quality testing” the wine as we worked) and I compared it to Adam Smith’s famous pin factory example of the benefits of the division of labor. (It is a little known fact that Adam Smith is both the Father of Economics and also the Father of Wine Economics.)

Arriving at the winery on Friday, I was very pleased to discover that the Wades were celebrating their tenth year of handcrafted production with a T-shirt that actually listed the twelve bottle line work stations. The twelve tasks are:

Bottleunboxer

Sparger

Fillerdeupper

Corker

Wiperista

Foilplacer

Foilmeister

Wiper

Labelista

Boxfillerupper

Tape Gunslinger

Palletizerist

Adam Smith could not have organized the assembly line any better (or come up with more creative titles).

Mike and Karen’s daughter Robin was one of my university students and they have been very generous with their time, teaching me how the wine business works in practice to supplement my theoretical background. So I was pleased to join the volunteer bottling crew again this year, 243 blog posts after that first visit. The Smithian division of labor allowed us to bottle 291 cases (that’s 3492 individual bottles) of Cabernet Franc between 9 a.m. and 4 p.m., when we finally ran out of wine to bottle.

The Wine Economist has come along way from that first post and the Wades and Fielding Hills have come a long way, too, from their first tiny vintage ten years ago. Although production levels are still relatively small (about 1200 cases this year, up from 800 when I first visited), their reputation is large and growing.

When Paul Gregutt surveyed Washington’s 600+ wineries for the second edition of his authoritative book Washington Wines & Wineries he awarded five stars to just twenty wineries. Fielding Hills made the five star list, as it did in Gregutt’s first edition, joining much larger producers like Chateau Ste. Michelle and famous wineries like Betz Family, Leonetti, Woodward Canyon and Quilceda Creek. Nice company to be in.

Coming full circle. It’s what winegrowers do — the conclusion of each vintage is also the start of the next. I guess it’s what wine economists do, too. It is a good feeling to circle back and start out again!

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Photos by expert Foilplacer and master Boxfillerupper Sue Veseth.

The BRICs: Two Faces of Chinese Wine

January 28, 2011 By Mike Veseth in BRICs, China wine, emerging wine regions, wine fraud, Wine Wars 5 Comments

This is the fifth in a series of articles on wine in the BRICs – Brazil, Russia, India and China. Today I discuss the cultural contradictions of wine in China. Coming soon: wine in the New BRICs.

Wine, Fake Wine and Chinese Wine

China’s rise in the the world of wine is having many surprising effects. One of the most unexpected is this: apparently the most valuable bottle is my tiny cellar is an empty one — this jeroboam (double magnum) of 1994 Chateau Pêtrus. It is a souvenir of a particularly decadent party thrown by friends to celebrate their son’s graduation from college. Somehow I ended up with custody of the empty bottle.

Bottles like this are in high demand in China, according to recent news reports. Chinese entrepreneurs will reportedly pay up to £300 for an empty trophy wine bottle (especially Lafite), to be refilled with a lesser vintage wine and sold to gullible consumers or collectors. Provenance is important and condition matters:

“The bottles need to be in the best condition possible,” said another dealer, called Mr Ye, at a Shanghai company. “It is very important. And I only want genuine bottles, no fakes,” he added.

No fakes! I love it.

This sort of wine fraud is noteworthy just now because of all the attention that is focused on wine in China, but it there’s really nothing exceptional about this kind of scam. The story of The Billionaire’s Vinegar and its after-shocks suggest that fake wines are as common as fake Dalí prints — more common, actually, if you take Gallo’s embarrassing accidental purchase of bogus Pinot Noir into consideration.

But the story gets worse. A few weeks ago Chinese authorities raided 30 wineries in the Hebei region near Beijing (sometimes called “China’s Bordeaux)) for making chemical-laced fake wines.

CCTV’s footage showed a local sales manager admitting that some wines made in the coastal city of Qinhuangdao contained only 20 percent of fermented grape juice, with the rest being composed of sugar water mixed with chemicals, including coloring agents and flavorings.

Huang Weidong, a leading expert on the wine industry from the China Alcoholic Drinks Industry Association, said that the additives could cause headaches and irregularities in the rhythm of the heart, as well as cancer.

Solving the Puzzle

I’ve written about wine in China more than any of the other BRIC nations (follow the links in the next few paragraphs to read the posts), but fraud has only come up once before, in my report on Canadian Ice Wine. China is a major market for this glorious elixir and some reports suggest that as much as a third of the stuff sold in China is bogus.

My reports on wine in China have been quite varied, covering a number of different topics. For example, China is on the verge of becoming a dominant force in global auction market for wine. I noted the change when Hong Kong dropped their punitive tariffs in an attempt to attract the auction houses and again in my report on last year’s Bordeaux en primeur circus.

In terms of the domestic market, I examined the factors that seem to be holding Chinese wine back in terms of quality and found that the biggest problems are in the vineyards, where China’s fragmented agriculture presents a roadblock. The best wines, like Grace Vineyards, come from wineries that have found ways to solve this puzzle.

Everyone wants to break into the Chinese market, including the Australians — especially given their current problems — the Portuguese and some of my American friends, but the French have a (perhaps unfair) advantage. The image of the great first growths casts a long shadow at present, although I expect that Chinese wine consumers will get smart soon. They are so savvy in everything else that I think they will develop a more sophisticated idea of wine pretty fast.

I note, for what it is worth, that President Obama made a point to serve some really excellent American wines to Chinese President Hu at the recent White House state dinner in his honor. The Quilceda Creek Cab can compete with fine French wines and I’ll bet the Poet’s Leap dessert wine was a hit, too.

The Two Faces of Chinese Wine

So what do I think about Chinese wine today? Well, I am still concerned about the quality of the grapes themselves and the supply chain that delivers them to the wineries, which I believe are the biggest roadblocks to development, not the fraud that is the focus today. But, that aside, I find myself surprisingly optimistic.

China gets a whole chapter my forthcoming book on the Wine Wars (you can now pre-order it on Amazon.com!). It starts with my first rather revolting taste of Chinese wine and ends, many pages later, with another tasting, this time of one of China’s most notable wines. Here’s an excerpt from the final draft:

Our Grace Vineyards Cabernet Franc was a solid effort, we thought, but nothing special– a bit light compared American wines of this type. Writing in The Wine Economist, I noted a distinctive “green” taste I associate with wine made from under-ripe Cab Franc grapes. A problem in the vineyard, I speculated. Maybe the climate’s just too contrary to fully ripen these grapes.

A day later one of my readers lobbed in a counterargument.[i] Maybe, he said, that green flavor is intentional. He had heard that this particular flavor is familiar to Chinese consumers and that some Chinese wineries harvest grapes a bit earlier in order to achieve it. It wasn’t a flaw in the wine, he suggested, but a feature. Something that makes it Chinese wine, not a Chinese imitation of someone else’s wine. It’s the Chinese market terroir, if you will. Maybe the thinness that the critics note is another reflection of local taste?

That got me to thinking. Maybe we were judging Chinese wines by the wrong standards. What matters most? How I feel about the wines (and how they compare to international standards) or how the Chinese consumers look at them? Interesting question. So I hit the books.

A little research turned up more evidence that the judgments of Western critics might be unfair to Chinese wines. Jeannie Cho Lee, Korea’s first Master of Wine, argues that Asian food and wine traditions prime consumers to think about wine differently and to appreciate different qualities in it.[ii] Why don’t Chinese wine drinkers appreciate that a crisp Pinot Gris pairs nicely with their cuisine? Well, Ms. Lee explains, many Asian cultures do not consume beverages (apart from savory soups) with their meals – they drink them before and after. White wines are generally chilled, of course, and most Asia drinks are warm or room temperature. And the sweetness of a Pinot Gris can seem unrefined to palates that are used to more complex sweet-sour flavor profiles.

Why such a fascination with Bordeaux? It could be the tannins, Ms. Lee argues, which are appealing to wine drinkers from cultures with a tradition of consuming very tannic teas. Even the basic flavor reference points are different, she explains. Westerners think of Pinot Noir in terms of raspberries and strawberries, for example, but the Asian descriptors would be yangmei (bayberries), dried wolfberries and dried bonito flakes! An Asian description of Sauvignon Blanc would start with pandan leaves and longan and move on to mangosteen – not a familiar flavor or aroma vocabulary for me. But I can relate a bit better to her description of Riesling: Thai white blossoms, lemongrass and green mangoes.

Hmmm. So maybe it’s time to rethink Chinese wine.

Wouldn’t it be great if the most important qualities of Chinese wines – the ones that Westerners reject — turn out to have been lost in translation and that a true indigenous Chinese wine culture evolved, one that reflects China’s history, cuisine and palate. I hope so because it would support my theory of the future of wine. Suffering just now from the excesses of globalization and Two Buck Chuck, China needs to unlock its inner terroirist soul!

[i] Thanks to Bob Calvert for this insight.

[ii] Jeannie Cho Lee, “Language of Taste,” Decanter (July 2009), pp. 78-79.