Portuguese Wines in the Age of Discovery

A 1971 television advertisement for Mateus Rosé invited viewers to pour themselves a glass of the popular wine and take an imaginary trip to Portugal.  I have been wishing that it was as simple as that this pandemic year when travel is general is so difficult and the idea of a trip from the U.S. to Portugal and back seems out of the question.

Discovering WoW

There are more than a few reasons to wish that a Star Trek transporter could beam us down in Porto, for example. The World of Wine  (WoW) opened along the Villa Nova de Gaia                  riverside over the summer and I can’t wait to explore its many venues. Adrian Bridge and his team have transformed a collection of warehouses on the downhill side of the Taylor winery and Yeatman Hotel, creating a labyrinth of exhibits, cafes, restaurants, and shops.

Portuguese ships sailed to the four corners of the world during the great Age of Discovery. Now that world comes to Portugal and especially Porto to learn about wine.

Five “Worlds” or experiences await the visitor who is interested in (1) wine, (2) the history of Porto and the Douro, (3) planet cork, (4) chocolate, and (5) the Bridge collection of drinking implements, which spans 9000 years. I signed up for the email newsletter, since that’s about as close as I will get to Porto in 2020, and each week I receive notice of concerts, programs, and tempting offerings at the nine restaurants, bars, and cafes.  I’d leave for WoW and Porto today if I could!

Discovering Richard Mayson’s New Book

If imaginary travel is the only option, then Richard Mayson’s new book, The Wines of Portugal, is an excellent guide. Mayson knows Portugal and its wines like the back of his hand and he generously shares his knowledge.

The book is organized in the conventional way, with chapters on history, the grapes and wines, the main winemaking regions including the islands such as Madeira, plus specialized chapters on Rosé and sparkling wines. Yes, Mateus makes the book as does Lancers, because they really are important elements of Portuguese wine and its history, but if that’s how you think of Portuguese wine you have much to learn.

I found the regional chapters especially interesting and the producer profiles, though necessarily brief, more detailed and revealing than in many other “Wines of … ” books. Mayson’s Wines of Portugal is highly recommended for detailed study or a wine travel (imaginary or real) reference.

If We Can’t Go to the Wines …

If we can’t go to the wine country, then the thirst for discovery means that it will have to come to us, even though something is lost in trading places this way. We have been fortunate to be able to sample some very interesting Portuguese wines in recent weeks.

Bartholomew Broadbent has imported a bright, refreshing, and very popular Vinho Verde for a number of years (alongside his famous Port and Madeira wines) and he has recently added three new wines to the stable: Broadbent Douro Red, Broadbent Douro Reserve, and Broadbent Dao white wine. The wines are delicious, fairly-priced, in relatively wide distribution, and recommended with enthusiasm.

Portuguese wines are having a moment of discovery just now. Some consumers have never thought of them before or associate them with their parent’s Lancers and Mateus experiences. Others think inexpensive Vinho Verde or stuffy Vintage Port. But (as Mayson’s book explains, of course) there is a world of wine in Portugal’s right borders.

The new Broadbent wines are a great way to learn more about the intriguing red wines of the Douro and the bright whites of the Dao region.

Thanksgiving Discoveries

Thanksgiving was our excuse to sample four wines from the Douro that we received as gifts from friends in Porto. A  bottle of stunning  Casa Ferreirinha Quinta da Leda was perfectly paired with our festive meal. Elegant and sophisticated. We are looking forward to see how this wine develops over the next few years. It shows what the Douro is capable of at its best.

The final act was an opportunity we’d never had before — to taste cask samples of the new 2018 Vintage Port wines. Winemaker Luis Sotomayor sent us small bottles of his Offley, Sandeman, and Ferreira wines, which we tasted along with chocolate Sue bought in Porto specifically to pair with Port wine.

Yes, I know, Vintage Ports are supposed to be put down for 10 or 20 years before you carefully pull the cork. But that’s not the only time to drink them. Very young Vintage Ports have a charm of their own — a dark intensity that can be quite stunning. You really should try it especially, like me, if sometimes you just can’t wait!

The three wines showed distinct personalities immediately and they changed and developed over several nights. Sue found her favorite of the three shifted as the wines unfolded. An experience I hope to repeat!

Age of Discovery

As you can tell there is a lot to discover about Portugal and its wines and this just scratches the surface. With Mayson’s book and our Porto friends as our guides we plan to continue exploring Portugal’s wine treasure map.

We are not alone in our interest in Portugal and its wines. The most recent Nielsen data published in Wine Business Monthly, for example, shows surging sales through the measured retail channels. Portuguese wine sales measured by dollar value increased by 13.9 percent in the 52 weeks to 10/03/2020 and by an incredible 35.1% in the month of September.

Fingers crossed that travel and tourism will return to some sort of normal sometime in 2021 so that we can go back to Porto to visit the World of Wine and continue our exploration of Portugal and its wonderful wines.

Anatomy of Georgia’s Wine Export Surge

Exports of wines from Georgia (the country — the cradle of wine — not the U.S. state — the cradle of Coca Cola) have surged in recently years, a fact that is both well-deserved and timely. Georgia deserves the increased recognition of its wine sector both because it really is the cradle of wine, with literally thousands of years of history, and because the wine industry and government have invested heavily in recently years to raise standards and promote products in key markets.

Ticking All the Boxes

Georgia wine’s success in 2020 is especially timely because travel and tourism — another important Georgian industry — has been hard hit by the global coronavirus pandemic. Ideally the wine and the tourism industries work together to generate needed income, especially in rural areas. Georgia is sort of running on one cylinder this year, so wine’s boost is especially appreciated.

Sue and I visited Georgia in 2016 and we were impressed by the friendly people. beautiful scenery, striking crafts and culture, delicious food, and excellent wine. We recently re-immersed ourselves in virtual experiences of Georgia through the third annual Ghvino Forum  and a “Georgian Wines 101” trade tasting of six Georgian wines expertly led by Taylor Parsons with special guest winemaker Iago Bitarishvili of the iconic Iago’s Wines.

My particular focus for the Ghvino Forum was a presentation by Tornike Kodrzaia, Head of Research at TBC Capital on the economics of Georgian wine. Wine is important culturally in Georgia (a fact that a recent film Our Blood is Wine makes very clear), but it is also a key element of the economy.

A Complicated Situation

Kodrzaia presented data that showed the Georgian wine sector to be a complex mosaic. A survey of large- to medium-size wineries, for example, revealed high financial returns — about twice the average for Georgian businesses in general, he said. That is incredible. It would be interesting to dive deeper here, to see if the same is true about smaller wineries and if the returns to growers are also positive.

Georgian wine is not a single thing, so it is important to understand its components. Home production was very high during the Soviet era and is still large, especially compared to other countries we have visited. The foundation of Georgia’s high per capita wine consumption is wine made at home or by friends or family, although Kodrzaia noted that commercial wine sales have increased in the domestic market.

Georgian’s prefer white wine — and it is easy to see why if you sample a fine Chinuri, for example. But traditional export markets prefer red wine, so that is a production focus. Russia and the CIS markets demand semi-sweet red wines, which Georgia produces in abundance. Uncertain political relations, however, are behind a movement to diversity export markets and reduce dependence on Russia.

China has emerged as an important market for Georgian wines, but the Chinese prefer dry red wines over the semi-sweet products. Chinese consumers are drawn to the story of Georgian wine — its long history and Silk Road associations– as well as its quality. Many Georgian Wine Houses have opened in Chinese cities to tell the cultural story and promote the wines.

Rising Tide in the U.S. Market

The United States export market is growing quickly from a small base, with above-average prices.  Over 800,000 bottles were exported to the U.S. through October 2020, for example, a substantial increase from 678,000 in 2019 and less than 200,000 in 2014, when the current surge began. The average ex-cellar price of exports to the U.S. was $5.11, according to Georgian statistics, more than double the export price for China and CIS countries. So you can see why the U.S. market is a focus.

Georgian wine is exceptionally diverse, so it will be interesting to see which of its many facets shines brightest in the U.S. market. Natural wine is a growing market niche and many Georgian products can fly that flag proudly. But many of the traditional producers are quite small, so critical mass is an issue. Iago Bitarishvili is an immensely important producer, for example, but only 5000 bottles of his amber Chinuri were made in 2019 according to the data we received.

Georgia is home to literally hundreds of native grape varieties, which creates a kaleidoscope of interesting choices for some consumers and a confusing blur to others. (Sue suggests an initial focus on red Saperavi and perhaps also white Chinuri — excellent wines that buyers will not be afraid to try to pronounce.) Many of the wines are hand-sells, however, which makes Covid closures of restaurants and wine bars in many areas an additional challenge. The six wines that were included in the Georgian Wine 101 tasting were made from these grape varieties: Tsitska-Tsolikouri, Kisi, Chinuri, Tsolikouri-Otskhanuri, Tavkveri, and Saperavi.

But Georgia, Georgians, and Georgian wine have survived these thousands of years because of their determination, commitment, and resilience, so they are unlikely to be defeated by these temporary challenges. We look forward to learning more and Georgia and its wines and to witnessing their continued export growth.

Georgia’s Lost Eden

Just as I was putting the final touches on this column a friend wrote to tell me about a new Georgian wine he sampled over Thanksgiving and really enjoyed. The project is called Lost Eden Red Blend and it ticks many of the boxes needed to break through in the crowded marketplace. It is a blend of 100% Saperavi from several vineyards — I’m guessing the marketing folks thought “red blend” would be more approachable that Saperavi. The wine is made by an 11th-generation (!) winemaker. The packaging is unique, don’t you think? You will remember this wine if you try it and like it.

The wine is “semi-dry” with 15.4 g/l residual sugar and 13% alcohol. 4500 cases made. Suggested retail $18.99. It is a type of wine we tasted and enjoyed in Georgia and that is popular here in the U.S. where many consumers talk dry and drink sweeter. The wine is modern in style, according to on-line documents, but pays its respects to tradition by blending in a portion of wine made in the traditional qvevri method of clay vessels buried in the ground.

Some of my friends will be disappointed that a wine like Lost Eden gets attention. They would like Georgia to be known in the U.S. exclusively for its traditional qvervi wines. But Georgia is a small country that punches above its weight in the wine world by leveraging all of its many advantages, including some high quality sweeter red wines.

We haven’t tasted the wine, but we have sampled the story told on the website, which draws on the people and country, their culture and history, and of course the food, too, including the iconic supra feast. Georgian wine is complicated, as noted above. This is only one side of Georgian wine, but one that seems likely to spark greater interest in the wine and the country in general.

Georgian wine is on the move. Let’s see where it goes next!

Flashback: Malbec & Maradona


Diego Maradona was more than just a great football player, the best of his generation by many accounts — the best ever according to some. He and his complicated life meant a great deal more to people in Argentina and around the world, so his recent death at age 60 had greater meaning, too.

This book review from 2012, which links Malbec, Argentina’s signature grape variety, with Diego Maradona, has been getting renewed attention among Wine Economist readers, so I thought I’d re-publish it as a “flashback” column today.

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Ian Mount, The Vineyard at the End of the World: Maverick Winemakers and the Rebirth of Malbec. Norton: 2011.

Malbec and Maradona

One of the most stunningly creative student papers I’ve received in more than 30 years as a college professor was written by a first year student enrolled in my introductory International Political Economy class. We were studying Argentina’s latest financial crisis and she analyzed the situation not just through facts and figures but rather by telling the story of Diego Maradona, the legendary soccer player who achieved great success on the global stage but succumbed to the pressures, stresses and temptations that came with it.

Maradona is always measured against Pele, the Brazilian star who is often proclaimed the greatest soccer player in history, and every talented young Argentinean forward is compared to  him (Messi is only the latest “next Maradona”). But an air of tragedy is unmistakable despite Maradona’s heroic achievements. This same air, my student wrote, hangs over Argentina’s politics and economy, and then she proceeded to analyze Argentina’s political economy history in detail in  terms of the Maradona story. It was, in both conception and execution, a brilliant analysis.

Ian Mount’s new book on Argentinean wine, The Vineyard at the End of the World, is also brilliant and in much the same way. Like my student’s paper, it can be read at several levels. It is, first and foremost, a history of the Argentinean wine industry from its roots with the Spanish explorers to its current spectacular flowering.

Although Argentina has been a major wine producer for literally centuries, it has only arrived on the global stage in the last ten years. Within Argentina its long history is heavy baggage that sometimes weighs it down. For the rest of the world, however, Argentina is a new discovery and the lack of prior experience of and attitudes toward its wines has arguably been an advantage.

Mount fills us in on the history and serious readers will appreciate the added depth this gives to the appreciation of the wines themselves. It also provides an interesting contrast to neighboring Chile and its wines, whose history is perhaps better known. But that’s only the beginning.ce1509cd596b49b050639487b3d03dcc

 Lucky Survivors

Malbec is a second theme, which is understandable because Malbec is king in Argentina right now. Malbec from Argentina has been one of the hottest product categories in the U.S. wine market is the past few years. But today’s Malbec (like Maradona) is a lucky survivor of Argentina’s booms and busts – a lot of Malbec was grubbed up during the market swings and swirls. It makes me appreciate wines (like one of our favorites, Mendel Malbec) that are made from the surviving old vine blocks.

More than anything, however, this is a history of Argentina itself told through wine, making this a book that deserves a very broad readership. Based on my previous research, I knew that Argentina’s politics and economics were reflected in the wine industry, but I didn’t know how much. Come for the Malbec, stay for the politics, economics and personal stories of those who succeeded or failed (or did both) and try to understand the country and people of Argentina.

Significantly, the book ends with a sort of Maradona moment. In terms of wine, Argentina has won the World Cup with Malbec, although the country must share the glory with international consultants (like Paul Hobbs and Michel Rolland) and foreign investors and partners (too numerous to mention). But for all its strengths the industry is still somewhat fragile, struggling to overcome the problems of the domestic wine market that it still depends upon and the domestic economy in which it is embedded.

After decades of “crisis and glory,” Mount sees a  bright future for both Malbec and Argentina. Let’s hope he’s right and the Maradona moment passes.e91c4e409ca6d78d656bc85a82fa6422

Ian Mount’s new book is a valuable addition to any wine enthusiast’s library. Mount provides a strong sense of the land and people of Argentina and the flow of history that connects them. Argentina is unique, as Mount notes early on, in that it is an Old World wine country (in terms of the nature of its wine culture) set in the New World, so that its history is broadly relevant and deeply interesting.

I studied the Argentina industry before going there last year, but Mount taught me things I didn’t know in every chapter. I love Laura Catena’s Vino Argentino for its account of the history of wine in Argentina told through the Catena family story and now I’m glad to also have The Vineyard at the End of the World for its broad sweep and detailed analysis. They are must reading for anyone with an interest in Argentina and its wines.

Thanksgiving Flashback: Great Seattle Wine Heist


It’s Thanksgiving week here in the United States, a time to relax, enjoy, and be grateful. But that’s not always easy to do in these difficult times.

Do you need something to take your mind off worries about the election, Covid-19, and the Seattle Seahawk’s unpredictable defense? We have just the thing: a dramatic wine crime story. Here is a flashback to Thanksgiving 2013: The Wine Economist’s report on the Great Seattle Thanksgiving Day Wine Heist.

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Wine Economist: CSI Fine Wine Edition

  • Crime doesn’t pay.
  • The best way to make a small fortune in the wine business is to start with a big one.

What happens when you combine these two old sayings? Well, you would think that it would add up to the fact that if crime doesn’t pay, then wine crime really doesn’t pay. But that may not be true. How else can we explain the recent fine wine crime wave, which may well be just the tip of the iceberg.

Wine Crime Wave?

Most of the attention has been focused on Rudi Kurniawan’s recent conviction for wine fraud — the first federal criminal prosecution and conviction for wine counterfeiting. This dramatic crime and the revealing trial has really captured the public’s imagination in part, I think, because of the romance associated with rare wine and the “lifestyles of the rich and famous” environment of the crime, the criminal and the victims.

There’s also a bit of what you might call a “Lance Armstrong” effect. The crime went on for years along with accusations, defenses and denials. Then suddenly there was the trial, the conviction and the house of cards collapsed. Now we are left to wonder how widespread this sort of wine fraud might be and what wines are true and which are false. The conviction isn’t the end of the story, only the beginning of the next chapter in the mystery.

Thanksgiving Day Heist

The Thanksgiving Day wine heist in Seattle was a grittier affair but perhaps equally interesting to wine crime buffs. I’ve been trying to piece together what happened from published reports and private sources. The more I learn about it the more this crime reminds me of something from a television show — CSI or maybe Mission Impossible!

Here is what I think I know.

Two “common thieves” (plumbers by trade, according to the Seattle Police) broke into the wine storage facility operated by Esquin wine merchants in the SoDo neighborhood (SoDo stands for South of the Dome — the Kingdome sports stadium in this case, which was demolished by implosion in 2000). They ransacked 15 of the 450 private storage lockers in the climate-controlled facility and made off with more than 200 cases of wine valued at more than $600,000.

If you are doing the math, that’s an average of more than $3000 per case or more than $250 per bottle. I’m guessing that no Two Buck Chuck was taken!

The break-in was ingenious — the perpetrators apparently cut a hole through a wall and brought the wine out case by case. Police report that the crooks spent  13 hours selecting their wines and then driving the loot to another warehouse less than a mile away. Their SUV getaway vehicle had limited capacity, so they had to make 9 round trips. Although they blacked out all the security cameras that they could, apparently this was not completely successful and some images of the crooks and their SUV’s license plate were captured.

You would think that “common thieves” would not be terribly discriminating wine shoppers — after all I suspect that most of the bottles and cases at this storage facility were of some value. Why not just smash and grab? But that’s not what happened.

Making a List, Checking it Twice

The bad guys apparently worked from some sort of shopping list, taking specific wines and vintages and leaving the rest. I’m told that the only Washington State wines taken were Quilceda Creek and Corliss, for example. Leonetti and Andrew Will? Apparently not up the discerning crook’s standards! I understand that wine was not just stolen, but also moved around and mixed up during the extended shopping spree and a few of the victims are apparently having to sort out which wines are theirs and which belong to someone else as well as which bottles have gone missing.

A good old-fashioned paper trail of evidence helped solve the crime and now opens the door to other possible heists. The first criminal captured had apparently kept receipts from a home improvement store — great idea in case you need to return an item! — and police used the day/time information on the paper to access security camera footage showing the suspect and his accomplice buying  the hardware used in the criminal act.

According to the Seattle Times a second paper trail opens the door to an earlier wine crime.

A shipping label found in Harris’ wine-storage locker led detectives to a San Francisco wine consultant, who told police he purchased $100,000 of wine from Harris and another man in April or May, charging papers say. Through an online search, Detective Don Jones determined there had been a large wine theft in the Bay Area in March, the papers say.

Covering Their Tracks

KOMO news report added a another Mission Impossible-style detail about the carefully plotted plan to crack the wine storage facility.

New details from the charging documents filed Monday reveal police found a journal labeled “The Plan” in Harris’ SUV. The journal reportedly included a step-by-step guide to the crime, a list of needed equipment, steps to destroy any evidence, steps to ship the wine and how to leave the country.

In addition, police found a book titled “Thinking  About Crime,” as well as printed out documents called “Is it Accidental Fire or Arson?” and “How to Commit the Perfect Crime,” inside Harris’ house, according to the charging documents.

Where does the arson come in? Well, the thieves planned to cover their tracks in the most comprehensive possible way. They cut  gas lines and expected the building to blow up. Good fortune prevented any loss of life and good police work captured the criminals. Some of the victims are more upset about the idea of the flaming cover-up plan with its potentially tragic consequences than the actual robbery.

So case closed for now — the thieves in custody and a good chance that most of  the wine (minus one  empty Champagne bottle) has been recovered. But are these two common thieves the whole story? Or is there a criminal mastermind (not necessarily Rudi K) still at large making up a shopping lists for clients too smart to buy fakes but maybe not too smart to avoid stolen goods? Good question!

So welcome to the new era of wine crime where the questions a fine wine enthusiast needs to answer now range from red or white and Burgundy or Bordeaux all the way to real or fake, stolen or legit? Cheers!

Wine, Tariffs, & Globalization

The wine trade has always been as global as transportation technology and political economy have allowed. So it is no surprise that the economist David Ricardo sought to make his theory of international trade based on comparative advantage clear and obvious by choosing an example that all his readers would appreciate — Portuguese wine exchanged for British wool.

A World of Wine

If you want to get a sense of wine’s global reach today I suggest you visit your local upscale supermarket or wine shop and survey the landscape there. I had my university students do this back in 2011 and reported the results in a Wine Economist column.  The local Safeway store carried about 750 wines from a dozen different countries back them, which caught the students by surprise. The store has expanded its wine wall since then, with even more offerings, and the supermarket across the street has an even larger set of wine choices. Globalization delivers a world of wine to your doorstep!

Global trade in wine, both bottled and shipped in bulk, is incredibly important to wine producing countries. The largest producers — France, Italy, Spain, Portugal, Argentina, Australia, New Zealand, Chile, South Africa — could not possibly sell all the wine they produce in their domestic markets. The collapse of global wine trade would be a global wine catastrophe.

And the trade in wine isn’t the whole story. Global markets exist for corks, capsules, winemaking services (think “flying winemakers”), and bottles, too. We’ve visited wineries in South Africa, for example, that import glass bottles from Europe and then export the finished wine to the UK, China, and the US. That’s globalization! Chinese glass has an even broader global reach.

Peak Wine Globalization?

By some measures globalization generally — taking into account goods, services, and people — reached a peak about the time of the global financial crisis and has since shrunk as a percentage of global GDP. Global wine resisted the de-globalization trend, however, but perhaps now is catching up.

Some of the macroeconomic drivers of wine imports and exports such as rising disposable incomes and stable exchange rates have been impacted by the Covid recession. And of course Covid restrictions and behavioral changes have negatively affected both on-premise wine sales and travel and tourism vectors, too.

There are attractive pockets and niche markets for wine sales all around the world and smart producers have sought them out. But the three big wine targets in recent years have been the UK, US, and China and each of these has become more challenging.

The UK issue is Brexit and it is shocking that there is so much uncertainty about the nature of future trade arrangements with just a few weeks to go before the exit from the EU is final. Britain’s unsuccessful attempt to navigate the twists and turns of Covid have pushed the country into a recession that is likely to grow worse before it gets better — a bad thing for income- and price-sensitive wine demand. Add to this the possibility of a botched Brexit and you might see Britain’s status in world wine trade diminish substantially.

Tit for Tat

The US market is suffering from Covid and recession problems as well and its own set of trade issues. The Trump trade wars have increased tariffs on wine imports from the EU, for example, but also generated retaliatory tariffs on US exports to China.

Wine has been caught in the crossfire in the Boeing-Airbus trade dispute, as The Wine Curmudgeon recently reported. The WTO has ruled that the US can impose tariffs on EU products in response to Airbus subsidies and that the EU can put tariffs on US products because of subsidies to Boeing. Wine figured prominently on the US tariff list, but the EU plans to focus on US spirits instead of wine, with new duties on vodka, rum, etc. on top of previous tariffs on U.S. bourbon.

How did the US wine industry dodge the tariff bullet in this case? Trade policy is sometimes very personal when you think about it. EU tariffs on US wine would fall heaviest on California producers — think for a moment important politicians from California. (Does the name Nancy come to mind?) Not necessarily someone the EU wants to upset.

Tariffs on US spirits fall heavily on Kentucky bourbon producers. Can you think of an important political leader from Kentucky that EU officials might enjoy roughing up a bit? Maybe some guy named Mitch? Just thinking out loud …

China vs Oz

And then there’s China. Down in Australia there is more than a bit of concern about wine trade with China. China has grown to be Australia’s largest wine export market, so rumors that the Chinese government might impose tariffs on or even ban imports of Aussie wine entirely are serious concerns. It is not clear that the US and UK, the other big export markets, could easily absorb the resulting flood of  unsold wine.

Since tariffs are as political as they are economic, there is hope that, with a changing US administration, the troops in the wine trade wars might stand down and a truce be agreed. This could start with both sides backing down over the Boeing-Airbus duties. That would certainly be a good outcome and I don’t think it is impossible.

No Easy Fixes

But tariffs aren’t the only factor preventing a return to the previous era of wine globalization as noted above, so don’t expect a quick fix. International producers seeking to penetrate the US market in particular need to be aware of how much the on-trade to off-trade shift has changed which wines American consumers buy, where they buy them, and how much they are willing to pay.

The process of restoring wine’s global reach seems likely to be a process and probably a slow one, with some firms and regions more successful than others. The faster the global economy returns to health, the faster the clouds will clear for global wine.

Vino-ligopoly: Zero-Sum Wine Game Strategies

Last week’s Wine Economist column was a thought experiment. What if the Covid recession was a game changer like the oil crisis of the 1970s? Both crises undermined fundamental economic assumptions and generated long-lasting impacts. In particular, drawing upon the work of MIT economist Lester Thurow, the oil crisis changed the nature of the game from positive-sum growth to zero-sum competition for shares of the pie.

Maybe the parallel is off base and maybe the game hasn’t really changed. But let’s think about the future the wine industry in the sort of slow growth, low inflation, high debt economic environment that many see on the horizon, with a focus on gaining market share in a stagnant economy.

Wine’s Zero-Sum Dilemma

Zero-sum market environments are nothing new for wine. As this OIV graph of wine demand volume shows, growth in the global wine market pie was once quite strong. Imagine a trend line for 2000-2007 and you’ll see what I mean.

Now draw a trend line for 2008- 2019. It’s pretty much a flat line, isn’t it?  The picture improves if we look at value and not volume because of the premiumization trend, but the the weight of stagnant volumes is still heavy.

So the focus is on gaining market share or raising margins rather than taking advantage of a growing overall market and this creates winners and losers. New Zealand has been a victor for many years. Marlborough Sauvignon Blanc sales have increased year after year, a trend that has continued in the Covid crisis environment. Imports from other countries have struggled here in the U.S. market with even powerhouse Italy under pressure. But the Kiwi wine wave rolls on.

Trading Spaces: On and Off

Perhaps the most obvious example of Covid’s zero-sum impact on the wine market is in the shift from on-premise to off-premise sales. Bars and restaurants have suffered both because of government restrictions on opening and also because concerned consumers have avoided crowded places in general even when not officially restricted. Wine consumption overall has not changed very much, but where consumption takes place and where products are purchased has shifted significantly.

The shift to off-premise consumption has many impacts, especially for wine companies that have worked very hard to place products on restaurant wine lists and for emerging brands that use on-premise sales to get a foot in the door. Shifting your restaurant sales to shops and supermarkets is not as simple as throwing a switch. Supermarkets especially favor big brands and broad product lines and there is some evidence that consumption patterns have moved in this direction, too.

One important impact of this shift, as I explained in an April 2020 Wine Economist column, is consolidation throughout the supply chain. Consolidation is a trend that extends far beyond the wine sector, of course. In an increasingly zero-sum market environment, large firms want to get even larger both in order to reduce margin-sapping competition and also to be able to negotiate better terms and lower costs. It’s not exactly wine-opoly — more vin0-ligopoly (insider joke for economics majors who remember the difference between monopoly and oligopoly, which is competition among a few big players).

Wine Wars / Price Wars

Econ 101 teaches us that one way that firms try to gain an advantage in a zero-sum game scenario is by cutting prices. This can quickly degenerate into a price war, of course, which is the ultimate negative-sum game for sellers (and a bonanza for consumers), especially if overall demand is price inelastic.

Are we seeing price wars on the wine aisle? As I explained in a May 2020 Wine Economist column, wine prices may be falling and rising at the same time, making it tricky to pick out net effects. If you are like me, your email inbox or Facebook news feed usually contains at least one discount offer from a winery or wine club — sometimes at incredibly low prices.

Looking narrowly at off-premise data, it appears that price premiumization continues. Sales of $25+ wines surged early in the pandemic period, for example. But, as I noted in May, these high price sales replace even higher-priced on-premise purchases at least in part. Those consumers were actually trading down as they shifted from restaurant meals and wine to home consumption. This is not a price war because it is cross-channel consumer behavior, but it will have that feel for wineries that cannot easily shift sales from on- to off-premise markets.

Game Changers

It isn’t easy to win if you think of the market in zero-sum terms (although not everyone agrees on this — President Trump famously proclaimed that trade wars were easy to win). Although there are many different strategies to consider, three stand out in my mind.

The first strategy is to analyze changes in market conditions and focus closely on growth segments. There is no single wine market, so a stagnant environment can a bit like a duck on a lake — quiet on the surface, but turbulent underneath. I wrote about Precept Wine in 2019, for example, highlighting their “Willie Sutton” strategy of putting resources into growth segments.

The second is simple: accept that the game is zero-sum and play hard to win on those terms. This means being very aggressive in terms of cost and price and making sure you are on the winning side was consolidation unfolds. Being big doesn’t guarantee success (small can be beautiful in a profitable niche), but there is no great advantage to being middle-sized.

The final strategy is to try to change the game. If wine vs wine is zero sum, try to shift the game to one with better odds. Don’t sell wine, sell a lifestyle. Don’t sell wine, sell community, culture, celebrity, or culinary connections. Ship the wine, sell the dream. Hitch your wine to a horse that can carry it to new market niches. Product differentiation — that’s what it’s all about.

What’s new about this? Nothing. The most popular wine magazines, for example, have long featured food, travel, and lifestyle as hooks for their wine stories.

In fact, using product differentiation to create and protect a profitable market niche is standard “monopolistic competition” theory.  But now might be a great time to think about what makes your wine’s offer distinctive and what you can do to protect yourself from head-to-head zero-sum competition.

Wine, Covid-19, and the Zero-Sum Dilemma

Last week’s Wine Economist column presented a “Guide for the Overwhelmed” that analyzed the current crisis in terms of its perfect storm of component parts. This week begins a short series of articles that try to put the pieces back together in order to better see the outlines of the future of global wine in the post-Covid era.

Zero Sum Economics

MIT economist Lester Thurow’s 1980 book on The Zero-Sum Society argued that America and the world had reached a turning point. An era of growth, where an expanding social and economic pie made it possible for many to gain without corresponding losses for others, was coming to an end, Thurow argued. This change in the economic environment would have broad and lasting consequences.

Example? Under the right circumstances (which can be tricky), open trade is a recipe for positive-sum growth while protectionist trade wars are zero-sum at best and negative-sum at worst. The 1980s proved to be a fertile decade for trade barriers, competitive currency devaluations, and other protectionist policies.

What caused the sudden shift from positive-sum growth with rising overall living standards to zero-sum stagnation? It was complicated, of course. But the 1980 answer in a single word was oil or rather the oil crises of the 1970s and the higher costs and restricted supplies that resulted.

The world, it seems, had organized itself around the assumption of cheap, plentiful petroleum. Scarcity and higher costs shocked the system in ways that few even imagined and helped set the stage for a generation of stalled living standards and frustrated expectations.

The focus of the zero-sum society, Thurow argued, would shift from equity and growth to distribution and conflict. Everyone would struggle for an increased share of the stagnant or shrinking pie and some would succeed better than others, increasing inequality. I recall that Thurow grew up in Montana and he must have imagined his Big Sky world of open opportunity closing down around him.

Covid Crisis / Oil Crisis

It is easy to see in retrospect that the 21st century B.C. (Before Covid) world was organized around the assumption that people could safely gather together and cheaply move about. Spending on travel and tourism, for example, increased dramatically as a proportion of total expenditure in the past two decades. Wine tourism and cellar door sales were important sources of growth in our industry. The post-Covid world will be different indeed, although just how different and for how long remains to be determined.

Is it reasonable to compare the Covid-19’s world economic shock with the oil crisis of the 1970s and its aftermath? Everyone knows the oil crisis was a game changer. The Covid crisis is different in many ways, so it is not a simple apples-to-apples comparison. From a macroeconomic standpoint, the oil shock was a supply-side event that produced stagflation. The Covid shock is more of a demand side disruption that risks a deflationary cycle. It is obviously too soon to know what the final picture will look like, but I would argue that Covid could prove in the end to be the bigger crisis in the long term.

The New Zero-Sum

Even if you accept that the Covid crisis shock is as serious now as the oil crisis shock was in its today, you might still disagree with the idea that the new world that it is creating will be more zero-sum than in the past, with a greater focus on how the pie is divided than in its growth. Why is the future likely to be a zero-sum environment?

One argument is that many parts of the economy are already zero-sum and that Covid simply magnifies and accelerates existing trends.  The recovery from the initial Covid recession in the U.S., for example, wasn’t the V-shape that many hoped for but more of a K-shape. Some parts of the economy (especially the financial sector) recovered very quickly. Other sectors continue to struggle, a situation made worse by the lack sustained economic stimulus. The rising tide did not lift all boats and the financial pages are full of multi-billion dollar M&A deals as businesses bulk up to grab market share.

If you saw the strong Q3 U.S. GDP figures that were released last week, you might think that the economy has rebounded and will resume previous growth quickly. But those numbers are the result of literally trillions of dollars of stimulus (and debt), which are unlikely to be sustained. And they don’t take into account the Covid second wave tsunami, which seems to be sweeping across the globe.

The second argument for stagnant economic growth can be found in the financial news, where the yield curve hugs the zero axis for at least a five year time-frame and monetary policymakers have pledged their support for the foreseeable future even if fiscal actors hesitate to renew stimulus measures. The overall economy is on life support and monetary authorities who lack the power to shock it back into life are determined to at least prevent flat-lining.

The likely result, according to the most recent Q4 2020 global forecast by the Economic Intelligence Unit, is the “zombification” of the global economy characterized by slow growth, low inflation, and high levels of debt. Does this sound like a zero-sum environment?

Wine and the Zero-Sum Economy

It goes without saying that the economic environment I’ve just described is not favorable to the growth of the global wine industry. This is especially true because of the importance of on-premise wine sales, which are most directly affected by the Covid pandemic.

Is the global wine market now zero-sum? And what are the implications if it is? Come back next week for thoughts and speculations.

Wine 2020: A Guide for the Overwhelmed

I’ve been thinking about what the global wine industry will look like when 2020 finally draws to a close and I’m feeling overwhelmed. So many challenges. So much to digest. Maybe you feel overwhelmed, too?

I did an internet search for “Tips for the Overwhelmed” and, well, it only made things worse.  So many tips for so many problems. One website had 44 ideas for what do to when you are feeling overwhelmed. Too much!

Here’s what has provoked these thoughts. Rabobank’s Stephen Rannekleiv and I will be having a conversation about the state of the wine business on November 4 in the first of a series of webinars on challenges and opportunities for wine. The webinars are meant to develop ideas that will be discussed at WineFuture 2021, an important global wine industry virtual conference set for February 23-25, 2021. (Use the links to learn more about the developing webinar schedule and the upcoming conference.)

Pre-Existing Conditions

My go-to coping mechanism has always been to break down problems into component parts, which can be somewhat easier to deal with, and then try to put them back together again. This is the break-down column where I’ll look at the challenges the wine industry faces. Next week’s Wine Economist will try to put things back together. As always, use the comments section below to suggest things I’ve left out or got wrong.

As we entered 2020, global wine confronted a number of serious challenges including …

 

Stagnant Long-Term Wine Demand.  As I noted in 2019 (in a column titled Global Wine’s Lost Decade) the relatively strong growth in global wine demand of earlier years peaked in around 2007-8 and has been relatively stagnant since then. (See OIV data above.) There are a varieties of demographic and economic theories for this condition, but the important fact is that no important wine region (with the possible exception of New Zealand) can be confident today that rising demand will smoothly absorb increased production.

In a way, the positive-sum game of the past has been replaced by a zero-sum situation depending on how the market is defined. That’s a big change.

The American wine industry entered 2020 with a lot of wine in the tanks and stagnant overall wine demand. Although wine sales revenues were increasing modestly, due to premiumization, the volume of sales, especially at lower price points, has fallen. Younger generations of consumers were not picking up the slack as baby boomers reduced consumption.  Hard seltzers and similar products accounted for most of the growth in beverage alcohol sales.

Climate Change Challenges. The supply side of the global wine industry is increasingly affected by climate change, both the global warming that we normally think of when “climate change” is mentioned and also the increased instability of weather that accompanies it. The 2017 global wine grape harvest was the lowest in a generation due to unfavorable weather conditions in key regions, for example. The 2018 harvest, however, was abundant.  Meanwhile global temperature records continue to be set year after year.

The bottom line is a boom-bust pattern due to climate change within a general environment of excess supply and rapidly evolving growing conditions.

2020 Perfect Storm

The events of 2020 (so far) have added additional challenges and headwinds. Chief among the events are …

The Coronavirus Pandemic  and Channel Shifts. The public health impact of the coronavirus pandemic is the most important thing, of course, but the closures and lockdowns designed to reduce contagion disrupted wine sales channels dramatically, too. There was a major shift in where people were located, with work-from-home replacing on-site work for many. Home was also the default location for those who lost jobs due to closures, suffered reduced employment hours, or simply needed to be at home to tend to family members including children engaged in remote learning.

Eating and drinking are now more home-based, too. Bars and restaurants were ordered to close or, if allowed to remain open, experienced vastly lower customer counts.  These factors resulted in a dramatic channel shift for wine sales, with on-premise replaced by booming off-premise sales. Overall wine consumption decreased little if at all, depending on locality, but the composition of demand changed, especially favoring high volume brands. Wineries that depended disproportionately on cellar door and on-premise sales were forced to pivot quickly to direct-to-consumer sales and other channels.

The Recession and Economic Policies.  Fear of contagion plus the policies necessary to safeguard public health created a global recession. Heroic economic stimulus in many regions lessened the short term impact of the initial economic crisis, but it is unclear that stimulus can be sustained as the health crisis continues.

There has been much discussion of the “shape” of the recession, with optimists anticipating a short V-shaped downturn and pessimists fearing a long Japanese-style L shape. At this point the two shapes that seem most relevant are W — initial decline and recovery followed by a second wave decline — and K — quick recovery in some sectors such as finance but continued decline in others, increasing economic inequality.

Needless to say, wine demand is conditioned by who has lost or gained income, how much, and how they see the future.

Wild Cards

Every important wine region has wild cards that make the situation more complex. Chile faces social unrest, for example, and Argentina must deal with financial risks as it walks the tightrope between international debt default and domestic financial crisis. Australia has entered its first recession in a generation and finds relations with China, a key market, under unwelcome pressure.

Europe and the UK seem locked in a Brexit death spiral, with wine caught in the middle. Wine is also in the crossfire in the EU-US trade war tit-for-tat, with US tariffs in retaliation for Airbus subsidies now followed by EU tariffs in retaliation for Boeing subsidies.

Wild cards abound in the US starting with wildfires in wine country and ending with the election, which has drawn every topic into the culture wars. What a mess! The wildfires, which seem to grow more destructive every  year in terms of direct impacts on vineyards and cellars, smoke taint issues for grapes and wine, and impact on wine tourism operations.

Winegrowers in the US are also anxious to know how the Constellation-Gallo deal, which should close in November, will work out. The deal is finishing in a wine market environment that looks very different from the one when it was first struck.

Add all these factors together and, well, it is no wonder that  you feel overwhelmed.  Pretty much no matter where you are in the world of wine or what position you have in the supply chain, you confront change and challenges on multiple fronts.  Tune in next week when I will begin a short series of columns that try to sort out what the future might hold.

Save the Dates: Wine2Wine 2020, WineFuture 2021, Unified Symposium 2021

The Wine Economist’s World Tour will be back on the (virtual) road in the next few months. Here are preliminary details about upcoming events that might be of interest to readers of this newsletter.

Wine2Wine 2020

The 7th edition of Wine2Wine, Focus 2020, will take place November 23-24, 2020. Usually held in beautiful Verona, this year’s program will be virtual.  The wine business in the post-COVID-19 era is the over-arching theme.

Focus 2020 features a quite fantastic group of speakers and topics. The program is wide-ranging and of course economic topics are accorded due attention. I will be talking about the problem of unstable exchange rates in the new normal economic environment, for example, and another session will analyze the prospects of peace in the US-EU trade war, where wine is caught in the crossfire.

WineFuture 2021

WineFuture 2021 is an ambitious event designed to help wine industry actors make sense of the perfect storm caused by simultaneous economic recession, COVID-19 pandemic, and global climate crisis. The event is scheduled for February 23-25, 2021.  I’ll be speaking about economic challenges and opportunities. The list of speakers is a who’s who of the wine world, so I’m flattered to be invited to participate.

Although the official event is a few months away, the important issues that need to be discussed won’t wait, so WineFuture is organizing a pre-conference series of free weekly webinars on key topics. Rabobank’s Stephen Rannekleiv and I will analyze some of the key economic issues in the first webinar on November 4, 2020.

Unified Wine & Grape Symposium

The Unified Wine & Grape Symposium is North America’s largest wine industry gathering. Both the conference and trade show, scheduled for January 26-29, will be on-line in 2021. The program, still in development, will be released in a few weeks and I get the impression that it will be even more ambitious than in previous years if that’s possible.

I will once again be moderating the State of the Industry session and making brief comments about the global wine economy. I wish we could all meet up in person in Sacramento, but that’s not really an option this year. So I look forward to seeing everyone on-line.

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Use the links above to learn more about these events and check back frequently to get updated information.

Book Review: Getting to Know Saké

Brian Ashcroft (with tasting notes by Takashi Eguchi), The Japanese Saké Bible (Tuttle Publishing, 2020).

Saké has always been a mystery to me. I have only been served it a couple of times and never with much in the way of introduction. Lacking background and appreciation, I have generally defaulted to beer on occasions when Saké might have been the more interesting choice.

Getting to Know You

I never got over the first hurdle. The upscale supermarket down the street (the one that I wrote about in Wine Wars) displays Saké over in the corner next to the Port, Sherry, Madeira, and Vermouth. This is not necessarily a poor organization, since Sakés are generally fortified, but there is a certain ghetto effect, too.

I was surprised when I looked closely at the Saké wall and discovered more than two dozen choices, including two craft Saké selections by Momokawa in Oregon. Lots of choices –big bottles and very small ones at all sorts of price points. And while some of the terms on the bottles were familiar enough, the language barrier was impossible to ignore.

Clearly a resource like The Saké Bible  is needed to open the door to understanding and appreciation. The book, colorfully illustrated and written in a casual, engaging way, provides a good introduction for newbies like me without ignoring the interests of  more experienced Saké drinkers.

Getting to Know All About You

We begin at the beginning. What is Saké? It isn’t beer even though it is brewed and it isn’t rice wine as is sometimes said. Saké is Saké. It is made with five ingredients, according to Ashcroft, but in ten thousand ways. The ingredients are rice, water, koji, yeast, and soil (so terroir is part of the story for some Saké). Koji is a fungus that breaks down the rice’s starch into sugar during the brewing process.  Each ingredient has many variables and options, adding to the product’s complexity.

I found something interesting on every page of this book. Some of my favorite parts are the chapters that trace the evolution of the Saké industry from  temple to small breweries to producers with global reach. Craft Saké is a thing now, as you might guess, and so both tradition and innovation are flourishing in Japan and around the world (Saké is brewed in Brooklyn these days — of course!).

I was also fascinated by the chapter on tasting Saké and pairing it with food as well as the detailed tasting notes for 100 top drawer products. The tasting notes encouraged me to think in terms of wine, which I found comforting. But there were some complications because Saké can be enjoyed at many different temperatures — and getting the chill right can be important.

One of my favorite tasting notes explained that a particular Saké  displayed a brightness when chilled, but evolved with syrupy apricot sweetness at warm room temperature. Served piping hot it had a mellow silkiness like milk chocolate. But in between room temp and hot was a no fly zone — “rather unpleasant” according to the notes. Interesting.

Getting to Know What to Say

The Saké Bible tells you everything you need to know about Saké in theory, but where do you begin in practice? From a practical standpoint, which of the many Sakés on the shelf is best for a newbie consumer? The cheapest? The most expensive? The one with the prettiest bottle or label? (Some of them are very attractive).

I wrote to author Brian Ashcroft for advice and he told me to begin at the beginning, just as most of us did with wine when we were starting out.

The drink itself is incredibly approachable and unintimidating. To be honest, start there. Try sake. Drink it. Don’t get bogged down. Find what you like. If you enjoy a specific type or brand, make a note and remember it for next time. But as with wine, always be willing to try more. For any food or drink, your senses are your best guide, and the more experience you have with the drink, the more you’ll appreciate the various brands and styles. The good thing is that there is lots of breathing room in how you enjoy the drink because one of the best things about sake is just how flexible it is–you can drink brews at a variety of temperatures, in different style cups and glasses, and with a range of food. Experiment. Explore. Have fun.

Have fun! That sounds like good advice. So, armed with The Saké Bible, I returned to my upscale supermarket in search of a particular style of Saké called Ginjo. Ginjo is made with highly polished rice, giving it a more delicate and refined flavor. It is good both at room temperature and chilled. Expect fruity or floral flavors.

Getting to Like You

The clerk at my store told me they sold quite a lot of Saké. My choice was a 300 ml bottle of Shirayuki Junmai Ginjyo Saké made by Konishi Brewing Co. in Hyogo Prefecture, Japan, which is a historic center of Saké production. Ginjyo is the style, Junmai means that it is made with rice only in the classic tradition.

Served chilled, the nose was full of melon aromas, with melon and cream on the palate. Creamy texture. I could sense the warmth of alcohol, but no harshness. Surprising and much different from my vague memories of previous Saké experiences.

I don’t know how far I’ll go in my exploration of Saké.  I feel like I have only scratched the surface of wine and that wine not Saké is likely to be my focus for years to come. But, for me, trying to get up to speed with Saké is important because I think it might help me understand something about the barriers that wine consumers face when they start out.

Things I’m Learning About You

Think back to your first experience with wine. Unless you had a patient guide you probably stumbled over hurdles of various sorts and sizes, including vast number of choices, wide range or price points, foreign terminology, government health warnings, and the occasional need for specialized equipment just to open the bottle.

Everyone is a newbie at some point and maybe the wine industry needs to give a bit more attention to lowering hurdles for the next consumer generation. Jamie Goode recently pointed out that, for most people, the first taste of wine wasn’t a thrilling experience. How can we give newbie consumers the confidence they need to take a second sip?

Two Buck Chuck worked a miracle drawing a generation of cautious consumers into wine. Now I wonder if they might go for hard seltzer instead, which is far from a gateway to wine.

Have fun! Are there other things we can learn from the success of Saké and its growing global following? Food (or maybe drink) for thought!

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Getting to know you? Here are the singing Lennon Sisters, just in case you didn’t catch all the musical references above. Enjoy!