Category Archives: wine

Flashback: Lawyers, Wine, and Money

September 27, 2022 By in AVAs, wine, wine investment 1 Comment

Recent Wine Economist columns have reflected on the Judgment of Paris and its impact on the Napa Valley.  I couldn’t help myself thinking back to 2010 and the column below, which I present here as a “flashback.”  Where do “lawyers, wine, and money” come into the Napa picture? Read on to find out.

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Stag’s {Stags’} (Stags) Leap

Originally published April 4, 2010.

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

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

Money, Wine and Lawyers

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

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

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

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

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

Lawyers, Wine and Grammar

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

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

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

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

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

Challenges Old & New

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

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

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

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The title of this post reminded me of a Warren Zevon song.

The Judgment of Paris and Napa Valley’s Road Not Taken

September 13, 2022 By in wine, wine history, wine markets 4 Comments

A journalist recently asked me to comment on the impact of the famous 1976 “Judgment of Paris” tasting of California and French wines. The California wines were very competitive, according to the scores given by the panel of French judges, and wines from the Napa Valley actually topped both the Cabernet and Chardonnay lists. Amazing.

Time magazine reporter George M. Taber was the only journalist in attendance and his exclusive story about the unexpected American victory was a shot heard round the world. His 2005 book, Judgment of Paris is worth reading and even re-reading today.

What if … ?

Would Napa Valley have grown and developed if the Judgment of Paris had not taken place? Well, yes, I answered, there was already a good deal of momentum stimulated by, among other things, the successful opening in 1966 of the Robert Mondavi Winery, the first major new winery in the valley since Prohibition.

In fact, local residents were already concerned about the masses of wine tourists clogging local roads and highways and over-whelming winery facilities back in 1972 when a KPIX Eyewitness News reporter paid a visit to see what was happening. Click here or on the image below to watch the vintage video report.

And there was already international attention, too. Domaine Chandon, the Yountville outpost of the famous French Champagne house Môet Chandon, opened in 1973, three years before the famous Paris tasting.

On the Road Again

So the Napa Valley was already on the road to big things even before the Paris tasting. But just about everyone agrees that the international recognition changed things.

It changed things for Napa and for California, but the impact didn’t stop there. Towards the end of his book, George Taber takes a bit of a global tour, showing us how the world of wine broadened as the result of a number of forces including, of course, the new perspective on New World wine that the 1976 tasting provoked.

Second Thoughts?

Revisiting the Napa Valley years after the Paris tasting, to gather insights for his 2005 book, Taber could see the result of the intense focus that his astute reporting helped create. There was growth, for sure, and lots of new investment, both domestic and by a long list of international wine luminaries including, of course, the Rothschilds who partnered with Robert Mondavi in 1978, just two years after the Judgment, to build Opus One.

Taber was concerned about how the boom was unfolding. Enormous wealth, vanity vineyards, trophy wines. “The Napa Valley unfortunately became another proof of the maxim that nothing succeeds like excess.” And a good indicator of excess, he proposed, was the price of vineyard land. Warren Winiarski paid about $2000 per acre in 1970 for the first Stag’s Leap vineyard, Taber reported.  In 1999 the owner of Far Niente winery paid $100,000 an acre for a 42-acres vineyard, which seemed like a lot. Francis Ford Coppola raised the stakes just a few years later, paying $300,000 an acre, a jaw-dropping price at the time.

Now, of course, $300,000 an acre for Napa Valley vineyards is not noteworthy or exceptional. $300,000 to $500,000 per vineyard acre (adjusting for the value of any production or housing assets) seems to be the norm, with some particular parcels going for even more.  The excess that Taber saw 20 years ago has not diminished.

Money, Taste, and Wine

Naturally this is reflected in the wine. Not all of it, of course, but it is easy to see a pattern. The focus in Napa is increasingly on its signature grape variety, Cabernet Sauvignon. I am sure this is about taste — the best Napa Cabs I’ve tried are really good — but it is also about money, I think.

Cabernet is the grape of Bordeaux, too, and some people are happy to pay much more for Cabernet than they would for Zinfandel, which was once widely grown in the valley but now not-so-much. Sky-high land prices require high grape prices which mean high bottle prices for the wine. King Cabernet is the surest bet, many believe, and so it increasingly carpets the valley floor.

Many of the wines are really distinctive — Sue and I have tasted some real stunners! — but some of them taste the same to my amateur palate. I call them Napa Valley Red Wine. Maybe this is true of all wine regions, even the great ones? In Napa they often sell for more than $100 a bottle and seem to satisfy the thirst of buyers looking for the taste of Napa.

They Think I’m Bragging

I am not the only one who is concerned about how the wines of Napa Valley have changed and how the flood of tourist dollars and investor wealth has led to excess. But whenever I bemoan certain aspects of the Napa wine industry environment to international audiences, they think that I am just bragging. All those tourists and fancy restaurants! All the celebrities and trophy wines! Such economic success and pure opulence!

Napa Valley is a dream to international wine visitors, and for foreign winery owners who long for their own Napa moment, their own Judgment of Paris. Who can blame them?

But what if the Judgment never happened? If you know the story, you can appreciate that it could easily not have taken place (of the results could have turned out differently).  Napa Valley would still have grown the thrived, I think, but it would be different today. What might it look like? Come back next week to see what might have been … and is.

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Thanks to Tony Correia for his help nailing down vineyard valuations. Thanks to Silicon Valley Bank’s Rob McMillan for his help locating the KPIX video, which was originally featured in a very memorable post on Rob’s blog.

Using Food to Drive Wine Sales the Italian Way

August 30, 2022 By in Italian wine, restaurant wine, wine Leave a comment

The conventional wisdom holds that wine and food are a match made in heaven — wine was food in many cultures in the past and still is in some places.

We would call food and wine complements in economics terminology. Products that are complements tend to be purchased together. Beer and pizza. Hot dogs and mustard. Burgers and fries. Get consumers to buy more of one and the sales of the complement will follow.

Problems with the Conventional Wisdom

There are always problems with the conventional wisdom, of course, and it is true that most food is eaten without wine (the US wine-drinking population is relatively small) and much (most?)  wine is imbibed away from the dining table. But the logic of pairing food and wine still holds along with the potential to exploit the complement relationship to broaden the wine drinker base.

Yet, apart from those supermarket wine displays throughout the store and restaurant wine pairing suggestions, I wonder how much effort has gone into exploiting the food/wine link? Certainly there are some worthy efforts — popular magazines like Wine Spectator and Food & Wine routinely feature chefs and restaurants as well as winemakers and wineries. Sometimes there are recipes and wine pairing suggestions. Wine selling food. Food selling wine.

But there are obvious missed opportunities. How many cable food programs bring wine into the frame, for example?  Last year I complained bitterly that Stanley Tucci’s CNN series on food in Italy was ignoring the obvious connection with wine! The preview episodes of the second season suggest that this situation has improved, but it is only a small victory.

Food needs to be treated as a key lever in developing a sustainable wine culture in the U.S. Regular wine drinkers are a small group, but everyone eats food. Most people love food. Some people (you know who you are) think about little else. Wine needs to find ways to insinuate itself more fully into that dynamic. Herewith two interesting approaches.

The Italian Dinner

Sue and I were invited to a dinner at Assaggio Ristorante in Seattle organized around the theme “From Italy to Your Table” as part of the Italian Denominations of Origin 2022 U.S. tour. Most of the usual suspects of the Seattle wine scene were in attendance and, although wine wasn’t the main attraction, a really useful food-wine connections was made.

Anyone who is interested in the wines of Italy soon comes to appreciate the many protected designations — DOC, DOCG — that define the national wine treasury (and also the often-exciting IGT wines that sprout up in the gaps that the DOC structure creates). Well, the gist of the dinner is that there is a world of food products in Italy with similar protected status and that pairing the food and the wine is a way to explore and understand Italy’s complex culinary world.

Thus, for example, a spaghetti al pomodoro with Pasta di Gragnano IGP and San Marzano DOP tomatoes was paired with a Chianti Classico DOCG wine. And a rather spectacular risotto al tartufo highlighting carnaroli rice IGP and Pecorino Romano DOP (plus black truffle, of course) paired with a Montepulciano d’Abruzzo DOC.

Like its neighbor France, Italy has made a point of recognizing its many special foods. Do you think there are a lot of DOC, DOCG, and IGT wine designations? Trust me, there are many more PDO and PGI food products. Sue started a list that ran from various sorts of meats and cheeses (of course) to garlic, olives, saffron, olive oil, vinegar, oranges, asparagus, basil, bergamot, turnip, artichoke, capers, chestnuts, cherries, spring onions, mussels, dry beans, flour, farro, hazelnut, figs, licorice, apples, aubergine, plums, breads, pistachios, and tomatoes before she gave up and poured herself a glass of wine.

The dinner was very successful — thanks so much to the chefs and the great service staff at Assaggio — but it wasn’t just that the food was good and the wines were good and pairings were tasty. It was also that the idea made sense. A room full of wine professionals was coaxed into thinking more seriously about their food using the familiar vocabulary of designated origin.

The next step is to switch things around and help foodies (and there are millions of them) translate their passion more directly to wine!

The Cheese Box

Wine and cheese are an obvious pairing — one local supermarket has located the cheese counter directly opposite the wine wall. Wine should sell cheese. Cheese should sell wine. Both offer a world of interesting choices. The combinations are almost endless. But curious consumers might need a little help get started.

This is what the people at curdbox and The Italian Selection have done with their curated wine and cheese offerings. curdbox offers monthly subscription shipments of cheeses and associated products to introduce consumers to different elements of the world of cheese (the September box features cheese selected in consultation with Food Network celebrity Justin Warner). Each $49.95 box contains

• 3 artisan cheeses
• 3 specialty food pairings
• Pairing info card with wine suggestions
• In-depth blog post
• Themed Spotify playlist
• Curdcast podcast

Cheese subscribers can add wine to the mix, which is where The Italian Selection comes in. Add wine to the subscription and The Italian Selection will send two bottles of Italian DOC or DOCG wine chosen to pair with the cheese selection.

We received the July 2022 curdbox, organized around the theme “Born in the USA.” Our box included

The Cheeses:

  • Hoop Cheese by Striplings General Store
  • Grand Cru Surchoix by Roth Cheeses
  • San Geronimo by Nicasio Valley Cheese Co.

and The Pairings

  • Speck Americano by La Quercia
  • Michigan Blueberry Preserves by Brownwood Farms
  • Everything Goes Nuts by Bobby-Sue’s Nuts

Here is a List of past curdbox seelections.

I was impressed with the thought that went into the wine pairings. We received a white wine (Cantine Terre Stregate “Trama”  Falanghina from Campania) and a red (Quartomoro di Sardegna “Òrriu” Cannonau di Sardegna). I asked the folks at The Italian Selection why they picked these particular wines and received a detailed reply.

The wines have the general characteristics that pair well with wine (no hard tannins, for example, good acidity) and also particular attributes of note. The floral notes of the Falanghina were cited as adding a feature to the pairing, for example, and the fruit of the Cannonau could play the role of fruit usually included on a cheese tray, too.

So what did our test crew think? We liked the cheeses quite a lot and enjoyed tasting new and different varieties. If the point of curdbox is to nudge subscribers to think outside the box a bit, we think it works.

We liked the wines, too, and enjoyed the pairings. The Falanghina was an immediate hit with everyone and changed with each bite of cheese. The Cannonau took a while to show the fruit we were looking for, but it came around eventually. The Falanghina was the discovery for us, however, and demonstrated clearly how curdbox subscribers might come for the cheese and stay for the wine.

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Many thanks to curdbox, The Italian Selection, and our friends at the Italian Trade Agency for their help making this column possible.

Wine Book Review / North Adriatic: Three Countries, One Terroir

August 23, 2022 By in book reviews, wine Leave a comment

Paul Balke, North Adriatic: Friuli Venezia Giulia – West Slovenia – Istria – Kvarner.   Wine & Travel Atlas.  Order the book via email: paulbarolo@gmail.com

Anyone who has seen Charles & Ray Eames’s famous 1977 video of “Powers of 10” (see below) understands that the way you see the world depends in part on how you choose to look at it.

In the video an everyday scene is examined first from steadily expanding scales (rising by a power of ten each ten seconds) and then deconstructed by repeatedly drilling down (by powers of ten again). Which view is correct? Why all of them, of course, it just depends on what you are looking for.

Bigger and Smaller

One view makes things seem bigger and the other makes them seem smaller (an Alice in Wonderland situation). It is important to keep perspective along the way.

The bigger/smaller problem applies to wine in many ways. Tasting notes, for example, have for a long time focused on breaking down wine flavors and aromas into their elements, like the second part of the Eames video, which is useful enough unless you are more interested, as many consumers may be, in how it makes you feel (a higher-level perspective).  The whole, we hope, is greater than the sum of its parts, but that doesn’t always come through.

Here in the United States one trend has been to try to break the terroir of wine=-growing regions into smaller and smaller American Viticultural Areas as wineries and regions seek to communicate their distinctive features and to build solidarity among producers. But deconstructing terroir in this way is not the only story and sometimes not the best one.

Or at least that is Paul Balke’s argument in his colorful and informative book, North Adriatic, and he makes his case in a way that will remind you of the Eames film. First, he steps back repeatedly, probing what connects the people and territory of the North Adriatic, with chapters on the trans-national regional history, geography, climate, and gastronomy (this volume is meant to double as a travel guide, so food is never far from the surface!)

Central to this section of the book is Chapter 4, which is a very short essay on borders. Its purpose is to make you think about borders, fences and divisions in an age of globalization.

Down the Rabbit Hole

The book soon reverses course with very detailed chapters on the wine regions of the North Adriatic. Each chapter is an enticing rabbit hole (another Alice metaphor) full of photos, maps, facts, and analysis.

The wine regions are Colli Orientali, Collio and Brda, Isonzo, Grave, Aquileia, Karst, Vipava Valley, Istria, and Kvarner. There are also chapters on the many grape varieties and orange wines, which are very much a thing here. Wine is the focus here, but not just wine. Given the first part of the book, it is impossible to see wine without taking in elements of the broader context.

It is not a criticism to say that these chapters are so full of interesting images and ideas that it is possible to get lost. The images of chefs and their food made me hungry.  Balke intends the book to be both a reference resource and a travel guide and I think he achieves his goal. I learned something new on each page.

What you won’t find here are detailed reviews of individual wines and profiles of specific wineries. That would require another book. This one is already bursting at the seams.

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Anatomy of the Provence Pink Wine Tide

August 16, 2022 By in wine, wine exports, wine markets 3 Comments

I don’t have to buy rosé. That’s not how I’ll earn enough to buy a little stone house overlooking the Mediterranean. Nor do I have to put up with the incredulous expressions on my clients’ faces when in the shop I recommend a rosé. “What do you take me for, a hick?” their expression demands. Or “Try that one on the next sucker, mister.” Or, “Let’s move on to something more serious.”

In the course of my buying trips I run across excellent wines with a rosé color. I don’t look for them. They appear. What can Ido?

So wrote wine importer extraordinaire Kermit Lynch nearly 40 years ago (quoted in the August 2022 issue of the famously readable Kermit Lynch newsletter). Pink wine is the People’s Choice in many markets but struggles for legitimacy among some wine drinkers.

I have read that Rosé outsells white wine in French supermarkets, for example, and American wine drinkers of a certain age will remember when the best-selling imported wines were Rosés from Portugal — Mateus and Lancers.

Rosé is once again getting a lot of attention. The Rosé tide has risen relatively speaking (the wine market has been pretty chaotic in the last few years), especially after 2021’s logistics struggles delayed some imports until the very end of the summer season or even later. Ugh.

The wines are even getting the critical attention they deserve. First Elizabeth Gabay MW published her 2018 book Rosé: The Pink Wine Revolution and now she and Ben Bernheim have released Rosés of Southern France.   Taken together these two books provide anyone who wants to explore the Pink Wine World with a clear and critical roadmap.

50 Shades of Pink?

Gabay and Bernheim’s focus on Southern France in the new book is appropriate. Although Sue and I have enjoyed Pink wines from all around the world, France is the obvious reference point. France is the largest producers of Rosé wines in the world and the largest consumer of them, too, although they tend to export upscale Rosés into the global markets and import less expensive Spanish wines for ready drinking.

Southern France is general and Provence in particular is at the center of the action. Provence and its pale pink wines define the Rosé category for many consumers, although I agree with Gabay that focusing on a pale shade of pink is a waste of time. I think I remember that Tavel Rosés were popular when I first started paying attention to wine and they still have much to recommend. I like, therefore, the playful design of Gabay and Bernheim’s new book, which emphasizes the appeal of a range of hues.

The U.S. is the largest export market for Provence Rosé, accounting for more than a third of export sales. Recent NielsenIQ data reported in Wine Business Monthly places the average Rosé bottle price at $11.39, which is higher than Cabernet Sauvignon, for example, and much higher than the market average of $8.48.

American consumers might once have confused Rosé with “blush” wines like White Zinfandel (average bottle price $4.40), but that’s no longer true. Just look at the pink wall at your local wine shop or upscale supermarket and you will see what I mean.

Three Faces of Rosé 

Sue and I were encouraged to probe deeper into the world of Provence Rosé when we received three editorial sample wines from Vins de Provence. The wines were sourced from the region’s three main appellations. Château L’Escarelle Rosé (in the Bordeaux-style bottle on the left) is from the AOP Côteaux Varois en Provence. The Ultimate Provence (UP) in the distinctive bottle, center, is Rosé AOP Côtes de Provence. And the attractive wine in the Burgundy-style bottle on the right is Famille Ravoire Costeval Rosé AOP Coteaux d’Aix-en-Provence.

These are premium products. Based on internet sources the price points appear to range from mid-teens for the Famille Ravoire Costeval to the high twenties for the Château L’Escarelle. It is not really fair to make a single wine represent an entire appellation, but Sue and I were game. Were the wines good representatives of Provence? Were they distinctive?

We paired the Ultimate Provence Rosé AOP Côtes de Provence with sausages and grilled vegetables from our garden. The Famille Ravoire Costeval Rosé AOP Coteaux d’Aix-en-Provence was paired with a Niçoise salad (grilled garden vegetables again) and the Château L’Escarelle Rosé AOP Côteaux Varois en Provence was terrific paired with a salad of fresh Dungeness crab and ripe garden tomatoes. Very different wine-food combinations.

Three Faces of Provence

We enjoyed all three wines — they represented Provence very well. They were very different from each other, however, as you would expect, so Provence isn’t a simple thing. The terroirs were different, of course, but so were the wine grape blends. Grenache led the list of grapes for one wine, and combinations of Syrah, Cinsault, and Grenache in the others. The Ultimate Provence, which was probably our favorite wine for its fruit and bright acidity, even included a bit of Rolle (aka Vermentino)!

Bottom line. Wine is pretty in pink. There is much to like if you just want to sit back and enjoy, but also a lot to learn if you take the exploration of regions, grape varieties, styles, etc. seriously. No wonder the Provence Pink tide is rising.

 

Wine and the No-Recession Recession

August 9, 2022 By in economic crisis, Economic impact, wine, wine markets 2 Comments

Are we headed for a recession here in the United States? Or are we already there? What about the future — the second half of 2022 and 2023?

If you follow economic news reports you have encountered all sorts of answers to these questions. And you can be forgiven for being a little confused and maybe quite a lot frustrated that the answers to these important questions are not clearer.  Herewith a brief guide for the perplexed with implications for the wine sector.

The Recession Question

The “rule-of-thumb” definition of a recession is when there are two consecutive quarters of falling gross domestic product (GDP). The U.S. economy is in a recession now by this definition because GDP fell in both the first and second quarters of 2022 (second quarter data subject to revision). By this measure, many of the world’s most important economies are either in recession, too, or teetering on the brink.

The two-quarter rule is very useful, but it is not the final world. The National Bureau on Economic Research (NBER) more formally defines a recession in a way that stresses depth, diffusion, and duration:  a recession is a significant decline in economic activity that is spread across the economy and lasts more than a few months.

The NBER’s more nuanced definition is better than the two-quarter rule, but it has some downsides. How significant is significant, for example? And how widely spread need the decline be? There is also the problem, unavoidable with lagged economic indicators, that a recession can only be declared well after it has started and will probably be over before the conclusion is called.

So we might be in a recession now — one that started months ago in fact — or we might not. We will only know for sure later on — perhaps when the recession (if there is one) is already over. Argggh!

Up, Down, Twist

If you follow business and finance news you will find evidence to back up any hypothesis you may have about a recession. Prices in some sectors are rising quickly (have you bought a airline ticket recently?) and plunging steeply in other areas.

There are plenty of stories of firms with squeezed profits, declining sales, and employee lay-offs. But there are also stories about rising sales and profits and, of course, the labor market puzzle, where the number of unfilled positions is about twice the number of people who say they are looking for work (but apparently cannot find it).

Last week’s job report was unexpectedly strong — the unemployment rate is only 3.5% and total employment is back to the pre-pandemic level — suggesting that the U.S. is not currently in recession, despite what the GDP figures say. Ironically, some analysts speculate that this good jobs news actually increases the odds of bad news in the near future. The reasoning is that the Federal Reserve will be forced to raise interest rates even higher now in order to slow control demand-driven inflationary pressures.

What’s the story? Is the economy up or down? The correct answer (which applies to wine, too) is … yes. If you are looking for a generalized answer to the recession question you won’t find it. Maybe it is best to say that the economy is twisting. The devil is in the details here and the answer you get depends upon where you look and how.

The Price is Right?

There are several reasons for this complicated picture. One of them is that the economy — like the wine market — is never all one way or another. Like the climate, it is always running hotter in some areas and colder elsewhere.

But another, particular to this moment, is the fact of rapid inflation because an inflationary economy works by different rules. In an economic system with stable prices, consumers cut back purchases when employment falls or when there is fear of unemployment. In an inflationary economy, the pressure to cut back spending affects a much broader set of consumers who find their budget squeezed by rising prices of necessities. Higher energy and housing prices (although moderating somewhat in recent weeks) have put the squeeze on millions of households regardless of job market status.

And so that’s what we are seeing now. So maybe the recession question isn’t the right one to be asking.

The Squeeze: A Tale of Two Worlds?

The conventional wisdom is that wine is recession-proof. Maybe. But an inflationary squeeze and the twist it creates is different and I don’t see how wine sales can escape unscathed.

Under these circumstances it is more important than ever to know your customers and the product chain that connects them with your business. Based on recent quarterly reports, for example, it looks like selling wine into mass market Walmart World’s part of the retail spectrum, where both the retailer and its clients seem to be really feeling the squeeze — is much different from selling wine into high income Costco World, where the squeeze is still on but the impact seems more moderate. So far.

Wine and the Dollar: Big Mac Index Update

August 2, 2022 By in exchange rates, wine, wine markets 3 Comments

The Economist newspaper’s most recent analysis of global exchange rates was released a few days ago and the results are noteworthy, especially for those of us in the wine trade where exchange rates are an important factor in both import-export flows and in the cost of imported bottles, corks, equipment, etc.

No News is News?

Exchange rates are in constant motion — most currency values change at least a bit — and sometimes quite a lot more! — on a daily basis. It is a fact of life in international trade and finance. But sometimes there is a strong secular movement that shakes things in a big way and the recent sustained rise in the U.S. dollar’s value is a good case in point.

There are dozens of forces that can shift exchange rates — I used to joke that the worst job in the world was the person who had to write the “exchange rate” headline for the Wall Street Journal every day because he or she had to boil down dozens of factors into a few words. I remember one headline that read “Dollar Rises on No News.”

There is plenty of news right now to explain the dollar’s appreciation relative to most of the world’s currencies and the most important explanation are rising U.S. interest rates that the Federal Reserve has implemented and is expected to continue this year. Rising interest rates attract short term investment funds from abroad. The dollar strengthens as the investment funds pour in until the point (to simplify quite a lot — experts please forgive me!) where the dollar is so expensive that the risk that it will reverse course and fall exceeds the interest rate premium that it earns.

Econ 101 Impacts

That’s what is happening now and the Econ 101 impact is that the strong dollar makes imports relatively cheaper for buyers in the U.S. but makes U.S. exports more expensive for foreign buyers. Imported wine will be cheaper because the currencies used to buy them are cheaper in dollar terms. U.S. wine exports will face a headwind because the strong dollar raises their cost to foreign-currency buyers.

A strong dollar is not, therefore, particular good news for U.S. wine businesses that compete with imports or have export aspirations. It is, however, potentially good news for U.S. importers of foreign wine and the owners of U.S. brands that rely upon bulk wine imports to fill their bottles, boxes, and cans. This bit of good news has been tempered recently, however, by international trade logistics issues that make imports more costly and delivery less reliable. The dollar’s value is just one factor in the complex web of wine trade.

The interest rate effect diverts the dollar from what is called the purchasing power parity (PPP) level, which is the exchange rate where the currency’s buying power is the same inside the U.S. as it is on the international markets. A currency that is at or close to its PPP level does of itself distort trade. If you have travelled abroad and thought the prices there were a lot cheaper (or more expensive) than back home, you have encountered a PPP distortion.

Big Mac Index Update

The Economist calls its Big Mac Index a “lighthearted” attempt to estimate the PPP level of exchange rates in order to see which are over-valued and under-valued using the ubiquitous fast-food hamburger’s price in local currencies as the foundation of analysis. It seemed like a silly idea when first revealed back in 1986, but the Big Mac Index has proved to be fairly accurate overall in its assessments. More often than not, major currencies have tended to converge over time towards their Big Mac PPP exchange rate.

So take a close look at the table at the top of this page (click on the image to enlarge it). The U.S. dollar is so strong that there are only a small number of major currencies — Switzerland in particular — that are over-valued relative to it. Most other currencies, including the Australian dollar, Argentine peso, and Chilean peso — are undervalued, which means their wine exports have an exchange-rate based competitive advantage in the U.S. market.

The euro is undervalued as well, but by much less than I might have guessed given that its value has tumbled toward dollar-euro parity in recent weeks.

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The Economist has also released an updated Big Mac index shown here, which is adjusted for differences in per capita GDP. The idea, in simple terms, is that many prices (especially for non-traded goods and services) will be higher in countries with higher income levels, so PPP settings need to take this into account.

Argentina and Hemingway

This adjustment is significant for some countries, as the table above shows. The Argentina peso, for example, is now calculated to be very much over-valued, not under-valued, and I think this is probably accurate. A Financial Times article published last week reports that peso’s black-market rate, which had been steady recently at about 200 pesos per dollar (compared with the official rate of about 130 pesos), has suddenly plunged toward 350 pesos. Such a shift is often a sign of a developing currency crisis.  Will the peso do a “Hemingway” — first decline slowly and then suddenly collapse? Stay tuned.

The currencies of Australia and Chile along with South Africa are still under-valued after the GDP adjustment, but the euro is shown to be over-valued, suggesting that, further depreciation is possible.

The U.S. is experiencing historically high inflation just now, which by itself would argue for a PPP-driven decline in the dollar’s value. But other major currency countries are having the same problem. And, in any case, rising U.S. interest rates, for as long as they last, will likely keep the dollar strong in the medium term.

The Bottom Line?

The bottom line? These are tricky times for exchange rates, with inflation pulling one way and interest rates the other. The dollar could continue to strengthen or, as expert Barry Eichengreen argued in a recent Financial Times, column, reverse course and fall.

Wine businesses that are sensitive to exchange rate changes need to be cautious indeed. You cannot control the exchange rate, but there are ways to hedge against unfavorable shifts using either forward exchange markets (you lock an exchange rate today for a set transaction in the future) or foreign exchange options (giving you the option to make a purchase or sale at a fixed future price).

Hedging is important if a business has significant costs or revenues in a foreign currency. Recent earnings reports suggest that some large and sophisticated businesses have not fully hedged their positions, however, with the result of unexpected earnings (or costs) due solely to exchange rate adjustments on otherwise stable transaction.

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What is a “Hemingway?” I have coined this term to characterize a particular pattern of decline. One of the characters in Hemmingway’s The Sun Also Rises is asked how he lost his fortune. Slowly and then suddenly, he replies.

Villamagna DOC: Leading the Way for Montepulciano in Abruzzo

July 26, 2022 By in emerging wine regions, Italian wine, wine Leave a comment

Villamagna is a tiny appellation by any measure: 85 hectares, seven producers, two wines (Villamagna DOC and Villamagna DOC Riserva). But its importance exceeds its size and points the way forward for Abruzzo and its Montepulciano wines. Sue and I only spent a few hours with the Villamagna winemakers, but we came away deeply impressed with the wines and the people who make them.

About the wines … well, I have been trying to think how to describe them to you and here is the best I can do. Do you know the wines of the Stags Leap District in the Napa Valley? Well, to me at least, the wines of Villamagna DOC are to Montepulciano d’Abruzzo wines in general what Stags Leap is to Napa. You can see the family resemblance in each case, but the wine from the smaller region is distinctive and makes a strong impression.

Distinctive by Design

It is not an accident that the Villamagna wines are distinctive. Starting in the 1990s some of the producers in this small village began to think about what they could do to increase quality and to stand out and perhaps above others in the region.  They had nature on their side, with soils and climate well-suited to quality grapes.  The vineyards are located about 10 km from the Adriatic Sea and about 10 km from the foothills of the Majella mountain range, so a combination of influences affect the grapes, including especially a large intra-day temperature variation during the growing season.

But natural advantages are not always enough, so the appellation founders began to identify specific areas with the best potential for high-quality grapes and to establish appellation protocols that would produce wines that were both individually distinctive but also clearly part of a common family tree. These efforts culminated in the creation of the Villamagna DOC appellation in 2011.

Higher and Lower

The standards for Villamagna DOC wines are higher than for Montepulciano d’Abruzzo DOC wines generally. The maximum permitted vineyard yield is lower, for example, and the minimum alcohol level higher. Americans will wonder why a higher alcohol level is desirable, since the problem here is often that alcohol levels are higher than we might like.

But the point of the regulation is to require producers to fully ripen grapes rather than pick early when the grapes are not necessarily of peak quality. Villamagna DOC requires fully ripe grapes that achieve at least 14% abv, for example, while the minimum standard for Montepulciano d’Abruzzo DOC is only 11.5% abv.

The ageing requirements are also different. Montepulciano d’Abruzzo DOC can be released in the spring after harvest. Villamagna DOC wines must wait two years (three years for Riserva) and spend time in oak.

A New Generation of Wines

Obviously, many Montepulciano d’Abruzzo DOC wines exceed the minimums in these areas, but there is considerable variation. The point is that all of the Villamagna DOC wines must meet the higher standards.

Elegant and powerful is how the producers describe their wines. I think I’d say elegant, balanced, and distinctive, with a line of bright acidity running through the wine that makes me think of Stags Leap.

The grapes and geography as very important, but Villamagna DOC is really a people story most of all because it is not very often that a small group of winemakers can achieve so much. Part of this can be explained by generational transitions within the wineries.  New faces and new thinking are useful indeed when the world of wine has changed and quality, not quantity, is the surest path to success.

But it is inevitably more complicated than this because the seven wineries are such a diverse group. Some are very old family affairs while others have been established during the period when the Villamagna DOC project was evolving. Two are cooperatives, which is noteworthy since changing directions, which is never a simple thing, is even more challenging when cooperative members must be convinced to give their votes.

The seven members of the Villamagna DOC are Agricosimo, Cantina Villamagna, Cascina del Colle, Palazzo Battaglini, Piandimare, Torre Zambra, Valle Martello. Congratulations to them all for their commitment and achievement.

The Road Ahead

But it is too soon to rest on laurels. Making excellent, distinctive wines is the beginning of the project. The next step is to get the word out so that the wines can have the market (and earn the prices) they deserve.

And then? Well, the step after that is for other Montepulciano d’Abruzzo DOC producers to follow along by making a very serious commitment to quality both in the cellar and vineyard.  The vast majority of Abruzzo wines are Montepulciano and elevating both the wines and their reputation won’t happen overnight. But it is the way forward in today’s market.

Quality by Design at an Abruzzo Cooperative Winery

July 19, 2022 By in cooperatives, Italian wine, wine, wine markets Leave a comment

The first thing you notice as you approach Cantina Frentana is the tower, which rises up over the flat landscape and trellised vines like a lighthouse. And in a way it is a beacon, shining a bright light on the future of Abruzzo, Italy’s underestimated wine region.

Abruzzo Lighthouse

The tower, Torre Vinaria, was originally built in 1958-60 with the practicalities of winemaking in mind. A gravity-flow winery, as you probably know, is thought to be gentler on the wine because less pumping is involved (and economical of labor, too, I think). Such facilities are frequently built on hillsides, but there are few suitable hills so near the Adriatic coast, so the grapes were hoisted to the tower’s top floor and worked their way down until they were finished wine at the bottom.

The tower, 28 meters high and 18 meters in diameter, is thus a symbol of a thoughtful commitment to quality. It was also a statement of confidence and ambition because it was created along with company itself, which is a cooperative or cantina sociale as they say in Italy. Cooperatives are generally born in times of crisis for grape growers, who band together to make and sell wine from their grapes when other market opportunities are scarce. To have this tower rise up from tough vineyard times was indeed confidence and optimism.

Preserving Vineyards and Grape Varieties

Ninety-two growers signed a deed to organize the Cooperative Society “Cantina Sociale Frentana” on November 16, 1958. The first vintage was released (and the famous tower completed) two years later. Now, after more than 60 years, the cooperative has 500 members who collectively farm 1000 hectares (or about 2500 acres). The average vineyard size is small, only 4 hectares or about 10 acres, and so there are many members who farm very small plots indeed.

As the years have passed and the founding members grown older year by year, the cooperative has had to face the fact that interest in the hard work of grape growing is not always passed down to the next generation. To keep membership alive, therefore, it has instituted what it calls the vineyard bank.  The cooperative contracts with the elderly grape grower and family to manage the vineyard for them, thus allowing the family to maintain membership, ownership, and income.

Cantina Frentana is committed to preserving native grape varieties, especially the distinctive local white grape  Cococciola. Indeed, it is the largest producer of this wine in the region and, hence, in the world. Still, sparkling, or a bit frizzante, it is a delicious wine.

Stronger Brands, Higher Margins

A generation ago, when Burton Anderson surveyed Abruzzo for his classic Wine Atlas of Italy, the number of high-quality producers he found could be counted on your hand. The rest, including the cooperatives that dominated the landscape, bet on quantity over quality. And in a big way.

The statistics that Anderson cited in 1990, were stunning. Abruzzo’s wine production often exceeded the output of Tuscany or Piemonte, for example, with less than half their vineyard areas. This was made possible by pushing vineyard yields to the highest average in all of Italy — 133 hectoliters per hectare, according to Anderson. I calculate this to be about ten tons per acre on average, which is high given the viticultural practices then in use and the fact that red wine grapes dominate the market.

Get the Incentives Right

High yields, and the lower quality that often follows, creates a vicious cycle. High output and low quality push prices down. Swimming upstream against this current by raising quality is risky and expensive, so the incentives are to push for even higher yields to make up in volume what is lost in margins. This can be a race to the bottom.

Cooperatives are often part of this problem, which is why they have poor reputations in some regions, but it doesn’t have to be the case as Cantina Frentana shows. In my experience there are three steps that cooperatives must be willing to take to move ahead in quality. It is all about getting the incentives right.

First, grower members must commit to sell all of their grapes to the cooperative. Otherwise, they will sell the best grapes privately (or make their own wine from them) leaving the cooperative with the low-quality product. Second, the cooperative must be able to vary grape price by quality, so that growers will find the lower-yield/higher quality trade-off attractive. If all grapes are worth the same, we are back to the race to the bottom again.

Finally, the cooperative must be able to refuse to purchase sub-standard grapes. This is obviously necessary if quality is to be maintained, but difficult from a social standpoint because cooperative members are also neighbors and sometimes even family.

Necessary But Not Sufficient

Cantina Frentana satisfies my quality cooperative checklist, but it is important to remember that these are necessary but not sufficient conditions for success. Excellent wine is the beginning not the end in today’s crowded and competitive marketplace.

Cantina Frentana impressed us with their wines, commitment to quality, ability to adapt to changing natural and economic climates, and their efforts to build brands for their wines and margins for their grower members. Cooperatives like Cantina Frentana are part of the promising future of wine in Abruzzo.

Back in Burton Anderson’s day, a cooperative winery was probably the last place someone would send us to learn about the promising potential for Abruzzo’s wine industry. Flash forward to 2022 and Cantina Frentana was our first stop. There is a message there.

Is Abruzzo the Next Big Thing for Italian Wine?

July 12, 2022 By in emerging wine regions, Italian wine, wine, wine markets Leave a comment

Is the Abruzzo region the next big thing in Italian wine? That’s the question on our minds here at Wine Economist world headquarters after returning from a media tour of Abruzzo last month. The tentative answer is that Abruzzo has the foundation needed to move up to the next level in the Italian wine hierarchy. Abruzzo is on the rise — let’s see how far it can go!

Abruzzo By the Numbers

From the standpoint of volume, of course, Abruzzo is already a big thing. Abruzzo boasts 33,000 hectares (over 80,000 acres) of grape vines, of which more than half are planted to its signature red wine grape, Montepulciano. Total production is 3.2 million hectoliters or more than 35 million 9-liter cases of wine each year. About a quarter of the wine is designated DOC.

There are more than 250 wineries in this region. With more than 6,000 grape growers it is obvious than many of the vineyards are quite small. No wonder, then, that cooperative wineries are very important here (as they are in most of Italy and Europe generally).

The “Good Value” Curse

Montepulciano d’Abruzzo and Trebbiano d’Abruzzo wines are produced in large quantities and are available world-wide. But, as I wrote a few weeks ago as we were preparing for this visit, the wines entered the U.S. market years ago at what were then the “sweet spot” price points. As the market has moved up to higher price tiers, however, Abruzzo’s wines (like those of Chile) lagged behind s bit, recognized for their   good value rather than great quality.

Indeed, I remember stumbling onto a big 1.5 liter bottle of Montepulciano d’Abruzzo by a well-known producer at a local Grocery Outlet discount store a few weeks ago. It was priced just above the Two Buck Chuck level. Not the best advertisement for Abruzzo wines!

The Abruzzo wine producers have adopted a strategic plan to raise the profile of their wine region (the media tour, which included journalists from North America, Europe and the UK, and Asia was part of that program). One small step that I think will be important is to establish a stronger Abruzzo identity by unifying some of their classification systems and adopting the logo you see above. This sort of strategy worked very well for Sicilian wines and it holds promise for Abruzzo.

Abruzzo Has Much to Offer

Tourism (and not just wine tourism) is one way to strengthen a regional identity in today’s competitive market. How many people do you know who took a Douro River cruise in Portugal, for example, fell in love with the country, and have been buying Portuguese wines ever since?

Abruzzo has a lot to offer tourists who take the time to explore. There are golden beaches on the Adriatic coast, for example, and delicious seafood served at restaurants located in converted trabbochi (extravagant fishing shacks built at the end of long piers).

There is beautiful scenery and charming towns in the hills and mountains, too, with wonderful food including juicy porchetta and tasty grilled lamb skewers. All this with fewer crowds than in the better-known tourist spots. Honestly, Abruzzo is hard to beat once you make the modest effort to get there. Abruzzo’s visibility in the world of wine will rise as more and more people discover its many charms.

Abruzzo Pecorino Potential

But wine regions are ultimately built on the quality of the wines they produce and we come away from our brief visit very optimistic. Part of this, as I will explain over the next two Wine Economist columns, is because of specific efforts to raise quality and create distinctive wines that we discovered. But a lot of it is because of our overall impression of the region’s wines, which I think was shared by many in our group.

The clear favorite among the wines we tasted were those made from the Pecorino grape. These white wines, both still and sparkling, were bright and appealing — alive in the glass for the most part — and seemed to us to be a perfect fit as the U.S. market shifts to white wines, especially Sauvignon Blanc, with a bit more zip than Chardonnay and Pinot Grigio.  We also enjoyed fruity white wines made from the Cococciola grape, which has only relatively recently been upgraded from blending grape to a varietal wine. But Pecorino was the star.

Pretty in Pink: Cerasuolo 

The other hit with our group was Cerasuolo d’Abruzzo, a darkish rosé wine made form the Montepulciano grape. It was distinctive and delicious — perfect for the warm evenings we experienced. Some producers have been encouraged to make paler versions for the U.S. market because of the perceived prejudice against darker pink wines, but I don’t see the point. Anyone who tries this wine will want more.

So what about Abruzzo’s most important wines — Montepulciano and Trebbiano d’Abruzzo? Perhaps it was because of the heat, but the red wines didn’t impress as much as the whites, although (stay tuned for upcoming Wine Economist columns) we did find some really memorable wines. And, with a few exceptions, the overall impression of Trebbiano was overshadowed by the Pecorino wines.

The Road Ahead

One logical market strategy might be to highlight the Pecorino and Cerasuolo wines, which match so well with trends in the U.S. market, while raising quality standards for Montepulciano and Trebbiano. Indeed, it seems to me, that’s exactly what’s happening now.

But there are still many questions to be answered before Abruzzo’s wine sector can fully achieve its clear potential. Can the cooperative wineries, which are so important here (and were sometimes in the past blamed for low standards), raise their game? And can Montepulciano, the most-planted grape variety, refresh its image? I will address these questions in the next two Wine Economist columns.

The global wine market is almost insanely competitive. The standard is constantly rising. The Abruzzo producers we met have listened to what the market is saying and found a pathway ahead.

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Thanks to the Consorzio di Tutela dei Vini d’Abruzzo for inviting us to visit the region and learn more about it and its wine sector. Special thanks to our friends at I.E.E.M. for taking care of all the logistics and making the visit as smooth and enjoyable as possible.

We are especially grateful to four wineries who generously hosted us during out visit and showed us some of the very best of Abruzzo wines:

Cantina Frentana:  A cooperative winery on the move. See next week’s Wine Economist for details.

Agriverde Winery:  An award-winning winery seriously committed to environmental goals. Ambitious vision matched by achievement. Keep an eye on this one!

Bosco Winery: Historic family-owned winery that both looks back to tradition and ahead to the future. We could spend all day in the family museum, wandering with a glass of great wine in our hand.

Margiotta Winery:  A perfect example of a small family winery making excellent wines. Humble and proud in equal measure. Italian wine at its best.