Category Archives: Wine Economics

Repackaged, Repriced: Trickster Branding in the 21st Century

In the February edition of Wine Business Monthly, Kevin O’Brien penned a noteworthy article filled with curious nooks and crannies.

Good news! Wine sales continue to grow, especially in the $10-$25 category. Sales of $6-$10 wines have meanwhile declined. This has resulted in the “premiumization” of the wine business. Even better, wine drinkers are lusting for honest wines. “. . . consumers are continuing to demand premium products across all beverage alcohol categories as they seek an authentic, high-quality experience.”

Of course, corporate wineries want in on this action, but only have a few options (beer drinkers, this should sound familiar):

  1. Increase price of existing wines
  2. Create new labels and reprice
  3. Buy premium brands*

As a consumer, beware of number two and a flip side of three. Thankfully you aren’t being duped by numero uno.

In the face of falling cheap wine sales, corporate wineries with substantial vineyard holdings have the need to put that fruit to better use. Quick, put the marketing department to work! Slap a new, shnazzy label on the identical bottle of vino (or nearly identical), get the PR machine buzzing, and out of the corporate sphincter comes a glimmering new bottle for the new and improved price of $15 (formerly $8).

Beware.

Massive producers have also used a related though sneakier tactic. “It should be noted that these large transactions, as well as several other completed during the year, were primarily focused on the brand rather than underlying vineyard or production facilities. A leading driver behind ‘asset light’ transactions is the flexibility in grape sourcing and resulting scalability of the brand.”

Decode: Corporate wineries gobble up a sexy, premium brand name, leave the vineyards and production facilities behind, and then put their less costly, already held vineyards to work under the newly acquired brand label.

Clever, clever, and harder to detect. The answer, the same tried and true answer, can be found in the following:

“The recent wave of wine industry transactions has been notable for its size and breadth. These acquisitions have been driven by suppliers’ desire not only to improve profitability through increased scale but also to remain relevant to their wholesaler and retailer partners. The past few years have seen several significant mergers between some of the country’s largest wholesalers and retailers. As the distribution funnel continues to narrow, wineries are finding access to the market increasingly difficult. . . . In general, larger retailers prefer to work with larger wholesalers in order to better integrate and simplify their supply chain and forecast demand.”

Corporate wineries need one of the big three distributors to move their product into the large retailers. It’s that simple.

Gallo     Constellation Brands    The Wine Group    Bronco Wine Company

Breakthru Beverage     Southern Glazer’s     Republic National

Safeway     Total Wine     Costco     Whole Foods*

The answer, my friends, remains the same. Shop your locally owned wine retailer, get to know your steward, and you will bring home bottles with authenticity, character, and value. You will also support three authentic tiers rather than the behemoths above.

 

  • *Premium brands = wineries producing $20+ wines
  • *Whole Foods has historically worked hard to diversify shelf space with large and small wineries. However, results at any given store vary by state, and market pressures continue to push retailers of this size to consolidate and simplify i.e. work with fewer distributors and reduce options on the shelf.

Sources:

The Sandbox

“He walked in, pulled out a roll of hundreds, and flipped me two,” gnarled the no-nonsense owner of a boutique wine shop. He had been paid by the largest distributor in the state for bringing in ten cases of wine.

This is illegal.

In his case, a customer requested the cases for a special event—he had no intention of stacking* them in his store. In fact, he thought the wine was shit. He also didn’t know he’d get the payout. From the perspective of the conglomerate distributor, his purchase had triggered the payoff. Send in the man with the wad of Benjamins. Interestingly, Mr. Heavy Pockets is a separate employee than the distributor’s sales rep who typically services the shop.

Nestled on the edge of a wealthy, Midwest suburb, this one-man wine shop prides itself on small-production and high-quality wines. The owner doesn’t cower to the Powers. He simply received an unexpected, free date night, paid for by a customers large order, and mediocre taste.

Courtesy of Wikipedia Commons

As I walked out the door with my distributor’s sales rep, he said, “Yeah, I’ve heard it before. I’ve talked to some larger shops that say, “I’d love to stack your wine, but I can’t give up the $140 a month I get for that stack.” Both the winery that employs me and our distributor here can’t play this game. Both small and family-owned with honorable values statements, we wouldn’t dare, nor can we afford to dance this dance.

The words “pay to play” get thrown around frequently in the wine world. In the age of wine distribution mergers, the game keeps getting scarier for the thousands of small to medium-sized wine producers. You want your wines on certain shelves and restaurant wine lists, get ready to pay. While not always Benjamins, money flows to these accounts circuitously. And we’ve only talked about distributors.

Over the past week, Wine Spectator released their “Top 10 Wines of 2016” through a countdown. Seeing the producers on the list from my region, and having tasted hundreds of 2014 Willamette Valley wines, I have a tough time believing these producers landed on the Top 10 by merit of the juice alone. In fact, Wine Spectator doesn’t even deny the non-blind nature of the picks. While most of the industry uses the term “X factor” to describe a thrilling bouquet or texture that carries something unique and sublime, here Wine Spectator directly states something quite different:

“Then when you take the bag off, that’s where the X Factor comes in. Is it a new domain, new producer, great value? What is it about the wine—that’s the back story that adds to the excitement.” Senior Editor James Molesworth, Wine Spectator 

And of course, how did these wines receive their high scores in the first place? Plenty furrow their brows at the correlation between advertising dollars spent and scores received. Here I do not levy my claim at Wine Spectator alone, nor do I levy it at all publications. None the less, plenty of room to wonder.

While none of this news should surprise us in the 21st century, it should still unnerve us. And if you want to settle those nerves, go find that honest suburban shop owner and ask him what he recommends. It is the path to better wine and a better world, locally and globally.

 

*Stacking = to stack multiple cases of the same wine to prominently display it, typically reserved for the $15 and under category in medium to large wine, beer, and liquor stores.

Sources

Tar, Barnyard, White Pepper, Compost

What makes expensive wine so expensive? I get this question more than almost any other. And it is a great question. Many layers weave together to create a wine’s price tag (Wine Economics Part I, Part II, and Part III only scratch the surface). However, a remarkable reality persists—the large majority of wine drinkers don’t particularly enjoy drinking expensive wines, especially the exalted wines of the Old World*. Blind tastings of regular folks have consistently shown no correlation, or even a negative correlation, between the wines they like and the price of the wine.±

A view from the patio at Bethel Heights in the Eola-Amity Hills AVA of Oregon

The tasting descriptors of lauded Old World regions provide clues as to why this phenomenon exists. Open a five year old Beaujolais Cru from Morgon, France, and the slate stoniness and tart acidity, along with the second-fiddle role of fruit aromas and flavors, shock many wine drinkers. Head south to the Northern Rhone of France, and the Syrah punches the palate with savory black olive, bacon, white pepper, and charcoal. Aged Bordeaux? Wet dusty road, tobacco, truffle, compost, and gravel, with fruit once again singing back-up. The list of the “great” wines goes on in similar fashion. And on. Karen MacNeil argues that Great Wine must display a degree of non fruitedness. See the tasting notes above, and you get her point. For most, though, non fruitedness dominates many of the  great wines, sucking the pleasure provided by the primary fruit flavors.∞

So why the hell does anybody want to drink the expensive stuff? Some argue that wine drinkers experience an evolution of the palate. In reality, the exploration of wine becomes academic. How does a presentation on the macroeconomics of suburban zoning arouse the minds of some fellow humans (this one’s for you, Mom)? The act of diligent study, over time, begins to stimulate neural connections that never previously existed. Consequently, hard work and forced study slowly shift into a pleasure inducing experience. In the words of Twain, “Then his work becomes his pleasure, his recreation, his absorption, his uplifting and all-satisfying enthusiasm.” Blessedly, for wine drinkers, we get to relish in the initial “work.” Absorption and enthusiasm grab hold, and the mind takes the reigns. How do soil, place, and grapes create this? No, winemakers in the Piedmont commune (village) of Barolo don’t add tar extract into their wines. So how does this happen? A wine enthusiast is birthed.

Enjoy the wines you enjoy. When the hard work takes you to a new place, step into the bizarre novelty that surrounds you.

The lush life of bud-break wine experiences.

The lush life of bud-break wine experiences

*Old World = Western and Eastern European winemaking regions, including France, Italy, Spain, Germany, Greece, and Austria, where winemaking first took root.

± http://www.wine-economics.org/workingpapers/AAWE_WP16.pdf

∞There is certainly an American bias in this article. This bias likely plays a substantial role in answering why Americans’ prefer cheap wines. Our processed food, salt and sugar-added diet likely skews our palate toward sweeter, fruit-driven wines. I would love to see a break down of “average consumer” wine preferences in Europe compared to the United States.

A Romantic Ideal Must Tumble

I recently read an excellent article on “White Label wines” by Madeline Puckette and Co. over at Wine Folly. Except for one glaring bullet-point:

“Some wineries with tasting rooms will make a few own-vineyard wines, but will use bulk wine sources to make their cheaper, lower-end affordable bottlings. We’d ask what’s the point of selling something you pre-bought, rather than making at the winery? But it happens…”

It certainly does. Frequently. And understandably so.

First, what is bulk wine? Many established wineries at all quality-levels sell some of their finished wine on the bulk market. This is purchased by the gallon by other wineries or winemakers, typically at a fair tariff. Why would an established winery sell off the fruit (wine) of their hard-earned labor? Sometimes the wine is flawed. Other times it simply doesn’t make the cut for the premiere producer who grew the fruit and made the wine. One man’s trash is another’s treasure, though, and I have drunk many fine wines in the $12-$20 range that resulted from the latter. Finally, some producers sell finished, bulk wine to increase short-term cash flow. It turns out that bottling, labeling, marketing, selling, and then taking a hit in the three-tier system (producer, distributor, retailer) costs wineries a lot of money.

Punching down the cap of fermenting red wine.

Many wineries buy bulk juice, and for essential reasons. For instance, young wineries buy bulk to produce enough volume to create a viable business. Owning your own vineyards is an expensive proposition (understatement of the year at Wagon Wine), and buying fruit is also expensive as a result. Buying some bulk juice allows many new, small, and moderate-sized wineries to enter the market and sustain their business.

I certainly respect the notion that established wineries need not turn to the bulk market.

Thankfully, Madeline contradicts herself at the end by writing:

“We’ve pointed out several issues that white label wines can have, but we believe there’s a lot of potential with this segment of the market. The bulk wine market involves a lot of great wineries and great wines from special places all over the world. A lot of these producers are focused so much on making wine that they lack the resources to market it. Winemaking is very capital-intensive, and the winery may need to sell wines in bulk to raise cash faster than they can sell their own wines, even if the wine is perfectly good.”

Yep, and many young winemakers and wineries rightfully take advantage of this “perfectly good” juice to create their entry-tier wines. Perfectly understandable, and ultimately beneficial to us, the consumers.

So yes, Madeline, transparency matters. And not all bulk juice is equal. However, don’t take a sledgehammer to a nail. Bulk juice in entry-level bottles sustains many reputable, small to medium-sized family wineries.

The Tiers Produce Tears: Tear it Down

I recently returned from a marketing trip with my employer, a small Willamette Valley producer of Pinot Noir and Chardonnay. As we explored the Minnesota market, meeting with local wine shops, three separate owners asked pointedly, “Will you be in Total Wine? If so, we won’t carry you.” Early in 2014, Total Wine & More entered Minnesota, grabbed hold, and shook it like a martini. A few locally-owned shops have closed, including the beloved Four Firkins. While appreciated by many buyers for their substantial selection and low prices—a reputation buoyed by titles like “2014 Retailer of the Year” by Wine Enthusiast—we should pause and reflect on the big box economics of Total Wine.

Total Wine carries an array of wines produced by medium to large producers. Their margins? Minimal—lower than any locally-owned shop can match. This clearly harms the boutique shops, but it also abuses the smaller wineries carried by Total Wine. Yes, Total Wine pays the same price to the distributors as any other shop, and so the wineries make equal money when sitting on the shelves of Total Wine. However, the low markup ultimately devalues any wine on the shelf, and consequently any brand on the shelf. Small to medium-sized boutique wineries only thrive if they create a value brand rather than a discount brand. Big box economics undercuts the value.

Let the sun shine upon the back alley short cuts that lure so many of us.

Let the sun shine upon the short cuts that lure so many of us.

Total Wine makes one exception to their minimal mark up philosophy—their private labels. They amass a fleet of private label wines, which they create through contracts with wineries around the world. “You make the wine, we’ll provide the label.” This model allows the producers to move volumes of mediocre to crappy wine easily, thanks to the serious power wielded by large entities like Total Wine. It also masks the grape growing and production facts, allowing Total Wine to mark these private label wines up substantially more than the other brands on their shelves. Total Wine stocks over 2,500 private labels, and sources report 53% of their sales come from these private label wines. This ultimately means that Total Wine’s management, and subsequently store employees, have an incentive to push the private label wines.

Thankfully, unique Minnesota distribution laws allow some local stores to cleverly fight back.

Shop at locally owned and operated stores, wine and beyond. civiceconomics.com “Local Recirculation of Revenue”

This story, of course, is not unique to wine, and this fact only bolsters the message. We all benefit when we shop at locally-owned stores. Michael Pollan, food writer and journalist, first turned me on to the power of voting with my money. Every dollar spent is a vote for that product, that company, that retailer, and the business practices that support that chain of businesses. A son of a rural Minnesota business owner, I shouldn’t have needed Pollan to clarify the power of shopping locally. Yes, you may pay an extra dollar or two*, but the benefits so clearly outweigh the cost, sun to a grain of sand.

 

*Take advantage of case discounts at your local wine shop, and prices come nearer to alignment when comparing the superstores and small shops.

Sources:

Focus on Fruit

There are no short cuts.

As a new “insider” to the wine trade, I walk the hallowed halls with antennas tuned for insight. For one, I hope to uncover the vineyard gems that supply the best value Pinot Noirs in the valley. I, like many of you, spend most of my nights sipping wines in the $10-$20 price range. The Willamette Valley, however, only seems to deliver $20-$60 Pinot. How can we reconcile this dilemma?

Pinot Noir hanging in Lichtenwalter Vineyard in the Ribbon Ridge AVA

Pinot Noir hanging in Lichtenwalter Vineyard in the Ribbon Ridge AVA

Nearly half of Oregon producers purchase all of their fruitº from independent vineyards or significant estate vineyards owned by others. These wineries do not own vines, and as a consequence pay the market prices for their fruit. Pay $1600 per ton for your Pinot Noir, and you will get your $15 bottle from the Willamette Valley. Unfortunately, it will taste like it too, as these vineyards often rest on the flat lands outside of the blessed zones for primo Pinot Noir. Pay $3000 per ton for your Pinot, and you will start producing wines that sing. . . and you will charge $30 per bottle to cover the cost. Many have touted, “Great wine is made in the vineyard.” This is a truth, and as a consequence winemakers pay for quality wine. There are no short cuts.

Unless. Unless the producer owns an estate. Those who own a vineyard and make wine from it have unique opportunities, especially when they have owned portions of their vineyards long enough to bury the loan notes. Through ownership, they have fixed their costs for fruit*. If this estate is on ideal vineyard land, and if the owner and winemaker value producing value, and if they have volume enough to sustain a business**, and if they do not build a lavish, over-the-top winery and tasting room, then they could possibly produce memorable $18 Pinot Noir in the Willamette Valley. This estate likely needs to be outside the sexiest AVAs, or the allure of that name will tempt the hands in control to charge the prices they can command. Importantly, the $18 bottle will only be one of many wines offered by this winery, and the rest will fall into the $25-$60 price range to support a balanced ledger.

The odds of the stars aligning for you, the hopeful consumer? Minimal. Reality leaves me craving $15 Willamette Valley Pinot Noir that inspires, and thankful I receive industry discounts. Quality cannot come from wine cellar magic. “You can make a bad wine out of great fruit, but you cannot make a great wine out of bad fruit.” For the $10-$20 seekers of quality Willamette Valley Pinot Noir, a handful of producers do compassionately craft affordable, insightful Pinot. Ultimately, though, the economic winds of this challenging varietal blow, like a February gale, against us.

 

*Fixed cost is not 100% literal here. Tax payments will rise as land values increase, and labor costs for tending the vines will increase over time. However, you purchased the land at a set price, and you have locked in that value.

**5 acres of Pinot Noir will not allow you to produce $15-$20 Pinot Noir of quality if you want to sustain a livelihood, rather than take a vow of poverty (very few fit this bill).

ºhttp://industry.oregonwine.org/wp-content/uploads/Final-2014-Oregon-Vineyard-and-Winery-Report.pdf

Price Matters: Important Words from Giorgia Casadio

“You must know the price. Ask! You are professionals!” Giorgia Casadio began to preach her gospel. Too many wine professionals had come to her table, tasted her wine, and failed to inquire about the price of each bottle. A group of Wine Bloggers Conference attendees shifted, alert on the chairs and bed corners of a fellow blogger’s hotel room. “I recently tasted a Cabernet in Napa Valley. It cost $140 a bottle. In Italy, it’s understood that it’s easy to make excellent wine when it costs $140. Judge a winery based on its table wine, its $15 bottle. That is the truest test.”

Amen.

Expensive wine deserves respect, and if worthy of the price, it can penetrate your psyche for years to come. However, with a high price comes the unique opportunity for the winegrower to coddle the vines and juice endlessly to massage them into producing profound wine. Terroir also influences quality, and it too adds to the price tag—prime vine real estate commands fortunes. Some wine historians contend first and second growth Bordeaux* grew into their titles rather than earning them justly in 1855. Essentially, the chicken or egg debate applies, and world-class quality came second. The prices the “First Growth” designation allowed wineries to charge gave them the capital needed to produce stellar wine.

Flip the equation. What can a winery create for $10 a bottle? This depends on terroir, care, and commitment. Vineyard managers and winemakers must take the time and energy to weave through the tangles and nuances of their vineyards and varietals. Which corner of your vineyard will blend with another vineyard row a mile away to produce a wine better than the two parts? Which varietals will uniquely meld to enhance and elevate the finished wine? Will you care for the lesser locales within your vineyards with as much force and drive as the rest? Will you seek out the over-looked acres hiding on and beyond the edges of your AVA? I respect producers who care enough to ponder these questions and heed their call. These winemakers craft memorable wine for the common man. Amen, Giorgia.

Tuscan vineyardsThe vineyards of Villa Trasqua in Tuscany

Giorgia attended the 2015 Wine Bloggers Conference to share her wines from Villa Trasqua. Her Tuscan winery deserves respect at every price point, which speaks to Giorgia’s truth. Seek value. Does the wine rise above others at the price point? Thankfully you can find her valuable wines in 14 states, including Washington and Oregon.

2013 Traluna Toscana Rosso ($13): Red fruited with a pinch of baking spices. Mostly Sangiovese with a bit of Alicante Bouschet, this table wine currently strikes me as a bit discordant. However, age will certainly allow it to meld (age-worthiness quickly became a theme when tasting through a line up of Villa Trasqua wines). 13% abv. Good (will likely move to “delightful” with age).

2009 Fanatico Chianti Classico Reserva ($25): 100% Sangiovese, this Reserva resonated purity. Rustic, sexy, honest, age-worthy, memorable—a benchmark wine. Stellar.

2008 Trasolo ($120): Made with 100% Merlot, round, dark fruit produces a lush depth. Aged in new French oak, the fruit stands up proudly against its force. Italian-style shows through this historically French grape. Surprising. Excellent.

*The 1855 Classification System solidified a hierarchy amongst the wineries of Bordeaux. First growth estates, the top-tier, only number 5. The list goes from first to fifth growth, though the large majority of wineries in Bordeaux exist outside this classification system.

Unscientific Reflections from a Millennial Wine Writer

As a wine writer, reader, and consumer, I hear a lot about the significance of the Millennial Generation on both the current and future wine trade. Millennials in the United States have taken to wine at a younger age than previous generations–my personal experience concurs. Projections suggest we, Millennials, will continue to play a substantial role in the evolving wine world. Therefore, I posit a few reflections as a Millennial wine enthusiast and writer.

I was born in 1984, placing me on the mature end of the Millennial Generation. During the thirty-one years of my life, the wine industry witnessed a brief decline, followed by a boom sparked by the easy money of the ’90s and an evolving American palate (over-simplification noted). Since the early ’90s, Americans have doubled their consumption of wine (1).

Today, most of my friends and acquaintances fall into the middle and upper-middle class, and nearly all drink wine (only three of us work in the industry). Weekday gatherings, summer celebrations, and special events typically involve wine alongside craft beer. Male-centric events will often go without wine. Conversely, events including more women frequently have a higher proportion of wine served. When my friends and I buy wine, we seek value–quality for the dollars we spend–and rarely spend above $15-$20. $20+ bottles stay in the cellar (basement–let’s be real) for special events. My peers fortunately fall in the rare minority by making it into the upper-middle class. However, this has come with significant debt burdens that accompany master’s degrees and PhDs. We will continue to spend most our dollars in the $8-$15 wine category for the next decade.

Any politically or sociologically aware person has learned of or experienced the effects of a dwindling middle-class. For Millennials, college debt sits at the center of our financial challenges. Skyrocketing college costs in conjunction with the shrinking middle-class should raise concern for the wine industry (as well as other industries). It bodes poorly for the future if trends continue. Wine spending is discretionary spending–first to go if when times get tougher. While the top 25% can sustain a wine industry, including boutique wineries, we should all hope for a broader and more robust economy. In other words, I can only imagine how vigorous the wine industry would be if the Millennial generation also lived the reality of a strong middle-class as we did in the 1950s (a decent graph to demo this point). Drink for thought.millennials

A sample from this Millennial’s cellar

Beyond price, when my friends and I buy wine, we seek authenticity, exploration, and a story–especially stories that display respect for the land. I seek out second label wines from small to mid-size wineries for these reasons. Large businesses make mass-market wines–good, drinkable, and forgettable. They often taste just like that other mass-market wine you drank last week. I have great respect for the mid-size winery that crafts distinctive second label wines. The Old World does a better job, unfortunately, of creating a diversity of wine styles, types, and flavors at lower price points, even within one wine region (the Loire Valley, for example). In addition, those who enjoy affordable, diverse Old World wines have recently benefited from a strong U.S. dollar, which has lowered the price tag on imports.

When you add this up, no surprise that Millennials seek deals. Deals and steals often require middle-men (distributors) to get out of the picture. Naked Wine, Garagiste, and 90+ Cellars all exemplify a model that Millennials have supported and will continue to embrace (see previous post on buying wine). Distributors will continue to see their influence shrink. I shed no tears.

Finally, expect more canned and boxed wine, as well as wine on tap (kegged wine). For the sake of the environment, convenience, and economy, Millennials appreciate these relatively new means of delivery. 

I embrace tradition with ambivalence. Wineries of the world, give me a story I can believe, grow grapes and craft wines of distinction, and speak to how your place expresses itself in your bottles. I will be there to savor and write about it.

Wine Economics Part III: Reputation

“What’s in a name? That which we call a rose by any other name would smell as sweet.” The Bard strikes to the heart again. In many ways, the first two posts on Wine Economics (Part I and Part II) danced around the importance of reputation. Today, we will hit the nail squarely on the head.

Haut-Brion, Romanee-Conti, Screaming Eagle (can you tell which winery is in the United States?), Margaux. Want a taste? Go take out a loan first. These names have garnered every superlative under the heavens. Apparently, nothing smells as sweet as those that carry notable names. The famous palates of the globe (world, not theater) score these wines straight into the realm of untouchable—95 points on an off vintage. Many have earned the perfect one-zero-zero. Countdown—kaboom! Prices have taken off! All of the above wines fall into the “cult wine” category, and most readers don’t need the advice to steer clear. You don’t really have an option.

Reputation carries great weight, and that weight can pull the price down or lift it sky-high. Individual wineries work hard to differentiate themselves from the pack, and the aforementioned wine critics are one tool in the bag. Most wineries, however, will never see the famed 95+ point mark, and therefore strive for the more important 90 point threshold. Recommendation #1: If value matters to you, buy 89 point wines more often than 90+ wines. Many critics have a bias toward big and bold, largely because they taste so many wines that only the brutes stand out. A plethora of 89 point wines fill wine shop shelves waiting to be appreciated for the blend of primary and secondary aromas, balanced fruit and acidity, and food friendliness. The brutes will take a club to your meal.

Evidence also exists to deny and support Shakespeare’s claim. Many of the great wines of the world, when stripped of their name in blind taste tests, have not smelled as “sweet” to the loftiest of critics. A few famous blind tastings have lifted up the lowly, and cast the mighty down. So perhaps when we broaden “name” to a varietal, a Cabernet Sauvignon by a name other than Screaming Eagle, Caymus, or Shafer can smell as sweet, seductive, compelling, nuanced, and complex. I recommend you find out for yourself.

Now pan 180 degrees left. Lindeman’s, Columbia Crest, Hardys, Casillera del Diablo: these also carry weight—the weight of the masses. These wineries play a different game, and most of you have heard of them as a result. All of these names offer good wines under $10. Breaking into the bulk wine business requires big money, and connections with the Costco’s and Trader Joe’s of the world. These mega wineries, and many others, have succeeded at this disparate game. One thousand $10 bottles earn you as much as that bottle of Haut-Brion.

Once out the doors of the winery, we look out upon the vineyards (location) and varietals discussed in Part I and II. Reputation plays hardball here also. Napa Valley Cabernet increases confidence, and often the price, more than Colorado Merlot. Piedmont Nebbiolo more than Languedoc-Roussillon Grenache. A parable. The owners of Division Winemaking Company, a Portland, OR label, started receiving phone call after phone call one evening. “What is going on?” Finally, one of the numbers popped a friendly face onto the screen, and so the owner answered. “Eric Asimov just recommend your Gamay Noir as the top choice this Thanksgiving.” Division Winemaking Company makes wine at a local cooperative winery they started. Number of cases? A grain of sand in the Sahara of wine. Read more here

Learn from this story. Reputable wines have typically earned their acclaim, but delightful value wines, at all price points, sit in plain sight in the new AVAs, at the local cooperative winery, in the lesser known wine-producing states and countries.

Recommendations to exemplify the point:2013-pinot-noir-bulls-eye_fitbox_300x800

And here ends the III part series on wine economics. Many simplifications exist in the information above. Economic factors certainly overlap and intertwine in a complex manner. However, generalities are necessary to discuss the topic meaningfully, even if imperfectly. 

Clearly, these three posts have only tickled the surface in regards to the manifold factors tilting wine prices. For example, labor costs, the winery facility and tasting room, and distributors also affect prices, and have gone unmentioned until now. I have also discussed economic factors in isolation without attempting to weigh the importance of these individual puzzle pieces. None the less, these broad strokes afford us the  opportunity to analyze our purchasing choices, and hopefully expand our wine repertoire. Allow the hidden gems to delight and surprise you.

Wine Economics Part I: The Land

Why can I buy a solid, terroir-nuanced Cabernet Sauvignon from Washington for $18, while I can’t buy an equally alluring Pinot Noir from neighboring Oregon for under $30? Why the huge variety and volume of respectable Languedoc-Roussillon red blends (France) for under $15, while I can’t buy equally unadulterated* cabernet sauvignons for that price from California? These two scenarios only hint at the tip of the economic iceberg when it comes to wine. The price tag at our local wine shop reflects a complex web of factors leading to that ultimate number. I will devote a series of posts to the factors that weight price tags toward affordability or incomprehensibility.

Part I: The Land

Location, location, location–economically impactful in real estate, retail business, and wine. How can one Napa Valley Cabernet Sauvignon sell for $150, while another bottle from vines grown within eyesight sells for $18? Vineyard location plays a role (discussion of other factors in upcoming posts). The $18 bottle almost certainly originates from grapes grown on the flats at the bottom of the Napa Valley. Flat, fertile valley bottoms encourage abundant growth and yields, and frequently mediocre wine as a consequence. Hillsides, even gentle slopes, typically have more shallow, less fertile soil. Grapes stress in these soils, and as a consequence put more energy into the fruit for the propagation of the plant. Stressed vines produce better wine. Therefore, hillside vineyard sites cost more money in notable grape producing areas–Napa Valley, for instance. The steepest vineyard sites can also add additional expenses due to the relative inaccessibility and associated labor costs to maintain the vines. 

More broadly, land values fluctuate drastically because of other geographic factors. California and Washington’s Columbia Valley serve well as counter-examples. For those who have travelled the Columbia Valley AVA, it is a vast, sparsely populated desert. As a consequence, the value of vineyard land often costs pennies to the dollar in comparison to most California vineyards. Many California AVAs, on the other hand, exist near population centers. California has also received global praise for the production of fine wine for decades longer than Washington. Both of these factors drive land prices higher than similar vineyard sites in the Columbia Valley. The Columbia Valley, of course, has exceptions to the rule. Some sub-AVAs have garnered reputations that drive prices sky-high. Red Mountain, for instance, recently sold land at a competitive auction for a hefty price. Expect more Columbia Valley vineyard land to follow suit as Washington continues to gain international respect. Back in California, the Central Valley, well away from the moderate climate on the coast and the largest population centers, proves the exception in the state, but few grapes recognizable as important wine grapes grow here. Rather, this relatively inexpensive valley produces an abundance of teinturier grapes intended as additives to serve as an inexpensive filler for many, if not most, bottles under $20 from California (and around the world). Wine regulations in California, and most regulations nationally and globally, allow for 10-15% of the juice to come from varietals not listed on the bottle, which gives wineries the option to top off bottles with inexpensive filler. Up north, Washington wineries producing bottles under $12-15 likely use similar or identical additives made from teinturier, but the climate, in conjunction with inexpensive land, greatly reduces the need for additives in most years.

The Columbia Valley AVA. Note the vastness and lack of development in the background. Courtesy of Seven Hills Winery.





Land ownership can also give wineries an economic advantage. For instance, an upstart winery in Oregon, which recently purchased 40 acres of prime Pinot Noir growing real estate, now owes banks or investors for this purchase. This new winery will need to pass on the land expense in the final cost of the bottle (unless the owner cares naught for the economic viability of the winery itself, a scenario that plays itself out with surprising frequency–enter the “hobby winery”). Some wineries in the Old World have had the economic advantage of owning their land for hundreds of years. This allows them to either lower their price, giving them a competitive advantage, or provide additional revenue to invest as they see fit.

The land grapes grow upon exists within our global, competitive economy. As evidenced by the details above, many of the same factors that create disparities between home values significantly impact the cost of wines we purchase from our favorite wine shop. Location, for one, matters. 

Many simplifications exist in the information above. Economic factors certainly overlap and intertwine in a complex manner. For instance, not all low-lying vineyards produce bad wine. Proper vineyard management in low-lying vineyards can produce excellent wine. The soil also plays a substantial role. However, people seeking to produce bulk, value wine frequently choose cheaper land–the lowlands. Generalities are necessary to discuss the topic meaningfully, even if imperfectly.

Finally, excuse the long hiatus. An unexpected death in my family, in conjunction with the holiday season, postponed my writing ventures. 

Coming soon, Wine Economics Part II: Grape Varietals and their Economic Impact. Happy New Year!

*Unadulterated = limited technological and chemical manipulations e.g. additives (Mega Purple), spinning cones to reduce ABV (alcohol by volume), etc.