Michael Veseth's Grape Expectations

Grape Expectations has moved! Here is the new address.

2008-01-24T15:15:00.000-08:00

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Grape Expectations has moving to a new location with a new name that more clearly reflects the blog contents. Click on the link below to visit the new blog (all the old blog contents will be found there, too).

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Mike Veseth

Washington and Oregon Wines in London

2008-01-21T12:52:00.000-08:00

There is a special tasting of Washington and Oregon wines in London today, held at the Institute of Contemporary Arts at 12 Carlton House Terrace. More than 190 wines from 40 Pacific Northwest wineries are being sampled. Marty Clubb of L'Ecole 41 in Walla Walla is leading an educational seminar about the Washington wines and Howard Rossback of Firesteed is doing the same for the Oregon products. The event is funded in part by a $200,000 federal trade grant. I believe it is the largest organized effort (so far) by Northwest winemakers to break into the European markets. It will be interesting to see if this seedling can grow to bear fruit.

Washington and Oregon are important winemaking regions, of course, but their reputations and sales are concentrated in the United States. Although Oregon Pinot Noirs are always included in the discussion when people anywhere talk or write about new world Pinots, the fact is that not much of it is sold abroad. Oregon wine sales in the UK and France were just over 2000 cases in 2006, for example, out of total production of 1.6 million cases. The word may be out around the world about Oregon wines, but wine distribution and sales haven't followed -- yet.

I don't have figures for Washington wines, but I suspect that the situation is more or less the same. Washington makes excellent wines (better than Oregon wines, if you judge by the Wine Spectator and Wine Advocate ratings, where several Washington wines receive 95+ points), but so far Washington doesn't seem to have that one distinctive wine that could establish an international reputation. The state is too varied, I think, in terms of climate and geography for that to happen. Washington is Riesling country, judging by volume of production, but it hasn't yet established an international reputation with this wine (although it is trying to do so with the Riesling Rendezvous conference). A variety of reds do well here, including both the Bordeaux and Rhone varietals, but no signature style of wine has emerged as the champion. Marty Clubb is telling the people in London that Washington has the ideal climate for wine (that's the official Washington wine theme), which may be true but doesn't really define the product for confused international buyers.

Washington does have one advantage over Oregon in the export market: distribution muscle. The Washington wine industry features a few very large players that have the financial clout to potentially open up foreign distribution channels. Money is necessary; it isn't easy to establish a brand abroad in this crowded market and margins on exports are necessarily lower than for domestic sales, at least at the beginning. I have read that export sales by small scale winemakers are "vanity" projects and there may be some truth to this. That doesn't mean it's not worth doing, however.

The Chateau Ste Michelle family of wines have penetrated some European markets. I was surprised to discover a large display of CSM wines in an upscale supermarket next to the train station in Riga, Latvia, for example. I haven't been able to find out how the wines got there yet -- my guess is that CSM's deal to distribute Antinori wines in the U.S. may be reciprocated by Antinori in Europe but I don't really know. Other Washington wines including Columbia, Covey Run and Hogue are part of the Constellation Brands portfolio, which may aid in their international distribution, too.

The London tasting isn't the first effort to get Northwest wines attention in the UK. I remember being in London in about 1990 and walking into Fortnum and Mason only to be shanghaied by an excited clerk who was directing anyone she could to a lonely wine tasting display where they were sampling wines from Hogue Cellars of Yakima. Needless to say, no one had any idea where Yakima was located, but they were amazed that such a unlikely place could produce good wine. Today's London event is a much larger project than that Fortnum display, but the goal is much the same, to make friends, establish relationships, and get our foot in the door.

I hope the London tasting goes well. Many of the wineries are apparently looking for UK distribution, which makes sense. The UK is the most important wine market in the world. It is a good market to sell wine and to establish a worldwide reputation. A disproportionate number of the world's leading wine writers and experts are based in London, including Jancis Robinson, Oz Clark, Michael Broadbent and Steven Spurrier. A good word by any of these celebrity wine critics would encourage wine enthusiasts in the UK and around the world to give Northwest wines a try. But the real prize would be a distribution deal with Tesco or Sainsbury's, which dominate supermarket sales, or one of the big high street wine store chains, since you can't try wines you can't buy.

One reason this is a good time to try to break into the UK and European markets is that the exchange rates favor U.S. exports. The dollar fell dramatically in 2007 against both the Pound and the Euro, making U.S. wines relatively less expensive. This will help, but it will still be difficult to get British wine drinkers to think beyond Gallo and one end of the market and Napa Valley at the other.

It's tough to break into foreign wine markets. Ernie Hunter famously did the DIY way -- he brought his wines to London and entered them in the Sunday Times wine festival, where they won the people's choice award. Ernie was from New Zealand and his surprise victory paved the road for Marlborough Sauvignon Blanc's dramatic rise in the world of wine. Washington and Oregon are taking a direct and organized approach, with tastings and seminars. Every case is different. My next post will tell an unlikely story of how Washington wines first came to Sweden.

Globalization, Wine Value and the Two Buck Chuck Index

2008-01-11T08:54:00.000-08:00

Has the globalization of the wine industry given us the best of wines, as many wine drinkers believe, or the worse of wines, as the film Mondovino suggests?

Two economists from the Whitehead School of Diplomacy at Seton Hall University address this question in the December 2007 issue of the Journal of Wine Economics (see full reference below). Their conclusion? Globalization has benefited American wine drinkers, who have a broader choice of quality wines at lower prices.

That's pretty much what my supermarket empiricism leads me to conclude, but can it be proven scientifically? Here's how the article's authors arrived at their results.

First you need to define what it is that American wine drinkers are buying. The authors decided to focus on the Wine Spectator annual Top 100 list of wines. This has the advantage of limiting the study to a reasonable number of widely available wines. The Top 100 list is chosen each year on the basis of price, wine rating, availability and "excitement." Many people use rankings like the WS 100 to guide their purchases, so I suspect that there really is some correlation between what is on the list and what is on store shelves and restaurant wine menus. The disadvantage of limiting the study to the Top 100 is of course that most of the wine sold in America -- the inexpensive Gallo, Yellow Tail and Two Buck Chuck wine -- does not make it to this or any other "top" list. If we want to know if globalization has improved choice at the middle and bottom of the market we will need more research.

The authors examined the WS 100 lists from 1988 - 2005 to determine (1) where the wines came from, (2) how much they cost and (3) their quality as measured by the WS ratings. They then calculated measures to determine changes in the geographical concentration of the wines (more or less choice in terms of countries of origin), the average quality rating and the relative value to consumers as measured by rating points per dollar.

What we learn from this is that the overall quality of the top wines has stayed relatively constant over the years, but the real price has fallen and the range of offerings has increased. It cost $4313 (in today's dollars) to purchase the entire WS100 in 1988, for example, but just $2622 to buy the Top 100 wines in 2005. The cost per "point" of ratings in 1988 was 46 cents, so a hypothetical average 90-point wine cost $41.40. The per point cost was 28 cents in 2005 and so a hypothetical average 90-point wine cost just $25.20.

The top wines came from just six countries in 1998 versus 11 countries in 2005, an indication of the globalization effect. A great majority of WS100 over the years have come from four core wine countries: Australia, France, Italy and the U.S., but the proportion of non-core wines has increased, too, from just 5 percent in 1988 to 24 percent in 2005.

The authors divide the wine world of this study into Old World (France, Italy), New World (Australia and the U.S.) and "New-New World" (New Zealand, South Africa, Argentina and so on). Globalization has brought American wine drinkers more and more excellent New World and now especially New-New World wines that provide the same quality at lower average prices, according to the study.

Research like this is interesting both for the questions that it answers and for the new questions that are raised. It would be interesting, for example, to find how important the four criteria for selection are -- price, rating, availability and "zing" -- and if the relative weight they are given has changed. As the wine market has expanded, for example, greater emphasis may have been put on price and availability, leading to a Top 100 that leans more toward (global) good value wines.

It would also be interesting to see if the editors respond in any way to external forces. A lot of people read and study the Top 100 list, so perhaps they use it as a way to build the wine market (and thereby indirectly build their potential subscriber base). A focus on value would be consistent with this goal. A Top 100 list that you can't find or can't afford doesn't build the wine market and won't sell many magazines. The fact that there are more New-New World wines might reflect rising quality and availability of these wines or it could indicated that the WS editors desire to add these wines to keep costs down, value up and the market growing. In other words, the WS100 might show more choice and continuing good value because that's what the WS editors want it to show. I suspect that the truth is that the market has evolved toward global good value and that WS has been part of that process, encouraging people to try New-New World wines by putting them on the Top 100 list.

Exchange rates could also play a role here. The dollar has fallen against most currencies (increasing the cost of imported wine), but the depreciation is not uniform. The Euro is much more expensive but the Argentine peso has not changed as much. If would be interesting to see to what extent the WS100's New-New World globalization has offset exchange rate driven increases in Old World wine costs.

Another interesting question relates to the idea of value in wine purchases. It does seem to me that people often find themselves buying WS points or Parker points more than the wine itself because they are unsure of their ability to judge quality. One local wine merchant had a sale of wines rated 90 points or more for $20 or less. The idea was that the wines must be good value because of the low cents per point ratio. But there is more to wine than rating scores, as anyone who has tasted high-scoring wines will tell you.

It might be interesting to try to put together a slightly more sophisticated wine value index using WS and other ratings. I don't think that cents per point is a good measure because it assumes a linear relationship between money and quality -- and we all know that is not the case. Very expensive wines frequently receive much lower ratings than their cheaper competitors. I understand that a $100 Chardonnay came in last at the tasting where Two Buck Chuck won the Gold Medal.

Even where price and quality are correlated, the relationship isn't necessarily linear. The average price difference between an 86 point wine and a 88 point wine may be pretty small, for example, but it might cost a great deal to go from 92 to 94 points if the demand for the very best wines is particularly strong as is often the case in winner-take-all markets.

The price-quality relationship, even using imperfect wine scores as a measure of quality, is certainly non-linear. No wonder wine buyers are so confused -- and depend so much on ratings and lists like the WS100.

Here is a simple alternative to cents per point as a measure of value. Let's adjust price and quality for a baseline wine: Two Buck Chuck. You could call it the TBC index. Suppose that you can purchase a 70-point (to just make up a number) TBC Chardonnay for $2 (or $3 here in Washington State). The question we want to answer is how much does it cost to improve on TBC? A wine that gives you a lot of additional value for only a little additional money is a good deal.

In other words, the TBC index would be a relative index of value calculated by asking would be how many points in excess of 70 (or whatever the quality of the baseline wine you choose) you can buy for the dollars you spend in excess of the baseline cost. Here's a numerical example. A 88 point wine for $20 would have a TBC rating of (88 - 70 points)/($20 - $2) = 18 point/$18 or a dollar a point. An 86 point wine for $10 would be a better value because (86 - 70)/(10-2) = 16 points /$8 = two points per dollar. It seems to me that this is a better (but still badly flawed) indicator of relative value. (Economics students have already realized that I am applying the principle of decision-making on the margin to this problem).

Perhaps I will find some students to work on the TBC index, perhaps using a different base wine for each varietal or wine type. I predict that their research would find that the "optimal" TBC point is being pretty close to the heart of the premium wine market -- right on the center shelf in the supermarket -- where so many wine brands compete for your wine dollars.

Wine ratings are very important in some parts of the wine market and very controversial, too, so I think I will see what I can learn about them. With this in mind I have subscribed to six different wine-rating publications: Wine Advocate (Robert Parker), Wine Spectator, Wine & Spirits, Wine Enthusiast, the British Decanter and Wine Press Northwest (for Washington/Oregon wine news and ratings). Watch this space for a comparative analysis of these influential publications.

References: Omer Gokcekus and Andrew Fargnoli, "Is Globalization Good for Wine Drinkers in the United States?" Journal of Wine Economics 2:2 (December 2007) pp. 187-195).

The China Wine Syndrome

2008-01-07T09:28:00.000-08:00

I've never tasted Chinese wine, but that's going to change quite soon. I have two bottles, both hand-carried from China by my former student Brian West. One is a 1999 Cabernet Sauvignon from China's oldest winery, Changyu (founded in 1892). The other is a 2003 Tasya's Reserve Cabernet Franc from what many people say is China's best winery, Grace Vineyard (or Shanxi Grace Vineyard to differentiate it from a Japanese winery with the same name -- Shanxi is the region of China where Grace Vineyard is located).

I have heard a lot of stories about Chinese wine -- about how bad it is, how prestige-seeking Shanghai yuppies mix expensive first growth Bordeaux with Coca Cola and of vast vineyards in China that threaten to flood world markets with cheap wine (as Chinese exports have flooded some other markets already). The prospect of drinking Chinese wine for the first time gave me an incentive to see what I could find out about the Chinese wine industry and market. Here is a brief account of what I have learned.

Wine has a long history in China, reaching back more than 2000 years to the first wine imported from Ferghana in what is now Uzbekistan. It wasn't until the 19th century, however, that more than a trickle of wine was produced or consumed. Western missionaries brought grapes and wine to China along with their bibles (as they did in California, Argentina and Chile). The real roots of today's industry were planted in the late 1800s, however, when Changyu and other wineries were founded, mainly to produce wines for the foreign communities in the commercial centers.

The communist government expanded wine production after the 1949 revolution. Wine was promoted as a form of alcohol made from abundant fruit sources (grapes, both vitis and indigenous Asian varieties, and other fruits) in order to reduce use of precious food grains for alcohol production. Wine was meant to replace beer or grain spirits in the diet. Wine was typically made from a combination of grapes and other fruits. I understand that it is still sometimes necessary to specify grape wine in China, since generic wine may be made out of any number of fruits. It is probably not surprising that Chinese who were brought up on these mixed-fruit wines might today mix dry grape wine with fruit juice or Coke to get a more familiar flavor.

China's vineyards are indeed vast, totaling six percent of the world total. There are 453,000 hectares of vineyards in China, which is roughly equal to the U.S. (380,000 hectares) plus Germany (98,000 hectares) or just over the half the vineyard area of France, the world leader. But 80 percent of the grapes are grown as fruit for the table grape market. About 10 percent of the grapes are dried to make raisins. The remaining 10 percent are wine grapes. China's wine production is relatively small -- 730 million liters compared to 2,546 million liters for the U.S. and 898 million liters for Germany. China produces about as much wine as Moldova and Romania combined -- a lot of wine, but still just 2.6 percent of the global total.

Comparative wine production statistics for China are a bit problematic because (1) much of the wine produced is not pure grape wine but may be mixed fruit wine and (2) the rules on what can be labeled Chinese wine are quite lax. Grape wine needs to be only 50% grape and Chinese wine needs to be only 50% from Chinese-produced juice, according to one report I found. This means that a great deal of the bad wine that tourist report being served is not really grape wine and may be a blend of a little Chinese grape wine and a lot of imported bulk wine of undetermined origin. Rules get bent and outright fraud is not uncommon, I understand.

China has about 450 wine producers, which is approximately the number here in Washington State. The industry is highly concentrated with four wineries accounting for 60 percent of domestic production and sales. The big four are Great Wall, Dragon Seal, Changyu and Huadong. Foreign partnerships are common, giving Chinese winemakers access to international technology and expertise. The French multinational Pernod Ricard helped create Dragon Seal in 1987, for example, and Seagrams and Remy Martin have also been involved in joint ventures.

If the quality of the large scale wineries is disappointing, as many tourists report, the reason can be found in the supply chain. Wine is only as good as the grapes that go into it, or so growers tell me, and the grape supply situation in China is difficult. Most of the wine grapes are grown by families that lease about an acre of land from their local agricultural commune. That acre is tyically divided into four or five small plots that are planted with different crops so as to minimize risk. One or perhaps two of the plots may be wine grapes in the vineyard regions. So vineyard scale is impossibly small -- smaller even than in the south of France.

These small growers insist on calling the shots, which is natural since they are so dependent upon the success of their tiny farms. The wine producers have no control over what these hundreds of thousands of micro-vineyards produce, how they are cropped, and when the grapes are picked. Researchers suggest that the grapes are chosen and grown to maximize quantity not quality and that the grapes are picked as soon as possible to minimize risk of poor weather than could destroy the crop. So small crops of flavorful fully ripe grapes -- the winemaker's dream -- that's not going to happen in a typical Chinese vineyard. One study I found suggested that the grapes sell for as little as $80 a ton.

There is not much incentive for individual growers to sacrifice quantity for quality because their grapes are sold by weight to agents who lump together fruit from dozens or hundreds of individual growers. Good fruit would quickly get mixed with inferior fruit, so why pay more? The local agents often then resell the fruit to regional agents who sell again to the large winemakers. You can just imagine the condition of the fruit by the time it finally gets to the winemaking facility having passed through so many hands. This system is worse than the European cooperatives I have read about (and I didn't think anything could be worse than that).

Wine is sold in all sorts of ways. The Changyu website offers to let me buy wine by the barrel, which is perhaps what I would do if I owned a restaurant or a village drinks shop where I could decant the wine into bottles, jugs, or any other available container. Economists who study the Chinese wine market are increasingly focusing on supermarkets as a growing distribution vector. Partly I think this is because grocery store sales of wine are increasing, but also I think because these economists are interested in the potential for foreign wine imports. I don't think relatively expensive French or California wines have much chance of penetrating the traditional bulk distribution system where a lot of Chinese wine goes, so supermarkets are their best bet. Supermarkets may also eventually play an important role in educating Chinese consumers about wine in general and foreign wine in particular.

A small number of boutique winemakers have appeared, often financed by Hong Kong Chinese families and using international "flying winemaker" expertise. This is the basic story of my Grace Vineyard Cabernet Franc. Hong Kong businessman C.K. Chan invested USD 7 million to build a French-style Chateau. He hired Bordeaux winemaker Gerard Colin to supervise production full time. Output is now more than 40,000 cases. My bottle of reserve wine says that it is estate bottled from grapes grown on the estate and this may suggest why Grace Vineyard wines are often rated the best in China: control of the supply chain. If Grace controls the quality of the grapes then they can better control the quality of the wine. People say that Grace Vineyards is the best French wine made in China. I'm looking forward to trying it.

The bottom line is that the future of wine in China is difficult to predict. Surely wine consumption will grow as China gets richer and Chinese adopt more western consumption habits. Wine production will grow, too, and quality will rise as better technology is adopted. But it will be interesting to how quickly Chinese consumers accept dry western grape wines after their long experience with mixed fruit wines. And it will be interesting to see how quickly the quality of grapes can be raised.

It seems to me that the biggest barriers to quality wine are not in the stores or even in the habit of mixing red wine and Coke. The biggest problem remains the sorry state of rural Chinese agriculture -- a good reminder that wine is fundamentally a product of the soil.

Note: Special thanks to Brian West for bringing wine back from China where he was teaching with a University of Montana law school program. Thanks as well to Judy Leissner, who runs Grace Vineyard, for her assistance in locating Grace Vineyard products. Click here to view an interview with Judy about running a family wine business in China.

Special Note (added 1/13/2008). Click here to read an interview with Judy Leissner on the a blog called The Grape Wall of China, which is a good resource on the changing Chinese wine industry. Thanks to Jim Boyce (a.k.a. Beijing Boyce) for this link.

The End of Cheap Wine?

2007-12-30T12:11:00.000-08:00

It is becoming increasingly clear that a golden age of sorts (for American wine drinkers) is coming to an end. Good quality wine has been amazingly affordable for the last several years and New World wine consumption has risen as a result.

This is changing (or has already changed, as Jancis Robinson writes in Saturday's Financial Times) and a quick look at the economics of the wine market explains how and why.

The demand for wine in the United States has increased for a number of reasons. Studies that show that moderate consumption of wine (especially red wine) is healthful gave consumers license to experiment with table wines. The existence of Two Buck Chuck (the Charles Shaw wines sold at Trader Joe's stores) and other value brands made this experimentation affordable.

The increasing emphasis on wine brands helped demand grow by making the wine purchase itself somewhat less mysterious. The wine aisle is the most complex choice space in any grocery store -- there are more options at more price points than anywhere else. Brands reduce uncertainty and so encourage consumption. The enormous success of [Yellow Tail] brand wine from Australia is testament to this fact. Costco, the nation's largest wine retailer, has used limited selection and its Kirkland Signature own-brand wine to achieve spectacular results.

The demand for wine has not just increased it has also evolved as many consumers have moved to higher quality (or higher price,anyway) and developed specialized wine expertise. Wine is more than a beverage, it is a lifestyle for many people who collect wines, take wine tourist vacations and subscribe to wine publications such as Wine Spectator or The Wine Advocate and read the wine columns now found in many newspapers. There is a pretty steep learning curve when it comes to wine. Knowing more about wine and having more experience with it increases the pleasure that wine provides and makes further learning more efficient. In economic terms, the specific investment in wine knowledge makes the demand for wine more inelastic -- less sensitive to changes in price since buyers are less likely to switch from wine to other products or beverages where they have less expertise.

The supply of wine has also changed to create higher prices. The falling U.S. dollar has increased the cost of imported wine, which contributes to rising domestic prices both directly, as those costs are passed along to consumers, and indirectly, as higher import prices allow domestic producers to raise price, too. I don't think that we have seen the full pass-through effect of the exchange rate changes yet, so expect dollar-driven price increases to continue.

But domestic prices would have increased even without the dollar's decline. Wine buyers in recent years benefited from a global surplus of wine grapes that drove down price and pushed up quality. Faced with accumulated surpluses that sometimes amounted to a year or more of sales, winegrowers held back on expansion plans (except for hot varietals like Pinot Noir). Demand has slowly grown into the existing supply and may soon exceed it for some wine types. Falling prices due to surpluses are coming to an end and rising prices seem likely, even in Australia where drought and disease have further reduced production. The new EU wine regime, if it is effective, should further reduce wine surpluses and tighten supply.

When you combine these factors along with a few others, such as growing interest in wine in Asia, the result is a new market environment and it will be interesting to see what happens next. The latest round of wine magazines seem to take higher prices in stride. The Wine Advocate reports that the cellar door price of California cult wine Screaming Eagle is now $500 per bottle -- if you can get some -- and a long list of wines are listed with prices above $100 or $200. Wine Spectator and the wine columnists in the Wall Street Journal and the New York Times all seem to be struggling to keep a lid on their definition of an inexpensive or good value wine -- a $12 or $15 or even $20 ceiling no longer provides much choice! You can still buy cheap wine, but the good value bargains are disappearing.

It will be interesting to see how the American wine culture, which has been built in part on good quality at low prices, copes with this new world of wine. In the meantime, enjoy those bargains and good values when you find them, but don't count on your good fortune lasting forever.

Draining Europe's Wine Lake

2007-12-24T10:56:00.001-08:00

Europe is afloat in a sea of bad wine and the European Union agriculture ministers agreed last week to do something about it. But is it too little and too late?

Marian Fischer Boel, the EU Agriculture Minister, proposed a number of fairly radical reforms in 2006 and these were the basis of the discussion. She wanted an immediate end to distillation subsidies and a vast program to encourage small winegrowers to pull up their vines -- one million acres -- replacing them with other crops or, in some cases, with more marketable grape varieties. Perhaps predictably, the policies agreed last week are much weaker than the original proposals. Distillation subsidies will be phased out over five years and as many as 400,000 acres of vines will be "grubbed up." Four hundred thousand acres seems like a lot, but given the size of the problem is it, as Wine Spectator reported, just "a good start?"

Current EU policies are as useless as the old wine barrels shown above. At the top end of the market, national and EU policies tend to stifle innovation and prevent effective market adjustment (the counter argument is that they preserve tradition and prevent destructive commercialization). I have read any number of stories about high end European winemakers who have expanded abroad in part to escape regulations on what they can produce, where, and how they can market it.

In the mid-market, where current attention is focused, EU and national regulations seem to prevent winemakers from achieving the transparency that an increasing global market requires. It is hard enough to know what's in a bottle of wine without the complicated rules that government European wine labeling. French wines are typically "branded" by place of origin, not grape varietal, for example. Buyers who are not confident about their French geographical knowledge and the relationship between place, grape variety and wine style, are likely to choose New World wines with more easily understood characteristics. Australian wines sell well in France partly for this reason.

At the low end of the market, EU policies designed to support farm incomes have produced the famous "wine lake." Each year the EU spends about $2 billion to buy up unsold wines and turn them into industrial alcohol. This vast reliable market for poor quality wine keeps thousands of small scale producers in business. The distillation subsidy insulates low-end producers from market forces with the result that the vineyards remain uneconomically small, the practices favor quantity over quality, and the wine, while it may reflect local tradition, finds few buyers in the marketplace. Cheap New World wine is preferred to bad Old World plonk.

The new EU policies are designed to drain the wine lake by making the wine sector more responsive to market forces. Label laws and regulations will be reformed so that European wines can be sold by regional and grape varietal just like New World wines. The distillation subsidy will be phased out over four years, with some of the subsidy funds returned to regional groups to be used in wine marketing and promotion efforts. And up to 400,000 acres of vineyards will be included in the new "vine-pull scheme." New plantings will be allowed over time, but they will be market-driven not subsidy-driven.

The top end of the market is unlikely to be affected very much by these policies, since by definition they already have established brands and distribution channels. New label laws and subsidy reductions will have few direct effects on these producers, although they may be able to gain indirectly as vineyard consolidation takes place and Australian-style brands grow in importance. I predict that the most visible early effect of the new rules will be expansion of European brands both at home and in export markets.

The clear gainers are the mid-market producers -- the wines that sell for about $12. There is great potential profit in this part of the market, which is expanding rapidly in the New World. Freed from the constraints of tradition, European winemakers should be able to compete in this market quite well. It is, however, a hotly contested market segment. European producers will need to use their new freedom well to succeed and those who choose not to adjust may suffer as the European market realigns itself.

The real problem is at the bottom of the market. Losing the distillation subsidies will hurt many producers and I don't know how enough about the cost-benefit of the vine-pulling schemes to comment. Pulling 400,000 acres out of wine production should help stabilize the market by reducing the annual surplus, but I don't know if it is enough and I don't know if the incentives provided are strong enough.

Four hundred thousand acres -- how big is that? Huge if you are thinking New World -- Australia had just 388,000 acres of vineyards altogether in 2003 according to my Oxford Companion. But tiny if you think Old World -- and of course this is an Old World problem. Italy and France had more than 2 million acres of vines each in 2003 and France had nearly 3 million more. (The Languedoc region in the south of France has 528,000 acres by itself.) Taking 400,000 acres out of production in Europe is like removing Moldova and Switzerland from the market. The effect on the regions where the vines are grubbed up will be large, but the impact on the global market is likely to be quite small -- reducing the global surplus, but not eliminating it. I don't know if it will be enough.

Will it work? Much of the discussion that I have read focuses on the size of the vine-pull scheme -- 400,000 acres versus the million acres that Marian Fischer Boel proposed two years ago. Although I think the size of the grubbing up program is important, I believe that the market-driven reforms and the elimination of distillation subsidies are more important. The 1988 vine-pull scheme took over a million acres out of production but, as we see today, didn't eliminate the surplus because of the difficulty of selling the good wines and the incentives to keep make bad ones.

A Wine Research Gap?

2007-12-08T13:11:00.000-08:00

If there's one thing that I have learned about wine markets it is that they are dynamic. Although there is much about wine that is classic and timeless, there is a lot of change, too, and winemakers and growers need to take account. Global wine markets are changing, the social function of wine is changing and the natural environment of winegrowing is changing, too.

How do you cope with a rapidly changing market environment? Innovation is one answer and that requires research. Is the U.S. wine industry doing enough to keep up with foreign wine producers in basic wine research? That's the cover story in the December issue of Wines & Vines magazine and their answer is No.

Wines &Vines is a wine industry trade journal; whereas Wine Spectator and Wine Advocate are aimed at consumers, collectors and enthusiasts, W&V's audience are industry insiders. It's a very good publication -- I rely on it for information about emerging trends in the industry. If you are seriously interested in wine you ought to take a look at it.

The cover story argues that there is relatively little public research on wine industry problems in the United States. "Public" research is research that is available to all winemakers and growers and is different from proprietary research that individual winemakers undertake for their own use. Australia, with a wine industry about half the size of the U.S., spends about $23 million for public research, with funds raised from levies on winemakers and growers matched by government funds. By comparison, W&V reports about $2 million for public wine research in the U.S. (although total research levels are much higher when private R&D expenditures are included). The argument is that increased funding for applied research would strengthen the U.S. industry in an increasingly competitive global market.

What would increased research funding buy? I think I got a taste of what research can do in an electronic newsletter I received recently from the Australian Wine and Brandy Commission. The AWBC (a.k.a. Wine Australia) is the Australian government agency that was created in 1981 to support the wine industry. One of their current research projects involves the problem of rising alcohol levels in wine.

Everyone knows that alcohol levels have been going up for some years. Climate change is part of the problem -- warmer climate and longer growing seasons increases sugar levels and therefore alcohol levels. This is beneficial to wine quality up to a point, but beyond that point there are real problems both with wine balance and with consumer attitudes towards alcohol. How do you bring alcohol levels down without bringing quality levels down, too? Premature harvesting means less sugar and alcohol, but less character. De-alcoholization (usually through a reverse osmosis process -- did I get that right David?) is common in California and elsewhere but there are quality trade-offs here as well.

The AWBC reports that their alcohol reduction research is focusing on the yeasts -- trying to find yeast strains that will make wine with lower alcohol levels without sacrificing balance and character. They even mention the three little letters that I think everyone in the wine business is afraid of -- GMO. No genetically modified yeast varieties have been used in Australia (and are unlikely to be used there ever, thay say), but research into yeasts and even GMO yeasts is an example of the sort of public research that could have wide-ranging benefits for the wine industry. The Australians are out in front on this sort of research, Wines & Vines suggests and it may be so. I know that I rely almost exclusively upon AWBC economic research on global wine market patterns.

The November issue of W&V has an article on dry farming of vineyards that reminds me that innovation and research can take many forms. Once upon a time most quality vineyards were dry farmed (farmed without artificial irrigation), but as irrigation technology improved the focus turned to scientific irrigation practices. I guess the idea is that because technology allows a winegrower to carefully control water availability then this must be the right thing to do. The people who make Mollydooker, the big-boned Australian wines with the huge Parker numbers, attribute their success to the trade-marked Marquis Vineyard Watering Programme, for example.

But John Williams, whose Frog's Leap wines are also recognized for quality, has taken a different approach, going back to dry farming. He manages the vineyard soil (see photo above) so that it retains moisture effectively and encourages the sort of deep vine growth that gives character to the finished product. The W&V article explains ...

Williams pointed out that a vine grown on drip irrigation is essentially a potted plant sitting in the middle of a field, with moisture and nutrients delivered through the drip system. He believes that is a problem. "What kind of flavor do you get from a hydroponic-grown tomato? Very little. Same thing with a grapevine. When the winemaker comes out to taste the berry at 22° or 23° Brix, the flavor isn't there. So the decision is made to leave it on the vine a little longer, more hang time until it reaches physiological ripeness at 26° or 27° or even 28° Brix. You still aren't getting a lot of flavor, so you have to start manipulating the wine--micro-oxygenation and lots of oak--to try and get it to taste mature. And you end up with high-alcohol wines."

He added, "If we talk about when wine went from its historic place as a mealtime beverage that deeply reflects the soil and climate from whence it comes to killer, jammy monsters that advertise that they will 'melt your panties,' I think you will come to the same conclusion that we did 18 years ago: that the real wines are made by deeply connecting them to their soils and that dry farming is fundamental to that."

John Williams' statements suggests that dry farming, where it is practical, might solve the alcohol problem and yield other benefits at the same time. This suggests to me that, while research tends to focus on winemaking as a science (hence the search for high tech solutions), we need to remember that wine is made in the vineyard and the craft of winegrowing can yield answers, too.

Innovation -- doing new things -- is one answer to rapid change, but doing the old things more effectively sometimes works even better. Kinda makes you rethink the question of a wine research gap.

Message in a Bottle? The 2007 Wine Star Awards

2007-12-05T07:23:00.000-08:00

Wine Enthusiast has announced the winners of their 2007 Wine Star Awards and I find the selections pretty interesting. Usually wine magazine awards go to famous winemakers like Robert Mondavi or Paul Draper the "philosopher/winemaker" at Ridge. But Wine Enthusiast positions itself as more of an industry publication than an enthusiast mag, so these awards are a bit different -- they honor exceptional achievement in an increasingly complex global wine market and send a message to those who pay attention about how the global market is evolving.

The top award -- Man of the Year (yes, they really call it man of the year) -- goes to Ray Chadwick, who is not a household name unless your house is pretty deeply involved in the wine business. Chadwick has an MBA from the University of Chicago instead of a oenology degree from Davis. He runs the Chateau & Estate group of Diageo, one of the world's largest drinks companies. His achievement was to build a successful global brand portfolio of premium wines. The citation for the award says in part

Chadwick has overseen tremendous growth at DC&E, launching new brands from California, Australia, New Zealand and France, growing its wine portfolio from three brands to 21, and focusing on premium wines. DC&E’s strong California portfolio includes Beaulieu Vineyard, Sterling Vineyards, Acacia and Chalone. In the last year, it launched Newharbor (NZ), B&G Bistro (France), Beauzeaux (CA) and A by Acacia (CA). Under Ray’s leadership, DC&E began fiscal 2007 as the No. 4 premium wine company in the United States (8.7% market share), and finished the year at No. 3, with a 9% market share. With sales of 5 million cases a year, at a retail value of $1 billion, DC&E is one of the 10 biggest U.S. wine companies. But beyond the astonishing numbers, Chadwick has helped build an engaged and dedicated team. As an insightful strategist and superb administrator, he has repeatedly met and mastered an enormous challenge: to bring together different corporate cultures, successfully merging Diageo, Seagram’s, and finally Chalone, providing a collaborative and winning environment.

This says a lot about what the wine industry in the U.S. and the world. First, the award stresses the importance of marketing and distribution in today's market environment. Second, although the trend towards consolidation continues, the premium wine segment is still pretty open -- the third largest firm has just 9% of market share. Third, it stresses that fact that having a diversified international portfolio of premium wines is of growing importance. Retailers like to deal with a small number of suppliers, so successful distributors must have products that will fill a lot of different spots on the wine rack. And finally, the stress on team building reminds us that this is still a people business. Personal relationships and trust are necessary in a business where you don't always know what's in the bottle you are selling.

Several of the other awards also make interesting statements about the wine business today. The Importer of the Year is Gallo, which we all think of as company deeply rooted in California's Central Valley (and now Sonoma, too, of course). But wine is a global business and so Gallo has become global, too. The citation explains

The importing side of the business began in 1997 with Ecco Domani Pinot Grigio from Italy, a company which Gallo started from scratch. It was one of Ernest Gallo’s ideas, and a fairly radical one, considering the company’s exclusive focus up to that point on California wines. The company currently imports 15 brands from 11 wineries in nine countries: France, Italy, Spain, Germany, Chile, Argentina, Australia, New Zealand, and South Africa. Of these, seven were created, while the other eight represent partnerships.

Gallo is a master of brand management. Gallo's emphasis on expanding its imports (and exports, too, although that's another topic) underlines the point that a diversified portfolio of international brands is the dominant competitive strategy today.

But global markets don't necessary spell the end of regional family wine firms. They can survive and even thrive, but they have to evolve along with the market. Two other Wine Star awards recognize achievements in this vein.

DFV Wines (Delicato Family Vineyards) was named the American Winery of the Year for its successful portfolio of California brands. The citation reads

DFV Wines is a family-owned winery committed to its 80-plus-year wine heritage in California. Three generations of the Indelicato family have overseen vineyard operations and winemaking, and produce a portfolio of wine brands from their various properties. Originally a top quality supplier of grapes and bulk wine, in the 1990s they moved into bottled varietals; they currently offer 9 different brands, which appeal to a wide range of consumers. In the late 1980s, the family purchased the 12,000-acre San Bernabé Vineyard in Monterey, and in the 1990s they added Clay Station vineyard in Lodi, and North Coast vineyards in Napa and Sonoma. The Indelicato family has earned a reputation for maintaining the highest standards in farming, with an unwavering dedication to environmentally sensitive winegrowing practices and economically sustainable business practices. Individual wines that have gained recognition in recent years include Gnarly Head Zinfandel, Clay Station Viognier, Irony Pinot Noir and Chardonnay, 337 Cabernet Sauvignon and Delicato Shiraz. DFV Wines answers consumer demand for great tasting, mindfully grown, intelligently vinified wines for every occasion

The New World Winery of the Year is one of my personal favorites, Villa Maria. The citation reads

Villa Maria is one of New Zealand's leading wineries. It was founded in 1961 by its current owner and Managing Director, George Fistonich, and is 100-percent New Zealand—and family—owned. The company’s primary focus is on the vineyards themselves,to produce the highest possible grape quality, while respecting the importance of regional differences. Astute site selection is followed by superior vineyard management and then complemented by expert winemaking. Villa Maria is also known for its innovations in its native country: a tiered system of payment for grape growers based on the fruit quality and the creation of reserve and single-vineyard wines. Under Fistonich’s leadership, Villa Maria also became the first major wine company in the world to declare its wineries “cork free,” opting for screw cap closures on all of its wines. Through his ceaseless pursuit of quality, Fistonich and Villa Maria have made outstanding contributions not only to New Zealand wines, but also to the wine world in general.

Villa Maria shows that it is possible for a family-owned winery in what must still be considered an "emerging" wine region to achieve international success without a huge brand portfolio or multinational money -- through a stubborn and consistent commitment to quality. Villa Maria's success comes from a combination of good old-fashioned winegrowing (a strong focus on grapes, vineyards and growers) and an openness to innovations like the screw cap.

Congratulations to all the winners of the 2007 Wine Star Awards. And thanks to Wine Enthusiast for using these awards to highlight important characteristics of the contemporary wine market.

The California Bill and the Birth of Washington State Wine

2007-12-02T13:03:00.000-08:00

I am spending this cold, wet day re-reading parts of Paul Gregutt's great new book Washington Wines & Wineries: The Essential Guide (University of California Press) and his chapter on the history of Washington wine got me to thinking about the origins of the industry. Is it possible to point to any one person or event that is responsible for the birth of Washington wine?

There are several possible choices. Some would say that it happened in 1937 when Washington State University horticulturalist Dr. Walter Clore, the godfather of Washington wine, began working in his research center north of Prosser. Dr. Clore and his team are responsible for many of the advances in Washington viticulture that we take for granted today. Without Clore and his colleagues, Washington winegrowers might still be planting Muller-Thurgau and Concord grapes.

Others might argue that Washington wine was born in 1967 when Andre Tchelistcheff, the famous winemaker from California's Beaulieu Vineyards, came to Washington and praised a Gewurztraminer made by Phil Church, a partner in Associated Vintners (now Columbia Winery). Tchelistcheff's endorsement lent credibility to Washington wine and his encouragement helped propel the industry forward. (Tchelistcheff even encouraged his nephew Alex Golitizin to make wine in Washington -- the result is Quilceda Creek Vintners, the maker of Washington's first 100-point cabernet sauvignon.)

A third important event occurred in 1976, when the Chateau Ste. Michelle winery opened at the former Hollywood Farms location in Woodinville. The $6 million winery and headquarters complex was the largest single investment in the industry to that time and it represented a great gamble by Ste. Michelle's corporate parent, the United States Tobacco Company (the makers and Skoal and Copenhagen smokeless tobacco). CSM, which was created through a merger of pioneer wineries Pomerelle and NAWICO before being purchased by US Tobacco, is now the Colossus of Washington wine, accounting for about 70 percent of all wine production in the state.

My choice for the key event in Washington wine history, however, didn't happen in the vineyards with Dr. Clore or the tasting room with Mr. Tchelistcheff or at the grand opening of the Woodinville winery. From an economist's viewpoint, the critical act (and it really was an Act) took place in March 1969. That's when the Washington legislature passed House Bill 100, the California Wine Bill. The California Wine Bill exposed the Washington wine industry to competition from both domestic (California) and international competition and forced winemakers to improve quality or disappear.

Here's the back story. Many wineries opened or reopened in Washington when Prohibition was repealed in 1933. Almost the first thing that they did was to seek protection from the state legislature from out-of-state competition. This protection was provided almost immediately in the form of the Steele Act of 1935, which set up a dual distribution system for wines. "Domestic" Washington wineries could sell directly to wholesalers, but "foreign" out-of-state wines (including wines from California) has to be distributed through the more rigid channels of the state liquor monopoly, the Washington State Liquor Board. The result was that "domestic" wines were relatively easy to purchase and widely available, but "foreign wines" including California products could only be purchased through state stores with their limited hours and strict controls. Later legislation provided for minimum prices in order to prevent competition from cheaper California wines.

The result of this protective legislation was exactly what you'd expect. With no competition to keep winemakers honest, quality suffered. The industry focused on the low end of the market, making large quantities of cheap, sweet, fortified wines like this NAWICO port. There was little incentive for winegrowers to seek quality (although some did) because good grapes and poor ones were all blended together. Although Dr. Clore was busy developing quality wine grapes in Prosser, Washington's most important grape crop for many years was the Concord grape that went into Welch's juice and Gallo's sweet sparkling Cold Duck.

Rather than thriving behind its protective wall, the Washington wine industry collapsed. There were only eight wineries in Washington in 1969 (down from 42 in 1937) and, with a few exceptions such as Associated Vintners, their wine was mediocre at best.

The paradox that protecting a wine industry actually destroys it is not unique to Washington. I have seen it time and again in my research, in New Zealand, Argentina and in France under the EU's old wine regime. The only thing that can protect a wine industry is competition, which forces winemakers to become more efficient and to raise quality.

With nothing to keep cheaper California wines out, Washington winemakers had no choice but to look upmarket. A quality wine industry emerged and has thrived -- there are now more than 500 wineries in Washington state and new ones appear every month. Washington is unusual in the wine world in that it has developed a major wine industry that is not built upon a base of inexpensive bulk wine. Only New Zealand (which cannot compete with Australia at the bottom end of the market) and Washington can claim to have pure premium wine industries.

You can thank competition -- and the California Wine Bill of 1969 -- for Washington's status as an important producer of premium wine.

What's Red and White and Green All Over?

2007-11-22T08:59:00.000-08:00

The answer, of course, is wine.

Perhaps the most interesting trend that I have observed in wine this year is the growth of green wine. By green I mean wine that is made and marketed with attention to the environment (although vinho verde from Portugal can claim to be a green wine on other counts).

What drew my attention to the green wine movement was not the existence of organic wines -- they've been around for a long time -- but the variety of ways that winemakers are embracing sustainability and the environment as an integral part of their work.

I uncovered three sustainability initiatives while doing fieldwork in Oregon, for example. The first was the Low Input Viticulture and Enology initiative, or LIVE for short. This is an a voluntary program with about 70 certified members that, according to the website, aims ...

To see the vineyard as a whole system

To create and maintain a high level quality fruit production

To implement practices that reduce reliance on synthetic chemicals and fertilizers with the goal of protecting the farmer, the environment, and communities at large

To encourage responsible stewardship of the land, maintain natural fertility and ecosystem stability

To promote sustainable farming practices that maintain biological diversity in the whole farm

I haven't studied the LIVE program closely, but my impression is that it is an attempt to both promote sustainable vineyard practices and, at the same time, take local control of the certification process. Why create an organization like LIVE -- why not just go "organic" and be certified organic? I have talked to a number of winegrowers who hesitate to seek organic certification because of the considerable expense and also because the sort of sustainable viticulture they seek to practice goes beyond the avoidance of chemicals. Regional initiatives like LIVE allow groups of growers to define sustainability in a way that is compatible with local conditions and practices and to retain local control of the process.

Some winemakers are going all the way when it comes to sustainability, which is what the biodynamic wine movement is all about. Biodynamic winemaking is based upon a set of agricultural theories that the Austrian philosopher Rudolf Steiner proposed in the 1920s. The biodynamic idea is to treat the entire vineyard as a living organism and to adopt practices that promote the health of the entire structure -- vines, soil, insects, and so forth. This reminds me of the famous Gaia Hypothesis that the whole earth is a living organism.

Most biodynamic practices are uncontroversial, but the use of special organic field sprays draws special attention. The sprays are made by burying cow horns full of cow manure or ground quartz in the vineyard for six months and then spraying the estate with the resulting composted product in diluted form at specific times of the day and phases of the moon. The idea is to promote microbial health and the balanced growth of the vineyard. It sounds a little like voodoo viticulture, to me, but there are plenty of good winemakers who have adopted this practice so I am going to keep my skepticism in check for now.

Several Oregon winemakers including Brick House and Cooper Mountain have gone or are going biodynamic. They join California producers including Frog's Leap, DeLoach and Benzinger and a growing number of winemakers in Europe and around the world. I understand that many winemakers in Chile such as Emiliana Orgánico are adopting biodynamic practices, for example, both on philosophical grounds and, I suspect, in an attempt to differentiate their wines in the marketplace. (Click here to read Emiliana's explanation of the principles of biodynamic viticulture). I haven't tasted enough biodynamic wine to have an opinion about how the process affects the end product.

The final example from Oregon is the Carlton Winemakers' Studio, a facility that about a dozen smaller winemakers share. This operation was designed to meet recognized environmental standards from the group up. According to the website it was ...

The first winery registerd with the US Green Building Council, The Carlton Winemakers Studio was designed to be compliant with LEED (Leadership in Energy and Environmental Design) certification, promoting a whole – building approach to sustainability by recognizing five key areas of human and environmental health: sustainable site development, water savings, energy efficiency, materials selection, and indoor environmental quality.

Some of the most intriguing environmental building materials and techniques are the following:

Below foundation water capture and reuse
North roof water capture and reuse
Clear roofing materials
Daylighting, windows, doors, and hallway
Night air cooling
Coal byproduct (fly-ash)/concrete mix
Recycled mats, paint, office desk materials, roofing metal, carpet
Non-conventional material uses: sals-walls, curtains, shade
Reused: counter tops (SS & acid resistant composite), light, concrete, sinks
Dynamic flow air pocket walls
Earth berm / below grade walls for natural cooling

The Winemakers Studio's strategy suggests that green wine can be good wine, good economics and good for the environment.

Sustainability is obviously important in winemaking, but it doesn't end there. A growing number of wine brands, such as French Rabbit, are embracing sustainability in wine packaging and transport. Here's how Boisset America, the French firm that makes and markets French Rabbit (and owns biodynamic DeLoach) got into the sustainable packaging business.

Canada is a good market for wines, especially French wines, and the Liquor Control Board of Ontario is therefore a big buyer with lots of market power. As a state monopoly, the LCBO sets economic, social and environmental goals for its operations. They aim to minimize energy use and maximize recycling. LCBO challenged their wine suppliers to introduce new products to promote these goals and French Rabbit was one result. As Patrick Egan, brand manager for French Rabbit, notes

"Our real immense success was with Liquor Control Board of Ontario. They inspired the creation of French Rabbit. As a goverment entity they were interested in challenging themselves and their suppliers to reduce packaging waste. They set an ambitious goal of eliminating 10 million kilograms of packaging waste per year. There were no other wines yet available in Tetra Paks when we presented French Rabbit, and they immediately embraced the concept. FR was the most successful launch of a new brand they've ever had, and spawned more than 75 other wines in Tetra Pak packages since French rabbit was launched there in July 2005. The success helped the LCBO reach their packaging reduction goal some 2 years ahead of schedule. Here in the US, there are really 3 primary brands [in Tetra Paks] so far, with more on their way.

"Turns out, much of the world has been consuming wine from the Tetra Pak package for many years (you must have seen Tavernello on your travels to Italy). Our angle, our raison d'etre, for introducing a new wine in this package to North America has been the ecological benefits to the package. In the age of global warming and increasing interest in sustainability, our package has the benefits of the lowest carbon output per unit of wine sold when the full life cycle of the package is considered. Its lightweight and minimal packaging materials mean immense savings when compared to the glass bottle. So, as wineries make more and more efforts to combat global warming in the vineyards and in their energy consumption, we've gone the angle of actually transforming the package that wine is delivered in to consumers. Just as globalization increases choice for consumers, it also means more and more wine is shipped all over the world. Ours dramatically reduces the impact when wine is shipped, in addition to the savings generated when the package is produced and the package is recycled."

It seems to me that the wine industry is ahead of the curve with respect to sustainability and the environment. Wine is a product of nature, after all, and there are special reasons, aesthetic, philosophical and economic, why winemakers should wish to emphasize that connection. Green wine, I predict, is here to stay.

The French Connection

2007-11-18T12:39:00.000-08:00

Watching Jonathan Nossiter's film Mondovino gives the viewer the impression that the world of French wine is being overrun with Americans and modern American wine influences. Maybe that's true, but if so it is only half the story. Herewith three stories of French wine and wine-makers in America inspired by recent conversations with former students (thanks to Jeremy, Devin and Patrick for your help).

Story 1: Pinot Noir is a hot wine in the United States -- the Sideways phenomenon continues for now. The best-selling Pinot Noir in American is called Redwood Creek. Have you seen it? Redwood Creek is a popularly priced Gallo brand; the label says that the wines are "inspired by the Frei Bros. 100 Year Old California Winemaking Tradition."

"Inspired" is a good word to use here because, although the brand reflects California tradition, the wine itself is from France. The label says "Product of France" and "Vin de Pays D'Oc." So it doesn't come from California's Central Valley, as you might expect from a Gallo product, but France's equivalent, the vast vineyards of Languedoc.

I expect that many American supermarket shoppers who would never have had the confidence try to pronounce "vin de pays d'oc" much less spend money on some of its wines will be happily opening bottles of Redwood Creek Pinot Noir this Thanksgiving. Moral of the story: American consumers will buy French wine if it is presented in a familiar, understandable way, which in this case means as a branded varietal wine.

Story 2: I gave the faculty toast to our Phi Beta Kappa graduates at a luncheon last May and I was surprised to discover afterwards that the sparkling wine we drank came from New Mexico of all places. It was called Gruet and I was further surprised to find some of it on the neighborhood Metropolitan Market shelves.

Gruet et Fils is a prominent French Champagne house, founded in 1952. Champagne is a good business, but a difficult one, too, for an entrepreneur. The business is highly regulated and expansion opportunities are strictly limited. Vineyard yields and locations are tightly controlled. If you want to make more Champagne to take advantage of market conditions, well basically you can't. But you can make more Champane-like product, Methode Champenoise sparking wine, if you invest in vineyards outside the Champagne region. It won't be Champagne, of course, and won't earn Champagne's price premium, but people will buy it if it's very good.

Members of the Gruet family were therefore vaguely searching for vineyard expansion opportunities when they were passing through the American Southwest in 1983. They ran into some fellow European winemakers who were trying to make a go of it in New Mexico and, inspired by their example, ended up planting vineyards at elevation 4300 feet near the town of Truth or Consequences, about 170 miles south of Albuquerque. The winery equipment was shipped over from France along with members of the Gruet family to make the wine and, in due course, a first vintage (1987) was released.

Today Gruet produces more than 80,000 cases of American sparkling and still wines in New Mexico, which must make them the state's largest producer. Prices run from about $13.50 for the basic sparkler up to nearly $50 for limited release wines -- prices that are significantly lower than for equivalent Champagnes. Moral of the story: Americans will buy French-style wines from unexpected places if they are good, which the Gruet wines are, and a good value.

Final story: Boisset, Vins et Spiriteux is a major French wine and spirits company. Founded in 1961 by Jean-Claude Boisset, it has evolved into a a top-five producer in France, exporting to more than 80 countries with investments in California (DeLoach Vineyards), Italy, Spain, Uruguay, South Africa and Canada. Their French brands include J. Moreau & Fils (Chablis), Bouchard Aine & Fils (Cote de Beaune) and Louis Bernard (Rhone Valley), all of which are sold in the United States.

But Boisset America's big push at the moment is a wine called French Rabbit. Like Redwood Creek, it is wine from Languedoc. Unlike Redwood Creek, however, it doesn't pretend to be inspired by anyone's tradition, either French or Californian. It is designed to appeal to modern consumers who want to make wine part of an active, informal, sustainable lifestyle. That's why it is packaged as you see it here, in lightweight eco-friendly octogonal-shaped one liter Tetra-Prisma containers (and 250-ml single-serving untis, too).

(The wine on the left, Yellow Jersey (think Tour de France) is another Boisset America brand. It comes in a PET plastic bottle and will fit in your bicycle's water bottle holder.)

Is the world ready for wine that looks like this? A lot of my friends cling to tradition, unwilling even to give up corks for screw caps. Will they accept wine in what appears at first glance to be an orange juice carton? Apparently so -- Boisset America sells more than 100,000 cases of French Rabbit in the United States and Canada and is now introducing the innovative brand into what must be the most traditional possible market, France itself. (Watch for an upcoming post about how French Rabbit and its unorthodox packaging was born).

Moral of the story: French wines can succeed outside of France because of the creativity and entrepreneurship of French winemakers. Who knew?

Wine Economists Unite!

2007-11-06T19:01:00.000-08:00

You may or may not be surprised to learn that there is an organization called the American Association of Wine Economists. It's headquarters are at Whitman College in Walla Walla, Washington, where Karl Storchmann teaches wine economics.

The Association publishes the Journal of Wine Economics, which features interesting articles covering a range of wine economics topics under the direction of a most distinguished editorial board: Kym Anderson (University of Adelaide and World Bank), Orley Ashenfelter (Princeton), Victor Ginsburgh ( Université Libre de Bruxelles), Robert N. Stavins (Kennedy School of Government, Harvard) and of course Karl Storchmann.

The Association's first annual meeting took place last year in Trier, Germany (click to view a pdf of the conference program). Karl aims to bring the meeting to Portland, Oregon this summer, probably in mid-August. Check out the links to the Association and the Journal if you are interested in how economists apply their technical tools to the analysis of wine markets.

The University of Wine

2007-11-06T09:55:00.001-08:00

I teach at the University of Puget Sound, one of the northwest's finest liberal arts colleges. But as I work on my book about globalization and wine I'm starting to think of UPS as the University of Wine (or maybe the University of Pinot & Syrah to preserve the UPS acronym).

It's not that we teach a lot of classes on wine or winemaking (the course I will teach next fall will be the first), it's just that so many of our graduates end up making wine, selling it, or telling stories about it. Must be something in the water ... or in the wine. Herewith a selected list of alumni wine people.

Winemakers and Winegrowers

Dick Boushey, Boushey Vineyards, Yakima Valley, Washington

Tom Hedges, Hedges Family Estate. Red Mountain, Washington

Peggy Patterson, Hoodsport Winery. Hoodsport Washington

Chuck and Tracy Reininger (pictured above), Reininger Winery. Walla Walla, Washington

Michael Corliss, Corliss Estates. Walla Walla, Washington

Stewart Boedecker, Boedecker Cellars. Carlton, Oregon.

Joe Davis, Arcadian Winery. Santa Ynez, California.

Warren Moyles, La Toscana Winery. Leavenworth, Washington

Julie Strobel Arger, Arger-Martucci Winery. Napa Valley, California

David Rosenthal, Enologist, Chateau Ste. Michelle. Woodinville, Washington

Carolyn Lakewold, Donedei Winery. Olympia, Washington

Mona Hovnanian, Arbutus Winery. Seattle, Washington

Wine Families (wineries of parents of Puget Sound students)

Fielding Hills Winery. East Wenatchee, Washington

Frog's Leap Winery. Napa Valley, California.

Tres Sabores W inery. Napa Valley, California

Pepper Bridge Winery, Walla Walla, Washington

The Wine Business: Marketing and Distribution

Ken Avedisian, Chief Operating Officer, Cordon Selections wine distributors. Seattle, Washington.

Jeremy Soine, Brand Manager, Barefoot Cellars. Modesto, California.

T. Patrick Egan, Brand Manager (aka Chief Hare), French Rabbit Wines. Sausalito, California.

Devin Visciano, Monterey Bay Wine Company. La Selva Beach, California.

Authors and Educators

Michael Moyers, Instructor of Wine Science, Walla Walla Community College and Winemaker, College Cellars of Walla Walla

Amy Muma, World Wine Program, Central Washington University. Ellensburg, Washington

Cynthia Nims, Food and Wine Writer and Consultant. Seattle, Washington

Michael Veseth, Professor of International Political Economy, University of Puget Sound. Tacoma, Washington

As you might expect, wine research is filled with good experiences. One of the unexpected pleasures has been the opportunity to reconnect with exceptional alumni and former students who are in the business.

Washington Wines & Wineries

2007-11-04T08:58:00.000-08:00

Seattle wine writer Paul Gregutt's new book Washington Wines & Wineries: The Essential Guide has just been published by the University of California Press. It is the kind of wine book that brings immediate pleasure and promises to be a useful companion in the future. I especially appreciate Gregutt's sense of history. Knowing history always helps me make better sense of what I see today.

The book is organized into three sections. The first provides background in the form of brief surveys of the history of wine in Washington, the AVAs, the grape varieties and the top ten vineyards. The chapter on grapes explains where and how each varietal fits into the Washington wine puzzle and a brief list of "best bottles." This is just about only place in the book where Gregutt (hereafter PG) ranks individual wines, which is fine with me. There are lots of places to go for wine ratings and rankings (including PG's own blog at http://paulgregutt.com/) and a book is actually the wrong place to do this because of the dynamic nature of the wine market and the less-than-dynamic time frame of book publication. Lots of interesting and useful information is presented here in a lively style.

The second section provides usefully detailed descriptions of more than 100 Washington wineries (out of the 500+ wineries currently producing). An innovation here is the use of a 100-point scale to rate the wineries (not individual wines). PG rates each producer according to style (30 points), consistency (30 points), value (30 points) and its contribution to the development and improvement of the Washington wine industry (10 points). Everything about this rating system is subjective, of course, but I find it interesting nonetheless (although I must admit that my first reaction was not so favorable -- Karen Wade encouraged me to take a second look at it and I am glad I did). Consistency and value in particular are two factors that are important to wine buyers but that do not always show up clearly in the rankings of individual wines. A reputation for consistency and value is a good thing.

The top winery in Washington? Quilceda Creek, with its perfect 100 Robert Parker point Cabernet Sauvignon, also gets a perfect PG score (30/30/30/10). Leonetti ranks second with 98 points (30/28/30/10). Columbia Crest, a volume producer, earns a surprisingly high 92 points (26/26/30/10), reflecting its good value and all that it (and Chateau Ste Michelle) have done to promote Washington wines in general.

The part of the book that is most directly relevant to this blog comes at the end, when PG considers the future of Washington wine, asking some pointed questions to industry leaders including Ted Baseler of Chateau Ste Michelle, Bob Betz, Tom Hedges, Allen Shoup and David Lake. One of the questions is, how well do Washington wines compete in the global marketplace (and how can they do better)? Here is summary of some of the responses:

1. Although Washington wines are currently exported to 40 foreign countries, the export market is not yet very significant. Most Washington wine is sold domestically.

2. Profit margins on exports are lower than on domestic sales, so at this point exports are done either for personality satisfaction (the ego factor) or as part of a long term market development strategy. There are good economic reasons to privilege domestic over foreign sales now, although that could change in the future as competition for the U.S. market intensifies.

3. It is difficult to sell Washington wines abroad because no one really knows that they are. Are they like California wines (in which case, why not just buy California wines and be done with it)? David Lake says that he tells people that Washington wines are as different from those from California as New Zealand wines are from Australian products. I think that comparison is both valid and persuasive, but ...

4) Foreign consumers generally don't know when they are buying a Washington wine because the bottle doesn't say Washington except in fine print on the back. New Zealand wines, on the other hand, typically say New Zealand clearly on the front label. New Zealand wines systematically reinforce a regional identity; Washington wines do not.

The source of Washington wines is usually listed by AVA: Columbia Valley, Yakima Valley, Red Mountain, and so forth. You and I might know that all these wines come from Washignton, but a British supermarket customer or Japanese restaurant patron probably doesn't. The AVA system that individual wineries use to differentiate their products from others in Washignton makes it more difficult for Washington wines in general to develop a clear identity of their own -- the sort of identity that's needed for successful global market penetration.

5) New Zealand's success in the global wine market is clearly on everyone's mind. New Zealand's growth was made possible by the exceptional quality of one wine: Marlborough Sauvignon Blanc. That wine opened doors around the world for all New Zealand wines. That's what we need, several of the experts say, we need one distinctive Washington wine that we can promote aggressively. That signature wine will carry the rest of the industry into the global market.

Yes, yes, but which wine? Jancis Robinson famous said that Washington Merlot is as good as it gets for Merlot, but so what? She didn't seem to think that you could build a global market identity on the back of merely Merlot. (She doesn't have much that is good to say about Chardonnay, either. Don't get her started.)

6) So what wine will it be? Winemakers who have already invested a lot in establishing an identity for their products are unlikely to want to shift attention to a different varietal, AVA or designation in order to help establish an Washignton State Wine brand that is of uncertain value to them. Hard to imagine that a consensus will be easily reached.

So maybe it will be left to the market to decide. I think that's how it actually happened in New Zealand.

It would be ironic if Washington's special wine turned out to be Riesling, the varietal on which the industry was built in the 1970s and one that is experiencing a market renaissance today (Riesling is Jancis Robinson's favorite wine, I think). Washington is the world's largest producer of Riesling wines, but they don't get much respect here compared with red wines, even though some of them are very good. (Hmmm. The Germans who make great Riesling prefer to drink red wines, too.)

Maybe Riesling is it and we just haven't realized it. It would be ironic if Washington winemakers and consumers were the last to know what the region's signature wine really is!

Internet Wine Scams

2007-11-03T08:48:00.001-07:00

The internet has done a lot for the global wine industry. It promotes the diffusion of useful marketing and research information, facilitates wine tourism, promotes professional collaboration, and helps individual winemakers and regional groups to establish distinct market identities. Many winemakers and winesellers rely upon internet contacts for a good proportion of their sales. If you are reading this blog entry, chances are that you get a lot of your wine information over the internet, too. It's a good thing, for the most part.

But not everything about the internet is good for winemakers. Do you remember the old New Yorker cartoon with the punchline "On the internet nobody knows you're a dog?" On the internet we are who and what we pretend to be. Obviously wine marketers can use this fact to tailor the imagine of their wines and winemakers. Nothing surprising there. But, as I have recently learned, there are some predators out there who use the internet to try to take advantage of wine producers.

Karen Wade, who owns the Fielding Hills winery with her husband Mike, recently sent me an email that she received from someone posing as a wine buyer, writing under the subject heading, "I Need Wine for my Birthday Party."

Hello,
My name is Robert Peter, an American .
I live and work here in Seoul, South Korea.
Actually when I was around last year for chistmas holiday, I got a a bottle of of one of your wines from a friend and i love the taste .since then , I been planning on getting your wines for my birthday party ...coming up third week of novemebr here in Seoul, South Korea.
I will be making my payment via my American based credit card .
You are not shipping the wines ....The wines will be picked up at your winery by a licensed shipping agency .This shipping agency have all the appropriate exportation documents and permits .
I got your contact thru your website and I want to know if you will be able to supply me some cases of wines for my upcoming birthday .
Concerning the shipping of the wines , I will refer you to a shipping company that will come for the pick up of the wines in your winery once I have made my payment .
Kindly get back to me so that I can make my orders .
Thanks.
Robert .

Karen writes that

Mike and I receive almost weekly, very official emails from places in Asia wanting to buy wine. They always offer to pay by American credit card and promise to have the wine picked up by their shipper. I answered once and told them to fax me the credit card info and order and never heard anything back.

I guess this indicates that the sort of people responsible for those bogus Nigerian email scams have now become more specialized, targeting wine producers. I wonder if anyone has fallen for this? Have any other winemakers received these emails, or are the Wades just lucky? Do other businesses received specialized scams like this?

On a related note, Mike and Karen Wade received good news this week in the 2008 edition of Tom Stevenson's Wine Report, one of the best annual guides to global wine. Paul Gregutt, the Pacific Northwest contributor to this volume, rated their winery as the number one "new and up-and-coming producer" in the region. He also listed the 2004 Fielding Hills Cabernet Sauvignon as number four on his list of the ten "greatest quality" wines. That's high praise for Fielding Hills.

Paul Gregutt has a new book out about Washington wines and wineries. I'll be posting a review of it later this week.

Wine, Branded Wine and the Market for Lemons

2007-11-01T08:48:00.000-07:00

I have learned that many people who visit this page are searching for an answer to the question "why are brands so important in the wine market today?" (When I Googled that question this morning, this blog was #3 on the results list). So maybe I should address the question directly.

It is true that wine brands are a significant factor in the market. The largest wine companies in the world -- Constellation Brands, Foster's, Gallo -- manage large brand portfolios. Just as a mutual fund tries to cover the bases with a diversified mix of investments, the wine giants try to cover the market with a collection of brands of different types of wine from different continents at different price points. Just click on one of the company links I've inserted to see the brand lineups for yourself. They are really quite spectacular in terms of the number and diversity of wines that these companies produce and distribute.

The emphasis on brands isn't limited to the largest companies. Just look at the brand portfolio of the French firm Broisset, for example, or Ste Michelle Wine Estates. Precept Brands is a good example of how a relatively small regional wine company can successfully assemble a global wine portfolio -- their wines come from Washington, California, Australia, New Zealand, France, Italy, Spain and Germany. Don Sebastiani and Sons is another good example of the global wine portfolio model.

So why are branded wines suddenly so important? Well, the first thing to recognize is that wine branding (and even portfolios of branded wines) is not a new phenomenon. Although people tend to associate the branding trend with New World wine, especially U.S. and Australia, in fact the Europeans inventing the system and in some respects are still masters of it.

Branding is really all about product differentiation -- establishing a product identity that stands out in the marketplace. The European appelation system was invented to accomplish this goal. The local and regional classifications that make marketing European wines in the New World a nightmare were invented to be powerful brands (and some of them still are). The difference, of course, is that those brands were created by regional grower cooperative wineries in an attempt to differentiate their wines from those of other regional producers, whereas these brands (Yellow Tale and the like) are created by wine businesses that specialize in selling wine, not making it -- in marketing not viticulture.

Globalization has been part of the shift in brand strategy. As the global market expands and brings in new consumers, the company-based branding system is simply more successful than the old geography-based grower-driven branding system because it is easier to understand and promote. It gives wine to consumers who are accustomed to purchasing branded products in a format that they can easily understand.

It seems to me that the French, who famously reject the idea branded products in their anti-globalization rhetoric, are in fact the most successful practitioners of the branding art. If you think of Champagne and Beaujolais as brands, which they are, and not just regions or styles of wine, this becomes instantly clear. Beajoulais Nouveau, the ultimate Coca Cola wine, was purposefully developed as a global brand. And of course, such French firms as LVMH are the most successful purveyors of branded luxury products, including wine, in the world.

Brands are nothing new and they are more than just a marketing tool. Brands can serve a very useful economic purpose. The Nobel Prize winning economist George Ackerloff wrote about the problem of making a purchase under uncertainty in a famous paper on "the market for lemons." Buying a used car, for example, is difficult because it is hard to tell if a particular vehicle is a "lemon." Some cars, even by reliable manufacturers, are simply plagued by problems and it is not in the seller's interest to disclose this fact. So when you buy a used car, you have to accept the risk that you might be buying a lemon. This uncertainly drives down the price of all used cars, according to Ackerloff, even the good ones. There are a variety of solutions to this problem, many of which are techniques for the seller of a non-lemon to communicate this fact to buyers, thus differentiating good cars from bad and gaining a higher price.

Do you see where this is going? Although I have never tasted wine made from lemons, I have drunk a lot of lemon wine in my time. The fact is that some wines or some vintages are lemons and cannot be sure if you have a lemon until you open the bottle. Solution? Well, the whole wine rating industry exists because of the lemon wine problem, doesn't it? Robert Parker and Wine Spectator play the same role for wine that Consumer Reports does for cars and washington machines.

Brands are another solution to the lemon problem. If brands represent a reliable indicator of quality or consistency (these are not always the same thing), then they communicate valuable information to buyers, who are seeking that knowledge. Result (if successful), more confidence among wine drinkers and a higher overall demand for wine. With the market demand for wine growing and becoming more complex in the New World, the value of brands has increased correspondingly. That said, I do not think that some of the hundreds of new brands I have seen really mean anything or communicate any useful information to buyers. There is a brand boom going on, in my opinion, which I suspect will be followed by a brand bust. Keep your eyes open for bins of discounted wine from discontinued brand lines.

One final reason for rising importance of wine brands is distribution. I have noticed that every industry tends to organize itself around solutions to its biggest bottleneck -- the factor that represents the biggest impediment to efficiency. Distribution is the biggest problem in the United States and some wine makers solve this problem by becoming distribution machines (that's part of the Gallo story) and some distributors have become turned into winemakers, either directly or through strategic alliances (that's part of the Yellow Tail story).

Here, very briefly, is the distribution story. Retailers prefer to deal with a small number of distributors in each product category, so size matters in distribution. On the wine aisle, these distributors need to provide product at several different price points (because retail wine buyers purchase by price more than any other factor) in a large number of different categories (think of all the different varietals and regions to cover) -- and do it in a way that will reduce consumer uncertainty not increase it, reducing the lemon fear and increasing sales. Brands address the lemon issue, and portfolios of brands are necessary to provide provide wines in different categories at each critical price point and to create the breadth and scale that retailers seek. The distributors what can do this the best become the leading wine companies.

Chateau Ste Michelle

2007-10-28T10:51:00.000-07:00

I gave a brief talk to a university group at Chateau Ste Michelle in Woodinville, Washington yesterday and it gave me a chance to think at bit about the Washington wine industry in general, now with more than 500 wineries and growing, and Chateau Ste Michelle (CSM) in particular.

Sue and I were fortunate to be able to spend a couple hours in the afternoon with CSM Enologist David Rosenthal (pictured here) , who is a 2001 marine biology graduate of the university. He's worked at Mondavi as a chemist and at Oregon and Australia wineries and he now helps make the white wines at CSM. They produce about 400,000 cases of Chardonnay and 750,000 cases of Riesling in addition to smaller amounts of other white varietals. It is quite an operation and David was nice enough to answer all of our questions and take us through the cellar room, sampling wines starting from unfermented juice that had just arrived from Eastern Washington on through the various stages of fermentation and aging. I learned a lot -- thanks, David.

I've read that CSM uses its large scale wisely, treating size as a resource that permits experimentation and diversity, and I could see this pretty consistently through our tour with David. CSM's scale is tailored to give its winemakers a great deal of choice when it comes to blending their high volume wines and also to facilitate limited production products, including of course the single vineyard bottlings.

Chateau Ste Michelle is part of Ste Michelle Wine Estates (SMWE), which owns several other Washington brands, including Columbia Crest, Snoqualmie, Domaine Ste. Michelle (sparkling wines), NorthStar (which began as a high end merlot specialist label), Red Diamond, Stimsom Estates Cellars (up-market jug wines), 14 Hands (the manditory critter wine -- the critter on the label is a horse that stands 14 hands high) and the boutique Walla Walla producer Spring Valley Vineyard. If you've been reading this blog you know how important brands are in the wine market today and SMWE's strategy reminds me of the old Robert Mondavi company -- to have competitive brands from the popular premium shelf on up to the icon level, leaving the low margin bulk wine market (the bottom shelf) to Gallo, Yellowtale and Charles Shaw. CSM and Columbia Crest are the leading brands, with 3 million cases produced between them.

Although everyone associates CSM with Washington, the company's reach is much broader. Other brands in their stable include Erath (Oregon), Villa Mt. Eden and Conn Creek (Napa Valley) and Distant Bay (Monterey). They are the exclusive U.S. distributors of Antinori wines and have partnerships with both the Antinori family (to produce Col Solare, Washington's answer to Opus One) and, with the Mosel's famous winemaker Ernst Loosen (to make Eroica, an exceptional Riesling). SMWE is the largest producer of Riesling wines in the U.S. and possibly in the world! Together with the Antinoris, SMWE recently purchased Stag's Leap Cellars in Napa Valley, one America's most distinguished wineries.

In other words, this is big business, both in terms of volume and quality. Altogehter SMWE's brands produce 4 million cases a year, which is about two-thirds of all Washington wine, and it is a correspondingly huge influence on the whole industry here. Of course, Washington is still tiny, in quantity terms, compared to California. People say that Gallo produces about 70 million cases all by itself. (Since Gallo is family-owned, it doesn't report as much data as publicly-traded wine producers do, so we have to guess what's going on in the big warehouses in Modesto.)

SMWE makes a lot of very good wine, which is perhaps more important that quantity in today's market. SMWE's brands account for the largest number of Wine Spectator 90+ wines (and the most total top 100 wines) of any producer in the world. It is an interesting fact that Washington doesn't compete at all at the very bottom rung of wine ladder -- the very inexpensive bulk wines that account for much of the total volume in today's market. You know what I am talking about -- Two Buck Chuck and the lesser wines that make that brand look so good. Of all the New World wine regions, only Washington and New Zealand have been able to build a wine industry from the popular premium level up.

But it makes sense: Washington cannot hope to compete with California's Central Valley producers when it comes to cost-sensitive bulk wines, so it doesn't try. New Zealand is in the same position with respect to Australia. In both cases, I believe, this actually works to the smaller, higher-cost producer's ultimate benefit, since all of the focus is on quality and on the growing upper-tier of the market.

Chateau Al Gore

2007-10-16T09:48:00.001-07:00

Al Gore won the Nobel Peace Prize last week for his work to publicize global warming and this got me to thinking about climate change and wine. Global warming (and Al Gore) seem to be very controversial issues in the media, but climate change and wine are not: I don’t know anyone in the wine business who does not take the fact of climate change seriously.

You have only to look at these two maps to understand why. They are based upon research by Gregory V. Jones, a geographer at Southern Oregon University. Professor Jones is my “go-to-guy” when it comes to climate and viticulture. He impresses me as a seriously good scientist and I visit his research website frequently to see what he has been working on.

As you can see from these maps, the geography of wine in the western U.S. is likely to undergo very significant changes in the coming years (click on the map to enlarge the image). Some areas that are currently in the “hot climate” range, like Lodi California, and currently specialize in hot climate grapes like Zinfandel may become too hot to make quality wines at all. Some “cool climate” Pinot Noir areas, like Santa Barbara and Oregon’s Willamette Valley, may bet too warm for those varietals and the Pinot will have to be replaced with more heat-friendly varietals such as Merlot, Malbec, Syrah or Cab. And some areas that are now considered too cold for quality wine production may become viable.

I have been reading some of Professor Jones's scientific articles and it seems to me that the case for a general if uneven warming of grape growing regions in the western U.S. and around the world is very strong. The trend is weakest in coastal regions where maritime influences come into play and strongest inland -- areas like California's Central Valley and Washington's Columbia Valley on the map.

There are a variety of climate factors that affect a region's winegrowing potential including average temperature during the growing season (that's what the map is showing), the length of the season (number of days between the last spring and the first fall frosts), the severity of vine-damaging winter freezes and the number of very hot days during the critical ripening phase.

In general heat is beneficial up to a point, improving the quality of wine by raising sugar levels and developing flavor factors without affecting acidity. Too much heat, however, and too many very hot days means that the grapes don't ripen properly. Grapes picked when the sugars are right may lack flavor and those allowed to hang on the vine until the flavors develop lose acidity and are unbalanced. Growing seasons must provide sufficient time between frosts for plants to develop and grapes to ripen. Killing frosts obviously limit how close to the two poles vines can successful produce.

All four of these factors are changing and in some cases the shifts are dramatic. The maps give a sense of how temperatures have been changing (and let me say that the projections shown here appear to be consistent with the long term trends reported in Professor Jones's research). Growing seasons are expanding, too. One study indicates that the frost-free period for the North Coast region of California increased by 68 days between 1949 and 2002. That is an incredible change. (The average increase for all winegrowing areas studied was 34 days -- one whole month!). The number of very hot days has increased in many areas while the threat of deep freeze has diminished.

There are winners and losers from these trends. A front page article in the October 15, 2007 Wall Street Journal reported on one winner, the owner of a vineyard in Tappen, British Columbia, 70 miles north of the Okanogan Valley. Warmer temperatures, a
longer growing season, and relative freedom from killing frosts all helped put this spot on the world wine map (albeit still on the edge of the map). This gain in the Canadian west will perhaps offset a loss back east where, I am told, there are growing problems with the profitable ice wine business. Not enough cold weather to make that sweet wine the natural way.

In fact, researchers have found that most wine regions have been winners from climate change so far. Research has found a strong direct correlation between rising temperatures and scores in the wine magazines. The quality of wine has improved, the correlations suggest, although there are other possible explanations. Perhaps winemakers have become more skilled at the same time that the climate has changed. Or maybe Robert Parker just prefers Chateau Al Gore -- big, ripe global warming wines.

I've seen the Canadian case before, I think, when Sue and I visited New Zealand in 2004. I can't get over how many similarities there are between the evolution of the Canadian and Kiwi wine industries (the wines, of course, are very different, at least for now). A wine consultant once advised the New Zealand growers to plant Muller Thurgau, which is the most cold-tolerant grape variety. Now New Zealand grows Pinot Noir in Central Otago, where you would think is would be too cold, and makes nice hot weather Cabs in Hawks Bay, especially in the Esk Valley. In the far north, where New Zealand wine really began, I am told it is almost too warm to ripen grapes properly.

When people talk about climate change causing the ocean level to rise, flooding out coastal areas -- well it may be hard to imagine how relatively small changes in natural conditions could have such large effects. But there is nothing imaginary about how the wine map is being redrawn by small (and large!) changes in climate.

The Sense of Wine

2007-10-14T15:52:00.000-07:00

People often ask me why I write about wine and I usually say that it is hard not to want to know more about wine because it’s just so darn interesting. I then admit a secondary motive: it’s a good market for me. I think there are many people who would not read a book about economics or globalization who might read one about wine economics or wine globalization because they find wine, well, just so darn interesting.

This leads to the obvious question: what is it about wine that fascinates? It is a simple product, after all, just fermented grape juice. Been around for ages. What's the big deal? For that question I have a simple answer: wine is sensuous and we live in times when sensuality is much sought after.

The act of drinking wine famously involves all our physical senses. To appreciate wine we have to admire the beautiful color (sight), breathe in the aroma (smell), appreciate its texture (touch) and flavors (taste). Sound is the only sense missing from list, which we remedy by touching glasses in a toast. Cheers!

But wine’s sensuality is more than physical. The five physical senses are just the beginning. Wine fascinates because it stimulates to our sense of history, for example, which connects us to people in the past and makes us think about the future.

Wine appeals to our sense of place, too, since it is something that we associate with a particular time and location, often with more meaning and precision than other products of daily consumption.

Wine is a natural product, its variations arising from forces beyond human control. It can also be a personal product, revealing a particular winemaker’s artful expression or a wine drinkers sense of taste.

Wine appeals to our sense of wonder, since we never really know what is inside the bottle until we open it, and our sense of humor, because we are so often surprised by what we taste. Importantly, it informs our sense of self. I find that many of my friends express their identities in part through their relationship with wine. My newspaper editor friend David Seago recently told me that “you need a good vocabulary” to appreciate a particular wine, a statement that told me that he was enjoying the interplay of wine, language, and an active imagination, which is a seriously sensual mix. The imagination is after all the most sensuous organ in the body.

In short, wine is a simple product with a complicated social role. We use it to stimulate the senses we value most. No wonder it's so darn interesting.

Put a Cork in It?

2007-10-07T09:49:00.001-07:00

To Cork or Not to Cork: Tradition, Romance, Science and the Battle for the Wine Bottle by George M. Taber. Simon & Schuster, 2007.

Former Time writer and editor George Taber was the only reporter present at the famous 1976 Paris wine tasting where California wines showed that they could compete with the great wines of France. He wrote about this event and its implications is his wonderful 2005 book The Judgment of Paris, which was named best wine book of the year by Decanter magazine.

The 1976 tasting is one of those defining moments, when a great many forces, issues and personalities came together to change the way we think about the world of wine,. This book is about another defining moment, but a completely quotidian one: the moment when you open the bottle. It's something we do every day. That moment also connects us with some powerful personalities and a complex set of scientific, economic and psychological issues, which Taber explains in a way that makes this a wine-nerd book that will be read and enjoyed by a wider audience than just people like you and me. (Admit it, you must be a bit of a wine nerd to be reading this blog.)

There are all sorts of ways to keep wine in and air out of a container: natural corks, composite cork stoppers, screw caps with tin liners, screw caps with plastic liners, plastic corks of many types, elegant glass stoppers and practical soda pop crown caps. And this is only for wine in glass bottles: you can also package wine in aluminum cans, juice boxes, plastic soda bottles and bag-in-box "casks." Sealing the 20 billion bottles of wine that will be produced this year is a $4 billion business.

I learned a lot from this book. There is no best way to seal wine, there are only better ways under different circumstances with different trade-offs. Natural cork-sealed wines age and develop in the bottle, can be "corked" or suffer from TCA contamination. Plastic corks usually won't contaminate the wine, but they don't always seal tightly over time, so the wine can be oxidized after a couple of years. Screw caps are TCA-free, but they, can seal too tightly, with the result that the wine can suffer sulfur reduction, which gives it a rubbery or rotten egg smell, and screw cap wine can fail to develop as it ages. No matter what stopper winemakers use, they can never be sure that the wine they put in will be the wine that you pour out.

You might think that global wine market competition would have produced a "best practice" solution for wine closures, but the market is too complicated and diverse for that. The science may be universal, but the people (both producers and consumers the the middlemen in between) have their own quirks. In France, for example, it is hard to sell a screw top wine, at least for now, because of the strong attachment to tradition. I can appreciate this. I have friends who get great pleasure from the ritual use of elaborate corkscrews. Screwcaps leave them cold.

In Great Britain, on the other hand, it is apparently getting somewhat harder to find a natural cork in a popularly-priced wine because the supermarket buyers, who wield such market power, are strongly biased in favor of plastic and screw top closures. Like many in the business, they have been burned too many times by problems they associate with bad corks. Here in the United States there is some evidence of the market bifurcating, with plastic and screw tops for wines bought for early consumption (under $20) and high quality corks for expensive and age-worthy bottles.

Taber ends his book with an indirect commentary on wine globalization, which is worth noting here given this blog's theme. Finding a solution to the wine closure dilemma is a worldwide problem and the global market competition is forcing the stopper makers to innovate and make better and better closures and forcing winemakers to get better, too, since they can no longer automatically blame any flaws in their wines on bad corks. "Unfettered competition," he writes, "remains a powerful driving force for good."

I think Taber is right but for now I'm just standing here in the basement, looking with suspicion at the wine in my little cellar, trying to guess what is going on beneath the lids. Having read Taber's book, I now know enough to be anxious about each and every bottle!

Bottom's Up at Fosters

2007-09-27T13:19:00.001-07:00

An article in today's (9/27/07) Wall Street Journal suggests that the era of wine surpluses, both in the world and especially in Australia (see previous blog entry below) may be coming to an end. The world's second largest winemaker has started to raise prices on its premium wine after a long period of discounting and drastic bulk sales. Maybe this market cycle has finally hit bottom and prices are on their way up.

Most people I talk to assume that Gallo is the world's largest winemaker and have no firm notion of who could be number two. But in this era of growing brand power the #1 winemaker is Constellation Brands and Foster's is number two. Fosters makes a lot of wine, but it is really a "drinks" company more than a wine company (to use a distinction that Craggy Range winemaker Steve Smith once explained to me). Fosters manages a long list of brands, only a small sample of which are shown in this photo. They sell branded wines, beers, spirits and even Oragina soft drinks and various juices and sparkling waters. If you are thirsty and want a drink, Foster's is ready to serve your needs.

Foster's lager beer is the brand you might most obviously associate with this company, but its list of wine brands is long and includes Australian wines such as Penfolds, Rosemount Estate, Wolf Blass and the Little Penguin as well as Beringer and Stag's Leap from the U.S., Matua Valley from New Zealand and Fonsecca Port and Gabbiano Chianti. More than 60 wine brands are distributed internationally, reaching from the budget bottom shelves of the wine display clear to the top.

The WSJ article reports that Foster's raised its wine prices by between 4% and 11% in August and the higher prices have stuck -- they haven't hit strong consumer resistance or been undercut by competitors. I think it might be too early for Foster's to declare victory, but rising prices do suggest that the wine glut has come to an end and some shortages may be emerging.

Foster's has apparently finished selling off its inventory of surplus unbranded wine stocks, which are called "cleanskins" in Australia in reference to an international espionage term for an agent of unknown origin. (See this website for an example of Australian cleanskins marketing.) These discount sales dragged down Foster's earnings.

Now, with the prospect of a drought-reduced 2008 vintage following drought problems in 2007, the trend of falling prices may finally be coming to an end. I am skeptical, however, because it seems to me that Australian wines face a lot of competition around the world and it may be difficult to raise prices in this market environment, with surplus stocks still available, for now at least, from other parts of the wine world.

A Tale of Three Brands

2007-09-21T14:19:00.001-07:00

I was asked to give a talk at a university wine event recently and my colleague Amy Ryken selected the wines: three New Zealand Sauvignon Blancs, all from Marlborough: Monkey Bay (2006), Nobilo (2006) and Kim Crawford. The Kim Crawford was the first 2007 vintage I have tasted and it made me realize why people like this wine. I like it for its distinctively pungent tropical fruit flavors, which displayed themselves very well in the young, fresh wine. But winemakers must like it because of its distinctively favorable economics. Some wines spend years in the barrel before they can be sold, but not this one. You harvest the grapes in March or April in New Zealand and the wine's already on sale in the U.S. in September. That's Chateau Cash Flow!

The three wines were different and each had its champions, but all three were unmistakably Marlborough products. They had something else in common: all three were sold by Constellation Brands, the world's largest wine company. This fact made me appreciate how very important branded wine products and distribution clout are in the wine business today. How did theses wines come to belong to Constellation Brands and to arrive at our local stores. Here are three stories.

Nobio wines was founded more than 60 years ago by Nikola Nobilo, a Croatian migrant to New Zealand (most of the famous names in New Zealand wine are of Central or Eastern European origin and came to that island country attatched to migrants fleeing poverty and war). Nobilo prospered and was acquired a few years ago by BRL Hardy, the big Australian drinks conglomerate. When BRL Hardy merged with Constellation Brands, Nobilo came along in the deal. So Nobilo benefits today from its access to Constellation's powerful distribution system and its expertise in marketing branded goods.

Kim Crawford's story is a little different. Kim Crawford is a famous New Zealand winemaker who made his reputation at Cooper's Creek and Saint Clair Estate and opened the first Marlborough "virtual winery." He purchased grapes from contract growers, leased production space from other wineries, and made great wine. Kim Crawford was so well known for making great wine that he became an iconic brand, sort of like Martha Stewart (and that's a good thing). "Kim Crawford" on the label as winemaker or winery owner is a sign of quality.

But even brands need distribution, especially for the export market, so Kim Crawford cut a deal with Hogue Cellars of Washington state that brought their wines into the U.S. and Canada. The distribution relationship continued when Hogue was purchased by Vincor, the Canadian wine giant, which was itself eventually bought by Constellation Brands in 2006. Kim Crawford still makes the wines, as near as I can tell, but Constellation owns the "intellectual property," which must mean the brand rights.

The third wine was Monkey Bay. Monkey Bay is the best selling brand of New Zealand wine in the United States. As near as I can tell there is no "Mr. Monkey Bay" in the same way there is a Mr. Nobilo and a Mr. Kim Crawford. And I am not completely convinced that there really is a Monkey Bay, although one is indicated on the company website.

You see, Monkey Bay is a created brand, like most of the "critter wines" are. The name is created and the wine designed to appeal to a particular market niche or lifestyle segment. "Monkey" suggests that the wine is fun and doesn't take itself too seriously. "Bay" suggests an island locale, which is appropriate, and perhaps will remind some of Cloudy Bay, the famous (and much more expensive) high end Marlborough wine, which is owned by the French luxury goods conglomerate LVMH. Constellation Brands invented Monkey Bay because they thought they could market the brand and the wine -- and they seem to have been immensely successful. The grapes apparently come from Nobilo vineyards.

Why not call it Nobilo wine? Apparently the Money Bay moniker appeals to a different market segment. And by segmenting the market, Constellation Brands can attract buyers with different buying preferences at different price points.

Should we be concerned about so many Constellation Brands wines on the shelf? Well, these wines showed that market consolidation does not necessarily produce homogeneous wines. But that's only the beginning of an answer. More to follow in future posts.

Vineyard Economics: Boom and Bust in the Global Wine Market

2007-09-18T15:37:00.000-07:00

Anyone who studies the economics of the wine business eventually comes to realize that wine is fundamentally an agricultural product with the boom and bust market cycles that ag markets are prone to experience because supply cannot quickly adjust to changes in price and demand.

Here’s what I mean: When demand for Pinot Noir (PN) rises growers must decide whether to pull up Chardonnay and plant more PN. They may delay doing this, creating a short term shortage of PN (and rising prices), because they are unsure whether the Pinot Noir boom is real. If they do switch, it takes maybe five years before the new vines are ready to make wine. By that time the PN craze may be ended and so the market will collapse under the weight of the extra wine. Even if demand stays firm all the extra PN coming to the market at once may result a surplus of wine and falling prices. Then growers have to decide whether to stay in PN or switch to something else (Pinot Grigio?) and so the cycle begins again. Rising price, rising production, surplus, falling price and so on.

The winemakers in Oregon are currently worrying about this cycle. Oregon Pinot Noir has been hot in recent years, which has been good for their businesses. But what’s going to happen when the new vineyards they’ve planted begin to produce in a couple of years. Will Pinot Boom be followed by Pinot Bust?

(Economics students will recognize the vineyard boom-bust cycle as a market cobweb, one of my favorite examples of economic dynamics. Cobwebs can be stable and converge slowly, or they turn unstable and explode.)

Pinot Noir aside, most of the talk in wine markets these days is about surplus, not shortage. Australia is still stuck with large surpluses of bulk wine. California is in surplus, too. And the European Union has been forced to introduce a new wine regime in an attempt to drain its wine lake and reverse the structural forces that created it.

It is very interesting, therefore, to read about the coming wine shortage. This is the message of recent studies by the people at Turrentine Brokerage, a Novato, California firm that does wine market research and also brokerage services (go to their Marketplace section to get a real feel for supply in the bulk wine market!). I’m very impressed with their analysis of wine market dynamics.

Turrentine Brokerage has created the Wine Wheel to describe the boom-bust cycle of the wine markets. According to their analysis, we are currently in the stage called Emerging Shortage for many wines where supply is stagnant or falling (no one’s really planting much Cabernet Sauvignon in California right now) but demand is slowly growing. There isn’t a shortage yet, but there could be or will be in the future and the market isn’t taking action now to deal with the problem when it comes.

Moving around the wheel, Emerging Shortage is followed by Acute Shortage, with rising prices, which stimulate new plantings and new vineyards and wineries. This large scale expansion leads inevitably to and Emerging Surplus and then Acute Surplus. And then we start again. If you think of wine as a tiny craft industry or as a giant industrial business, these cycles don’t make much sense. But when you realize that fundamentally agricultural nature of wine, it all falls into place.

So don’t be surprised if wine prices start to rise back up as the surpluses disappear. But don’t expect prices to go through the roof, either (except for those high end collector wines that you read about in the magazines – their prices are already stratospheric). The world wine market is very small these days and this may keep prices from getting out of hand. Boom and bust cycles happen everywhere, but I’m not sure that they are entirely synchronized, so shortages in one part of the world may still be partially offset by surpluses elsewhere. This cushions the cycle somewhat as far as consumers are concerned – for now at least.

But what about the future? I wonder if the cycles will become more or less severe in the future? That’s a question for a future essay!

Big Trouble Down Under: Crisis in Australian Wine

2007-09-16T13:51:00.000-07:00

Most people find it hard to imagine that the Australian wine industry could possibly be in trouble. Isn't Australia the great success story of wine's current globalization era? Australian wines are the #1 imports in Great Britain, having overtaken the French, and they may soon replace Italy as the #1 wine import in the United States. Where is the trouble in this?

And aren't Australia's best wines, like the iconic Penfolds Grange shown here, recognized as among the finest wines in the world? Australian Shiraz has set a high standard and its popularity has ignited interest in Shiraz and Syrah around the world. What's wrong with that?

And yet big trouble there is for Australia's wine industry and it is important to understand the situation both to appreciate the forces at work in Australia and to recognize their impact on the rest of the wine world.

First, however, we have to understand how Australian wine really works. Although famous brands like Penfolds Grange established Australia's reputation for fine wines, they are a small and limited segment of the market. The evolution of Australian wine during the 1990s has produced an industry dominated by a small number of very large producers focused on branded products for export to Great Britain and the United States (about 75% of Australian wine exports are aimed at these two markets).

The bulk of Australia's exports are inexpensive bulk wines, like the Yellow Tail brand that sells so well in the U.S. In fact, Yellow Tail wines account for nearly one-third of all Australia's exports, making the industry incredibly dependent upon market conditions at the bottom end of the market. And those market conditions are not favorable: price competition is fierce. Penfolds Grange is the sophisticated image of Australian wine, but Yellow Tail, with more than 10 million export cases per year, is the inexpensive "critter wine" that pays the bills.

Or doesn't pay the bills. Three years of rising harvests from 2004-2006 left Australia awash in bulk wine and the market worked just like the textbook says: prices dropped. The fact there is surplus wine, at least for now, in many parts of the world made the situation worse, of course. Bulk wine export prices are now less than 85 cents per liter, an unsustainable level.

I have read some reports that suggest that cheap French wines are part of the problem. The wine industry in the South of France,the Languedoc, is badly fragmented, with tiny family vineyards that can undercut new world wines because they do not count the cost of inherited capital (the vineyards) or family labor. And, of course, there are those EU subsidies, at least for now.

The wine world has become very small and Australian bulk producers compete head to head with those from Chile and France in the main global markets. And this creates a problem, too, because there is only so much demand to go around at any given time. If Australia exports a bit more to the U.S., for example, it pushes that extra U.S. wine into an export market, where it undercuts existing Australian sales. The result, once again, is falling price. Australian wine producers are on the lookout for new markets, focusing on Russia, China and South Korea. I would guess that these are not the easiest markets to enter except through the undesirable bulk wine route.

The problem is compounded by the fact that Australia's big brands seem to have hit a wall in the export markets. Everyone has "critter" wines, now (or haven't you noticed) and the competition among branded wine products has become positively frenzied. Sales of some of the Australian "popular premium" brands have actually declined for the first time, with these wines pushed down into the bulk market, pulling prices even lower there. More and more, Australian wines compete in a single category and market conditions on that part of the wine rack have deteriorated.

There is good news, but even the good news is bad. The good news is that the Australian wine surplus is shrinking and supply is becoming more closely aligned with demand. The bad news is that this isn't because demand is rising, but rather because 2007 was a disastrous vintage. Grade production fell by 30% due to disease, frost and especially drought. Drought conditions are projected to continue into 2008, so there is not much hope of a quick recovery. Bad news is sometimes good news in agricultural markets, where bad crops push up prices and make people rich. But Australia's bad crop won't do much to push up global bulk wine prices. The only good news is that the surplus stocks that Australian producers have been holding can be used up at last.

What can be done? The Australian Wine and Brandy Corporation (a government marketing agency) has released a study titled Wine Australia: Directions to 2025 that presents a plan to turn the troubled industry around without ripping out vines the way that they did in Canada and New Zealand during their wine gluts in the 1980s and the European Union proposes to do to shrink their wine lake now. The key to the plan is to "re-brand" Australian wines using a market segmentation scheme described in the report and then to move up market and away from bulk wines with more innovative brands and an attempt to focus on distintive regional terroir.

The logic is simple: move from the bottom shelf in the supermarket, where prices are unsustainable in any case, into the middle and top shelves, where consumers are willing to pay higher prices. The problem? Well, changing consumer expectations isn't easy, although it is possible. But isn't everyone trying to do that? It seems like every winemaker is trying to move upmarket. Gallo and Constellation have dozens of brands in these market segments, with more coming every day. (Just this week, as it happens, Gallo announced a partnership with Martha Stewart to produce a Sonoma-sourced Martha Steward Vintage brand wine to sell for $15 in select markets!)

The Wine Australia report is a good beginning. They recognize the current crisis and they know what to do. But can they do it?

The Fall and Rise of the British Wine Market

2007-09-09T14:44:00.001-07:00

People are always surprised when I tell them that Great Britain is the most important import wine market in the world. How is this possible? Britain is so much smaller than the U.S. and the British are known to prefer beer and spirits to wine. How can they be an important wine market?

One part of the answer is that most countries that consume a lot of wine actually produce a lot, too, and so are not necessarily large net importers. This is obviously true of France, Italy and Spain and it's even true of the United States. Countries that consume in large quantities but aren't also major producers are rare. Britain's wine production until recently has been tiny, so most wine is imported wine and that makes their market very important. British wine production is creeping up now, however, driven by global climate change. Rising temperatures are making it possible to produce good and even exceptional wines in Britain. It is said that some British sparkling wines already rival the best of Champagne.

A second piece of the puzzle was revealed to me recently in an excellent book by George Mason economics professor John V.C. Nye called War, Wine, and Taxes: The Political Economy of Anglo-French Trade, 1689-1900 (Princeton University Press, 2007). Professor Nye deals with many interesting topics in this book; I'm going to focus on the wine story here and not try to cover everything.

Britain was not always a beer and spirits culture. Wine was cheap and plentiful in Britain in the middle ages and Britain did in fact have its own vast vineyards for 300 years starting in 1152 because Bordeaux was British territory! The loss of those vineyards and then war with France caused Britain to turn away from French wines to those from Spain and Portugal and then, finally, from wine generally.

Faced with the need to generate war revenue, Britain imposed tariffs on wine imports. Significally, these were not excise tariffs (10% or 20% of value), but specific tariffs (x number of pence per bottle or gallon). Excise tariffs would have had an equal proportionate impact on wines of all prices, but specific tariffs introduced a bias against cheap wine. Suppose that the tariff is $10 per bottle, for example. The effect on a $100 bottle of imported wine is relatively small -- the price rises by 10% and demand probably declines somewhat. The impact on a $5 bottle of wine is enormous, however. Its relative price rises prohibitively. Who will pay $15 for a $5 bottle of wine? Its market evaporates.

(Note: Transportation costs , which are more or less the same regardless of price, have something of this same effect. This helps explain why that cheap but lovely bottle of local wine you enjoyed in Provence never shows up on your grocers' shelves here in the U.S.. By the time the transportation costs are paid it would no longer be cheap and you might not find it quite so lovely.)

The British drinks market was thus split in two. Elites continued to drink and collect fine red Bordeaux wines that they called "claret." The masses switched from wine to now relatively less expensive beer. And Britain acquired its reputation as a beer drinking nation.

Professor Nye argues that British brewers were able to take advantage of technological innovations that allowed for large economies of scale in beer production. Once they had a near monopoly on the British drinks market, they could build huge factories to satisfy the captive demand at low production costs.

An interesting "invisible handshake" arrangement evolved, according to Nye, between the brewers and the revenue-hungry British state. The brewers permitted themselves to by taxed at fairly high rates in return for tariff protection from wine imports, which gave them a large captive market. The economies of scale in brewing were so significant as to make it profitable both for the brewers and for the taxman -- so long as cheap wine was kept away.

Britain's entry in to the Common Market combined with Margaret Thatcher's later market reforms broke up this nice arrangement and established an environment where British wine demand could return. Britain was required to "harmonize" its wine tariffs with European partners, which removed the bias against popularly priced wines. And the market reforms allowed wine to be sold more widely and competitively, especially through supermarket chains. With wine available and at good prices, Britain's thirst for the vine returned.

Thus did Britain, once the most important export wine market in the world, become so again because of the cost of war, the nature of specific tariffs, the economics of brewing, Britain's entry into the Common Market and Mrs. Thatcher's market reforms.

The Pinot Puzzle

2007-08-29T08:30:00.000-07:00

They were serving Pepperwood Grove wines at the reception at The Tacoma Club last night and I was a little bit suprised to see a Pinot Noir there, standing side-by-side with the Chardonnay, Cab and Merlot. The reason for my surprise is that Pinot is in short supply these days, so you don't really expect to find it in a competitively priced line like Pepperwood Grove, which is one of the Don Sebastiani and Sons brands. I saw the wine today at the Metropolitan Market for $5.99.

The Pepperwood Grove Pinot is part of a bigger Pinot Puzzle. People are buying (and wineries are selling) a lot more Pinot Noir in the post Sideways era, but there aren't that many more tons of Pinot Noir grapes available. Where has the extra Pinot Noir come from?

There are several possibilities. Maybe some of the Pinot that had previously been used in blends (such as generic "burgundy") is now instead being bottled on its own as a varietal. I don't know if this is a major factor, however, because I am not sure how much Pinot went into those blends in the first place.

Another possibility is that other wines are being blended with Pinot up to the legal limit to stretch it out. In Oregon a wine labeled Pinot Noir needs to be at least 90% Pinot, but other states have lower limits. I am sure that this takes place and it helps account for the fact that some recent Pinots, while they may taste good, don't always taste like Pinot. But they sell like Pinot, which is the point I guess.

A third possibility is that the wine might not be exactly what you think it is. It is not uncommon for winemakers to import foreign wines (and bottle them under their own labels) when faced with a shortage. This is fine when the label makes the unexpected provenance clear, but dishonest when the real wine source is hidden or obscured, as it is on some so-called "Chinese" wines, I am told, which contain mostly cheap Chilean bulk product blended with a small amount of China juice. More than one winemaker has got in trouble when customers discovered trickery.

The Pepperwood Grove Pinot is an honest wine. Although I associate the brand with California, the label clearly identifies this wine as Chilean. According to the website, Pepperwood Grove sells both a Chilean Pinot (113,000 cases of the most recent release) and a California Pinot (60,000 cases). That solves the Pepperwood Grove Pinot Puzzle: they imported the extra Pinot Noir to meet the demand. But there still are a lot of mysteries out there, hidden in bottles of wine.

Costco and Global Wine

2007-08-22T15:00:00.000-07:00

Costco is the largest wine retailer in the United States and I think it is worth thinking about the Costco model and what it has to say about the globalization of wine.

Costco’s approach to selling wine is different from most other U.S. retailers, such as supermarket chains. Most supermarkets offer a surprisingly large selection of wine. The Metropolitan Market (an upscale grocery store in my neighborhood) has more than 1500 different wines on its shelves. The Tacoma Boys farm store down the road has more than 3300 different wines – an incredible selection. A typical Costco store has a rolling inventory of only about 100-120 wines at any given time. Selection is obviously much narrower at Costco, so value and quantity sales are the key. If you’ve shopped for wine at Costco, you already know that you can spend as little as about $5 for a bottle of wine and as much as … well, as much as you want, really. I have seen Dom Pérignon on the Costco rack as well as a Heitz Cellars Martha’s Vineyard Cabernet Sauvignon as few years ago. If you go to the website you can even purchase Bordeaux futures!

One way that Costco reflects wine globalization is obvious: they bring global wines to the American market by offering products from France, Italy, Spain, Chile, South Africa, Germany, Portugal, Australia, South Africa and New Zealand (those are the countries that I can remember from my last visit – I haven’t tried to make a complete accounting).

Costco distributes the wines of the world to America and America apparently snaps them up. A good example is the red wine shown above, a 2006 Kirkland Signature Central Otago (New Zealand) Pinot Noir that I found on my most recent Costco expedition. Pinot Noir is hot these days (the Sideways fad continues) and Central Otago Pinots have developed something of a cult following. So it is very interesting to find this wine in a warehouse store, where volume sales are key.

The Kirkland Signature label first appeared in 2003. The wines are relatively small lots (around 2000 cases each -- large for many wineries but small for Costco -- according to a 2006 Costco report) specially created by chosen winemakers. The wines are scattered out among the warehouse stores and when they are gone they're gone. New wine releases are staggered throughout the year so that serious (or curious) buyers have reason to check back frequently to see what's new.

I found an Oregon Pinot Noir a few years ago and went to the trouble of tracking down the maker. This isn't always necessary any more -- some Kirkland Signature wines, like the Marquis-Phillips made Shiraz we had on Monday, proudly list the winemakers. The Oregon Pinot's maker was the same company responsible for the A-to-Z brand. A-to-Z are negociants who own no vineyards. Negociants typically purchase wine from other makers and blend, age and market it. A-to-Z is know as a great value brand and so a good potential Costco supplier. Interestingly, the Costco Pinot had the same price as the A-to-Z Pinot in my local store.

Now we can begin to appreciate why Costco is so successful as a wine retailer. Their list of wines is not large compared to other retailers, but they provide a rolling selection of pretty interesting and sometimes unexpected wines (at good prices, but that goes without saying). Costco buyers suspect that it must be a good value to get on the Costco shelves and know that any particular wine might not still be there next week or next month. Better run back and buy more now if you want it. So people keep coming back.

There is another aspect to Costco’s wine story that interests me and that is its house brand, Kirkland Signature wine. Kirkland Signature wines reflect the complex nature of wine globalization in ways that you might not suspect.

There are basically three models for wine marketing in the world today that correspond to the three largest import markets for wine: the U.S., Germany and Great Britain.

The U.S. model is built around brands owned by wine companies. Winemakers big and small seek to establish a brand or reputation that will help them sell their wines to consumers who need a trustworthy indicator of value and/or quality. Building reputation is complex and brands are part of the process, but not the whole story, of course. Americans typically look to brands for quality/value information when shopping in general and so it is natural that wine brands are so important here. Because there are lots of market segments for wine and many competing brands within each segment, American retailers stock a lot of wine.

Then there is the German model, which is all about low prices. The average “bottle” of German wine is sold in a discount store, often with a house brand name, and costs about a Euro per liter. I put “bottle” in quotes because sometimes it comes in a juice-box type container. Decent quality for less is what the German market seeks and the discount chain’s reputation for value seals the deal.

Finally there is the British model. Britain is by most accounts the most important wine import market in the world and the key players there are the supermarkets such as Tesco and Sainsbury’s. Because this market is so important to wine exporters, you can find wine from every nook and cranny of the global market in British stores. But because this huge selection can be confusing to consumers (especially French wines) and discourage them from making a purchase, the stores themselves (not the wine producers) have launched their own brands, like the Tesco’s Finest Bulgarian Cabernet Sauvignon or, for example. Or the Sainsbury's Marlborough Sauvignon Blanc shown here, which offer a limited range of global wines under the store’s own label. The Tesco brand gives consumer confidence to try an unfamiliar foreign wine (a Central Otago Pinot?) that they might otherwise avoid. Tesco and Sainsbury’s don’t make the wine, of course. They contract with local winemakers to supply the product. The stores add value to the bottle by lending it their reputation through the store brand label. And, of course, they use their efficient distribution system to get the bottles into consumer shopping baskets.

Now a quick field guide to globalization and the U.S. wine market. You can find the American wine marketing system in your local supermarket: dozens of different brand-name wines in all the major price segments.

You can find the German wine marketing system at Trader Joe’s, where people who would never spend three dollars for a bottle of wine at Albertsons (how could it be any good?) confidently pay as little as two bucks for a bottle of Charles Shaw (how could it be bad?).

I think that Costco’s innovation is to bring the British wine market system to the United States. Costco’s wine aisle reminds me of Tesco’s in Britain. And the Kirkland Signature line reminds me of Tesco’s or Sainsbury’s house brands. Even the labels bear a family resemblance if you compare the Costco Marlborough Sauvignon shown here with the similar Sainsbury's wine above. (Interestingly, they are both priced at about $9 per bottle.)

Bottom wine. Costco is a success in the wine business because it sells global wines to Americans using the British wine market system. That's globalization!

Old World meets New World in Oregon

2007-08-19T09:25:00.000-07:00

The debate about wine is often framed as Old World (Europe) versus New World (California, Australia, New Zealand, South Africa, South America) but I am suspicious of such simple dichotomies. I suspect that the issues don’t break cleanly along these lines, so I always find it interesting to explore the blurry edges where Old meets New to see what I can learn.

The film Mondovino examined l’affaire Mondavi – Robert Mondavi’s unsuccessful attempt to build a winery in the south of France. That's a pretty easy (is oversimplified) story to tell: Americanization, McDonaldization, Disneyfication. You know what I mean.

I’m interested in the reverse flow, Old World winemakers who invest in the New World, how and why do they do it and what are the results? Sometimes Old World firms enter into partnerships with New World winemakers. Opus One is probably the most famous such venture, a partnership between Robert Mondavi and the Rothschild family of France. Col Solare is another good example, an alliance Ste. Michelle Wine Estates of Washington and the Italian Antinori family.

Direct investment is another strategy – Old World wineries buy land, plant vineyards, build wineries, bring in their winemakers, and make wine. What kind of wine? Old World wine in the New World? New World wine? That’s a question worth exploring.

Some examples of Old World winery investment in the New World include the Domaine Chandon in California (owned by the French Champagne house), Barboursville winery in Virginia (owned by the Italian Zonin family), the St. Supery winery in Napa Valley (owned by the French Skalli family) and Domaine Drouhin Oregon (DDO), which is owned by the French Joseph Drouhin firm. I visited DDO recently, accompanied by my wife Sue (photo right) and our friends Michael and Nancy Morrell (photo left below), who are sailors (they have circumnavigated the globe in their Norseman 447) and aspiring wine research assistants. Here’s what we learned.

Maison Joseph Drouhin is a famous Burgundian winemaking firm. They began as negociants in the 1880s, aging, blending and marketing wine made by others and eventually acquired some exceptional vineyards of their own. Oregon appeared on their radar nearly 30 years ago when Robert Drouhin presided over a blind tasting of Old and New World Pinot Noirs in 1979, which was won, to everyone’s great surprise, by an Oregon wine from Eyrie Vineyards. What followed is a long story that involved many visits to Oregon. Robert’s daughter Véronique, who was studying winemaking at Dijon, interned at several Oregon wineries. Having learned all they could, the Drouhins took the big step, bought land, planted vines, built a winery, and began making wine. The first vintage, 1988, was made in a rented facility using purchased grapes. The gravity-flow winery (the first such in Oregon) was built in 1989. Today they have 90 acres of densely-planted vines (one meter by one meter by the look of them) on a 225 acre estate. Véronique is the winemaker and her brother Philippe manages the vineyards here as well as those in France. The wines? The classic Burgundian varieties, Pinot Noir and a little Chardonnay.

Mark Bosko, the DDO tasting room manager pictured here, spent almost two hours with us, showing us the vineyards and production facility and answering all manner of questions. The tour ended with a comparative tasting of Drouhin’s French and Oregon wines. To be specific, we compared the 2005 Maison Joseph Drouhin (MJD) Chablis Premier Cru ($27) with the 2006 DDO Chardonnay Arthur ($30) and a 2004 MJD Beaune Premier Cru ($28) with the 2005 DDO Pinot Noir Willamette Valley ($45). We are not professional tasters, but we did have opinions. The group seemed to favor the Oregon Chardonnay over the French Chablis. I suspect that this is because we are more familiar with the oaked Oregon style than the more mineral classic Chablis flavor. It would be interesting to taste these two wines with consumers from France -- I am sure they would make the opposite choice! It was easy to tell Old World from New World here.

We liked the French Pinot Noir better, although I am not sure if it was a completely fair comparison. I think the French wine benefited from its additional year of aging. I would like to taste the DDO again in a year to see how it has matured.

So what kind of wines are the Drouhins making in Oregon? I would say that they have some of the style of the French wines that we tasted (a family resemblance, as Mark suggested?), but they are still quite different – and this is not a surprise. Although the grape varieties are the same as are the barrels and the vineyard manager, almost everything else is different, especially the climate and the soil. If terroir matters, the wines should not be same. And the market is different, too, which makes a difference.

How do other Oregon winemakers view DDO? On one hand, I think that DDO’s investment here has given Oregon Pinot Noir credibility that would otherwise be difficult to achieve and so it has benefited the entire industry here. I think that some of the pioneer winemakers probably worked pretty hard to encourage Robert Drouhin make this investment for exactly this reason. On the other hand, of course, DDO is big-bucks, deep pocket competition for the many smaller winemakers in the valley, so you can imagine that there is some envy and even resentment of their success. But this isn’t an attitude unique to wine when it comes to direct foreign investment.

Can Small Winemakers Survive?

2007-08-18T13:46:00.000-07:00

Can small winemakers compete in a wine market that is increasingly dominated by large producers and experiencing rapid consolidation? This is one of the questions I was asking in my recent trip to Oregon, where I visited several wineries in the Willamette Valley. Here’s what I found out.

Economies of scale in distribution do matter and so the consolidation trend is real, even in Oregon. The Erath winery, one of Oregon’s real pioneers dating back to 1972, was purchased last year by St. Michelle Wine Estates, the Washington wine giant that produces Chateau St. Michelle and Columbia Crest and that also now owns boutique Spring Valley vineyard in Walla Walla.

On the other hand, Oregon is still benefiting from the Sideways phenomenon, which has created a surge in demand for Pinot Noir, its signature wine. Some small high quality pinot-noir specialists sell out through their wine clubs or at the cellar door and are thus immune, for the time being, from distribution woes. The Pinot fad, if that's what it is, benefits Oregon wineries and has allowed them to expand production and raise price at the same time that other winemaking areas have been in retreat. I saw many new blocks being planted in Oregon to take advantage of high demand and rising prices. It will be interesting to see what happens in a few years, when all of these vineyards begin producing. Will demand remain high? Will the supply be too great? All bets are off for small winemakers (at least those without very deep pockets – and there are some of these in Oregon) if a Pinot glut should appear.

How can small wineries compete? Wine cooperatives are one solution, although not necessarily a good one. Wine cooperatives are big business in Europe, especially France and Italy. A number of smaller vineyard owners jointly own a winemaking facility, delivering their grapes to be blended together. I have tasted some wonderful cooperative-made wine in Alto-Adige (Northern Italy), but I think this was the exception. Cooperative wines are suspect because the members are paid on the quantity of grapes they deliver to the winery rather than the quality of fruit they produce. No one has an incentive to sacrifice quantity to improve quality and the resulting wines can be hard to drink and harder to sell. They form much of the “wine lake” that the European Union is trying to eliminate.

In economic terms, the idea of sharing expensive fixed-cost facilities is sound, but the cooperative institutional structure is problematic. The Carlton Winemakers Studio (CWS) in Carlton, Oregon (in the new Yamhill-Carlton District AVA) is an attempt to get the benefits of cooperation without the negative incentive effects. I visited CWS recently and met with Jeff Lumpkin, the general manager, who is pictured here.

CWS is a 20,000 case facility that provides services to 11 individual tenant wineries (including Lazy River, Jeff’s own label). The costs of the expensive structures and equipment are shared, but each winemaker is independent and has complete control of wine production, so each has an incentive to make excellent wine. Quality rules. You can taste all of the wines in CWS’s attractive tasting room.

We were fortunate to be able to attend a wine dinner at CWS to celebrate the release of the new J.Daan Syrah (made with Columbia Valley grapes). It is a good example of what is possible at CWS. Winemaker Justin Van Zanten (pictured here with his wife Megan) makes about 600 cases of J.Daan a year at CWS, mostly Pinot Noir. His “day job” is assistant winemaker for Andrew Rich, which is also a CWS tenant. The CWS facility has helped him get a foothold in the industry and to gain some attention for his wines (Wine Advocate rated his 2003 Pinot Noir a 90). I bought the 2005 Pinot Noir for $27, a bargain price for Oregon wine of this quality.

The CWS formula clearly has benefits for small winemakers and has been successful, as far as I could tell, in achieving its goals. Jeff Lumpkin was nice enough to guide us through a tasting of a half dozen CWS-client wines and the quality is certainly there.

Is CWS a success story? Yes, I think so. But the future of this facility and the institutional model it represents is still uncertain. For one thing, it seems to be straining and the seams to accommodate the rising production of its client winemakers – will there still be a place for the small winemakers? – and I don’t think anyone knows for sure what the market for Oregon wines will look like in five years. Will bust follow boom?

And then there is the incentive problem. Although a fee-based private property rights operation like CWS avoids the negative incentive structure of the French cooperatives, there is still a natural incentive for winemakers to try to free-ride on services and facilities if they can. With luck, market conditions and private incentives will align themselves so that CWS’s excellent winemakers will continue to prosper.

Seven Questions from Foreign Policy

2007-08-16T07:33:00.000-07:00

I'm in Oregon interviewing winemakers this week (watch for a posting about this soon) and I received an email from Kate Palmer of Foreign Policy magazine asking if I would be willing to be interviewed about global wine market conditions for their popular "Seven Questions" series. You can find the interview at www.foreignpolicy.com. Now back to the vineyards ...

Fielding Hills Strikes Gold

2007-06-07T11:21:00.000-07:00

A quick update on Fielding Hills winery (see below). Mike and Karen Wade earned three gold medals for their 2004 wines -- the Merlot, Syrah and RiverBend blend -- in the recent Seattle Wine Awards competition.

What does it mean to win a gold at a wine competition? Karen Wade pointed out to me that it means different things to different people. To the Wades, for example, wine competitions are a way for them to see how they are doing relative to other boutique wineries (Fielding Hills bottles just 800 cases per year). Winning a gold is good for them, but what it really means depends upon what other wineries also entered the competition and which of their wines they entered. It would be possible, I suppose,for the Wades to win a meaningless gold medal if there were no other boutique wineries in the competition. I notice a number of high-end wineries represented on the Seattle Wine Awards list, so this is probably a satisfying win for the Wades.

I naturally think about wine competitions in terms of their market value. Success in wine competitions is one of several factors that can be used to differentiate a wine in the marketplace and so sell more of it or charge a premium price. Since most buyers are not able to taste wines before they buy them, I think that they look for independent quality indicators, such as wine magazine ratings, wine competition medals and regional or vineyard designations, to assure them that they are making a good choice.

I'd like to know what a gold medal is worth -- how much does a medal increase the demand for a given wine? My intuition is that it is a complex problem. Some wine competitions are probably more important to buyers than others. And a medal is probably worth more to a wine that has not received any other distinction than to one that has plenty of laurels. And I suspect that all the medals in the world are not as economically significant as a good rating from or The Wine Advocate or Wine Spectator. But it would be interesting to know what the numbers look like. I notice that some of the judges at the Seattle Wine Awards competition head up the wine programs at prestigious Pacific Northwest restaurants including Salty's, Canlis, Rover's, Ray's Boathouse and The Herbfarm. They are people who know wine, obviously, but they are also people who can influence wine sales.

300 Million Bottles of Two Buck Chuck

2007-06-07T10:30:00.000-07:00

Two Buck Chuck (a.k.a. Charles Shaw wine) celebrated its fifth birthday recently, so this is a good excuse to for a new initial thoughts about what the success of this bargain wine says about the wine market today.

Charles Shaw is the brand of very inexpensive wines that Fred Franzia's Bronco Wine company makes for exclusive distribution through the Trader Joe's chain. The wines sell for $1.99 in California ($2.99 here in Washington state), which accounts for the "two buck" nickname. Total sales over five years: 300 million bottles.

Two Buck Chuck (TBC) is made possible by the current worldwide glut of wine -- something that I will write more about later. There is a lot more wine made today than people will buy and so bulk prices have fallen, creating a profitable opportunity for someone, like Fred Franzia and the Trader Joe's people, who know how to distribute and market it efficiently. Franzia is part of this glut of course, with perhaps 40,000 acres of vines. TBC aimed to find a big demand for a big supply, and it did it.

Some of my friends buy TBC and they are always amazed by the relative value: it may not be great wine, but it's lot better than a $2 or $3 wine, they say. I think that's true, but I wonder how they know -- have they drunk a lot of $3 wine? I doubt it! Most supermarket wine buyers judge a wine by its price, or at least that is what the research says. They don't know for sure what is in the bottle and so they are guided by price more than any other factor. I know some $8 wine buyers, for example, who probably wouldn't buy a $5 wine under normal circumstances, because they assume that it is lower quality. And they probably wouldn't buy a $12 wine, either, assuming that it wouldn't be worth the extra cost. So they stick to that $6-$8 wine shelf (you know where it's at in the grocery store), not looking higher up and not looking much lower on the rack either. They know what they like, and it costs about eight bucks.

So the trick isn't making an inexpensive wine -- that's doable in this market environment -- it's getting people to buy it. Once you have made a decent wine that you can sell for less, the hard part is to get buyers to look down from their accustomed price points and try it -- and to serve it to their friends without humiliation. If you put a TBC clone in Safeway, for example, it's entirely possible that no one would buy it because they would assume low quality based upon the low price. That's where Trade Joe's comes in. Trader Joe's has a reputation for selling upscale products for a bit less -- for providing relative value. Only Nixon could go to China and only Trader Joe's could sell Two Buck Chuck -- for two bucks.

In fact, if you look around, you will actually see a lot of TBC clones in your grocery store, but they sell for more than two bucks. I am talking about the generic "critter wines" (more about this in future posts). They are also a product of the global wine glut and they provide good relative value. But no one would buy them for $2 -- how could they be any good? So they sell for a bit more.

By the way, the Charles Shaw brand is actually a good deal older than the five year birthday suggests. The Charles Shaw winery was founded in the Napa Valley in 1974 by Charles F. Shaw for the purpose of making Beaujolais-style wines. Fred Franzia bought the brand from Shaw in 1991 in order to take advantage of its solid reputation. But that's history -- no one pulling a TBC cork today remembers that original Napa winery, they are only thinking about the bargain price.

Bottling the 2005 at Fielding Hills Winery

2007-05-29T13:33:00.000-07:00

I spent the weekend after commencement in Wenatchee, Washington helping Mike and Karen Wade and their friends bottle the 2005 vintage of Fielding Hills. I got to drink some great wine, meet some wonderful people and learn more about the wine business. Here are some photos (courtesy of Dave Seago) and some observations.

The Wades are orchardists and fruit distributors in Wenatchee, which is the heart of Washington Apple country. They got the wine bug a few years ago and now run an 800 case operation from a building near their home, overlooking the Columbia River. The grapes come from vines they own near Matawa on the Wahluke Slope, further down the Columbia. They make reds -- Cabernet Sauvignon, Merlot, Syrah, Cabernet Franc and a blend called RiverBend red. These wines are not easy to find (remember: only 800 cases total) but they have received rave notices in the wine press: Wine Enthusiast rated them all between 91/100 and 95/100 points in its December 2006 assessment of the 2004 vintage. They are all good, the magazines and web sites say, the only question is which one is best.

I know the Wades through their daughter Robin who is one of my students at the University of Puget Sound. She knows about my interest in the wine business, so when they needed volunteer labor for the annual bottling weekend, she knew who to call.

I have taken dozens of tours of large wine-making operations, so it was interesting to see the process first-hand and on a very human scale. I hope the photos capture something of the process. We bottled the Cab, a blend featuring 76% Cabernet Sauvignon, on Friday afternoon. The first step was get the appropriate barrels of wine out of storage and to carefully pump the right proportions of the right wines into a large stainless blending tank. From there, the wine moved to the assembly line, where I worked alongside about a dozen of the Wades' friends and neighbors.

The bottling process reminded me of Adam Smith's famous pin factory example of the division of labor. One person (1) brought in pallets that contained cases of empty wine bottles. A second person (2) removed the bottles from the cases onto a table so that another worker (3) could invert them over a nitrogen supply, which removed any oxygen. The bottles were then (4) filled with wine on a six-bottle machine (see photo), then corked (5). A foil closure was then placed over the cork top (6) and secured firmly using a surprisingly nasty electric device (that was my job -- #7). Then the bottles were wiped down (workers 8 and 9) before going through a label operation (10), being loaded back into boxes (11) that were sealed and stacked (12) and then moved out on the pallets they came in on. It took us about six hours to bottle 200 cases of Cabernet Sauvignon on Friday afternoon. We did 150 cases of the RiverBend Blend in four hours on Saturday morning. My reward? Wonderful family-style meals with my co-workers and one bottle of each of the wines I worked on, autographed by my fellow volunteers.

One thing that you can't see in the photos is the fuel that kept the volunteers going: it was the wine we were bottling, drawn straight from the barrel. Good juice, in my opinion. Can't wait to taste it when it's had a bit of time in the bottle. (Expected release date: October 2007.)

One thing I learned from this is that although 800 cases of wine is a tiny operation by the scale of today's wine business today, it is still a very significant investment of time and energy. I thought we would never come to the end up those 200 cases (2400 individual bottles) of Cabernet on Friday afternoon!

Because they have been so successful, both in terms of wine quality and wine economics, the Wades are planning to take the next step -- to expand production from 800 cases to 2400 cases. This is a big step, since the business model changes with the higher volumes. Family labor plus volunteer help at key points works fine for wineries producing 1000 cases or less, but a bigger operation means hired help and higher fixed costs. The marketing end changes, too. The Wades prefer to sell most of their wine direct to customers rather than to discount it in order to get it into wine shops and restaurants. Given their stellar ratings, they have a good opportunity to build a "wine club" list that will automatically take most of their output, matching demand and supply very efficiently. Building a bigger winery will mean matching a bigger demand to their bigger supply.

Mike Wade told me what it takes to make good wine -- it's in the fruit, he said. The economics of wine is in the market -- matching demand and supply. I would say that the Wades understand both the fruit side of their operation and the market side, too.

Grape Expectations

2007-05-25T15:15:00.000-07:00

You’ve heard of Two-Buck Chuck? Get ready for Twenty-Yuan Wu, a bargain wine from China. It isn’t here yet, but it won’t be long. Globalization has come to the world of wine. Globalization is in your wineglass and on your grocer’s shelves. Grape Expectations explains how it got there and how market forces are changing what’s in the bottle, where it comes from, why people buy it and how it is produced.

The conventional wisdom about globalization and wine is that it is a battle between the Old World and the New World; the New World is winning and wine is losing its soul. The traditional methods and subtle taste of Old World wine are being replaced with vulgar industrial plonk. If globalization is McDonaldization, as some have argued, then the globalization of wine is homogenization, Americanization and, worst of all, Parkerization (for American wine rating guru Robert Parker). No matter what you call it, it is not a good thing.

But that’s not what is really happening. The true story of global wine is more complex. There is a conflict, but it isn’t between Old World and New, it is between supply and demand. And it isn’t a new battle – it has been going on for more than a hundred years. Globalization hasn’t created this conflict; it has only intensified it and magnified the consequences. And the biggest changes are yet to come. This is the real story of globalization, wine and Grape Expectations.