Friday, September 17, 2004

Has there been a 'Sea Change' in Wine Pricing?

With a global oversupply that goes into yet another harvest, there are signs that California may soon see some relief in grape pricing. Interestingly, however, the oversupply is drying up the fastest in the interior valley (where the cheaper wines are produced). This is largely because a significant number of vineyards have been ripped out for other crops, but it may also be telling of a worldwide trend. In California, Napa and Sonoma wines are having their asses handed to them by "value wines" - Two-buck Chuck, Smoking Loon, Rex Goliath, Leaping Horse, etc. Gallo, through their ownership of Louis Martini, is paying ~$1,500 per ton for Napa Cabernet grapes right now. Using the 1% rule (retail/bottle is generally 1% of grape $/ton) that equates to a $15 bottle of Napa Cabernet! There is still a sea of overproduction of Napa Cabernet and it is quite possible that the prices may actually fall as consumers continue to look for value.

The average US wine consumer, you see, is not brand loyal, doesn't understand the appellation concept, and cares little beyond price and varietal (something the Aussies figured out years ago and the French are still struggling with). In a survey of wine consumers done a few years ago, consumers were asked to name several appellations. The first named was Napa, but the second most-commonly named was "Mondavi" (I kid you not, never underestimate the ignorance of the wine consumer and their reluctance to climb the wine learning curve). Concepts like vintage wine, varietal labeling requirements, oak use, etc. are lost on 99% of wine consumers!

The problems of the French, below the first growth or two, have been well documented. Their inability to move wine in large volumes given their archaic labeling system makes their entire business model shaky. What hasn't really hit the wine press yet is that the Aussies are slowing down as well, at least above $7-8 retail. The growth of, in particular, Black Swan and [yellow tail] has come largely at the expense of wines in the next price tier. In fact, Australian export data shows that the average price per liter of Australian exports fell significantly in 2003 and continues to fall in 2004. Even Lindeman's and Rosemount have been undercut!

Spanish wines are all the rage, particularly for their value. Even $2 Portuguese wines are available on the East Coast. Australia has passed France in cases exported to the US and will likely catch Italy next year for the #1 position.

What does it all mean? Is it a short-term blip as people buckle down in an uncertain economy or have wine economics made a permanent shift down the price ladder? Is this why Mondavi is splitting off their "luxury" lines, because they can see continued problems at the high end? Stay tuned......

2 Comments:

Blogger Merlot Mafia said...

No question the "value wines" have taken off dramatically and that price has played the dominant role in the market lately. However we shouldn't lose site of the fact that there can be a great many differences in how a $2.00 wine is made and how a $15-$20 a bottle wine is made. Frankly as a winemaker for over 20 years, I can tell you I wouldn't want to put some of these products in my mouth. The consumer sometimes forgets there is no ingredient label on a bottle of wine and I always like to say - the cheaper the wine the larger the ingredient label would be!
Now perhaps I generalize here but I'd rather take my chance with a wine produced at a small facility with an artisanal approach anyday of the week than from some of this mass-produced plonk. Rather than just throwing in the towel to industrial wineries, lets start a discussion in this country about how wine is made and that it is all not the same.

October 07, 2004 1:16 PM  
Blogger Huge said...

You generalized it quite a bit, actually…

Please read my article Tradition sometimes sucks... because I sense that you’re going into that “small, artisan wineries will always be superior” rut. Drop the pretense.



BTW – “artisanal” is not a word…unless it’s short for “artiste-anal”.



Wine components/ingredients are controlled by the TTB (formerly ATF). Only juice from grapes is allowed as the major component. There is a list of other substances (water – though water adds are strictly controlled by law, yeasts, nutrients for the yeasts, malo-lactic bacteria, etc) which are also allowed by law.

Your swipe at lower priced wines, Raphael Richard, by insinuating they have additives which your wine does not, exposes your elitist vein.

The possibility that they have used inferior grape varieties in their blends you’ve raised, however, is plausible. (I’m writing an article on Thompson Seedless which may address some of those concerns.)



Though to be fair, you’ve kept your prices below $40/btl. Perhaps you should look into how you can be more efficient in how you make wine, then you could drop your price and attract more customers.

One can modernize without relinquishing control over how one handles the barrels, the wine, the grapes. The wine operations themselves won’t need to be changed – but maybe something as simple as how you have your cellar organise it’s workload could help you cut your production costs…



Now…

Wine prices will continue to dominate how a consumer buys – especially as their experience and expectations increase.

I agree that Wine is not all the same, and this blog is for discussions regarding the differences in how wine’s made…

While I can see your argument, I think that there’s a few holes in it:



First, the implied argument assumes that wines that cost more are automatically better in quality – and that’s flat wrong.

There are cut rate wines made which are pretty crappy, both in their innocuous grape varietals used and the winemaking techniques which are applied to them…but we shouldn’t let that produce bias in us against those wineries looking to produce wines that are well put together and at an affordable price.

I am (and I believe the current sales data shows most consumers are also) more inclined to experiment with a wine/winery I’m unfamiliar with if they’ve priced their product in an affordable range. I couldn’t give a crap to try a wine at $35 that’s from some fluffy-hole-in-the-wall-cellars just because it’s marketed as “artisan” when I can get a similar wine for $10.



Second, I don’t think anyone’s thrown in the towel to “industrial wineries” – which is quite a loaded phrase by the way - and I think you need to be specific about what you mean by that phrase; is it based on cases produced per annum, or is it some quasi-metaphysical gut-feeling based on where their tasting room is? (Say, Long Island vs Houston, Tx?) I do think that some acknowledgment for those wineries who are bringing people into the wine world is due – regardless of what you (or I) may think of that product. Commercial success is not the enemy…crappy rip-off products are the enemy. Wineries which choose to grow at the cost of their quality without dropping their prices are the enemy.



Thirdly, I’ve been involved in California’s wine industry for ~40 years now (in various aspects)…and I bet I could curl your toenails with stories of winemaking shortcuts that were taken at/by small wineries.

So again I say that “small artisan wineries” are no more likely to be better than anything else just due to their size. It’s the philosophy of the winemaker that makes the difference at the end of the analysis, not their case or barrel tally.



And be real Richard, $15 for Saignee? That’s a bit steep isn’t it?

Especially since it’s just the juice, bled out of the Merlot tank before you really get into the fermentation, which is then fermented by itself with no further skin contact. That’s the secret of how you get the concentration in your Merlot, isn’t it? Not the “sandy loam soils” and “mild winters” you tout in the longislandwinecountry.com article last year (the “This gives the fruit an incredible amount of color as well as aromatics and elegance. Something that California Merlot will never do." quip merely indicates how little you know of California viniculture & viticulture).

So…if it’s truth in advertising & ingredients that you desire, by all means feel free to relabel your Saignee as “White Merlot”…or are you afraid you won’t be able to get $15/btl for it?

/hj

October 07, 2004 5:34 PM  

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