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August 6 2009
The wine sector “trading down” phenomenon has been much discussed. While true and accurate, what hasn’t been discussed is the intangible and psychological aspect that may also be involved in a consumer flight to less expensive wine. Consumers might simply be tired of gilding somebody else’s lily.
In the dot-com era I worked for an Internet consultancy—the kind of place that charged a couple hundred of bucks an hour for consulting and projects under $150K were deemed too small to bother with. We had dozens and dozens of Aeron chairs, a symbol of excess for that era. And our offices … they were nice! There was the requisite pool table, a de-commissioned race car hanging from the ceiling, and all of the accoutrements that said, “We’re important.” The offices were too nice, in fact.
As a sales guy, inevitably, the first thing that would come up in a negotiation for a contract with a potential client would be the office space. They would say, “Wow. This is more expensive than I expected. I guess you guys have to pay for that race car, huh?” Annoyed sarcasm from clients aside, those were the good conversations, many were much worst.
The place really started to come undone when the CEO only started showing up 1/2 the time, driving his $80K car, while he managed a house remodel. Rumors ran rampant about the salary he was paying himself whilst the rest of us were underpaid to the market because, “it’s a start-up.”
The point is, internal to an organization, money is a fragile conversation. Externally, people wanted the output of the project, but they didn’t want to pay for the trappings, real or perceived.
Now, certainly, by way of analogy, I am not giving the bogeyman totem to luxury wine producers (those priced $25 and above), but I do want to point out, as a consumer, that there may be some rational avoidance of luxury wines that has nothing to do with saving ten dollars on a bottle.
We may just be tired of Aeron chairs that are expensive for the sake of being expensive and helping somebody else earn their next million.
As the Wall Street Journal noted in a recent article on the luxury wine market (excerpted):
The slump continues as Americans continue to drink more wine overall. Recession-weary consumers, however, are buying more mid-and low-priced wines, causing a sharp falloff in sales of wines priced at $25 a bottle and higher.
Total U.S. wine sales rose about 5% in terms of volume in the first quarter from a year earlier, but wines priced at $25 a bottle and up fell about 12%, estimates Jon Fredrikson, an industry consultant with Gomberg, Fredrikson & Associates in Woodside, Calif.
So, we’re drinking more wine, but we’re buying less expensive wine. Certainly the economic travails of our own pocket books are a prime suspect, but more importantly, is it safe to suggest that we don’t know what goes into wine pricing and, perhaps, many people, me included, don’t want to pay for somebody’s office space, or the wine equivalent – the luxurious trappings of the tasting room and/or the wine lifestyle?
As author and wine writer Thomas Pellechia noted to me, “Luxury wine pricing has always been and will always be based on what you can get away with charging.” And therein lies the rub.
In a savvy consumer society when times are flush many of us will buy the more expensive bottle, even if it’s materially not worth the extra money. I’ve never met anybody that could blind taste a wine and identify a price discrepancy in between a $25 and a $50 bottle, let alone the difference between a $40 and a $90 bottle.
Anything over $25 bucks is pricing for pricing sake. To keep up with the neighbors, to get into a certain category at a restaurant, to justify yields and allocation, what have you …
Pellechia continues, “At $3000 a ton for grapes the raw material for a bottle of that wine will cost the winery $4. This is based on tonnage price alone, not on variety. If a variety costs as much as $9000 a ton, that’s $12 a bottle for the grapes (each ton gives about 150 gallons each; each 12 bottle case is about 2.38 gallons). Factor in the cost of bottles, labels, capsules, closure, and overhead, etc., it couldn’t possibly come out to $50 a bottle beyond the cost of grapes–could it?”
So, that’s the problem the wine industry is facing. A thinner pocketbook, yes, but also the perception that what a consumer is paying for isn’t rationalized with a good reason for that cost.
I’ve done much research into wine pricing – academic textbooks and Internet research. Nowhere, aside from a winery start-up spreadsheet, and a pithy graphic from wine negociant Cameron Hughes, is there any good information on how pricing is set for a luxury wine.
Circumstantially I know that wine pricing is more pig-in-a-poke than science, and by the facts this seems to be the case, as well.
According to a 1994 pricing strategy article in Wines & Vines magazine:
Ultimately, the pricing strategy used for marketing wines should be a function of the demand for wine. Consumers are not directly concerned with the cost structure inherent in producing a commodity they are interested in purchasing.
Maybe 15 years ago “they” weren’t. In 2009, I think “they” are.
Pellechia continued:
Of course, many wineries have to pay for that fabulous facility and their investor returns, and they have to also account for their volume – lower volume productions means having to charge higher prices in order to make a profit.
Luxury pricing is never, ever based on cost to produce …
In the aforementioned Wall Street Journal article it notes that many luxury producers are cutting prices, going on to say:
But such price cuts are taking a heavy toll on wineries’ cash flows, and could make it difficult for them to raise prices in the future. “If you’re a $90 wine and all of a sudden you’re on the Internet at $50, how do you ever become a $90 wine again?” says Elliot Stern, Chief Operating Office of The Sorting Table, a Napa Valley-based wine distributor.
This certainly begs a couple of questions from a consumer perspective. If Fred Franzia is to be believed, that no wine is worth more than $10 a bottle, and demand for the high-end no longer outstrips supply, how DO you ever become a $90 wine again?
The ultimate rhetorical question is: Do you have to be a $90 wine?
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May 4 2009
Some days I feel like I’m in the belly of the beast and other days seem like I’m watching people enjoy life through the front window. Either way, it seems to me these 20 thoughts are mostly true no matter whether you’re fighting the fight or living to see another day.
1) We are living in a GOLDEN AGE for wine.
Not enough people appreciate this notion …
2) Drug addicts and wine enthusiasts ARE NOT too different.
You know how they say that drug addicts live their life trying to relive their first hit? That’s how I feel about opening every new bottle of wine as I try to recapture that moment when time, circumstance and setting collided into beautiful alchemy
3) I AM NOT a critic
I am an analyst. People, me, you, everybody wants help forming an opinion, and we all like arguing, but nobody likes a critic.
4) I AM NOT a journalist
Though, I have a journalism degree. I write blog posts that are opinion-oriented with facts to support my opinion
5) I AM an alpha consumer
And, as such, good marketing can sway me.
6) For all the talk of TRANSPARENCY, not too many people talk about their weaknesses
Mine is French wine and understanding varietals to appropriate climatic conditions. Cab Franc – warm climate or cool climate? Who knows …?
7) Ethics are a compass for dealing with situations; integrity is a blanket for how you live your life.
8) What separates good bloggers from GREAT bloggers is a clearly articulated point of view
I wish I had a POV that could be articulated ...
9) In my MIND, I have never lost an argument
In reality, I come around to a differing point of view all the time
10) I am SUSPICIOUS of people who do not have books in their home
11) I am EQUALLY suspicious of people who do not buy music
12) There are more similarities between the music business and the wine business then there are differences
Indie band: looking for an audience. Small winery: looking for an audience. Wine as bottled poetry. Poetry set to melody …
13) 13 years ago, hardly anybody had internet access at home or a cell phone
I am somewhat nervous about the year 2022
14) I live in a world that IS NOT black and white
15) Robert Parker’s influence IS waning
However, the 100-point scale is his legacy
16) People that CLING to power cast aspersions and throw out red herrings
Sometimes it works
17) I HAVE reached my capacity to absorb information and make sense of it
18) Post-recession we will live in a society that separates ASPIRATIONAL marketing from ESCAPISM and more than money will separate the two
19) I am SUSPICIOUS of smart people that dress horribly
20) I believe firmly, WITHOUT QUESTION, in the Law of 1/3’s
Everything takes 1/3 longer, costs 1/3 more and has 1/3 of the items unaccounted for. Prepare accordingly.
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April 26 2009
Tradition, whether mindfully created or observed over a period of years is important, and perhaps no more important than when carefully cultivated and observed in our own lives.
Simply, tradition is the glue, the tie that binds us.
In times of distress or uncertainty, our traditions act as a comfort, a point of solace.
How many people make a certain dish at Thanksgiving for no other reason than the fact that it has always been prepared?
For both host and guest, it is a comfort, and occasionally a memory.
Even more important, tradition is the fundamental bedrock for most every winery and the industry – a waypoint for their business and navigational aid for where they are going.
Consider, even the production of champagne is heavily governed by tradition with the méthode champenoise.
Several years back Indiana University’s football team willfully started several traditions, including a pre-game walk from the locker room to the stadium, a nickname for the stadium (The Rock) and a couple of other nuances that added to the tapestry of a program that has long been a doormat in college football.
Critics suggested at the time that this mindful creation of tradition was hackneyed and contrived.
Tradition is built, it is not created, said the chorus of naysayers.
I disagree.
Tradition is upheld and continually built upon—whether personal or for a business, a winery, for example.
My family and I have a lake cottage, actually more of a lake house, but we call it “the cottage,” because, well, that observes tradition. The cottage was inherited from my Grandparents and my Mom. I grew up going to the previous incarnation of the lake cottage, a time marked by so many fond memories that I cannot count them, and a fair share of traditions, as well.
Last year, we re-built a lake house on the same ground of the previous cottage.
In the process of doing so, we were careful to pay considerable homage to the traditions of the lake.
We did not buy much that is new for the cottage; instead, it was an assemblage and pastiche from here and there, with much held over from the previous cottage. I am certain when I have toast on a Sunday morning in July, using the same toaster my grandfather used 30 years ago, before he went fishing, he is smiling somewhere down on me. Ditto when I use a plate earned by my grandmother from collecting supermarket stamps, a set of plates that served dozens of fried chicken, coleslaw, corn on the cob and sliced tomato Sunday lunch.
This honoring of tradition does not stop with my childhood memories though; I want to create new traditions. Simple things that I uphold that create fond memories of the lake.
To me, this is not a contrivance, it is a respectful act that continues to build upon the foundation of tradition laid for me – and it can act as a comfort and a memory for those that we entertain.
Amongst many ideas, but given that we host friends quite a bit, the nearest thing that I have come to that combines wine is a celebratory sparkling wine toast for every new visitor.
Given that, here is my new tradition – a choice of 12 sparkling wine cocktails that every friend can choose from to kick-off everyday celebrations at the cottage.
1) Death in the Afternoon (Sparkling wine and Absinthe)
2) Savoir Faire (Sparkling wine and St. Germaine)
3) Bellini (Sparkling wine and peach puree, garnish with maraschino cherry)
4) Undertaker (Sparkling wine and Jagermeister)
5) Black Velvet (Sparkling wine and Guinness)
6) Nelson’s Blood (Sparkling wine and Port)
7) Goodnight Kiss (Sparkling wine, bitters, Campari, and a pinch of sugar)
8) Green Dragon (Sparkling wine and Midori)
9) Mimosa (Sparkling wine and Orange juice)
10) Morning Glory (Sparkling wine, Orange juice, triple sec)
11) Lake Webster (Sparkling wine, triple sec and cranberry)
12) Kir Royale (Sparkling wine and crème de cassis)
Tradition, unfortunately, in our go-go world, is oft neglected or overlooked, despite the fact that it gives us comfort.
We often look back at fond memories with nostalgia, the traditions creating a fondness for days gone by, while, unfortunately, not paying heed to creating an opportunity for those same traditions to develop over time for a point in time in the future.
My challenge to each wine enthusiast, young and old, is to create some level of wine tradition in their life and carry that through with friends and family.
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March 31 2009
Obama, America’s ‘Wine President’ Leads Expansion of the USDA Food Pyramid by Adding Wine as 7th Food Group in the USDA Food Pyramid
Washington, DC, April 1/PRNewswire/—
In conjunction with Secretary of Agriculture Tom Vilsack, President Barack Obama announces that the Food Pyramid, administered by the Center for Nutrition Policy and Promotion, a department within the United States Department of Agriculture (USDA), was naming a 7th Food Group, wine, within the nutritional guidelines of the food pyramid.
“Look, there is great opportunity here, yet great peril,” said Obama. “Everyday there is a news report about the health benefits of drinking wine in moderation, even if there are also reports about wine and alcohol causing health problems.”
“The American people choose hope over fear.”
Obama, noted for being a “wine” president after eight years of teetotaling in the White House by the previous regime administration, has been photographed with a bottle of Kendall-Jackson in the background of a family photo shoot for People magazine.
Separately, it has been noted that Obama had a wine cellar of unknown size at his former home in the Chicago area.
Casting undoubted and empirical evidence, couched in hearsay, of his fondness for the grape as a ‘wine’ President, President Obama has enjoyed a glass of wine when poured for him at official state and formal functions.
Noted Obama, “The press reports of my fondness for wine are really immaterial to the matters at hand – Michelle and I have made it a priority to live healthy lifestyles, including creating a presidential vegetable garden, and we believe that a glass of wine at the end of the day is a healthy and healthful way of enjoying a tipple while toasting to our health.”
He continued, “Anyways, reports of my sneaking the occasional smoke have leaked and if I have to quit that, then I NEED SOMETHING to take the edge off after inheriting this bag of hot stinking mess left to me by former President Bush. Plus, if the domestic auto industry goes in the tank, and we nationalize the banks, after slow progress out of the gates on the stimulus program, then I figure doing something good with the wine industry is bright move because we can have something decent to drown our sorrows in.”
Secretary of Agriculture Vilsack noted that the controversial Food Pyramid, which has been revised and modified over the years as Americans continue to get heavier and more addicted to sugar with epidemic levels of Type II diabetes, can’t get any more fouled up then it currently is with its recommendation for 8 teaspoons of oil a day.
Said Vilsack, “By adding a 7th dimension, wine, to the food pyramid we anticipate accomplishing a fews aims – first, we anticipate that there will be incremental gains to the fruit grouping, second, this will satisfy and quell all of the researchers who pump out wine-related health reports on a daily basis indicating that wine is good for everything but erectile dysfunction, third, we figure that beer and liquor lead to lawlessness, dope leads to the munchies, but wine leads to salubrious conversation and that’s the least of the available evils when considering modifications to the Food Pyramid.”
In closing, President Obama encouraged all Americans to stimulate the American economy by drinking to their health, noting that allocated and cult wineries were hurting and could use our support. In repeating a quote from his stump on the campaign trail, he closed his remarks by saying, “Change will not come if we wait for some other person or some other time. We are the ones we’ve been waiting for. We are the change that we seek. Drink wine – for your health, even if it is mental health.”
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To track progress on this story and others, please see the new wine aggregation site Dregs Report.
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January 27 2009
I read an editorial at Appellation America, that, as is typical, reads like a leaky plotted thriller—leaving me breathless, but with more questions than answers and some logic holes in the storyline ...
Read this link and wonder if you don’t have an equal puncher’s chance at calling a spade a spade.
Or, continue to support the lunacy and buy some under $25 wine at Appellation America here. I’m sure they love that the 3rd most sought after wine at the store is from that noted vinifera grape—the Ollalieberry.
You can’t make this stuff up ...
If you’re going to talk the talk, you darn well hew to an execution model in the same vein.
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