After Friday's class, I became very curious to understand just how much it costs to start a typical winery. We talked about whether or not Barolo producers should have stuck with the old style of their parents or developed a new style. Although the new style may have been more appealing from a marketing perspective, the drawback was that the new style could easily be replicated.
During this discussion, it struck me that perhaps the cost of even starting a vineyard could provide a defense for producers already in the market against new entrants. Realizing that I had no idea what these costs even looked like, I did some research and found an interesting presentation from Cornell University breaking down the components and costs of starting a 10,000 case premium winery in the Finger Lakes (http://wine.appstate.edu/sites/wine.appstate.edu/files/NC-Timeline%20and%20Strategies%20for%20Investment%20in%20a%20Winerybw.pdf).
The high level summary of the costs is below:
1. $13.5k per acre (ex-land costs) to get vineyard to full production
2. $150k for machinery
3. $1.6 mm to cover negative cash flows for first 5 years
In summary, approximately $2 mm is required just to start the winery (excluding land costs) in this example. Although 10,000 cases is larger than the figures we discussed in class for Barolo wineries versus typical Napa wineries, it still struck me just how expensive it can be to just get off the ground. Given this, potentially the capital investment required could be a potential defense against new entrants. However, this doesn't take into account that most of the wineries we discussed in class probably needed some updates versus. The investments might be substantial, but definitely not as high as this example. Interesting food for thought as we evaluate the profitability and the economics of the wine industry.
Sunday, January 31, 2016
Historic wine logistics disasters
I was struck by New Vine Logistics’ incredible 0% shrinkage
rate on the $16M of inventory it moved, especially given how fragile and
high-value wine is. I also wondered how big of a problem shrinkage was in the
wine industry, which revealed a couple of incredible stories.
Perhaps most relevant to NVL’s track record, Australian
winery Mollydooker
lost over $1M of inventory in a single forklift crash in 2011. Reportedly,
a pin on the forklift sheared, sending 462 cases of the wineries premiere 2010
Velvet Glove Shiraz (retailing for AUD185 a bottle) crashing to the concrete
floor. The damage wiped out about a third of the wine’s annual production. The
loss was particularly inopportune given the winery’s plans to expand into the
US market using the destroyed inventory. Mollydooker tried to make lemonade out
of lemons by capitalizing on the worldwide attention the accident attracted,
even posting a video
of the owner inspecting the damaged bottles.
A few years earlier, a
wine warehouse in Vallejo caught fire, destroying $100M of inventory. While
NVL’s warehouse probably wasn’t any more resistant to fire than the ill-fated
Vallejo facility, the root cause of the Vallejo fire turned out to be theft. A
tenant in the warehouse who managed private collections had been
surreptitiously selling his client’s collections. He intentionally set fire to
the facility to hide the embezzlement, and ultimately was sentenced
to 27 years in prison for the crime.
Southern to get control inside Kroger... plus "slotting fees" for alcohol?
"Kroger plans to upend how it organizes booze in stores"
The WSJ published an article on Friday about how Kroger plans to change how it organizes alcohol in its stores. The new plan benefits Southern Wine & Spirits - the distributor we've learned about which recently struck a deal with Glazer (the new combined company will have ~30% market share).
Kroger hopes the new plan will give them more flexibility to rearrange store shelves to adjust to changing customer tastes, by adding new craft brands, and by making seasonal changes.
Trade associations representing the alcohol industry sent letters to federal regulators last month questioning the legality of the Kroger plan. The article cites issues we have just learned about in class, including "Prohibition-era laws ban alcohol manufacturers from giving retailers anything of value to keep them from marketing too aggressively."
The article describes how manufactured food goods, such as cereal and coffee, already pay "slotting fees" to Kroger. The company denies that the new plan for alcohol is the same, as the fee that will be paid to Southern is voluntary, and Kroger does not make a profit from the fee.
There will certainly be a lot of lobbying and debate before this plan gets approved - but if it does, it could have significant implications for the industry.
Wine Defects
During Friday's class, Professor Hannan briefly mentioned wine defects/flaws. I realized that I knew next to nothing about wine defects or how to identify them in a wine. Thus I went on a search for some information. Wine Folly did a nice piece on the 7 main faults and how to identify them (http://winefolly.com/tutorial/wine-faults/). These include:
- Oxidation
- Cork Taint
- Sulfur Compounds
- Secondary Fermentation
- Heat Damage
- UV Damange
- Microbial Taints
Unfortunately, I was left wondering how I would respond if I actually came face to face with one of those faults. At a winery I was once showed a corked (cork taint) wine so I'm pretty sure I could ID the tell-tale sign of wet cardboard, but for the other ones, I'm not sure how easy it would be. Some of the descriptions seem remarkably close to somm descriptions of certain wines. Is the barnyard smell in my wine a sign of great character from Bordeaux or is it the sign of a microbial taint (...or both)? How can I start educating myself on what these things smell like? How do I know that the smell is intentional vs. a flaw? If we're meant to see flaws as bad, how do I understand the success of the Scholium Project which makes wines that are technically flawed or at least appear flawed in many cases (http://scholiumwines.com)? At the end of the day, do flaws really matter if you like the wine?
Saturday, January 30, 2016
The "organic biodynamic" wine category
Prof. Hannan mentioned the "organic biodynamic" wine category in class and I was curious to understand its criteria for inclusion.
Many of us are familiar with the industry standard for "organic" products as encountered on shelves of the Trader Joe's and Whole Foods of the world: "organic" best practices for farming and production entail environmentally-friendly techniques (humane treatment of animals, no genetic modification or hormone additives, etc.) and prohibit application of chemical agents. And, of course, there are a host of industry organizations conferring certifications for such contingent upon compliance with regular, recurring inspections.
For me, however, the "biodynamic" component of this category is particularly interesting. "Organic" is a necessary but not sufficient condition to qualify as "biodynamic". In short, "biodynamic" principles of production not only mitigate disruptions to the broader ecosystem surrounding the wine-making process, but also, importantly, harness it as a factor of production, drawing closely on astrological paradigms as well. One early-20th century historical figure in agricultural industry, Rudolph Steiner, is the founder of the movement.
Two notable "biodynamic" practices in wine-making:
Many of us are familiar with the industry standard for "organic" products as encountered on shelves of the Trader Joe's and Whole Foods of the world: "organic" best practices for farming and production entail environmentally-friendly techniques (humane treatment of animals, no genetic modification or hormone additives, etc.) and prohibit application of chemical agents. And, of course, there are a host of industry organizations conferring certifications for such contingent upon compliance with regular, recurring inspections.
For me, however, the "biodynamic" component of this category is particularly interesting. "Organic" is a necessary but not sufficient condition to qualify as "biodynamic". In short, "biodynamic" principles of production not only mitigate disruptions to the broader ecosystem surrounding the wine-making process, but also, importantly, harness it as a factor of production, drawing closely on astrological paradigms as well. One early-20th century historical figure in agricultural industry, Rudolph Steiner, is the founder of the movement.
Two notable "biodynamic" practices in wine-making:
- a "biodynamic" calendar determining the seasonality of different stages of production
- composting practices ("stuffed cow horns" in particular)
Sources:
A. Van Engelen: http://www.triplepundit.com/2008/11/the-difference-between-biodynamic-and-organic-wines/
Wine Folly: http://winefolly.com/review/biodynamic-wine-guide/
Friday, January 29, 2016
Gaja Wine
I was interested to learn more on Gaja Wine after the colorful story in Prof. Hannan's reading and the discussion in class. Prof. Hannan's book went into some depth about Angelo Gaja's pivotal role in advent of modernization in the Piemonte region, including reducing bunches per plant, introducing the Bordeaux barrique to improve color and remove unpleasant aspects from the botti, making the wine less overwhelmingly tannic, and pioneering the promulgation of single-cru wines. While less social perhaps than Elio Altare, he also had a great influence in the region and beyond.
I think it's particularly impressive to see this level of vitality an entire century after the winery was founded. One issue that comes up in family business is a certain attachment to tradition that makes innovation harder, but the intense rupture wrought after multiple generations here is a testament that sometimes the apple can fall pretty far from the tree (or grape from the vine, perhaps). Also of particular interest considering our discussion of super-Tuscans today, Gaja acquired properties in Tuscany in the 1990s (in Bolgheri and Montalcino, see http://terlatowines.com/brands/italy/gaja) and now makes a greater amount of wine in Tuscany than in Piemonte.
Piemonte is a region near the border with France and Switzerland, and the collision of nationalities is reflected in the Gaja family -- the family name is Spanish, and original proprietor Giovanni Gaja's (apparently of French extraction) wife Clothilde Rey was seen as a key force pushing the family towards the level of quality that set it apart (http://www.wine-searcher.com/m/2014/10/10-things-every-wine-lover-should-know-about-gaja). I think in an era where it really was challenging to travel too far, being close to France helped in Angelo's discovery and incorporation of French quality standards, including the use of the barrique.
Notably, Angelo ended up hiring an enologist to concentrate on the winemaking while he focused on sales, marketing, and acquisitions. Though Angelo had clearly taken an active stance in the winemaking process against his father Giovanni, in the use of barriques but also around the planting of French grapes in the precious Italian soil. While in the family and in the popular imagination he is known as a key modernizer, he did actually oppose some modern techniques such as shorter maceration periods
Today Gaja appears to command an impressive reputation at some truly high-end destinations in the US, a testament to its enduring reach another couple generations on. Two of the highest-rated restaurants in the Bay Area clearly appreciate this high-end Italian offering: The French Laundry carries thirteen Gaja offerings in its selection, ranging from $175 to as high as $1,600. The Restaurant at Meadowood carries one Gaja (and a Grappa). Both of these restaurants are rated as two of the best in the entire country. Quality is of paramount importance, and Gaja has been known to declassify vintages that fell below standards.
Though the most priceless bit I learned about Signore Gaja pertains to another character in a recent class, Mr. Robert Mondavi, and the ongoing tension between New World and Old World. Angelo almost completed a joint venture with Mondavi, but backed out with this quip: it would be "like a mosquito having sex with an elephant: very dangerous and not much fun."
I think it's particularly impressive to see this level of vitality an entire century after the winery was founded. One issue that comes up in family business is a certain attachment to tradition that makes innovation harder, but the intense rupture wrought after multiple generations here is a testament that sometimes the apple can fall pretty far from the tree (or grape from the vine, perhaps). Also of particular interest considering our discussion of super-Tuscans today, Gaja acquired properties in Tuscany in the 1990s (in Bolgheri and Montalcino, see http://terlatowines.com/brands/italy/gaja) and now makes a greater amount of wine in Tuscany than in Piemonte.
Piemonte is a region near the border with France and Switzerland, and the collision of nationalities is reflected in the Gaja family -- the family name is Spanish, and original proprietor Giovanni Gaja's (apparently of French extraction) wife Clothilde Rey was seen as a key force pushing the family towards the level of quality that set it apart (http://www.wine-searcher.com/m/2014/10/10-things-every-wine-lover-should-know-about-gaja). I think in an era where it really was challenging to travel too far, being close to France helped in Angelo's discovery and incorporation of French quality standards, including the use of the barrique.
Notably, Angelo ended up hiring an enologist to concentrate on the winemaking while he focused on sales, marketing, and acquisitions. Though Angelo had clearly taken an active stance in the winemaking process against his father Giovanni, in the use of barriques but also around the planting of French grapes in the precious Italian soil. While in the family and in the popular imagination he is known as a key modernizer, he did actually oppose some modern techniques such as shorter maceration periods
Today Gaja appears to command an impressive reputation at some truly high-end destinations in the US, a testament to its enduring reach another couple generations on. Two of the highest-rated restaurants in the Bay Area clearly appreciate this high-end Italian offering: The French Laundry carries thirteen Gaja offerings in its selection, ranging from $175 to as high as $1,600. The Restaurant at Meadowood carries one Gaja (and a Grappa). Both of these restaurants are rated as two of the best in the entire country. Quality is of paramount importance, and Gaja has been known to declassify vintages that fell below standards.
Though the most priceless bit I learned about Signore Gaja pertains to another character in a recent class, Mr. Robert Mondavi, and the ongoing tension between New World and Old World. Angelo almost completed a joint venture with Mondavi, but backed out with this quip: it would be "like a mosquito having sex with an elephant: very dangerous and not much fun."
Wine in a can
Will wine in a can ever be commonly accepted?
Drinking from a can reduces some of the ceremony and tradition that comes with wine drinking, but that may not necessarily be a bad thing. Craft breweries have been able to maintain their brand and perceived quality while switching to the less-pretentious can, and it certainly reduces their environmental footprint as well. It's been proven that the can does not impact the taste of the wine (see link below), so the only real potential change would be on where and how wine is sold, and how it's consumed.
In addition to lowering the barrier of formality and fear of drinking wine inappropriately, the can form makes wine easier to transport, store in stacks, and drink on the go. One could see sports stadiums being interested in serving wine in a less labor-intensive form; it might allow them to stock additional varietals for sports fans, as well. Personally, the biggest appeal of wine in a can is that it regulates the portion to something I'm more comfortable drinking. It would make it easier to enjoy both white and red wine over the course of a meal, without wasting, too.
The LA Times did their review of the 10 best wines in cans, which I plan on trying!
A sampling of wines sold in cans: A guide to some wines in cans. Look for them at your favorite wine shop or grocery. And if they're not there now, they're coming soon. Guaranteed.
2013 Field Recordings Fiction Red (500 ml can, about $10) A quirky Zinfandel-based blend from winemaker Andrew Jones that also includes Grenache, Syrah, Mourvèdre, Tempranillo and Touriga Nacional. The lusty Fiction Red tastes of dark berries, smoke and forest.
2014 Field Recordings Fiction Pinot Gris (500 ml can, about $8) Aromatic white of mostly Pinot Gris with a small amount of Chenin Blanc, Sauvignon Blanc and Malvasia Bianca. Fruity, with some mineral notes and good texture.
2014 Field Recordings Fiction Rosé (500 ml can, about $8) Not a wimpy rosé, this one is fruity and lush, tasting of raspberries, strawberries and rose petals. Made from 70% Grenache, with 20% Cinsault and 10% Black Muscat.
2014 Alloy Wine Works Central Coast Pinot Noir (500 ml can, $7.50) From the same producer as Fiction, this Central Coast Pinot Noir is easy drinking, bursting with fruit, tasting of sweet spices and red cherries.
2014 Alloy Wine Works Central Coast Grenache Rosé (500 ml can, $7.50) A lively rosé that layers the tastes of red fruit (strawberry, cherries) with herbal notes.
2014 Underwood Pinot Noir (375 ml, about $6) Light, pleasant Oregon Pinot Noir tasting of raspberries and cherries, with smooth tannins. Just what you want for a picnic wine on a summer day or to drink with a sandwich or salad Niçoise.
2014 Underwood Pinot Gris Willamette Valley (375 ml can, about $6) This basic summer white, with its notes of citrus and pear, can go anywhere. Drink it on its own or with a tuna sandwich, some fried clams or peel 'n' eat shrimp.
2014 Underwood Rosé Wine (375 ml can, about $6) A dry Oregon rose to take on the go just about anywhere: the beach, a hike or the deck outside.
NV Francis Ford Coppola Sofia Blanc de Blancs (187 ml can, $4; four-pack, $12) A California sparkling wine made from a blend of 70% Pinot Blanc, 20% Sauvignon Blanc and 10% Muscat packaged in girlie pink in diminutive cans. Each can comes with a straw.
Source: http://www.latimes.com/food/drinks/la-fo-winecan-20150912-story.html
Quirky State Alcohol Laws
Monday's class got me thinking about the varied, and often quirky, wine and alcohol laws by state.
Below is a list of a few more quirky state-specific alcohol laws that demonstrate the complexity of alcohol sale and distribution across the United States. Being from Massachusetts, a state with historically some of the strictest alcohol laws in the country (no happy hour! no wine at grocery stores!), I was particularly interested in this topic. Growing up, I remember my mom's frustration at not being able to pick up wine from the "packy" before Sunday dinner. The examples below go to show how the loudest and most organized voices can dictate legislation.
Maine: Alcohol can only be purchased after 9am on Sundays - unless that day is St. Patrick's Day. On a St. Patrick's Day Sunday, alcohol beverages can be purchased as early as 6am. How did this odd law come to be? Owners of Irish pubs fought for a change in the Maine state law so they could serve alcohol for three extra hours on their busiest sales day of the year. Governor LePage signed this exception into law in 2013, when the holiday happened to fall on a Sunday. The next time St. Patrick's day is on Sunday will be in 2019.
Texas: Publicly-held companies with greater than 35 employees are not allowed to sell liquor, as of a law enacted in the mid-90s. Wal-Mart is currently suing the state of Texas, claiming that the law is protectionist and that it is unconstitutional under the commerce clause.
Indiana: In Indiana, grocery and convenience stores are not allowed to carry cold beer. This right is reserved for liquor stores only. An appeals court recently upheld this state law.
http://codes.lp.findlaw.com/incode/71/5/10/7.1-5-10-11
http://www.indystar.com/story/news/2015/12/15/grocery-convenience-stores-cant-sell-cold-beer-indiana-appeals-court-says/77361550/
http://consumerist.com/2016/01/27/8-states-with-the-strangest-laws-for-buying-alcohol/
http://bangordailynews.com/2013/03/14/politics/bill-to-allow-early-st-patricks-day-drink-awaits-lepages-signature/
http://bizbeatblog.dallasnews.com/2015/02/wal-mart-sues-the-state-of-texas-over-its-liquor-sale-law.html/
Wine Without Borders: Pending Legislation in Arizona
In Monday's class, Lori said that she thinks the industry and tied-house laws are on the brink of some large changes. Being a regulator herself and having seen the industry over such a long period of time, I trust her predictions. It inspired me to do some research on recent and upcoming changes in U.S. wine law.
Arizona came up early in my search as it is an example of a state that is on the brink of some potential changes to its shipping laws. Currently, Arizona does not allow residents to order out-of-state wines by telephone or online.
A bill was proposed last week that would allow residents over age 21 to receive out-of-state wine shipments, so long as they didn't surpass 218 bottles annually. The bill is championed by Napa valley based "Free the Grapes", an advocacy organization that has successfully undertaken similar policy changes in other states.
While this legislation clearly benefits out of state sales, in-state wineries, represented by the Arizona Wine Growers Association, also support this legislation. The President of the organization (also a wine grower himself), argues that by not allowing Arizona residents to join wine clubs of out-of-state vineyards hurts the overall wine industry in Arizona, since it stifles the growth of a broader wine culture in the state.
Another reason why the proposed legislation benefits under current law, in-state wineries had to remain small - below 20k gallons per year - in order to be able to directly ship to consumers and accept online and phone orders. This effectively put a cap on the size of Arizona wineries. The fact that wine growers within and outside of the state support such a shift further underscores that these laws are antiquated.
As Anne's post mentions, Pennsylvania is the final sizable untapped market opportunity for wine shipping and state imports. I'm eager to see how this unfolds.
http://www.azliquor.gov/
http://www.azcentral.com/story/news/arizona/politics/2016/01/15/bill-would-allow-arizona-wine-orders-phone-online/78858864/
In Korea, Online Wine Sales Are Still Illegal
I am from Seoul, South Korea and like to share an interesting story about online wine sales in Korea. Although selling wine online becomes a global trend, sadly it is still illegal in Korea.
In 2012, Fair Trade Commission (FTS) has been arguing for months to allow online wine sales, which is an initiative to counter consumer dissatisfaction over high wine prices even with the implementation of FTA with Chile and EU. FTC insists that the Internet path will spur competition in the market and in turn lower the wine prices. Not only that, FTC says South Korea’s online economy is the 2nd largest in the world by share of GDP and accounts for 7.3% ($75B) of the nation’s GDP in 2010, according the BCG.
However, National Tax Service (NTS) argues that allowing wine to be sold online would be open a Pandora’s box, and may cause beer and whiskey producers to line up to sell their products online as well. An NTS official said “We cannot make an exception just for wines.” NTS also worries that the Internet will become a conduit for unlicensed liquor traders to sell wine without paying due taxes and create a black market.
Ironically, traditional Korean wine such as “Makgeolli” is already available over the Internet since 2010. Imported wine doesn’t benefit from this advantage and has to be sold through a complex distribution channel. Even though consumer groups believe that online channel would increase an underage drinking problem, realistically young people (under 19) are easy to access/buy the traditional Korean wines like “Soju" due to lower price. The average price of Soju is $1.2 but that of wine is $22.
[Makgeolli]
[Soju]
Meanwhile, President’s House is relatively favorable to FTC in that online sales will decrease high wine price in Korea. But NTS responsible for online wine sales strongly disagrees with NTS and President’s House. An anonymous NTS official said “The underlying reason for the prohibition is that NTS worries about decrease in collecting taxes after online wine sales are allowed.
“We have no plan to allow Internet sales. There is no timeline and has been no decision.” said a consumer tax office at NTS.
The State of the Union - Wine Edition
The Silicon Valley Bank's Wine Division has just published its annual study about the state of the United States wine industry and the primary conclusion is that the U.S. is the world's dominant wine consumer. Despite this, several industry trends suggest that this could change at any time given the availability of European wines and the strength of the US Dollar. There is a
clear shift in consumption away from France, Italy
and Spain, and toward the United States, the United
Kingdom, China and Argentina. Currently 39% of wine is consumed outside
European countries, compared with 31% in
2000.
Some other key takeaways from the study are below:
- Wines priced above $20 per bottle experienced substantial growth with red wines in particular showing strong growth
- Direct-to-consumer sales is expected to continue as the largest growth channel for most wineries
- The largest consuming cohort is the Baby Boomers and the cohort with the most opportunity is Generation X
- Grape pricing has hit a high mark, and contracts should see renegotiations downward in exchange for term. Current supply has already adjusted prices lower, reflecting current heavy supply stocks
- Studies show that traffic in regions like Napa is predominantly comprised of locals with tourism representing only 15 - 17%
- 2016's top projected region for sales is Anderson Valley
One of the interesting industry trends noted in the study is the continued movement to the "frugal luxury" wine space. These wines are purchased by consumers who are relatively price conscious but do not wish to sacrifice quality. It would be interesting to understand what other New World wine regions are experiencing similar growth in this wine segment.
In any case, the link to the SVB wine study is here: https://www.svb.com/uploadedFiles/Content/Blogs/Wine_Report/2015_Wine_Report/wine-report-2015-pdf.pdf
If I may, I suggest reading it with a glass of Virginia Viogner or an Oregon Pinot for a patriotic effect. Enjoy!
Some other key takeaways from the study are below:
- Wines priced above $20 per bottle experienced substantial growth with red wines in particular showing strong growth
- Direct-to-consumer sales is expected to continue as the largest growth channel for most wineries
- The largest consuming cohort is the Baby Boomers and the cohort with the most opportunity is Generation X
- Grape pricing has hit a high mark, and contracts should see renegotiations downward in exchange for term. Current supply has already adjusted prices lower, reflecting current heavy supply stocks
- Studies show that traffic in regions like Napa is predominantly comprised of locals with tourism representing only 15 - 17%
- Half of all wine sold is below $9, however this price point is in decline as consumers are trading up
- The country's wine regions with the best yield and harvest quality in 2015 were from Oregon- 2016's top projected region for sales is Anderson Valley
One of the interesting industry trends noted in the study is the continued movement to the "frugal luxury" wine space. These wines are purchased by consumers who are relatively price conscious but do not wish to sacrifice quality. It would be interesting to understand what other New World wine regions are experiencing similar growth in this wine segment.
In any case, the link to the SVB wine study is here: https://www.svb.com/uploadedFiles/Content/Blogs/Wine_Report/2015_Wine_Report/wine-report-2015-pdf.pdf
If I may, I suggest reading it with a glass of Virginia Viogner or an Oregon Pinot for a patriotic effect. Enjoy!
Challenging the status quo in wine stores
When I was doing the reading for today's class, I was struck by the discussion in chapter 1 about how wine retailers organize their wine to match consumer understanding. In the examples listed, it was so clear to me how wine retailers around the world alter their store organization to match the consumers. For example, the British store mentioned organizes their items by region right after by color and rating. The European market is very region-centric so this makes sense. This discussion got me thinking about how wine stores are organized and more importantly, how wine stores aren't organized. Why don't we organize our wine stores and online retailers by how the wines taste? e.g. red wines with medium body and earthy characteristics. Occasionally I have seen wine lists organized in this way but I have NEVER seen a store organized in this way. This begs the question of "why?"
If wine stores are really trying to reduce cognitive load and enable consumers to make easier purchasing decisions, I think that consumers would have an easier time buying wine if they were labeled by the characteristics that a consumer can best understand, how it tastes. Let's play this out in a wine-specific retail shop (because I imagine this wouldn't make as much sense in a grocery store). If a consumer comes in and knows nothing about wine, they will likely ask for a recommendation, at which point store organization doesn't matter much. If a consumer comes in and knows a little about wine, they likely know what color wine they like and what weight of wine they like. Isn't it harder for them to figure out what region & varietal maps to that tasting experience? I often find that I can remember a tasting experience even when I can't remember the attributes on the label. Finally, if a consumer comes in and knows a lot about wine, they shouldn't have trouble identifying where their wine would sit. Maybe this approach is most cumbersome for serious wine drinkers, but I imagine they are more patient and make up a smaller percentage of buyers.
So, why aren't wine stores organized like this?
If wine stores are really trying to reduce cognitive load and enable consumers to make easier purchasing decisions, I think that consumers would have an easier time buying wine if they were labeled by the characteristics that a consumer can best understand, how it tastes. Let's play this out in a wine-specific retail shop (because I imagine this wouldn't make as much sense in a grocery store). If a consumer comes in and knows nothing about wine, they will likely ask for a recommendation, at which point store organization doesn't matter much. If a consumer comes in and knows a little about wine, they likely know what color wine they like and what weight of wine they like. Isn't it harder for them to figure out what region & varietal maps to that tasting experience? I often find that I can remember a tasting experience even when I can't remember the attributes on the label. Finally, if a consumer comes in and knows a lot about wine, they shouldn't have trouble identifying where their wine would sit. Maybe this approach is most cumbersome for serious wine drinkers, but I imagine they are more patient and make up a smaller percentage of buyers.
So, why aren't wine stores organized like this?
- It's more cumbersome to the retailers?
- Retailers don't know enough about their wines to sort in this way?
- Consumers are used to one way of shopping and it would be impossible for them to change the way they shop?
- Consumers don't actually know what they like?
- Consumers know what they like but don't have the vocabulary to describe it?
- Consumers care most about the status associated with different wines and it's harder to discern this piece from the set up I suggested?
I'm curious what other people think about this idea!
Thursday, January 28, 2016
Direct to Consumer Wine Shipping in 2015
I came across an interesting report, which can be downloaded for free, and is cited in this article: http://www.businesswire.com/news/home/20160125006305/en/Direct-Wine-Shipments-Consumers-Grow-4X-Faster. It discusses the growth of Direct to Consumer wine shipments in the US in 2015.
Some of the main points:
- Over 50% of shipments are sent to California (31%), Texas (9%), New York (6%), Florida (6%), and Illinois (4%)
- Shipments from Napa surpassed $1B in value, giving the region 50% market share
- Bottles $15 and under demonstrated a 28% increase in volume, to make up 23% of volume share
- Shipments from very small wineries continued to grow, with 13% increase in total value
- 4.3M cases shipped (8.5% increase), for $1.97B
Most shipments come from small wineries (44% by volume and 48% by value), followed by medium wineries, then very small wineries. Interestingly, Red blends increased 20% by volume in 2015, as compared to industry's 8.5% volume growth. On the other end, Syrah continued to suffer in direct-to-consumer sales, declining in both volume and price in 2015.
Much of the sales growth is attributed to the opening of Massachusetts in the past year. The only remaining closed state with "significant market opportunity," per the report, is Pennsylvania - which is estimated to result in an additional $100M in sales in the first 4 years after opening.
Some of the main points:
- Over 50% of shipments are sent to California (31%), Texas (9%), New York (6%), Florida (6%), and Illinois (4%)
- Shipments from Napa surpassed $1B in value, giving the region 50% market share
- Bottles $15 and under demonstrated a 28% increase in volume, to make up 23% of volume share
- Shipments from very small wineries continued to grow, with 13% increase in total value
- 4.3M cases shipped (8.5% increase), for $1.97B
Most shipments come from small wineries (44% by volume and 48% by value), followed by medium wineries, then very small wineries. Interestingly, Red blends increased 20% by volume in 2015, as compared to industry's 8.5% volume growth. On the other end, Syrah continued to suffer in direct-to-consumer sales, declining in both volume and price in 2015.
Much of the sales growth is attributed to the opening of Massachusetts in the past year. The only remaining closed state with "significant market opportunity," per the report, is Pennsylvania - which is estimated to result in an additional $100M in sales in the first 4 years after opening.
EU Membership and Appellation Rules
Ever since participating on the Spring 2015 Global Study Trip to Serbia and Croatia, I have been fascinated with one of the themes explored on the trip: namely, EU accession and the implications of membership for candidate countries (Serbia remains a candidate country whereas Croatia became an EU member state in 2013).
For our midterm project, George Ragheb and I are exploring this further as it relates to the emerging wine region of Croatia, but in researching such, we came across an interesting controversy that provides some perspective on a potential "cost" to EU membership borne by winemakers.
Upon joining the EU in 2013, Croatia came under pressure from those enforcing the EU's appellation rules given the similarity in nomenclature of its Prošek dessert wine with Italy's famed Prosecco. Ultimately, the Croatian wine industry won the battle against EU regulators and Italian wine industry consortia. The apparent justification for this outcome (and the precedent set) was that mere similarity in nomenclature may not necessarily constitute infringement, but that there must also be some similarity in substance and market segment (which was not the case for these two wines).
Source:
Wall Street Journal Europe: http://www.pressreader.com/belgium/the-wall-street-journal-europe/20130808/281517928754335/TextView
For our midterm project, George Ragheb and I are exploring this further as it relates to the emerging wine region of Croatia, but in researching such, we came across an interesting controversy that provides some perspective on a potential "cost" to EU membership borne by winemakers.
Upon joining the EU in 2013, Croatia came under pressure from those enforcing the EU's appellation rules given the similarity in nomenclature of its Prošek dessert wine with Italy's famed Prosecco. Ultimately, the Croatian wine industry won the battle against EU regulators and Italian wine industry consortia. The apparent justification for this outcome (and the precedent set) was that mere similarity in nomenclature may not necessarily constitute infringement, but that there must also be some similarity in substance and market segment (which was not the case for these two wines).
Source:
Wall Street Journal Europe: http://www.pressreader.com/belgium/the-wall-street-journal-europe/20130808/281517928754335/TextView
Wednesday, January 27, 2016
Can you taste the El Niño?
All this rain has brought the vegetation and campus alive with color. It has been a much needed relief from the drought and also a reminder that sunny days like today shouldn't be taken for granted. But when I think back to Thibaut Scholasch's talk for Fruition Sciences I can't help but think...What about the wine?
Scholasch spoke to how important it is to manage irrigation in a way that allows the vines to thrive with the right amount of water. Our focus was on dry climates, but how do winemakers manage for too much water? It turns out irrigation systems help wine makers to stabilize the environment, whether there is too much OR too little rain. When there is too much rain, wine makers work to divert water flow into retaining ponds.
These irrigation systems are not standard throughout wine making, however. As we learned, many old world wine makers do not use irrigation systems for their vines. They rely on the environment and the terroir to add complexities and character to their grapes. Thus, in old world regions, when there is too much rain, the grapes do not have as much flavor and those vintages may be less desirable. On the flip side, in new world regions, irrigation allows wine makers to mitigate the impact of weather and stabilize the quality of their vintages.
An Eater article highlights some of the tensions between these two methods by covering El Niño's influence on Napa. It is clear from the interviews in the article that opinions vary on the "right" way to bring out terroir in wines and how weather should impact technique. Outside of the extreme opinions, I am interested to hear from more advanced wine drinkers a few things:
- Does irrigation technique matter to you when selecting a wine?
- Do you believe old world processes make a wine more authentic?
- Is the draw of U.S. wines the expectation of a more consistent product regardless of vintage?
Here is a link to the article in full: http://www.eater.com/2016/1/6/10718654/el-nino-california-wine
Helpful Infographics Showing Variation of Liquor Laws By State
As a follow-up to my post about variation in state liquor laws, I found these helpful infographics that some people may find interesting. To me these really highlight the amount of variation in wine / liquor laws by state:
Source: http://www.huffingtonpost.com/2014/08/26/here-are-all-the-states-t_n_5710135.html
State Control of Wine Sales: Grocery Stores VS Specialty Wine Stores
Monday's class helped me appreciate how much control each state has regarding consumer's access to wine, liquor and spirits. This got me thinking a lot about how, as someone who frequently purchases wine, my experience buying wine has changed dramatically since I moved from New York to California due to the different liquor laws in each state.
New York is one of 11 states where its illegal to sell wine in grocery stores and convenient stores - this means customers must make an extra stop to a wine specialty store in order to pick up their favorite bottle. While making an extra stop at a wine specialty store can be inconvenient at times, I think the experience of shopping at a wine specialty store leads to more informed purchasing decisions. In comparison to grocery stores, wine shops usually have knowledgable in-store staff that can make recommendations and can help customers make educated choices. Its fun to talk to the staff at these stores about their favorite wines and whats new in-store.
While you can still find specialty wine stores in California, the state also allows grocery stores, pharmacies and convenient stores to sell wine. As a result, I find that I now make the majority of my wine purchases at stores like Trader Joe's and CVS (since I'm already there buying groceries or picking something up at the pharmacy). Although I'm a big fan of Trader Joe's wine offerings, I feel like buying wine at a grocery store is a very different experience compared to New York. In CA, I typically quickly grab something off the grocery store shelf and never ask questions or interact with people working there.
I'm curious to hear about people's wine-purchasing habits and whether they prefer to buy wine at grocery stores / convenience stores or specialty wine shops.
I also wonder whether state laws that allow wine to be sold in grocery stores ultimately helps or hurts wineries. Are people more likely to buy better, higher quality wine if they're forced to shop at a wine specialty store? Or does limiting the locations where wine is sold lead to fewer, less frequent purchases since its less convenient for the consumer?
New York is one of 11 states where its illegal to sell wine in grocery stores and convenient stores - this means customers must make an extra stop to a wine specialty store in order to pick up their favorite bottle. While making an extra stop at a wine specialty store can be inconvenient at times, I think the experience of shopping at a wine specialty store leads to more informed purchasing decisions. In comparison to grocery stores, wine shops usually have knowledgable in-store staff that can make recommendations and can help customers make educated choices. Its fun to talk to the staff at these stores about their favorite wines and whats new in-store.
While you can still find specialty wine stores in California, the state also allows grocery stores, pharmacies and convenient stores to sell wine. As a result, I find that I now make the majority of my wine purchases at stores like Trader Joe's and CVS (since I'm already there buying groceries or picking something up at the pharmacy). Although I'm a big fan of Trader Joe's wine offerings, I feel like buying wine at a grocery store is a very different experience compared to New York. In CA, I typically quickly grab something off the grocery store shelf and never ask questions or interact with people working there.
I'm curious to hear about people's wine-purchasing habits and whether they prefer to buy wine at grocery stores / convenience stores or specialty wine shops.
I also wonder whether state laws that allow wine to be sold in grocery stores ultimately helps or hurts wineries. Are people more likely to buy better, higher quality wine if they're forced to shop at a wine specialty store? Or does limiting the locations where wine is sold lead to fewer, less frequent purchases since its less convenient for the consumer?
Tuesday, January 26, 2016
Who's the enemy here?
Yesterday, I was struck by the ways in which wine suppliers (producers or importers) have the odds stacked against them despite certain tied-house laws that protect them. As we learned from Pete Mondavi and Christine Wente, distributor consolidation is occurring at a rapid clip, giving distributors more power than ever. Charles Krug and Wente have 60-70% of sales going through Southern Wine and Spirits. Today we heard how big box stores also have increasing power. To play on the national scene, wineries have to deal with large retailers like Total Wine. Suppliers have to work with distributors to get shelf space in these big boxes and then they have to compete against the store's private label. Given their limited supplier power, why do wineries gang up on each other? Why don't they band together to sway the market in their favor?
In class yesterday, we heard about the SaveMart wine event. Wineries violated tied-house laws by tweeting about the event and the ABC went after the wineries. One thing that was not discussed in class was that it is widely believed that another winery reported the offending wineries' social media activity to the ABC. In doing so, the reporting winery was hoping to damage the offending wineries. We've seen in class that over the last 30-40 years the number of US wineries has grown exponentially. As a result, wineries compete for shelf space and sales more than ever. However, what happened to the belief that the enemy (other wineries) of my enemy (distributors and big box retailers) is my friend? For anything to change in alcoholic beverage regulation, wineries will have to band together but right now that seems far from possible!
In class yesterday, we heard about the SaveMart wine event. Wineries violated tied-house laws by tweeting about the event and the ABC went after the wineries. One thing that was not discussed in class was that it is widely believed that another winery reported the offending wineries' social media activity to the ABC. In doing so, the reporting winery was hoping to damage the offending wineries. We've seen in class that over the last 30-40 years the number of US wineries has grown exponentially. As a result, wineries compete for shelf space and sales more than ever. However, what happened to the belief that the enemy (other wineries) of my enemy (distributors and big box retailers) is my friend? For anything to change in alcoholic beverage regulation, wineries will have to band together but right now that seems far from possible!
Governor Brown and alcohol regulation
A comment that struck me from class yesterday was the ABC deputy chief saying that the ABC doesn't really take a position on policy, unless Governor Brown tells them they have a position. They are merely agents of the state, enforcing the rules on the books. This got me thinking about where Gov. Brown stood on alcohol regulation.
It looks like Gov. Brown has been willing to sign into law bills that liberalize the alcohol industry somewhat. For example, he has signed a bill allowing barbershops and salons to offer limited quantities of alcohol without a liquor license, and another allowing wineries to offer wine tastings at farmers' markets (news links below).
We discussed yesterday that the only way to change the BPC is through the legislative process or ballot proposal, so it would be on the voters to push for that change from their representatives. But I think that underestimates the power of the ABC's prosecutorial discretion, the idea that the agency can choose when and how to enforce the BPC. The example offered in class was that the agency, unwisely, failed to exercise that discretion when it went after the non-profit one-day wine event in Sacramento. Gov. Brown could also institutionalize it to some extent by saying it is the policy of his administration not to pursue violations of certain laws. This is what President Obama did in the early stages of gay marriage liberalization when he said that his administration would no longer enforce the Defense of Marriage Act. When that bill came under Supreme Court scrutiny, President Obama went so far as to have the Solicitor General, whose job it is to argue the government's case in front of the Supreme Court, argue in favor of the petitioner's claim that DOMA was unconstitutional. Of course, there are tremendous political risks involved in anything like that for Gov. Brown, and alcohol regulation doesn't carry the same moral imperative to act as advancing gay rights. It will be interesting to see, though, whether alcohol regulation is on his agenda for the next two years before he is term-limited out again.
http://abc7news.com/business/bill-may-allow-beauty-salons-to-serve-alcohol-without-permit/712449/
http://www.latimes.com/food/dailydish/la-dd-governor-brown-signs-off-on-wine-tastings-at-farmers-markets-20140710-story.html
It looks like Gov. Brown has been willing to sign into law bills that liberalize the alcohol industry somewhat. For example, he has signed a bill allowing barbershops and salons to offer limited quantities of alcohol without a liquor license, and another allowing wineries to offer wine tastings at farmers' markets (news links below).
We discussed yesterday that the only way to change the BPC is through the legislative process or ballot proposal, so it would be on the voters to push for that change from their representatives. But I think that underestimates the power of the ABC's prosecutorial discretion, the idea that the agency can choose when and how to enforce the BPC. The example offered in class was that the agency, unwisely, failed to exercise that discretion when it went after the non-profit one-day wine event in Sacramento. Gov. Brown could also institutionalize it to some extent by saying it is the policy of his administration not to pursue violations of certain laws. This is what President Obama did in the early stages of gay marriage liberalization when he said that his administration would no longer enforce the Defense of Marriage Act. When that bill came under Supreme Court scrutiny, President Obama went so far as to have the Solicitor General, whose job it is to argue the government's case in front of the Supreme Court, argue in favor of the petitioner's claim that DOMA was unconstitutional. Of course, there are tremendous political risks involved in anything like that for Gov. Brown, and alcohol regulation doesn't carry the same moral imperative to act as advancing gay rights. It will be interesting to see, though, whether alcohol regulation is on his agenda for the next two years before he is term-limited out again.
http://abc7news.com/business/bill-may-allow-beauty-salons-to-serve-alcohol-without-permit/712449/
http://www.latimes.com/food/dailydish/la-dd-governor-brown-signs-off-on-wine-tastings-at-farmers-markets-20140710-story.html
Monday, January 25, 2016
Natural wines to decline?
I stumbled across "Peering Into the Crystal Glass: Wine Trends to Expect in 2016" on WineSpectator.com today and was curious to hear their thoughts going into the new year. One prediction was on the topic of natural wines. The article says:
The trend for "natural" wines will decline. Popular in wine
bars and restaurants in cities like New York, London and Paris, wines made without
sulfur or any kind of intervention are rarely found outside the big cities that
offer importers, distributors and a market to support them. As "natural" wines
improve and consumers become more educated, they will recognize the difference
between well-made, sound wines and flawed wines, realizing that regardless of
origin and methods, there are only two types of wine - good and bad.
I thought this was interesting in the context of a blog post and conversation we started to have around "natural" and "organic" wines. At the end of the day, maybe it is just about if the wine is good or bad, and not about how the wine was produced and processed.
For food, there has been scientific evidence that the pesticides and processes used in some food and food making can have a negative effect on one's health. Of course, there is still debate on just how negative the effect is, how much better organic food is for the consumer, etc.
Is there any evidence suggesting negative health effects from consuming sulfites? Or any negative effects from "intervention" in the wine making process? Perhaps the move toward "natural" wines will only stay topical when there exists scientific support of the benefit. That might make this trend towards "natural" sustainable, rather than just a temporary fad that is predicted to fade.
Tied-house laws under constitutional review
The Ninth Circuit Court of Appeals is currently reviewing the constitutionality of actions taken by the California Department of Alcohol Beverage Control (the regulator visiting today's class) in enforcing "tied-house" laws, or statutes intended to limit the influence of alcohol companies over their downstream distributors and retailers in advertising.
Paul Franson of Napa Valley Register in his July 2015 article "Tied-house laws continue to confound wineries" describes these laws as "archaic" and characterizes the regulators' enforcement of them as misguided and overzealous. He provides the historical context that these laws were intended to stymie attempts at vertical integration by Prohibition-era market participants following its repeal and he reports they are now implicating wineries for trivial actions like inadvertently referencing the industry events and festivals at which their wines are featured.
The Ninth Circuit this month is questioning whether the "threat" of vertical integration through such advertising, as envisaged by the original law, is even credible anymore... if not, such statutes may infringe the First Amendment right to free speech on the part of alcohol companies and wineries. We shall see how the Courts decide...
Sources:
P. Franson, "Tied-house laws continue to confound wineries," Napa Valley Register: http://napavalleyregister.com/lifestyles/food-and-cooking/wine/columnists/paul-franson/tied-house-laws-continue-to-confound-wineries/article_7014b0e0-6c6d-5d07-8688-f8a215613ff8.html
B. Hatef, "Ninth Circuit Opinion Calls Into Question Constitutionality of California Tied-House Laws," Alcohol Law Advisor: http://www.alcohollawadvisor.com/2016/01/ninth-circuit-opinion-calls-into-question-constitutionality-of-california-tied-house-laws/?utm_source=Mondaq&utm_medium=syndication&utm_campaign=View-Original
Paul Franson of Napa Valley Register in his July 2015 article "Tied-house laws continue to confound wineries" describes these laws as "archaic" and characterizes the regulators' enforcement of them as misguided and overzealous. He provides the historical context that these laws were intended to stymie attempts at vertical integration by Prohibition-era market participants following its repeal and he reports they are now implicating wineries for trivial actions like inadvertently referencing the industry events and festivals at which their wines are featured.
The Ninth Circuit this month is questioning whether the "threat" of vertical integration through such advertising, as envisaged by the original law, is even credible anymore... if not, such statutes may infringe the First Amendment right to free speech on the part of alcohol companies and wineries. We shall see how the Courts decide...
Sources:
P. Franson, "Tied-house laws continue to confound wineries," Napa Valley Register: http://napavalleyregister.com/lifestyles/food-and-cooking/wine/columnists/paul-franson/tied-house-laws-continue-to-confound-wineries/article_7014b0e0-6c6d-5d07-8688-f8a215613ff8.html
B. Hatef, "Ninth Circuit Opinion Calls Into Question Constitutionality of California Tied-House Laws," Alcohol Law Advisor: http://www.alcohollawadvisor.com/2016/01/ninth-circuit-opinion-calls-into-question-constitutionality-of-california-tied-house-laws/?utm_source=Mondaq&utm_medium=syndication&utm_campaign=View-Original
Sunday, January 24, 2016
In Wine We Trust - Private Equity and Wine
When Private Equity Meets Wine
Recently one of my old
bosses from my Investment Banking days left his position as a Managing Director
for an entrepreneurial endeavor to create a $20 million Connecticut-based
principal investment firm focused solely on wine and wine futures (wine that has
been made and is in casks but has not yet been bottled). His name is Tim Clew
and after his time at Credit Suisse, he initially thought to enter the wine
distribution space. Upon finding that there were limited opportunities for him
to truly introduce innovation to that portion of the supply chain, he instead
opted to create a private equity firm investing in IGWs, or Investment Grade
Wines.
His firm, aptly dubbed 'TheWine Trust' (TWT), has a rather unconventional approach to private equity.
After raising money from Limited Partners, the fund has a mandate which enables
it to invest in IGWs and lock money up for about eight years, slightly longer
than the typical PE investment horizon of 5-7 years. As most private equity
transactions within the wine industry are typically comprised of purchasing an
entire wine business and performing operational and cost cutting initiatives to
enhance returns (e.g. Bacchus Capital, Arbor Investments), The Wine Trust is
designed as a direct investment in wines from various estates throughout
Bordeaux, Valpolicella, the United States, Chile, and Argentina.
Here's how it works:
1. TWT works with merchants to
purchase individual cases of wine with the intention of reselling them in the
future or five years from their expected maturity for profit.
2. Alternatively, TWT works with
brokers to purchase "shares" in future produced wine of renowned IGW estates.
The use of a broker seems
vital to effectively navigating this asset class as there are approximately 250
premier IGWs produced that are worthy of consideration for financial
investment, 90% of which are produced in Bordeaux.
The fund was started in 2012
as a response to various economists and portfolio managers suggesting that
there is a need for the inclusion of alternative real assets in a diversified
portfolio. Unlike other alternative investments like gold bars or livestock,
wine as an alternative investment is truly unique with very few players in the
market. Most of the wines purchased as an alternative investment asset are
purchased with the intention of reselling them at a higher price in the future.
The Wine Trust is also unique in the fact that all of its investments are
illiquid (pardon the pun) with all investor principal and returns realized upon
the proposed sale dates of the wine. Despite this, history has shown that
investments in wine are insulated from economic downturns, making this a rather
enticing investment. Tim claims that he was very
inspired by a book written in 2008 by David Sokolin called "Investing
in Liquid Assets: Uncorking Profits in Today's Global Wine Market".
The book explores the fascinating world of fine wine investing and shares
anecdotes of the dynamics of this industry, such as explaining how a basket of
Bordeaux wines in 1986 worth $327K rose to an eye-popping $3.3 million in 2007,
an 11.6% CAGR (nominal).
In my opinion,
The Wine Trust represents a very interesting value proposition and the
principals of the fund base their hypothesis on historical growth trends in
Bordeaux wines. However it is very apparent that these regions are subject to
immense volatility and any unanticipated switch in global preference for a
different region is likely to be met with an almost immediate drop in the value
of their existing investments.
Marijuana and Distribution
As I mentioned in class, the issues over distributors in alcohol are becoming important considerations in the marijuana legalization space. New laws are being written in many states to hit ballots in the coming years, and it'll be interesting to see in how many places distributors are able to claim a stake in the value chain.
As we evaluated the option in Colorado, we discussed a number of the pros and cons, but what I found most interesting was how it provided a platform for the state to discuss our philosophy on commercialization overall. How do we want the industry to grow? How can regulation hamper or help certain entities in the value chain to grow quickly and amass political clout that might hinder more effective safety regulations in the future? Do we want more smaller players or just a few strong ones? Who would be easier to regulate and which would enable us to more quickly implement safety rules? Do we want to encourage growth of large companies in Colorado now while we're ahead of the curve that will enable economic development in the state in the future as other states legalize? There are just a few of the many, many questions that the distributor lobbyists forced our office to consider.
The arguments for the inclusion of distributors are varied, but there's no question that distributor lobbyists are pushing hard. I found a great article summarizing some of the issue here in California.
The issue has cropped up all over the place, including in Michigan and in Nevada just to name a few. As you see many (some say 11 this year alone) states go to ballot with legal marijuana in this presidential election year, it's worth paying attention to the structure of those new industries and whether we've learned anything from the post-Prohibition structure we've created in alcohol.
As we evaluated the option in Colorado, we discussed a number of the pros and cons, but what I found most interesting was how it provided a platform for the state to discuss our philosophy on commercialization overall. How do we want the industry to grow? How can regulation hamper or help certain entities in the value chain to grow quickly and amass political clout that might hinder more effective safety regulations in the future? Do we want more smaller players or just a few strong ones? Who would be easier to regulate and which would enable us to more quickly implement safety rules? Do we want to encourage growth of large companies in Colorado now while we're ahead of the curve that will enable economic development in the state in the future as other states legalize? There are just a few of the many, many questions that the distributor lobbyists forced our office to consider.
The arguments for the inclusion of distributors are varied, but there's no question that distributor lobbyists are pushing hard. I found a great article summarizing some of the issue here in California.
The issue has cropped up all over the place, including in Michigan and in Nevada just to name a few. As you see many (some say 11 this year alone) states go to ballot with legal marijuana in this presidential election year, it's worth paying attention to the structure of those new industries and whether we've learned anything from the post-Prohibition structure we've created in alcohol.
Buyer Beware
I recently read the following a
few articles which discuss the bankruptcy of a fine wine retailer in Berkeley
California, Premier Cru. Weighed down by $70m of debt the retailer was forced to file for bankruptcy in December last year:
http://www.decanter.com/wine-news/californias-premier-cru-wine-retailer-files-for-bankruptcy-287352/
Premier Cru “made its reputation
by selling top-tier wines at lower prices than competitors, but often selling
them as 'pre-arrivals.'” Customers would sometimes have to wait years before
their orders for specific vintages were fulfilled. However, the company’s delivery
times became so long (more than 6 years) that they were considered delinquent,
and disgruntled customers discovered in December that the retailer was filing
for bankruptcy. 11 of these customers are now suing Premier Cru; they’re owed
hundreds of thousands of dollars.
I believe that any industry
regulation should protect end consumers from unfair business practices. And I
find it shocking that Premier Cru was able to defraud its clients out of
hundreds of thousands of dollars. I think the lack of transparency in the wine industry
between producers, importers, wholesalers and retailers leaves the end consumer
at the mercy of these other (more powerful) players in the value chain. And so I
think regulation that supports more direct-to-consumer endeavours should be
supported in order to empower the end consumer, allowing them to make more
informed decision and exercise more influence in the wine value chain.
Advertising and Social Media
When I was reading Industry Advisory Third Party Providers, I was stuck by the clause related to advertising alcoholic beverages. It stated that internet sites are subject to the same regulation as print, radio, and TV advertisements. This makes sense to me now that the majority of ads I see each day are delivered via google ads and other websites. However, it got me thinking about how regulators treat social media. In September 2015, Instagram started allowing sponsored posts from advertisers. These posts are usually easy to identify as advertisements because they are overly glossy and sophisticated for Instagram. I can easily imagine that these posts are subject to the same regulation as other internet advertising. However, I'd argue that companies do just as much if not more of their advertising through their own Instagram accounts, rather than through sponsored posts. Instagram is a great ways for wineries to tell their story via photos. The photos posted are often a little rough around the edges and also a little more personal. When I look at the Duckhorn Instagram account, I see beautiful photos of bottles, but I also see photos of the winemaker's dog. This is an insight into the brand that a consumer would not get from a glossy advertisement.
From the research I did, it seems that the regulations' focus for social media is ensuring that wine companies are advertising to people legal to drink. However, this is tricky on a platform like Instagram where users are not required to input their age to create a profile. In that case, how can wine companies ensure that they are obeying regulation when posting to Instagram and other platforms? I'm curious to see how regulation of this industry will evolve as more consumers get information and advertisements through social media.
From the research I did, it seems that the regulations' focus for social media is ensuring that wine companies are advertising to people legal to drink. However, this is tricky on a platform like Instagram where users are not required to input their age to create a profile. In that case, how can wine companies ensure that they are obeying regulation when posting to Instagram and other platforms? I'm curious to see how regulation of this industry will evolve as more consumers get information and advertisements through social media.
Wine Counterfeiting, Rudy Kurniawan, and Maureen Downey
This post touches on the wine counterfeiting topic
raised by Peter (below), the ongoing theme of Chinese wine consumption growth,
the difficulty that some consumers have telling the difference between wines at
very different price points, and a look at alternate business models in the
industry.
I met Maureen Downey a few years ago in Boston. A
wealthy friend of mine had invited me to accompany her to a lecture given by
Downey, who works with my friend’s father, the owner of a collection vast
enough that he owns a large warehouse purely to store wine.
Downey has made a name for herself as a wine
authenticator and "wine detective", assisting authorities in pursuing
wine counterfeiters. It sounds ridiculous, but wine counterfeiting is actually
a major force in the modern market. The process is easy: make a blend of
modern, cheaper wines that resemble the rare ancient variety, print a close
reproduction of the original vineyard’s label, and then faux-age it (with dirt,
staining, ripping and fraying the paper, etc.). When a bottle sells for tens or
hundreds of thousands of dollars, the margin on that transaction can be high.
As a result, one French mine producer estimated that 80% of pre-1980 Burgundies
sold at auctions are fake (link)!
Others paint a far less pessimistic picture.
The drivers for counterfeiting are essentially the
same as those that drive price. For one, income and wealth have become more
concentrated at the top of the economic ladder, shifting consumer behavior for
all goods towards discount and luxury, away from middle-tier. Second,
volatility in mainstream financial assets has increased the pull of art and
items such as rare wines and whiskies as objects of investment (link).
Third, Chinese demand is burgeoning, especially for certain brands (Margaux,
Lafite, etc.) – and that consumer is often unsophisticated. Finally, whereas it
is well-known to most people that paintings and money can be counterfeited
(think The Thomas Crown Affair), that awareness is not as widespread in the
wine world.
As a result of that growth in counterfeiting, demand
has emerged for authentication services and “wine detectives” by investors
spending thousands of dollars on acquisitions. Downey performs these services.
Most famously, she worked closely with the FBI and DOJ on the Rudy Kurniawan
case.
I’ve pasted some links below that I heartily
recommend, because the Kurniawan case is highly entertaining. Before he started
mixing wines and faking corks in his home, Kurniawan was a Chinese-Indonesian
immigrant of means. Apparently, he tasted a 1996 Opus One in the early 2000s
and was enthralled. In the years afterwards, he started buying rare wines like
crazy, becoming an expert in Burgundies and single-handedly driving up the
price for older vintages by driving bidding in the big auctions. He apparently
had a great sense of taste, with the ability to identify wines “double-blind”.
At some point, he realized that there was an opportunity.
Kurniawan sold expensive wines for over 5 years before
getting caught. He was aided in his activities by the characteristics of old
wine, such as:
- It is common for old wines to be recorked; thus it raised few flags when some bottles had young-looking corks
- Older vintages often had variable labeling (not as corporatized and standardized as modern production), so inconsistencies were expected
- Some Burgundies were only produced in such small vintages that very few people really know how many there are and how they look
- Going back to the value of context, even experts couldn’t be sure of tastes; people that tasted wines pre-auction and thought they were amazing then thought the fakes tasted horrible afterwards
Some fakes are expected, but it started happening too
often to bottles sold by Kurniawan. Victims like billionaire William Kock (as
in the politically-active Koch brothers) had gotten suspicious and launched
lawsuits. The final straw was his attempt to auction off bottles dating back
several decades before the first vintage from that vineyard was ever produced.
A raid on his Arcadia home that turned up thousands of empty bottles, corks,
fake labels, and sealing wax. Even worse, it turned out that Kurniawan had
overstayed his visa for 10 years ago and was in the country illegally.
Downey’d been tracking him for years, and had
counseled auction houses not to take his wine. She’d come across faked bottles
in her previous life as a restaurant manager and sommelier, and then some of
Kurniawan’s bottles as an auctioneer.
Downey is making money with wine in yet another way
besides the various parts of the value chain we've already reviewed in class.
Her consulting firm, Chai Consulting,
provides authentication and wine collection management services. The latter
consists of essentially acting as a wine librarian, cataloging and organizing
thousands of bottles that are often simply piled in every extra square foot of
space in a wine cellar. Chai Consulting also runs the website WineFraud.com, which acts as a sort of
club continually updating its members on counterfeiting-related developments,
as well as tips on how to check certain wines for fraud.
Reading about Downey, I also got a sense of the vast
marketplace that exists for wine that you would expect for any high-value, rare
product -- there are appraisers, auctioneers, insurers, etc. If someone else
wants to take the ball and research these, it might make for a good next blog
post!
Links
Saturday, January 23, 2016
Wine locker facilities - a super-cool concept
As we continue to refine our palate over the course of this quarter, we are no doubt aspiring to someday boast a collection of wine from the different regions on which we'll be presenting for our mid-term papers. But let's be honest: in-house, temperature-controlled wine cellars are hard to come by for most, let alone us graduate students.
Someone recently mentioned the concept of wine locker facilities: self-storage facilities where one can store cases of wine until ready to retrieve them for particular occasions. For our classmates with interest in real estate, it seems to me as though this is an excellent concept for properties in areas where the demographics are closely aligned with the profile of the typical wine consumer / collector but where it's unlikely that homes can accommodate wine cellars (i.e. no need for such a facility in East Hampton). This type of property blends retail and industrial concepts, and of course generates recurring, lease-like revenue streams. One might even bundle this with concierge services, i.e. a wine locker valet, an in-specialist who can advise you on which of your wines to pair with a particular occasion's food, etc.
I came across one such facility near us in San Carlos: K&L Wine Merchant. They have a tiered pricing system based on the number of cases that you store with them. Don't get too excited though: apparently there's a waiting list!
Source:
https://www.klwines.com/Company/WineLockers
Someone recently mentioned the concept of wine locker facilities: self-storage facilities where one can store cases of wine until ready to retrieve them for particular occasions. For our classmates with interest in real estate, it seems to me as though this is an excellent concept for properties in areas where the demographics are closely aligned with the profile of the typical wine consumer / collector but where it's unlikely that homes can accommodate wine cellars (i.e. no need for such a facility in East Hampton). This type of property blends retail and industrial concepts, and of course generates recurring, lease-like revenue streams. One might even bundle this with concierge services, i.e. a wine locker valet, an in-specialist who can advise you on which of your wines to pair with a particular occasion's food, etc.
I came across one such facility near us in San Carlos: K&L Wine Merchant. They have a tiered pricing system based on the number of cases that you store with them. Don't get too excited though: apparently there's a waiting list!
Source:
https://www.klwines.com/Company/WineLockers
Gay vs. straight alcohol consumption
We've explored demographics of wine drinkers in the class, age-wise, gender-wise, income-wise, country-wise, and education-wise. However, I was still curious to hear about the actual statistics around a phenomenon I had observed in my life, the differential drinking habits of gays versus straights in both genders. I do think this bears significant relevance to the business sphere, as advertising is becoming increasingly targeted (particularly as technology enables advertisements to be tailored for small or even single-person audiences). I've noticed alcohol companies courting sexual minorities by pledging political support, marching in parades, and doing gay-themed advertisements. Also, should wine providers behave differently to straight bars than to gay bars?
According to http://www.statista.com/statistics/250039/sexual-orientation--preferred-drinks-of-gay-lesbian-and-straight-americans/, the biggest difference between any two of the four groups (gay men, lesbian women, straight men, straight women) is actually between straight men and lesbians. Over 50% of lesbians said that wine was a preferred drink, compared to only 30% of straight men. Gay men were a little below 50%, and straight women were close to 40%. In short, gays of either gender consider themselves much more wine-positive than straights of either gender. A similar dynamic exists for champagne and sparkling wines, though with lower levels for all of the groups. For those of you who suspect that this is a matter of gays earning more money, I would refer you to Nathan McDermott's article "The Myth of Gay Affluence" in the Atlantic. There may be an issue of more disposable income in a group that has fewer children to take care of, though.
Still, what makes them more likely to choose wine? Is there a group reinforcement or validation around certain hedonistic-leaning items in a tightly networked sub-population? Is there less consideration of how others might judge what you drink, or perhaps more? If wine is a stereotypically feminine drink, what does it mean that lesbians are the biggest proponents?
59% of heterosexuals describe themselves as current drinkers, while 75% of gays and lesbians say the same (http://www.thedailybeast.com/articles/2010/12/29/drinking-stats-who-drinks-the-most-alcohol.html). Bars, clubs, and other establishments serving alcohol have played a major role in how gays and lesbians were able to find a community in the pre-networked age, and even since the advent of mobile and social networks, they continue to be the important cultural landmarks and gathering places in the gay neighborhoods of major US cities.
I'd be curious what people think about the roots of this phenomenon, and ways in which wineries and wine providers might connect with this group commercially. I will not be offended by what you have to say -- I'm interested to learn here.
According to http://www.statista.com/statistics/250039/sexual-orientation--preferred-drinks-of-gay-lesbian-and-straight-americans/, the biggest difference between any two of the four groups (gay men, lesbian women, straight men, straight women) is actually between straight men and lesbians. Over 50% of lesbians said that wine was a preferred drink, compared to only 30% of straight men. Gay men were a little below 50%, and straight women were close to 40%. In short, gays of either gender consider themselves much more wine-positive than straights of either gender. A similar dynamic exists for champagne and sparkling wines, though with lower levels for all of the groups. For those of you who suspect that this is a matter of gays earning more money, I would refer you to Nathan McDermott's article "The Myth of Gay Affluence" in the Atlantic. There may be an issue of more disposable income in a group that has fewer children to take care of, though.
Still, what makes them more likely to choose wine? Is there a group reinforcement or validation around certain hedonistic-leaning items in a tightly networked sub-population? Is there less consideration of how others might judge what you drink, or perhaps more? If wine is a stereotypically feminine drink, what does it mean that lesbians are the biggest proponents?
59% of heterosexuals describe themselves as current drinkers, while 75% of gays and lesbians say the same (http://www.thedailybeast.com/articles/2010/12/29/drinking-stats-who-drinks-the-most-alcohol.html). Bars, clubs, and other establishments serving alcohol have played a major role in how gays and lesbians were able to find a community in the pre-networked age, and even since the advent of mobile and social networks, they continue to be the important cultural landmarks and gathering places in the gay neighborhoods of major US cities.
I'd be curious what people think about the roots of this phenomenon, and ways in which wineries and wine providers might connect with this group commercially. I will not be offended by what you have to say -- I'm interested to learn here.
Friday, January 22, 2016
Merging of alcohol distribution companies
Christine Wente's mention of merger activity among distributors piqued my interest on the topic. As it relates to the transaction that she referenced in class - namely, the recent merger between Glazer's and Southern Wine & Spirits of America - I came across a terrific opinion piece authored by Matt Kramer of Wine Spectator that he aptly sub-titles: "The delightful contradiction of American wine marketing."
In the elucidating column, Kramer acknowledges that the trend of consolidation diminishes the likelihood that wines from (smaller) producers incapable of generating sufficiently meaningful supply (by the consolidated distributors' standards) ever come to market. However, Kramer subsequently credits the 2005 Granholm v. Heald ruling (discussed in today's class related to NVL case) for facilitating D2C channels that critically give consumers visibility and access to such wines. He characterizes these as two opposing forces consistent with his chosen sub-title for the piece.
Related to the announcement of the Glazer's / Southern Wine & Spirits merger, Bacardi concurrently announced the selection of the combined entity as its distributor, abandoning Breakthru Beverage Group (a consolidated entity itself resulting from a late-2015 merger between Wirtz Beverage Group and Charmer Sunbelt Group).
Sources:
M. Kramer: http://www.winespectator.com/webfeature/show/id/52636
G. Trotter: http://www.chicagotribune.com/business/ct-bacardi-wirtz-beverage-0112-biz-20160111-story.html
S. Charles: http://chicago.suntimes.com/news/7/71/1029524/wirtz-beverage-merging-new-york-based-distributor-form-breakthru-beverage
In the elucidating column, Kramer acknowledges that the trend of consolidation diminishes the likelihood that wines from (smaller) producers incapable of generating sufficiently meaningful supply (by the consolidated distributors' standards) ever come to market. However, Kramer subsequently credits the 2005 Granholm v. Heald ruling (discussed in today's class related to NVL case) for facilitating D2C channels that critically give consumers visibility and access to such wines. He characterizes these as two opposing forces consistent with his chosen sub-title for the piece.
Related to the announcement of the Glazer's / Southern Wine & Spirits merger, Bacardi concurrently announced the selection of the combined entity as its distributor, abandoning Breakthru Beverage Group (a consolidated entity itself resulting from a late-2015 merger between Wirtz Beverage Group and Charmer Sunbelt Group).
Sources:
M. Kramer: http://www.winespectator.com/webfeature/show/id/52636
G. Trotter: http://www.chicagotribune.com/business/ct-bacardi-wirtz-beverage-0112-biz-20160111-story.html
S. Charles: http://chicago.suntimes.com/news/7/71/1029524/wirtz-beverage-merging-new-york-based-distributor-form-breakthru-beverage
UC Davis Viticulture & Enology Program
This quarter, we've heard from several people about the Viticulture & Enology program at UC Davis. I was wondering about the program (and honestly, if I could take a class), and figured some of you might be interested as well --
History of UC Davis V&E Program
http://wineserver.ucdavis.edu/
In April 1885, the Regents of the University of California was mandated by the California Legislature to establish a program for instruction and research of viticulture and enology. The program ran successfully until Prohibition, and was reinstated in 1935. UC Davis became an industry leader when it realized that the taste and quality reflected in a bottle is a direct result of quality of the vineyard, and that unlike centuries of winemaking traditions in Europe, viticulture and enology must be studied together. Today, UC Davis offers Undergraduate degrees in Viticulture & Enology, as well as Graduate degrees and a well-known Extension program.
The prestigious wine program has only around 100 graduates each year, who take math and science heavy classes in organic chemistry, sensory evaluation, and microbiology.
In 2001, Robert Mondavi donated $25M to create the Robert Mondavi Institute for Wine and Food Science (RMI) to bridge the study of Viticulture and Enology with Food and Science at UC Davis. The donation included funds for the first LEED Platinum Winery, a "12,500-square-foot winery includes a large experimental fermentation area with 152 200-liter research fermentation tanks and 14 2,000-liter fermentation tanks. There are three controlled-temperature rooms, barrel and bottle cellars, an analytical lab, a classroom and a special bottle cellar for donated wines."
Key Accomplishments of UC Davis Viticulture & Enology Program
http://wineserver.ucdavis.edu/about/timeline.html
1940s: Studies on the relationship between wine quality and climate lead to recommended grape varieties for specific regions.
1950s: Introduction of modern sanitation to winemaking eliminated widespread vinegar contamination of wine.
1960s: Introduction of sterile filtration to the California industry eliminated many post-bottling problems; increased the market for table wines.
1980s: The first standardized lexicon for wine was born with the Wine Aroma Wheel.
1990s: DNA fingerprinting techniques revealed the parentage of Cabernet Sauvignon, Pinot noir, and other varieties; TCA assay developed to measure and avoid cork taint
Viticulture & Enology Courses Available to the Public (!!!)https://extension.ucdavis.edu/subject-areas/viticulture-and-enology
Wine apps - can they monetize users and the database?
In light of the NVL case and a conversation with Gabrielle after Wednesday's class, I was thinking about the value of new wine mobile apps, and how they have or have not been able to monetize users. The two apps I'm most familiar with are Delectable and Vivino.
Delectable was co-founded by an alum of both Palantir and Goldman Sachs. It's an Instagram-like interface where a user takes pictures of a wine bottle, the app automatically (though sometimes incorrectly) picks up the wine (producer, blend/varietal, vintage, etc.), and then the user rates it on a 40 point scale of "not for me" to "love it". The app has a scrolling feed in which users can follow friends or sommeliers, and like and comment. Vivino came from a serial entrepreneur and has been around a bit longer. Its interface is a more akin to Facebook, with news stories and offers mixed in to the feed. Its rating scale is less robust with 5 stars and halves; but, it does have a cool feature where a user can scan a wine list and see users' ratings of all the wines on the list.
I'm interested to see where both of these apps go towards monetizing users. Both apps have buy options through the app - in the Delectable UX, the payment experience is through Delectable's interface while Vivino connects to an online wine store through the phone's browser. Delectable has also launched a new product, Banquet, which functions purely as a mobile wine buying app rather than a a rating/tracking app (but the interface displays wines' ratings on Delectable). I haven't purchased from Vivino but I have purchased twice from Delectable. Once, I received an email as part of a beta program where Delectable recommended three bottles of wine based on my ratings, and they paid for shipping. And I purchased from Kermit Lynch, through Banquet, again as part of a free shipping promotion. This curated content was valuable to me, but not nearly as much as if I lived in a less wine-drinking part of the country. While I've enjoyed all four bottles I've purchased, they were based on recommendations that I could have gotten at K&L or Beltramo's by my house. If I didn't have access to good wine stores, I might be more willing to pay shipping, which I viewed as the incremental price of the curated content. I'd also expect there to be a positive correlation between areas of the country where consumers would be amenable to mobile wine apps and areas of the country with good physical wine buying options. A final problem I noticed was that when Kermit Lynch fulfilled my Banquet order, the bottle came with a business card of one of the merchants, an invitation to their wine club, and an offer to curate more bottle selections if I called or visited - not exactly great for Banquet's model that the merchants can quickly convert the customer relationship.
In any case, I'll be interested to see where these apps go, and how, if at all, they manage to monetize their existing user base and database of wine ratings.
Delectable was co-founded by an alum of both Palantir and Goldman Sachs. It's an Instagram-like interface where a user takes pictures of a wine bottle, the app automatically (though sometimes incorrectly) picks up the wine (producer, blend/varietal, vintage, etc.), and then the user rates it on a 40 point scale of "not for me" to "love it". The app has a scrolling feed in which users can follow friends or sommeliers, and like and comment. Vivino came from a serial entrepreneur and has been around a bit longer. Its interface is a more akin to Facebook, with news stories and offers mixed in to the feed. Its rating scale is less robust with 5 stars and halves; but, it does have a cool feature where a user can scan a wine list and see users' ratings of all the wines on the list.
I'm interested to see where both of these apps go towards monetizing users. Both apps have buy options through the app - in the Delectable UX, the payment experience is through Delectable's interface while Vivino connects to an online wine store through the phone's browser. Delectable has also launched a new product, Banquet, which functions purely as a mobile wine buying app rather than a a rating/tracking app (but the interface displays wines' ratings on Delectable). I haven't purchased from Vivino but I have purchased twice from Delectable. Once, I received an email as part of a beta program where Delectable recommended three bottles of wine based on my ratings, and they paid for shipping. And I purchased from Kermit Lynch, through Banquet, again as part of a free shipping promotion. This curated content was valuable to me, but not nearly as much as if I lived in a less wine-drinking part of the country. While I've enjoyed all four bottles I've purchased, they were based on recommendations that I could have gotten at K&L or Beltramo's by my house. If I didn't have access to good wine stores, I might be more willing to pay shipping, which I viewed as the incremental price of the curated content. I'd also expect there to be a positive correlation between areas of the country where consumers would be amenable to mobile wine apps and areas of the country with good physical wine buying options. A final problem I noticed was that when Kermit Lynch fulfilled my Banquet order, the bottle came with a business card of one of the merchants, an invitation to their wine club, and an offer to curate more bottle selections if I called or visited - not exactly great for Banquet's model that the merchants can quickly convert the customer relationship.
In any case, I'll be interested to see where these apps go, and how, if at all, they manage to monetize their existing user base and database of wine ratings.
Thursday, January 21, 2016
Hollywood and Wine Consumption: The Sideways Effect
The 2004 film "Sideways" (an adaptation of a novel by Rex Picket) follows two middle-aged men on a trip to wine country in Santa Barbara, CA. Protagonist and wine connoisseur Miles well-spoken and has a highly sophisticated knowledge of and taste for wine. He is accompanied by his friend Jack, who is clueless about wine and comically delivers phrases such as "tastes great" and "pretty good" to describe the wines. In watching the film, I related to Jack but sought to learn from Miles' worldliness.
Throughout the film, Miles sings the praises of Pinot Noir, describing its flavors as "just the most haunting and brilliant and thrilling and subtle". However, Miles is not as complimentary towards Merlot. In a key comedic moment near the film's climax, Miles declares about his dinner guests, "If anyone orders Merlot, I'm leaving. I'm not drinking any @#$%# Merlot!" Of all of the lines in the film, the Merlot line was by far the most memorable, for its absurdity and comedic crescendo. The film was met with critical acclaim and won the Golden Globe for Best Motion Picture and the Oscar for best screenplay, among other awards that year.
So what was the resulting impact on wine sales of the Miles' endorsement of Pinot Noir and derision of Merlot?
Researchers at Sonoma State University attempted to answer this question in a research paper published in 2009. The study concludes that the main impact of the movie was to slow the case volume of Merlot and increase that of Pinot Noir, with a similar shift in price reflecting demand for each varietal. However, the researchers concluded that the positive impact on Pinot Noir and overall wine consumption far outweighed the negative effects on Merlot sales and prices. Further, the study states that the negative effects on Merlot sales were only temporary. The researchers used annual scan data sourced from U.S. retail chains and also studies "non-Sideways" red wines, Cabernet Sauvingon and Syrah as a control group.
Despite the obvious statistical challenges for such a study, the observed impact of Sideways on wine consumption raises a few interesting points. The film was a modest independent production and had no product placement. However, the case highlights how eager the general public is to appear knowledgeable about wine, how easily customer sentiment can be swayed - and therefore how important marketing and consumer education is to wine sales. Many of our posts connecting Hollywood and pop culture with wine point to the fact that wine is a "status" good, in the same way that The Economist is (as we learned in strategy class, carrying a copy of The Economist is as good as reading it), or high-end luxury brands. An analog "status symbol" is like what the HBO series Sex and the City did for Monolo Blahnik shoes. This underscores the question raised in class of how much of our wine tastes are intrinsic and how much is influenced by status or perceived quality.
Fun fact: Either in a moment of irony or a joke intended for wine geeks, Miles' prized wine, the '61 Cheval Blanc is actually a blend of Merlot and Cabernet Franc, which is another grape that Miles derides in the film.
Sources:
http://www.winesandvines.com/template.cfm?section=features&content=61265
https://www.sonoma.edu/users/c/cuellar/econ494/SideWaysEffect-JWE.pdf
Wine Fraud
The star of last class' case - Chateau Lafite Rothschild, is one of the most counterfeited wines in the world. In this article, we can learn about the billionaires who are hopping mad about being ripped off with fake wines:
http://www.bloomberg.com/news/articles/2014-09-17/how-billionaire-bill-koch-fights-fake-wine
Rudy Kurniawan is one of the highest-profile fraudsters who was recently captured by the FBI. He manufactured counterfeit bottles of wine in his home laboratory and was said to have sold over $50 million of counterfeit wine - including to the Koch brothers, who bought $2 million worth of Burgundy from him.
Rudy Kurniawan is one of the highest-profile fraudsters who was recently captured by the FBI. He manufactured counterfeit bottles of wine in his home laboratory and was said to have sold over $50 million of counterfeit wine - including to the Koch brothers, who bought $2 million worth of Burgundy from him.
Let's get back to the Lafite Rothschild. It is estimated that 70% of all Lafite Rothschild in China is counterfeit. How is one to judge?
Anti-fraud systems have gotten sophisticated - some of these big vineyards now tag all of their bottles with an RFID tag or an NFC tag. The consumer can scan the tag with their smartphone and see that specific bottle's information from the producer. Some wineries use laser etching on the bottle. The issue with these solutions is that the same bottle can be refilled with fake wine after consumption.