The booming of Japanese Whisky

Japan always comes with its own class, no matter food or spirits. For whisky, they used to have a very humble beginning. Japanese whisky production generally follows the methods originally developed in Scotland. However, do not be misled into thinking that Japanese whisky is a mere impostor. There are several differences, which set apart Japanese whisky into a class of its own. As with many other foreign-born creations, Japan has in a way, taken a blueprint and added its own flair to create a unique product that is commendable in its own right. In some ways, the East-West connection has come full circle, as Scottish producers have adopted certain techniques developed by Japanese distilleries. There are a number of ways in which Japanese whisky production veers from its traditional Scottish roots. Variations in ingredients, equipment, and method produce whisky that, while bearing a resemblance to its predecessors, is distinct spirit characteristic of Japan.

Prepare to change the way you think about whisky when you sip the Yamazaki single malt on the rock in an exclusive & decent Japanese whisky bar. The pursuit of perfection is important in Japanese culture. It can take eight long years to become a sushi chef. It takes at least three to master the tea ceremony. If you want to drink whisky highballs the Japanese way, what you really need is the right-size bubbles in the right kind of soda water, and it’s useful to have an ice-making machine that freezes the water extra slowly to produce huge, translucent blocks of ice as clear as a pond in a Zen garden. 

Besides, they also seemed to create the brand new image for whisky, unlike scotch’s masculine, sophisticated and boldness; Japanese whiskies are more delicate, pure and fresh, feeling like exploring a crystal world of subtle emotions, this distinctiveness shows especially in their commercials. Take an example of Yamazaki’s single malt ad:

https://www.youtube.com/watch?v=M4InJWVVuRE

http://japanistas.com/en/archives/59095 

http://www.afr.com/lifestyle/food-and-wine/wine-and-spirits/spirited-away-by-japanese-whisky-20140508-itvbe

Millenials Leading a New Wine Revolution?

A recent article declared that the meatpacking district was leading the wine revolution across America. With interest in pricing and economics, amongst regional variety combined with a fantastic tasting experience. "As the cocktail scene across the country has grown geekier, more ingredient-driven, more hipster, and less friendly, the area of town that was so bound to mixed drinks has consciously uncoupled, and taken up a new fling with wine."

This makes sense when Millenials drank 160M bottles of wine in 2015, and an average of 2 cases/person/year or 3 glasses/sitting. Baby Boomers account for 30% of all wine consumed in America. We are the "silent generation" of wine drinkers. But apparently not so silent after all. 

http://ny.eater.com/2016/3/7/11175150/wine-meatpacking-district

The Business of Growing Grapes

Throughout the class we’ve talked about a number of businesses like Cannonball Cabernet and The Middle Sister, which produce wine but do not grow their own grapes. This got me thinking, what about the opposite end of the spectrum - businesses that grow grapes and sell to brands like Cannonball Cabernet and Middle Sister (rather than making wine themselves)?

I’ve discovered that the business of growing grapes is heavily focused on the vineyard site and reputation of the land where the grapes are grown.   The origin of grapes is important because winemakers are able to justify a premium price for their wines if the grapes are sourced from desirable locations like Napa Valley (for Cabernet) or the Russian River Valley (for Pinot Noir).

As a result, many grape growers will target selling their grapes to either 1) bulk wine producers or 2) high-end, boutique wine labels.  In California, gapes sold for bulk wine production are typically planted in central California. If you’ve ever made the drive from LA to San Francisco, you’ve likely seen rows and rows of unmarked vineyards planted for bulk wine production.  For these grape growers, low prices and high yields are valued over the quality of the fruit.

On the flipside, there are a number of high-end grape growers that have top winemakers vying for the opportunity to buy their grapes. These ‘premium’ grapes are so in-demand that winemakers will often include the name of the ‘premium’ vineyard on their wine label. 

Hirsch Vineyard: Sonoma Coast

One of the most notable Pinot vineyards is the Hirsch Vineyard, located high on a ridge on the Sonoma Coast, 2.5 miles from the Pacific Ocean. The remote Hirsch Vineyard provides fruit for some of the finest Pinot Noirs in California, including Littorai, Williams Selyem, and Failla. 

Beckstoffer To Kalon Vineyard: Oakville, Napa Valley

Another source for high-end grapes is the Beckstoffer To Kalon Vineyard in Napa Valley.  Owned by Andy Beckstoffer, this site was first planted in 1868 and has long been a source of great Napa Cabernet Sauvignon. Grapes from this vineyard have historically been sold to Opus One, Paul Hobbs and other high-end Cabernet producers.  Beckstoffer To Kalon Vineyard sells their grapes for a price that’s ~5x higher than the going rate for a ton of premium Napa Cabernet.

Overall, growing grapes and selling to wine labels is a challenging, capital-intensive business. These growers are susceptible to weather risk, changing consumer tastes, and the reputation of their vineyard site.  As shown in the table below, the market price of grapes can vary drastically based on the grape varietal and the vineyard site. I find this data fascinating because it shows how much power consumer preferences have on the price of grapes.

Napa Green

In class on Friday, Ivo mentioned Napa Green, a certification I've seen but never studied. Ivo mentioned it in a critical way (in comparison to biodynamic and organic) so I thought it might be worth looking up. According to the Napa Green website, the certification is a comprehensive, environmental program for vineyards and wineries in the Valley. In order to become certified, the winery or vineyard needs to meet or exceed 20+ best practices. Its aim is to increase ecological health and reduce energy/water use/waste/pollution.

The certification was started in the late 2000s and as of mid-2015, there are 34 wineries certified and ~61,000 acres certified or pending certification. Napa Valley Vintners Association wants to see these numbers rise over the coming years. They estimate that ~100 wineries and growers in the Association currently meet the requirements for the certification. They hope all eligible members will seek certification by 2020.

After doing some google searching, I discovered that the majority of articles related to Napa Green are sponsored by partners of the program (e.g. Napa Green, Napa Valley Vintners), certified wineries, and local Napa Valley newspapers. There appears to be very little buzz about it coming from other sources. Additionally, I have yet to see Napa Green on a wine bottle (it's probably on some bottle somewhere but not readily available), although it is allowed under certification rules. Based on those facts, why are Napa growers and producers seeking this certification? Is it a genuine desire to be good environmental stewards? Are most of the requirements covered under biodynamic or organic so there's little marginal cost? Are wineries/growers hoping this becomes another signaling mechanism in the marketplace that just hasn't fully developed yet? I'd love to have someone from Napa Green explain what the market value is for its certification seekers.

Sources:
http://napavalleyregister.com/news/local/vintners-group-wants-napa-green-expansion/article_e5c6df07-f432-5aab-b78e-9915839f9630.html
http://napagreen.org/about/

Production Process / Napa Job Reports

We have spoken a lot recently about important issues concerning branding, authenticity, pricing, and distribution; however, I think I personally lost sight of some of the production ideas we discussed earlier in the quarter.  One reason (among many) that it was so great to hear from Ivo Jeramaz this past Friday was his discussion of the production process and how it relates to the company's branding and authenticity appeal.

I found it especially nice to hear how much respect and care he has for employees on the vineyard and how this relates to the wine story.  I was struck by his reference to the connection between the care a company has for its employees and the care they will have in producing the product - in this instance, the care they will have for the grapes.  As part of his story, this translates into better grapes and better wine.

My question for him focused on some of the mechanics of work (full-time vs. part-time, months of the year, etc.) and I decided to do a bit more research.  Napa (chosen given its proximity to us) specifically is enjoying some nice job growth, and has a current unemployment rate of 4.8% (vs. 5.8% a year ago), which is down from its peak of 11.4% in January 2010.  The number of people looking for a job dropped 16.7% from a year ago.  The majority of people in the region are involved in the wine industry according to the report.

http://napavalleyregister.com/news/local/unemployment-dips-in-napa-county/article_c049cbd0-4182-5392-bc1b-db46894d2877.html

The strength of the wine market has also had effects upstream on the real estate market for land and homes.  The median price of houses rose 4.7% in 2015 to $550,000 and the number of days it took to flip a home declined to 83 days, the shortest since 2005 (please see link below for source of statistics).  The strength of the economy, however, has resulted in a 10% increase in the average price of rentals over the past year.  The linked article below (where these statistics come from) raises the dual impact of the wine industry success: on the one hand, unemployment is low, new businesses are starting, and real estate values are up; on the other hand, such growth can have significant impact on those that are renters and / or low wage earners to the extent they are priced out of the market as more capital moves into the region.

http://napavalleyregister.com/news/local/napa-county-economy-shines-in/article_6bb33674-43b4-599f-bdc0-d9c8230561a3.html

Challenges for Craft Distilleries

Sitting in class on Monday sipping whiskey got me thinking about the state of craft distilleries in the US.  I know that craft beer has been exploding, but I've only ever seen 2 craft distilleries in my travels around the country

I did some research in the space and learned that while the amount of craft breweries has grown by 400% in the last decade, there are still only about 250 craft distilleries in the US.  The reason is largely due to arcane, prohibition-era rules about distillation.  These rules are still on the books largely due to successfully lobbying from the craft beer industry, which was surprising to me.  Of all parties, I would presume they would support local ventures such as this.  Instead, sensing that spirits are a substitute product and would steal market share, craft beer companies have fought hard to keep barriers to entry high.

In Indiana, my home state, there remains a law on the books that no license can be granted to a craft distiller without first holding a craft brewing license for at least 3 years.  Such a law makes entry to spirits extremely difficult.

I know that I personally would patronize both craft breweries and craft distilleries.  For wine we have Free the Grapes, maybe for spirits we need Free the Mash...

Scotch Supply-Demand Inbalance

See the below article:

http://money.cnn.com/2016/03/04/luxury/global-single-malt-scotch-whisky-drought/index.html

Per the conversation of our last class, global scotch supply is tight and dropping fast. Demand from established markets, as well as emerging markets, is simply outpacing supply of quality aged scotches. In the U.S., annual sales nearly tripled between 2002 and 2015. Asia now accounts for one-fifth of all Scotch exports, buying up a quarter of a billion bottles a year. The biggest supply constraint is aging. Macallan can greatly increase production this year, but there is a time lag associated with it because all Scotch whisky must be aged for a minimum of three years.

It's to the point where someone has launched a commodity speculation fund to purchase and hold whisky investments: "The shortage of old and rare single malt ... has already started, and it's going to get worse," said Rickesh Kishnani, who launched the world's first whisky investment fund." So if you get sick of derivatives and greek bonds, start speculating in whisky.

Spirit of Rudolf Steiner

On the topic of biodynamic winemaking, it's worth giving a bit more background on the philosophical background to the movement.

As our reading describes, the idea originated with Rudolf Steiner, an Austro-Germanic naturalist who was inspired by readings of Eastern (Asian) philosophy and literature -- particular from the Indian subcontinent -- to create his own philosophy that melded Eastern and Western elements. This "Anthroposophy" was a reaction to the mass production modernism of the 1920s in much the same way that the modernist art of his time was.

Steiner was a passionate architect, and his buildings exemplify a lot of the core tenets of the movement (see the movement's current headquarters, the Goetheneum, and its older version). Whimsical, natural, faintly eastern. You can read more about the philosophy here, but as our reading also noted it was largely focused on aligning and returning human existence to harmony with nature. In the architecture, you see that in the curves and embellishments of the stone walls, which resemble the boughs of a tree. Similarly, the furniture at Waldorf schools (the movement's educational arm) should be entirely made of carved wood. Schoolchildren all learn how to plant gardens and work with natural crafts from very young ages. Steiner based his works, which extend across epistemology, science, medicine, religion, economics, art, drama, and politics, around this principle.

Incidentally, I have a close personal connection to Steiner. He was close friends with my great-grandparents and personally named my grandmother and her siblings (with very old-fashioned Wagnerian German names...very odd). My entire Dad's side of the family all went to Waldorf schools. Let me know if you'd like to hear any stories!