Thursday, February 4, 2016

Two Giants Join Forces...Why You Should Care

When we hear about huge companies consolidating most people shrug. If you own stock in one, you might receive a windfall but otherwise, most people spend little or no time considering the implications. This is especially true when it comes to wine/liquor wholesalers. Consumers pay attention to wine outlets that carry their favorites but not the distributors that sell to those stores. However, this new, massive operation could affect the variety of wines you see on shelves and lists.
In the Wine Spectator, Matt Kramer wrote, "The renamed Southern Glazer's Wine & Spirits LLC will have approximately a third of the U.S. spirits and wine market in dollar terms, according to Impact Databank." You can read the rest of Mr. Kramer's article here but he addresses the concerns about small wineries being squeezed out of portfolios, or not even allowed in, due to such a wide array of wines already under one umbrella. Those neglected wineries can, and do, find smaller wholesalers to represent their products but that's only half the battle. They need to sell them to restaurants and stores and that process will be tougher after this consolidation.
One ironic effect of a wine and spirits distributor significantly growing in size is that they actually need more salespeople. With so many products in their book it is hard for any one person to know what they sell, much less be informed about the products. Even if some savant could master the specs, stories, deal pricing, etc. of the massive portfolio they would either make insane amounts of money selling to dozens of accounts or they would need to be limited to a handful in order to keep their income at a reasonable level. To avoid either of these extremes, wholesalers carve out portions of their portfolio into sales divisions and hire salespeople to represent that section of the entire book. An interview published in Shanken News Daily, quotes Wayne Chaplin, a senior executive at Southern Glazer, saying, "For many years now, we've had dedicated sales teams, both in spirits and wine, to take away clutter or conflict. We've built fine wine teams, craft teams and artisanal teams, and we'll continue to expand on that. Once Southern and Glazer's are combined, we'll have more people in the field to ensure we're representing all our products in the right way." [Here is the rest of that article].
This means a buyer who used to see two reps from Glazer's might now see five or six from the larger entity. No big deal you say? Sommeliers and retail buyers can not magically create an extra hour or two in their day to see more salespeople. What usually happens is that the smaller distributors, the ones with lots of esoteric, fun wines, lose face time with decision makers because they do not carry "must have" products. This makes it very hard, and, eventually, perhaps impossible, to sell enough wine to remain in business. The consumer loses here although he or she may never notice.
Larger companies are also selected to design and execute shelf layouts for wine and spirits in grocery and other chain outlets. For example, Kroger is now doing away with an old system and placing Southern in charge of their 'sets' [Shanken News Daily]. This means Southern will decide (mostly) what wines are represented in the store and how they are arranged. This is a big, big deal. Think many Southern Glazer products will be on the bottom shelf? Granted, chain stores are primarily outlets for mass-produced, name-brand alcohol and this will make it even harder to change that.
Mr. Kramer goes on to make the point that in many states people can buy direct from wineries or ship wines in from other states. This only works if you actually know what you want but how can you really know if you can't experience the wines first? A great way to experiment with regions or grapes unfamiliar to you is by trying some less expensive versions but would you really pay to ship inexpensive wine? At the risk of sounding like the old man on the porch griping about the planet, this continuing trend of consolidation is insidious and has bigger consequences than people realize.

Thursday, January 14, 2016

Winery Decisions that Affect the Price of Wine

The first post on wine pricing focused on the markup of wholesalers and retailers/restaurants. This article will present some of the dizzying array of options wineries face that affect the price you pay. Plenty of food for thought follows and you may be happy to only have to decide which cork to open or cap to unscrew.

The first thing you need is grapes.
Do you purchase them? Potentially cost effective, especially in large harvest years, but your sourcing might change often. This could result in a stable price but dramatically different styles from vintage to vintage.
If you purchase fruit are you paying by the ton or by the acre? Growers paid by the ton have an incentive to maximize the harvest, sometimes at the expense of the quality of fruit. Contracting by the acre means there is an incentive to provide the best fruit possible but you could end up with less of it.
Do you farm vines yourself on property you lease or own? This leads to more a more consistent style but could be costly if they develop disease or do not produce good fruit. A big shortfall could mean you need to purchase more fruit, which increases your costs, or run out of wine too fast which can cost you long-term customers.
If the land is yours, when did you acquire it? Decades ago when it was cheap or recently when costs for vineyard land have increased exponentially? Did you plant your own vines? They take a while to mature enough to produce fruit and, at least according to many, even longer to produce fruit that makes complex wines.
Are you going to dry-farm or irrigate? Dry-farming is easy...until it doesn't rain enough. Irrigation costs money but maybe not as much as missing most of a harvest because the fruit needed more water. Is irrigation even allowed in the region you are based? If not, you could suffer a total loss in extreme years.
How often will you prune, thin crop, manage the canopy (the leaves, which provide fuel for ripening and can protect from sunburnt grapes)? In general how often will you tend to the vines and fruit? All of this takes time and people and money but the more attention to detail, the better the potential result.
How often will you replant? For many varieties, zinfandel and pinot noir in particular, older vines produce deeper, richer, more complex wines. However, they produce much less fruit. Younger vines can be prolific but produce simpler wines. (Reminds me of people...)
Will you protect against frost? How will you protect against frost? Crossed fingers may not be terribly effective but if you have hillside plantings you are more likely to avoid frosts. Some wineries will bring in helicopters to hover over the vineyards a few times overnight to keep air moving and discourage the formation of frost. That's not cheap. Some use a sprinkler system which means you need to install that option.
Will you farm with an arsenal of pesticides at the ready or will you choose organic or biodynamic farming? Chemicals are not free but are often better than losing part of your harvest to pests or disease. They may also accumulate in the vineyards and make your vines less productive. This is also a risk with treatments allowed by organic farming, which eschews the use of synthetic chemicals but allows naturally occurring elements like sulfur and copper, used to control fungus on the grapes. Going organic or biodynamic (think super-organic for simplicity's sake) is potentially wonderful for your vineyard, vines and the earth, but you might have to use some non-approved solutions to save crops (this is why some wineries, even though they farm organically/biodynamically do not pursue certification which is far from free and takes time). Organic and biodynamic farming might produce less expense in chemical purchases but require lots of time and hands-on labor.
Will you cover fruit with nets to keep the birds away? Or fire intermittent shotguns or cannons to do the same? Animals, especially birds, love the fruit and they can eat a lot of it. Even worse, they sometimes eat part of a berry which then allows juice to flow which can lead to the entire bunch developing mold/rot.
Will you machine-harvest or hand-pick? Machines are wonderful and efficient but incapable of differentiating between perfect and sub-par grapes. Hand-picking should result in perfect fruit selection but is much more expensive and time-consuming. Time is often of the essence to avoid rain during harvest.
How will you sort the grapes (or control their sorting if you're buying juice)? Are you only removing MOG (material other than grapes) or are you culling slightly underripe fruit as well. More people as well as time, effort and money is required for the latter.
Will the pressing be gentle or more aggressive? Pressing grapes too hard can crush seeds and release more tannins, especially undesirable bitter ones, but would increase the volume of wine produced, potentially lowering cost.
Will you (are you allowed to) use vacuum concentrators or reverse osmosis to change the juice? The former can remove some water content, beneficial in a rainy harvest. The latter can remove some alcohol if the grapes got too ripe and fermented to a higher degree than desired. These are not inexpensive processes and many debate their effects on wine.
Once you make the wine how will you age it? Stainless steel tanks are expensive but last a long time and preserve freshness. However, they inhibit development of the wine by removing most oxygen contact. Oak barrels have a limited lifespan and cost a pretty penny, especially if you want the best sourcing. Will you air-dry the staves before having them made into barrels? This is costly but results in a more subtle influence of oak. Wines slowly evaporate from oak, but not stainless steel. Although this process is slow, it can add up depending on how long the wines sit in barrel.
Will you opt for stainless steel and add some oak staves, or chips to impart the illusion of time in barrel? This is wonderfully cost-effective shortcut but can be painfully obvious once the wine is in the glass.
Will you fine or filter the wine? Both potentially strip some of the wine's character away but will leave a cleaner (i.e. no, or less, sediment) wine in the bottle. Fining is more delicate than filtering but both cost money and time. Not doing either could result in cloudy wine that concerns customers, even if they love the taste. If they don't buy it again, that's a costly decision.
What kind of bottles will you use? There are recycled options out there that cost less but sometimes lack some clarity. Big, heavy bottles, you know the ones, give the customer the impression of importance and luxury but the bottles are much more expensive and cost more to ship.
Will you use cork or plastic corks or reconstituted corks or choose screwcap instead? Corks have a failure rate that means some customers will buy your wine and dislike it. That's acceptable if they realize it's corked and can return it but a huge risk if they dismiss your winery entirely because they thought the flaw was a house-style. Plastic corks are cheap but make terrible seals and are frustrating to get back into a bottle. You can make a perfectly round plastic cork but not a perfectly round neck of a bottle and they don't change to fit the shape like corks do. (Hint: to get a plastic cork back into a bottle, flip it after you pour the wine, so what used to be the top of the cork goes back in first, and replace it immediately after pouring, don't let it sit on the counter. This should help). Screwcaps are supposed to be free of taint but they sometimes trap air and the wines need to breathe a bit longer to smell/taste right (only a minute or two). However, some consumers still won't even consider a wine sealed in this manner. That will continue to change but, for now, the stigma persists.
Will you risk putting your wine into the cost-effective, earth-friendly bag-in-a-box or Tetra Pak? You will save lots on packaging and shipping but may have to lower your price due to the image of the category.
How will you label the wine? Fancy paper with a logo designed by a famous artist? Or a simpler version with a logo from an online graphic designer that works for a song?
How will you ship the wines? Temperature-controlled rail cars, trucks and ships (reefers) are the industry standard but some producers still take the risk to save money.
Finally, who is your wholesaler? Are you distributing through a wine-focused business with knowledgable sales people or with a giant behemoth that cares more about liquor? Depending on your wine, either choice could be the best one but you better choose carefully because if your wine goes unsold long enough it might be discounted and cleared out at such a low price that your image suffers for years. I have witnessed this first hand with a winery I liked. For two years in a row their wholesaler crashed the price and sold everything at a bargain. When the new vintage was released, customers told them they would just wait for the sale. The brand still hasn't regained any significant presence in New Orleans, more than 15 years later

I will avoid discussing the building of luxury show rooms (tasting rooms) and advertising because this post is already too long and that sort of marketing is more universal whether you're selling wine, clothes or cars.

There is a lot to consider and some choices take years to be understood...and more years to correct in the wine business.
Thanks for reading, please send me some more choices I missed!

Monday, December 21, 2015

Why Your Wine Is Priced The Way It Is

While you're decking the halls and making merry you're no doubt enjoying a sip or three. Maybe you're buying bottles of wine for gifts this year (ahem...yes, please!). Ever wonder why wine costs what it costs? Pour yourself something or, better yet, have someone else do it for you, settle in and I'll help explain it.
The best article I've seen on the matter, Breaking Down the Price of a Bottle of Wine, offers a solid perspective that you should read, including the comments (they are valuable, not rants). However, I disagree with some points and feel Mr. Colman completely missed others.
He nails the winery's desire to sell as much as they can directly to the consumer because they retain all the profit. No middlemen are involved. I once worked with a gentleman from a winery who, rather glumly, announced he had sold out for the year.
"That sounds like a success story these days, why do you sound unhappy?"
"Because nearly all of it went through distributors," he replied. "We actually lost money."
That may be a bad business model, where you sell out and don't turn a profit but it illustrates, brilliantly, the importance of direct sales.
Mr. Colman's math on distributor markup is inaccurate (based on my experience) and makes them look greedy. He shows a 75% markup for the wholesaler, based on the stated $19 cost to them and the subsequent $33 price from them. However, the FOB (freight-on-board, incorrectly written in the article as "free on board") price is the cost, per bottle, to buy the wine from the winery. Then the wine needs to travel. Temperature controlled trucks and refrigerated containers (reefers) are more expensive but much better for the wine. It's been a while since I have priced transport specifically but a safe assumption is between $1.00 and $2.00 per bottle just to get the wine to the distributor (this would include state taxes, duties, handling or consolidation charges, etc.). Factoring in even the lower end of that scale means that the markup drops to about 65%, a significant change which would be a dream for most wholesalers.
Sometimes, if your timing is good, and you buy enough, a wholesaler might hit a 50% margin, but generally, and I reiterate, this is based on my experience, the margins are 25-35%. (See comment #3 on the linked article, from Berndog, for some confirmation). Wholesale deals for volume in retail or special by-the-glass prices for restaurants means another 10% (or more) off that relatively lean figure. In Mr. Colman's article the price offered from the wholesaler would be more like $26-$28, not $33.
Then you need to account for retail and/or restaurant profits. Mr. Colman posits "that each tier will mark up the wine by 50 percent." If retailers achieved 50% markup, I would be one. I tried to be one even though the usual margin is closer to half what Mr. Colman claims. It is hard to generalize about wine because volume deals can allow bigger percentages and more ubiquitous wines might need to be priced at much lower numbers to remain competitive. While some retailers choose to price their wines as "loss leaders" to get people in the door with the hope they will buy larger margin items, like furniture, or become loyal shoppers, in grocery stores, for example. By law, in Louisiana, no one is allowed to sell alcohol below the minimum 6% markup. However, after credit card charges, that results in about 4% profit, until you consider the staff needed to stock and run the department. Typical retail on the wine in Mr. Colman's article would be $32-$38. Perhaps, if there was little coming to the market, the price might edge up a few more dollars.
Restaurants, to the surprise of no one, are a different story. First of all, restaurants traditionally employ a cost structure versus of one based on markup. Instead of taking the cost and multiplying it by 1.XX, with the Xs being the desired markup percentage, restaurants take the cost and divide it by their desired cost percentage. A $7.50 wine cost with a 35% markup is retailed at $10.12, perhaps rounded down to $9.99. A $7.50 wine cost in a program running a 35% cost would be on a list for $21.42 - rounded to $21 or $22, or, more likely, $25 or even $30 to accommodate some higher end wines being offered below their strict percentage price. The system allows for some wiggle room, usually making the lower end wines much more expensive and lowering some higher ends. The best system is when the sommelier/buyer uses his or her brain to offer some more reasonable prices on unusual wines (often that pair beautifully with the menu) while making more profit on "brand name" wines. I applaud this approach heartily but I am willing to poke around and try some wines others avoid.
Many restaurateurs cover the cost of the bottle by selling one glass, even though there are five in a bottle. This is approximately a 21% cost or more than a 400% markup.
This leads to the fantastic (and, perhaps, depressing) quote from Bo Barrett (winemaker at Chateau Montelena) in the linked article. Bo says, "In a restaurant, the person who brings the wine to the table, uncorks it, and pours it can make more in tips than we do at the winery." This is akin to the usher making more than the director. Or the valet over the car designer.
I hope this helps you understand the price on the bottle of wine you are debating about buying for the holiday gathering or Aunt Gladys.

In my next post I'll share some of the decisions that need to be made at the winery level that affect price. You will think about wine pricing differently.



Tuesday, November 17, 2015

Wine Lists: Does Size Matter?

Yes, size matters, let's get that our of the way immediately. Having to slog through a weighty, leather-bound, encyclopedic list is far from ideal but so is perusing a wispy one-pager that leaves you crossing your fingers hoping there might be more options on the other side.
I will never forget when my family dined at Picasso in Las Vegas shortly after it opened in 1998. The Bellagio-based restaurant features actual Picasso artwork and has a view of the fountains that help make the hotel famous. Be careful if you go, I nearly knocked a painting off the wall just taking my seat (before any alcohol was served).  It also offered (offers?) a massive wine list. Since my family always sends the list my way, I decided to take a leisurely look, hours before the reservation. Being an avowed wine geek, I wanted to find some good bottles that would make everyone happy. Even with the assistance of being able to ignore a large portion of the list due to pricing, it took me a while to make selections. I can not imagine having to do this while a crowd eagerly glanced at me and their empty glasses.
That is, at least partly, why the 'mine is bigger than yours' approach to wine lists has mostly gone the way of the dodo. Unfortunately, the pendulum has swung too far in the other direction. All too often these days I feel like I'm settling when ordering wine rather than feeling excited. At a recent dinner, the wine list offered only two Pinot Noirs. One under $50 from Oregon and one above $80 from California. Your selection is made if you have a budget and want Pinot Noir. While this simplifies things immeasurably for the diner, it makes pairing a wine with the food much more challenging. Of course you can find pleasure in drinking wines that may not match perfectly with the food but how much are you willing to spend for that experience?
I believe many casual restaurants are losing sales while congratulating themselves on holding costs and inventory in check. These establishments count on customers ordering wine even when they do not find something just right. If the wine list doesn't excite me, maybe a glass is enough. Perhaps the beer list is more interesting. Or maybe no alcohol hits the table at all. The biggest risk is that diners do not return after a disappointing visit.
Trying to find the perfect Goldilocks middle is not an easy task. Trying to satisfy wine geeks, people on a budget, people who need to show off and those who only buy brand names can quickly get out of control. Twenty wines is too little and twenty pages is too much, though I would much prefer the latter than the former. There is no right number of choices but it is quickly obvious which restaurants have dedicated buyers/sommeliers and which ones are ordering what their wholesalers recommend. The first step toward a successful wine program is to have a wine program.

If you want to read more on this subject, here are two good articles.
A great perspective from Jamie Goode, sharing a wine drinker's point of view. 
For a detailed read about this subject from a different point of view, read this longer piece from Imbibe Magazine, written by Jennifer Fiedler. She interviews a sampling of sommeliers, including Amanda Smeltz from Roberta's in Brooklyn, where they do things wonderfully differently and offer a superb selection.





Thursday, September 10, 2015

Another Way to Select a Wine

People use points, recommendations, price and labels to decide which wine to buy. I rely mostly on past experience but sometimes, interviews and marketing quotes play an important role in finding brands I want to support.

Often wine discussions revolve around whether you want to buy (and drink) a corporate brand or something more independent. The approach I'm talking about today, however, is completely focused on large production wineries, no artisanal products here.
I regularly read Shanken News Daily, put out by Marvin Shanken of the Wine Spectator, because it brings me information about the business of alcohol: wine, beer and spirits. Some of my favorite reading involves interviews and discussion of expanding brands. One of my favorite quotes (featured in an earlier post, read it for more about why this struck me) is "Our first goal was to add new wines and new styles." That had nothing to do with having a great wine that didn't fit in the current portfolio but was all about feeling the need to invent to keep things fresh. That might be okay if you're rolling assembled parts off an assembly line but wine doesn't work like that. You can't just conjure quality grapes out of thin air.
Treasury Wine Estates' CEO Michael Clarke acknowledged that in another Shanken News by saying, "Mother Nature is your partner." (See the whole article here). However, he also says scalability can come from "sourcing breadth." That's marketing-speak for buying grapes for the brand that are outside of current sources. While this is not inherently concerning, perhaps the new source is next door or shares similar characteristics. It might also mean a new wine will be added to the portfolio which won't change the current offerings. In my experience, it means finding some cheap stuff to increase volume without compromising quality so much that consumers notice.
With all of that in mind, this quote is delightfully refreshing, "We're always mindful of what the next opportunity might be, but it's not part of our culture to throw out a lot of new products and see what sticks...We focus on doing what we do best." Hallelujah! That comes from Sam Bon, national sales manager for Bogle Vineyards, in an interview with Shanken News Daily. Bogle produces some really solid values that often get overlooked until you actually try them. The labels aren't flashy but the wines are well made and they produce (and sell) a lot of them. Their projections say they will sell 2.5 million cases in 2015. The Chardonnay and Petite Sirah are the best varietals offered, in my opinion, but don't be afraid to try anything they produce. When sales managers talk like that, it is good news for the brand and, ultimately, the consumer, i.e. you and me.

Add on: While binging on Breaking Bad, I found this scene which has Walter White and Jesse Pinkman celebrating a cook with a bottle of Bogle! Perhaps this is not the ideal marketing exposure for the winery but I thought it was worth this postscript.




















Friday, August 7, 2015

Riedel: Plenty of Glasses, Not Enough Humor

One of my favorite wine writers is the HoseMaster of Wine. Skewering all comers with puns and fantastic plays on words, he has great insight into the world of wine and amuses me regularly. Satire and sarcasm drip from his virtual pen and no sane person would confuse these posts with actual reporting. A guest post on Tim Atkin's site poking fun of Georg Riedel and his company's insane devotion to specificity and diversity in the glassware they produce. Apparently, Mr. Riedel did not find the post funny and his legal team has delivered a threatening note to HoseMaster. How you can't find humor in someone poking fun at you when you produce 20 different cabernet/Bordeaux glasses and sell single stems for more than $150, is completely beyond me.
I have spent my time around wine helping people relax and enjoy wine while Riedel has expanded their selection exponentially, adding a level of pomposity that wine does not need. Add in the price and their propensity to shatter and it's easy to see why I no longer buy the glasses. Drink out of a tumbler, or a jelly glass or even straight out of the bottle but you don't need a varietally specific glass to enjoy the variety. Everyone likes a fine glass now and again but you can find similar products from other companies for much less money than Riedel.
I've often wondered if a serious glare would break Riedel glasses but now I wonder if a loud laugh might...Apparently they're safe in Georg's house since he seems to lack a sense of humor.

Thursday, July 23, 2015

NxNW: Good Wine, Amazing Label

At first glance, it's not a particularly eye-catching label, in fact, it almost looked like the back label had mistakenly been placed on the front. Further inspection showed that the label has more information than I had ever seen on a bottle. I hoped my reaction to the liquid inside lived up to my excitement about the details on the outside.


The bottle came to my family this summer as a gift from my cousin's boyfriend and we meant to open it while he was here but it got lost in the crowded, delightful mayhem that is our Fourth of July. It took me less than a day after returning to Maine to twist the cap and dispense the contents. 
A hint of sweet wood on the nose led to deep red and black fruits on the nose and palate. The black fruit was more dominant but didn't overwhelm the red. In fact, as the wine opened up, warm raspberries emerged on the nose. Tannin was evident, as you would expect with a cabernet sauvignon blend, but the overall impression was a great balance between lushness and firmness. The finish featured lovely notes of violets and made me want more. I hate to trot out the old "iron fist in a velvet glove" description (often used for Volnay) and it's a bit grandiose for this wine (perhaps) but it does give an adequate impression of the style. The tannins gently remind you that the wine wants food. It's kind of like a well-behaved, hungry child on a road trip...persistent but not difficult or whiny. I was happy to have a glass, grateful for the gift and interested in more!
[Note: There are at least two different versions of this wine produced from the same vintage. My bottle blend and information (pictured above) is different than the website image. Both versions might be enjoyable but I think you should be aware, just in case. More on this later.]
The wine is very good, but it's the label that really prompted me to write this. Kudos to King Estate for this innovative packaging idea. The amount of information that is provided is almost overwhelming, especially when you compare it to the dearth of detail on all too many wine bottles. They identify the vineyards, soils, blend, process and aging. Whether or not you think this is great or confusing, one should always appreciate the business that openly displays their methods. Fast food corporations would never share as much, nor would bulk wine producers. However, even high end producers don't offer all this information on the label. I applaud the effort and hope lots of other people do as well.
The information shared is less important when you produce from the same vineyard and same grapes every year but when one vintage produces two very different wines (that could legally have exactly the same label), it is nice to see the details. Too many consumers find out the hard way that the blend and sourcing changed mid-vintage when they don't like a wine as much as they did a few months ago. The percentage of merlot moved from 17 to 10 percent and one had malbec, while the other did not. 
Again, bravo to King Estate! Thank you. When you're proud of something it makes it easy to tell people about the ingredients and the sourcing. This bottle is clearly one to brag about.