Archive for the ‘Wine Sales and Pricing’ Category

The perpetual problem

Monday, September 1st, 2014

jeff-smby Jeff Miller of Artisan Family of Wines (Seven Artisans, Sly Dog Cellars, Red Côte)

While going through my posts for the week, I came across this one from SVB On Wine:

Oversupply and a Bubble Forming. Now What?

While the gist of the post is how to deal with a situation of oversupply (the suggested best course of action is to cut your losses early), I want to talk here about the nature of the problem to begin with.

Most businesses that produce a product can make some reasonable prediction about demand and adjust their production accordingly. Agriculture in general, and winemaking in particular, are in the unfortunate situation that nature dictates their production, at least in the short term, irrespective of demand.

So we are constantly struggling with oversupply and undersupply. When the great recession hit, it had a negligible impact on overall wine consumption (although a significant impact on pricing). But we were hit with what seemed like a never ending series of bountiful harvests which the industry struggled to offload. The combination of excess supply and tepid demand was a killer.

As things started to recover, we were hit with a series of short harvests. If we could have flipped the situation, we would have, but nature does not give us that option.

Now we have had two large harvests and are probably looking at a third. We may get grapes than we neither need nor want, but somehow they need to go away.

So what do you do? Taking the industry as a whole, SVB on Wine’s outlook is probably pretty fair. If you have too much, in one way or another you need to discount it to blow it out. Unfortunately, unless that results in an increase in demand, it’s basically a race to the bottom. Not a happy situation. The winners of the race are none too happy. The losers are even less happy still. But that is the situation of individual producers who have little choice but to match their competition.

As a small producer with primarily direct to consumer sales, all of this is not nearly as much of a concern. The difference in production may not be enough to really impact things all that much.

Of course, the person who takes the brunt of all this is the farmer. The winery probably has some wiggle room to buy more or less grapes unless it is locked into contracts which require their purchase. However, most contracts have maximums which protect the winery to a great extent. But the farmer has no such protection.

If the farmer is in a prestigious appellation, such as Napa Valley, he is not in nearly the predicament of a lesser appellation, or a farmer who must sell his product as California appellation. Since there is only a limited ability to process so much wine, all Napa Valley grapes will get processed. Each more prestigious appellation will bump the less prestigious until those at the bottom of the pecking order may have no place to go. That has happened in the past, though I don’t know if it is happening more recently. There is some capacity to absorb larger production, but then, as I say, it results in oversupply which creates its own set of problems.

For the large scale producer, which may be looking at a world market, overproduction in one place can get balanced out by shortage in another. But that only goes so far. And over the long term, the only solution for overproduction is ripping out vines, which in fact has been happening on a large scale in Europe. In the long run, that is probably a good thing as supply and demand are brought into better balance, and the grapes removed from production are of lower quality.

But short of being able to control nature, the problem of alternating over and undersupply is not going to go away. It is a problem built into the business, and, unfortunately, introduces unpredictability in everything that we do.

Is there just enough wine, or too much, or not enough?

Monday, May 26th, 2014

jeff-smby Jeff Miller of Artisan Family of Wines (Seven Artisans, Sly Dog Cellars, Red Côte)

There has been a lot of ink spilled over where we stand as far as wine grape supply. The latest, and perhaps the most intelligent, look at this problem is a recent post in SVB on Wine, “ Supply 2014: Is it Too Much or Not Enough?”  It is definitely worth reading, and can be found at,

I am going to resist the temptation to join in in trying to figure out where we are going to stand when the 2014 harvest is in. It’s really an impossible thing to do. And I, along with pretty much everybody else, am not very good at reading tea leaves, or gazing into crystal balls.

But any intelligent observer can generalize about the problems of supply and demand in the wine business.

Our business suffers from a basic problem that cannot be remedied: demand is fairly stable, supply is not. The amount of wine that I drink depends on little other than the amount of wine that I want to drink. I would hazard to guess that you are the same. I guess I can imagine a situation where due to some cataclysmic event wine grape supply plummeted, prices increased dramatically, and I consumed a little bit less than I do now. But while I can imagine such a scenario, I don’t think it will ever happen. And even if a serious shortage did happen, I tend to doubt it would affect my drinking habits in the least.

We do inhabit a very large world. If California is in shortage, maybe Europe has a bumper harvest. But most wine is consumed near where it is harvested and made. That’s not to say that I, sitting in my California home, do not drink European or Australian wines. But the vast bulk of what I drink is from California. And I think that’s true for most people.   Even if this “balancing act” works, it works for the consumer. The farmers and wineries have a very limited ability to use European oversupply to compensate for California shortage.

Of course, things like the economy (I am thinking of the Great Recession), impact demand. I don’t think it impacts total demand to any significant degree, but I do think it affects demand at different price points. Clearly, when times are tough, expensive wines suffer as people turn to lower-cost alternatives.

But the fact remains that over time there will be years where supply is short, other years where supply is long, and other years where it is “just right”.

The one who bears the brunt of all of this is the farmer. A winery has some ability to buy more or less grapes. A consumer has the ability to buy more or less wine. But the farmer has a vineyard. Mother Nature pays scant attention to the vagaries of human existence. The vines will do whatever Mother Nature tells them to do. It can be a bumper crop. It can be a disaster.

As a vineyard manager I know once said, “a normal year is nothing more or less than the average of all the abnormal years.” If “just right” is where you want to be, most years are not going to be obliging. To some extent, one year’s bumper crop can balance out the next year’s short crop. But the “to some extent” part cannot be ignored. There will definitely be years when things are out of balance. In fact, that’s probably going to be the majority of years. And when there is an abundant supply and relatively inelastic demand, prices plummet. This, in fact, is the worst scenario for the farmer. Better a short crop with good prices than a long crop that can be sold for hardly anything.

So I don’t know how 2014 is going to stack up at the end of the day. But I do know that if 2014 is a “just right” vintage, there still will be 2015, or 2016, or whenever, when the farmer takes it in the shins once again.

Suisun Valley and Gallo

Monday, May 5th, 2014

jeff-smby Jeff Miller of Artisan Family of Wines (Seven Artisans, Sly Dog Cellars, Red Côte)

Suisun Valley, where I get most of my grapes from, and where I hope to shortly open a winery and tasting room, has long lived in the shadow of its neighbor, Napa Valley. Even though Napa Valley is not all that big, it dwarfs Suisun Valley. Where Napa Valley must have hundreds of wineries, Suisun Valley has only a handful.

One of those wineries that has been here for decades is Ledgewood Creek. So it was with some sadness and trepidation that I learned that it had been sold to Gallo, whose primary interest is in its 400 acres of vines. The tasting room is already shut down, and most of the personnel gone.

I have known several of the people at Ledgewood Creek, and have thought very highly of them both as wine people and, well, as just plain people.

As with most things that happen in life, it’s hard to point to just one reason for what occurred. Here, it was a combination of things. The patriarch of the family that owned the winery is in his 80s. Apparently, his children are not interested in continuing on. This is a common situation for small, family-owned businesses where there is no good succession plan.

But, while the issues that are particular to Ledgewood Creek are certainly part of the reasons for the sale, they take place against a backdrop of massive change in the wine business which makes it very difficult for the smaller winery to survive and prosper.

In the wine business, as in any other business, you need to sell your product. If you cannot sell your product for a price that meets your costs of production and yields a reasonable profit, then, unless you have a sugar daddy of an owner (see Napa Valley), you’re not going to make it. And that, in a nutshell, is the predicament facing most small wineries.

Over the history of the wine business, the main outlet for wineries has been distribution. You find a distributor in a state, you sell him your product, he turns around and sells it to retailers, and they sell it to consumers.

That basic structure is falling apart. The great recession hastened a process that was already signaling the demise of the small winery. For the distributor that would handle the small winery was, like the winery, small in scale. But the trend in the marketplace in our business, as in pretty much every other business as well, has been towards formations of oligopoly’s of large companies. Where once there was the local corner bakery, now there is Nathan’s bagels and Panera bread. The small corner deli has been replaced by the fast food outlet.

The small distributor of wine is a vanishing breed. They must live on smaller quantities in an environment where obtaining financing, if you are not a major corporation, is more and more challenging. The small wine retailer, the small distributors’s bread and butter, is increasingly losing market share to the Total Wines and BevMos of the world.

There is an alternative for the small winery, which is, in basketball parlance, to “go small”. What this means is that instead of trying to produce a large quantity of wine (which is still minuscule by the standards of a Gallo), you produce a smaller quantity and sell it yourself through a tasting room or your own local distribution network.

Of course, what you can sell through your own tasting room is limited. So you either need to match your production to what you can sell yourself, or bulk out a large part of your production. Bulking out, though, is a dubious proposition. The wine market seems to exist in a perpetual boom and bust cycle. When it’s in bust mode, you end up almost having to give your wine away.

So, while Ledgewood Creek had problems unique to itself, it is part of a trend where the small disappear and the big get bigger.

I don’t begrudge Gallo for doing what they do, and doing it well. But as with every corner store that goes out of business, it is hard not to feel sad when you see it go.

Why most wine is in heavy bottles with corks

Monday, February 3rd, 2014

jeff-smby Jeff Miller of Artisan Family of Wines (Seven Artisans, Sly Dog Cellars, Red Côte)

I came across the following post by the Wine Curmudgeon:

Why don’t these wines have screwcaps? which can be found at

The gist of the post is that there’s no good reason why wine isn’t bottled  in lightweight glass  and closed with a screwcap.

I’m going to answer this question  in a kind of roundabout way. I was having lunch a while back with one of our distributors. We got to talking about what it takes for a wine brand to be a success. This is how he ranked the most important factors:

1. Marketing budget

2. Packaging

3 (and a distant third at that). The quality of the wine in the bottle.

Closures and bottle style fall under the second, “packaging”, category.

The primary benefit of a screwcap  fits into category three, because it  pretty much eliminates corked wines.

Bottle weight also falls under the “packaging” category. Does a heavier bottle make the wine any better? Clearly not. In fact, does the heavier bottle have any benefit other than consumer appeal? Again the answer is no.

But if you’re a wine producer, it doesn’t make any difference how good your wine is if you can’t sell  it. And when it comes to selling wine, consumers don’t like screw caps and they don’t like lightweight bottles. You can talk about the environment all you want, or how great screwcaps are at finishing a bottle of wine. A lightweight bottle with a screwcap benefits you not at all unless somebody is willing to plunk down some cash for it.

I’ve been at this wine thing now for quite a while, and I have to admit that my view about what makes for a successful wine brand  has undertaken a 180° shift. I started off thinking that if you produced really good wine, as with the proverbial mousetrap, consumers would  beat a path to your door. I now realize that this was naïve in the extreme.

I don’t know if  our distributor is 100% correct in his view, but he might well be. He certainly far more  closer to the truth than I was starting out.

And, when you think about it for a minute, you can certainly see his point. If I’m out buying a bottle of wine in the supermarket or wine store, the chances are very good that most of the wine I pick up I’ve never tasted before. So that’s a strike against quality counting for a whole lot. Now that’s not totally fair, because I do tend to pick up  wines from producers that I’ve had good experiences with in the past. But I think I’m a lot more cognizant of producers than most consumers are. Many of my friends will comment that they tasted a  wine last week that they really liked, but  they’ve forgotten what it was. So lots of good putting a quality product in the bottle did for that producer.

I suspect the place where quality counts the most is on direct to consumer sales. At least if you’re selling to a local clientele (as opposed to tourists), I do think your repeat business is going to depend upon your buyers being happy with what they bought.  Not to mention that if the buyers are coming into your tasting room, if they don’t like what they’re tasting,  you are not going to make a sale. But when it comes to any sort of regional to national distribution, I think the quality of what’s in the bottle definitely takes a backseat to other factors.

If you doubt this, maybe you should take a good look at the products available the next time you’re in the wine section  of your super market. And ask yourself,  “By and large, is what I’m seeing in front of me reflective more of the quality of the producer or its marketing power?”

The decline of Bordeaux

Monday, January 27th, 2014

jeff-smby Jeff Miller of Artisan Family of Wines (Seven Artisans, Sly Dog Cellars, Red Côte)

While going through my weekly reading of posts, I came across this one from Steve Heimoff:

For Bordeaux, selling to Millennials will be harder than it seems, which can be found at

The gist of the post is that  Bordeaux is doing really well among the elder set, and not so well among the young.  Like the business model for any industry (with the possible exception of tobacco), it’s not so good when your main customer base is dying off. So Bordeaux finds itself in the sobering situation of being the premier wine in the world, but in decline.

So why is Bordeaux having such a hard time with the younger set? I have little doubt that, at least in part, it is, as Heimoff claims, that the elitist and pricey image of Bordeaux doesn’t  jive so well with the trendy and cutting edge.

But I have a simpler explanation which, I think, accounts for even more of the problem. Bordeaux just isn’t that good. By that, I don’t necessarily mean to say that Bordeaux is a bad wine, or, more accurately, most Bordeaux’s are bad  wines. Because most of them are not. And probably most of them are “good”  wines.

But most consumers factor in not just the quality of the wine but its price. Viewed in this way, Bordeaux doesn’t stack up that well.

Because, truth be told, there are tons of good wines in this world. Now those of you who are regular readers of this blog are probably aware that Bordeaux is not my favorite wine. But, I have to acknowledge, that like all assessments of wine, that’s my personal and very subjective opinion. I may find them, by and large, to be fruit challenged,  and endowed more with the tight green tannins  than the soft round ones that I prefer.

Bordeaux has done an excellent marketing job. It has taken what should be a negative, the need to put the  wines down for extended periods before they are drinkable, into a positive, making “being age worthy” a big plus.

But even  if you grant that the quality of Bordeaux is, by and large, pretty good, it’s hard to make the argument that a $100 bottle of Bordeaux is twice as good as a $50 bottle of wine from many other wine regions throughout the world. In fact, I think if you  pitted those $50 bottles of wine against $100 bottles of Bordeaux in a blind tasting, you would find the Bordeaux doesn’t rate any higher. I wouldn’t be surprised if in fact the Bordeaux rated  lower. After all, when you’re buying Bordeaux, in large measure your paying for the name, and not what’s in the  bottle.

There is no doubt that many name brands  have managed to survive and charge what, by all objective standards, is a price higher than their products warrant. Think Tiffany, Mercedes-Benz, Louis Vuitton. You get the idea. But there are  always newer competitors coming to market (think Lexus), which can provide a product of equivalent quality for less. The name brands survive, but market share suffers. At least Bordeaux does not have that problem, since its market share is pretty much set and pretty small.  But, then again, it’s customer base is pretty small as well.

But to a certain extent it’s fighting an uphill battle in a marketplace where consumers that are not impressed by its brand (i.e. younger consumers) are simply not going to be willing to pay the premium that Bordeaux seeks (and maybe even needs) to extract.