Archive for the ‘Wine Sales and Pricing’ Category
Monday, November 26th, 2012
by Jeff Miller of Artisan Family of Wines (Seven Artisans, Sly Dog Cellars, Red Côte)
 As I write this, I’m a couple of hours from meeting with our possible new landlords for a tasting room and winery location. I can’t help but feeling that the whole process is set up to be an obstacle course where every advance seems to be followed by a strategic retreat.
Unfortunately, alcohol is probably most regulated industry there is, apart from things like nuclear reactor waste disposal.
In order to do almost anything in the wine industry, you need to run the gauntlet of first federal, then state, then local regulation. Each regulation viewed in isolation seems reasonably tailored to some reasonable goal. That’s not 100% true, since many regulations have no other purpose than to make the production and sale of alcohol more difficult for no good reason. And many other regulations seem more tailored to protecting the vested interests in the three-tier system than anything else. But even if you grant that most of the regulations are well-intended, in practice they become a labyrinth that at times seems overwhelming.
We started off with the desire to open a tasting room. To have a tasting room, you need to be winery. Since we’ve used another winery to make our wines, this meant we had to made to the transition to being a winery ourselves.
That wouldn’t have been too much of problem, since the law allows for alternating proprietorships. In essence, that allows more then one winery to share one physical facility. So we could have continued doing pretty much what we’ve been doing for years with the technical difference that we would have obtained an alternating proprietorship permit. That would have also allowed us to open an off-site tasting room.
But each step of the regulatory system seems to impact every other step. The county, which had initially indicated all we had to do to have a tasting room was to store some wine there as well, decided we needed to ferment some wine there too.
Only the feds don’t allow you to ferment wine at a location that isn’t a winery. So now our tasting room needs to become a winery in its own right. So much for the alternating proprietorship route.
On the other hand, the idea of having our own winery is pretty attractive. It’s been fine having our wine made to our direction. But the idea of actually making it ourselves is pretty attractive. So maybe it’s a blessing in disguise.
The county didn’t stop there, though. Originally we had intended to have our wine outside. This would have avoided some costly alternations to the interior of the building we had our sights on. But now the county wants the wine stored inside. So the improvements appear to be unavoidable.
Having to ferment onsite is costly in other ways. You need equipment, such as a crusher and press, that you wouldn’t otherwise need.
So the next step is, with the county’s requirements a known quantity (at least for now), I need to meet with the owners of the property to see if we can work out the various issues (rent, improvements, etc. etc. etc.) that need to get worked out before we can move forward.
I have little doubt that every winery that opens a tasting room has to go through a similar travail. But, as with pretty much everything else, the burden on a small winery is greater. The costs and work are similar, but that cost must be supported by a much smaller operation. And a larger enterprise has access to many resources to help the process along. For us, it’s pretty much me.
I’m still optimistic I can make this happen, one way or the other. But the idea that you just rent some space somewhere and start pouring is light-years away from what you really have to go through.
Posted in Wine Sales and Pricing | 6 Comments »
Monday, September 17th, 2012
by Jeff Miller of Artisan Family of Wines (Seven Artisans, Sly Dog Cellars, Red Côte)
Most of the buzz these days in the wine business is pretty positive. Grape prices are up. The latest reports show an increase, small though it may be, in wine prices. The glut that overwhelmed our business is largely a thing of the past. The economy seems to be on the mend, albeit not mending as quickly as we’d like. But overall, a rosier state of affairs than has been the norm for a quite a few years.
But it’s amazing how all that optimism can come crashing down. Things can be going along reasonably well, and then some event forces you to take off your rose-colored glasses. Such an event occurred to me recently.
I was shopping at our local Trader Joe’s and one of the sales people recommended I try a $2.99 2009 Sonoma County Chardonnay made by Rodney Strong, but sold under the Landing Place label (you can’t find Rodney Strong anyplace on the Landing Place label, but it’s highlighted on the Trader Joe’s in-store sign). So with $2.99 to lose if it turned out to be total plonk, I laid down a five and left with a bottle of the wine and almost $2 to boot.
By way of background, I’m not a real Chardonnay fanatic. Most of them fall into one of two categories: lean (read fruit-deprived), or fat, alcoholic, oak dominated monstrosities. But my wife really likes the wine, as do the vast majority of wine drinkers, including most of our friends. So if you can find a passable Chardonnay cheap, it gets consumed in short order.
So I get home, and throw the bottle in the fridge, and a few hours later pop the cork and take a taste. Well, this is not your “passable” Chardonnay. It’s not even what is popularly called a “Best Buy”, an essentially mediocre wine that manages to outperform your lowly expectations.
No, this is one of the best Chardonnays I’ve ever had. If you’d told me it was a $30 Chardonnay, I wouldn’t have batted an eye. It’s far and away better than most $30 Chardonnays on the market. It is crisp, medium bodied, well-balanced, lacking any butter (thank God), not over-oaked, and with lots of pure Chardonnay fruit. There’s really nothing to criticize about it.
So what gives? Why is a prominent California winery blowing out one of the best Chardonnays I’ve ever tasted so that Trader Joe’s, in turn, can blow it out for $2.99/bottle?
A little arithmetic puts this question into stark relief. If at our winery we buy the cheapest bottles, use paper labels, and the cheapest corks we can find, it costs us $15/case to bottle wine. That’s not with any wine in the bottle, mind you. That’s just the packaging cost, taxes, transportation to the warehouse, those sorts of things. That works out to $1.25/bottle.
Now I have no real information on what the deal is between Rodney Strong and Trader Joe’s, but I can make some educated guesses. If Trader Joe’s is selling the wine at 2.99/bottle, they can’t be paying much north of $2.00/bottle for it. That leaves Trader Joe’s with a $1/bottle margin. From that $1 Trader Joe’s must pay for the shipping to the stores, for the floor space, and for the personnel to stock the wine on the shelves and check you out. It doesn’t take a lot of thought to realize Trader Joe’s isn’t getting rich off of Landing Place. In fact, I wouldn’t be the least bit surprised if Trader Joe’s views the wine as something of a loss-leader, just to get people into their stores.
But enough of Trader Joe’s. Let’s get back to Rodney Strong. Now I have to assume that Rodney Strong can probably bottle their wine for a little less than $15/case, since they have economies of scale and that sort of thing that a small winery like us doesn’t. On the other hand, we pay a pittance in federal wine taxes since there’s a break for small wineries in the tax code. Rodney Strong is going to have to pay full tilt, however, and those taxes are pretty steep. For under 14.1% alcohol, the rate is 1.07/gallon (Landing Place is 13.5% alcohol). Since there’s about 2.4 gallons of wine in a case, that works out to $2.56/case, or 21 cents a bottle. I would be pretty sure that that cancels out any economies of scale that Rodney Strong might enjoy. So let’s just say that Rodney Strong’s cost of packaging a case of wine is the same as ours, $15/case.
So if Rodney Strong is selling the wine for $24/case, and it’s bottling costs are $15/case, that leaves $9/case. That wouldn’t be so bad, except for one thing: Having wine in the bottle is something the consumer insists on. And our $15/case doesn’t include anything for wine.
So even if there’s nothing left over for any profit or overhead or anything else for that matter, Rodney Strong is getting $9 a case for the wine it puts in the bottle. That works out to $3.75/gallon. I’m not sure how that compares in price to Crystal Geyser, but I bet it’s not far off.
So Rodney Strong pays for the grapes (from Sonoma County no less), presses them, ferments them, and undertakes various and sundry other processing that wine is wont to. And, at the end of the day, it sells that wine for the price of water.
You don’t need to be an Einstein to see Rodney Strong didn’t make out very well on Landing Place. And that’s for an incredibly good wine.
Curious, I placed a call to Rodney Strong. I half expected that I’d get a total stonewall or, at the least, the runaround, since I wouldn’t expect Rodney Strong would be very excited to publicize this fiasco. But, to its credit, that wasn’t the case at all. The tasting room quickly transferred me to one of the persons who handles Public Relations, who transferred me in turn to Richard Larson, who talked to me at length about Landing Place. I started off the conversation by asking him how Rodney Strong could be selling off one of the best Chardonnays I’d ever had at a price that Trader Joe’s could be selling it retail for $2.99/bottle. He explained that 2009 was an odd vintage. It was a big vintage (the second largest on record, to my recollection), so there was an ocean of Chardonnay. We were in the depths of the rescission, so demand for higher priced wines just wasn’t there. If you wanted to move any wine, it was hard to do unless you were willing to bottle it up and sell it on the cheap.
I asked why they didn’t just bulk out the juice. They’d looked at that option, but in fact when they penciled things out, they did better going the Landing Place route than the bulk wine route. Since it’s a pain to go through the entire process of getting a wine processed for bottling, into the bottle, etc., etc., I have to think that the prevailing bulk price for Chardonnay in that time period was considerably less than the $3.75/gallon they made (if that) from the Landing Place project. Having sold 2009 wine at bulk myself, I can certainly attest to the fact that the bulk market was mired in the worse slump of all time. So I don’t doubt Larson’s tale of woe.
Larson did say that Rodney Strong has no plans to do this again, but, if economic conditions should repeat themselves, they wouldn’t take the idea totally off the table either. He noted that Rodney Strong has the advantage that it’s family-owned, and the family comes from a farming background. So they’re a little more inured to the ups and downs of the agricultural marketplace, and are more prepared to weather the storm than your mega-winery beholden to Wall Street traders more interested in the latest quarterly report than hearing about the vagaries of the wine market.
Finally, I asked Larson if he was concerned about the effect that Landing Place might have on the Rodney Strong brand, and why Rodney Strong hadn’t cut a deal with Trader Joe’s that its name not be used. He said he wasn’t privy to the details of the deal between Rodney Strong and Trader Joe’s, but assumed that Rodney Strong hadn’t restricted use of its name by Trader Joe’s, or else Trader Joe’s wouldn’t be putting the Rodney Strong name front and center. But he didn’t feel that Landing Place cheapened the Rodney Strong brand since, first of all, Landing Place and not Rodney Strong was on the label (even the producer is identified as Healdsburg Cellars rather than Rodney Strong). And Rodney Strong had done a good enough job building its brand that this shouldn’t hurt it.
So there you have it. A world-class wine on the shelf at Trader Joe’s for $2.99/bottle. Obviously, if the entire wine industry had to work off these numbers, the entire industry would be bankrupt.
So maybe we should take all this buzz about how things are improving with a grain of salt. Or maybe we should just go out and buy a few cases of Landing Place and drown our sorrows away.
Posted in Wine Sales and Pricing, Wine Tasting | 2 Comments »
Sunday, September 9th, 2012
by Jeff Miller of Artisan Family of Wines (Seven Artisans, Sly Dog Cellars, Red Côte)
I’ve always liked Champagne, even if it’s not my favorite wine (not being red).
So I was pretty amazed, even astounded, to read the recent post on Palate Press (http://palatepress.com/2012/09/wine/alternate-bubbles-expected-to-unseat-champagne/) on the sharp decline in Champagne sales: “In 2007, prior to the current global recession, Champagne sales topped $1.5 billion (USD), compared to the just over $1 billion they are projected to hit this year.” That’s an incredible decline.
I don’t think this really reflects a decline in the sparking wine category, as much as a retrenchment to lower priced forms of bubbly. But does this represent a permanent trend, or something that’s merely a reflection of the Great Rescission?
I think it’s a little bit of both.
Part of it is that Champagne isn’t quite the monopoly of quality sparking wine that it once was. There was a time that I really couldn’t find anything from anywhere else that was really comparable. I would say that Champagne is still the gold standard when it comes to sparklers—but it’s not head and shoulders above the rest as it once was.
Even though Champagne isn’t my favorite wine, I’ve tasted quite a bit of it over the years. I think the best I’ve ever had was a Charles Krug. It cost $125 a number of years ago. I have to admit that part of the allure of this wine was that I didn’t pay for it. As a matter of fact, when it comes to premium Champagne, I’ve tasted quite a few, but never had to pay for even one.
And I think that’s a big part of Champagne’s problem. I may love to drink it, but paying for it an altogether different matter. The best of it is damn expensive. A great way to celebrate making a killing in the dot.com frenzy. Not nearly so apt to get through the money-challenged last few years. If you’ve just made a few million, then what’s $125 or even twice or even three times that when it comes of celebrating? If you’re struggling to make your mortgage, Charles Krug is probably not on your shopping list.
The second part of Champagne’s problems is that it’s not quite so preeminent as it once was. Outside of Champagnes, my favorite bubbly is the L’Ermitage produced by Roederer from Anderson Valley in Northern California. How does it compare to the Charles Krug? It’s not as good. But it’s not that far behind either. It’s an excellent sparkler, one that would hold its own against most Champagnes, even if it’s not quite as good as the very best.
L’Ermitage generally can be bought retail for someplace in the mid-$40 range. So it’s less than a third of what the Charles Krug sold for. Am I willing to pay that extra $85 for the relatively slight extra quality that the Krug brings to the table? Absolutely not. And I think, in these times, most people would feel the same way as I do. But I think even when the economy improves, most people will still find substitutes for the higher priced Champagne offerings. Certainly, to the extent they’ve already downgraded, and are okay with what they are drinking, they are probably going to need to feel quite a bit richer before they go back to the top-line Champagnes.
I really wonder the extent to which this phenomenon is going to be reflected in the sales of other premium wine products. If you can substitute L’Ermitage for Charles Krug without undue pain, how much easier is it to substitute a non-Napa Cab for a Napa one, and save boku bucks? And, unlike Champagne, which still is the best sparkler around, I question whether Napa Cab is really superior to many other quality Cabs out there for a fraction of the price.
In the end, Napa Cabs and Champagnes share the achievement that they have established themselves as brands. But I recently read that supermarkets are expanding their private label offerings of canned goods as people are willing to sacrifice the “Heinz” or “Del Monte” label to save themselves a bit at the checkout counter. I think we’re seeing the same thing when it comes to wine—people are finding lower-priced substitutes that work well enough. And I think it’s going to stay that way at least until the economy turns around in a big way.
Posted in Wine Marketing, Wine Sales and Pricing | 12 Comments »
Monday, July 30th, 2012
I’ve previously written about the difficulties of the small distributor, particularly in light of the recession. I predicted a winnowing out as the small distributor was challenged by a movement to lower priced (i.e., mass produced) wines rather than the moderate to upper end priced wines that the small distributor lives off of. Compounding that problem was the difficulty of the small distributor in accessing financing as banks cut way back on the amount they would lend, and became incredibly stringent on their lending requirements.
Sad to say, I think most of this has been borne out. This is front and center in my mind as I review how our distributors (and by extension we) have fared recently.
It started with receiving a letter from our Washington distributor announcing that things had gone downhill for them, and they were going to file bankruptcy. That, in and of itself, wasn’t that big a concern for us, as this distributor had never moved much of our wine, and didn’t really owe us that much money.
But a month or so later, one of our major distributors went out of business. This one really hurt, both because it moved a lot of our wine, and owed us a lot of money which we’ll never see.
A third distributor has also been a sorry tale for us, but for a different reason. This distributor sold a large part of its business (not the wine part though) to another larger distributor. This reflects the consolidation in the business as bigger distributors expand and smaller ones, either out of financial stress or because they get an offer they can’t refuse, choose to sell to a larger company. This sale was probably motivated in part by the fact that the owner was getting up in years and there was no obvious means of continuing on with the business as his children (probably for good reason) weren’t interested in running a distributorship. Even though this distributor didn’t sell its wine portfolio, many of its salespeople moved on, since their livelihoods depended on selling their entire line, not just the wine. So their wines sales (at least ours at any rate, and I assume everyone else’s) plummeted.
From the small winery’s point of view, none of this is very encouraging. It takes a huge amount of time and effort to build up a following. To have that all translate into an unpaid bill isn’t what we had in mind.
Unfortunately, from what I hear, our experience isn’t unique. Small wineries seem to be bottling less than they were even a few years ago, as they struggle to find the means to move their goods.
If I tasted these wineries’ wines and found them wanting, I could understand it, but that’s certainly not the case at all. To the contrary, I think small wineries are making, by and large, the best wines they’ve every made, which are better than the offerings, at similar price points, that the larger wineries offer. But if you’re too small to get your wines reviewed, too small to attract the attention of distributors (who want to move thousands, not tens, of cases), and generally too small to get on the radar of most consumers, it’s an uphill climb to succeed through the distribution route.
Which is why many small wineries have turned to direct to consumer sales as a way out of the distribution quagmire. I think the future is going to see small wineries turn more and more to direct sales, which limits their size but allows them to remain in business. Then the large wineries, which can attract distribution, and which can afford the marketing effort that regional/national sales require, will dominate in the wholesale and retail marketplace. The medium sized winery, too large to rely on direct sales, and too small to compete against the large wineries, is probably in for a lot of trouble.
Posted in Wine Marketing, Wine Sales and Pricing | 4 Comments »
Monday, July 23rd, 2012
by Jeff Miller of Artisan Family of Wines (Seven Artisans, Sly Dog Cellars, Red Côte)
Let’s face it. Most wine is mediocre. “of moderate or low quality, value, ability, or performance : ordinary, so-so” as defined by Merriam-Webster. Not exactly bad, but just passable. Drinkable, but on the other hand, I’d be happier with decent beer.
Why is this? Certainly a part of the explanation is that, no matter how committed the winemaker is to making great wine, he’s dealing with a natural and unpredictable product. Despite the best of efforts, not all wine he makes is going to be exceptional. Some part of it will be mediocre.
But that accounts for only a small percentage of the mediocre wines out there. Sometimes I go to a movie and don’t particularly like it. But at least the director was trying to make a movie of substance; he just failed. But most mediocre movies, like most mediocre wines, don’t fall into that category. Most mediocre movies and wines were made to be mediocre.
I am constantly amazed that the big wine companies, with all their resources and know-how, can’t seem to produce wines as good as small, cash-strapped, and technology challenged wineries.
That can’t be because they don’t have the ability to make good wines. It has to be because they aren’t even trying.
Certainly many of the wines that I taste that I would call mediocre share some common traits. They are relatively thin, even vapid. No real concentration. No real character. I wonder whether they started off with mediocre grapes, and did all they could with them. Or whether they managed to strip whatever there is of interest in the grapes by excessive manipulation. Probably some combination of the two. Certainly the end result is consistent with so many other wines out in the marketplace. A sterile, uninteresting product designed, first and foremost, to avoid giving offense to any possible consumer. These wines are always clean, but boring.
Unfortunately, most of the things that make a wine good will probably offend somebody. Take tannins for example. For most red wines (Pinot Noir excluded), tannin is an essential element of what makes that wine good. Yet there are people out there who really don’t like tannins. The solution is to strip away tannins to a point where no one will object to them.
Acidity is another example. For a wine to be good, there needs to be a pretty good slug of acid in it. If not, it will be soft and cloying. But some people really don’t like acidity, so, in the quest to find a wine that no one will find objectionable, we end up with a wine that no one will find exceptional.
In other words, a mediocre wine.
Posted in Wine Marketing, Wine Sales and Pricing, Wine Tasting | 3 Comments »
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