Rob McMillan: There are going be better quality grapes in cheap wine, even as wine prices decline.
“What’s going to happen to demand? People are still going to drink”
The good news? Rob McMillan of Silicon Valley Bank, perhaps the foremost financial analyst in the wine business, says wine can survive the coronavirus pandemic. The bad news? It’s not going to be a lot of fun during the duration.
The highlights of our conversation:
• Expect to see weaker wineries fail, as well as some grape growers who don’t have producers to buy their grapes. In this, there probably won’t be bankruptcies or foreclosures as much as there will distress sales. There are always people wiling to buy wineries, says McMillan, even in a recession, and prime vineyard prices probably won’t decline all that much.
• Wine prices were expected to fall before the pandemic hit the U.S., and the stay at home orders and layoffs will only hasten the process. In this, though, since there are too many grapes, expect to see better quality grapes going into cheap wine. One rumor? That a major $3 producer snapped up Napa Valley cabernet sauvignon at bargain prices.
• Look for more producers to try to sell their wines at mass retailers and supermarkets. The loss of tasting room business needs to be made up somehow, and retail wine sales haven’t slumped as much as some thought.
The ad misses the point of Mateus’ popularity. Why would Portugal be a selling point for the wine (and the less said about the jingle, the better)? But that it misses the point is not surprising. It is a wine ad, after all.
“Where’s that toilet paper thing that cranky guy wrote?
You’re looking for wine advice, Mafia news, and Barefoot wine (of course)
Blog traffic has rebounded since the coronavirus pandemic hit the U.S., for which I am grateful. Maybe it means we’re trying to keep our lives on a more even keel, with more emphasis on beating this thing and less emphasis on hording toilet paper.
Regardless, the blog is here for the duration. As my pal Bart Hubbuch, who lives in New York City, told me: “This thing is as real as a heart attack, and don’t let anyone tell you otherwise.” So let’s stay home, wash our hands, and keep out of sneezing range when we go to the supermarket. Because driving around out of boredom doesn’t do anyone any good. The last thing we need is more people on ventilators when there aren’t enough to go around.
Your favorite posts during the duration:
• Ask the WC 1: This seven-year-old post is the first in the Ask the WC series, and it never attracted much interest. About 10 days ago, though, people started reading it. It looks like it may be being passed around on Facebook, but I still can’t tell what makes it so unique all of a sudden.
• Barefoot wine, twice: Because Google, and discussing it further will just irritate me.
• The Mafia winery story: This post has been up for four days, and has rocketed to the top. Hopefully, I can update it.
“Damn, sold out of Game of Thrones and Downton Abbey wine.”
Pop culture wines 2020 include swimsuit models, reality shows, and pro wrestling
How could I forget to update the dumbest pop culture wines list in 2019? Chalk it up to even more wine business foolishness than usual – the 25 percent European wine tariff, the grape glut but not necessarily lower wine prices, and all the rest.
So here are the dumbest pop culture wines 2020. The list is not scientific in any way or meant to be inclusive. Talk about the headache I’d get trying to do that.
Otherwise, is there really any reason for these wines to exist?
• How did we have to wait so long for a pro wrestling wine? “Dream” Sparkling and “Nighmare” GSM, a red blend, from the legendary Rhodes wrestling family. They’re apparently sold out, so fans of the squared circle are out of luck.
Consumers have gone through a lot — and I mean a lot — of empty $3 wine bottles since Two-buck Chuck debuted 18 years ago.
Does the continuing popularity of $3 wine, which isn’t all that tasty, tell us more about the wine business than the wine business wants to know?
Five times I’ve tasted $3 wine to see if wine drinkers can survive on ultra-cheap wine. Five times, the answer has been no – and the wines have tasted worse each time I have done it. So why do these wines still exist?
Welcome to the deep, dark dirty secret of the wine business — and which is rearing its ugly head this year: We buy wine on price, and if the price is low enough, nothing else much matters. Despite all of the hoopla about premiumization and trading up, $3 wine exists because people buy it. And we buy lots and lots of it.
Trader Joe’s has sold more than 83 million cases of Two-buck Chuck since the wine debuted in 2002, about 4.6 million cases a year. That would make the Charles Shaw brand the 10th biggest winery in the country by volume in 2020 if it actually existed. And, surprisingly, that total is closer to No. 9 Jackson Family and its ubiquitous Kendall Jackson chardonnay, than almost anyone could imagine.
It’s also worth noting the success of E&J Gallo’s $7 Barefoot, which is estimated to sell $1 billion worth of wine this year, about 18 million cases, That would make it the fifth biggest brand in the country if Gallo didn’t own it. And, when we parse the data, isn’t the popularity of White Claw and the rest of the hard seltzers about price? Why would someone buy flavored spritzy water with a bit of booze if it wasn’t cheap? Like Two-buck Chuck, they’re certainly not buying it for the sensual experience.
The other thing that fascinates me about $3 wine? That its adherents take it as a personal affront when I criticize it. How can you be such a snob? they ask (and not always that politely). We’ll ignore for a moment that I may be the least snobbish person in the wine business. What matters is that they need affirmation that buying on price is OK, because that’s the exact opposite of the way the wine business works.
And in this, they miss the point of my criticism. The first rule – and really the only rule – for wine is to drink what you want, but be willing to try different things. They can drink as much crappy, thin, and watery wine as they want. What does it matter what I think, as long as they enjoy it? So should the question they ask not be what I think, but if they really enjoy it?
“It’s good to know someone is still reading my stuff.”
Go figure: Some one-quarter of wine drinkers still say wine critics’ scores and reviews are highly influential
The wine world has Instagram influencers, Facebook groups, Twitter raves, and who knows what else. So where does a traditional wine critic fit into all of this in the second decade of the 21st century?
That compares to 42 percent for friends and family and 31 percent for store employees. Interestingly, tasting wine in the store ranked highest, at 60 percent, and second highest was “wine is from country or region I like,” at 45 percent. What makes those interesting? Talk to people who do store tastings, and they’ll tell you they often don’t sell that much wine. And that we buy wine from regions we know isn’t surprising; in fact, it’s one of wine’s great problems, that people won’t buy out of their comfort zones.
The other surprise? Price didn’t matter, coming in as only the seventh most influential. The question was phrased oddly, which may account for the result: “The wine is on sale for 10 percent off or more,”
And where did those Instagram influencers rank? The survey didn’t address them specifically, but this result speaks volumes for that approach to wine marketing. “Recommendation through an app” was just 8 percent, second lowest.
The survey results, not surprisingly, skewed significantly with age. Older men cared more about scores (which is why the preferences for scores didn’t bother me all that much). Meanwhile, younger wine drinkers cared more about recommendations from friends and family.
How can we have have excess supply and declining demand, and yet still see steady wine prices? Because this is the post-modern wine business.
Somehow, we’re at a point where the laws of economics don’t matter. Too many grapes and less consumer demand, as well as an uncertain economy thanks to trade wars, the U.S. election, and the coronavirus, should mean lower wine prices. We should see $15 wines cut to $12, $12 wines cut to $10, and so forth.
“Most people in the business haven’t a clue about very basic economic principles, such as supply and demand,” one mid-size California producer emailed me recently. “The $15 to $20 ‘sweet spot’ is not so sweet anymore.”
So what is going on here? Why is the wine business defying supply and demand?
First, thanks to consolidation, we have oligopoly pricing. That is, the producers, retailers, and wholesalers control such a large part of the market that they can afford to hold the line on prices. Prices may change, but they never change all that much or for all that long. One wine may be discounted, but then it’s replaced by another one, which is then replaced by another one. Case in point was a Dallas Kroger this week, when almost nothing was priced differently than normal — even previous vintage roses.
Second, we’re seeing the after-effect of premiumization combined with untenable cost structures. So many producers spent so much money establishing their brands at $15 or $20 or $25 that they can’t “afford” to lower prices. If they do, they will “ruin” their brands. In addition, production costs are so high for so many of these producers that lowering prices means they will sell at a loss, and then their bank won’t be happy.
So what will we see instead of consistently lower prices?
Lots of dumping and heavy discounting. Some of this has been going on for months, and it was one reason why Treasury Wine Estate’s stock tanked at the beginning of February. The company either threw the wine out or sold it at deep discounts, often through non-wine outlets. One Dallas dollar store was selling $8 and $10 Beringer supermarket wines for $2.99 and $3.99 at the beginning of the year. That’s the picture at the top of the post.
Also, new, less expensive one-off wines. This happened quite a bit during the recession, and it’s one way for a producer to protect a $25 brand. They’ll sell their wine to someone else, who bottles it under a different name for $10 or $12 or $15. I’ve seen this already, too. My local Aldi is selling a “reserve” pinot noir for $10. It’s almost certainly more expensive wine that has been relabeled.
So, in the end, don’t expect your local retailer to lower prices. That would make too much sense in a business that is not much connected to reality any more.