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Land, Kendall Jackson, land: The biggest factor in California wine prices

California wine prices

Jackson Family Estates doesn’t want to make $10 wine, but there it is.

Real estate, not foreign tariffs, determines California wine prices

Consider two wines: Both white Rhone-style blends, both from respected wineries, both speaking to varietal character and terroir, both well-made and enjoyable. One costs $24; the other costs $12. So what’s the difference?

Vineyard land prices in California. The $24 wine is Eberle’s Cotes de Robles Blanc from Paso Robles, where land goes for $30,000 to $35,000 an acre. The $12 wine is McPherson’s Les Copains White from Texas’ High Plains, where land goes for less than $5,000 an acre. Otherwise, save for a fancier screwcap on the Eberle, the wines are the same – mostly the same grapes, the same style, and the same flavors (some lime and stone fruit, very clean and crisp).

We’ve spent a lot of time on the blog over the past couple of weeks discussing the Jackson Family Estates proposal to raise a tariff wall to keep cheap imports out of the U.S. What we haven’t discussed is the role that the cost of California land plays in all of this.

More than anything, that’s why California wine prices are as high as they are. The land – even in the less famous regions like Paso Robles – can be some of the most expensive in the world. Equally as important, a lot of vineyard land in Europe — even quality land — was paid for decades ago, so the price of a bottle may not include the cost of the loan to buy the land. In some parts of California, the cost of the mortgage is the difference between a $50 and $60 bottle of wine.

And the more demand for California wine that there is, the more money people will pay for California vineyards. And higher land prices in California mean more expensive grapes and more expensive grapes mean more expensive wine. It’s that simple.

That’s because all else is mostly equal: The cost of labor, the cost of the bottle, the cost of shipping, and it doesn’t matter whether you’re in Texas, California, or France. In fact, California might have a slight edge in some production costs, since it’s the center of the U.S. wine business. So, in the end, the price of the land in determines California wine prices.

Jackson Family, like other big California producers, likes high land prices. High prices make the company more valuable. So when it says it can’t afford to make $10 wine, it’s being honest – but it’s also crying crocodile tears. It has decided premiumization is the future of wine, and it doesn’t want to make $10 wine. Smaller producers, faced with the same land price constraints, aren’t nearly as sanguine. Many have told me they see their wines being squeezed out of the market by companies like Jackson Family, who can work on smaller profit margins on an $18 bottle and undercut the smaller producers.

The irony? There’s plenty of cheap land in California to make $10 wine, which is where Barefoot, Two-buck Chuck, and much of the state’s cheap wine comes from. It’s in the Central Valley, where a ton of grapes can cost as little as $300, one-sixteenth of the price in Napa. And, in another irony, premiumization has made this land even cheaper – so cheap, in fact, that some farmers are replacing grape vines with almonds, which offer higher profits.

In other words, Jackson Family Estates could do what E&J Gallo (Barefoot), The Wine Group (Franzia), and Bronco (Two-buck Chuck) do – use Central Valley grapes to make $10 wine. But it’s easier to ask for a tariff wall and punish U.S. wine drinkers. Which should demonstrate exactly where Jackson’s interests lie, and it’s not with the wine drinkers.

Wine review: Kendall-Jackson Chardonnay 2010

The wine business doesn ?t have a national brand, in the way detergent has Tide or ketchup has Heinz. Those products are instantly recognizable, sold everywhere in the country, and seen as representative of their category.

What the wine business has, instead, is Kendall-Jackson. It ?s about the only brand sold everywhere that wine is sold, and even people who barely drink wine know Kendall-Jackson. And what was the big wine news when Barack Obama was elected president? That someone had seen K-J bottles in his Chicago home.

The chardonnay is the most ubiquitous of the Kendall-Jackson wines. It made the brand famous, and has been the best-selling chardonnay in the country for 20 years, according to the winery. Some 2.5 million cases are sold annually, which would make it the 12th biggest winery in the U.S., according to Wine Business Monthly.

The secret to the wine ?s success? Stuck fermentation, which the late Jess Jackson, who started the winery, pioneered in the early 1980s. In stuck fermentation, not all of the sugar in the grape juice is converted into alcohol during fermentation, which produces a sweeter wine.

As such, the chardonnay ($15, sample) is rarely taken seriously. Or, as issacjamesbaker wrote on CellarTracker (the unofficial wine inventory software of the blog):

?I picked this up at the grocery store just for the hell of it. The nose shows the expected buttered pear, but also some crisp green apple. The palate actually has some fresh acid, which I like. Crisp apple flavors, rounded out by some whipped butter. Not toasty at all, just pure buttered fruit. The acid on the finish keeps it balanced. This is not a serious wine, but it's very pleasant, albeit not very exciting. ?

That ?s a fine description of the wine (though ?whipped butter ? is a bit much), and is pretty much what it tastes like. What surprised me were how those flavors and qualities were so noticeable, when in most wines at this price (and I ?ve seen it for as little as $10), you have to hunt for them. This is not a shy wine.

But the tasting note is written entirely from the perspective of someone who doesn ?t think the wine is worth writing about. And that ?s the thing about K-J and its wines that always baffles me. It takes effort to make the wine taste that way year after year, because the key to grocery store wines is consistency of quality. Consumers will forgive one lesser vintage, but after that, it ?s on to the next cute label.

In this, K-J also pioneered something taken for granted these days ? the professionally made wine, produced every year without flaws or off-tastes. When I started drinking wine in the 1980s, it was all too common to find wines that were oxidized or made with unripe fruit or tainted in some way. That almost never happens anymore, and today ?s arguments about wine quality are about styles and not whether the wine is technically well made.

No doubt I wax too metaphysical. K-J and Jackson ?s successors probably don ?t care about that. What ?s a 92 in the Spectator when your chardonnay is bigger than all but 11 wineries in the U.S.?

Jess Jackson: 1930-2011

Jess Jess Jackson, who died last week, was one of the most important figures in the modern American wine business. If Robert Mondavi gave Americans a reason to love wine, Jackson gave them a wine to love. His Kendall-Jackson chardonnay is one of the most popular wines in the country, and has been almost since he introduced it in 1982.

How big a deal is the K-J Vintner's Reserve Chardonnay? That first vintage sold 20,000 cases. Today, K-J sells some 2.5 million cases of the chardonnay, which would make it alone the 12th biggest winery in the country, according to Wine Business Monthly.

Yet Jackson's death will probably elicit little of the admiration and respect that marked Mondavi's passing in 2008. One reason, say people who knew him, is that Jackson was not an easy man to get along with — something, they say, he often acknowledged. A lawyer, he liked to sue people, and that included Jed Steele, the winemaker who made that first vintage of chardonnay. He sued E&J Gallo, the biggest fish in the pond. And when, later in life he raced thoroughbreds (his horses won the Preakness twice), he sued horse people, too.

More, after the jump:

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