Tag Archives: wine business

Winebits 517: Big Distributor, Big Wine, Wine.com

Big DisributorThis week’s wine news: Two of the biggest distributors in the country merge, plus Coke considers the wine business and Wine.com adds pick-up

• The big get bigger: This spring, the 10 biggest distributors in the U.S. controlled almost three-quarters of the second tier of the U.S. wine business. That means that a handful of companies touched three-quarters of every bottle of wine we drank, adding another layer of bureaucracy and cost to a system that exists nowhere else in the world. Last week, the big got bigger, when No.2 RNDC announced it would merge with No. 3 Breakthru Beverage. That means, since Breakthru bought a smaller company in July, that the top eight companies will control 73.3 percent of the second tier. And, if that’s not enough concentration, the two biggest – Southern Glazer’s and the combined RNDC – will control 55.4 percent of the U.S. wholesale market. How anyone can claim this is beneficial to anyone but the distributors is beyond me. It will reduce competition, never good for consumers, and limit choice. That’s because fewer distributors mean the ones remaining will distribute fewer wines; can someone explain to me how that helps wine drinkers?

• Is Coke returning to wine? One of the most famous failures in the wine business is Coca-Cola’s effort in the 1970s. Its brands included Sterling, but the company had little success and got out in 1984. So is Coke ready to try again? The company’s CEO said probably not, but that “Philosophically, I never say never about most things. …” Intriguingly, that company that bottles Coke in Australia is partners with the company that owns Yellow Tail, the best selling imported wine to the U.S., in the beer business.

• Let me pick it up: Wine.com, the biggest on-line wine retailer in the U.S., has tripled the number of pickup locations to more than 10,000 across the country. This includes nearly 1,000 in California and more than 500 in New York. If you order from Wine.com, you don’t have to wait for it arrive at your house; you can get it FedEx Office locations, selected Walgreens and Duane Reades, plus some Safeway, Shaws, Jewel-Osco, Albertsons, and Fred Meyer grocery stores.

10 years writing about cheap wine on the Internet: Haven’t we gotten rid of you yet?

cheap wineWine is once again about scores, overpriced wine that doesn’t deliver value, and winespeak – and haven’t we gotten rid of you yet?

This week marks the blog’s 10th anniversary – I’ve been writing about cheap wine, the wine business, and all that entails since November 2007. That I’m still here is amazing, given this is a one-man operation among the behemoths that control the post-modern cyber-ether.

But it’s even more amazing because I’m telling a story that the wine business prefers wine drinkers not know. That has been the constant over the past decade – it is once again business as usual, and the wine business’ message has remained consistently infuriating: We know best, drink what you’re told, and anyone who says differently isn’t important enough to bother with.

In other words, it’s still about scores, overpriced wine that doesn’t deliver value, and winespeak. And haven’t we gotten rid of you yet?

More, after the jump: Continue reading →

Winebits 514: Millennials and wine, investment wine, beer breasts

Millennials and wineThis week’s wine news: Millennials are not the wine business’ savior, plus some silly bits about investing in wine and breasts as a side effect of beer

• No thanks: Tim Carl writes in the wine business’ hometown newspaper that Millennials, the 20-somethings who are supposed to save the wine business, won’t: “[N]o business should expect them to be frivolous or willing to pay excessively high prices for anything they buy.” Which, of course, is the opposite of what almost every wine seer, expert, and prognosticator has been telling us since Millennials became a demographic. But Carl explains why that isn’t the case, and adds that he is tired of “many in the same generation that caused the unprecedented mess for the younger generation chastising them for their delayed ‘adulting.’ ” Couldn’t have said it better myself. Which I have, and it’s good to see someone else reject the blather we’ve been reading for so long.

• But what if I want to drink it? The Wine Enthusiast has published its list of the top 100 investment wines of 2017, and you’ll be glad to know that half the wines costs less than $100. In fact, notes the magazine, “In recent years, wine has shown to be a more stable investment than classic cars, rare art and jewelry, and has outpaced the competition in price growth.” Which makes the Wine Curmudgeon wonder why anyone would pay hundreds of dollars for a wine but not want to drink it. Still, it happens. A very good friend reports that he knew someone who had an “investment-grade” collection, but would never let anyone drink any of the wines. And, said my friend, the guy said he had no intention of drinking them – those wines were there for showing off.

• Man breasts: This is the kind of story that defines the New York Post. It warns beer drinkers that the “hops used in your favorite drink could be giving you man boobs. That’s because hops contain a high amount of phytoestrogen — a plant-derived chemical that is similar to the female sex hormone estrogen.” Who knew? I always thought it was all the empty calories, plus sitting on the sofa while drinking multiple six-packs, watching TV, and gorging on chips and pizza.

SVB wine industry report 2017

SVB wine industry reportDoes the SVB wine industry report show the next stage in the evolution of the U.S. wine business?

Are we watching the next phase in the evolution of the U.S. wine business? Perhaps, if Rob McMillan is spot on with his analysis in the annual SVB wine industry report.

As he usually is.

“Why is growth slowing?” McMillan asked during the report’s webcast on Wednesday. “It’s changing consumer demographics and patterns.”

In this, the Baby Boomers – who have fueled the unprecedented growth in the U.S. wine business over the past four decades – are officially on the wane. Though they still control some 40 percent of the U.S. market, their clout is being passed to the two younger generations. Both Gen X and Millennials are showing market share increases, and their 50 percent total has passed the Boomers (though, in wonderful irony, the vaunted Millenials drink about half as much wine as the Gen Xers). That’s the chart at the top of the post; click on it to make it bigger.

And they don’t drink the same things that their parents and grandparents do, focusing on red blends and, surprisingly, sauvignon blanc, as opposed to the traditional varietals. The red blends, which I’ve written about extensively, were the subject of much discussion and consternation during the webcast; no one was quite sure whether these younger wine drinkers would stay with red blends or switch to the traditional varietals.

The report also outlined:

• The continued bifurcation of the U.S. wine market, with the annual decline in sales for wines costing less than $9 and growth in wine costing more than $12. The study expects significant growth in U.S. wine costing more than $15.

• Increasing costs for U.S. producers – land, certainly, but also labor. How this will affect the business remains unclear, although it is one of the factors driving the bifurcation. Producers with more expensive wines can better afford to deal with higher costs.

• Increased competition for wine from craft beer and legal marijuana, and especially among younger drinkers.

• The increasing popularity of low-priced imports, and not just because of the stronger dollar. For example, there is little $10 California rose, mostly because of higher costs, but lots and lots of $10 French and Spanish rose.

Hanging over the entire discussion during the webcast was where Big Wine fits into California’s future. The report expects winery mergers to continue (and the chart in on page 39 detailing winery mergers was as depressing as it was lengthy), but didn’t go much further than that. The webcast’s participants, including several comments from the audience, seemed to imply that Big Wine would define trends in style and that it was up to smaller producers to fill in the areas that were too small or too expensive for Big Wine to worry about. Which is also depressing — letting multi-national companies decided what wine would be made.

Kunde Family Winery: Selling less wine to be more successful

Kunde Family Winery

Jeff Kunde

Want to know how much the wine business has changed and how much angst that change has caused? Look no further than Sonoma’s Kunde Family Winery, a quality producer that has long made some top $10 wines, but has decided to cut production by one-third to be more competitive.

Call it addition by subtraction, thanks to distributor and retail consolidation.

The goal, says Jeff Kunde, the fourth of the five generations of his family to run the winery, is to go from more than 100,000 cases to 70,000. That’s because 100,000 cases isn’t big enough to be big any more, but it’s still too big to be small enough to be the artisan- or craft-style producer that distributors prefer if you don’t make one-half million cases.

At 70,000 cases, Kunde says, the winery doesn’t have to worry about being in every grocery and chain in the country and fighting money-losing price wars to keep shelf space. Plus, the change will allow Kunde to focus on the more profitable parts of wine, like its tasting room sales, and direct shipping.

“Consumers are not as loyal as they used to be,” says Kunde, who was in Dallas last month to visit his distributor and make the rounds of retailers and consumers. “They don’t see the wine they buy, as much much as the see the $9.99 price. And it hurts us when that happens.”

Cutting production should also allow the winery to make better wine for more or less the same price, since it won’t need as many quality grapes. In addition, says Kunde, it wants to let consumers know about its 100-year history, that it’s a smaller, family-run business and that it’s part of “the idea that people know where their wine comes from,” says Kunde. All of this will help it do better financially by making less wine.

The wines we tasted were up to the Kunde standard. The 2014 chardonnay ($12, sample, 13.8%) was lightly oaked but with enough vanilla to be California, balanced by fresh, tart pear. The 2014 sauvignon blanc ($12, sample, 13.8%) was grassy and lemony, with a softer finish than I expected. These wines remain excellent values, and are well worth buying.

The higher-end 2014 Reserve Century Vines Zinfandel ($40, sample, 14.8%) is loaded with sweet black fruit, but it’s not cloying or overly jammy, as so many post-modern zinfandels are. In this, it’s a nice balance between the current style and wine that you get actually drink and enjoy.

Fred Franzia and the future of the wine business

Fred FranziaFred Franzia, the man the California wine business loves to hate, reminded us why last week when he spoke to the wine industry’s most important trade show. “One billion bottles of Two-buck Chuck,” he said to the audience, and I can imagine almost all of those in attendance cringing. Because the last thing the 21st century California wine business wants to be known for is very ordinary $3 wine sold at Trader Joe’s.

Still, Franzia is one reason why California is the most successful wine region in the world. His successes, whether becoming one of the first to sell competently made cheap wine like Two-buck Chuck or pioneering the Big Wine model that is the blueprint for the industry’s domination today, are indisputable. But his speech also revealed why so many in California wine who aren’t Gallo and Constellation aren’t prepared for the rest of the 21st century.

That’s because it was written through the lens of his family’s three generations of success, which was built on better winemaking technology, an unparalleled knowledge of the supply chain, and a canny insight into the Baby Boomers who transformed the way Americans drink wine. Franzia’s Bronco Wine is an example of 20th century manufacturing at its finest — give the consumer a quality product at a fair price, and make sure the retailers who sell your product make lots of money, too.

Those days are long gone. Does Apple really care about its retailers? Does Whole Foods really care about the manufacturers who supply its stores? And does Amazon really care about anyone other than Amazon? Know, too, that Amazon became the largest retailer in the U.S. and it got there without selling a drop of wine.

Yet Franzia spoke about the wine business as if none of that mattered. His talk was firmly rooted in what has been, and not what will be. He was particularly critical of the recent Silicon Valley Bank report that spoke of serious challenges facing the wine business as the Boomers age and consumption declines, dismissing the report as irrelevant because it didn’t accept the truths that he has seen over the past 50 years.

He also quoted Mel Dick of Southern Wine & Spirits, the largest distributor in the world, who has said famously that if U.S. per capita consumption was as big as the French, we’d drink 1.6 billion cases of wine a year — five times what we drink now. The catch? Besides the French wine culture, they don’t have distributors, and buying wine there is as easy as buying a baguette. Which, of course, is not the case in the U.S. That Franzia doesn’t realize that the three-tier system damps down wine consumption and is increasingly irrelevant in the 21st century is not surprising, because he still sees distributors as crucial to wine’s success as perhaps they once were.

One of my regrets in some 20 years of wine writing is that I’ve never interviewed Franzia; the couple of times an interview seemed possible, something fell through. That’s because I admire and respect what he has done, and if nothing else for his constant harping about too-high restaurant wine process. And his success with Two-buck Chuck revolutionized the wine business, something for which many of his colleagues will never forgive him.

But past success is no guarantee of what will happen in the future, and it’s not change that matters as much as how one adapts to change. And change is coming to wine, whether anyone wants to believe it or not — even if you’re Fred Franzia.

Fred Franzia cartoon courtesy of The New Yorker, using a Creative Commons license

The end of the wine business as we know it?

wine businessThe one consistency about the wine business, as we celebrate the blog’s eighth birthday, is that the big get bigger, and that there isn’t any room for the small. Or, as a distributor friend of mine put it the other day, “It’s all about consolidating or dying in this world of global megacorps.”

Gone are dozens of companies that made wine that I enjoyed — producers that were bought or folded or absorbed by other companies, many of which are also gone. Remember Hogue, which made a quality $10 sauvignon blanc in the 1990s? It was purchased by the Canadian Vincor, which was soon gobbled up by Constellation. That entire process, three complicated financial transactions worth tens of millions of dollars, took place in just five years.

The difference these days is that the big are bigger than ever, and today’s small companies used to be considered big. The 10 biggest wineries in the U.S. account for about 71 percent of all the wine sold, based on figures from 2014 from Wine Business Monthly, and this amalgamation is happening on the distributor side, too, with the 10 biggest wholesalers controlling two-thirds of the market.

Throw in consolidation among retailers, and Big Wine will soon be selling to Big Retail through Big Distributor, and a handful of companies will control what we drink — the prices, the quality, even what it’s supposed to taste like. It will be the end of the wine business as we know it.

In this, there will be two markets for wine, what economists call bifurcation (and which is happening elsewhere in the U.S. economy). In the first, called the mass market, Big Wine will make as many as four out of every five bottles sold in the U.S — competent though often overpriced grocery store plonk with little varietal character and designed to appeal to specific demographics, the way laundry detergent and yogurt are. In other words, “smooth” wine.

In the second, called the luxury market, what’s left of the traditional wine business, both producer and distributor, will sell wine costing more than $20 to people who can afford to buy it, and whose spending will keep the dwindling number of traditional retailers and small distributors in business.

The idea that wine quality has anything to do with price will be as quaint as getting a letter in the mail. Instead, we’ll buy wine because the name speaks to our lifestyle or the label pops or any of the hundreds of other marketing techniques that Big Wine uses. And why not, since merlot will taste like zinfandel which will taste like pinot noir. For $15 at the grocery store, we’ll get fruity red wine with soft tannins and chocolately oak, and the Winestream Media will give these wines 88 points and gush at the value. The wine on the luxury side may remain varietally driven; what’s the point of paying $300 for white Burgundy that tastes like vanilla extract? But since it will be too expensive for all but a few of us, we’ll never know.

Sound too depressing to be true? Just another Wine Curmudgeon rant? Maybe, but there’s evidence it’s already happening in Great Britain: “A two-class wine market is emerging in the UK as some wine drinkers splash out and others are increasingly drawn to hard discounters,” and where the amount of wine sold is decreasing, but its value is increasing. Which, not coincidentally, almost happened in the U.S. this year.

I’ve spent a lot of time over the past year trying to decide whether to keep writing the blog, given the way things are going. I’ve always been an anachronism, a wine writer who writes about wine for people who don’t know much about it, but these changes threaten to make me as useless as a typewriter. What’s the point of writing about quality cheap wine when there may not be any?

But I’m also stubborn. If all this happens, someone has to remind the wine business that they’re turning what we love into an alcoholic version of soft drinks, and that some of us want more than Mr. Pibb and Dr Pepper. So I’ll hold on for as long as I can, keyboard in hand, rants at the ready, my Gascon whites and my Sicilian reds and my crisp roses nearby, and I’ll keep repeating: “Do not go gentle into that good night. … Rage, rage against the dying of the light.”