Think this year’s wave of Big Wine buyouts was impressive? Just wait. Big Wine is only getting started.
The wine industry is going through unprecedented consolidation, and even I’m surprised — and I’m the one who predicted it. That’s because three things have made this the perfect time for companies like E&J Gallo, Constellation, and The Wine Group to snap up smaller producers the same way a small child attacks Chicken McNuggets. This is a mixed blessing for the consumer, who will get increased access to well-made wine, but at the cost of much of the wine tasting the same regardless of where it’s from and who made it:
? Cheap money. Interest rates are not just at historical lows, but have been there for almost 10 years. That makes the cost of borrowing to buy a winery so low that even those of us who aren’t M&A geniuses understand how much sense it makes. Plus, rumors of an interest rate hike this fall may have spurred this summer’s wave of buying, so that Big Wine could lock in all that cheap money.
? The biggest wine companies are preparing for a world where we buy most of our wine at grocery stores, warehouse stores like Costco, and large chains like Total Wine. This will happen sooner rather than later (if it hasn’t already), and anyone who doesn’t understand how important this is is missing the biggest change in the wine business since the end of Prohibition. Big Wine wants product to fill all those store shelves, and the easiest way to do that is to buy another winery. Could the local wine shop, with someone who waits on you, become as quaint as the corner drug store and gas stations with attendants who clean your windshield?
? The end of the family winery era in California, which started in the 1980s and did much to make California wine some of the best in the world. But wine is not immune to the laws of family business, which say that any family business that lasts past the first generation is the exception. And most of the family wineries that have been sold in the past couple of years are first- and second-generation companies. As one banker told me, there are more wineries that want to sell than anyone can imagine.
The other thing about all these buyouts? That wine, despite what so many think, is no different from any other industry, and the same kind of consolidation that has transformed U.S. business since the beginning of the century — Heinz buying Kraft, for example — will transform wine. This is a change many don’t like and even more don’t understand, but it seems inevitable.
The biggest impression from the first Wine Curmudgeon wine prices survey? That several of my assumptions about wine prices may not be true, including that prices are not a function of where in the country the store is located. Second, that wine is increasingly treated like other consumer packaged goods, where pricing is not about cost but about bringing customers into the store and serving as a loss leader.
The caveats first: I only got prices for 50 wines or so from the blog’s readers, so there is nothing scientific about this. I know better than to make that claim. But, as we repeat the exercise every year, we should be able to work our way to more prices and better results. And my thanks to everyone who participated.
So what generalizations can we safely get from this?
? Costco, if it doesn’t have the best wine prices in the country, is the standard by which other retailers price their products. It’s not news that many retailers in markets that compete with Costco match the warehouse chain’s prices, but it surprised me just how low other retailers will go. How about $7 for Smoking Loon, Ravenswood, and Mark West at a Denver-area retailer? That’s more or less the wholesale price.
? Independents don’t necessarily mean higher prices, especially in very competitive markets like New York City. One reader paid 20 percent less for the Los Dos garnacha blend in Manhattan than I did in Dallas.
? Grocery stores remain the great unknown. Raley’s, a chain in northern California, beat Total Wine and BevMo, two of the biggest chains in the country, on Michael David’s Earthquake zinfandel. Haggen’s, which aspires to be a big-time West Coast grocer, charged almost three times as much as Costco for Toasted Head chardonnay.
? Expect to pay more if the wine isn’t well-known or a Big Wine brand, or doesn’t have a powerful distributor behind it, regardless of who sells it. Bonny Doon’s Vin de Cigare rose was the same price, $15, in Dallas and the East Coast.
? Imports, and especially from France, may be a couple of bucks more than comparable domestic wines, even if they don’t offer a couple of bucks more of value. This is another example of how the French still see the U.S. as a captive market, and don’t understand that it isn’t 1976 anymore.
? Constellation buys Mark West: Constellation, the second-biggest producer in the world, has purchased Mark West, best known for its $10 pinot noir (and long a favorite here). And why did Constellation snap up Mark West, which wasn't for sale? Because it needed a $10 pinot noir, said company officials. And why did it need a $10 pinot noir? Because that's the wine consumers are buying, which says a lot about where wine prices are going. This also speaks volumes about the massive sizes that are dominating the wine business. Mark West does 700,000 cases a year, and that wasn't enough for it compete with companies like Constellation, which does 40 million, with a grocery store brand like this. The final question — what will Constellation do to the wine's quality? If its past track record means anything, price will stay the same, but quality will decline to enable it to make its margins on a $10 wine.
? More consumer-friendly labels? Caroline Henry asks that question in Palate Press, reporting on a big-time conference in London. The answer? That it ?s an increasingly popular topic, and that the industry is divided. It ?s a thorough look at something we ?ve talked about here a lot, though missing from the discussion was anyone from the biggest and most important wine producers. It ?s one thing to hold a panel about the subject; it ?s another for one of the multi-nationals who make the bulk of the world ?s wine to offer their insight.
? Wine in drug stores: Walgreen ?s, one of the world ?s largest pharmacy chains, is testing an up-scale store concept that includes expanded wine offerings. Shanken News Daily says the 25,000-square-foot store in Chicago, about twice the size of a normal Walgreen ?s, will also have sushi, a smoothie bar, and expanded fresh food. The company is looking at former Borders bookstore locations for possible expansion. If Walgreen ?s makes the decision to take this idea national, it will join a variety of other retailers, including Starbucks, who see premium wine as a way to lure high-end shoppers to their stores. Whether high-end shoppers want to buy wine at Walgreen ?s is another story.
We’re about to find out, since the housewares superstore chain has bought Cost Plus World Market, best known to regular visitors here for its usually excellent inventory of cheap wine.
Wall Street, as is its wont with any sort of acquisition, was bubbly and enthusiastic about the deal. The shares of both companies went up when it was announced, and the usual sort of biz-speak was thrown around, including the dreaded term “synergy.”
The Wine Curmudgeon, who has spent many years writing about business, always cringes when he hears that word, since it’s usually used to make a case for something where no case exists.
The big money guys, though, see the deal as can’t miss. Bed Bath & Beyond wants to get into the specialty food business, while World Market has been stumbling financially for several years and is probably better off as part of a larger company with deeper pockets. Or so the wise guys say.
But no one has explained how a company that sells coffee makers and bedspreads is going to take to selling wine. Because there are more than a few differences between the two, and I don’t think it’s unfair to ask if anyone at Bed Bath & Beyond actually understands the three-tier system.
This is no knock on Bed Bath & Beyond. It’s well run, the prices are good, and it practices customer service in a way that would make my grandfather, who ran a men’s clothing store in a small town in central Ohio, smile. I shop there regularly, and always keep one of their 20 percent coupons in my car. But wine ain’t toasters:
• What will the corporate accountants say when they discover that three-tier adds another layer of cost that they can’t get rid of? Or that, if and when they open stores in Pennsylvania and New York, they won’t be able to sell wine in them? Or that a wine that is big seller in a World Market store in Texas may not available for sale in Illinois?
• Private label wine is becoming increasingly important as retailers try to find new ways to boost margins.Trader Joe’s, one of World Market’s competitors, is largely about private label wine like Two-buck Chuck. Housewares, on other hand, is still largely about brands. That’s a difference in mindset that seems almost insurmountable.
• Regional wine. World Market, as odd as it may seem, tailors its wine inventory to local tastes. Its Hawaii stores carry Hawaiian wine, the Arizona stores have Arizona wine, and so forth. I can imagine the conversation when someone tries to explain that to the Bed Bath & Beyond corporate types, whose idea of regional is that they can sell Calphalon in all 50 states.
Hopefully, the deal will work, since I don’t want to lose a source for cheap wine. But I wouldn’t be surprised if it didn’t, and I hope the bosses at Bed Bath & Beyond appreciate the difficulty of their task.
? James Bond drinks South African wine: Yes, that's difficult for those of us who have struggled with pinotage to believe, but the most recent Bond, Carte Blanche, sees 007 seducing Felicity Willing with a bottle of Warwick's Three Cape Ladies, a red blend made with — shudder — pinotage. This is more than a bit off-putting given Bond's historical wine snobbery (see From Russia with Love), but the Bond books are now written by people who are not creator Ian Fleming, who died in 1964. And who knows what nefarious agenda the current crop of writers, editors and publishers are following?
? Making sense of wine retailing: My pal W.R. Tish has a nice piece on a wine retailing trade website about the thought process of the people who run wine stores. Writes Tish: "The challenge for merchants is how to sell wine at all price points in the new Value Age. (That ?s a good challenge to have, all things considered.) The net result is that we may finally be seeing the grip of ratings loosen in the retail marketplace as merchants come up with creative new ways to present great buys to a thirsty public."
? Are Indian wines any good? That's the question that top critic Elin McCoy asks in this interview with the man who runs Sula, one of the subcontinent's leading producers. "The main Sula style is fruit-driven, with bright acidity and little oak that seem to accompany Indian food best. I was surprised, but definitely not stunned by the level of quality." The experts have been predicting that Indian wine could be the next big thing for what seems like forever, but the wines have been difficult to find in the U.S. Maybe, as McCoy notes, all those predictions are going to come true.