Tag Archives: winery consolidation

Wine business history: The more things change, the more they stay the same

wine business historyIn the wine business, history repeats itself – and we know what premiumization, overpriced wine, and consolidation mean for consumers

Premiumization, overpriced wine, and consolidation are nothing new in the wine business. Go back 80 years, and wine business history is eerily familiar. In this, some of the earliest and most influential wine critics, including Leon Adams and Frank Schoonmaker, warned the industry about the mistakes it was making.

And I would be remiss if I didn’t quote Winston Churchill here: “Those who do not learn from history are doomed to repeat it.”

Premiumization

Schoonmaker was a wine importer and wine writer whose 1930s’ “The Complete Wine Book” might have been the first attempt to explain wine to the U.S. consumer. In 1947, in a piece for Gourmet magazine, Schoonmaker lamented what sounds a lot like what we’re seeing now:

And in the past five years we have hardly seen any real vin ordinaire (by which I mean a common, inexpensive table wine) sold in America. The humble gallon jug virtually disappeared in 1943 from our wine merchants’ shelves; instead, the undistinguished reds and whites from the mass production areas of California appeared in fancy dress at a fancy price, and elaborate advertising campaigns were launched to convince us that bottles which we used to buy reluctantly for 60 cents were suddenly worth $1.50 and were being sold us as a special favor.

In other words, $15 wine is the new $8 wine.

Overpriced wine

Adams was perhaps even more influential in his time (the end of Prohibition to the 1960s or so) than Robert Parker was in his heyday. He is usually given credit for pushing the California wine business into the 20th century; he advocated for regional wine long before there was much of it; he helped start the Wine Institute; and he wrote several of the most important wine books in U.S. history.

He also had no use for over-priced wine, and regularly urged California producers to make wine that most of us could afford:

They should be as cheap as milk. High price wines are not for daily consumption with meals. Real wine drinkers know this; most Americans still don’t.

How spooky is that quote, that it’s still so relevant today?

Consolidation

Adams also saw the dangers of too few wineries producing too much of the country’s wine, something he first warned about shortly after World War II. He explained this in a 1974 interview:

The point was mine, and I think it has stuck to this day, that the little wineries should be encouraged to exist. The larger the number of small wineries that operate in the United States, the safer the big wineries are from attack, legislative attack in particular. If the wine industry ever fell into the hands of only a few major factors, the wine industry and the whole cause of wine would be in trouble. It would be endangered. … The big wineries have never agreed with me about the need to foster the small wineries. … My purpose is to encourage the use of wine, to introduce the use of table wine, which local wineries can do. Moreover, it’s especially to the advantage of California to thus expand the wine market, because with the ideal grape-growing climate of this state, California wines will always be the best buys.”

I wonder: How many of the biggest California producers have ever read that?

Photo courtesy of Sedimentality blog using a Creative Commons license

Winebits 459: Wine mergers, grape theft, wine scores

wine mergersThis week’s wine news: More wine mergers are coming, plus thieves hit European vineyards and more about wine scores

More of the same: Two executives from the country’s biggest wine companies say that the consolidation that we’ve seen is a precursor to what will happen, driven by high wine prices, aging winery owners who want to sell, and the way the wine business works. The Press Democrat newspaper reports that the officials expect to see big companies who haven’t bought wineries yet to start doing so: At “some point there’s going to be a lot of pressure with this premiumization for them to get into the game,” said Hugh Reimers, the president of Jackson Family Wines. And, in case you missed any of the buyouts and purchases, the story highs the highlights from the past couple of years. It also warns us about a forthcoming wave of Spanish cabernet sauvignon; I, for one, will immediately go on full rant alert in case I see any of that wine.

Dirty tricks: European grape theft, whether by criminals or tourists, has become a big problem this harvest season, writes wine-searcher.com. “Due to the low harvest the grapes that have survived the frosts and the storms in spring are reported to be of high quality and, for that reason, more attractive to thieves. Police have also been on horseback patrol in the Champagne region during this year’s harvest in order to prevent thieves targeting the precious grapes.” German tourists in northern Italy have also been stealing grapes.

Stupid scores: South African wine writer Tim James has had enough of scoring systems, concluding that “Perhaps we should just abandon the whole scoring nonsense. What a good idea!” Who am I argue with him? James’ conclusion, reached during a discussion of the various scoring systems – 100 points, 20 points, and 10 points, as well as five stars – will be familiar to regular visitors here. His point? “The mind reels at the inevitable confusion and communication failure in all this.”

Winebits 452: Wine advice, consolidation, liquor law

wine adviceThis week’s wine news: Why wine advice sometimes goes astray, plus winery consolidation and more silly liquor laws

Way more than I need to know: Should wine be chilled? That’s a fair question, and one I get a lot. But does it need 700 words for the answer? I mention this not to be snarky, but to point out that one of the most common complaints I get is that the wine business makes wine too complicated. And writing almost 700 words about something that can be answered in three or four sentences is just one more example of that problem. How are we going to convince ordinary wine drinkers, who might buy couple of bottles a month, that wine is fun and that they should drink more if we can’t explain wine to them in simple, direct language? And, to add insult to injury, the piece in the link includes a recommendation for orange wine.

Fewer and getting bigger: The mainstream business press has picked up on winery consolidation, and this article from Forbes does a good job of explaining what’s going on. It even focuses on the importance of distributor consolidation as part of the winery buyouts: “With better, more robust representation of specific appellations and regions under one ownership umbrella, larger groups of wine brands with the same ownership become more attractive to large distributors looking to expand their own portfolios.” In other words, the new big is about getting bigger, since it benefits both Big Wine and Big Distribution.

What was your address again? No, the U.S. isn’t the only country with odd liquor laws. Right, Canada? “An Ontario winery no longer has to keep its location a secret after a tribunal ruled against the province’s wine authority.” The story details why the winery couldn’t put its address on its website until the ruling, which involves the a specific Canadian example of enforcing appellation regulations.

Big wine companies and wine quality, part I

This is the first of two parts looking at consolidation in the wine business and the rise of the giant producer — a smattering of which dominate the U.S. wine business. Today, a look at size and why it matters. Part II, posted on Dec. 14, offered advice on how to tell which multi-national made the wine you like.

A handful of giant companies produce as much as 90 percent of the wine sold in the U.S., contrary to what most of us think. We still believe that wine is made by families and small companies, fighting the good fight, and the wine business has been perfectly happy to let us enjoy that myth.

That ?s one reason why the biggest producers, like E&J Gallo, The Wine Group, Bronco, and Constellation, rarely put their names on their various brands, even though the practice is quite common among other consumer goods companies. S.C. Johnson, for instance, labels its cleaning products (which include Glade, Shout and Pledge) with the slogan, ?SCJohnson, a Family Company. ?

Is big bad in wine? The answer requires ducking insults and dodging hyperbole, and even then it ?s not necessarily clear. I may drink more grocery store wine ? the staple of the big producers ? than anyone in the world, and I ?m grateful that it is better made and of a higher technical quality than ever before. But does that mean it ?s “quality” wine, or that big is better?

Size and the influence of big companies has become an issue in wine over the last several years. The biggest wine companies have become bigger and gained more market share, buying out well-established independents in the process, and smaller and family-sized companies have seen the recession eat into their business.

About one-third of the 30 biggest U.S. producers in the first WineBusiness.com listing in 2003 are gone, either sold or merged into another company. And big is often not big enough; witness Constellation ?s purchase of Mark West this year, in which the Mark West boss said the 600,000 case winery was too small to compete in the modern marketplace — and Mark West was the 20th biggest producer in the U.S. this year.

Meanwhile, the man who runs Australia ?s Treasury Wine Estates, a US$1.74 billion company whose brands include Beringer, Chateau St. Jean, Lindeman ?s and Stags ? Leap, said in an interview that the aforementioned myth needs to be put to rest. ?[S]ize matters, but it matters only because of what it enables us to do, and that is to make better, higher quality, wine. ?

The family wineries were quick to strike back, citing the big companies ? slavish devotion to the bottom line, and an Australian trade group was even more vehement: ?However, the iconic wines that we focus on, and the sacred sites that they hail from, are what helps to alter the perception of Australian wine as only industrial and helps to raise the acknowledgement of quality.”

The truth, of course, is somewhere in the middle. There are small wineries that make wine that is as boring as anything a multi-national churns out; terrific wine is made by the super-premium labels of the biggest companies; and wineries of any size can make bad wine. To confuse matters even more, two of the biggest producers in the world, Gallo and Casella (which makes YellowTail), are family owned.

It’s also worth noting that the biggest wineries transformed several non-wine parts of the business for the better. They were the first to hire women in responsible positions in a business that had traditionally been male from the vineyards to the wine room to the front office. Their economic clout, meanwhile, has revolutionized the wine supply chain, allowing them to use grapes from anywhere in the world for their grocery store wines, lowering prices and benefiting the consumer.

In this, my concern with the giant producers is not about quality, but marketing. They ?re so good at the latter ? as good, in some ways, as marketing giants like McDonald ?s and Procter & Gamble ? that it almost doesn ?t matter what ?s in the bottle. Does anyone buy Cupcake, owned by The Wine Group, because it ?s ?quality wine Of course not. They buy it because it has a cute name and clever writing and because it tastes smooth and fruity and maybe even a little sweet. Calling a Cupcake wine Red Velvet is close to genius, but there ?s a cynicism there that bothers me more than than whether the wine is any good.

That ?s the biggest difference between big and small. Smaller producers can ?t perform marketing sleights of hand; because they can ?t, they don ?t have the clout to warrant the supermarket shelf space the multi-nationals get. Smaller wineries have to focus on what ?s in the bottle. Their success depends on whether they produce a quality ? and not a clever ? product.

And that ?s the way success should be. I don ?t think it ?s any coincidence that brilliant marketers who have success in the long run also produce quality products. Tide always shows up on best detergent lists, which makes selling the product that much easier. Hopefully, that ?s something the wine business will eventually figure out.