Friday, August 14 2009
The Dismal Science and Wine
I sure hope he's got that chart upside-down . . .
Note: 'The Dismal Science' is a derogatory term for economics, coined in the 19th Century by Thomas Carlyle.
I was finishing up my article for the October/November issue of Winemaker magazine and I did a quick whip 'round the interwebs to see if I was on-base or out-in-left-field. The article is on saving money making your own wine (summary: yes, you can. Now you don't have to buy the magazine!) Seems pretty simple, but the results I got from looking at wine and the economy were deeply interesting (at least to someone who works in the industry and drinks lots of wine).
You want Cheval Blanc with that?First I read an AP article about fast-food joints adding wine to their menu. While it ain't McChardonnay yet (yeesh!) apparently a chain called Burgerville in the Northwest has added wine and beer to its menu boards, Chipotles Mexican grille sells beer and margaritas, and Starbucks is beginning to sell beer and wine at a pilot coffee shop in Seattle. In a tough economy many businesses look at cross-selling to increase gross revenues, and beer and wine have decent margins and good marginal contribution as well.
I doubt that Starbucks is moving in the right direction, however: I think they'll just continue their downward spiral into total irrelevance. That is, I think they will until they remember that they make money selling coffee, and the market for coffee is relatively inelastic. Seriously, the sort of wishful thinking that the proponents of unrestrained capitalism are capable of engaging in ("We can keep increasing profitability forever!") is amazing.
On another level, it's interesting to think that by having beer and wine sales in somewhat 'downmarket' restaurants, it could de-mystify wine as a food-accompanying beverage (a good thing!) and expose more people to the joy of a good glass of Shiraz with their burger, or the gentle pleasure of a glass of Sauvignon Blanc with a fish taco (sublime). The least little sidewalk joint in most European countries sells beer and wine as a matter of course, and we could use a lot more of that here in North America, to take the mystery out of the whole process of drinking and enjoying wine with meals.
Some of the other news was less positive: Chianti producers are holding back production to prop up prices. It's a definite sign of bad times when spaghetti wine is a drug on the market. But Chianti isn't in the premium category, so I'm not sure how successful production restrictions are going to be.
Even more alarming, LVMH, the giant conglomerate that includes fashion houses, luxury goods and beverage and spirits sales announced a massive wine revenue slump. According to the article,
The group, whose portfolio includes Moet & Chandon, Dom Perignon, Krug, Ruinart, and Veuve Clicquot (Champagne), Domaine Chandon (California), Cloudy Bay (New Zealand) and Chateau d'Yquem (Bordeaux), said that revenue had fallen by 17%, in a report released yesterday.
Sales at Moët Hennessy fell to €1.08bn (US$1.5bn) for the six months to the end of June 2009, compared to €1.29bn for the same period last year.
Overall, the luxury group posted first half profit losses of 23% compared with 2008.
Aye-yi-yi! It's not like I'm looking for a discount on Louis Vuitton bags, but lowering prices a little couldn't hurt–their champagne offerings are seriously overpriced for value in my opinion–I'm with Alice Feiring that Veuve Cliquot tastes more like marshmallow syrup than fine champagne in any case.
Finally, the world's largest beverage group, Constellation brands is reorganising and splitting off some business groups, and 're-aligning' distribution. According to the Australian Financial Review, their fiscal first-quarter earnings plunged 85 percent on restructuring costs while wine sales posted another drop. Ouch!
All of these things add up to a big slow-down in wine sales, part of the rich tableau of economic crazybadness that's sweeping the globe. It's enough to drive you to drink, if you can find anything on the shelves.
But it's not all bad news! Eric Asimov over at NYT's blog The Pour speculates that the economic downturn could actually affect the flavour of California wine. The As notes that consumption is actually up slightly on the recession, but that's because people are drinking more of the cheap stuff, leaving the $100+ bottles Napa Cabs (and the $80 Pinots and $60 Zins) to languish, while they guzzle $7 'fighting varietals' and suchlike.
Other than Veblen economics there's no reason for a bottle of table wine to cost $150. The whole idea of 'supply and demand' dictating prices rather than cost-of-production-plus-reasonable-markup makes the good socialist in me fume: selling an item for five to ten times the cost of production is good work if you can get it, but you can only get it on the backs of conspicuous consumers forcing normal folk (such as me, gripe, gripe) out of the fine wine market.
From mighty oaks do nuts make wine . . .But the germ of good news here has to do with oak. Loyal readers will know that I think the craze for heavily oaked wine is, well, crazed. The true magic oak barrel ageing is the symphony of biochemical activities that occur inside the barrel, reductive reactions, polymerisation, not to mention the concentration that occurs as water and wine evaporate at the same rate, leaving behind concentrated wine flavour. The vanilla, toast and tannin notes that oak gives are only a fashion, a fad. My own (personal, prejudiced, cranky-pants) opinion is that some winemakers pursue the Chateau Plywood style to pander to people who are reassured by simple flavours that are easily identified. Also, certain incredibly famous critics are unable to taste any wine of subtlety, so if you want to earn one of their 90 point ratings you need to juice up your wine with barrel time.
Not that kind of toast
But top quality oak barrels cost over a thousand bucks a piece, and that cost has to be passed on in the cost of the wine. A thousand-dollar barrel will hold 300 bottles. Add $3.30 to the direct cost of Chateau Plywood, double or triple that to maintain margin percentage on the wine, add the distributor markup on total cost, retailer markup and taxes, and that barrel is adding a huge amount of cost to the end consumer. In a time when people are searching for value-priced wines, it's not a sustainable strategy. So we should see less oaky wines, (either from barrel ageing being used on only a portion of the batch or older barrels being used over again) and more unoaked wine coming down the pike.
And for those of us who are less than fond of drinking wooden wine, that's at least something good coming out of these times.
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