I must be Dense - or Just Cheap

While perusing the Sunday ads, I came across Freddy Meyer's grocery ads. I'm always looking for something on sale to throw into my freezer for future use. Holy Bat $hit. Freddy is giving away wine. This stuff didn't get 95 in the Expectorator or win a gold medal at the Kansas Livestock Exhibition and International Wine Tasting, but it is all decent wine.

As an old winemaker, I remember the days when wine quality was based a lot on winemaking skill, not just the quality of the grapes. Those days are gone in the supermarket; although alive and well at some boutique wineries. The wines you find on the shelf today are technically perfect.

Someone once asked me, "Why doesn't Gallo make good wine?" I answered, "Because they chose not to." (Actually, Gallo does make some nice wines, but avoids the "ultra premium" market because there is no money there. Gallo has the best enologists and technology in the world and can make anything they chose to make.)

Back to Freddy. WOW! Look for the orange tags. I can have Ste. Mickey, Columbia Crest, Fetzer, Two Vines (Columbia Crest redux), Yellow Tail (all guys like a little tail now and then), or Bandit for $5.99. but wait, that's not all. If I buy six bottles, they will take off 10%. So for $32.35 (the price of one bottle of ultra-premium, hand crafted, award-winning, ultra-hyphenated, blah-blah wine) I can have six bottles which is almost a week's worth - well, more like three or four days' worth of wine.

Okay, so you are a wine snob. For $6.99 ($37.75 a week) I can get Red Diamond (Columbia Crest Redux part deux), Hogue, BV Coastal Estate, Snap Dragon, or Bear Flag.

The list goes on. I can get Cabernet Sauvignon, Merlot, Zinfandel, Riesling, Syrah, Gnarly Head (I'll take some of that!), or sparkling wine for under $10 per bottles.

I've already exposed Santa Claus, the Easter Bunny, and the Tooth Fairy. What does it take to convince you the glory days of the wine industry are over? People are now having fun drinking wine. It's great to buy a bottle for $5.99 and find it is a really good wine. If it is, you go back and stock up with a case. Oops, there goes my wine budget for one bottle of Bobby Parker's sacred wines you can't find anyway. So, if it wasn't so great. It's alcohol. What's the problem, dude?

If you see some winery whose marketing plan is to sell to 'upper end restaurants and wine shops' please refer them to this blog. They need to get a bottle of Hot to Trot. Just $8.99 at Freddy's.

The Rule of 100 or Can the Wine Industry Survive - Anywhere?

Without giving reference to this blog, I got a national rebuttal straightening me out on some facts they thought I had missed - or did I?

My chastisement was for comparing Washington grape/wine prices to California's San Joaquin Valley grape/wine prices. I suppose I shouldn't compare Washington grape/wine prices with Chile, Argentina, New Zealand, Australia, Spain, France, Italy, or South Africa, either. The bottom line is Washington wine is sold in a global market (although few wineries export) and our 700 wineries must compete with everyone - not just the boys and girls from Napa and Sonoma. The last I heard was that a paltry one in five bottles sold in the state was produced in the state.

They think Washington should be compared with Napa and Sonoma, to which Washington compares quite favorably. Not only does Washington produce a similar quantity of grapes, it produces a similar quality of grapes at more favorable prices. I can't argue with that reasoning. We should be kicking butt; but we are not. Most Washington wineries do not have California distribution where they would compete on the home turf with Napa and Sonoma. Add that to the fact that Washington wine prices do not reflect the lower grape costs.

The assumption is that things are just hunky dory in Napa and Sonoma - which they are not. Some of the most spectacular failures have occurred there. How about a $34 million investment going on the block for $11 million. Old brands have disappeared. Grapes that were begged for now go begging. There is trouble in paradise. I just don't blog about it because I am not privy to gutter talk from there.

Let's look at the price comparison. Napa, predominantly Cab I assume, sold for an average of $3,067.62 per ton. The average price for Cab in Washington was $1,297. Since Ste. Mickey's buys most of the grapes in the state, this is probably close to what they paid. At this price they are a very successful company. They also buy packaging in quantity, have a great image, and are sold nationally. Small wineries usually pay WAWGG which was $1500 or oft times a lot more for a famous vineyard. They buy clunky European bottles at exorbitant prices because the Wine Enthusiast likes heavy glass (well, they used to.) They put $.90 corks in these bottles and are self distributed. Washington cannot support 699 wineries with this marketing plan. I don't think California can support 3000 wineries either but someone else needs to weigh in on that.

Is the Washington industry a house of cards ready to collapse? Well, not all the way, but at least a few hundred. The bottom line is that unless some basic facts change, the number of Washington wineries will dramatically decrease. I've covered these points before, but will summarize them again.

1. You might sell 200 cases to your friends at $480 per case, but unless you have a lot of rich friends don't plan to expand to 2000 cases at that price point. Winery owners must keep their prices competitive or stay very small. Under $15 seems to be selling well and under $10 even better. This is the new reality. Retailers and restaurants are refusing to talk to 699 wineries individually. Getting a distributor, which means going three-tier, is becoming a necessity. Getting a distributor big enough to get in the door and one small enough that you don't get lost in the book is becoming impossible.

2. Grapes are already a low value crop as pointed out by growers. But, growers need to be aware that wineries can't command stratospheric prices for their wines anymore. Growers need to know that wineries have slim margins, too. I don't see average grape prices falling dramatically (they can't), but I do see marginal vineyards taken out and wineries demanding pricing that is closer to state average.

3. Most restaurant wine lists in Washington are still predominantly California. Until the Wine Commission can change that, our markets are very limited in the state where most of the 699 wineries sell. It's not that Washington wineries aren't trying to compete. I know of one winery that is chugging out off-branded stuff to Trader Joe's and selling a ton. Another winery has a $6 red on the shelf in Seattle. The Washington wine industry just lacks clout in the form of marketing and distribution to compete with California and the world.

Maybe these new wineries are more aware of reality than I think. Keep it small, keep it tight and keep costs under control. You will never be a rock star, rich or famous, and neither Robert Parker nor the Eric and Andy Show will make or break you. But, you can make a decent living in the wine business with a good marketing plan.

Probably what bothered this blogger the most was that I indicated the demise of wine publications as being part of the demise of the old wine industry paradigm as a whole. Can the market really support all those Advocates, Enthusiasts, Presses, and Spectators? Now that hits home.

The Rule of 100 or Can the Wine Industry Survive - Anywhere?

Without giving reference to this blog, I got a national rebuttal straightening me out on some facts they thought I had missed - or did I?

My chastisement was for comparing Washington grape/wine prices to California's San Joaquin Valley grape/wine prices. I suppose I shouldn't compare Washington grape/wine prices with Chile, Argentina, New Zealand, Australia, Spain, France, Italy, or South Africa, either. The bottom line is Washington wine is sold in a global market (although few wineries export) and our 700 wineries must compete with everyone - not just the boys and girls from Napa and Sonoma. The last I heard was that a paltry one in five bottles sold in the state was produced in the state.

They think Washington should be compared with Napa and Sonoma, to which Washington compares quite favorably. Not only does Washington produce a similar quantity of grapes, it produces a similar quality of grapes at more favorable prices. I can't argue with that reasoning. We should be kicking butt; but we are not. Most Washington wineries do not have California distribution where they would compete on the home turf with Napa and Sonoma. Add that to the fact that Washington wine prices do not reflect the lower grape costs.

The assumption is that things are just hunky dory in Napa and Sonoma - which they are not. Some of the most spectacular failures have occurred there. How about a $34 million investment going on the block for $11 million. Old brands have disappeared. Grapes that were begged for now go begging. There is trouble in paradise. I just don't blog about it because I am not privy to gutter talk from there.

Let's look at the price comparison. Napa, predominantly Cab I assume, sold for an average of $3,067.62 per ton. The average price for Cab in Washington was $1,297. Since Ste. Mickey's buys most of the grapes in the state, this is probably close to what they paid. At this price they are a very successful company. They also buy packaging in quantity, have a great image, and are sold nationally. Small wineries usually pay WAWGG which was $1500 or oft times a lot more for a famous vineyard. They buy clunky European bottles at exorbitant prices because the Wine Enthusiast likes heavy glass (well, they used to.) They put $.90 corks in these bottles and are self distributed. Washington cannot support 699 wineries with this marketing plan. I don't think California can support 3000 wineries either but someone else needs to weigh in on that.

Is the Washington industry a house of cards ready to collapse? Well, not all the way, but at least a few hundred. The bottom line is that unless some basic facts change, the number of Washington wineries will dramatically decrease. I've covered these points before, but will summarize them again.

1. You might sell 200 cases to your friends at $480 per case, but unless you have a lot of rich friends don't plan to expand to 2000 cases at that price point. Winery owners must keep their prices competitive or stay very small. Under $15 seems to be selling well and under $10 even better. This is the new reality. Retailers and restaurants are refusing to talk to 699 wineries individually. Getting a distributor, which means going three-tier, is becoming a necessity. Getting a distributor big enough to get in the door and one small enough that you don't get lost in the book is becoming impossible.

2. Grapes are already a low value crop as pointed out by growers. But, growers need to be aware that wineries can't command stratospheric prices for their wines anymore. Growers need to know that wineries have slim margins, too. I don't see average grape prices falling dramatically (they can't), but I do see marginal vineyards taken out and wineries demanding pricing that is closer to state average.

3. Most restaurant wine lists in Washington are still predominantly California. Until the Wine Commission can change that, our markets are very limited in the state where most of the 699 wineries sell. It's not that Washington wineries aren't trying to compete. I know of one winery that is chugging out off-branded stuff to Trader Joe's and selling a ton. Another winery has a $6 red on the shelf in Seattle. The Washington wine industry just lacks clout in the form of marketing and distribution to compete with California and the world.

Maybe these new wineries are more aware of reality than I think. Keep it small, keep it tight and keep costs under control. You will never be a rock star, rich or famous, and neither Robert Parker nor the Eric and Andy Show will make or break you. But, you can make a decent living in the wine business with a good marketing plan.

Probably what bothered this blogger the most was that I indicated the demise of wine publications as being part of the demise of the old wine industry paradigm as a whole. Can the market really support all those Advocates, Enthusiasts, Presses, and Spectators? Now that hits home.

Sagelands - the End of the Story

Put a fork in it, it's done. Friday, the new owners of Sagelands and Canoe Ridge called the winemaking staff together and told them to pack. As Arnold said, "You're terminated." All of the bulk wine will go to Precept Brands. There are no plans to reopen what was once the most successful tasting room in the state.

According to Yakima County records, the property still belongs to DIAGE   DIAGEO CHATEAU & ESTATE WINES and the land and building are valued at $860,250. I think this property is listed for sale, but I have been unable to verify the listing.

While I am at it, add another one to the list. An unnamed Benton County winery with vineyards in the Horse Heaven Hills is for sale for $1.5 million. Their annual sales are 5000 cases (sound familiar?) and their bulk inventory is over 16,000 cases dating from 2007. Judging from bulk wines offered in the Wine Country Classified, I would guess they have a leased tasting room in Prosser - not far from Olsen Estates. Their wines range in price from $26 to $38 per bottle. At $30 per bottle, their inventory is worth about a $5.76 million. It sounds like another case of easy money in the wine biz. But wait, that's not all. They have accolades "from Robert Parker, Wine Spectator and regional ratings, awards and accolades." Don't we all.

Following other bloggers - especially ones who secretly read this blog (More on this guy later.) - no one realizes the problems facing the Washington Wine industry - least of all the Washington Wine Commission. Yes, there are three new wineries in Zillah. If I were looking for tasting room sales, I would say these wineries are ideally situated. Getting distribution is another matter. Getting accolades, that's easy; just give away a lot of free wine plus shipping.

I'll say it again. The Easter Bunny isn't real and the goose that laid golden eggs is dead. The glory days of the wine industry are over. The American wine drinker has matured. He/she no longer needs Bobby Parker and the likes to tell them what is overpriced, unavailable and good to drink. Well-crafted wines under $20 sold through the tasting room have a chance if you are in real wine country with real vineyards around your tasting room. Don't make 40,000 gallons and hope distributors in 9 states can sell it for $30 per bottle just because Bobby Parker said it was good. If you are entering the wine business, you better have a solid business plan and know how to keep costs low - especially grape costs. Growth to 1000 cases is probably reasonable, but beyond that, you need to take market share away from someone else and that someone else might just have Napa Valley on the label. Remember, I can buy $35 cabs from the Napa Valley for $12 at Grocery Outlet.

Is Wine Tourism Dead in Washington (State, not DC)?

No, but I think we can kill it in the next couple of years if we keep trying. Blame it on the Napa Valley. Back in the early years (how early I don't know because I came on the Napa Valley scene in 1969) the Napa Valley Wineries - I think there were four - came upon this idea of enticing customers to their doors by giving free samples of their product, much like Costco does today. The wineries thrived and more people got into the game and thrived. That induced the 'get rich quick' while becoming a 'rock star' mentality to enter the wine business. Free wine tasting in the beautiful Napa Valley became a burden. First, the wineries tried to slow the visitors down by making them take a tour of the facilities. You got to see such things as, "This is our wine press (wow, that's cool, it looks a lot like my destemmer/crusher; these guys must know something I don't know)." After the tour, you received a free tightly controlled tasting of about four wines - five or six if you knew how to say 'gewürztraminer.' Over the years, people outwore their welcome by tasting but not buying. "Hey, I know where we can get $hitfaced for free. Wanna drive up to the Napa Valley?"

Fast forward, Napa Valley wineries started charging for tasting - and charging a lot. Personally, I am not against charging for tasting from a consumer standpoint. I like to go to tasting rooms around the country, check out the products, get ideas and come home. I am not really interested in buying much of the wine, most of which is way overpriced. So, my wife and I pay one tasting fee, taste the wine, say 'thank you,' and leave. Since we have paid for the sample, I do not feel obligated to buy any $hittty overpriced California wine. (We don't do wine touring in Washington because it is plain boring and the tasting rooms are just too uppity.)

Recently, my neighboring wineries have started complaining about the lack of wine tourists and at the same time they have started charging for tasting. Hummm? How did I start this blog? Didn't the Napa Valley wineries start giving free samples to entice tourists to their tasting rooms and didn't they start charging because they had too many?

American public education is a sham (I am an ex school administrator, so I know firsthand.) Obviously, they don't teach the law of supply and demand in public schools. Here is a recap for all of you under 50. If demand for your product is down, you don't raise the price of that product. If on the other hand, like the Napa Valley, demand exceeds supply, you can charge whatever.

One neighboring winery just implemented a non-refundable tasting fee. Twelve people came to our tasting room after happily parting with $60 - and not buying any wine. The next group was very unhappy and didn't taste wine at aforementioned winery. They asked the person behind the counter, "If we buy ten or eleven bottles, will you refund the tasting fee?" the answer was absolutely, "No. The tasting fee is non-refundable." These are lost customers who will never go back (nor will we send our customers to any winery that treats people this way). They told us the whole sordid story. Of course, the guilty winery is not aware of this PR debacle because we aren't' about to tell them. "Why?" You ask. It goes back to public education. They don't teach about Napoleon any more. HUH? FYI, Napoleon (some French guy) had a bad habit of shooting the messenger when the messenger brought bad news. So this winery is happy in the fact that it a.) lost customers permanently and b.) made $60 on tasting fees - and no one will tell them any different.

So tasting fees are killing wine tourism. What is $50 to $100 to taste wine all day at strip malls, park and drink wine villages, and warehouses? Well, I can go skiing at White pass all day for $35 (weekdays over age 64) and have a lot more fun. In fact, with the new expansion into Hogback Basin it is incredible! Okay, I spent $5 for a microbrew at the mid-mountain lodge with a beautiful view of Mt. Rainier out the window. I could have had wine, but they only had Kiona and Portteus.

So, the second way to kill wine tourism is to turn it into a business. Everybody and their dog has a tasting room from downtown Seattle to Bumфuck, Nowhere. Wine tasting used to be fun (it still is in California) but it has lost its meaning in Washington. "Let's go visit wineries this weekend." "Oh yeah, big whoop. Why don't we do South 6th street in Seattle. It's free and we might get mugged or something exciting like that. It's a warehouse district just like Woodinville, you know."

 

Let's look at the modern tasting room. First, it must look like someone's living room with a fireplace, sofas, a coffee table, and some overstuffed chairs. At the back of the 'living room' is a bar with a snooty young to middle-aged woman who says things like "It costs $10 to taste." And "This is a nice big red wine." Why do all wineries move their living rooms into their tasting rooms? No, it doesn't make me feel at home. It makes me feel like I am in your home - UNIVITED!

 

So, with a combination of charging for tasting and boring tasting rooms, I think we can get rid of this nonsense called wine tourism. Who needed it anyway? The Napa Valley 50 years ago? That is so ancient history.

 

When will Costco start charging for samples? You try to answer that with an American education.

 

Disclaimer: Bonair Winery offers free sampling of four wines from a list of seven of the regular releases. They charge $5 to taste four of the seven reserve wines. For $5, you get a larger tasting glass and the fee is refundable with purchase of a reserve wine.

The Rule of 100 or Can the Washington Wine Industry Survive?

I get this magazine called American Vineyard which is usually a quick read, but the December 2010 issue really caught my attention on a subject that has had me wondering for a long time. How is Washington going to compete in a very narrow market for wines over $15? Yes, I know the Washington Wine Commission said there is no limit to the price you can charge and as long as you charge enough, there is no limit to the amount of wine you can sell at these inflated prices. The recent fall of Whitman Cellars and Olsen Estates might point out this fallacy. They were both limited production operations, somewhere around 5000 cases, but at $40 per bottle, they penciled out to 2.4 million dollar per year operations. The banks bought into it.

Then the crash hit. Wine drinkers found out that they can get good wine for under $15 - in fact a lot of those $40 wines on closeout. Folks, wine drinkers are never going back. The American wine consumer has matured. Wine magazines, competitions, wine societies (the members now arrive in walkers and wheelchairs), Bobby Parker, et al are passé, caput, finito, done. For those of you wineries waiting for the rebound, the tooth fairy doesn't exist and there is no Santa Claus, either. Sorry to have to be the one who told you.

How does the 'Rule of 100' work? According to the article, 'SJV Winegrowers Cheerful' (for those who don't know, the SJV is California's biggest wine region and the source of Chabless, Hardly Burgundy, and Two Buck Chuck.)
The rule of 100 works like this: if you pay $100 per ton for grapes, you need to charge $1.00 for your wine, $300 for grapes and $3.00 for your wine and so on. Since most wine is selling for under $10 per bottle, the most a winery can pay for grapes is $500 per ton if they sell to a distributor or $1000 per ton if they sell through the tasting room only.

This is how it works for the grower. The San Joaquin Valley grower produces 14 tons to the acre on a highly mechanized block of grapes. He get $400 per ton or a yield of $5600 per acre. The Walla Walla farmer hand prunes and trims to 2 tons per acre and gets $3000 per ton for the grapes yielding $6000 per acre. The growers are both making similar money. That's fine and dandy.

The wineries are a different story. The mega winery in Modesto can sell its wine nationally for $4.00 per bottle (or less because of the scale of the operation). The Washington winery has to get $30 per bottle and sell it within the state because they lack national distribution. If it is sold by the winery directly to retail/restaurants, it hits the shelf DOA at $44 per bottle. (Handcrafted, ultra premium, award-winning, Wine Expectorator score 95, blah, blah, blah, just like every other bottle on that shelf.)

The most a Washington grape grower can hope to ripen every year in a warm area like the Rattlesnake Hills or Horse Heaven Hills is about 4 tons to the acre. Working this backward from a needed $6000 yield per acre, the grower must get at least $1500 per ton for grapes. The winery must get $15 per bottle, so it hits the shelf at $21.50 (self distributed) which is not a good price point, but $14.99 at the winery tasting room will work - assuming your tasting room can sell a couple of thousand cases per year.

Looking into my cloudy yet crystal ball, I see the Washington wine industry shrinking dramatically. There will be spectacular failures like Whitman Cellars or quiet closures like Olsen Estates. I see the amount of land dedicated to wine grapes leveling off or even declining.

I see wine tourism (visiting wineries in real wine country like the Rattlesnake Hills or Red Mountain - not 'park and drink wine villages', strip malls, or industrial parks) continuing to do well and you will see more wineries using the wine bar concept (sell your own wine in a bar atmosphere) in order to sell their product directly to the consumer at a good profit. I'll call that the 'brew pub' model.

It's not about the wine, it's about the experience. Wine is just another food commodity. Would you walk down row of industrial roll-up doors to taste over-priced canned green beans? I hope the Washington Wine Commission gets it someday.