Wednesday, March 4, 2009

Worldwide Recession + Wine = ?

By now most people have caught on that economy is in an ever accelerating downward spiral. I've been lucky in that I've been relatively insulated from the mess. But disturbingly large numbers of folks are losing their livelihoods and homes. Perhaps this is a trite subject to approach in light of all the problems out there, but I'll take a stab at speculating about what the current economy means for those still with disposable income to spend on upscale booze.

The most noticeable change as a consumer is that you simply do not need to pay full price right now. Not everything is steeply discounted, but there should be no problem finding interesting wines if you aren't committed to a particular style, region or producer. Wine is one of the most "overpriced" commodities available in the sense that even the most premium of bottles rarely costs more than $20 to produce. Demand and the distribution chain end up at minimum doubling the price paid by the consumer relative to the actual cost of production.

The worrisome side, though, is that independent retailers and producers may not be able to absorb the lower price points for premium wine. By volume, there's little doubt that wine retailers do most of their business selling inexpensive wine. But the ultra-premium wines are hugely profitable because of their ridiculous mark-up. It may be the case that selling the insanely priced wines is allowing creative retailers and producers to offer the interesting, but less profitable wines that are pretty darn entertaining to drink. My greatest fear is that businesses that teeter on the edge of failure because they attempt to be more than profit centers will either fail or be consumed by larger businesses. Ultimately this could mean less choice for the consumer (and really this sort of thinking should apply to all retailers; Wal-Mart will survive this recession while many smaller businesses will struggle).

The big guys can and should adjust, however. Napa and Bordeaux have been, paraphrasing James Conaway's The Far Side of Eden, bottling their arrogance at exorbitant prices largely because of a price bubble akin to the housing bubble in California. This is of course not true of every producer, particularly those that have been established for some time, but when the average price for a Napa Cabernet Sauvignon is around $40, the economics are a little out of balance. Entrepreneurs flush with cash from a bull market have been flooding into prestigious wine regions, buying or planting vineyards to be run by the most respected vineyard managers, hiring famous winemakers who have the ear of influential critics, then selling exorbitantly expensive bottles under their own name. An interesting local example is Jonata, a new enterprise in Santa Ynez from the owners of a Napa "cult wine" that priced its inaugural vintage in the $100 range and received glowing reviews from certain important critics.

I do not often wish ill upon individuals, but these are the sorts of enterprises that I'd love to see fail spectacularly. The great wines of the world earned their reputation and prices after decades if not centuries of success. They have track records of positive results and have shown the capability to age well. It simply makes no sense that wines produced as an exercise in egotism by both proprietor and consumer should immediately be compared to the great wines of the world. The market has supported these sorts of wines thus far. But one can only hope that these gaudy emblems of conspicuous consumption will be culled significantly in the near future.

Even on a less-exclusive scale, a large number of wines are being produced in the style (but not necessarily quality) of the above ego driven wines. That means low yields of very sugary, super-ripe grapes and lots of new oak. In most of California where the growing season is typically long, warm and sunny, there really isn't much sense in trying to make your grapes ultra-ripe. You can get balanced fruit without extreme measures. All of these measures to "dress-up" the wine, in my opinion, make it worse yet also cost more. Smaller producers may actually end up making better wine when they have to be cost-conscious. If they stop over-managing their vineyards and buying costly new barrels so regularly, they'll likely be making wines with lower alcohol and less oak pollution.

Of course, wineries will likely turn to other measures, like oak planks or oak dust to retain the oak flavor at a lower cost. Or they'll over-crop vineyards in regions less suited for grape growing to get more cheap juice at the expense of quality. It's probably more of a pipe dream that a contracting economy will reign in excess without resulting in producers cutting corners in some unsavory manner. What's going to happen will happen. There will be some form of contraction taking place. I'm crossing my fingers that the fat will be cut. But I won't be surprised if ultimately the cuts are to the bone.

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