Practical Winery
65 Mitchell Blvd, San Rafael, CA 94903
phone: 415-453-9700 ext 102
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Winter 2011
While we should not forget or ignore the Millennials right now, we had better be primarily focused again on the Boomers, at least for another decade. With this group, authenticity is everything. They have been conned; they are jaded; and they no longer believe modern advertising.
For this reason, I have changed our wine label designs to classic style. I actually had started the trend before the meltdown. It seemed to me there were just too many “3 Blind Moose” out there.
Within this 10- to 30-year arc, however, trends still change on a dime. It has always been that way through my career, but technology has accelerated everything. Now, an event occurs and “boom” — it is all over the Internet. Now, I get a call in the afternoon and a customer will say, “Did you read my email yet? I need an answer right away.” When did you send it? “This morning.”
Chasing trends and taking the right price
Too often we are all chasing the next trend. What do we plant? What is the next “hot” variety? Wow, Moscato sales were on fire in summer 2010. Turrentine Wine Brokerage cannot find enough supply. Let’s plant Muscat. Better yet, let’s graft over to Muscat in Spring 2011. I am seeing Gruener Veltliner on every restaurant wine list these days; I am sure we can hang 8 tons per acre of that stuff.
Maybe you can, but can you make any money? For those who are trying to guess the next trend, my advice is not to bother. You cannot do it.
Far more important is that when you see the trend developing, move on it. But first you need to ask yourself, “Does this fit my vision of our brand?” “What is my reason for my brand existing?” With my grower hat on, “Can I make any money on this variety, long-term?”
This is why understanding the market and accepting its reality is so critical. I believe the hardest decision to make in the wine business is to recognize your mistake and cut your losses — immediately.
There are good and compelling reasons for why this decision is so tough. The bank wants to see a profit. We all want to make a profit. Our loans are dependent upon it. How many times have I been in meetings and heard, “Well, I have $8 per gallon in this wine, I cannot sell it for $6.” Then six months later in another meeting, “Well, I have $9.50 per gallon in this wine (it accrues $0.25 per month); I cannot sell it for $5.” Believe me, the first loss you take will be the cheapest.
“The hardest decision to make in the wine business is to recognize your mistake and cut your losses — immediately.”
The old formula for determining the relationship between grape pricing and retail bottle price is still pretty accurate — add two zeros. However, in these days of discounters, grapes purchased at $1,600 per ton will go into wines that may front-line at $16 per bottle retail, but actually sell at under $15 per bottle.
The new reality of the market is that major wine companies with major volume programs must sell their wine for under $15 per bottle retail. Once you move above that price point, the volume drops significantly. Over $20 per bottle these days is slim pickings.
Two years ago we sold our Hahn Arroyo Secco Pinot Noir grapes for $2,500 per ton. In 2009, we sold the same Pinot Noir grapes for $1,600 per ton, because I was foolish and did not take the $1,800 per ton offer early in the year. In 2010, the same large winery approached us, stating that our Pinot Noir had to go into programs that sold for under $15 per bottle retail. We had offers between $1,200 and $1,400 per ton. I jumped on them.
That is the new reality of the market. Selling for half the price of two years ago hurt, but not nearly as much hurt as rolling into harvest- 2010 with unsold fruit because I held out for some price that just was not realistic today.
Here is how the scenario plays out all over California:
   1) We did not sell the fruit because we could not receive our price;
   2) Well, we will crush and sell as bulk wine;
   3) Nine months later: Well, we can sell as bulk wine at a loss of $3 per gallon;
   4) Hmmm, nope, cannot do that … let’s put it in a negociant program;
   5) Well, we bottled 10,000 cases of Bill’s Best Red, but no one wants it because the market is flooded with negociant wines from all the other growers with unsold fruit that they crushed and put into bulk wine. These brands have no real story and no real authenticity;
   6) Two years later, Bill’s Best Red is getting pretty tired in the bottle;
   7) Three years later, a distributor calls; they are really happy. They just made a deal with Grocery Outlet to take all of your Bill’s Dead Red for $24 per case. In fact, they will take more if you have it. If we could make this an ongoing program, we can sell the hell out of it.
Believe me, the first loss is the best. Or in the case of our Pinot Noir, we made a profit selling as grapes at a realistic price, rather than holding out for an unrealistic price in today’s environment.
The reality of the market has changed. As growers, we need to concentrate on mechanization in the vineyards, reducing costs, water issues, etc., so that we can weather the tight times and still be profitable. We cannot afford to ignore the signs of the market and hold out for unrealistic prices for our grapes.
Watch trends and react quickly
As winemakers, we also need to watch the trends and then react quickly. When I first entered the wine business in the early 1970s, the largest selling California white wine by far was Chenin Blanc.
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