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High-End Wineries In U.S. Are Reeling From The Poor Economy

spilledwine1Yes, I’m sure this news does not come as a shock. Anyone who has perused a local wine shop lately has witnessed the deep discounts on big-dollar wines, especially those produced in Napa and Sonoma. Last month the prestigious Auction Napa Valley, a fundraiser for charity and a semi-official barometer of the wine market, raised $5.7 million. In 2008, they took in $10.4 million.

A few years ago, I attended a wine marketing seminar led by a panel of wine experts. My notes from the sessions fried with my last hard drive, so I can’t go back and get the exact quote. But I believe it was Josh Wesson who claimed that no wine in the world costs more than $50 a bottle to produce. What you pay over $50 goes to advertising, marketing, and brand.

So where am I going with this? Last week the Wall Street Journal ran a story, dateline St. Helena, California, which detailed the troubles of luxury vintners in Napa and Sonoma counties. Money quote: “The slump comes as Americans continue to drink more wine overall. Recession-weary consumers, however, are buying more mid- and low-priced wines, causing a sharp falloff in sales of wines priced at $25 a bottle and higher.”

Read the piece. It outlines the behind-the-scenes business of wines and how some are surviving by using Facebook and Twitter as marketing tools. You might even weep a little for the hard-hit wineries. I don’t like to see any business go down, but I can’t help but feel that  U.S. consumers are finally finding quality at a lower price. Instead of picking prestigious labels from Yountville and Oakville, they are turning to those printed in Chile, Argentina, Spain, and the rest of the world.

We’ve never seen a market adjustment like the one we’re witnessing right now—a market that has affected the buying power of the super-rich. However, I find comfort in knowing that people are still enjoying fine wine and they have learned it does not have to come with an inflated price tag. Why do we drink wine? According to Wesson: “For taste. It makes the people sitting around us funny. It increases your chances for having sex.”

(H/T: WG for the WSJ link.)

11 comments on “High-End Wineries In U.S. Are Reeling From The Poor Economy

  1. If Joshua Wesson said that no wine costs more than $50 to produce anytime since the 1970s then he is an economic illiterate.

  2. Ch. Latour was sold in 1993 for over $100m. At an annual output of 18k cases that is $400 bottle to repay in one year, $40 per bottle over 10 years. And that’s just to pay the mortgage. This heavy burden may go some way to explaining why the estate was quietly put up for sale last year.

    In Burgundy, top (Grand Cru) vineyards routinely sell at > $1m/acre prices.

    Capital costs are a cost of production. Wesson excluded it. A sophomoric economic error.

  3. Another example:
    Romanee-Conti: the most expensive vineyard in the world. 4.5 acres produces approximately 6000 bottles of super low yield (less than 1 ton/acre) Pinot Noir in Burgundy. It is a monopole (single ownership) Grand Cru owned by Domaine Romanee-Conti.

    The value of this vineyard is a over $14 million. Figure a minimal 10% rate of return on land value of $1.4 million divided by 6k bottles yields a $233/bottle charge to land costs. This doesn’t consider labor, barrels, vinification or the true rate of return on this scarce piece of property. I recently inquired about the most recently offered vintage and was told by my supplier it was over $3k/bottle wholesale.

    You could get similar results with La Tache and Montrachet.

  4. This has nothing to do with the above debate, but I thought I would take the opportunity of a posting on wine to ask if I’m the only person have problems with the Twisted Vine / Tony’s Wine Warehouse. Went to a tasting at the Twisted Vine (wine bar owned by Tony’s in a converted Chili’s on Greenville – a “work in progress” at the time) won at an auction by a friend, and let the wine guys talk me into some wine. Anyway, because they “don’t keep stock on hand” at the Twisted Vine, they were to deliver it the next week. It never showed, never showed, never showed. Two weeks later I call, and they told me it had to be ordered, was delayed and would be there the next week. Now, over a month later, no wine, no working phones at either location, Tony’s website down, and according to pegasus news, Tony’s is gutted and closed. I haven’t done a drive by, but I would venture a guess The Twisted Vine might be in the same condition. Anyone else?

  5. Worzel, you are en feugo.

    Perhaps I misrepresented Wesson’s point. There are certainly a huge number of wines (hello California) that fetch prices that are adversely related to their production costs. Like makeup—you pay for expensive marketing campaigns.
    Wessonomics=good stuff

  6. NN: Mucho gristo for the mill. California is one of the best examples of my point. Take Kathryn Kennedy Winery in the Santa Cruz mountains. The eight acres of vineyard land are surrounded by land that sells for > $250k/acre. That cost has to go into every bottle just to break even.

    Are their wines that sell solely thanks to marketing? You bet. Yellowtail for example. However, Wesson claimed NO wine cost more than $50 and that is a categorical and incorrect statement. Maybe use Wesson as your cooking oil, but not for your economics. Here is a potentially defective product.