Global Dynamics of the Wine Industry 2020: February 2020

Ultra-Premium Celebrity Wine/Champagne May Also Be a Success

Last class, we discussed the value of celebrity brands and celebrity endorsement both historically and in the present moment within the wine and spirits industries. From the success of Invivo X by Sarah Jessica Parker to the sale of part-George Clooney owned Casamigos Tequila to Diageo for $1 billion in June 2017¹, it is clear that celebrity brand association can be immensely lucrative. However, we also discussed that celebrity involvement is often limited to affordable products that appeal to the broad range of consumers that make up celebrity fanbases. The data further suggest this. For example, Chateau Miraval Rosé (750ml), made on Brad Pitt and Angelina Jolie’s Côtes de Provence estate, retails for around $20²; Diddy’s Ciroc Vodka (750ml) retails for around $30³; and Ryan Reynolds’ Aviation Gin (750ml) retails for around $33⁴. While these price points do not diminish the potential quality of these products and often reflect the average prices of their competitors in the marketplace, they seemingly suggest that celebrities cannot venture into the production of drinks with higher price points. As we thought about the likes of Kim Kardashian releasing their own alcohol brands last class, and many suggested that accessible pricing may be the best fit for celebrity brands, I wanted to highlight a celebrity-owned brand with pricier products that I think suggests the potential for a larger ultra-premium celebrity wine and spirits category.

In 2014, Jay Z purchased Armand de Brignac Champagne, popularly known as “Ace of Spades,” from Sovereign Brands for an undisclosed amount⁵. This made the brand, according to one of the rapper’s own songs, the first 100% black-owned champagne⁶. It is made by the Cattier Champagne house, located in Chigny-les-Roses, a first growth village of the Montagne de Reims. The Cattier family has been making champagne over 13 generations⁷. The rapper is said to have become interested in the brand after Frederic Rouzaud, the manager of the company that owned Cristal champagne (a brand largely popularized by rappers like Jay Z), made seemingly racist remarks in May of 2006 and thus turned the rapper off from supporting Cristal ever again⁸. The Ace of Spades 750mL Brut Gold signature SKU retails for around $300 and is the brand’s cheapest offering⁹. While it is common for champagnes to have higher price tags than most other drinks, this is still a large number compared to other luxury brands (a Vintage 2008 750mL Dom Perignon retails for around $190)¹⁰. The brand has gained popularity in elite circles, largely due to its embrace by Hollywood heavyweights. Refusing to be seen promoting Moët, Beyoncé and Jay Z brought their own bottles of Ace of Spades to this year’s Golden Globes and placed in on their table, leading stars like Jennifer Aniston to post about it¹¹. Reese Witherspoon loved it so much that she was subsequently sent cases of the champagne from Beyoncé and Jay Z¹².

I have to admit, the marketing has worked on me. When I turned 21, I saved up to get a bottle of Brut Gold for the celebration, choosing its gorgeous packaging and association with superstars I admire over the Dom Perignons and Perrier-Jouets of the world. While some may argue that Ace of Spades is a singular case, I do believe that brands like this suggest the potential for other successful ultra-premium celebrity brands, especially for celebrities whose images largely revolve around lavish lifestyles. I’m curious to hear people’s thoughts.

Sidenote: The implications of multigenerational family winemaking on winemaker/winery owner diversity are disheartening. The fact about Jay Z being one of the first black owners, if not the first, of a champagne brand highlights a homogeneity that I feel must be addressed moving forward.

What the hard water?

Michael Preis left us with a lot of food for thought. I still can’t get the graph out of my head showing the hockey stick growth of hard seltzer in the past four years. Even as someone who came of drinking age during the surge of White Claw, it baffles me. The only person I know who drinks seltzer is my grandma. The other graph that stuck with me was that “hard ____” graph showing how the rise of hard seltzer has inspired other beverages to go “hard”, like coffee. In this post, I want to focus on hard water. Since Thursday’s class, I’ve felt a torturous dissonance over the existence of hard water, so I did a little research to reconcile. And honestly, I don’t think hard water is a total sham anymore.

To start, it’s rather difficult to find much information on hard water. There seem to be two main competitors: Hard2O and Pura Still. Pura Still markets itself as “spiked still water” and appears to be the earliest market entrant. Newer and arguably sexier, is Hard2O, which calls itself “water with some spirit”. Catchy, right? Hard2O appears to be the White Claw wanna-be of still water. Vodka-based water with fruit flavors, it is like White Claw in that it is 5% ABV. It only has a “hint of vodka” flavor among the tropical fruit flavor options like dragonfruit and mango. We talked about how one competitive advantage hard seltzer has over beer is its health benefits. The competitive advantage of Hard2O is that it's healthy, too. In fact, its 40 calories beats White Claw’s 100 calories for the same ABV. And for consumers who don’t like carbonation— either for the sensation of bubbles or for the post-drink bloat— hard water could very well serve a true want for drinkers. The lower calorie count and lack of carbonation I think could really solve a pain point for drinkers who might be hesitant to drink hard seltzer. So I wonder, will hard water steal market share from hard seltzer or is it targeting a different type of drinker?

Hard2O Landing Page

Hard2O has rolled out in Wisconsin and is preparing for a 2020 national campaign. Like White Claw, it seems to market itself to college-aged adults and young graduates. And it doesn’t discriminate on gender (perhaps responsible for some of White Claw’s success). Their founder says, “It’s perfect for boating, the beach, tailgates, golf, barbecues, after working out.” They’re targeting Vegas pools, golf courses in Arizona, and anywhere where there are people who like working out and want something refreshing that is low calorie. And a big target: day drinkers. Drinking out of a water bottle (yup, that’s how they’re packaged, just like water but with a bright colored label) is supposed to appeal to the day-drinking, active consumer. Also like White Claw is, it seems like it would be easy to binge drink given the low calorie count and minimal alcohol flavor.

Hard2O is also aggressively taking on beer and hard seltzer who they see as direct competitors. The founders claim to dislike carbonated drinks and therefore wanted an alternative to hard seltzer. In fact, their website’s 4th landing page hits you with the phrase, “Seltzers are so last year”. Pretty direct, eh? So while they ride the White Claw wave of success (see what I did there? White Claw is a wave), they’re also directly taking it on.

What do you think about hard water? Is there a market for this or will hard seltzer reign supreme?

Sources

Milwaukee Distillery Creates New Alcohol Category Of Hard Water

https://www.forbes.com/sites/jeanettehurt/2019/08/18/milwaukee-distillery-creates-new-alcohol-category-of-hard-water/#6a04543e2b17

https://hard2o.com/

Really weird videos of people tasting Pura Still for the first time that I’m too embarrassed to link because they were WEIRD.

What does a 3-star Michelin restaurant really have in its wine cellar?

At the Wine Circle's Napa Trek last Wednesday, we answered exactly that question. We had the privilege of touring Thomas Keller's famed The French Laundry, including the restaurant itself, the beautiful garden, the renovated kitchen, and last but not least... the wine cellar!

Custom-made and kept at a precise 58 degrees, this cellar was absolutely beautiful. Each of the wines is carefully tagged with its own SKU and precisely organized so sommeliers can find what they are looking for. With thousands of wines available, I can imagine how much of a headache this all is to manage! And that's exactly right - TFL employees two people full-time to stock and manage cellar inventory.

A beautiful wall of wine storage in TFL's wine cellar

The French Laundry historically holds a range of newer vintage, beautiful and approachable Napa and Sonoma wines to age-old European classics. But having such a stock of old wines begs the question - have you held these forever? If not, how do you source them?

We asked the Wine Director and Head Sommelier, Erik Johnson, exactly that. TFL sources a lot of their old wines from collectors. How do they diligence the wines they are buying to ensure they have been properly cellared? They work with collectors with whom they have decades-long relationships. Trust is the name of the game. When you're buying a $10K bottle that's been stored for 20 years, improper storage is NOT something they want to risk.

Erik giving us a tour of the cellar

To give each of their guests a truly exceptional and once-in-a-lifetime experience, instead of producing a by-the-book, always the same tasting menu for each customer each night, TFL does a customized pairing menu. That means you describe your taste, the sommelier considers the foods and sauces for the night, and you share your price point. Some people want to spend a couple hundred dollars a person, some a couple thousand. This makes Head Sommelier Erik's job always a fun surprise. What a task!

I snapped a few pictures of some of the very interesting and standout wines that I was able to spot on my stroll through:

To pay homage to our recent case, some 1982 and 1989 Chateau Lafite:

Some old Romanee-Conti (probably the most expensive on their list, Erik said):

And finally... a 1989 Opus One. If only we could have tasted it...

Thank you to Ilana and the rest of the Wine Circle leadership for making such an amazing Trek possible!

Do it for the Insta - What wine can learn from the Aperol Spritz

Aperol has been popular for decades as a light pre-dinner cocktail in western Europe. However, only in the last five years has Aperol Spritz’s popularity skyrocketed globally - so much so that it has become a staple liqueur for bartenders around the world, and year over year growth continues at a double digit clip.

What drives this growth? First and foremost, the drink’s attention-grabbing hue. Social feeds in which with summer, sunshine, social gatherings and popular culture are accented with orange. Placement at trendy music festivals and cultural events, replete with Aperol-branded merchandise. Aperol Spritz’s rise has been an inherently visually-driven one.

When Michael Preis described Palm Bay Import’s rapidly growing Rose business, I was not surprised. Rose embodies many of the same traits as the Aperol Spritz - central among them being its summery pink hue and associations with good weather, picnics, beaches, brunch, and unpretentious but classy get togethers.

Social media inherently relies on strong visual markers and signaling, and rose as a segment has been able to capitalize on that. Many white and red varietals, however, have not. An association with the ‘finer things in life’ and the standardization and constraints posed by conventional bottling have hampered wine’s ability to broadly take advantage of social media. New packaging via cans and tetra-packs may help lighten some of these associations, but to fully capitalize on social media, wine sellers will need to find new form factors and visual markers to center consumer focus around.

Winemaker for a day

This past weekend, three generations of Global Dynamics of the Wine Industry students (Ellen Liu - 2018, Ilana Walder-Biesanz - 2019, and Hannah Barrett - 2020) visited Napa Valley to do something a little different than your usual wine country trek: to blend wine.

We visited Judd's Hill, a small, family-owned wine producer and microcrusher (their second business that allows people to make their own wines by either supplying their own grapes or asking them to source. They'll even help you bottle and make a label!) for a wine blending experience.

We started by trying four of Judd's Hill's raw wines: a Cabernet Sauvignon, Cabernet Franc, Merlot, and Petit Verdot.

Deciding which wines we liked, we had the opportunity to write tasting notes, compare, contrast, and begin to dream up blends we thought would work well.

Our guide also went on a rant about how wine pairings are all about salt content and not food type (e.g., red with beef, white with fish). This ended with us tasting salt before cabernet for dramatic effect.

Ultimately, we were tasked with creating three blends. We made a first blend of predominantly Cabernet - a favorite of the group (70% Cabernet, 10% Cabernet Franc, 15% Merlot, 5% Petit Verdot). We liked the first blend a lot, but we decided to up the Cabernet Franc - a second favorite - to 25%. We lowered Cabernet Sauvignon to 60% and Merlot to 10%. The Cab Franc really stood out in this blend - became too distinct for our taste. For our final blend, we decided to do a 180. We made a Merlot-dominated blend 25% Cabernet Sauvignon, 10% Cabernet Franc, 60% Merlot, and 5% Petit Verdot.

We liked the first blend the best but still wanted to give it a bit more body with more Cab Franc. We decided to mix blends 1 and 2 for our final choice - 65% Cabernet Sauvignon, 15% Cabernet Franc, 15% Merlot, 5% Petit Verdot. Delicious! Definitely a blend through and through - this wouldn't qualify for any single-varietal labelling!

Once we decided on a blend, we headed to the barrel room. We measured out enough for four 750 ml bottles from each barrel, as follows:

Gravity is incredible, huh? We also bottled, corked, and made labels. We called our blend "Liquid Assets." Finance puns, anyone?

We had a ton of fun. Would highly recommend playing winemaker for the day if you ever get the opportunity!

The "Sideways" Effect

Can one line in a movie shift customer preferences enough to dramatically alter the demand for certain consumer products?

It certainly can. Since today's WineInStyle case alludes to it, I wanted to shine light on "the Sideways Effect" - the impact that a 2005 film had on the shifts in demand of Pinot and Merlot in the US. Yes, this has been studied. Two scenes in a single movie were resonsible for elevating the fate of Pinot and destroying Merlot.

Some background: Wine-obsessed protagonist Miles Raymond (played by Paul Giamatti) is a divorced, middle-aged, and potentially alcoholic teacher and unsuccessful writer. The movie follows he and a friend's escapades through Santa Ynez wine country. It won the 2005 Academy Award for Best Adapted Screenplay (1).

On Pinot:

Miles has a beautiful monologue detailing his obsession with the delicacies of Pinot Noir:

"Thin-skinned. Temperamental. In need of constant care and attention."

Only the finest producers can make good Pinot, Raymond argues. Just beautiful prose, no? Watch here:

On Merlot:

Merlot, on the other hand, gets a bad rap from Raymond. A favorite of his ex-wife's, Merlot is the enemy. Miles screams at his friend arguably the most famous wine-related quote in Hollywood:

"No, if anyone orders merlot, I'm leaving. I am NOT drinking any f****** merlot!"

Duckhorn cites this as the single worst impact to its flagship Merlot performance. A bit of a running company joke (most of the impact to Merlot was at lower price points), but still funny.

The Impact:

In a 2009 case study, a Sonoma State University professor of economics, measured a ~2 percent decline in Merlot sales between January 2005 (months after the film's release in October 2004) through 2008. Over the same time period, sales of pinot noir rose by ~16%, elevating it to the second-most planted varietal in Sonoma County today (2). The study analyzed many variables, looking at prices, case volumes, etc. and even controlling for promotions as a result of the film (3).

More details on the full findings from Prof. Cuellar can be found here.

A 2017 NPR article goes further on the staying power of Pinot as a result of this line: "A dozen years later, pinot noir has become a mainstay of the California wine industry, and winemakers credit the film with bringing deserved attention to the varietal, calling it 'The Sideways Effect'" (2).

I don't know that I'd call Paul Giamatti an SJC-level wine-influencer, but his words sure did have a more momentous impact on the California wine industry than any other celebrity I've come across.

Charles Shaw flourishes without the actual Charles Shaw

I was very surprised to read the Charles Shaw case. Given the ubiquity of “Two Buck Chuck” in Trader Joe’s, I was expecting that the namesake would be making bucks (no pun intended). Reading about his struggle while his brand is reaching millions of households is a stark lesson on entrepreneurial empire building.

From the case, Charles Shaw was not actively pursuing Trader Joe’s as a major partner, but rather use them as excess inventory control. However, outside investment stripped Shaw off control of his namesake brands, and he was gradually shut out of the business. It is a very interesting case study; when an entrepreneur attaches his/her name to a brand, it is usually seen as more authentic with the entrepreneur caring more and pouring more effort into the “namesake”. But without a clear strategic direction, the mere name association is far from enough to keep both the business and the entrepreneur well off in the long run.

Cannabisalization beyond share of buzz

In class, we've talked about the concept of "share of buzz." This means that winemakers compete not only with other winemakers but also with other products that generate a feeling of buzz, like beer, spirits, and cannabis. We've discussed how these products all compete for money from consumers. It is logical that a rapid increase in craft beer, for example, has happened as people correspondingly spend less on wine.

I recently came across this article in Politico: "Wine vs. weed in Napa Valley" which speaks to another resource constrained by "share of buzz:" land & soil. As the author writes, "grape growers worry that pot won't pair well with the terroir they have spent a century and a half cultivating."

It has become attractive to plant cannabis in Napa, where the land is so expensive that few other crops make economic sense. As this has grown, tensions have risen between cannabis farmers, who want to create a Napa-like brand for high-end cannabis, and existing winemakers, who worry about the threat cannabis could pose to the brand of wine they produce and the soil they cultivate. The reputation of Napa Valley is seen as desirable to cannabis producers but also a valuable asset to protect for winemakers.

Beyond a brand issue, winemakers have another problem: the drifting smell of marijuana. They also describe the impact that the smell of marijuana could have on the wine drinking experience, "'tasting wine is 80% olfactory,' said Blair Pence, owner of Pence Vineyards in the Santa Ynez Valley. 'You wipe that out when you've got marijuana permeating the air." This winemaker has gone as far as to threaten to plant hemp on their property, which would pollinate any nearby marijuana and render it impotent.

While I don't have the technical background to evaluate whether the winemakers' claims are valid, I found this article interesting in substantiating the debate. I suspect that these tensions will only continue to rise, which I hope we will discuss in the cannabis discussion in our final class.

Sources:
https://www.politico.com/news/2020/02/18/wine-vs-weed-in-napa-valley-115322

DTC Sales: Where has the Growth Gone?

Most of the wineries and business that we have see so far in class have emphasized the importance of growing direct-to-consumer sales to their businesses. Distributors represent a choke-hold in the classic value chain and only develop relationships with customers that can deliver them volume and scale. Direct-to-consumer sales, therefore, are critical drivers of profitability for small wineries and now make up ~60% of their sales.

However, when I was reading the latest Silicon Valley annual report on the wine industry, I was surprised to the find that DTC sales stagnated in 2019 following years of rapid growth. Annual growth rate has gradually fallen from a peak of 30% in 2016 to low-single digits in 2019:

Given the emphasis placed on this channel, I was expecting continued growth. Yet, it appears wineries have exhausted most of the low hanging fruit regarding DTC sales. Historically, wineries had used their wine tasting room to drive direct sales and wine club memberships to their customers. As visits to the tasting rooms have also slowed, particularly in Napa, wineries have not evolved to develop more sophisticated customer acquisition channels.

Furthermore, wineries rode the boom of more and more states legalizing direct-to-consumer wine shipments. Today, there are only seven states that have not legalized this activity. The predictable trend of new states opening up has now become far less reliable.

Going forward, in order to drive greater DTC sales, wineries need to become more sophisticated in their analytics and customer acquisition capabilities. This includes implementing greater technology and data capture and subsequent analytics along with the employees to oversee this. However, given the limited resources available, wineries have been reluctant to invest in these capabilities and systems. Nevertheless, it may start becoming necessary in order to grow their business and take advantage of the new DTC sales opportunity.

Source:
“State of the US Wine Industry 2020”. Rob McMillan, Silicon Valley Bank

Super Super Super Premium Wines - how expensive is too expensive?

Yesterday, I joined the Wine Circle trek to Napa and Sonoma. It was a wonderful experience, and we were lucky enough to visit both Scribe Winery and Promontory Wine. While both were great, they had dramatically different strategies and brands.

Scribe was the definition of Instagram friendly. Set in a whimsical whitewashed building that looks over ranch-style vineyards, this winery was all about the aesthetic. An impeccably-designed menu printed on high quality cardstock announced the array of wines we'd be tasting, from pale pink rosé wines made with Pinot Noir to skin-fermented Chardonnay. Long, light wooden tables created a community atmosphere, with twinkling bulb lights hanging overhead. Everything was picture perfect, and guests were encouraged to wander through the house and onto the grounds with their half-full wine glasses for photo opportunities. Was the wine good? Yes. Was it phenomenal? Probably not. But visitors who come to Scribe are there to imbibe the spirit of wine country, get a little tipsy with friends or family, and walk away with some premium content for the 'gram.

Image result for scribe winery

Scribe Winery

The experience at Promontory Wine was completely opposite. Located off the main road up a steep hill, the winery overlooks dramatic, sweeping hills and presents larger-than-life panoramas. We were ushered into the imposing, minimalist space and greeted with 2006 Dom Perignon in Zalto flutes. "If you're intimidated by this space, you probably can't afford our wines", screams the decor. The winemaker explained in detail the distribution of rock type across the Promontory property, enumerating the complexity metamorphic-based soils bring to Cabernet Sauvignon. This is a Serious Wine Location. We were then brought through a barn filled with wine barrels that were clearly each individually designed to fit the space, and then into a deep cellar that featured a gigantic, 7x7ft rock with a polished marble top. This was the location for our first tasting. The second tasting occurred at one single table (pictured below) that could seat 50+ people, with artisanal water and top quality parmesan reggiano. Someone looked up the bottle price of the 2014 Cabernet Sauvignon out of curiosity - $900.

Image result for promontory wine

Promontory Wines

This brings me to the primary question I've been asking myself: how expensive is too expensive to pay for a relatively young, quality wine? I completely understand paying up for an old Barolo, Bordeaux, or Burgundy, but spending $1000 on a new California Cab? The Promontory wine we tasted was very, very good, but I'm positive I would not have guessed it was as expensive as it was. Give it 30 years and I'd certainly pay more for it - it is certainly age-worthy. So, what is the consumer really paying for if they choose to spend their hard-earned dollars on a wine like Promontory? In my opinion, it's the story and the experience, the feeling of luxury that extends beyond taste. It's being able to tell others how much you paid for something, like an impossibly high-end sports car or designer purse. A certain amount of the price indicates quality, and the rest indicates status.

While I had an incredible experience at Promontory, I have mixed feelings about if I'd want to return on my own dime. On the other hand, I'd take my friends to Scribe in a heartbeat, even if the wine ($40-80) was slightly lower quality than what I would prefer to pay at that price point.

As someone who is very interested in the supply/demand dynamics of luxury goods, I found the Wine Circle trek fascinating. I'm curious to see how inflated certain Napa wine prices become, and if the bubble bursts, how wineries like Promontory will manage.

Wine Buying Trends for NYC Wine Bar

Wine buying trends are pretty interesting. I'm doing a regression analysis for my statistics class on Terroir Tribeca, Paul Grieco's wine bar in NYC. We're looking at Paul's wine buying trends from a variety of different lenses (Price, Supplier, Region, Sub-region, Vintage, Margin, etc.). It has been a really interesting exercise and pretty eyeopening.

First of all, we quickly saw the direct correlation between certain suppliers and price. Some suppliers are simply just providing higher-quality SKU's than others which leads to Terroir paying a higher price for these wines.

Second, also as expected, regions like Champagne, Bordeaux, and Burgundy are significantly higher on an average price point than regions like the Mosel or Chile. The most surprising part of the region study was the Champagne was the highest average price point on there list (they have some baller stuff!).

Next, we looked at average margin. This is where things got interesting. We found that not only were the French wines the most expensive for Terroir to buy, but they were then also charging a much higher margin to their customers for these wines. The best value on the list was the German Rieslings by a large margin.

Lastly, we looked at vintage. There is some pretty interesting direct correlation between warm vintages and price. Heat is directly correlated to a higher price point which is fascinating to me. As an old world wine drinker myself and someone who likes high acid cool vintages, it is interesting to see that as a whole people prefer the warmer vintage wines (and that they cost more money).

We're diving deeper into this data set and will blog again once we have some more concrete data!

Dylan

The Two Branches of the Mondavi Family - An Opportunity to Collaborate?

During Peter Mondavi Jr's talk, I was struck by how separate the two branches of the Mondavi family are on the business side despite being on good terms on the interpersonal side. One theme that we have discussed over and over during the class is the power of a good story. Whether it's the authenticity and typicity claims of Inniskillin ice wines or the longstanding winemaking history of the Rothschild family in Bordeaux, having an interesting story around your product sounds like an incredible advantage in an industry where so many different products compete for the customer's attention.

For that reason, I'm surprised that the Mondavis have not chosen to exploit the story of the schism that led Robert Mondavi to split from the Charles Krug brand. While both wineries where operated by the family, I think more sustained collaboration between the two branches could have created an extremely compelling narrative for consumers, where a limited edition product branded with the proverbial return of the prodigal son after a terrible fight could have stimulated the consumer's imagination and commanded a very high price. I think that such a unique product that blends the expertise of both branches of the "Royal family" of Napa Valley would have had a very compelling value proposition and likely would market itself amongst California wine enthusiasts. Unfortunately, with the Robert Mondavi winery no longer being controlled by the family, I think this story may have a more limited appeal at this point.

For that reason, I'm curious to hear why people think collaborations of the sort have been so limited in the past. Do you think it's a capex problem? Maybe their winemaking styles are so different that the resulting product would have failed to achieve the level of quality that the consumer expects from their products? However, given the fact that both branches have wines that span both premium and non-premium markets, I somehow do not find this argument very convincing.

Impact of Coronavirus on the wine industry

The Coronavirus outbreak is causing a high degree of uncertainty and concern across the globe.With >80K cases and close to 3K deaths so far, the overall fatality rate is less than most outbreaks which reach global news. However, given the nature of the virus, which is not always severe, experts expect that some 40 to 70 percent of people will be infected within the coming year.

Markets have reacted to the outbreak; stock indices fell this week. Some experts believe that if the virus becomes pandemic in Europe and the US, it could lead to global recession. Companies like Apple and Microsoft have issued warnings about the impact of the virus on earnings expectations.

So you might be wondering, how will Coronavirus impact the global wine industry?

In short, the wine industry is not insulated from the risk. China comprises a large portion of the wine market and the luxury market. Bordeaux wines reportedly experienced a 38.3% fall in the week ending February 13th, Australian exports were down 90% over January and February, and imports have slowed to a trickle. With the outbreak in Italy, the impact may only continue to increase.

There are some companies experiencing growth as a result of the global concern -- in particular, alcohol delivery companies have seen 50% growth over February as fewer diners and drinkers head out of the house.

Sources:

https://www.forbes.com/sites/katedingwall/2020/02/25/coronavirus-leaving-the-wine-industry-dizzy/#262fdf766670

https://knowledge.wharton.upenn.edu/article/will-coronavirus-impact-global-economy/

https://www.theatlantic.com/health/archive/2020/02/covid-vaccine/607000/

Aythaya Vineyard -The Best Winery in Myanmar-

Aythaya Vineyard in Myanmar

Spread across the beautiful Shan plateau in eastern Myanmar is the Aythaya Vineyard, the oldest and one of the only two vineyards in the country. Aythaya Vineyard was opened in 1999 by Bert Morsbach, a German wine-lover who shipped around 14,000 vines, mainly Shinraz and Cabernet Sauvignon from Burgundy to the Shan State. Myanmar does not traditionally have a culture of winemaking—they have their own alcohol or "palm wine" made from jaggery (this is another super interesting topic, will leave a link below)—but the climate and terrain are in fact suited for vines too. The region receives 150 days of sunlight annually without excessive rainfalls, has an altitude of 1,200m (3,940), and a soil texture of calcareous origin. The other vineyard in the country is called Red Mountain Estate Vineyards & Winery, also located in the Shan State. However, Aythaya is by far the most famous, and their lineup of wines can be accessed at almost every (modern) super market nation-wide and the duty free shops at the airport. The price range is around $5-$18, depending on the exchange rate and where you purchase them.

From a wine perspective, I must admit Aythaya wines are rather mediocre. However, as a former expat in Myanmar and an intern at a local travel agency, I fondly recommend a visit to Aythaya Vineyard (for a walk and a tasting, offered at 2,000MMK≒$1.40/ person!) and the beautiful destinations in the Shan State. I have posted some photos of the vineyard and sites near it; all of the destinations in the photos (including the famous Inle Lake, Taunggyi, and Kakku Pagodas) could be visited in two days only, with a very low budget. Plan your next trip to Myanmar!!

https://www.myanmar-vineyard.com/

https://wine4food.com/editors-picks/inside-myanmar-wineries/

https://www.vice.com/en_us/article/ezq34p/climb-a-palm-tree-if-you-want-to-get-drunk-in-myanmar

Digging into the Licensing Policies Behind Philly’s BYOs

When I was in college in Pennsylvania, many restaurants were BYO (“bring your own”) alcohol. I had always heard that it was due to strict liquor licensing laws in Pennsylvania, but had never dug into it further. Having heard from a variety of folks throughout the course on the challenges of licensing in the US, my interest was piqued and I decided to look into the policies and licensing costs in Pennsylvania.

Pennsylvania is one of 17 states that controls the sale of wholesale alcohol at a state level and one of 13 jurisdictions that also controls retail sales for off-premise consumption. [1] In practice, this means that to buy alcohol for off-premise retail consumption, you have to go to a state owned liquor store (similar to the structure in Canada), with the exception of some purchases of beer and wine below a certain percentage of alcohol content.

Philadelphia has a thriving food scene, with some estimates of 3.8 restaurants per 1000 people in Philadelphia (versus 2.8 in New York and DC, and 2.5 in Chicago). [2] Of those restaurants, more than 300 are BYOs. [3] But are licensing costs for restaurants the true driver of the flourishing BYO scene?

Liquor licenses in Pennsylvania are issued on a quota system, based on census statistics. [4] This scarcity leads to a significant secondary market for the limited number of on-premise licenses available. The Pennsylvania Liquor Control Board also periodically holds an auction for liquor licenses (limited to a single license per county or approximately 20 licenses per auction). At the recent September 2019 auction, the average cost of a license was more than $82,000 and the highest winning bid was for more than $256,000. [5] These prices aren’t anomalies -- in the March 2019 auction, the average winning bid was $95,000+ and the highest winning bid was $276,000+. [6] While I had initially assumed that licenses would be more expensive in urban areas because of demand, the quota system drives up prices in both urban and suburban areas. The highest selling licenses in both auctions in 2019 were for suburban counties because of their lower population density from the census limits the supply of available licenses.

Based on this research, the limited supply and high cost of liquor licenses for restaurants is undeniably a driver of the unique BYO scene in Philadelphia.

Another quirk I learned while researching this post? Pennsylvania has a carve out for restaurants and hotels without a “Sunday Sales Permit” to serve alcoholic beverages on Super Bowl Sunday, St. Patrick's Day and December 31st (if they fall on a Sunday). Cheers!

[1] https://www.lcb.pa.gov/About-Us/Pages/default.aspx

[2] https://billypenn.com/2019/09/27/philly-has-more-restaurants-per-capita-than-new-york-city-according-to-a-new-report/

[3] https://philly.eater.com/maps/best-philly-byob-restaurants-bring-your-own-bottle

[4] http://pennsylvanialiquorlicense.com/faqs/

[5] https://www.lcb.pa.gov/Licensing/Documents/Auction%209%20Results%20Sept.%202019.pdf

[6] https://www.lcb.pa.gov/Licensing/ResourcesForLicensees/Documents/rls%20-%20PLCB%20-%20Eighth_Auction_Winning_Bids%20-%20032919.pdf

Smoke taint, lawsuits, and a wine tech opportunity

One thing Peter Mondavi spoke about during class and again at Wine Circle was concerns with how the California wildfires affected the flavor profiles of Napa wines. Smoke taint often leaves wines tasting burned and ashy and have more recently become a concern for wineries as wildfires become more common. Fire produces free volatile (easily evaporated) phenols (a hydrocarbon with an alcohol group) that latch onto the sugars in the grapes. Their effect on flavor profiles may not show up immediately in the grapes and present itself during fermentation. Oak, too, has volatile phenols in it that can make a wine taste more “smoky”. As Mondavi discussed his concerns, I wondered how beyond Charles Krug, other wineries were taking measures to mitigate anticipated damage to flavor profiles and yields with the increasing threat of wildfires in many wine regions.

As it turns out, just last month, a few wineries sued their insurers for not covering wines that had been affected by the wildfires that burned through Sonoma County in 2017. The wineries argue that the smoke taint affected the marketability of their wines. Though it sounds as though the defense is using technical details about whether the wine is insured during its production process versus while the grape is on the vine, some winemakers argue that the wine can be affected at multiple stages of product— pre harvest and post-harvest— by the smoke. It seems like this lawsuit could set a precedent for the agriculture industry in general. Certainly, wildfires affect marketability for products beyond wine and as the prevalence of wildfires increases, I imagine we will see more lawsuits like this.

The wildfires have had a terrible impact on agriculture and livelihood, and consequently, many wineries are looking for solutions. In the spirit of proposing our innovative wine ideas for this week, I see an opportunity. In fact, some researchers are currently looking for ways to protect grapes from volatile phenols. One method that is being studied is a spray to prevent the phenols from penetrating the grape skin. I could totally see an innovation here. The spray approach makes me think of Apeel Sciences, a startup building skins to preserve produce longer. Other researchers are coming up with methods to test the impact of smoke taint on grapes. Because different grape varieties absorb the volatile phenols differently, some grapes may actually be spared from smoke taint. A device to measure this pre, peri, or post fermentation could be quite useful to save a winemaker from selling smoke-tainted wine and tarnishing their brand.

With climate change’s growing threat, winemakers in wildfire-stricken regions are really feeling this pain, and now is a time for innovations in wine and agriculture to solve climate impacts and save quality wine.

California Wineries Sue Insurers for Wildfires: https://www.winespectator.com/articles/california-wineries-sue-insurers-over-smoke-tainted-wines

How Smoke Affects Wine’s Taste: https://www.npr.org/sections/thesalt/2017/12/13/570188980/winemakers-worry-wildfires-will-leave-whiff-of-ashtray-in-their-wine

Researchers develop method to protect grapes from smoke taint: https://phys.org/news/2020-02-strategy-wine-grapes-smoke-taint.html