The Goodes

Last June, I got to marry my middle school sweetheart, Daniel.  It was the best day of our lives — full of joy and love, and the people most important to us.  During our wedding venue visit, we were given the option to select the wines to be served at the open bars.  We did a blind tasting and chose Murphy Goode.  To this day, Murphy Goode still holds a special place in my heart. When I see it in a wine shop, I feel a flurry of warm memories from my wedding day.  It emphasizes the emotional connection we have as consumers with wine, and the experience around it.  

This past week, a partnership was announced between Indochino and Ryder Estate wines.  Indochino is a bespoke suit company that appeals to the refined, prestige market.  Ryder Estate wines targets the same customer segment of upper-middle class professionals who care about sustainability and quality. Both companies share the same core belief, "“to inspire confidence that people admire.” 

This begs the question why more wineries aren’t teaming up with fast-growing consumer brands to create experiences around their products.  One example I always think of is Veuve Cliquot’s polo event.  Attended by influencers in mass, Veuve, a heritage brand, has continued to stay relevant with millennials. 

Each year, there are almost three million weddings in the United States.  This presents an attractive opportunity for small and mid-sized wineries to build their brands.  Partnering with bridal boutiques could present a relatively low CAC compared to LTV of the consumer.  A glass of wine at a dress shopping appointment could mean bottles served at a bridal shower, cases sold for open bars at the wedding, and future revenue streams during Valentine’s day or anniversaries.  

One bridal shop that I absolutely love is Grace Loves Lace.  Originally a small boutique in Australia, the brand has exploded on social media and has opened show rooms across the world.  If I were St Hugo, Wirra Wirra Vineyards, or Jacob's Creek, I would be jumping at the seams to sign a partnership with Grace Loves Lace.  Partnering would offer two Australian brands -- one traditional and classy, one youthful and popular.  I can imagine a prospective bride, sipping on a glass of St Hugo's Cabernet Sauvignon while trying on a wedding dress.  Guaranteed 10 years later, when she sees a bottle of St Hugo's on the shelf, she will feel the same warmth that I do when I see Murphy Goode. 

The "Sideways" Effect

In the past couple of lectures, I was struck by how different speakers independently mentioned the movie Sideways. I’ll admit that while I have seen the film, I was a mere 15 at the time it was released and was thus unaware of any market trends the movie may have had on the wine industry. However, after hearing our guests speak on the film’s impact, I was compelled to dig in further.

I have been a fan of pinot noir for a number of years but had no idea that the current popularity can be attributed (at least in part) to Sideways. Indeed, pinot noir has increased by 170% in what some have called “The Sideways Effect”. [1] At the same time, Merlot sales have been depressed, possibly as a result of one character in Sideways’s aversion to the varietal. By some measures, in the years after the movie came out, Merlot dropped 2% in the same time that pinot noir increased by 16%. [2]

The good news here is that Merlot is making a comeback. Despite a likely saturation in the market preceding Sideways, production appears to be up as much as 5% in recent years. [3] While not at the highs it reached in the early 2000s, it is still the second most planted red varietal in the world behind cabernet. While Sideways certainly was reflective of the view of some oenophile circles of the time, the lasting negative effect is likely not as extreme as has been claimed. At the end of the day, there is still plenty of merlot and pinot noir to go around.


Sources:
[1] https://www.npr.org/sections/thesalt/2017/07/05/535038513/the-sideways-effect-how-a-wine-obsessed-film-reshaped-the-industry
[2] https://www.foodandwine.com/news/how-sideways-still-impacting-wine-industry
[3] https://www.bloomberg.com/news/articles/2017-09-29/the-sideways-curse-has-lifted-merlot-is-having-a-comeback

Preventing Wine Fraud

I first heard of the concept of wine fraud through a podcast I occasionally listen to, called "Stuff You Should Know." The episode chronicles the origins, and some of the most notorious cases of wine fraud in US history. For instance, the hosts mention that Bill Koch, billionaire businessman, is perhaps the most famous victim of wine fraud. According to the podcast, Koch brought in wine experts and showed them 40,000 wine bottles from his cellar, hoping for a validation of the quality of his purchases. However, the experts' analysis yielded a nearly 33% fake wine rate. The podcast hosts claim that this rate--nearly one in three--is about the average you would expect for a fervent vintage wine buyer. In other words, for a $4 million cellar, $1-1.5 million will be fake. In terms of the fraud methodology, one fairly straightforward example is that super high echelon wine fraudsters would take an old bottle, add their own wine, and adjust the label to change the year to a more popular vintage that commands a higher market value. 
With this context in mind, I wondered what solutions were being developed to meet what appeared to be a clear market need for validation and security of high-value wine purchases. One new company,  Cellr, is producing plastic caps for wine bottles with both NFC and RFID chips in them which contain a unique ‘digital birth certificate’ for each bottle of wine they produce. Using these chips, buyers will be able to instantly verify the authenticity of their purchase. The company plans to launch to market at a price of three to six cents per cap. 

https://www.dailymail.co.uk/sciencetech/article-8100971/New-smart-bottle-caps-detect-counterfeit-wine-giving-bottles-digital-birth-certificate.html

No 2019 Vintage of German Ice Wine?

According to a recent New York Times report, warming winter almost cut off the sweet wine tradition in Germany. As covered in our first class, to yield the concentrated juice the ice wine style requires, water in the grapes must be frozen solid. It means that they need to be harvested after several hours of temperatures at or below 19 degrees Fahrenheit, usually in the very early morning. While climate change is causing uncertain and chaotic weather worldwide, Germany has experienced a clear trend toward warmer winters. This is extremely bad news for ice wine makers. The trade group German Wine Institute concluded recently that there would be no 2019 German vintage of ice wine due to mild winter. Last week, it updated that one vineyard, Weingut Zimmerle, close to Stuttgart in the country’s south, was lucky enough to have made a small amount, about 100 liters, or 26 gallons. While that amount is historically tiny, it might be a harbinger of future harvests if weather trends continue.

The dearth has led to a spike in prices, with a half-bottle of ice wine from the Schloss Vollrads going for at least 100 euros, or roughly $110. This has sparked an interesting dilemma for the winemakers. The rarity encourages vintners to keep trying to produce the wine, despite increasingly difficult conditions, but most of them ended up watching the grapes go to waste.

Israeli wine (please no Manischewitz)

With my Passover plans up in the air and Michael Preis’s mention of the Israeli Winery Recanati’s success in Palm Bay’s portfolio, I decided to research Israeli wine this week. Palm Bay’s website has 17 Israeli wines listed and all are from Recanati Winery in Israel. When Michael mentioned Israeli wines twice in his presentation, I had to know more. My impression of Israeli wine is quite biased by my exposure to American-Jewish wine. I don’t remember my first sip of wine, but it was most certainly at a Jewish family gathering (maybe at Passover I snuck a sip from the adult’s table). Regardless, most likely it was Manischewitz. Known for being nauseatingly sweet, for Jewish wine lovers it usually only makes an appearance at Passover seder in the name of preserving tradition. While many of us will probably never love the syrupy wine, it makes me feel warm and fuzzy any time I see it. And hey, I can say that it was a good gateway drink— it was only up from there. 

Anyway, if you can get past the bias of Manischewitz, Israel is actually a super exciting wine region. Israeli winemaking goes back to biblical times; however, the modern Israeli wine industry was founded by none other than Baron Edmond de Rothschild himself (Château Lafite Rothschild in Bordeaux). Rothschild provided expertise to better understand the Israeli soil and climate and sent cuttings from his French vineyards to be replanted in Israel. Today, Israel is home to around 300 wineries, producing 40–45 million bottles of wine every year. Only 20% of this is exported as most Israeli wine is consumed in the country; however, the largest export market is the U.S. 

https://www.palmbay.com/wine-brands#!country=Israel

Super geographically diverse (e.g. Negev— desert wines, Judean Hills— high altitude wines), I imagined there would be many different wine regions and the potential to make a variety of wines. In fact, for such a small country, there are five different major regions and many different varietals grown. I think like many things that are different in the Jewish-American community I grew up in, our perception of Jewish wine is quite different, and I’m rather grateful that Israel’s wine industry seems far off from the grape juice tradition that once symbolized my impression of my people’s wine.

https://www.npr.org/sections/thesalt/2016/04/22/475142479/man-oh-manichewitz-when-the-jewish-wine-was-big-with-gentiles-too

https://www.palmbay.com/wine-brands#!country=Israel

https://www.winemag.com/2019/03/14/top-israel-wine-questions/

P.S. My 8 year old self would recommend pairing grape juice with challah. So I imagine this may go well with Manischewitz, too. 

Constraint Breeds Creativity: Automation in Wine

It seems everywhere you go, people are discussing coronavirus. It officially became a pandemic, so it makes sense, but it is hard to write anything, let alone a blog, without considering the ramifications.

My classmate Ben Levinson wrote a thoughtful piece on how this pandemic is going to affect the Italian wine industry. It was an interesting observation that got me thinking, from an agricultural standpoint, how this could play out.

There is a scenario that keeps coming to mind: the shortage of labor. With simply less travel, countries seemingly becoming more restrictive with emigration, and farmers looking to keep costs low to prepare for what will likely be a downturn in the market, I predict that on-farm automation, made economical for smaller and medium size farms, will increase.

Take for example a point Ben makes: pruning. Growing up on a farm that had 40 acres of grenache and French Colombard, spring break for me meant pruning row after row of vineyards. This work was way more pleasant than pruning almond trees, but nonetheless painful, tedious work. There are new, advanced technologies out there that can help farmers to do more optimized pruning automatically using computer vision and robotic cutters. These are generally available only to large farming operations with enough acreage to make it economical, and/or stuck in university R&D labs, where progress crawls at an incredibly slow pace.

This is just one example, but I believe there could be a world where the scaling of technology moves faster as the willingness to pay from more farmers increases. Whether labor, harvesting, warehouse work, or even bottling, labor is going to become more scarce and this lends itself for entrepreneurs and technologists alike.

Since We Don't Talk About It Enough... Coronavirus!

It seems like today you can jump into any conversation at the GSB and know exactly what's being discussed: Coronavirus.  It's the one thing that's on our mind as we contemplate questions like will be attending school next quarter?  Will we be able to travel and see loved ones?  And most importantly, will BPL still be happening in the spring?

In the midst of all the news coverage about the demise of airlines and the meteoric rise of Zoom, there is one thing that has been forgotten.  What will be the future of wine?  Although I find it impossible to speculate on the ultimate effects that COVID-19 will have on anything, it's always fun to try and predict.

One of the regions that is expected to be hit the hardest from COVID-19 is Italy.  As an Italian, this seems like a good place for me to focus.

First, on the domestic front.  Italy has the 2nd oldest population in the world by one commonly used measure, which causes COVID-19 to be especially dangerous.  As a result, the country is essentially on lock down mode.  People are staying home from work and not going out with friends.

The first effect that this has is that some wineries don't have the necessary labor during this essential pruning season to prepare the vines.  There's also a risk that many of Italy's top wine makers are particularly prone to COVID-19 due to their age, and one has to hope that these wineries have adequate succession plans in place!  Certain wineries in quarantined regions have halted new production altogether, meaning that there will come a time when they have no wine to sell.

Another effect of the quarantine is that there is less tourism to Italy and Italian consumers are not out as much as before.  This equates to less people visiting restaurants and bars, and thus spending less on wine.  Similarly, people are not visiting wineries as much, especially those in or near quarantined zones.  Although March tends to be a low season for travel to Italy, if the coronavirus scare continues through the summer, this could prove disastrous for wineries.

Additionally, major wine events are being canceled or postponed due to coronavirus, many of which are often massive sales and marketing opportunities for these wineries.

Finally, as uncertainty looms in global trade, one of the biggest challenges has to deal with Italy exporting wine.  In 2017, Italy exported $161 MM of wine to China.   Sandro Boscaini, chairman of Masi, which produces a variety of wines in Tuscany, describes the Far East as "Completely frozen.  Nothing is getting shipped there and our agents there are all blocked. Meetings, tastings and presentations, which are key for getting people in Asia acquainted with Italian wine, have all been canceled."  Masi exports roughly three-fourths of what it produces, so as more countries start to place restrictions around trade, this could spell catastrophe for Masi and other similar Italian wine producers.

So the next time you head out to buy wine for your own quarantine party, consider helping the Italians out and purchasing an Italian wine!