Category: Learn About Wine

Today we wish to feature an interesting and valuable wine blog, The Reverse Wine Snob, (www.reversewinesnob.com) updated quite frequently by Jon Thorsen, located in our former home state of Minnesota.  (Yes, they do have very long winters and chilly springs up north, but those former Nordics purchase and drink a lot of wine, partly as a result of being indoors much of the year.)  Jon’s subscribers are largely wine drinkers who want the greatest wine quality for the lowest prices, starting with the cost of subscription to his service, which is ZERO. For those of us who years ago had a smattering of economics/price theory, we understand it is impossible to solve this equation (as quality and price are both variables), but Jon does a decent balancing job: he rates wines he reviews for both quality and price, comes up with a final score, and then makes consumer suggestions to purchase, purchase in quantity, or “Saturday Night Splurge” for the highest quality, and forget the price once a week.  (We like this approach!)

We think his wine blog is quite valuable for many, especially for those considering purchase of imported wine in the $12-$22 range with which they have no prior experience.  Many in the wine business are regular readers as it is a very interesting approach, especially as most wine buyers are far more price sensitive than the wine business likes to discuss publicly.  The average retail price of a bottle of wine in the US is around $6.25, and perhaps 80% of the wine is sold for less than $10/bottle.  As growers of premium grapes in Napa, Sonoma, and South Africa, we are not very interested in the sub $10 market, but even the occasional sub $10 reviewed by Jon can be rated quite highly for low prices, hence his “Reverse Wine Snob” blog name, and his Bulk Buy category.  But if the wine quality is only so-so, his overall rating is usually under about 7.3, perhaps his median score for wines reviewed on his site.  (Lower quality wines are usually not reviewed.)

Because the wine business ultimately is a business, and at a minimum each participant must recover their costs (or permanently subsidize a very expensive hobby, which clearly a number do), we thought a thorough discussion of wine economics may prove interesting to some.  We will leave that exercise for a later day, however, and just supply some conclusions based on our own experience.

Supply chain economics/observations:

1. Your retail $15/bottle of imported wine contains at most wine costing $1-$1.50 (10% at most) at the winery level, and frequently less than $1 (6% of the retail price per bottle). We hope the consumers do not begrudge the growers/wine makers this pittance of total wine bottle cost. Packaging at least triples the winery cost to somewhere between $3 and $5, FOB some major port.
2. The wine sold by the foreign winery for $5 then sees the cost at least tripled again to $15 if not $17 or more at the US retail store. (As there are thousands of wineries competing to get into the US wine market, and only about 300 significant distributors, and perhaps 30 major ones, the distributors and retailers are able to compete imported supply prices to the lowest possible levels.)
3. Most imported wine sold for $10/bottle or less is pretty much a “semi-industrial grade” product; and when you get down to $4.99 to $6.99 wine, wine reviews are irrelevant! (It may be red, 14% alcohol, and in a 750ml bottle, but that’s about it.) Admittedly, it is far better wine than available 20-30 years ago at these prices, but usually not very remarkable.
4. We see little high quality imported wine selling for much below $12-$15/bottle for these reasons; and since there is real consumer resistance to experimenting much above $20/bottle, it appears that most of the imported retail game will likely be played in this range for the next several years.
5. As more Internet-hip Millenials on limited budgets take up wine drinking, blogs such as Jon Thorsen’s will become increasingly popular. And while imported wine today in the US is about 33% of total wine sales, many have projected imported wines taking at least 50% of the US wine market within another 15 years. If so, blog-informed consumers will become increasingly happier with having taken the time in advance to sort the wheat from the chaff.

It has been my personal experience over the years that the more wine drinkers learn, the more questions they have.  Some wine drinkers have an insatiable appetite for more wine knowledge. Virtually all of us in the wine business learn that in social settings, once the word gets out about what we do, we are inundated with questions for the balance of the day or evening.  Wine advertising is chiefly wine education, and the first step in demystifying wine which happens during cellar tours, in store and trade tastings and even in media coverage.

Some wine producers believe the mystery and romance of wine is part of its allure, and if more is explained it will erode higher prices for wine.  Some of them enjoy telling a tale that only their small corner of the world grows the best grapes, and that generations of growers and wine makers have a monopoly on the secrets. If this works for a chateau, fine, but many of us believe that more knowledge of wine growing increases the benefits for both wine drinkers and wine producers.

This, of course, is not to denigrate beautiful wineries in glorious settings, and the influence of tasting wines in such surroundings: romance is definitely relevant in the marketing of any luxury good or experience. Mystery, however, is often the product of complexity and the wine business is full of complexity.

Only wine drinkers who want to learn a little more about wine grape growing need to read any further.

Let’s take two different river valleys where we (my partners and I) produce grapes, the Russian River Valley in Sonoma County, CA, and the Breede River Valley in the Western Cape, South Africa.

In Sonoma, the first 10-15 miles from the Pacific Ocean is often so foggy and chilly that most grape varieties will not ripen unless the grapes are grown on a warmer knoll or hillside. The next 10-15 miles (the “Middle Reach”) is some of the best land in the world for growing colder weather varieties, such as Pinot Noir, Chardonnay and Sauvignon Blanc. But by the time you get to and past the town of Healdsburg, and into the Alexander Valley (with the Russian River running through it), perhaps 30 miles from the coast, the fog burns off too early and arrives too late for these cool weather grapes to do well. “A quality” Chardonnay grapes suddenly become C+ quality, but warmer weather grapes, such as Cabernet and Zinfandel just love these conditions. Thirty miles along one river valley makes for huge variations in growing conditions and grape quality.

In South Africa, in the Breede River Valley, which has steep mountains on both sides, we are far inland from the Atlantic Ocean so fog does not appear. However, the mountain sides  impact the amount of sunlight on the grapes grown in this valley. We have a large vineyard on the east side of the valley where we have 93% red grapes planted because we get wonderful midday and afternoon sunlight. Perhaps 10 miles to the west, on the other side of the valley, grapes are shaded by other mountains from the sun by early afternoon. Accordingly, these vineyards work very well for white grapes but poorly for red grapes.

Local knowledge of terroir is essential in knowing what to plant and where and for wine drinkers who want to know why the wines grown in particular regions can vary widely, these are major insights. In terms of price, there is a limited amount of plantable land in both river valleys for wine grapes, hillside land is limited still further, which of course, affects prices. Additionally, spacing of vines in rows, and between rows, various types of rootstocks, different clones of the same grape varieties, types of trellising and irrigation systems, soil preparation that may have occurred (or not), frequency of irrigations, and how ground water is measured, and more, are all factors. Grape growing is very complex and I have not even mentioned the importance of harvest conditions or what happens in the  winery itself.

Most of the mystery of wine growing is due to complexity and most people aren’t interested in spending the time to learn 1% of this stuff. (“Just give me a glass and I’ll judge for myself.”)  There are days I fit into this group and I don’t ponder the mysteries of wine, I just enjoy the wine in my glass.