The Wine Industry’s Tipping Point

Today’s post is from guest writer Jennifer Thomson of Thomson Vineyards:

The other day a winemaker said that I had the impressive ability to attract “characters”. This was as we were driving through the underbelly of the city, along side the ship yards, searching for a warehouse supposedly full of new French oak wine barrels being sold for As Seen On TV prices by a salesman named Mike *(name has been changed to protect the source of these ridiculously low priced barrels…err I mean for the sake of confidentiality). I responded to the winemaker, “Yes it seems I do…I also seem to be quite a magnet for unavailable men.” He laughed.

Wine Barrel As Seen on TV

Author Malcom Gladwell, notes three agents of change in his book The Tipping Point, one of those agents being types of people.  I know it’s not Gary V’s latest Crush It or Quick Bites by Rick Bakas; but The Tipping Point contains some pretty insightful information that when applied to the wine industry, connects the dots seamlessly with little to no effort and underlines the fact that if you don’t have a Maven, Connector, or Salesman hidden out in the newly reorganized 2010 org chart of your business or winery you better get one – fast!

I’m all three. Not because I’ve honed my skills or been trained to be this way, it’s just who I am. As a freshly minted industry insider I can point out just where the tipping point is between “for the sake of the business – for the sake of the wine” and just plain greed. And I’m sad to say it but, “The Wine World’s Juicy Little Secrets” is evidence of at least one of the seven deadly sins.

Recently I’ve come into contact with various levels of juicy little secrets. Some are appalling; some are as old as the seven deadly sins. More telling is that what is outlined below all occurred within the past week, a telling sign that “The Wine World’s Juicy Little Secrets” happens more often than not. Here’s a brief snapshot of the life of a Maven/Connector/Salesman.

  1. One of two Big Gun Brokerages says at a custom crush seminar that bulk wine on the market past its prime i.e. 2007 and older is being sold to vinegar and ethanol producers for 35 to 50 cents a gallon. If the ethanol producers get it first, it’s the next stop is biofuel. If a négociant swings in just in the nick of time and buys out the whole lot, he’s likely to pay $3-$7/gal, package it and put it in the hands of consumers. It may also change hands again, sit in storage for too long and go back to vinegar. In the real wine world, the pendulum swings ever so slightly between premium wine, wine, bulk wine, vinegar and then…ethanol! It also swings back and forth far more often than wine marketeers care to let on.
  2. New French oak barrels no longer sale-able because a cooper claimed an insurance loss due to external barrel water damage. Barrels showing no signs of external damage are on the same pallet as the ones with insignificant water marks. The cooper was either forced to claim the loss because they were in the same vicinity, on the same pallet or otherwise. Mike says, “I can’t tell you who, but the biggest wineries in California buy these barrels.” I negotiate one for free. We decide to buy 10 more. Point of reference, the barrels were trucked 60+ miles south only for us to pick them up and truck them back the 60+ miles to the exact same town they came from. I’ll get to the biofuel issue, green certifications and the wine industry’s addiction to the word “sustainable” later.
  3. Location of the barrels is very important. They are sitting immediately across the warehouse from stacks of wine from a winery currently reviewed on Cork’d, selling for almost $40 a bottle. The winery simply needs the cash flow and doesn’t want to damage the brand’s established $40 price point, so they sell bulk to Mike and he sells it through his channels for lesser price, has the option to repackage it and other wines like it, or enter snapshot 4.
  4. Mike calls me this morning and says he has some very good French wine and he needs a poly hard shell container, wire enclosure, to hold wine. He goes on to explain to me that he will pay someone to open the wine, pour it into the container, scrap out the bottles at 5 cents a piece and sell the wine to make none other than, vinegar or ethanol!

I could go on, but I’ll stop there. That’s quite enough of a snapshot into my life, unavailable winemakers and all, that I care to disclose.

But I leave you with this. Wine is a business. Furthermore winegrapes and wine is a commodity. Put aside the romantic notion of scantily clad women, the Tuscan sun beating down on the winemakers furrowed brow, ripe berries dusted with 24 karat gold and pull out your high school economics textbook. Look at the laws of supply/demand. Then flip to the index and read up on the definition of elastic and inelastic. Finally, look at the model where a commodity slowly increases in demand and production grows to meet it – the rate is climbing. It must, at some point (they all do) plateau. At that juncture wineries must either source new undiscovered markets or define some other competitive advantage in the marketplace. The wineries referred to in “The Wine World’s Juicy Little Secrets” are defining another source of competitive advantage because as I referenced in my last guest blog entry, it’s standing room only in the marketplace and new undiscovered markets are dwindling! That being said, it’s dishonest and can be related to more than just one of the seven deadly sins if consumers care to really open their eyes to “The Wine World’s Juicy Little Secrets“.

And the tipping point? Wineries simply trying to carve out their own well planned, financed and balanced niche in the market that cut costs by buying As Seen On TV priced barrels, keep drinking wine from those wineries consumers. They are the ones just trying to stay in business for the sake of the wine and that’s the truth.

About the Author

Jennifer R Thomson is the fourth generation of Thomson Vineyards and kicked and screamed her way into the wine industry fighting off the family business as long as she could. Her family has farmed the same 80+ acres of pears, apples, prunes, and cattle in Los Carneros, Napa California since 1938. The family was responsible for the development of the first irrigation system in Napa Carneros in the 1950s made possible by a series of federal soil conservation land grants. Growers of Pinot Noir, Chardonnay and Merlot since its first wine grape planting in the late 1960s, Thomson Vineyards has supplied both the David and Goliath wineries with premium fruit in the Napa, Bay Area and Central Coast regions of California.

Tags:  

drinknectar

Owner of Nectar Tasting Room in Spokane, WA. (@nectarwine) Publisher of Spokane Wine Magazine (@spowinemag), author, speaker, consultant and internet marketer with Nectar Media (@nectarmedia)

9 comments on “The Wine Industry’s Tipping Point

  1. Pingback: The Tipping Point « Thomson Vineyards

  2. Brian

    Great Article. It’s great to strip away the facade and show the ugly underbelly of this beast. These are businesses at the end of the day, not romantic artists right? If they couldn’t make a buck doing it, guess what, they wouldn’t be doing it!

    Thanks for more insight into the “Industry” side of the wine business.

    BTW, where can I get me some of those discount french oak barrels?

    Cheers,
    Brian
    http://norcalwingman.com

    Reply
    1. drinknectar

      Thanks, Brian – totally agree…its a biz…many small wineries get into it for the passion and art, but at the end of the day they have to pay the heat bill…

      Reply
  3. ThomsonVnyrds

    Thanks Brian for your thoughts. Is it curious that there’s not more discussion going on?

    Like farm to table, how do we activate consumers to support small wineries so they can keep the heat on?

    Bloggers, I challenge you to not review a single Goliath’s wine for a month, collectively as wine bloggers. You set the parameters and terms – could it be done?

    Reply
    1. drinknectar

      Thomson – what would you consider to be “Goliath” how many cases?

      Reply
  4. ThomsonVnyrds

    I know I said I’d let you guys set the terms! So I only offer these up as ideas for parameters, take them or leave them. But I’m thinking PSA campaign declaring “don’t send me your wine to review, I support the little guys” website badges, full fledged assault aligning ourselves with Farm to Table already established campaigns. Okay I’m getting ahead of myself. Mid size winery is defined as 20,000-100,000 case production. I advise 20,000 or less. But would be willing to negotiate for 50,000 or less. Nectar – what percentage of wines do you receive from each of the boutique, mid, large scale tiers?

    Reply
    1. drinknectar

      To be honest, I rarely get wine from producers of greater than 50k. I would say the percentage is 10% – it sure is an interesting concept. Maybe one that we should try to get more input on.

      Reply
  5. Tish

    Very VERY interesting stuff. I had heard that the market for bulk wine had dried up, but had not considered the vinegar/ethanol angle. Meanwhile, the bulk of bulk wine is really not bad at all — there is just so much of it. Clearly this is a great time to be a wine enthusiast.

    Thanks for reminding us also that the truth about wine is not to be found in glossy pages. It it does trickle on to the web, though, thanks to posts like this!

    Reply
  6. Joe

    Indeed, very interesting stuff. Of course, it’s not an American phenomenon. I’d be curious about what percentage of French wine grapes ends up as brandy…

    Reply

Leave a Reply