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.

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.

The sky is falling, the sky is falling! “Woooolllff!” Run, hide, take cover, the apocalypse is now! “The world is drowning in an ocean of cheap wine.” 2008 and 2009 have been very challenging years. Many of you reading this have had to change your spending habits as your income has been diminished or has vanished entirely. The Great Recession, as it will end up being played out in the history books, has changed the landscape of nearly every industry and left its mark on just about every person in the world. How has the wine industry faired? What is the forecast for the future?

About a month ago, I was presented with the opportunity to purchase a local winery. At that moment, I became VERY interested in the future of the wine business, direct to consumer marketing, inventory gluts, pricing discounts, data collection and marketing strategies. While the business opportunity recently fell through, I did learn an incredible amount during my research. After pouring through nearly 50 pages of information from Silicon Valley Bank’s “State of the Wine Industry” report, Vin65 blog posts, VinQuest Consumer Direct report and others, here is my take on the state of the wine industry. This is intended to be a Readers Digest synopsis – it is highly encouraged to read each of the three links above.

Continue reading the forecast at Cork’d. The synopsis includes Pricing, Distribution, Marketing, Consumers, Inventory, and the Forecast

Guest Blog #4 from @thomsonvnyrds If you’re interested in being a guest blogger, contact josh@nectarcoffeeandwine.com

Two blogs were posted in April that underline the fact that what is going on in the wine industry is nothing new, it’s just farming.

Jason Haas of Tablas Creek posted a blog on the challenging economics of making high quality inexpensive California wine. He runs the numbers on whether the Tablas Creek cost structure could support adding a vineyard that would either allow greater production of  one of their least expensive wines (around $25 retail) or produce grapes to sell at the going rate for top vineyards in the Paso Robles area. In the end, the plan didn’t pencil out.

Vinography posted what I’m declaring as the “truthiest” blog of 2010 called The Coming Carnage in the Wine Industry. With an opening one liner like, “The shit storm is just beginning,” it’s hard for The Farmer to look any new wine producer in the eye and think they can out talk or out smart him into believing that the wine industry isn’t in the same shit storm that the Napa Valley pear industry went through in 1965 when MA Thomson was the last grower to have a contract with Del Monte and California Canners & Growers.

I’ve had numerous conversations in recent weeks with new wine producers, old wine producers, brokerages, other growers, industry experts, industry bloggers, and consumers. My intent when engaging in each discussion is three fold

1. Continue conducting a self-proclaimed unscientific survey in hopes of getting a better read on all the components of the industry. Ultimately positioning myself as a better informed business woman when sitting at the industry table
2. Rustle out the Straight Shooters (who are fearless and tell it like it is) from the Shady Juans; because as a grower those are the wineries I want to work with
3. Firmly establish myself and Thomson Vineyards in the group Vinography’s Workout Winemaker says there are simply are not enough of in the industry – individuals with a high enough level of skill in business to remain in business. Because after all, wine is a business; you can’t get to wine without farming; and farming isn’t anything new. We’ve been in business since 1938.

Both the Tablas Creek and Vinography blogs touch on the costs of farming wine grapes and both approach it from opposite ends of the spectrum. Tablas Creek is vertically integrated, managing all points of its wine supply chain. In order to grow one link in the chain, it must grow another or risk imbalance. Vinography paints an all too accurate picture of the winemaker who chases after the cult vineyard in the grower/winery model, where a winery purchases fruit from an independent grower to make into over priced wine at the staggering raw product cost of $6k/ton.

Back to all the talking I’ve been doing as of late. After I tick through the SWOT (strength, weakness, opportunity, threat) analysis of the wine industry in 2010 where I invariably make a case about the numerous breakages in the system, the winery, winemaker, newly vertically integrated grower asks, “Well missy, just how would you fix it?”

I offer several solutions. Most have to do with recalibration of the two models noted above. All solutions have to do with the industry self-regulating and readjusting it’s moral compass and as a final solution I offer that it may just be a good idea to send some more wine leaders back to business school where they may get a chance at getting their heads screwed back on straight.

Tablas Creek solution: Find a grower who is reasonably in touch with the market and sign a long term contract. Had to source outside of Paso Robles? But managed to make the costs pencil out taking delivery of fruit from Napa? Why not? Tablas Creek has no business planting any more vineyards while fruit drops on the ground year after year. I say the same to the vertically integrated wineries planting more Chardonnay in Carneros this weekend. Until your neighbor’s fruit has a home, put your shovel away. Contrary to popular belief your neighbors are in Santa Ynez, San Joaquin, and Mendocino Counties. California isn’t so big that it can afford to look the other way in the global wine economy. In Farmer terms: Nobody is THAT special. If they can build it in Argentina and ship it to the Port of San Francisco cheaper than we can deliver it 50 miles from Carneros to SF there’s a problem and you’re not immune, no matter how great you were in 1976. It’s simply not good enough any longer to just be Napa. The California wine industry must recalculate, calibrate and regulate as individuals and as a collective industry.

Vinography Solution: Find a grower who is reasonably in touch with the market and sign a long term contract. Oh wait. I already said that. What I meant was find a grower who has recalibrated their pricing and factored in California wine grape prices. $6k is ridiculous; any grower out there charging that per ton in 2010 should be shot. I do however offer this solution with one caveat. Wineries: District 4 average prices should not be chipped away at. If you are lucky enough to source a grower who’s only breaking even in an effort for you to only break even, ride out the shit storm together. Don’t be so nearsighted. You DO NOT need custom corks and pretty little wax closures. The Millennial generation doesn’t care. Have you seen the number of cork recycling programs going on at Whole Foods and the like?  This solution can be applied to Workout Winemaker’s point that not enough of you wineries, start up or not, have the necessary business tools and foundation to understand cost benefit analysis. See me – I’ll run one for you for $500.

And finally, don’t think you’re getting out of here unscathed Workout Winemaker. You sir are a problem too. Don’t start your own label, only to fund your label by taking on 19 other “clients” in your newly minted wine shed incredibly reminiscent of a Public Storage unit. Funding your operation by bringing on 19 more competitors in an industry which is already at standing room only capacity is not doing anyone any favors. Shut up about David and Goliath. You’re as bad as the Goliaths planting Chardonnay right now in Carneros!

Whether you are a vertically integrated Goliath, a $6k/ton grower, or a tiny Workout Winemaker named David look yourself in the mirror every morning and adjust your moral compass to reflect solid business ethics. That means staring supply and demand square in the eye; it means doing the hard work to not only care about your own survival but the survival of your neighbors and the California wine industry in relation to the global wine economy. The “What’s In It For Me Club” should officially be shut down. Closed for business. Effective immediately. And that is what will solve the issues of the wine industry; otherwise you can count on The Farmer being right – it’s nothing new to him, he’s seen it all before, and it’s just farming son.

About the Authors

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. 

George A Thomson, known as The Farmer farms all of the acreage himself. No vineyard management companies here! Most recently he gave in and allowed crews to prune the vines in February of 2010 when he made his first international trip to New Zealand to learn more about the global wine industry. He puts grapes on grapevines, never left the county of Napa before age 30 and also stamps his feet occasionally to say, “You name it, I’ve farmed it.” Jennifer does everything else as Chief Strategy and Development Officer of Thomson Vineyards; writes and negotiates contracts, schedules harvest crews and deliveries, sorts fruit, reviews P&L statements, submits farm paperwork to the county and state, and ensures the BBQ at the vineyard office is stocked with Tri Tip and tequila! She has an MBA from Florida and her thesis was titled, “The Economic Status of the California Wine Industry.” She’s just now getting comfortable with the millennial label.

• Twitter: @ThomsonVnyrds
• Web: http://ThomsonVineyards.com
• YouTube: http://YouTube/ThomsonVnyrds
• Picasa: http://picasaweb.google.com/ThomsonVineyards

While Americans are already indebted to China for saving us from economic collapse (to the tune of $1.7 trillion dollars / 10% of our national debt), we will soon be thanking them for the explosion of the wine market to heights never seen. Wine makers will struggle to keep up with demand and our amber waves of grain could proliferate with gnarly green vines of grapes. Gary Vaynerchuk may even finally be able to buy the NY Jets if he can get exclusive shipping rights to the peoples republic.

Replacing their Pinyin with Wine

China as always been enamored with all things ‘western’ (U.S. Culture). As wine consumption grows in the states, China soon will follow. Americans are imbibing to the tune of 300 million cases per year, a $30 billion dollar business. Experts predict that America will surpass Italy as the wine’iest’ (not whiniest) nation by 2012. While Italians drink about 30 liters per person (40 bottles of wine), Americans only consume 10 liters per person (13 bottles) – Just a side note, I’m doing my very best to up that average but there is only so much one man can do and still maintain a functioning liver. - Sheer population size makes the difference (see sweetie, size does matter). Chinamen (and women) only consumer about 1 1/2 liters of wine per year. That is just two bottles. As all the wino’s out there can attest, that’s a damn shame.

Okay, public school kids, follow my basic math here. US wine biz is $30B, population is 300 million(ish) = $100 per person spent on wine. China’s current wine biz is about $18B, population is 1.3 billion(ish) = $15 per person spent on wine. If marketing experts can put their collective caps together and could get more wine over that great wall the potential is AMAZING. IF the Chinese consumed even 1/2 the wine that Americans did the result would be a wine business that is more than double the size of the U.S. biz (about $65 billion dollars).

Solving the U.S. China Debt Problem

Now, I’m no diplomat but if we could increase Chinese consumption of wine to be at par with American consumption AND we convince them to buy only U.S. produced wine, the total could be equal to the amount of U.S. debt that they currently own. In essence we get them addicted to the magical nectar we could trade wine for debt. Maybe someone at the U.S. Trade department will read this blog and our economic issues could be solved.

Men and Youngsters

Continuing our numbers game, the future of the U.S. wine market is men and the 21-30 age group (millennial generation). Men drink less wine than women. My commentary says that the good men drink wine. Confident men drink spirits of all kinds (except maybe pink martinis). Statistically, however, women drink 60% of the wine consumed in the states. Beer consumption outpaces wine consumption by more than 2 to 1. While beer flavored wine is a potential answer, I think the solution lies in the cool factor and portability of beer. Wine in a can? Maybe the wine glass is too feminine? Half naked women wrestling over a Pinot Noir shouting tastes great, less filling? Part of the battle is de-snobbing the wine world w/o dumbing it down to the Forrest Gump level of, “this wine tastes like purple grapes and this one tastes like green grapes.”

SEX is the answer. Always! Men respond to sex. Wine makers need to appeal to this to gain more inroads with men (especially men 21-30). Personally, I think wine is extremely sexy – except when you drink too much. Here are some possible marketing ideas. Switch Dale Earnhardt Jr. from Amped drinks to Seven Deadly Zins. Publish a series of ‘wine pong‘ clips to YouTube (if you don’t understand that reference then you are not part of the target market). Get Sonoma Valley vineyards to sponsor the next Lollapalooza tour. Infuse wine with ginseng, taurine, and caffeine combining the high energy effects with the mellowing effects of alcohol. Lastly, product placement – let’s see the cast of Twilight enjoying a glass of Chianti with their blood. While these quips are meant to be humorous, the fact remains that there is money to be made marketing wine to the millennial generation and young men.

So, there you have it, the future of the wine business is China and Sex, but not always the two of them at the same time