Tag Archives: wine business

Why Big Wine will keep getting bigger


Big WineThink this year’s wave of Big Wine buyouts was impressive? Just wait. Big Wine is only getting started.

The wine industry is going through unprecedented consolidation, and even I’m surprised — and I’m the one who predicted it. That’s because three things have made this the perfect time for companies like E&J Gallo, Constellation, and The Wine Group to snap up smaller producers the same way a small child attacks Chicken McNuggets. This is a mixed blessing for the consumer, who will get increased access to well-made wine, but at the cost of much of the wine tasting the same regardless of where it’s from and who made it:

• Cheap money. Interest rates are not just at historical lows, but have been there for almost 10 years. That makes the cost of borrowing to buy a winery so low that even those of us who aren’t M&A geniuses understand how much sense it makes. Plus, rumors of an interest rate hike this fall may have spurred this summer’s wave of buying, so that Big Wine could lock in all that cheap money.

• The biggest wine companies are preparing for a world where we buy most of our wine at grocery stores, warehouse stores like Costco, and large chains like Total Wine. This will happen sooner rather than later (if it hasn’t already), and anyone who doesn’t understand how important this is is missing the biggest change in the wine business since the end of Prohibition. Big Wine wants product to fill all those store shelves, and the easiest way to do that is to buy another winery. Could the local wine shop, with someone who waits on you, become as quaint as the corner drug store and gas stations with attendants who clean your windshield?

• The end of the family winery era in California, which started in the 1980s and did much to make California wine some of the best in the world. But wine is not immune to the laws of family business, which say that any family business that lasts past the first generation is the exception. And most of the family wineries that have been sold in the past couple of years are first- and second-generation companies. As one banker told me, there are more wineries that want to sell than anyone can imagine.

The other thing about all these buyouts? That wine, despite what so many think, is no different from any other industry, and the same kind of consolidation that has transformed U.S. business since the beginning of the century — Heinz buying Kraft, for example — will transform wine. This is a change many don’t like and even more don’t understand, but it seems inevitable.


Update: Sweet red wine is taking over the U.S.


sweet red wineThe surprising thing about this month’s sweet red wine post is how muted the reaction was. Hardly anyone seemed surprised. Dismayed maybe, or irritated, but not especially surprised. That’s because the people who follow these things had an idea it was going on, and those who don’t — like most of the Winestream Media — don’t consider it important enough to be surprised.

And the wine drinkers buying all that sweet red? They weren’t surprised, dismayed, or irritated. They’re just happy someone is making wine they enjoy. Or, as a 30-something woman told me about her favorite sweet red, Cupcake’s Red Velvet: “It’s really good, and it’s really about the only red wine I like.”

The one thing most everyone agreed on? That the numbers, though imprecise, offered a real sense of how big sweet red has become — the fifth biggest category in U.S. wine sales, behind chardonnay, cabernet sauvignion, pinot noir, and merlot. Given its momentum, I wouldn’t be surprised to see sweet red pass merlot for fourth in the next couple of years.

So it’s not a coincidence that red blends accounted for 40 percent of all new wines over the past two years, compared to just 18 percent for chardonnay and cabernet combined, according to Beverage Media magazine. Yes, not all red blends are sweet, but sweet reds are at least two-thirds of red blends, based on data in the first post. This is another sign of how important sweet red has become.

How sweet is sweet? About 1.0 or 1.2 percent residual sugar, compared to less than .08 residual sugar for dry red wines. Other highlights in the wake of the first story, combined with additional reporting that I did:

• Consumers don’t necessarily see sweet red as sweet, says Christian Miller of Full Glass Research, who has probably studied this subject more than anyone in the country. ” ‘Sweet’ is not an attribute that large numbers of regular consumers use with regards to these wines,” he said. “They are more apt to regard them as flavorful or smooth or interesting. Many consumers jump back and forth between dryer and sweeter versions of these wines.”

• The wine industry remains uneasy about calling a sweet wine sweet, says Miller. “It’s possible that some of these companies have tested adding the word sweet to the label or description, and found it harmful. On the other hand, based on my experience in the wine industry, the number of decisions based on gut instinct, trade notions, or small unrepresentative samples is surprisingly high, even among large MBA-ish companies.”

• Since sweet red doesn’t depend on appellation or specific grapes, it can be made with fruit from anywhere in California, Or, as wine economist and author Mike Vesteth told me, sweet red can be made with all the merlot and syrah that wouldn’t be sold otherwise, and which costs less to use. Hence higher profit margins than more traditional wines.

Finally, no one — not even anyone at E&J Gallo, whose Apothic started all of this — expected sweet red to do this well. Gallo, I have been told, developed Apothic to appeal to Millennials, to compete with the Menage a Trois red, and to earn supermarket shelf space. That it might change U.S. wine never really occurred to anyone.

For more on sweet red wine:
The ultimate Internet guide to sweet red wine 
What’s next for sweet red wine?
Wine terms: Sweet vs. fruity


Winebits 393: Meiomi sale, wine retailers, restaurant wine


Meiomi saleWinery consolidation continues: The wine cyber-ether was full of pontificating and prognosticating last week after Constellation Brands, third on the U.S. Big Wine list, bought pinot noir maker Meiomi Wines for $351 million. Most of the commentators were baffled by the sale price, which seemed like a lot of money for the winery, especially since it didn’t include any vineyard land. Still, it wasn’t that surprising, given that Constellation paid $160 million for Mark West, the $10 pinot noir, in 2012, in a deal that also didn’t include vineyards. Meiomi is on track to sell three-quarters of a million cases in 2015, making it the $20 version of Mark West (marked down to $17.99), and as such seems like a perfect fit for the strategy that most Big Wine companies are following. They’ll sell you an entry level product, and then they’ll sell you the next wine when you trade up, and they’ll make sure you will be able to buy both wines in a grocery store. In this, it’s no different than E&J Gallo buying J and The Wine Group buying Benziger — business as usual for Big Wine in the 21st century.

Retailers and grocers: This otherwise run-of-the-mill post about a Florida liquor chain adding a couple of stores explained the expansion thusly: “[I]n a bid to keep the ever-expanding grocery store channel at bay.” Which means the owners behind Florida’s ABC Fine Wine & Spirits understand what’s going on, even if most wine writers don’t. Interestingly the chain is up to 140 stores, which is still 60 less than it had 15 years ago, and speaks to the power supermarkets have today in selling wine. One national wine retailer told me that grocers thrive on competition, which explains much of their success, and aren’t scared of it the way so many regional and local liquor chains are.

Restaurant price gouging: One would not expect the New York Post, home to the legendary Page Six gossip extravaganza and headlines like “Four sex scandals rock one hanky-panky high school” to commiserate with anyone who buys restaurant wine. But reviewer Steve Cuozzo, in a story headlined “Restaurants overprice wine because they know you have no idea the pain” spared no punches. Restaurant prices “… can drive you to drink — anything but wine, that is.” He does an excellent job of explaining the contradictions and discrepancies in restaurant prices, and you can almost hear a bit of sympathy. Almost, of course, because the piece ends with a restaurant charging $100 for a very ordinary $25 retail Bordeaux.

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