June 14, 2010

 We're having our first major heat wave here in the greater Silicon Valley area.  Norma decided to go on a riesling tasting to help offset the thermometer.  We tasted about half a dozen, but one was particularly interesting.

Query's 2009 Central Coast riesling has an excellent acid - sweetness balance and could have been our best-in-show.  But after about 20 minutes, the acid disappeared, leaving a rather ordinary riesling.  What the heck happened?  (And, parenthetically, who or what is Query?  The label says they're in Healdsburg, but I've been unable to track down any information.)

I had a hypothesis.  Naturally.  There was some secondary fermentation, leaving a little CO2 in the bottle.  This created a weak solution of carbonic acid, which, in turn, created the acid flavor.  But once the bottle was opened, the CO2 bubbled out, the carbonic acid level was reduced, and the acid disappeared.

Thinking I had a good hypothesis but wanting to confirm it, I contacted John Buechsenstein.  John is a consulting winemaker.  We were lucky to have him as the instructor in the wine appreciation seminar we took at U.C. Davis.  John was gracious enough to reply -- and he confirmed my speculation.  In fact, John says this is pretty common among young rieslings.  Here's exactly what he said:

 "I've experienced this many times. Younger Rieslings do retain much of their CO2 from their original fermentation. This is particularly true since they are usually kept cool during storage and bottled young. This is desirous as it helps them have a "zippy" edge when first tasted. So, this spritz plus the fact that initially we serve them cold helps to boost their acid impression. Then, as they sit a while, they both loose their carbonic edge and warm up, eventually presenting a bit softer."

 Query riesling is available at Beverages & More in the Bay Area (14.99 per bottle, but BevMo has it on sale with a second bottle for $0.05 right now).  If you buy it, make sure you have enough guests so the bottle doesn't stay open long before it's empty!

OK, I was a little bit wrong last month when I berated the Wall Street Journal for touting high-alcohol wines.  Norma and I were two of the lucky 50 people who attended the Hartford Family Winery's winemaker's dinner on May 22.  Dessert was "Chocolate Clafoutis al'Ancienne, Blueberries, and Hazelnut Croquant."  It was incredible.  But even more incredible was the 2007 Hartford Vineyard Russian River Valley zinfandel ($55 per bottle, get one before they're gone).  Don Hartford has done an incredible job of tending the vineyard and whipping up a wine that is 16.5% alcohol but still balanced.  And, yes, the aroma was not pure alcohol.  Neither was the flavor.

So I was wrong, but just a tad.  I still maintain that most high-alcohol wines are not well-balanced and largely undrinkable.  I'll make exceptions for Hartford, Lynmar Estate, and Kenneth Volk because I trust their winemakers. For all the others, you'll need a lot of credibility with me to get me to taste them.

About the dinner.  Chef Taki Laliotitis (if you click the link, scroll down to see Taki's photo and bio) put together a menu that perfectly complemented the wine selections.  For the record, here's the menu (complete with my scribbling about some of the ingredients):

From 1998 to 2009, Dorothy J. Gaiter and John Brecher wrote their wine column, “Tastings” for the Wall Street Journal. The column was very personal with Gaiter and Brecher making it clear what they liked and disliked.  Although we often disagreed with their reviews and recommendations, we respected their professionalism and willingness to discuss issues via e-mail.  (To its credit, the Journal maintains a web page with links to many of John and Dorothy’s old articles.)

No more.  John and Dorothy retired last year.  Since then the Journal’s wine reviews have been for sale.  One week, Bordeaux are pimped.[1]  The next week it’s wines of Portugal.[2]  There are exciting things happening in the French wine business, but those events are far removed from the stultified traditions of Bordeaux.  (We’ve been especially impressed with some of the wines from Languedoc, but that’s another column.)

But today’s column was the last straw.  “Wines That Pack A Little Extra Kick” by Lettie Teague.[3]  As an attempt to justify wines with alcohol levels above 14% the column misses badly.  Consider this unbelievable paragraph:

“That's one thing that the alcohol-haters leave out: Alcohol delivers flavors. "It's like the fat in the meat," as Aldo Sohm, wine director of Le Bernardin in New York, once said to me. (I wasn't sure if he meant it as a good thing, but I decided to take it that way.) “[4]

Alcohol delivers flavor?  Yes, the flavor of alcohol.  Try to detect the aromas of a 15% bottle of wine.  You can’t.  The only element you’ll be able to detect is alcohol.  If that’s what you like, go buy an overpriced bottle of yuppie vodka.

To say that we miss John and Dorothy is a vast understatement.

By Tony Lima and Norma Schroder

What can your winery do to survive the Great Recession?  Bundling, a relatively obscure topic in economics, provides considerable insight.  In this article I’ll discuss how a winery owner can use ideas from bundling to weather the current economic downturn.

The Basics of Bundling

Bundling is selling two (or more) products together at a single price.  In the real world bundling is very common.  For example, you can purchase a bundle of software from Microsoft called the Office Suite.*  The price of the Office 2007 Standard Suite is $399.95. All the Office Suites are pure bundles.

But it’s also possible to buy individual components of Office.  A copy of Word all by itself has a list price of $229.00.  Other individual applications have similar prices.  Clearly Microsoft would like most people to buy one of the bundles.

Selling both bundles and individual titles is called mixed bundling.  When there are differences in either production costs or the buyers’ willingness to pay, mixed bundling usually will increase profits.

What do computer software and wine have in common?  Read on.

Bundling Wine

Being good economists, we begin by listing our assumptions.  We assume our boutique winery is operating at capacity, say 10,000 cases per year.  Production is the same in each of two years.  We think of the 2007 and 2008 California vintages since those two years were very similar.  The 2007 vintage is being released in 2009 with the 2008 vintage scheduled for 2010 release.  Time is critical because the 2008 vintage is probably close to being ready for bottling.  The only difference between the two years is consumer income and demand.

Let’s suppose our hypothetical winery (LS Wines) is selling two high-end single-vineyard pinot noirs: Clos Tony and Norma’s Vineyard.  Norma’s Vineyard retails for $80 per bottle while Clos Tony goes for $60. To make life simple, assume there are 5,000 cases of each wine produced. In previous years both wines have sold out and the winery has done very well. The owners have noticed that demand for the 2007 vintage in current release has begun to fall off.  It looks like there may even be some inventory of both wines. This will undoubtedly be placed in the winery’s library. But before bottling the 2008 vintage the owners should consider offering a new product – a bundle – in addition to their single-vineyard offerings.

In the wine industry bundles are called blends. In this context, a blend is a mixture of wines from two (or more) different vineyards.  The blended wine cannot legally be labeled single-vineyard but may still carry an appellation (such as Russian River Valley, Sonoma County or Paso Robles). Since the winery is operating at capacity the winemaker and owners must make the most profitable use of their barreled wine. Start by carefully selecting and bottling the best barrels for the two single-vineyard designations. (This may actually cause the quality of those wines to improve!) The remaining barrels from the two vineyards can be blended to produce one or perhaps even two new products.  (The point of making two blends is to sell one at a higher price than the other, thus increasing revenue.)  The 2008 blends will be offered at lower prices than either Clos Tony or Norma’s Vineyard 2008 vintages. This solves the inventory problem while also dealing with the reduction in demand.

“But,” your accountant argues, “won’t we be selling our wine at a price less than its cost?”

The accountant’s argument is correct but irrelevant.  The cost of the wine in the barrels is a sunk cost, expenses that have already been paid.  Since those costs can’t change they are irrelevant to the decision.  The winery owners should focus on future incremental revenue and cost to make their decision.  After all, pricing a wine at $100 per bottle to “cover costs” won’t make much sense if you sell zero bottles!

Recessions, by definition, reduce household income, especially discretionary income. To an economist the recession has caused a decrease in demand for boutique wines (aka the more expensive bottles). The strategic implications involve accommodating the reduced demand without reducing the prices of your established single-vineyard brands. Maintaining these prices and sticking with exclusively single-vineyard bottling won’t work. There will be an excess supply of the 2008 single-vineyard wines.  Instead, using the forecast excess supply to produce one or two lower-priced bundles allows the winery owners to accomplish three goals:

1. Maintain the retail price and quality of their single-vineyard wines in 2007, 2008, and going forward.
2. Eliminate the anticipated excess supply of the single-vineyard wines in 2008.
3. Increase revenue by selling one or two lower-priced bundles in 2008.

But there is a risk to this strategy.  Selling a lower-priced blend may devalue the brand name of your label.  The solution to this problem is straightforward: develop a second label.  Ideally this new brand would have some visible connection to the original label.  But it’s not necessary to devalue your brand to produce a blend.

Conclusion

Surviving the Great Recession actually offers wineries the opportunity to expose new market segments to their brand.  The bundled blends will be offered in a lower-priced segment.  However they will still be pretty good wine.  When the recession ends, consumers exposed to the brand in the low-priced segment will be able to afford to move upmarket.  Sometimes a strategy for survival can have long-run benefits as well.

As this article was going to press we happened on the Black Dahlia pinot noir label.  This wine is available in both reserve and non-reserve versions with the price difference about $5 per bottle.  A quick examination of the back label revealed that these were produced by the Testarossa Winery of Saratoga, a well-known high-end pinot noir producer.

 ... or why you should join wine clubs.

On August 29 we were blessed to be able to attend a club member appreciation dinner at Lynmar Estate Winery (just outside Santa Rosa).  Our hosts, winery owners Lynn and Anisya Fritz, provided a sumptuous meal in their elegantly modern winery with a stunning view of mountains to the east and of bio-intensive vegetable gardens all around.   What a terrific evening!  What terrific wine!. Rather than try to describe the event  in a thousand words, I'll just put up a link to my Facebook slideshow. 

We visited the northern San Luis Obispo (SLO) county area for the first time in the late 80s, first returning again in 2006 to western Paso Robles and the coast town of Cambria. We are impressed with the growth of the wine industry in SLO, as well as with the excitement and vintner creativity there.  In many ways, Paso Robles reminds us of Sonoma County back in the 1980s – or Napa in the 1970s.  The wineries are generally smaller, less crowded, and friendlier...going SLO.