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Waterford Wedgwood bankruptcy: lessons for high-end wine

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Waterford Wedgwood, the British luxury crystal and ceramic maker, has been placed in administration, or what we here in the States call bankruptcy protection. The International Herald Tribune reports that the reasons for the company’s failure are “the combination of high manufacturing costs, declining demand for luxury goods during the current economic downturn, and a weak dollar last year [that] overstretched the finances at the company.”

But Judith Flanders’s op-ed piece in the Jan. 9 New York Times more deeply analyzes WW’s demise and comes up with some lessons that have important ramifications for the high-end wine segment. The problem was that the company “has long forgotten the lessons of one of its founders, Josiah Wedgwood.” Josiah was a born marketer, so talented that in 1765, when his fledgling company was only 6 years old, he sold a tea set to Queen Charlotte, the wife of George III, which was like launching Google 240 years ago. That set the stage for more than two centuries of catering to the rich and powerful. But nowadays, WW’s “marketing is dreadful,” Flanders writes. She specifically accuses WW of resting on its laurels and assuming that what worked in the past would continue to work in the future. WW thought that consumers would never tire of what Flanders scathingly describes as “contemporary design…crudely imposed on 100-year-old shapes.”

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What’s so striking are the parallels with today’s modern, super-expensive wines. They increasingly seem like anachronisms, the kind of stodgy showpieces people no longer want, can use or can afford. Consumers, especially younger ones to whom the future belongs, are looking for contemporary, exciting and certainly less expensive wines, not more monster cult Cabs, made by celebrity winemakers, bottled in overwrought bottles, and that furthermore cost a day’s or a week’s wages.That dog, as Bill Clinton used to say, won’t hunt.

I expect the most iconographic cult wines will survive (no need here to list who they are). But there are dozens, perhaps scores of others that just don’t seem geared to our 21st century society. This is the end of the California cult wine bubble.

And along the same lines…

Forget the housing bubble, the stock market bubble and all the other pretty little bubbles that have burst. In China, the buzz is all about the Pu’er Tea Bubble.

Pu’er [sometimes spelled Pu'erh] tea is a fermented, ageable tea whose price until recently kept going up and up. In 2007, it sold for as much as $150 a pound, causing thousands of “ordinary Chinese” to invest in it, reports the International Herald Tribune. The paper quotes one tea broker as saying, “Everyone thought they were going to get rich.”

Well, you know where this is going. Another day, another bubble. The Pu’eh tea market tanked, and now, “Most of us are ruined,” said another tea trader, adding, “A lot of people behaved like idiots.” Which just proves that bubbles can arise anywhere, anytime, over something as innocuous as tea, not to mention $100 Napa Cabernet Sauvignon. And it doesn’t take an evil genius like Bernie Madoff to pull it off.

  1. Just a note…The puer bubble burst last year. By in large, the people that were hurt worse were the speculators. Not the big collectors, they didn’t buy during the bubble, and were wise buyers when they were. The people that really got burned were the Chinese wholesalers ans small shop owners that fueled the bubble. For the puer market in general, the bubble was a long term help.
    The infusion of cash helped to renovate existing factories and start new ones in a very poor area of China, and expanded the tea base, and also set a higher standard for quality, by stimulating competition. Most importantly in my mind, it made more people aware of puer and broadened the market both domestically and internationally, even attracting a front page story in the Wall Street Journal, in both Honk Kong and New York.
    It is true that people lost money, and that a lot of the new factories have since closed, and the are a lot of overpriced 2007 cakes sitting in a lot of shops that will take time to sell, but it is easy to imagines that in twenty years those cakes will be highly prized as having been produced during the year of the crash of the puer market.
    As a puer buyer that bought no puer in 2007, I found some great deals in Yunnan this year, and have quite a few more customers that are interested in puer than I did in 2006.
    Does it work that way with wine?

  2. The Waterford part of Waterford Wedgewood was only relatively recently brought into the group. The main production facility is based in Waterford, Ireland.

    It has a long and proud tradition of artisan crystal glass making and, in my opinion, the brand became far too diluted.

    You are all but guaranteed Waterford crystal will be given as wedding presents here in Ireland.

    I drink my wine out of Waterford.

    Once the very painful process of administration is in train, I expect Waterford to survive albeit without Wedgewood.

  3. Austin, thanks for the interesting background information. You ask if the wine market works the same way. The similarity between puer tea and fine wine lies in the ageworthiness of both. If, as I understand, puer increases in value with age, then you’re probably right when you say “in twenty years those cakes will be highly prized.” The fact that they were produced during the year of the crash of the market is akin to their vintage — almost like the famous Comet years that impact the price of Bordeaux.

  4. Corey Miller says:

    You liken the Wedgwood bankruptcy to the Napa Cab scene and mention that you think the days of the Cult Cabs are over. For a young winemaker starting from scratch and trying to develop a high quality artisanal brand, what model would you recommend in its place? That is to say, if you had to make a prediction, what do you envision filling the vacuum left behind by the dying Cult wines and how will new “high end California wines” demarcate themselves in the coming years? While the quality of the wine is certainly the most important thing, it’s not necessarily related to moving wine off the shelf or to its price.

    One important driving force of the Napa Cult phenomenon is perceived value, and if heavy bottles and $200 release prices aren’t the way anymore, what might fill their places? Are there any former Cult stars that come to mind that have effectively implemented a new model and re-invented themselves recently?

    I also wonder, if $100 bottles of Napa Cab are outrageous, what do you think will happen to the fine Bordeaux market which is priced significantly higher? Are these wines also about to crash, or is Bordeaux so established that they will always be able to charge $300, $400, $500+ per bottle?

  5. Ahh, Corey, you ask the tough questions! I have to admit, my capability for saying what’s over is not matched by my ability to predict what is to come. This is obviously a huge field for speculation. Briefly, I can’t see the California market continuing to expand unless per capita consumption and exports continue to increase. Let’s posit that both of them will — that’s the good news. Then you have to factor in this downturn, which is global. Nobody can tell where it’s going. Let’s assume it will end in a year or two (big assumption!), and the markets return to “normal,” which means things might look like they did in the early 2000s, when all these wannabe Harlans hopped on board and started hiring the Rollands and Kleins of this world as consultants. Then, and only then, the old model of expensive Napa Cabs might return. But there are so many ifs that the likelihood is only about 50-50. Now let’s assume a darker perspective: The $100 Cabs will NEVER return, or at least, not for a long time. Then what’s a young, ambitious, artisanal winemaker to do? In all candor, I don’t know. I can make some off the cuff suggestions, for what they’re worth. I think the $60 range of Cabernet is fairly safe for the moment, as well as the under $20 range of varietals, so those might be price points to aim at. If you’re in Napa and think you have real talent (as well as great grapes), you might want to avoid the Cabernet route and go with Syrah or Rhône blends, Tempranillo or some lesser known variety. I know that’s risky, but glory goes to those daring individuals who see the future more clearly than others. I also think that Pinot Noir’s future is very good, although not from Napa Valley. Anyhow, thanks for making me think!

  6. Corey,

    Remember that Bordeaux prices (particularly first-growth) tend to rely much more heavily on vintage quality to determine their pricing than California wines. California cult wines generally rely on two things, creating demand by limiting supply, and viral marketing stemming from either a great rating, or perhaps sitting on the right table, in the right restaurant at the right time. First growth Bordeaux will always command a hefty price tag, and although yes, economy/international currency strengths will effect pricing to a degree, I doubt very much that you will see a drastic decrease from year to year based on much other than good vintage vs. off year.

    As far as building the name of a California cult wine. . . here is my suggestion. As a retailer, I have seen the fine wine hit, and no one has been affected more than the $300 CA wines. I still (yes, in December) sold two cases of 2005 petrus for almost 30k each. I still sold almost all of my 05 first growth. My 05 DRC and single vineyard Barolos still flew. I agree with Steve that the “cult bubble” has burst. The market has become Saturated with “show me” wines like Sloan, Winter, Araujo, Scarecrow…. etc etc. So much so that is has become passe’. My first advice is to focus extremely heavily on local restaurants. Almost all whisper campaigns in wine begin in one of two places, NYC restaurants or CA restaurants. You have no idea how many calls I get from clients in NY or CA at all hours of the night asking if I was familiar with wine “XYZ” out of CA because they were at “Exclusive Restaurant #354″ and saw it on so and so’s table. You also need to enlist guys like Steve. The blogging community carries a lot of weight in the new frontiers of wine.. to some degree even more so than spectator or RP. Forget about the sizzle. Take out the extra layers of glass and fancy packaging. Sell the STEAK. Great wine will still sell, just don’t make more than you can move.

    Cheers,
    Louis

  7. Corey Miller says:

    Steve and Louis,

    Thank you both for your insightful posts.

    I agree completely that glory generally follows significant risk (which people like to call vision in hindsight). I’ve felt for several years now that jumping on the Cal Cab
    wagon was a bit ill-conceived for two reasons. First, if you truly love your craft and the process of winemaking and winegrowing then you would, presumably, not wish to limit yourself to an extremely narrow conception of what great wine can be and to follow lock-step with the celebrity “consultants” that one would undoubtedly seek out if trying to achieve such a status. Second, there is the least potential for long-term success and growth in the most competitive and crowded corners of any market. There will only ever be one Harlan and Harlan has been Harlan for many more years than any new up-start. They have experience and history on their side. While new Cult wineries might aspire to be the NEXT Harlan, if they do end up being successful, without doubling the number of prospective buyers of $300 Cab, they will have effectively split their market in half. Those buyers might be out there again someday, but as you point out Steve, they certainly won’t be doubling during the next several years. While the potential profit margin is high for such a venture, it seems like the path of most resistance and a rather uninspired one to boot.

    Given all this, the hard part is leaping off the ledge to do something more creative. Harder still is getting others to leap with you (both as financial backers and prospective buyers). I’m proud to say (at least at the moment) that I’ve chosen the path less traveled as our goal is to develop a benchmark Spanish varietal house (Tempranillo, Garnacha, Albarino). Mostly mountain Napa vines for the reds and Carneros for the white (at least for the foreseeable future – I think the Gabilan range is actually the right place in California to grow Tempranillo).

    In some ways, this brings us back full-circle to the original posting. One of the suggested weaknesses of Wedgwood was a lack of brazen creativity and re-invention. A failure to push the envelope. I agree with this and I think that it’s this kind of behavior that put Cal wines on the map in the first place. It’s the excitement surrounding and the momentum behind doing something new that made the now-classics the classics. This point was really driven home in your New Classic Winemakers, Steve.

    5 years ago, if I thought I had great fruit (maybe even Tempranillo) and some winemaking skill and was putting Napa on the label, I would have found the heaviest bottle I could, dipped the top in wax, thrown up a website that said almost nothing about the wine but offered a chance to sign up for the “waiting list”, and released 300 cases at $85 or $100 per bottle.

    Now it’s a little trickier, and probably for the best (at least for value and quality delivered to the consumer). Louis suggested focusing on high-end restaurant sales and social marketing like blogging to develop interest and I think that both are great ideas (although tough in a struggling economy). Steve, you mentioned price point as a way to add value to a product.

    But in a more general sense, what are the qualities of a Cal winery that makes you stop and say, “They are doing it right. They have the potential to be the next classic.”? If the Napa Cab Cult “look and feel” is out, what qualities WOULD get you excited (aside from great wine, which is a given)? How does one build prestige into a wine while avoiding the leftover stale aftertaste of the Napa Cult Cab era?

    I know it’s an impossible question to answer, and tough to even approach, but it’s fascinating to me to hear the “gut response” from those in the critic, blogger, retailer etc. world.

    Sorry for the long post. Any thoughts on the matter would be greatly appreciated!

  8. So if High priced wine is no longer sustainable could it be a goal for a winemaker to mass produce quality wines?

    I know this may be an oxymoron to some, but I have see qualty wine produced in large volume. Two years ago at WOPN winemakers symposium there was a great pinot that shocked winemakers by being fermented in a 10,000gal tank. Most pinot producers in CA ferment in 1200gal tanks or even smaler.

    I think people do well in wine sales because either they do a good job selling it (ie Jim Clendenen, Kim Crawford, Randall Graham) or other people buzz about all the scores and exclusivity of a wine. Unfortunately, many people making/selling wine have nothing “special” and say nothing out of the ordinary, hoping to get scores and get others to do the buzzing for them.

    I think making good wine can be done on a larger production scale and I would argue that having many people drinking your wine could be the next challenge for aspiring winemakers. As well as listening to the consumer and taking a cult following into the next level where people identify with your brand because you fulfill there needs, like say Apple computers or Harley Davidson.

  9. An overlooked element in the success of many ‘cult’ wineries was the network that the often extremely well-heeled owners had in place back in Manhattan or Hollywood or Monaco or where ever. They often started out with an existing market of friends and colleagues who were only too happy to help out a pal, on the one hand, and to confirm their own on-the-A-list status on the other. That model still works and it works at other price points. The trick is, of course, development and maintenance of a network. Some do it by being members of the Yale Club or the Harvard Club, others do it through Face Book or good old fashioned salesmen.

  10. Pete Cheyney, Director - Corporate Communications, Waterford Wedgwood USA says:

    Waterford continues to be the most popular crystal in America with a market share unsurpased by any of its competition. In addition, Waterford has been recognized by independent research as one of America’s most respected and popular brand names. With its brilliant beauty, breath of assortment and pattern availability guarantee, Waterford remains the brand of choice for the discriminating consumer and new brides.

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