subscribe: Posts | Comments      Facebook      Email Steve

California needs to be careful it doesn’t price itself out of the market

36 comments

California wine is just too expensive. It really is. Not all of it, to be sure. There’s a lot of expensive wine that’s worth the price. But there’s a ton of badly made, mediocre wine that will set you back an arm and a leg, and that’s a real drag.

Of course, nobody’s forced to buy overpriced wine, and I don’t have any sympathy at all for people who are so ignorant or devoid of taste that they willingly plonk down $30, $40 or more for a wine that I would score, at best, 84 points. That’s their problem, and if they like what they’re getting, fine. But I can tell you that when I give a low score to an expensive faulty wine, it makes me mad.

The first thing I wonder is, does the winery team even have the slightest clue their stuff is average, at best? If they know, then they’re engaging in very ugly, nefarious behavior–all the more awful when the wine is accompanied by glowing “winemaker notes” telling us how glorious and rare it is.

If the winery team is unaware they’re sending out plonk, they should be fired. I was having this conversation yesterday with someone who works in marketing for a big winery. I wondered how it’s possible to have to sell something you know isn’t very good, and still keep your soul. Yes, your “soul,” meaning–not what some religious people say–but your integrity, conscience, love of truth. If your job is to sell something you know, in your heart of hearts, isn’t good, but you spend your time trying to convince people it is, then you’ve lost something you used to treasure when you were young. I can only imagine the rationalization that people engage in to dull the pain. I suppose a fat paycheck helps to narcotize.

I shouldn’t let my blood pressure be affected by a bad bottle of $50 wine, but I can’t help it. I think, “What in the world is wrong with you [meaning the producer]? What were you thinking?” The other thought that always follows is, how can this winery remain in business? Sometimes, when I review a bad expensive wine, I’ll go into Wine Enthusiast’s database (which you can access for free) and look at the winery’s track record. More often than not, these wineries have been producing dismal stuff, at inflated prices, year after year after year. How is this possible? Who buys it? Don’t they know that a 16% Syrah that tastes like sugared asparagus is a total ripoff? That a $36 Petite Sirah that tastes like melted jam is a joke? That a $55 Cabernet with nothing but caramelized oak is an insult? That it’s insane to pay  $50 for a Port-style wine (in a half-bottle, at that) that’s thin and lacking in anything but sugar? That if you fork out $30 for a Chardonnay that tastes like buttered popcorn, you should have your head examined? These are all real examples from this past week, although obviously I’m not going to name names. And if I went back over the last year, I could write a book called “500 wines you should hate because they’re not only boring, but they’re trying to rob you blind.”

It all leads to a final question. Let’s say I blind taste a wine, think it’s pretty dumb and simple, but that I could imagine drinking it in a paper cup at a party some Saturday night and not actually throwing up. I give it 83 points. Then I see it costs $6 retail. I still think it’s a pretty boring wine, and I won’t adjust the score, but I will soften my language to suggest it might be a good buy for someone who’s looking to get off cheap. That kind of wine doesn’t make me angry. I’ll think, “Okay, I wouldn’t buy it, but at least the producer doesn’t have hubris, and millions of Americans will benefit from this cheap wine.” But those expensive ones really piss me off.

When you’ve been a critic for a while, as I have, it’s a lesson in humility. You realize that a lot of people must like stuff that you find execrable, because these wineries just keep on cranking it out. That makes me realize it’s just my opinion. But I know what I know, and I believe that what I think I know is true. There’s an awful lot of bad California wine out there that’s absurdly priced, and I wonder how long it can go on.

  1. “I blind taste a wine, think it’s pretty dumb and simple, but that I could imagine drinking it in a paper cup at a party some Saturday night and not actually throwing up. I give it 83 points.”

    Wow! Maybe we’ve been misreading the 100-point scale?

  2. It’s great to hear you bringing the California wine price issue to the forefront. It’s scary to have to start at $30-$40 for mediocre product. I do wonder what producers are thinking, and you begin to sense that it’s about the business model more than the commitment to consistently high quality product. There is an interesting conversation that started about why imports can dominate the value/quality wine segment that can be found here http://wine-zag.com/2011/09/11/whats-going-on-with-the-price-of-wine/ . This was not the case in the 80′s and early 90′s when price points of quality California wine made sense on the competitive world stage . It’s been a frustration for wine enthusiasts that remember those days and would like to bring back more California wine to their buying and drinking regimens.

  3. Steve,

    Put yourself in the position of the winery for a second….and, as the winery, you decide you want to judge the quality of your wine by the reviews it receives.

    Well, you really like that Steve Heimoff guy and he gave your 2009 Cargasacchi Pinot Noir 92 points so it must be pretty good. And then you look and the Wine Advocate gave it 93 points, so there’s confirmation, it is really good. But, oops, Wine Spectator gave it an 86 point rating…so maybe it isn’t that good.

    But there’s always Keefer Pinot….90 points from that nice Steve Heimoff guy, 90 points from Wine Spectator….gotta be great. Oh no! 86 points from Wine Advocate!

    Well, Santa Lucia Highlands is always consistent, and a good deal to boot….90 points from Wine Advocate, 92 points from Wine Spectator (and a Best Buy!). But that Steve Heimoff, who seemed like such a nice guy before, gave it 88 points….so something has to be amiss with the wine.

    So how then, Steve, do you as the winery, decide what wine is good, and worth the price?

    Adam Lee
    Siduri Wines

    PS — all real Siduri numbers…

  4. David Bantly says:

    To Adam:

    With due respect Adam, do you seriously think that a comparison to prices in the 80s make any scientific or reliable sense…? Please. Think about what you’re saying.

    David

  5. David,

    I have given it a lot of thought… thanks very much. The price escalation of wine from California…and Bordeaux to be fair, has outstripped the pace of price inflation in US real estate from 1985 through current day. It’s a fact. Do you need any other context than that to see that things got out of hand from a savvy consumer point of view?

    Adam

  6. Adam,

    Why choose price inflation of US Real Estate as a comparison (btw, inflation adjusted housing prices were 150,000ish…now 180,00ish. Real pricing from 1985 has gone from 70k to 170k)?

    Instead, you could look at Mid-May, 1985 when the Dow Jones hit, gasp, 1300. Today it is 11,000. Why wouldn’t that be a better comparison?

    Adam Lee
    Siduri Wines

  7. The stock market is a tool for consumers to remain ahead of price inflation. It would be foolish to compare consumer goods pricing to stock market growth.

    According to Yale University’s economics professor Robert Shiller’s data, the median U.S. home price in 1981 was approximately $60,000. In 1991, the median home value rose, unadjusted for inflation to just under $100K, a 1.7X growth multiple. In 2006, the peak of the housing bubble that preceded the giant burst, median priced homes were $250,000, a 4.2X growth multiple of 1981 prices. Today, median home values are $170,000, reflecting a downward adjustment to a 2.8X growth multiple over 1981 prices. Last I checked, the price of non cult Cabernet like Caymus, Montelena, Mondavi Reserve, Phelps Insignia is 4X+ early 80′s prices.

    BTW, do you think home value escalations make sense and are inline?

  8. Actually, I think factoring in the consumer’s tool to remain ahead of price inflation makes great sense when looking at the price inflation of consumer products.

    As far as pricing of Cabs go (release prices per Spectator, current prices per quick Wine Searcher look up)

    Caymus Special Select 1985 was $50 at release, I can now buy it for $99.
    Montelena was $25, now $99
    Mondavi Reserve was $40, I can now get it for $80
    Phelps Insignia was $52, now $135

    I bet those would average out around 2.8x.

    Adam Lee
    Siduri Wines

  9. Ahem.

    Surely the key point in Adam’s initial comment was “when price points of quality California wine made sense on the competitive world stage”.

    The “inflation” of Californian wine prices has not been matched by the produce of Chile, Italy or Spain, which all offer increasing quality at a better price point. (Let’s leave Bordeaux out of the equation here.)

    Surely that’s why looking back at 80s prices is relevant?

  10. Adam,

    Fair. I can give you a list that would be 5X. Consider this. I don’t know how old you are, but can your children afford to buy a house today in the same way you could back then? Then think about other products. Can they buy cars and TVs with the same relative ease you could then?

    When I was 25 years old (27 years ago) it was never an economic issue to drink Bordeaux and California Cab. For $20-$30 it was a no brainer. Wonder why the drinking habits of young wine drinkers today have totally shifted and they will never have the chance to lay down those wines because they are learning about wine with $15-$20 Albarino, Muscadet, Cote du Rhone, Languedoc, Mencia, etc?

    Adam

  11. Adam,

    I am 47 (as of earlier this week). My parents struggled to buy their first house in 1965 at $17,000. My Dad worked for the state of Texas all his life and never made more than $40,000 a year before he retired in the late 1980s.(though my Mom has had a nice pension after he passed away). We had one tv, until we got another small one when I was in high school.

    Dianna and I started the winery with our entire savings, $24,000 in 1994, worked two jobs for 5 years while growing the winery, bought our first house in 1999 — despite struggling with the downpayment. Now we are doing pretty well….not rich (a 2200 sq. foot house on a quarter of an acre, 3 kids in private school, etc). And, yes, we drink better wine now than we did then. — My kids will probably struggle to buy a house the same way I did and the same way my parents did.

    As far as the wines you mention, the Muscadets, etc. of the world. They are fantastic bargains, and amazing wines. Over 10% of the Muscadet growers declared bankruptcy in 2010. And Muscadet’s export market has fallen from 2.2 million cases in the mid-1980s to .55 million cases today
    So perhaps some younger drinkers may be drinking them, but not that many apparently, and those of us that love the wines may not be able to get them in the far future, certainly not at the price, with that rate of bankruptcies.

    Adam Lee
    Siduri Wines

  12. I do think that CA wines have become too expensive.

    Not only that but I also think that just because a specific wine get a high point rating it should be priced higher. Further, just because there is a small harvest or vinting of a particular wine that in itself does not make it rare and therefore requires a higher price.

  13. Quite frankly, I believe that the inflated pricing on California wines from medium and smaller producers are due to the winery having to work against high COGs and other costs incurred in doing business in the state of California. Inflation of wages, taxes, mortgage costs… Expecting a smaller winery or even a 50,000 case winery to sell anything for under $20 that is competing in a market that commands the use of higher priced fruit and the need for new oak aging, is too much. The big guys get away with using valley fruit at 1/4 the cost of Central Coast and nearly 1/8th of Napa/Sonoma. They are able to get their other COGs down due to economy of scale. That leaves the door wide open for oak alternatives at 1/15th the cost of a barrel. Presto, a cost effective $6 retail wine. Places like France get away with their competitive pricing because of government subsidization. South America gets it through lower price of labor, land, grapes, and taxes. This leaves California wineries with bad vintages or just plumb bad wines in a position to have to ask $20+ for a bottle just to keep the lights on. Of course that causes a cyclical issue of minimum margins=minimum production budgets and the winery has no ability to improve.
    Also, quite often I have seen it where wineries will post a wine costing say $50 at the time of review. Three months later, as the wine hasn’t sold, they are asking $25. So at the very least, it seems the consumer isn’t completely moronic when it comes to what tastes good.

  14. There is no collusion in California wine pricing, unlike many other products. There is intense competition and prices adjust rapidly to what the market will bear. But that competition has never been based on absolute wine quality. There have always been lower quality, overpriced wines and there always will.

    If you want to talk quality, you can easily make the case that California wine is underpriced today. The top California boutique wines were $3 to $7 in 1970. The dollar was then worth seven times what it is today. Adjusted for inflation, those early boutiques would be in the $20 to $50 price range where there are hundreds of wines in each variety that exceed the quality of those early boutiques.

    But the better news is that today you can find $7 wines in almost any varietal that are about as good as the best wines of that earlier era.

  15. Steve, I see your recent visit to Washington has paid off! Sure, there’s plonk made up here also (let’s face it, there’s plonk made everywhere in the wine world), but Washington plonk is rarely over-priced. The real answer to the question how do these ridiculous wines continue year after year (and your short list of examples is right on in my experience) – the real answer is that they have the distribution in place to ram it down the throats of retailers who want something else that goes with it.

  16. The other reason that Steve’s inferior wines sell at high prices is that one critic’s plonk is a consumer’s fine wine. This dramatizes I think, the disconnect too often between what the “expert” prefers in wine and what the consumer prefers. What the critic finds to be flabby and simple, the consumer finds approachable, balanced (complexity–what’s that?) and… tasty . The classic example that people use is Rombauer Chardonnay. It’s readily snatched up all over the country in the mid 30′s. The purists disdain it. Too many Napa Cabs strike many as over the top, much too concentrated, yet Parker and others love them.

  17. Paul, you may be right. So what do the retailers do with it?

  18. Patrick, you make excellent points. You last one is apt. A winery may claim that the SRP is $50, but that doesn’t mean the actual retail price is anywhere close to that.

  19. Adam Lee, in answer to your question “how then, Steve, do you as the winery, decide what wine is good, and worth the price?” Well, I’m not a winery, so I don’t have to decide that. For myself, as a critic and person, it’s subjective. It’s based on my reaction to the overall QPR. Like I said, the score itself doesn’t change, but the tone of my remarks does. In the past I’ve tried to contain my emotions in my text reviews, but I find that changing, mostly (I think) as a result of the recession. It’s hard for me to accept a $50 wine that I score 87 points–although as you correctly point out, another critic may give it 92. But this has to do with the other variable I wrote about: that a wine score must be interpreted as that particular critic’s experience of that particular wine at a particular place and time, and may not be replicable. I know this upsets some people but it’s true. More on this in tomorrow’s blog.

  20. I agree with this post. There’s lots of cruddy wines that find themselves in the 30-40 bucks per bottle range. I think there’s a difference between well made wines that may not be one’s “style” and asleep-behind-the-wheel growing/winemaking. The concept of over oaking a wine is poor winemaking. Oak is expensive and it aggressively masks the once great fruit aromas/falvors. Excessively high alc is also a major winemaking FLAW. The part that I can’t get over is the owner and winemaker standing at the bottling tank sasying, “yep, this 14.9% alc Pinot Noir with 10 months in 60% new french oak is going to be GREAT. We should get easily $42 a bottle…”

    What’s being made on a masiive scale are “restaurant ready wines”… Extra two weeks on the vine = low acid plush aromas/flavors ot of the gate, minimal oak ageing (albeitit new) and ready to consume immediately but will not age worth beans… They’re cocktails and we in this industry need cocktail soda pop wines for the masses who don’t have cellar space or desir or self-control to wait. Great, however these wines do not have a place that the table of traditionally described world class wines.

    These are the most obvious offenders of over priced wines…

  21. I think we can all agree that not all CA wine is too expensive. By in large what we are referring to is Napa/Sonoma. It’s not just the price paid for grapes in Napa vs. what a winery using, say, Lodi grapes pays but everything from a Winemaker’s salary, crushing costs, storage, etc costs more in Napa. Sure the end result may be a better wine from Napa but is it THAT much better? Take Cabernet grapes for instance. Average price paid in Lodi $650/ton, average price paid in Napa $3500/ton (probably closer to $4000). A grape price that is 6X higher should equal a wine price 6X higher right? If the Lodi Cab is $12 and pretty darn good, that would mean a better Napa Cab at $72 right?

    Hmmm personally I’ll take a $12 wine with an 88 score over a $70 wine with a 94 any day.

  22. There are two ways to price anything 1) Cost plus a margin. 2) What the market will bear. In the case of boutique wineries, the ROA’s for producers are unbelievably poor relative to other businesses and investments. Small family producers aren’t getting rich. It’s largely a labor of love for most. So on a cost plus basis, their wines aren’t overpriced.

    What about “what the market bears?” With all those great world wines, there must be a lake of US wine going unsold, right? Nope. Production and consumption are past the balance point now in US produced wines and moving fast to shortage. So they must be priced OK on a market basis or we wouldn’t have burned through the excess we’ve had.

    Speaking of the crash, prices reset significantly lower in 2007-08 and have not yet recovered, nor will they anytime soon as the economy is on a slow slog out of the doldrums. So relative to price, if pricing was high – its less high now.

    There are great wines made all over the world. I have them in my cellar and since there are more world wines than US wines, predictably I have more world wines than US wines from all the major producing countries. But …. I still have US wines. If the world wines are such a value, why do I have any US wines? A: Because the argument about quality is a red herring. Wine lovers love variety. We don’t drink the same region or brand every night. We want to savor the differences between brands, years, terroir, and producers. How can I equate an 88 point Bordeaux to an 88 point Sonoma Cabernet? Which is better? A: Neither. It depends what I like. If I like them both, I will pay what the price is for the wine.

    So, are US wines too expensive? Since the excess of wine that has existed since the crash is now gone, I would say the market has voted that price is appropriate.

  23. Craig Winchell says:

    Wine has ceased to be simply the province of trained winemakers and wine drinkers. It became a marketing-driven enterprise. The industry soon learned that with proper marketing, one can sell almost anything to anybody for any price. Not only were packaging and rarety factored strongly into price, but also THE NARRATIVE about the wine. When you put those together with limited time offers to get X percent off from the already “special” inflated price, and understand that once one sets a price, it is almost impossible to raise it without antagonizing one’s present customers, you will understand that it’s a wonderthere are any wines which are not outrageously priced, at least at their base price before discounts.

    Then there is the psychologically sound view, based upon much experience, that it is (or had been) easier to sell a high-priced wine than a low-priced one, because a low=priced one could not be any good. So $35-$50 became the new $15-$20 over about 3 year’s time. The joke was that if you couldn’t sell your wine, change the label and double the price. And Steve, that’s the consumer’s fault, not the marketer’s or winemaker’s.

    Then there are the new hobbiests-turned-pro, which see that everyone else’s wines are priced high, so why not theirs? Only their wines are made in such small volumes that one could see, they’re not going to discount the list price.

    Finally, there’s the fact that most consumers don’t trust their own sense of taste. They rely upon others to tell them what they should and shouldn’t like, and what the wines they should like are worth. Some of these marketers sound very credible. And once one’s friends are touting a wine, why not jump on the bandwagon?

    People are lemmings, and are subject to the sway of marketers, writers and peers. They irrationally tend to feel that you get what you pay for, despite many examples to the contrary. they don’t trust their own taste buds. If a business is solely out to maximize profits, it is going to price wine higher than its quality, and the consumers can generally be convinced to buy it.

  24. Note to Rob McMillan–

    You speak simple truths. If the product sells, its price is right. The idea that Napa and Sonoma wines are generally overpriced is not borne out of market-driven equations but out of a hope that good wines for cheap will be available from those places.

    If California prices itself out of the market, its prices will fall because wineries will not pay as much for grapes if they cannot sell the wine and as the result, grape prices will fall and land prices will fall. Labor can’t get any cheaper but maybe $5 bottles will become $2 bottles.

    But, we don’t see an ocean of wine that cannot sell. That phenomenon only occurred at the height of the recession, and it is now a past phenomenon.

  25. All will be fine… But good article Steve. As an owner of 2 large wine stores, people will always Buy wine from Cali.. Sales are up 35% in the last Two Months!!!! Wooooohoooooo…

  26. I hear a lot of bean-counting, sales worries. Still, what if (aside the cost) nine out of ten wines produced in California deserve not a whole lot more than being poured down the sink?
    You still want to talk prices?

  27. Gentlemen what this is about (the reasons for the higher prices)is because the Chinese are buying everything they can get their hands on. Their citizens don’t trust their wineries what with secret additives (fake wine, water, whatever). For the bigger market they don’t care about the wine so much as the package. I’ve have been told just that by my customers there. Watch them when they come in to your tasting rooms. The first thing they look at is if it has a full punt or not. Flat bottom ? …forget it ! They will not buy it. Prices are firming up, what with a shorter yield harvest there is going to be alot more importing from S. Africa etc. Go look on the bag in the boxes. The Chinese want that CA wine and I’ll gladly sell it to them any way they want. There are two ways to make wine, one way is to win medals and high scores, the other is to sell it to consumers.

  28. Dont blame the producres for the high price of there wine. They are just trying to make a living. This business is tuff and getting harder to succede in. Here are a few cost that go into over inflated CA wine. Land purchase, farming cost, labor cost, insurance, overinflated permit costs, random fines by local agencies,shipping cost, compliance costs, EPA and waste water costs, federal/sate/local taxes and additional fees just because your and idiot and want to start your own business. Oh, and you better have a lawyer handy because you are human and will make a mistakes.
    Cheers,

    Etienne

  29. raley roger says:

    Isn’t it harvest????????

  30. Steve,
    I appreciate your viewpoint, and agree. But here’s a little story I’d like to share.
    Neither Kensington nor Inglewood, I found my elixir in a little hut-like pub on a drive (away from my overdriven lifestyle). What they served me as “wine” would probably leave others speechless with disgust. But the first whiff and the first tingle took me back 35/40 years. I could see a little guy stumbling and staggering around in a little modest garden, holding on to dear Mama ‘n Papa.
    I still visit the pub often. And leave with caressing mists of a time long lost.
    And this is priceless for me. No matter what position on the scale it occupies.

  31. James McCann says:

    Mr. McMillan,

    I agree with most of your points, but want to add that since wine is an agricultural product, the size of the vintage has had a lot to do with the supply drop.

  32. Wiremule–

    What kind of troll are you? Are you an agent-provateur sent here by people who cannot sell their own wines so you have to knock down the competition or are you Alice Feiring in disguise?

  33. Thank you Etienne for pointing out some of the hidden costs of producing wine!

  34. Patrick is spot-on. Small producers have higher COGS plus a harder time bringing wines to market. I know I have a hard time producing wine for under $22/24 a bottle. It’s a lot of work to get wine made and bottled and sold. I’d venture to say that my customers buy my wines because they like them and they pay the price because they like supporting our small winery. It’s different when I handsell the wine to someone than when they go into a grocery store to pick put a wine at $24. I think it’s less about price and more about quality relative to the price.
    I hate buying anything (wine, a restaurant meal etc) at an expensive price when it tastes bad… I think we could apply this to any industry.
    Anna Marie

  35. It is similar situation in Europe where i live. You can find lots of expensive wines (more then 50$ per bottle) that’s not worth the price.

  36. As a California winemaker (Paso Robles), it is very challenging for a small winery to produce a $10 retail bottle of wine, the price of grapes, even neutral barrels, lab analysis & oak alternatives, 15-18 months of cellar, bottling & labeling can leave you $5-6 per bottle in actual costs before you spend a dime on marketing, cell phone etc. There is no economy of scale for small lots, it just costs more to produce. Very difficult to be sustainable at $15 retail (the distributor & wine shop will take up to half) leaving a nice $15 profit per case. It is very difficult to produce at the $15 retail without a certain economy of scale.

Trackbacks/Pingbacks

  1. 2011 Wine Highlights Part 2- Wine Community - […]  I would think the trade should appreciate input and engagement with interested consumers.  If I think that the proliferation …
  2. Wine Writing Styles Reflect Culture - […] value wines with expression and feeling made in the US.  Steve Heimoff recently wrote that California might be pricing …

Leave a Reply

*

Recent Comments

Recent Posts

Categories

Archives