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Has expensive Napa Cab reached the tipping point? And how will we know when it has?

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I’ve suggested repeatedly on this blog over the years, and especially since the extent of the Great Recession became apparent in 2009-2010, that Napa Cabernet Sauvignon was in danger of pricing itself out of the market.

This was due, not only to the effects of the Recession itself, when even the Rich were trending down their spending habits, but to the simultaneous rise in this country of a new demographic: MIllennials, now hitting their 30s, whose tastes in wine (and in much else) are radically different from those of their predecessors.

For one thing, Millennials are much less interested in what “everybody else is drinking” or in what “historically has been regarded as famous” than in finding things that are unique, different, unexpected, surprising, edgy, story-driven, bold, undiscovered, hip and (let us not forget) affordable. That certainly does not bode well for triple-digit Napa Cabernet, which is none of the above.

The people who do like the cult wines are the kind that collect and store wine in large cellars, who dine at Michelin-starred restaurants with wine lists the size of phone directories, and whose selection of these wines may be inspired as much by the desire to show off than by actual interest in them. Don’t believe me? Talk to any [honest] sommelier who works in such a restaurant. They’ll tell you [off the record] exactly what they deal with, night after night.

But these customers—these sorts of wine harlots—are an endangered species. It’s so clear: it couldn’t be more apparent if the Finger of God appeared out of the sky and wrote it on a vast wall. Even in Bordeaux, the top Chateaux are struggling: Decanter yesterday reported that “American merchants bought less high-end and high-priced Bordeaux 2010 en primeur than they had for the 2009 vintage,” with buyers gravitating toward crus bourgeois and balking at the likes of Angelus, Palmer and Leoville-Las-Cases. A buyer for Sherry-Lehmann said anything above $25-$40 U.S. was just “far too high” for his clientele.

I doubt if the Bordelais care. They’ve been through the ups and downs of the economic cycle for centuries, through wars, peace, phylloxera, revolutions, depressions, recoveries, and they know that, no matter how long the market stays down, it always come back up again. This may still be true with regard to Bordeaux.

But Napa isn’t Bordeaux. It’s become so crowded in $100-plus wines that they seem to be more the rule than the exception. For every expensive Cabernet with a true pedigree–Phelps Insignia, Harlan, Stag’s Leap Cask 23, Diamond Creek, Mondavi Reserve–there are 3,4,5 newcomers with no provenance, no history behind them, manufactured ersatz out of thin air by hiring an expensive viticulturalist and consulting winemaker, slapping something together in the bottle and then hoping enough gullible snobs will buy it.

Unfortunately, this is all too often the case. But how long can they get away with it? I suspect there remain enough white-tablecloth restaurants with big spenders who want wine lists containing verticals of big names, and that isn’t going to go away anytime soon. But it cannot last; its days are numbered; that game is going to be over, whether in five years, ten or fifteen, I cannot say.

Yet there has to be a tipping point at which Napa no longer can sustain so many overpriced wines. I don’t expect Napa itself to understand where the tipping point is, or will even recognize it when it comes: Napa is very, well, Napa-centric, as perhaps it should be; but it does tend to see the world from within its own rarified bubble.

No, the tipping point will be installed upon Napa by that outside force, the free market. We’ll know it has happened only when we begin to see prices start to plummet on the most expensive wines. I myself believe I’m already seeing that, but to accurately track it, one would need the services of a staff, utilizing databases able to track real-time information in individual markets, across hundreds of individual brands, including their clubs, mailing lists and favored accounts. This forensic accounting is obviously beyond my capabilities. The tipping point therefore already could be happening, but be invisible.

  1. Bill Haydon says:

    Great article, Steve. In some markets, things are much further along than you state, with expensive California wine being an almost impossible sell even at high end restaurants. In NYC and Chicago, the category is virtually dead outside of the steakhouses, and even many of them are seriously beefing up their selections of imported wines.

    To me the inevitable follow up question becomes how will Napa react? As someone who’s recently consulted for several high end Napa wineries, I don’t hold out too much hope for a realistic and proactive degree of soul searching. There’s almost a surreal “Emperor Has No Clothes” aspect to how the valley is relating to current market conditions. They lie themselves about market conditions and blame the distributors for all ills, they lie to each other about how well they’re doing and tell each other that they’re all sold out and are voluntarily pulling out of states because they, “have no wine.” Meanwhile, they sit on unsold vintages and arrogantly wait for the market to come back to them.

  2. Steve,
    Great article, interesting and thought provoking. I do find it odd however that of the wines that you list as having pedigree most are mass produced wines that seem to me to have no pedigree at all. There are handful of people in Napa Valley making small production, handmade wines from single vineyard sources that are incredible. These are wines that are worth their price tag. They are expensive to grow and make and a pleasure to drink. I think they are are the future of Napa.

  3. Kurt Burris says:

    I was involved in the launch of a Napa cab label. Good vineyard provenance, good wine and “only” in the $75 dollar range. Generally the response from retailers was, “We don’t need another Napa Cab, but if I can put it on the shelf at $25, let’s talk.”

  4. I was asked once, “Whst’s the difference between a good Napa Cab and a really good Napa Cab?” I answered, “About $100.”

    People buy wine according to their financial comfort status, which in turn reflects their self image. Recent tax increases at the Fed and State level will soon impact their discretionary income and soon thereafter their financial comfort level.

    Once that takes effect, the notion of “oppotunity cost” kicks in and they will experiment and start buying several bottles of good Cab and likely discover that the incremental nuances of the really good bottle may not be worth the extra dollars.

    I agree with you, it’s only a matter of time.

  5. During the time that I worked in Napa (early nineties) I heard several times from high end Napa Cabernet producers that their wines deserved price parity with Bordeaux and it now seems that they have attained that lofty aspiration. The difference between Napa and Bordeaux, however, and you alluded to it, is that Bordeaux has a history, has a sense of place, has a snob appeal that Napa Cabernet seems to have not yet developed. The Bordelais, maybe with some price tweeking, can still sell as much wine as they want pretty much when they want to because of those attributes. With high end Napa it’s mostly about price history as opposed to wine history.

    While the coming “correction” won’t shake everybody out of the stratosphere (Screaming Eagle and Colgin will probably still be oversubscribed) it should make some pretty nice wines available to a much broader audience and that’s got to be a good thing for everybody who loves wine.

    Just as an afterthought, we’ve seen in Pinot Noirs a significant trend toward single vineyard wines with the vineyard names prominently displayed on the front label and they command a price premium with respect to similar AVA designated wines. How long before vineyard names start to replace “Estate” on the Cabernet labels? That would certainly help with pricing and would begin the process of developing that sense of place that Bordeaux has. A hundred years or so ought to do it.

  6. Good point, Aaron. Steve – I might suggest a modification to your policy to only taste blind. Then you can allow yourself to visit these properties and see first-hand that there’s much more under the covers than you’re so unfairly portraying. The collectors who buy these wines, and I presume also read your writings, certainly visit and come in droves. Would it not be a good idea to know at least as much about these projects as your readers? I have not seen a decline in desire for small production wines from single vineyards (please stop calling them “cult” – it is so out-dated and small production wines are no more cultish than small batch beer but we don’t see people calling it “cult beer”, do we?) and in fact, there seems to be more demand from wine collectors in-the-know. I think you’re really out of touch with the high end wine market.

  7. Dear Aaron Pott, the Bordeaux First Growths are mass produced too. Small production does not automatically translate into higher quality.

  8. doug wilder says:

    Jim Johnson’s remark reminds me of a presentation I attended where three napa producers were in a panel conversation with a moderator. One of the questions regarded the pricing of their wines. One producer who owns a brand that has always been more expensive than their neighbors replied “We need to hold our wines dear”. Except for the crescendo of clearing throats in the audience you could hear a pin drop.

  9. doug wilder says:

    Steve, Aaron Pott is responsible for more than a few imaginative, dynamic wines from Napa Valley that are relatively expensive. Feel free to fill him on Bordeaux.

  10. I would take it as a good sign that there is still a debate whether Napa can hold a candle to Bordeaux. It keeps things interesting and is always a lively discussion, especially with wine fans from the East Coast. I dare say there’s a bit of an old world bias on the right coast. Where is your patriotism? But, the debate rages on. And for just this reason Napa holds strong relevance as being a one of the premier producers of Bordeaux style wines. The market will certainly determine whether the prices are justified or not. Then again, when people have money, they like to spend it. There’s definitely been a shortage of cash in the recent past.

  11. It’s quite a jump from millenials (with no money) to cult wine collectors (with money to burn).

    The market perception is that Napa valley Cabs are really, really good. My personal opinion is that there is merit in the perception. So, I’m not worried about Napa in general.

    Cult wines differentiate themselves from other Napa Cabs by trying to create the perception they are rare and better. Beauty is in the eye of the beholder. Hopefully, your cost structure is in check if you are judged to be not as beautiful as you claim………….

  12. Aaron, At what volume do you think a wine goes from being small and handmade to mass produced?

  13. Steve, as a WE subscriber I’ve seen you rate many of those newcomers highly who are hoping to sell to “gullible snobs”. I agree with many of your points here but your net is cast pretty wide.

    Also I’m not sure the Bordeaux producers are feeling the loss of sales to the US, as sales are being made up in Asia. However I do think the long term effect of losing share in the US market could come back to bite them.

    Your thoughts about Napa Valley and price points alienating millennial consumers are interesting. I don’t think there’s a lack of interest from that generation, just prohibitive pricing on the top wines. It’s tough to fall in love with something for life that you don’t have real access with in your formative years. Baby boomers who love wine could drink top Bordeaux, Burgundy, Napa et al and develop a love for it way back when that would cause them to spend the extra money for them now.

  14. Great comments today on this subject overall, so many good points. How many of the average of “millennial” generation can truly afford more then a case of 100+ dollar bottle of wine on the regular? It really can’t be that much, really thats what I’m left with in the simplest terms.

  15. I appreciate the comments of Aaron and Kathy, and would like to add my perspective. We have released 14 vintages of Napa Cabernet that I would say has good provenance (Diamond Mountain AVA, next to Diamond Creek). How many price increases over those years? Zero. Why? At $75 per bottle we make money. Don’t have to pay consultants, do much of the work ourselves. We have a loyal mailing list, not all of them are wealthy, many come to visit and become friends. Workable and sustainable.

  16. Steve Hare says:

    Lots of great points. Smaller wineries have higher costs of goods. Higher cog will mean a higher retail price. Generally, for every $1.00 in cog, the suggested retail is around $4.00. Thus a cog of $25 (low for many small lot producers) results in a retail of $100. Of course if the winery does everything consumer direct, that is a different economic creature.

    As has been mentioned in above posts, the market will determine the prices. If retailers want only Cabs that retail for $25.00 or less, they will only be getting wines from the large corporate wineries…wines that lack flair, depth and richness. If that be the case, most small wineries will not be able to compete, or will abandon relationships with outside distributors and go entirely DTC.

    The real question is, what do the consumers want? (Actually, we know what they want. They want Screaming Eagle for Charles Shaw prices). If they want cheap, they will get cheap. If they want wines of depth, complexity and soul, they will have to pony up the bucks.

  17. Matt Meyer says:

    If a Napa winery really wants to take that next step towards avoiding the tipping point and emulating Bordeaux the path is simple. Stop messing around with these multimillionaire owners and find a group to purchase the winery that has enough influence to benefit from manipulating the Libor Index. With those kind of marketing dollars who can lose. Oh and get several hundred more years of history under your belt.

    I always find this topic interesting. I think Aaron and Steve touched on the biggest difference in the two regions. California seems to celebrate Small and New whereas Bordeaux seems to celebrate historic and big. Mondavi and Stags Leap may be one of the closest things California has to the History of the French counterparts but the bigger they got and especially when they sold they somehow lost respect. I wonder if the same thing happened to the First Growths long ago, and they have just grown past that growing pain, if we live in different times, or different countries approach cooperate owned wineries differently.

    Steve, just wondering if you post all of your blogs on Facebook. I feel like I’ve missed a couple and I think it’s because I don’t usually access the site directly but see the links via fb posts.

  18. Matt Meyer, as far as I know all my blog posts automatically go up on Facebook.

  19. Bill Dyer, thanks for weighing in. I wish you would send me your wine for review!

  20. I’m in pretty solid agreement on your post Steve with one suggested, but not explicitly stated, thought about Millennial influence. The Millennials that are buying the wines are also selling the wine and guiding consumer choices to some extent. I’m 28 and have been selling wine for the last 3 years in a retail establishment, and due to the I’m sure wholly noble gestures of wholesale representatives (sarcasm most certainly implied) I taste a lot of wine. One particular wholesaler carries a lot of these exorbitantly priced Napa Cabs and I just don’t get the quality in the juice and the price being asked. Some other folks my age who work on the restaurant side of things are buying Lopez de Heredia, wines made from romorantin from Cour-Cheverney, and Jura is going over well with people looking for wines of interest.

    So as a consumer in my late 20’s I don’t find these 100+ dollar (or hundred point) wines terribly compelling. And as some one who sells wine, I like my recommendations to be wines I consider to be fairly priced and show something unique and interesting. As a result I never steer consumers to what I consider to be overpriced, homogeneous, and boring wines.

    This means I never steer them to $100 + Napa Cabs unless they are specifically looking for them, and more often then not, they aren’t.

  21. A number of years ago Cathy Corison published an article in one of the wine pubs (can’t remember which one) the general subject being how to make it as a small winery in California. She had two basic mantras, the first being don’t pay anybody to do something that you can do yourself and second was to actively manage scarcity in the market. I think that was good advice when she wrote it and I think it’s advice that stands the test of time and is just as valid today as it was when she wrote it.

    The other thought that occurred to me was something that Joe Heitz used to tell people when they complained about the price of his wines. He’d say that an artist does not set his prices based on the cost of canvas, brushes and paint. Joe’s strategy was to sell half of what he made on release and raise the price on the remaining half. Next year he’d release half of what was left and raise the price on what remained. He was actively managing scarcity whether he thought of it that way or not.

    At the end of the day wineries have to sell wine to pay the bills and if the price is too high that task becomes more difficult. Since we still have a free market economy (for now, anyway) the market will always decide who keeps making wine and who auctions off their stuff and goes back to being an engineer, doctor or whatever. It’s really just that simple.

  22. great article, great comments

  23. Great points all, but I think Steve nails it with regards to the fact that fewer and fewer people are actively coming in to ask about these $100 and up Cabs, simply because the consumer automatically assumes they will never have a chance to purchase or even taste them. We are able to carry several top in producers – Diamond Creek, Phelps Insignia, etc. – yet these wines represent a tiny fraction of our fine wine sales. Indeed, most consumers are looking for VALUE over all, and even the inquiries into the likes of Colgin, Screaming Eagle, et. al. are minimal at best. These wines are priced so far out of reach for the regular consumers they are for the most part, irrelevant to them. Whether a wine such as Bryant Family, Scarecrow or Araujo needs to justify their price tag or not, the bottom line is that the price tag perpetuates elitism, something I would argue the majority of us in retail, as well as the whole lot of wine bloggers out there, have been rallying against for quite some time.

  24. OK Steve, sample coming your way tomorrow. And I will reiterate my offer do a vertical of all vintages released if you come for a visit.

  25. I spent yesterday at the kitchen tables of two Napa Valley producers tasting their wines for the first time. Both are excruciatingly small production, about 100 cases and even though one was twice as expensive. I thought they both were well priced taking into account where they are grown, the history of the vineyard and the backgrounds of those involved. We discussed at length their commitment to staying small and devoted to serving their early adopters by maintaining stable pricing. I have no doubt they will be successful out of the gate. And I agree with Bill Dyer, you should get up there and taste some of the old vintages from the Dyer Vineyard.

  26. jon campbell says:

    spent the weekend in sonoma…..listening to the tasting room help try to explain why a 60 dollar bottle of pinot was reasonble was quite comical…..

    I brought my “cheap” lodi and amador county zin with me to drink

    if people think the younger generation is gonna go to napa and sonoma and buy 50-100 dollar bottles of wine like the aging boomers have when there is quite palatable wine on the store shelf for under 20 dollars then the purveyors of these wineries have been drinking too much of their own proiduct

  27. Steve, great article…. and you managed to get some incredible thought provoking comments going here too.

    You and several commentators are right about the Millenials not buying into the “business as usual”. It comes down to value, and whether or not it can be considered a regular indulgence.

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