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Musings on Diageo’s rumored sale of its wineries



I hope Diageo is doing all right financially, but to judge from all these rumors that the London-based company is going to sell its iconic wine brands, maybe they really are experiencing some difficulty.

Their California brands from Napa Valley or County include Sterling, Beaulieu, Acacia and Provenance. The first two will be familiar to anyone who knows the history of Napa Valley. Beaulieu, founded in 1900, defines the classic old-line, pre-Prohibition winery; Sterling, which began in 1967, was one of the boutique wineries that made Napa famous in the modern era. Meanwhile, Acacia, dating to 1979, helped launch Carneros to the forefront of Pinot Noir. Provenance, whose inaugural vintage was 1999, is far younger, but has had a good run—I always did like their Cabernets.

So what’s up with Diageo? To begin with, the company’s stock price had a pretty good run-up to the Great Recession, but then plunged like everyone else. In 2009, it hit its nadir, then peaked again in 2013, only to experience a steady slide since then—leading the Motley Fool to recommend Diageo as a good buy.

That same article, suggesting Diageo is going through a “phase of lackluster performance,” attributed the drinks giant’s problems to “tough trading conditions in emerging markets, subdued consumer demand in some developed markets” and bad exchange rates.

Concerning that “subdued consumer demand in some developed markets,” I would suggest that the problems at Sterling, Beaulieu et al. stem from the consumer (and sommelier) perception that those are tired brands. Indeed, you could teach a college seminar on the ups and downs of an American winery by using the example of Beaulieu alone.

That Beaulieu was one of the great wineries of Napa Valley, and California, for many decades is indisputable. The winery helped to invent Napa Valley; it pioneered in Cabernet Sauvignon from the Rutherford Bench, and in hiring Andre Tchelistcheff, in 1938, Beaulieu gave California is greatest and most influential winemaker ever. “The Maestro” was mentor to multiple generations of winemakers before passing into the Great Vineyard in the Sky, in 1994.

Even had Beaulieu maintained quality in the 1980s and 1990s it probably would have slipped in the public’s estimation, due solely to the natural lifespan of most wineries. But quality did vary, and the winery seemed to lose focus. I always admired, and gave high scores to, the Georges de Latour Private Reserve Cabernet Sauvignon, and their Bordeaux blend, Tapestry, also was quite good. But the Pinot Noirs and Chardonnays were inconsistent, and whenever Beaulieu tinkered with Rhone-style varieties, as they frequently did, they seemed in over their heads.

As for Sterling, which was such an exciting winery in the 1970s, the glitter wore thin, as the winery hit a patch of averageness. The Cabernet, particularly the Reserve, could still be quite good; but really, there was little to differentiate it from dozens of others, a dilemma given the fickleness of the American wine consumer, who’s always looking for the next new thing. Despite a considerable marketing budget from Diageo, both wineries also were debilitated by the release of large-production, inexpensive lines, in Sterling’s case the Vintner’s Collection, in Beaulieu’s the Coastal Estates, both of which tended to confuse gatekeepers and consumers as to what either winery actually was. In this, Beaulieu and Sterling erred in the same way as did Robert Mondavi Winery, which tried—and failed—to be all things to all people.

Beaulieu remains a good winery and Sterling can be restored to glory; it’s never too late. If Diageo does sell either or both, I hope it’s to a new owner who will love them for what they have been and for what they can once again be.

Who’s to decide what wine phrases are illegal?



I blogged the other day about a lawsuit brought by an L.A. guy against MillerCoors. He’s suing them because he found it “unsettling” to discover that they were really the producers of a beer he thought was a craft beer, Blue Moon.

Evidently, this topic—of when or whether a beer is an authentic craft beer as opposed to something else—has caused something of a brouhaha in the industry. This article, in Wine Industry Advisor, explains some of the complexities. Entitled “Craft: A term in controversy,” it points out the murkiness that a lack of definition of the word “craft” can cause.

I told a friend of mine, co-proprietor of a wine shop that also has a small but excellent selection of craft beers by the bottle, about the lawsuit, which she hadn’t heard of. I asked what she thought, and it was the same as I think: The L.A. guy is probably looking for some easy cash. Then she said, “If he wins, then half the wineries in the world will get sued.”

What did she mean? That wineries routinely use words and phrases that have no legal definition, but that have certain meanings or connotations in the consumer’s mind. “Reserve” is one such word. I wrote about numerous others several years ago in this blog post. At that time (2011), I suggested that the government should “clear up” these terms. But I’ve now changed my mind. As I’ve gotten older and, hopefully, wiser, I’ve become more concerned about the government getting its fingers into every aspect of our lives, so that now, I don’t think we need legal, binding decisions from On High on what things like “barrel select,” “Old Vines” or “Bottle Aged” mean. These are evocative terms that imply certain practices and conjure up pleasant visual images. That’s what marketers do, whether it’s with autos, high tech gizmos, perfumes, fashion or vacation spots, and if we forced every advertisement, commercial, brochure and packaging text to adhere to some strict, formal meaning of each and every word and phrase, we’d be even deeper into continuous litigation in America than we are today.

Besides, think how hard it would be to define these terms. Take “bottle aged.” Every bottle of wine sold anywhere has been aged in the bottle for some period of time, even if it’s just a few months. People may imagine dusty wine cellars where splendid old bottles lay sleeping until they’re nectar, but there’s nothing wrong with them having that mis-impression, especially if it adds to their pleasure when they actually drink the stuff. Do we really want or need to know that “bottle aged” means ten months, or fourteen months, or nineteen months? I mean, come on. Besides, if there was an overly-specific definition for “bottle aged,” wineries would just start using terms like “”aged in the bottle,” and then we’d have more regulations, more lawsuits and so on, ad infinitum. Ditto for “barrel select.” This, too, implies something very special about the wine, but in truth, most wine—whether sold in bottle, box or keg—has come out of a barrel. Can a stainless steel white wine be called “barrel select”? I wouldn’t go there, and I doubt if any winery would actually label a stainless steel wine “barrel select,” but if they did, I wouldn’t lose any sleep. (Besides, some investigative blogger would probably bust them for it.) And then there’s “old vines.” I, personally, think an “old vine” should be at least thirty years of age, but that’s just me. Besides, if a winery is really using ancient vines and is proud of them, they can always put that information on the back label. I’m a big fan of information on back labels—not ingredients, which I think can go on the winery’s website, but authentic, interesting information, like how old the vines are, what the varietal blend is, the vineyard’s elevation, amount of new oak, and so on.

This line of reasoning that I outlined above also touches on the nature of small wineries that claim to be, or are thought of as, “artisanal” versus larger wineries. I always said, as a wine critic who tasted many thousands of wines every year, that I didn’t care about the winery’s size. I cared about the wine: Was it good, savory, interesting, worth sipping and considering, or was it plonk? I always thought it was snobby to dismiss big wineries (whatever “big” means), and that it was disingenuous to celebrate small wineries (whatever “small” means) just because they were small. I had lots of wines from tiny little wineries that were awful, and lots of wines from “big” wineries that excited me. I still feel that way. We should experience things as they actually are, and not sweat the small stuff, like the way they describe themselves, or how many cases they produce. As for those fans of organic and biodynamic wines, I can’t tell you how many off-the-record stories I heard about bags of chemicals on the back loading dock of wineries that claimed not to use any. My advice: Don’t believe any hype. None of it. Taste the stuff, and if you like it, buy it, and tell the critics where to go.

When is a beer a “craft” beer, and when is it not?



I realize that there are at least two sides to every issue, especially in a courtroom, which is where the case of Parent v MillerCoors LLC has ended up.

At question: Should MillerCoors be allowed to call their Blue Moon beer “artfully crafted”?

The plaintiff in the case is Evan Parent, described on the California Superior Court brief as representing “himself, a class of persons similarly situated, and the general public.”

The defendant is, of course, MillerCoors, one of the world’s biggest beer companies.

Of Mr. Parent, we know little from the brief, except for a few facts: he lives in San Diego, where he “purchased Blue Moon beer”, which he “believed…was a microbrew or ‘craft’ beer.” Upon learning that Blue Moon was made by the same company that produces Coors Light and Miller High Life, Mr. Parent apparently was shocked enough to sue MillerCoors for misleading him.

A Google search reveals a little more about Plaintiff Parent. According to the New York Daily News, Parent says that, as “a craft brew fan,” he found it “upsetting” that MillerCoors would “deceiv[e] me into giving them my money for the wrong reasons.” The Daily News article added, “It’s unclear how much cash Parent is seeking with the legal action.”

Meanwhile, Men’s Journal reports on MillerCoors’ reaction to the lawsuit. The company issued a boilerplate statement affirming they are “tremendously proud of Blue Moon” and calling Parent’s lawsuit “without merit.”

Pretend we’re the jury; what are we to think? First, there is no legal definition of “craft beer.” Although a trade group, the Brewer’s Association, states that according to its vision a craft beer must be produced in quantities of less than six million barrels, which MillerCoors obviously exceeds, still Men’s Journal observes that the “federal government doesn’t technically have a definition for craft breweries…”. We therefore are in a murky, ill-defined legal space here, but it would not appear that MillerCoors has done anything technically in violation of any law.

Was there, then, an intent to deceive? Clearly yes. MillerCoors is taking advantage of the huge, positive image of “craft beer” in the U.S. by use of the term “artfully crafted.” But if MillerCoors is guilty of intent to deceive, then so are almost all of the products and services that advertise themselves on broadcast and in print media. That’s what advertising and its phrases and images are carefully designed to do: make consumers think, usually through association, of the product in the most appealing way possible. (Just to use a typical example, if you wear a Playtex brassiere, does this really help you achieve a more “active lifestyle”?)

The answer, I think, is not for consumers to file lawsuits alleging deception, nor is it for the courts to become involved in such frivolity. It comes down to the most fundamental consumer advice: caveat emptor. “Let the buyer beware.” This has been a linchpin of American jurisprudence since 1817, when the U.S. Supreme Court, in the Laidlaw v. Organ case, unanimously ruled that an individual possessing information that may cause another person to misapprehend something “[is] not bound to communicate it.” That opinion, by the way, was written by Chief Justice John Marshall, one of the architects of our legal system.

Look, there’s no substitute for being an intelligent consumer. If I’m buying a box of cereal in the supermarket and the cover is full of colorful slogans touting the product’s “natural” ingredients, I don’t believe it automatically: I check out the nutritional labeling. If I see the word “artisanal” or “handmade” on a wine label, it means utterly nothing to me, because there’s no legal definition for either term. Nor do I think the government should micro-manage every conceivable word and phrase that could possibly be used in marketing. We don’t want to go down that road because the only ones who would benefit are the lawyers. As for consumers who are “upset” to learn something about a product, I say Life sometimes contains upsetting things. As long as the product or service you’re buying isn’t actually harming you through some intentional sin of commission or omission—such as poisoning your body or giving you bad advice–it’s your obligation to understand what you’re buying, not theirs to make sure you do.

Is social media losing clout?



There’s a running joke on the great HBO series, Silicon Valley, to the effect that the only tech company that’s worth investing in is one that’s losing money.

If that’s true, then social media companies must be doing really well. However, in the case of Twitter, LinkedIn and Yelp, that doesn’t appear to be the case. The stock value of all three has gone down significantly lately, causing the San Francisco Chronicle to headline an article, “Is social media losing favor? Stocks dive on weak results.”

The issue, says the report, is “whether social media companies can keep their growth rates vigorous enough to justify their valuations.” Underlying that problem is the continuing challenge for these companies of how to maximize revenue, when their basic services are free for everyone to use. Yelp, for example, reported that ad sales have slowed down, making it harder to make money; Yelp’s CEO said the company is responding by “seek[ing] ways to increase engagement and drive awareness” in order to boost “local advertising.”

Well, “seek and ye shall find” may be basic Biblical advice, but it doesn’t always work in the real economy. I think what we’re seeing in social media is the same sort of consolidation that every other industry has experienced, with smaller firms getting driven out or gobbled up, as the giants expand their power. Facebook’s stock, for example, has been on a tear for the last three years, more than quadrupling, thanks to continued growth, including from Instagram, which it bought in 2012.

Twitter is an interesting example of a social media company, perhaps the prima facie one, whose actual financial performance consistently lags behind the weltanschauung it has created for itself in the popular culture. “Early hopes of rapid user growth were rapidly dashed,” reports the online news site, Fusion.

As a result, the company decided to concentrate on other metrics, like ‘audience’, which would count not only people using the service directly but also non-users and logged-out users who encounter tweets in any number of different contexts.”

This sleight-of-hand reminds me of the numbers game some bloggers were playing a few years ago, with sites competing with each other based on metrics like hits, unique visits, page views and so on. I was always asking the question, What difference does it make how many hits you have, if you’re not making any money? And I was always told not to be silly, because the big-number sites would eventually make money, and plenty of it, so I should keep my mouth shut.

Well, here we are, with some of the biggest big-number social media sites in America still struggling to make money, with no apparent solutions in sight. This is why the Fusion article suggests that Facebook buy Twitter, in order for Twitter “to remain relevant over the long term.” The theory is that Facebook, which has figured out how to make the Facebook experience “personal,” could transfuse that personality into Twitter, which—however much you may like and admire it—is about as personal as a classified ad.

Still, even if it were, would that make Twitter profitable? It couldn’t hurt. But figuring out how to create a revenue stream remains the single greatest obstacle to social media sites. If they can’t figure it out, they’re going to have to change direction and become something else, if they want to survive. There’s evidence this is already happening. The Wall Street Journal recently reported that Instagram is making money from an industry not usually associated with the personal warmth and fuzziness of social media: “the commercial real-estate brokerage business,” with real estate giants like Cushman & Wakefield “using photography-intensive Instagram for branding purposes.”

I suspect my young friends in Oakland, who love Instagram and are part of the cadre that made it popular, will continue to put up pictures of their tattoos and dogs on Instagram, but you have to wonder if their dedication will survive Instagram’s transition to what they may interpret as a rapacious corner of entrepreneurial capitalism and hype. How Instagram, and by extension social media in general, straddles that stool is going to be interesting to watch.

Connectedness: the Holy Grail of winery marketing



Last week, while Americans were watching developments concerning the Comcast-Time Warner Cable merger, which eventually (and thankfully) collapsed, another more successful merger went almost unnoticed. That was the marriage between Blue Bottle Coffee and Tartine Bakery, a far happier union that consumers could celebrate, instead of worrying about.

Blue Bottle was founded in my hometown of Oakland and now has cafés throughout the Bay Area, L.A., New York City and Japan. It’s become what Starbucks used to be: the hippest java joint around, one of the high-end coffee industry’s most respected roasters,” according to Fast Company, an appraisal shared by Bloomberg Business, which described Blue Bottle as “the next wave of artisanal coffee shops” and reported on enthusiastic investments in the company by Silicon Valley tech giants such as Google, WordPress and Twitter.

Tartine Bakery sprang from the famous San Francisco restaurant, Bar Tartine, a Mission District hotspot that helped make the Valencia Corridor one of the city’s most visited dining destinations. Tartine’s bread makers earned the prestigious James Beard Award for Outstanding Pastry Chef. As wildly popular as the bakery is, Tartine has not been able to figure out how to expand to other locations. Blue Bottle has. The San Francisco Chronicle predicts the merger will “provide mutual benefits to both,” as consumers continue to seek out “well-crafted quality, locally sourced and planet-sensitive foods.”

There are lessons for the wine industry, particularly for family-owned wineries that want a more personal connection with consumers. Consumers do want “planet-friendly” things to buy. They do want quality that’s apparent, and preferably locally-sourced. But, maybe more than anything, they want a connection with the people who sell them products and services. Never in the history of American industry has that personal connection been more important. People—in their loneliness, idealism and confusion—desire to feel something human. Not the appearance of something human. Not something crafted in some P.R. shop that seems human. Something that is human.

Tartine and Blue Bottle (I’ve been to both) provide that connection to human-ness. It’s hard to pinpoint exactly how, or to describe it, unless you’ve been there; the blogger Kevin Lindsay has called it a “visceral reaction” that can create lifelong connections with the shoppers who can and will become compelling brand evangelists.” This is, of course, the Holy Grail for all companies, including wineries: to “create lifelong connections.” A lifelong consumer does not have to be marketed to with the same ferocity (and costs) as a new, unaffiliated consumer. This is the magic of branding: it’s why I met so many fans of Kendall-Jackson Vintner’s Reserve wines on my trip last week. It’s why the About Money website says branding is not about getting your target market to choose you over the competition, but it is about getting your prospects to see you as the only one that provides a solution to their problem.”

What a concept! So doable, and yet so rarely done. This is precisely the challenge wineries must confront, and solve, in the coming years, if they are to remain viable, in the face not only of domestic competition but international, as trade agreements erode traditional national boundaries and the entire planet becomes a single marketplace.

How is this to be done? Now that the clamorous exaggerations for social media have begun to calm, we can see that merely having a robust online presence isn’t nearly enough. Social media is simply a tool: put a chisel in the hands of Michaelangelo and you end up with David. In the hands of a child, a chisel is merely something to thump and bang with, and possibly do damage. To really connect with the consumer, you have to think like the consumer. You have to have empathy. You have to get out of your box and into the mind and heart of the consumer you hope to reach. That may sound New Agey, but, as Mark Benioff explains in this interview about his late friend and mentor, Steve Jobs, Jobs’ spirituality (inspired by yogic meditation practices and The Beatles) made the Apple co-founder “a prophet” who knew what consumers wanted even before they themselves did. Steve Jobs not only gave them what they sought, which was a way to increase their connectedness to the world, he made them—and the world—a better place.

Capitaltruism: Merging idealism with making money

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There’s a movement afoot in corporate America that doesn’t get enough attention but is gaining traction and could be a game changer. This movement is about inculcating social, environmental and health concerns into the sale of goods and services: call it Capitaltruism, where traditional capitalism meets idealistic altruism. And nowhere is it being embraced more heartily than by Millennials, who may feel that—since neither the government nor corporate America by itself is tackling important issues—it’s up to them.

Two recent developments illustrate this movement. The first is reflected by the rise of the “B Corporation.” The “B” stands for “beneficial.” A B Corporation is “a for-profit company committed to social or environmental goals in addition to its financial obligations.” That’s according to this article in the San Francisco Chronicle that describes how such corporations try “to benefit not [just their] shareholders, but also society.”

Millennials in particular are “drawn to firms that do good.” B Corps are certified by a third party, B Corporation, that claims to have registered 1,247 companies in 38 countries, across 121 industries, including wine. A Brookings Institution study found that the “desire on the part of Millennials for their daily work to reflect and be a part of their social concerns” is a chief factor in their choice of careers—and in their purchasing decisions.

The second development, reported courtesy of the Wall Street Journal, is of two California restaurateurs, Daniel Patterson (of Michelon-starred Coi in San Francisco but also of Plum Bar in Oakland) and Roy Choi, who got his start with L.A. food trucks. The pair have started up a company, Loco’l, whose aim is to replace the dismal diet of unhealthy fast food that now dominates less affluent neighborhoods with what Patterson calls a “natural, cooked-with-integrity alternative.” The first two Loco’ls will open in San Francisco’s Tenderloin and in Los Angeles’ Watts district. The foods will cost between 99 cents and $6 and will include things like a “Burg”: a beef-grain-garum [fish sauce] patty with Awesome Sauce, Jack cheese, grilled scallion and lime relish, on a Tartine Bakery bun. Sounds good, doesn’t it?

What do these two initiatives have in common? For one thing, both the Loco’l people and the B Corp people want to make money. But they want to do so in a way that addresses serious social concerns that, frankly, are not yet being addressed adequately. Both ventures are fueled by idealism and creativity, and both fill an important niche in a consumer market that’s been waiting for somebody to give them something worth spending their money on. What a fabulous idea!

Have a great weekend!

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