When I was in Napa yesterday, I was talking to a guy who’s pretty tuned into the valley’s wine culture. Our conversation ranged over a variety of topics, not just wine, but the economy, politics, Occupy Wall Street, etc., and obviously we got onto the issue of the declining middle class, which seems to be the big domestic story in the country.

At one point, we were driving down Highway 29, through Oakville and Rutherford, looking at all those famous wineries, and I said that I often wonder how they’re all doing in this recession. I said I can’t believe they’re not hurting. My friend had actually read my post from a few days ago on “Why more wineries aren’t failing” and he agreed that the banks probably are holding back from doing more foreclosures; but he agreed also that even if the wineries aren’t going bankrupt or having to sell themselves, many of them are probably deep in debt and struggling, especially those whose retail prices are in the medium tier (hard to define, but let’s say $20-$60). The extremely low-priced wines, such as those produced by Bronco, some Gallos, Bogle, some of Don Sebastiani’s stuff like Smoking Loon, Woodbridge by Robert Mondavi, Red Truck and Big House are probably doing pretty well, because they make sound wines at around $10 a bottle, and that’s the sweet spot for consumers these days. But the middle class isn’t going to buy a middle-priced bottle these days, the way they used to, because they either don’t have the money, or are afraid to spend it.

“If you think about it,” my friend said, “the middle-priced wines are kind of like the Middle Class Americans. They’re both being squeezed out of existence.”

Middle class Americans are indeed under pressure, a fact that Republicans, Democrats and everyone in between can agree on (although solutions to the problem appear to be intractable). The problem with the mid-priced wines is that they’ve pretty much targeted themselves to Middle Class consumers. High end drinkers won’t buy them (I don’t want to get into naming specific brands, but think of the stretch of wineries from, say, just south of the Oakville General Store to Calistoga along 29. You can choose just about any one you want). High end wine drinkers want Harlan, Hundred Acre, Futo. On the other hand, the financially strapped consumer (student, blue collar worker, housewife on a budget, retiree) can’t afford $20 and up for their regular house wine, and so they turn to the cheapies. As a result, the more the Middle Class in America is pinched, the less wine the mid-priced wineries are able to sell to them.

It’s a vicious cycle, but I think my friend got it exactly right. These wineries have got to be hurting, but the banks are going light on them, for now. Things won’t recover for the mid-priced wineries until the economy recovers, employment starts rising, and consumers feel like they have some discretionary money to spend again.

I do want to comment on some remarks that Rob McMillan, who I think is a banker with Silicon Valley Bank, made on my “Why more wineries aren’t failing” post. Rob said “Only 7% of wineries describe themselves as being significantly weak,” which is a statement that needs examining. First of all, self-professed status reports, in any poll, are notoriously misleading, so I suspect that the percentage of wineries that are actually “significantly weak” is considerably higher than seven. Secondly, you’d have to define “significantly weak,” as opposed to merely “weak,” to understand this number precisely. Perhaps 67% described themselves as “weak,” but not “significantly weak.” These surveys all depend on how you ask the question.

Secondly, Rob wrote “grape prices are going up.” I suppose this could be true, especially after this vintage, which is going to be very low-yielding, by every account. However, the 2010 crop was a large one, the third biggest of the decade, and according to the California Dept. of Food and Agriculture, grape crush prices, measured as dollars per ton, were down considerably in 2010 from their 2009 highs.

Even if grape prices go up in 2011, such is the law of supply and demand that, if demand remains low for high end wines, it won’t matter. Soft demand will balance out high prices, which will put an additional squeeze on those $20-$60 wines. It’s all tied together: restore the Middle Class to fiscal health, and the mid-priced winery tier will recover.

Before I wade into the thicket implied by my header, let me bring to your attention this little spat from across the pond, in which the spokesman for Britain’s third largest supermarket chain accuses the editor of Decanter of being a “snob” after the editor, Guy Woodward, told the BBC there’s a “huge amount of difference” between bottles of wine that cost only 2 British pounds apart, with the more expensive being the better.

The tiff lit up British twitter boards with the ferocity of a royal wedding (well, almost), forcing Woodward to explain what he really meant. On The Telegraph’s website, he said that, at the average price of £4.60 paid in Britain for a bottle of wine (about $7.50 U.S.), “the chances of getting an interesting wine are slim.” Although he had praise for certain cheap wines, including a Rioja, Woodward remained unapologetic. “But these wines remain the exception rather than the rule…”. Continuing, Woodward calculates that “If the price of wine were to rise, producers would be paid a decent wage to reinvest in their vineyards, we’d have better wine [and] people would learn to appreciate it…”. It’s the price wars, with all their deep discounting, that rage in Britain, as here in the States, that keep the cost of wine low, and thus the quality–or so Woodward says.

Is he right?

Well, readers of this space, as well as those familiar with my reviews, know I have long argued that the correlation between price and quality isn’t as neat as you might wish it to be. Often as not, I’ll give a winery’s standard bottling a higher score than its pricier reserve. In big blind tastings, such as the ones that the Napa Vintners arrange for me, I’ll often rate relatively inexpensive wines ($25-$40) equal to, if not higher than, super-expensive cults. I love giving a Best Buy to a wine when it conforms to Wine Enthusiast’s price-rating guidelines. And even when it doesn’t, I’ll give a coveted Editor’s Choice to a wine that out-performs for the price.

But in general, I’d have to agree with Guy Woodward: it is awfully hard to get a great bottle of wine for $7.50. Or even $10. Not to say it’s impossible; it can be done, especially nowadays, when negociants like Cameron Hughes are able, somehow, to buy expensive, well-grown wines at big discounts from producers, who can’t sell it. This is why there are so many great Napa Cabernets lately in the $20-$30 range.

But $20 is not $7.50. At that price point, you have to do your homework very carefully–either that, or you just can’t be too fussy. The wine price wars are fought as fiercely here as in Great Britain, perhaps even more so, driving quality down to an acceptable bottom rung, below which not even the most aggressive producer dares to sink, lest the consumer reject his wines in droves. I have frequently defended the big, mass producers for giving Americans what they want and can afford–but let’s not pretend that these are quality wines. I will claim Guy Woodward’s words for my own: Under $10 or so, “the chances of getting an interesting wine are slim.”

We wine writers, and the popular wine media in general (I include the major blogs), frequently suffer from a rare myopia: while we’re obsessed with cult wines, collectibles, the Big Names and expensive boutique bottles, meanwhile the everyday work of producing and selling inexpensive wine to the majority of drinking people continues around the clock. The labors of the people behind lower-priced wines from California’s 5 largest wineries–Gallo, The Wine Group, Constellation, Trinchero Family and Bronco (according to Gomberg Fredrikson)–are largely invisible to the average consumer. But their vast sales forces are out on the sidewalks every day, meeting with buyers from the nation’s leading chains, negotiating deals, driving from venue to venue, flying from city to city, market to market, battling it out for shelf space in a never-ending grind that’s almost gladiatorial.

It’s easy for wine lovers of a certain cultural milieu to turn up their noses at boxed wines, wines with no vintage in big bottles at the bottom of the supermarket shelf, or indeed even vintaged, varietal wines that cost only $10, give or take a few bucks. But these are the wines that fuel America–more importantly, they are the entry-level wines that, for many consumers, will lead up the price-point ladder to more expensive ones. And let there be no doubt that Americans are drinking inexpensive wines in droves. We justifiably celebrate the cool-climate coast as the soul of California wine, but the truth is that the vast, inland Central Valley is California wine’s heart and lungs, the circulatory system that pumps out vast quantities of sound, everyday wine across the country and, increasingly, abroad, from Scandanavia to China. So great is the appetite for inexpensive Central Valley wine that, to quote the Ciatti Company’s May 2011 report, “Bulk inventories continue to be depleted, driven by large wineries, negociant brands and the re-awakening of mid-sized wineries expanding into the $8-$15 a bottle category. The majority of San Joaquin Valley grapes now have commitments…”.

According to Ciatti (an important broker), while Chardonnay continues to trend upward, so does white Zinfandel and “generic” white wines, while “new products such as Muscato, Sweet Reds and [domestic] Sangria” are increasingly popular with “a new demographic of wine buyers.” Just who these new buyers are is less clear, but several assumptions are safe: (1) they’re value conscious, (2) many are likely new entrants to wine and (3) they may well be precisely the younger (Millennial and Gen X) consumers who are said to be more adventurous and experimental when it comes to wine, looking for things their Dad doesn’t drink.

At any rate, the shipments of inexpensive California wines so far this year are soaring, and when you compare them to the stagnation of expensive (more than $15-$20) California wines, it’s clear that this segment is keeping the market alive. And not just in the Central Valley. So tight has the bulk market there become, says Ciatti, that it’s “pushing buyers into the coastal regions for next year and into the future…”. These coastal growers may not get the prices they’d hoped for or historically have received, but at least they’ll have someplace to sell their grapes and/or wine, and make enough to keep them going until the economy recovers.

What today’s post is, I guess, is a toast to the big wineries and inexpensive wines we so often overlook. They’re the base of the pyramid, the legs under the stool, the “broad market momentum [that] continued to soar” in early 2011, according to Gomberg. Here’s to America’s vins de pays.

Hard to believe in just 37 days the first decade of the 21st century will end. Seems like only yesterday we were partying like it was 1999 (wait, it was 1999) and in a panic about the Y2K meltdown. Now here we are on the verge of 2010. In the blink of an eye, a decade has flown by.

It’s been ten years of discontinuity and discombulation for everything in America, and that includes the wine industry. I went back to review some things I wrote for Wine Enthusiast back in 2000, to see what we were thinking and talking about then. The wine market was, of course, robust in 2000, coming off the previous decade of up, up and away. In August of that year I wrote a column that reflected on the historical swings of the Bordeaux market over the preceding, well-documented two centuries. “Switch now from Bordeaux to California, and especially Napa Valley,” I said. “Many of the top wines, particularly Cabernet Sauvignon, have doubled in price since 1990…the price of many, if not most, expensive wines has got to come down, and will…If you don’t believe that the world’s most prestigious wines can suddenly, exuberantly collapse in price, just read ‘The Wines of Bordeaux’ and find out.” That book, by Eddie Penning-Rowsell, traces the sine curves that Bordeaux prices always have described.

The dot-com bust and Sept. 11 dealt blows to the wine industry, but nothing like the staggering knockdown that the Great Recession of 2008-2009 delivered. I still see “suggested retail prices” of $100, $150, $250 for certain Cabernets, but frankly, I don’t believe them. A winery owner can claim to be asking (and getting) triple-digits for his wine but that doesn’t mean he is. So I was right that prices would collapse, but it’s a prediction anybody can make, at any time, because sooner or later, prices always tumble. But that has never stopped certain people from trying to talk prices back up, as for example this article from Investors Chronicle, which argues that “the market for quality wine has enjoyed a rapid turnaround” and cites somebody from something called The Wine Investment Fund as saying that fine wine “has earned it[s] place alongside gold, equities, bonds and other assets in an investment portfolio.” We may forgive The Wine Investment Fund, which is based in London, Bermuda and Hong Kong, for hyperbole, since it’s hardly a disinterested party.

I asked, also in a 2000 column, the following question: “Have you noticed that wine is getting sweeter and softer?” Apparently, I had, although 2000 was a little before I remember actually becoming convinced that California wine had a real problem, namely lack of acidity and excessive residual sugar. Later that year I wrote a little story about Jess Jackson stepping down as Board Chairman of Kendall-Jackson, and quoted him as saying, “I’m seventy. I’m retiring.” Some retirement! But along less happy lines, at the end of 2000 I reported on the news that Robert Mondavi Winery had “extended its reach to a fourth continent, Australia,” with its announcement of a joint venture with Rosemont. In retrospect we can see that this really was an early warning sign of the winery’s impending demise, caused by the hubris of exalted ambitions. RMW’s actual death dragged on for another four years, but finally occurred in December, 2004, when the company was sold to Constellation.

Several conclusions can be drawn. Wine prices are down now, but unless this is the End of History they will rise again, pace Penning-Rowsell, although it could take a while for the high end to recover; there were eras when Bordeaux took decades to come back. Softness and sugariness remain stubborn problems in California wine, but there’s evidence that that trend-line has peaked, thankfully (although it’s a Dracula that threatens always to rise again from the grave). Jess Jackson happily remains with us, at the helm of a great wine company. And the unhappy experience of Robert Mondavi should be a warning sign to ambitious empire builders. What are its lessons? Be careful what you wish for because you might get it. The Devil’s in the details. The bigger they are, the harder they fall. Dot your i’s and cross your t’s. The fundamentals still apply as time goes by.

And speaking of the second decade of the 21st century

The world will have heard by now that Gary Vaynerchuk has won Wine Enthusiast’s “Innovator of the Year” Wine Star Award for WineLibrary TV. I am personally thrilled by the prospect of finally meeting Gary when we all gather, in black tie, at next year’s gala ceremony, at the New York Public Library’s 42nd Street branch. I feel like I know Gary from his comments on my blog, and he is obviously a force to be reckoned with as we head into the two thousand and teens. Congratulations to Gary and to all the Wine Star Award winners!

Lots of talk over the last 48 hours about that new report out of Australia predicting a disastrous tipping point for the country’s wine industry.

Winebiz.com, an Aussie online publication, wrote about the report on Nov. 10. Among other things, the report stated bluntly that 20% of existing grapevines Down Under are “surplus,” “bailouts are not an option,” the country is producing “20–40 million cases a year more than it is selling,” and the actual “viability” of the industry is at stake. What is needed, the report concluded, is an “adjustment process” of undefined dimensions.

The next day, Paul Gregutt blogged apocalyptically about the report and, with his title “Fair Warning!”, cautioned the American wine industry that we might become “the next Australia” if we — the 50 States — refuse to “consort as a national wine industry” as opposed to acting “regionally and locally” (i.e. as individual States and regions within States).

Also yesterday, the economist Mike Veseth — whose infrequently updated blog always is worth a read — weighed in, taking a more wait-and-see attitude. “It will be interesting to see,” he wrote, “if the Australian producers are more decisive and if they can find a way to pull themselves back from the tipping point.”

The question, as I see it is, where is the American wine industry heading? Is that light up ahead the end of the tunnel, or, as in Australia, an oncoming train? To begin with, while Australia has an actual national wine industry, the U.S. does not. We have 50 statewide wine industries, and even within States, regions (i.e. AVAs) compete against one another, sub-AVAs (St. Helena, Oakville) go toe-to-toe, and then, of course, individual wineries do battle on the playing fields of the competitive market. So Paul is correct when he notes that the thousands of wineries in America do not “consort as a national wine industry.” Nor are they going to.

What might a united wine industry do anyway, even if it could figure out a way to associate? Not much more, in my view, than the fractured industry we have now. And when you think about it, that sundry wine industry hasn’t done too badly. Without focused leadership, we’ve made America a wine drinking country in a relatively short time, and made wine the alcoholic beverage of choice for aspirational adults. That’s a pretty good accomplishment.

Here in California, I’m pretty optimistic that things aren’t heading into the dumpster. I can’t prove it, but I don’t think we’re in the same dismal boat as Australia. Part of Australia’s problem was that they presented themselves to the world as cheap Shiraz, an image that worked for a time but has now come back to haunt them. And, to the extent the Aussies believe that China and other Asian markets will be their salvation, I say, Asians are as aspirational as Americans and want to be perceived as drinking good wine, not plonk. California has the advantage that — whatever you may think of its wines — the state manufactured for itself the image of prestige and high quality (thanks, in large part, to Robert Mondavi). Therefore, California wines will remain viable and, even more, desirable, both in this country and overseas, as long as individual wineries don’t price themselves out of the market. And that will not happen, I firmly predict. Prices already have fallen and are continuing to fall. The market is adjusting to new realities. I don’t know about the wine industries of Wisconsin, Alabama or Nevada, but the California wine industry — battered and weary — will emerge from this nightmare in solid shape.

Everybody knows that housing prices are still too high, especially in Sun Belt places like Las Vegas, South Florida and certain parts of California. Prices won’t stabilize until demand equals supply, and supply was way overbuilt to begin with. So housing prices continue to fall. You can only conclude that they were too high to begin with, and must plunge further before the bottom is reached.

The situation is analogous to California wine prices. There are simply too many wines out there in the $20-$50 and higher range that aren’t worth it. Once again, I’m not going to mention any names, because that would be unfair; for every “ABC winery” that’s overpriced I could name 5 dozen others.

First, let me start with a general observation that wines scoring between 83 points and 86 points are, by Wine Enthusiast definition, “good.” And the definition of “good,” in our view, is “Decently made, with varietal identity, serviceable. At most, minor deficiencies.” Now, there’s nothing wrong with a “serviceable” wine, but my Webster’s dictionary defines “serviceable” as “useful; usable; durable; ready for use,” which is not exactly a glowing endorsement. For example, if you drive a car, you probably want something that’s more than “useful.”

The majority of California wines are serviceable. They’re what a Frenchman might call vin de table or vin ordinaire, the kinds of wines most people drink on most days with very little fuss or clamor. A decent dry red, a crisp fruity white, or maybe a perky little rosé is a serviceable wine. How much should a serviceable wine cost? It’s in the eye of the beholder, but in my view, an everyday wine should be less than $15. And there are tons of everyday wines out there that go for less than $15, not only from California but from around the world.

Here’s the problem. Over the last few months I’ve reviewed a lot of wines I scored at 84 points, which is right in the middle of the “serviceable” spectrum. Here are a few (without specific identities) and their prices:

a Central Coast Bordeaux blend with tutti-fruity flavors and tons of weird oak: $28
a Napa Valley single-vineyard Cabernet that had sharp, green tannins: $50
a Russian River single-vineyard Chardonnay that was too oaky and popcorny: $38
a Napa Valley rosé that tasted like cola: $35
a Paso Robles Viognier that was practically a dessert wine, it was so sweet: $29
a Sierra Foothills Syrah that was pleasant and simple, for $32
a Dry Creek Zin that should have been about $15 but was $40

Well, you get the idea. Each of these wines was basically decent, but why on earth would anyone pay the asking price? And keep in mind, these are prices that were established (either by the producer or someone along the distribution chain) after this past Spring — in other words, when the country already was deeply mired into a Recession, and everybody knew that consumers were diving down in terms of the prices they’re willing to pay for wine.

How do you account for a wine that’s overpriced and mediocre (definition: ordinary, average) being sold for so much money during a Recession? I, myself, don’t know how to. Is it blindness? Whistling past the graveyard and hoping there are enough gullible consumers out there who will buy it anyway? Is it simple ignorance of reality, a kind of cellar-vision whereby a winery owner lives in his own little world and doesn’t understand what’s going on? Is it a desperate act forced upon vintners by their banks? Is it the belief that their own particular wine — their love child — is actually worth the price they’re asking? Is it a form of lethargy? All the above?

Whatever the explanation, the fact is that every day I review wines that are average and ordinary, and when I see their prices I’m shocked and appalled. If a Recession is indeed a time for correction, of the same kind that housing is experiencing, then wine prices are going to have to be seriously corrected, and not just at the super-ultra-premium end. They’re going to have to be corrected in the $20-$40 tier, where, as Ricky Ricardo might have said, there’s a lot of ‘recting to do.

Breaking news!

Conde Nast is closing Gourmet magazine!! The N.Y. Times announced it this morning. This is a major event in print publication. Gourmet in its time was required reading, especially for wine lovers who could revel in everything the great Gerald Asher wrote. Gourmet will be missed.