Why owning a vineyard is so passé
I love the Charles Schwab TV commercial that’s been airing lately. You’ve probably seen it. It shows an older Baby Boomer guy, digitalized in a weird, hallucinatory way (what’s up with that?), talking about his experiences planning for retirement. It’s obviously a slap at all other investment advice companies except for Charles Schwab. He’s putting down “these financial services companies” that presumably mislead their customers and rip them off, when their advisors talk about “beach homes, or starting a vineyard.” The guy says, “Come on. Just help me figure this out…a vineyard? Gimme a break.” And then it ends.
To understand why Schwab’s creative advertising team decided to mock the “starting a vineyard” concept, you have only to go back to pre-Recession times. Throughout the 1990s and well into the 2000s, there was a well-known phenomenon of ultra-rich people who bought themselves a lifestyle. Usually it was in Napa Valley, but not always. Usually it was Cabernet Sauvignon, but not always. These [almost exclusively white] men would hire the best consultants money could buy: someone for viticulture; someone for flying winemaker; someone for official winemaker. If they had any money left over, they’d build a shrine to their own ego and call it a winery. Then they would craft a wine made solidly in the modern cult style, send it off to Parker, get a predictably high score, and voila! Demand (by collector-lemmings) exceeded supply, a three-digit price was no problem, and another “cult Cabernet” was born.
It all worked very well, so why did Schwab’s geniuses decide the poster child for failed investments now is “starting a vineyard”? Aha, now we’re getting into the tall grass of semiotics.
Now, this is in no way a knock against consulting viticulturalists or winemakers, so let’s not go there. What it is is an attempt to figure out why owning a vineyard has become a symbol for a barren, futile investment.
First of all, this obviously is about the Great Recession. Schwab’s unstated message to investors is, “We know your dreams have been utterly destroyed. You no longer have the means to do the things you dreamed of when you retire. That’s really sad, so come talk to us, good old ‘Chuck,’ and we’ll help you.” I seriously doubt that Chuck is any more able to help someone whose life savings have been wiped out than any other investment advisor, but that’s not the point. The point is that the era of rich people buying in to a cult wine lifestyle is over…at least for the time being. Schwab knows that, and that’s why we’re seeing this commercial.
Until the Recession hit, and even today to some extent, I was getting super-expensive Napa Cabernets almost everyday. It was silly, the quantity of $100-plus Cabs with no provenance whatsoever. I’m still getting them in dribs and drabs because the vintages are 2007 and 2008, in other words, before the Recession hit. I think a lot of these brands are going to disappear with the 2009 and 2010 vintages. Probably the Schwab people have figured out that now there’s a window of opportunity when bashing vineyard investment will work on some crude emotional level. The window will close in a little while, by which time the creatives on Madison Avenue will have figured out another way to appeal to investors’ insecurity.
Meanwhile, there’s good news in this for average consumers. There’s a ton of wine out there that proprietors can’t sell at the prices they expected. Many of them are willing to dump their wines off to negociants or third-parties, for a dime on the dollar. That means there are Napa Cabs that, for $25, $30 or a little more, would have cost $80 or more, had the Recession not hit. We don’t know the details of these secretive deals; a “vinted and bottled by” Cabernet for $30 that I give 92 points may well have come from a famous-name brand that ordinarily would have charged an arm and a leg. My blind tastings nearly every day show that the relationship between price and quality is less consistent than ever. The good old days are over, “Chuck” knows it and is attempting to capitalize on it, but life goes on, we continue to seek and drink good wine, and another vintage is about to begin in eternally hopeful California.
It seems to me that the worm has already turned for many people. A winemaking friend purchased Napa Valley Cab in 2009 for $1500 a ton. The previous year, those grapes had gone to one of those three-digit producers at $5000 per ton. By 2010, the cost of the grapes was back to $3500 per ton, still low enough for my low-budget friend to afford since he loved his 2009 and Cabernet did not suffer as badly as some other varieties in the tricky 2010 vintage.
But, he is probably going to have to give up those grapes for 2011 because the demand is back. And if grape demand is back for Napa Cab, then the next logical conclusion is that demand is back for expensive Napa Cabs. Sure, a few wealthy Napa land owners (is there any other kind?) will have suffered for a couple of years, but, hey, this is agriculture and the boom and bust cycle was invented by commodity crops. That lessone applies even to the most expensive of the genre.
Like you, I get a chuckle every time I see the Schwab commercial, but I understand it as a metaphor of the times. Ordinary baby boomers were never going to buy vineyards. But the bad times are ending. The stock market, the source of most wealth, is just 10% below its peak, not off by 50%, and folks no longer fear for their futures. Look out prices in the marketplace. They will start rising just as soon as those expensive grapes show up in bottles.
Hopefully this will bring on a nice change where vineyards are priced by good business principals again instead of ramp speculation and oh I could see my thoroughbred stable right there sort of deals. A vineyard is a business and the era of prices with little to no correlation to land value or proven track record should end. Sure a lot of folks in the valley have become wealthy with these land exchanges but it also hurts a lot of good business people as well. So many people bought these properties with the same “sure thing” mentality blinded by the dream of their name on a bottle of wine. Heck with the money they spent on these properties think of the cellars they could have amassed. At least at that point they would have something to drink as the economy slumped instead of another invoice from the vineyard management company for those three extra sprays due to the cool wet year. Ahhh yes a vineyard. The gift that keeps on taking.
Clearly the bigger picture has been missed here. Vineyard property as real estate is still a sound investment, and the barometer for price and value is as it always is in real estate LOCATION LOCATION LOCATION.
The Napa Valley is still the most recognized appellation in the US and as such real estate within that boundary commands a premium price. Through the recession, this property held its value better than most and whilst realizing a slight decline it avoided the utter collapse of other segments. So, to imply that vineyard ownership is “passe” is like saying that owning a 50,000 square foot castle is passe. Sure, it is beyond the means of most and is considered the wanton extravagance of the ultra wealthy. But to those that can afford it, it remains a sound investment, a great plaything for the accountants at tax time, and the envy of those that would love to be able to play the game.
Mr. Olken,
According to David Ricardo, F. Hayek, L. von Mises, M. Friedman, etc., boom and bust cycles were “invented” by central banks (i.e., the Bank of England, created in 1694) with the adoption of “fractional-reserve banking” (leveraged credit expansion) and, more recently, the use of “fiat money” (monetary expansion/inflation); that result in the artificial lowering of interest rates and the inevitable misallocation of productive resources.
Commodities’ “price volatility” is a mere consequence.
Mr. O’Connor,
I might agree with that premise if all commodities moved in lock-step, but clearly they do not.
I might agree if the wine boom and bust cycles (i. e., planting cycles) uniquely correlated to the economy, which they must to a certain extent. But, we do not see more than general correlation. The 1960s, for example, while almost unprecedented in the length of the upcycle, had only modest effect on wine. It was not until the 1970s that we see the great wine planting boom and that boom was significantly more extended in time and extent than the business cycle.
In any event, I left the dismal science of economics decades ago when I made the transition to winewriting, and I already regret allowing myself to be dragged back into it. I would much rather debate ABV levels than GDP levels.
Steve: “The point is that the era of rich people buying in to a cult wine lifestyle is over…at least for the time being.”
I’m not so sure, it looks like really rich people are doing fine right now. I think the era of “sort-of” rich people anticipating turning into “really” rich people may be over. Which of course would be more like Schwab’s target market.
Phil & Julius: Tony Correia and Nat DiBuduo have documented a number of times how vineyards are earning an uneconomic rate of return, unless the individual vineyard far outperforms the norm. Even within top appellations (notwithstanding that I do agree with your characterization of Napa Valley). The money made in vineyards has generally been from selling them to the next investor.
Peter: Can you come up with any quantitative research showing that monetary policy determines wine grape prices and vineyard returns. How about almonds? Olives? Apple concentrate?
Item #1: The “ultra-rich” or even garden-variety “rich” don’t go to Schwab, they go to more elite, private investment firms. Schwab wishes they had that level of clientele, but they don’t. They have (had) people like me.
As a “non-rich” person and former customer, I have to say that my experience with Charles Schwab proved that I’m better off investing on my own. Many of their employees are fresh out of school and using CS as a stepping stone, or simply too bad at what they do to find a better job.
Item #2: As previously stated, I don’t fall into the “rich” or “super-rich” categories by any means, but I do plan on planting my own vines next year. I probably have less money than ever but as a consequence I have more time and a bit of land to play with. It has to be more interesting than pears and tomatoes.
(Any suggestions of what to plant in the Sierra Foothills at 1700′ elevation?)
Item #3: I don’t know if it’s ok to mention names, but my father and I recently split a negociant wine(Rhymes with “Cameraman Blues”) Napa Cab ($15) that was very, very good. As an average consumer I’m thrilled to find good wines in the sub $30-range. Seems a glut of great wine and a shortage of buyers will work to many people’s advantage in building a decent collection on the cheap.
Bill, how about Cab Franc? It seems to do well up there.
One of my favorites! I want something sturdy since I have no experience and we get a bit of frost.
A recent trip to Amador revealed a few small wineries for sale. I haven’t seen the commercial you spoke of but I would like to think the “for sale” signs are more a sign of the general real estate market than someone who got in over their head in the wine biz.
The more I think about it it seems whoever wrote that commercial has an anti-elitist attitude and probably doesn’t know jack about wine/wineries. You could substitute “micro-brewery” or “cigar-bar”, or “creative consultant” for “vineyard” and be just as relevant.
“Any suggestions of what to plant in the Sierra Foothills at 1700′ elevation?)”
Syrah and Viognier both do nicely up there, but unfortunately both are in oversupply, so you better be ready to make it into wine and sell it yourself. And if you have to hand-sell it anyway, why not get really adventuresome:
–Steve Edmunds has made some nice high altitude Gamay from the foothills.
–Vranec, a Macedonian variety. I’m not kidding, ask John Bree at Sierra Ridge (2000′). It’s tasty, kind of like a cross between Zin and Malbec in flavor.
Bill–
If I wanted to know what to plant in the Sierra Foothills, I would look at what grapes were already doing well up there. Have a look at wineries like Domaine de la Terre Rouge, Cedarville, Prsopect 772. Looks like Rhone varieties from those folks.
Cab Franc does do well, but you don’t see a lot of it for one really good reason. There is not much of a market for the variety. Ask folks up there also about Malbec and Tempranillo.
Yup, Terre Rouge has been turning out some fine wines for quite a while. St. Amant gets some very nice Tempranillo and Touriga (not sure which one) from their Amador vineyard.
Bill, Malbec’s habit of shooting early will be a concern for frost avoidance. Our experience at 1500 feet here in the Madera County Sierras with seven of the eight red Bordeaux varieties leads me to suggest the Cabernet Franc with maybe a smidge of Petite Verdot. The very fact that the market is not saturated with CF should encourage you. Put them both on the same lowto medium vigor rootstock (or better yet, own rooted) and with proper pruning timing and method you can ripen them both at the same time for a nice feld blend. Good fortune to you.
Charlie: So Cab Franc doesn’t do well on the market, but Malbec and Tempranillo do? Ahem, cough cough.
Steve
Some people are in the wine business because they make wine- that’s what they do, who they are. I am a beggar compared to the rich people you ridicule. But by some accident I have a tiny vineyard in Napa. I have made wine in Virginia, I have consulted in South America, and was lucky enough to visit France. I buy grapes (Pinot and Chard) from other appellations in California, because I prefer those varieties from there. There is nothing in this hemisphere like Napa for Cab. Or, thank you, in my case, Syrah. There are a few real people out here who value Napa for the very real reason that it’s a great place to grow grapes that make excellent wine. The people who charge too much for their wine are preying on suckers who want to pay too much to drink it. It is the status quo but it’s got nothing to do with the real reason why owning a vineyard in Napa is no joke. If you wake up thinking about how to make a great bottle of wine, and pass out thinking about how to make a great bottle of wine, you’re not laughing at owning a vineyard in Napa. You’re just jealous as hell of all the rich people that don’t understand or fully appreciate what they’ve got. Not that rich people are bad. They just got what I’ll never have- ten acres in Stag’s Leap, or Oakville, or Rutherford, or even Calistoga. I doubt many winemakers think owning a vineyard in Napa is a bad investment. I don’t. there’s more to life, and wine, than money. To paraphrase an old commercial- ” **** you, Charles Schwab!” Bunt
—> Charlie: So Cab Franc doesn’t do well on the market, but Malbec and Tempranillo do? Ahem, cough cough.
Fair enough, Steve. A difficult segue to be sure. If I were to guess, I would venture that both Tempranillo and Malbec will have bigger futures here than Cab Franc. But none of them is a slam dunk.
Charlie
In Napa, Cab Franc does what people like. If you pick it late, it’s super-jammy. Actually, Napa Cabernet Sauvignon is becoming Napa Cab Franc. The moniker is the only issue. How many Cabs are 100%? And what else is in there? Merlot!? Only to save a dollar. True, Cab Franc doesn’t have the sex appeal, or the depth of Cab S. But people love that jam. Napa CF is a totally different creature from the French original. It might not become a marquee variety, but it, like Petit Verdot, are a big part of what Napa Cab has become. 2010 crush report has CF at $1K more per ton than CS. That’s what we call THE BOTTOM LINE. Bunt
Bill,
Pay heed: a little birdie, or my crystal ball, or an au courant wine insider, suggests that Albarino and Grenache will be the Next Big Things in California viticulture. Unfortunately, Albarino is white and Grenache is only slightly less so.
Seriously, from a grizzled veteran of wine sales, be cautious about investing in non-mainstream varietals at either the vineyard or winery level. Unless you are producing miniscule quantities, and have figured out who would be interested in buying these grapes/wines, selling them profitably could be a big problem; the vast majority of the wine-buying market doesn’t know, or care, what albarino, grenache, cabernet franc or tempranillo is. Urban/micro wineries might show interest, but if they end up not being able to sell the wines, they will no longer be interested in buying the grapes.
Of course, also be cautious about investing in mainstream varietals – especially from out-of-the-mainstream areas like ‘Sierra foothills’ – as the market is already saturated with them.
Argh! Are you sure you want to get into this?
Bunt, maybe you want to share your experiences with these issues.
grenache mvd and sy in the central coast can cost more than napa cab right now, tempranillo and albarino will be good once they are dry farmed
Christian,
Analytic, a priori, propositions (e.g. The Business Cycle Theory) are true “simply by virtue of their meaning”, and do not require empirical proof: i.e., the validation process does not rely upon experience and can be deduced with the pure logic of reason.
Still, if you – are an obstinate positivist and wish to – compare the CRB (Commodities Research Bureau) Index with the Monetary Base (monthly change from 1994 to 2011), from lag 6 to lag 15 the data will reveal positive correlations in excess of 0.18. Using monthly prices, instead of change, (positive) correlations climb to 0.60-0.75.
Bill,
The length of the growing season (LGS) can vary wildly in the Sierra based on latitude, aspect, orientation, whether your vineyard is on a hilltop, hillside, valley floor, etc. And this factor (LGS) is critical when choosing the appropriate grape varieties for your vineyard.
However, if the median LGS of your vineyard is shorter than 210 days, among the mainstream varieties the most dependable bets (solely based on climate data) are: Malbec, Tempranillo, Syrah, Aglianico, Zinfandel, Barbera and Sangiovese.
Cab Franc is an interesting case, as the majority of it is used for blending, not sold in bottle as a varietal. As a grape has historically been much less volatile in pricing than Merlot, and maintained higher average prices than CabS or Merlot, even within region. (Have to control for Central Valley plantings dragging down the averages of CS and Merlot.) However, if its use in blending is what has supported the high price, that poses a potential problem for growers of Sierra Foothills Cab Franc. Napa or Sonoma Cab Franc can be incorporated in high end Cab Sauv or Bordeaux blends without diluting the AVA, but you can’t use more than a smidgen of Amador Cab Franc and maintain an AVA other than Amador. And there isn’t a big market for Amador high end Bordeaux blends.
Peter, I don’t want to spend unpaid time and mental energy analyzing a complicated topic. But I wouldn’t consider assertions that commodity price volatility is a mere consequence of money supply to “be true simply by virtue of their meaning.” If by correlation you mean R-squared, .18 is not impressive and even .6-.7 suggests important other variables at work.
Wow! I’m blown away by the responses and advice – all of which is useful. Thanks to all of you.
But, I should have been a bit more specific about two things.
#1 – I’m talking about 3/4 of an acre on my land and 1/3 on my nieghbour’s land. The larger plot is former horse corral, hard red soils with a few rocks and all-day sun. The smaller one is valley bottom – richer soil but less direct sunlight. Both are in a micro-climate that cools down rather quickly after sundown, even in July/August.
#2 – I’m not doing it for the money. I don’t imagine that I could make anything sellable on my own anyway.
Like brewing or gardening I’m doing it as a creative exercise.
If I can make something drinkable in 7-9 years I’d be thrilled and like my corn and pears would be giving the bulk of it away.
(Can’t wait to tell my wife to we need to save all our spent 750ml bottles for the next decade)
Bill–
I love your response. At that size, you can pretty much do whatever makes you happy. If it is just wine you are after, you might just go with Zinfandel and/or Syrah as both do reasonably well in the Sierra Foothills. If it were I, I would also also plant a few Grenache vines as it can make a good blender to either of those grapes.
Vranec.
Christian, I don’t know about the marketing potential of Cab Franc, but I do know that ever since I began exploring the Foothills, I thought it was a distinct possibility.
I’m a fan of Cab Franc myself. But I was mainly talking about its sellability as a grape, which of course Bill’s latest post renders moot. The best person to talk to about the ups and downs of selling bottled Cab Franc would be John Skupny at Lang & Reed. On the other hand, with sufficient tasting room traffic or a good enough mailing list, you can sell a modest amount of anything (even Vranec).
“Beach home or starting a vineyard.” i think you’re all missing the point– one of my past life jobs before planting a vineyard and writing for our wine label was a senior financial writer for a 401k Communications firm and let me tell you, in this day and age, both beach home and vineyard ideas are EXPECTED from people who have amassed beaucoup dinero and are ready to retire and have no idea what to do with their lives–just read the latest Wine Spectator and you know what i’m saying (at least wine-wise), and by that, the notion of a beach house or vineyard is ho-hum. boring. not to mention, as many of you have, the big money loss that can result from the vineyard — cheaper to be a phone farmer and call around for tonnage than create a wine of distinction from proprietary grapes you farm yourself — but i digress. this commercial, in my professional opinion, is asking Chuck to help the individual figure out “me,” not some guise of what is expected, but what it is i (the client) want to do. in this commercial i see chuck positioning themselves as one who embraces those who set off to do their own thing, not just follow the retirement crowd of beach homes and vineyard starters. yawn.
Christian Miller, I think a lot of Sierra Foothills wineries do a huge amount of tasting room traffic. They get all the tourists coming and going from gold country, Tahoe, Reno, etc. So, as you say, many of them plant whatever they want, because it’s easy to sell.