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WINE AND FOOD WEDNESDAY
07/19/2017
How Did Napa Wines Get So Expensive
      ~~And What Are We Going To Do About It

By Charles Olken

I apologize for thinking of politics at a time like this. And, you may wonder why the health care debate would have me wondering about the price of Napa Cabernet, but it does. Here’s how it works.

People complain about all kinds of things. Sometimes it is about airplane seating. Sometimes it is about health care. And sometimes, especially in my neck of the woods, it is about the high price of wine from the Napa Valley.

There is an interesting parallel between the activism that is causing even conservative lawmakers to rethink their positions on “repeal and replace” and the complaining that goes on rather non-stop about the price of tipple.

But it is a broken parallel because the former has seemed to work to some extent while the latter has not. And the reason it has not has everything to do with the amount of pressure exerted. It is one thing to exert pressure politically as regards health care. It is quite another to find a way to exert enough pressure to cause pricing to moderate.

Frankly, despite years of complaining, Napa wines keep selling. Sure, there are wineries whose proud products do not fly off the shelves, but with 600 wineries in that one place alone, it is not surprising that some folks are not succeeding to the same extent as their neighbors.

Here at CGCW we are wrapping up our tastings and writings for our August Issue with its focus on Napa Cabernets. It seems that everybody now has a $100 and up Cabernet in the Valley. The formula for success is easy enough on the surface. Get your grapes ripe enough to produce a rich wine. Age it in fancy oak for a year or two. Bottle it in a big, heavy piece of glass. And, voila, you have a $100 Cabernet.

That’s the easy part. The wine has to be sold, and that is where politics comes in. If the folks complaining about the high price of wine would react with the fervor of the health care debaters, then possibly the price of Cabernet would come down. But, the day will not be won by the debate. Prices respond to market forces, not the occasional complaint.

And, despite claims of doom and gloom, there is little evidence that the sale of fancy, expensive wines from Napa is slowing down. Not when prices for grapes keep breaking records every year, and not when prices for the wines break records as well. Either the consumer is going to stop consuming or this wine pricing debate is one is of little more consequence than whistling in the wind.


 

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Comments

Join 'em?
by Spike Spiegel
Posted on:7/19/2017 11:22:59 AM

The market will indicate when the wines become priced out.  All the input costs keep going up and Napa wine is a luxury good.  Should high-end handbags and purses be cheaper so that more people can afford them?  Napa wine isn't for everybody just like Louis Vitton isn't sold at every clothing store.

Spot On, Spike
by Charlie Olken
Posted on:7/19/2017 11:47:47 AM

Right you are. The laws of supply and demand always apply, and as long as the consumers are willing, then prices will not come down just because many wines are not priced out of reach for most of them.

The same can be said of the top wines from Bordeaux, Burgundy, Champagne and even Tuscany.

Napa Cab consumers can afford it
by Blake Gray
Posted on:7/19/2017 6:32:12 PM

Hey Charlie, good chance for me and you to agree on a wine issue.

The Napa Valley Register ran a story today about a Visit Napa Valley report, writing, "The typical Napa Valley visitor is about 43 years old, has a college degree and has an annual household income of $161,000."

That's the average annual income. That means for every time I spend the night in Napa Valley, somebody else up at the hotel is making $320K a year. ;)

Seriously, if the average is $160K, I don't know what the standard deviation is, but people with annual incomes over $200K are not rare. If you make $4000 a week, every week, a $100 bottle of wine doesn't seem that expensive.

 

Napa Valley Cab pricing (Part 1 of 2)
by Bob Henry
Posted on:7/26/2017 1:41:19 AM

I've always thought that an affordable price for a bottle of wine is an hour's work wage.

Taking Blake's example, someone who earns $4,000 a week is effectively paid $100 an hour for a 40 hour workweek.

That person can afford a $100 bottle of wine.

 

Napa Valley Cab pricing (Part 2 of 2)
by Bob Henry
Posted on:7/26/2017 1:45:52 AM

Excerpts from the Los Angeles Times “Food” Section

(April 14, 2011, Page E1ff):

“$15 Wine the New Normal”

Link: http://articles.latimes.com/2011/apr/14/food/la-fo-economical-wines-20110414

By Patrick Comiskey

Special to The Times

"There are signs the American economy is improving, at least as far as wine shops are concerned.  But if you think that means a return to the glory days of $150 cult Cabernets . . . well, not so fast.

"Instead, most wine store owners . . . are describing a new normal, one in which the high-margin sales of wines in the $50 to $150 range are difficult -- indeed, some would say they're almost a thing of the past."


Napa Valley Cab pricing (Part 3 of 3)
by Bob Henry
Posted on:7/26/2017 1:53:28 AM

Excerpt from the Los Angeles Times “Food” Section

(April 14, 2011, Page E1ff):

“$15 Wine the New Normal”

Link: http://articles.latimes.com/2011/apr/14/food/la-fo-economical-wines-20110414

By Patrick Comiskey

Special to The Times

"At Twenty-Twenty Wine Co. in West Los Angeles, owner Bob Golbahar sees the same trend among former big spenders. The market, he says, is 'over-culted. Our average bottle sale used to be $100; now it's $50. Unless you're giving it away, they're not interested.'

"As a case in point, Golbahar cites the posh Napa standard Opus One, which usually sells briskly during the holidays, when it's frequently employed as a business gift. In past seasons, he's sold as many as 150 bottles of the wine, which retails for $140 to $170 a bottle. This year he sold six. 'It's a whole different world out there,' he says."

2011 Anecdotes?
by Charlie Olken
Posted on:7/26/2017 2:25:18 AM

Bob--

As always, I appreciate your participation here, but using data from a time when we were hemorraging 800,000 jobs a month in this country is a hard comparison to make. See my comments below on comparative economics.

As for Blake Gray's formula re bottle affordability, I rather doubt that many folks earning $40,000 are buying $100 Cabs.

How does the unemployment rate in 2011 compare to today?

Any idea where the stock market of 2011 stands relative to today?

How many homeowners were under water on their mortgages compared to today?

From my standpoint, three-digit wine is back. Sauvignon Blanc now sells for $40 and $50, and so, the predicted demise of the three-digit Napa Cab market has turned out to be anything but. It turns out that it is Zinfandel, not Cabernet that has suffered in today's marketplace.

 

Is my anecdote truly "outdated"?
by Bob Henry
Posted on:7/28/2017 1:31:57 AM

Prior to the onset of The Great Recession, the folks who bought $150 "cult" wines as business gifts were using (as we say in Hollywood) "Other Peoples' Money."  Namely, their employers'.  So there was no disincentive to spend lavishly -- because it wasn't their money.

But companies cut back on business gift-giving during the recession.  Cut back on travel and entertainment budgets for their employees.  And haven't returned to their pre-recession levels of munificence during the Achingly Slow Economic Recovery.

Even the high(-er) income folks who habitually bought $150 "cult" wines -- if still employed in 2011 when Comiskey's article was written -- adopted more frugal practices.

But the biggest defection from the marketplace came from the "lifestyle aspirants" to owning "cult" wines and the quick buck "flippers."

They abandoned their positions on waiting lists for "cult" wines.  And abandoned their positions on receiving lists for "cult" wines.

Those were the folks propping up high prices in a bubble economy.

A sea change that underscored Heidi Barrett's comment in a Comiskey piece from 2010.

Excerpt from the Los Angeles Times “Food” Section

(February 4, 2010):

“Dark days for Cult Cabs;

Makers of high-end Napa Valley Cabernets are feeling the pain

of the economy as demand for their wine plummets.”

Link: http://articles.latimes.com/2010/feb/04/food/la-fo-cultcab4-2010feb04

By Patrick Comiskey

Special to The Times

Not all of Napa's Cult Cabs are dead, of course. Wines still in the good graces of critics like Robert Parker and James Laube of the Wine Spectator are weathering the storm well, including Shrader, Screaming Eagle and Harlan, as well as the more recently anointed, such as Scarecrow, Maybach and Kapcsandy.

But many more may be out of luck. "For a winery with NO TRACK RECORD, this is a NIGHTMARE," Barrett says. "If they came into the market thinking they could start in at a $200 price point, THEY HAD NO CHANCE."

I work in wine retailing.  I see it firsthand.

And I have not seen the "aspirants" returning to the stores waving fists full of dollars buying the latest high-scoring/high priced wines.

The new frugality is the "new normal."

As they say in marketplace:

"You can ASK anything you want for your bottle of wine." (Say, $40 to $50 for Sauvignon Blanc.)  "It's another thing to actually get it.  Hey buddy, good luck with that!"

Every week my in-box is bombarded with offers from WineAccess for California Cabernets drastically marked down from their original suggested retail selling prices.  Back-to-back vintaes of wines backing up in the channels of distribution.  Wines that the marketplace cannot sell through.


U-6 unemployment rate" "then" and "now"
by Bob Henry
Posted on:7/28/2017 1:49:42 AM

I will quote you the U-6 unemployment rate in California -- which many economists consider to be the "true" measure of unemployment in our society: comprising those without jobs and those working part-time who aspire to full-time jobs (but can't find them).

In California in May 2010 it peaked at 21.9%.

Link: http://articles.latimes.com/2010/jun/19/business/la-fi-0619-caljobs-20100619

(When Comiskey wrote his "“Dark days for Cult Cabs" Times article.)

(Wasn't appreciably lower in 2011 when Comiskey's wrote his "$15 is the New Normal" Times article.)

One year ago the U-6 unemployment rate in California was 12.0%.

Link: http://www.lao.ca.gov/LAOEconTax/Article/Detail/182

I couldn't readily find the June 2017 quoted U-6 rate.

Blake's income quote ($100 wine purchases)
by Bob Henry
Posted on:7/28/2017 1:52:56 AM

"As for Blake Gray's formula re bottle affordability, I rather doubt that many folks earning $40,000 are buying $100 Cabs."

Blake quoted $4,000 a week.  That's >$200,000 a year.

Homeowners under water: "then" and "now"
by Bob Henry
Posted on:7/28/2017 3:12:28 AM

"How many homeowners were under water on their mortgages compared to today?"

"Then" (2009) . . .

Excerpt from The Wall Street Journal “Main News” Section

(November 24, 2009, Page A1ff):

“One in Four [Mortgage] Borrowers Under Water"

Link: http://online.wsj.com/article/SB125903489722661849.html]

By Ruth Simon and James R. Hagerty

Staff Reporters

"The proportion of U.S. homeowners who owe more on their mortgages than the properties are worth has swelled to about 23%, threatening prospects for a sustained housing recovery."

“Now” (2017) . . .

Excerpt from Bloomberg Online

(May 3, 2017):

"Most U.S. Homes Are Worth Less Than Before the Crash"

Link: https://www.bloomberg.com/news/articles/2017-05-03/most-u-s-homes-are-worth-less-than-before-the-crash

By Patrick Clark

Staff Reporter

"Nationally, just 1 in 3 homes are worth more now than they were at their [pre-recession] peak."

 

Stock market: "then" and "now"
by Bob Henry
Posted on:7/28/2017 3:51:03 AM

"Any idea where the stock market of 2011 stands relative to today?"

Link: http://www.macrotrends.net/1358/dow-jones-industrial-average-last-10-years

Napa Cabernets are pricing themselves out of the market?
by Bob Henry
Posted on:8/1/2017 2:11:05 AM

Excerpt from W. Blake Gray's blog published on July 31, 2017 titled "Wine trade secrets revealed at OIV Wine Marketing Program"

Link: http://blog.wblakegray.com/2017/07/wine-trade-secrets-revealed-at-oiv-wine.html

Napa Cabernets are pricing themselves out of the market?
by Bob Henry
Posted on:8/1/2017 2:18:09 AM

Let's try again . . .

Excerpt from W. Blake Gray's blog published on July 31, 2017 titled "Wine trade secrets revealed at OIV Wine Marketing Program"

Link: http://blog.wblakegray.com/2017/07/wine-trade-secrets-revealed-at-oiv-wine.html

"One final takeaway: people in the wine trade are talking about whether or not Napa Cabernets are  pricing themselves out of the market."

 

confidential for Charlie Olken
by Lowell Ellis
Posted on:9/5/2017 1:00:29 PM

Charlie:  Think of you often and the good old soccer coaching days.  Would love to get together for lunch or other, please call me at (510) 908-2017 or email as above.  Lowell

A couple of data points
by Vineyard Financial Associates
Posted on:9/11/2017 10:10:09 AM

I am ambivalent on this.  I have often weighed in rather bullish on Napa County grape prices and believe retail values can support high and even higher prices.  However, there are two vulnerable points that I see.

First off, the touted retail prices and wait lists are BS.  I've joined roughly 30 of the most high end Napa wine programs to test this.  There are very few genuine waiting lists.  Even some of the most revered brands will sell you wine during the next shipping period.  And they'll do it for a decent bit below the false retail prices they tout.

Second, we are heading into uncharted territory when our retail prices begin to compete with the best Bordeaux wines and some of the other internationally-renowned wines.  So we have the possibility of a ceiling imposed by better-branded competitor regions.

Wine Prices
by Charlie Olken
Posted on:9/11/2017 10:42:58 AM

One of the ways I measure how the wineries are doing is the dating of their inventories. Sure, they can offload excess at knockdown prices to places like WineAccess or Grocery Outlet and the like, but, when a winery takes fourteen or fiftteen months to work through a vintage, it is frequently a sign that its sales rate is not keeping up.

Even in good times, and I do believe we are in good times in the Napa Valley, esp for Cab S., there are wineries not selling their whole production. And, as you have noted, some of them are the high-priced set. 

But, until we see slippage in grape prices, I am not going to shed any tears for Napa Valley. It is laying golden eggs for the majority of people up there.

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