Is WineDirect here to stay?

After reading the WineDirect case and for several days after I couldn’t get the following quote out of my mind. “By now, I thought we would have a $200 to $400 million business. I was wrong about the growth rate. We’re in the business of enabling but these are premium and ultra-premium wineries. We’re in the luxury business, which is a smaller business and a smaller market,” Waechter said. Based on what we discussed in class and what we read about New Vine Logistics I found it hard to believe that even being a $200mm-$400mm business was a goal, as opposed to something much bigger.

Upon looking into the details of the 2019 Direct to Consumer Wine Shipping Report, I found that consumers spent $3bn on DTC wine shipments in 2018, up from $2.69bn in 2018 and that wineries shipped over 6 million cases of wine in 2018, up 9% from the prior year. What I’m trying to get at is that I’m generally surprised that WineDirect isn’t the Amazon of wine, expanding distribution facilities and enabling consumers to legally order most wines on demand. While it will be interesting to see if Amazon decides to make a push into the market, which at the moment seems somewhat unlikely, it would be a great story to see WineDirect continue to grow into a large business, especially with the colored past the original company experienced.

Claret or Port?

Our DBR case stirred memories of my studies in England. After formal dinners, if I was lucky enough to be invited into the Senior Combination Room (where the college fellows retreated to drink and chat), I would be offered my choice of Port or claret. I didn't know much about either at the time, but they were clearly very different in appearance and taste!

Claret, as it turns out, is what the British call red Bordeaux. (And that means you should pronounce it with the "t" at the end, because the British refuse to pronounce French correctly.) The word dates back to the 1100s (!) and originally referred to light red wines. (It comes from the French word "clairet," used for the same purpose.) At the time, those light red wines came from Bordeaux, thanks to a cozy England-Bordeaux relationship established when Henry II married Eleanor of Aquitaine (1151). The term stuck even though many reds from Bordeaux are no longer light.

Of course, the British and the French didn't stay great friends forever. By the late 17th century, things weren't looking good between the world's super-powers. British wine merchants went searching for alternatives to French wines. Port -- a deliciously smooth, sweet wine fortified with grape spirits, from the Douro Valley in Portugal -- was their best find. (It didn't hurt that it was cheap to import, thanks to a 1703 treaty between Portugal and England, and more stable on sea voyages than unfortified wine.) Port, in its many delicious and varied styles, remained a popular beverage even after trade between Britain and France re-opened.

So that's why there were two delicious after-dinner wine options at college! Claret, as far as I know, is a safe choice with no arcane traditions surrounding its consumption. But if you ever drink Port in a traditional setting in England, there are a few etiquette rules you should be aware of: (1) the Port is passed around the table to left, and it should never stop being passed until the decanter or bottle is empty; (2) if someone forgets to pass the Port, the correct way to remind them is to ask, "Do you know the Bishop of Norwich?" They will probably take the hint, but if they give you a blank look, you may add, "Terribly nice fellow, but he always forgot to pass the Port!"

Sources:
Karen MacNeil, The Wine Bible, p. 146 and pp. 511-527
www.decanter.com/learn/advice/what-is-claret-wine-ask-decanter-378401

Mile High (Wine) Club

United CEO Oscar Munoz was sitting in his office on the on the top floor of 77 West Wacker Drive in Chicago (probably) when he heard the worst news a CEO can hear: “We’re running out of wine.”

United had recently introduced “Polaris,” its new wildly-overhyped  ambitious Business Class product. Included was the opportunity for front-of-the-plane travelers to enjoy a “wine flight” - a set-piece sampling of three different wines at the same time.

Perhaps unsurprisingly, serving 3x the amount wine at the same time led to approximately 3x greater demand for wine than the airline expected - causing global shortages in wine stock across United’s fleet.

United, along with the rest of the airline industry, takes wine seriously. Doug Frost is one of the sommeliers retained by United to craft their wine selection - and is one of only four people in the world who is both a master sommelier and master of wine.

Airlines are massive players in the global wine market. The OneWorld alliance of airlines served 30 million bottles of wine and 2.5 million bottles of Champagne in 2017. Emirates has one of the most acclaimed wine offerings in the skies - and has spent over $780 million on wine since 2006, with over 3.8 million bottles in its cellars, and regularly serving famous French wines like Chateau Lafite on its A380’s. They often buy classic French wines directly from producers through the “en primeur” system, even buying out entire vintages and holding them to pour years or even decades later.

National airlines can play a critical role in their country’s wine industry. Quantas invests over $25 million per year in the Australian wine market, with all of the wines on its wine list coming from the Land Down Under. Airlines can also “king-make” certain wine brands by choosing to showcase them onboard - BA’s choice of Bolney Blanc de Blancs as its first white English sparkling wine in 2016 rocketed the small British winery to stardom.

Unfortunately, these fancy expensive wines go to the folks in Business and First class, and we don’t all get to sit up front. But that shouldn’t leave your lowly economy passenger high and dry. Here’s a quick guide to pairing more generic wine with the standard fare we get served in the cheap seats:

Peanuts - the classic roasted peanut, as at-home in 33B of your 737 as in row B seat 33 of Yankee stadium. Did you know not one but two of our 45 presidents were peanut farmers? The saltiness and meatiness demand something rich and full-bodied - I’d recommend going even off-dry, perhaps a nice port. Picture it like an adult peanut-butter-and-jelly.

Pretzels - since peanut allergies exist, some of the more humane airlines that aren’t trying to cause immense suffering on their planes (which seems like few of them these days) are switching to pretzels as your in-flight sustenance. Though inferior to peanuts in every way, pretzels can still pack some interesting notes - sorta-yeasty-sweet, sorta-salty, sorta-sour. So have no fear if your plane lacks legumes - pair your pretzel with an off-dry riesling. The Bavarians know what they’re doing.

KIND bar - you’re smart. A forward-thinker. Never caught unprepared. You carry a dark-chocolate-cherry-cashew KIND bar that you paid $3 at a Starbucks for once with you at all times. Well you’re in for a treat. Snag a glass of Zinfandel. The black-pepper spiciness and alcohol and leather and cherry will absolutely stand up to your bar. Also goes great with a smug sense of superiority.

Crying baby - to be clear, the implication is not that you’re eating the crying baby, just that you're trying to pair something to improve the experience. Wine has no power here. Mini-bottle of Jack Daniels.

State of the Industry

I got my hands on a wine consultant's takeaways from a recent "state of the industry" presented by Silicon Valley Bank, and thought I'd share. I was interested in how different the recent trends are vs. the broader secular story of growth in the United States, particularly the aspects I've put in bold:

"The wine industry is at a tipping point: Volume has flattened. Over the past 4 years:

·         GenX demand has grown

·         Boomers are flat

·         Millennials are showing no growth

Millennials are likely suffering from inability to afford luxury products (indulgence gap).

Profiles of target consumers:

·         Millennials are debt strapped (student debt, many are working jobs below their education level)

·         GenX are gainfully employed (biggest current earners)

·         Boomers are retiring; change in lifestyle, income, diet

Is this permanent?

Millennials creed: Live large but carry little.

Experience-based services are the fastest growing product category of all

Does premiumization have a future? Prices can’t rise when volumes are flat or falling.

Millennials in on-premise outlets are focused on activities, not alcohol. (e.g. ping pong, bowling, axe throwing, darts). Large supply of fancy drinks are more appealing and interesting than wine, utilizing dry ice, smoke, sparkle, flame. What’s the equivalent for wine?

Cannabis is likely not materially affecting wine at this time. Only 13% of the millennials have used cannabis as a regular part of their recreation. Much smaller % for the other two major demographic groups.

Tasting Rooms

·         WA, Napa, Sonoma traffic is down

·         OR, VA are up

·         NY is mixed

Millennials don’t like conspicuous consumption or wealth.

Most successful TR’s are activity based, by creating an “engaging” environment, (e.g., picnic tables, corn hole type games, walks through the vineyard/cellar.) Sitting or belly up to the bar is not attractive to this group.

...

there is about a five-year window to address this issue of no growth."

Lafite in China

It appears that 1) Lafite in China did not release in 2015 as expected in the case. Up till 2018, the wine still was not released, signaling the difficulty and challenges of producing wine in a region with relatively unknown land, operations, and government relations.

Additionally, the local investment partner that Lafite had CITIC exited the investment in January 2018, before the wine was released. This also shows concerns about the wines to be released, as well as the future of Lafite China.

Source: https://www.thedrinksbusiness.com/2018/01/lafite-and-citic-officially-part-ways-in-china/

Funky Wine, Funky Cheese

On Wednesday night, I had the pleasure of joining a group of fellow Wine Circle members for a wine and cheese tasting event led by none other than our very own TA, Sarah Hoffman. We tasted a variety of whites and reds from the New World and the Old, and enjoyed a delicious sampling of cheeses from Bellwether Farms.

Out of all the pairings, one in particular really stood out to me. I was surprised to find the wine that I initially liked the least ultimately became my favorite, and all because of the amazing flavor marriage between it and the cheese. It was the third pairing Sarah led us through, a combination of a Domaine Des Carlines La Vouivre Chardonnay 2016 from Savagnin, France and a slice of 'Bellwether San Andreas', a raw sheep milk cheese inspired by the aged sheep milk cheeses of Tuscany. 

On the nose, as a fellow Wine Circler noted, this wine had some serious "stank." It was hard to put my finger on just what the smell was, but it was undoubtedly funky. It also had a cloudy appearance in the glass, which,  combined with the smell, definitely made me consider passing up on that particular round of tasting. But the wine definitely wasn't corked or turned. Was this perhaps that "barnyard-y" brettanomyces smell I had read about in our readings? Whatever it was, I assumed it was probably due to a more traditional production process than my relatively New World palate was used to. (Research after the fact did indeed confirm that the La Vouivre is naturally fermented, and goes through neither filtration nor clarification. ) So, I told myself, soldier on! 

Taking my first sip, initially all I could taste was a lingering quaff of that same rather off-putting funkiness. Eventually, though, it gave way to some really pleasing notes of pear, green apple and a bright minerality. I asked myself if this juice was worth the squeeze. Was this complex Chardonnay worth the stinkiness tradeoff ? And, even if I could get over it, was this a wine I could ever feel comfortable serving to guests at a dinner? Maybe, I thought, but this was probably not a wine that would be a repeat buy for a more casual wine consumer.

All this changed after a bite of the Bellwether cheese. The creamy mustiness of the aged sheep cheese complimented the funkiness of the wine in a way I could have never imagined. Suddenly, both wine and cheese were gone far too soon, leaving me wishing for second helpings all around. I've enjoyed many a pairing in the past, but this really illuminated how powerful a pairing can be. It truly was greater than the sum of its parts. Days later, I am still brought back to that magical marriage, and not just from a taste perspective. I think there is a significant marketing lesson to be learned here. For those "stanky" wines in need of broader distribution to a less funk-loving segment of customers, I think there is huge opportunity for them to be sold alongside complementary and similarly funky cheeses. The right pairing could be transformational for both the consumer's wine drinking experience and the producer's bottom line.

1st Amendment

We discussed briefly in class the apparent contradiction of the 1st Amendment and the intricacies of the Tied House laws related to the 21st Amendment. On the surface, prohibiting tweets that appear to serve as advertisements seems absurd. However, even when there's no conflict between two separate sections of the Constitution, restrictions on certain forms of speech seem to be both reasonable and within the bounds of the law. One of the most common examples of this is yelling "fire" in a crowded building (that is not on fire) with the intent to mislead people into a state of panic that could cause injuries. Another example is verbal assault / hate speech, although in my view restrictions on this form of speech should be limited to inherently injurious speech rather than focusing on the subjective interpretation of the speech by the listener (due to the dangers of allowing a "heckler's veto" in public discourse).

Neither of these examples seems like a truly analogous comparison to the limitation of the 1st Amendment that we discussed in class. However, I have been trying to think of other more relevant examples, and I wonder if a comparison can be made to insider trading. If I receive some MNPI from a friend at a public company then trade on that info and post the info here so that you all could get in on the action too, it would be ludicrous to defend my actions as an exercise of free speech. I would be using speech as a way to circumvent the law for my own economic gain. Similarly, it seems plausible to argue that the tweets in question in the Tied House cases are not protected speech after-all - the companies are just using speech as a way to circumvent the law for their own economic gain.

P.S. Even if the Tied House laws are "legal," personally I don't think they (and all the other convoluted policies stemming from the 21st Amendment) are good policy.

P.P.S I have no legal training, so please excuse any glaring legal naivete you notice above.