Brand Wars

Prior to this year's Super Bowl, I had no idea that corn syrup was an ingredient in beer. But like most Americans, I was confronted with this fact (over and over) as Bud Light rushed to smear Coors and Miller Lite. Being anything but a fan of Bud Light, I can't say the ads had much of an effect on me. However, I did feel the shot across the bow that Miller and Coors must have felt (and in much greater magnitude). As I read today's WSJ, I learned that Bud Light had not only angered Miller and Coors by this attack because of its surface level implications, but, more importantly, because the major beer brands had actually been working in concert, behind the scenes, to launch a Got Milk? type campaign, to help combat the waning consumption of beer. In fact, while other forms of alcohol have largely been on the rise since the 1960's, beer consumption has only dropped since the 1990's. In order to get ahead of this trend, it appears that the major beer companies wanted to pool their marketing budgets and reaffirm that beer was the right choice for the American alcohol consumer. Bud was now threatening this alliance and showing that it could not play fair.

Much of the discussion in the wine class, particular about the "buzz" wars with cannabis, has obvious parallels. However, since wine has so many more producers and actually thrives on variety, it seems that a similar campaign would actually be much more possible and productive. An alliance of wineries across the US could easily drum up significant financial support and could also raise awareness of the benefits of wine. The campaign could easily be structured around health benefits, paired with regional travel or even push forward environmental awareness based on the practices of viniculture. Without even having to come out and criticize other buzz-generating products (i.e. not taking the Bud Light approach), wine could come out as a step above the other buzz items (which is entirely on brand).

The God of Wine

It strikes me as both fascinating and deeply culturally revealing that the Greeks and Romans had a God of Wine: Dionysus, to the Greeks, and Bacchus, to the Romans.

Definitely very passionate about grapes. Exhibit A, the bunch he wields like the tip of a spear in his left hand.

The long list of things Dionysus was the God of is astounding. Not only did his jurisdiction cover wine, but he also was the God of winemaking, grape cultivation, fertility, ritual madness, theater, and religious ecstasy. I find it incredibly intriguing that through Dionysus, Greeks and Romans associated wine with fertility, madness, theater, and religious ecstasy. Thematically, a sense of loss of agency and exaggeration courses through Dionysus's veins.

As one of the twelve Greek Olympians, Dionysus stood on the helm of celestial power, yet he was inherently an outsider. Dionysus was a demigod: half man, half god. The son of Zeus and a mere mortal woman.

The legend goes that Dionysus was born among mortals in order to be hidden from Hera, Zeus's envious wife. Dionysus cultivated grapes, invented wine, and went through Asia teaching mortals how to make wine. He is known as "the liberator" because his gift to mankind -- wine and joy -- liberated mortals from societal constraints.

Life's incomplete with reds and whites - meet the blue wine!

About one or two years ago I run into this particular product in the news... a startup was trying to challenge the traditional market of wine with... blue wine!?! It sounds weird and crazy, but wait to see how it looks! 

Apparently, the color hear is not meant to change the flavor but to make the visual experience different and interesting when drinking. Indeed, blue wine is still made from wine grapes. (However, the regulation of some countries do not (yet) recognize the wine as wine - how can it not be red or white!?!)

And why Blue? In psychology, the blue colour represents movement, innovation and infinity. It’s also a colour frequently associated with flow and change

For instance Gik is a Spanish wine company whose blue wines are made from a blend of red and white grapes. It is known to be a "chilled white wine with organic pigments (anthocyanin, from the skin of red grapes, and indigotine) and yields a sweet, crisp flavor". 

But even if it started in Spain, the trend has arrived to the two other largest and traditional wine markets: Italy and France. Saracini is an Italian wine company that makes a variety of avant-garde and classic wines.  Blumond® is their sparkling blue wine.  Technically, it’s a Prosecco mixed with blue curaçao.  It has a vibrant light blue hue and presents a sweet, peachy flavor.

The curiosity of consumers has made these two brands successful and available all over the world. Gik can be found in more than 30 US states, after having pre-orders of more than 30,000 bottles before the launch of the product in the US. The wine is intended to attract millenials, being sold in the website as "Blue, the instagrammable" and has a price of $16. 

If by now you are curious too and want to try it, don't expect to find it in Trader Joe's (yet) but you can find it online easily! 

Chandon's Bet on Asia

I found it very interesting to look into Chandon China and India, marking LVMH's bold bet into emerging wine markets.

Breaking this down from LVMH's overall financials, we see that wines & spirits comprise 12% of LVMH's overall revenue as of 2017:

And within the wines & spirits segment, we see that revenue is over $5B as of 2017:

Zooming into geographic region of delivery within wines & spirits, Asia comprises almost one third of total revenue:

Suggesting that Chandon's investments in China and India have hit the runway with much success. A glance at their promotions is stunning:

Balloons emulating grapes?! What a move. Since 2013, Chandon's bet on premium sparkling wine in China has soared -- they invented the category in China and have set their roots. According to their website:

Located in the north of China, at the heart of the Ningxia Hui Autonomous Region – one of the country’s largest winegrowing areas – Chandon China was founded in 2013.The region’s exceptional climatic, environmental and geological conditions convinced a team of international experts to establish the estate in this protected terroir. The area is ideal for growing chardonnay and pinot noir, two varieties that are essential for creating sparkling wines using the classic “méthode traditionnelle” style.

When I go back to China to visit my relatives, I'm not going to forget to ask them about Chandon's sparkling wine.

Publicly traded wine companies

Our discussion of the suitability of the wine industry for IPOs left me wondering: which publicly traded wine companies are on the market today?

I did some research... if you want a slice of the U.S. wine industry, here are the stocks to own. Unfortunately, your dividends don't come with a bottle of wine.

Constellation Brands (STZ, STZ-B): as discussed in class, a major alcohol conglomerate ($37B across the two listings) and the owner of Robert Mondavi Wines. A recent $4B investment in legal marijuana means this stock is a bet on buzz, regardless of which drug produces it!

Vina Concha y Toro (VCO-OLD): de-listed from the NYSE last year, citing the expense of remaining listed. The company had a market cap of $1.5B, but only a small portion of it was listed in the U.S. to begin with. (They remain listed on the Chilean market.)

Truett-Hurst (THST): a wine producer with a market cap of just $10M. Recently completed a stock buyback, and rumored to be considering de-listing or privatizing, so probably not a great case for wine industry IPOs.

Willamette Valley Vineyards (WVVI, WVVIP): another tiny wine producer (market cap: $40M), who required some legal creativity to go public via a crowdfunding-type model (Regulation A public offering) in 1989. The NASDAQ listing followed in 1994. Owners get substantial discounts on wine (in fact, if you buy in sufficient volume, ownership could be a good deal regardless of which way the stock goes).

Crimson Wine Group (CWGL): a Napa-based wine group with a $191M market cap. Owners of Pine Ridge Vineyards, Seven Hills Winery, and others.

Diageo PLC (DEO): primarily a beer and spirits company, but with some wine business lines, including an investment in Moët Hennessy. Their $93B market cap makes them a behemoth compared to most stocks on this list... but of course very little of that is in wine.

Brown-Forman Corp. (BF.A, BF.B): best known for Jack Daniels, but also the owner of wine brands like Korbel Champagne and Sonoma-Cutrer. A market cap of $23B.

That's about all I could find, so your options are fairly limited. They do span a wide range of company sizes. Performance, however, has varied dramatically. I charted the main listing of each company against the S&P 500 over the past five years, and I'm not feeling super exciting about putting my money into wine stocks.

Sources:

• http://investsnips.com/list-of-publicly-traded-wine-and-liquor-companies/
• https://www.investopedia.com/investing/wine-stocks/
• https://www.thestreet.com/story/12844252/1/six-alcohol-industry-stocks-to-consider-for-your-stock-portfolio.html
• https://seekingalpha.com/article/4186051-recent-portfolio-sale-vina-concha-y-toro
• https://www.equities.com/news/happy-shareholders-drinking-great-wine-wvvi
• http://www.crimsonwinegroup.com/

Social Lubricant

Last week, Jessica Kogan, from Vintage Wine Estates, lamented on why there isn't more press about the benefits of wine.

This got me thinking about an article in the FT that I read this summer, titled "Why drink is the secret to humanity’s success."

A summary of key points:

• The best predictor of happiness and longevity is the number of close relationships in a person's life. People with a good number of relationships are likely to be moderate drinkers; they're the type of people who will meet friends for a pint after work.
• Alcohol encourages us to open up and release endorphins "It isn’t just because alcohol causes people to lose their social inhibitions and become over-friendly with our drinking chums. Rather, the alcohol itself triggers the brain mechanism that is intimately involved in building and maintaining friendships in monkeys, apes and humans. This mechanism is the endorphin system."
• A study at the University of Oxford found that people who were regulars at a local pub were happier, more satisfied, and had more friends than both those who never drank and those who did not have a frequently visited local bar.

The article does not argue that alcohol itself is inherently beneficial. Drinking a glass of merlot alone in front of the TV, while perfectly enjoyable, won't bring you a lifetime of happiness. Instead, alcohol is a mechanism through which we forge meaningful relationships, and those are what make us happy in the long run.

So, on that note, who wants to meet up for a glass? 

Expensive Wine Tastes Better.... Kind of

Yesterday's class got me thinking about how wine is priced.  More specifically, one of us asked the question (I'm sorry that I forget who it was), "How does Far Niente decide where to price its wines. Some are hundreds of dollars and some are ~$50?" As I recall, the response to the question was about consumer WTP that is associated with a brand as powerful as Far Niente.

While I didn't expect Far Niente's $500 wine to be 10 times better than its $50 wine, I was a bit surprised to hear that the quality of the wine is all but a non-factor in the consideration of price for over $50 wine. So, I started reading online about how wine is priced and what correlation the price has to quality or consumer preference. I found this video to be a good summary (please watch till the end, rather than throwing tomatoes in the middle):  http://www.openculture.com/2017/11/expensive-wine-is-for-dupes-scientific-study-finds-no-strong-correlation-between-quality-price.html

There are a couple major takeaways from the video:
1. The distribution of wine awards is highly inconsistent.
2. The average consumer frequently prefers cheaper wine over expensive wine.
3. #2 is true, unless the person knows the price of the wine, then they like the most expensive wine the best.

It's amazing to me that knowing the price of the wine actually causes a noticeable change in the enjoyment/preference of the consumer. If I tell you that you are drinking a $100 bottle, you will like it more. I suppose this is obvious if you think of nice wine as a luxury good, but if you think about it was a beverage, it's nuts.