To preface, I apologize for the admittedly on the nose title for the blog post - I was struggling to come up with anything wittier and I found it funnier to simply steer into the skid and give the least imaginative title possible rather than give a mediocre title which might make you think I actually tried and ask yourself, "Does Devin actually think that's a good title for a blog post?" With this title, we all know that I didn't try to come up with a creative title and that keeps us all on the same page.
Regarding the answer to that question, however, I tentatively must admit that I'm genuinely not (currently) a wine nerd, yet I've often wondered what it might take to become one - And have joked with many friends that it was a key goal of business school. I'm very much the type of person who enjoys things like wine where you can obsessively follow a given industry and have a niche community with which the passion for the industry is unbounded - I currently follow cinema, craft beer, and college football all with that level of zeal that many in the course likely have for wine. Yet, despite enjoying wine, I have struggled to become a wine nerd.
I think a huge part of this issue stems from something I spoke about the other day in class - My inability to contextualize the world of wine in the way I seem to so easily be able to do for my other huge passion areas. For these areas, the world has always made sense in very clean and discrete terms. There seems to be an excess of information such that nobody knows everything and yet it's clear how any new information fits into the system of other information that you already have mapped in your head - I'd love to get to this point in wine at some point.
So, admittedly, I signed up for the class largely as a consumer wanting to gain a more formal understanding of the industry. I doubt I'll ever start a winery, though I do enjoy the sexier industries for which I believe in the product (the film industry being my biggest passion) so I was quite confident I would at least enjoy this course from the business side paradigm more than I might enjoy most other classes at the GSB.
Thursday, November 16, 2017
Why is wine so expensive in the US?
I recently had lunch with a friend who had just returned
from a vacation with her boyfriend in Spain. When I asked her about her trip,
she responded, “why is wine so expensive in the US?” She complained about how
ludicrous it was that she routinely paid $15 or more for a glass of mediocre
wine, while a week ago she was enjoying an incredible 3 euro carafe of Rioja. My
curiosity was piqued.
The discussion on the three-tiered system shed light on this
issue. Economic theory dictates that increasing the number of players in the
value chain leads to double marginalization and drives up prices for the
consumer. Operations theory suggests that potential for inefficiency and waste
increases as the supply chain becomes more complicated - e.g., potential for inaccurate
demand forecasting and inventory purchasing at each stage of the supply chain
compounds. For these reasons alone, we would expect to see lower alcohol prices
in countries that do not mandate a three-tier system.
I left class wondering whether this fully explained the
delta, or whether there were other factors at play, e.g. –
Consumer expectation
(demand side) – because wine plays a larger role in culture, people at all
income levels expect to be able to purchase decent wine at a reasonable price
Subsidies (supply
side) – since wine is economically important for countries like Italy, France,
Spain, do government subsidies play a role in keeping wine prices low?
Vineyard economics
(supply side) – Many European vineyards have been in the same family for
generations, while owners of American vineyards have held the land for a
shorter time. (NB, this is based on completely anecdotal evidence). If this is
the case, are mortgages helping push up the price of American wine?
Others??
Wine tourism in Italy vs. US
Before the GSB, I was fortunate enough to spend a year
living in Rome. I fell in love with wine tasting in Italy as a way to
familiarize myself with the food, history and culture of a region. While each experience
was unique, I noted a common theme. Compared with Napa / Sonoma, which was always
swarmed with tour buses and seemed to have a formula for getting visitors in
and out the door, Italy struck me as comically underprepared for wine tourism
at scale. Wineries in Umbria expressed bemusement when we said we would like to
visit the winery and try the wine, and indifference when we tried to purchase
it. At some of the finest Barolo wineries in the world, we were treated to hour-long
personal tastings and tours of the vineyards and facilities (and trust when I
say we did not buy enough wine to warrant their time). Even Tuscany, which seemed the most equipped
to receive visitors at scale, invested a huge amount in the visitor experience.
These experiences (and the differences I perceived between
wine tourism in the US and Italy) inspired my interest in this class. I hope I
will come out of it with a more nuanced perspective on how wine producers choose
to interact with their customers, and what this means for their brands.
Let's Talk Wine
I have grown to appreciate wine
over the past few years in part due to my parents and in part due to my dislike
of beer. In fact, one of the very first times I met my husband, he remembers me politely declining his beer, only to respond by describing my strong interest for wine instead. For as long as I can remember, my mom has used wine as a treat at the
end of the day – a way to relax and live in the moment. My dad on the other
hand started loving wine most likely through numerous business meetings and
events. He grew to love everything about wine and through the years I have seen
him develop his own taste and preferences. I have also seen him become more
sophisticated in his knowledge of the industry. I always lean to him when
looking for a wine recommendation and am rarely disappointed.
One thing that I
have been left questioning is this idea of price and quality. As Sunny
mentioned in her post, humans perceive a higher price to indicate higher
quality. I too have fallen for this before. In the context of entertaining and “wining
and dining”, I would be interested to understand how perceptions or feelings
towards a host or business partner might change based on the price of the wine
or even the design of the bottle label.
When looking for research in this
area, I found an interesting article from the WSJ.
It says, “Successful business people are supposed to be able to identify value
— and the wine list is no exception.” So how might one person accomplish this without
any wine knowledge? The answer described indicates “cheating” by studying the
wine list ahead of time and making an informed and knowledgeable decision. For
others who may not have the time to invest ahead of time, simply asking the
sommelier for help and admitting your weakness in wine selection is an easy and
honest choice. Each of these choices seems like reasonable solutions that would not be harmful to building a business relationship!
For me, when choosing a wine at
dinner, I have often relied on brand names that I am familiar with – typically
brands that I saw frequently around the house. By taking this class, I hope to
develop a foundation to begin establishing my own personal taste palette and
understanding of the industry. Additionally, I have loved learning more about
how wine is positioned in the market and the numerous strategies that are
embedded in launching each brand.
To Zin or Not to Zin - life lessons from 2008.
When I departed for college back in 2008, my parents were unusually bashful about both drinking and dating advice. We had always operated under the premise of a “don’t ask don’t tell” policy - I was responsible for my actions and would be solely responsible for the consequences. I was thus surprised when my mom chimed in one night, likely after a glass or two of wine. “Just never drink White Zinfandel,” she told me somberly. “Men will assume something about you that you’re not.” Likely due to my discomfort I nodded and we moved onto another more innocuous topic. Yet the lessons stayed with me, and likely persist at some level even now: 1) Never drink White Zin, and 2) the type of wines you drink have implications for how others might perceive you.
Although I have since tasted White Zinfandel and decided it’s far too sweet for me regardless of my mother’s assertion, I’ve never verified her point. I therefore welcome this opportunity to dig in. Hopefully the results of my search will either provide myself and classmates license to embrace the varietal without guilt, or steer us away for good reason.
White Zinfandel is a rosé made from the Zinfandel wine grape. Typically these grapes are used to produce deep and jammie reds that I tend to love. White Zinfandel, rather, describes a way the grapes are processed, which results in a sweeter-tasting rosé wine. The technique is believed to have been developed in the 1970s, when Sutter Home changed the way it produced Red Zinfandel to make it more potent. They extracted some of the grape juice before fermentation, which they fermented into the newly branded “White Zinfandel.” Likely due to this sugary and drinkable flavor profile, the varietal took off. White Zin became Sutter Home’s most popular wine, and spread to other vineyards, making up 10% of wine sales by volume in the U.S. as of 2006.
So where does that land us? I did note that White Zinfandel was started from a waste product, and is still cheaper to produce than most table wines, in part due to a lower fruit quality required to make the drink. This perception of low quality isn’t helped by the fact that it’s often consumed as illustrated below, like a fruity “starter” drink and often over ice.
Yet according to some sources, White Zinfandel is becoming an acceptable beverage order. Winemaker Chris Brockway sells a $22 Sonoma County version, which is reported to be not overly sweet. Christina Turley sells one for $18 (her red Zins sell for upwards of $100 per bottle).
I thus conclude my research by acknowledging a shift in perception, but also a likely still-entrenched bias. Though I would personally like to resist the notion that wine choices signal dating behaviors, I do still think a White Zinfandel could signal a nascence with wine unless 1) you are drinking a particularly nice one, and 2) you are accompanied by a person well-versed enough to recognize that. I would love Alyssa’s input here, but for now I think I’ll stick with my chards.
References:
Wine Direct
I found the discussion around wineries working with Wine
Direct very interesting, and I kept thinking about my experience over the
summer. I spent part of the summer in New York working with a luxury womenswear
designer called Prabal Gurung who was using Shopify to manage his ecomm
business.
I spent a lot of time working on ecomm and it was very interesting
to see what kind of considerations small luxury brands in fashion thought about
when considering ecommerce / tech partners.
I think a lot of similarities may exist
with wineries, and I think these considerations could give Wine Direct a
competitive edge over other tech players.
The main considerations included:
1)
What other comparable players do you work with?
Whenever we approached a tech partner over the summer (be it a retargeting agency
or a website pop up optimizer), the first and seemingly most important question
the team wanted to know before anything else is what other high fashion brands
the tech partner worked with. Given Wine Direct’s extensive portfolio of top
wineries, I would assume that they would be able to make themselves the top
consideration for wineries given their proven experience in the field, even if
other players had better or more cost-effective tech features…
2)
What is the costing model? Given how new
ecommerce was to the brand I worked for, and given the limited funds they were
willing to devote to it, there was a higher propensity to favor and explore
ecomm solutions that took a percentage of topline versus a flat fee (e.g. picking
a retargeting agency that charged a Cost of Customer acquisition versus
agencies that charged a flat fee, even if the flat fee would likely yield a
lower total cost). I wonder how true this might be for wineries new to the
ecomm game, and what kind of costing model Wine Direct has adopted
Wine Documentaries for Thanksgiving Break!
I assume some if not many in this crowd are familiar with these, but for anyone who is not and is looking for some wine-related media entertainment over break, I figured I'd point out three extremely enjoyable wine documentaries available on Netflix:
1. "Somm." The most famous (I think) of the three, "Somm" documents the journeys of a few individuals seeking to earn the rank of "Master Sommelier" - the highest in the industry and of whom there are less than 300 in the world. It is probably the least relevant of the three from the business perspective of the industry, but excellently illustrates the breadth and depth of wine knowledge that exists at the highest levels of wine academia. Very fun film with great characters as well.
2. "Somm: Into the Bottle." Technically the sequel to "Somm," but in my opinion the association is only for marketing purposes, trying to ride on the success and popularity of "Somm." "Into the Bottle" is really about the winemaking process, and visits many different geographies, wineries, and winemakers to illustrate the impact variations in all the different steps of this process have on the final product. For anyone who is not as familiar with how wine is made, this will be extremely educational. It also has much more relevant business info, at least as pertains to wine production (supply chain management...not so much). Some of the characters from "Somm" return for commentary.
3. "Sour Grapes." This documentary is about Rudy Kurniawan, an infamous wine counterfeiter, and his exploits in the world of fine and rare wine auctions. From an entertainment perspective, the film is a fascinating crime and human interest story. But it also gives an enlightening glimpse into this unique part of the industry, where significant sums of money are changing hands for these famous bottles of wine. This is the high-end collectors side of the luxury good aspect of the industry, and makes one think about some of the issues we've discussed in class related to the connection (or lack thereof) between taste, perceived quality, and price.
How I Became Interested in Wine
From birth to college graduation, I had hazarded only two solitary sips
of wine. One was delivered from the spout of my mother’s boxed Franzia
“Chillable Red”, which lasted but seconds in my mouth before being expelled
with great force into a nearby bathroom sink. The other was thrust upon me at a
party in college – a saccharine Moscato, which seemed to me more a sugared
fruit juice than what I had (by that time) expected of wine. I was not an
enthusiast, I had acknowledged.
And so, when I arrived at my first ever Board of Directors dinner,
hosted by the company’s CEO at his home, and heard that we would be served an
8-course meal with wine pairings, I was concerned. Though I had accepted
glasses of wine to satisfy social expectations among work colleagues, I was far
from confident that I could even pretend to enjoy (much less fully consume)
eight glasses of wine. It was here, however, that my expectations would depart
from experience.
To my surprise, as each wine was served, our host introduced the new
selection with a personal story about visiting the vineyard and meeting the
wine maker. He could explain how the wine was named and what was on the label;
so specific were his descriptions of aromas and flavors that I didn’t even
recognize the words he was employing. His home was situated on the outskirts of
Montreal and he had selected an entire flight of complementary wines from
Canada in the surrounding regions. His passion was enviable and, somehow,
transformed a merely acceptable beverage into a personal story to be savored
with care.
Over the subsequent years, I have endeavored to learn more about wine by
tasting different varietals and blends, coupled with semi-frequent visits to
cellar doors and wine regions around the world. As I had started to collect
more of my favorites, it occurred to me that I knew nothing of the wine
business. Thus, when it was brought to my attention that there would be a GST
focused solely on the New World wine industry, I was sold. Hearing Professor
Rapp speak to our group of trekkers, I knew that the class would quench yet
another thirst for knowledge on the business side while providing even more
context for tasting and enjoying a drink that I have come to love.
Why I'm interested in taking this course
The greatest honor bestowed upon me as a 10-year-old was the title of "Wine Master" as proclaimed by my grandfather. My mother's father has a great story. He was born in French-occupied Tunisia and was orphaned after losing his father in the French Resistance in WWII and his mother to breast cancer shortly after. He then emigrated to Canada where he worked on oil rigs and rough neck hotels before moving down to California where he met my grandmother in Carmel. He then became a teller at BofA and, without a college degree, moved up the ranks to become the head of EMEA for the bank. Throughout this impressive rise from rags to riches, he built a strong love of wine and developed an impressive collection as well. What year were you born? He's got that vintage. Because of the model he's been in my life, wine has always been a part of being a gentleman.
To be honest, I've always been more of a beer and whiskey guy. I do love a glass of rose on a warm afternoon or a pinot with some Thai food on a Sunday, but it's never been my default choice. As I think about growing up and trying to become a sophisticated gentleman like my grandfather, wine is something I need to learn more about. I don't think I need to learn how to taste peaches, hazelnut, or leather in my wine, but I would like to learn how to appreciate a quality wine, understand where the grapes are from and what that means, and be able to pick the right wine at dinner. Through this class, I hope to better understand the global landscape of wine and be able to speak intelligently on the subject.
My goal in taking this class
My main goal in taking the class is to refine my knowledge
of wine such that:
(1) I learn what ‘other’ wines I like besides sauvignon blanc,
barbera and merlot (though I’m actually happy that I at least have these in
mind when I go anywhere and when someone asks what I like).
(2) I understand the business opportunities and challenges
of the wine industry given that I see it as being an exciting industry in which
to work.
(3) I better learn what regions I prefer in terms of wine,
given that I love to travel and it would give me more reason to go explore those
areas that I have not been before. Plus,
of course, it would help when I’m considering which wines to order – whether while
I travel or when I’m here at home.
(4) I understand which wines (varietals, regions, etc.) go
well with different types of food
My interest in wine has, to date, been entirely social. The contexts in which we typically drink wine
are celebratory in some sense or another (at dinner with family or friends it’s
about celebrating the time together; when traveling it may be about exploring something
new we haven’t yet experienced; at special events it’s about toasting the start
of a new life, etc.). With this in mind,
I feel like knowing more about wine could only add to any of these and other
experiences.
Marketing The Memories: Over A Glass of Wine
MARKETING THE MEMORIES:OVER A GLASS OF WINE
I was never a wine drinker- the warmth and structure of Irish whiskey defined me better- but then over the past 6-7 months as I have found my roots in the mother wine of Cabernet Sauvignon and Pinot Merlot, I wonder what were the reasons that made me a believer?
So it was the Royal gold over red- Label on the bottle- that caught my eye and her dark fruity flavours and savory tastes from black pepper to bell pepper that drew me in towards her and I was in love with this ethereal delicacy called Cabernet Sauvignon. Gradually over the next few weeks I flirted with Pinot Noir, Sauvignon Blanc, Merlot etc until I realized that I had switched over from whiskey to the world of Wines.
I believe that a date with wine cannot be defined in the same unromantic and un-surreal moments as the hanging out with a beer or a glass of whiskey. The whole process or should I say the moment of drinking is an initiation or a ritual like the 'Tea ceremony 'of Japan minus the elaborate rituals. I will always take a12 packer and not a bottle of wine to hang out with guys and conversely, going on a romantic date or taking wife out always calls for a Chateau de Hureau Saumur Champigny "Tuffe" 2011 with the candle light and the starlight sky.
Well the stars to shine are not in our hands but to create that perfect -first of many- beautiful moments is surely a work of the bubbly. So, the cost of switching from Vodka, beer etc is not so much in the dollar costs per se but rather in the creation of a comprehensive holistic experience with the loved or other significant ones. The Millennials are already experimenting and drinking more wine. It would augur well for the wine Industry to create a differentiated and customised business Unit, not disrupting the original line in production.
Wineries or the organisation on Saas would soon have to undertake data mining and perform predictive analysis on the purchase patterns and wine ratings by the Millenials to create a contemporary product and a niche cool experience that draws them to the idea. The online backend platforms could do the predictive analysis on the Millenial consumer and matching it up with his previous occasions or Party patterns could then target them online with the wine options and probably in anticipation already plan the bundle to be shipped. This pre-empting of plans and forward placing the bundle would help in reduction of delivery times as well as result in a more enriched order palette.
Moreover, for Young Generation the augmented reality would help in bringing to life the story of the wine from the Label on the Bottle and our Millenial and his date could be a part of the story in that augmented reality app. So I believe that wine is all about the beautiful memories and the monetization should not be restricted to the product or the supply chain but the Saas platform in conjunct with AR and AO can be the next big money spinners in the glitzy world of the Bubbly.
-- Ajay Serohi--
A believer
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