Friday, January 14, 2011

Prediction for 2011 - Mr. Toads Wild and Crazy Ride

I am still reading all of the predictions about the wine industry for 2011.  The only good thing that I can say about them so far is that there are at least more of them than my already broken New Years Resolutions.  As you can tell by the title, I am predicting some massive instability and here is why.

In the last month, I have watched as yet another billionare has swooped into the California wine market and paid top dollar for an "almost" blue chip winery.  I say almost, because, while the winery has a great reputation, it is not from an area that most would consider to be blue chip on the world market.

In the meantime, I have watched as it appears our large corporate wineries are basically dumping their Australian assets.  I realize that some of this has to do with the Ausie dollar and some with unfortunate marketing and style of many Aussie Shiraz's.  However, a few years back, everyone was worried that these Aussie wines would rule the market place, and this is not the only baffling issue.

On the local scene (Central Coast of California), I have watched retailers and wineries dive head long into discounting wine.(My inbox yesterday contained an offer for six single vineyard pinots which claim to retail for $230 on sale for $99 with tax and shipping included.)  I have seen incredible producers shift production away from the high end vineyard designated wines to create wonderful and affordable blends.  Clearly, the price pressure being felt by the average winery is intense.

Finally, I was shocked when I read this morning about the sale of a Bourdeaux Chateau for a record high sale price.  I have some knowledge of Bourdeaux wines and have been lucky enough to drink a few, but I am not even close to the level of an aficianodo.  Thus, maybe I have simply missed all of the hub bub about this Chateaus in the past, but I had never heard of it.  While I do not doubt that it produces nice wines, a little known Chateau sold for a record price.

"Its vines today cover 4.7ha, with a further 3 hectares of parkland. This means the sale price equates to €3.8m per hectare – which according to local paper Sud Ouest is the highest amount ever paid per hectare for a vineyard in Bordeaux, even taking into account that some of that price will have been paid for the adjoining park, and attractive 19th century chateau."  I realize that the Far East Market is driving crazy prices for high end Bourdeaux wines, but I still do not get this purchase.  I think we are in for a new era.

Our World economy seems to be seperating between the top and the bottom.  If you are considered a rare luxury good, there appears to be strong demand and no pricing pressure.  However, below that, there appears to be massive pressure for value.  This pressure is supported by the fact that the wine market is awash in quality wines from all over the world at very reasonable price points.

When new owners pay records prices, I have to assume that they are shooting to be in the luxury brand.  Otherwise, I just do not see the margins for those in the value catagory that would justify these record prices.   Justin and Chateau Carmes may prove their purchasers right, and they may transcend the boundary between value and luxury status, I simply do not know how much room for growth exists in the luxury arena.  However, I no longer believe that simply putting Napa on the label or Haut Brion will guaruntee you that status.  As the title, inspired by a recent trip to Disneyland with my children states,  I think that this is part of the wild ride that the wine industry is about to take.  In the meantime, I am enjoying picking up some wonderful wines at prices that seem very reasonable.



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