Wine Should Be Expensive. Seriously.

Posted November 6, 2013 by Jim Silver in Features

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Wine should be expensive — and by “expensive” I mean it should pay for its own existence.

Wine, as you well know, takes a long time to grow, a long time to make, a long time to brand, and a long time to sell. When overly-powerful retail-market forces press suppliers to roll back price points that natural competition drives off the last scant profits that may exist for that producer. When distributors mandate ever-increasing contributions to marketing from the producer, usually in the form of actual cash discounts, or dedicated sales representatives, there is very little left for the producer to reinvest in his business. And when consumers themselves – those tourists who demand lavish tasting rooms, live entertainment, and club-like privileges simply for visiting the winery – claim their own discounts or else they’ll “shop with their feet” one can see how it would be difficult to produce a nine or ten dollar bottle of “everyday” wine.

The market is hard on wineries. When Yellow Tail produced its one billionth bottle  they did so at the expense of perhaps the entire Australian wine industry. That wine, now exported to fifty countries, has clearly determined the class and category people think about when they think about wine from down under. Their direct competition reacted by meeting Yellow Tail with repositioned and repackaged Rosemount, Lindeman’s, Rothbury, Wolf Blass, Wynns and Penfolds and yet they failed to impress anyone. When price points are depressed, costs must be cut, yields must be increased, and wine gets tedious and simple.

When I started in the business twenty-five years ago we used to taste wines to determine whether or not they were drinkable, never mind their actual qualities. Today, generally, all wines are competently made, safe, hygienic and drinkable. The worst thing that can be said about a wine is that it is boring. Right now there’s plenty of that to go around, and more is coming.

The future of Long Island Wine country is in an honest, realistic and very long-term approach to raising the quality, reputation and price. 

Smaller producers are often the hardest hit, but that’s not to say their problems aren’t shared by larger producers too. A small producer in New York will pay $2,500 for a ton for merlot, and at least that much to grow their own. That is approximately $3.50 per bottle before it is even picked. If we used averaged costs, the consumption of barrels, glass, capsule, label, cork or screw cap adds another $5.30. A crew of one winemaker, one vineyard manager, one salesperson, one bookkeeper, and four vineyard workers who together produce (let’s say) 5,000 cases of wine per year adds $4.33 per bottle without consideration for taxes, benefits, licenses, fees, fuel, equipment, maintenance, physical plant or utilities. Somehow we’re already at $13.13 per bottle, but you can imagine it should be even more. If you add 28% margin for a wholesaler, and 33% margin for a retailer, this bottle sits on the shelf at $29. Do you know what we left out? The profit of course – we forgot to add that part. You may think that’s an extreme example, but sadly it is not. It is in fact the norm here on Long Island, somewhat less than that upstate, and considerably less than that in California (where cabernet can be had for $1000/ton.)

So at what point does it ever make sense to make “everyday” wines? It’s a noble idea, and people really want us to, but can it be done in New York? Shouldn’t we press on with improvements to quality and improvements to our bottom line and do our best to ignore the competitive market forces that are driving us nearly out of business?

I’ve been reflecting on what I’ve learned in my ten years on Long Island, and mentioned in another article regarding my relocation to CA that wholesale distribution and agri-tainment wasn’t working; that agri-tourism was the correct path for the wineries. Allow me to expand on that a bit.

Small wineries feel pressure to distribute in wholesale, and I’ve been a verbal proponent of this, and strenuously too. My point that wineries that didn’t distribute “are not part of the greater question of regional ascendancy” seems to suggest that they are doing something wrong. Well, I was wrong. Whether or not the decision to distribute their wines (far and wide) is based on ego, or perceived demand from the market, or the level of production, this is one seriously expensive decision. Frankly, I don’t see any winery in New York under 10,000 cases per year that could support wholesale outside of the state. These wineries would be best served to live on a sustainable scale and closer to home with lower overhead and higher prices, rather than trying to reach out, flailing their arms at customers with whom they’re not really familiar.

On Long Island, the equation is made much worse. That is, while wholesale distribution robs the winery of any potential profitability on that product, it secondly serves to put downward pressure on the retail price points. Worse still, the general visibility and availability of the product in the region’s many retailers (the region that provides 90% of the tourist visitors) further depresses the desire for on-the-spot retail sales at the tasting room by those customers. If I can get it at home, why do I need to buy it from the winery at inflated prices?

And so, weakened bottle and cases sales are supplemented by aggressive wine-by-the-glass, food, and tchotchkes. Promoting heavy traffic requires agri-tainment schemes (usually music, art, food, events, etc.) that very often detract and distract from the craftsmanship required to make this wine.  This culturally pleasant pattern becomes a slippery slope requiring more and more infrastructure (read: labor) to feed.

Long Island has developed itself into a destination for “day-trippers” many of which aren’t even interested in the wine as much as they are interested in the many distractions the wineries can provide them for the day. In contrast, when people drive hours upon hours from all over the country to reach the wineries of the Finger Lakes, they return home with cases and cases of wine that they labored to experience and can’t normally find where they’re from. These are what I call “wine-trippers.” They came (primarily) for the wine. Day-trippers come for the day.

Not every winery does this naturally, and you know who you are, but the question is what to do about it? Why and when did the North Fork of Long Island’s wineries become a destination for bachelorette parties? If you needed a better example of the very worst type of customer than that, I can’t think of one. One need look no further than Sound Ave. to find this type of customer exploited, embraced and the whole notion of “wine country” perverted by dance parties and drunken revelry. In 2010, when I saw my own tasting room sliding into a vortex of salsa dancing and conga lines, I recoiled with distaste and moved to curtail it. But they kept coming. For every wine enthusiastic couple, there were 50 partiers in limos and busses. My extremely capable team at the time, Laura Hoch, Katherine Jaeger and Megan Hamilton, I must commend for their sincerest pursuit to protect the integrity of our product (and our property.) Every single day was a conference amongst ourselves where we tried to balance what was tolerable, what was appropriate, and what was best for our reputation. But they kept on coming. The huge crowds, the cash register ringing, a thousand glasses of wine per day, and the crush of happy tourists pouring over the lawn did not translate to what you might think. It’s because wine must pay for its own existence. And our wine needs to be more precious.

There must be a real profit in it if it is to sustain the laborers and their families, the owners and their families, and the industry itself. How can people call for greater distribution, for expansion of vineyards, for greater diversity of plantings, for greater and more talented people to come and work here, if this cannot pay for itself?

The future of Long Island Wine country is in an honest, realistic and very long-term approach to raising the quality, reputation and price. The messengers will not arrive in a limousine, I promise you.

 

Editor’s Note:  NYCR Business Editor Jim Silver is the General Manager of Peconic Bay Winery and the founder of Empire State Cellars and the Standard Cider Company.  In November Jim and his wife Claire and family will be relocating to Santa Rosa, California.  Jim is currently seeking a new employment opportunity in the California wine business.  Jsilver165@gmail.com