Sep 2, 201012:00 AM
All there is to sip and savor in New Orleans – Sponsored by SmokeFree NOLA
Avoiding the High Cost of Drinking Well –– But Still Drinking Well
The world recession, now entering its third year, has racked up record national government debts, incredibly high unemployment rates, international foreclosures and enough sleepless nights to cause physicians to rethink their collective advice about the need for at least eight hours of sleep every night. Current thinking seems to be to get as much sleep as your restless mind will allow, even if you have to take it in increments.
Troubled minds and troubled economies can make for some interesting drinking companions –– not as good as some old college roommates or potential life-mates you are trying to impress but interesting nonetheless.
As for those drinking habits, more of us seem to be doing more of it (alcohol consumption in this country is at an all-time high level, with a majority of adults participating), and we seem to be doing more drinking at home or in places other than restaurants. Given the incredible markups on wines and spirits in most restaurants, there’s no surprise here. I wonder when any of the owners/management groups are going to learn the lesson that we want what they have and are willing to pay for it, just not overpay for it.
Economic deviations, where one set of circumstances stops and another begins, cause changes in how businesses operate, how goods are manufactured and how the end result gets to market at what price. Wine and spirits are no exceptions to the immutable laws of economics.
Let’s take raw product as an example. Agricultural goods are subject to many whims. Mainly there’s the effect of nature. Wind, rain, sun, temperature, length of events, insects and extremes of each effect all play a major role in the development of fruits and grains. In turn, the pricing of the commodity is adversely or positively affected.
The middle part of the process, what happens in the winery or in the distillery, pretty much remains a constant. The equipment is reusable, and the recipes remain the same from year to year. The aroma and taste of the vodka does not deviate from one batch to the next, from one year to the next. In making wine, there are some annual equipment costs, such as the cost of new oak aging barrels, but these, while significant, are not an overwhelming factor, either in product quality differences from year to year or in cost differentials from one vintage to another.
The last part of the process, consumer demand, is where the whole enchilada gets tricky. Depending on price point within category, the response of the marketplace can be red hot to cool, cool, cool.
A vodka that tastes not-so-good but is fine for Bloody Marys can cost $12 a fifth and be a major seller. If it costs $25, there may be a lot of it on the shelves for a long time to come. A Pinot Grigio that is refreshing and pleasurable at $7 has a bright sales future. One that costs $27 will not attract a large buying audience.
So taking the first part of our three-part calculation, the agricultural aspect, you should know that harvests around the world for the past couple of years have been pretty good. There is plenty of raw product –– in some cases, too much. Nature does not give credence to an economic downturn cycle. The vines and the grains continue to produce at maximum capacity.
In the wine world right now, there is a lot of juice and a lot of grape raw product looking for a home. This year, some growers may choose not to even harvest because of anemic demand and low prices for grapes. It’s not a pretty picture if you are a grower.
As for the third part of our economic scenario, the consumers are choosing to spend but to spend judiciously. Wines in excess of $25 and spirits in excess of $28 had better provide the consumer a darn good reason to pick them over products on the same aisle costing half those prices.
Now the middle part of the economic triumvirate, the winemakers or the spirits-makers, is in a pinch. They did not foresee the downturn or the resulting consumer revolt over pricing. First of all, they have a lot of product in the pipeline that was produced under the old rules and the old economics. Wine is a long-lead-time item because of the necessity of aging what is made. That older stuff now just ready for market has to move to make room for the new stuff preparing to make its way out the winery or the distillery door.
Secondly, the winery or the distillery today has access to better raw product because there is not as much competition or demand for the new fruit or grain just harvested. A better final product can now be produced at a lower cost than the previous batches.
But the owners of the wineries or the distilleries do not want to lower their prices on established labels because they know that somewhere in the future this economic downturn will be over. People will once again not hesitate to purchase their well-known and beloved label at the old higher price. By backing off their established market price today, it will be very tough to convince the consumer to ever return to the original price when the sun shines again tomorrow.
Today the winery or distillery must create another label, a “one-off” for you clothing shoppers. This new label has no history and usually no visual connection to the original label. Sometimes, particularly now, the fruit or the grain used in the new label equals or even exceeds the quality level of the original label. And it’s cheaper.
Another approach to maintaining pricing integrity in a label during down economic times is to limit production. Simply don’t make as much as you used to. Shorter supply equals the ability to maintain the higher price or, in these cases, the same price. Of course, the winery does not make as much money as it did, but that can be offset because it does not have the expense of making the product.
If you believe this approach does not make any sense, know that this is exactly what the producers in Champagne have been doing for two years.
The bottom line, because we are talking economics here, is that this is a consumer’s market. There is a lot of superior product on the shelves, and it is attractively priced. Often, you will find amazing liquids that provide value while delivering a high-quality experience.
My advice: experiment. If you are not familiar with a label, simply know that the wine emanates from a region that has given you pleasure in the past. If the pricing seems a bit low, give it a go. Try it.
Just realize that when signs indicate that this downturn is heading back up, you may not see that label ever again. Those good grapes or that good grain are moving back into the main label program. And you will pay more for exactly the same thing with a different name.
The Wine Show with Tim McNally can be heard every Sunday from noon to 2 p.m. on WIST-AM 690.