TN: Last nights Syrah/Shiraz and Tokaj

[VLM]

originally posted by Cristian Dezso:
I am sure you sold your 04s, though. I guess the issue is that the consumers might be pickier and so might skip some vintages, unless offered at very low prices, but I guess that is/was always true to some extent, no?

No one is buying 2004s with unsold 2003s. Unless you are very well capitalized, this is suicide.

The issue is that there are shitloads of UNSOLD 2004s. No one really wants 2005s (even if they are good wines). Shit, who knows if people will want 2006s?

If you want particular examples, that's probably best over email.

I think Levi should be able to salt in a fucking hell of a good cellar at Alto for the next guy.

 

[VLM]

originally posted by Cristian Dezso:
I don't know, I might be on mailing list of the "wrong" retailers. The only deal that I recall seeing was the 04 Monprivato at $67 or so - and it sold out within minutes, not surprisingly. But other than that, I've seen nothing (OK, 04 Cavallotto BB for $35 or so).

The retailer is Apex Beverage. Look them up and send an email asking about Vajra and Mascarello. They sold nothing at about that price but maybe still have access.

 

[Jonathan Loesberg]

"it appears, at least from wine searcher, that there are fewer and fewer stores carrying these wines, which leads me to believe that they are selling."

Stores not carrying a wine may mean not that it is sold out but that the wine was offered either to the importer or to the store at a price that either the importer or the store chose not to pay. Again, if prices fall badly, that may not mean that you will get wine more cheaply but that the wine will disappear from the market.

 

[Cristian Dezso]

The point was that at some point you had 20 stores that had the wine, and now there are 10.

I am not sure what you mean that by prices falling badly the wine will disappear from the market but you cannot buy it more cheaply.

 

[VLM]

originally posted by Cristian Dezso:
The point was that at some point you had 20 stores that had the wine, and now there are 10.

I am not sure what you mean that by prices falling badly the wine will disappear from the market but you cannot buy it more cheaply.

If the only way you can sell a wine is to do so at your cost, then you need to stop buying it. As this travels up the food chain, eventually the wine will disappear from the market because no one can afford to stock it.

This is happening right now.

 

[Cristian Dezso]

So this is something that I would like someone ITB to explain to me. Suppose a wine is offered to the final customer for $100. Doesn't sell. Why don't all the intermediaries cut the price? Isn't that what competition is all about? And in particular in tough times when demand is evaporating. I mean, yeah, you will not make as much money as before, but is it better to hold on to the price and make nothing at all?

And Nathan on your point with Apex, if they carried the wine, the wine not make public the cheaper prices? Or was it that they sent an email asking if anyone is interested in wine X at this price, and nobody bit? I imagine that if they would offer the wine on their website at that cheap price, and if the price would appear on wine searcher, the wine would sell.

 

[Cristian Dezso]

originally posted by VLM:

originally posted by Cristian Dezso:
The point was that at some point you had 20 stores that had the wine, and now there are 10.

I am not sure what you mean that by prices falling badly the wine will disappear from the market but you cannot buy it more cheaply.

If the only way you can sell a wine is to do so at your cost, then you need to stop buying it. As this travels up the food chain, eventually the wine will disappear from the market because no one can afford to stock it.

This is happening right now.

But that makes no sense, no? I mean what will all these intermediaries and the producer as well live off? Is it better not to sell at all than offering the wine at a lower price? The only reason that I can see that is that you want to maintain some reputation for exclusivity, but if it is 3-4 vintages in a row, then screw exclusivity, you have to survive. But hey, I am not in the business so I am just thinking as a rational economist.

 

[VLM]

originally posted by Cristian Dezso:
So this is something that I would like someone ITB to explain to me. Suppose a wine is offered to the final customer for $100. Doesn't sell. Why don't all the intermediaries cut the price? Isn't that what competition is all about? And in particular in tough times when demand is evaporating. I mean, yeah, you will not make as much money as before, but is it better to hold on to the price and make nothing at all?

It is very far from an efficient market. Full of Theater majors.

It also is not a free market. In almost all cases, the local distributor has exclusivity on a "brand", so no one can come in and push the prices down on a "brand". Within a wine category that will sometimes happen.

Shit is being closed out left and right. Clos St. Hune at 60% off, doesn't move. In fact, with all the closeouts coming through the market, it makes it hard to push stuff through at a livable mark-up.

And Nathan on your point with Apex, if they carried the wine, the wine not make public the cheaper prices? Or was it that they sent an email asking if anyone is interested in wine X at this price, and nobody bit? I imagine that if they would offer the wine on their website at that cheap price, and if the price would appear on wine searcher, the wine would sell.

Well, it was an email offer for a wine, so it was probably in the area but at the distributor. NC is a COD state so every day you carry inventory you lose money on it. That means that we see the effects more immediately because restaurants and retailers stop buying. Which is what they have done with the categories I have labeled non-viable.

This has been a long time coming and we have only seen the beginning.

At the end of the day, all businesses are cash flow businesses so maintaining margins won't mean much in the fight to stay afloat.

 

[VLM]

originally posted by Cristian Dezso:

originally posted by VLM:

originally posted by Cristian Dezso:
The point was that at some point you had 20 stores that had the wine, and now there are 10.

I am not sure what you mean that by prices falling badly the wine will disappear from the market but you cannot buy it more cheaply.

If the only way you can sell a wine is to do so at your cost, then you need to stop buying it. As this travels up the food chain, eventually the wine will disappear from the market because no one can afford to stock it.

This is happening right now.

But that makes no sense, no? I mean what will all these intermediaries and the producer as well live off? Is it better not to sell at all than offering the wine at a lower price? The only reason that I can see that is that you want to maintain some reputation for exclusivity, but if it is 3-4 vintages in a row, then screw exclusivity, you have to survive. But hey, I am not in the business so I am just thinking as a rational economist.

I think you might underestimate how thin the margins actually are in the wine business. There really isn't much room for tons of downward pressure at the retail level before a wine becomes non-viable. If stocking a wine costs $50 wholsesale and sits for months you need to be using that money to buy things that turn or you will be out of business.

A wine shop that has $2MM a year in sales may have $400K in profit form wine sales if they are really lucky (not adjusted for cost of money). From that, all overhead must be paid, including salaries, etc.

 

[Cristian Dezso]

originally posted by VLM:
It is very far from an efficient market. Full of Theater majors.

It also is not a free market. In almost all cases, the local distributor has exclusivity on a "brand", so no one can come in and push the prices down on a "brand". Within a wine category that will sometimes happen.

I am laughing at your first point. Very funny.

On your second point - we live in the internet era, so yeah you might have exclusivity in your local market, but hey, as long as I can buy it in NJ for 20% cheaper, I'll go for that. This is another point that I cannot comprehend, how can significant price dispersions survive? If you try selling your stuff for $100 and I can buy it any day for $80, how do you expect to survive?

Finally, OK, I get it, when you say that some markets are CoD and restaurants are unwilling to take risks.

 

[Rahsaan]

originally posted by Jonathan Loesberg:
Deep discounts on wines that are already in the distribution system won't create direct financial hardship for the domaines..

But as others have said, I need more than just the domaine in order to buy the wine near my house. As much as we may not like all the middlemen taking their cuts, some of them are necessary to stock CFE in the random co-op on my drive through Vermont.

And I liked seeing that! Will my grandchildren have the same pleasure? I wonder...

 

[Cristian Dezso]

I think you might underestimate how thin the margins actually are in the wine business. There really isn't much room for tons of downward pressure at the retail level before a wine becomes non-viable. If stocking a wine costs $50 wholsesale and sits for months you need to be using that money to buy things that turn or you will be out of business.

A wine shop that has $2MM a year in sales may have $400K in profit form wine sales if they are really lucky (not adjusted for cost of money). From that, all overhead must be paid, including salaries, etc.

I was thinking about downward pressure through the entire value chain, in particular starting with the producer. After all, the producers' costs are sunk. They harvested, paid their workers, aged the wine, bottled and everything. So then if people in the entire chain tell you that they won't be able to sell, the best for the producer is to lower the price and try to recoup as much as possible. At least that is the way I see it, but who knows...

 

[VLM]

originally posted by Cristian Dezso:

originally posted by VLM:
It is very far from an efficient market. Full of Theater majors.

It also is not a free market. In almost all cases, the local distributor has exclusivity on a "brand", so no one can come in and push the prices down on a "brand". Within a wine category that will sometimes happen.

I am laughing at your first point. Very funny.

I know, the professor is going to yell at me soon, though.

On your second point - we live in the internet era, so yeah you might have exclusivity in your local market, but hey, as long as I can buy it in NJ for 20% cheaper, I'll go for that. This is another point that I cannot comprehend, how can significant price dispersions survive? If you try selling your stuff for $100 and I can buy it any day for $80, how do you expect to survive?

Well, not all states allow shipment, in or out. There is that.

Also, as a buyer of Burgundy, I may be more sensitive to this, but I don't want to buy from just anybody. I still like to have a relationship with a retailer because provenance and trust are so important. It also means that I pay the same margin over cost for 2005s as I paid for 2004s.

Barolo is more tolerant of a beating, so you can cast a wider net.

Finally, OK, I get it, when you say that some markets are CoD and restaurants are unwilling to take risks.

They would be idiots to take a lot of that risk.

 

[SFJoe]

Margins on different wines are very different. I don't think the 2005 Burgundy prices reflected 2-5x increases from the domaines.

 

[VLM]

originally posted by Cristian Dezso:

I think you might underestimate how thin the margins actually are in the wine business. There really isn't much room for tons of downward pressure at the retail level before a wine becomes non-viable. If stocking a wine costs $50 wholsesale and sits for months you need to be using that money to buy things that turn or you will be out of business.

A wine shop that has $2MM a year in sales may have $400K in profit form wine sales if they are really lucky (not adjusted for cost of money). From that, all overhead must be paid, including salaries, etc.

I was thinking about downward pressure through the entire value chain, in particular starting with the producer. After all, the producers' costs are sunk. They harvested, paid their workers, aged the wine, bottled and everything. So then if people in the entire chain tell you that they won't be able to sell, the best for the producer is to lower the price and try to recoup as much as possible. At least that is the way I see it, but who knows...

Sure, but did you notice all the new facilities and additions the last time you were in the Piedmont?

There is a lower bound to prices that the domain can charge to meet debt and cost obligations.

The currency doesn't help either.

If margins continue to erode further, then there will be less and less choice because everyone will be more risk-averse. Picking up a few pallets of Mascarello is not cheap and folks may not want to do that if they don't have margin to cushion the cost of carrying inventory.

 

[Cristian Dezso]

Another point, when talking about discounts, is discounts from what price. I see stores offering the 2006 Vietti Rocche from anywhere in between then $120-$140 price range. I am pretty sure that wine will be a tough sell at that price and I can completely see your point that you expect heavy discounts on it.

But today I was offered the same wine for $90. That is 35% less. So when you say discounts, you might think of discounts from the $140 - and those I can very well see. But I am not sure I will see a price significantly below the $90 that I was offered today.

 

[VLM]

originally posted by SFJoe:
Margins on different wines are very different. I don't think the 2005 Burgundy prices reflected 2-5x increases from the domaines.

Sure, but with a quibble, margins on most wines are about the same.

Margins on a few wines are "market price".

By frequenting the same retailers year after year, I was able to pay standard price for 2005s, not "market price".

Wholesale prices increased a fair bit though. Ex-cellars were up a bit.

 

[Jonathan Loesberg]

The situation of wine disappearing is not complex. Assume that producer X, operating on a model of profitable times, invests in his wine by buying bottling machines, fancy cooled storage space, new land, etc., etc. He now has money he has to pay in order to keep operating and in order to do so must get a certain price per bottle for his wine. This is not merely notional. Just visit places where wine prices have gone up and you will see a lot of investment. If he cannot get that price for more than one or two years, that domaine will cease to exist. The land may still produce wine, but the new owner will find distribution methods suitable to the price he may get, and the work he wants to put in, which may well be inclusion of the wine from that terroir in negotiant wine and that wine as made by that domaine will have disappeared from the market place.

Now assume that importer Y has been told by producer X that he has to charge a certain amount for his wine or he will not be able to support his business. If the importer thinks that he cannot sell the wine at what he needs in order to make a minimum profit, he will not import the wine and it will disappear from our market place (assuming this situation is true of all importers for this wine) regardless of whether the domaine can find some other customers to whom to sell the wine that the importer will no longer buy.

Over the past few years, the crisis in the wine industry in France has resulted in numbers of growers going out of business and of vineyards being torn up to be used for something else (our neighbor in France is tearing out his vines because he cannot get a sufficient price for his grapes to pay even for his labor). For the most part, consumers have not cared about this situation because they didn't want the wine that ceased to exist. But at the same time, as the wine they did want increased in price, so did the investment necessary to make domaines that hitherto sold to negotiants at lesser prices a going concern. If those prices drop, while the vineyards may not be at threat, the domaines will be. And on up the line. While price inflation is pestiferous in many ways, deflation is far uglier and brings with it the economic downward spiral of depression.

 

[Thor]

I can, without being overly specific, confirm that neither Alsace (even the highly desirable stuff) nor high-end Piedmont (again, even the highly desirable stuff) are moving. I was told this by the producers of each in recent weeks. In some cases, there are alternative -- read Asian, usually -- markets opening up. In others, there are not.

Speaking hypothetically now, the price of Clos Ste-Hune could drop and Trimbach wouldn't notice (after all, it's not really their primary business and there's not much of it anyway), though I don't think they're optimistic at the moment. CFE is trickier, but it's still a niche product and still not their core business. If the yellow label wines don't sell, they've got an actual problem. If the yellow label wines are selling less and their pricing (blame whichever entities or currencies you want) is making that sales problem worse...well, I shouldn't need to do this math for people.

It's an unsettling experience to sit with producers of what one thinks are incredibly rare, incredibly desirable wines that one hasn't been able to afford for many vintages now, and have them tell you that they're sitting on three vintages of those wines that they can't sell. (Edited to add: I am not referring to Trimbach here.)

 

[Yixin]

Higher auction volume in HK than in NY first quarter of this year, I believe, but that's not the retail market. There seems to be plenty of inventory for many of the wines VLM mentioned (especially Alsace recently) and I've had both Paris and London brokers undercutting local shops after air freight. Air freight!

Had a range of Giacosa last night - discounted 30% or more. People are still buying the names, but the non-BBC (Bordeaux, Burgundy and Champagne) market is looking awfully vulnerable. At the low end, many are just trying to clear out their inventory to get cashflow - I think US$15 for Pegasus Bay Riesling is well below landed cost.

And no one is buying Aussie cults - for the first time in a long time, I saw discounted Grange and Hill of Grace.