Thursday, August 9, 2012

Most Likely To Disappoint

(Not the author.)
If wine growing regions were high schoolers and we were assembling a year book, the 'Most' section would be quite entertaining to put together.

You'd have the Most Popular and Class Clown and Best Hair and Cutest Couple and all the rest of those impossible expectations-setting labels that hardly ever pan out.  But you'd also have some that would spark real debate, like Most Likely To Succeed and (though only a yearbook put together by my mother would have it) a Most Likely To Disappoint.

The Most Likely To Succeed category, certainly worthy of a lively discussion and with many contenders, will have to wait for another piece.  But there are too many data points pointing in the same direction to ignore in the Most Likely To Disappoint bracket anymore.


Napa is, without a doubt, one of the greatest places on earth to grow Cabernet.  And pockets of the valley have the capacity to produce world class examples of other varieties, too.  Carneros Chardonnay and Calistoga Zin, for example, rock it hard.  So, it's not as though there's a ceiling on potential here.  Not at all.  But somewhere along the way the hype curve surged as the quality curve took a dive and prices continued to climb.  In the world of investing, a chart like this is a bellwether for a correction.
Napa Hype and Prices Surpassed Quality A Long Time Ago

Today, the average price of a bottle of wine in Napa Valley (including Sauvignon Blancs and everything else) is in the neighborhood of $43.  Ahem?  And when you venture into what Napa is best known for, that number is closer to $65 or so.  Wow.  That is a lot of money for a bottle of wine.  Unless, of course, it's worth it. 

But very few of them are worth it.

Somehow, though, this Disney Land of wine remains held in the highest regard by critics whose judgment is unencumbered by the nuisance of prices or the hundreds of bottlings that don't make their reference cut.  Amazing. There are a dozen places to fix blame for this, but looking at the evidence is enough to persuade even the staunchest of advocates to search elsewhere for quality and value.  And evidence abounds.  Just flip to the back of any wine spectator and check out the reviews for Napa wines.  The prices are as astoundingly high as the QPRs (quality to price ratios) are low.


More and more, consumers are choosing bottles based on where they came from - a very positive trend.  People know to look for bombs from south Australia, lighter food-friendly wines from Tuscany, and refreshing whites from the Loire.  All of these hold good potential and low risk in store.  But when someone wanders over to the California Cabernet shelves to pick something up to go with that steak, they are strutting into waters rife with higher price tags and a higher likelihood for disappointment.

For this reason, Napa Valley gets the Most Likely To Disappoint spot in the yearbook.


Thankfully, a year book is limited to just that - a year - so, it's not a permanent condition.  (Hell, I was named Shyest in my class.)  Perhaps the sway of the market will help Napa pan out of this phase and live up to its potential soon.  In the meantime, you'll find me in the Italian wine section.

4 comments:

  1. You're missing another piece of the picture: chart land prices and match to your other graphs. The restrictions in place on land use and division create a chimney effect on pricing. It's not good or bad, per se, but it does guarantee Napa of the label means higher pricing for all but the largest of producers.

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  2. Thanks for chiming in, Josh - and you make an interesting point.

    As a student of economics, this is sort of a chicken or the egg question. I'd say that the land prices have (and will) reflect demand - of land, that is. And since much of the non-regulated land is used to source wine, demand for wine indirectly drives land prices, even if in a delayed manner. So, that land price curve would parallel the wine price curve, either trailing or leading.

    If consumers find comparable alternatives at lower prices from other regions - and I believe we've already begun to see this happening - demand for Napa wine will ebb and land prices (eventually) will fall. Either way, there's a correction waiting to happen here.

    Thanks again!

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  3. Except there's an artificially imposed set of expansion rules in place in Napa. That has real repurcussions in terms of pricepoints, as well as on business plans a la the latest tempest about gallonage caps at several Valley wineries. I'm a researcher, not an economist, by training, but to me, the unique context which created the modern Valley also puts up a series of barriers to better quality, lower prices, etc. It's a real issue if the concern, as mine is since I've got kids, is in keeping the values of the Valley, not just physical demarcators shepherded by corporations rather than family wineries. It is really expensive to start a winery in Napa without deep reservoirs of capital, and that plays through in what can then be afforded in terms of equipment to make better wines, as well as what the bottle price has to be to pay growers.

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  4. Oh, for sure...You are so right. I am familiar with Napa's "unique" business environment and the environmental arguments behind many of the regulations that make it a challenging place to turn a buck. I guess what boggles me - and contributes to Napa's trend towards disappointment - is the disconnect between what appears to be the bubble much of Napa Valley wineries inhabit (family and corporate alike) and the broad consumer market.

    In talking to folks like NVV (Napa Valley Vintners Association) and family winery operators, the justification for these super high prices reads a lot like the points you've made. The trouble is, the consumer is increasingly apathetic - especially when there's lower risk drinking enjoyment to be had elsewhere in this global marketplace.

    This is, unfortunately, a macro problem that a single winery or even handful of wineries can opt out of. It is baked into the structure, politics, and business landscape there. In the end, the laws of supply and demand cannot be overcome by marketing, hope, or even boatloads of karma.

    Me? I hope it doesn't come to that. Napa is home to many terrific people and incredible potential. If that potential is realized and broadly accessible, sustainable success and livelihood is inevitable.

    Seriously appreciate your contribution to the dialog!

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