Friday, February 23, 2018

Private label wines: Like a seat on a no-frills airline, people may complain but they love them

Damien Wilson
I started something rare recently, an intelligent discussion on social media, by tweeting my disdain for a fawning article about another tech company that knows nothing about wine "disrupting" the business by putting bulk wine in its own bottles.

Soon I found myself the least intelligent person in the cyber-room, as Felicity Carter, editor-in-chief of Meininger's Wine Business International, and Damien Wilson, an Australian wine marketing professor who teaches at Sonoma State University, took opposite sides on whether or not private label wines are good for consumers.

I'm going to give you that intelligent wine conversation, and a conclusion.

But first, a primer. Private label wines are everywhere but don't announce their presence. There's an ocean of bulk wine made cheaply in California's San Joaquin Valley, Australia, Chile, and elsewhere. What a private label wine does is attempt to make it seem like this wine was handmade by a person from a single place. Lately some private-label companies promote the winemaker who "made" the wine when in fact the wine usually just came out of a tanker truck.

However, that doesn't mean it's bad wine. We are in a golden age of minimum wine quality, when most of the bacteriological flaws that existed in wine a generation ago have been eliminated. The biggest arguments against private-label wines are that they're inauthentic -- pretending to be something they're not -- or that the taste is one-dimensional and boring.

For many wine drinkers, these are not negatives.

It's easy to side with Felicity Carter in this discussion, but to understand Damien Wilson's point of view, you have to consider how powerful name brand wines are in the U.S. market. California has thousands of wineries, many of them small and artisanal, but just three companies produced about 60% of all California wine last year, according to Wine Business Monthly.

Is there any real difference between bulk wine sold in an established brand like Mark West or Black Box, owned by Constellation, or Glen Ellen or Cupcake, owned by The Wine Group, or bulk wine sold to a supermarket with a made-up name like Bubbling Brook Cellars? In some cases the Cabernet is pouring from the same spigot. This is not to say any of it is bad: it's just cheap and, to the enophile, not very interesting. But plenty of consumers like it: Cupcake and Black Box are among the hottest brands in America. So why wouldn't people like the same juice in a different container?

Here's how the discussion went:

Felicity Carter
Felicity Carter: Private label is (mostly) a race to the bottom, Damien. The distributor gets the brand equity and can just change suppliers at will. It becomes all about what price they can get from suppliers. (Blake's note: that means the label doesn't change even when the wine comes from somewhere else.)

Damien Wilson: Many utilize private label in that manner, but it doesn't have to be that way. This success just highlights the value of private label to a sufficient portion of the market. That success highlights disparities between demand & supply. Even the article cited condescending experts (Blake's interpretation: Wilson is calling us wine snobs. Fine. Stipulated.)

Wilson: Given the growth in supply of private label, and the consumer propensity to buy them, I’d say that’s a textbook example of catering to customers. Some are successful, some fail. The strategy is not the problem, but the execution.

Carter: See, I don't think private label IS meeting a consumer need, by and large. It's meeting the need of supermarkets (and others) to source at rock bottom prices, to please shareholders and bean counters. (There are some interesting exceptions.)
(Blake's note: I'm 100% with Carter here. Supermarkets, restaurants and wine clubs -- ESPECIALLY online wine clubs -- commission private label wines so they can sell $2 juice in a $20 bottle. Again, not that these wines are bad, but some of these companies advertise the great value of their wines, when in fact you're getting exactly what you pay for, or even less.)

Carter: On that argument, you could say that miserable small seats, overworked and cranky staff and airlines using their right to drag people off planes is an example of how aviation is responding to customer needs.
(Blake's note: Uh-oh, this sounds like a good argument but it's that moment in a legal drama when the crusading attorney walks into a trap.)

Wilson: Absolutely! Great analogy. The huge increase in aviation passengers since the Airline wars illustrates that the bulk of consumers will pay less for reduced services. They just want travel. Wine should take note.

Blake's note: And, oops. He's right. Damien Wilson for the win.

I'm an enophile, or wine snob if you prefer. I care what I drink. So I want to know where my wine is from and who made it.

But look at that market share of California wine from the big companies. Extrapolating from Wine Business' other figures, about 20% of all California wine comes from an identifiable place and is made by identifiable people, and when I think of California wine those are the wines I'm thinking of. That is not California wine for most people. Imported wine is similar: When I think of imported wine, I think of single-vineyard Chianti Classicos or Portuguese white wines, but the biggest-selling imported brands are also bulk wines, albeit usually from one region or variety.

I want people to buy Soalheiro Vinho Verde or Pieropan Soave Classico because they're better (and less chemically manipulated) than the bulk Chardonnay they're currently buying. But like Wilson's airline passenger, they're happy with their cheap seats. Bulk Chardonnay: the middle seat of wine.

I pinged Wilson for a little more elaboration of his position, and got this by email:

"Thanks for taking an interest. I am very much aware that my perspective on the wine sector is at odds with many who work within it. My logic is pretty simple – I’ve taught wine business for 20 years, and you know the one element of the wine sector on which I have zero trouble motivating students? Fine wine. In my 20 years, do you know how many students I can remember finishing my courses and not wanting to start their career with a boutique producer? Not many.

The student only sees the fancy lunches and glamour of being a ‘Marketing manager’ for ‘Dodgy Business’ winery. That so many of these small wineries are not commercially viable is often overlooked because the squillionnaire owner doesn’t care much about the costs, as long as they own a winery.

I also dislike corporatization wines for myself, but I’m in favor of them for inexperienced wine consumers. We know that wine consumers begin as novices and typically progress to occasional consumption. Roughly a third of these become regular wine consumers. Of regular wine consumers, around 10% of wine consuming experiences are higher value. For a small portion of this regular consuming group, high value defines almost all consumption incidences, but most high frequency consumers drink +/- 90% ‘everyday drinking’ wines, with +/- 10% higher value wines. The small sub-set of high value almost every occasion is where we all fit in, yet very few consumers ever get that far.

So, teaching students to focus on this segment of the market, and trying to facilitate all wine consumers to achieve that aim is not only impractical, but alienating to most of the wine consuming public. As such, I have to compel my students to begin at the beginning, because they’re already near or at the high-value subset in their own wine consuming behavior.

They’ll learn all about vinous mavenship and obscurity all by themselves. If the tweetstorm that erupted over the popularity of ‘How wine snobs are faking it’, or the dismissal of a $300M wine start-up as a commercial wine factory has illustrated, there’s plenty of opinion and advice about what wine should be. My role, is thus to get them to start by focusing on what the wine market actually is."

Wilson expected me to disagree. But I can't. It's (still) a free country, however, and you are free to do so in the comments.

Follow me on Twitter: @wblakegray and Instagram @wblakegray and like The Gray Report on Facebook.


Mark Andrew Sinnott said...

Totally agree with Wilson. Wine is a business.

Felicity Carter makes no sense. She dismisses bulk wine as way to 'please shareholders and bean counters' but the supermarkets cannot do that unless they are selling a lot of this cheap juice, and the fact that they are says that there is consumer demand. If the wines were not at minimum drinkable, there would be no market.

As a final point, it's fair to assume that the margins on low end bulk wine are thinner than at the high value end of the market. So if anything, supermarkets would be better served pushing the more expensive juice, to please those shareholders and bean counters.

W. Blake Gray said...

Mark: Supermarkets don't sell a lot of $50 and up wine, so it's hard for them to equal the margins they make on private-label wines.

In fact, I don't believe most stores make huge margins on expensive wine, because once the bottle price gets over about $75 they are competing with every wine shop in America on Wine Searcher.

UK supermarkets are the best demonstration of Carter's "race to the bottom" point. UK supermarkets sell a lot of middle-seat, back-of-the-plane wine. But to Wilson's point, it's what UK consumers request.

Bob Rossi said...

There's a couple we've known for years, and we've often had dinner at their place, and vice versa. The woman has always preferred jug California or Australian Chardonnay (what I call Kangaroo Wines). She used to try wines that I brought over to their house, or poured from my cellar when they came over. But for the last few years, whenever they came over she brought he own jug of Chardonnay and drank only that. I once made some comment about how "manufactured" wines can be manipulated all kinds of ways, like oak chips for example. She asked if it really matters if it tastes good.

Jim Caudill said...

Bulk wine becomes available for many reasons, and there's more of it from what would be considered higher value appellations than you might think, not just the Central Valley. Just ask Cameron.... Not everyone wants to make Two Buck Chuck, and some people think it's swell to make Fifteen Buck Chuck when good juice is available.

Bruce7b said...

Seems like the big issue is barely discussed in the debate. Is the selling of private label wine false advertising and would it be allowed in other arenas? One large wine store refers to most of their offerings as "factory direct" (slight change of wordage on my part). A major newspaper has an affiliated wine club that advertises its wine as being from famous regions and wines that get high scores (from whom they generally don't tell you) and those labels in the ads make the bottles look expensive. In our senior community of moderately wealthy wine drinkers, the Fed Ex driver tells me almost all the wine deliveries are from the newspaper club--he didn't understand how/why I got a case directly from a winery. To most wine drinkers, wine is neither a hobby or a passion anymore than potato chips are.

Bob Henry said...

I'm a little late to the discussion, but let me augment Professor Wilson's statistics.

Excerpts from
(May 12, 2010, 2012):

“The Market for Fine Wine in the United States”

[Fine Wine 2010 Conference in Ribera del Duero (Spain)]


By Graham Holter
Associate Director – Publishing
Wine Intelligence market research firm (United Kingdom)

. . .

"According to the data presented by [David] Francke [managing director of California’s Folio Fine Wine Partners], US wine drinking is compressed into a small segment of the population.

"SIXTEEN PERCENT OF CORE WINE DRINKERS consume wine once a week or more frequently, which ACCOUNTS FOR AROUND 96 PERCENT OF CONSUMPTION. Thirty-five million adults drink virtually all of the wine sold in America, Francke said."