Wine Talk

Snooth User: chadrich

Bargains-Where are we in the Cycle?

Posted by chadrich, Feb 17, 2010.

I know we talked about this back in December, but couldn't find the thread to bring it back, so I'm starting over....

What's the group concensus as to where we are in the economic cycle for wine bargains? When we discussed it before, the overall feeling was that we were seeing unprecedented discounting and the deals likely wouldn't get much better. I'd argue that in 60 days time, the deals have gotten significantly better. And I'd say that applies to breadth of selection being discounted, magnitude of discounts, and frequency with which deals are showing up.

I was a buyer in December (none of which I regret) and am a bigger buyer now (so much for cutting the wine spend in 2010, though I'm getting a lot more for my buck). Sadly much of this is on the backs of wineries, distributors and stores who are having financial difficulties; many of whom aren't going to make it. So as their numbers are reduced, the market will bring itself back into equilibrium and the deals will taper off.

Just curious as to where everyone thinks we are on the swing of that pendulum. I'd say we'll see the current deals for another 2 to 3 months, then they'll start to dwindle.

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Replies

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Reply by Flamefighter, Feb 17, 2010.

I wouldn't bet the farm on the pendulum going back the other way so soon, at least not in California.

The wine market is constantly seeking its equilibrium, just as every other market, but it is effected by the other areas of the economy and that will hold it back.

I think that unemployment, reduced wages for those who have jobs and lack of pay increases for those very few who are working where the boss has money to increase wages but isn't willing to simply because she doesn't have to given the lack of inflation and number of people who are looking for work are going to impact wine and many other prices throughout the year.

I think we will continue to see good deals right through the year. California had a good crop in 2009 and plenty of juice should be available. That leaves the producers with two or three choices, make wine, sell to a broker or pour the juice down the drain. If they make wine, they have to sell it and selling for less is still better than sitting on tons of wine. If they sell to a broker he will sell to one of the industrial producers who will make good cheap wine (the trick will to be able to identify which is good and cheap and which is just cheap). And if they pour it down the drain, than we all lose but most of all they lose and I doubt they will do that. The Milk farmers get away with that because the government subsidizes them but I don’t think most wine makers are government subsidized.

I think more of the higher priced producers will spin off their second or third label just to make money by selling bulk wine without undercutting their regular label. The little mom and pop wineries will suffer the most and there really isn’t much anyone can do about that except feel bad for them. Many are just not sustainable in this market and others are too new and lack the resources to survive. We have all probably purchased wine from some start-ups that is overpriced just because they have to sell it at that price to make a bare living but we did it because we appreciate the effort and risk they are taking on behalf of the culture and it will be sad to see these go under.

Perhaps what we should do is lobby Congress to bailout the wine industry. Most vintners I have met are nicer than the bankers I have met and provide a far tastier product and I know if we can give money to the Big Three Auto makers we should have a little for the wine industry - after all would you rather the head of General Motors get his bonus or see your favorite winery survive?

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Reply by zufrieden, Feb 17, 2010.

Discounts are usually at their best during the January-February period in any given year - especially in the more northerly states and Canada. The recession did affect overall pricing downward, but if you have a state monopoly on liquor distribution the prices tend toward stickiness. I face this problem in British Columbia, Canada.

In more sensible and responsive markets south of the border - where most of you reside - I have seen some reductions. This is especially evident in upscale wines which lost a good portion of demand (formerly driven by a pampered professional class) simply disappeared. When you lose your lucrative wage, you tend to lose the taste for mid-week splurges on 200 dollar California boutique wines.

If you have the cash, I think the selling prices of many premium wines are highly negotiable. Try asking for 40% off for a couple of bottles and I'll bet you can get 30%...

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Reply by napagirl68, Feb 18, 2010.

I am getting HUGE deals now... 75-80% off as distributors and wineries sell off what is not moving due to the economy. I am not in the wine industry, so I tend to learn when I ask. I found out from one winery I frequent is that CA wineries, at least, have to pay taxes on their inventory as long as they have it, and so if inventory of a certain wine is not moving, they slash the prices to move it out. They say it is cheaper to take the loss in price than pay the taxes... so that's what I've been told.

At least for CA, I think we have to watch the foreclosure and unemployment rate to see when this will end. I do not see this even leveling here in 2-3 mos. I think at least a year in CA.

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Reply by dmcker, Feb 18, 2010.

There were bargains available three months ago that aren't available now (such as the tail end of Diageo dumping their French wine stock while the dumping was relatively good, and Billington Imports pulling the plug on Havens Winery in California, and the ridiculous prices that were then to be had for their stock), but fortunately for us consumers, the oceans of red (and white) ink and wine on previous styles of operation are continuing to bring all sorts of discounts for us. This is likely to continue for a bit longer but whether it's three months or 18 months is quite open to debate. As I've mentioned elsewhere the 30% fall in sales of wine priced above $25 or so a bottle, and the first drop in sales volume for California wine in nearly two decades, even though many more people are drinking wine these days, are industry-shaking trends. An upswing in the economy can, of course, wipe this all away in only a few months, and negate some of the positive trends we're seeing amidst the carnage, if it happens soon enough. My guess (and I suppose hope if only for the benefits to be had on many wine prices that were far beyond being absurdly ridiculous) is that such an upswing is still a ways away. Large-money people I know in real estate and related areas were saying at the end of 2008 that the real estate market would begin rebounding from last April. Well they ain't sayin' that now...

One interesting trend just discussed in the NY Times shows how wineries in Napa and perhaps other parts of California are having to implement more sophisticated business techniques involving information flow internally and with consumers, whether it involves Enterprise Resource Planning, enhanced IT systems, use of social media, what have you. If you've never met 87-year-old Mike Grgich you can't really appreciate the hilarity (and odor of fear) the image of him yelling “We have to upgrade everything! Get me Facebook and Twitter!” brings to mind.
http://www.nytimes.com/2010/02/17/d...

There are a lot of sharp people in the business in Napa, Sonoma, Santa Cruz, and elsewhere. Plus they have the benefit of community culture, intelligence and practices emanating from the nearby Silicon Valley. I can't help but worry, though, that this trend may also mean that only the largest wineries with the deepest pockets will make the transition, and that even more pressure will be placed on the smaller, more technologically challenging wineries that may be making better wine...

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Reply by Flamefighter, Feb 18, 2010.

Wow, Napa Girl, 75 to 80 percent off; you must dish girl, what are you buying and how do we get in? The best I have done is fifty percent off retail from a Paso winery, who I believe was doing just what you reported on, avoiding year-end inventory tax. Unfortunately, it was a winery that I have always had mixed feelings about and what he sent didn’t impress me, but that is for a different forum.

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Reply by napagirl68, Feb 24, 2010.

juslyn 2003 napa estate cab for $30 (retail if you can find if for 60)

2006 Imagine Chalk Hill vineyards chardonnay (sonoma coast) $9.99 retail 20

I have more, but they are more specific and many would not like them. One is a local vineyard (relatively) Borra Fusion (white rhone blend) viognier, roussanne, marsanne. All my friends hate it (they like big buttery chards). so more for me this summer:-)

All gotten at:
SF bay area Grocery Store Outlets... also got a 1997 big horn napa cab for 5.99??? Crazy, but is very decent for that particular year and cabs in Napa.

My advice? buy one bottle, drink immediately, then go clean em out, if applicable. these places also have the CRAPPIEST of wine as their staple, so beware... one bottle, if necessary, pack a corkscrew and open in parking lot to taste....

Good luck!

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Reply by dmcker, Feb 24, 2010.

"buy one bottle, drink immediately, then go clean em out, if applicable"

Absolutely. Go back the next day and those specials are usually gone. I can't count the number of times I've been frustrated with myself afterwards for not buying more than one or two bottles when prices were ridiculously low on decent (or even better) bottles of wine. And now is just about the most 'ridiculous' time we're likely to see for some time....

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Reply by gregt, Feb 24, 2010.

You guys are so focused on CA that you're missing the rest of the story. There's no way prices go back after 2 or 3 months. I talked to several hundred wineries in the last week seeking importers and desperate to sell their wine. I don't think there's a winery on earth that was started by a few people with a business plan, an understanding of the market and a marketing program set to go, and adequate capital to meet their goals.

Actually there are examples. Yellow Tail for instance. Some of the Gallo projects and Foster projects and other big-budget, mass-market projects.

For most, it's not the way the business works. People start producing and hope they can throw their product into the river and it will float down to the market. What's going to happen to the people who used to sell to a local co-op and decided to bottle their own wine? What relevance to them is 2 months?

Moreover, say the economy picks up tomorrow. Is everyone's first move going to be stocking up on wine? Nope. Wine purchases will lag other delayed purchases that are more necessary. Meantime, there are thousands of producers world wide who have wine to sell. And if you're an importer, you're beating the people down on prices or you're not taking the wine. If you take a container or two, you don't, and in most cases, you are not allowed, to adjust your prices daily in response to economic indicators.

Deals aren't going away any time soon, and certainly not in 90 days. They may even increase as people reach the end of their ropes and simply shut down.

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Reply by Flamefighter, Feb 24, 2010.

"My advice? buy one bottle, drink immediately, then go clean em out, if applicable. these places also have the CRAPPIEST of wine as their staple, so beware... one bottle, if necessary, pack a corkscrew and open in parking lot to taste.... "

I agree Napa Girl, and I have actually done this at Trader Joe's, who often finds huge discounts on good everyday wines from solid wineries but when they are gone, they’re gone. The first time, I felt sort of like a wino sitting in my truck tasting wine from a paper bag, but I felt a lot better when I went back in and scored two cases of rock solid Napa chardonnay for $4 or $5 a bottle. However, when I told the wife I did get the "look" that says thank God no one saw you who knows me. But since she is the chard lover in the family, she forgave me as soon as she had her first sip.

I also agree that often times the grocery outlets have huge deals because they just want to move the stock and wine isn’t their main business. But I am often shy about buying really good wine at the grocery store because many of them don’t seem to care for their wine in a responsible manner. However, in fairness they will usually take back a bottle if it is bad just to save a customer.

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Reply by dmcker, Mar 12, 2010.

Forbes just came out with their annual survey of he world's billionaires, and people are immediately using the big jump in number (esp. from China) and size of the fortunes as a sign that economic recovery is truly underway. Of course they aren't focusing on the obvious fact that just because the big boys (and a few girls) have increased assets doesn't mean the rest of us have done as well. Those still with a lot of cash of their own or access to that of others during the recession/depression have been able to buy up all sorts of assets at stressed prices and this is inflating the rolls of billionaires.

Regardless of the overall depth and breadth of recovery, that at the top end can still have a deleterious effect on wine prices. Especially, again, at the top end, but there will likely be some trickle down effect. Check out this very interesting, even if common-sensical, graph:

http://www.liv-ex.typepad.com/

Guess all we can comfort ourselves with is buying up all sorts of wine at stressed prices, while they still last... ;-)

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Reply by gregt, Mar 13, 2010.

They will last for a long time.  Those guys in the article are trying to drum up business and interest.

US unemployment figures are double what they were excactly 2 years ago.  The proportion of unemployed to the entire population rose ever so slightly last month.  The number of people who have simply given up looking has gone up.

Argentina has had 20 percent or more total inflation over the past few years.  The government is taxing the hell out of the people and still can't pay its bills.  Producers are dumping wine at cost.  Eventually the currency will again devalue.  Those wines will remain cheap because the government can't manage the economy.  In CA, the fact that some Asian guy now has a billion dollars doesn't mean that he's going to come right over and start snapping up Napa cab.  Bordeaux has a good vintage coming out - 2009, but they've got a few crappy ones in the pipleline and those need to be cleared. 

Spanish wine continues to fail at the top end while the low end picks up.  As the people who invested big in expensive production start to lose patience or hope, those wines will continue to be cleared.  Greece, and more significantly, Spain, are failing as economies.  If the EU lets them fade, that destroys the EU.  If the EU, meaning Germany, bails them out, that doesn't help much either because it's a perfect example of the grasshopper and the ant.  The more thrifty German people will not be happy to have bankrolled the partying of the people who enjoy the sun.  So if they're smart, they should ensure some kind of serious oversight of those economies.  That will mean efficiency improvements, which will mean layoffs.

Finally, the trend of the chart in the link concerns itself with history - which was basically European and US money.  European wine is a big deal for them.  Why expect that Asians will be as excited about our cultural artifacts?  The shift in wealth to Asia need not mean that they will chase the same items.  As they gain confidence, they don't have the need to define good living in western terms.

Point is - wine prices are NOT trending up anytime soon. More importantly, bargains will continue.

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Reply by zufrieden, Mar 13, 2010.

I agree 100% about the general pricing trend.  There is now over-production (vast overproduction) of wines on all but the very highest quality genres. Look for bargains to continue well into the future for that reason alone.

And if there is a commercial real estate bubble looming in China (as many think) that will take a lot of Asians out of circulation.  If this presentiment is true, even a so-called "centrally planned economy" won't save the Chinese investor. Of course, such a catastrophe would affect more than simply wine prices and futures, but the point is that countries either (a) adding to the wine lake or (b) drawing from it are unable - in the long-run - to sustain a large, overdeveloped and bloated wine industry.  Look for contraction in the long run but bargains in the relative short run as inventories are liquidated over the next few years.

Good hunting! 

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Reply by gregt, Mar 13, 2010.

That real estate bubble is going to be interesting.  If it pops, there will be more than wine bargains out there.

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Reply by drinkersdigest, Mar 13, 2010.

I don't think that pendulum has reached anywhere near its apex.

France, Italy, Spain and Australia all the net exporters are all drowning in their own oversupply and Argentina, Chile and South Africa the nations with cheap labour and low cost centres are putting downward pressure on prices.

Constellation brands are literally giving away their Australian assets and laying off staff at bottling plants in Australia, Diageo are moving out of Bordeaux. Fosters are reporting record losses, and Delegats owners of New Zealand's market leading Oyster Bay have reported a 12pc half yearly loss. 

From an Australian perspective we are a country that almost entirely avoided the GFC, with the exception that our banks missed making record profits and a few more seats were available on QANTAS than usual. So I don't think the bargains are directly related to global economic woes. It is due to poor management of vineyards, wineries, overly ambitious marketers and greedy accountants.

Our Australian wine industry is in dire straits. We've had vines and wineries being planted without any demand for them nor a destination market for the product. Resulting in a surplus of 20-40 million cases of unsold wines sitting in warehouses around Australia.

This is a result of bad Tax law for investors and the enduring idea that Australia was the worlds wine darling which tends back to the early 1990's. New Zealand will find themselves in the is position in the next 3-5 years I fear.

So whilst the discussion has been about disposable income I think the issue is more the incredible over supply the world has seen in recent years and the yearning and failure of making the break into the tiger economies of China and India.

Until we can change the ancient cultures whose civilisations successfully stretch back thousands of years, into wine drinking westerners overnight. I think that many wineries will go bankrupt, and we will continue to enjoy tremendous bargains.

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Reply by Robertg7, Mar 15, 2010.

Napagirl68:  At a Grocery Outlet in the Seattle area found about eight bottles of the 2004 Jasper Hill Shiraz for $24.99 and think I will follow your advice: buy one, take a taste in the parking lot, then buy more if all is well...you are also right about being careful as these stores also carry some awful wines.....

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Reply by chadrich, Mar 16, 2010.

Okay, so I have to weigh back in and disagree with myself from my original post (my psychiatrist says this self dialogue is not uncommon and only worries him when it slips into the third person...joking).

Yes, 2 to 3 months was incredibly optimistic of me.  With the amount of continued small (and even larger) producer failures and inventory close-outs I'm seeing, I don't think we're anywhere near the end of the cycle.  I have this mental picture of an assortment of producers (and probably distributors and some retailers) just barely holding on by their fingernails.  I feel sorry for them, as I know the business (especially when done on a small scale) is not the most profitable and a bad period (of which we're in a long one now) can be devestating for someone without the financial reserves to endure it.

I'm loving the deals I'm getting, and many would argue that the industry needed right-sized as well as a pricing rationalization.  However, I think we're going to be worse off on the other side, because we're going to be without a lot of the small and/or family-owned operations who produced quality product for the love of doing it.  Eventually any void that has been created will be filled by new entrants.  But it saddens me to know some of those whose wines I've come to know and love won't be with us.

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Reply by drinkersdigest, Mar 16, 2010.

http://www.youtube.com/watch?v=oZ3218_SQ-A

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Reply by drinkersdigest, Mar 16, 2010.

Its the attitude above that has brought us to the oversupply we're experiencing at present.

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Reply by dmcker, Mar 16, 2010.

DD, think I get first post honors for this one. ;-)

http://www.snooth.com/talk/topic/wine-sales-101/

It is so smarmily spot-on, isn't it?

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Reply by dmcker, Mar 16, 2010.

And in the way of ongoing deals from the California bloodbath, yesterday I received an offer for a $28 Zin at $16 and a $45 syrah at $19. Posted the syrah deal in the thread entitled 'Shiraz'. That's a lot of money people used to pay that these literally 'poor' wineries ain't gettin no more...

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