Wine World Wins And Woes: The Rich Get Richer And The Poor Get Boutiquier

Let me toss out the seemingly random figure of ten million dollars and ask you what you think it represents:

1.  The purchase price of immaculate turn-key San Marcos Creek Vineyard in Paso Robles, including custom home, a luxurious bed and breakfast, a tasting room and a classically styled winery surrounded by 42 acres of vineyard and another 50 acres of private natural landscapes.  Based on yields kept intentionally low, San Marcos Creek is capable of producing about 5000 cases of premium wine per year, making it the quintessential business model for a boutique winery.

2.  The amount of money Constellation Brands spends per year on digital marketing alone.

The answer, of course, is both.

If Corporations Are People, Then I Am an Egyptian Burrowing Dung Beetle

Having spent the bulk of my career working for successively larger corporations,  culminating in a number of years at a $20 billion Fortune 500 automotive supplier, I can say without hesitation that corporations, within the very nucleobase of their soul-less DNA, are far worse than anything forged in Gehenna’s pits.  One presumes that Satan operates from the perspective of solid, old-school malevolence with which anyone who has ever wasted an afternoon at the Secretary of State trying to renew a driver’s license can commiserate.  Corporations feel no such malice—they destroy with disaffection, ravish with impunity, downsize without regard for those they displace and gobble up competing concerns regardless of whether or not they’re hungry.

My groupies.

‘Hostile’ takeover is a misnomer, of course: Hostility has nothing to do with it—that’s too human an emotion.  Corporate growth is fueled by perfunctory opportunism that’s duplicated in the natural world everywhere you look—from the SARS virus to cellular parasites to galaxies devouring one another in distant space.

And as you know, public corporations are beholden to their shareholders, and must by law put profit ahead of every other interest—including those of humanity.

Hence, Monsanto, Peabody Energy, ConAgra Foods and Archer Daniels Midland.

Speaking of the Wine Industry Financial Symposium 2012…

Said symposium was held Sept 24 and 25 in Napa, and from what I can tell from written accounts, it was two days of masturbatory, self-congratulatory back-pats due to what Wine & Vines magazine refers to as ‘the recovering health of the wine industry.’

Wine & Vines—a monthly directory and news magazine founded in 1919—goes on to suggest that symposium participation itself is indicative of the upturn in the eno economy, with 330 lenders, growers, wine companies and suppliers in attendance—up from 260 last year.

In fact, W & V expresses surprise that more wine executives didn’t attend ‘to gain valuable insights and rub elbows with bankers and other lenders who could make the difference between success and distress sales of their businesses’.

Well, like you, I’ve known my share of bankers, and from what I remember, if you need a quick cash infusion to save an already-failing business, it isn’t their shoulders that you’re gonna have to rub.

David is Goliath

But, symposium founder David Freed is canny enough to know this.  He refers to himself a ‘vineyard executive’—an oxymoronic-sounding title if ever there was one—and has been running this show for 21 years: In drinking terms, that means that 2012 is the year it finally comes of age.

All the feel-good chuffery oozing through the room was consolidated into concise sound-bite sludge by Robert Smiley from the University of California, Davis, Graduate School of Management, who said, “These are the most positive results I’ve seen for years!”

Resorting to Nadsat, our lingua futura, those double-plus ultra-horrorshow results were summarized in part by John Gillespie of Wine Opinions, whose research has found that in 2012,  25% of adult consumers in the United States are ‘core’ wine drinkers and 19% are marginal wine drinkers.

‘Core’ wine consumers account for 91% of wine sales, and include high-frequency drinkers, high-end buyers who tend to spend between $1000 and $5000 on wine annually, with a smaller percentage (7%) spending more than ten thousand dollars on wine every year.

Headwinds, Tailwinds and Windbags

Danny Brager of the Nielsen Co.

Whenever you get a bunch of financial people together to shoot the breeze, plenty of hot air there tends to be.  And you know that in the course of the blabberation, buzzwords will fly even thicker than horsepucky:  Brand momentum, seamless integration, rightshoring, yadda, yadda, yadda…

And indeed, the focus of the presentation made by Danny Brager of Nielsen Company, that revered information/measurement company who knows more about you than your mother does, was the ‘headwinds’ and ‘tailwinds’ that the wine business faces in upcoming months.

For those unused to the clutter of corporate cackle, ‘headwinds’ are industry obstacles (‘opportunities’, please!) while ‘tailwinds’ are the economic indicators that promise to push sales up to the next dollarsphere.  Examples of the former were given by Mr. Brager as ‘fragile consumer confidence’, margin erosion with rising costs and stagnant prices—the usual bear market bugbears.  Tailwinds, however, received more upbeat lip service: Growing on-premise sales, the impact of millennials, who have apparently traded in Snooki for Sonoma and e-commerce, reporting direct-to-consumer shipments of $1.4 billion last year, up 10% from the year before.

In the main, pretty good news for folks in the wine biz, right?

And Now For The Bad News…

So, let’s suppose that this upcoming Black Friday is the single biggest day for retail sales in the history of man’s reign on earth; that every record ever set will henceforth be smashed to smithereens.  You’ll be dancing in the streets, right?  Celebrating the revived economy?

Then suppose you read that  most of this hard-earned, easily spent cash went not necessarily to strengthen Middle America, but to further line the already silk-skirted pockets of the Walton clan—heirs to that Baal-busting, big-box behemoth who have a combined net worth of $102 billion, more than that of the bottom 30% of all American families combined.  Which it probably will.  Then, not so much street-level jubilation perhaps?  I mean, as mom ‘n’ pop—your mom ‘n’ pop possibly, continue to shutter up their shops by the tens of thousands, unable to compete with the avaricious archfiend from Arkansas?

Diablo in a Double Magnum?

L. to R.: Gallo, TWG, Constellation

Now, I would not dare compare the genuine winners celebrated at the Wine Industry Financial Symposium 2012 with Diabolus, King of Hell or Mephistopheles, Prince of Darkness—that would be inaccurate, unprofessional and rude.

More like Cerberus, the three-headed dog who guards the gates to the Underworld.

Because, on a massive base of 100 million cases, half of the wine industry’s growth last year was divided between three distribution companies:  Gallo, The Wine Group and Constellation.

Figure that another 50 million cases wound up billowing the billfolds of the next five biggest industry players—Trinchero, Bronco, Treasury, Delicato and Kendall-Jackson—with a 3.5% sales growth, and third-tier biggies Don Sebastiani, J. Lohr, Bogle, Charles Krug, Diageo’s Beaulieu and Sterling, Korbel and Fetzer picking up most of the rest.

Not much gravy left to slather over the small guys, is there?

…Though during his speech before the symposium, David Freed—a former tax attorney who currently chairs the vineyard investment trust Silverado Properties Partners—sort of sounds that your average boutique winery should be groveling, groupie-like and grateful for whatever crumbs they are able to extract from the sweepings:

“Domestic wine producers are increasingly splitting into two segments: the top 16 to 20 who are good at building brands and producing efficiently in volume, and the rest, who exist in the luxury space…”

Luxury space?  Maybe I am misreading his sentiment; if so, I would be groveling, groupie-like and grateful if somebody would explain to me what he does mean.

The Big Three: Building Brands and Producing Great Pustulating Wads of Cash…

Constellation’s compendium of class ‘n’ crap.

Let you think otherwise, I am not suggesting that a comparison between, say, Constellation and Wal-Mart is in order.  The Victor, New York-based Constellation may have a thirst for profit as unquenchable as the most out-of-control street dypso has for Wild Irish Rose or MD2020—Constellation’s pair of fountainhead brands—but as far as I know, they have not single-handedly undermined the American middle class nor driven a growing share of the labor force into working poverty.

That’s Wal-Mart territory.

The Constellation Vision Statement is: ‘To elevate life with every glass raised,’ and although we all know that ‘life’ is a tongue-in-cheek euphemism for ‘the bottom line’, it beats the hell out of Wal-Mart’s Vision Statement:  ‘To eviscerate the traditions of rank-and-file labor—especially union wage workers—with every cheap Guangdong gee-gaw commissioned.’

However, Constellation, whose premium brands include Inniskillin, Mt. Veeder Winery, Ravenswood and Hogue (along with bulk production cash cows Cribari and Vendange) has, since its founding in 1945, moved like a humongous Hoover through the corkscrew cosmos, inhaling winery after winery until they became the world’s largest wine company, owning—in the United States alone—a quarter of the top selling wine brands.  Stir in Constellation’s equally edacious diversification into booze (Black Velvet, McMaster’s) and beer (July’s $1.85 billion purchase of Crown) and to the 6000 or so boutique Davids in America trying to outrun distribution regulations, fruit shortages, cash flow nightmares and licensing hiccups and the conglomerate must make Goliath look like Matt Roloff on Oxycontin.

That’s not meant to be a burn on Constellation’s all-American acquisition acumen, either:  The Wine Group is just as bad.  Borne upon the wings of Franzia—those bag-in-the-box buffoons whose 5 liter sacks-o’-spume play a key role in college drinking games like ‘Slap The Baby’ and ‘Tour de Franzia’ and, of course, infamous, not-soon-to-become-an-Olympic-sport ‘Butt-Chugging’ (the rules are self-explanatory), which in September, at the University of Tennessee, saw Pi Kappa Alpha member Alexander P. Broughton hospitalized with a blood alcohol level of 0.45%.

The Wine Group has not been as diligent as Constellation in balancing their wine portfolio between crackerjack and crapola products, choosing to focus more heavily on Piggly Wiggly profit procreating plonk like Corbett Canyon, Paul Masson, Mogen David and Almaden.  And of course there is Cupcake, the multi-national winery which intends to be all things to all people—except those who know wine from bulk-produced, personality-free, alcohol-flavored grape juice.

Hallowed Gallo

Wedged between Constellation and TWG is E.&J. Gallo, the most recognized wine producer in the country—it has seen its share of troubled times, of course, but tends to emerge victorious, having captured adult America’s heart as the wine of their youth:  Boone’s Farm, Night Train, Thunderbird, and for very special occasions, André peach-flavored California champagne.

Despite the fact that Ernest and Julio sued their own brother for trademark disputes in 1986, and then pulled a cease-and-desist order on some other Gallos for selling ‘Gallo Pasta’ in the United States even though that was their name, the company website creams all over the ‘family’ angle, claiming, like good Italians everywhere, that family is the cornerstone to continued worldwide success.

And when you consider it, Michael Corleone did take his big brother fishing before having him shot.

Which probably explains why they rejected my non-family-friendly entry to the ‘Find Gallo A New Slogan’ contest earlier this year:

‘Gallows are for hanging.  Gallo is for hanging out.’

And That’s the Way It Is…

Apologies if I am coming across as hysterical mass media left-wing hippie who hates capitalism, hates profit, hates America.  Not so.  Actually, it wouldn’t occur to me to say that bloated corporate moguls like Robert Sands (Constellation), David Kent (The Wine Group) and Joseph Gallo haven’t earned every nickel they have through hard work, superior insights and innovative business practices.

I might think it, but I would never say it.

After all, it’s no real secret that 60% of the income listed in the Forbes 400 comes from capital gains, and a lot more of it comes from other forms of deregulatory subterfuge.  Even so, even if wine’s Big Three maintain the highest standards imposed by a free market, their avarice—perfectly legal, however distasteful—remains unabated, unsurfeited, unsatisfiable. The overriding theory, of course, as taught by classical school markets in the 18th century, is that growth is the one and only business imperative; growth is evolution and forward momentum can absorb financial setbacks, keep brands vital and force companies to properly manage product portfolios.

At the wine symposium, Constellation CEO David Kent announced that his conglomerate was currently in the process of launching fifty new brands.  That’s five zero, droogies.

Now, I think you can assume with some certainty that in the midst of unsound financial times, even with banks—having learned the downside of foreclosures—trying to work with struggling wineries, that in the time required for Constellation to choose, purchase, insufflate and wrap up their brand-new brands with an economies-of-scale ribbon, fifty boutique wineries will have been put on the market like San Marcos Creek Vineyard, or simply gone belly up.  And, without question, a lot of the failures are self-perpetuating: The wine business is tough, and the dreams and romance of owning a vineyard is frequently unaccompanied by carefully considered and implemented business strategies.

Welcome to the jungle, kids.

Corporations Are People, Alright—And I’m Looking For a Pile of Shit to Live In…

Mitt Romney

Since 1819, in the case of Trustees of Dartmouth College v. Woodward – 17 U.S. 518, the U.S. Supreme Court has recognized corporations as having the same rights as natural persons to contract and to enforce contracts.  Like people, they can sue and be sued.

All this ‘corporate personhood’ balderdash didn’t start with Mitt Romney, you know.

So sayeth the Chief Justices of the United States:  Corporations are people.

Unfortunately, a lot of these people are named Gordon Gekko.

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One Response to Wine World Wins And Woes: The Rich Get Richer And The Poor Get Boutiquier

  1. Pingback: ‘Is The Wine Writing World Out Of Touch?’ Touch THIS, Tree Boy… |

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