Great Fermentations

Is Prohibition Finally Ending in New Jersey…80 Years Later?

News broke this week that New Jersey has issued its first new Distillery License since the end of Prohibition, nearly 80 years ago.  Given that Prohibition started in 1920, and no license were issued during that time, this would have to be the first license issued by the Great State of New Jersey in over 90 years.  Fairfield based Jersey Artisan Distilling was the lucky recipient and plans to produce a full spectrum of spirits, including rum, gin, vodka, bourbon and whiskey.  My reaction?  It’s about friggin’ time!!!

As I recently wrote, it appears that just about every state in the union has been enjoying the numerous benefits of the craft spirits boom, which include not only more consumer choice but also benefits to the local economy as the craft distillers need to buy high quality, often locally sourced, raw materials, hire employees to help run the business, and of course pay the related taxes.  The notable exception was New Jersey which, for nearly 100 years, as had one, and only one, licensed distillery…Laird & Company.  Laird’s claim to fame is to be the oldest licensed distillery in the country and being the country’s only remaining producer of Applejack.

Given New Jersey’s history in this category, I couldn’t help but re-read at least a few times the New Jersey ABC Director’s comments related to this license as listed in the New Jersey Newsroom story, stating that the issuance of this license is “further proof that the growing craft liquor manufacturing industry has a home in New Jersey.”  Does issuing a single license in over 90 years really qualify New Jersey as a “home”?  And the quote “We are excited by the growth of the locally-influenced, craft alcoholic beverage businesses that are expanding in New Jersey.” is also interesting.  Why does he use the plural term “businesses”?  There is only one licensed craft spirits business in New Jersey and, since they were only issued a license this week, I doubt they have yet produced and sold (at least legally) a single bottle of product. 

To the State’s credit, there has been a bill introduced in the New Jersey Assembly to provide for a cheaper “Craft Distilling”  license, but that license is so poorly crafted that I don’t really see it having a material impact.  The fatal flaw is that the license requires that at least 51% of the raw materials come from within New Jersey.  While New Jersey produces plenty of corn, so producing Bourbon would not be an issue, the state is not really known for its wheat, rye, barley, or potato production and it does not produce a single stick of sugar cane.  So making rum would be completely out of the question and producing a full range of Whiskey, Rye, or Vodka would be difficult.  I think that pretty much eliminates most of the most popular craft spirits these days.  I pointed this issue out to a staff member of the bill’s sponsor, but haven’t received much of a response. 

My old Statistics Professor, Professor McCardle, warned us that “a single observation does not a trend make”, so I’m a bit hesitant to get too excited about this long overdue development.  However, Jersey Artisan Distilling is not the only business that is trying to bring New Jersey out of the dark ages.  Cooper River Distillers has been trying for years to get a distilling license.  If that comes through in the near future, then maybe this really is a trend and New Jersey can legitimately start callkng itself a “home” to craft distilling. 

Did Beam Inc. Dilute Maker’s Mark in Preparation for a Sale?

Everyone knows that, when you have a product that is so popular that you can’t keep up with demand, the best thing to do is change the product, right? Wrong…unless perhaps you are trying to boost near term profitability so you can sell the company at a higher price in the near future.

Bourbon Blog broke the news recently that Maker’s Mark is going to dilute its product by 6.6%, lowering the ABV from 45% to 42%, effective immediately.  I have been a Maker’s Mark drinker for years and one of my favorite indulgences is a Maker’s Mark Manhattan. As such, this announcement comes as a major disappointment and I had to wonder not only “why”, but “why now”?

The company’s stated reason for changing its product is to assuage concerns among its “Ambassadors” that they were having difficulty finding Maker’s Mark in their local stores.  Out of the goodness of their hearts, they are going to dilute the product so that they can satisfy the thirsty masses.  This tale ringed hollow to me.  Maybe I’m just lucky, but I for one have never had a problem finding Maker’s Mark in just about any liquor store I have ever walked into. 

I suspect the true reason behind the decision was purely profit driven and was done now to help “prep” the company for a possible sale.  Takeovers are generally valued at either a multiple of the company’s cash flow or a substantial (20%+) premium to the company’s then current stock price.  Both of those, in turn are generally driven by the company’s profitability.  In the Mergers & Acquisitions world, one of the oldest tricks in the books is to cut investment, cut spending and do whatever you can to boost sales in an attempt to boost near term profitability.  This enables the seller to say to the buyer, who may not know what has been going on behind the scenes, “look how profitable we are!” and argue for a higher purchase price.  Who cares about the long-term impact…the current owners and management won’t be there in the long term.

Rumors have been building that Beam Inc., the owner of the Maker’s Mark brand, is a potential takeover target. I can envision a finance guy sitting at a desk somewhere, playing with his spreadsheet model, figuring out that by diluting the Bourbon, they could produce and sell more product at basically zero marginal cost.  As such, the incremental sales from the additional volume would basically go straight to the bottom line.  By diluting Maker’s Mark to jack-up sales and profits, Beam Inc. has the potential to boost the stock price, thereby increasing the potential payout if and when the company is sold. 

To put this into perspective, based on research analyst estimates, Beam sells about 1.1 million cases of Maker’s Mark every year at about $190/case, net of excise taxes.  Diluting the product instantly creates an additional 74,000 cases of product to sell with almost zero marginal cost.  That means that every dollar generated by these incremental sales falls directly to the bottom line.  In this case, we are talking about $14 million.  With a P/E multiple of 24x, that’s $336 million of market capitalization generated out of thin air.  Assuming the production of Maker’s Mark will continue to grow over the years which, based on their recent investments in the business is a safe assumption, the impact that this “watering down” will have on profitability and valuation will only increase over time.

The whole reason the craft beer and craft spirits markets are booming is that the big boys have taken their eyes off the ball and are focusing more on profits than quality.  For an example one need only to look at how effectively AB InBev (a.k.a Budweiser) has destroyed several of its brands.  However, despite the noticeable decrease in quality and consumer satisfaction, InBev’s stock price has been on a tear.  I suspect the folks at Beam Inc. took notice of InBev’s “success” and decided to follow suit.  While the first move was to dilute the product, one must wonder if the second move will be to use cheaper ingredients.   

Craft distillers know that they can fill the void that was created by this trend and satisfy the consumer who is looking for quality over quantity.  At one time, Maker’s Mark was viewed as a quality product, one that could compete head-to-head with the best bourbon in the market.  Thankfully, with the growth in the craft beer and craft spirits markets, the consumer now has more choices than ever and can quickly and easily vote with his or her wallet.  

The Limitations of Social Media in a Regulated, Three-Tiered Market

(Alternative Title: The View from the Other Side of the Tweet)

I am an avid wine consumer.  I follow over 100 other people who have an active interest in wine or the wine business on Twitter, am part of a wine specific group on Facebook, and “like” numerous wine porducer’s/retailer’s Facebook pages.  Despite all of this, I can count on one hand the number of times I have purchased a wine primarily due to social media factors. 

To say that there is an ongoing and heated debate with regards to the effectiveness of Social Media in the wine business would be an understatement.  Every now and then, someone writes a blog or an article questioning how effective social media really is in the retail wine market, as Steve Heimoff has done here and again here, only to be met by a “spirited” resistance from the die-hard social media disciples, many of whom are trying to make a living in this arena, who call him a dinosaur and cite all sorts of anecdotal evidence indicating that social media is THE future.

The problem with social media as it applies to the wine and spirits industry is that the regulations and three-tier system which govern the industry either render the social media efforts moot in certain states or very expensive to work around in others.  It doesn’t matter how much of a personal connection you are able to make with a potential customer, if the person on the other end of your Twitter feed and/or Facebook page either can’t buy your products or finds them prohibitively expensive due to the lack of local distribution, it just doesn’t matter.  As such, it strikes me that  that social media for wine and spirits producers should be viewed as a long-term relationship building channel, not an effective direct sales channel.

The Small Producer
Having an effective social media campaign is particularly important for the small producer.  Gallo, Mondavi and Yellow Tail have the financial backing, entry level price points, and production volume to be able to push their distributors and build brand awareness through the traditional channels (though it appears that Yellow Tail’s financial situation may be in jeopardy). The small producer, however, is relying on the quality of his product being spread via word-of-mouth and/or high scores from one of a handful of influential critics (though, even if they do get a high critic’s score, with the recent trend of “grade inflation”, 92 points and $5.00 will get you a coffee at Starbucks).  While the small producer may not be able to directly influence the critics score, he can effectively jack-up the word-of-mouth process with social media steroids.

Distribution
The problem is, even for wine and spirits producers who use social media channels extremely effectively, there are still material barriers between them and their end customer.  As a result of the three-tier system in place throughout most of the country, for a producer in California to be able to sell to a customer in New Jersey, the producer needs a distributor to represent and distribute the brand in New Jersey. Unfortunately, the distribution industry has become increasingly concentrated and unless you present the prospect of moving hundreds of cases of wine for any given distributor, you quickly become an afterthought.  For a winery that only produces a few thousand cases in total, to be able to get multiple distributors throughout the country to support their brand is an incredible challenge.

Direct Shipping
But what about direct shipping, you say?  Yes, it is true that the laws prohibiting direct shipping from the producer to the consumer have eased over the past few years.  But the key word here is “shipping” which, when done by the case rather than the palate, can become prohibitively expensive.  This is exacerbated by the fact that most producers, when selling direct to the consumer, still charge the full retail price, even though they have cut out the middle man.  As a result, buying direct from the producer often involves buying at a significant premium.

For example, I absolutely love St. George Spirits and they do a great job with their social media campaign.   I follow them on Facebook and Twitter, I have met the founder, I have visited the distillery, and I even wrote a case study about the business for my WSET Diploma course.  To say that I have personally ”bought in” to the brand is an understatement.  If I could, I would buy at least one bottle of every spirit that they produce.  But I can’t.  St. George Spirits does not have distribution in New Jersey and, while there are some options to buy certain products via mail order, having a few bottles of bourbon shipped across the country is prohibitively expensive.  Are St. George Spirits social media efforts wasted on me?  I guess not completely, as I still get my mom and/or step father to bring out a bottle of their whiskey or bourbon when they visit from Berkeley, but its primarily just a taunt, letting me know what they produce that I can’t have.  Sort of like my 5 year old son waving a toy in front of my 2 year old daughter. 

As another example, Craig Camp at Cornerstone Cellars has done a great job in utilizing social media and it is solely because of these efforts that I am aware of his brands.  However, Cornerstone’s distribution in New Jersey is extremely limited, so my only real opportunity to try his wine would be to buy direct.  If I decide to buy only 3 or 4 bottles, the shipping cost will add 20% to the purchase price of each bottle.  That’s difficult to rationalize.  I can reduce the shipping cost per bottle impact buy buying a case, but then I’m talking about a $600+ purchase for a wine that I have never even tried.  That’s a big nut for a first time purchase for most consumers and one that is even more difficult to rationalize in such a crowded, competitive marketplace.

As a result of this dynamic, I have limited my direct/mailing list purchased to only a handful of cases a year.  In those situations where I do buy direct, I tend to stick with the labels that I know and with which I have a personal connection.  Even then, I have to rationalize it as a well deserved treat to myself.  I buy a case or two every year from Failla because I have been there several times, I met Ehren Jordan (though I’m sure he doesn’t remember it!) and I love the wines.  I buy from Larkmead because my wife and I visited the vineyard years ago, we love the wine, and the people there were incredibly hospitable to us and our then 1 year old son who was getting cranky after a long, hot car ride.  I’ll say right now, neither of them have a particularly active or effective social media platform, though I have used Twitter to communicate directly with them on rare occasions.  I used to buy direct from a few other places, but decided to cut back, primarily due to the shipping costs.

Plan to Communicate, Don’t Plan to Sell
Given the difficulties of selling wine and/or spirits to consumers, maybe it’s not surprising that, according to Silicon Valley Bank, a large proportion of small producers view social media as something less than useful. So what’s a producer to do?  On one hand, you would be foolish not to utilize social media channels as much as possible.  It is a relatively inexpensive, highly targeted way to build brand awareness.  That said, it does have its limitations and you would be equally foolish to believe that an effective social media campaign is all that you need to sell your product.  Rather, social media appears to me to be only one arrow out of a larger quiver of marketing tools and, rather than being viewed as a tool for selling, should be viewed as a tool for communicating.  Eventually, that communication will help to build brand awareness and that brand awareness will eventually lead to sales.  But to treat, expect, and view social media as the technologically evolved child of direct mailing would be a mistake that leads to unrealistic expectations.   

The Captain Was Here…Tax Free! The Puerto Rico and USVI Rum Subsidy.

Diageo is a global wine and spirits company which owns numerous well known and successful brands, such as Johnny Walker, Bushmills, Tanqueray, Guiness, Smirnoff, and Jose Cuervo.  The company generates over $17 billion in sales with over $5 billion in net profits and over $2.5 billion in free cash flow.　 So it only makes sense that the company get a tax subsidy to support one of its more popular brands, Captain Morgan Rum.

In case you haven’t heard, the recently negotiated “Fiscal Cliff” deal included the continuation of a Rum Excise Tax “Cover-Over” which has been in place in one form or another for nearly 100 years.  According to a report published by the Congressional Research Service (http://www.hsdl.org/?view&did=719414 ) the original scheme was put in place in 1917 as part of the Jones Act whereby taxes levied by the United States Government on rum that was imported from Puerto Rico would be returned, or “covered over” to Puerto Rico.　 This was then extended to include the United States Virgin Islands in 1954.

The rationally for the deal was that it was only “just and fair” that Puerto Rico should receive the taxes collected on its products.  As faulty as it might have been (does Hawaii get all of the taxes collected on pineapple sales?) there was a certain logic to it.  However, any sense of logic or fairness was completely thrown out the window in 1983, when the law was revised to cover-over to Puerto Rico and the USVI all taxes on ALL imported rum, regardless of origin.  As such, taxes levied Appleton Rum, imported from Jamaica, or El Dorado Rum, imported from Guyana, would be sent to Puerto Rico or the USVI (allocated based on their pro-rata share of the United States rum market).

In 2009, Puerto Rico received nearly $369 million in revenue from taxes on its domestic rum production and nearly $63 million from taxes on foreign rum production due to this scheme.  The USVI received nearly $107 million from domestic production and $8.6 million from foreign production.  Since 1994, Puerto Rico has received $5 billion and the USVI $1 billion.

Perhaps the most brazen exploitation of this tax scheme occurred in 2010, when Diageo　basically played-off Puerto Rico and the USVI against each other to land what can only be described as a sweetheart deal to produce Captain Morgan Rum in the USVI.  According to the New York Times (http://www.nytimes.com/2010/10/16/business/16rum.html?pagewanted=all&_r=2&) as a result of the deal Diageo gets “a new plant built at taxpayer expense, exemption from all property and gross receipt taxes for the for the length of the deal, a 90 percent reduction in corporate taxes, plus marketing support and production incentives totaling tens of millions a year.” For its part, Diageo has agreed to maintain production at the USVI for at least 30 years.  What was a win for the USVI was a loss for Puerto Rico as the “carry-over” tax subsidies that go along with the production of Captain Morgan Rum will now go to the USVI instead of Puerto Rico.

Once the governments of Puerto Rico or the USVI receive the money, there is no provisions on how it must be used.  Both countries have used substantial amounts to promote their respective rum industries (i.e. subsidize the producers) as well as build infrastructure that directly benefits the producers.  For example, Cruzan rum received direct subsidies from the USVI government of over $21 million in 2009 in the form of general rum promotion ($2.1 million), marketing support ($3.9 million), and subsidies on molasses ($15.3 million), which is the base material for rum production.

So the next time you see one of those “The Captain Was Here” advertisements, just remember, you helped pay for his trip.

Chateau Latour vs. Chateau Dauzac - Different Taster, or Different Method?

Chateau Latour is one of the original four First Growths of the 1855 Bordeaux Classification (there are five today, with Mouton-Rothschild elevated from a Second Growth in 1973).  This is the wine that Thomas Jefferson used to drink in the 1700s and set records for auction prices, with a single case of the 1961 vintage selling for $150,000 in 2011.  That’s $12,500 a bottle, or roughly $2,500 a glass.  Robert Parker gave the 2009 Latour a perfect 100 point score and a single bottle goes for around $2,000 today. By contrast, Chateau Dauzac is a lowly Fifth Growth classified wine which typically sells for around $50 a bottle and rarely, if ever, shows up at wine auctions.  So imagine my surprise when I saw that Decanter, in its December, 2012, issue, rated Chateau Dauzac significantly higher than Chateau Latour.  How could that be possible?!    

The Scores
To say that Chateau Latour is a “First Growth” is to say that it has an incredibly long and storied history.  As far back as 1855, this estate’s red wines were viewed as among the top 4 (now 5) in all of France, if not the world.  When awarding the 2009 vintage with the perfect 100 point score, Robert Parker commented that the wine “hits the palate with a thundering concoction of thick, juicy blue and black fruits, lead pencil shavings and a chalky minerality…this is one of the most remarkable young wines I have ever tasted.”  In addition “The 2009 Latour has off the charts concentration… A monumental wine from a monumental vintage in the Medoc, this is our children’s children’s children’s elixir.”

The 2009 Chateau Dauzac, however, received “only” a 92 point score from Parker.  The comments were fairly straight forward with the only superlative being “this 2009 is full-throttle, dense and super-concentrated. It is an amazing Dauzac.”

By contrast, Decanter gave the 2009 Latour a “90+” score with relatively straightforward comments such as “Very good…Rich and quite dense…Persistent and long, with an assured and complex future”.  At the same time, they gave the 2009 Dauzac a 95+, saying that the wine was “very rich yet lifted…real intensity and flair…irresistible energy and an long, graceful finish of mocha and black fruits.”.

The Taster(s) 
While Robert Parker works with a number of highly respected wine critics, each of whom is responsible for covering a certain region or regions, the review of the 2009 Chateau Latour is his and his alone.  He has a great palate, no doubt, but it is only one palate and no one else provided input or a second opinion.   By contrast, Decanter utilized a panel of 3 experienced wine tasters who are considered authorities in the category of wine being tasted.  While each taster evaluates each wine on his/her own, the three compare notes at the end of the tasting.  In the event that there were material discrepancies among the panel members on any particular wine, they will re-taste that one wine, just to make sure that someone wasn’t missing something or otherwise thrown off on that particular wine. 

The Location
When Robert Parker tasted the 2009 Latour, he did so at the actual Latour estate in Bordaux. There was nothing blind about it.  He knew exactly what he was tasting and the wine’s storied history and sterling reputation were front and center if not even amplified by the impressive and opulent setting.  On top of that, as he said himself on his web site, the weather was great and he was in a good mood through much of his Bordeaux tour.  Could any of this have had an impact on his score?  Ever find an amazing wine or have an amazing meal in a beautiful setting when you were on vacation that could not quite be replicated at home?  Everything tastes better when you happy.

By contrast, the Decanter tastings are done blind and in a controlled, neutral environment at Decanter’s “tasting suite” in the UK. 

Who is “Right”
Of course, wine preference is subjective and there is no “right answer” here.  If you like Zinfandel and I like Pinot Noir, we are never really going to see eye-to-eye.  That said, these are two of the most highly respected, professional wine critics/publications in the world.  While palates may differ, they are supposed to be able to set their personal preferences aside and provide a professional and objective evaluation. 

Personally, I believe that where you taste, how you taste, with whom you taste, and your prior knowledge about what you are tasting will have an impact on your perceived quality of that wine.  I’m sure all of the top Chateaus go to great lengths to make sure that the most influential critics are comfortable while visiting and are reminded of the Chateau’s prominent history and sterling reputation.  As such, I can’t help but wonder how much of the First Growth’s hold on the premium end of the Bordeaux wine market, both in terms of prices and scores, is the result of legacy and history rather than true present day quality.  But what is most important is that I’m pretty excited to find what may actually be a great Bordeaux at a price that mere mortals can afford!

The Wine Advocate: Betting on Asia and Losing Itself In The Process?

As someone who has worked for decades in the world of finance and who has seen numerous businesses bought and sold, some of which have worked out great and some not so great, I’m seeing all sorts of red flags with today’s announcement regarding the changes at The Wine Advocate.  The new deal seems intent on expanding into the Asian market, which makes a ton of sense.  However, the way it is being done and handled appears to be placing its core reader base and wine reviewing talent at risk.

Just in case you haven’t heard, Robert Parker has announced that he intends to step down as the Editor and Chief of The Wine Advocate and hand the reigns over to a group of “three 30-early 40ish highly qualified business and technology people and enthusiastic wine lovers” in Singapore, with Lisa Perrotti-Brown MW as the new Editor-in-Chief.  Parker insists that he is not retiring and will continue as the publication’s CEO and Chairman and will review wines from Bordeaux and the Rhone.  Ms. Perrotti-Brown has indicated that they will be opening an office in Singapore and hiring a new correspondent to cover wines produced in China, Thailand and other Asian countries.  In addition, the current “correspondents” will become full time employees so that the editors can have more control over their reviews and actions.  Finally, the print version of the publication will be phased out and they will start to accept advertising.

Advertising – Who Cares?
Much has been made of the last point, given how critical Mr. Parker has been of other wine publications that accept advertising, including Decanter (http://www.decanter.com/news/wine-news/530696/robert-parker-steps-down-as-wine-advocate-editor-in-chief).  The rationale here is that The Wine Advocate will still not accept advertising from wine producers, thereby maintaining its independence and impartiality.  Personally, I think this is a tempest in a teapot.  Everyone accepts advertising and this was low hanging fruit for the new investors.

To me, the biggest issues revolve around the new focus on Asia and the conversion of the correspondents to full time employees.  More than 80% of The Wine Advocates current subscribers are American. While I can see the clear rationale of expanding the subscriber base to include the fast growing Asian wine market, it strikes me that the way this is being done is placing the current content talent and subscriber base at risk. 

Are Chinese Wines Really Worthy of a WA Rating…Yet?
As Felix Salmon correctly points out (http://blogs.reuters.com/felix-salmon/2012/12/10/the-robert-parker-bombshell/), how are they going to rate and review wines made in China or Thailand?  While China may someday produce some world class wines, I have yet to hear anyone claim that those wines exist today.  Have you ever seen a published wine review with a score of 75?  I have not.  Most critics simply don’t see the point in publishing a review that is so negative.  So, in an attempt to cater to the Asian market, I’m wondering if The Wine Advocate has painted itself into a corner and be forced to either: (1) publish reviews for wines with lousy scores or, (2) lose credibility by publishing reviews with good scores for wines that are not that good.

Antonio Galloni and Neil Martin are Expendable?!
What really shocked me, however, is the risk that The Wine Advocate runs of losing some of its best talent.  I have never met, Antonio Galloni, Neil Martin, or David Schildknecht, but they are well known and highly respected wine critics in their own right.  There was a time with Robert Parker was The Wine Advocate and The Wine Advocate was Robert Parker. That day passed long, long ago.  When I look at a wine review, I’m not looking for “The Wine Advocate”.  I’m looking for the actual reviewer’s name.  After years of working somewhat autonomously, are these reviewers going to be willing to be shackled by the new “employee” relationship, whereby all of their writings and actions need to be reviewed, edited, and approved?  Does David Schildknecht really need (or want) Lisa Perrotti-Brown to approve of his reviews?  And, for her part, while Ms. Perrotti-Brown may know wine, she needs a lesson in public relations.  To tell the Wall Street Journal that you basically are not that concerned if your star talent leaves because “There is a plethora of good wine writers out there. It’s a buyer’s market,” is not starting things off on the right foot.  Everyone has an ego.  If you were Antonio, how would you react to this statement made in this context? With the internet and all of the tools that it provides, it would be incredibly easy for The Wine Advocate’s core talent group to head out on their own, or as a group, to start rival publications. 

I, for one, would follow them.

A Beer Match Made In Heaven?

The owner of Rock Ice beer is buying the owner of Genesee Cream Ale.  Never heard of Rock Ice?  Consider yourself lucky.  Esquire has named the beer one of the nine “Worst Beers On Earth” (http://www.esquire.com/features/drinking/worst-beer-051710#slide-3).  So, is this a match made in heaven?

KSP Capital Partners, a private equity fund based in New York which has owned North American Breweries since 2009, is selling the company to Cerveceria Cost Rica for $388 million.  $175 million of the purchase price is being financed through a syndicated term loan yielding around 8.0%.  The deal is expected to close by the end of the year (to get ahead of the tax rate increases that are expected to kick-in in January).

North American Breweries (http://www.nabreweries.com/about) owns a wide variety of brands, most of which I remember from my college days when the focus was firmly on quantity over quality.  These include such brews as Genesee, its sister, Genny Lite, Honey Brown Lager, and Dundee.  The company also has the rights to import and market in the United States the full line of Labatt beers, including Labatt Blue. To round out the field, and perhaps add a bit of flavor to the portfolio, North American Breweries has the Magic Hat and Pyramid craft beer labels.  For its part, it seems that Cerveceria Costa Rica has a beer portfolio of similar quality, including Cerveza Imperial, Pilsen, Bavaria Light, and the previously mentioned Rock Ice.

So, what is the logic for this acquisition?  Does Cerveceria plan to penetrate and grow into the US market with some old school brands?  While craft beer has been growing, the rest of the beer market has been contracting for several years.  And while North American Breweries may have Magic Hat and Pyramid, I wouldn’t say that those brands are exactly lighting the craft beer world on fire.  I suspect the real rationale is based on the resurgent Pabst Blue Ribbon brand and the trend towards nostalgia, blue collar beers.  Perhaps Cerveceria thinks that they can do the same thing with Genesee.  I have to admit, I have heard stories about Genesee now being served at hip Brooklyn bars.  That said, trends can often be short lived and it seems to me that the trend of drinking beer that just doesn’t taste very good lacks staying power.  Of course, if things don’t work out, then they can use the Genesee distribution system to introduce the American college student to Rock Ice.

The Barrel Aging Arms Race (a.k.a. The Bourbon Barrel Bubble)

In the world of whiskey, wood matters.  When the spirit initially comes out of the still, it is as clear as water and, though it will retain some characteristics from the base ingredients, it is relatively neutral in flavor and the alcohol is harsh.  The act of aging the whiskey in an oak barrel imparts not only color and allows the alcohol to mellow, but also has a huge impact on the flavor profile of the spirit, often adding flavors of vanilla, cinnamon, coconut, and cloves.  So the quality of the barrel and the type of wood that a producer uses is incredibly important.  Buffalo Trace has gone so far as to undergo an elaborate “Single Oak Project” (http://www.singleoakproject.com/) whereby they selected 96 specific trees from different areas to make 192 specific and unique barrels, each with different seasonings and char levels, in an attempt to derive the formula for the “perfect barrel”. That said, I’m starting to wonder if some producers are taking barrel ageing a bit too far.

The practice of aging one type alcoholic beverage in an old barrel which was previously used to age some other type of alcoholic beverage is nothing new.  Scotch Whisky producers have been finishing their spirits in old Oloroso or PX Sherry or Port casks for a long time.  In an attempt to add additional flavor profiles and complexity, after ten to fifteen years in one type of oak barrel, the whisky would be transferred to a barrel previously used to age Sherry or Port for a year or two.  In doing so, some of the nutty, toffee, and dried fruit flavor elements from the Sherry or rich, jammy, blackberry and black cherry flavor elements from the Port will be subtly imparted to the whisky. I have had many of these whiskies and, personally, I’m a big fan.

Barrel Finishing Arms Race
That said, it seems like there is now an arms race building to see who can come up with the most elaborate barrel aging concoction.  For example, Bushmills 21 year old Irish Single Malt was aged for 19 years in old Oloroso Sherry and Bourbon casks, then finished for 2 years in Madeira casks.  Per one of my previous write-ups, I loved this whiskey, so it seems to work.  Not to be outdone, Woodford Reserve has a new “Four Wood” whiskey which is finished in a combination of maple wood barrels, old Sherry barrels, and old Port Barrels.  But “Four Wood” is for sissies!  Dalmore has a “Six Wood”!  Per the company’s web site, the Dalmore King Alexander III Whisky is “matured in ex-bourbon casks, Matusalem oloroso sherry wood, Madeira barrels, Marsala casks, port pipes and Cabernet Sauvignon wine barriques”.  Do I hear “Eight Wood”?  How about “Ten Wood”?  Will someone go to…eleven?  Its as though the art of blending barrels has become just as important as the art of blending…and marketing…the whiskey.

Beyond Whiskey
Now the practice is expanding beyond using old Port or Sherry barrels (or both) to include barrels previously used to age Cognac, Madeira, Sauternes, or red wines.  And it is also expanding beyond whiskey into just about any area where any beverage may be aged for any period of time.  Del Maguey sold a mezcal that was finished for 43 days in old Cabernet Sauvignon barrels from the Stags Leap district in Napa Valley.  Excellia Tequila is finished in old Sauternes and Cognac barrels. And the number of craft beers that are experimenting with barrel ageing in old bourbon or other casks seems to be growing exponentially.  Just do a Google search for “bourbon aged beer” and you will find about 170,000 results.  Just to provide a few examples, Russian River Brewing utilizes a wide range of locally used wine barrels (http://russianriverbrewing.com/barrel-aged-beers/) and there are a wide range of bourbon barrel aged beers, such as Bourbon Barrel Aged Imperial Stout, from Schlafy, Kentucky Bourbon Barrel Ale, from Lexington Brewing, and Brandy Barrel Aged Belgian Trippel from Sierra Nevada.  There is even a festival and competition specifically for barrel aged beers (http://www.illinoisbeer.com/fobab/).

A Return to Purity –or- the “Perpetual Barrel”
While the barrels used for ageing in all of these products may add the desired complexity and flavors, one has to wonder, where does it end?  Is there a used barrel ageing bubble?  Is this a trend that will experience a backlash in the coming years as consumers start to get the impression that the producers are simply using barrels like too much makeup, to mask the quality of the underlying spirit or beer? Don’t forget, we saw something similar happen to California Chardonnay between the 1990s and 2000s.  Consumers got tired of the over-oaked, movie theater popcorn buttered wines and unoaked, or “naked”, Chardonnay became a hot trend.  I can see a movement developing at some point whereby a hard-core group of whisky, bourbon, tequila, beer consumers seek out “purity” in their respective products.  Personally, I’m looking for the “perpetual barrel”…one which starts life as a port barrel, then gets used to age Scotch Whisky, then for a craft beer, then to age Bourbon, then to age sherry, then back to age Scotch Whiskey, etc…

Is the Pope the World’s Greatest Wine Consumer?

Is the Pope a Lush?

The Wine Institute published country-by-country per capita wine consumption data, and the data is quite interesting.  At the top of the list?  The Vatican.  55 liters per person per year adds up to a lot of communion!  To be fair, the permanent population is probably a bit understated given the number of foreign dignitaries, priests, and cardinals that visit the city state on a regular basis.  And all of those visitors are probably treated to some nice dinners while they are there, so maybe we should all those “business trips”.  That said, check out the data for 2009.  Over 70 liters of wine consumed per person!  That’s more than 18% more than in any other country in any other year.  What was going on inside the Vatican walls in 2009?!

In second place is Norfolk Island. My reaction was probably the same as yours…“Where and what the heck is Norfolk Island?!”.   Turns out, its a small island off the east coast of Australia with a population of less than 2,000 people. Either there are a handful of big wine drinkers and collectors on the island or, like the Vatican, consumption is driven by foreign visitors (in this case, tourists on vacation).  I suspect the latter.

You then get into countries that don’t really have much of an excuse for their consumption statistics, other than the fact that they like wine.  And just to be clear, I think that’s a perfectly legitimate excuse! Luxembourg, France, and Italy round out the top five, at 52.46, 45.70, and 42.15 liters per capita, respectively.  Portugal is the only other country above the 40 liter mark, crossing the line at 41.81 liters per person.  There is a pretty steady decline from there but what surprises me was how far down the list the United States sits. 

The United States
At only 9.43 liters per person per year, the United States ranks 53^rd.  I knew we were behind the Europeans when it comes to wine consumption, but I didn’t know we were that far behind.  The average Italian drinks 3.5 times more wine than his American counterpart!  The good news is that consumption in the United States has been creeping up, from 8.96 liters per capita in 2007.

Other Points of Interest
Lowest Consumption: The bottom of the list is comprised primarily by Muslim dominated Middle Eastern and Asian countries, as well as some of the poorer African countries. 

North/South Korea: I guess Kim Jong Un is a teetotaller as North Korea is listed as having 0.00 consumption.  That said, their brothers to the south only consume 0.50 liters per person, so maybe the Koreans just don’t like wine.

China: Despite all of the press that China has been getting with regards to its new found thirst for wine, buying up all of the first growth Bordeaux and Grand Cru Burgundy wines and their neighboring vineyards, it seems that the actual consumption of wine is concentrated within a small, probably wealthy, percentage of the population.  Total consumption is only 0.69 liters per person.    

The link to the data: (http://www.wineinstitute.org/files/2010_Per_Capita_Wine_Consumption_by_Country.pdf )

A Champagne Primer for the Holidays

It’s that time of year, when people start popping corks rather than just pulling them.  Given that over 50% of sparkling wine and Champagne sales happen around the holidays¹⁾, most people don’t really pay any attention to the product for 10 months of the year and, as a result, don’t really know what they are dealing with the other 2 months.  So, here is a quick primer to help you get educated so you can show up that annoying, doesn’t really know it all wine snob at the next holiday party.

Where It’s Made

First and foremost, by law, for a sparkling wine to be labeled as “Champagne” it must come from the Champagne region in France.⁽²⁾ Everything else is just “Sparkling Wine”.  The Champagne region is one of the northernmost wine regions in Europe.  As a result, the spring and summer grape growing season is relatively cool and runs a significant risk of hail and frost damage.  In fact, due to frosts in April, hail in June, and too much rain at the wrong time, Champagne’s 2012 vintage is being viewed as one of the worst in decades.⁽³⁾  While the cool climate may make for risky vintages, it also produces grapes which are relatively high in acid and low in sugar, which is perfect for making crisp, light sparkling wine.

How It’s Made

The cool climate of Champagne also played an integral part in the whole history of sparkling wine.  While wine cellars in Champagne are climate controlled today, the production process is still based on the same principal.  The grape juice is fermented to create a base wine which is “dry” (i.e. no residual sugar).  That base wine is then bottled along with a small amount of a mixture of sugar and yeast.  While in the bottle, the yeast goes to work on the sugar, converting it to alcohol, and the resulting carbon dioxide dissolves into the wine, effectively carbonating it.  This is often referred to as the “second fermentation”.sparkling wine.  The region is cold enough that, back in the 1500’s, the wine would stop fermenting in the winter before all of the sugar had been converted into alcohol.  Then, once the temperatures started to rise again in the spring, the hibernating yeast would “wake up” and go back to work on the residual sugar.  Fermentation would start up again, the byproduct of which is Carbon Dioxide. If the building pressure from the Carbon Dioxide didn’t cause the bottle to explode, which it often did back in the day, it would get integrated into the wine, resulting in a sparkling wine.

What It’s Made Of

Only three grape varieties are allowed for the production of Champagne.  Chardonnay, Pinot Noir, and Pinot Meunier.  Of these three, you may notice that two are black (Pinot Noir and Pinot Meunier).  “But wait” you say, “my Champagne is almost always white.”  You can make white wine with black grapes, but you can’t make red wine from white grapes.  The color of a wine comes from the skins, not the juice itself.  In this case, they press the Pinot Noir and Pinot Meunier very gently to get the clear, free running juice and then ferment that juice without contact to the skins.

Blanc de Blanc: This is white (Blanc) Champagne which is made exclusively from white (Blanc) grapes. In other words, 100% Chardonnay.

Blanc de Noir: This is white (Blanc) Champagne which is made exclusively from black (Noir) grapes.  While the wine is technically “white”, Champagne which is made from at least some portion of Pinot Noir is usually a bit darker in color and richer in fruit than a pure Blanc de Blanc.

Rose: For this style, a small amount of red wine is added to the white base wine to create a rose colored Champagne.  Note that this is a very different process than that which is used in making premium rose still wine.

Vintage vs. Non-Vintage

You may have noticed that almost every bottle of regular wine you have ever purchased had a vintage year on the label.  By contrast, most Champagne does not.  What gives?  That is because most champagne is made from a blend from wines from numerous different vintages and numerous different vineyards. This Champagne will be labeled as “NV” for Non-Vintage. The goal is for the producer to be able to create a “house style” which is consistent year-in and year-out.  Kind of like a McDonald’s Big Mac…it should taste the same no matter when you buy it or where you buy it.  However, certain vintages are too good to pass up. In those years, producers will make Champagne with wine exclusively from that vintage.  In this case, you will see the vintage year prominently displayed on the label.

Drink or Age

Non-Vintage Champagne is not intended to be aged once it has been released to the consumer.  Buy the bottle, take it home, chill it for 30 minutes, then pop the cork and enjoy.  Vintage Champagne, however, is intended to have the complexity and intensity to age for decades.  In fact, most Vintage Champagne isn’t even released for sale to the consumer for many years after it has been produced.

Champagne Producers

A vast proportion of the Champagne which is produced comes from the big Champagne “Houses”.  These include the familiar names such as Möet & Chandon, Veuve Clicquot, 

Krug, and Bollenger. While these producers may own some vineyard land in the Champagne region, a majority of the wine they use come from grapes grown by smaller, independent growers.  Many of these producers also have multiple labels. For example, Veuve Clicquot has its famous “yellow label”, which is a non-vintage product and is kind of like the Budweiser of Champagnes.  They also have their vintage “Le Grande Dame” label, which is viewed as among the pinnacle of vintage Champagnes.  As a side note, many of the big Champagne Houses have expanded overseas and also own sparkling wine labels in other parts of the world.  For example, Möet & Chandon has Domain Chandon, in Napa Valley, and Louis Roederer has Roederer Estate in the Anderson Valley of California.

The alternative to the big Champagne Houses is “Grower” Champagne.  This is Champagne which is produced by the same person who actually grows the grapes that go into the Champagne.  Similar to an “Estate Bottled” regular wine.  Given their limited size and production, they tend to have minimal marketing budgets, if any, and as a result are often overlooked by most casual consumers during the holiday season.  However, you can find some great value and quality if you are willing to go down this path.  If you are not sure which Grower Champagne to buy and your local wine shop professional does not seem to be much help, look for the name Terry Theise on the back label.  He is a well known advocate and importer of quality Grower Champagne.

This is probably more than you ever needed, or wanted, to know about Champagne.  That said, with this information you will be well armed and should be able to at least hold your own against that annoying, snooty wine snob.  Finally, and most importantly, don’t wait until the holidays to drink Champagne or other sparkling wine. It should not be a wine opened only at celebrations! Experiment with some different styles and different producers throughout the year and you will feel infinitely more confident when choosing some bubbly to serve at your 2013 holiday party.

1)      http://www.winebusiness.com/wbm/?go=getArticle&dataId=47178  

2)      http://www.ttb.gov/wine/champagne-labeling.shtml

3)      http://www.decanter.com/news/wine-news/530360/champagne-growing-season-worst-in-decades