The value of a delicious wine - what is your WTP?

In exploring the food and wine culture in Los Angeles this weekend at one of Venice’s hot restaurants, Rose Café, I was struck by the question one of my dinner mates asked the in-house sommelier – what is the best value wine you have on the menu? Being the value-capturing, business school students that we are, we thought this question to be straight forward and to be interpreted as what was the cost conscious yet delicious white wine option on the menu. This was not how the sommelier interpreted the question though as the first wine suggestion he gave was one with a $110 price point that was not listed on the menu and was supposedly the last of its kind in the restaurant wine cellar.

Surely there was a large sales component that played out in this interaction but it did lead me to consider what value means in this industry. Should values in taste differ amongst low-priced versus high-priced wines? And in a restaurant scenario how does one confer their preferences without ending up with >$100 suggestions? What callouts on a menu might connote quality? Or, should one do what I’ve recently done and research the ratings of every wine that sounds remotely interesting before buying?

In an article by the HuffPo,  How to Order Wine at a Restaurant: Avoid Embarrassment, Save Money, and Pick Something Divine, Peterson details a couple quick tips that I’ll have to put into action next time I’m perusing the wine menu: 1) Don’t be afraid to go for the cheapest bottle on the list, 2) Avoid the house wine, and 3) Don’t fall into the anchoring effect which occurs when you see expensive wines listed and abandon the price point with which you’re comfortable.

On the ordering side, the most important things to convey to your server or sommelier

·      Red or white (or rose ;))

·      New World (fruit-forward) or Old World (earthy)

·      Body of the wine (light, medium or full)

·      Price point

Peterson suggests a conversation like this: “Hi there! I’d like to order a bottle of red wine to share for the table. We generally prefer medium-bodied new world wines that are nice and fruit-forward. Brian hates Pinot Noir (blasphemy!), but other than that we’re totally flexible. I am considering a bottle like this (point to price), but would love to hear your suggestions based on our preferences.”

After this bit of research I’m feeling more comfortable ordering my next bottle of wine while out. Any fun(ny) wine ordering stories out there? Any ordering tips not mentioned would also be very received! I’m trying to become a wine ordering master by end of quarter ;)

Why (can)'t we?

I was interested in a number of the the parallels between the wine and craft beer/spirits markets in class this week. The ability to mail products direct to consumer in the wine industry, while a bit painful, is a solution that developed when producers came together to contest the regulatory status quo. It was suggested by Tracey that she expects the craft beer and spirits industries to follow suit in the near future. As I was thinking about the interconnectedness of all these industries I started wondering if there are any trends that we'll see flow in the other direction?

The first one that came to mind was canned beverages. For a long time the craft beer industry was almost exclusively bottles, but within the last several years there has been a significant move to offering a canned option. There are many benefits to moving to canned, including lower transportation costs, ease of recycling, and a lower carbon footprint. Within the last year I've noticed canned options popping up at Trader Joe's, and I think there are some interesting benefits associated with canned wine. Opening a bottle of wine when you only want a single serving is a pain, especially if you don't know when you'll be able to drink the rest. With still wine there is an option to re-cork and consume it within a few days. Sparkling wines and Champagne go flat if you don't finish the bottle in one sitting - cans seem like a great solution! Cans also seems like an interesting way to try new wines without committing to a full bottle. I feel like there's a potential market for a canned product, but is there a stigma attached to drinking wine from a can? Is part of the experience opening the bottle, or do consumers associate luxury with wine and budget with cans?

A quick internet search suggests that the canned wine market has doubled each of the last two years. Is canned wine a fad, or is there potential staying power??

Wine and Cannabis: A Duo In the Making?

During Thursday's class, the discussion regarding regulation within the wine and cannabis space peaked my interest in understanding how mass wine producers are dealing with the growing cannabis industry. Constellation Brands invested for a 10% stake recreational pot company so it is a matter of time for the wine industry to also invest. After some research, I found the product called No Label which is a line of pot-wine that leverages the robust and daring flavors of California wine to inject the effects of her 20 different strains of cannabis. It even has endorsements from Melissa Etheridge!

According to the company who owns No Label (Greenway), California wineries have been producing pot-wine for decades but this is the first time that a product has launched so openly (especially with a celebrity endorsement). Working with over 6 grape varietals and 20 cannabis strains, the company has a number of promising directions to go. Unfortunately, their legal team is quite busy, especially as they are currently battling the courts with allowing intra-state transport of the product.

I am interested in seeing how this product grows now that cannabis has been legalized in California and if it expands, will larger wine companies feel the need to invest or even acquire their operations? As a larger wine company, I would feel apprehensive about the cannabis industry and would try to follow suit with beer competitors who are already investing in relevant cannabis start-ups.

#2 Keeping it in the family

Survived the first blog post. Have not been publicly shamed, nor academically disciplined. A sign of compassion or simply luring me in, only to strike later? Let’s find out. The year is off to a fast start. The fire hose is open, and I’m thirsty. Bad combination. Dropped a few classes. Quality over quantity. Still in GDotWI... My more socially inclined friends have labeled the classes causing my reticent social behavior as prefixes to my name. Barging through my door at 11pm on a weekday night, thrusting a beer into my hand, they indignantly announce their displeasure with d.School Ravi. Where is Summer Ravi. Bring him back.

So much to choose from. I want to explore entrepreneurship. I want to enhance my public speaking and presentation skills. I want to step across the street, into the law school, into engineering, into the social sciences. I want to immerse in Professor Nemerov’s poetic worlds that exist within the instance of a single photo. A sponge can only retain a certain amount of water. As I bounced across Stanford this year, I’ve accepted the limitations of time and focus.

My story continues at Trader Joe’s. My hipster level rises half a point as I enter the store, ready to pay a premium for organically grown green apples that fell naturally from the tree onto Egyptian cotton air-pads, before spending an hour in the presence of a Sufi Yogi. My sense of purpose and belonging is reaffirmed. I make my way across to the wine racks. California. Spain. France. No South African wines? Seriously? There’s pink Himalayan sea salt packaged in South Africa, but they haven’t managed to find a few bottles of De Toren, Hamilton Russell, Chocolate Block, Kevin Arnold, Paul Cluver, Kleine Zalze, or Tokara? Urggh. No choice but to randomly pick wines but from different regions. Without a plan, strategy, or the requisite skills and knowledge, I set about acquiring a selection of wines.

It was with a similar feeling to my Trader Joe’s wine experience that I read the Rothschild case. An uneasy sense of someone standing in front of a map of the world, without a clear idea of how he was going to navigate it. At first I wasn’t quite sure whether I was missing something. Was there an insight into old-world estates growing into new markets? Perhaps consolidating or redefining their brand? Perhaps it was about changes in the global agricultural property market? A nagging uneasiness suggested no coherent strategy to their expansion. How did this come about? Was this the consequence of an unbalanced executive team?

This case sparked some interesting thoughts. A growing market of new wine drinkers + lower barriers to entry + lower production costs in other countries + low customer switching costs + rapid brand creation = market ripe for disruption?

How do family wineries capitalize on this changing dynamic? Do they encourage succession planning that retains as much familial influence as possible, but which may risk siloed thinking or a lack of holistic executive talent. Or do they bring in talent, but risk family disinterest and shifting power dynamics which might even result in either selling or partitioning the land, and consequently losing the power base of critical mass? Or are they best suited as lifestyle businesses focused on quality retention and not mass-market domination?

As the baton passes hands, behind the veneer of staged photos, lies both an incredible opportunity and lurking uncertainty. “Someone said drink the water, but I will drink the wine / Someone said take a poor man, the rich don’t have a dime / Go fool yourself, if you will, I just haven’t got the time / I’ll give you back your water, and I will take the wine.”

Super Premium Wines

After reading the Lafite Rothschild case and hearing about DRC, I was interested in doing a little more research on this super premium segment of the market. I came across the following article on Sotheby's wine auctions that I found informative: https://www.barrons.com/articles/why-is-romanee-conti-worth-20-000-1427964771.

A case of 1978 vintage DRC recently sold at auction for $39,700 per bottle -- well above the $1,000+/bottle quoted in the case for Lafite. While I imagine that the 1978 vintage is considerably rarer than 1999, I did see a bottle of 1999 Lafite retailing for $1900 at the SFO Duty Free store:

Another interesting fact was that DRC wine appears to sell for a premium in bulk: when sold by the case, the bottles have reached nearly $40,000. However, a single bottle sold of the same vintage typically reaches only $14,000 - $20,000 per bottle at auction. It's also interesting to note that much of the demand for burgundy is being driven by Asian consumers.

The only new world wine that I could find that commanded a comparable price premium was Napa Valley's own Screaming Eagle, a cabernet sauvignon with a cult following.  Those bottles are unavailable to buy directly from the winery without making it through an extensive waitlist, but can be purchased from a collector for $3,000 - $4,000 bottle for recent vintages.

Wine Packaging

Small observation, but I was struck by Tracey’s points at the end of class. Given she’s part of a wine lobbying organization, it makes sense that she would belittle CO2 standards and FDA regulations on nutritional information disclosure. Interested in the former, I was curious to learn if her statements were warranted. It turns out that fermentation contributes a very small amount to the overall environmental impact of wine production – the largest portion comes from wine transport to the end consumer. In the U.S. alone, ~95% of wines come from the west coast; environmentally, it costs a lot to ship heavy glass bottles across the U.S., let alone around the world. Better packaging – think boxed, etc. – would not only cost the consumer less economically, but it would produce fewer CO2 emissions as well.  

There’s some hope that this trend picks up – according to a study by Allied Development, alternate packaging is stealing share from glass bottles and is projected to continue. Not only do other materials have better features from a practicality perspective, but they stand out to younger consumers who are more willing to part from staid wine tradition. 

How to Build a StitchFix for Wine

Should Amazon make a big play into the wine space, they'll only add to the problem already plaguing many wine buyers today - an overwhelming paradox of choice. Amazon is not known for their merchandising, and its endless aisle is rather hard to shop unless you know exactly what you're looking for. Our discussion highlighted the opportunity for someone to move into the space with the angle of providing a curated selection and personalized recommendations.

Having worked at StitchFix this summer, my thought immediately jumped to the idea that there should be a StitchFix for wine, i.e. collect preferences, send personalized selections of wine, collect feedback, refine and repeat. I, for one, would love to use that service. I'm vaguely aware that many players have attempted to solve for this (I seem to be a good target for social media advertising), but to my knowledge, no one has figured out how to make it work or at least how to make it stick. My opinion is that brand counts for a lot. I strongly believe that StitchFix and Amazon can coexist in the world of fashion largely because StitchFix solved the paradox of choice that Amazon created. Before Amazon made a play towards personalized clothing recommendations, StitchFix created a strong and widely recognized brand; so now millions of consumers think StitchFix before they might think Amazon as a destination for this need. So for a player like WineDirect to be successful with their bet on curation, I as a wine buyer must think WineDirect before I think Amazon.

There are many other critical pieces of this puzzle that are important to get right in order to set-up a successful play in personalized wine recommendations. The one I'm deeply familiar with from my experience at StitchFix is figuring out how to most effectively collect data on preferences and feed those into a recommendation algorithm. While figuring out the right way to ask questions to assess wine preferences, which is likely rather tricky, my hypothesis is that the recommendations themselves are actually easier get right for wine than for clothes because I'd guess that to the rather untrained palate, 9 out of 10 wines hit the mark on enjoyable. Then the feedback loop becomes the core of the value proposition, and in relatively short time, the wines recommended could go from good enough to great or even outstanding.

I'm confident that if you put enough smart and capable people on this, they can create a really effective wine recommendation, so the discussion will always circle back to the importance of brand building. With Amazon's acquisition of Whole Foods and with all the potential for what they may now do in the wine space, the window of opportunity to establish a brand as the go-to place online for a curated selection of wine is closing for these other players. Because while I cringe at the thought of scrolling through page after page of options trying to pick wine, I do love the idea of having wine shipped to me for free on Amazon Prime.