Wine Not Help Small Business?

When it rains it pours. It seems that legislatures like to get on a bandwagon and roll with it. OpenMarket.org, a blog of the Competitive Enterprise Institute, featured a lengthy list of proposed alcohol laws in their Alcohol Regulation Roundup.  Many of them focus on beer and breweries, but quite a few affect the wine industry. For example, the recently filed Arizona referendum hoping to raise taxes on all alcoholic beverages. Part of the referendum calls for an increase in wine taxes by 20 cents per bottle (making wine taxed at $1.04 a gallow!).  However, the money is said to support alcoholism-related social programs. In New York, lawmakers are pushing to legalize wine in grocery stores. The economy stimulating goal is clearly repented in the title of the legislature, the "Wine Industry and Liquor Store Revitalization Act."

One might think wine and immediately think deep pockets and rich snooty people make and drinking the delicious elixir. But notions like these make it easy to forget that there are many small wine makers, who are more economically vulnerable and were hit heaviest by the Great Recession. Enter Alabama House bill sponsored by Representative Becky Nordgren, R-Gadsden.  The Alabama House’s Economic Development and Tourism committee bill hopes to even the playing field to allow small farm wineries to be competitive. 

The bill has stalled since its first reading early last month, but Nordgren stresses the powerful effect this bill could have. Currently in Alabama, wine manufactures can only sell on their premises, and this bill would allow farm wineries to sell to wholesalers or distributors.  America's alcohol operates under a  three-tier distribution system. The distribution system emerged after the prohibition, with the historic rationale to assure that alcohol taxes are duly paid and collected by the government. Further, it is believed by some that the system "serves the interests of everyone in the value chain: consumers, states and their revenue collectors, local communities, brewers, wholesalers and retailers. Consumer choice would suffer if retailers were owned or controlled by a supplier or distributor, as they would feature only the brands offered by these suppliers and exclude others."

However, Nordgren says the current structure systematically disadvantages small business. While small farm wineries can currently sell bottles of wine on their premises, they struggle distributing their product because they don't produce large enough quantities to entice distributors. She thinks that if you allow farm wineries to self-distribute, you will give them the leg up needed to grow to a size that would distributors would be willing to work with.

But are Alabama small wineries really in an economic position that ensure this legislation will serve its purpose? While I am doubtful, Nordgren and supporters are not. A similar experiment in North Carolina was met with great success. The state had 19 wineries before the bill, and in the five year period after the bill was passed the number reached a whopping 99. These wineries equated to jobs and taxes for the state, and a 2011 study by Frank, Rimmerman & Co. of St. Helena, California estimated

 "the total economic impact of the wine industry was $1.28 billion. During the five-year period, the number of jobs in the North Carolina wine industry increased from 5,727 to 7,575 and wages paid increased from $158 million to $237 million. Production increased from 470,000 cases to 529,000 cases, and the number of wineries grew from 55 to 89. Wine-related tourism produced $122 million in 2005 and increased to $156 million in 2009. In the final year of the survey, the North Carolina wine industry paid $65 million in federal taxes and $51 million in state taxes.

John Copety, Wills Creek Vineyard owner, believes that the Alabama would have the same effect on its' state wine industry as its equivalent did in North Carolina. He confidently proclaimed that not only are "people ... going to buy wine,” and “[he'd] prefer them to buy wine from Alabama and not California.” As a Californian, I may not want this for selfish reasons, but I can't argue with a state trying to revitalize their economy.

Napa Valley adds its 16th Sub-American Viticulture Area: Coombsville

            In December, Napa Valley’s 16^th sub-AVA (American Viticulture Area) was approved by the TTB (Alcohol and Tobacco Tax and Trade Bureau). Coombsville is located in the southeastern part of the Valley- approximately ten minutes from downtown Napa.

            American Viticulture Areas are defined as “delimited grape growing regions distinguished by geographical features, the boundaries of which have been recognized and defined” by the TTB. An AVA can be displayed on a wine label if at least 85 percent of the wine is made from grapes grown inside of that AVA and the wine is fully finished in the state in which the AVA is located.

            In 1978, the TTB set up a procedure to establish AVAs. Any interested party may petition the TTB to establish and AVA if the application contains the following information:     

1.     Evidence that the name of the viticulture area is local and/or nationally known as referring to the proposed area;

2.     Historical or current evidence in support of the boundaries of the viticultural area;

3.     Evidence relating to the geographical features, such as climate, soil, and topography, which distinguish the viticultural area from surrounding areas; and

4.     The specific boundaries of the area based on features found on the topographic maps of the U.S. Geological Survey. (27 C.F.R. § 9.3(b) (2010))

Napa Valley is an example of a larger viticulture area that has been divided into smaller “sub-AVAs.” This division of the larger AVA reflects the desire of vintners and growers to express the differences in growing conditions and wine characteristics within the larger AVA (Richard Mendelson, Wine In America). The Napa Valley American Viticulture Area includes the sub-AVAs of Atlas Peak, Calistoga, Chiles Valley, Diamond Mountain, Howell Mountain, Los Carneros, Mount Veeder, Oak Knoll, Oakville, Rutherford, Spring Mountain, St. Helena, Stag’s Leap, Wild Horse, Yountville, and now Coombsville. 

On December 14^th, the TTB approved the Coombsville sub-AVA, and it became effective on January 13^th. One article reports that the petition for the sub-AVA was made by Tom Farella and Bradford Kitson. They had previously petitioned for a sub-AVA called Tuolcay, which was slightly larger and crossed into Solano County, but the TTB denied the application because the name did not have sufficiently broad acceptance. The area has officially been referred to as “Coombsville” on maps since 1870. It was named after Nathan Coombs, who was one of the founders of the city of Napa and one-time owner of 2,525 acres east of the Napa River.

The Coombsville sub-AVA is characterized by its temperate climate (moderated by its proximity to the San Francisco bay) and its soil, which is primarily composed of weathered volcanic rock (from nearby Mount George) and alluvial deposits (loose unconsolidated soil which has eroded, been re-shaped by water, and re-deposited in a non-marine setting). The area bordered by the Napa River on the west, the Vaca Range on the east, Monticello Road on the north and Imola Avenue on the south. The principal variety grown in Coombsville is Cabernet Sauvignon, which grows on the hillsides, but the sub-AVA also features Merlot, Chardonnay, Syrah, and Pinot Noir in the lower, cooler sites.

According to another recent article, the wines produced from grapes grown in the Coombsville district, especially the Cabernets, are characterized by moderate ripeness, fine tannins, and savory notes such as anise, black olive, and cedar.

Coombsville is home to a couple dozen wineries- mostly small and family owned. There are about 1,300 acres of vineyards, and due to a water shortage and subsequent ban on new plantings, the area will likely remain characterized by small vineyards, with residential neighborhoods and horse ranches in between. 

EU Passes New Rules for Organic Wines

(First off, I want to acknowledge the similarity in subject matter from my last post, which touched somewhat on organic wine and wine labeling. I will not deny this. What can I say? If you have an interest, you have an interest.)

                

             Anyhow, on Feb. 8, 2012 , the EU’s Standing Committee on Organic Farming agreed to new rules governing “organic wines.” The ruling will now officially allow organic winemakers to label their wine as “organic wine.” These new rules will apply to the 2012 harvest, and wine with these labels must show the EU-organic-logo and the code number of their certifier, and must respect other wine labeling rules. Before now, standards across Europe existed only for wine produced from organically grown grapes, but not organic production methods. These previous standards allowed only a declaration describing such wine as “wine produced from organically grown grapes.” Argue amongst yourself whether this is a substantial difference or not, but this is what the EU agriculture commissioner Dacian Cioloş had to say:

                “I am pleased we have now developed regulations that, as is the case for other organic products, clearly differentiate between conventional and organic wine. Consumers can rest assured that stricter rules have been followed in the production of ‘organic wine.’”

                This represents an extension of organic standards from just the growing of grapes, but not the wine making process itself, to the entire process “from grape to wine.” These new regulations set out a host of wine-making practices and substances for organic wines, as well as being made with organic grapes. The new rules are thus more consistent with the “organic” objective and principles and understood by consumers, which is generally seen as using more holistic, sustainable and “caring” methods of growing and producing. It is believed that this will help wines produced from the EU to compete in the international organic market that is currently dominated by wines from other countries, including the United States.

                In the United States, organic wines are regulated under the Organic Foods Production Act of 1990. This power is vested in the United States Department of Agriculture (USDA), which has authority over domestic and imported agricultural products to be sold, labeled, or represented, as organically produced. The USDA has established the National Organic Program (NOP) under the Agricultural Marketing Service (AMS). However, pursuant to the Federal Alcohol Administration Act (FAA), the Tobacco Tax and Trade Bureau (TTB) regulates has authority the labeling and advertising of distilled spirits, wines, and malt beverages, both domestic and imported. Thus, any use of the organic labeling is to be reviewed by the TTB under the NOP regulations established by and interpreted by the USDA and AMS.

                So, how does all that relate to the new EU standards? According to an FAQ set up by the EU, organic products imported into the EU are done so under “equivalency rules, meaning that they have been produced according to a standard equivalent to the EU one and that they have been controlled under a control system of equivalent effectiveness.” All in all, this is a good thing, as more and more countries and consumers have come accustomed to, at the very least, a presumption of what a product affixed with an “organic” label, really means. As these products proliferate and consumer demand continues to grow, equivalency amongst these standards is essential to protect consumers, growers, and producers of organic products (including wine).

                A positive step in that direction came on February 15, 2012, when the EU and US signed an organic equivalence arrangement. Under this agreement, the EU will recognize USDA’s NOP as equivalent to their own program, and vice versa. Presumptively, this will also apply to organic wines.

Faking It: How to Commit and Prevent Wine Fraud

     The country’s news outlets are abuzz with the latest wine fraud scandal. Rudy Kurniawan of Arcadia, California, was arrested on March 8 by the Federal Bureau of Investigation in Los Angeles on charges of trying to sell fraudulent wines. According to The New York Times, the wines, if genuine, would have been worth $1.3 million, and included numerous bottles of wines purportedly from various famous estates, such as Romanée-Conti and Domaine Ponsot. Mr. Kurniawan is a well-known wine collector, and is an authority on fraudulent wines.

     The complaint alleges numerous charges, including Wine Fraud – Scheme to Defraud a Finance Company, Wine Fraud – Scheme to Defraud the Finance Company and a New York Auction House, Wine Fraud – Attempt to Sell Encumbered Wines At An International Auction House, and two separate counts of Mail Fraud for attempting to sell counterfeit wines.

     Wine fraud is as old as the industry itself, and is the reason wine laws came into existence in the first place. Ensuring that a consumer knows what product he is getting is the main purpose of many wine laws, and such laws protect not only consumers, but producers who desire to create and maintain reputations for high quality wines.

What Makes a Wine Fraudulent?

     When one goes to purchase a bottle of wine, she usually assumes that the information provided on the outside matches the contents on the inside. While numerous items are purported to be things they are not, it is difficult to discern a fake wine unless it is opened, thereby ruining its value if it were in fact real (at least until recently, see below). While it is alleged that Mr. Kurniawan engaged in counterfeiting bottles by creating fake wine labels using vintage stamps as well as old corks and foil wrappers, there are various ways to create a fraudulent wine.

Label Fraud

     Bottles of wine have numerous distinctive features that can make creating fraudulent wines a laborious process. Winemakers put their individual touch on everything from bottles to labels, but also items that are not readily visible when examining a bottle of wine, such as corks.

     One who wishes to engage in wine fraud may obtain bottles of expensive wine, fill them with less expensive wine, find appropriate corks and seals, and then pass the bottles off as the real McCoy. One may also create counterfeit labels of expensive wines and place them onto bottles of less expensive wine. In either case, the purchaser is not getting what he bargained for.

Grapes

     One may also market and sell grapes as certain types, when in fact they are not. No one is immune to such activities, as even Gallo Wine was the victim of fraud when French producers sold them purportedly 100% Pinot Noir grapes that were actually cheaper Syrah and Merlot grapes.

Blending

     While blending wine is not in and of itself illegal, and blended wines are growing in popularity compared to their single-grape counterparts, some blending practices are in fact fraudulent. Wine laws tend to include regulations on how much of a particular grape must be used in order to state that the wine is from that grape, and also address the issue of mixing grapes or wines from different regions.

     Mixing wine with other substances, such as water, sugar, or milk, also occurs, as well as mixing wines of differing vintages in order to create a more balanced final product. While some in the industry find no problem with such practices, others see it as sullying not only the wine, but also the industry itself.

     Other potentially fraudulent practices include humidification, or “adding water to wine.” This is a technique used by winemakers to make their wines taste better. The water is used to help balance extremely ripe grapes that have higher concentrations of sugars and phenolic compounds, but also has the effect of dropping the alcohol volume, sometimes below certain tax thresholds. 

     Wine fraud could also take the form of one stealing expensive wine and replacing it with cheap wine (leaving the actual owner none the wiser), or trying to collect insurance on lost bottles that never existed in the first place, as this wine educator and sometimes investigator notes.

Preventing Wine Fraud

     Besides the usual ways of dealing with claims of fraud, some wine-specific suggestions and examples have been offered to combat the unique problems of wine fraud.

• There have been suggestions to change the way the rarest wines are sold at auction by revising the auction conditions of sale to address the issue of counterfeiting.
• Websites exist to help the industry fight back against counterfeit wines and offer authentication services, for $249 per opinion (or at a discounted rate if you foresee yourself requiring their services on a regular basis).
• Areas that produce numerous excellent wines, such as Italy, have gone so far as to train Carabinieri officers to become sommeliers so that they are better enabled to tackle wine crimes.
•  Recently, scientists at UC Davis published a study that used non-invasive methods to determine what is inside a bottle of wine by examining the molecular structure of its contents.
• And of course, there’s an app for that.

     For those of us who can’t afford fancy new techniques, websites also give quick tips on how to spot counterfeit bottles. While many will never purchase a bottle worth faking, it is important that the industry and the government take steps to prevent wine fraud in the future, ensuring that consumers know what they are purchasing, and producers are able to protect their product and reputation. 

Utah relaxes its stance on alcohol regulation

Utah is not the first state you think of when you are craving a nice cold beer or a glass of wine. In fact, Utah may be the last state you think of due to its infamously strict regulation of alcohol. Until 2009, anyone who wanted a drink had to first purchase a membership at a private club (what we know commonly as a “bar”). This fee requirement had the effect of restricting patrons to one or two local bars, which, as you can imagine, decreased the amount of alcohol consumed at bars in Utah. No one wants to go for a drink at the same bar 5 nights a week. When Governor Jon Huntsman Jr. ended the old membership system in 2009, navigating the bar scene got much easier for patrons and bar owners enjoyed increased profits, free from the constraints of the fee system. However, business slumped in 2011 when Utah outlawed drink specials. Happy hours were already illegal but bar owners had managed to draw customers in with daily drink specials. Now, there’s no such thing as a $2 pint in Utah. In the same year, Utah also expanded its ban on kegs by outlawing mini beer kegs called “Chubby’s.”

Similarly peculiar are the rules governing the service of drinks in restaurants. Backroom bartenders pour the drinks and mix the cocktails behind the “Zion curtain,” out of view from customers. “Zion” refers to the powerful dry Mormon constituency in Utah and the curtain symbolizes the separation between patron and bartender in eateries. Patrons are also forbidden from ordering a “double” and must order food with their drinks. This constantly changing maze of liquor laws is tough for bar and restaurant owners, and a bit annoying to out-of-town visitors who just want a drink, but the tide may be changing.

More recently, a bill which could relax liquor laws in Utah made its way through a House of Representatives committee. HB 193, introduced by the liberal state Representative Brian Doughty, would require that at least two members of the state’s five-member Alcoholic Beverage Control Commission be “consumers of an alcoholic product.” How much alcohol one needs to consume before qualifying for the position remains unclear. Originally, the bill called for a “regular” drinker, which means “happening or occurring not less than once a month.” But that modifier was dropped in the amended version because it was too hard to define. Mr. Doughty believed that the monthly drink requirement would have ensured that whoever was hired had an up-to-date perspective on the sale and service of alcohol in the state. In an interview with the New York Times. He explains: “I didn’t want someone to be able to say, ‘I had glass of wine or a beer 10 years ago, and that makes me a consumer of alcohol.’ ” Because a majority of the state’s population is Mormon and does not drink at all, however, the modifier may be unnecessary.

If the bill passes, the hope is that liquor laws will be written in a way that does not hinder business. Already, there is a growing demand for good beers in touristy ski towns, and Utah microbreweries have answered the call. Even though beers in Utah can only contain 3.2% of alcohol if sold on tap, microbreweries like Wasatch Brewery, are undeterred and simply sell higher strength beers as liquor. Some of the favorites? Polygamy Porter and Evolution Amber Ale.

Fancy wine labels: would you pay more for a wine you can't pronounce?

A recent study by Antonia Mantonakis, an Associate Professor of Marketing at Brock University's Faculty of Business, suggests that consumers are willing to pay more for wine with names that are more difficult to pronounce. To test her theory, Mantonakis assembled two groups of test consumers and each group was given two bottles of identical wine. One of the bottles was labeled with a more easily pronounced name (Titakis Winery) and the other was labeled with the harder-to-pronounce name (Tselepou Winery).

Both wine names are Greek, begin with a T, and have three syllables. Tselepou, however, is harder to pronounce and has more unusual letter combinations. The test consumers consistently rated the Tselepou Winery bottle higher. Additionally, after the tasting, the groups were given a survey to assess their wine knowledge. Those with more advanced wine knowledge showed more of a willingness to buy the wine from the hard-to-pronounce winery. One would think the opposite, as a well-versed wine connoisseur should be able to discern that the wines are exactly the same. As Mantonakis points out:

It’s interesting how consumers perceive things. Something like the sound of a name can elicit a thought, and that thought can influence the perception of how something tastes.

This same theory is true for high-end, gourmet cheeses. Previous studies have shown that consumers rated cheeses with difficult-to-pronounce names in Brush Script font as more valuable and gourmet.

Mantonakis is continuing her studies of this phenomenon. She is currently working to determine if wine labels themselves have a similar impact. Early research shows that test consumers are more likely to think a wine is award winning if there’s a photo on the label.

Savvy vintners appear to be taking note of the effects that fancy-sounding wine names and labels can have on consumer choices. For example, Vincent Arroyo Winery in Calistoga is using tin labels for its Napa Valley port, which retails for $22 per bottle. The theory is that the tin label gives the bottle a prestigious look that consumers are willing to pay for. With the tin labels priced at less than $1 per label, this may be an inexpensive strategy for enticing consumers to purchase the wine.

Screen printing labels directly onto the bottles is another way wineries are trying to distinguish their labels from others. According to label printer, Monvera, less than 1% of wine labels are screen printed today. Monvera markets their screen printed labels as a great want to make wine labels stand out from their paper counterparts. Screen printed labels can extend the length of the bottle because they aren't limited by the paper square on a traditional label.

Some wineries, however, take advantage of a different type of marketing to appeal to consumers. Instead of a marketing strategy that alludes to a product's prestige, these wineries attract customers because of their fresh and funky feel. Recently, more and more wines are being released under names such as "Fat Bastard," "Monkey Bay," and "Smoking Loon." These wines seem to be gaining popularity and seem to call into question, at least in part, the application of Mantonakis's research to consumer purchasing habits. Perhaps consumers are "willing" to pay more for wines with harder-to-pronounce names, but when it's time to make a purchase, they go for the "Goats-Do-Roam."