Why California wines aren't selling
Brant Ward/The Chronicle, 2007
More deals can be found on Bay Area shelves.
California wineries got a jolt of reality this week when industry analyst Jon Fredrikson delivered some shocking numbers at the Unified Wine & Grape Symposium in Sacramento.
While overall U.S. consumption of wine was up slightly, 2.1 percent to 323 million cases, California wine shipments were down around 1.6 percent, to 236 million cases. It was the first drop in 16 years for the California numbers, which have been drumbeat-steady in their growth.
The shift caught a lot of attention, but behind the numbers is a more complicated story. I called to get a bit more insight from Fredrikson, president of research firm Gomberg, Fredrikson & Associates, which produces widely used industry reports.
So what's up? People want to drink, but anything that smacks of luxury is not moving.
"It's not an oversupply, its an under-demand. We went through a financial heart attack," Fredrikson told me. "We pushed the reset button in demand. People just scaled down buying patterns. They're still buying wine. We're not like General Motors."
The biggest shift, which he and other analysts have repeatedly described in the past year, is the near-complete stagnation of wine priced more than $20. Fredrikson's data shows that buyers who once spent $20 to $30 have moved lower. The $3-to-$6 category and the $9-to-$12 category have seen the strongest growth. On balance, that rewards the larger California producers and brands — Fredrikson mentioned brands like Sterling, Cupcake and Edna Valley — while smaller labels have more likely been caught in the worst of the downturn. Clearly there's a price sensitivity that wineries will have to adapt to.
"I've never seen it before, how people moved down to much lower price points," he said.
There's more. One major holdup has been the middle part of the three-tier system. As retail sales slowed, distributors started to shrink inventories and require tighter credit. Wine that might have been moved out the winery door probably wasn't making it to the warehouse. And though the very top allocated wines, which occupy a tiny sliver of the market, almost never disclose sales figures, anecdotal stories have been emerging in the past year that indicate virtually no expensive brand has been immune.
At the same time, the industry has been trying to figure out how to discount wine to reduce inventory. Suddenly, top-flight wines are being offered to restaurants to serve by the glass, or sold at lower wholesale prices to provide a higher margin — anything to try and avoid lowering the actual retail price. But that's now happening too, and retailers have started to pass along those discounts. (Of course, it's not unreasonable to believe that some expensive wines needed a price correction.) The alternative, as Fredrikson pointed out, is that spendy wines would get sent off to closeout at sites like Tilsoldout.com. If your local retailer has had an abundance of deals lately, this is probably why.
"There are purists who say you can never discount your brand," Fredrikson said. "That's not realistic in this market."
A couple other points:
California's dropping numbers are a bit more complicated than they seem. According to Fredrikson, total shipments from California wine companies were up, mostly because some large companies are buying more bulk imported wine to bottle here. It's the California-grown wines themselves that have been down. If you didn't think global sourcing was a reality, here's a wake-up call.
Much of the drop in California wine was overseas. Shipments to the U.S. of California wine were barely down — though in a constantly growing market, that's still grim news — but of the 4 million fewer cases being shipped, 3.2 million were in exports.
Fredrikson's conclusion? It's a very good time to be a wine buyer. The excellent 2007 vintage is coming onto the market, and with the pressure to sell wine and price aggressively, we're going to be able to enjoy ever better prices. We're still drinking plenty; we just don't want to pay as much.
i tweeted recently how my friend in the restaurant business was getting offers of $6 a case for wine...
These two charts tell you pretty much all you need to know about the state of the US economy. They also, unfortunately, provide some clues as to how this movie will end.
First, from John Mauldin, the state of the U.S. government's finances. The red line is spending. The blue line is tax revenue.
Can you imagine if that was your household?
Second, from Ned Davis, the state of our country's debts, as measured by debt as a percentage of GDP. The little peak to the left was the debt mountain we accumulated during the Great Depression, which took a decade to work off. The, um, bigger peak to the right, is the one we've accumulated now.
So how will this movie end?
Well, in the near-term, we can try to borrow more to fill the hole between the red line and the blue line in the chart on the top. That will postpone the ending and give us a chance to kickstart the economy again.
Of course, every dollar we borrow will also drop down to the chart at the bottom, making the mountain even taller (unless private-market debt shrinks by an offsetting amount--this chart includes both government and private debt).
If we're lucky, in the intermediate term, the economy will start growing more rapidly (blue line turns up) and the government will be able to ease off on spending (red line turns down), making it so we can borrow less every year. If that happy trend continues, we'll eventually only have to deal with the nasty looking chart at the bottom: The debt mountain.
As to that... The accumulation of the debt mountain is what has fueled the impressive GDP growth we've enjoyed for the past 30 years. It's fun borrowing more money, because when you borrow more money, you can spend more money, which is fun!
Of course, in the end, when you've borrowed as much as you can, you have to start paying some of the money back (or, at the very least, borrow less each year than you used to). And to pay the money back, you have to start spending less.
So, again, how do you think this movie will end?
If we're lucky, it will end gradually, in a long, boring couple of decades in which we gradually get our discipline and competitiveness back and bring our finances under control.
And if we're not lucky?
Well, then, the movie will have a more exciting ending.
See Also: We Are So Screwed
this is just not going to end well. i think we've got some wiggle room but getting into cash-based businesses is the best investment now. #1 thing is to control your own destiny.
If you were watching Steve Jobs' iPad demo closely Wednesday, you would have seen it briefly as he showed off the device's Web-surfing chops: the blue Lego of death. For everyone who has tried to play Farmville on an iPhone, or watch Hulu on an iPod Touch, the little blue icon is already familiar. It signifies that Adobe's Flash plug-in is not on the device, and that no matter how many times you try to load that game or video it just ain't going to work.
For those who live their life on the Web, Apple's seemingly resolute refusal to put Flash on its mobile devices (it works just fine on Apple's notebook and desktop computers) is a bit of mystery. Flash has become ubiquitous on the Internet, providing the software environment for tens of thousands of online games, and millions of video streams, as well as those annoying animations that ask if you would like to "skip intro."
Rumors crop up every time the iPhone gets a refresh that Flash is coming, and then, like some awkward kid passed up at the school dance by the most sparkling student on the planet, Adobe's Flash gets left out. As with all things Apple (AAPL), no real explanation has been made by Jobs or his team as to why they prefer to give Flash the brushoff. "We have regular conversations with Apple," says Adrian Ludwig, Adobe's group product marketing manager Flash platform. "That specific question has never been answered."
But of course, this being an Apple-obsessed world, there are numerous theories as to why Apple keeps snubbing Adobe's Flash platform. The common theme in all of them: control. By letting Flash onto its devices, Apple cedes some aspect of control, and in the company that Jobs has built magnificently as control freak in chief, that apparently, does not fly.
For Adobe (ADBE), here are the hurdles the company faces in getting its all-important technology onto the most talked about devices:
Flash hasn't kept up with the times
The technology was developed originally as a so-called "runtime environment" in the PC world, and that means it grew up running on Intel's X86 chip architecture. Why that is important in today's mobile world is that most mobile gadgets, including the iPhone and presumably the iPad, use a different chip architecture: ARM. And current versions of Flash have problems running on ARM. "It's a question of balancing power management, performance and memory allocation," says a mobile developer very familiar with the issue.
Flash is a drain
Flash looks pretty, but, largely because it's not native to ARM, the technology demands an outsize chunk of the semiconductor's cycles. That means that running Flash on a mobile device can affect how long the battery lasts, whether the video is more like a slide show than a movie, and whether anything else can be happening in the background while you play a game. Jobs isn't about to let some other company's technology take the iPad's claimed 10-hour battery life down to five. And if the device sputters every time it shows a moving image, Apple's user experience — for which Apple can charge more than its competitors — gets put at risk. Adobe's Ludwig denies these are insurmountable technical problems, and he may have something there.
Flash challenges Apple's business model
Apple makes devices that consumers drool over — but they also have figured out how to get into people's pocketbooks in a way that businesses drool over. Apple's iPhone App store, and the iTunes store have been incredible successes (and Apple is counting on the same riches to come with the planned iBook store). If Flash were allowed on the iPhone or the iPad, software developers would have free rein to sell apps directly to consumers, bypassing Apple's shops and Apple's cut of the sale. If Flash were on the iPhone, you could watch Hulu and play games on Mini-Clip rather than buying movies from iTunes or buying games from the App store. (Adobe is also getting ready to launch a workaround that lets the 2 million or so Flash developers out there easily convert their applications for the iPhone, iPod and now iPad — but they will still be approved by and sold through Apple.) Flash breaks down the control Apple has over what gets on its devices and who gets paid for it. Which brings us to the porn theory.
Flash opens up a market that Apple and its wireless partners don't want to enter
The vast majority of porn is streamed using — you guessed it — Flash. Apple is keeping Flash out, this segment of theorists contend, because it doesn't want its devices to be the best porn products on the planet. Not to mention the network problems it might cause. It's bad enough with simple web-surfing to get your iPhone to work in San Francisco and New York, if everyone were watching streaming skin flicks in HD, you can imagine that AT&T (T) would simply be unusable.
Apple is developing its own competitor to Flash
This one hasn't progressed past pure conjecture. But considering how much control it would give Apple in content, across the devices and across the Web, it seems possible. And control, to Apple, is always a good thing.
Adobe is set to release Flash 10.1 some time this year, and pretty much every mobile device or mobile operating system maker, including Research in Motion (RIMM), Samsung, Palm (PALM), and Google (GOOG), is prepping their devices for the upgraded Flash. Very soon, practically every new smartphone on the planet, and all those iPad wannabes coming out, will run Flash. So technically, it seems, it's possible.
The truth about why Apple seems to hate Adobe is probably a bit of the technical with a lot of the business model reason thrown in. Flash is not good for Apple's business, it pokes holes in the perfect ecosystem that Jobs and his team have built. When every other mobile device has Flash built in, will Apple be forced to make nice with Flash? Perhaps, but until then, you can expect Apple to keep ignoring Adobe.
it is about control... apple just can't let app makers and others bypass the app store/itunes...
3587 -- peyton manning will have over 305.5 yards passing $1000 -115
3575 -- will there be a safety in the game. yes. $500 +800
3535 -- will there be a fg in the first quarter? yes $500 +105
3543 -- total yards of the longest fieldgoal will be over 42.5 $1000 -115
3522 -- which will occur first? colts punts $500 +125
3538 -- first score of the game will not be a touchdown $500 +200
3553 -- total combined fumbles lost in the game will be over 1.5 $500 +115colts to win -5.5 (i think this is 102 but not sure) $4500 (not sure what number this is).