The effects of the pandemic on the wine business have been nothing short of landscape-altering, and in many ways are a microcosm of our broader socioeconomic condition. There are those who have been devastated and others who have either held steady or even thrived. For a little background reading on these dynamics, check out these pieces from last September and this past January. Meanwhile, tariffs have also upended importers and the economies they partner with.
Would you expect people to gravitate towards one grape - or even grape color - while locked down and gripped by anxiety? The safest guess is that people are just gravitating towards more wine, regardless of type. Guzzle, guzzle.
Sure, the tariffs have skewed prices, putting downward pressure on demand for grapes grown in Europe. But if its prevalence on flash sale sites is any indication, there has been a distinct bias in demand away from one particular variety.
By far the most frequently discounted variety on my radar this year is not nebbiolo or grenache or sangiovese. It's cabernet. And you know who bottles cabernet labeled as such? Not France. Not Italy. And certainly not Spain or Germany. California does. More specifically, Napa Valley cabernet. And last I checked, there were no tariffs on California wine.
The abundance of offers for Napa Valley cabernets hitting my inbox is seemingly at a fevered pitch, outnumbering all offers for other grapes and points of origin combined. Depending on the brand equity and cache of the label, I've seen discounts ranging from 20% for blue chip producers all the way to 90% off for relabeled wines from recognizable, but less impervious names.
Why? Well, as Warren Buffett is quoted, "It's only when the tide goes out that you learn who has been swimming naked."
- Prices. Pre-Covid prices for Napa wines were beyond ridiculous, so Napa didn't exactly go into this recession at fighting weight.
- Supply. According to Napa Valley Vintners, a whopping 55% of planted acreage in Napa is to cabernet, which is four times more than the second place grape, chardonnay. In other words, there's a lot of it out there.
- Quality. When I was in Napa in 2010, the valley had been invaded by Silicon Valley types who scooped up trophy properties in a game of one-upmanship. Turns out these folks are better at software than winemaking.
- Millennials. Boomers, who helped build Napa into what it is today, aren't drinking as much as they used to, so the valley's future depends on the Millennial demographic, which is fairly apathetic when it comes to the romance Napa has depended on to cultivate their exclusivity.
- Restaurants & Tasting Rooms. A lot of boutique wineries have relied on restaurants - steakhouses in particular - and tourists to move their big reds. (Sigh.)
You don't need a PhD in economics to know what results when combining over-supply, too high prices, low quality, and depressed demand. Fire sales. Is this a temporary comeuppance or the beginning of a long overdue correction? Only time will tell - and I've been wrong before when prognosticating a right-sizing of California pricing. But right now would be a really bad time for a movie to come out maligning cabernet the way Sideways tanked merlot.