Barrel rant (very similar to pricing rants)

So I was thinking about this last night…

I have some buddies and colleagues who have gotten burned in both 2007 & 2008 because the short crop has left them with a surplus of new barrels. Most have gotten marching orders to sell them off, which at the moment is a “coals to Newcastle” situation.

Being as some of them have some interesting barrels, some of which can be harder to get, and because I’m such a nice guy, I’ve discussed buying a few from a few of them for 2009. However, they keep coming back to me with 10% below their cost, thinking that’s a deal!

Say you bought Euros last summer and bought a barrel for 800 Euros. At an ER of 1.50, that’s $1,200. They want to sell it to me for $1,080 (10% below cost).

In the back of the latest issue of my Economist, the published ER is 1.28. If the coopers don’t raise their prices (as most of them have assured me they won’t - we’ll see) I can buy the 2009 version of the same barrel right now for $1,024. Not to mention, in the very same issue, there are discussions of the policies of the ECB and the possibility of the Euro headed for highwater. So, needless to say, the very same Euro might cost substantially less in a few months (please don’t construe this as financial advice - if I was any good at this, I wouldn’t be making wine…I’d be living in the Bahamas sipping beer and fishing right now).

So, I can have a brand new barrel with my preferences and my stencil for $1,024 or buy yours for $1,080 that has been sitting in your winery and has your stencil and your preferred bells and whistles? Not to mention, in one case I need to pay you now, pick it up and take up square footage in my winery storing it. In the other, I sign a PO and can play the currency market to possibly make it cheaper (of course, the alternative is also true…) and it’s delivered when I want/need it?

Now, the prevailing wisdom, FYI, is always that you want to fill a barrel as soon as possible after coopering. In reality, I have had good experiences with holdover barrels. In fact, one vintage, our best barrels had been coopered 16 months before the vintage. Also, I am neglecting delivery costs, which can be a lot or a little depending on how well you organize it and how many you buy.

Basically, I don’t care what your cost basis was. If you want me to buy it, it better be a good deal. At the moment, it is not. Which I think is why there are so many available at the moment.

Rant over.

Amen to that Nate! You are in the drivers seat on this one - if they want some help, they need to throw you a bone here. It is not your fault they bought at 1.50 FX rate.

Play coy, they will crack.

Scott-

I think they are being given strict marching orders by folks who don’t want to recognize a loss on these assets (strange - I think I’ve heard this sort of thing recently elsewhere in the news…), so it’s not my buddies’ faults.

I can take them or leave them, really. As I think most others can…the same people seem to have been trying to unload for months now.

Another thing is that I’m sure these places are double-dipping and taking a year of depreciation on the barrels in addition to selling them for almost cost. Technically, probably not kosher, but I don’t think the IRS cares to check whether or not the barrels have been used.

Anyways, I’m holding out for them to go firesale and just switch the Euro sign to $$

I’ll only throw in a couple of things, both related to the current credit crunch and spending recession. One, by buying the local barrels you’re helping the local wine community. Two, by buying the local barrels you’re keeping the money in circulation here in the States, not in France. Just sayin’ . . .

Bob-

I’m not looking at buying barrels from local cooperages in this case, although there are a couple from whom I buy. In those cases, I would deal with them directly. They probably don’t have any inventory and will be ramping up production soon and delivering close to harvest.

I’d be buying French barrels from other wineries, previously purchased by said wineries who never filled them due to a short crop. In essence, taking unused assets off their hands, as they presumably would rather buy brand new barrels than fill these unused older ones. What I object to is their price.

Some barrels are imported and taken possession of by local reps. They buy barrels from the cooperage directly and are the sole distributor in the area. Some foreign cooperages set up shop in the area with sales offices, and even do some coopering there with wood imported from the origin desired. Some cooperages are only local and import or source wood from the desired area of origin. There are only a few of these last type that are not owned by actual (large) wine companies looking to cut out the middleman and reduce cost. Most of the barrels I buy are the first type, so I pay local people who own the barrels, and thus am keeping the money local. Same as you support local wineshops who buy imported wines.

The barrels of which I’m thinking are imported and allocated. They are expensive and I have liked them in the past. If I could get them cheaper 2nd-hand, I’d consider it, as my ability to buy them is limited ($100/bbl more adds up when you’re buying several hundred). At this point, because the other wineries refuse to take a loss >10%, which I can understand but is not my problem, I can get them cheaper from the source, possibly moreso if the Euro dives. Typically, when dealing with cooperages or reps, POs are written in the Spring, barrels start to trickle in during the summer, and they get delivered in the Fall. So I’m not really barrel shopping at the moment unless it’s an impulse buy or a great deal: kind of like buying your skis in the summer or your bathing suit in the winter. I don’t feel obliged to keep my competition afloat in this manner by cutting their 2008 barrel losses for them, but if the price were right, everyone would win.

If the Euro situation were different (ie at a trough last summer/fall and headed towards the moon vis-a-vis the dollar right now) I’d be jumping all over these 2nd-handers, as it would save me money.

Do you still feel that I should buy local?

Understood . . . all of it, especially the part about the second hand barrels. I got that the first time. It was all just food for thought anyway, but I admit - it’s been too long since I’ve been around the wine biz outside of Oregon.

From a financial point of view, my mistake is that I wasn’t thinking in terms of several hundred barrels since, in the scale we see here, anyone who’s buying more than maybe two or three dozen new barrels in a year is either making a LOT of wine (for Oregon) or doing 200% new oak like Gary Andrus used to do at Archery Summit.

Rough math: Take my friend Brian O’Donnell, who has a solid medium-sized winery. He processed 75 tons in 2008, maybe 50 tons of which was pinot noir with the rest being whites and rose. He’s going to need about 120 barrels to hold that pinot and about 60 of those barrels will end up in the three high-end cuvees, which see more new oak - perhaps 33% on average.

So, for the high-end wine he’s going to need about 20 new barrels. For the rest of the wine he might do 20% new, so that’s another 12 barrels. Add a couple of barrels to ferment chardonnay (he only makes 2-300 cases of the stuff and only part of it is fermented in new oak) and you’re up to fewer than three dozen barrels to buy.

Todd Hamina, who posts here, made something like 1000 cases of red wine. Do the same math and he’s buying maybe 8 or 10 barrels a year.

I can’t imagine several hundred.

I used to buy more than several hundred. I agree that it’s about absolute #s to me, too. If I were buying 10 new barrels, I’d be willing to pay more since the absolute difference in cash outlay is pretty insignificant.

I’m as willing to help out and share information and expertise with competitors as anyone you’ll meet. In this particular case, though, it doesn’t seem like a good business decision. Unfortunately, that’s part of my job.

I would see these transactions, were I to pay the prices they ask, as slanted in one direction. As I said earlier, everyone has to win. When you buy grapes, or buy barrels or buy/sell bulk wine, it must make sense for both parties, and it usually does or the transaction never happens. They’ve decided they would prefer cash to having unfilled 2008-vintage barrels on hand. I would prefer to have these barrels, but only if the price makes sense. Right now, I can have a brand new one coopered to my specs and delivered (and invoiced) when I actually need it for less.

Similarly, I wouldn’t buy a year-old truck with 3,000 miles from a local dealer when I could get the same truck but brand-new and one model-year newer from somewhere 100 miles away for less. I would, however, buy the 3,000-mile one from a local dealer rather than the newer, non-local one if the price were a 15% savings.

As I said, Nate - the local angle was just food for thought and the several hundred barrels makes all the difference in the world. Were I in your shoes I wouldn’t be willing to pay the premium either - not for that many. If you were to do it, you’d have to raise your prices and we’d get a 6-page thread bitching about it.

Like you say, 10% under means nothing when it’s likely to be more expensive than what prices will be.

Just looked at Mel’s latest FF pricing at 750 euros, if, IF, we look at under 1.28 to the dollar you’d kick yourself for being nice.

And my guess is all your buddies are hired guns, so at the end of the day, is it coming out of their pockets?

For me, it kills me that with the exchange rate I shelled out over $1100 for some barrels last year. But you can’t fake quality.

As I said, Nate - the local angle was just food for thought and the several hundred barrels makes all the difference in the world. Were I in your shoes I wouldn’t be willing to pay the premium either - not for that many. If you were to do it, you’d have to raise your prices and we’d get a 6-page thread bitching about it.

We’re a young brand. When we get to the point that people get incensed about a small increase, I’ll let out a sigh of relief, as that means they’ve taken notice and are as passionate about our wines as we are. (I will then suggest free shipping, case discounts, etc). Much better than crickets chirping…