Highly educational post. Thanks sir
Alan’s raising an interesting point that you more or less blew right past: the difference between fixed and variable costs. Your post implies that everything is a variable cost, so each additional unit costs the same as each other. Alan’s post assumed the opposite, or rather that some of the costs were fixed or that at the least ordering 30% more glass, corks, barrels, etc. does not add 30% to your costs. The major assumption in Alan’s post is that the winemaker/seller owns the grapes. So, for instance, we frequently hear tales that because of a poor crop, the price per unit must go up because there is less volume to cover the fixed costs. Presumably, the reverse should be true: that with a bumper crop, price per unit should go down (sadly, it does not appear to work that way among higher-end wines). That logic is based on the assumption that the cost of growing the grapes is relatively fixed (land cost won’t vary and labor cost is relatively fixed whether a crop is small or large for a given parcel of land), and so would most apply where the winemaker also owns the grapes, like Bordeaux and many estates in California. The other major assumption in his post is standard economics: that more production should lower the price because you would be moving down the demand curve. You alluded to that with your need to “find 30% more customers.” It’s called lowering the price.
Obviously, there is a significant difference between winemakers who own the grapes and ones who purchase it. The most interesting thing I took from your post, assuming it is correct, is that grape purchasers buy by volume (or mass) even if the contract is on a defined parcel of land. That means that the grower takes all of the economic benefits and risks of the crop production. There is no particular reason for that distribution of risk and rewards as between seller and buyer; I could just as easily envisage a system where the buyer agrees to pay a fixed amount for the production of a defined parcel (and so would take all of the risks and rewards of a production), or anywhere in between.
I hope you realize how counterintuitive your post was from an economic point of view, as it implies you are better off with less product to sell than more. However, if your marginal costs really are constant, you very well may be better off with less product to sell as you want to sell where the marginal cost equals the marginal revenue, which in your case may be at a low volume, as at higher volumes, each additional sale eats into your profit margin.
You are testy this week, Mr. T.
2019 Napa Cab is on the vine, and depending on location, starting, in the middle of, or completing bloom. Moving to fruit set. Your guess is as good as anyone’s…but you knew that.
Nah, I think it’s just too much time on my hands.
But my guess is not anywhere near as good as someone who makes a living writing about and predicting such things! I’m waiting for some real critics to tell me whether I’m supposed to like the wines or not!
More seriously, in South Cal there’s been record rain (and mosquitoes too). Same thing up your way?
If your business plan is well conceived and executed a bumper crop should earn you more money as long as you can sell the wine. If you have a supply/demand curve that you are normally on the short supply side of (more people waiting to get on your list e.g.) you should be able to absorb some or all the excess supply. Thus the “cult” wines with big waiting lists (Scarecrow, etal.) are set to take advantage of the glut more profitably than wineries running closer to the demand curve. It pays to be famous and/or get those 100 point ratings.
UNLESS you are saying your variable (per unit) costs change once you are dealing with more than your normal production. In other words the corks, bottles, labels etc. suddenly cost more each. That condition does not sound like a business I want to be part of.
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Grape growing is not a business that people should get in. We grow grapes and sell them to wineries. We don’t sell any fruit by the field or acre, what’s there is there. That’s why I sell to big wineries and small, it gives me a bit more flexibility.
Last year’s crop was exceptional. The perfect combination of ultra high quality fruit (ok not all wine has been determined to be great yet), happy pickers (they are paid by volume…so more grapes, more money) and happy ownership. The first thing I told my owners the day after harvest was it won’t get any better than 2018. We put a healthy amount in the rainy day fund. We didn’t buy any new equipment or spend on capital improvements.
I really liked Brian’s post especially about making more wine (on a year that everyone else did) and then seeing it in the bargain bin two years later.
Oh and I also custom crushed some additional fruit that I couldn’t sell, so I’m in the wine business again!
Oh and not from Napa, but hope it’s okay to participate!
This post relates back to a thread Alan posted a couple days ago lamenting the increased cost of his favorite Napa Cabs with one example being Becklyn and their new release at $175/btl. That fruit comes from Beckstoffer Missouri Hopper and you pay by the ton with Beckstoffer. If you contract for a couple rows they are going to charge by the ton. They drop fruit to keep crops under control but some years produce more regardless and you’ll pay for it or not get it next year. I’m not suggesting operations that own the vineyards because they are a different deal altogether.
I cannot comment on Napa but 2018 does look promising. If long hang-time means high quality then 2018 should be a banner year. Here are the days between full color and pick for our Syrah:
2013: 9/14-10/12 = 29
2014: 9/1-9/19 = 19
2015: 9/3-9/20 = 18
2016: 9/18-10/8 = 21
2017: 9/13-10/4 = 22
2018: 9/13-10/20 = 38
A combination of the later harvest, high malic (as a result of the cool nights) and the cold winter meant that we just finished malo on our last wines a week ago. That is a long time without SO2!
Paul
It’s a killer vintage. Crop loads are pretty big too. Better than 2016, which got very good press. Does not have the density and power of 2002 or 2013, but reminds me at this early stage of 2001 vintage or 1994 in terms of style. Alcohols are reasonable as well, most are sub-15%. I think the tonnage might make price increases difficult. Already some juice in barrel is for sale out there. Balance is the key to 2018.
I think the quality was almost universal in Napa this time. My personal fave vintage is 2015 since I moved here in 2005, because of the drought and high tannin and concentration. But so little of it was made and the tannin-level being what it is, it’s already become an afterthought for many. 2002 and then 2013 are the consensus GOAT vintage of the 21st Century for Napa and 2018 is gonna be excellent but probably does not quite have the concentration to rival those. That won’t stop people from saying it is better, though.
To sell barrels we go around and pretend to be nice people interested in the welfare of those who buy barrels from us.
This latter group of people seems to be quite happy this year…usually there are a few unhappy campers out there.
This group of people extends from Santa Barbara to Greater Seattle.
Well, as long as Roy and many others continue to make GREAT wine…Credit Karma will continue to email me that my credit score isn’t optimal.
This is correct at least at Becklyn. Also I don’t raise prices just because the vintage is exceptional
Agree with Roy here, although I do think it depends on location and Vineyard when comparing vintages
Also most of you have my personal email and phone number, always happy to discuss the business with you offline