The Business of Wine: Luxury Marketing, Tariffs, and the Future of the Industry featuring Peter Yeung

[Music] Well, hello and welcome to The Wine Access Unfiltered Podcast. You know, knowledge is power, as they say. And as our primary goal this season is to make you the heaviest wine buyer that you can be being armed with information, not just about the wine itself, but how it's being marketed and sold is a crucial element that can better equip you when you're making those buying decisions. After all, aren't you a little bit curious as to why some wineries charge $1,000 for a bottle of wine and some wineries charge 500? Is there really a difference? I don't know. My guess today is one of the wine world's leading consultants not on making wine, but on marketing it. More specifically luxury wine, a former McKenzie consultant he parlayed his business and marketing skills to the wine world were used previously the VP of Strategy and Business Development at Costa Brown Winery and Realm Sellers to my favorites. He's also the author of Luxury Wine Marketing and the co-host of X-Shadow, The Wine World's leading podcast on the business of wine. Please welcome to the show, my friend Peter Young. Thanks for having me, Amanda. So it's good to see you. Always good to see you too. I was excited to jump back on your podcast yesterday for the fourth time. Fourth time? Yes, I think that's right for our fifth anniversary episode. Which is so incredible. And actually, I didn't put the math together. I think we're coming up on our five-year anniversary. I know we're coming up on our hundredth episode very soon, but how's the podcasting world? Are you enjoying it? You know, it's a never-ending learning process. So I think that's great. And there's lots of new tools coming out. I recently just, or I have been in the process of putting categories into our website for each of the podcasts so that people can study them because we have, I think, over 180 episodes to date. So, you know, they would need a way to get organized to learn better, right? If you want to talk, learn about Luxury Wine or Marketing or launching a new brand. We have so many different episodes that cover a lot of those topics that having categories can help people navigate those a little easier. I love that you categorize it because the the podcasts are super helpful, especially for those who are in the trade or maybe even adjacent to the trade who are curious about some of the nuts and bolts. And you guys cover everything. I mean, it's not just like, you know, the logistics of making wine. It's really, and like, of selling wine. Like, you obviously have long conversations about social media and the impact of influencers and, yeah, super valuable tool for anyone who's curious about the wine world. Which is kind of why I'm bringing you on today because I think a lot of people are curious about the wine world, especially when you have big headlines like the one that is making the news this week on the proposed 200% tariffs on all European wine and champagne. The big sort of joke of all of this, not that it's really a joke, but at the end of the announcement, there is a line from POTUS that said that this will be great for the American wine and champagne industry, which I think made a lot of people laugh because there is of course no champagne industry here in the US. But what are your general feelings on this? There are a couple of brands that are grandfathered into you. That's true. Champagne. I think Corbell is one of them right. Corbell. Maybe we're going to have a little bit of a bit of a bit of a champagne. But the champagne of beers. Yeah. As a business, it's really hard to navigate uncertainty. It's uncertain, are these actually going to happen? How long are they going to be in place? As a business, you kind of have to just keep going with what your base strategy is and adjust where you can. But it's not something that I think that people are able to plan for because no one knows how long it's going to be in place. This is just a threat. Many of them are and it comes off and will it last maybe four years and the next administration will take it off if it lasts at all or is anytime at all. That makes it challenging. But if they do go in place, then I think producers are going to have to shift where they try to sell to you. I'm sure Europe will try to shift more to Asia where there had been growing demand, although that's sort of peaked out over the last few years of China struggling. Even South Korea's wine consumption has sort of as peaked at least in the near term. They'll have to find other routes to market and the US being the largest wine market in the world would be a big blow for a lot of the Europeans. Yes. Is that how you see it going down? They'll have to totally shift where they're selling to you or some of the conversation has been around producers and importers starting to absorb some of that cost and then potentially putting it on to American consumers or is 200% tariffs just too high to even deal with? Well, in the first administration or first time Trump was in office, what was it? Is it 25% tariffs? I believe I can't remember if it's 25 or 50 or whatnot. But that's a smaller amount where people can absorb and people did absorb some of the costs or you can incrementally price up. But 200% is huge. It's a game changing number and you know, it's on article that said, oh, you know, it would change a $20 bottle line to $90 or something like that. And the math wasn't even right because they said if they kept the same margin in dollars, but people don't, to keep the same margin in dollars, they keep the same margin in percent. Percent in that. If that percent stays the same, then it's going to be even higher than that. And so you're really changing the dynamics of pricing and what people are willing to pay. And I don't think because there's substitutes and alternatives within America or other places that aren't being tariffed, whether that's Australia, New Zealand, South America, South Africa, I think people will naturally avoid it for the period of time and hope that, you know, it comes back at some point. Well, that's a good point because I hadn't really considered the fact that obviously there's tons of wine outside of the EU being made specifically mentions South America and Australia, which tend to be regions that offer something more of value. I mean, do you see this as benefiting the American wine market in terms of like production, like California, Oregon, Washington? Or do you think that Americans will turn to these other regions because American wine is so much more expensive than some of these other places? I think they'll probably turn to other regions at the value segment. At the higher end segment, I think American wines still produce some of the best wines in the world and compete in some ways with some of the top wines of France and Italy and Spain and other places in the EU and they may have some substitution, but I think certainly at the lower end it'll shift. And we see this happen in China, right? Where China had some big tariffs on American wines and Australian wines for a while. And so they shifted to Chile. And so a lot of the volume into China was being Chilean wine. And Australian wine took a big hit and they had a, we were seeing a lot more range in the US and other places. And I think they had to shift some, but it was very painful on those companies. Yeah. And of course, you can't not mention the importers, right? It's because it's not, you know, it's not just the producers that are impacted and have to shift. There's tons of American wine importers who specialize in, I mean, we've had them on the podcast. We've had Genevieve builds from German wine collection. We've had Joan and Sara from Chunorath who specialize in importing Italian and Burgundy. Their businesses would obviously be rocked by something like this. And it's not like they can just make the pivot and stop importing these wines. I mean, it's not like their businesses are set up already to just switch to Australian wine or to South American wine. So do you see that potentially forcing them to close up shop or just hope that they have enough inventory on land already? Yeah, it's these small businesses and not just importers, but also retailers. I think about fine wine retailer. They tend to skew more import than domestic. If you're talking about the big box retailers or most wine is sold a Costco total wine, things of that nature, they're not going to, they're going to be able to switch, no problem and not have that impact. But fine wine retailers, which tend to be small importers that are specialized and tend to be small. These small businesses will really struggle. I'm not sure what they'll do. They'll have to somehow try to make it work and survive or maybe do things like, yeah, broker or do some American wines or maybe buy some wines, you know, that are in people's sellers. As people try to shift away from some and resell those wines. You know, they're given their expertise in some of the brands of their buying sellers of old wine of some of their brands, then maybe they're able to resell those. It's much more complicated than I think people realize. I think when you see the headline of 200% tariffs, the immediate thought is, oh no, my champagne's going to get more expensive, which true, it would. But the trickle down effect is so much larger and more intricate than I think everyone realizes because the wine industry is so nuanced and intricate, which is, in part, why I have you on today to kind of talk about some of those nuances specifically around wine marketing, luxury wine marketing. But before I want to do that, the wine that I selected for our show today, you and I, we've traveled to a lot of places together, we've been to, yes, okay, yeah, we've been to Montesshino, to Tuscany. But we also had a very interesting experience in Verona, Italy, where we had dinner with this guy. I think we've talked about it maybe on your packet. We've talked about it at some point, but this guy, even when it was making this very, which is called an esoteric wine. And so when I thought of esoteric wines, this seems like a perfect way to enjoy a bottle with you because I'm, I could be run, but have you had this wine before? I've never had this wine or heard of it. Okay. And have you had anything from this region? My opinion not a lot. I think I may have once or twice, but definitely not a lot. Okay. Well, I, this was my actually my first foray into it. So for those of you who are members of the wine access and filtered podcast wine club, the wine that you should have right now. It's a screw-chop bottle. It should say quibia, quibia, q-u-i-b-i-a. It's 2022, Philanus is the QA. And this is actually coming from a region that most of us are not associating with any sort of wine making or wine growing, more associating with like beaches and parties, like traveling to Spain and having holiday there. And I think that's what I think is going to be a great deal. This is fermented using indigenous yeast and all in stainless steel. This is also dry farmed and there's no fertilizers or besides pesticides used. So, and very like old head trained vines. Obviously, Marica is a fairly sunny place. So there's going to be no shortage of ripeness in this glass. But thank you for joining me for another esoteric wine and conversation. Absolutely. I love it. Next time you're in San Francisco, I have a bunch of esoteric wines that are just sitting in bottle aging. Oh, good. I don't know if that's a good thing or a bad thing, but I'm happy to try them. Yeah, it's like really sunny and fresh. And when I first tried this wine, I think it was a Eduardo that brought it to me. It's like, I have this wine from Marica. And I was like, I don't know, buddy. Like Marica, like not the first way to think of when we go wine. And then he poured me a glass and I was like, this is actually really interesting. And it has elements like aromatically that remind me a little of you, and a little bit of like convert streaming or just some degree. Then I also think there's this like very like ripe sort of serving a long quality to it. And it just like when I smell it, it just makes me think like summertime. It's it's ripe. It's lush. It's like kind of peachy. Yeah, the nose is very peachy. The palette is much more mineral and almost saline a little bit. I did a tasting video yesterday and I described it, especially as it starts to warm up a little bit. It has this like really interesting savory thing that reminds me of like salted olive oil. So if you've ever like poured olive oil and like maybe like an egg or something and had those like fleet that flaky sea salt on it, that's what it kind of like it's like this savory just slightly sweet but also like very minimally salty briney thing going on. I personally think this is really delicious. I think it's going to be great for spring and summertime, especially if this is not a wine that obviously needs a lot of like prep or anything like that. I've got it in a Gabriel glass, they're universal. I think this could go to different directions. Like if you wanted more wheat more roundness, you could put in a wider burgundy glass and it would give you a little bit more of that textual thing. But if you want it to behave a little bit more, all of a serving on block a little more angular. If you want to highlight some of the fresher qualities, put it in a smaller glass like an all purpose glass. I think that'll freshen it up. And then you can play around with temperature a little bit as well. You know, when I got this little warmer yesterday, it started to really take on some of those more savory textual components and then obviously colder, it's going to feel brighter, more lifted. What do you think? What would you eat this with? Maybe, yeah, like nuts and cheese or like Spanish tapas. Yeah, when in my area. It's in that Spanish tapas vein almost has like a touch of the nuttyness of cherry. Yeah, I had a great experience a couple weeks ago and I was in Santa Barbara at Locuito, which is this like Spanish tapas place right downtown. And I did a flight of cherries with it. And we did everything from like him on a barricot and some tapas and cracetas and you're right. I think this actually would have been a great wine in the way that cherry works so well with all of those different things to pair with us. So yeah, I mean, don't be afraid of like nuts and cheese. Obviously you can get some fried stuff in there too. Some like marinated olives would be delicious, but it's a sipping wine for sure, but it's also like, I don't know, it's like one of these easy drinking wines that I feel like I'm going to be drinking a lot of this summer. So it'll be fun to drink on during this podcast as we sort of unwrap all things luxury wine and wine marketing and pricing. I want to jump in to this conversation with sort of the elephant in the room, the one that I hinted at at the top of the show, which is, and you know better than anyone, what actually justifies a thousand dollar bottle of wine versus a five hundred dollar bottle or even a hundred dollar bottle? Is it quality? Is it perception? Is it branding? Is it a mix of all three? The cheeky answer is that someone's willing to pay that amount. And it's a supply demand thing, right? And in a lot of ways. So there's someone willing to pay that amount. The reality is why are people willing to pay that amount of a thousand dollars a bottle? It has more to do with the brand than what's inside the bottle because you know, I've done some anecdotally, I've seen that when wines hit a hundred point score with Robert Parker, whoever, they're a quote unquote perfect wine. I've seen those wines hit around three hundred dollars a bottle. But above that, the brand rises above just, you know, the quality of wine itself. I'm sure you know, someone might be able to tease out differences in nuances and there might be five, 10% difference in quality of which the closer you get to quote unquote perfection, the more you have to pay, you know, per element of quality that you're getting and differentiating. But it's that brand really stands apart and has a luxury element to it where it means something to own a bottle of, you know, the most busiest example to talk about is domain to the Romani Conte or DRC for like probably the most famous wine in the world or luxury wine in the world, I should say, at least amongst connoisseurs and collectors which cost thousands of dollars a bottle. And you know, is it, is it the wine itself better than, you know, two cases of a hundred dollar bottle of burgundy or something like that? I personally, I can't afford that. So like, I take the few cases, I was running that amount of money, but for the, for the folks who can and want the best and want people to know that they have the best and their seller that they're willing to pay that amount of money for it. It was a question that I got a lot at press, right? Like what, what separates the thousand dollar bottles from the three hundred dollar bottles? And I think you're right. It is like at a certain point the wines, they're not going to tease the same, but they're not going to, they're going to be incrementally if at all, better than each other. And you know, that Delta really is kind of, it's the prestige, right? It's the honor of having it on your table. And you know, ultimately it comes down to like, at least for us, it was like scarcity and resources. So like wines where you scream eagles, priced ten times higher than everything else because we like out three bottles of the restaurant. And which meant it, you know, it basically had to go to the, to the highest bidder. So it was essentially like auctioning without the auction. Some people feel better because they're drinking the thousand dollar bottle and they think, wow, this must be so much better and it's special and I'm going to save it. Some people like it because the thousand dollar bottle sitting on their table and all the other people in the restaurant or other people and their friends at their house are seeing that, right? Or they're using it as a gift. This was big, you know, when the gifting was big in China, it's like, this is a thousand dollar bottle or people know it. People know that if you, if you gave one of us screaming eagle, we would take a step back and be like, whoa, right? That's, that's an impressive gift, right? And because we know that it costs a thousand dollars bottle and people know it costs a thousand dollars bottle and that's, you know, what makes it special. How do wineries even establish and sustain a luxury price point? Like if someone wanted to open tomorrow, what would they do? You know, we did a whole series with wine critics and I sort of always ask this question, like, how do people establish a new icon brand and our luxury brand? And the biggest thing is quality over time, consistency, right? You're consistently making amazing wine and that's it. But that's, I think the baseline these days, it's not enough to be quality and have hundred point scores and all that sort of thing. You still need to have people know about it, right? So getting into the right restaurants, you know, the right placements, the right marketing and the right sellers where people and collectors are talking about it and showing off and telling their friends, there's, you know, been, you know, some small burgundies like Devon A or whatnot or, you know, like even grown producers that have taken off because people not even because of scores, but because collectors have been clamoring for them and be willing to pay higher prices for them and it just starts to navigate within those circles. And when you're talking about wines that are relatively low production and scarce, you know, a lot of people say, you know, why is burgundy so expensive? Well, a lot of the wines are, you know, a couple hundred cases of production. It only takes like a couple billionaires to really move the market, right? The margin and, you know, buy the entire production. And for them, a thousand dollars a bottle to be able to hold that over their other friend's heads, you know, it's not, it's not a lot of money versus, you know, multi-million dollar private jets or yachts or cars, you know. Do you think the quality and consistency over time is more of a recent things because I think if you use Napa Valley as an example, as an isolated example, you have back in the 90s some of the original cult cabernies coming out of that like, screaming eagle again to use that example. That wine really had only been in production for a vintage or two before it got its score and then it was in like the mid 90s not long after that when it went up for auction. I think at the Napa Valley auction and that was when that wine really started to shoot up in fame. Do you think things are very different now that you don't have these like one off moments that's catapult a wine into fame and start them? Well, I think the notion of luxury is one of time and timelessness. And so it never changed for luxury. What I would say for example, the example of scream eagle is that it became culty after its first big hundred point score or whatnot. But it didn't hit luxury until it met that bar as you said a number of years later when people really started to and it really took off that started to clam over it. So you can be culty with low production and a small group of people really clamoring for it and oftentimes that's a start right a precursor of luxury. But luxury generally takes time to establish. How would you separate cult versus luxury then? I think luxury is the brand has transcended just the wine itself. And cult there's an element of that but it's within a very small pocket of people. Whereas luxury, the general population at least the general population of people are interested in wine know about it. Speaking of what you're willing to pay, wine marketing plays obviously heavily on emotion and exclusivity. What are some of the psychological triggers that wine consumers that make wine consumers willing to pay you know, $300, $500, $1000? I mean there is the exclusivity, the scarcity element of it. It cost a brown for a long time. We had a very long waiting list for a long time. And when people would call to buy the wines, one of the founders, Chris Gustello, was running operations, would tell them no. And so one guy named John Childs who was a big private equity guy called and got the no answer. And so he decided to buy the winery. For sale later, that's when I started working with them. But so he bought the winery and then had access whenever he wanted. That's the way to do it. Yeah, that's the one way to do it. But wanting what people can't have is often a psychological thing that people wanted. People can't have it or other people can. And that rarity, scarcity element is one reason people are willing to pay more. And there's market forces when enough people are willing to pay more and do it as we talked about. There's a secondary market that has a price higher than people have some pricing power to continue to raise the price. Which luxury goods tend to be more price-driven than volume-driven. So if you look at even something like Ferrari or Lamborghini or something that make 10,000 cars a year, they could go to the BMW or Mercedes route and make millions of cars a year or however many they make, but they produce much less than demand, keep a waiting less and increase the price pretty much everything. What about storytelling? Because I'm certainly one that has been moved by this idea of storytelling not just in wine, but also in other consumer goods. I use the example of Brinnell and Kichinelli, right? I've watched enough YouTube videos to last me a lifetime of their plays in Salamiyo and every time I watch it, I'm like, yes, I need to have it. I probably wouldn't even care what it looked like. I'm just so moved by the storytelling aspect of it. Do you think that has a place in wine alongside, in front of behind some of these other psychological factors that we're talking about? For sure. I think there's multiple ways to do it. Historically, a lot of the culty wine brands wanted as little information as possible out there. So the storytelling was done by other people, right? People in the know and that made them feel special and whatnot. You'd often have these websites that had zero information and just put your email in, right? And that was part of the mystique. And so I actually found out and learned about it. That's one way of storytelling, right? It's forcing people to go down their own rabbit hole. Yeah. And some level of mystery to it was part of the story, right? You have the Burgundians, they say, we're not luxury. We're not luxury. We're just farmers, right? But that's the story. That's part of the story. They're doing their Tesla's or their luxury vehicles in the back. It's a little like a Brinnelli Kitchen Allisteria, yeah. Yeah. And, you know, but they wanted the story to be about the craft, right? But, you know, I think with so many wine brands out there and so many even aspiring luxury brands for wine out there, like storytelling is very important and helps connect people to the brand. So, you know, going back to the Costa Brown example again, that was a story of like, "Rags to riches, if you will, right? Like two guys who were working at a restaurant in Santa Rosa and saved pooled their tip money, you know, to buy a ton of grapes and a barrel in a passion for Pinot Noir, right? And that are the cholera story, you know, with Josh Jensen searching for limestone. Binding his mountain. Yeah, and some random mountain in Hollister, you know? Like, not Harlan now, or I don't know, maybe it's always called Mount Harlan, but those stories connect with consumers. And I think create an affinity for the brand that helps, helps make them want to continue to buy it. How relevant do you think that is today? Like, you know, the exclusivity of a lack of transparency, like that was a very almost ubiquitous way of marketing, especially in Appa Valley, I think to some degree, still in like other places like Bordeaux and Burgundy. Like, how relevant is that today for luxury wine marketing? Because we just had a conversation yesterday about, you know, there's more transparency and wine certainly in the lesser expensive categories. And it's something that it seems like consumers want more of, it recently did a post asking people what they would prefer to see on labels in terms of nutrition and wine labeling laws. And it seemed overwhelming that they wanted more information, like more information was better. Do you think that the luxury wine sector still, you know, needs to be in this, this like exclusivity, no information? Like do they have to live there to be luxury? Definitely not. And I think it depends on the scale. If you're making a couple hundred cases and that's it, then I think that approach could work well because you need to have a very limited audience. But in today's mass communication world of social media and, you know, digital everything and everything attached to people of their phones all day long, right? I think storytelling and having your story out there more is more effective for creating the, for sharing that luxury story. So I think that given the, you know, the depth of how many wine players are out there and the need to differentiate, I think storytelling is becoming more important now than it ever was in the past. So do you think that sort of a pass-say way to do things like if you were to go on, I'm not going to call anybody out, but like a lot of the Napa Valley winery is still operating this way. Like you go on their website and there's nothing. Like you can maybe find who's farming the vineyards, but beyond that, like you're not getting information. Do you think that's pass-say or do you think that is still a legitimate route? Well, as I said, it's legitimate if you're tiny and you need, you know, a hundred people to buy your wine, right? But I think it's definitely pass-say if you want to build something real, that's sustainable and a real brand and you need more people to know about it. This also plays to the younger generation to do more storytelling and more transparency generations, I should say, like both millennials and Gen Z, I think having that transparency and showing why people should be willing to pay more for your wine or whatever your product is is critical these days. And so like I think that's an old school mentality of thinking that I think doesn't resonate as well with the new consumer. Maybe wants to get in with the younger generation, luxury wines and younger generation, not necessarily two things that go hand in hand and so to that end, where do you think social media falls into the mix for some of these luxury wine brands? Well, if you look at luxury more broadly outside of wine, right? You used to see billboards all the time, right? Or advertisements on buses or magazines, right? For luxury brands, be it Louis Vuitton or other things. And because it's not, if you talk about true luxury as a way of differentiating yourself or that brand from other people, right? It's a way of sort of stratifying people, which is people can consider that negative, but it's sort of what people have been doing forever, what people do. And more people need to know about it than just the people buying it. Right? So we need to know that Louis Vuitton handbag is expensive and something special. And so that's why they did advertisements and things and they wouldn't actively try to sell. It would be just a picture with beautiful people in a fancy place and like, yeah, it's aspirational. Yeah. Yeah. I mean, it's the same way that kids, like, one big group, you know, seeing their favorite celebrity or their favorite like celebrities or athletes, like in Mercedes, right? Obviously a 16 year old is not going to buy Mercedes, but maybe when they save up and get a job and have enough money, like that, when they finally can afford it, like, that's the car that they go to is the wine and just, there's the wine industry need to be setting up to do the same thing. Oh, for sure. and brands, big champagne brands, they have bigger marketing budgets and stuff do that better. So you look at something like Dom Perignon and they do that. They have these collaborations with famous people and other things that help to create that awareness beyond people who are actually buying the lot. So why isn't that happening more outside of an LVMAH? Because you really, you don't see a lot of that aspirational marketing. Is it because, is there, is it an age thing? To be our people fearful that if they do market to a certain generation that it might get them in trouble or is it just like we just haven't changed our ways in so long? I think it's mostly a size thing. Most wineries and wine brands outside of the bigger conglomeration are small. And the economics of wine are great. It's very capital intensive. It's a very capital intensive product. There's so much competition and so many people want to be in it for intrinsic reasons. Outside of making money. That it's not a very hugely profitable business. I'd like in it to entertain it. Where a lot of people want to be in it and it competes the returns down. So the average return is probably like negative. But you see the stars who make a lot of money. And wine is similar and so a lot of people don't have the resources really to do that kind of marketing to build that kind of brand. So they have to start smaller and be more focused and targeted on people who are actually going to buy the lines. And then it can scale from there. And if it does scale, then they can do other things. And I think they do some brands do do that marketing, but they do it more. Wine is a very experiential product. It's like if we're not trying it and tasting it and getting our senses, more of our senses involved, like seeing a bottle is sure it's one thing. But like experiencing it is something completely different. So I think a lot of what people are doing at the high end for marketing is doing dinners or lunches and things with the wines and getting that experience in smaller group settings or you know, between 20 to 100 people kind of thing. I would love to see wine more intertwined with like fashion. Like I'd love to see collaborations. Again, outside of the image with some of these like brands that early young 20s, some things are interested in. That obviously a wine with the winery themselves. I think it would help people to understand the placement. I think a lot of people see a price point, but they don't understand where it lives. Are you more of a corvette guy or Ferrari guy or Rolls Royce guy? And I think people have a really hard time figuring out what category they fit into because they're all the same price so to speak. So then where do you live? Do you see anyone doing anything like that outside of the LVMH in like brand positioning and it being an effective strategy? Well, there's definitely people doing partnerships. We interviewed Matteo Lonelli of Ferrari Trento, the sparkling wine producer in the north of Italy in the Trento region. And they did partnerships both with the Emmys for a while and then with Formula One. In the Formula One, you know, sparkling wine, you're out the podium, spraying a gerobomb after wine. It has been a real big impact on their business. And they've seen real positive upticks from that. So that's been huge. I think those partnerships can really play well in those brands. Matteo is also a big fan of Formula One. And it's really expanded, taken off. And he said they've been lucky in a way too. And that when they're with the Emmys is the time when movies were sort of on the decline in TV was taking off with streaming. And so they got sort of an outsize impact there. And then Formula One, the same thing as that's taken off in popularity. They've really done well. I mean, we'll see. I think it was a great move from Jackson family to partner with the NBA. And especially because the WNBA. And the WNBA is really taking it off with the rise of Caitlin Carr. Yes. In the recent and the rest, that's I think going to be a huge boon for some of their brands and introduce a lot of people into wine that may not have drank wine before, which will be great. The wine industry will switch gears a little bit since we mentioned the constellation a few times at this point. It seems to be a bit of a crossroads. Constellation is trying to solve its entire wine portfolio was recently reported. Vintage wine estates filed for bankruptcy, treasury is also struggling to offload brands. What does this tell us about the state of the market? I mean, we've talked a lot about luxury wine, but in general, you know, is this a signal for things to come? Or is this just a shift? In general, things are not great. But I always look at the wine world as two different markets. I would say there's the commercial wine market, as I call it, though the Institute of Masters of Wine does not agree with that definition. It's because everything is commercial, right? It's sales, that's commercial. But the commercial or the mass market wine market is more CPG driven, like other CPG brands. And then I would say there's the fine wine market, which is sort of different beast more. It's like selling clothes and target versus Neemons. Like there are two different animals. Yeah, exactly. Two different animals. And in general, on average, people are drinking less in general, like significantly less and particularly wine. Total alcohol, there's been a big neo-provisionist movement that's very well funded, that's targeting. That's cherry picking some of the scientific research and targeting, you know, some of the health organizations and government organizations. It's actually blocking scientific research that is unbiased, but because there was funding from the alcohol industry saying, "Oh, you can't do this research to tell what are the health benefits or harms of alcohol." These are scientists that are academics that are unbiased and they have different firewalls to keep them not biased, but they're blocking that research from happening. And the World Health Organization came out and said, "No amount of alcohol is healthy for you." That's impacting the psyche of many people. And so total alcohol consumption is down. And people are looking at substitutes like cannabis or ketamine or mushrooms to the side bin and other things. Or there's all sorts of things I get marketed to on Instagram, like some funny herbal things. But that's supposed to make you high, though, right? Make you calm or whatever. Okay, there's many decades of research on alcohol, both for its harms and its benefits. These other things are new to people to know they're like, "Well, it's more natural to smoke weed or take a gummy weed." It's like, "Well, yeah, it's still. Are we in? Is that more natural than fermented grape juice?" I'm not so sure, but it's probably similar in terms of its naturalness, but it's certainly. And when it's processed into a gummy, I'm not sure that it's got any less processing than any wine would have. But those have really impacted consumer psychology, for sure. That's one element that's reducing volume and particularly of wine. If beer and spirits are down 2 or 3% a year, it winds down 7 or 8% in volume. And I think that's because a lot of the reason people were drinking wine was for health reasons. When it came out in the 90s, what's called the French paradox on 60 Minutes, where having a glass of wine as far as the Mediterranean diet was healthier for your heart and all that, and so the guidelines were that actually moderate drinking. And the science would say that the moderate drinking, like a couple of glasses for a guy at night, would increase your overall health, right? I don't know if it increases your overall health, but your mortality rates go down. So you're more likely to live older. And there's a lot of complicated factors associated with that, right? But is that message becomes the opposite? And people say, "Well, you're more likely to get cancer or other things." Then those people who were drinking for their health are now scaling back. And so that's creating a big downturn in volume of consumption. Well, and to your point, a lot of this information has been cherry-picked, and there is a bit of confirmation bias happening across the board, because if you look at who is basically informing the next potential set of guidelines that are going to be coming out of all of this, there is conflicting information in that there are scientists, as you pointed out, who are saying that there is actually benefits to drinking wine and alcohol, and here's why. I think a lot of these headlines are really just getting pushed down because these other ones are so much more sensational. And it's hard, I think, is the wine industry tries to navigate this, especially for me. I see something on social media from people that are like, "Oh, wine is so bad for you." It has all this added sugar. It has all these additives, and it's farmed with glyphosate. And it's really. I don't know what to do about it, in terms of how do you shift this narrative, because obviously, anyone is posting that on social media probably is baiting you. And so you don't necessarily want to get caught into that vortex, but you also don't want to start your own vortex and start this very complicated conversation that's going to have all of these nuances and intricacies. And so I don't know how to get out of this crazy paradox shift that we're in right now with so much conflicting information. So you're right, I mean, quantity is down. How was it affected the luxury wine market? So the luxury wine hasn't been down as much. So people pricing has gone up. So revenue is basically flat, slushed down a little bit. It was the journey. the consumer market actually fell a little bit last year, largely in the fourth quarter. And I'm hearing from retailers at the beginning of the year that importers of things are very, very slow, even at the high end. So I think it's starting to really hit more. We've been in a dynamic where the rich have been getting richer and the poor have been getting poorer. And so the rich are still kind of buying the high end wine. And we talked about this with analytics, which is a data analytics platform at the DCC on X-Hit Toe. And they're saying that the zip codes, the rich, wealthier zip codes are still purchasing about the same amount of dollars, but volume is down a bit. And then the less effluent zip codes are actually purchasing significantly less. So we're definitely seeing that divide. And so it's boosting the high end a little bit. And this is what we're talking about America specifically here. But I think in the global financial crisis, I did some work as a McKenzie of the time, and I did some research on why the Y-Market was expanding so much. And the Kager, the average growth rate was like 9% a year from 1990 to 2005 or so. 6% of that was price and 3% was volume. So people were, it was that whole pre-memization trend, people were trading up. And the only thing that me and my team found that it was highly correlated was net wealth flagged by a year. So the way I think about it is you become wealthier, you know, your stock market goes up, your real state value goes up, whatnot. You kind of pay taxes on it the next year. And then you're like, okay, you know, now I'm willing to go from this $20 bottle to $40 a bottle right? Exactly. And so I think that's that had been happening, but now there's just like a lot of uncertainty, even for wealthy people, and especially if you look at globally when you look at global markets, like China is really in the doldrums and that middle class is growing as big and other economies are, the US is probably, you know, the strongest economy so far. And you know, others have been lagging behind. So I think that's put some drag on the fine-wired market and you see the live X indices dropping the last couple of years, you know, 15, 20%. You mentioned that growth between 1990 and 2005 was basically, you said 3% quantity, 3% price. So it was 9%. So 3% volume, 6% price. And now we're seeing, we're still seeing increase of revenue, but we're going down in terms of. Actually, last year was the first time we see revenue and volume dropping. So before volume was dropping, and revenue was going up as people spend more money per bottle, but now we're seeing both volume and revenue dropping. In that 15 year stretch, people were spending more and buying more. Do you think that was a function of people wanting to collect wine? Not necessarily consume it because I mean, there is a lot of wine on the market from that era on the secondary market. And I don't think that we're seeing people collect wine in a way that they used to. And I don't know if that's a function of space and people not buying houses or if that's a function of not wanting to do that because their parents have so much wine and they see what's happened or if it's just an economical thing, we just can't afford it. People in general were drinking more wine. But I think people were also collecting more wine. And part of that is, I think they had the means in the space. The boomer generation was relatively well off. They tended to be in the suburbs. There was less. We had this urbanization movement, which means less space and less place to put wine. We also had the importance that I've talked about in different places of later family formation, both later wealth accumulation for millennials with the global financial crisis and later family formation. And normally when you have a family, you move to a bigger place, usually in the suburbs, you have more time. You're not going out to bars and clubs as much as you used to. Hopefully if you have kids, you still can. Some people do too. Maybe sitters and whatnot. But you may have people over more. And go to other people's houses more. And wine is a great way to elevate meals and have a shared experience with your friends in those settings. And so I think now that that's happening, we are starting to see millennials start to get into wine more. But that doesn't recover the fact that all these things are happening later. And so you lose some sales that would have otherwise happened. Yeah. And then we have that string of years where millennials were very distalzer as in other sorts of like canned beverages and canned cocktails. And so yeah, I wonder now if now that we're kind of stabilizing as a quote unquote generation is wine going to re-enter our social lives because it's the most obvious choice. And if you are having someone over like, open a bottle of wine. It feels much more convivial. It's like, it's the nicest thing to do. I mean, I don't really want to go over someone's house and be handed a high noon, but I know that I think anyone would ever do that. But it is interesting that you bring that up and I wonder if like, this is a lesson learned for future generations. Like we weren't really as an industry. We weren't really ever there for the millennials in terms of marketing. Like, how can we fix that for the next generation so that when they are ready to put down the selltor or they are ready to like, you know, not have a gummy when they go out like, why it is ready for them? Like it becomes this aspirational thing not just in the luxury sector, but also in just like, you know, the 30 to 50 dollar bottle of wine becomes something that they reach for as well. Yeah, I think there are people doing that and there's different formats like cans and everything to make it more convenient for people. But I think we need to do a better job as an industry and we have an opportunity now that there's an oversupply of grapes to have higher quality at lower price points. So you know, people are saying that $10 wine is dead or whatnot. I wouldn't say it's dead. It's definitely smaller. You know, maybe 10, 15, 20% smaller. There's less of it. But there's an opportunity the same way that two buck chak or decoy, you know, came in during parts of oversupply and low demand to really create a high quality product for really low cost and create a new market or be a new introduction for the younger generations into wine that is high quality because when you have, you know, some of these products, low end products today, they're not great. No, they're terrible. And I think you're spot on. I think I've mentioned on this podcast before, like I used third wave coffee culture as an adjacent example in that like you had in order to get to your ritual and your blue bottles, like you had to have Starbucks in order to have Starbucks, you had to have folders, right? You had to get people used to even the idea of drinking coffee before they were going to make those steps. Like I think one, I think we have the Starbucks to some degree, but what we don't have is the folders. What we don't have is that like that entry level wine that doesn't taste like shit, that people get used to drinking, that hopefully doesn't give them the headaches that everybody says that they're getting from some of these really cheap wines. And I think if someone can come and do that, that's how we get in the next generation to start getting them used to and acclimated to drinking wine on a regular basis and not just it being, hey, I'm 30, 40 years old now, I think it's time to drink wine. Like I think it would be a much more natural progression that way. Yeah, and the challenge is really cost of production, especially in the US, especially in California or places like New York with very tight labor laws and difficult labor laws. So the cost is just huge and that's where hopefully technology comes into play and can reduce the cost of production. It's helped us automate so many other parts of our lives, but if you can think of like the Rumba for vineyards and things like that, right? Like those things, you know, it can take away a lot of costs. It does mean less manual labor, but you know, if that's what's needed to survive as an industry, then I think it's something well worth pursuing. Do you think an adjustment of a three-tier system, not that it would probably ever happen? Do you think that would change things as well? Not a ton. And I say this because there's state-by-state regulation, which is very annoying and challenging and part of the three-tier system. But the actual tiers itself have consolidated so much where like most big players are going through the big distributors. So there's, you know, the big distributors are selling, I don't know, 85% of the volume of wine, right? And so the big players go through them and they go to the big consumer channels, right? The retail channels, the big retail channels and big restaurants. And then the small players are mostly surviving by going direct to consumer anyway, right? So if you got rid of the three-tier system, I'm not sure how that would change because you still need someone to deliver to the big and do the logistics, which the distributors are good at for the, you know, the big retail grocery stores and restaurants. And then, you know, the small guys, it's not like the big distributors are going to take the small guys if there's no three-tier system. Right. Well, I mean, that's true. I think it does, it does potentially hurt the little guys, but I think, if I think about this idea of folders, like how do we get this seven to ten-dollar wines? And I think about the Kirkland brand wines, right? These are private-wabel wines that Costco does. So there's really no, there's no middleman. They're handling everything mostly from suit to nuts. Obviously, Costco, I think it's only 30% markup on their like what their cost of goods is. Most of their models own subscriptions, so that's a whole separate conversation. But I think of that as potentially being the case study for if three-tier system were to go away and a whole foods could buy it directly. at distributer prices or whatever their FOB prices are, from a California winery or from an Oregon winery, do we think that that would maybe open up the door for a more mass market, $7 or $10 wine that didn't taste like shit? That's, I guess that's the question that I'm asking. - It's possible. They can already do that in California, 'cause California can sell direct. - They can sell direct. - They can sell direct to trade. And so if they, if that were the case, you would see it happening in California, which is already the largest wine market in the US, right? It's like, was it like a third, I think of the wine market of the US. So it's like, you know, if that were the case, then you would see it happening already, but we don't see that happening yet, right? - Do you think that's true though, or do you think it's just because they have to protect SRP, because you still have the distribution model and so you wanna be in line with the rest of the country? - Yeah, there's certainly an element of that and distributors maybe mad at you or want the California business so that they have it. So, but I think producers, you know, at that scale, they do have, they're normally with contracts with the distributors, so there's distributors that are required to take certain amounts of them, of things, and they tend to work on lower margins for those types of high volume products anyway. And so I don't know how much more cost savings there would be going through there, because they're working on summer margins and then the producer then has to take on the cost of the logistics and delivery, which is not a trivial matter, right? - That's true, yeah. - Yeah, there's some level of distributor margin that you could take out, but it's not gonna be ginormous, I don't think. - That's a fair point. I'm just, you know, I think I'm just gonna die on the hill that I would love, I know some people are like, especially my distributor friends. The three-tier system is so problematic for me personally. I have a lot of issues with it, but I also understand that service purpose. - But I think if there was no interstate shipping restrictions and things like that, right? So for alcohol in general, like, you know, not just wine, but beer and spirits and everything, and you just got rid of all the regulation restrictions of shipping between state to state or retail shipping, right, especially retail, retail or shipping to other places that solves a lot of those issues, I think. - Yeah, I think if you just federalizing alcohol laws in general would help dramatically. - I'm super grateful for this conversation. I love talking to you about all things wine business 'cause you're such a wealth of information. I know also the podcast is going to be releasing a series that I'm very excited about, not that I'm Jewish, but I have this interesting fascination with kosher wines. I think it stems from like, I worked at the Koura Club back in Manhattan, and it was my first entry into the culture of kosher wine, and I know that you are doing a series leading up to Passover. So I definitely wanted to make mention of that, and have you just talk about some of the discoveries that you've made over the past few weeks? - Yeah, and not being Jewish myself, it was a lot of learnings for me, and how big some of that kosher market, and how many kosher wines there are out there. There's thousands of kosher wines from all over the world from major producers, and I've visited some in my life, but not definitely not all. And then I didn't realize how big Israel is as a wine-producing nation, and some of the quality that comes out of it, I've tried one of the wines so far, Chardonnay from Golden Heights, and it was a very good Chardonnay, like much better than many of the other ones, you know, you can even get out of California, and I was so surprised, and just learning, I think there's great traditions, and that you wish, especially for Passover, which is in April, and the series will come out during the month of April. - Even producers that are making non-kosher wine, like I always mentioned, my commas makes a very small amount of kosher, and they don't, I don't think they sell it on the website, I think you have to ask for it. But there's a lot more of it than I think people realize, so if you are Jewish and celebrate in Passover, or just looking for kosher wine in general, when is that series gonna hit, and it's coming out on extra tow, right? - Yes, it'll be an extra tow in April. There'll be two episodes coming out in the month of April, which Passover I think is a mid-April. - Yeah, I think we can April 12th, when we start. - Yeah, super fascinating. I also all shout out Covenant wine, which is in Urban Winery in Berkeley. That sources both from California and from Israel, so they're a great resource to check out as well, if you're interested in kosher wine. But yeah, I don't know, it's always, as a person raised Catholic, the only time we ever really had wine in our culture, was like at the end of an altar, and like from a shared glass, which now in retrospect seems really gross. This whole side of things was like very interesting to me, so I love that you're doing a special series, dedicated to that. Anything else that has come out for you that you wanna make mention of? - I guess one thing that I'm doing is trying to launch, in the vein of getting more people in the wine, is trying to launch the Asian wine association of America, which is nominally about Asian vipers, but it's more about bringing wine culture to their wine to Asian cultures. And so it's the point of like Passover having these traditions, how do we enable wine to enter more in Asian cultures, which is underrepresented, there's only about 5% of wine drinkers are Asian, but it's 7% of the American population are Asian. So if we can convert more people in, that could be a 100,000 more wine drinkers in the US, and more Asian restaurants realize that they can make more money and they had better wine pairings with, and there could be upwards of like 5,000 more restaurants with good wine less. So I think that's gonna be something that hopefully we can get off the ground and we're trying to do it, we're doing it, go find me to try to raise money to incorporate as a nonprofit. - Oh, fantastic, well, we'll definitely link everything below as well as where to find Peter, if you have additional questions, which I'm sure some of you will, I definitely recommend reaching out to him in whatever way he deems a good fit, whether that's like LinkedIn or something like that. But so all of you listening at home, I hope you found this episode helpful. I know it's definitely leaned on like the trade side of things and the inside baseball, but I always think this is valuable to know as wine drinkers, what's going on in the wine world and how that's impacting some of the decisions that are being made on your behalf. So with that in mind, if you are a member of the Wine Access and Felture Podcast Wine Club, we thank you, the wine that we had today was of course the quibbia as I mentioned from Mallorca, but if you're not a member, you can find everything you need to join in the description below. It's every two months, you're getting about four, you're getting four bottles of wine. It's 120 bucks plus tax, but including shipping, and you're gonna get 10% off of all of your wine access purchases. And the wines are selected in part by me and with the help of my friends at Wine Access on the team there. So thank you, Peter, so much for your time. Really appreciate it. All the best with X-Shot Show and all of its upcoming, exciting adventures. And I hope to see you somewhere delicious and with some esoteric wine soon. - Thanks for having me. Cheers. (upbeat music)