Monday, January 26, 2009

What is the real cost of Petrus? The Revue du Vin de France analyses the cost of wine production...and an Italian producer accepts the challenge.

In its January issue the "Revue du Vin de France" investigated on one of the best kept secrets on earth....the cost of wine production and the relation with prices, notably for famous wines.

The magazine has selected some of the most desired french bottles (Chateau Petrus, Dom Perignon and a Roumier cru) and a low-price bottle to investigate what is their cost and comparing this with the retail price.

The results are extremely interesting from several points of view: first of all it is clear that the costs of production and vinification are rather limited even for the most important wines and even (and including also other costs for the producers: administrative cost, machinery depreciation, marketing/publicity..).

For example let's take Chateau Petrus, one of the most expensive wines on the planet and a bottle that not many people can experience in life. The magazine has analysed the various elements of the cost of a bottle of Petrus and the final cost of a bottle of Petrus turns around 30 euros (of which 10 euros only for the bottle and the etiquette, a special anti-fraud etiquette). 30.000 bottles of Petrus are produced each year. The 2005 vintage was sold by Petrus at 450 euro and can be found now at 4500 euros at retailers. The wine represents then an enourmous source of profit for the Moueix family who owns Petrus, for its combination of moderate production costs, high price and a good number of bottles produced per year.

If we take Dom Perignon, the most famous cuvée of Moet Chandon, the total cost amounts at 17-22 euros (with a largest share for advertising, 5-10 euro, entirely different from Petrus, which does not spend on publicity and focus on the character of rarity and exclusivity). Due in particular of the enourmous number of bottles produced (5 millions per year) at non prohibitive final price (the bottle leaves the property at 75 euros and has a retail cost of 130 euros), Dom Perignon is a golden toy for Moet Chandon.

In both cases (but obviously in particular for Chateau Petrus and for other expensive wines), it is clear that the final retail price has no relation with the cost of the wine, and that we are in presence of a marketing operation that is simply making some wines less accessible and...much more profitable for a few producers.

But....we knew all this and this is not the key issue of the investigation of the Revue du Vin de France. What is really impportant is to have started the discussion about the cost of wine production and this will have an impact in particular for wines which are more accessible and are not managed by a speculative market but with prices decided by the producers.

What is the reaction of wine producers?

An Italian wine producer, who is running an interesting blog and is particularly involved in various aspects of wine policy, Giampaolo Paglia of Poggio Argentiera, has taken the challenge and has profited from this opportunity to ensure transparency about his costs of production and also his selling prices (a key issue in order to understand the final price of wines, where intermediaries foten take a large part). Here in his blog, Giampaolo Paglia unveils the cost of some of his wines (highly prized by most Italian wine guides), with great details for each cost item.

Giampaolo Paglia has done a great job and an immense work in favor of transparency, both for unveiling his production costs and his selling prices. In particular in a moment of crisis, where consumers do not want to pay excessive prices for wine bottles, it is important that other producers follow Giampaolo Paglia's example. There is the need to establish more trust between consumers and producers and also to put more responsibility on the shoulder of the rest of the chain, notably wholesalers, final retailers and restaurants.

With regard to the latter, Giampaolo Paglia proposed to print the selling prices on his bottle's etiquettes. This would allow even more transparency.

Provocation? Perhaps it is if we know how un-transparent is the price system and how much in particular restaurants charge wines. But it is a very good provocation indeed and would provide in particular Belgian consumers with a greater power not to accept the standard practice in belgian restaurants to multiply the price of the wine by 5-6 times (in Italy the situation is different: have a look at the wine list of Ristorante Bovio in Piedmont and you will see that you can afford a good bottle for 20-25 euros and a barolo for 50 euro, usually twice the basic price).

Friday, January 23, 2009

Prosecco reaches Obama's inauguration: but what is the future for prosecco?

That Prosecco was a growing star in America it is evident just by jumping into one of the many wine-bars in Manhattan where after work large crowds of young people in their 30's drink and chat lively with glasses of prosecco animating the evening.

But watching the new President of the United States drinking prosecco during an inauguration party represents one of the highest recnognition of the growing status of our best export wine.

During the last years the success of prosecco has become irresistible: 150 millions bottles produced each year, 29% export growth in 2008 (98% export growth to the UK, 650.000 bottles exported to China in 2007). This success is also reflected in the the cost of the lands in the area of Conegliano and Valdobbiadene that covers the DOC (Denominazione di Origine Controllata) Prosecco di Conegliano e Valdobbiadene. Buying lands in the DOC area now is more expansive than in the area of Montalcino (>500.000 euro per hectare for Prosecco).

But Prosecco, despite the existence of a specific DOC (created in 1969 and now covering 4700 hectares and producing 50 million bottles), is suffering from a major problem: the wine is simply called with the name of the grape and then prosecco can be produced and commercialised with this name in all countries. This is a major difference in comparison with other wines belonging to the same typology (sparkling wines) such as "champagne", "cava" or, to remain in Italy, "Franciacorta". All these wines have duly protected their name and do not have references to the grapes in the "denominazione".

While prosecco is a grape which is native of the area covered by the DOC between Conegliano and Valdobbiadene (in the province of Treviso, North-East of Italy), only one third of the actual production now falls under the DOC, while the rest is produced in the rest of Veneto and Friuli (in the area between Treviso and Slovenia).

But the main problems may come from abroad. Several countries have started planting prosecco grapes, mainly in Brazil, Argentina, Australia. In Brazil about 1000 hectares are now planted with prosecco (often with Italian investments) and sold at cheap prices. Another issues is the recent experiment of Austrian and German producers to import grapes from the prosecco area and bottle them as "Rich Prosecco", a product they plan to start to sell to the USA soon (in the picture Paris Hilton advertising for Rich prosecco).

The producers of the original prosecco area may then soon lose their golden baby and suffer international competition from other countries....and Obama's publicity may then have an adverse effect.

In order to tackle the problem, the producers of prosecco in Italy have started preparing to defend their product and work towards protecting the prosecco by creating a new "denominazione" that would cover the various areas in North-east of Italy where prosecco is now produced. 2009 will be the year of their offensive, even if it is not yet clear what strategy will be used.

An option may be to refer to the small village of prosecco, which is located a few kilometers from Trieste, close to Slovenia (from which the name appears to originate, coming from "proseku", which means "deforested area"). However, this area can hardly be identified today as an area of prosecco production and is 150km away from the DOC area. Other possibilities include referring to a regional area, but this would hardly cover the entire territory where prosecco is grown today.

This would be in any case only a first step, since the "denominazione" may be initially protected only in the EU area (and with countries with which the EU has concluded specific agreements), but would hardly ensure protection in the short term in Brazil or USA.

Prosecco may become the victim of its success....maybe. In the meanwhile, the objective for the Italian producers is to reach the levels of production of champagne (in 2007: 339 million bottles): an ambitious project.

Sunday, January 18, 2009

Gaja meets bloggers on the future of Brunello

Today at 10am Angelo Gaja (in the picture at his winery in Tuscany-Bolgheri), an iconic figure for Italian wine and whose wines from Piedmont have acquired cult status (and prices..), animated with a group of 20 bloggers (I was also invited but unfortunately unable to join) an open discussion at his Barbaresco winery on the future of Brunello, after the long discussions the took place last year regarding the terms of reference (Disciplinare) of Brunello and the possible violation by some producers (here you can read my views on this issue expressed last summer).

The way the discussions took place (you can read the entire live transcription here as reported thanks to the great work of Antonio Tombolini) cleared the doubts that some bloggers, including myself, had casted on the initiative, due to initial instructions that the results should not have been divulgated.

In reality, the success of this initiative in my opinion resulted from the open format that it took and the report done live by Antonio, in pure "blogger style".

First of all I would like to pay tribute to Angelo Gaja, who clearly exposed his public ideas regarding the Brunello (but that I believe he would also apply to other DOC and DOCG) and first of all decided to organise an event for "bloggers" (in the sense both of blog writers and blog followers). This recognizes the role that the world of blogs (which is now a major expression of the civil society) plays in modern society as an open arena for expression of opinions.

Italy in particular has an articulated and very engaged network of wine bloggers, very much involved not only in the aspects of evaluation of wines but also in the most intricated aspects related to regulations, policies, cultural identity. This meeting may well represent an impulse for the future for the organisation of more events in this direction (and Vinitaly next March could be a good opportunity to organise a meeting of wine bloggers in Verona...hope to see a good reaction on this).

Regarding the content of the discussion, it was a good exchange of views even if no new elements emerged. Gaja agrees that the extension of the area cultivated for brunello in Montalcino has also covered lands not suited for a 100% sangiovese brunello (as the "Disciplinare" requires). His view is that due to the high investments done there the producers should have the right to produce a brunello with the inclusion of other grapes than sangiovese but that those producing 100% sangiovese should be granted special recognition. Clearly the position of Gaja is twofold: on the one side he believes that it may be possible to produce for a very small number of wine lovers a high level wine that may or may not respond to a strict regulation (his cru "Sori Tildin"and "Sori San Lorenzo" are not under a DC/DOCG system), but on the other he believes that a producer is not profitable only on that basis but needs to target the "commercial consumers", that pay less and want an "easier wine", and for that reason he believes that adding other grapes to the sangiovese is more appealing and may allow to sell easier brunello produced in less favourable areas.

The discussion, however, did not touch two important elements: firstly the question of the culture of wine and the link of a denomination like brunello with sangiovese and its tradition (Patrizia Simonini raised this issue in a question but this was not duly followed); second the impact of the EU reform of wine names that will enter into force in August 2009 and wil simplify the system and oblige Italy to re-define its system of IGT/DOC/DOCG (for example the risk that "denominazioni" like Sant'Antimo and Rosso di Montalcino may disappear with important commercial consequences).

An important event that I regret deeply to have missed but was happy to have followed live online.