Vol.2 No. 5…Bordeaux wine and wine in a box

Seems like an unlikely pair doesn’t it? Well, the connection is sketchy but the unthinkable is happening. Perhaps not so unthinkable when fraud abounds (in Padova, Italy, 9,000 bottles of fake Moet & Chandon champagne were uncovered in a shed where they were being produced…I kid you not!

In Vol. 2 No.1, TB wrote on some books he had been reading. One of them, Vino Business, by Isabella Saporta, showed just how greedy  Chateaux owners, thanks to the Chinese were among other things, forcing out smaller owners by changing regulations that were expensive to conform to…how about having a large parking lot??? But the main thing is the number of them that are owned by global conglomerates who will do anything to increase production especially now that they can bypass the chain and sell directly to the Chinese…who needs England and America…after all, they won’t pay the obscene prices for cru wines.

Not only that but they, who have claimed the exceptional ‘terroir’ of the Bordeaux appellations found a way to increase production by merely acquiring ‘adjacent’ properties – wait…isn’t that inferior wine? Not if you blend it…called assemblage. If the harvest is done in August or September, and the first tasting by the ‘eggspurts’ are in March (Parker is always the first and alone followed the next week by the rest of the critics. But wait: the wine is still in barrels awaiting the final blend. Parker loves his wines powerful…tannic, monster wines, while the Europeans prefer more balanced structured wines…a problem: simply take the samples from new barrels for Parker and the more mellow wines from used or neutral barrels…problem solved! Whatever it takes to get a 90+ score! Now do you see why TB says, never buy a wine on rating…especially a Bordeaux!

The above is simply a matter of preference. What is more significant is that not only are they forcing their less affluent owners out…by placing their men in charge of the INAO and the appellations, they are maximizing by over-spraying of pesticides and herbicides which is done by helicopter or mindless men driving tractors to the very edge of the property. Despite complaints by residents it persists. A local lab examined bottles of wine from every classified cru and guess what? They ALL contained chemicals, including some on the banned list! …and you, dear consumer are paying for that in your wine. A trade-off of either health benefits or health hazards, but in Bordeaux you can have both! Note that also, as mentioned in Saporta’s book, this extends to Champagne…quel horror! Pesticide Black List

Now, in closing, the mundane: we have all heard how great ‘wine in a box’ is  and how it saves money (bottles and shipping), resulting in lower prices to the consumer. Sadly, there is no way of knowing if you are actually saving money or getting lesser quality mass-produced wine. But that is a small point when you figure if you open a bottle of wine, even with a Vac-u-Vin, it keeps for two days at most. But next time you buy it notice the expiration date…yes, an expiration date on wine! Be sure to buy well ahead of it and due to the plastic liners which ‘could’ contain BPA or other chemicals that could contaminate the wine. So IF you choose to buy wine in a box, make sure you are well within the expiration date (and if the retailer is putting the expiring stuff to the front buy elsewhere, and remember that BIG box which is cheaper per liter may not be the best value since you can’t drink it all within a week…unless you are with friends…and do you really want to serve them box wine? Note this is not an issue of oxidation as the bag creates a vacuum, just a health safety issue…possibly. Not trying to create a scare like the one on arsenic levels in wine, just make you aware.

TB

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Vol. 2 No.3 Bigger is better in Wine

…or is it? Got you there because you thought TB had caved to the big guys. Bigger is decidedly not better. For instance, who is the largest wine company in the world? Who owns the most vineyard land in California? Will China (biggest country) become the biggest wine consumer and/or producer? What is the fastest growing price segment of American wines?

Most definitely, TB does not have the answer to these questions or many others but he can shed a little light.

Who (i.e. which corporation) is the largest wine company in the world?

If you said Gallo, you would be wrong but they are in second place. Also, they are not just the producers of Hearty Burgundy and other inexpensive but good quality for the price) American wine but have diversified into premium wines. Years ago they were the largest in California and had the largest intra-state trucking company (to move the wine of course!). But they are number two to Constellation Brands.

However, there are big changes going on in the wine industry, just as in brewing. In 2014, the U.S. became the biggest wine consuming nation overtaking France. Late last year, AmBev which owns Budweiser and is the largest brewing company in the world, began an acquisition of number two SABMiller for $108 BILLION. How could the U.S. and EU allow this to happen? All TB knows is that if the deal didn’t go through – for any reason – there was a breakup clause of $5 BILLION. Now ask this: would anyone in their right mind risk $5 billion when there are huge anti-trust questions? To TB, the answer is NO! The gears must have been greased with the EU…but what about the U.S.? It appears that the only concession that must be made is that they can’t sell BOTH Miller and Bud in the same bars. Big deal! Not sure if that applies to their super premium brand, Stella Artois.

According to Wikipedia, the third largest wine company is the Castel Group, which was started by a wine negotiant in Bordeaux.  They own 17 chateaux – none of which you have probably heard of the best being a Bordeaux Superior. Why haven’t you heard of the names? Because most are sold in…CHINA!!! More interestingly, they own a large 1,400 hectares in Algeria, and 1,600 in Tunisia, and Morocco. Those produced 640 million bottles, most sold, and I presume, bottled in France without disclosing it is not French wine – something that is finally becoming an issue there. Later, they added a distribution network by purchasing Nicolas, a wine merchant you can find all over Paris and other large French cities. TB adds this because they also have 25% share of SABMiller – South Africa that is creating some issues with the SAB/AmBev merger…probably will be worked out amicably…with Castel the winner.

But now lets shift to the fastest growing company that you probably have never heard of: Treasury Wine Estates, an Australian Company that has its U.S. headquarters right in Napa, California. Diageo was a big wine company, one of the largest but sold off their wine division to TWE, an Australian Company. In addition, Pernod Ricard, which went on a buying spree in 2014 purchasing Kendall Jackson, Stags’ Leap Winery (don’t confuse with Stag’s Leap Cellars that won the Judgement of Paris tasting that brought California wines to the fore), and makes one of TB’s favorite wines, Petite Sirah – nothing compares to it.

Other California wineries are Acacia, Blossom Hill, Sterling, Beaulieu,and most notably Beringer Estates, which they purchased from Foster’s who also got out of the wine business to focus on beer. In Australia, and New Zealand they have numerous holdings including Penfold’s, Rosemount, Rawson’s Retreat, and more. They also own Gabbiano of Italy.  https://www.tweglobal.com/brands

Think of the beer,wine and spirits game as a game of Monopoly, because that is what it has become, and in the process created an oligarchy, much the way the tobacco companies created barriers to entry through having multiple brands…same as beer.

The big lever today however is China. China, with its love of Chateau Lafite Rothschild, which even at $1,000 a bottle often mix with tea or coke as they do not like tannins. That however, is changing…rapidly…as wealth rises and just as in the U.S., the newbies want to show their worldliness and thus are shifting to wines. Their two largest wineries, Changyu and Great Wall, produced mediocre wines – at best, but the quality is increasing. Here is where TWE comes in. First, they are known in China and trusted and have found ways around the labyrinth of Chinese regulations, which can change as often as daily…or even hourly. Note their copyright laws do not protect the person who came up with the name, but the one who filed first in China…even if the real company has been doing so for years. Generally it is a Chinese filer so he has an edge immediately, and like the scam lawyers in the U.S. who search for old, obscure patents to extort money from major corporations to avoid being sued for patent infringement.

Just last week, TWE announced that demand and shipments to China are way above projections. This company, which KKR and attempted to takeover, yet the man behind it fought them off and won, has two advantages in China: first, proximity: no wine producer is closer to China which dramatically reduces transportation costs; and ssecond, they are a trusted name in China. So for the first time since buying Mondavi stock, and Chalone Group, while discarding Mario Andretti Winery, TB bought some of the stock on Monday.

First, let TB make this clear…he is in no way recommending the stock…just looked like a good buy to him.  It trades in Australia as TWE, and is only available in the U.S. on the Amex pink sheets, symbol TSRYY. It had gone nowhere but shortly before the announcement of the increased demand from China went from $3 to over $6 then settled back to that number which is where TB bought it. It is HIGHLY speculative, but could be a ‘four bagger’ as Peter Lynch used to say.

Finally, what is happening in the beer, wine, and spirits industry is huge transfers of ownership. It went from accumulation to disgorgement (to borrow a wine term). Look at the recent changes: Bordeaux’s main market has shifted to China, decimating sales to England and the U.S., which had been the main market; U.S. overtaking France in wine consumption; corporations doing what they always do: rush into the next new thing and then when it doesn’t produce the results they want, dumping it, as Coca-Cola did with Sterling (now part of TWE), or when they let New York wine company, Taylor, file for bankruptcy, unwilling to wait for the new vitis vinifera wines they had planted to produce.

That is why TB firmly believes in smaller individually or family owned wineries where passion still exists unfettered by the bottom line and therefore producing the highest quality wines. That’s what TB’s talking about…and all about!