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A Few Sun Breaks in Oregon's Purple Haze

sunbreaks.jpg

In a recent Oregon Wine Press guest column, Bill Hatcher, owner of A to Z Wineworks and CEO of Rex Hill Vineyards, wrote about the challenges Oregon pinot noir is facing as a result of too much supply chasing too little demand. Hatcher's commentary, which he entitled, "Under a Purple Haze", suggests that the Oregon wine industry is in a fog of increasing production, while neglecting to build sufficient national demand for its product.

Hatcher seems to spare no one in calling out blame for this predicament. At the state level, there is the Oregon Wine Board's paltry spend on trade marketing while the industry continues to invest in agricultural research. At the grower level, there is the creation of too many sub-appellations and focus on sustainable farming and winemaking practices. At the winery level, there is the parochial tendency to sell locally at the expense of building national brands.

After reading his commentary, I felt compelled to offer a perspective from the consumer's point of view, one that not only challenges some of the assertions Hatcher makes but also strives to reinforce some of the strengths Oregon pinot noir has going for it. I do this with some reservation, if not trepidation, for I am neither a grower, winemaker, or industry expert, just a regular and frequent consumer of Oregon pinot noir.

Overall, it appears Hatcher overlooks some bright spots in the "purple haze" that has clouded the state's future. For example, there is the impact increased production will have on reducing Oregon pinot noir's price point. And not to mention the benefits gained through the broad diversity and quality differentiation of these wines. I could go on, but would rather expound on these specific "sun breaks" in hopes that the dialogue will be extended on this important topic.

Higher Production, Lower Prices

According to AC Nielsen scan data, the average price of a bottle of wine sold in the US is $11.46, with 90% purchased under $19.67 and 50% of sales under $9.22. With few Oregon pinot noir wines priced under $20, it seems the region's "purple haze" has less to do with a lack of awareness and more to do with a lack of affordable product in the retail channel. My regular visits to Seattle grocery stores and wine merchants confirm this, as there are few choices available when it comes to finding a bottle under $20.

This lack of product is even more apparent on Seattle restaurant wine lists, where Oregon pinot noir is not always included, but when present it's usually at a high price point relative to other offerings. Believe it or not, a similar situation exists in Portland, where some are now advocating a "Drink Local" campaign due to restaurants not carrying enough Oregon wine on their menus. And if that weren't enough proof, then look no further than Paul Gregutt's recent list of recommended pinot noirs under $20, none of which were from Oregon.

I am no economist, but doesn't the law of supply and demand dictate that with high production comes lower prices? Granted, it is unlikely this market force will have an impact on the higher priced, boutique wines, as these producers will resist discounting their product. But for much of the higher quantity Oregon pinot noir priced between $20 and $30, it would seem reasonable to assume prices being forced down in the years ahead. As a result, this should make these wines more accessible to consumers nationwide.

Furthermore, as production increases with each harvest, it would not surprise me if some enterprising winemakers take advantage of this excess supply and produce a broader selection of Oregon wines under $20. A case in point is Charles Smith of K Vintners, who saw the rising tide of Washington wine and launched The Magnificent Wine Co. to bring more inexpensive, quality Washington wines to a national audience. From its start in 2004, this company is now producing over 100,000 cases of 8 different wines all priced under $20 and distributed in just about every state in the US.

It would be unfair to classify Smith as a mere opportunist looking to make a quick buck off of excess juice, for his efforts have enjoyed sustainable success in the marketplace these last several years. Furthermore, one would be hard pressed to suggest that Smith's efforts have resulted in any deterioration in quality, for the wines he produces are pretty decent considering their price point. If Charles Smith can do this for Washington state, then there has to be a winemaker or two in Oregon capable of doing the same, right?

The Diversity of Place

As to the product that is Oregon pinot noir, Hatcher offers a compelling argument to re-position it in a manner that will "creatively distinguish tangible and intangible values unique to Oregon." The central theme of this re-positioning, according to Hatcher, would be "to cultivate the mystique of Oregon wines". I think Hatcher is on the right track with this approach, for there is something to be said for taking a disadvantage (e.g., Oregon wine remains a mystery to consumers), and turning it into an advantage.

At the same time, it should not be overlooked that "Oregon pinot noir" is a truly unique product that warrants a marketing approach different from that taken by its neighboring states. California and Washington benefit not only from higher production (which lowers price), but also gain from their varietal diversification (which expands selection). For example, California cultivates more than 112 varieties of grapes, while Washington has over 20 different types, many of which are produced in large quantities. As a result, there is something for everyone in either of these two states at an affordable price point.

This is why Hatcher's comparison of wine tourism in Oregon with that of Sonoma appears to mix apples and oranges. Yes, Sonoma does have a comparable level of pinot noir under cultivation (10,183 acres) relative to that of Oregon (9,858 acres), but the similarities end there. The reason Sonoma's wine tourism is ten times larger than Oregon's is due to its geographic proximity to Napa Valley, a renowned wine brand, and San Francisco, a major destination for personal and business travel. Furthermore, as mentioned above, Sonoma has the advantage of producing a broad mix of varietal wines at many price points, whereas Oregon has essentially one ultra-premium priced wine, pinot noir.

To be fair, based on total acreage, tons crushed, and cases sold, Oregon is essentially a two wine state, with pinot noir being the predominant variety while pinot gris remains a distant second. Considering the importance of selection to consumers, how should Oregon pinot noir compete against the broader array of wines available from its neighboring states? I suggest it play to its current strength by aggressively promoting its sense of place and the diversity that comes with it. What might seem singular on the surface, is actually quite diverse upon further inspection.

One of the things I find most intriguing about Oregon pinot noir is the diversity of soil, topography, and climate that exist throughout the state. This combined with the variety of winemaking styles offers the consumer a broad selection of pinot noir, from the modest and elegant to the rich and full-bodied. It is this sense of place, formalized in the creation of sub-appellations and described on wine bottle labels and winery websites, that make drinking Oregon pinot noir a truly unique experience. And through this localization of Oregon pinot noir, one starts to make deeper connections with the land and the hands that produced the wine.

It is a connection that many consumers are seeking not only with wine, but also with food. Even still, Hatcher argues that "the multiplicity of appellations actually inhibits attracting new customers, as they perceive Oregon as being too difficult to understand". I've heard this suggested before from others in the industry, but have yet to see any empirical data to support this claim. In fact, this assertion runs counter to what consumers want in terms of understanding where their food and wine comes from, as evidenced by the rise of more detailed labeling on many consumables. It's also evident in the media surrounding food and wine, such as television shows, books, and magazines that emphasize place of origin.

As such, efforts to further define the sense of place that is Oregon pinot noir and the diversity that comes with it should be well received by those consumers predisposed to understanding where their food and wine comes from. But as Hatcher suggests, this should rely on a new positioning and expanded marketing to educate and inform consumers of this diversity. And to be clear, these efforts need not be directed to the broad audience that is the American wine consumer, but rather those who fit the demographic and psychographic profile of Oregon pinot noir's target customer.

Quality as a Differentiator

Besides diversity, there is a consistent quality to Oregon pinot noir that would suggest the industry's long-term focus and investment has paid off. But don't take my word for it, just read or watch Dorothy J. Gaiter and John Brecher's recent experience tasting wines from the Oregon's 2006 and 2005 vintages. It is interesting that one of the hallmarks of quality Gaiter and Brecher cite is Oregon pinot noir's sense of place: "The winemakers allowed the vineyards themselves, the fruit itself, the terroir itself, to star. This is what makes great Pinot what it is -- an expression of place." Interesting how a sense of place and the level of quality are intertwined.

I believe the quality of Oregon pinot noir is grounded in sustainability, specifically the farming and winemaking practices that produce wine that is good for the environment and for those who consume it. I believe Oregon has a competitive lead in this area, and should double down its efforts by extending these practices further, while promoting the benefits that come with it to wine consumers. Here again, Oregon pinot noir is well positioned to take advantage of an important trend, the consumer's growing appetite for organic foods.

Citing a recent study of wine consumers, Hatcher suggests that the promotion of sustainability will not influence purchase decisions. He supports this assertion further by sharing how South African wines sales in the UK suffered as a result of a focus on sustainability. It wasn't until South Africa repositioned its wines to promote the exotic, tribal characteristics of its country that sales in the UK finally took off. Unfortunately, Hatcher doesn't reveal who the study surveyed (average wine consumers?) or what type of sales increased (inexpensive wines?).

Like many consumers, I am aware of organic food and wine, but am still discovering a lot around biodynamic farming, let alone the broader notion of sustainability. And like those in the consumer study Hatcher cites, I don't always buy wine solely for the fact that it is organic, biodynamic, or sustainable. But I do believe these practices, whether officially certified or not, signify a key, competitive differentiator for Oregon pinot noir. It's not so much the reason why I choose one bottle of Oregon pinot noir over another, but more importantly, why I choose to buy and drink Oregon pinot noir over other types of wine.

As to the specific role these practices play in creating better tasting wine, there need not be a correlation proven to influence my purchase decision of Oregon pinot noir. I just feel good drinking wine that has been made with respect for the environment, and feel even better that what is going into my body is good for me. In total, this may very well create bias in terms of how I think the wine tastes. But whether or not the wine tastes better is not the point. What matters to me is the fact that Oregon took the lead on sustainable practices well before this became the norm amongst many other wine regions. This is what distinguishes Oregon pinot noir from other wines.

A Few Final Thoughts

Overall, I have concerns with Hatcher's broad notion that bigger is better. Is it better to have "150 viable national brands" rather than the "50 quasi-national brands" that exist today? Would it be better if the Willamette Valley was to become a tourist destination like Sonoma Valley? Is it better to have a large, centralized marketing budget controlled by the Oregon Wine Board versus a more decentralized approach? Is it truly better to promote a state rather than focusing on a more local sense of place?

Put this way, I fail to see how being bigger is really better for Oregon pinot noir.

To be successful, Oregon should keep doing what it has done best these last forty years: be a leader, not a follower. For it is from this position that Oregon can continue to distinguish itself from neighboring states, if not other wine producing regions of the world. By being true to itself, Oregon can continue celebrating its diversity and differentiation in an environment that is producing more product at a lower price point.

As a result, more consumers, both here in the Pacific Northwest and elsewhere across the country, will have access to not only affordable, quality pinot noir, but also a truly unique wine in terms of the connections that can be made with the places, people, and practices going into each bottle.

Postscript: Please see the comments section where Bill Hatcher has expounded on his position and shares more of his thoughts on this important topic. Also, I encourage you to check oenoLogic, where Thor Iverson has written a related post entitled, "Oregon, going, gone?".

Comments

Oregon is at risk of being overtaken by Central Otago for relevance, due to over-pricing. Start with the basics- Burgundy. It will always be the touchstone for pinot. A quality Burgundy, though, is darned expensive. That leaves room in the mid-price range for somebody else to step in. Who? Oregon competes with California and New Zealand for the opportunity (and watch out for the South Americans- they have the cool weather and elevation and are starting to figure it out). Unfortunately, Oregon producers seem to think every bottle is something special when the truth is that 80% of them are generic "black tea and cherry cola" quaffs with little mid-palate and a fair shot at not offending the food on your plate. And you know something? That's okay, because pinot is a damned hard grape to work with and a decent quaff is a decent goal. But not for $30. Sure, the $30 Oregon pinot is better than the $12 mass-produced plonk, but no $18 better. I can get a basic Burgundy for $20 and find more depth. A few Oregon producers put out magic in their bottles. Most, though, suffer from the delusion that the magic comes from "Oregon" and that they have it too.

Most Oregon producers need to target the $18-23 range and get over their delusions of grandeur.

Just one guy's opinion.

Fairly harsh - black tea and cherry cola! Sounds like it's worth spending the extra few dollars.

Dhonig, thanks for sharing your perspective on this important topic.

I would like to think that with the increased production (and hopeful lowering of prices), you will see a broader selection of Oregon pinot available in your market over the coming months.

In doing so, I am confident the percentage of Oregon pinot noirs offering a more elegant and modest style will increase over time. If you don't want to wait for these to show up on your retailer's shelves, then I encourage you to seek out some of the wine recommendations here at BeyondtheBottle.com and order directly from the producer.

I prefer a more modest, elegant style of pinot noir, which many producers in Oregon are capable of delivering, regardless of vintage. Check out my list and please share your experiences with any of these wines you happen to open at your table.

Thad

Thad, your argument is thoughtful and well-written. I would like to offer some notes in response.

First, because of the sometimes dramatic yield differences between Pinot Noir and other red varieties, the cost of producing a bottle of Pinot Noir is inevitably higher. Believe it or not, at current prices more than a few wineries have production costs higher than their FOB. It is for that reason that banks unusually lend against the FOB value of inventory rather than the standard practice of cost.

I am not apologizing for this problem; in fact, in it we saw the opportunity for creating A to Z which it to say that it can be done. However, to do it and manage a sustainable business has a lot of moving parts, not the least of which is the necessity of scale economies.

With respect to the Sonoma comparison, I am not suggesting parity but still believe that the gap is greater than it should be.

While I agree that the nuances of winegrowing here and the appellations themselves are intriguing and part of the seduction of Oregon Pinot Noir, a recent survey presented at the OWB marketing committee meeting indicates that wine consumer awareness of Oregon in general hovers around 50%. I am merely saying that we have to walk before we can run.

At that same meeting, there was unanimous consensus from the 25 wineries present that while sustainability is proper stewardship and good business practice, market experience is revealing that the me-too message of sustainability has all but erased any differentation advantage.

And last, please don't mistake my point about increasing the critical mass of viable producers (viable in the sense of good wine and sustainable businesses) as a bigger is better argument. It was only to say that with distribution inexorably constricting, the region has to make its presence felt. More so, with over 400 wineries in the state now, if over 80% of them are not viable, they will drag down all but the strongest brands.

Bill, thanks for expounding on the points you made in your commentary and for sharing additional thoughts on the challenges facing Oregon pinot noir. I am glad to see the dialogue on this important topic being extended further, and appreciate you initiating it with your column.

My hope is that as a result of this continued discussion, there will be some meaningful ideas coming forward that will help build more awareness and generate more demand for Oregon wine.

For more discussion on this important topic, I invite readers to visit oenoLogic, where Thor Iverson offers his commentary on the problem as well as recommendations for what the industry should do going forward.

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