The Grapes of Math

August 9th, 2007 → 11:47 am @ Josh Hermsmeyer


I’ve written about Enologix here before. Their service purports to help you make wine that will score better with influential gatekeepers like Parker and the Wine Spectator. It is veiled in secrecy (very few producers own up to using it, though reports indicate that Enologix has approx. 50-60 clients) and it costs around 20K a year to use their service.

Recently Leo McCloskey was interviewed over at Appellation America by Alan Goldfarb. One of the more humorous moments from the interview, from my perspective at least, is when McCloskey tells Appellation America that appellations, AA’s reason for existing, are pretty much worthless to consumers as indicators of quality. The AVA smackdown follows.

“When you hear AVA, you just think — vanilla. It doesn’t have any color to it and depth. … The AVA won’t tell you where the highest-priced wines come from within the AVA because the producer of the lowest quality product in the AVA wants to cover up (that) fact. The true consumer information is always covered up by the AVA.”

McCloskey is a proponent of the European system: tightly (self) regulated genetic material and winemaking methods crafted specifically for individual wine growing regions. He argues that the wine industry basically sweeps their poor performers under the rug of appellation by refusing to self-regulate, and that this confuses consumers. He also advocates forming a list, ex ante, of the highest quality producers in the market.

Lots of Problems

There are numerous problems with this reasoning. The most glaring of which is the problem of determining quality in the first place.

Under McCloskey’s system, the high performers (those wineries that command high prices in the market) are considered “high quality”. Winners sell wine. This is evidence of quality. We need to celebrate winners and ruthlessly weed out the losers.

But more than any other industry, price and market success in the wine biz is driven by getting a high score from an elite group of perhaps 2 or 3 reviewers. They grade according to intensity. Coincidentally, that’s precisely the metric McClosky advocates using. So, effectively, quality is what Parker and Laube define it to be.

Interestingly, McCloskey acknowledges the problem with relying on experts to determine quality in the interview.

“It would be better to have a producer-based source because of the unreliability of the critics,” he says, surprisingly. “Critics’ ratings, of course, are subjective. About 30 percent of the products are misrated and this creates a risk to capital.

Hmm. And we are supposed to trust this kind of circular definition of quality to crown New World 1st Crus?

Our Industry Doesn’t Scale

But let’s leave that issue for now and talk about risks to capital. McCloskey levels the charge that the wine industry is too conservative. He claims that we subscribe to an incestuous and protectionist type of psudo-competition that focuses on “rising tide lifts all boats” tactics rather than a more transparent and customer-friendly system that rigorously enforces quality standards and weeds out low performing members.

I can’t argue with his analysis. Ours is an industry that tries to limit risk wherever possible. Like all farming endeavors, we have plenty of risk built into the ridiculously capital intense system already. Why add more?

But there is another factor at play as well, and it’s huge: Our industry doesn’t scale.

Example by way of a question: What is the pay off if we were to switch to the system McCloskey proposes?

The pay off is that there will be a newly minted cohort of winners who should always be able to sell their wine at prices many multiples higher than the vast majority of competitors. Consumers, in turn, will be confident that they are getting quality when they purchase these wines. I suppose McCloskey would argue that this would lead to higher sales for these wine winners – but oh, that’s right, wine doesn’t scale. Once a producer sells out, that’s all folks. There’s no good way to monetize unmet demand, otherwise Screaming Eagle wouldn’t be ramping up production (at the possible expense of quality) even as I type this. The only way for the winners to take advantage of their position will be to raise prices, and I’m not sure how that helps consumers.

This is a huge problem. It’s so huge in fact that I predict that we (the wine industry) will never, ever voluntarily enact the changes that McClosky is proposing. The current winners (who would simply be cast in bronze and stamped with “High Quality” under McCloskey’s plan) already sell out. They have nothing to gain by backing such a system, except maybe a nice ego boost.

And the current losers? Do you seriously think anyone who spent 8 million on their Yountville estate vineyard and winery wants to hear that they are no longer welcome in the Valley because their quality levels or chosen varietals don’t measure up? No, the rich owners of under-performing wineries will tell whomever asks that Leo can go pound sand, and to leave them the hell alone thankyouverymuch. This is America, after all.

Leo of course doesn’t have this problem. His business does scale. In fact, if Enologix became the clearinghouse for quality for all of Napa Valley he stands to do very well. That’s no reason not to judge his proposal on its own merits, but it is interesting to note nonetheless.

Unworkable Silliness

Unlike the core service offered at Enologix, which I feel relatively neutral towards, I may be judging this McCloskey idea too harshly. It may be that I took personal offense to his statement (in the YouTube video below) that sales success due to marketing is “undeserved” (Underserved?? Explain white zin, Yellow Tail and Stormhoek’s success to me then. Is it all undeserved? Or are they perhaps providing something of value to the market besides wine quality?). Maybe I’m insecure since a system like he proposes would make the already steep barriers to entry in the wine industry even steeper. Perhaps I’m just overreacting.

But I don’t think so. I think this is just plain ol’ unworkable silliness. I think Leo knows his idea won’t ever work. So is he just trying to be provocative?

If he is, I don’t mind at all. Being provocative is good marketing. I just hope he remembers that any business he gets from this latest PR campaign is “undeserved”.

Cheers to Leo for getting folks talking.

You can read the entire interview over at Appellation America.