Wednesday, October 15, 2008

How To Sell Beer For $700 A Bottle

Slate.com published an article the other day, and, while it's about wine, not beer, I thought it worth looking at because it shows an excellent opportunity for the craft beer industry.

One thing caught my eye: On the day it became clear that Lehman was kaput, the trader pulled a 1997 Barbaresco Santo Stefano out from under his desk, and he and some colleagues proceeded to drink it from paper cups. The producer went unnamed (Santo Stefano is a vineyard), but the story said the wine cost $700. I e-mailed the writer, Gabriel Sherman, who told me the bottle was a double magnum. Piecing together these details, I'm reasonably certain that the Lehmanites were numbing themselves with the 1997 Bruno Giacosa Barbaresco Santo Stefano. Giacosa is a winemaking god, and reading about the shabby treatment accorded his wine—stored under a desk! drunk from paper cups!—prompted the first real schadenfreude I've felt since Wall Street went on life support.
I'm not the smartest person in the world about wine – in fact, wine has always baffled me. But, my nascent appreciation for beer has brought out some information about wine that I didn't necessarily understand before. Like what the hell this person, Mike Steinberger, is going on about. Ahh…yes…a 1997 Barbaresco Santo Stefano. Fools! Unfortunately none of that makes sense to me, and, really, without Mr. Steinberger's help in the second half of that paragraph I would never know that any details were missing from that. Turns out, it's sort of like saying, in the beer universe, a 1997 Willamette Pale Ale.

I'll get the less interesting part of the article out of the way now: blah, blah, blah; rich people are still making money and drinking expensive wine.


But it's that first paragraph that has me interested. By now you're probably wondering why. Well, if you're anything like me, you wonder why the hell anyone would pay $700 to keep a double magnum (128 ounces) of wine in their desk drawer. There's a few things at work here: first, why is the wine $700 to begin with; second, given the reasons for one, doesn't it make far more sense to keep it on a shelf or displayed so that you can show it to others? I'm relatively unconcerned about the drinking from paper cups part – everyone likes the irony of drinking expensive things in cheap paper cups (although, frankly, I prefer to go the other way, and have been known to drink PBR from a Waterford crystal tulip glass). But the whole scenario reeks of "I'm too good for high quality" elitism, snobbery, and fakery.

But, what I am interested in is the nomenclature of wine. I am far more interested in the reason why bottles sell for $700. In fact, it's fairly safe to say that this Lehman trader probably owns at least two bottles of this particular vintage (which makes me think, if I'm a Lehman Brothers client, that I am paying way too high of a commission to the traders!). And, the answer, as Mr. Steinberger points out, is right on the label. By looking at what these things tell us, we can maybe apply them to the brewing industry to better educate and drive interest to consumers.

  1. 1997 – the vintage date
  2. Barbaresco – the style
  3. Santo Stefano – the vineyard
  4. [Bruno] Giacosa – the vintner
First, the date. The macros have instilled in the beer consumer this idea that consistency is super important; in their world every bottle must be exactly the same or something is wrong – the process has been corrupted. Their processes have become so mechanized that if one bottle is any different from another there is clearly something wrong. Indeed, much of the to-do that the macros make about their "forays" (such as they are) into "craft" beer is that their American ale is "better" because they have a better control of the process and thus every bottle tastes exactly the same; with the concomitant negative implication that "and craft brewers don't." And this is borne out in their marketing when they tell us that their beer is flown in from all over the country to make sure that every single bottle tastes exactly like every other bottle despite the fact that they come from different places within the country, are produced under different brewers, and are being sold to different markets. Market factors aside though, this dogmatic obsession with consistency is a result of the strong-arming of the realities of brewing. Wineries put dates on the bottle because, quite frankly, some years are better than others. 1997 becomes famous as a good year, so any bottle carrying the 1997 imprimatur instantly becomes more "valuable." Well, much like the wine industry, some years for brewing are better than others; in a minute we'll get to some of the agricultural factors that make a slight difference between the industries, but even if it is brewery specific that still makes the date of great import. Note that this doesn't excuse inconsistency in quality it only recognizes that every batch is not going to taste exactly the same. Of course, the macros want you to drink great quantities of their swill in rapid succession, so they perpetuate the myth of "born-on" dates and beer "expiring." The reality is that while some beer is "better" fresh, absent spoilage, the beer doesn't go "bad" it just changes its character over time. Typically you can expect a beer to lose hopiness, meld malt characters, and become a little softer. In a light lager, these are not necessarily beneficial changes. In an imperial stout, or even an IPA, these can completely change the character of the beer and make it infinitely "better." Luckily, putting the date on the bottle accomplishes both tasks simultaneously – it lets you know both if it is fresh and how long it has aged. But, you say, it is not unusual for brewers to brew the same beer multiple times a year; in that case, use batch numbers or some combination like 1997 batch 1, 1997 batch 2, etc. This puts some impetus on the consumer to know that 1997 batch 2 might be great if the bottle you are holding is an imperial stout, but in 2008 it may not bode well for the pilsner. Word of mouth, that 1997 batch 2 is better than 1997 batch 1, will take care of the rest. In this way, in 2008 when said bottles come up in an auction market, the bidders can know that they are bidding on a 1997 batch 3 vintage Rasputin Russian Imperial and adjust their bids accordingly.

Second, style. And, for a single word, the style is very specific. Barbaresco: a red wine produced from the Nebbiolo grape in the Piedmont region of Italy " and specifically in the communes of BarbarescoTreiso and Neive plus that area of the frazione San Rocco Senodelvio which was once part of the commune of Barbaresco and now belongs to the commune of Alba. … The soils of Barbaresco zone are composed primarily of calcareous marl dating from the Tortonian epoch. The area is typically divided into three regions based on the principle town of the area-Barbaresco, Neive and Treiso. The soil and climate of the three areas are very uniform to each other which creates more across the board consistency than what would be found among the 11 communities in the Barolo zone." All of that is said in just one word. What does "Pale Ale" tell us? Or even "Imperial Stout"? Not really a whole lot in contrast. Ah. But what about "Washington Island Wheat" (for those of us here in Wisconsin at least)? We all know intuitively or at least through trial-and-error, that different parts of the country tend to make styles differently and that different areas have different topographies. For instance, we know that the American West Coast tends to make hoppier beers focusing on the cascade hop that grows well there. We know that Midwestern beers, with a few notable exceptions, tend to make more subtle, nuanced, complex beers derived mainly from the lack of availability of hops to this area for many, many years. And to some extent we recognize this with the prefix "American" in front of a style name, as in "American Pale Ale" which designates a more highly hopped pale ale in the West Coast style. But, a Minnesota American Pale Ale is a different beast, or carries a different subtext, from a true West Coast American Pale. We can do our damndest to replicate a Bavarian Dopplebock here in Wisconsin, but I'll be damned if our Midwestern sensibilities don't get in the way. The wine industry has developed different names for similar styles based on the area and technique of production, even similar styles that use the same grapes, but are produced in different places; to wit, Barbaresco and Barollo styles that use the same grapes, with the same techniques, but are produced less than 10 miles from each other and end up with noticeably different wines. The fact is, that while the macros would have you believe that a light lager is a light lager, there is a very big difference between those made in Pilsen and those made in Munich (Helles lager) and those made in the US (pre-prohibition and American/Corn-adjunct light lagers).

Third, vineyard. This is where the history of viticulture and American macro brainwashing make the biggest leap between $10 beer and $700 wine. The beer consumer, even the beer producer, has been led to believe that grain, is grain, is grain. Grain is a commodity. It doesn't matter where it is grown, how it is grown, what the soil conditions were like, how much sun that area got; it all gets mixed together in the end. The high-quality stuff is sent to maltsters like Briess in Chilton, WI; the low-quality stuff is used for livestock feed. Grapes, on the other hand, are treated like each is a mini-god. Each delivering a geographic and cultural story in its shape, and size, and liquid content, and sweetness, and bitterness, and mascerability (is that even a word?), and fermentability, and on, and on, and on. Could you imagine a central grape market where grapes from Wisconsin, grapes from "California" (where in California? Napa? Sonoma? Baja?), grapes from New York, grapes from Washington, were all mixed together, and shipped off to vintners under the names "syrah grapes" or "cabernet grapes"? Can wine connoisseurs even conceive of such a universe? Is that sentence sacrilege? Well, I would argue, the brewing industry, if they want to see $700 bottles of beer, should stop with the commoditization of raw materials. Capital's Island Wheat, and the subsequent non-stop marketing of the fact that the wheat is sourced locally, from Washington Island in Door County, Wisconsin, provides an excellent example of how non-commoditization can provide a price premium in the market. Of course, Capital has squandered this goodwill on a cheap golf-cart beer, but the point is valid nonetheless - how much of this mass-market-clone do you think they would sell if consumers had no idea that the wheat came from Washington Island? David Anderson's BrewFarm is a good step in the right direction. Lost Abbey's agreement to use hops from a neighboring hop farm is a good start. But those designations need to end up on labels. And not just "New Zealand hops" but where in New Zealand? We already do this to some extent in the brewing industry: Saaz hops were originally hops grown in a specific area that had a specific character; I think it is fooling yourself if you think that a Saaz rhizome grown in the Czech Republic will produce the exact same flower as a Saaz rhizome in England or a Saaz rhizome in the Yakima Valley. Of course, the fear is that the same rhizome grown in Yakima will somehow end up with an "inferior" reputation to their Czech brethren. But, so what? Chardonnay grapes grown in the Burgundy region of France enjoy a "better" reputation than their Sonoma Valley counterparts put people still buy American Chardonnays – and reasonable arguments can be made that the student has surpassed the master in many regards.

Fourth, vintner. Apparently, Mr. Giacosa is fairly well-regarded. And his winery happens to be named after himself, so separating the man from the apparatus is a bit problematic, but in this case, it doesn't really matter – the name Bruno Giacosa, means quality. But, so do Garret Oliver and Brooklyn Brewery. So do Tomme Arthur and Lost Abbey. So do Ron Jefferies and Jolly Pumpkin. But name alone is worth maybe, what, $20 per bottle? Mr. Arthur's beers sometimes fetch into $100 or $200. But none of these, generally regarded as three of the best brewers in the world, have sold an entire case for $700 per bottle.

To sell a case for $700 per bottle, you need 12 consumers willing to shell out $700 for a bottle. To convince a consumer to spend that much you need to tell him why he is spending that much. He's buying a beer from one of the best brewers in the world (name) made from the finest raw materials available (vineyard) to an exacting style and specification (style) in a year and batch widely regarded as one of the best of the generation (year). Investors aren't idiots (OK, sometimes they are). By providing consumers all of this information comes not only the person who knows all of this and what it means and seeks it out because they want to appreciate the hard work and craftsmanship, but also the jackass snob Lehman Brothers trader who wants to drop that kind of dough because he can and because he thinks it will impress somebody. Unfortunately, it takes both types to sell that $700/bottle case.

As you can see, a lot of factors go into making a $700 bottle of wine: the person who makes it, the place where it comes from, the style, the year. Which makes it all that much more galling when some overpaid snob jackass stores the stuff in a hot metal desk drawer and serves it in paper cups to his moron buddies to celebrate the failure of his own damn company and the impending havoc on the American economic system. What? You ran out of ice to put in the bottom of the cups? No soda water? Bah. I hope you spilled it on your tie.

7 comments:

  1. On a somewhat related note, Garrett Oliver once made a criticism of the beer industry that went something like this: "brewers can learn a lot from vintners. Wine labels talk about the rolling hills, the seasons, the romance of vinyard life, the subtle nuances of flavors you can expect to experience. Beer labels list original gravities and IBUs."

    Shelf life isn't a myth. Oxidation over time is unavoidable and will lend an old newspaper or wet cardboard flavor to all beers. It just happens that some beers (and wines) are strong and flavorful enough that the oxidation, instead of dominating the flavor profile, becomes a welcome component of the overall complexity. Otter Creek keeps samples from each bottling run for six months, and it isn't to verify consistency.

    ReplyDelete
  2. Interesting post - I do have issue with the idea that the raw materials (grain specifically) in beer can be put on the same stature as wine grapes.
    Malted barley, as used in beer production, is barley that has been processed. That processing levels the playing field and all but eliminates the idea of terroir, add the variables of roast levels on the grain and I think it's just about gone completely. Not to mention the other components of the beer (water? yeast?) and the effect they have on the finished product.
    Hops are more likely to show characteristics of origin since they go through less processing (especially whole hops).
    One other thing to remember: wine is just fermented grape juice and beer is the product of an industrial cooking process that combines ingredients into an entirely new product. In my experience, processing generally changes the unique characteristics of the ingredient in question. Not always for the worse, either.
    That said, Brewers would do well to put more specific information on their labels - such as the brew month/year etc to give us more information to make better choices.
    cheers.

    ReplyDelete
  3. As for Joe's point: yeah, some beer eventually goes "bad" but proper production, capping and storage can go along way towards keeping beers for a long, long time.

    But David's, I think, is a more interesting point, because it both makes and misses the point. First, the vast majority of beers would not see any significant change in value or perception, except for the overall bonus of providing extra information.

    But, where we disagree is that processing or "industrial cooking" has any significant impact. Think of two processed ingredients that we value for the single source nature: coffee, cheese. Milk and coffee beans are both generally considered to be commodity products, however, even despite heavy processing, both of these see significant increases in price and value perception if they are single-source and processed competently.

    In the beer universe, we generally recognize the difference between English malted barleys, french malted barleys, 2-row barley, 6-row, etc. Why is "English" an acceptable single-source indicator, one that I would argue is entirely too broad to be effective in designating origin, but "Wisconsin" or "Ohio Valley" is meaningless?

    I'm not arguing every beer can effectively take advantage of this system to produce a $700 bottle of beer. But I am saying that if New Glarus produced a barley wine that used batch-malted Wisconsin 2-row barley, with a Wisconsin-developed hop, distinctly soft New Glarus water, and a brewery-cultured yeast that such a beer could gain a significant price point provided that each of those had a positive market value (e.g., consumers recognized and valued those characteristics and that those characteristics are distinguishable - which I would argue, by sheer force of geography would necessarily be true provided that the processing - malting, roasting, etc. - were carried out in such a way as to emphasize the distinguishing characteristics).

    ReplyDelete
  4. Coffee is a good point...to a point. It can be compared to the grain base of beer; it goes through a rough process to get to the bean itself (much as grain must be removed from the stem and other parts we don't want in our beer). And coffee is roasted (which 'cooks' the raw bean - any chemical changes are caused by the heat of roasting) similarly to how malted grain is dried/roasted.

    The changes/dilution in origin of character for grain comes in two areas (as far as I can tell): the malting is a biological process that changes the chemical and enzymatic qualities of the grain; and the brewing process which adds water and other ingredients (including heat). That said, I don't think that English Malted is any more or less significant than Wisconsin Malted (not every malt house uses exactly the same process or equipment which also influences the end product).

    With coffee: grind; add water; filter and serve. So I see a single origin coffee as a more specific expression of the characteristics of origin than any beer. Coffee is one ingredient+water. Beer, even one using a single malt, has multiple other ingredients which, I believe, lessens the impact of the characteristics of origin.

    I would use a similar argument with cheese although I believe it is the other ingredients used by a particular producer that makes the most difference in cheese. You can have two goats milk cheeses produced from the same in the same neighborhood and get different tastes. In the case of cheese there is something 'special' about the product that merits a designation of origin (beyond just French Cheese).

    But back to beer. I have long been a sucker for weird beers with odd ingredients and alternative production methods and have paid $$ well more than I would pay for my everyday drinking beers. However, I don't think that the economics of the brewing industry would allow ANY brewer to produce a product in the price point you're discussing based on ingredients from smaller and smaller origins. I think it's because the point of origin is less of an issue with beer; on the other hand if I were in Belgium and Dany Prignon had brewed a single barrel of a one-off saison with grains from his uncles farm and hops and spices he grew outside the brewery, used a wild fermentation....I'd probably buy a couple of bottles. Could Dany charge $700...probably not, but I'd certainly pay into the 3 digits. Is it worth that much based on the ingredient list...nope, but I know the other products he's made over the years and have enjoyed them (a lot) and there's not much to go around (supply/demand).

    To relate this to your New Glarus Example (and I think we're talking about two sides of the same coin) You've put a lot of conditions onto the product to get to the Positive Market Value - "consumers recongnized and valued those characteristics" is the big one, but when you say WI grown grain, batch malted, WI hops, Brewery water, Brewery Yeast...give those same first three ingredients to Viking brewery and see what they come up with using their water and yeast....Would it still command a significantly higher price point?

    I guess my point is that the origin of ingredients in beer is less of an influence on the price point (and flavor profile) than the brewing method. But with wine...it's still just grapes, and the origin of those grapes has a greater influence on the final product since there is less 'processing' than with the ingredients in beer.

    Whew, I need a drink! Sorry to rant/ramble a bit here Jeff but I'm really trying to avoid doing laundry...have a great weekend. We'll have to drink a $100 bottle of beer some night!

    Cheers

    ReplyDelete
  5. It is probably important to remember that a vinyard is usually a farm. They control the entire production of their product from vine to bottle. Breweries are more like the factory where raw ingredients are assembled to create the wonderful, amazing, life fullfing products that we get to imbibe. The fact that the name Bruno Giacosa is important is huge. But you can get a bottle of wine with his name on it for significantly less than $700. The important part is that this particular bottle is extremley rare. A 3L bottle from 1997 (a vintage that gives wine geeks the shakes)from the San Stefano vineyard is probably one of a very small number that were originally produced. Let alone made it to the US and were not immediatley snapped up higher up the chain by importers, distributors, and retailers. You address the current lack of that kind of collectible demand but that is why that bottle cost so much.

    As to whether the ingredients can exude terroir? Well the grape is a finicky fruit my friend. It has always been amazing to me how different two grapes that grow maybe a hundred feet apart can taste. Based on so many factors; soil, sun, wind, and on and on and on. The best wine makers I have ever met are more concerned with the condition of their fields than the condition of the equipment in the winery. Not sure I have ever heard of hand harvested barley but I have seen winemakers swoon at the mere idea of using machinery to pick their grapes. Indeed I think it often pains them to not be able to pick every single grape themseleves to decide which ones are good enough to be in their wine. Also there are a lot more fermentable sugars in a grape than in a kernal of barley.

    All that said I have had many aged bottles of Capital's Blonde Dopplebock and Autumnal Fire that were amazing and would have benefited greatly from a vintage date on the label. Thank God for Sharpies. I have bottles of Thomas Hardy's ten feet away from me as I type that are going to sit for a long time before I crack them because I have seen what time does for that beer. I wold love to have a beer and discuss this in depth some time. Maybe we should do it in the presence of some adventurous brewer and convince them it is worth a try.

    Great post.

    ReplyDelete
  6. Ooh, I think English-malted vs. Wisconsin-malted makes a huge difference. Well, maybe. What I do know is that it's very hard to make English- and German-tasting beers with American malt. I don't know if the differences in malts are due to the malting processes, the regions where the barleys are grown, or a combination of both.

    ReplyDelete
  7. What an interesting discussion! I'm loving reading this stuff.
    I think Adam hit the nail right on the head with his comment about Vineyards being primarily farms. The conditions under which grapes are grown, when they are picked, etc. have much more of an impact on the final product than the same conditions do on the flavor of any normal beer ingredient. My understanding is that the specifics of fermentations of different wines in different regions is much more streamlined and are basically the same everywhere. This, obviously, is not the case for beer. That's one of the things I like about beer and dislike about home wine making (which i've never done, but dislike in theory): In home wine making you are totally at the whim of whomever grew your grapes or created the extract you are using, while as a home brewer you have access to the exact same ingredients professionals use, and it is what you do with them that creates the different dynamics of flavor. This does, I think, make a distinction between the importance of ingredient location in wine and beer, and the fact that wine is just grapes is important as well.
    That having been said, where ingredients are grown does have a big impact on flavor. Planting European noble hops in the US, for example, does not create hops that taste just like the European grown varieties. Or try making pale ale with the same yeast and hops, but make one with all American two-row, another with Belgian pils, and another with British Marris Otter; they would be drastically different beers.
    As far as beer labels being more like wine labels, I'm all for that. I think the example of New Glarus is interesting because they do have descriptions much like what Garrett Oliver was talking about as opposed to the traditional IBU's, O.G. etc. Having a year on beer bottles, especially aging beers like barley wine, imperial stout and belgian styles, sounds like a great idea to me.

    ReplyDelete

Note: Only a member of this blog may post a comment.