The Ever-changing Landscape of Virtual Wineries

GrapevineLast week I focused on four business models for producing wine across the globe. As I stated, many wine consumers believe that the process for making wine is similar for all wines. The supposition is that grapes are gently handpicked at the epitome of ripeness, carefully sorted for to weed out rotten grapes, leaves and insects and then lovingly crushed, fermented, aged and bottled, all under the watchful eye of a master winemaker.

Although this process does occur in many wineries, it as a far cry from the vast quantity of wines sold in the United States. For the most part, winemaking is a financially driven business, rather than an individual’s passion.

According to bw166, a beverage industry advisory and research firm, we consumed about 4.8 billion bottles of wine last year in the United States, a 151-million bottle increase (largely attributable to COVID-19).

Over 80 percent of wines produced and sold in the United States come from about 2 percent of the number of producers. By logical inference, there is very little production reaching our tables from the preponderance of wineries.

The business models for wineries break down into four broad categories: wineries that grow, process and age their own grapes; those that buy grapes but continue the production process in-house; those that purchase grapes, outsource processing the grapes, but store, blend and bottle on their own; and those that I dub virtual wineries, in which the owners outsource every aspect of their wine production.

This week I’d like to focus on several corollaries to the textbook virtual winery discussed last week.

  1. Opportunistic virtual winemakers. Remember the Great Recession? Sales of mid- to high-end wines were under severe pressure. Several famous full-spectrum wineries, with bottles selling at $40 or more, suffered from diminished sales. They decided to sell their excess harvest production to virtual wineries, which merely ran the finished product through an outsourced bottling and labeling company and sold the identical wine for one-half, or less, of the branded wine.
    This model persists to this day. Great wine at a great price – a winning combination for consumers.
  2. National wine retailers of private label wines. They have huge cash clout to buy good-quality finished-product wines at a significant discount and sell them under their own private label. The profit margin against national brands is significantly higher. Hence their business model: sell national brands at steep discounts (and lower profit margins) but sell their private label brand at comparable prices (and higher profit margins). Think Costco and Total Wine stores. Bottom line: a combined high gross-profit margin.
  3. A new breed of négociants (French for merchants) has taken the wine distribution model itself and turned it on its ear. These middlemen are providing a new service in the multitiered supply chain, mainly for high-end Bordeaux and Burgundy wines. They are placing large orders directly with producers – thereby boxing out traditional distributors – and holding their purchases in vast warehouses. High-end customers venture into the treasure troves of négociants’ virtual cellars of aged fine wines, their virtual wallets stuffed with large-denomination bills.

The consumer’s challenge: How to identify these virtual wineries when purchasing wines? It’s not as difficult as it may seem. Regulators in a number of wine-producing countries require specific language to differentiate full-spectrum wineries from the rest of the crowd. Look for label language like “grown, produced and bottled by” in the United States.

Other terminology should send up a red flag. “Cellared and bottled by” are trademarks of virtual wineries. Likewise, “Mis en Bouteille au Domaine” on French bottles and “Imbottigliato all’origine” on Italian bottles typically connote a full-spectrum winery.

Consumers consider winemaking an effort of the heart, crafted by passionate artisans who painstakingly hover over their wines like doting parents. In the 21st century, the wine industry is rapidly converting to a big business model, dispassionate and bottom-line focused.

Other than for idealistic oenophiles willing to pay escalating prices, the typical consumer is now being offered a level of price and quality wines never before experienced. That makes for a win-win business model.

Nick Antonaccio is a 45-year Pleasantville resident. For over 25 years, he has conducted wine tastings and lectures. Nick is a member and program director of the Wine Media Guild of wine journalists. He also offers personalized wine tastings and wine travel services. Nick’s credo: continuous experimenting results in instinctive behavior. You can reach him at nantonaccio@theexaminernews.com or on Twitter @sharingwine.

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