When we first started 90+ Cellars in 2009, people used to ask us how we planned to keep it going when the economy bounces back. Five years later we learned that persistent market inefficiencies enable us to find ample supply of very good quality wine at a reduced price. Even though wine is heavily romanticized, it turns out that the business of wine functions very much the same as other products.
Wine is an agricultural product which makes it difficult to make on demand. Unlike beer, which is manufactured from a storable source of barley and hops, freshly ripened fruit is necessary to make good wine. Yields vary year to year, customer demand isn’t predictable, and the 3-tier system of producers, wholesalers and retailers puts distance between wineries and their customers, making it a challenge to understand precisely what customers want. These situations present advantageous opportunities for us to purchase some seriously good wine.
The current situation in California offers some good insights into this reality. 2012 and 2013 were the two largest harvests in California history. These harvests more than made up for the smaller harvests of 2010 and 2011. This means wineries are filled with wine and not all of it is destined for their own labels. Earlier this year wineries were fearful of the impact a sustained drought would have on the 2013 harvest. However, based on what we saw on our recent trip to California, 2013 is shaping up to be another above average harvest. There are still things that could go wrong, but at this point, it looks like wineries will be selling off some of what they are holding in barrel and tank to make room for the grapes coming in. Just like many other businesses, wineries do not want to hold on to more inventory than is required to meet their forecasts. One avenue they take is to sell it on the bulk market.
The term “bulk market” gets a bad rep. It conjures up images of large industrial tanks filled with indiscriminate wine. You will indeed find this kind of wine on the bulk market but this is not all that’s there. Wineries big and small sell wine on the market when it makes good sense.
Bulk market prices are based purely on supply and demand. The market price for Paso Cabernet is what it is. Once a wine hits the bulk market it is priced like all of the rest from that grape and appellation. The winery that made it doesn’t matter much. However, the quality of the wines are not all the same. Some wineries make better wine than others.
Much of this wine is gobbled up by large brands at the cheapest price possible and blended into one big pot. Think for a moment of familiar wine labels with reputations based on the cheapest price. This is one method they use to make their wine.
We’ve chosen a different, more selective approach. Unlike most wine labels, we don’t offer just one Cabernet Sauvignon. Currently we have three from California: Lot 108 from Mendocino, Lot 74 from Alexander Valley and Lot 109 from Yountville in Napa Valley. Each was acquired from a winery that made more wine than they believed could be sold under their own label. Instead of blending all of the wine together to create one Cabernet Sauvignon, we offer it to you as three distinct labels, preserving the nature and quality of the original wine. The Lot number on the label represents a wine from a particular winery or vineyard. If we do not have the opportunity to purchase that wine again, we move on the the next great find and a new lot number. Fortunately for us, there seem to be a large number of adventurous wine drinkers who would rather have something new and fabulous rather than something familiar and average.
In a way, the work of 90+ Cellars is similar to other emerging products and services that find ways to utilize excess capacity or supply in the market to produce value for consumers. Uber connects passengers with car services who have empty seats, providing upscale transportation for the price of a taxi cab. Airbnb turns unoccupied private homes into unique accommodations for global travelers of all kinds. And, our friends at the November Project convert empty stadiums, parks, playgrounds and pretty much every square foot of pavement where you can do a push-up into free workouts designed for beginners and pros alike. By bottling excess inventories of high quality wine under one label that costs less, 90+ Cellars provides an easy and confident way for people to find great wine.
It took a great recession to get us started, but we’ve learned that systematic excess supply of wine and winery capacity keep us rolling right along. Each year the bulk market is replenished with a new wave of truly outstanding wine that we can offer to you at a price that will make you smile, high five or hug. I’d say that’s pretty incredible bulk indeed.
Were you previously aware of the reasons why wineries sell overstock lots?
Tell us what you thought the most interesting part of this story was – in the comments!