“Wine Tax!”

I’m just thinking out loud here, and I apologize for the sensationalized headline, but I do have a point of view on this subject.  With the economy in ruins, the government has taken on the role of bailing out companies & individuals to jump start the economy.  The current tactic is to feed revenues to the government to increase the income side of the country’s P&L so it can have the funds to pay for the bailouts.  Simple accounting — increase taxes to generate revenues — spend ‘appropriatly’ to feed the economy.

One of the government ‘income’ proposals is to tax alcoholic beverages – in some states that translates to a 10% tax per drink — in others (such as California) it translates to a ‘nickel a drink’ tax to raise revenues earmarked to reduce the budget shortfall and provide support to programs addressing alcohol related problems.

I suppose this sounds good on paper — but wait a minute — more taxes simply don’t translate into appropriate spending!  It takes a great leap of faith, I believe, to think that a government (that’d be any government) has the expertise to prudently re-invest revenues earned.  In fact, I think they have an incredible track record of doing exactly the opposite — feeding more and more bureaucracy and building less and less efficiencies.  President Obama has told Chrysler & GM that their re-structuring efforts just aren’t good enough — yet I’m seeing an enormous amount of money going into both state & federal governments hands, with little accountability and results.   They are asking companies to cut, yet they are growing.  Hmmm.

Don’t get me wrong, I believe government is critical for the efficient running of a country — I just don’t believe they are adept at business, and I simply don’t trust that the money going in, is spent appropriately.  And now they want to tax alcoholic beverages even more.  Is this the intent of our Founding Fathers?  I just don’t think so.

One of the foundations of the Humanitas business model is to, by virtue of selling wine, generate revenues to give directly to charities.  These charities operate extremely efficiently – with only a small percentage of the revenues generated going to the overhead needed to manage the charity — and the vast majority going directly to those in need.  Can we say the same for our government spending?

I’m quite certain readers have an opinion on this — please share in the comments section.  I, for one, am tired of increased taxes with no accountability for the results.  I’ll just lob that one up for a start.

This is good advice…but duh, for every industry — not just wine (no offense, Tom).  However, to take a slightly more positive spin on Tom’s very gloomy prediction, after almost 30 years in this business, my experience is that people don’t really stop drinking wine during economic downturns.  True, they (we!) all cut back – but we still enjoy wine. 

I maintain it is one of our few affordable luxuries.

We are all ducking & covering just a bit.  Certainly we aren’t getting that new car we planned on.  My 2001 Honda Accord with 212,000 miles can easily go another year or two (before I recycle it to my daughter).  That trip to Hawaii is out.  New kitchen — yeah right.

But take away my wine?  Not a chance.  You can beat me, but you can’t break me. 

I am, however, taking Tom’s advice to heart.  Instead of sitting around waiting for the economy to recover, this is the time to work harder AND smarter.  The good ones will take this as an opportunity to break through.  But I won’t stop drinking charitably!  Anyone with me on this?

But he would also take the opportunity for all of us at the table to learn about other wines by ordering what some might consider ‘competitive’ wines.   French, Italian, Californian — it didn’t matter — we’d always have more than just the Mondavi wines.  He was always the ambassador for the wine industry first, and Robert Mondavi a distant second.  And in this way, we all continued our wine education.

On Sunday, I was invited to a blogger tasting of Hahn Wines in their Napa office.  Although this is a blog for Humanitas Winery, learning my lesson from Mr. Mondavi, I think it is critical to taste…and talk about other producer’s wines.  Don’t get me wrong, if I don’t like the wines, it is highly doubtful I’d write about them and blast them.  I think that is asking for trouble.  I simply wouldn’t post anything if that were the case.

But when I taste wines I truly like and feel the producer should be recognized for their efforts, I most certainly will do so on my blog.  Is that endorsing the ‘competition’?  I don’t think so — I think it is promoting the industry.

In this case, I tasted the Bin 36 wines from Hahn, inspired by the famous restaurants in Chicago, and crafted with famed sommelier Brian Duncan’s input.  The folks at Hahn are hoping Brian also becomes the official sommelier of the White House as he has apparently assisted President-Elect Obama in his wine selections over the years.   I believe that would make Brian the ‘O-mmelier’ to the White House.  I’ve linked a You Tube video below featuring Brian and the Bin 36 wines.

These wines, the ‘05 Chardonnay, the ‘05 Merlot & the ‘05 Cabernet Sauvignon were incredible values at $15 each.  If I didn’t have my own wines at home, I’d make these my ‘house’ wine.  In addition, we tasted the 2006 Lucienne ‘Lone Oak Vineyard’ Pinot Noir and the 2006 Lucienne ‘Doctor’s Vineyard’ Pinot Noir.  If you are not familiar with the Santa Lucia Highlands, it is one of my favorite Pinot growing regions, an in fact launched Humanitas with a 2000 SLH Pinot Noir in my IPO (that’d be the Initial Pinot Offering).  Both of these wines are stunningly good examples of what this region can produce, but both with very distinct profiles.  My preference was the Doctor’s Vineyard, but an equal amount of us in attendance preferred the Lone Oak.

I’m not going to walk you through my tasting notes of dried cherry, leather, cola, and pineapple for the various wines.  That is for you to determine for yourself as I believe wine is a very personal and very subjective food.  But I will wholeheartedly endorse both of these labels — the Bin 36 & the Lucienne.

And remember, tasting other winery’s wine and endorsing them is a good thing.  And as we used to say at Mondavi, it is a ‘comparative’ tasting for educational purposes — unless of course your own wine wins in the tasting — then it is a competitive tasting!  Just kidding.  Enjoy the video and as always, drink charitably!

Click here to view the embedded video.

Wine is an affordable luxury.

Maybe that sounds a bit too simple and a bit too anecdotal, but that’s my opinion based on close to 30 years experience.  People cut back — they don’t take that trip to Hawaii.  They hold off buying the new car.  They don’t re-do the kitchen.  But they do drink wine. 

History shows a very steady incline in consumption over the last 40 years.  There are some peaks & valleys, but it is remarkably stable.  Do people drink down — ie, do they still drink, but drink less expensively?  Sure — but they still enjoy their affordable luxury.  Do they drink it in different locations?  Sure — restaurants are one of the places people cut back — they eat at home more & buy their wines at a store to consume at home.  Again — that is natural.  I was just talking to someone who works for one of the iconic cab houses in Napa.  She commented that XYZ restaurant, for the first time in history, didn’t take their allocation this year because of the economy.  So they sold that allocation to consumers on the waiting list for this particular wine.  As a result, the winery improved their margins (by selling direct to the consumer rather than through the lower margin 3-tier network) & are making more money than they would have in good economic times.   

And the ripple affect is in place.  As wineries dial back their production in anticipation of a volume slow-down, the suppliers to the wine industry such as the glass, cork, capsule, label producers, and even the bulk wine brokers (even with two short vintages in a row), have growing inventories.  And what happens when a company has too much inventory?  They cut prices to stimulate purchases.  Label production time frees up.  Barrels that were allocated before suddenly become available.

In other words, we are in a cycle, and like all cycles, there is a up-turn on the horizon.  But the wine industry suffers much less than other industries.  Why?  Because we are an affordable luxury.

Any thoughts on this?  If you work for a winery, how has the economy impacted your business?  Consumers – do you drink differently because of the economy?  I’d love to hear back from you and start the conversation.  Meanwhile, when you do drink wine, feel free to continue to drink charitably!

Judd Wallenbrock - Humanitas Founder

But all of these can, and often do, have a low impact footprint.  In fact, several wineries generate enough of their own energy to be self sufficient and off the grid.  Others are quite water efficient and the waste is effectively recycled, and in general, the ability to be green within the ‘controllables’ is not only do-able, but done — which is a good thing.  The net result is, or can be a relatively low carbon footprint.

But what about the uncontrollable items?  Wineries can grow their own grapes, make their own wines, bottle them and sell them.  But it is unrealistic to think that we can make our own glass for the bottles, process the paper for the cases we put the finished wine, manufacture our own closures, cork or otherwise, print our own labels, harvest wood & craft our own barrels — you get the picture.  Glass & cardboard, at least, can be recycled.  But what about the closures?

I wrestle with this.  I use Nomacorc — a synthetic closure that does the one primary thing I want it to do — eliminate the threat of TCA (2,4,6-trichloroanisole).  Frankly, I love this closure.  It virtually exactly replicates the performance of a tree bark cork (traditional), but without the taint.  And I can’t tell you how many wines I’ve made or been associated with that has had some level of taint that is attributable to only one thing — the cork. 

But it is ’synthetic’ — a word associated with everything not ‘green’.  So I’m looking for help here.  Nomacorc is a synthetic that is produced in North Carolina & shipped to me in California.  I have not been able to find a recycling program for this closure yet — but I understand that screw caps compromise the ability to recycle glass (this is anecdotal – no evidence yet) and as I understand it, bark based corks are a) highly processed with all sorts of non-green chemicals, b) shipped great distances from Europe using lots of fossil fuels, and c) still have an unacceptable degree of taint.    And I’ve heard the arguments that there is a ‘tail’ to this issue — that if we stop using ‘real’ corks, the cork oak forests will be bull-dozed over in favor of buildings, resulting in more greenhouse gases, etc.  That seems highly speculative to me – I suppose they could just as easily be bull-dozed to plant nutritious crops to feed the world — but who knows.  It feels like ‘natural’ cork is better environmentally…but when you factor in everything…is it really?  Does a ‘natural’ cork processed with chemicals and shipped half way around the world have a better environmental impact than a synthetic produced domestically?  And how does that stack up against screwcaps?  Are there other alternatives?

If anyone has an opinion on this, or has hard quantitative facts regarding the options, or can pass this on to others who might have answers — I’d welcome the dialogue.  Meanwhile, cork taint drives me bonkers and until I can be convinced otherwise, and with due respect to Tommy and The Who, you know where to put the cork!  And regardless of your closure — always drink charitably!

This may be simplistic, but the truth is that small wineries are getting eaten alive by compliance.  The ‘level playing field’ is anything but level.  As a small winery owner, I sincerely want to use the 3-tier system to sell my wines in every state of the union.  But with the proliferation of wineries and the consolidation of distributors, it is almost impossible to find a distributor to take you on, and even if you do, it is folly to think they will pay attention to your wines, and it is highly unlikely they will spend any quality time telling your story.  So you move to sell direct to the consumer, and you are saddled with permits, label registrations, price postings, sales tax collection & reporting, and a host of other duties.  All of these are quite understandable, but as a small winery, you simply don’t have the bandwidth to do it all.  As a result, you have to either hire an employee to carry out these responsibilities, or hire a compliance agency to take it all on for you.  And these services are hugely valuable, but they do have a cost associated with them, which in turn simply erodes already slim margins, and forces prices to the consumer up.

A flat ‘consumer direct’ excise tax paid up front to the government would:

• give the government funds in advance of any sales rather than post sale
• enable the government (both federal & state) to reduce bureaucratic spending (something I hear all political parties endorsing) allowing budgets to be reduced & saving taxpayers money
• allow consumers in every state equal access to all wines giving the power of purchase directly in the hands of the consumer without restrictions
• empower wineries without distribution the opportunity to freely tell their stories & sell their wines nation-wide

The simple truth is — the system is broken.  When the Granholm decision was handed down a few years ago, we all thought the field of play was being leveled.  But in fact, it has made doing business even more difficult, and will result in some wineries simply giving up and shutting down, ignoring the laws and cheat, or only do business in their own state.  In any case, we’ve made everything so much more complicated than it needs to be, and the consumer is getting a raw deal. 

I don’t know if my flat excise tax proposal is the solution — but I do know that it is an idea — and I haven’t heard of any other possible solutions being floated out there.  If you have heard of any, I’d welcome your comments.  And in this election year with both parties preaching ‘change’, I wonder if either side (there are just two, right?) really can.  

Judd Wallenbrock - Humanitas Founder

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• Another Modest Proposal

As a small, independent winery, I am sometimes overwhelmed with the multiple hats I wear, as I am sure many of my brothers & sisters are in this wine game.  In any one day I am topping barrels, negotiating grape prices, coordinating label production with bottling schedules and designer decisions, submitting COLAs, working my accounts payable/accounts receivable, following up with accounts, selling new accounts, stroking a distributor, posting a blog, fulfilling consumer direct orders, responding to consumer inquiries, writing checks to charities…and/or a host of other less glamorous jobs.  You other wineries are doing the exact same thing…everyday.

A few years back the Granholm decision delivered us to the promised land of simplified access and delivery to consumers in any state in the Union via e-commerce.  Hallelujah!

OK — we all know it didn’t do that.  In fact, in some ways, it complicated the process as every state instituted its own set of rules, fees, compliance technicalities, and reporting.  Therein lies the complexity of States’ Rights vs. The Commerce Clause.

And as a small operation, the consumer direct compliance mechanism became even more of a nightmare.  We all want to do the ‘right thing’ — but mostly we simply want to get our wines in the hands of consumers who really want our wines.  A host of companies evolved designed to ‘help’ (read:  ’monetize’) those of us who really can’t afford the time to do this all by ourselves…or the money to hire a ‘compliance expert’ to do it for us.  So we either opt to not sell to someone in Texas (just as an example!), send it illegally and risk the consequences (never!), or pony up the bucks and find a ‘legal’ alternative.

In addition, for every gallon I produce, regardless of what channel (consumer direct, trade direct, or distributor) I pay a federal excise tax and a state excise tax.  In several states, I pay state sales taxes…and in some states, I pay sales taxes by county.  I pay income taxes, I pay compliance fees, I pay shipping & handling charges, I pay a host of other fees…and I still find a way to pay charities.

So I have a simple, modest proposal.

I propose that, in addition to the flat per gallon excise tax I pay to the federal government and the flat per gallon excise tax I pay the state, I’d gladly pay another flat tax to the federal government on every gallon I produce (regardless of what channel the wine is ultimately sold) to pay for the licenses & fees I pay to individual states and compliance companies in order to facilitate the shipment of my wines without hindrance to consumers directly in any state of the Union. The federal government can receive this up-front money and spread the taxes collected from every winery to the individual states as it wishes. 

As a result, the government gets the tax revenues (even for wines not sold through the consumer direct channel), distributors are not overwhelmed with too many suppliers to purchase, warehouse & sell, wineries have unincumbered access to consumers regardless of state lines, and most importantly, the consumer has free choice of his/her purchase decisions.

For those outside of the business, it is the law that a winery desiring to sell outside of CA to a) have the proper licensing and b) sell through a licensed distributor.  I have absolutely no issues with selling my wines to distributors who take care of this function.  But the reality is that there are fewer than 400 distributors throughout the entire U.S. and well over 60,000 wine labels to sell through these gatekeepers.  They just can’t effectively handle all of the wines.  And without a distributor, a winery’s only choice is to sell consumer-direct.  But the consumer-direct mechanism is a quagmire of financial, time & bureaucratic barriers.  It is a classic Catch-22.  As a result, thousands of fantastic wines are not available to consumers throughout the country.

So rather than fighting this system, again, I’d gladly pay an up front tax on every gallon I produce to level the playing field.  Is anyone with me on this?  Is it just too simple?  I’d love to hear.  Meanwhile, and as usual, drink charitably!

There has been a fair amount of dialogue in the blog world about the value of ’social media’ and this ‘new age’ of communications.  I’ve heard others in the wine business ask ‘How much time should I put into this?’ and ‘How can I find the time to spend blogging & ‘friending up’ and ‘linking in’?, etc.

Here’s my 2 cents — I think it is amazing.  I think it is liberating.  I think it is a better use of time/energy than many other efforts…and I think it is honest, fresh, real, a true connection to wine lovers, and probably the opposite of what many in the wine business might think.  Many might think that this ‘virtual world’ is impersonal…and maybe a bit cloaked in hidden identities (who on Twitter uses their real names?) and vagaries. I disagree & here’s why.

I officially started in the wine business (gulp) in 1980 as a retailer in So Cal, although my informal introduction was well before I was of legal drinking age in the mid ’70’s.  Back then, my brother was my ‘guru’ – the guy who turned me onto wine and was the person with whom I actually talked about wine.  When I finally became legal, I mustered the strength to go to a fine wine shop to actually ‘talk’ to someone about wines I’ve enjoyed and sought advice for new discoveries.  I eventually worked for that shop, became the buyer for it, and ultimately became the ‘guru’ for others seeking a dialogue about wine.

Time passed and the era of the fine wine shop…and it’s gurus…passed (for the most part).  And with this also passed the dialogue…the conversation…and can I use the word in this election year, the ‘debate’ about wine?  It went to the self serve environment of the grocery store (at least here in California and a good 35% of the rest of the country) and the resulting void of the Socratic method of learning and yes…discussion about wine.

Pundits ‘preaching’ about wine replaced ‘dialogue’.  And for good reason.  In the absence of discussion, wine was (is) imposing & intimidating, and hearing someone say that XYZ wine is a 90 in his/her book is easier than discussing a wine…they became the replacement gurus.

But it also replaced open discussion about wine with one-way pulpit-style preaching about wine.  It replaced forum.  Socrates, I assume, would be pissed.

So reel this back to social media.  It used to be that people discussed wine – a two-way interaction.  That era changed and evolved to an era of people listening about wine – a one-way interaction.  This new era, using technology, the internet, & social media is a return to talking about wine – a two-way interaction – and that is a very good thing.  It is open, naked, honest, conversational, controversial, and always illuminating.

This is why I am embracing this medium and why I value the integrity of the blogging community.  It is a return to a discussion about wine rather than a diatribe..a pulpit.  Drink Charitably is a ‘corporate’ blog (for lack of a better word – as the ‘corporation’ is really just one guy!), but it celebrates the new age of wine communication.  Here’s to the new boss — same as the old boss — to quote.

Question:  am I alone in this thought or do others think this medium is the return of wine discussion vs wine preaching?  That it is a return to one on one interaction with people?  I truly hope it is not just a replacement guru, not the new ‘gatekeepers’ – but a new age of communication…a new age of wine democracy.  Let me know your thoughts — and as always…drink charitably!