Red Bigot’s Thoughts on Pedigree and Loyalty

Red Bigot’s Thoughts on Pedigree and Loyalty

This topic came to mind during recent debate on the pricing of the soon to be released Penfolds 2001 Bin reds, particularly the Bin 389 Cabernet-Shiraz. Thinking about this during a long bike ride I wondered how relevant these concepts were in the modern-day global wine market, with particular reference to Australian wines, wine companies, wine merchants and wine buyers.

Some definitions first (selected excerpts from Merriam-Webster online dictionary):

Pedigree: a : a distinguished ancestry b : the recorded purity of breed of an individual or strain. Also Lineage: the origin and the history of something, Continuity: a : uninterrupted connection, succession, or union

Loyalty: the quality or state or an instance of being loyal: c : faithful to a cause, ideal, custom, institution, or product

Firstly, let’s examine Pedigree and the influence it has on wine-buyers (those who buy for cellaring in particular).

How long does it take to build a pedigree?

If you look at the Langtons Classification there appears to be only one winery that hasn’t been established 20 years or more (Coldstream Hills est. 1985) in the main classification, but quite a number of more recent wineries/wines in the Emerging list (Dutschke, Fox Creek, Greenock Ck, Clonakilla etc). Many go back to the 60’s many even earlier, but I guess all of them have a pretty short pedigree compared to some of the old world wineries.

So it appears pedigree is built up by consistent perception of quality and value for a wine, measured by initial demand (ease of first sale) and popularity on the secondary market. Popularity on the secondary market can also be partially explained by the increases in price engendered by the producer taking advantage of high initial demand, i.e. newer vintages are more expensive, older vintages therefore appreciate even more in price and can be sold at a profit.

The ability for these wines to cellar well is also a major factor, a factor that can only be proven over a period of at least 10 years and preferably more for the top echelons.

How long does it take to de-value a pedigree?

The ways to devalue a pedigree are too numerous to mention here, but it takes a lot less time to devalue a pedigree than to build it. The quickest way is to make a series of wines that are not up to the expected quality and asking price. An example here is Leconfield, still hanging on to a Langtons spot, but having to discount heavily to move the last few vintages. The new winemaker may get them back on track, but it’s costing them $10/bottle in the interim.

Another way is to increase price beyond the perceived quality of the wine and then to drop it back again to regain sales. Prime examples here are the Wynns John Riddoch debacle (price drop from $100 to $50 after release) and the various attempts by

Lindemans to move the Coonawarra reds up a price point.

In the higher-volume ranges that have been staples for many wine buyers in the 70’s, 80’s and 90’s, Wynns Coonawarra Cabernet (Black label) has struggled to maintain quality (apparently at least partly due to vineyard management issues) and is heavily discounted. Another long-term staple is the Penfolds Bin 389, although the performance of 389 during the 90’s was at times patchy also (eg 92, 95 and to a lesser extent 97 and 99). The street price of both wines however doubled from the 90 to 99 vintages, Black Label $10 to $21, 389 from $14.50 to $29. At rrp neither of these wines represents good value in recent vintages, at best discounts they may still be good buys. Many other long-term favourites increased by 100% or (much) more in that period, some by less than 100%, eg Petaluma Coonawarra went from $25 to $40 street price and Johns Blend went from $18 to $30.

What part should pedigree play in wine-buying decisions?

To some extent this depends on your budget. Like a number of people I stopped buying Eileen Hardy Shiraz, E&E Black Pepper Shiraz, Houghton Jack Mann, Penfolds 707, etc when their price increases saw them jump fairly quickly from $30-$40 wines to $75-$100 wines. I buy a few wines in the $50-$75 range, bought 6 1996 Grange @ $250/btle and probably would have bought 98 Grange if it had been released here at overseas prices, but generally stick to the $20-$50 range at present. The price of pedigree can get too high unless you have a very large wine budget. (A fair percentage of these wines are now being purchased by investors, which is helping to keep the price up. Also without exports the price could not be maintained.).

If you buy wine for cellaring and keep reasonable records for a few years, you will know which wines from which vintages deserve their reputation/pedigree for your tastes. If you taste each new release before buying you can often judge based on the tasting and general vintage conditions whether it will fulfil the promise of it’s pedigree or not. I’ve had some disappointments from buying wines like Wynns BL and Penfolds 389 from lesser vintages (albeit in lesser quantities) out of habit or desire to have verticals in the future. I’m much more pragmatic now, if I don’t think the particular vintage is up to the pedigree or has increased too much in price I’ll skip it and buy something else. Pedigree is subject to vintage qualification.

How do the newcomers build a pedigree?

The simplistic answer is “by continuing to make good wine”. As the old lines of pedigreed wines suffer temporary decline or are priced out of peoples self-imposed limits, they look for emerging wines that can fill the gaps. Sometimes these are from the same makers that moved old favourite up-market, more often it’s a smaller, relatively new winery. Some of these (eg some of those chasing Parker points) may never develop a pedigree, especially if these wines are seen not to cellar well. Others may start with some outstanding wines from good vintage conditions, but struggle to maintain quality in lesser vintages or simply fail for marketing, market forces or financial management reasons. Some will make it and I intend to be along for the ride with some of them before they price themselves out of my budget and the cycle starts all over again.

Secondly, let’s examine loyalty and its importance to wine-buyers, in relation to producers, brands and merchants.

What engenders loyalty to Producers and Brands?

If I’ve expressed myself adequately above this is easy to answer: Maintain the pedigree at an affordable price in more vintages than not. There are many older drinkers who encourage the newer drinkers to try the favourite wines they buy regularly and producers like Penfolds quite rightly play on heritage and pedigree in advertising. Continued wine show and secondary market performance encourage some and discourage others, wine-writer support helps too, but none of those will work unless the quality is maintained and tinkering with styles is either gradual enough to be unobtrusive or dramatically positive.

Do buyers show loyalty nowadays?

I suspect there is an element of habit as much as loyalty, especially in many of the non-cellaring masses who buy as they want to drink; there is the comfort of sticking to a brand you know and risk in trying something new. I’m much more fickle these days. If a vintage of one of my regular buys is not up to par I’ll skip it and try again next year, or buy 6 instead of 12 if unsure. If the next vintage is not a return to form and the price rises anyway I’ll skip again and maybe just cherry-pick the top vintages of that line until it prices itself off my scale or returns to consistent form at a reasonable quality-price-ratio (qpr). From the feedback on the 389 pricing issue it appears loyalty must continue to be earned, past performance is not good enough to counteract other negative vibes for long.

What engenders loyalty to Merchants?

In a nutshell: Service, Range and Pricing. Many of the factors I described for online wine merchants Do's and Don'ts apply to bricks and mortar merchants too.

How loyalty dies.

This applies to both producers and merchants. If pricing policy changes sufficiently to the extent that competitiveness in the marketplace (alternative wines or merchants) is compromised, loyalty is severely tested and will soon wither and die. For wines, there is a fair degree of latitude, if a $25 wine goes up $5 in a good vintage and the wine is very good, it’s probably still a buy. If it goes up $5 and the vintage is poor, it may be skipped. A few repetitions of this pattern and the wine is off the buy list.

For merchants it’s a tighter margin, I’ll pay $1-$2 a bottle more to support a local or favourite merchant, more than that or a significant shift in pricing policy to be consistently more than others will see me rapidly take my business elsewhere. For example, since a change in Vintage Cellars pricing policy in 2001 I’ve bought very little from them except the occasional super-special or lucky-find of a scarce wine during a 20% off sale.

There are also policy and personal issues as well; I’ll tolerate inept cellar door setups/attitudes, but I don’t buy from wineries that don’t have a good replacement policy for faulty wines. That doesn’t eliminate many these days thankfully, but a couple have dropped off over the years. Poor service from merchants counteracts good prices, a few experiences of delayed deliveries or wrong vintages quickly sour the buying experience. The internet and email can be a two edged sword, I’ve stopped buying from one merchant who amongst other things doesn’t always answer emails and shunned another I used to buy from often after a couple of ‘interesting’ email exchanges. I’ve been buying from Candamber since they opened in 1976, with caution at times due to their (now largely past) habit of leaving delivered wines sitting in the sun, buying more or less as their pricing and stocking policies change with the times.

In summary, brand/merchant loyalty, like pedigree, takes a fair bit of time to develop, but can be easy to destroy. In fact, for wine merchants, loyalty is tenuous at best amongst the segment of buyers who have the time and inclination to shop around for the wines they want at the best prices.

Afterthought: A lot of the forgoing is based on my own lengthy experience as a buyer of wine in the premium to upper/super premium ranges ($20-$50 in today’s prices, although the definition of “premium” varies a lot) and association with others buying in this price range. I’ve been told by merchants that this range accounts for 5-10% of buyers and sales (don’t know proportion of profit), so perhaps a lot of the discussion above is largely irrelevant to the wider population of regular wine-buyers who buy either below or above this range and the generic chains of wine stores and larger producers the support. Maybe it’s more important to the smaller wineries and specialised small merchants and some on-line wine merchants who actively chase the premium and upwards end of the market. Maybe others are more forgiving and tolerant of lapses than me, maybe not.

I didn’t really get to the effect of the global wine-market, another ramble coming sometime.