The Crash? It's Coming
By James Laube, senior editor
Periodically, writers are forced to confront their pasts. A bad wine review comes back to haunt you. A harvest prophecy turns out worse than a lousy weather forecast. Someone will rummage through the clips, find a provocative article and want to know: Whatever happened to that prediction?
It seems that my Dec. 15, 1989, column, "Crash of '92: Can It Happen?" hung around on people's desks and stayed pinned to bulletin boards longer than most. It was the kind of piece that made winery CEOs squirm and rework their spreadsheets. Accountants rose to the status of celebrity winemakers. Now that the column has aged for 10 years, several readers have asked or written: What about it? When's the next crash coming?
I suppose I should be flattered that readers kept the column and that they want to know my economic forecast for wine as we head into the new millennium. So here it is: It's rosy, so long as the money continues to flow freely and easily. Need a road map for the future? Follow the economy, but watch for signs that lead off-road.
First, some background. The "Crash of '92" scenario was based on several factors, including low per capita wine consumption (still true) and the strong antialcohol sentiment of the 1980s. (This was before all the studies linking moderate wine consumption to good health.) In 1989, Wall Streeters and others tied to the financial markets were still reeling from the 1987 whiplash. My article concluded that winemakers, though stacking up one great vintage after another, desperately needed to develop new markets (also still true).
Well, the market did indeed crash, only earlier than my forecast. By 1990 and 1991, many wineries, especially in California, began to feel the recessionary pinch. But was it really a crash? Well, it was more like a loud, nasty fender-bender than a flaming wreck. Wineries reined in their finances. Vineyards were sold. Plenty of brands vanished.
What's curious about wine recessions is that they're often good for consumers. When grape and/or wine supplies dramatically exceed demand, grape prices decline and wine prices drop. With so many new vineyards being planted in California and elsewhere, it's reasonable to expect that we'll see a wine glut of some sort. Perhaps soon.
Another thing about wine recessions--even though wineries and vineyards shut down, someone else always comes along to buy them and get back in the game. Vineyards hang around; ghost wineries eventually reopen.
You're more likely to experience the wine crash at your local wine shop or at a neighborhood restaurant. Once a recession takes hold, it's a chain reaction, a domino effect. Retailers who've stocked too many high-priced wines are pinched. Restaurant-goers dine out less often and buy less-expensive wines. Wine drinkers become more selective about what they buy.
There won't be an oversupply of Margaux or Yquem, but many labels will get caught in a frenzied pricing crossfire. High-priced wines that are merely good are like free advertising campaigns for brands that emphasize great values.
The enormous prosperity of the 1990s has lulled us into believing that salaries will always rise and bonuses are guaranteed. That if you invest, you'll automatically make money--lots of it. That if you raise your prices, people will keep paying.
I'm certainly not rooting for a recession, nor do I want people in the wine business to suffer. Recession impacts everyone. Wine people have worked hard for their gains.
Still, it's impossible for me to believe that things will keep running this smoothly forever. I wonder if our elected officials will turn to alcohol as a target once they're through with tobacco. Or if they'll view wine as a luxury item ideal for taxation.
I can't tell when the wine bubble will burst, but it will. It always does, eventually. It's part of the law of capitalism, of give and take, of supply and demand. When it happens, you'll know it. The health of the overall economy will be a dead giveaway.
James Laube, a Napa Valley-based senior editor of Wine Spectator, has been with the magazine for 19 years.
This column, Unfiltered, Unfined, features the opinionated inside scoop on the latest and greatest in the world of wine, brought to you each Monday by a different Wine Spectator editor. This week we hear from Senior Editor James Laube. To read past Unfiltered, Unfined columns, go to the archives. (And for an archive of James Laube's columns written just for the Web, visit Laube on Wine.)