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Napa Cabernet—Becoming Just a Memory?

Prices for Napa Valley Vineyards and Grapes—Hence Wines—Have Reached Previously Unimagined Levels; Will Napa Cabernet Become Just a Memory for Us Regular Folks?

Wine Geek is old enough to remember when he could (and did) purchase Château Lafite-Rothschild—the famed ‘First Growth’ Bordeaux—for $350. That was for a case. A case of twelve that is. Yes, around $29 a bottle…and that was for the ’82 vintage. Looking on Wine-Searcher this week, the average price for Lafite 2010 was $1047. A bottle. So Geek now treasures those last few bottles of First Growth Bordeaux from the 70’s, 80’s and 90’s that remain in his cellar…because there sure won’t be any younger vintages of such wines entering that space. This subject comes to mind because Geek has observed a trend—a phenomenon really—regarding a ‘gold rush’ of sorts in our beloved Napa Valley and what it will all mean to we wine lovers in the near and distant future.

We observed with a mix of shock and awe when we heard one of our favorite Napa producers bought some prime vineyard land in Oakville, right on HWY 29, at a net cost of just under $400,000 an acre. That was six or seven years ago, and was way above the prevailing rate for ‘prime vineyard land‘ in Napa at the time. Now that’s practically a bargain: earlier this year, Geek and three of his cohorts were in the home of a very prestigious Napa producer tasting his incredible range of wines, and one wine really stood out. The proprietor shared that the vineyard the fruit came from was for sale, to which Geek blurted out ‘buy it!’. Then the proprietor shared the price: ‘$1,000,000 an acre’ he said. Our group said in unison something like ‘Holy S***’.  However, the $1,000,000 an acre might too be a relative value based on what else has taken place in Napa recently.

Though they rarely come up for sale, prices for top Châteaux in Bordeaux are approximately $2 to $3 million an acre. This would probably explain why some very prestigious producers from Bordeaux are now buying here…it’s 50 cents on the dollar! A couple of years ago, the owners of the Pauillac First Growth Château Latour purchased the Araujo winery—for a rumored $125 million. Shortly after, Chanel Inc (yes, that Chanel) bought Napa’s St Supéry for an undisclosed sum; they already own Châteaux Rauzan-Segla and Canon in Margaux and St Émilion respectively. Shortly after that, the Tesseron family of Pauillac’s Château Pontet Canet bought Robin Williams’ estate for a paltry $18 million (though there were only 18 acres planted on the 640 acre property). And just this month it was announced that famed luxury goods company LVMH purchased a 60% share in Colgin Cellars for an as yet to be disclosed amount…but we assure you it’s a lot (LVMH also owns Château Cheval Blanc and Château d’Yquem). And here’s the kicker: this doesn’t even include things like Constellation recently buying Prisoner Wine Company for $285 million; though there are no vineyards involved in the sale, PWC is a Napa-focused brand and Constellation has made it clear they intend on maintaining this distinction while they grow the brand (read: more pressure on Napa grape prices). There are many other examples, and we’re sure it’s not over.

Of course, as alluded to above, expensive vineyards mean expensive grapes; expensive grapes mean expensive wines. Finding Napa Valley Cabernet Sauvignon for under $100 retail is getting harder and harder, and if prices like these become the norm for the Valley, under $100 Napa wines will no longer exist. Let’s look at some numbers. If one seeks ‘data’ from various groups and government agencies, the average price for a ton of Napa Cabernet Sauvignon grapes in 2016 was just under $7,000 a ton. But there’s at least one documented case where someone paid $59,000 a ton; of course, there’s a big difference in quality—and price—for grapes from Chiles Valley vs Oakville or Stags Leap. For high end wineries, 60 cases per ton is a good estimate of yield, so that means that the fearless person that paid $59,000 a ton essentially paid $1,000 per case just for the grapes (were talking a 9L case for this example). With grape cost ranging from 26% to almost 50% of the total cost of goods, that would mean the cost for that vintner to produce that wine was $2,000 to $4,000!!! What must that wine sell for?

Other than the French seeing value at the top end in Napa, pushing up land prices, there is one other factor in this price spiral over the past decade: a man named Andy Beckstoffer. Though Mr. Beckstoffer does not make any wines, he is the proud owner of some of Napa’s holiest sites, including a chunk of Napa First Growth To Kalon. Many years ago Mr. Beckstoffer required vintners that wanted to use his grapes to list that the fruit was sourced from one of his vineyards, creating his own brand on someone else’s product (genius). Indeed, you’ll see the Beckstoffer name on a sizable handful of wines of top producers from Paul Hobbs to Tor to Schrader. A while after that, Mr. Beckstoffer changed the way he charged for grapes: no longer would he charge by the ton—a dated metric in the era of low-yield viticulture. Nor would he charge by the acre—the purported fix for the reduced yields that were now the norm for high-end Napa Cabernet. Nope, he started charging based on the retail sales price of the winery’s wine: 100 times the bottle price. So if a winery were making wine that sold for $100 a bottle, you paid him $10,000 a ton. If your wine was great and warranted $150 a bottle, that will be $15,000 a ton, thank you very much. Mr Beckstoffer’s logic was if you can get $200 or $350 for your wine, it was because of HIS fruit (as mentioned, he has GREAT vineyard sites), therefore he should be able to participate in this profit surge. The vintners paid it, their customers paid it, and everyone sang kumbaya. But wait, it gets better: commencing with the 2014 vintage, Mr. Beckstoffer decided 100 times was too low. The new rate is 175 time the bottle price. 175, take it or leave it. So if you are a small, premium winery with a good winemaker and an active mailing list, you can charge $350 a bottle and get it. And Mr. Beckstoffer gets $61,250 a ton. Which means that the winery will need to raise their price to $400 a bottle to end up with the same net revenue…then Mr. Beckstoffer gets $70,000.  At some point, the cycle cannot continue, but at this juncture, this is the trend.  What does this mean for you, our valued restaurateurs and retailers? Buy as much Napa wine as you can…because the elevator is only headed in one direction for the foreseeable future.

‘*In full disclosure, Mr Beckstoffer also offers variations on the former formulas—tonnage or acreage—but it’s HIS decision which one to invoke, so guess which one he usually chooses?

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