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The annual Premiere auction has come and gone, bringing in $4.1 million. The numbers were down for the third year in a row, although only slightly from last year ($4.2 million in 2017), but way down from the peak of $6 million reached in 2015. This year’s results point to a trend that suggests expensive Napa Valley wines may be finding the limits of what have been ever-increasing prices and demand.

Premiere and the Napa Valley Vintners

First, what is Premiere? This annual auction serves three functions: 1) It provides the wine trade access to special wine offerings that have been donated by members of the Napa Valley Vintners (NVV) nonprofit trade association, 2) The event allows the winery owners to engage with the wine trade directly and 3) It is a primary source of funding for the NVV with the proceeds augmenting the annual fee members pay.

The goals of the NVV, according to their website, are to “position and champion Napa Valley as the world’s premier wine region. Provide leadership to solve significant community and industry issues for Napa Valley. Strengthen the membership through a world-class organization.”

The NVV was established in 1944 and has grown into a model for the world’s wine regions, many of which have attempted to emulate the generally successful and innovative approaches to promote and support the Napa Valley.

The 2016 vintage

Every year, the Premiere auction focuses primarily on a single vintage of Cabernet Sauvignon, auctioning off small lots of specially blended wine from hundreds of Napa Valley vintners, most of which are still in barrel and won’t be bottled for at least another year or two. This year, the focus was on the 2016 vintage, which is widely considered exceptional.

Now, everyone in the world of wine is leery of the “exceptional vintage” claim because over the years the phrase has been misused, often twisted into marketing hyperbole used to describe nearly every vintage. But in this case the use seems reasonably accurate. In 2016, the weather, yields and quality of the grapes were, well, exceptional, and many of the wines reflect that, showing a richness and luscious mouthfeel that many consumers have come to love.

However, even with the 2016 vintage’s high quality, not only was the total down but also the average bottle price of the wine sold was down, too. This should make any vintner, sales manager or marketer sit up and take notice. The peak year for Premiere was 2015 (touting another exceptional vintage, the 2013), when the auction brought in $6 million with an average bottle price of $286. Three years later, that average has dropped to $216.

Break those numbers down further (as W. Blake Gray did in an excellent article for Wine-Searcher) and the average bottle price for the live auction averaged ($223), but the average for online bidding was lower ($152).

“If you look at the financial results of Premiere Napa Valley from 2016-2018 (the three-year trial period for Premiere Napa Valley online), you can see that it has resulted in lower overall revenue,” said Napa Valley Vintners Communications Director Patsy McGaughy. “The online lots generate about half of the average price per lot compared to the lots sold at the live auction. There’s simply no substitute for the excitement of what happens during the live auction, and I expect we may not continue the online auction in the future.”

Lots of eggs, too few baskets

Total Wine & More purchased more than a quarter of the wine sold at the auction. This might not seem worrisome at first blush, but what that means is this one company now holds a significant inventory of Napa Valley wine futures. If they run into any trouble selling it, they are not likely to be so aggressive next year.

Moreover, Total Wine & More is a private company whose newly promoted CEO is Adam Orvos, who has spent much of his career in retail, often as a controller. On their board sit various entities, including Action Holding, which is focused on the retail industry in Europe. They, too, have a new CEO. Why do these retail entities have new CEOs? Perhaps because retails sales in America and Europe continue to show signs of weakening. Will the new team support such speculative spending sprees in the future?

Up next: the 2017 vintage

If 2016 was an exceptionally good vintage and was still unable to foster record-breaking levels, what should we expect with next year’s 2017 vintage on display? This next vintage is rightfully or wrongfully going to be subjected to concern over what effect the fires might have had on quality. It really doesn’t matter if the vintage turns out to actually be another “exceptional vintage”; smoke taint is seared into the minds of wine consumers and this wine is, therefore, going to be less attractive to speculators.

In the past, when presented with a weak vintage, strategically savvy winery owners such as Scarecrow have swooped in and gobbled up the attention by pulling off a pretty slick move — they’ve showcased another vintage.

For example, in 2016 when other vintners had entered what was widely believed to be a lackluster 2015 vintage, Scarecrow came to the party with their 2014, a stronger vintage that also had one more year in barrel to mellow and develop complexity.

The results? The 60 bottles of the 2014 Scarecrow Cabernet Sauvignon sold at the 2016 Premiere for a whopping $200,000, or $3,333 per bottle, showing that this “cult” winery that has only attended the Premiere auction three times, each time walloping its competitors, makes some pretty excellent wine and also has what appears to be a singular strategy.

Should we expect Scarecrow to show up next year? Maybe, but if they do I would expect them to be showcasing their 2016 vintage. They might not be the only ones.

Continuing challenges

What seems clear is that the recent downward pressure on Premiere is not likely to abate any time soon. An effort has begun to recast this change as a needed and helpful market correction that will ultimately be a good thing for the valley. Maybe, but that’s tough to swallow considering that vintners have been paying higher and higher prices for Cabernet Sauvignon grapes, labor and supplies, not to mention their efforts to sell wine in an increasingly competitive marketplace.

At the same time, the bottle prices are dropping and consumer demand for their wines is waning. Adding to the frustration of many vintners is that they are being asked to donate wine for more and more auctions or charities, being told that these efforts are going to help them get in front of more and more buyers. But as a vintner who has donated to this event in the past, I can tell you that it remains a challenge to get the ear of buyers, even after donating what ends up being many thousands of dollars’ worth of wine.

One strategy to which vintners have resorted in the recent past was donating less wine (e.g., five cases instead of 10 or 20). But that is likely to change, potentially making it financially impossible for some vintners to continue their involvement.

“We’ve always been very open to allowing our members to contribute to Premiere in whatever way that suits them, including the number of cases donated,” said McGaughy “But it’s a fact that the 10- and 20-case lots do generate greater revenue and the number of 20- and 10-case lots offered has declined in the past couple of years. I expect our board and the steering committee may look at creating more structure regarding the size of the lots we solicit for future Premiere events.”

The road ahead

Do I have empathy for the NVV? I sure do. Their staff works hard for modest sums, and when things are good their efforts are often overlooked. But when they turn sour, these people are glared at often becoming scapegoats. At present, they face a host of challenges — changing demographics, oversupply of very good to excellent wine, yearly expectations to outperform the previous year — all of which are nearly insurmountable, even with the most compelling marketing, PR and outreach programs.

But there is another truth here, too. Trade associations and marketers are often most innovative when things are going well but then become overly conservative when conditions become less favorable.

How will the NVV respond? Will they focus their efforts on circling the wagons or take this opportunity to open up, become even more transparent and let the community in to assist and help provide direction, creativity and new energy? Will they embrace what is likely to be a tough road ahead with resolve and determination or look to those asking the difficult questions with mistrust and even anger?

My hope is that the NVV takes this opportunity to pause, ponder and consider all options, harnessing the spirit of equanimity within what is a forgiving and exceptionally generous community. We will get a taste of their approach in their next big test: Auction Napa Valley.