Backsberg

I have just arrived back from a sales trip in the US. Whilst I missed all of the Cape Wine action I was privy to a fair amount going on in the US of A. My trip to the States was whirlwind-esque: New York City, Upstate New York, New Jersey, Boston, back to New York, Baltimore, Washington DC and then out to Cincinnati. In the two and a half weeks that I was there, it was surely the most tumultuous time on Wall St that my generation will see. It was interesting to gauge the take on how the financial turmoil is going to affect the wine market.

[SKIP this paragraph if you are not even vaguely interesting in economics and finance] The economics behind the financial turmoil really starts with the subprime lending crisis. Mortgage loans were made to shady borrowers on the belief that housing prices would continue on their stairway to heaven i.e. upward. Investment banks and other financial institutions packaged these loans into fancy financial instruments and sold them on. House prices unfortunately didn’t go the way expected, and those super shady borrowers started defaulting on their repayments. Then things started to crash, as the value of those assets i.e. the fancy financial instruments were brought into question. For a hilarious stick figure explanation of the whole thing click here. Fast forward a bit and now everyone is too scared to lend a dime and there is no liquidity in the market. NOT GOOD.

Adding up my anecdotal evidence here is an example of what could play out on the wine front. Barry from the Upper East Side had some stock in Lehman Bros which he has just seen go up in a puff of smoke.

As a result:

1. He goes out for dinner three times a week instead of four.
2. Instead of buying a bottle of wine every time he goes out, he chooses to scale down to a glass of wine on occasion.
3. He decides one evening to go for a bottle of wine from Paarl instead of Pauillac (Okay, scratch that point- if you are buying wine from the Pauillac appellation you are insulated against the whims of the market)
4. Still, Barry feeling the pinch a bit, buys a bottle from the 2000 vintage instead of 1989.
5. Come the weekend, Barry decides to hell with this wine stuff (that’s after insurance giant AIG is bailed out) buys a vodka drink because there is more bang for his buck alcohol wise.

What could all this mean:

1. Expect a down turn in on-consumption sales (restaurants).
2. This slack could be taken up by off-consumption sales (retail).
3. Shifts downward of the average price on wine lists.
4. More demand for wine by the glass offerings.
5. Changes in demand from wine to spirits.

For Backsberg/South African producers these dynamics could be positive. Across the board from restaurateurs to consumers, there is a gravitation to wines that offer value. We fit that bill very well.

I am only looking at the Wall St on wine affect.  Blood on the trading floor aside, wine consumption in the US is booming. There is a real excitement around the product, with elitism barriers to entry  coming down, and more and more young adults jumping into the world of wine

SB

P.S. The pic of the 59st Bridge (over troubled water) is taken from Roosevelt Island.

P.P.S. I finished early one Friday and made it to the MOMA to catch the free Friday afternoon entry to the gallery. There, I bumped into South African/former UCT student Mikhael Subotsky’s North American premier of his exhibition Drie hoeke, a portrayal of the prison in Beaufort West. Check it out.

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This post was written by:

Simon Back- who has written 56 posts on the Back Chat Blog. After finishing up studying economics at UCT in 2007, Simon has joined his family wine farm, Backsberg. When he is not trying to figure out what marketing wine means, he is authoring his blog, Back Chat.

Author's web site: Backsberg

Read more in Featured, Wine.

Last 3 posts by Simon Back

• 'Do Wine Writers Suffer and all that?' - July 4th, 2010
• Dusseldorf Oudtshoorn Backsberg New York Montreal Part 2 - June 4th, 2010
• Dusseldorf Oudtshoorn Backsberg New York Montreal Part 1 - May 26th, 2010