On this episode of the “VinePair Podcast,” hosts Adam Teeter, Joanna Sciarrino, and Zach Geballe discuss LVMH’s recent purchase of Joseph Phelps Vineyards. What are some reasons for recent sales and acquisitions in the luxury wine category, and how long will this continue for? Tune in to learn more.
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Adam Teeter: From America’s beautiful Jersey Shore, I’m Adam Teeter.
Joanna Sciarrino: And from Toronto, Canada, I’m Joanna Sciarrino.
Zach Geballe: Still in Seattle Washington, I’m Zach Geballe.
A: Oh, Zach. This is the “VinePair Podcast.” I want everyone to really hear the dedication that we have to this pod. We are all podcasting from other locations other than our normal ones, besides Zach.
J: We bring our mics with us.
A: Yeah, have mic will travel. Thanks, you guys, for taking the time to record today, which is basically the weekend of Fourth of July. Everyone is getting this in their feed the day after the Fourth. We hope you had a nice holiday weekend as you’re getting back to your offices or wherever it is that you do your work these days. But before we jump into the podcast today, Zach, since you are the one who is still in Seattle — Sleepless in Seattle — what did you drink this last week? He was waiting for that joke. I haven’t made that yet, actually.
Z: I guess. Well, it’s very relevant right now because my children are not sleeping. Whatever, it happens. What am I drinking? Good question. There are a couple of things I’ve had recently that have been standouts. I taught a wine class this past weekend that was no surprise, knowing me, a Washington wine class. One of the highlights was I opened a bottle of 2000 Cabernet Sauvignon from Chateau Ste. Michelle’s Cold Creek Vineyard. Ste. Michelle is obviously kind of a pillar of the industry here and actually a winery whose wines I don’t drink all that often. But it was kind of cool to open this much older bottle and pour it alongside a much younger Cabernet Sauvignon from a different producer in the state. It gave people that opportunity to see how that kind of wine develops and really highlight something that I always find interesting to talk about with people. We’ve talked about it on the show a few times; there’s a tendency to assume that older wine is inherently better or that if you don’t like old wine, you’re not a good wine drinker. And it was an interesting split among the attendees about which wine they preferred. I really tried to emphasize to everyone, there’s not a right or wrong answer here. There’s personal preference. And with wine, as with many things, there are no absolutes. And so that was fun for people to get to see. The other thing I’ve been drinking is actually a lot of vermouth. I’ve been kind of in a vermouth spritz or vermouth and soda kind of phase. It’s one of my favorite summertime drinks. And we actually had some hot weather in Seattle recently, which is nice. It’s just very refreshing to me. It’s super easy to assemble and low-ABV. Just splash some either red or white vermouth in a glass, some ice, some soda. I’m a happy man. It’s not the only thing I want to drink in the summer, but it is a nice summertime treat for me. How about you, Joanna? What about up in the Great North?
J: Before we headed up here, we had a few good beers this past weekend. One was from Grimm, whose beers I really like. It was a telos pilsner, which was delicious. And then another beer from Greater Good Imperial Brewing Company, which I’ve never had before, called Big Summer. It was a New England IPA with pineapple. That was really delicious. And then since I’ve been here, not too much drinking, but I did have a really good Caesar. And I feel like it doesn’t get more Canadian than that. Have you guys had Caesars before? I can’t remember if we’ve had this conversation.
Z: We have, and I have.
A: Yes.
J: OK. Right, right, right.
A: I have had them. They’re good. I don’t like Bloody Marys. It is what it is for me.
J: And what about you, Adam?
A: So I had a fair amount of things around my birthday. It was a lot of fun.
J: You drank all the drinks.
A: Drank all the drinks. An Esprit de Tablas from Tablas Creek, a really great and a Bianco from Planeta. One of my favorite wines from Pierre Cotton, a Beaujolais. We had some really fun Champagne. And then I took a break for a little while, though I went to my first-ever barrel pick release party. Two of our writers, Aaron Goldfarb and Robert Simonson did a barrel pick with Seelbach’s, an online spirits marketplace. And they did barrel picks of New York Distilling Company’s rye and they called it Writer’s Rye. So the Ragtime Rye is now Writer’s Rye. They picked two different barrels and are releasing each barrel as barrel selects through Seelbach’s. And it was pretty cool. I was pretty interested to hear how they went through the process and how they were allowed to taste many, many, many different barrels and then select the ones that they were interested in. And then Seelbach goes and buys the barrel and bottles it and stuff like that. It was interesting to learn all about that process and support those guys.
J: Did you taste it?
A: I did. I tasted both. One was a 6-year-old and one was 5-and-a-half years old or something.
Z: Was one Aaron’s and one Robert’s?
A: They collaborated on both of them and chose them both together. And for one of their ryes, its claim to fame is that it was made with this rye that’s indigenous to New York State.
J: Right.
A: It was much spicier, much more aggressive than the other rye that they’d picked. Come to find out that those have both sold so well that when we were there at New York Distilling Company for the party, they picked two more barrels that they’re going to release in a few months. So, good for those guys.
J: Yeah, that’s great.
A: And that’s about it, besides getting ready for all the beach drinks here in the Jersey Shore. I have a pretty funny story.
J: Tell us.
A: It took forever to drive down here last night on a Wednesday night in Jersey. And we had this huge amount of traffic around the PNC Bank Arts Center. It’s a huge outdoor amphitheater. Naomi’s like, “Oh, there must be all this traffic for a concert. What concert do you think they’re all going to?” I was kind of half joking. I was like, “Oh, for sure Dave Matthews Band.” I go up to one of the cars and then she goes on her phone and looks it up and it was Dave Matthews Band.
J: That’s so funny.
A: I guess nothing says Summer like Dave Matthews Band.
J: Were there just a bunch of bumper stickers?
A: I didn’t even see the bumper sticker. I just saw lots of Volkswagens and what you would expect. These are the cars driven by Dave, like some Priuses trying to get off the highway. Yeah, this is definitely a Dave crowd.
Z: Did you guys have a Dave Matthews band phase?
A: I did, junior year of high school.
J: We talked about this before, I think very briefly.
Z: It’s not like a Bloody Caesar.
A: So did you have a phase?
J: I mean, very, very briefly. I think he was kind of before my time.
A: He’s basically everyone’s time now.
J: That’s a good point.
Z: I definitely did not have a Dave Matthews Band phase. He was very popular with a lot of kids in my school. He lives in Seattle. But I couldn’t stand his music. He would always do four days worth of shows at the Gorge Amphitheater, which is kind of in the middle of Washington State. So many people I know would go camp out there for the four days and I could not think of anything I would want to do less. It just sounded atrocious to me. And some of these people are my friends, but they made life choices I didn’t understand.
A: Yeah, I had a phase in junior year of high school. Naomi and I were talking about it because she had a phase around the same time.
Z: If you’re going to do a Dave phase, that’s the time.
A: Like yeah, it’s kind of like late high school. Get it out of the way. You went to one concert and I was like, yeah, like, this just isn’t for me. But I still know a lot of people. I mean, we have people who work in VinePair that are Dave fans that were like, I think the ones are going to see a show in New York. Maybe it already happened. Dave’s a lifestyle, man.
J: It’s true.
A: He does own a winery in Virginia that makes pretty good wine, though. So, you know, the dude gives back.
Z: Look at you, tying it into our podcast.
A: Yeah, that’s how I do. One of the bigger things to happen this past week was the purchase of Joseph Phelps Vineyard by Louis Vuitton Moet Hennessy, or LVMH, as it is known in the biz. We felt like this was a good opportunity to check back in on what’s happening in the alcohol space, especially when it comes to luxury. The biggest initial reaction I had here is, duh. The writing has been on the wall for the past few years. And I think what’s really interesting is this is not just being driven by a Gen X or older audience anymore. These are millennials as well that are trying to trade up and buy nicer bottles of wine, nicer spirits, etc., just premium across the board. And I think the smart companies are recognizing that. They are trading up in kind. They’re buying more for their luxury *portfolio. LVMH purchased Whispering Angel or Château d’Esclans recently as well. You have Constellation who is sort of trending more upscale as well. Every day, Diageo is releasing more high-end spirits. So I think this is definitely an ongoing trend. Zach, you’ve just been in Napa when you heard about this. What was your initial reaction?
Z: Well, it’s interesting. I think there are two sides to my reaction, and they’re the sides of the purchase agreement. From the Joseph Phelps side or from the side of the winery itself selling, it’s an extension of a trend that we’ve seen not just in Napa, but it’s in some ways the most prominent and most interesting in Napa because of just the sheer money at stake here, and that’s this continued trend of these, you know, pretty well-established winery brands selling. Not as far as I can tell, as you sometimes, see where the founder is of retirement age and they don’t have kids or their kids don’t want to take it over or there’s no clear plan of succession. What else do you do but sell? Joseph Phelps as a brand has been around long enough that it’s long outlived its founder. And so the decision to sell, I think, is much more about maybe some specifics about their winery and specifics about their business and maybe some specifics about Napa. And I’d love to hear your guys’ perspectives on this, too. But it’s also a recognition of the current economic climate. It’s what we saw in a different field but sort of related with some moves in beer. You saw very established brands, like Stone most notably, selling to a very large beer conglomerate. And you wonder, are some of these places just scared about what the economy is gonna look like over the next couple of years. Even for brands that did well during Covid, and they do exist and maybe Joseph Phelps is one of them, it still was a tumultuous time, if nothing else. I think from the LVMH side, it’s fascinating to me because they already have some Napa properties, Colgin most famously. But here’s an opportunity for them to get a brand that has a pretty sizable production volume that is across a range of price points, but does have some high-end cachet. I mean, Insignia is not on that shortlist of shortlists for great Napa reds, but it’s a highly respected and longstanding wine that has a lot of dedicated fans and buyers. And it is interesting to me to see the extent to which they’re looking to expand their holdings in Napa; that they still see Napa as a space where they can generate growth.
A: We’ve had this conversation so many times that it’s just beating a dead horse at this point. But Napa is America’s luxury wine region. It is what it is. People can say as many times as they want, “Napa’s dead. Napa’s dead.” Every time I’m in Napa, I see more and more of the younger generation there. When I was working in the arts when I first graduated college, the thing you always heard and it’s still kind of true is that they used to call them white tops and gray hairs. So it’s older people. How do we get younger people involved? And lots of arts organizations like BAM, where I worked, created young patrons societies, and they were hoping that would work. And guess what? All I’ve seen in the past 15, 20 years since leaving, is that those young patron societies keep extending the age for how old you can be to be. They really are having problems in the arts getting younger people, for whatever reason, to join Lincoln Center, to join the Met.
J: Yeah, same thing with the Met.
A: But you’re not seeing that as much in Napa. When I got to Napa, you definitely see young people in their finest clothes, driving around, going to Gott’s Roadside, trying to get a reservation at French Laundry, all that kind of stuff. And those places are doing well. And I think LVMH sees that. They’re not a stupid company. I feel like that’s something that’s definitely noting as well in all of this.
J: Going back to what Zach said earlier, we’re seeing this kind of conundrum in beer as well for iconic brands. What’s the exit plan? If you don’t have somebody who’s going to take over for you, is the move to sell? And obviously, we talk about this in the context of selling out in craft beer. I guess we don’t really talk about that in wine. But I think it’s an interesting parallel, right?
Z: When Dan Petroski has looked to expand Massican, his wine brand, there have been a lot of people who have pushed back. It’s like, wait a second, what are you doing here? We thought you were someone who was interested in small-scale production and blah, blah, blah. Wine doesn’t have the same kind of staunch craft — “We never sell, AB InBev is the devil” kind of attitude. Part of it’s that it would be a little silly for that to come out of Napa. As Adam has pointed out, it’s such a luxury region already that it’s not like people are surprised that large luxury companies want in. Adam, I’m very curious about your perspective about this in particular. As you said, you’ve traveled there recently a couple of times and also you talked to a lot of these companies that are making these acquisitions on a pretty regular basis. What I’m really interested in is, you mentioned that they’re seeing more and more growth among younger generations in this particular part of the wine market of luxury wine, very high-end wine. How do we square that with the conversation that we’ve been having about how wine in general is not connecting to millennials and Gen Z at the same rate that it did with older generations? Is it just something about this specific slice of the wine market that remains alluring? And that therefore, that’s why this is where a lot of the movement is happening away from inexpensive grocery store wine and towards these really premium brands?
A: Yeah, I think that’s exactly what it is.
J: Yeah, me too.
A: Everyone’s trading up, so everyone’s looking for more luxury products. If you’ve been a long time listener, you realize that we’ve talked about this across the board in just society. Younger consumers, millennials, Gen Z, are moving towards either what is actually luxury or what feels like it’s luxury. And that’s that premium mediocre conversation we had in the past. Either they’re looking for brands that truly are or that are presenting themselves as being so, even though they’re a little bit cheaper. One good example is Haus. I think that’s exactly what’s happening. Consumers are still saying, “Well, if I’m going to drink wine, I’m going to drink the best. I’m going to drink a wine that’s really high quality that has a great story, history, cachet, etc.” Yes, I’m not going to go and drink wines that are grocery store wines, especially when I’m heading to a dinner party giving a gift, going to impress someone. Those are definitely issues we’re seeing. And it’s the same thing that’s happening in spirits where consumers are consistently trading up or they’re looking for more premium tequilas, more premium bourbons, more premium Scotches. That’s what is happening. You’re seeing it happen with vodka, where everyone’s running to more premium vodka. Of course, you’re going to have brands in vodka that will always be core. Tito’s is sort of what I’m talking about here. But the growth really happening besides Tito’s is everyone rushing after Grey Goose, Ketel One, Belvedere, and all that stuff. And that’s why you’re seeing the innovation of people who are coming in and saying, “We’re going to take these premium brands and attach them to our RTDs,” and make the RTDs feel premium. For some of these brands who are building premium portfolios, those portfolios then reinforce anything else they bring on. One of the best examples I’ve heard about is actually LVMH. LVMH is just so perfectly poised to do this, right? They can take on a brand that’s already considered premium and just start pairing that brand with other super- premium products. Whether that’s making sure that now Joseph Phelps shows up in the windows of one of their high-end fashion houses or now there are events where Joseph Phelps and Dom Perignon appear together. It’s very easy for them to just extend and expand the luxury aspect of the brands that they own. I think other other companies are doing that pretty well, too. But I think you’re going to see more of that. You’re going to continue to see brands, companies shedding off more of their lower-end portfolios and purchasing and putting money behind their higher end. Heaven Hill, for example, purchasing Samson & Surrey, is another example. Samson & Surrey owns what is considered by most to be only luxury spirits. And Heaven Hill is a company that, for a very long time, has been considered to be a company that really supported more of the budget bourbon world. And that was something that they claimed to be very proud of — “We’re a company that makes affordable bourbon.” For those who aren’t familiar with what they make, it’s Elijah Craig, Evan Williams, Larceny, and things like that. But now they’re getting into the bourbon game on their own with things like Old Fitzgerald. But then they’re also producing Samson & Surrey, which owns Tequila Ocho and Brenne Whisky, which is a French single malt, and Bluecoat Gin, which is a really high-end gin from Philly. I think these are all things that are changing in the world of alcohol in general, because this is where the growth is happening.
J: But I have a question. Do you think that they’re actually getting rid of the lower-end brands? Do they really think this is the move for the future and that there could be no value in those brands moving forward?
Z: If I were to guess, it’s not so much that they see no value in these brands or that they’re potentially divesting from them. Although in some cases you do see some of these lower-price-point products being moved around between different companies. But a lot of it is, I think, just looking at where growth is. They’re not going to stop making some of the inexpensive products. But if you’re looking at acquisitions and looking at putting resources behind the thing, if the winds are all pointing towards the top of the market being where the real growth is, at least in terms of dollars, if not in terms of absolute volume, that’s where you should be investing your money as a company. It’s perhaps a recognition of that. Also, we’ve been through such an unprecedented couple of years, and combined with so many other things that are going on here in the U.S. and in the world in terms of understanding how consumer behavior is going to shake out that everyone is trying to be ahead of trend. Of course, not just in individual products, but just understanding where the markets are going and where consumer demand is going. That’s why we’re seeing so much experimentation and diversification in some of these categories. It’s interesting to me that you’re also seeing some of these established legacy brands being purchased and really brought into the fold, like Joseph Phelps. Because the folks at LVMH are not just like, “Oh, Joseph Phelps. We’ve heard of it.” But they’re like, “We see an audience for this wine that perhaps the winery by itself was not able to reach.” And that’s where I think Adam’s point about being able to put it alongside high fashion or other very high-end luxury wine brands is really interesting. Because it is a thing that can be done with the brand when it’s a part of one of these big conglomerates that Joseph Phelps vineyards on its own just couldn’t do.
J: We recently published a piece a few days ago about recent data suggesting that there might be a big change in alcohol in the premiumization rate. And we’ve been talking about how this has been a big trend for a few years. What was it? The below-premium beer is growing while all other beer categories are on the decline. And I’m wondering if they’re starting to see this in spirits. Will it cross over to wine? Maybe this is just a reflection of the current economic moment that we’re in. This is so different from everything we’ve discussed and seen in the past couple of years with regard to premiumization.
A: I think that what we’re going to continue to see is there’s going to keep being this need among the drinking public to have entry-level brands. They’re never going to go away, but I don’t think that they will be the only means for which people enter the categories anymore. That used to be a pretty strong case that people would make. It was like, OK, well, the reason all of these brands exist is because they’re the entry-levels. The first tequila you drink is not going to be $60. It’s going to be $20. And you’re going to have a taste for tequila and then you might start trading up.
J: Right.
A: But that’s not true anymore. Lots of people are entering categories now at the top tier. A lot of that responsibility is thanks, in part, to social media. So people are just seeing more of these high-end bottles be posted by friends, by celebrities. It’s not like you ever see any star NBA players Instagramming bottles that you can easily find at Kroger. They’re starting to also think about that when they’re thinking about getting into wine. You’re having lots of people who are saying, if you do want to get into wine, the average price you should come in at is $20 or above. A lot of people try to make that case in the world of wine, so they’re seeing that as the literature and what’s pushing them to also trade up. So I think that is going to just continue to be a trend. Beer is an outlier because cheap beer has this weird allure to people that other two categories don’t. We think about cheap beers being like things that you can just totally crush. And I think expensive beer’s too hard.
Z: It has a sort of working-class authenticity that people appreciate in a way.
A: Yes.
Z: In a way that cheap wine and cheap spirits don’t.
J: Right. It doesn’t reflect on your taste or your palate if you’re drinking cheap beer.
A: No, you mow the lawn.
Z: Yeah. Or you went to a show in Brooklyn or whatever.
A: Exactly. Cheap beer’s always had a place in high culture, in a way. First it was PBR, now it’s clearly Modelo. High Life is making a comeback. And they always also come through the world of art galleries and counterculture indie music, all that stuff. But they’re still seen as luxury. What’s so funny is, I’ll never forget being at South by Southwest 10 years ago when I was still at the record label. We were at this show where all these bands were playing and it was sponsored by Converse and Levi’s, announcing their Capsule collection. So it’s expensive, salvaged jeans and really high-end Converse. But all they were pouring was Pabst. And it was authentic to have this cheap beer next to these very expensive $250 jeans. As Zach’s saying, that’s very different because cheap beer is able to sit in an authentic place that cheap spirit or cheap wine, besides a few specific brands, maybe could. Jack Daniel’s is authentic and is pretty affordable, but I don’t know that anyone would call Jack Daniel’s cheap.
Z: Yeah, I don’t think so. I mean, it’s not expensive.
J: I don’t think people think of it as that.
A: Exactly. Whereas Evan Williams is considered cheap.
Z: I want to suggest one other thing here that might explain some of this and and might explain this move, too. We have talked at times on the podcast about this probably somewhat overblown, but not completely made up trend towards moderation, low-alcohol lifestyle, etc. And I wonder if that’s another point in premiumization’s favor. If you’re the kind of person who says, “I’m only going to drink once or twice a week or on special occasions,” well, then I’m probably more inclined to make the thing I drink on those occasions or the things I drink on those occasions feel special. That, I think, could also be explaining this move towards these products. If you’re the person who says, “You know what? I think it’s healthiest for me if I don’t drink during the week or whatever. But on the weekends, I’m not going to drink an $11 bottle of wine. I’m going to drink a $35 bottle of wine.” And that habit and that mindset might be more robust, even in the face of inflation, than someone’s daily drinking habit.
J: Yeah. I think that’s a good point.
A: I don’t think it’s just because of that.
J: That’s part of it.
A: I think that’s part of it. I mean, the only reason that it’s a little bit hard to make that 100 percent characterization is because I was talking to another executive in the business recently and if you look at all the data, all right, everything has increased. Everything is growing: volume and value. So the consumption volume is actually going up, too. So it’s hard to say that if it was just value, then we could say people were cutting back and they were drinking.
J: And spending more.
A: Yeah, but they’re spending more and they’re drinking just as much and it’s growing. I think a lot of it, though, also has to do with Covid. There are so many people I know who just realized how much better it would be if they were willing to spend $35 on a wine but then they were willing to spend $35 to $40 on dinner. It’s those people who are like, “Look, you know what? On a Friday night when I have dinner at home or a Thursday night when we order pizza, I’ve realized that it’s much more pleasurable and enjoyable to open one really good bottle than one mediocre bottle.” And you’re seeing that across the board in spirits, too. I think that people are substituting the affordable drink with beer. If it’s going to be that very easygoing drink during the day on Saturday, maybe it’s not a cheap bottle of rosé, it’s a Modelo or it’s a hard seltzer.
J: Yeah.
A: All of this is influencing people to move more premium, including what’s happening in normal society with the rest of the things we’re buying. Everyone’s buying high-end sheets now from Brooklinen and tons of high-end pots and pans, even if they’re not truly high-end. But they feel like they are.
Z: Like the shoes you keep buying are. I forget.
J: On Cloud.
A: Oh, yeah. The line outside the O.N.E.’s store in Soho is insane. Everyone’s kind of like looking for these things now. This is just following that general trend. I mean, look, could a recession hard-reset all this? Absolutely. But alcohol is definitely more resilient in recessions than most other products. People tend to keep their normal behaviors when it comes to alcohol in recessions. Because, again, when it comes to consumption, that’s the one thing that research usually shows you’re unwilling to cut out of your budget. You’re willing to cut dining out out of your budget and you’ll cook more at home. But you’ll still drink nice at home because you’re used to having nice drinking. You’ll probably still eat nice at home, but the savings is that you’re not paying the restaurant markup. So alcohol is pretty resilient in that regard. But who knows? It’s so interesting to see that this trend is continuing to happen. Obviously, I definitely think more purchases are coming. That’s what they always say about a recession, not every company in a recession does poorly. And recessions that threaten that they’re oncoming or ones that actually happen are the times when you see the strong companies make lots of purchases.
J: Consolidation.
A: It’s the perfect time to go shopping. What else will we see that gets bought? Who knows? But more is definitely coming. All right, guys. We’ve got a short week. We’ll be back in your feeds on Friday. Joanna and Zach, I’ll talk to you then.
J: Talk to you Friday.
Z: Sounds great.
Thanks so much for listening to the “VinePair Podcast.” If you love this show as much as we love making it, please leave us a rating or review on iTunes, Spotify, Stitcher or wherever it is you get your podcasts. It really helps everyone else discover the show.
Now for the credits. VinePair is produced and recorded in New York City and Seattle, Washington, by myself and Zach Geballe, who does all the editing and loves to get the credit. Also, I would love to give a special shout-out to my VinePair co-founder, Josh Malin, for helping make all of this possible, and also to Keith Beavers, VinePair’s tastings director, who is additionally a producer on the show. I also want to, of course, thank every other member of the VinePair team, who are instrumental in all of the ideas that go into making the show every week. Thanks so much for listening, and we’ll see you again.
Ed. note: This episode has been edited for length and clarity.
