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Focus on your customers, not the Next Big Thing

By Brandes Elitch
CrossCheck Inc.

eaders of The Green Sheet are a sophisticated lot,
and while you will occasionally meet a jaded
payment professional (JPP), you will seldom
R meet one of our number who is jaded about
wine.

But what if – as an investor or businessperson – you
wanted to understand the economics of wine pricing?
What if you wanted to do the same for payments? And are
there commonalities between the two industries?

In The Journal of Wine Economics, Vol. 7, No. 1, Karl
Storchmann shared his conclusions after studying factors
that affect wine pricing. Highlights from his conclusions
reveal the importance of relying on your own observations
more than on common assumptions:

• Fine wine is expensive, and if stored properly for a
long time, it can appreciate in value.
• Good Bordeaux might need eight to 10 years of
proper storage before it is "drinkable." Wineries are being bought and sold all around us, but the
• Most "ordinary" wines should not be stored for difference is that pre-2008 buyers wanted few hard assets,
more than two to three years. good revenues and a strong brand. Now they want hard
• Quality and price are sensitive to fluctuations assets, namely dirt. Consumers are now interested in
caused by the weather during the growing season. profiling the product: who made it, how they made it and
• Futures prices reflect current estimates on the where it was made; they want healthy, locally produced
quality of the wine when it is released and traded, foods. And then there's the export market. Recently U.S.
a minimum of three years after the harvest. Department of Food and Agriculture Secretary Karen
• Wine is an "experience good," meaning you have Ross stated, "I don't think there's enough wine for China.
to drink it to determine if it is good or bad. I really don't."
• Consumers rely a great deal on "expert" observers' Consumer concerns
and consultants' opinions to know what is good.
• Expert opinion is of little informational value and All most consumers really care about is getting a good
can be flawed or just wrong. product at a reasonable price. Many wine aficionados

Changing landscapes rely on America's most famous wine critic, Robert Parker,
and a small army of wine consultants to guide them. But
As with the payments sphere, tremendous changes are many of these consultants remind me of the derivation
occurring in Sonoma County's wine industry. Author of the term: "con" – meaning "to deceive" – and "insult" –
Edward Humes explained in the recently released meaning "to demean."
biography of Jess Jackson, A Man and His Mountain; The
Everyman Who Created Kendall-Jackson and Became America's Here's an example of an expert opinion: "Deep ruby color
Greatest Wine Entrepreneur, that the wine business has includes purpose nuances. Closed aromatically. Hints of
a carefully cultivated image of country gentlemen (and crème de cassis, and black cherries. Cuts broad swath across
ladies) sympathetically creating delicate flavors, but in the palate, with considerable depth and concentration.
reality it is a cutthroat industry. Tannic as well as broodingly backward."

Now, there is more competition, there is a shortage of It sounds like gibberish to me, but the writer is none other
grapes – and it's a government regulated business, to than Parker, talking about a Rhone varietal. Would you
boot. You need to plan your production six to 10 years buy a wine based on these comments? Plenty of people do.
in advance, and you are subject to the vagaries of both It is easier to subscribe to his wine journal that costs $75 a
consumer taste and the weather, two of the last things you year than to trust your own judgment, apparently.
would want to bet on.
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