I have been thinking for a few years about what other baskets we could have, and also utilize what's already in place. I think there's growing health and eco-consciousness. Napa could be a strong center for that type of tourism. Health and spiritual retreats, retreats that combine hiking, spa treatments, yoga and great food. Bringing in speakers of these topics.
When I moved to the valley in the 50s, there was cattle ranching, meat packing, orchards of walnuts, and that has all gone away. I have feared for our one business mentality for a long time. Also we have hotels that are not filled so the demand for more more more is not there.
Great analysis Tim! While it is not in the Napa Valley, when I see Treasury paying upwards of $1B for Daou in Paso, it sets off a lot of alarm bells. I agree with Beth Rodda's comment that NV is "all in" on wine, but not embracing the tourist culture that presents a bigger economic opportunity than is being capitalized upon currently seems hypocritical. I am not advocating for a wine Disneyland approach, but when the community seems to be up in arms over a modest inn proposed at Freemark Abbey, I wonder what the economic expectation is...
Thank you coach. I think the problem is that unless you bring in many millions more tourists a year you can’t make up for expected decline in the wine industry. As such, you could build dozens of new resorts but it would help much and besides it’s not at all clear that there is that kind of demand anyway. It’s a tough moment in the Napa Valley and without clear thinking the problem could become much worse.
Use the land differently. Replant orchards, create community gardens, create a botanical reserve with walking paths and a labyrinth. Build a ropes course. Create activities for children and teens that promote love of nature.
I wish I had an easy answer to your last question. I'd suggest diversifying the economy but I can't think of another product that rivals current wine returns. Other regions tout their less crowded alternatives; should we limit tourism? But we need more revenue: should we keep increasing tourism? Maybe incentives for small producers would help.
Great article, should be required reading for our governing bodies. Are we behind the curve with respect to additional resorts/hotels? They may not be panacea for the fiscal health of our communities. We need to be careful and considerate in our deliberations.
The increase in grape prices from 1976 to 2022 reflects about a 6.5% compounded annual increase. $461 invested in the S&P 500 index with dividends reinvested would be worth over $60,000 in 2022.
Within any speculative bubble there are aspects that can remain healthy. As exemplified by some sectors of technology during the dot com bubble. Either way, thank you for your insight.
The reason I looked at earnings per share is that the expansion of the price multiple affects the price per share, whereas the earnings number (while also subject to things like changes in the tax code) is more apples/apples.
Your comparison between the EPS of S&P 500 companies and the prices of Napa Cabernet Sauvignon grapes is intriguing and highlights how different markets can exhibit similar growth patterns. However, it's important to emphasize that the dynamics driving luxury grape prices in Napa Valley are quite distinct from those influencing corporate earnings. The grape market, especially for high-end varietals, operates in a less regulated and less monitored environment compared to the stock market. Factors like scarcity, terroir, and brand prestige play a substantial role in shaping prices in this niche market, which might not be as subject to the same financial scrutiny and regulatory standards as publicly traded companies. This difference is crucial when considering grape prices as a proxy for a speculative bubble. While EPS growth reflects broader economic trends and corporate governance, the rise in luxury grape prices may be more indicative of niche market dynamics and speculative behavior. It would be interesting to explore how these unique factors contribute to the perceived speculative bubble in luxury grape prices compared to the more regulated and scrutinized domain of corporate earnings.
Tim, I made the comparison I did to provide context for the increase in grape prices that you made to changes in the prices of other assets over the same period. Your reply attempts to refute claims I did not make. Of course the change in the price of wine grapes from one small region is not directly linked to the earnings of a diverse portfolio of large corporations—but I did not assert that. I was not trying to turn Cabernet Sauvignon prices into an extension of Modern Portfolio Theory or Black-Scholles Option Pricing, or take anyone on a random walk through the Napa Valley.
Hard core economic theory. Love it. Lots to unpack here and plenty or room to improve. If I misunderstood the nuances of your comments please accept my apology. Either way, thank you for your engagement. Definitely will make me think more on this topic.
I realize the math is complex (land prices + production costs + marketing + etc.), but I think a lot of producers are simply pricing themselves out of the market. A bottle of top-shelf liquor yields ±18 cocktails for the same cost as only five glasses of a moderately-priced Napa wine, so it's no wonder younger adults are discovering the joy of mixology. BTW, plenty of Boomers who could easily afford Napa Valley price tags just aren't interested in over-spending on what is frequently just hype ... even my friend who has Rockefeller-level wealth often rolls his eyes at Napa prices and opts for an excellent 'new-world' or 'old-world wine' at a fraction of the price. Turning our beautiful valley into a wine 'Disneyland' where even well-paid locals can't afford houses is a nightmare scenario that could easily come to pass.
WOW! That is a tough read. But, clearly, the conversations need to happen, and I thank you for opening the door so that others can choose to engage. Hoping that some good solutions can be looked at and the best chosen. And, as said by many, these changes take time and are often tough for the "old timers."
The Napa Valley community has always had vision. We have what it takes to create change in hard times , if and when they arise, and preserve this unique place for innovation and a great quality of life.
As a society of multi generational and ethnic individuals our economic trajectory especially in California seems more unpredictable now than any time in the past 50 years as the gold has tarnished on the golden state.
Solid stuff! My other comments: Biggest threat remedy--Threat is Napa is pricing itself out of relevance, and appeal/affordability to anyone other than elitist consumers with lots of money. Manage economic slowdown: re-direct producers/marketing to making Napa once again a place with wines that can be enjoyed for a sensible price, and re-imagine the winery experience that doesn't simply appeal to well-off day trippers. Tied into all of that. Napa producers must re-think their continuously greater super-premiumization of their portfolio. Ironically, one solution would be if current and new owners were extremely wealthy enough to operate production in such a manner that the price of wines can come down to more manageable affordable and more widely available levels. Publicly owned wineries in Napa cannot remain viable, therefore.
OR- we just accept the fact that except for the well-off, the expense account crowd and wine critic geeks (will include myself), Napa can no longer remain of interest. It will become a smaller, niche region that is off the radar for most consumers. It will survive and prosper within a smaller 'neighborhood'; sort of the way Wagyu Beef producers do Joel
Impressive reporting and research. Yet the Bremers, , Davis Family, DI Cesaris, Ciminellis, Cervantes types just can't seem to get enough of themselves. Loaded with cash from other industries they claw away at the forest, hell bent on developing more vineyard in a declining market. Putting a label on a bottle they can flash at other newbies seems like a fitting end.
While we appreciate your passion, we are attempting to be space that is devoid of such divisive commentary. Please keep your comments professional, objective and non-incendiary or they will be removed. Thank you.
So excellent and focused. Brave to acknowledge the elephant in the room! Thank you!!!
Napa Valley suffers from “all the eggs in one basket” syndrome. And I’m not sure there is now the time or opportunity to create more baskets.
I have been thinking for a few years about what other baskets we could have, and also utilize what's already in place. I think there's growing health and eco-consciousness. Napa could be a strong center for that type of tourism. Health and spiritual retreats, retreats that combine hiking, spa treatments, yoga and great food. Bringing in speakers of these topics.
When I moved to the valley in the 50s, there was cattle ranching, meat packing, orchards of walnuts, and that has all gone away. I have feared for our one business mentality for a long time. Also we have hotels that are not filled so the demand for more more more is not there.
Great analysis Tim! While it is not in the Napa Valley, when I see Treasury paying upwards of $1B for Daou in Paso, it sets off a lot of alarm bells. I agree with Beth Rodda's comment that NV is "all in" on wine, but not embracing the tourist culture that presents a bigger economic opportunity than is being capitalized upon currently seems hypocritical. I am not advocating for a wine Disneyland approach, but when the community seems to be up in arms over a modest inn proposed at Freemark Abbey, I wonder what the economic expectation is...
Thank you coach. I think the problem is that unless you bring in many millions more tourists a year you can’t make up for expected decline in the wine industry. As such, you could build dozens of new resorts but it would help much and besides it’s not at all clear that there is that kind of demand anyway. It’s a tough moment in the Napa Valley and without clear thinking the problem could become much worse.
Thorny problem, indeed. Opening the discussion is the first step to solving the problem. Thanks for doing that...
More tourism? You mean as in more?
Use the land differently. Replant orchards, create community gardens, create a botanical reserve with walking paths and a labyrinth. Build a ropes course. Create activities for children and teens that promote love of nature.
I wish I had an easy answer to your last question. I'd suggest diversifying the economy but I can't think of another product that rivals current wine returns. Other regions tout their less crowded alternatives; should we limit tourism? But we need more revenue: should we keep increasing tourism? Maybe incentives for small producers would help.
Great article, should be required reading for our governing bodies. Are we behind the curve with respect to additional resorts/hotels? They may not be panacea for the fiscal health of our communities. We need to be careful and considerate in our deliberations.
The increase in grape prices from 1976 to 2022 reflects about a 6.5% compounded annual increase. $461 invested in the S&P 500 index with dividends reinvested would be worth over $60,000 in 2022.
I thought his number looked high!
The Compound Annual Growth Rate (CAGR) for an investment that grew from $461 in 1976 to $60,000 in 2022 is approximately 11.16%
Earnings of the companies in the S&P 500 went up by about the same multiple (in the period 1976-2022) as Napa Cabernet Sauvignon prices.
Within any speculative bubble there are aspects that can remain healthy. As exemplified by some sectors of technology during the dot com bubble. Either way, thank you for your insight.
The Compound Annual Growth Rate (CAGR) for an investment that grew from $461 in 1976 to $60,000 in 2022 is approximately 11.16%
The reason I looked at earnings per share is that the expansion of the price multiple affects the price per share, whereas the earnings number (while also subject to things like changes in the tax code) is more apples/apples.
Your comparison between the EPS of S&P 500 companies and the prices of Napa Cabernet Sauvignon grapes is intriguing and highlights how different markets can exhibit similar growth patterns. However, it's important to emphasize that the dynamics driving luxury grape prices in Napa Valley are quite distinct from those influencing corporate earnings. The grape market, especially for high-end varietals, operates in a less regulated and less monitored environment compared to the stock market. Factors like scarcity, terroir, and brand prestige play a substantial role in shaping prices in this niche market, which might not be as subject to the same financial scrutiny and regulatory standards as publicly traded companies. This difference is crucial when considering grape prices as a proxy for a speculative bubble. While EPS growth reflects broader economic trends and corporate governance, the rise in luxury grape prices may be more indicative of niche market dynamics and speculative behavior. It would be interesting to explore how these unique factors contribute to the perceived speculative bubble in luxury grape prices compared to the more regulated and scrutinized domain of corporate earnings.
Tim, I made the comparison I did to provide context for the increase in grape prices that you made to changes in the prices of other assets over the same period. Your reply attempts to refute claims I did not make. Of course the change in the price of wine grapes from one small region is not directly linked to the earnings of a diverse portfolio of large corporations—but I did not assert that. I was not trying to turn Cabernet Sauvignon prices into an extension of Modern Portfolio Theory or Black-Scholles Option Pricing, or take anyone on a random walk through the Napa Valley.
Hard core economic theory. Love it. Lots to unpack here and plenty or room to improve. If I misunderstood the nuances of your comments please accept my apology. Either way, thank you for your engagement. Definitely will make me think more on this topic.
I realize the math is complex (land prices + production costs + marketing + etc.), but I think a lot of producers are simply pricing themselves out of the market. A bottle of top-shelf liquor yields ±18 cocktails for the same cost as only five glasses of a moderately-priced Napa wine, so it's no wonder younger adults are discovering the joy of mixology. BTW, plenty of Boomers who could easily afford Napa Valley price tags just aren't interested in over-spending on what is frequently just hype ... even my friend who has Rockefeller-level wealth often rolls his eyes at Napa prices and opts for an excellent 'new-world' or 'old-world wine' at a fraction of the price. Turning our beautiful valley into a wine 'Disneyland' where even well-paid locals can't afford houses is a nightmare scenario that could easily come to pass.
WOW! That is a tough read. But, clearly, the conversations need to happen, and I thank you for opening the door so that others can choose to engage. Hoping that some good solutions can be looked at and the best chosen. And, as said by many, these changes take time and are often tough for the "old timers."
The Napa Valley community has always had vision. We have what it takes to create change in hard times , if and when they arise, and preserve this unique place for innovation and a great quality of life.
As a society of multi generational and ethnic individuals our economic trajectory especially in California seems more unpredictable now than any time in the past 50 years as the gold has tarnished on the golden state.
Tim
Solid stuff! My other comments: Biggest threat remedy--Threat is Napa is pricing itself out of relevance, and appeal/affordability to anyone other than elitist consumers with lots of money. Manage economic slowdown: re-direct producers/marketing to making Napa once again a place with wines that can be enjoyed for a sensible price, and re-imagine the winery experience that doesn't simply appeal to well-off day trippers. Tied into all of that. Napa producers must re-think their continuously greater super-premiumization of their portfolio. Ironically, one solution would be if current and new owners were extremely wealthy enough to operate production in such a manner that the price of wines can come down to more manageable affordable and more widely available levels. Publicly owned wineries in Napa cannot remain viable, therefore.
OR- we just accept the fact that except for the well-off, the expense account crowd and wine critic geeks (will include myself), Napa can no longer remain of interest. It will become a smaller, niche region that is off the radar for most consumers. It will survive and prosper within a smaller 'neighborhood'; sort of the way Wagyu Beef producers do Joel
Impressive reporting and research. Yet the Bremers, , Davis Family, DI Cesaris, Ciminellis, Cervantes types just can't seem to get enough of themselves. Loaded with cash from other industries they claw away at the forest, hell bent on developing more vineyard in a declining market. Putting a label on a bottle they can flash at other newbies seems like a fitting end.
While we appreciate your passion, we are attempting to be space that is devoid of such divisive commentary. Please keep your comments professional, objective and non-incendiary or they will be removed. Thank you.
Bummer. I was using legit examples. I understand.