Putting things in perspective

The Jewish population in the USA, the largest wine market in the world, amounts to only about 1.6% of the total population. Of those, maybe 10% are orthodox, or would care about the kashrus status of their daily wine. Although there is typically a preference for kosher-for-Passover wines during Passover, that is by no means a universal. Off the top of my head, I would probably say no more than about 50% of Jewish homes, and I'm sure I'm being generous. I personally remember Passover at my Uncle's when I was at Davis, where we used great German White estates (obviously nonkosher) for the seder, and the only nod to Passover was using Matzoh over the course of the week rather than bread.

The point I'm trying to make is that even though Jews are often disproportionately on the affluent side, we really represent a drop in the bucket in terms of total wine consumption. We can bemoan the fact that more great estates don't make wines to fit our needs, or cater to us in any way, but why should they? We will never be more than a very tiny niche, important mostly to ourselves. There is only one reason that "kosher" could be of interest to most producers, and that is disproportionate profitability. Kosher wine costs more, and will continue to cost more, because the few consumers interested in it will pay the price. But the minute we are not willing to do so, the supply will dry up, because it won't be worthwhile for the producers to play. And there is only one major kosher-only player, Royal, because they are in the unique position to work the niche, have the money to invest in kosher, and understand the balance between quality provided, profitability mastered, and marketing illusion. They can squeeze out additional profit because they have taken the time and effort to learn how. While not walking in lockstep with them, my hat is off to them.

Why the musings? I am in a unique position to get back into the industry, not only with Agua Dulce but on a much larger scale. Is it worth it? I'm considering all my options at this point.

Craig,

Great to see you here and open such a deeeep topic.
The Dynamic you speak is most likely very close to real #'s yet one basic element has been lost or not been looked at.
Kosher Pareve Wine = Vegan
Kosher Wine = All vessels, Kalim or Chambers are burned to 212 Degrees after a Meat or Dairy Run.
Kosher Wine = Less Allergy influence due to strictness of Acids, Yeast strains and clarifying ingredients such as Eggs and or otherwise.

If this THING known as kosher wine is to take off then these must be hit into the NON-Kosher market.
The premium could be spread out a little deeper and thus bring the $ down just that little bit; in this matching the Quality and cleanliness with the end shelf price.

When people come in to our store that are not Jewish; one question always comes up like this, "Where did all this good Kosher wine come from and when?"

Something is missing .... The Bartenura Moscato could help, The Big scores could help and advertising could help yet; the style of reaching a broader market is being missed due to the mass of Owner's thinking to be known as great wine or Israeli wine is more powerful than GREAT KOSHER WINE!!

Meaningless marketing drivel spouted by people like Lubinsky to try to drive the kosher food market. Let's hear some real justification. That was, of course, related to health and diet arguments.

The question is not whether good kosher wine exists. Right now, decent kosher wine exists because of either emotional reasons or profit reasons. Probably way over the amount of kosher wine that could be justified. I, for instance, would preferentially produce kosher wine, because I am Jewish, I am observant, and I only drink kosher wine. That's an emotional reason. Someone else might opt to produce kosher wine because he was told he could charge 30-50% more for it (whether or not reality truly would allow it, or guarantee the full liquidation of the production). That's a profit reason.

There is a basic premium of kosher over nonkosher for the same quality. It can't be justified by Lubinski-style talking points. How ya gonna get nonJews to go for it with that premium?

Hi Craig,

I am not sure I understand your question, but I'll respond with some of my thoughts.

The size of the kosher market compared to the overall US market is irrelevant to a single producer. I highly doubt that a single label, in any market, supplies a significant amount of wine. Hence I a think that it is not by coincidence that you refer to Royal--the distribution arm, and not to Herzog--the winemaking arm of that family's business, when you mention the standout success story in the US kosher wine market. Consequently, when you consider entering this market on a grand scale I highly recommend that you plan your portfolio and expenses very carefully. You've been in the business long enough, nonetheless, take a close look at the drinking habits of the kosher crowd. The majority of the business revolves around the sweet and low-end tier, the wines that are served at events. Royal pushes a ton of wines in the $7-$15 range, and are still profitable. Do you want to do that? You are an artist; they are salesmen. However, if you carefully build a portfolio with wines that challenge Royal's low-end portfolio, but with a significant qualitative edge, you might do well. Quality kiddush wines, will always be in demand, but not at the prices demanded by Carmel for their Sha'al, or by Yarden for their Heights Wine. You will need a portfolio that addresses the needs of caterers and restaurants. Finally, you will probably want to produce high-end wines, that from a business sense will establish your credentials, earning you critical acclaim. However, don't count on your upper tier wines to generate much profit, as I doubt Herzog generates much profit from the likes of the To Kalon. Those wines are marketing tools. Finally, make sure your operation is scalable, limiting the number of full time employees involved in production, but building up your marketing and sales teams in a manner that can contract and expand with your sales.

On another note, borrowing from a trend I'm starting to see with small Israeli wineries, consider creating joint private label wines for upscale restaurants and caterers. Perhaps, the Prime Grill wants an exclusive blend, made in a style that their sommelier and their chef feel pairs well with their menu. Your combined experience in the restaurant and wine businesses might give you an edge. I don't think small scale endeavors, such as this will have an immediate impact, but they might position you to break into the markets that move wine in quantity.

All the best,
-> Pinchas

Lubinsky WHO?

I dont know who Lubinski is nor did this come from an outside source.
The idea is based upon the fact that I was Vegan for 13 Years of my life and a Mashgiach; then knowing that the FDA and USDA
do not care of the same degree of depth as Kosher does for a person on a strict or Conscious diet.

Nu Lubinski who????

Yehoshua, I'm talking about Menachem Lubinsky (Lubinski?), whose marketing company runs "Kosherfest" and who is a champion of kosher food to Jews and nonJews alike. I'm not a fan of positive pseudo-health-claims, nor of the demographic argument, except in cases of meat (as Hallal keepers can, if necessary, eat kosher). Your Vegan claim about kosher wine is just downright incorrect, as we can certainly use both egg whites and true kosher gelatin for fining. Your claims about being burned to 212 are incorrect. The only requirement is that if hagolah is used insted of miluy v'iruy, the water should be close to 212 at time of impingment with the surface, and the entire surface must eventually be impinged, but the steel itself need only get as hot as it gets (difficult to set up an equilibrium where the water run-off is greater than 180 degrees F). Good winery sanitation is practiced, or should be practiced, universally. Typical California and Aussie and German wineries, for instance, practice as good a degree of sanitation. And your argument about less alergy, as well, is dubious at best. We typically don't use cassein, we don't use isinglass, but we typically use all normal winery chemicals/fining agents/acids. Sure, I'd love to get individual kosher wines to be drunk by non-kosher-keepers (nonJews and noncaring Jews) and we were quite successful, but it was still a struggle with properly priced wine, and certainly would be nearly impossible paying the premium.

Pinchas, I'm not asking for advice, I'm just musing as I recover from pneumonia. Examining my mortality, I am not sure what direction to take which will result in the best life for my family. If I go elsewhere where nonkosher opportunities have opened, I will do so alone, as the family will at least initially remain here, at least until it is ascertained that I am successfully integrating into the corporate environment. There are a couple of job opportunities for which I need only say "yes". They are corporate positions, on the large side of winemaking, not kosher, of course. Or I stay here at Agua Dulce, have a great family life, and wake every morning hating my life because I'm underutilized and undervalued, except by my family. Is it worth it just to make kosher wine? Doesn't seem that way from this vantagepoint.

Craig: Before you do anything or (especially) decide to do anything, get past the pneumonia.

Refuah shlemah.

Craig - I think it comes down to incremental expense in the cost structure to make it kosher. One thing is for near certain, though: any start up operation the resulting bottles of which are destined to occupy a those dusty, decrepit kosher wine shelves on the dark, gloomy corner of the nation's wine shops is all but doomed from the outset.

Good Chodesh, and thanks for the the wishes for refuah. Addressing Adam, nobody makes wine with the idea that it will be relegated to the remote shelves accessed infrequently by few. All winemakers, I am sure, begin by believing they have a better mousetrap, something needed in the marketplace, a new style, a new tweak to a style, a new variety (I once knew a winery in Santa Rosa which made nothing but Symphony in various styles... it went belly-up). These days, if they don't have someting to differentiate themselves, at least a long history in the marketplace (brand loyalty can continue to sell unremarkable wine for many years), then it becomes precisely the wineries' adeptness at creating illusion through marketing that will determine success and failure. Marketing creates perceived value out of thin air. But it takes time, and costs money, and sometimes consumers wake to the fact that they have been, or are being, duped. But these days, a winery requires a marketing budget just to get to the starting line, and that budget must be significant. In the old days, which were still around when I entered the wine business, it was a lazy time when we were pleased to have folk stumble across the winery, taste a few wines, and purchase a few before going on their way. They would meet the winemaker (always), they would develop a rapport, a relationship was likely, one which would last years. By the time I established GAN EDEN in 1985, those days were already gone... not that it didn't happen, but it didn't happen enough to even remotely affect a winery's survival.

Craig - you can have the greatest idea since sliced bread, but if it costs too much to implement it will not be as successful as hoped. So the incremental cost of kosher certification needs to be carefully factored into your profitability analysis. Such is life with many Kosher wineries. And this phenomenon is only enhanced by wine shops' insistence to relegate your wine to those dusty kosher wine shelves. This will not be in your control. And as I'm sure you know most wine shop owners or wine section mangers simply don't know how to effective present and sell the kosher wines they buy.

great thread.

So the incremental cost of kosher certification needs to be carefully factored into your profitability analysis.

adam's point must be: if a kosher wine produced outside israel is to make its way off the "dusty shelves," then after marketing, after successfully convincing the store or restaurant buyer that its quality is equal to non-kosher, the added cost of kashrut has to be absorbed by the winery in order to compete on price.

if the wine is produced in israel, other factors might come into the picture.

Isaac - couldn't have (and in fact didn't) said it better myself. My comments were exclusively targeted at a new "start up" winery who primary distribution will be outside of Israel. It is a real shame at how retail wine sellers don't know how to sell their kosher wine. The model that, in my view, should be followed is to mix the kosher wine with all the other wines, according to region or variety, and simply place a very discrete stickered dot indicating the kosher classification (similar dots would also be affixed to notate other categories of wine, such as organic). There would not be a legend disclosing what the dots mean so as to not prejudice a kosher wine. Kosher customers would simply be orally advised of the classification system, and the customer can then easilyshop for their kosher wine. This type of system will also enhance the kosher customer's shopping experience, albeit perhaps only subliminally.

Adam: Your suggestion is similar to what Tradwe Joe's does with their wines. The wines are arranged by varietal (for US wines) or country/region (for imports) and a small but visible sign is placed in front of certain types such as kosher or organic. I would not recommend using any type of code known only to certain people; any way that makes the wine more difficult to find (like having to rememnber what the code for kosher wines is) would be defeating the purpose.

Regarding the cost of kosher supervision, it is typically nominal, amortized over a production volume. That is to say, at least for a winery whose principals (including winemaker) are observant Jews. Figuring $10,000 over a production of 10,000 cases, the additional cost is less than a dime per bottle. Of course, a winery may not be making such a volume, but then again, cost of certification, in its entirety, might not come anywhere near $10,000. Figure it's a few thousand per year in any case, so for a 200 case producer, maybe $2000, at a cost of nearly a buck per bottle still pretty reasonable, still absorbable if the impact were bumped up by margins. A guy making 200 cases per year can sell the wine at a higher prices just due to novelty, limited production, whatever. And of course, he can sell it entirely direct to consumer, allowing the bypass of 2 tiers of the 3 tier distribution system typical in this country. It almost wouldn't matter what kashrus costs, because no matter what, the overall margin is so much higher due to that tier bypass. And as I say, certainly that's true of higher volume producers.

I won't address how to sell kosher wine, because it is an exercise in frustration, because retailers don't typically care. In the past, with the quality and price differentials, the potential for a fit with wines of like-appellation or varietal was far lower than today. There are still assumptions made by retailers and wholesalers that things are the way they were. And when it comes to the premium I discussed above, they are correct. The premium is typically not due to the costs associated with kosher certification, but rather with greed on the part of someone. If enough wine is produced to be sold on the shelves rather than winery direct to consumer, kashrus costs are typically a non-issue in terms of pricing considerations.

Regarding the cost of kosher supervision, it is typically nominal, amortized over a production volume.

Hi, Craig, shavu'a tov,

If as you say, and it certainly sounds reasonable assuming your numbers, then the mark-up on kosher wines --- in contrast to non-kosher --- is to maximize the margins from their captive audience. Now we know why there is no serious motivation and effort by kosher producers to market and sell to non-kosher customers. The profit margins cannot be maintained with the marketing and price competition required to get into the broader market. So, with highly diminishing returns, why bother?

I think that you will find that Hagafen, at least, makes serious attempts to sell kosher wine in the overall wine market. And many times that I have been to the tasting room I see non-Jewish visitors. But I don't kow that Ernie posts on this forum so I don't know that we can receive insight from him.

Regarding the cost of kosher supervision, it is typically nominal, amortized over a production volume. That is to say, at least for a winery whose principals (including winemaker) are observant Jews. ....

Well, the crux of the issue is the text highlighted in bold above. An Israeli boutique winery producing in the range you specified (10,000 cases, so 120,000 bottles) would typically be a family-run effort, with additional salary costs only for seasonal workers during harvesting and crush and other short periods. Moving to kashrut will require them to hire orthodox Jewish staff, so most likely you would need to factor in at least two full time salaries on top of the costs of the supervison itself.

Mike_F, you are entirely correct. The winery goes kosher for a business reason, however. The owners are taking a chance that they can make more money by being kosher than by not. Greed is the motivator. That's not necessarily a bad thing, just a fact. Typically, it is done in order to compete in the international (read that as US) market. Will the increased prices to a non-kosher-motivated consumer base in Israel, which should decrease sales to that base, be offset by new consumers who will purchase due to kashrus, either within Israel or the export market? I am sure it happens to a certain extent, and am equally certain that it is not a universal truth.

Hi Craig,

Yes of course it is a business decision. For an Israeli winery the motivation might be two-fold, not only the USA kosher market, but also the Israeli mass market - since nearly all Israeli supermarkets (with the notable exception of Tiv Taam) carry only kosher products, regardless of the religious observance level of their client base. Likewise for caterers, wedding halls, work-related events, etc...

mike

You are saying that Israeli wineries are deprived access to the very nonkosher consumers that are most likely to value their products, because the products are not kosher? I don't doubt the truth of your statement. If so, how utterly absurd! It could only happen in Israel. Is this because of government mandate or because of a business decision on the part of those supermarkets? Caterers and wedding halls I can understand- how many sets of dishes must a place have? But the supermarket thing is disturbing.

Craig - if you do move forward on this, I would strongly suggest picking a name for the winery that is complete neutral in terms of religious affiliation and doesn't exude Jewishness, which is a major turn-off to many non-kosher drinkers. All of the major kosher wineries (exceptions include Pacifica and Red Fern) have, in my view, off-putting names and I just don't know what they were thinking. You would also need to budget $10k-$20k for the cost of a road show in which you would personally travel the US and literally pund the pavement and visit as many major wine shops as you can in order to promote your wine and teach them how to sell/present it. An exhausting endeavor indeed, but one that I think could kick start momentum for you.

Adam M, I think you misunderstood me. I am not in a position to start a kosher wine company at substantial volume production- rather, I was, at the time, in a position to hire on in volume production nonkosher wineries in positions of responsibility. At the time I first wrote, I was just about ready to sign on the dotted line. However, I really do have an emotional propensity towards continuing kosher, as it's what I drink, and of course, the production calendar factors in Shabbos and Yom Tov, whereas it would require special dispensation to take that time off during crush in a nonkosher winery. That means, of course, that I would need to be high on the totem pole of a nonkosher winery, with enough people under me to implement my winemaking decisions in my absence. Such positions became available. Whether they are still available to me is questionable, and in any case, I would not make a decision during the 9 days. I am heartened, in any case, because other positions will no doubt come along. Producers cannot wait for decisions at this point, because of the proximity to crush-- they must have their houses in order.

I ran many numbers in my efforts to develop a realistic business plan capable of establishing a sustainable winery which could provide me the income I desire, a growing piece of the action, and make a good return for investors. The sweet spot seems to be at about 14,000 cases at an average price of $25/bottle retail, based upon the 3-tier system of distribution (which means approx. $12/bottle return to the winery). That would give me my salary, decent salaries to employees, what I believe to be enough marketing dollars to do the trick (about $200,000), and provide enviable returns on investment for investors. Nevertheless, 3 years of capitalization would require investment of 5-6 million bucks, and I don't have access to that, and wouldn't even with a fully developed business plan. In the end, it is still a risky business at a time when most are understandably risk-averse. Personally, I'm still waiting for the financial meltdown I am convinced will occurr, to make an already bad situation worse.

But even a tiny operation would require well in excess of your estimate of marketing dollars. When I used to go on the road with the Sonoma County Wineries Association tour, for several weeks thoughout the year, plus 2 or 3 tastings with Family Winemakers of California, our costs easily exceeded $50,000 per year. The costs are pretty much the same for a large or small winery. The per-case amortization, of course, is decreased with higher production volume.

You are saying that Israeli wineries are deprived access to the very nonkosher consumers that are most likely to value their products, because the products are not kosher? I don't doubt the truth of your statement. If so, how utterly absurd! It could only happen in Israel. Is this because of government mandate or because of a business decision on the part of those supermarkets? Caterers and wedding halls I can understand- how many sets of dishes must a place have? But the supermarket thing is disturbing.

Yes, it can only happen in Israel--the land of the Jews--that most supermarkets will respect a baseline level of kashrut, which is observed by at least 1/2 the population. I find it very disturbing that as a kosher-observant Jew you would want to encourage other Jews to drink non-kosher or even worse, lowering of the minimal societal standards of "Jewishness" of the holy land.

Elie, it's not about kedushas haAretz, it's about choices people make. If I thought for a moment that all of the supermarket chains under nominal hashgacha had made free business decisions to go that route, I would have no problem. But having seen women spit at, stones thrown, and observant acting like beasts of the field (by no means a majority, but enough), I am not enthusiastic about the exertion of pressure to bring about pro-religious business decisions, which is what I suspect goes on in too many cases, by religious organization or factions within or without the government. I was privy to the Rabbanut telling me I could sell my OU wine in Israel, but only with a label stating that it was not kosher, despite the fact that it was-- or I could pay to provide a vacation for a Rabbanut rabbi to come from Israel (rather than using one already here) to check on my winery. For me, rather than succumb to the government pressure (as the Rabbanut is part of the government), my response was to not play their game. Don't talk to me about kedushas haAretz. When the observant are civil towards the nonobservant, that is when there will be kedushas haAretz. And part of that civility is openly allowing people to make decisions we might personally feel are wrong, in hopes that one day they will get it right. Yes, I would be considered chareidi, and generally subscribe to people who are considered Gedolim. But I don't walk in lock-step.