VIEWPOINTS : Outlook for California Wine Industry Is Rose, Mondavi Says : Chairman of State Promotion Group Sees Vintage Era

In the 1970s, the California wine industry was riding an expansionary wave that had seen U.S. wine consumption triple since the 1950s.

Wine grape growers and vintners expanded their facilities; new vineyards spread throughout the state’s wine-producing regions as businessmen from other fields and investors seeking tax shelters flocked to the industry.

Then, early in the 1980s, growth abruptly slowed.

The industry began to suffer from the overplanting of vineyards, which in turn produced an oversupply of wine. That coincided with a leveling off of demand for table wine, which had been increasing rapidly starting in the late 1960s and into the 1970s.

Demand continued to grow but more slowly than the new production came on line.

And other problems surfaced. In the suddenly uncertain marketplace of the 1980s, the state’s growers and wine makers found themselves facing economic difficulties, labor disputes, foreign competition and challenges from other segments of the liquor industry.

The 1986 harvest, however, may mark a new and upbeat era, suggests R. Michael Mondavi, chairman of the Winegrowers Assn. of California, a wine promotion organization created in 1984 to unite growers and vintners.

The state’s grape surplus is dwindling as fantastically successful wine coolers soak up huge quantities of Thompson Seedless--a versatile grape that is eaten fresh, dried into raisins, crushed into juice and--until wineries began switching to choicer varieties--blended in the cheapest jug wines.

As vintners shifted, growers had been left with surplus stocks and plunging prices for their once-valued Thompsons.

Some coordination was needed, and the result was the creation of the Winegrowers Assn., whose chairmanship alternates between growers and vintners. It has, at times, been a shaky alliance.

“It’s not all roses,” Mondavi conceded, “but we are learning that the synergistic effect of working together is better than fighting and bickering.”

With the wine industry at a crossroads, Mondavi reviewed its problems and challenges with Times staff writer Bruce Keppel.

Question: There’s a lot of talk of a “lake of wine” in the world--far more production than current demand and consumption can absorb. How will Winegrowers of California address this?

Answer: We’re trying to educate the public to wines, through educational programs and tastings, working very closely with the chain restaurants, hotels and supermarkets, teaching the wine buyers of these organizations so they know what they’re buying.

One of the key things we’re trying to do is to take the mystery out of wine but retain the magic. People are intimidated about wines.

The idea that red wine is drunk with red meat and white wine with white meat and fish was never more than a guideline, not a hard-and-fast rule. People should drink the wine they enjoy with the foods they enjoy.

And if they like a red wine chilled, chill it.

Q: What about reports that wine demand has flattened?

A: Demand had been flat until about a year ago, but I don’t think that consumption was flat.

What happened was that distributors began managing their inventories much more efficiently. If you analyze the inventory level of wines over the last five years versus sales from wineries to distributors, and from distributors to retailers and restaurateurs, consumption is up--and at a fairly nice rate.

The consumer is actually drinking 8% more than is being reported.

Americans also are drinking “better,” whether it’s a better quality of competitively priced wines or a better quality of fine premium wines.

The wines that don’t have the quality in the bottle are the ones that are suffering--some losing 10% to 15% of their market per year. The people who produce finer wines are increasing market share.

So the fine wines in the Napa Valley are enjoying beautiful growth, as are the fine wines produced in other areas.

Q: Will the jug wine disappear?

A: No, but the everyday wines in the future will be of a far better quality--and far more drinkable and enjoyable--than they are today.

Q: Are the new “blush” wines here to stay, or are they merely a profitable way to unload surplus red-skinned varietals?

A: Blush wine is a trend, not a fad. It may well turn into a tradition. Blush wines have taken over the rose market and created a dynamic in that market that we haven’t had for years.

Q: How does the current income tax reform affect the wine industry?

A: First, only 80% of dining entertainment for business purposes would be deductable, rather than 100%.

That’s unfair, because many companies--especially smaller ones that can’t afford to advertise--do their public relations business through luncheons or dinners.

Second, the corporate tax rate will be 34%, rather than 50%. If you deduct a $100 meal today, you deduct 50%, and $50 is the after-tax cost to the business. With the new tax code, you have a $100 meal, but only 80%, or $80, is deductable.

Applying the 34% rate leaves about $26. So your after-tax cost for entertainment with the new tax bill is about $74 on a $100 expenditure, compared to $50 now.

That’s almost a 50% increase in the after-tax cost. That, I think, will have an adverse impact on both the wine industry and the restaurant industry.

Q: Any other legislative worries?

A: There’s a proposal in Congress to increase the excise tax on wine by 400%--a move being pushed by the “neo-Prohibitionists,” who are a small but vocal minority that latches onto any available issue to attack (wine and other alcoholic beverages).

Another proposal would require five warning labels, some contrary to fact, to be printed in a rotating schedule through the year on all alcoholic beverages.

For example, while medical studies have shown that drinking wine with meals at the rate of two glasses a day will lessen the chance of getting heart disease, one label would say this product contains alcohol, which can lead to heart disease!

What these people confuse is proper use and abuse: We need oxygen to live, but were we in a 100% oxygen environment, we would die pretty fast.

Q: Speaking of taxation, distillers maintain that their beverages are unfairly taxed, compared to wine, arguing in part that typical servings of liquor, beer and wine contain equivalent amounts of alcohol and so should be taxed equivalently.

A: If the human body were a test tube, the distillers’ claim of alcohol equivalency would be accurate.

But the human body is not a test tube, and it metabolizes alcohol differently from different sources.

If you have a glass of wine, because of the proteins and the 400-and-some-odd individual compounds that are in it--naturally from the grapes--it metabolizes at a much slower rate.

Therefore, we’re interested in what is the effect on the human body of distilled spirits, wine and beer.

And distilled spirits have a far greater shock effect or impact.

Wine has been viewed in a different way and should be. It is primarily consumed for its flavor and as a complement to food, increasing the enjoyment of a fine meal, while distilled spirits are primarily consumed for the effect of the alcohol.

Q: Looking into the 1990s and beyond, what will California’s wine industry look like?

A: It will be far healthier in 1990 than it is today.

There will be some consolidation. Some of the wineries that are more hobbies of people in other businesses and professions will change hands, some under duress and (others) because their owners just got bored.

We’re going to see a tremendous increase in quality over the next 10 to 20 years. . . . The reason is that we are understanding more of the effects of climate and soil on the quality of wine than we’ve understood in the past.

And we’re able to utilize science to prove or disprove many old wives’ tales about wine making. As a result, research is going forward very well, and we’re making wines that taste good.

My father (Robert Mondavi, founder and chairman of the winery bearing his name) has been saying lately that he’s been in the wine business for 50 years and it’s only in the last five that he’s understood that you’re supposed to make wines that really taste good and complement fine food rather than wines that are technically perfect.

I think that will be a very important factor in determining the direction of food and wine in America.