California Wine Industry Picks Up After Big Slump

A year ago, bulk-wine broker Bill Turrentine couldn’t sell even premium Sonoma Valley-grown Cabernet Sauvignon for more than $10 a gallon. Last week, he unloaded some for $12.

In the San Joaquin Valley, the more pedestrian French Colombard grapes are fetching $150 a ton. That’s double what they commanded two years ago.

At the same time, grape growers in some regions of California are signing fall-crop contracts with winemakers earlier in the season than they have in years, underscoring how much excess has been squeezed out of the grape glut that had swamped the industry.

As about 8,000 vintners, growers, brokers and other industry players gather today at the Sacramento Convention Center for the trade’s largest annual convention, Topic A is clear: California’s $14-billion wine industry has begun to climb out of a three-year slump.

The confluence of a massive invasion of inexpensive imports and a statewide surplus of grapes appears to be ebbing. Mother Nature, the removal of 50,000 acres of vines around the state and a sagging U.S. dollar are finally turning things around.

“A lot of the factors that worked against us are now working for us,” said Vic Motto, who heads consulting firm MKF Group in St. Helena, Calif.

State agricultural officials won’t issue their report on the 2003 wine-grape harvest until next month. But many believe the amount of grapes crushed in the fall was 10% to 15% below 2002’s yield of 3.1 million tons. An odd pattern of hot and cold weather, as well as rain at the wrong times, cut into the 2003 crop, especially for Merlot.

The result: There is less cheap bulk wine on the market, and wineries are moving out some of the surpluses that they have long had in stock.

“Our ocean of excess has shrunk to a mere lake,” said Turrentine, whose brokerage in San Anselmo, Calif., moves $100 million of wine grapes and bulk wines annually.

Meanwhile, the national economy has improved, business travel has picked up and tourism has started to rebound -- all factors poised to boost sales of wine at bars and restaurants. Such purchases account for more than 40% of wine retail sales, according to Adams Beverage Group.

“People are going back into restaurants, and they are starting to pick the more expensive wines again,” said Ray Chadwick, president of Diageo Chateau & Estate Wines, the Napa Valley owner of Beaulieu Vineyard, Sterling Vineyards and Monterey Vineyard.

That’s especially important to California winemakers. Wines above $15 make up about 10% of the 155 million cases of California wine sold annually, according to consultant Motto, but they account for nearly a third of total sales in dollars.

“It doesn’t take a CPA to know where the profits are,” he said.

In another boost for California, its high-end wines are expected to look increasingly attractive both in quality and price when compared with their European counterparts.

Wineries in the state are just starting to release their 2001 Cabernet Sauvignons and Merlots.

Consultant Jon Fredrikson said they may be the finest in at least five years, and perhaps in a decade, thanks to just the right combination of heat and rain during the 2001 growing season.

Fredrikson, who heads Gomberg, Fredrikson & Associates in Woodside, Calif., believes the big Napa and Sonoma reds will reaffirm California’s status as a world-class wine producer this year.

The lower value of the U.S. dollar also is helping. Until recently, the greenback’s strength made it easier for everything from Australia’s $5.99 Yellowtail Chardonnay to $100-plus French Bordeaux to penetrate the American market.

But the Australian dollar now stands at 78 cents, up 32% from a year ago. The Euro, which determines the prices of French and Italian wine, has risen 17% in the last year to $1.26 -- up 47% from January 2002.

That’s slowing the rush of imports. They grew at a 14% rate for the first three quarters of 2003 but have since leveled off, Fredrikson said. He estimates that imports from the big three -- Italy, Australia and France -- fell in the fourth quarter from the same period a year earlier.

California vintners still have their share of problems. One is an oversupply of bottled wines that remain unsold from previous years. It’s not unusual to see 1998 and 2000 wines -- especially reds -- lingering on store shelves.

What’s more, wineries are still being pounded by retailers and distributors to lower prices. Much of the retail price pressure in California comes from the $1.99 Charles Shaw brand produced by Bronco Wine Co. and sold in the Trader Joe’s grocery chain.

“Two-Buck Chuck has set the price bar real low,” said Joseph Ciatti, a bulk-wine broker and consultant.

Thomas Selfridge, president of Chalone Wine Group in Napa, said he winced recently when he saw his Echelon brand of Pinot Noir on sale at a Cost Plus store for $7.99 a bottle. “This is an amazing time to be a consumer,” he said.

That may not be the case for much longer, though. Selfridge reckons that by 2005, the best deals for bargain-hunting wine drinkers will have been crushed out of the market.

Turrentine agreed. The industry isn’t back to “the glory years,” he said, “but certainly we are looking up.”