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California Wine Industry Turns Sour

A glut of top vintages has pushed prices down, but connoisseurs better enjoy it while they can.

January 05, 2003|Corie Brown | Times Staff Writer

Following a decade of unprecedented growth that saw a 50% rise in the number of wineries, vineyard acreage and consumer prices on bottles of wine, it's the morning after for California's wine industry.

The state's second most glamorous business is waking up to slumping holiday sales in nearly all categories of the wine market, according to A.C. Nielsen's WineScan, the first such broad decline since the 1991-92 recession. It's the latest blow to an industry already on the verge of crisis.

At least three wineries have filed for bankruptcy protection since the fall, and there have been a number of high-profile mergers as weakened wineries are swallowed up by the competition. Grape growers throughout the state have endured prices plummeting as much as 75% over the last two years, and are desperate to sell vineyard land -- but there are few buyers. Even the state's most influential figure, Robert Mondavi, is trying to unload hundreds of vineyard acres on the Central Coast. Some growers in the Central Valley have simply given up the fight and are ripping out vines to plant other crops.

It's all the inevitable outcome of colliding forces: a worldwide glut of wine combined with flat consumption. And it's bound to get worse for California, with importing rising 17% last year and now accounting for 25% of total U.S. wine sales, according to the Calistoga-based Wine Market Report.

For The Record
Los Angeles Times Wednesday January 08, 2003 Home Edition Main News Part A Page 2 ..CF: Y 11 inches; 420 words Type of Material: Correction
Town -- A caption accompanying an article about the wine industry in Sunday's Section A misspelled Arvin, Calif., as Alvin.
For The Record
Los Angeles Times Friday January 10, 2003 Home Edition Main News Part A Page 2 National Desk 16 inches; 573 words Type of Material: Correction
Wine sales -- An article on the California wine industry in Sunday's Section A incorrectly stated that holiday sales slumped from 2001 to 2002. The 2002 statistic from ACNielsen WineScan accounted for sales preceding the holidays and covered a 13-week period ending Nov. 23. Sales for the same period in 2001, which included Thanksgiving, were higher. When the 2002 statistic was adjusted to include Thanksgiving, sales showed a 1.6% increase over the previous year.

"It's 'the perfect storm': a downturn in the economy, the overproduction of grapes and cheap imports," said Tom Pillsbury, vice president of estate wine sales with Youngs Market Co., one of the state's largest wine distributors. "It's a good time to be a consumer. Prices will continue to drop on wines that are better than ever."

Prices Falling

In fact, it is looking like party time for wine lovers: prices are falling on wines at all levels, and some hard-to-get labels are more readily available. The improved growing techniques that helped cause the glut have also improved the quality of grapes, and wine, even in the cheapest bottles.

But in short order, the bad times will affect consumers too: The wide variety of hand-crafted wines that have vaulted California's stature around the world will dwindle, according to industry experts.

"It's the coming homogenization of the wine industry," said Kim Stare Wallace, a second-generation winemaker at Dry Creek Vineyard in Sonoma. "Small wineries will be grabbed up by the big guys."

Those in the industry agree that only well-known brands, and well-heeled vintners, will survive as independent operators.

"We are going to lose scores of wineries to bankruptcy," said Joe Ciatti, one of the state's largest brokers of bulk wine, calculating that as many as 200 of the state's wineries, or more than 20%, could go out of business or be bought by a larger competitor.

Cheap Imports

There is just too much of a good thing. Supermarkets and wine stores are being flooded with cheap, high-quality wine not just from California, but also from Australia, South America and South Africa. At the same time, American drinkers haven't embraced the windfall as an excuse to drink more wine. Overall, wine sales were flat in 2001 and 2002. Well-heeled baby boomers, whose love affair with premium wine had been driving yearly increases of as much as 20% in that category, are reaching their limit. Younger drinkers, meanwhile, are grabbing a six-pack or sipping martinis, shunning wine as their parents' obsession.

"We've missed a whole generation," Pillsbury said.

The pain is going to be acute among the vintners whose bucolic, agrarian lifestyle is woven into the fabric of California's consciousness. Wealthy refugees who cashed out of Silicon Valley, Wall Street and other walks of life poured into wine regions from Santa Ynez to Napa, planting vineyards and pressing namesake wines, sometimes to great acclaim. That pilgrimage pushed the number of California wineries from 600 to 900 during the recent decade, according to statistics compiled by Motto, Kryla, Fisher, veteran wine industry analysts.

As prices fall in the face of the wine glut, these fledgling wineries are being forced out of business, said Fred Reno, president of the Henry Wine Group, another of the state's major wine wholesalers. "The smaller wineries selling fewer than 20,000 cases a year don't have the ability to cut prices and stay profitable," he said. "The really overpriced wines would have to go from $75 to $35 [a bottle] to make a difference" in how much wine is sold.

This fall, with her suitcases full of Cabernet, Chardonnay and a little Sangiovese tucked in the side pocket, Shari Staglin went on a door-to-door campaign to sell wines from the Staglin Family Vineyard to restaurants and wine stores, dropping her long-standing wine distributor in favor of the personal approach. The distributor had suggested it was time to lower the price of her Cabernet to something less than $90 a bottle.

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