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Friday Sep 19

Grape Expectations

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Written by Galia Myron Tuesday, 24 February 2009 23:39

How will the wine industry fare in this sour economy? It’s complex.

As Americans have been cutting back on various expenses as they try to survive this recession, is anyone toasting to better times ahead? As some reports announce that the wine industry is suffering, others claim the industry is still doing well. While many assume that in tough times such “unnecessary luxuries” like wine and other alcoholic beverages would suffer alongside other industries, evidence presents otherwise. Although the wine industry has also faced layoffs, explain experts, the industry has simultaneously seen sales soar, at least in some cases.

Complicated? Not really, says Peter Posert, president of Gain Bay, a Sonoma winery that was established in October, 2007 (http://www.locationelevationslope.com/).

“The wine industry is changing as the economy dictates, so some wineries who foresaw trouble a year or two ago, when the mortgage crisis started, and decided to adapt to the new economy are in better position than those who continued on in the old business model,” Posert explains. 

“Key to success in the current climate are wines with a fruit forward flavor profile, a strong marketing concept and label, and a reasonable retail price point of about $25.00 and below, with wines in the $10.00 and down category doing well,” he adds.

Posert explains that as times are difficult, Gain Bay had to adjust its thinking in order to enhance company growth, allowing the winery to adapt to market demands. The winery is currently touting a Napa Valley Cabernet Sauvignon-based blend at $20.00.       

Shelley Maly, director of sales and marketing for BARRA of Mendocino/Girasole Vineyards, a small family vineyard and winery in Northern California’s Mendocino County, produces wines that are made from certified organic grapes (www.girasolevineyards.com and www.barraofmendocino.com). Maly says that the combination of an attractive price point and delicious wine has ensured their success even in this tough economy.

“Although we are only 1.5 months into 2009, our sales are up approximately 15 percent [year-over-year],” Maly tells demo dirt. “Our wines are priced, at retail, between $12.00 and $23.00, the majority falling in that ‘under 20’ sweet spot that the experts talk about.”

The uptick in wine sales at this challenging time comes as no surprise to Samir Bhavnani, co-founder of World Wine Groups, LLC (www.gottannins.com). “In general, wine and spirits do well in a downturn and we saw examples of this in the late 80s (after the ‘87 stock market crash), after the dot-com bubble, and we are seeing it again today,” Bhavnani explains.

Why do wine and spirits do well at a time that it seems everyone is cutting back on expenses? There are a few reasons, Bhavnani says, including the fact that people are staying home more often now. “As people watch what they spend they cut back on eating out, so instead of eating out three times a week they'll eat out once a week—and instead of ordering a bottle, probably order a glass,” he explains.

Feel-good products also do well during difficult times, and that includes wine as well as beer, chocolate and movie rentals, Bhavnani tells demo dirt. “Comfort items that make people feel good tend to trend positively during downturns.”

Finally, as people dine in more now, they entertain at home as well, he notes. “There are more neighbors and friends being invited over for dinner and Wii,” Bhavnani says. “This results in more wine being purchased, by the host and by the guests. It's amazing, one of our readers even asked us ‘What's the best wine to drink when you're playing Wii?’"

Wine consultant Harvey Posert has been in the business for 44 years. “The wine business is up in 2008 for the 15th year in a row, though not up as much as some years. The year moved along as usual until Nov-Dec, when it tanked,” Posert says. “This period usually has strong sales, but the restaurant business stopped. Then in January it got strong again; I call it ‘the Obama bounce.’"

David Strada, U.S. marketing manager for New Zealand winegrowers, says that while reports about the wine industry seem conflicting from afar, one needs only to take a closer look to understand the scenario. “Indeed, restaurant business is off and yes, that will affect on-premise wine sales,” he says. “Retail sales have pretty much held steady. Where the change has occurred is that whether consumers are dining out or buying wine to enjoy at home, they are paying a bit less than had been the case before. This means that sales have slowed for the very expensive offerings, and yet value-priced wines, such as Sauvignon Blanc from New Zealand, are doing just fine.”

While consumers once placed a premium on exclusivity or scores, price is now king, says Toni Johnson, Master Sommelier candidate. Johnson works for a wholesale wine distributor in Milwaukee, WI and is the wine writer for Milwaukee Home and Fine Living magazine.

Price has become the key factor for driving sales,” Johnson says. “Creating a buzz with a great price and wine that is more than quaffable can generate instant cash flow. Most interestingly though, is if a wine has been severely discounted at the wholesale level, and a retailer can use ‘The national average retail on this certain wine is X but I can offer it to you for x!’ sell through is guaranteed.”

Buyers, Johnson says, are using a new strategy in which they are buying wine that will retail under $15.00 with those under $10.00 being even more successful. “The mantra I heard most during the important fourth quarter of 2008 was, ‘We are selling the same amount of wine as last year, but at a lower price point. So in effect we are working twice as hard for the same amount of sales,’" Johnson tells demo dirt. More wines are selling, but at lower prices points.

“The general trend seems to be at our store, that people are consuming more ‘jug’ wines and the best category for the 750ml size seems to be in the $7.99 to $12.99 range,” says Norm Bentley, wine manager of GA-based World Beverage 400 (www.worldbeverage400.com). “I have also noticed a little more reluctance in the consumer to try unknown labels, as they are less likely to take a chance on a wine they do not know.”

Common belief is that the things that will always sell in a recession are alcohol, cigarettes and lipstick,” Johnson adds. “Alcohol seems to be recession-proof, but it is the savvy buyer that takes the pulse of how the consumer will purchase, will be the one that rides out the storm successfully and, most importantly, not going out of business.”

Chenyn Preston-Johnson, tasting room manager and event coordinator at Pasco, WA-based Preston Premium Wines (http://www.prestonwines.com/) says that the winery has felt the effects of the recession, but is confident that wine sales will continue to be strong. “We have a fairly large wine club and we have had members drop their membership for various reasons, such as, shipping is too high, or the little things like the club is stuff they have to cut back on,” Preston-Johnson explains. “Wine is a luxury item and just because people are giving up regular shipments, does not necessarily mean they will be giving wine all together.”

Damien Casten, a principal in Chicago-based distributor Candid Wines (www.candidwines.com), agrees with Johnson that price is key. “We are doing both good and bad. Regardless of where wines come from these days, price has become a critical driver,” he explains. “Our business has expanded nicely for wines under $20.00, and as it happens we have added a number of new producers who do just that in recent months.”

The change in price demands has created new opportunities and avenues in the wine industry.  “We have new customers and new placements all over the city,” Casten says. “As we are focused on organic and biodynamic wines, the combination of green, good, and inexpensive has proven golden.”

The increasing demand for organic wines means that smaller wineries producing quality organics at desirable price points, like Barra of Mendocino and Girasole Vineyards, are going to continue to do well, and even increase profits, despite growing concerns over the economy.

The biggest slowdown, Casten says, is in the $35.00 to $50.00 retail category; consumers are no longer interested in the “cachet” that producers of high-end wines highlight when marketing their particular appellations. “Wines in these upper tiers that have been around for a while seem to be defending their position, whereas unfamiliar wines are quite difficult to establish right now,” Casten notes. 

Posert agrees that price concerns have given way to the popularity of formerly lesser-known wines. “The wineries that are not doing well would largely be those with high prices—over $50—whose sales went up with the rising tide over the years,” he contends. “Greed and ego are being squeezed out of the wine business to some degree. Argentina showed a 44 percent rise last with its value Malbecs leading the way. Premium cask or boxed wines were up 40 percent.”

The plight of the higher-end wineries is resulting in some troubling and unprecedented developments in the wine world, says Eric Munson, founder of NY-based Dancing Bear Cellars, which imports, produces and sells and distributes wine across the United States (www.dancingbearcellars.com).

“[Wineries] in the ultra-premium producer sector have announced layoffs for the first time in their history,” Munson says. “Many vineyards are for sale.”

Munson has also observed that the average price of the most popular wines leaving retail shelves has dropped, plummeting, he says, by 35 percent to the $9.99 price point. “[It’s] the fastest growing category,” he notes. In fact, he adds, Dancing Bear Cellars has released a new line of value wines priced at $9.99 called Bear Market Red and Bear Market White.

Now, appellations that have been previously overlooked, or less celebrated, are getting more attention. “The less sexy appellations, for example Mendocino instead of Napa, or Loire Valley versus Bordeaux, or the Veneto versus Tuscany, have caught buyers’ eyes because of their prices,” he explains. “We have seen a real jump in all of the above as people reconsider their buying.”

Jeri LeBlanc, hospitality manager at Kiona Wines (http://www.kionawine.com/), located in Washington State’s wine country, says that interest in a wider regional selection indicates that customers are looking for new wines at lower prices. “We have been pretty successful in penetrating new markets with high quality, high value wines, probably at the expense of some higher priced brands,” LeBlanc says. “Washington wine in general is making inroads at a national level for the same reason. Kiona is cautiously optimistic that 2009 will be a good year.”

Casten agrees with Bhavnani and Strada that as restaurant business has waned, the wine industry has changed as well. “We have been told again and again—and sales support the claims—that high end wines in restaurants have collapsed,” he says. “If people buy wine, they look to buy cheaper wine than before, and if they can, they go BYOB. This last option means good sales from retail outlets, and that continues to be true.”

“Even people from the upper middle class are not going to eat in high-end restaurants; they are going to BYOB restaurants,” adds wine educator Keith Wallace, founder of The Wine School of Philadelphia (http://www.vinology.com/). “People are still buying wine, but they are drinking at home. Our cooking classes going through the roof because many more people are looking to learn how to cook.”

Randy Clement, co-owner of Los Angeles-based boutique wine shop Silverlake Wine (www.silverlakewine.com), says that while the shop’s clientele is open-minded, curious, and willing to try new wines, the staff has seen a decline in demand for higher-end wines. Customer flow has remained steady; consumers are merely gravitating away from the $100.00 wines, he notes.

“There are definitely customers mentioning the poor economic climate and continue to ask us how the store is doing given the circumstances,” Clement says. “So the economic conditions are on customers minds but we know this first hand because they are in the store as often as they used to be before the downturn.”

“I guess the bottom line is people are drinking as much, if not more but just drinking lesser expensive wines. We are very concerned however of what is going to happen to many of the importers and distributors that have large amounts of these expensive wines unsold in warehouses all across the country,” Clement states.

His plan for continuing success? “We just continue to work hard, work smart, and make people as happy as we can possibly make them,” he maintains. 

Despite reports of demand for high-end wines dropping, Napa Valley-based winemaker Robert J. Morey of Morey Cellars (www.moreycellars.com) has a different perspective. He believes some wine industry insiders are in “denial.”

“I speak daily with winemakers and winery owners, and have a pretty good idea on how things are going.  Basically, they're slowing down for cheaper and medium-priced wines; the high-end wines are still selling at approximately the same clip as before,” he maintains. “I sense some amount of denial inasmuch as some people tell me that sales are going well although they are waiting on additional/planned reorders from restaurants and distributors. So, perhaps the full impact of the slowdown hasn't been felt by anyone.”

So, is the future bright or dim for the wine industry and wine lovers?

“I can assure you the wine business is doing just fine. Many of our retail partners are seeing declines in the higher priced products as people are ‘trading down’ in an effort to conserve money but they are certainly continuing to buy,” says Josh Rosen, director of corporate communications and marketing for Curiosk Marketing Solutions Inc. (www.curiosk.com). Curiosk sells wine and spirits kiosk solutions to retailers. The kiosks print personalized greeting cards containing the product information, and the card prints and folds to fit over the neck of the bottle to be used for any occasion.

“While wine importers, distributors, brokers, export agents, retailers, and all the middlemen talk about this crisis, wine producers still produce good wines. And my guess is they will continue doing so,” says Charles Pirenne, owner and operator of a small winery in Priorat, Spain.

“I do not have the feeling that my job is any different than before the crisis. I don't have the feeling that the quality of my wines is affected by the crisis, and I am not willing to lower my honest prices,” Pirenne continues. “At the end of the day, good wine producers will go on making wines and will find ways to sell them. Consumers will always enjoy wines of integrity.

“This is a learning experience. Wineries can’t live hand to mouth. European wineries do, they know this is very cyclical,” Wallace says. “In the U.S. we have never seen this before. There are going to be some losses.”

For consumers, however, there may be more quality choices than ever, and at attractive price points. “The good news is there will be a lot of good wines on the market at low prices,” he adds.

Barbara Glover, Executive Director for Washington State’s Wine Yakima Valley (http://www.wineyakimavalley.org/) says that recent wine events have been successful. “This information certainly contrasts from the doom and gloom,” she says, adding that visitors to the region come from all over. “We had guests from Los Angeles, Arizona, New Jersey, Connecticut, Minnesota, Canada, and of course Oregon, Idaho, and Washington. Our Eastern Washington market has increased quite a bit since I started in 2004.”

Paul Portteus of Zillah,WA-based Portteus Vineyards and Winery (http://www.portteus.com/) says that the industry can continue to do well as long as it keeps the prices right. “If a winery is priced right the sky is the limit but if you want to focus on $20.00 + wines you may be in for hard times!” he maintains. “There are always well-deserved exceptions but basically it is a buyer’s market and we are OK with that!”

The previously unattainable wines are now attainable—it’s a buyer’s market. Names like Kistler, Harlan, and others all need more buyers,” Munson agrees. 

The key to success in this tough economy? Maly, whose family runs the wineries that she represents, says it is important to consistently serve your customers well, no matter the economic climate. “Our family has always focused on over-delivering on the quality to price ratio with both the Barra and the Girasole wines,” she says. “We want consumers to feel that they’ve discovered a wine that they would have paid another $5.00 to $10.00 for, but didn’t have to! In the long run, through the good and bad times, we feel this strategy has, and will continue to serve us well.”

 

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