Wine Industry in the...Red | by Tigah in L.A. on Nov 3, 2009 at 12:04 am |  | |
If you love wine, it's a very good year. Not only is the 2007 vintage coming out of California an excellent one, but prices have collapsed. You can get good wine for cheap.
"This, I think, is a major correction that's happened," says Richard Sanford of Alma Rosa Winery & Vineyards. His grapevines are tucked in the Santa Rita Hills of Santa Ynez, the central coast region made famous in the film "Sideways". Sanford planted his first vineyard 40 years ago. He'd come back from Vietnam and decided to do something a little more uplifting. Sanford studied the topography up and down California and decided that the Santa Rita hills, a range that moves west to east instead of north to south, might provide the best equivalent to Burgundy, France. It took a while to get people to believe him, especially investors. But these days, Pinot Noir from the area commands a high price.
Or it did.
Now the world is swimming in wine as people are trading down, or just not buying at all, and higher priced wines are gathering dust unless they go on sale.
"I think we're going to see a lot more Two Buck Chucks hitting the market," says John Krska of Krska Vineyard and Winery Management. "We have some winemakers who've skipped a whole vintage, and that's to get their warehouses caught up to sell wine." For example, Krska says high-quality Chardonnay grapes usually sell for $2,700 to $3,500 a ton. But this year, low-to-mid quality Chardonnay grapes in other parts of the state can be had for only $200 a ton. "If the wineries up north can't sell that, they're paying for tank space and the refrigeration, it's gone for a buck a gallon," to Trader Joe's.
Krska says he's been able to sell all of the grapes under his management this year, but he's a concerned about next year. "I think it's the economic woes in the background, saying 'Do we make more wine, or do we not make more?'" Even the region's vaunted Pinot Noir may come under pressure in the next few years as some already-planted vineyards start to produce a crop.
CalPERS, the nation's largest public employee pension plan, has invested $200 million over the last few years in two vineyards in Santa Ynez. Those investments have lost money.
Richard Sanford has seen many booms and busts in the wine business, but this time, he says "we're competing on a world stage with wine." Sanford says the wine business is very capital-intensive, and investors have to learn that it takes years to see a return. New money is hard to come by these days. "A lot of people are finding that there isn’t a lot of capital available," he says. "I don't think there are new operations starting out these days."
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