Napa Valley Updates

Saturday, December 12, 2009

 
A SHAKEY GRAPE MARKET

From the Napa Register



By JOHN LINDBLOM

For the first time in the 30 years that Bill Blau has grown grapes near Calistoga, he did not sell his fruit this year. Consequently, 130 tons of high-quality merlot grapes will become premium mulch.

Blau’s dilemma stems from the end of evergreen agreements after four years with Diageo worldwide beverage company. Diageo went year-to-year with Blau when a 10-year contract ended.
Mora Griffin, Diageo’s director of communications in the region, said that as a matter of policy, neither she nor anyone from her company could confirm that Diageo had dropped Blau.

Blau is not the only grower lacking a buyer this year. For the first time in recent Napa Valley history, growers posted “grapes for sale” signs at the edges of vineyards in 2009.
“Wine stock is not moving,” said Blau, a retired Chicago marketing executive whose house overlooks his vineyard. “A guy down the road didn’t sell his grapes on a 500-acre property. Some, but not all. It’s all over and it will get worse.”

Another grower, Melvin Cook, asserted, “Things are bad — terrible in the vineyards.” Cook said that the California-based Allied Grape Growers “couldn’t find anyone to take my grapes.”
But Jeff Popick, the North Coastal field representative for Allied, said that wasn’t exactly the case. Cook had offers for his grapes that were consistent with the sagging economy, Popick said, “but he considered them to be low.” Eventually, Cook sold most of the fruit from two vineyards at a reduced price. Allied sold 10 tons of Cook’s charbono grapes, Popick said.

The good news

The true nature of the difficulty in selling winegrapes changes from grower to grower.

“The vast majority of grapes in Napa County are under long-term contracts,” Napa Valley Vintners Communications Director Terry Hall said.

But the marketplace is changing.

“There are certainly more people out there without contracts than we’ve seen in the past, especially in places like the Napa-Sonoma area,” said Steven Dorfman of Ciatti Wine Brokers’ San Rafael office. “But I think all over the state there are grapes that sold very late or were left unsold.”

An unusually high amount went into bulk wine; the grapes were bought and crushed, and the juice was then sold to go into inexpensive bottles of wine, officials said.

Toppling dominoes in a sagging economy have been the cause of the decline in contracts, said grapegrower Andy Beckstoffer.

“What’s happening in the valley is people are not eating in restaurants, so restaurants are not buying Napa Valley-priced wine,” Beckstoffer said. “The retailers can’t sell it, so they don’t buy from wholesalers, who don’t want the inventory, so they’re not buying from the wineries. And the wineries are not buying from the growers.”

In a nervous market, a long-term contract no longer means 10 years; it’s more like four or five, Dorfman said. Not knowing how long the decline will last, no one wants to be left holding the bag.

“In these times, people are a little less desirous of tying up for a long period. They want to switch to a year-to-year contract, or not buy the grapes at all,” Dorfman said. “This is bad for the grower who hasn’t had a lot of time to develop relationships with other wineries.”

The price of wine

The wine market, as Hall said, is indeed alive and well, in some ways even flourishing: At least for less-expensive wine. The bottleneck is the $50 bottle, which is critical to smaller growers in the Napa Valley.

“The days of the $50 bottle of wine are gone for a short while,” Beckstoffer said. “The costs for a $25 and a $50 bottle of wine are significantly different in terms of the selection process, wood used and all the holding costs. You simply can’t produce grapes and wine in a $50 fashion and sell it for $25.”

In the short term, Beckstoffer said, growers must find better ways to manage.

Dorfman suggested that growers need to have multiple potential buyers, “and not put all their eggs in one basket.”

Dorfman said Napa Valley vintners are going to have to lower their prices to suit the demands of the market.

“If you don’t have the demand there for those $50 bottles of wine, what are you supposed to do? Could they sell the same bottle for $35? Does that hurt the integrity of the brand?

Said Beckstoffer: “I’m an optimist and I don’t think it’s as bad as some people say because attitudes affect what you do . . . it’s going to challenge us to be better managers and manage our way through it.

“It’s just tough times for the vintners and the growers and the community — as tough as it gets right now.”
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13 comment(s)

bornin74 wrote on Dec 11, 2009 7:56 AM:
" boo-hoo....waaaaaa.....everyone is hurting......I remember roughly 18 months ago....the wine industry felt insulated from the economy.....it just took a little longer......it sounds as if some of these "grapefarms" did not do their dilligence in preparing and diversifying, as we all, who are still surviving did many months prior to the pop...
Look for Thompson to get some stimulus money sent in the next wave in the guise of "saving the wine industry" ......just like the banks,auto companies,mortgage companies etc.....fat cats, who when it was good, were like gluttons, kings of all around....Now some will close, others will downsize.....it is capitalism at it's best...only the strong (a smart) will survive....If the wineries are hurting, maybe they should pool together to help each other out of this economic mess....weather the storm.....But i digress....

165 million...that is the number....as part of "Operation GrapeJuice" in the next round of Stimulus money..... "

jimmie wrote on Dec 11, 2009 10:03 AM:
" Thanks for that, bornin74. What, exactly, do you do to help the local economy or those in need. Don't service a single aspect of our local wine business and all of the workers that rely on those paychecks? Be careful of what you wish for. "

bornin74 wrote on Dec 11, 2009 10:20 AM:
" jimmie- I completely understand what the wine & tourism industry means to our local economy. BUT, just as 99% of ALL OTHER businesses, the ones that survive and come out of economic crisis are the ones that, roll and change with it, or have the foresight to see the bust coming, and prepare.
I still cannot comprehand how evryone who is hurting wants something for nothing...Gov't please help me....I made bad business decisions...did not prepare for worst case scenarios, and now I am way over my head.....please bail me out!......WHY???? You made your bed, now lie in it...

I just can sniff the wine lobby, getting massive amounts of money for wineries, so they can sell bottles of wine for $50 still....guess what, cut labor costs, cut the overhead down, take less profit for the time being, and BAM, that $50 bottle that is sitting on the shelf, is now priced @ $35 and selling! When the market rebounds, so does the price....

Again, enough with the whining and handouts...work for it....be smart! "

napagirl1960 wrote on Dec 11, 2009 10:36 AM:
" I have worked for two wineries in this valley and both wineries had a huge, huge mark-up for their wines. The cost to make a bottle of wine ran about $12-15 and yet they sold it for $60-75, if it cost $20 ish to make then it sold for $100 or more, etc, etc. I grew up in this valley and remember very well this "other" ag crops that used to grow here. Don't try to tell me that it cost a ton of money to make a bottle of wine that costs $50 - I know better. I am not saying that it isn't expensive, just saying that by the time you average it per bottle it's not as much as the wineries want you to believe.

So save your "winey attitude" for someone else. It's greed, pure greed and nothing else. "

manxkat wrote on Dec 11, 2009 10:43 AM:
" The spot market was at $1,000 for 2009 so why does the NVGG print the avverage price for grapes at over $3,000? "

jimmie wrote on Dec 11, 2009 10:50 AM:
" Sorry, bornin74. Not a single handout, aside from SBA loans just like all other small businesses that can take the time. It's still a loan. No bailouts in our business, just hard-working employees hoping they are not the next one to get axed. Yes, some nonsense has influenced the wine business, mostly speculation on wines that will increase in value and get traded later. That part of the business is pummeled.

I'm talking about growers and employees that were not anywhere NEAR that aspect of the business, aside from all the headlines. About 99.9% of the people that put food on the table, pay taxes, raise kids and go to parades.

Again, your contribution? Not a grape or winery tie in Napa county?? "

jimmie wrote on Dec 11, 2009 11:38 AM:
" The cost of a $12 - $15 bottle of wine doesn't include general, marketing, administrative costs which far exceed the cost of production. That's where most of the employees get their jobs. The $12 - $15 factor includes the grape grower and cellar staff. What, exactly, is your point? No ies to the wine business and you live in Napa County? Try being proud of your good fortune for living here where unemployment is far lower than most of California. "

kevin wrote on Dec 11, 2009 11:40 AM:
" And maybe hold a few winery weddings and events? "

bornin74 wrote on Dec 11, 2009 11:46 AM:
" jimmie-not to get off topic, but to answer your last question....born and raised here....not ONE person in extended or immediate family tied to the grape. family run business, that had 130 employees only 18 months ago, now down to 45.But we got down to 45, 12 months ago.Not because we didn't have the work, but because our leaders, listened, and put a plan of action in way back when, to hunker down and survive. Cut the fat, reduce OH&P,paid of all debt when the money was coming in like a tidal wave. Placed alot of CASH in reserves, the remaining employees either took a paycut, with the highest earners, taking the biggest cuts, OR if they felt that they were still worth the higher wage, they were let go, and told good luck....some of those same people are back begging for the lower salary....nope.....we cut the people that were just "gettin their 40" and really not producing. The strong here have survived by making huge sacrifices, and being the hardest workers. When the economy rebounds, the loyalty and hard work will be rewarded. I am sure there are more than a few wineries/growers who also had this foresight, and are doing fine, albeit with less. My point again, especially about this article, is it sounds like an early call with many to follow for HELP. Again, WHY?.... Alot of wineries and growers had TONS of capital (CASH) or financed huge remodels, millions on wine caves, millions on cacthing part of the cash cow, that was wine. Thinking the pot of gold would always be there.Now are my tax dollars going to bail out yet another indusrty due to a gluttenous attitude? I would hope not, but again won't be surprised when "Operation GrapeJuice" flows into this valley "

fedupinnapa wrote on Dec 11, 2009 1:22 PM:
" Napagirl – While the hard cost for the bottle may $20 are you including the cost of the production facility including equipment and licenses, advertising? On top of that warehousing and transportation costs, labor and a million other expenses built into running a business. It only costs about $.04 to make a can of coke but it costs a heck of a lot more than that to get it to the consumer and encourage them to buy it. "

napagirl1960 wrote on Dec 11, 2009 4:39 PM:
" Jimmie - my good fortune of living here started way, way before the "wineries" took over for the major part of businesses in Napa Valley. I grew up when the percentage of grapes then equal the orchard percentage now. There were very few wineries, more farms and ALOT less tourists. They (wineries) may be what most people think made this valley, but sorry they are not - just what made it famous. Now that the economy is down and is tourism, which means less money coming in. I love my town, there is no doubt about that, but I do not always like what it has become. My point is that the wine is marked up way more than what it costs to make - usually 75-100% markup. I know this because that used to be part of my job. I got out of the winery business on purpose.

Unemployment lower? I don't really believe that either - when wineries pay illegals (fake id/green cards are common) and layoffs come around they cannot file for unemployement so those stats are not counted in the percentage. "

Cadence wrote on Dec 11, 2009 6:31 PM:
" This article sure clarifies for me why Napa County only needs grapes and hospitality businesses to thrive.
I guess diversity is only celebrated when it refers to ethnicity, huh? "

jt wrote on Dec 11, 2009 6:39 PM:
" if i wanted to try and get into wine the only way it would ever be successful is if from the start people bought the wine for $300 a bottle, or more. why else try it? what's the point in being worried about getting "axed" all the time while making 40? the large companies want to see wine over take beer as the alcohol of choice, so you're already up against that, and then to have semi-abusive people who live the high-life making demands. ya, i think i'll take a raincheck and stay in san francisco this time. "

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