s
s
Sections
Sections
Subscribe

NORTH COAST -- North Coast wine industry experts are hoping 2010 brings a turnaround in consumer demand for luxuries such as wines priced at more than $20 to $30 a bottle and a greater availability of capital.

To be sure, it has been a great year for wine consumers because of steep discounting on many high-end wines as household budgets tightened amid losses in home equity and financial-market investments and rising joblessness. That has affected hoteliers, caterers, retailers and restaurateurs, which have been major markets for fine wine.

"It's as if we pushed a reset button on consumer demand to a whole new structure way down from where it once was," said Jon Fredrikson of Woodside-based industry research firm Gomberg Fredrikson & Associates. "New consumer frugality has moved to much lower price points, and they are surprised to find quality quite good."

Volume producers have increased quality of grape sourcing and winemaking to deliver soft-tannin, fruit-forward wines that satisfy many U.S. consumers for as little as $2 a bottle, according to Mr. Fredrikson.

Gauging wine sales has been difficult because of a large amount of bulk-wine imports and exports, but it appears that California bottled wine volume shipments increased just about 1 percent in the first nine months of this year compared with the same time frame last year, he said. That increases to 3.4 percent once bulk exports are added.

The domestic bulk-wine market, which has shrunk since the huge 2005 harvest, is expected to rise at the beginning of next year as wineries seek to shed excess inventory, according to Steve Fredricks, managing partner of Turrentine Brokerage in Novato.

"We've seen many at the luxury end defer purchases of grapes and come back to pick them up later in bulk wine," he said. "We saw that in both 2000 and 2005."

The outlook for extending grape contracts and sending new ones is good on the Central Coast for wines selling for $10 to $15 a bottle, according to David Freed of Napa-based UCC Group, which owns vines on the North and Central coasts. For the North Coast there have been some wineries prior to harvest that have been asking to schedule payments over months.

He's hoping that the historically lagging movement of wine sales with stock prices will continue as stocks have rallied in recent months.

Also of that view is Vic Motto, a St. Helena-based investment banker with Global Wine Partners who is weathering his fifth recession in his four-decade career in the industry.

"There was a big recession in the early 1980s and a big recession in the 1990s, and coming out of both wine had its biggest growth periods," he said.

Thus, by 2011 the industry could benefit from consumers being introduced to lower-priced, luxury-tier wines, according to Mr. Motto.

The "trading down" phenomenon was underscored in a late summer survey of consumers and trade representatives by St. Helena-based market research group Wine Opinions.

"Until we see October through December wine sales, and especially for those over $20, we won't know if we're approaching anything close to a stable condition," said Mr. Gillespie, also president of Wine Market Council.

Consumers were opting for more wines by the glass than by the bottle, and only 22 percent would opt for a Napa Valley cabernet sauvignon when trading down from a Napa Valley cab retailing for $50 to $100 a bottle, according to Wine Opinions. Sixteen percent would opt for a Sonoma County cab in the lower price range; 24 percent, for Washington; and 14 percent, for the Bordeaux region of France.

"If Napa Valley on net only keeps one in four consumers trading down under $50, that is a serious concern for Napa wineries," Mr. Gillespie said.

U.S. vintners also will need to watch out for government-financed wine marketing from Europe, according to Mr. Gillespie.

"The share of mind for U.S. retailers and consumers will be stiffer than in recent years," he said. Domestic and regional trade groups have been responding with more aggressive marketing, such as Napa Valley Vintners' recent after-hours tasting sessions for sommeliers in Chicago.

However, if the value of the dollar continues to slide compared to the euro, U.S. vintners will have that buffer against imported wines.

Challenging wine sales for high-end wines have widened the gap between expectations for winery sales prices and buyer offers, impacted by crimped credit markets, according to Mario Zepponi of Santa Rosa-based wine transactional advisory firm Zepponi & Company. That led to Vincraft's acquisition of Kosta Browne being the high point for transactions in 2009.

The first half of 2010 could bring a flurry of deals if credit becomes increasingly available, and a narrowing of the valuation expectation gap between buyer and seller could indicate a beginning of the recovery.