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Late '09 increase for luxury wines portends better 2010

NORTH COAST -- North Coast makers of luxury wines are seeing some preliminary indications of growth in retail sales during the year-end holidays of a percentage point or two from the post-crash shopping slump of late 2008.

Predictions for overall U.S. wine sales in 2010 range from a decrease of a couple of percentage points to growth by the same proportion. That would be welcome following an 11.2 percent drop in fine wine sales in the first six months of 2009, according to Silicon Valley Bank.

At small Napa Valley vintner Broman Cellars, November and December sales picked up from earlier in the year, according to Lisa Broman Augustine, director of sales and marketing and the winery’s only full-time employee.

“People seem to be buying wine again and seem to be more upbeat,” she said. “But they are not buying the most expensive wines.”

The 1,300-case-a-year winery is best known for its Napa cabernet sauvignon, and 527 cases of the 2003 vintage were released in fall at a retail price of $48 a bottle. Its faster-selling wines are the 2004 syrah and 2008 sauvignon blanc, which retail for $24 and $17, respectively.

“Core cab buyers continue to buy cab, but not in the multiple cases,” Ms. Augustine said.

Yet preliminary sales to mailing list members and to California wine shops, which collectively make up half of sales appear to be ahead of where they were last year, she said. A surge of new list members in the closing months of 2009, after having a number disappear late last year, bodes well for 2010.

“I don’t expect it to skyrocket back to the way it was two years ago, but I hope it will be a gradual building to buying more wine,” said Ms. Augustine. “We will do more consumer outreach this year with tastings to increase the consumer base.”

At Vineyard 29 in St. Helena, 2009 sales of its eight labels retailing from $54 to $225 a bottle are expected to be 2 percent higher than they were in 2008, according to owner Chuck McMinn.

“The economy has hit bottom, and things are starting to come back up,” he said.

The winery, which makes 8,000 cases of its own wines and 4,000 cases for others, has shifted its sales channels dramatically when restaurants outside the state stopped ordering wine until they could deplete their cellars.

“Where we deal directly with customers, we’ve seen that turn, but when we deal with distributors and restaurants, it’s turning back up from being down 30 percent outside California, where they’re really hurting,” Mr. McMinn said.

Visits to the tasting room are down from those in 2008, but sales per visit are up substantially, and a number of brand enthusiasts have moved up from the waiting list. The winery commonly experiences 20 percent turnover on its mailing list annually, but the economic recession shortened the wait list form more than a year to less than one.

Problem is, patronage of fine restaurants is down and purchases of bottles of wine has decreased even more, as many of the baby boom generation took significant hits to their retirement investments in 2008, according to Rob McMillan, founder of the Silicon Valley Bank Premium Wine Division. Meanwhile, diners are opting for less-expensive wine by the glass.

This rapid, dramatic shift in consumer behavior in a major market for high-end North Coast wines is expected to lead to more “bargain transitions,” or discounted sales of cash-strapped vintners than were seen in 2009, according to Mr. McMillan.

Vineyard 29 is taking the direct approach to offset the on-premise sales slump.

“We have shifted focus in the past year away from that channel and are spending more time to contact consumers who visit the winery or are on the mailing list,” Mr. McMinn said.

It’s too early to tell if that shift to direct-to-consumer sales will persist after economic recovery in the next few years, he added.

Mr. McMillan in November asserted that signs of a recovery in sales of luxury goods in the second half of 2009 are encouraging for better sales in 2010.

“Consumers always aspire to better products,” he said. “Wine as a product category has demonstrated consistently increasing per capita consumption for decades now and nothing suggests that is likely to stop.”

That said, Mr. McMillan expects it to be a challenging economic recovery for fine wines, which enjoyed double-digit year-over-year sales growth as a segment until late last year. Average unemployment rates in California and the nation ended the year above 10 percent for active job-seekers and several percentage points higher when those out of work for a long time are considered. He also points to crimped corporate and household budgets for entertaining and less availability of credit in general pushing demand for fine wines largely into the under-$50 range.

“This isn’t a permanent change, but it won’t be the same either,” he said.