NORTH COAST – While many local grape growers have taken a huge hit this year with problematic weather impacting the harvest, the industry as a whole may have benefited from the smaller harvest, said Rob McMillian, founder of the premium wine division at Silicon Valley Bank.
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“Is it bad? That is a local question. If you lost your zinfandel, it is bad,” he said. “But, this is the equitable way to smooth out the bulge. For the industry today, it is not such a bad thing to have a short harvest. It gets us that much closer to balancing supply and demand.”
He said with the large overhang of inventory, this year will level things out.
“When the market crashed, distributors started cutting out all small producers,” he said.
But when the distributors can’t get what they are looking for, prices will firm up.
Nonetheless, lenders said it remains a challenging environment for growers and wineries to obtain financing.
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“My experience dates back to the ‘70s in lending to the wine industry when banks were chasing the industry,” said Brian Kelly, president and chief executive officer of Charter Oak Bank in Napa. “Ag land seems to be coming back in value, but the cash flow is just not there due to the grape crop. Prices are not at a premium, and that is not helpful … either.”
Mr. McMillian said that if you have an estate and your yields are off 20 percent, it still costs the same to produce it but your cost per ton goes up.
“And you can’t necessarily get more from your bank. Then the higher priced tons have to get sold and it squishes your profitability,” he said.
If a grower or winery is cash flow negative, it will have a hard time getting a loan through a bank, he said.
“But if you talk about the negatives of cash flow being tight, you have to talk about the positives, too,” he said.
He said there will be even more direct-to-consumer sales, and wineries will have to shore up their customer relationship management tools. He said there are methodical metrics about who your top 20 buyers are, where they live, how often you talk to them and what they buy.
“You track your success rate of the promotional campaign. That stuff is out there, though there is no one that is truly an expert at that. Social media and CRM has not been working together long enough for there to be experts.”
Also, he said, for wineries and vineyards that are doing OK, picking up a brand or a certain property they have wanted, now may be a time when they can get it.
He said about 7 percent of the wineries say they are hurting.
“I wouldn’t expect all those to trade, but maybe cut that in half is a reasonable estimate of brands that may already have or will change hands,” he said.