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After a dozen years of winegrape excess statewide, the California wine business is headed into several years of tighter supply to slake growing global demand while competition and costs of production are rising, according to experts at the Business Journal's 2012 Wine Industry Conference in Santa Rosa on Wednesday.

Building on his historical overview of the current winegrape shortage published in the Business Journal ["Winegrape shortage could last six to eight years", April 9], Zepponi & Company principal and four-decade wine and grape broker Joe Ciatti told the audience of about 500 that the state needs new vineyard acreage to get the 10 percent to 20 percent increase in tonnage needed to meet demand.

[caption id="attachment_53127" align="alignleft" width="198" caption="Rick Tigner"][/caption]

"It's going to take new planting," he said. "We're not going to get there with existing acres."

Expensive development costs and restrictions likely will lead to mostly replanting of vineyards for higher yields per acre and new technology, but premium outlying wine regions in the state such as Mendocino and Lake counties likely will be targets for new vines, according to Mr. Ciatti. In the meantime, grape buyers and growers should be careful in planning new acreage that prices don't bury producers or contribute to another surplus in several years.

However, vine nurseries are sold out for the 2012 season, short for 2013 and are gearing up to supply vines for 2014, he said.

During his keynote talk on the industry marketing opportunity of being on the "Undercover Boss" show and the management transition at Jackson Family Wines, President Rick Tigner said the company is planting about 700 acres of vines throughout California and actively pursuing two vineyards in Sonoma County. The company owns 30,000 acres in the state, 10,500 of which are already in vines and three-quarters on hillsides.

Silverado Premium Properties has been planting vines for the past three years, the company already has commitments for 90 percent of the expected yield this year, according to President Mark Couchman.

Though there are similarities in wine industry supply and demand between 2012 and 1992, there's more competition from consumer tastes for wines from around the world and new technology that allows wine to be moved to the U.S. in bulk and bottled locally, according to Steve Smit of Constellation Wines U.S. Wineries have moved through inventory to the point that inventory of wine is relatively balanced, but there's pressure to keep prices flat or slowly move them down further wines vying for the mass market.

"In 1992 when there was a huge run up in wine sales, we could take price (up), but now we can't because of competition," he said.

Statewide, winegrape production has averaged nearly 3.8 million tons a year, or about 205 million 9-liter cases of wine. Yet California shipments of wine have grown 13.5 percent in the past four years to 231 million cases' worth, the equivalent to 3.83 million tons of grapes, according to Jeff O'Neill of O’Neill Vintners & Distillers. Really, the industry needs California to harvest 3.9 million tons to meet wine sales growth of 3.5 percent, equivalent to needing 130,000 tons of grapes, or 15,000 more tons a year, he added.

"We're clearly not keeping up with demand from California," he said.

The three largest wine companies in California -- Wine Group, Gallo Family Vineyards and Sutter Home -- are actively planting and increasing yields from existing vines in interior winegrowing regions, Mr. O'Neill noted.

Yet, North Coast production has been declining for 10 years, according to panelist Bill Pauli of Yokayo Wines in Mendocino County. Financing was inexpensive and vines readily available for planting, but grape prices largely haven't inspired much development, especially with increased costs from compliance and delay related to government regulation, such as timberland conversion to vines, hillside projects and frost protection with water.

Access to capital for vineyard acquisition, development or redevelopment could be easing as grape prices rebound, according to panelists Peter Kaufman of Bacchus Capital and Perry DeLuca of Wells Fargo's wine lending group. The wine industry mostly has come through the difficult period, and access to capital and financing should get better as lenders increasingly compete for borrowers, according to Mr. DeLuca.

The growing U.S. wine market (consumption passed France but is still 53rd in per capita), falling value of the dollar to many major currencies and property prices well below 2006--2007 highs are attracting foreign wine property and brand buyers, said Zepponi & Company principal Mario Zepponi. Two major types of buyers in the market now are companies wanting access to U.S. distribution through established domestic brands and lifestyle buyers looking for trophy properties and a potential inroad to U.S. residency status, he said.

Panelist David Hayman of Diageo Chateau & Estate Wine said a U.S. brand is key to a global wine portfolio.

High-net-worth and corporate buyers from China are particularly interested in the market, most notably seen in the $50 million acquisition last year of 40-acre Sloan to reach the ultrawealthy in that Asian country with a Napa Valley brand and in Yao Family Wines' plan for a $300- to $800-a-bottle Napa Valley wine.

"We will see increased international investment in the U.S. market on the both the small and large scale," he said, noting more interest from the well-off in Russia as well.

Brian Gleason, part of the Santa Rosa-based Wine Services Group at commercial real estate brokerage Cornish & Carey Commercial Newmark Knight Frank, said after the conference that the team has received 10 inquiries about California wineries in recent months from overseas buyers, a number of whom are from China, but none have closed deals. Two persistent challenges for those prospective buyers are banking regulations in China restricting the flow of capital out of the country and common requirements from lenders that such buyers have collateral preferably in the U.S., he said.

Some of the more serious buyers are those who already have established businesses in the U.S., according to Preston Smith, also part of that brokerage group.

Taking U.S. wines to world markets requires years of planning and patience, panelist Stephen Brauer of Treasury Wine Estates' Beringer brand business unit. 

“Everyone knows about the potential in China, not everyone knows about the complexity,” he said.

A much easier first export market is Canada, which is a small market compared with the U.S. but "extremely healthy and profitable," Mr. Brauer said.***

The Sonoma County Board of Supervisors last week voted unanimously to roll back all but simplified registration provisions in the county's Vineyard and Orchard Frost Protection Ordinance. Approved in February 2011, it called for a system for registering systems used for protecting crops from frost and then monitoring the use of water connected to the Russian River watershed for doing so because regulators are concerned the practice can and has harmed protected fish. Implementation of the county monitoring system was delayed last year as the State Water Resources Control Board was crafting its own frost-protection rules for the North Coast.

State rules, which included a regimen for monitoring, were set to take effect March 1 but have been suspended pending court action on a legal challenge. The revised county ordinance now requires just $64-a-site registration of new or altered frost-protection system and upon ownership changes, rather than annual renewal plus ongoing monitoring. Including 12 more sites registered so far this year, the total number of sites that use sprinklers against frost is 483, encompassing about 17,000 of the roughly 56,000 acres of vines in the county.***

F. Korbel & Bros., producer of Korbel sparkling wine, plans to sell the half-million-case-a-year Kenwood Vineyards brand and related assets to Banfi Vintners, one of the country’s major wine marketers. The sale is expected to close in June.

Gary Heck, president and owner of F. Korbel, said he wants to focus on "the best opportunities for growth" with the Korbel brand of California champagne and brandy, which have been in his family since 1954. F. Korbel acquired Kenwood in 1999.

Banfi was founded in New York in 1919 by the Mariani family. Their first foray into U.S. wine was with their 2010 purchase of Washington State’s Pacific Rim brand.***

 The McWilliams family, owners of Arista Winery with 36 acres of estate vineyards on Westside Road in Russian River Valley, purchased the 74-acre Martinelli Road Vineyard from the Martinelli family. Farmed since the 1870s, the property has five acres of zinfandel vines originally planted more than 125 years ago, 10 acres of three-decade-old chardonnay and three acres of 20-plus-year-old pinot noir.

The McWilliams plan to immediately begin producing estate zinfandel, pinot noir and chardonnay from the property. Arista will continue selling zinfandel to Carlisle Winery, which has made a vineyard designate since 2009.

Arista vineyard manager Ulises Valdez will farm the property. The transaction also includes 60 acres of redwoods, a 1930s farmhouse and numerous barns, all planned for restoration.***

Sebastopol-based mobile wine filtration services provider American Winesecrets (www.winesecrets.com) teamed with Australia’s Diverse Barrel Solution Pty. Ltd. to operate the latter's Phoenix high-tech barrel-restoration system starting in July. Barrels shipped to the west Sonoma County facility will be have the wine-stained interior scanned by laser then cut to a depth of 8 millimeters via a high-speed computer-controlled device to expose clean wood. The shaved staves will be toasted with heat lamps, and the barrels closed with new French or American oak heads.

Used Down Under for more than four years, the Phoenix system is supposed to be able to revive a previously red-wine barrel for white wine fermentation and aging. Barrels already processed with the Phoenix system will be sold through Premier Wine Cask of Napa.***

Longtime wine and spirits executive and entrepreneur Mike Kenton formed OFFbeat Brands (www.offbeatbrands.com) to develop, find sourcing for and market high-quality, "eclectic" and different wine and spirit brands.

Mr. Kenton said each brand will be “a little edgy and somewhat unpredictable,” communicated via packaging and promotions as having "bold, youthful sensibility" and "a sense of fun and adventure." The first brand is set to be launched this spring.

He was chief executive officer of Ascentia Wine Estates last year amid leadership changes as the Healdsburg-based company was restructuring. Before that, he was president and CEO of Napa Valley's Artesa winery, its marketing agent, Aveníu Brands of Baltimore, Md., plus E&J Gallo Winery, Chateau St. Jean in Sonoma Valley, Buckingham-Wile Company and Joseph E. Seagram.

In charge of OFFbeat's global supply relationships, management and procurement is Xavier Batlle, who previously was managing director at United Wineries International in London and international director at Codorniu in Barcelona.***

Santa Rosa-based Provino, which evolved its wine telesales business into an outsourced direct-to-consumer marketing service for vintners, changed its name to VinoPro (www.vin0pro.com) to reflect its move further in that direction and launched a technology services division to blend its DTC customer resource management software with popular wine business software package. VinoPro's software, built on Microsoft Dynamics CRM and Dynamics Navision technology, has been integrated with the eWinery Solutions platform.

Along with the new name and division, VinoPro has made several hires in engineering, sales and operations, notably the promotion of Donnie Varner to director of sales.***

Spring and summer are set to have more wine business seminars and training. Sonoma State University's new Napa Valley expansion for the wine executive MBA program (www.sonoma.edu/emba) started in mid-April with a cohort of 24 candidates. [See "Wine executive MBA coming to Napa Valley," Jan. 17.] Weekly courses for the 17-month program are being held at the St. Helena offices of Napa Valley program partner Napa Valley Vintners.

On April 27 and 28, Sonoma State University's Wine Business Institute (www.sonoma.edu/sbe/wine-business-institute) plans to host a global wine business education conference, underwritten by Lynn and Anisya Fritz, proprietors of Lynmar Estate. Called "Envisioning the Global Wine Business Professional of the Future," the conference will have a panel each of owners -- Mr. Fritz, Jeff O’Neill of Rams Gate and Peter Mondavi of Charles Krug  -- and executives -- Joel Miller of Jackson Family Wines, Nancy Bailey of Gary Farrell and Tom Blackwood of Boisset Family Estates -- to explore necessary yet often missing business and financial skills. 

Wine Industry Symposium Group of Napa is conducting an industry survey (surveymonkey.com/s/2012VineyardEconomics) to be presented at the organization's 17th annual Vineyard Economics Seminar (register.winesymposium.com/vineyard-economics-seminar.aspx) on May 15 at Napa Valley Marriott in Napa. Themed "Dealing With the Global Grape Shortage!" the seminar has eight presentations and panel discussions throughout the day, ranging from grape contract tensions in a tight supply market, planning for more production, eradication of the European grapevine moth to family-business tax planning. Registration costs $325.

On July 10 and 11, the seventh annual Wine Industry Technology Symposium (www.wineindustrytechnologysymposium.com) is set to be held at Napa Valley Marriott. Registration starts May 15 at $100 to $350 for the first day or both. ***

Charity Case Foundation, a Napa Valley-based nonprofit created in 2008 to raise funds for local organizations through the sale of small-production wines, awarded $20,000 to Cope Family Services, a Napa-based organization focused on child-abuse prevention, parent education and self-sufficiency services; $5,000 to Aldea Children and Family Services, empowering young people in both Napa and Solano counties with serious social, mental, and behavioral difficulties with professional, compassionate mental health and child welfare services; and $5,000 to The Foster Kids Fund, covering things Napa County foster parents cannot afford.***

Schramsberg Vineyards of Calistoga is 150 years old this year. Started in 1862, it was the second bonded Napa Valley winery. Purchased and restarted by the Davies family in 1965, Schramsberg has among the region’s oldest hillside vineyards and wine caves.•••

Submit items for this column to jquackenbush@busjrnl.com or call 707-521-4256.