Wineries in California are dealing with the recession in the same way most of us are: tightening their belts.
Many have cut staff and salaries. A few winemakers I’ve talked to gave their staffs raises to keep morale high, but cut their own salary.
Wineries are generally trying to renegotiate grape contracts for 2009 at lower prices. The most-prized vineyards can hold their prices because demand still exceeds supply. Vintners who want to reduce costs know that paying less for grapes is crucial and unless the vineyard is special, seeking grapes from other sources is an easy option.
Inventories are a big issue for most wineries. Many wineries that sold their wines in the final quarter of last year are finding that the distribution system is still clogged with wine as consumers rein in spending. Many retailers can’t handle a new vintage.
Because of that, producers large and small are watching their inventories stack up. Small producers have long struggled to get their wines distributed but the new economy is making matters worse. As for big producers, just do the math. Take for example a big Cabernet house, such as Silver Oak. For the just-released 2004 vintage, it produced 67,000 cases of Alexander Valley Cabernet, at $70 a bottle, and 37,000 cases of Napa Cabernet in 2003 at $100 a bottle. While it sells through the 2004s, it has wines from 2005, 2006, 2007 and 2008 waiting in the wings and it’s only six months away from harvest 2009. That’s a lot of wine to sell these days, even for a popular brand like Silver Oak.
If wineries can make it through the next 12 to 18 months and sell their 2006 and 2007 vintages, the small 2008 crop will reduce supply, which in turn should also firm up demand. I expect that 2008 will have some excellent wines because the grapes that survived the topsy-turvy growing season will be handled with tender loving care. The 2008s I’ve tried are pure and concentrated.
Wineries hate to cut prices because pricing is part of their image and reputation. Some wineries will sell inventory to obscure markets, perhaps overseas or to cruise lines. Some wineries will simply re-label a portion of their wines and sell it under a second label at a lower price so it won’t affect overall pricing.
At the extreme some wineries will destroy bottles. It might be an inexpensive bottle of old White Zinfandel that has turned. Or it could be an expensive Cabernet from a vintage that didn’t move.
Wineries are also working markets more aggressively. As the late Ridge Vineyards president Donn Reisen used to say: “Tough times call for tough shoes.” Sales forces are hitting the streets.