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Welcome to California: Bargainland

Wineries still face trying times in 2010, hope discounting can keep them afloat

Tim Fish
Posted: February 12, 2010

Doug Jeffirs kept watching as cases of Beaulieu Tapestry 2006 gathered dust last year at Binny's Beverage Depot, a chain of 24 stores in the Chicago area. Jeffirs, director of wine sales, knew the Bordeaux-style blend from Napa was a good wine with positive reviews but, "Nobody wanted it at $39.99," he said. But as the holidays approached, Beaulieu dropped the price and suddenly, "Everyone wanted it at $29.99," said Jeffirs. "Lots of people who would spend in the $20 range for a Cabernet or blend recognized that it was a deal and traded up."

Perceived value was the name of the game in the fourth quarter of 2009, which saw a modest rebound in California wine sales in many regions of the United States, driven largely by solid business in the $15 and under price point and industry-wide discounting of many wines that normally sell for $30 or more.

Constellation Brands, the world's largest wine company by volume, said it posted a 5 percent increase in sales compared to the 2008 holiday season, which was among the worst in the industry's memory. Foster's wine brands (which includes Beringer and Penfolds) experienced "modest volume growth in 2009," according to the company.

Still, there's little to celebrate in the California wine industry these days. Those growth figures mask deeper problems: The distribution chain remains clogged with unsold wine, and to complicate matters, the 2009 harvest was a nearly record size. Credit is hard to come by as lenders clamp down on producers large and small. For months, members of the industry have been expecting some wineries to be sold or declare bankruptcy. "We have yet to see the big shakeout and I believe it's coming," one insider said.

Entering the new year, producers both large and small were mapping out strategies to keep sales humming, deciding what to promote or discount, and just how far discounts and price cuts will take them. In general, producers, retailers and restaurant wine buyers are cautious in their expectations for 2010.

While California producers are tight-lipped about the labels being discounted, there are familiar names among the group, including Silver Oak Napa Valley, Robert Mondavi Oakville and Caymus Special Selection. Joseph Phelps dropped the price of Insignia by $30, according to several wine buyers. In the past, producers expected restaurants and retailers to take the discount as profit and not pass it along to consumers. "They still want us to protect their price points," said Chris Adams, CEO of New York retailer Sherry-Lehmann, "but we don't have that luxury anymore."

Tylor Field III, vice president of wine and spirits for Morton's, a chain of 78 steak houses, added, "The consumer still loves brands, but the need for value was a stronger driving force than most brands could compete with." Even California wines that were once considered blue-chip brands have "lost traction" if they cost more than $100 on wine lists, Field said.

Cost cutting has been effective, allowing the clogged distribution system to thin out at least some inventory. Sommeliers at Fleming's Prime Steakhouse, a chain of 52 restaurants, saw brisk sales when the price of Silver Oak's Napa bottling dropped to $125, just $25 more than suggested retail. "Our guests know a deal when they see one," said Marian Jansen op de Haar, director of wine for Fleming's. Sherry-Lehmann sold Cloudy Bay Sauvignon Blanc for $32 in 2008 but dropped the price to $20 last year. "We sold 250 cases in 2008 but sold 1,700 cases last year," Adams said.

Discounting is not the only avenue producers are taking. Many, such as Pinot-specialist Siduri in Sonoma County, are funneling more juice into inexpensive appellation bottlings and less into single-vineyard labels. Winemaker Adam Lee made 611 cases of his Russian River Valley bottling in 2007 but increased it to 1,600 for the 2008. It retails for $30. "Those are selling much faster than the single-vineyard wines," said Lee, who expects to continue the shift until the economy turns around.

Value brands priced $15 and below saw the biggest boost in sales, which helped large producers with a struggling bottom line. At Constellation, value brand Rex Goliath grew 49 percent during the holidays while Black Box wine increased 25 percent, according to Rob Sands, president and CEO.

Cellar #8 is Foster's California brand priced between $8 to $10, and it saw a 15 percent increase in sales during the last quarter of 2009, according to Stephen Brauer, managing director of Foster's Wine Estates Americas. Colores del Sol Malbec, the company's new Argentine label that retails for $12, was also well-received by consumers. "I think both of these brands strongly speak to consumers who are looking for new wine discoveries that over deliver on quality," Brauer said. "We believe that's what is driving their success."

Few will predict with conviction where business will lead in 2010. January saw stagnant sales, but that's typical for the beginning of the year. Most are keeping an eye on the U.S. economy and focusing for the time being on that very subjective concept of value. "It can be a $5 white or a $50 Napa Cabernet that used to be $75," Jeffirs said. Or as Trey Beffa, wine buyer for California-based K&L Wine Merchants, put it, "If the consumers feel they are getting a good value, they are willing to spend the money."

Mark Horowitz
Brooklyn, USA —  February 15, 2010 11:34pm ET
My email box fills each day with offers from retailers
offering highly rated wines deeply discounted.
The economic recession has been a profound disaster, but has created an opportunity for wine buyers. Hopefully, retailers will be able to recoup some of their losses through increased volume. Meanwhile, I also receive emails from some outstanding small producers offering free shipping or other incentives, leading me to believe that these producers are facing decreased sales and increased inventories. We certainly cannot afford to have small, independent producers go under. In the meanwhile, as Tim Fish points out, we are seeing a new price point for wines.
Perhaps that will enable a greater number of people to enjoy quality wine.
Bill And Mary Muse
Missoula, MT —  February 16, 2010 2:23pm ET
I am having the same experience as Mark. I get 2-3 offers per day from each of three or four online retailers. And many of the deals are too good to pass up, particularly in the upper end markets for Bordeaux and California Cabs. Haven't noticed much relief yet on Oregon Pinots. Interestingly, as the discounting is not at all uniform -- even within a single varietal or region -- the quality/price ratio can become distorted, or prices can be vastly different for the same wine at different retailers. Case in point: I bought two magnums of 2001 Mondavi reserve the other day for $45 per bottle, then happened to be in Phoenix over the weekend and saw the same wine in a major wine retail store for $199.
WAYNE-DENISE BURTON
Milwaukee, Wisconsin —  February 17, 2010 3:43pm ET
I agree with your other commentators that this an opportunity to expand your cellar if you have the means to do so. I also feel that this is a golden opportunity for the wine producers to expand their customer base by doing whatever it takes to put good wines into the hands of new customers via discounting. Many wine merchants in our market are doing their best to open up new markets with wine tastings.
Steve Prickett
Hutchinson Kansas —  February 17, 2010 8:04pm ET
Bill and Mary. Could you let us know what retailer was offering the magnums. I have not seen anything priced that low. Maybe I am on the wrong email lists.

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