De Loach Vineyards, a well-regarded winery in Sonoma County's Russian River Valley, filed for bankruptcy on Tuesday, the latest in what could be a wave of financial reorganizations in California's troubled wine industry.
Citing nearly $30 million in debt and a net loss of $2.6 million this year, the winery filed a Chapter 11 proceeding in the U.S. Bankruptcy Court in Santa Rosa, Calif., seeking protection from creditors while the company attempts to reorganize. It's the third Sonoma County winery -- following Sonoma Creek Winery and Buchanan Cellars -- to go bankrupt in just more than a year.
"It has been challenging for the last year," said Michael De Loach, winery president and son of owner Cecil De Loach. "It's challenging for everyone out there. We're not unique in that. We had hoped to [restructure] without the filing, but it became necessary."
De Loach is typical of the California wineries facing an economic hangover following the sales and vineyard-planting boom of the 1990s. Production at the winery grew from about 150,000 cases in 1999 to a peak of 250,000. Amid a sluggish economy and a downturn in the restaurant and travel business, De Loach -- like many in the industry -- faced a triple whammy: stagnant sales, an oversupply of wine and massive debt from the '90s expansion.
As a result, De Loach is downsizing its production, shrinking to about 100,000 cases a year. "Basically, we're going to eliminate all those extraneous varietals we were making, like Sangiovese, Viognier and Pinot Gris," said Michael De Loach.
While the winery maintained a large portfolio of wines -- more than 30 different releases are featured on its Web site -- it will now focus exclusively on Chardonnay, Pinot Noir, Zinfandel, Fumé Blanc and late-harvest Gewürztraminer from Russian River Valley.
It is also eliminating its California-appellation wines, which sell for about $10 and accounted for much of the company's growth in recent years. In the current sales climate, the California-appellation wines were selling briskly, De Loach said. "But, there's just no margin there."
De Loach was founded in 1975 by Cecil De Loach, a former San Francisco fireman, who is still the chairman of the winery. Cecil and his wife, Christine, also own Sweetwater Land and Cattle Co., a separate firm that until recently owned about 600 acres of vineyards and serves as a prime grape source for the winery.
Sweetwater is not included in the bankruptcy filing, but De Loach said it has recently sold a number of vineyards to raise money for the winery and still has land on the market.
Business loans account for the bulk of the winery's debt, with $16 million owed to Wells Fargo and $2.2 million to GE Capital, but a number of prominent California growers and suppliers have filed suit over lack of payment. The winery expects to emerge from bankruptcy within nine months.
Rumors of De Loach's financial troubles have been rampant in recent months. Early this year, Geyser Peak Winery was reportedly interested in purchasing the winery, but the deal fell through. De Loach is hardly alone in its struggles and many who watch the industry say a number of other wineries are on the edge.
Check our recent ratings of De Loach wines.
Read about other California wineries' recent financial troubles: