COMMENTARY

More Takes on Economic Times

By Karl Klooster

Vineyard and winery owners around the state seem to agree that by the time current financial conditions begin to turn around nationally, the face of Oregon Wine Country will have assumed a different look.

Some producers are better positioned to ride out the downturn than others. But everyone, regardless of how well established, solidly financed or competitively priced, will feel the negative impact at least to some degree.

The scope and scale obviously depends on how long the recession lasts and the extent of its effect on the economy as a whole.

You don’t need to be an economist to conclude that if the vast majority of consumers only have enough income for necessities, all categories of discretionary goods and services are certain to suffer.

Ironically, a bright spot for the wine industry lies in the fact that people tend to continue their spending on certain, immediately gratifying self-indulgences during difficult times.

Relatively low-cost entertainment, like going to the movies, appears to be holding up well. Box office receipts are as good as ever.

Wine, as a lifestyle commodity, also remains on a positive track. But buying and consumption patterns have changed. Retail store wine sales remain solid whereas restaurant wine sales, indeed, fine dining in general, has seen a dramatic decline.

Equally significant is the average price point to quality consideration. Consumers are making a more concerted effort to seek out value for their money than ever before.

In other words, their palates have become educated. They appreciate good wine, and they want to continue enjoying it, but they balk at having to pay a premium to get it.

Retail staffers who know their stuff have an opportunity to build loyal followings if they can consistently come up with top recommendations under $20 per bottle.

This does not bode well for smaller Oregon producers who have come on the scene in more recent years and whose business model is dependent on a flagship Pinot Noir retailing at $35, or more, per bottle.

Even a savvy veteran like Kevin Chambers, who is both a major industry supplier and a winery owner, has had to step back and reevaluate how best to deal with the current situation.

As CEO and co-founder of the now-employee-owned Oregon Vineyard Supply Co., he is able to view things from the perspective of capital equipment expenditures. As co-owner of Resonance Vineyard, he deals with wine marketplace conditions.

“This is the biggest down cycle I’ve ever seen,“ Chambers said. “The fourth quarter was bad. It took a lot of people by surprise.

“On the equipment side, it’s been soft because most people are conserving money, but the parts department is doing fine and service is above normal.”

Resonance, a high-end estate brand, whose quality has already earned it outstanding marks among industry watchers and aficionados alike, is nonetheless subject to the marketplace dilemma.

“We were beginning to ramp it up last fall,” Chambers said. “Going into 17 states, September started out well. Then everything suddenly dropped off. We had to slash prices by 25 percent.”

“That’s the reality right now,” he admitted. “If you need cash flow just to break even, it’s better to sell something than not. A lot of people will be bulking out some outstanding wine.”

He further predicted that others will bottle under secondary labels so as not to devalue their primary brand name. That may mean some tremendous bargains bearing Oregon appellations.

Chambers concluded his comments by saying there’s bound to be some pain. But he feels that the industry will emerge better than ever, particularly from a quality standpoint.

“I remain optimistic. It’s going to be tough. But we’ll survive.”

Another industry mainstay whose outlook is even more optimistic years ago adopted an approach that is now serving to insulate his winery from the harshest blows of the current downturn.

Rene Eichmann, whose mother, Lela, and stepfather Bob Kerivan, founded Bridgview Vineyards 30 years ago, runs a tight ship that has kept Southern Oregon’s largest winery on an even keel all these years.

“Our operating philosophy has always been to cut overhead to a minimum and maintain strict cost controls,” Eichmann said. “We’ve built a value brand and a strong, national distributor network over the years.

“As for our pricing, I’d say there’s no Oregon winery that’s better positioned. We’re in the mid-level range that allows us to compete with California as well as imports from Australia and Chile.”

Eichmann hit yet another very positive note in pointing out that the 2008 vintage is outstanding in every region, and lower cost for such top quality could work to Oregon’s benefit in the long run.

Another take on the times came from Joe Dobbes, whose Dundee winery produces a wide spectrum of wines ranging from ultra-premium Dobbes Family Estate to value-priced Wine by Joe, to custom-crush for a couple dozen small estate growers.

“We were up 10 percent in 2008 over 2007,” Dobbes said. “Most of the growth was in the $12- to $20-price range, and there’s no doubt, if you only have $25-plus wine, you’re going to have a hard time.

“But I see opportunities right now to buy 2007 bulk wine and sell under second labels. We’ve also got acreage coming into production ourselves, so we’ll have control over cost and supply down the road.

“When times get tough, people get nimble, more disciplined internally. Not to sound trite, but when you’re faced with this sort of thing, you really do have to be lean and mean.” 

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