Upbeat in Down Times

By Karl Klooster

Predicting the length and severity of the current economic downturn would seem to have about as much chance for accuracy as forecasting the weather a year in advance. There are just too many variables that could potentially alter the outcome.

But surveying market conditions in a given industry based both on past performance and current activity can help identify trend indicators. That’s what this writer sought to achieve by speaking recently with several wineries around Oregon.

The following comments and conclusions lay no claim to being absolute or even broadly definitive in regard to the longterm economic outlook for the state’s wine industry. But they do paint a more positive picture than that seen in numerous other industries.

A sampling of large, medium and small producers provides a cross-section of varying circumstances. Wineries with strong followings and/or well-established distribution networks will likely fare better than those newer to the game.

Some so-called “boutique” wineries that produce fewer than 2,000 cases annually may have large enough loyal customer bases to sell most of their wine direct. Others might boast equivalent quality but could suffer from lack of name identity and reputation.

Price will be another crucial criterion. All but the most coveted top-end producers are already confronting a considerably tougher sell-in for their $40-plus Pinot Noirs despite first-tier AVA and individual vineyard credentials.

It’s apparent that, whereas regular wine drinkers are not consuming less, their pocketbooks are dictating their purchases. With a huge selection among lower to mid-priced wines, including more imports than ever before, competition is heating up.

The demarcation line is drawn when lower price buys lower quality. More practiced palates know the difference and will only compromise so far in their pursuit of value for money.

At the state’s third largest winery, Willamette Valley Vineyards, entrepreneurial CEO Jim Bernau’s perspective is nationwide. He noted that the recessionary effects are not being evenly felt around the country.

In fact, he said that WVV has experienced increased sales in certain markets.

“The big urban metros, the traditional centers of sophisticated wine buying, have been hardest hit,” he said. “In mid-America, the so-called ‘red’ states, sales are up.

“On balance, our net depletions were flat to slightly higher than 2007. Our answer is to be more aggressive, make more placements. There’s still plenty of room to increase our points of distribution. We’ve barely scratched the surface.”

Bernau feels that Oregon fills a unique market niche. But he emphasized that the greatest opportunity is in our value-priced wines. Movement at the higher price points has stalled.

He also warned wineries to pay close attention to their credit lines and carefully watch receivables and aging. “Some distributors are going to be in trouble,” he said. “These tough times will tell who has what it takes and who doesn’t.”

Still, he’s very bullish about the long-term big picture and plans to plant more vines this year.

Second-generation owner/manager Adam Campbell of Elk Cove Vineyards exudes even greater here-and-now optimism. “Our sales are strong; on projection,” he said. “We’ve been around a long time. We’re in 47 states with well-developed networks.

“We’ve stepped up our sales activities. Our balanced portfolio gives us an advantage and our wines aren’t at expensive price points. If on-premise (restaurants) starts to slip, I’m confident we can make it up in off-premise (retailers).

“We’re still planting new sites. We’ve got 30 acres going in this year. We want to be well-positioned when things turn around.”

Another longtime north Willamette icon, Sokol Blosser, is also now under second-generation management. Alex Sokol Blosser is more cautious, saying that although pockets are still doing well, he sees a general weakening.

“There is going to be shake out over the next several months,” he said. ”Restaurants, retailers, distributors, even wineries. Some may not make it, others will come away stronger. I know that’s not optimistic, but it’s not draconian, either.

“The fact is I can’t imagine anyone who won’t be touched by this. Wineries just starting out will have a particularly tough time. My folks made it through the recession of the ’80s by sticking to their guns and working to strengthen their relationships. That’s exactly what I’m doing. We can’t take anything for granted. It’s a very competitive marketplace, but we’re in a good position to succeed.”

At least one newcomer hasn’t seen a fall-off. Quite the opposite. At little Emerson Vineyards in Monmouth, business doubled between 2007 and 2008. But that’s starting from a small base since their first releases were in 2006.

“Thanksgiving was gangbusters for us,” Co-owner Tom Johns said. “We’ve been called by three new distributors since the first of the year. Our Chicago distributor just brought in a new restaurant account last week and we’re shipping two pallets.”

Johns plans to plant another acre and a half of Viognier this year and ultimately be an all-estate producer. He also wants to keep prices down as much as possible. “People everywhere are ordering less expensive,” he observed.

Southern Oregon wineries may not yet enjoy the recognition of their more northern counterparts. Still the region’s outlook remains upbeat as expressed by RoxyAnn Managing Director Michael Donovan.

“I just attended an association meeting,” he said. “Clearly no one is immune to the effects of the economy, but all of us seem to be doing better than expected.

“For us, January has been very strong, particularly in terms of tasting room sales. We’re counting on continued support from repeat customers to make the difference. Local people and businesses supporting one another.”

“There’s no mystique,” he said. “Restaurants are suffering. And consumers are watching their dollars, trading down in price. Fortunately for us, our wines have been very good values all along.”

The Medford-based producer ultimately plans to increase annual production to 30,000 cases. Given current conditions, however, expansion is on hold for now. They won’t be putting in any new plantings in 2009.

“We’re going to let things shake out,” Donovan said. “Southern Oregon wines are on the verge of emerging from obscurity, and we’ll be ready to move when the time comes. Meantime, I say buy artisan Oregon everything. We can get through this together.” ◊

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