No Pause in the Appeal

By Karl Klooster

During its four and a half decades of existence, Oregon’s wine industry has grown from a handful of fledgling vintners to an important component of the state’s agricultural economy and one of its highest-profile product categories.

In 2010, case sales totaled just shy of 2 million, generating $252.2 million in revenue. The industry’s overall impact on the retail, travel, lodging, restaurant and hospitality industries is estimated at $1.4 billion.

Tracing the evolution of this dynamic industry over the past decade is particularly revealing.

In 2001, the state boasted 156 wineries, of which 131 crushed 22,163 tons of grapes harvested from 8,800 acres of vineyards.

By 2006, it claimed 350 wineries, 236 of which crushed 34,400 tons harvested from 12,600 acres. This shows an emerging trend toward more bonded wineries using shared facilities for processing, or having their wine made by others through custom-crush arrangements.

In a cool-climate environment, there will always be fluctuations in total yield from year to year. But the upward progression in acreage has gone unabated. Some 1,543 new acres were planted in 2007 and 1,570 in 2008.

The tonnage logged in 2006 set a record that lasted only a year. The harvest slid 17 percent in 2008, owing to heavy fruit loss in a late season.

Tonnage rebounded to another record in 2009, topping 40,000 for the first time. But a very difficult 2010 crop saw the yield fall 24 percent to just 30,700 tons.

The number of bonded wineries jumped from 387 in 2009 to 418 in 2010. The number of crushing grapes rose from 275 to 315.

In other words, despite the challenges of a still struggling national economy, Oregon’s wine industry has continued to grow. And the commitment to investing in a winery facility appears to be keeping pace.

The flagging national economy took its most severe toll in 2009, when the number of cases sold dipped 5 percent. However, case sales shot up 16 percent in 2010, and total revenue on those sales rose an estimated 25 percent.

That is encouraging, to be sure. However, just 20 wineries are responsible for the majority of the state’s production and sales.

In 2010, the top 20 by size crushed approximately 17,100 tons, or 56 percent of the state’s total tonnage.

That leaves an average of 34 tons per winery for the rest of the state’s 400 wineries, enough to produce about 2,300 cases. Those figures match nicely with estimates by close industry watchers.

From the standpoint of sheer numbers, most Oregon wineries reflect much the same profile they did when the industry began in the late 1960s and early 1970s — limited production with hands-on owner operation and management.

Though the list of wineries producing at higher volume levels, or gearing up to do so, is on the increase, it is apparent that families continue to find vineyard and winery ownership an attractive lifestyle.

Even given the undeniable reality of economic uncertainties, 40 new wineries came on the scene over the past two years, almost all of them founded by individuals and couples

Whether small startups will be able to survive a price-driven marketplace remains to be seen, however. Lower-priced wines appear destined to dominate retail sales for the foreseeable future.

It’s unlikely a newer winery with a business plan based on growing, making and selling primarily premium Pinot Noir could generate enough cash flow to cover its overhead. An infusion of funds from other sources would likely be needed to stay profitable.

Creative ways of generating cash flow could make a difference. For example, promotional efforts to attract wine-interested tourists directly into tasting rooms are on the increase.

And if OLCC statistics are any indication, some wineries may be about to introduce second labels or start alternative marketing programs, if they have not already done so.

As of the end of April, the Oregon Liquor Control Commission listed 665 bonded winery licensees, each identified by its own brand name.

However, the 2010 Oregon Vineyard & Winery Report, conducted by the USDA’s National Agricultural Statistical Service, identified only 418 wineries.

So it’s a good bet that many of those 247 additional bonded licenses were acquired by existing organizations and individuals already involved in the wine industry.

Some 67 of the licenses have been issued since January 2010, an average of about four a month. But only 31 new wineries are evident, indicating further flexibility to put new entities in place and embrace new approaches.

Could we soon be selling some more surprisingly inspired blends? More Pinot Noir rosés or, perhaps, blancs? North/South coalitions? What about an emergence of Riesling? Bulk packaging?

Whatever ultimately takes place,Oregon quality cannot be denied for a broad range of varietals. So, in the long run, the wine industry will not only survive but thrive.

That’s why, regardless of the current risks, there’s been no pause in the appeal.