AOL's Walletpop talks to Charlie Barra
April 10, 2010
Hard times (and moths) hit Napa Valley, pressuring vintners to lower wine prices
To a vintner, the letter's opening paragraph could not have been more chilling: "You have received this letter because we determined that your business operation will be impacted by the State Quarantine for European Grapevine Moth." The insect that sucks grapes dry had made its way to California's Napa and Sonoma valleys.
For some wine grape growers who received the notice in mid-March, that "business operation" already was being buffeted by forces far larger than the diminutive moth: over-leveraged properties, an overstock of premium wines and ever-increasing competition from around the globe.
In an unfortunate twist, the hardships now facing California's vintners actually are good news for wine drinkers. A surplus of high-end wines and growing competition mean plummeting prices on some of the country's most expensive wines (if you look in the right places).
"The prices in Napa have been inflated," says Keith Wallace, founder of The Wine School of Philadelphia. "There are huge, huge warehouses full and nobody is buying $200 bottles of Napa Cabernet in any large percentages."
Bottles not yet labeled -- known as "shiners" -- are being relabeled as less-expensive wines, he says, while some already-labeled wines are being offered at a discount through hush-hush private sales. "They want to keep the illusion of prestige," Wallace says.
For Sale Signs and Surplus Plague the Valley
Napa Valley -- ablaze with Day-Glo yellow mustard flowers this time of year -- seems to be growing another crop as well: "For Sale" signs. For every one those signs, many more wineries are teetering on the brink of insolvency.
"There's a lot more that don't have a sign out front, but if you offered the right number, it could be yours," said Gordon L. Holmes, a former Wall Street publisher who started Lookout Ridge Winery on a hilltop straddling the Sonoma and Napa valleys in 1988.
The recession is not the only culprit. Numerous wineries were scooped up by Silicon Valley investors with more tech money than wine production know-how. Some succeeded; others racked up large mortgages and other debts that only inflated wine prices could pay.
The Silicon Valley Bank, which opened a wine division more than a decade ago, advises wineries to adjust to a "new normal" in its most recent State of the Wine Industry report. "For that segment of Baby Boomers who have seen their net worth drastically reduced and who have been the prime target of wine marketing for nearly 20 years, a $50 bottle of wine is now permanently out of the question for a normal purchase," the bank's wine division founder Rob McMillan, said in a press release announcing that 2010 wine outlook.
But getting rid of all of that $50-plus wine while at the same time struggling with mounting debts, may make it nearly impossible for some vineyards to stay afloat while they adjust to that "new normal."
"It's not as if you can just go out in the backyard and say, 'Hey, vineyard, can you stop growing and producing grapes until we get rid of this inventory?'" said David Keuhner, who three years ago founded a high-end wine consultancy called Destination Cellars in Dulles, Va.
The Mystery of the Moth
Just when it seemed things couldn't be worse for Napa's wine makers, the European Grapevine Moth arrived. Photos posted on the county agricultural commissioner's Web site are stomach turning. Weevil-like larvae of the moths -- Lobesia botrana -- pierce the valuable fruit, turning it into valueless raisins.
How the moths got here and how best to get rid of them are subject to plenty of debate. No moths have been found in U.S. ports and suspicions point toward vintners smuggling in vine cuttings for cloning from Europe, one of the places the insects are common.
Chemical spraying can help, if timed just right, but it also violates the rules for organic vineyards -- a growing segment of the industry. Because spraying can cost as much as $10,000 an acre some worry financially-strapped wineries will take the risk of not treating their vineyards, potentially enabling the moth to spread, ruining the wine business in Napa and surrounding communities. Most, however, suggest a less dire outcome.
Winery owners who are reluctant to spray are looking to Europe and other countries for alternatives, such as the introduction of a predatory moth. "You've got to keep the moth in perspective," says San Francisco wine writer W. Blake Gray. "If you're that farmer in Oakville that lost your crop, that's devastating. But...the moth is from Southern Italy (and) the wineries there deal with it."
Nevertheless, he says, the moth is certainly "insult upon injury" for distressed Napa wineries.
Finding the "Sweet Spot" for Wine Prices
Gray believes a downward trend in fine wine prices eventually would have come with or without a recession -- or the moths. "In some ways, it's the consumer standing up and saying, 'What am I getting for my $150?'" Gray says. "Wine pricing at that level is like any other luxury brand pricing; it doesn't really cost any more to produce a Gucci bag than any other kind of nice bag."
The "sweet spot" for wines right now, Blake said, is closer to $15 to $20 "but that's not a sweet spot for Napa" -- at least not yet. Instead, hot competition from imports coming in from Argentina, Chile, Australia, Spain and elsewhere fill that end of the market. At the high end, the wine cognoscenti currently are abuzz about the high quality of the 2009 Bordeaux -- perhaps the best in half a century, according to Keuhner.
For California's wines to compete, vineyards will not only have to lower prices, but market more aggressively, says David Johndrow, who owns Johndrow Vineyards in the Napa Valley town of St. Helena. No longer can they rely on reputation alone. Johndrow remembers being frustrated when a favorite $35 wine suddenly spiked to $150 or when a good review created an overnight "cult" wine only obtainable via exclusive waiting lists.
"We have to put the consumer back at the center," Johndrow said, not cop an attitude that "I have the wine, come kiss my ring."
At the far northern edge of California's wine country, in Mendocino County, Charlie Barra has just wrapped up his 64th grape harvest. Wines from his Girasole Vineyards retail for $20 or less, a price point that has Barra referring to them as "consumer wines."
In his own feast-and-famine experience, Barra sees a logical solution for struggling Napa wineries: be nimble and creative. He used to sell more of his grapes to big-name Napa vintners, including Robert Mondavi. In 1973, he commanded $750 a ton for his pinot and cabernet grapes. But the next year, a grape glut dropped the going rate to $170 a ton. Barra crushed the grapes and sold them as juice instead, offsetting some of his losses. Then, gradually, he began to make more wine himself.
"For the long term, I think (Napa wineries) will be in the wine business," he says, "but they're going to have to sharpen their pencils just like the rest of us have had to."
For some wine grape growers who received the notice in mid-March, that "business operation" already was being buffeted by forces far larger than the diminutive moth: over-leveraged properties, an overstock of premium wines and ever-increasing competition from around the globe.
In an unfortunate twist, the hardships now facing California's vintners actually are good news for wine drinkers. A surplus of high-end wines and growing competition mean plummeting prices on some of the country's most expensive wines (if you look in the right places).
"The prices in Napa have been inflated," says Keith Wallace, founder of The Wine School of Philadelphia. "There are huge, huge warehouses full and nobody is buying $200 bottles of Napa Cabernet in any large percentages."
Bottles not yet labeled -- known as "shiners" -- are being relabeled as less-expensive wines, he says, while some already-labeled wines are being offered at a discount through hush-hush private sales. "They want to keep the illusion of prestige," Wallace says.
For Sale Signs and Surplus Plague the Valley
Napa Valley -- ablaze with Day-Glo yellow mustard flowers this time of year -- seems to be growing another crop as well: "For Sale" signs. For every one those signs, many more wineries are teetering on the brink of insolvency.
"There's a lot more that don't have a sign out front, but if you offered the right number, it could be yours," said Gordon L. Holmes, a former Wall Street publisher who started Lookout Ridge Winery on a hilltop straddling the Sonoma and Napa valleys in 1988.
The recession is not the only culprit. Numerous wineries were scooped up by Silicon Valley investors with more tech money than wine production know-how. Some succeeded; others racked up large mortgages and other debts that only inflated wine prices could pay.
The Silicon Valley Bank, which opened a wine division more than a decade ago, advises wineries to adjust to a "new normal" in its most recent State of the Wine Industry report. "For that segment of Baby Boomers who have seen their net worth drastically reduced and who have been the prime target of wine marketing for nearly 20 years, a $50 bottle of wine is now permanently out of the question for a normal purchase," the bank's wine division founder Rob McMillan, said in a press release announcing that 2010 wine outlook.
But getting rid of all of that $50-plus wine while at the same time struggling with mounting debts, may make it nearly impossible for some vineyards to stay afloat while they adjust to that "new normal."
"It's not as if you can just go out in the backyard and say, 'Hey, vineyard, can you stop growing and producing grapes until we get rid of this inventory?'" said David Keuhner, who three years ago founded a high-end wine consultancy called Destination Cellars in Dulles, Va.
The Mystery of the Moth
Just when it seemed things couldn't be worse for Napa's wine makers, the European Grapevine Moth arrived. Photos posted on the county agricultural commissioner's Web site are stomach turning. Weevil-like larvae of the moths -- Lobesia botrana -- pierce the valuable fruit, turning it into valueless raisins.
How the moths got here and how best to get rid of them are subject to plenty of debate. No moths have been found in U.S. ports and suspicions point toward vintners smuggling in vine cuttings for cloning from Europe, one of the places the insects are common.
Chemical spraying can help, if timed just right, but it also violates the rules for organic vineyards -- a growing segment of the industry. Because spraying can cost as much as $10,000 an acre some worry financially-strapped wineries will take the risk of not treating their vineyards, potentially enabling the moth to spread, ruining the wine business in Napa and surrounding communities. Most, however, suggest a less dire outcome.
Winery owners who are reluctant to spray are looking to Europe and other countries for alternatives, such as the introduction of a predatory moth. "You've got to keep the moth in perspective," says San Francisco wine writer W. Blake Gray. "If you're that farmer in Oakville that lost your crop, that's devastating. But...the moth is from Southern Italy (and) the wineries there deal with it."
Nevertheless, he says, the moth is certainly "insult upon injury" for distressed Napa wineries.
Finding the "Sweet Spot" for Wine Prices
Gray believes a downward trend in fine wine prices eventually would have come with or without a recession -- or the moths. "In some ways, it's the consumer standing up and saying, 'What am I getting for my $150?'" Gray says. "Wine pricing at that level is like any other luxury brand pricing; it doesn't really cost any more to produce a Gucci bag than any other kind of nice bag."
The "sweet spot" for wines right now, Blake said, is closer to $15 to $20 "but that's not a sweet spot for Napa" -- at least not yet. Instead, hot competition from imports coming in from Argentina, Chile, Australia, Spain and elsewhere fill that end of the market. At the high end, the wine cognoscenti currently are abuzz about the high quality of the 2009 Bordeaux -- perhaps the best in half a century, according to Keuhner.
For California's wines to compete, vineyards will not only have to lower prices, but market more aggressively, says David Johndrow, who owns Johndrow Vineyards in the Napa Valley town of St. Helena. No longer can they rely on reputation alone. Johndrow remembers being frustrated when a favorite $35 wine suddenly spiked to $150 or when a good review created an overnight "cult" wine only obtainable via exclusive waiting lists.
"We have to put the consumer back at the center," Johndrow said, not cop an attitude that "I have the wine, come kiss my ring."
At the far northern edge of California's wine country, in Mendocino County, Charlie Barra has just wrapped up his 64th grape harvest. Wines from his Girasole Vineyards retail for $20 or less, a price point that has Barra referring to them as "consumer wines."
In his own feast-and-famine experience, Barra sees a logical solution for struggling Napa wineries: be nimble and creative. He used to sell more of his grapes to big-name Napa vintners, including Robert Mondavi. In 1973, he commanded $750 a ton for his pinot and cabernet grapes. But the next year, a grape glut dropped the going rate to $170 a ton. Barra crushed the grapes and sold them as juice instead, offsetting some of his losses. Then, gradually, he began to make more wine himself.
"For the long term, I think (Napa wineries) will be in the wine business," he says, "but they're going to have to sharpen their pencils just like the rest of us have had to."