Imports sour California vintners' profits
Published: Wednesday, January 22, 2003 at 6:01 a.m.
Last Modified: Tuesday, January 21, 2003 at 10:47 p.m.
Emeryville, Calif. -- It's enough to make a sommelier shiver. The latest buzz in California wine circles is over two-buck Chuck, the little wine priced at $1.99 that could herald a new era for the once high-flying industry.
The bargain-basement bottle has spawned some far-fetched rumors - one is that it's the result of a nasty divorce settlement. The truth may be more bitter to swallow: A global grape glut and tough competition from imports are driving down prices.
"It's survival of the fittest right now," said wine analyst Jon Fredrikson.
Reports that the industry is tumbling into a dot-com style freefall appear to be a bit premature; so far, data indicate a slight increase in sales this year, say Fredrikson and other industry observers.
Still, it's clear that the go-go '90s are over. Some Central Valley grape growers have ripped out vines and at least one winery has filed for bankruptcy protection. At least 50 and possibly as many as 200 of the state's estimated 1,100 wineries will change ownership or go out of business in the next few years, analysts predict.
"There's no doubt that times are difficult," said Jay Schuppert, president of Cuvaison Winery in the Napa Valley.
Cuvaison isn't one of the wineries in trouble; Schuppert said it had some growth last year and doesn't plan to lower prices on their wines, which include a chardonnay for about $22.
In fact, upscale wines are still selling, said Fredrikson. It's the under-$7 market that's been hardest hit.
On the plus side, what's souring California vintner's profits is creating some sweet deals for consumers.
"The customer's totally in the driver's seat right now," said Chris Condit, wine buyer for the Trader Joe's chain of grocery stores.
Trader Joe's is the exclusive distributor of Charles Shaw Wine, nicknamed two-buck Chuck due to its price.
The wine is the subject of some wild Internet rumors - all false - including one tale that it's being dumped by an airline that couldn't use corkscrews after the Sept. 11 terrorist attacks.
Charles Shaw is made by the Bronco Wine Co. headquartered in Central California. Although the labels say bottled in Northern California, the wine itself is a blend.
Bronco isn't talking about the specifics of Charles Shaw wine, but there's speculation it comes from cheap Central Valley grapes, or surplus inventory dumped by hard-pressed producers.
To customers, it's just an exceptionally good value.
"It's awesome," Eric Moreno said as he recently hoisted a case of Charles Shaw into his shopping cart at the Emeryville Trader Joe's. Moreno was a first-time buyer, there on the recommendation of friends.
The wine is shipped in daily and sometimes sells out before the afternoon. At Christmas, "people were lined up waiting for the store to open," said store clerk Marco Aguirre. "We sold out of all the merlot in about 34 minutes one day."
Two-buck Chuck is finding a home with people who don't normally drink a lot of wine, such as Lori O'Brien, of Sacramento, who was pleasantly surprised by the merlot. "It was decent - and red wine's practically medicinal now!"
As with all wines, opinions vary by palate. O'Brien was unimpressed by the Charles Shaw chardonnay, but the staff of San Francisco-based Wines & Vines magazine tried a bottle and found it better than a $67 bottle of an unidentified premium vintage.
Two-buck Chuck benefits from industry innovations such as stainless steel tanks and French oak barrels, said Harvey Posert, a publicist for Bronco. "There's a lot of bulk wine out there now and it's good. When I started, you could get a bad bottle of wine at any price and now it's hard to find a bad bottle of wine."
Also hard: turning wine into a profit. In the 1990s, winemaking was a pretty good bet. A grape shortage dovetailed with growing demand as baby boomers developed more discriminating palates and studies touted the health benefits of drinking wine.
Soon there were grape expectations all over California as towns restyled themselves as wine country getaways and everyone from almond farmers to elementary schools put in vines.
"Every hillside in the North Coast was suddenly being planted. Where cattle roamed before, you've got a drip hose and a vine," said Nat DiBuduo, president of Allied Grapegrowers.
Wine grape acreage went from 372,000 in 1988 to 490,000 in 2001, according to the Wine Institute. But as supply went up, the economy went down and competitively priced imports came in.
DiBuduo estimates about 30,000 acres of vines will be pulled out in Central California, many by farmers who had hoped to retire on the proceeds.
Analysts expect the industry to recover, but likely with some changes.
"The wine industry is maturing and as it becomes more competitive those that possess more business savvy will be the wineries that thrive," said Michelle Rowell, senior market consultant for Motto Kryla Fisher, a wine consulting business in St. Helena. "It's going beyond just having the quality in the bottle. It's also about the business acumen of the winery owner."
Like others in the business, Rowell predicts more wineries closing or being acquired by larger companies, "but I don't necessarily see that as a bad thing for consumers. Those wineries are not going to lose their flair or their touch simply because they're owned by a larger concern."
One winery already in trouble is Sonoma Creek Winery, which filed for bankruptcy reorganization late last year.
But Rowell doesn't expect a widescale price collapse. "I think consumers are being led down a wrong path if they're being told, 'Hang on because you're going to get that $75 wine for $10.' "
Amy Kelly reaches for bottles of Charles Shaw wine, being sold at $1.99 a bottle at Trader Joes, Dec. 27, 2002, in Sacramento, Calif. The latest buzz in California wine circles is over two-buck Chuck, the little wine priced at $1.99 that could herald a new era for the once high-flying industry. The bargain-basement wine has spawned some far-fetched rumors _ one is that it's the result of a nasty divorce settlement_ but the truth is sobering for the wine industry: a global grape glut and tough competition from imports is driving down prices.
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